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THE centralised cotton buying system introduced by cotton merchants may not be the solution to problems of side-marketing of contracted crop. Rather, reverting to State monopoly in marketing the white gold could be the solution the country needs.
While the challenge around side-marketing has resulted in decline in production as merchants reduce support and farmers shift to better paying cash crops, the white gold remains a major source of sustenance for thousands of families in rural areas. Cotton has been a source of livelihood for over 200 000 families, thus making it a strategic national priority. The majority of cotton producers are rural smallholder farmers whose major challenge has always been the lack of funding and agronomic support.
Before the liberalisation of the industry about two decades ago, Government was the dominant player in cotton marketing through the Cotton Marketing Board. Then, Zimbabwe was among the best in cotton quality at a global scale during the CMB era.
The CMB was privatised in 1994, under the Economic Structural Adjustment Program, which gave birth to the Cotton Company of Zimbabwe, a private company working towards the development of the cotton sector. The liberalisation of the cotton industry also resulted in the entry of other private players. Sadly, privatisation has proven to be a harvest of thorns for this strategic sector. Since the opening up of the industry as a result of the International Monetary Fund prescribed esap, there has been a failure to control side marketing. This virtually killed the investment case for cotton, as regulatory controls have been largely ineffective due to regulatory capture.
The challenges emanated from a situation where some merchants were deliberately paying higher prices to entice cotton growers including those holding the contracted crop.
This is yet another prescription in a long list of examples of IMF solutions, which had no bearing on the realities on the ground in developing countries. Malawi’s bold stance on state assisted inputs for smallholder farmers has been a huge success story. Malawi defied the IMF which advocated purely market-driven interventions, which would not have worked. This illustrates the benefit of ensuring that policies are tailored to specific local conditions and are not imposed simply as a condition of getting funding.
Cotton marketing in Zimbabwe was liberalised in 1996 before any regulatory framework was put in place to protect investment by contractors. This framework was introduced in 2009, and at this time the industry was being ravaged by side marketing.
The enforcement of Statutory Instrument 263 of 2009 has been weak due to regulatory capture and side marketing continues unabated.
This has culminated in a vicious cycle of low inputs packages and poor farmer training resulting in low yields and poor debt repayment, which in turn further reduces the quality and quantity of inputs.
Farmers receiving fertiliser were immediately putting it up for sale, thereby compounding the above challenges. The uneven playing field where some merchants invested more in production and lost the crop as a result of side marketing was a recipe for disaster in the industry, as evidenced by the sharp drop in cotton production.
For instance, output is expected to fall from the record 350 million tonnes in 2012/13 season to less than 100 million tonnes this season. Clearly the industry is in a rapid death spiral.
Now, to curb side marketing, the majority of the cotton contractors have formed a “consortium”, to buy the crop on behalf of all ginners. This, they argue, will help eliminate side marketing. But farmers have expressed concern, arguing that the arrangement is killing competition, as the ginners now dictate what to the pay the farmer.
Both parties have genuine concerns; ginners have lost a lot of money due to side marketing while farmers could have been getting a raw deal from contractors who were paying “low prices” on the strength of contractual obligation on the part of farmers. It is high time the country considered reverting to the CMB monopoly model to achieve better efficiencies, viability and sustainability.
And the end result is side marketing. Simple logic, in our view dictates that we cannot continue to proffer the same failed solutions to the side marketing challenge.
It is high time the country considered reverting to the CMB monopoly model to achieve better efficiencies, viability and sustainability. State monopoly could then contract a professional operator to ensure adherence to best class governance frameworks.
The most successful African cotton industries are those in West Africa which are all run as state owned monopolies. Central planning also allows for long term hedging strategies on the New York futures markets thereby eliminating the vagaries of global cotton price volatility. Privatisation should remain as a longer term goal and should only be pursued once viability has been brought back into the sector, involving genuine investors who would have made significant investment into the sector.
Again, in the case of Zimbabwe which has a dollarised economy, the US dollar cost model requires the country to compete with the global cotton producers a lot of whom are highly mechanised and get huge subsidies from their central governments.
By so doing the livelihoods of farming communities dependent on cotton would be salvaged.
Online Reporter