Bickering over cotton pricing continues

TM: The price war has continued every year, have merchants and farmers finally reached an agreement this time around? Do you think the US$0,36 cent/kg is a fair price considering farmers are complaining that they have been unable to improve their livelihoods although they have been producing cotton for years?
DM: The Agricultural Marketing Authority (AMA) published the 2012 seed cotton indicative producer prices in the print media on May 13, 2012. The prices ranged from 36 cents per kg for “D” grade to 50 cents/kg for “A” grade. The prices were arrived at after taking into consideration farmers’ and ginners’ production costs, the lint price on the international market and other market fundamentals. Buyers who are able to pay more than the indicated prices were encouraged to do so. When price negotiations take place, all concerned parties are fully represented at such meetings. This means that farmers, buyers and government (AMA) meet, discuss and agree before prices can be announced. Unfortunately lint supply has outstripped consumption on the global market and this causes lint prices to fall hence the scenario that we are witnessing right now.
There is a glut of lint with very few buyers because buyers are not buying for speculative reasons. Spinners have adopted a wait and see attitude as they are anticipating further price reductions. The question that they are asking is “Why buy now when we can buy later at a lower price?” Yes the current producer price is low and one can say the price is not fair because it is not viable to the farmer. On the other hand ginners are not in a position to pay farmers what they are demanding as those prices are not sustainable for their businesses. These pertinent concerns by both farmers and ginners need to be addressed objectively without killing the goose that lays the golden egg. Not all farmers have been unable to improve their livelihoods through cotton production as there are others who have done wonders over the years and have no regrets. The effects of droughts and floods in some parts of the country over the years and side marketing by certain growers have also contributed to some of the farmers’ demise.
TM: Since prices are determined by the international market forces, how can the Zimbabwean farmer compete with farmers from China and the USA?
DM: One of the ways our farmers can compete with their counterparts is if government could give them a subsidy but the challenge is that the government may not be able to assist due to non availability of funds. Another way that government can assist farmers is to make agricultural inputs cheaper for the farmer through duty free inputs and spare parts for suppliers’ plant and machinery. This benefit can also be extended to those intending to import new plant and machinery or to replace the old ones.   When suppliers of inputs are assisted in this way they can in turn sell their products to farmers at competitive prices.
TM: Do the merchants have the capacity to pay a higher price to cushion farmers from unfavourable market prices?
DM: The majority of merchants are barely making ends meet as they have their own costs which they are obliged to pay. Some of them borrow huge sums of money from banks at high interest rates to fund their operational costs and consequently they cannot pay a higher price to support farmers.
TM: Because of the unviable price, what measures will merchants take to recover their money from contracted producers who are unable to pay back their loans?
DM: Normally merchants agree with farmers on terms and conditions of paying their debts as merchants will also be under obligation to pay for their debts. Farmers are given a time frame to honour their debts, failure of which they are handed over to debt collectors. Most farmers grow other crops such as tobacco and maize and they normally pay off their debts from proceeds realised from alternative crops or other business ventures they embark on. Nowadays farmers do not rely on a single farming project as they now diversify.
TM: Last season farmers complained that merchants attached properties in order to recover their money. Is this the only available solution in this working relationship?
DM: Merchants discuss and agree with growers on how they intend to settle their debts before any inputs are disbursed to them since they do not have to provide collateral security. This would not be the case if they borrowed from banks as banks insist on collateral security.
A grace period is extended to farmers to pay back their debts. However, it is only in extreme cases whereby merchants attach properties of dishonest farmers who side market their crop to evade payment of inputs they would have received in advance from merchants.
However, it is important to note that most of our farmers are loyal and credible and they always try to pay back their debts.
TM: What are your views on the country’s cotton industry?
DM: Our cotton industry has the potential to grow and to exploit existing opportunities such as improving cotton production, cotton productivity, quality, research and development to come up with drought resistant varieties. The Zimbabwe cotton is popular and well sought-after by many of our clients the world over. There is a bright future for our cotton industry if all stakeholders can have a common approach and a common goal to preserve the gains achieved to date.
TM: With the declining international prices, what is the future for the country’s cotton industry and the cotton producer?
DM: The international market for cotton is unpredictable. One can expect anything, who would have known that lint prices could have reached such unprecedented levels like what we witnessed in 2010/2011 season. For example, any cotton growing country can experience adverse weather conditions at any time, distorting market forces and this can cause a shortage of lint on the global market.
When this happens lint price will go up. Alternatively new government policies by various cotton growing countries can change thereby influencing favourable lint prices on the international market.
We can safely say that prices will not decline forever, they fluctuate, they can remain stable, fall or firm, it all depends.
TM: Since most cotton producers are small scale farmer, African producers are the most affected by the declining prices. What can be done to ensure that they do not plunge into poverty?
DM: Government subsidies will go a long way to alleviate this problem; the challenge is how many countries are able to do so. Alternatively a ban on subsidies can be imposed on all countries that currently give subsidies to their farmers to protect farmers in countries that cannot afford to subsidise thereby creating a level playing field.