The 2016 cotton sales season could be heading for trouble as four of the main cotton buyers and ginners in the country have opted not to apply for buying licences, local media has revealed.
The four firms –Toleza Farm, Malawi Cotton Company (MCC), Great Lakes and Export Trading Group (ETG) –have taken this move in protest against the K375 per kg which government has set as a minimum. They say this is too high.
The absconding of the four leaves only Agricultural Development and Marketing Corporation (Admarc), Afrisian and Cotton Ginners Africa Limited on the market.
However, the Cotton Council Board says the price was suggested by the ginners themselves and there is nothing that government can do about it at this point.
Speaking in an exclusive interview last Saturday, chairman of Toleza Farm, Clive Stanbrook, said his company will not be applying for a buying licence this year because the minimum price of K375 for Grade A cotton government set does not make any economic sense.
Toleza Farm boasts of 220 markets in Malawi’s cotton growing districts.
Stanbrook said Toleza Farm would lose money on every kilogramme it would buy.
“The price (minimum) cannot be justified on any rational economic basis when considered against the international prices for the cotton and because Toleza also grows cotton, we are happy to see high prices but there is a price for this policy as Admarc will make significant losses and government intervention of this nature will tend to put off future investors in the industry,” Stanbrook said.
He said Toleza Farm wants to compete with any buyer if there is a level playing field.
He said they would continue supporting farmers in obtaining the best for their cotton and when the market returns to normal competitive conditions based on supply and demand they will be there to play their role.
MCC Head of Cotton Department, Zhao Xiangjun, said the minimum price of raw cotton in Malawi is US$0.56 while in Zimbabwe, it is about US$0.27 and in Zambia it hovers around US$0.32-0.33 per kg.
He said MCC employs about 1500 workers and because they have not applied for a buying licence due to the high minimum price, most of the workers will be laid off.
“Government just informed us about the minimum price; we were not consulted. In fact the actual buying price is K380 because we have to add K5 per kg as levy for the Cotton Council,” Xiangjun said.
He said the cotton ginners disbursed about K2 billion in loans to farmers last year but only recovered about K700 million and if they do go into the market they would not be able to recover the loans.
“Buying cotton at the current minimum price means you lose even before other overhead costs of ginning, transportation and administration are added and last year we bought 6000 tonnes but we barely survived because the price last year was also the highest in this part of Africa,” Xiangjun said.
He said there should be competition during the input season and not the buying season because then the competition will be on prices only instead of improving on services to farmers.
Amos Chipungu, Cotton Ginners Board chairman, said much as there should be a fair price both to farmers and ginners, there should be consultation amongst all stakeholders to come up with realistic minimum price.
“It is a very difficult situation because one ginner said he will buy at K375. Then government just rushes in to say that would be the minimum price without thorough consultation, no economically sensible buyer can venture into the market in such a situation,” Chipungu said.
Cotton Ginners Africa Limited (Cgal) recently announced during a press briefing that it would be buying raw cotton at K375 per kg from K250 per kg in 2015 but all other ginners have said they were not consulted on the price and will not be buying any cotton this year.
Chipungu said government is killing the industry by allowing Admarc use tax payers money to buy cotton at a loss knowing nobody will raise hell.
Admarc will need about K7.5billion to buy all the projected 25 000 tonnes of raw cotton Malawi is expected to produce.
However, the Cotton Council, an arm of government that deals with issues of cotton, said the price was suggested by some of the ginners themselves.
Patrick Khembo, chairman of the council, said there was nothing that can be done now.
“If other ginneries are buying, that means they know they will make a profit but as Cotton Council we cannot go in and intervene now because it doesn’t make any sense,” Khembo said.
He said other ginners would be joining in the buying process soon as the secretariat is processing licenses for them.