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Martin Kadzere
Finance and Economic Development Ministry, is reneging on its promise to provide a subsidy on cotton producer price with farmers still owed $4 billion for the commodity delivered in the just ended season.
Zimbabwe had probably the highest cotton producer price in the world and no bank was prepared to offer lines of credit to finance this year’s intake “as this was tantamount to finance losses.”
About 80 000 tonnes of raw cotton were produced this year, 8 percent higher than the 2019 output, but 20 percent lower than the target after poor rains and late inputs delivery, particularly for state funded contract scheme affected production.
At the time the producer price was announced in June this year, it was equivalent to US$1,79 per kilogramme, significantly above prices in other cotton producing countries. For instance, Mozambique paid US 32c per kg, Mali 35c and Zambia 27c.
The Cotton Ginners Association, a lobby group representing private companies, sought Government intervention on direct subsidy on producer price of US30c per kg in the 2019/20 to cushion the farmers from the effects of the Covid 19 pandemic.
The Cotton Ginners Association argued that the gazetted prices would throw cotton merchants into bankruptcy.
Its secretary general Andrew Mupfawa, said all ginners were facing a tough time ahead.
“We are now lobbying for subsidies from the Government because alone, we won’t survive. Companies will fold if we continue like this.
“We owe our farmers over $4 billion for the cotton they have already delivered and we don’t have that amount,” said Mupfawa.
“We have engaged our ministry and they have accepted our proposals and we are now waiting for a response from the Ministry of Finance and Economic Development on the way forward,” he added.
He called on the Government to subsidise the industry as is the case in other countries to ensure viability of the sector. For noting subsidies to the cotton sector especially minimum support price are the norm world-wide.
While no official comment could be obtained from the Finance Ministry, insiders told Business Weekly that chances of Treasury bailout was ‘slim.’
Cotton subsidies were started by the US government since 1995 averaging US$2,1 billion annually accounting for 50 percent of value of the crop.
In 2002, Brazil initiated a formal World Trade Organisation dispute settlement case against the US arguing that by shielding domestic cotton producers from shifts in global prices, US domestic cotton subsidy programmes had created market distortions and contributed to decline in global cotton prices.
In 2014 the US paid Brazil US$ 300 million to keep US subsidies in place. Presently, all major cotton producing nations including the US, Brazil, India, Pakistan pay minimum support prices to their farmers.
China on one hand supports cotton production by controlling cotton import volumes and values by applying border protection measures based on quotas and sliding scale duties.
In addition, China maintains a strategic reserve of cotton, serving as a national buffer stock which is managed by China National Cotton Reserve Corporation.
China releases cotton to the market from reserve through a system of auctions when there is a shortage and replenishes in times of abundance thus supporting prices.
Pious Manamike, acting managing director of Cotton Company of Zimbabwe, which administers the Presidential Free Inputs Scheme, said his company has already spent $1,3 billion to finance intake and still owe farmers $3 billion.
“We have challenges as ginners. For example, we bought a kilogram of cotton at US$1,30 and we sold it for US$1,20.
That is the international price and we have no control over it. We need to pay salaries, pay the farmers, transport and all logistics. So, cotton companies are broke and that is why we owe farmers,” he said.
“We had budgeted $1,3 billion but we ended up at $4,3 billion to settle farmers’ debt.
“We have already spent $1,3 billion, meaning we are now in a $3 billion deficit. That is, us as Cottco and we have other companies who need the bail out. So, we are calling on the Government for price support.”
This week, Deputy Minister of Lands, Agriculture, Water and Rural Resettlement Douglas Karoro, assured that farmers would be paid off their dues, but could not provide the timelines.
Industry players now fear this may kill farmers’ appetite to grow cotton this season.
“No bank was prepared to finance a loss,” said one industry player. Even with the subsidy, it was still going to be difficult. This is threatening production as farmers may not go back to the fields.”
Cotton is not only a crop, but also a social pillar as it supports nearly 400 000 households in Zimbabwe.
Online Reporter