Source: Financiers shun cotton | The Financial Gazette April 26, 2018

ZIMBABWE’s cotton output is expected to grow this year, but at a slower pace than government projections as side-marketing continues to threaten the viability of the crop.

Since the introduction of multiple players in 2000 side-marketing has been rife in the industry. To date most farmers and ginners are engaged in operational and legal battles regarding the supply of adequate inputs, side-marketing, grading and pricing.

Despite the promulgation of Statutory Instrument 142 in 2009 to curb side-marketing and ensure long-term viability of the cotton industry through regulating the entire cotton value-chain, side-marketing has never been contained.

“The reason why the issue of side-marketing could not (be contained) is because the majority of the cotton contracting companies had greater vested interest. Why would a company that can have access to other cotton (free or otherwise), want to curtail that access? So while some of us were genuinely fighting for normalcy, clandestinely some would really advocate for a ‘free trade’,” agricultural expert Obert Jiri said.

The viability of the smallholder farmers has over the years dwindled. Price wars between farmers and ginners are the order of each marketing season as farmers fail to honour their contractual obligations. Farmers have reduced land under cotton cultivation, which has threatened cotton production.

According to the Econometer Global Capital, side-marketing has seen financiers shunning the industry.
“My personal opinion is there is need for regulation of side-marketing, but with an exit strategy when people should not steal other people’s cotton. An audit system should be put in place,” Jiri added.
During the 2017/18 season 400 000 cotton growers benefited from the presidential cotton input scheme after government chipped in to try and revive one of the country’s foreign currency earners which was on the verge of total collapse due to viability challenges resulting from inadequate funding and poor prices.

Last year, The Cotton Company of Zimbabwe, which is administering government’s cotton input programme, distributed inputs to about 155 000 cotton growers, pushing the national production to about 75 000 tonnes from 30 000 tonnes in 2016. This year’s package was made up of 8 000 tonnes of seed, 40 000 tonnes of basal fertiliser and 2 000 tonnes of top dressing fertiliser.

“Cotton is largely an export crop. The processing that is done here is to prepare lint for export. If you cannot export cotton you cannot grow it. From a finance perspective, you then need to ensure that you are able to adhere with the Reserve Bank of Zimbabwe regulations on exporting and remittances.
“The contracting companies in the dollarisation era would see no reason for all the export hustle when they could invest in other more lucrative agricultural ventures. Secondly, the eventual lint price at the international markets is controlled by the Liverpool A Index, this brings the problem of not being able to really calculate your eventual income before you engage in contracting. Thirdly, and related to second, the Zimbabwe cost of production is quite high. This squeezes profits, particularly if the eventual lint price is low, which often happens as the US and Brazil, dump lint at cheaper prices than us and they are able to accept low prices because they largely produce GM cotton,” Jiri said.

Government statistics show that the crop will reach 130 000 tonnes up from 75 000 tonnes in 2017. However, independent statistics projects a 10 000-tonne increase to reach 85 000 tonnes this year.