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Fate of cotton production in Zimbabwe: Zambezi Valley case study
Ludwig Chizarura, SEATINI
January 01, 2006

http://www.seatini.org/cotton/fateOfCotton.htm

Introduction
Prior to the land reform programme in Zimbabwe, cotton was the second largest foreign currency-earning crop in the country grown largely by peasants in semi-arid regions, with an average annual rainfall of 600mm per annum and temperatures of around 30 degrees Celsius. The purpose of the study is to identify the problems that cotton farmers face with the view of developing a strategy that will help revitalise the cotton sector.

The decision to conduct the research on cotton production was arrived at against a backdrop of the increasing dependency of the producers on food handouts from external sources such as World Food Programme. Distributing food to the local people has become an annual event (eventually suspended on political grounds) despite the cash earnings from cotton. Internationally there are grave concerns over unfavourable terms of trade for the developing countries that are driving farmers off land especially in West and Central Africa.

Prevalence of Cotton Production
Nearly all the 20 312 peasant farmers and their families in Lower Guruve grow cotton as the principal source of cash income required to meet daily household needs. Out of these households, approximately 40% are female headed (the women are either widowed, divorced or have a spouse gainfully employed outside Lower Guruve).

Around 80% of the cultivated area is under cotton production, with the remaining portion devoted to sorghum, groundnuts and maize grown for subsistence purposes. The region is renowned for frequent consecutive occurrence of droughts and occasional flooding that induce food deficits from own production. The low rainfall and the high temperatures discourage maize production, the national staple food. The latter wilts due to moisture stress resulting in inevitable crop harvest failures. Cotton is preferred due to its drought tolerance and ability to yield cash. The proceeds from cotton are expected to cover up the gap on food shortfalls through purchases mainly maize from the Grain Marketing Board. Unfortunately this has not been the case over the last four years as an increasing number of farmers turned to the Christian Care /World Food Programme for food relief due to the falling global market price and successive droughts. Nonetheless, despite the decreasing returns from the crop, the farmers continue to grow it. It is these prevailing contradictory circumstances that have prompted an investigation into cotton production.

Marketing System
The introduction of the World Bank/IMF Economic Structural Adjustment Programme (ESAP) induced a government policy change on producer prices, which was parallel to the US EU guaranteed price policies. In the past the government used to announce guaranteed producer prices before the agricultural season started. With the change in policy the setting up of prices was left to market forces, i.e. the negotiations between the farmer organisations and the cotton merchants during the harvesting season based on prospects on harvest volume and quality. By introducing ESAP on the advice of the IMF and the World Bank the government hoped to accelerate economic growth, fund social services (health and education) and have the capacity to create jobs for the thousands of annual school leavers (UNDP HDR report 1999). Deregulation meant that market forces would set the prices. The new system brought insecurity to the farmers, as they no longer enjoyed guaranteed pre-planting prices. They were no longer able to plan investments in production or at the household level. They produce and then wait for the announcement of producer prices during the harvesting season. They have turned into a situation of being price-takers in a market of almost perfect competition and decreasing returns.

The negotiations between the representatives of farmer organisations and the cotton companies are heavily tilted in favour of the latter. While the companies base the producer price on the international value, the farmers take into account the costs of production. Thus disagreements inevitably arise between the two parties. The price offered by merchants usually prevails with minor adjustments. The matter came to a boil point during the 2004 marketing season, with farmers demanding at least Z$3000/kg while the merchants offeredZ$1800/kg. The final price agreed on after the intervention of the Minister of Agriculture was settled at Z$ 1900/kg. It is clear that at the marketing stage there is an unequal negotiating power between the two parties. It is the merchants that are in a position of strength.

Farming Practices
Prior to the calculation of net returns from cotton, it was found necessary to classify farmers according to their practical production practices. The classification is important in determining costs of production that are incurred by the farmers. An Arex field officer provided the following information on farming practices.

With reference to tillage, 7% use tractors 60% animal traction and 33% are dependent on hand tillage. During the last two seasons the percentage using tractors declined to 4% due to scarcity and sharp increase in the price of diesel (while the official price was Z$ 200/litre, the diesel was obtainable at Z$ 3500/litre on the parallel market) and the high repair and maintenance costs of tractors. Animal traction appears on the increase as more and more farmers acquire cattle simultaneously abandoning tractorisation due to its ever-increasing costs . The majority of farmers dependent on hand tillage reside in tsetse-infested areas where the rearing of cattle is prohibitive.

The method of tillage used determines significantly areas under cotton. On average those using tractors cultivate 7acres of cotton, animal traction 5 acres and hand tillage 2 acres. AREX officers claim that these methods influence the ultimate productivity of the crop. Where tractor and animal traction are used weed control is more effective and moisture retention is improved as opposed to hand tillage. This implies that hand tillage depresses productivity by 7/2% and 5/2% respectively.

Around 45% of the farmers use fertilisers, in this case mineral compound L and AN in cultivating the crop. The remaining proportion does not apply fertilisers either because the farmers cannot afford it or have a belief that it destroys soil fertility. Whatever the case productivity is compromised by 6/2%. While those farmers with draught power and applying fertilisers realise around 6 bales per ha, their counterparts dependent on hand tillage and averse to fertilisers only get around 2 bales per hectare.

There are few agricultural extension workers and therefore extension services for the farmers are very poor. The ratio is one extension worker to 5000 farmers when the ideal one should be 1: 200. Government extension services are complemented by cotton merchants’ (Cargill and CCZ) extension services monitoring their specific interests on input use and cotton crop performance. This is done to ensure that cotton inputs are not abused and all the produce is delivered to the input-supporting agency in order to avoid side marketing. Cotton merchants’ services are restricted to their clients and the cotton crop.

Returns From Cotton (To continue)
The above account gives the overall picture of agricultural practises in Lower Guruve. The remaining challenge is to empirically demonstrate the trends in financial terms on what the farmers have been getting during the last 5 seasons by assessing costs against the corresponding producer prices.

The production costs do not include tillage. This cost item was deliberately left out because of the huge disparity in levels between the three methods of tillage used. Inclusion of mechanised tillage costs for example would heavily inflate the production costs, making cotton production even less viable to the farmers.

Another point worthy noting from the above table is the rotation in the type of chemicals used. This is deliberately done (though scarcity during the last four seasons had an effect) in order to avoid pest resistance to a particular pesticide.

The figures reveal a negative drift in returns from cotton production per kg. It is consistent with the global trend of depressed producer prices since the mid-90s against a backdrop of increasing input prices putting small producers from developing countries under pressure to give up cotton production.

Notwithstanding the hyperinflationary conditions prevailing in Zimbabwe, the trend may explain the increasing dependency on food from outside as farm incomes fall due to increased costs of production and a slump in cotton prices. The years 2000 to 2003 were so unstable that the discrepancy between official and parallel market exchange rates was at its peak. The parallel market during the two-year period was the primary source of foreign currency. Sanity to the financial sector was restored in December 2003 with the announcement of a new monetary policy.

Perceptions on Returns

Cotton Merchants
While admitting that that there is a global depression on cotton prices, cotton companies tend to view inefficiency of farmers as the primary factor for the reduced farm incomes. Therefore the figures presented above on yields are to them unacceptable. The acceptable yield per hectare for an efficient farmer should be 7 bales per hectare. Such a level of production would lower production costs and increase net profit per kg as demonstrated in the table below.

Net profit Assuming Maximum Yield of 7 bales (1bale=200kg)

According to the merchants, farmers are realising low yields because, instead of applying inputs procured on credit to the crop, they sell them especially to salaried rural workers at give away prices. Therefore productivity without doubt declines and consequently huge debts are incurred through abuse of the input credit scheme. Furthermore farmers exhibit disloyalty by side marketing, whereby beneficiaries of the input credit schemes take business to competitors in search of better prices at the expense of the traditional buyers who financed cotton production in the first place. The announced prices are a direct response to market forces. Since 70% of the cotton lint is exported, the merchants believe that they would incur losses if they were to accept prices advocated by the farmers, which are well above the international price.

Empirically in the area under study less than 5% of the farmers can achieve a yield of 7 bales per hectare. The practice of procuring inputs on credit and then selling them below cost is a response to immediate cash needs especially during the summer season when most households run out of food. Side marketing is a desperate attempt to maximise earnings from one’s produce as a result of the weak bargaining position the SAPs had brought to them and the declining world market prices. Both practices arise out of desperation.

Growers
Growers feel that they are being short-changed by the cotton merchants. They admit to abuse of the input credit scheme and side marketing, but view the producer prices as the primary cause of the malpractices. The local authorities support their perception. They do not believe that the prevailing agronomic conditions in Lower Guruve can sustain a yield of 7 bales per acre. The realistic output figures are between 2-4 bales per hectare given the high cost of inputs and the unpredictable weather patterns. They consider the idealised figure to be hypothetical. They want to have an input in price setting that they feel are being denied. The ultimate price should enable them to recoup in full the production costs incurred.

Reliance on external food handouts, side marketing and abuse of input scheme are viewed as legitimate strategies by the farmers particularly those who harvest at most 2 bales per hectare to keep their heads above water. In extreme cases others resort to cross-border trading, poaching and gold panning activities which are illegal, in order to survive.

As a way forward, they would like to see an increase in producer prices in tandem with the increase in inputs costs (on which they have no control) through their effective participation in price setting. The farmers perceive the present system employed by cotton merchants as not taking into account the farmers’ production costs.

Conclusion
While acknowledging the influence of the global price on local producer prices, the cotton merchants still regard the irresponsible behaviour of the farmers as the primary factor. On the other hand the farmers believe that their non-participation in price setting is responsible for the ever-decreasing returns from cotton. Both sides are focusing on national factors without seriously considering the international dimension as the primary factors. Farmers feel the pressure exerted on them by input suppliers while the cotton merchants feel the same from the international price.

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