AMA acts on side marketing

been promoting side marketing by accepting seed cotton from farmers fully aware they were not involved in its production.
AMA chief executive Mr Rockie Mutenha said in an interview last Friday that some merchants were buying cotton contracted by other ginners under the guise of purchasing the crop under the Presidential Scheme. He said the authority had since warned them to desist from the practice or risk cancellation of their licences.

“There is side marketing going on and we have increased fines imposed on offenders to US$100,” he said. “We know this will eat a lot into their margins. We also had some merchants who were buying cotton in areas where they did not finance production under the guise of chasing free cotton grown under the Presidential Scheme. We have since whipped them into line.”

Mr Mutenha could, however, not reveal names of the errant cotton merchants saying the matter was confidential. Last week AMA issued a statement urging merchants to only pay prices above the agreed prices once a farmer had delivered contracted volumes to encourage competition. “Competition is encouraged at common buying points, once the farmer has fulfilled his or her contractual obligation.”

The contract schemes contribute about 98 percent of cotton production in the country and were introduced at a time when farmers were failing to access finance from the banks due to lack of collateral.

Under the contract schemes, all contractors are required to have signed agreements with individual growers, which are then registered with AMA. The contract specifies the area supported by the contractor and the volume expected.

In terms of the law, no other buyer is permitted to buy cotton from a grower contracted by another merchant. The contracting company must issue wool-packs (hessian packaging) marked with its name to the contracted farmer and no company or contractor is permitted to purchase cotton in a competitor’s wool-pack.

“Once a farmer deliver contracted volume, the remaining crop becomes free cotton and any other merchant can buy it and farmer can sell it to whoever is paying a good price,” said Mr Mutenha.

However, industry sources said the bone of contention was not on volumes. They said some merchants were targeting the crop contracted by other ginners by paying higher prices.

In some instances, some farmers are selling part of the contracted crop to raise money to pay for inputs received. After raising just enough to pay for the cost of inputs, the farmers then side market the rest of the crop. The Cotton Ginners’ Association said it was not against payment of higher prices to farmers but if such payment was calculated to lure farmers to side market their crop, such practise becomes illegal. In a letter to AMA, the association said the current season witnessed the worst kind of side marketing ever experienced.

“If the truth be told, the very companies that appear to be paying record high prices are the ones that never supported contract farming with meaningful inputs,” it said. “If you did a simple analysis, such companies are the ones frequently violating every rule in the book almost with impunity at every second turn.

“What is most frustrating is that we have previously made numerous complaints about the errant behaviour of some of these companies but there has been little change. Have you ever wondered why they have not slackened the rate at which they are committing breaches of the marketing rules?

“Clearly, their behaviour is akin to someone who has very little to lose but everything else to gain by breaking the rules. Rather than warning about the non-existent thwarting of competition, we would have thought the AMA would be more concerned about the future of this industry. It is clear that at the rate we are going, no sane company would voluntarily invest in cotton production inputs next season if some companies are left to continue reaping where they did not sow, in the name of competition.”