Cotton Farmers and Out-grower Schemes

 

There are currently 9 out-grower/ginning companies (information provided below in tables 2 &3 and figures 1 & 2) operating in the country.  Cotton out-grower companies operate with a distributor model (whereby local agents/distributors are commissioned to link ginners to the farmers) or centralised model (whereby ginners’ own staff deal direct with the farmer). Cargill operatesthe centralised model and Dunavant uses the distributor model.

 

Pre-season, local agents, distributors and ginners’ field personnel encourage smallholder farmers to sign contracts to produce seed cotton for the ginneries. Most farmers receive inputs on credit. It is common practice for the input prices to be inflated to cover the ginners’ financing, distribution and extension costs. Self-financing farmers are able to buy inputs at significantly lower prices. Unlike most other African countries, the Zambian cotton sector has no agreed transparent guide price for the harvested seed cotton. In practice, the tied cotton farmers take most of the commercial risk. When world prices are low farmers may earn very little for their labour. When world prices are high the ginners takes most of the profit. The ginner dictates the price on a take it or leave it basis!

 

Table 2: Outgrower information

 

Source CBZ 2012

 

Dunavant and Cargill dominate the sector with over quarter million farmers, or 60% of all cotton farmers, engaged in their out-grower schemes. Over many years, both companies have received donor finance to support their extension models. Unfortunately, seed cotton yields have remained stubbornly low with Dunavant-linked farmers at 0.542tons per hectare and Cargill at 0.655 tons (CBZ data from ginner returns 2011/2012).

 

 

These two ginning companies purchased 2/3rds of all the seed cotton produced during the season.

 

Based on ginning companies’ returns to the CBZ the current average yield per hectare is only 529kg. This is broadly in line with ICAC cotton lint market intelligence. There appears to be a marked disparity between information supplied to donor groups and data supplied to the public body.

 

Figure 1: Cotton farmers/ginner                    Figure 2: Seed cotton purchases 2012

In 2011, Chipata Cotton Company experienced significant problems during the production cycle. This resulted in low output. Fuzzy seed accounts for circa 60% outputs, i.e. ginning out-turn (GOT) of 40% to 42%.   Fuzzy seed is an important contributor to ginnery profitability	Table 3: Cotton Lint & Fuzzy Seed Volumes Per Ginner in 2012

During the 2011/12 season, twice as many farmers grew cotton than cultivated the crop during the 2007/08 season. However, there was no change in average hectares planted by each farmer. The low yield per hectare and small crop are key factors that suppress cotton farmers’ incomes. 

 

Since most farmers are dependent upon input credit from ginners, they have little or no negotiating power. During the 2011/12 season, farmers were frustrated by the lack of movement on seed cotton prices and the intransigent position of the ginners who refused to increase prices even when challenged with reliable and current market intelligence supplied by a renowned international expert.There is a significant financial incentive for the ginners to suppress prices.