Poor prices threaten Zambia’s cotton sector

AROUND mid-year 2012, cotton farmers in Petauke district in Eastern Province burnt cotton weighing 11,300 Kilogrammes valued at K17.6 million, belonging to Cargill cotton Zambia.

The farmers were reported to have been infuriated by Cargill Zambia officials who went to buy cotton from the farmers with an offer of K 1,600 per kilogramme prompting the irate farmers to burn the cotton which was stacked at Ukwimi Police post in Petauke.

The burnt cotton was bought from farmers in sopa village but that the driver decided to offload it at Ukwimi police post after an attempt by the farmers to intercept the Truck. The farmers also stoned the police post leaving the building damaged.

The reason for all this was simple – cotton pricing.

The farmers and cotton buyers had reached a deadlock on the price of cotton. The price offer was pegged at K1.6 per kilogramme from the K 3.5 which was being offered in 2011.

Two years down the line, the scenario has not changed.

The pricing is still a disappointment to the cotton farmer and this has been attributed as one of the contributing factors to the drop in cotton production in the country.

According to the Cotlook A-Index, global cotton price is at a current level of US$ 2.004, down from US$ 2.044 last month and down from US$ 2.052 one year ago. This is a change of -1.95 percent from last month and -2.34 percent from one year ago.

The unresolved issues surrounding pricing has resulted into a decrease in production. Cotton production has decreased by 13.80 percent to 120, 314 metric tonnes in the 2013/2014 season compared to 139,583 metric tonnes in the 2012/2013 season.

Local cotton producers lag behind their peers on the continent in economically benefiting from the product because they lack negotiating power.  They feel growing cotton is a waste of time and resources.

 “It’s depressing to see that the ginners here have taken advantage of us compared to those in other countries like Zimbabwe. These ginners have the same market for cotton but in Zambia, the ginners get out cotton at the lowest price in the Southern African region, which is unfair and that is why most farmers here are not growing cotton any more as they used to four years ago,” Sydney Simwiinga, a small holder farmer in Gwembe in Southern province.

While farmers in other heavy cotton producing countries like in West Africa are flourishing and making a serious dent on rural poverty, Zambian farmers continue to struggle to make serious returns on their investment as they are at the mercy of the ginning companies.

“Farmers that are not in any agreement with ginners have the choice to either withhold their cotton until a price that makes up. But for us since we were given loans buy the ginners, we have no choice but run at a loss.

“About 99 percent of cotton produced in Zambia is grown under contract and incidentally ginners form the bulk of the contractors who buy it.

It would be difficult for us local farmers to raise our business profile and get meaningful margins on our investment as long as we lacked adequate and reliable working finance,” Mr Simwiinga said.

Currently, the cotton producing sector is primarily driven by the private ginners who contract individual farmers to produce the cotton and also set the price of the commodity.

Zambia has around 280,000 smallholder farmers, who are engaged in seed cotton production.

The cotton industry is very important to Zambia, as it creates employment for a lot of people, especially those in rural areas.

Presently local farmers have a challenge in negotiating selling prices for their produce, a situation which had adversely affected them.

“We are currently selling out cotton at K1.6 and the global market pricing is at US$2 equivalent to over K12. The cotton pricing has not changed. In 2012, we sold the cotton at the same price. The ginners make a lot of money and it is meaningless to continue producing cotton.”

“For example, after ginning the buyers sells the lint for US$2 on the international market but they are left with the seed that goes on to be sold to manufacturers of margarine, cooking oil, soap and stock-feed pushing the value to more than what they pay us. Farmers also deserve a share which must come from fair pricing that takes into consideration these facts,” said Mumbwa-based cotton producer who spoke on condition of anonymity.

Currently, the scenario is that ginners provided loans to cotton growers and the ginners will recover their loans after the harvest.

This is mainly because, farmers are not financially empowered to grow cotton on their own, hence ginning companies coming on the scene to provide inputs for cotton production to farmers.

Zambia's cotton industry has developed into the largest quasi-formal distribution network with an estimated two million dependents participating in various out-grower schemes.

A lot of people depend directly and indirectly for their incomes and livelihoods on the cotton value chain.

Despite the cotton industry's great potential to contribute to the national economy, the sector continued to face enormous challenges that needed to be adequately addressed if the sector was to move forward and raise output.

Some farmers actually suggested that Cotton Association of Zambia (CAZ) find some funds to help them set up a revolving fund which would enable them to become self-financing in cotton production.

They contend the situation would help farmers produce their own crop which they would later sale to ginners at a good price.

Recently Government announced that the cotton production for 2013/14 marketing season has dropped drastically by almost half to about 100,000 metric tons  and experts says this is mainly due to poor pricing.

Marble Mwale, a small scale cotton farmer in Mumbwa says, “It is critical for farmers to finance themselves or engage in contract farming. The best way would be for government to finance cotton farmers instead of leaving to ginners who are taking advantage of our vulnerability.

I think if this is done, then the issue of pricing will be dealt with and government can set the cotton price based on the world price for cotton lint to ensure viability and success of local farmers.”

According to Ms Mwale, the country should also focus on quality specialist cotton which can maximise returns throughout the value chain.

However, she notes that when cotton prices are high, goods produced based on cotton become more expensive and consumers will switch to other substitute goods such as polyester fabrics and soya oil.

According to the Citizens Economic Empowerment Commission (CEEC), processing of cotton has shifted from developed to developing countries over the last decade.

Both world cotton production and consumption are trending higher, reaching a record in 2008-09 before the global economic crisis affected consumer demand.

The largest producers are China, India, the United States of America (USA), Pakistan and yield increases have led to an overall growth in global production although yields vary from place to place.

The survey reveals that the largest consumers importing cotton for processing are China, India, Pakistan and Turkey.

In Zambia, approximately 227,000 small landholder farmers produce 90 per cent to 95 per cent of all Zambian cotton utilising 254,000 hectares of land.

CEEC director general Likando Mukumbuta said the commission approved 19 projects in Mumbwa and disbursed more than K1.1 million with some of the projects approved being Sulisel Agro Suppliers and General Dealer, Walilanji Agro Marketing, Mulomel General Dealers, Nkausu Supplers, Mudenda Maureen, Kalaka Agro and General Dealers.

Others are Lismark Agro Dealers,Kabanje Agro Dealers, Fundiwa Ruth, Muzondiwe Jessily, Nyirenda Khumbo, Munengo Chrissy, Namukolos Creations, Chakaripper Youth Multipurpose, Shamulumba Agric Cooperative and Chileleko Womens’ Club among many others.

Mr Mukumbuta said that commission promised the people in Mumbwa that it will put people to work so that whatever they get from their fields and whatever they get from the other resources, they will be able to process themselves and that is what they would sale.

He said, these value chains cluster are right under way and a total of K5 million has now been pumped into Mumbwa to commence the industrialization of the district.”

The 2004 cotton production of 172,000 tonnes generated about US$50 million in export earnings of cotton products such as lint cotton, cotton yarn and ready- made cotton garments.

Besides the 227,000 farmers, 1,200 permanent employees, 1,700 temporary employees work in the cotton industry.

Where Dunavant and Clark Cotton companies have developed strong out-grower programs for seed cotton farmers, yield has gone up from 500 to 600 kilogrammes (Kg) per hectare in 2000 to 700 to 800 Kg per in 2001.

The Zambian climate and its general altitude of 750 square metres to 1,200 m create an environment favourable for growing cotton.

Most of Zambia’s cotton is produced by smallholder farmers in the Eastern, Central and Southern Provinces, areas near Lusaka and the Northern Provinces and the Northern region of the Western Province.

Mumbwa District in Central Province has a potentially vibrant cotton sub sector with annual primary production of 23,383 tonnes of cotton and yields of 0.91 tonnes per hectare.

According to the Central Statistics Office (CSO), Zambia Population and Demographic projections, Mumbwa District has a population of 254,465 people comprising of 126,875 male and 127,590 female.

There about 30,000 smallholder cotton farmers in Mumbwa with Kaindu, Nambala,Nalubanda, Shibuyunji, Kapyanga, Mukulaikwa, Mumbwa, Central and Nangoma agricultural blocs being the major cotton production areas.

The main value chain actors are smallholder cotton farmers, ginners, agro input suppliers and transporters.

Cotton is processed into seed, lint and fuz seed cake supplied to Cargil, Dunavant , Alliance, Continental and livestock farmers.

It is against this background that the Government is establishing economic clusters in various parts of the districts in the country.

These clusters are expected to capitalise on the district products and resources in order to support Small and Medium Enterprises (SMEs).

Such clusters will create the establishment of supportive infrastructure which will in turn, fuel the development of the district, the province and consequently, the country.

In April this year, Commerce Trade and Industry Minister Bob Sichinga flagged off the 2013 value chain clusters in Mumbwa where he hailed the establishment of Mumbwa Farmers Ginning and Processing Association (MFGP) Company which will encourage more investments in local cotton production.

MFGP which is the anchor investment of CEEC and supports cotton value chain, was established in Mumbwa at the cost of K5 million.

Out of the K5 million, K2, 000,000 is CEEC direct loan and equity, while another K1,500,000 will come from CEEC again as trade finance while K1,500,000 was grant which came from the Ministry of Agriculture at the time.

The project will also demystify cotton processing and export thereby encouraging more Zambians to invest in cotton processing and creating more job opportunities for local people.

There will also be greater circulation of cotton revenues within the district thereby boosting rural economy.

“The company will also encourage more cotton processing and job creation. This project marked the first investment in which the Commission would be taking equity of 32 per cent, a venture capital financing option duly authorised under Citizen Economic Empowerment (CEE) Act number nine of 2006, the minister said.

It is anticipated that the company would increase foreign exchange retention and reduce capital flight from the Zambian economy and that by earning through the farm-gate price and participating in marketing margins on unit, farmers will earn more their cotton.

The establishment of this organisation would help alleviate problems such as shortage of seed cotton most farmers have been faced with.

Farmers will increase income in that seed cotton would be within reach and would no longer have to depend on ginning companies for seed.

These value chain clusters are important because they present an opportunity to strengthen the position of smallholder producers and connect the industry to the market and assure the future of cotton in Zambia.

About 300,000 Zambian farmers totalling 1.5 million families depend on cotton farming as a means of livelihood.

In Africa, the price of seed cotton is tied to the international price of lint raw cotton after ginning in United States dollar per kilogramme (Kg), and determined by global stocks.