Edgar Vhera – Agriculture Specialist Writer
COTTON ginners want local textile firms to buy lint using the 75 percent United States dollar and 25 percent Zimbabwe dollar model being used in paying farmers to resume spinning activities and save jobs that are at stake.
Cotton Ginners Association (CGA) acting chairman, Mr Caos Nzenze told The Herald recently that they had offered local companies’ lint from their current ginning operations but to date no takers had come on board, which may be an issue of liquidity challenges in the economy.
“Since we are buying seed cotton using the US dollar, we have also requested textile companies to also play ball by buying lint in the same proportion of 75 percent US dollar and 25 percent Zimbabwe dollar.
“When contracting growers, we offer them an input package of seed, fertiliser and chemicals. Although we acquire seed and fertiliser locally, 40 percent of our input bill is from imported chemicals,” he said.
Asked to comment on allegations that some contractors were overcharging farmers on input prices and whether their contracts were clear enough on input pricing, Mr Zenze said:
“Certainly, that is not true. We are giving them inputs on a non-recoverable basis. Basically, we are giving them free inputs.”
He added that the current cotton marketing season was projected to close at the end of the month when all the white gold is expected to have been sold.
“Buying points in some areas have already been closed after the conclusion of sales for the early planted cotton. Areas where cotton was planted late are still to finish,” continued Mr Nzenze.
The CGA boss highlighted that they had managed to get permits to export lint from the Ministry of Lands, Agriculture, Fisheries, Water and Rural Development adding that they had already reserved 30 percent of their lint for the local market.
Cotton Company of Zimbabwe (Cottco) acting chief accounting officer Mr Munyaradzi Chikasha concurred with Mr Zenze saying their local lint pricing model was in both currencies.
“Our pricing model is in both currencies. The US dollar component will enable us to repay US dollar loan facilities used to pay farmers. Farmers are getting 75 percent of their payments in US dollars and 25 percent in Zimbabwe dollars. We also need to pay for US dollar denominated expenses such as wool packs and ginnery spares,” said Mr Chikasha.
Cottco is also requesting spinners to pay for their lint requirements in US dollars with the US dollar component taking 60 percent of the payment while the remaining 40 percent will be in local currency. They have only sold lint to one local company so far.
Mr Chikasha, however, revealed that they had not started exporting lint yet but was quick to add that they had also applied for an export permit whose issuance was taking long.
“In order to generate more foreign currency for the country, Cottco intends to do value addition in the near future and has since applied for funding in that regard,” he added.
Zimbabwe Textiles Manufacturers Association chairman Mr Admire Masenda sounded his association’s misgivings on the lint pricing modalities saying it was impossible for local textile companies to pay in hard currency when they sold their products locally in local currency.
“Where do ginners expect local companies to get the US dollar to purchase lint,” queried Mr Masenda.
Although some of the companies that get local lint from ginners do value addition and export finished products such as yarn, the 60 percent foreign currency account (FCA) retention will not allow them to accumulate sufficient foreign currency reserves to purchase lint in foreign currency, he observed.
“Funds will only be received after the lint exports to the consignee, usually 90 days later, so what will be sold to the consignee in the first place unless it is a pre-payment arrangement?
“To make matters worse by end of October or early November ginning will be completed and ginners would need to offload all their lint to avoid incurring storage costs as well as to prepare for the coming season,” added Mr Masenda.
To save jobs, as well as protect textile firms from going bankrupt, there is need for Government intervention to resolve the impasse and allow lint purchases in local currency. The Reserve Bank of Zimbabwe (RBZ) can incentivise the ginners to have a higher FCA retention against sales of lint to local companies in Zimbabwe dollar.
“We have held discussions with ginners and reached agreement on pricing, which will be on the basis of Liverpool A Index less transport and other costs.
“The only sticking point remains that of the payment model where ginners are demanding payment in US dollars. Their argument is that they need to repay loans they have accessed which are US dollar based,” Mr Masenda added.
