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crop last season.
Industry players said some merchants have deliberately increased prices from US$35c per kilogramme to US38c to “entice” sellers, including growers holding the crop contracted by other ginners.
The cotton marketing season began last week after farmers and ginners agreed on a minimum price of US35c per kg. Such developments, analysts say, could be a disaster to the country’s cotton production as ginners may be forced to reduce financial support for farmers in the next season.
The contract schemes contribute about 98 percent of cotton production in Zimbabwe. They were introduced as farmers were failing to access finance from the banks due to lack of collateral.
“We had a good start . . . very good price negotiations but we are now concerned that some of us have deliberately increased prices apparently to entice farmers to side market the crop. This has forced other ginners to also increase prices because if they do not move the price up, they will end up losing most of their cotton to other merchants paying higher prices.”
The promulgation of Statutory Instrument 142 of 2009 (SI 142/2009) provided a historical turning point for the industry which saw a significant reduction in the number of contractors as the non-financing and errant contractors dropped out from a record high of 28 contractors in 2008, down to 15.
Legislation has provided transparency in the financing and buying of cotton. Cotton production under contract growing and marketing arrangements has been completely funded by the private sector.
But there is concern in some quarters of the cotton industry that some new entrants are not abiding by the provisions of SI 142 of 2009 by engaging in side marketing. This is putting the viability and business models of the existing cotton contractors at a very high risk. Genuine contractors fail to fully support production when they do not recover investments made in the previous season.
Cotton Ginners’ Association director Mr Godfrey Bhuka said there was need for a solution which allows the country to benefit from new investment in the cotton sector without compromising the viability of the existing businesses.
He said stakeholders in the industry believe that, if the provisions of SI 142/2009 are upheld, there exists tremendous scope for synergies between new entrants who have capital to invest and existing merchants who have excess capacity due to the funding challenges that the Western-backed sanctions regime has imposed.
“The SI promotes grading of cotton by ensuring that farmers with better grades of seed cotton end up getting a better price,” he said.
“Better inputs package being provided to the farmers along with incentive for better quality seed cotton is motivating the farmers to grow better quality of the crop. This will enable Zimbabwe to regain its earlier status of producing one of the best quality medium staple lint,” he added.
Zimbabwe Farmers Union second vice president, Mr Berean Mukwende urged farmers to honour their contractual obligations.
“It has come to our attention that some cotton farmers are selling their crop to merchants offering a price that is above the gazetted minimum of US35c for the lowest grade,” said Mr Mukwende.
“In as much as higher prices are healthy as they create competition on the market, farmers should sell their cotton to those who contracted them since they are the ones who were responsible for their financing,” he said.
From a high of 333 000 tonnes in 2004, the national cotton crop had declined to 207 000 tonnes in the 2009 marketing season largely due to lack of investment in inputs due to the risks associated with funding cotton production. SI 142/2009 gave ginners confidence to invest in excess of $25 million in inputs which amount was increased to $36 million in the following year and $42 million late year.
This saw the crop size simultaneously increasing to 350 000 tonnes in the 2012 marketing season.
The quality profile of the crop also improved from 96 percent C and D grades in the 2009 marketing season to less than 60 percent in 2010. But it is now retreating to the old position due to side marketing.
Analysts say the recent growth in cotton production is premised on the effectiveness of SI 142/2009 and in its absence merchants would have no basis to continue with the contract growing model.
“Crop production is set to decline if side marketing continues,” said one agricultural analyst. “Genuine contractors incur substantial losses on inputs debt and contracted crop if the issue of free cotton is not managed in line with the provisions of the regulations. New players who have not adequately funded an inputs programme, do not incur substantial field costs and therefore they are in a position to pay 15c per kg more than all the other contractors thereby attracting side marketers.”
Observers say despite contractual obligations, the entire crop would end up being virtually a free crop due to side marketing as a result of the magnitude of the price differential between the normal prices and the new player’s pricing and the fact that no debt recoveries would be made.
They added that the indiscriminate buying would decimate the seed multiplication crop for the ensuing season resulting in shortage of planting seed. “If the contracted crop is not bought by the deserving merchant the working capital credit lines with local banks will not be serviced,” said one observer.
Online Reporter