Cotton needs proper pricing mechanism

Source: Cotton needs proper pricing mechanism | Sunday Mail (Business)

Business Reporter

After slumping to a two-decade low of 28 000 tonnes in 2015, cotton production has since rebounded due to Government intervention through the Presidential Input Support Scheme, which provides free inputs.

Poor prices had triggered loss of appetite for cotton farming.

Some producers found themselves stuck with huge debts as the money they would have earned from selling their crop to contractors was not enough to repay the loans, thus relegating them to mere labourers.

Government subsequently came up with the Presidential Cotton Inputs Scheme meant to support farmers with free inputs such as seed, fertilisers and chemicals. The scheme is different from those previously run by private merchants when farmers were given inputs on a commercial basis, meaning they needed to repay after selling their crop.

The programme, now running for the sixth consecutive year, regenerated massive interest among farmers who had abandoned cotton for other crops citing poor prices and lack of agronomy support from contractors.

The State-assisted programme brought new hope for farmers.

Resultantly, output rebounded, reaching 144 000 tonnes in the 2017/2018 season. It, however, declined the following two seasons due to back-to-back droughts that swept across many parts of the region. This year, about 140 000 tonnes are expected, but this is significantly lower than peak output of 352 000 tonnes in the 2011/2012 season.

Growing discontent among farmers over payments delays is, however, becoming a major threat to the industry and risks eroding confidence and interest in the “white gold”.

This could undo progress that has been made towards reviving the industry.

Government is presently grappling to settle the outstanding debt owed to cotton farmers from previously seasons.

Cottco has since paid $1,7 billion and US$1,7 million owed to farmers, while Treasury has paid US$620 million of the outstanding $800 million.

Cottco is paying $36 per kg plus US$10 per bale. Government promised to pay $18 per kg in subsidies.

Initially, the cotton producer price was pegged at $85 per kg as the minimum price — about US$1 using the official exchange rate – and this could have made Zimbabwe arguably the highest paying country.

This season, Tanzania paid US36c per kg, Malawi US32c and Zambia US31c per kg.

The Ginners Association of Zimbabwe had proposed between US30c and US35c.

Critics argue that the industry regulator, Agricultural Marketing Authority, and key stakeholders should come up with a viable pricing mechanism that does not unnecessarily raise farmers’ expectations

“We are now losing trust,” Gertrude Chiredzo, who farms in Mt Darwin, told The Sunday Mail Business recently.

Industry players said the producer price for the past two seasons were “unsustainable” and put “unnecessary strain” on the fiscus.

“We feel there is a lack of proper engagement between producers, merchants and AMA in setting the price . . .,” said a former executive of a leading cotton company.

Last year, Zimbabwe pegged the price at $42 per kg plus US$10 per bale, which was again way over the average regional price.

“What we see here is the perpetuation of the problem and this kills farmer confidence. There is a need to come up with a viable pricing structure acceptable to all parties to avoid creating expectations for farmers,” Carlos Tadya, an analyst with a local research firm, said.