THERE is a growing concern over the future of the cotton industry in Zimbabwe as some of the cotton merchants and farmers continue to violate contract agreements through side marketing of the crop.
The contract schemes contribute about 98 percent of cotton production in the country. They were introduced at a time when farmers were failing to access finance from the banks due to lack of collateral.
Under the contract schemes, all contractors are required to have signed agreements with individual growers, which are then registered with the Agricultural Marketing Authority.
The contract specifies the area supported by the contractor and the volume expected. In terms of the law, no other buyer is permitted to buy cotton from a grower contracted by another merchant.
The contracting company must issue wool-packs (hessian packaging) marked with its name to the contracted farmer and no company or contractor is permitted to purchase cotton in a competitor's wool-pack.
While production levels have been rising over the past few years, side marketing is posing a major threat to the viability of the industry which sustains thousands of families across the country.
The challenges being faced are emanating from a situation where some merchants are deliberately paying higher prices to "entice" sellers, including growers holding the crop contracted by other ginners.
Official records are showing that production support from the merchants buying side-marketed crop is low.
As such, the merchants can afford to pay higher prices as the initial investment would be very low.
The cotton marketing season began a month ago after farmers and ginners agreed on a minimum price of US35c per kg. Such developments, analysts say, could be a disaster to the country's cotton production as ginners may be forced to reduce financial support for farmers in the next season.
"It is a disaster because genuine contractors are losing their crop to other merchants," said one industry player.
"These merchants can afford to pay higher prices than merchants who would have provided substantial resources towards production. This creates an uneven playing ground."
In a recent interview, Cotton Ginners' Association director, Mr Godfrey Buka said there was need for a solution which allows the country to benefit from the investment in the cotton sector without compromising the viability of the existing businesses. He said stakeholders in the industry believe that, if the provisions of SI 142/2009 were upheld, there exists tremendous scope for synergies between new entrants who have resources and existing merchants who have excess capacity.
The SI makes it obligatory for contracted growers to sell their crop to the merchants that supported production.
"The SI promotes grading of cotton by ensuring that farmers with better grades of seed cotton end up getting a better price," he said.
"Better inputs packages being provided to the farmers along with incentives for better quality seed cotton is motivating the farmers to grow better quality of the crop. This will enable Zimbabwe to regain its earlier status of producing one of the best quality medium staple lint," he added.
Zimbabwe Farmers Union second vice president, Mr Berean Mukwende expressed concern over the practice saying a meeting would be held next early next month to find a lasting solution.
"We have received reports that the issue of cotton side marketing is still persisting and it is unfortunate that some ginners are being implicated in the practice and as an organisation we are worried," he said.
"We have arranged a meeting with both ginners and farmers to be possibly held on July 4 (this year) to discuss the issue and come up with possible solutions to the problem."
Zimbabwean cotton used to earn premium prices over and above the quoted prices, prior to the problem of side marketing. The country has the potential to produce some of the best quality cotton in the world.
However, this has disappeared because farmers are no longer being encouraged to grade their crops. Side marketing is hurriedly conducted and does not distinguish between low and high quality crop.
There is also a very high default risk in the cotton business as some merchants are not providing inputs but, for reasons cited earlier, manage to offer higher prices to farmers contracted by others.
The 2011/12 season saw a bumper crop being produced following record high prices offered on the international market. But, ironically, the rate of recovery was very poor owing to side marketing.
Funding for the crop production had reached its peak last season with US$42 million invested in the crop. However, recoveries came short by US$19 million, thus impacting on input support for this current season.
There was a marked reduction in financing levels this season owing to the failure to recover last season.
The record production of 353 000 tonnes achieved in the 1999/2000 season has been difficult to surpass due to activities of the pseudo contractors who consistently have not fully supported the crop.
While this was almost achieved in 2012, it was due to the record high producer prices which were three times the normal average.
If contractors have no permanent residency status they tend to live for the day, that is make their money with little or no real investment and then pack their bags and go whenever it suits them. Such merchants have no concern about the future of the cotton farmer and the industry at large.