…Struggle to clear ZW$3bn debt
VINCENT MHENE IN GWERU
Zimbabwe’s cotton ginning companies are facing an uncertain future due to high producer prices, resulting in them battling to clear ZWL$3.1bn owed to farmers for supplies of their white gold from last season, industry players warned last week.
Executives from cotton companies, who spoke at the Zimbabwe Farmers Union’s Annual Congress held in Gweru last week, said they were financially incapacitated owing to the midseason upward review of the cotton producer price.
They said they were on the brink of collapse and are now seeking a financial bailout.
Consequently, most ginners were now paying farmers with groceries.
Farmers are, however, not happy with the move.
The government in June raised the cotton producer price by 54%, resulting in farmers getting ZW$43.94 per kilogramme of cotton and US$10 paid per bale on delivery.
“When the season started, we had budgeted ZW$1.3bn basing on the previous seasons but when the government announced the new floor price it meant we were now supposed to pay farmers ZW$4.4 billion,” said Pius Manamike, the Cottco Zimbabwe managing director.
“We have paid all the ZW$1.3bn to farmers and now wait for the government to support us with the balance, either through a subsidy or price support.”
Cotton ginners, Manamike said, were faced with serious viability challenges following the price review, and were broke.
“To get a kilogramme of lint we need 2.43 kg of raw cotton.
If we apply the current buying price of cotton of ZW$43.94/ kg you get ZW$107 to buy 2.43 kg of cotton. If you convert that to United States dollars it gives you a price of $1.30, but on the market, we sell the lint at US$1.20. This is the situation we are in,” Manamike said.
He added: “Cotton ginners have approached the government for price support to pay farmers the outstanding payments.
“This is just the cost of buying cotton, we also have ginning, agronomy transport, and salary costs, meaning we are broke right now, we can`t pay what we owe farmers, it is impossible.”
Cotton Ginners Association secretary-general Andrew Mupfava said the sector faces collapse in the absence of a relief package.
He also said the cotton industry required a subsidy as done in other countries. Some cotton farmers expressed frustration over the payment delays and have threatened to dump the crop next season.
“All this that is happening is causing farmers to reconsider growing cotton for crops that do not have these hassles,” one farmer from Muzarabani said.
Another said: “These ginners just started giving us groceries without our consent; they are failing to give us our money.
They asked us to open bank accounts and up to now nothing has been deposited in the accounts.”
It is understood that Cottco introduced grocery schemes to farmers in which they get grocery hampers and deducted from what the company owed them.
But, the Zimbabwe Farmers Union vice president Phillip Mauta expressed disquiet saying the groceries farmers were receiving were overvalued.
“If you check the prices of the groceries you (Cottco) gave us, they are the same prices being charged by kiosks, instead of using wholesale prices, that is what we expected,” Mauta said.
The payment process this year was also affected by the limit on mobile money transactions placed by the Reserve Bank to curb illicit currency trade via the platform.
At its peak, cotton production in Zimbabwe stood at 350 000 tons in 2012. But, in 2015, production hit its lowest point at 28 000 tons.
Over the last few years, the cotton industry has been underperforming owing to several factors such as lack of financing and side marketing.
Output of the white gold is projected to reach 76,800 tons this year, 101,000 tons next year and 140,000 tons in 2023, according to the 2021 pre-Budget Strategy Paper launched recently.
