No US dollar payment for cotton farmers

ZIMBABWEAN cotton firms have failed to secure US-dollar loan facilities ahead of the 2022 marketing season, some industry players have said, a move likely to draw strong opposition from growers who are anticipating part payments in hard currency.

The Reserve Bank of Zimbabwe (RBZ) said in February that cotton farmers, alongside tobacco growers, will be paid 75 percent of their earnings in foreign currency as the Government sought to boost production of the two agricultural export commodities.

However, industry players said the announcement, made in the 2022 Monetary Policy Statement, came late as it normally takes about six months to have such facilities approved.

“The cotton merchants made it clear during a recent meeting with the Reserve Bank that they won’t be able to pay the 75 percent in foreign currency,” said a senior official with a leading cotton company. “We didn’t have enough time to negotiate for the facilities.

“Besides, this was going to kill investment case for cotton because, unlike tobacco farmers who are obliged to repay the loans, our growers are getting inputs for free. The merchants are already spending foreign currency to import the inputs, which include fertilizers, certain chemicals and spares for the ginneries.”

The price for the 2022 cotton marketing season was set at $111 per kg for the crop funded by private companies and $63,23 produced under State assisted farming programmes — Pfumvudza/Intwasa and the Presidential Free Inputs Scheme.

Using the official exchange rate, the price will be almost US67c per kg for the crop funded by private merchants and US38c for the crop funded under Government schemes at the prevailing rate of $165 for US$1.

Both prices in the United States dollars are above regional averages. Zimbabwe, alongside Zambia, Mozambique and Tanzania are major producers of cotton in southern African region.

Cotton, largely grown by communal farmers, is a major source of livelihood for thousands of families living in the countryside. Last year, farmers produced about 130 000 tonnes of the crop, an increase from 84 000 tonnes a year earlier. However, indications are that production is estimated to decline this year due to a combination of factors including poor distribution of rains and a mid season long dry spell.

With the 2023 cotton marketing season set to begin in the next few weeks, farmers are appealing for an upward review of the price, arguing the producer price approved by Government in January this year has since been eroded by inflation.

“Inflation even in US dollars terms continue rising, of course, due to certain circumstances beyond our control,” Cotton Producer and Marketers Association Mr Stewart Mubonderi told The Herald Finance and Business in an interview on Tuesday.

Analysts say that the Government should consider “periodic adjustment” given that the global streak of high inflation is far from over due to ongoing Russia’s war in Ukraine.

In its World Economic Outlook, the International Monetary Fund (IMF) said global economic prospects have been severely set back and inflation is set to last for longer, largely because of conflict between Russia and Ukraine. Inflation is the single most important challenge “of our time,” the global lender said, urging the central banks to raise interest rates aggressively to bring them back down to the target.

Zimbabwe’s cotton season runs in two phases: planting between October and January and a harvesting and marketing phase that runs from May to September.

The opening date for this year’s marketing season is yet to be finalized but industry players have recommended the beginning of next month after planting was delayed in most parts of the cotton-growing regions due to the late start of the rains last season.

Cottco, which administers the Government free cotton inputs scheme, finances about 85 percent of cotton production.