Cotton ginners risk defaulting on export contracts

26 Jun, 2020 - 02:06 0 Views
Cotton ginners risk defaulting on export contracts Cotton farmers continue to be prejudiced by unscrupulous merchants

eBusiness Weekly

Business Writer

Cotton ginners run the risk of defaulting on their lint export commitments as they are failing to buy raw cotton from farmers due to unavailability of cash.

Raw cotton is processed into lint through ginning. It is a process of separating fibre and seed.

Some ginners have had their mobile money platform closed by the Reserve Bank of Zimbabwe on suspicion that they are being used to fund foreign exchange black market activities.

The central bank’s Financial Intelligence Unit believes large money transfers particularly by EcoCash agents are being used to fuel black market deals.

Those with active accounts are unable to make meaningful payments after the RBZ caped daily transactions. The central bank has also not availed cash in the form of US and Zimbabwean dollars.

Government set the cotton producer price at $43.94 (US$1.75) per kilogramme for this season. The producer price is a combination of US dollars, Zimbabwean dollar cash and electronic money.

Farmers will be paid US$10 per each bale weighing 200 kilogrammes of cotton delivered, 38 percent in Zimbabwean dollars cash and the balance transferred electronically to farmers’ mobile money wallet accounts.

Cotton merchants normally enter into contracts with international commodity buyers prior to the start of the selling season and fears are growing that they may incur huge losses due to penalties arising from failing to timely fulfil their lint export contracts.

“Some of the cotton ginners are on the edge of defaulting because they cannot buy cotton from farmers.

“Farmers are withholding their cotton because we have no money to pay. Our mobile money accounts are closed. It’s a very difficult situation,” said an official with a local private company.

Zimbabwe exports 85 percent of lint because it has no vibrant textile industry.

Cottco, the largest cotton financier said payments to farmers had been a challenge due to mobile transfer limits and unavailability of cash.

“At this stage we have not started the payments to farmers in earnest. We still have hurdles to be cleared in terms on operationalisation of the merchants lines,” Cottco managing director Pious Manamike told Business Weekly in an interview.

“We are, however, reliably informed that there would be a resolution very soon so that payments to farmers who have delivered their commodity can be made.”

An official with another private cotton company, said they are unable to make payments because their mobile accounts are closed.

“It is a challenge,” said the official who requested not to be named. “No cash deliveries from the central bank and our accounts are currently closed. We cannot do anything yet it is time we should be buying.

“Farmers are withholding their crop demanding payment upfront and this will erode confidence among farmers.”

Several calls seeking a comment from RBZ governor Dr John Mangudya, were not answered.

Analysts fear that payment delays might result in farmers abandoning production of cotton, one of the country’s biggest earner of foreign exchange.

“Farmers are now hopeless. Inflation is rising, prices are going up yet their money continue loosing value,” said Doris Mhere, a commodity analyst with a local research company. “Authorities should really be sensitive having in mind how this may affect the industry going forward.”

This year, cotton production is estimated at 101 000 tonnes, an increase of 32 percent from 77 000 tonnes produced last year, according to the Second Round Crop and Livestock Assessment Report.

This was due to increased coverage of the Presidential Inputs scheme. The scheme was introduced in 2015 after Government moved in to revive cotton industry.

After peaking at 352 000 tonnes in 2011, output declined to 28 000 tonnes three years later, the lowest in nearly two decades partly due to lack of adequate funding and poor prices.

With the coming in of the Presidential Inputs Scheme, coupled with renewed interests by private players to finance the crop, who last year financed about 30 percent of production, the sector has recorded a significant recovery. In light of climate change, some farmers are also increasing acreage as the crop is generally less waster intensive.

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