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Chisoko (GC) spoke to the Ginners Association chairman David Machingaidze (DM) who is also the Cotton Company managing director about cotton pricing dynamics on the international market
GC: Every year there are problems with farmers over seed cotton pricing, could you explain why there is always that war
DM: That is correct every year there have been disagreements with farmers regarding pricing of seed cotton. The problem has persisted mainly because of lack of understanding of the dynamics in the international cotton market.
The ginner pays on the basis of what is obtainable in the market yet on the other hand the farmer wants the maximum possible price; a huge expectation gap. The other factor that causes this expectation gap is perception that the ginners want to pursue their own interests; which is really a result of misinformation. Disputes with regards to pricing are not unique to cotton; they are common for most commodities. Competition among ginners and oversight by Agricultural Marketing Authority (AMA) ultimately protects farmers.
GC: There seems to be a lack of understanding about the dynamics on the international market as it relates to pricing. How does the world market work
DM: The international market of cotton just like any other commodities is a complex market. There are so many fundamental factors at play in the cotton market that even professionals find it difficult to comprehend what will be happening. A good example is the previous season when the price shot to unprecedented levels and dropped significantly. This caught ginners off guard after they had already agreed higher producer prices with the farmers.
The world economy outlook has become so uncertain and this has brought with it unimaginable volatility in the market. It’s a mad market and understanding the market needs some training to the farmers and other stakeholders so that they can grasp the concepts involved. I hope in the near future with continued investment in training farmers will understand the dynamics.
GC: I understand cotton is almost 98 percent grown under contract, how much as an industry did you invest in its production in the just-ended season and as Cottco how big was your contribution
DM: In the just ended season the industry financed 239 000 farmers at a cost of US$33 million and the national hectarage stood at 400 000ha. Cottco financed 103 000 farmers at a cost US$15 million. Cottco hectarage stood at 206 000ha
GC: There is so much growth potential in seed cotton production yet we seem to struggle to reach the potential tonnage of 500 000 to a million tonnes, what is the problem
DM: The problem is and has always been unwillingness from other players to finance the crop. Unfortunately these same players will always come to participate in the buying of the crop that they themselves did not finance. Farmers have a tendency of selling their crop to merchants who they do not owe so that they get the wholesome price obtainable on the crop also called side marketing.
Side marketing discourages serious players to invest more because the credit risk created by the finance sunk in the financing of inputs will be exorbitant and if not managed appropriately will result in viability problems.
GC: What can be done to solve this problem
DM: This, however, can be resolved if the industry embrace an industry wide approach requiring minimum investment required for a player to be accepted in the industry.
This will chase away fly by night merchants who only appear to be more aggressive during purchasing without showing the same enthusiasm during financing of the crop.
The industry also needs to put in place measures that ensure actual deployment of inputs on the ground rather than relying on unsubstantiated paperwork. I would however like to take this opportunity to thank the authorities and the government for promulgating and further amending legislation that has brought substantial sanity in the industry. Statutory Instrument 63 of 2011 has indeed put some sanity in the industry.
GC: How, as Cottco, have you handled issues to do with side-marketing and non-repayment of loans without necessarily tarnishing your image
DM: We have not been full proof to side marketing but we have worked on building good relations with our farmers creating a workable loyalty that has created a win-win situation between the farmer and Cottco.
We realise that we cannot thrive in this industry without loyal farmers and the farmers are also realising that they also cannot succeed without a committed financier this good working relationship has created huge benefits to both parties.
GC: How has been repayment of loans been like in the last couple of years and if you have farmers owing, how much as Cottco are you owed by farmers
DM: It is always difficult to recover because of side marketing but we did our best. In the prior year our recovery rate was 85 percent and 90 percent in current year.
GC: Cottco has been bankrolling the Cotton Grower of the Year awards for many years now, have you been getting value from such an investment
DM: Absolutely the grower of the year award has created great value for our company in the form of loyal growers. Growers want to associate with a Ginner who is interested in their welfare and this is what we have been doing all these years.
We are an indigenous player interested in development of the Zimbabwean cotton industry. Loyal farmers are easy to manage. It is also easy to plan with loyal farmers in terms of financing and grower liaison activities. The awards have also raised awareness of need to produce quality cotton, which raises our reputation as a quality cotton producing country.
GC: Doesn’t, the competition also afford you the platform to communicate with the farmers to avoid perennial pricing problems
DM: The growers competition does afford us an opportunity to do just that. However, not all of our farmers are able to attend the competition. Out of our staggering number of farmers; numbering 103 000 the winners will only be in the hundreds. I should ,however, bring it to your attention that the platform is working wonderfully to our advantage. It’s a platform to disseminate not only information on importance of a quality crop but also pricing issues.
GC: Cottco seems to be slowly getting out of the woods following years of poor performance, contributing significantly to AICO’s profitability, what have you done differently? What’s the magic for the turnaround
DM: Firstly I believe that business is built upon the solid rock of trust. Trust is earned by doing business with integrity and honesty. These are the fundamental pillars upon which we get the passion to develop this company.
We believe in transparency and fair business without short changing any stakeholder and we have developed a culture of zero tolerance to unethical behaviour and shady dealings.
GC: And how has that helped you as a company
DM: For us this has created unimaginable trust in our creditors and bankers with whom we enjoy excellent working relationships.
Our employees embrace the values of excellence, enterprise, empathy, ethics and engagement; this has boosted morale in the camp and the company is currently riding on this big wave of teamwork.
We have learnt that Together Everybody Achieves More. The team is strongly inspired by what was written by Thomas Paine in 1776 and I quote:
“We do not choose to be common men, it is our right to be uncommon . . . if we can, we seek opportunity . . . not security. We want to take the calculated risk; to dream and to build, to fail and to succeed. We refuse to barter incentive for a dole; we prefer the challenges of life to the guaranteed existence; the thrill of fulfilment to the stale calm of Utopia.
” We will never cower before any master nor bend to any threat. It is our heritage to stand erect; proud and unafraid; to think and act for ourselves, to enjoy the benefit of our creations and to face the world boldly and say: This, with God’s help, we have done”.
(Common Sense, written in 1776 by Thomas Paine)
Online Reporter