The cotton industry in Zimbabwe is in crisis. World market prices have collapsed, and the liberalised contract system, where numerous companies compete with each other, is failing. Side-selling is rife, profits are being squeezed and farmers are losing out, as ginning companies threaten to reduce input supplies to maintain profits. With some ginners only offering cotton seed, and no fertiliser and agrochemicals, this means that yields are set to decline further, debts mount up and incentives for side-selling increase. A mix of contracting arrangements, with some involved in input supply, while others are just involved in buying up cotton, has been a recipe for confusion, and increasingly bad practice.
Many farmers have decided to switch from cotton to more lucrative crops, including tobacco. The consequence is that a number of companies have withdrawn from the Zimbabwean market. Cargill for example announced the ceasing of its cotton operations. The formerly state-owned company and the company with by the far the largest market share, Cottco, is in real trouble, posting a $30m loss in the last year, and racking up $56m of debt. It has restructured its operations, shedding management and other staff. Tthe government has moved in recently to bail it out, proposing to increase its stake from 16 cent to about 65 per cent, taking on the debt in exchange for shareholdings, and guaranteeing inputs for its 100,000 farmer grower base this season. Cotton merchants – with the exception of China cotton that continues to operate independently – have initiated a centralised buying scheme to cut down on side-selling, although some complain that this is a return to a monopolistic arrangement reducing competition, not seen since the days of the Cotton Marketing Board. China cotton, a relatively recent arrival and an increasingly important player also has its own problems.
The current situation is a far cry from the days when a liberalised market was being hailed as the saviour of the cotton industry. There were numerous new entrants, with Indian, Chinese, US, South African and other local companies entering the fray. The old monopoly of Cottco – and before it the CMB – was shattered, and, so went the argument, competition would promote efficiency and would benefit farmers and the economy alike.
For a time, this looked to be the case – and certainly our study from Masvingo in the 2000s showed how the growth of cotton farming in dryland resettlement areas really benefited post-land reform farmers. In the Uswaushava area, six companies operated, and there were new gins opened, allowing farmers choices of who to contract with. In the period of economic chaos in the mid-2000s, cotton contracting was essential, as this was the only way farmers could gain access to inputs, and get paid for their produce. Until the prices collapsed, farmers were happy, and profited significantly, investing in their farms and homes. Our data from Masvingo on the percentage of farmers in the A1 Uswaushava farms growing cotton between 2001 and 2013 shows the growth to a 2007-08 peak of over 90% involvement, and then more recent declines:
This pattern is reflected nationally. Cotton output for the 2013-14 season declined to about 136 million kg, from 145 million kg in 2012-13 and 350 million kg in 2011-12. Farmers have switched away from cotton, including to the more lucrative tobacco in some parts of the country. The prices are not high enough to cover the high input costs (of chemicals, fertiliser, labour and so on). While farmers are able to choose between companies, none are offering good enough deals in their view. Side-selling has grown, as farmers break contracts, and switch to capture good deals. The ideal of a liberalised market, especially in the context of declining commodity prices, is looking decidedly less shiny.
Through the 1980s and 90s, cotton production grew significantly, and became centred on smallholder production linked to outgrowing, especially in ‘frontier’ areas such as Gokwe and Zambezi valley. This dynamic was only boosted by land reform in 2000 as more small-scale farmers came into the sector, eager to profit from the ‘white gold’. In the 1990s, the zeal of policymakers for radical liberalisation and privatisation was aided and abetted by misguided advice from international experts from donor agencies and lending institutions. And of course in the ESAP era of the ‘Washington Consensus’, full-scale liberalisation was often obligatory under the disastrous conditionalities of the International Finance Institutions. This was added to by the enthusiasm of companies, sometimes with strong political connections, wanting to gain access to what then was seen as a highly lucrative market.
At the time many warned of the dangers of sudden and complete liberalisation. They pointed to the dangers of an unregulated, poorly coordinated market solution, and the risks of state withdrawal from the sector. Cottco as an effective private oligopoly initially maintained a coordination role, and offset the worst consequences of liberalisation. But as liberalisation continued, these effects were lost to the detriment of the sector. While ‘parastatal’ was a dirty word in the 1990s (and still is in many quarters), in agricultural economies across Africa they often played an important role. While they were undoubtedly inefficient and often corrupt, an ideologically-driven privatisation at all costs was often worse. And so it proved in many instances.
The contrasts between west and southern Africa, both major cotton producers, is instructive. West Africa has maintained output, productivity and competitiveness, but with continued state and institutional coordination and support. Burkina Faso for example was able to build its cotton industry, and it has remained with substantial, if reduced, state involvement. By contrast in southern Africa production has declined, and privatised businesses have struggled.
That the state in Zimbabwe has returned to prop up the failing Cottco is perhaps a sign that the limits of liberalisation are finally being understood. Cotton is such a crucial crop for Zimbabwean smallholders that it is vital that, even as commodity prices dip, the capacity of the industry to produce top quality export cotton is maintained. Zimbabwe is still a major producer globally, and has a tradition of producing high quality lint. However, the dangers of assuming that a completely liberalised contracting approach will work in the longer term need to be heeded – for cotton, but also other crops such as tobacco, currently seeing a boom.