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Tuesday, March 28, 2023

FX Crisis Leaves Feeds Firms, Chicken and Fish Farmers Struggling 

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The acute foreign exchange crises has made importation of certain raw materials difficult for feeds manufacturers, which is leaving them, and their customers such as chicken and fish farmers struggling.

Mr Charles Ejike, a cat fish farmer in the Badagry suburb of Lagos who spoke to MoneyCentral said the cost of feeds has doubled in the past six months, making it difficult to run his farm profitably.

“I cannot grow my fish beyond a certain size because that would consume a lot of resources in terms of feeds. The bigger the fishes the higher the price it can sell them in the marketplace,” Ejike said.

Feeds manufacturing firms like Livestock feeds are also finding it increasingly difficult to pass on higher costs to their customers from more expensive imported raw materials.

It is not surprising all the increased cost that could not be recovered through price increases led to shrunken margins for Livestock Feeds, and that will significantly undermine dividend payment to shareholders.

Livestock Feeds is highly geared, which means it uses more debt than equity to finance its balance sheet as debt to equity ratio is 363 percent or 3.63 in March 2021 from 298 percent or 2.98 percent the previous year, according to MoneyCentral calculations.

Also, this means that for every Naira in equity, the firm has N3.63 in leverage. A ratio of 1 would imply that creditors and investors are on equal footing in the company’s assets.

A high debt to equity ratio is not preferable for a firm like Livestock Feeds that is witnessing declining cash flow generation.

The company is beleaguered by higher borrowing cost that indicates operating income is gradually not able to cover interest expense. Interest coverage ratio stood at 1.12 as at March 2022 from 4.40 the previous year.

The interest coverage ratio is used to measure how well a firm can pay the interest due on outstanding debt.

The lower the ratio, the more the company is burdened by debt expenses and the less capital it has to use in other ways. When a company’s interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable.

Livestock Feeds net income fell to N26.65 million as at March 2022, the lowest bottom line in 3 years.

Net margin reduces to 0.73 percent in the period under review from 5.66 percent as at March 2021.

The feed mill industry has been grappling with a severe shortage of raw materials for maize and soya bean meals (with prices skyrocketing due to  foreign exchange crisis) that is responsible for high operating costs.

Of course, poultry owners bear the brunt of a challenging environment as birds are starving and many operators have closed shop.

The year 2022 could even be tougher on the back of the Russia and Ukraine war, both are the largest producers of grains. Also, the insecurity in the Nigeria corn belt has significantly undermined poultry business.

“Currently, major areas of the corn belt are experiencing intense conflict conditions, which are major threats to agriculture,” the USDA said. “Currently, farming communities are under intense fear. Many farmers are not going to farms because of fear of kidnapping for ransom, said analysts at  Global Agricultural Information Network (GAIN) at the US Department of Agriculture (USDA).

Harvested area is forecast at 6 million hectares, an 8% drop from the 2020-21 marketing year. Yield per hectare is estimated to increase slightly to 1.8 tons per hectare from 1.77 tons per hectare, the USDA said.

Consumption is projected at 12.1 million tons, a 2.5% increase from the USDA’s estimate of 11.8 million tons in 2020-21.

Another year of low wheat production is expected, the USDA said, with an estimated total of 55,000 tons. Area harvested is expected to decrease by 5,000 hectares to 55,000 hectares.

Nigeria is struggling to meet rising wheat demand, with consumption forecast at 4.9 million tons, 10% higher than a year ago, the USDA said.

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