$42m input subsidy revives cotton sector Cotton
cotton

cotton

Martin Kadzere Senior Business Reporter
ZIMBABWE’S cotton sector is going through revival following a $42 million input subsidy availed by the Government, which saw renewed interest in production from thousands of small scale farmers in major producing areas across the country.

About 350 000 households received frees inputs from the Government, enough to establish a minimum hectarage of two. The scheme, which has a three year horizon started in 2015 and ends next year. A recent visit to Gokwe and Chiredzi, some of the country’s major cotton producing areas show vast tracts of land been turned into “white fields.”

“Growing cotton had become unviable because the financing models used by contractors were very exploitative,” Mrs Sabina Muchenje who farms in Chitekete said. “The contractors gave us inputs and when they bought the crop from us, they offered low prices such that when they deduct value of their inputs, we were left with nothing. We were essentially providing free labour and that is why most of us had abandoned cotton.”

Last year, Zimbabwe produced about 30 000 tonnes of cotton, according to the Ministry of Agriculture, the lowest crop size in 24 years. The success of cotton in Zimbabwe was built around the Cottco inputs credit scheme which started in 1992 and ensured that farmers received adequate funding, agronomic support and quality incentives resulting in 95 percent of production coming through the contract scheme.

However, the opening up of the sector to new players was the death knell for Zimbabwean cotton. From being one of global cotton’s top quality producers the sector had virtually collapsed with production levels falling to less than 10 percent of normal volumes. Yields crashed, thereby killing off viability and increasing levels of side-marketing. This created a toxic downward spiral of low yields, high side marketing and low inputs support.

In stark contrast, the growth of tobacco production has been driven by a successful contract farming model resulting in 82 percent of the crop being produced under contract farming. “It would have been irresponsible for Government if it had not intervened,” Cotton Producers and Marketers Association of Zimbabwe chairman Mr Stewart Mubonderi said.

This year, output is projected to reach at least 100 000 tonnes. Government is paying 47c for the lowest grade, way above what other cotton producing countries in Africa are paying for the top grade. “This will definitely motivate farmers to increase hectarage next season,” Cottco operations director Mr Max Njanji said.

While the fortunes of the industry seem to be turning around, analysts say there is need for a radical paradigm shift to lasting pragmatic solutions. The approaches that have been tried since the privatization of the Cotton Marketing Board in 1994 include liberalization of the sector and the entry of new players as well as the promulgation of a new legal framework to control side-marketing. However, the enforcement of this legal framework proved to be problematic due to a myriad of challenges.

The effect of this was that the investment case for the cotton sector was virtually non-existent due to the inability to curb side marketing and poor grower viability. “Simple logic dictates that the nation cannot continue to proffer the same failed solutions to the challenge of side marketing,” Mr John Marova, a former economist with Cargil said.

Analysts say the industry should revert to a state controlled monopoly, the Cotton Marketing Board whose mandate extends beyond primary cotton production to value addition. The board can then contract a competent operator, for instance The Cotton Company of Zimbabwe, to run the cotton industry on its behalf. This will result improvement of grower yields due to the supply of the correct inputs package and agronomy support.

Yield growth will drive grower viability, improved debt repayment and the recovery of cotton production. This growth can be achieved without resorting to risky GMO technology. The reinstatement of the seasonal pool price and quality bonus payments would improve crop quality and sector viability, enabling the nation to regain its reputation for top quality.

Higher yields and higher crop volumes would also result in improved operational efficiencies and competitiveness, thereby allowing higher producer prices. The US dollar cost base has created huge challenges for Zimbabwe in terms of international competitiveness due to cotton subsidies in all the major global producers. Consequently, Zimbabwe can’t compete on an equal footing with the major global cotton producers. As a result, normal market forces cannot achieve competitiveness for the nation’s cotton industry.

It is imperative that efficiencies are maximised through economies of scale arising from the contracting of a single operator. This will allow increase in the cotton producer price, thereby enhancing viability and the growth of the sector. With no other cotton contractors, this will instantly resolves the challenge of side-marketing.

The creation of a viable investment case will enable a virtuous cycle of adequate input packages, improved grower viability, improved debt repayment, higher crop size, improved operational efficiencies, higher investment in the sector.

With the Asian economies increasing losing their low labour cost advantage, there exists an opportunity for the nation to revive the textiles sector using the advantage of ready access to raw materials as well as hard currency revenues. A state controlled monopoly would be in a stronger position to forge textile partneships with Chinese investors.

Processing of cotton into yarn, fabrics and garments represents a low hanging fruit for Zimbabwe in terms of job creation and economic development. Zimbabwe is well positioned to exploit this opportunity due to the availability of local raw material and the limited level of technological complexity in cotton value addition. There is need, therefore, to craft policies which attract investment into the sector. One such policy could be to offer supply contracts for government’s textile and clothing requirements, thereby guaranteeing offtake for investors in cotton value addition.

Lessons can be learnt from the Asian tigers which used the textile industry as a vehicle for the acquisition of technological competencies. In addition to spinning, weaving and garment manufacturing, the Asian tigers ultimately diversified into production of textile machinery.

These skills were building blocks in their trajectory to becoming global leaders in the automobile industry.

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