Zimbabwe: Cotton Industry Faces Uncertain Future

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Cotton farming has previously been one of Zimbabwe’s success stories. Its success has been underpinned by private cotton ginneries and over 200 000 smallholder farmers in rural areas who have been generating foreign currency revenue of up to US$150 million per year and transforming livelihoods in their communities.

Since economic liberalisation in 1994, the cotton growers have seen both periods of dramatic growth and decline in production.

Following economic liberalisation, the sector was run by a duopoly of Cotton Company of Zimbabwe (Cottco), the ex-parastatal, and Cargill. The industry has made a smooth transition from a production system based on large-scale commercial farmers to one almost entirely reliant on smallholder production.

Approximately 200 000 farmers grow cotton in the arid and semi-arid regions of Zimbabwe. The crop is now popularly known as the “white gold” because of the manner it has sustained livelihoods in rural communities while generating foreign currency for the economy.

While several sub-sectors in the agricultural industry have had drawbacks as a result of the controversial land reforms, the cotton industry’s heavy reliance on indigenous small scale farmers has insulated it from the changes in land ownership.

Growth in smallholder production during the 1990s was essentially driven by the Cottco credit scheme and the active promotion of the crop in smallholder areas, resulting in contract cotton growing arrangements contributing about 98 percent of the seed cotton production.

Contract growing was introduced after farmers had failed to access finance from the banks.

With the coming in of new players in the industry, buying of cotton lacked coordination at the beginning: It was conducted at random without any coordinated approach, resulting in some contracting companies going out of business after losing their market share to side-marketers.

The promulgation of Statutory Instrument 142 of 2009 (SI 142/2009) provided a historical turning point for the industry. This new dispensation saw a significant reduction in the number of non-financing and errant contractors from a record high of 25 contractors in 2008, down to 14 currently registered contractors.

Production and buying arrangements are supervised by the Cotton Marketing Technical Committee, established by the Agricultural Marketing Authority through a provision of SI 142/2009.

To determine producer prices, the industry uses international lint prices as a benchmark.

The agreed pricing formula takes into account three variables namely the growers’ cost of production; the ginners’ cost of production and the international lint price at the time the lint would have been sold. The formula also offers the sharing of sales proceeds from lint and ginned seed.

Unfortunately, because of the small size of the crop from Zimbabwe, local production cannot influence world market prices for lint on the international market, which reduces the domestic players to price takers.

The country produces an average of 100 000 tonnes of lint per year out of global production of 28 million tonnes.

The domestic industry consumes less than three percent of the cotton produced locally.

The cotton business has become an important export earner for Zimbabwe even though it is faced with increasing global competition, including the effects of controversial subsidies for cotton farmers in the United States.

Of late, the business has also been rocked by the bickering over cotton prices in most African cotton producing nations, including Zimbabwe.

Consequently, players in the industry need to understand that the world cotton market is a volatile one hence knowledge of its volatility is vital to those engaged in buying or selling raw cotton.

Currently, there are no indications that lint prices would get back to the levels seen last year — a peak price of US$2, 45 per pound.

Recently the Cotlook A’ Index quoted a daily price of US$0,83 per pound.

Given the depre-ssed prices, survival of the local producer would be dependent on improving yields and quality as a way of enhancing viability.

Countries such as India have become more competitive through the use of biotechnology. In addition to this, they also provide minimum support prices to their farmers.

On their part, ginners in Zimbabwe are encouraging good farming practices and improved yields through the establishment of de-monstration plots throughout the cotton growing areas.

For the industry to remain viable; there is also need to maintain discipline and fair business practices in the production and marketing of the cotton crop while consistently enforcing the enabling legislation.

In a bid to resolve the price wrangles between merchants and farmers, government, through the Minister of Agricul-ture, Mechanisation and Irrigation Deve-lopment, Joseph Made, announced prices for seed cotton ranging from US$0,77/kg to US-$0,84/kg.

While cotton gro-wers welcomed the price, ginners who had already started paying farmers bet-ween US$0,30 to US$0,35/kg were not happy.

The prices, while good for the farmers, made the cotton contracting business model unviable.

Agricultural economist, Dale Doré, said government should instead introduce subsidies for farmers rather than populist measures.

“Unfortunately the government cannot think outside its populist measures, which they substitute for economic policy. It both wants to be defender of the poor by handing out subsidies during bad times and it wants ‘the people’ to benefit from the market during good times.

“Many governments try to put a distance between good economic policy and populist politicians — such as having independent central banks. Not Zimbabwe. The cotton saga is a case in point,” Doré said.

Instead of giving a chance to the setting mechanism of SI 142/2009, the government chose instead, to declare cotton a controlled product.

“Rather than working by set rules, which are based on the world price of cotton, decisions are happily back in the populist politicians camp, where they can arbitrarily set prices. Sure enough, in a grand gesture, the Cabinet set the producer price of cotton at US$0,77/kg, more than double the US$0,30 that contractors were offering.

“But since the government cannot afford to pay the subsidy, they came up with an innovative solution: make the ginners pay!

“And in the government’s typical arm-twisting fashion, the Agriculture Minister threa-tened to withdraw ginners’ licences if they refused to cough up. If, as the minister said, farmers should not sell their produce at a loss; then who will take the hit?” added Dore.

In view of government’s intervention in the pricing of cotton, the future of the cotton industry in no longer guaranteed. It is no longer certain whether contractors will fina-nce the crop next season.

Unfortunately, this is at a time government is unable to finance any agricultural activity in the country due to a tight liquidity squeeze.

In Zambia, ginners are currently buying cotton at US$0,31/kg. In Malawi, prices started at US$0,26/kg and have now reached US$0,37/kg.

Source: http://allafrica.com/stories/201209131132.html

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