Opinion / Columnist
Inside the cotton value chain
09 Sep 2021 at 14:33hrs | Views
Cotton has been grown in Zimbabwe from as far back as 1940, even though production was enhanced after the establishment of the Cotton Marketing Board (CMB) in 1969. The white Gold is the second most important cash crop in Zimbabwe (After Tobacco) in terms of export earnings (earnings of US$30.1 million in 2020) and income generation to farmers. Cotton is mainly grown by smallholder farmers under rain fed agriculture in the natural Region 4 from November to April. This makes the crop very susceptible to climate change before other factors leading to low production are considered. In the last 10 years, production has averaged 145 000 Metric Tonnes (MT) from roughly 230,000 Hectares (Ha) of harvested area. This year the above normal rainfall and the increase in area under cultivation (241,000 Ha) has given hope that production will eclipse 150,000 MT. Yield per hectare in Zimbabwe has fallen below 207 Kgs/Ha. Currently, about 70% of the cotton lint produced locally is exported via South Africa where it is warehoused before being exported to other countries.
Cotton marketing was liberalized under the Economic Structural Adjustment Programme (1991-1995) through the formation of the Cotton Company of Zimbabwe (Cottco). Cottco is now the country's biggest buyer, controlling over 90% of the market. The liberalization heralded other independent buyers and contractors who have seen their fortunes wane due to slump in global lint prices and the involvement of government in giving free inputs to farmers. Since 2015, the government has been giving free inputs to thousands of farmers to boost cotton production through Cottco. In the current 2020/21 season, over 521, 000 farmers received inputs through the Presidential Inputs Scheme.
Global & Africa trends
The largest producers of cotton in the world (with yields of over 1.8 tons/Ha) are China (6.4 million MT), India (6.2 million MT), United States (3.6 million MT) and Pakistan (2.4 million MT). Cotton is harvested using mechanized agriculture mainly in the United States and China. In Africa, harvesting is done mainly by hand picking which improves lint quality. Artificial irrigation is practically unknown in Africa. On the continent, Burkina Faso is the largest producer of cotton with over 270, 000MT produced in 2019. Mali (233,000MT), Ivory Coast (132,000), Sudan (98,000MT) and Egypt (91,000 MT) complete the top 5. More than 90% of cotton grown in the main cotton producing countries (USA, India, and China) is now genetically modified (GMO). Currently, small holder farmers in South Africa, Sudan, Botswana, Malawi and Burkina Faso grow genetically modified cotton and it has proved that yields have increased. Since 2006, the Zimbabwean government banned the importation of GMO food and seeds on the basis that it is harmful to the soil and the environment. This position would need to be revised with key input from producers and other stakeholders.
Cotton and its by products
There are three primary products derived from cotton processing and these are cotton lint, linters and cotton seed. Cotton lint is used in making clothes, shoe strings, pillowcases, denim, towels and bills. Lint products also include yarn, blankets, industrial textiles and cotton wool. By-products from cotton seed include cooking oil, fats, margarine, cosmetics, soap and cotton seed meal for livestock. Most of these by-products are currently imported into the country from China, India and South Africa among others. This is despite the fact that the country has a national ginning capacity of over 600,000 MT. Downstream processing activities for cotton such as spinning, weaving and textiles have been eroded due the high cost of production locally, influx of dumped and cheap fabric from Asia and lack of capital to retool the industry in line with changes in demand and global prices of cotton products.
It is therefore imperative that the government adopts a comprehensive approach to the cotton value chain by adopting value chain financing to benefit other key players such as ginners and spinners, cooking oil expressers, weavers, textile and clothing manufacturers so that funding at production level yields higher returns for the country through employment creation, improved industrial capacity, value addition of exports and import substitution.
Impact of export earnings & GDP
At its peak in 2011, Zimbabwe produced 353,000 MT of cotton and earned over US$200 million from exports. The period witnessed a surge in lint prices on the global market. Cotton lint from Zimbabwe has established markets in Asia especially China, Europe and the SADC region. According to a recent report by the World Bank, the average price for raw cotton in the first quarter of 2021 was US$1.64 per kg, which was 3% higher than the average price in 2020. Strong competition from other natural and functionally similar materials such as hemp or flax as well as synthetic textile materials will hold back market growth for cotton thereby impacting Zimbabwean lint exports. Hemp is more convenient to grow than cotton as it consumes 5 times less water, while cotton production is considered environmentally harmful because it uses large amounts of insecticides and fertilizers.
Impact on poverty reduction
Cotton is a major source of income for over 500,000 small holder farmers in rural communities such as Gokwe, Sanyati, Muzarabani, Mt Darwin, Guruve and Cheshire among others. Over 1.5 million Zimbabweans derive their livelihoods from cotton farming. The cotton industry provides employment to approximately 30,000 individuals employed in ginneries, spinning, transportation and logistics services. The white gold is usually grown under contract farming arrangements where contractors supply production inputs (seed, fertilizer and chemicals) to farmers on loan. After harvest, farmers sell the crop to contractors who deduct costs of the inputs and pay the farmer the remainder. This means that it is imperative for the government to have oversight through setting general guidelines for contracting and remedies in case of disputes.
Constraints faced by farmers
Cotton farmers face similar constraints to other agricultural producers in the country. These range from uncompetitive producer prices (pegged in local currency in spite of high inflation), delays by government in paying for delivered crop, lack of funding, lack of bankable land tenure, unfair contract terms by contractors and middlemen and low technical skills on the use of chemicals and detecting diseases. Farmers are obliged to deliver their produce to Cottco or other authorized contractors. From the delivered produce of 2019/20 season (done when producer prices were pegged at ZW$43.94/kg), the government owed farmers more than ZW$1.5 billion. The payments for the outstanding amounts are still being done in batches with no inflation adjustments. For each bale delivered to the market, farmers were promised US$10, while 38% of the value of a 200kg bale was to be paid for in Zimbabwe dollar cash.
Achieving Sustainability
The provision of inputs by the government to thousands of small holder farmers has managed to resuscitate the primary production of cotton even though capacity in terms of value addition is largely underutilized. The launch of the Zimbabwe Mercantile Exchange should usher in independent pricing mechanisms and provide a ready market for farmers who are currently owed millions in US Dollars by the government. The economic instability witnessed in the past few years and government delays in making payments to farmers had resulted in disgruntlement by farmers and massive side marketing of the crop to middlemen who pay cash at discounted prices. There is need to set viable cotton producer prices and allow the commodities exchange platform autonomy on price determination so as to eliminate mistrust between farmers, ginners and merchants who buy the crop. Pricing is the key determinant in increasing the volume of cotton produced. Adoption of standard modes of payment (In foreign currency or through free market determined exchange rates) within days of delivery will help in reducing side marketing of the crop. Sustainability can only be guaranteed through a market determined price which creates a competitive market environment where the government is not a monopoly. Undoubtedly, value chain financing will shield local farmers from a drop in global lint prices and capacitate numerous players in the local industry.
Victor Bhoroma is an economic analyst and free market lobbyist. He holds an MBA from the University of Zimbabwe (UZ). Feedback: Email vbhoroma@gmail.com or Twitter @VictorBhoroma1.
Cotton marketing was liberalized under the Economic Structural Adjustment Programme (1991-1995) through the formation of the Cotton Company of Zimbabwe (Cottco). Cottco is now the country's biggest buyer, controlling over 90% of the market. The liberalization heralded other independent buyers and contractors who have seen their fortunes wane due to slump in global lint prices and the involvement of government in giving free inputs to farmers. Since 2015, the government has been giving free inputs to thousands of farmers to boost cotton production through Cottco. In the current 2020/21 season, over 521, 000 farmers received inputs through the Presidential Inputs Scheme.
Global & Africa trends
The largest producers of cotton in the world (with yields of over 1.8 tons/Ha) are China (6.4 million MT), India (6.2 million MT), United States (3.6 million MT) and Pakistan (2.4 million MT). Cotton is harvested using mechanized agriculture mainly in the United States and China. In Africa, harvesting is done mainly by hand picking which improves lint quality. Artificial irrigation is practically unknown in Africa. On the continent, Burkina Faso is the largest producer of cotton with over 270, 000MT produced in 2019. Mali (233,000MT), Ivory Coast (132,000), Sudan (98,000MT) and Egypt (91,000 MT) complete the top 5. More than 90% of cotton grown in the main cotton producing countries (USA, India, and China) is now genetically modified (GMO). Currently, small holder farmers in South Africa, Sudan, Botswana, Malawi and Burkina Faso grow genetically modified cotton and it has proved that yields have increased. Since 2006, the Zimbabwean government banned the importation of GMO food and seeds on the basis that it is harmful to the soil and the environment. This position would need to be revised with key input from producers and other stakeholders.
Cotton and its by productsThere are three primary products derived from cotton processing and these are cotton lint, linters and cotton seed. Cotton lint is used in making clothes, shoe strings, pillowcases, denim, towels and bills. Lint products also include yarn, blankets, industrial textiles and cotton wool. By-products from cotton seed include cooking oil, fats, margarine, cosmetics, soap and cotton seed meal for livestock. Most of these by-products are currently imported into the country from China, India and South Africa among others. This is despite the fact that the country has a national ginning capacity of over 600,000 MT. Downstream processing activities for cotton such as spinning, weaving and textiles have been eroded due the high cost of production locally, influx of dumped and cheap fabric from Asia and lack of capital to retool the industry in line with changes in demand and global prices of cotton products.
It is therefore imperative that the government adopts a comprehensive approach to the cotton value chain by adopting value chain financing to benefit other key players such as ginners and spinners, cooking oil expressers, weavers, textile and clothing manufacturers so that funding at production level yields higher returns for the country through employment creation, improved industrial capacity, value addition of exports and import substitution.
Impact of export earnings & GDP
At its peak in 2011, Zimbabwe produced 353,000 MT of cotton and earned over US$200 million from exports. The period witnessed a surge in lint prices on the global market. Cotton lint from Zimbabwe has established markets in Asia especially China, Europe and the SADC region. According to a recent report by the World Bank, the average price for raw cotton in the first quarter of 2021 was US$1.64 per kg, which was 3% higher than the average price in 2020. Strong competition from other natural and functionally similar materials such as hemp or flax as well as synthetic textile materials will hold back market growth for cotton thereby impacting Zimbabwean lint exports. Hemp is more convenient to grow than cotton as it consumes 5 times less water, while cotton production is considered environmentally harmful because it uses large amounts of insecticides and fertilizers.
Impact on poverty reduction
Cotton is a major source of income for over 500,000 small holder farmers in rural communities such as Gokwe, Sanyati, Muzarabani, Mt Darwin, Guruve and Cheshire among others. Over 1.5 million Zimbabweans derive their livelihoods from cotton farming. The cotton industry provides employment to approximately 30,000 individuals employed in ginneries, spinning, transportation and logistics services. The white gold is usually grown under contract farming arrangements where contractors supply production inputs (seed, fertilizer and chemicals) to farmers on loan. After harvest, farmers sell the crop to contractors who deduct costs of the inputs and pay the farmer the remainder. This means that it is imperative for the government to have oversight through setting general guidelines for contracting and remedies in case of disputes.
Constraints faced by farmers
Cotton farmers face similar constraints to other agricultural producers in the country. These range from uncompetitive producer prices (pegged in local currency in spite of high inflation), delays by government in paying for delivered crop, lack of funding, lack of bankable land tenure, unfair contract terms by contractors and middlemen and low technical skills on the use of chemicals and detecting diseases. Farmers are obliged to deliver their produce to Cottco or other authorized contractors. From the delivered produce of 2019/20 season (done when producer prices were pegged at ZW$43.94/kg), the government owed farmers more than ZW$1.5 billion. The payments for the outstanding amounts are still being done in batches with no inflation adjustments. For each bale delivered to the market, farmers were promised US$10, while 38% of the value of a 200kg bale was to be paid for in Zimbabwe dollar cash.
Achieving Sustainability
The provision of inputs by the government to thousands of small holder farmers has managed to resuscitate the primary production of cotton even though capacity in terms of value addition is largely underutilized. The launch of the Zimbabwe Mercantile Exchange should usher in independent pricing mechanisms and provide a ready market for farmers who are currently owed millions in US Dollars by the government. The economic instability witnessed in the past few years and government delays in making payments to farmers had resulted in disgruntlement by farmers and massive side marketing of the crop to middlemen who pay cash at discounted prices. There is need to set viable cotton producer prices and allow the commodities exchange platform autonomy on price determination so as to eliminate mistrust between farmers, ginners and merchants who buy the crop. Pricing is the key determinant in increasing the volume of cotton produced. Adoption of standard modes of payment (In foreign currency or through free market determined exchange rates) within days of delivery will help in reducing side marketing of the crop. Sustainability can only be guaranteed through a market determined price which creates a competitive market environment where the government is not a monopoly. Undoubtedly, value chain financing will shield local farmers from a drop in global lint prices and capacitate numerous players in the local industry.
Victor Bhoroma is an economic analyst and free market lobbyist. He holds an MBA from the University of Zimbabwe (UZ). Feedback: Email vbhoroma@gmail.com or Twitter @VictorBhoroma1.
Source - Victor Bhoroma
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