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Business Writer
The Government has pegged the price of cotton for the 2021 selling season at $85 per kilogramme amid growing concerns that this could throw several merchants out of business if there are “no major upward movements” in the exchange rate, Business Weekly can reveal.
Cotton selling season normally begins in April and industry players do not see a major depreciation of the Zimbabwean dollar, given that the domestic currency has been largely stable for nearly six months now.
The bulk of Zimbabwe’s processed cotton is exported and prices are determined on the international markets.
At $85 per kg, the price comes to about US$1 per kg, at the current exchange rate, against revenue of about US$0,72c for both ginned seed and lint extracted from a kilogramme of raw cotton, according to calculations by Business Weekly, based on the prevailing commodity prices show.
This may require the Government to provide a subsidy, some industry players suggested, warning of potential collapse of the cotton merchants in the absence of State intervention.
The Cotton Company of Zimbabwe finances about 85 percent of local production under the Presidential Free Inputs Scheme. The remainder is funded by private players.
Already, some cotton farmers are still owed huge amounts after the merchants failed to pay last year. Cottco alone owes farmers about $1,5 billion.
The Government has since promised to pay off outstanding amounts but this has not yet happened.
“At $85 per kg, I don’t think any company would afford to pay,” said a commodity analyst with a Harare-based local research company.
“A price of between US$0,35c and US$40 would make merchants viable so the Government will need to come up with a subsidy.”
No comment could be obtained from the Agricultural Marketing Authority of Zimbabwe, the government agency charged with pegging prices for cotton price.
Efforts to get an official comment from the Cotton Ginners Association proved fruitless.
Cotton, once one of the country’s largest foreign currency earners, had lost glitter as farmers shunned the crop due to lack of funding and poor prices offered by producers. As a result of inadequate levels of inputs and agronomic support by cotton merchants, which led to low yields, side-marketing and poor debt recovery in the past few years, the industry almost collapsed.
Poor debt recoveries also resulted in the crop’s contractors perceiving high levels of risk and consequently cutting back on inputs financing. In 2015, output fell to 28 000 tonnes, the lowest since 1992. But following initiatives such as the Presidential Cotton Inputs and the export incentive schemes, production has been on the increase.
Bongani Ndlovu