Cotton industry on verge of collapse?

08 Sep, 2016 - 00:09 0 Views
Cotton industry on  verge of collapse?

The Herald

Business Reporter

THE projected size of this year’s cotton crop is a source of national embarrassment, especially after the injection of $25 million of free inputs by Government last season. Industry players have estimated that cotton output could fell below 30 000 tonnes, the lowest yield since 1992 after the country after the country experienced serious drought.The yields will be significantly lower than 102 000 tonnes achieved during the prior season and 352 000 tonnes, a record output achieved four seasons ago. This has led some analysts pointing out that the once thriving sector could be on the verge of collapse.

The opening up of the cotton sector to new players was the death knell for Zimbabwean cotton. From being one of global cotton’s top quality producers the sector has virtually collapsed with production levels down to less than 10 percent of normal volumes.

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 contract farming schemes. However, the contract scheme has collapsed due to rampant side-marketing and ineffective regulatory oversight.

There is no longer a viable business case for cotton production under contract farming.

In the absence of meaningful support from cotton merchants, yields have crashed, thereby killing off viability and increasing levels of side-marketing as farmers are locked in a desperate struggle for survival.

This has created a toxic downward spiral of low yields, high side marketing and low inputs support. In light of dwindling production levels, analysts say a new model for the industry was critical to restore its viability.

This would entail the establishment of 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, such as The Cotton Company of Zimbabwe, to run the industry. This has the following key advantages.

There will an improvement of grower yields due to the supply of the correct inputs package and agronomy support. Yield growth will drive grower viability and improved debt repayment. This growth can be achieved without resorting to risky GMO technology.

The establishment of the state monopoly will result in the reinstatement of the seasonal pool price and quality bonus payments, which will go a long in improving crop quality and sector viability, thereby enabling the country to regain its reputation for top quality.

With higher yields and higher crop volumes, the country will be able to achieve improved operational efficiencies and competitiveness, thereby allowing a higher producer price.

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, the country cannot compete on an equal footing with other global producers.

In this regard, normal market forces cannot achieve competitiveness for the industry. As such, it is imperative that efficiencies are maximised through economies of scale arising from the contracting of a single operator in the mould of the former CMB.

With no other cotton contractors, this instantly resolves the challenge of side-marketing. The creation of a viable investment case enables a virtuous cycle of adequate input packages, improved grower viability, improved debt repayment, higher crop size, improved operational efficiencies and higher investment in the sector.

Subsidies

Last season Government availed free inputs worth $25 million but the expected output will not match support provided. Government has already indicated it will roll out a similar scheme this year.

However, inputs subsidies may not be an effective policy intervention in the absence of a viable pricing incentive for the farmer.

The rampant abuse of free inputs results in such schemes will not achieve the desired effect.

Clear evidence of this is the $25 million worth of cotton inputs that were disbursed last year. Again, in the absence of correct agronomic practices such as the right plant populations and adherence to planting deadlines, inputs will not achieve the desired effect of reviving the industry.

While drought had an impact on the record low crop, other crops such as tobacco have performed adequately. So it is not enough to simply attribute the failure of the cotton to drought. Cotton is generally a fairly drought tolerant crop.

Without a viable price subsidy, there will be no interest in cotton farming and production levels are likely to plummet further. Had the $25 million that was spend on free inputs been offered as a guaranteed price subsidy, farmers would have produced substantially more and the money would have gone to genuine beneficiaries.

Value addition

Processing of cotton into yarn, fabrics and garments represents a low hanging fruit for the country in terms of job creation and economic development. This is a poignant example of the importance of the value addition pillar in Zim-Asset. 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 off-take for investors in cotton value addition.

Lessons can be learnt from the Asian tigers who 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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