HomeBusiness DigestDeal set to increase raw milk production

Deal set to increase raw milk production

MTHANDAZO NYONI
ZIMBABWE’S biggest dairy products manufacturer, Dairibord will only feel the impact of a grand cattle deal signed with platinum miner, Zimplats and Palmine after 12 months, analysts at IH Securities said this week, predicting raw milk intake to fall during the full year to December 31, 2021.

Last month, Dairibord partnered with the two organisations to increase milk production to 150 million litres per year, from 79,9 million litres currently.

The deal is worth US$15 million.

The three firms said 320 ha will be dedicated to irrigated pasture to guarantee the availability of feedstock.

IH said the transaction was important as it will help stabilise stock feed prices.

“This backward integration can potentially alleviate the issue of stock feed prices. However, the company is unlikely to feel the impact of this project in the next 12 months. Raw milk intake is likely to marginally fall for FY21 (full year 2021),” IH Securities said.

Dairibord said raw milk intake during the half year ended June 30, 2021 was 1% above prior year, while national milk production was 2% below the same period in 2020. Despite the good rains, stock feed prices continued to rise during the first half of the year.

“This again negatively impacted milk supply growth. The group remains committed to supporting local farmers to grow milk supply through actively promoting lower cost operating models in a bid to bring prices back to regional parity in the medium term,” Dairibord chairman Josphat Sachikonye said.

Analysts said the long-term benefits of increased raw milk production will be to reduce imports.

Dairibord achieved a record first half sales volume performance in five years after overall volumes jumped 54,5% ahead of the same period last year.

With earnings before interest, taxes, depreciation and amortisation improving, earnings defence will mainly depend on volume growth, IH said.

It said the demand side of the equation was strong.

“Export markets present an opportunity for the demand to continue growing once Covid-19 restrictions are eased. In the short term, however, volumes will be hamstrung by low raw milk intake and Covid-19 induced supply chain disruptions,” the research firm said.

“A fourth Covid-19 wave has begun in the global space; we expect disruptions in the supply chain and market access to continue in the short term. We forecast double digit recovery in volumes across the product offering for the full year to December 2021 as the environment returns to normalcy,” it said.

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