Discord over centralized cotton buying system between farmers and merchants

YarnsandFibers News Bureau 2015-07-23 11:00:00 – Zimbabwe

A centralized cotton buying system has been introduced by Zimbabwean cotton merchants to curb side marketing which has become rampant in the industry. Farmers has described the move as an attempt to promote monopolistic tendencies.

The Cotton Ginners' Association, which represents the merchants, is buying the crop on behalf of all ginners, except for China Cotton Africa, and the volumes are shared on a pro rata basis depending on level of investment in the production, industry players said.

About 98 percent of production is funded by ginners under contract schemes introduced at a time when farmers were failing to access finance due to lack of collateral. Farmers are being paid US30c per kilogramme and get an extra payment after grading.

Industry players said that the uneven playing field where some merchants invested more in production and lose the crop as a result of side marketing was a recipe for disaster. However, farmer organizations have expressed concern over the new cotton buying system, saying the model has taken away competition.

Zimbabwe National Farmers' Union vice president Mr Garikai Msika said that their position is that the system is promoting monopolistic tendencies that they have been fighting.

The collective buying system is prejudicing farmers because they no longer have competition. It does not augur well with what they are trying to achieve (competition).

While cotton production has been on the rise over the past few years, the viability of the sector has been adversely affected by side marketing. The challenges arise from a situation where some merchants were deliberately paying higher prices to lure cotton growers including those holding the contracted crop.

According to analysts, the cotton industry needs to revert to Cotton Marketing Board monopoly model to achieve better efficiencies, viability and sustainability. They have argued that liberalization of marketing would not work if the regulatory enforcement is weak.

Market forces are great for freely produced crop but not when all production is under contract. Although this would shift the problem from the private to the public sector, the CMB model will revive the industry and pay better prices to the farmers.

The CMB model is a lower risk model which means better inputs package and training, better yields, higher volumes and better economies of scale.

Competition and Tariff Commission assistant director (competition) Mr Benjamin Chinhengo said that the CTC would engage the Agricultural Marketing Authority to establish if the new system was not creating a monopolistic environment in the market.

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