Interview: Behind cotton payment gridlocks

Cottco board chairperson Sifelani Jabangwe, who shed more light on this transformation strategy among other things

COTTCO Holdings is in the process of transforming the local cotton industry through value-addition. Our business editor Mthandazo Nyoni (MN) had an interview with Cottco board chairperson Sifelani Jabangwe, who shed more light on this transformation strategy among other things. Find below excerpts of the interview: 

MN: Cottco has been struggling to pay farmers. Why?

SJ: The cotton business is for several stakeholders: Cottco, farmers and bankers. The cotton business cycle, from the day of planting to the time when money is received from export customers; there is a cycle of 14 to 18 months.

After planting, farmers deliver their crop to Cottco around the sixth month. The product will not yet be sold and Cottco will not have money to pay the farmer. Money only comes in at the end. Cottco is an agent in this cycle. This is where our national banks need to come in and give loans. The banks, when the crop comes in, should give Cottco loans to pay farmers and then when Cottco processes the crop and the money comes in, it pays the loan. So that is the cycle.

MN: But has that been happening?

SJ: Unfortunately, what has been happening is that banks have either not been able to give adequate facilities to pay for the crop. Sometimes they have the facilities but do not have the liquidity.

MN: What have you done to address this?

SJ: As a long-term solution, we have gone to make an application to Afreximbank to raise money that is available outside the country, which can be disbursed through our banks to pay our farmers.

Unfortunately, the process for such applications takes long. We started last year. We are hoping by this year it will be attended to and we will have the facility. But we have intended that for the next crop cycle.

For this year, we have engaged local banks to give us facilities…we just had a meeting with one of the banks. They indicated they will avail the facilities in time for our main crop intake. On the back of this support, we believe this year delays will be minimised if not eliminated.

MN: What is the update on payment?

SJ: There is 10% that is owed. We have paid 90% that was owed for the current season. We initially hoped that it would be cleared, but with the availed liquidity from the banks, we have only managed to get to about 90%. Hopefully when we clear this, we are able to be up to date with the farmers.

MN: Why the delay?

SJ: Just to give an indication why sometimes this takes long. Of last year's crop, which we should have paid to the farmers, we had delays because of power and the late crop. So, we are actually still ginning. This crop is still in the country. So, you see the need for the banking sector to effectively support the crop. Unfortunately, we cannot hide the fact that the farmer has to be paid on time.

We need all systems to kick in. It is something that we have been engaging with stakeholders so that banks understand what support and the timing of support.

MN: Do local banks have the capacity to fund the cotton sector?

SJ: You find that when there is more crop, the problem becomes even bigger. But it is a good problem to have because the country benefits and more farmers are paid. To tell you the scale of the problem, this funding that we require from banks cannot come from one bank. Not one bank in this country can be able to support that type of liquidity. That is why we are going to Afreximbank to get about US$45 million, which will be partly for buying crops when we need it. Part of it is going to be for value addition projects.

MN: Tell us more about these projects

SJ: We are expecting to receive oil crushing equipment that we acquired from China.

The plan is to have oil crushing equipment in each of the areas where we have ginneries to create jobs in the areas where cotton is grown. There will also be opportunities to make stock feed. We will also provide more affordable cooking oil to communities so that more returns can come, in line with National Development Strategy 1.

MN: Let us talk about production this year.

SJ: This year is one of the worst years for the country because we only had rains in December, which was very strange. Normally, we have rainfall throughout October. Even in the worst cases, we would still have rains coming back in March and so forth. Our planting period should be from October to the end of December, but we only had rains in December. All areas in the country tried to plant at the same time. Some succeeded, and some did not.

You normally would expect rains to come in about three months when the crop is flowering, but we did not get any rain. So that affects flowering and the forming of the squares and the bolls. That really affected the crop.

Even for those with a crop that is looking nice and healthy, it does not have as many cotton bolls as we expect. We are expecting the crop to come to about 24 000 metric tonnes, down from 70 000mt. But it is still a very significant crop because when you talk about 24 000mt, you are talking about 24 million kilogrammes.

MN: With climate change hitting Zimbabwe, is it wise to encourage farmers to grow cotton?

SJ: We actually encourage farmers to have half a hectare or a hectare of cotton because under the current climate change challenges, you will get something when it is rain fed. It is fairly resilient to dry weather conditions, unless there is extreme weather. But under the general drier conditions, cotton would be much better. We encourage farmers to grow cotton. We have not been doing much cotton in Matabeleland.

Now we have a lot of trial projects that we are doing and the cotton that is coming out there is quite good. You find that,  because of the dry conditions in Matabeleland, most people do not grow commercial crops. But if they start cotton, they will actually start making a good return.

MN: Let us talk about the issue of pricing for different grades. There is not much difference between grade A and D.

SJ: It is something that we have been engaging with other contractors to see how we can come up with a viable difference. Unfortunately, the cotton price itself does not differ too much. In the past, we have been trying to encourage anyone who produces to get a good payment.

Perhaps we have promoted mediocrity because the person who is D is getting almost what person in A is getting, and then the person who is A now says why should I do better?

So, it is something that we are trying to see how we can balance it. Initially, it was to encourage volumes, but now we would also want to encourage quality.

Honestly, what we have seen is, we have now seen most of the crop coming in as grade C and yet, previously, we had very good volumes of grade A and B. That could be a contributory factor.



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