|Economic focus with Minenhle M Ngwenya|
|Saturday, 30 June 2012 20:11|
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What is the solution to cotton price impasse?
Exploring the impasseThe cotton price impasse has received fair coverage in the local media outlets. Specifically, the impasse is characterised by lack of consensus on the cotton producer price between the ginners and cotton farmers. Conventionally, cotton has been and continues to be grown under a contract farming arrangement.
This means that prior to production farmers enter into contracts with provisions (not exhaustive or universal) for cotton agricultural inputs supply, extension support, pricing arrangements, marketing arrangements, payment modalities and credit repayment arrangements.
Within the context of the ongoing impasse the component of the contracting company/ contract farmer out-grower contract that is a source of disagreement is the one on the producer price and pricing arrangement.
Samples of the 2011/12 cotton out-grower contracts reviewed indicate a fairly standard clause that states that, “the contracting company commits to pay the farmer a minimum international cotton producer price”. Details of the current impasse are that cotton ginners who are also contractors and buyers are offering between US$0,29 for Grade D, $0,31 for Grade C, $0,35 and $0,40 respectively for Grades B and A.
On the other hand farmers are demanding between US$0,45/kg for Grade D cotton, $0,47 for Grade C, $0,51 and $0,55 for Grade B and A respectively. At the start of the marketing season cotton growers had tabled a price request of $0,85 and US$1,20 per kilogramme! The prices the merchants are offering, which were agreed by all stakeholders in the industry by virtue of contract provision, compare well with those farmers in the region are getting that have been pegged between US$0,34-US$0,42. Farmers on the other hand contend they will not be able to remain in business if they take what the ginners are offering. More so, heightened farmer expectations for a favourable price were fuelled by the comparatively good price that they received in the 2011 marketing season. Ginners on the other hand are arguing that lint prices have fallen on the international market owing to the low uptake of last season’s stocks.
What are the implications?
The decisions arrived at in resolving the cotton price impasse will have to endeavour to at least maintain or further develop the value chain. Currently cotton is mainly produced in marginal rainfall areas in the central, north, south-east and west (Matabeleland North province) of the country. Of all the summer crops, cotton is the only crop that has maintained reasonably steady volumes of production after the land reform programme. The main reason for this is that the crop is grown predominantly by small scale farmers. Approximately 99,2 percent of the cotton crop is produced by about 300 000 small scale growers whose individual cotton fields average about 1 hectare. Due to the small size of their operations the seed cotton is hand-picked and graded according to cleanliness. As a result the country has managed to maintain high quality standards renowned world-wide.