Will $4.8 million save cotton industry?

People such as Patrick Zgambo, Sarai Nkhonjera and Lughambo Mwalughali in Karonga as well as Victor Rabson in Balaka have grown cotton for a long time, but have seen the crop’s production decline of late.

Reason? Zgambo notes that in the past they used to have companies, and even the Agriculture Development Marketing Corporation (Admarc) which provided inputs for production.

However, all this is gone, companies no longer provide inputs, and markets, too, like in Karonga, are limited as only Admarc acts as a ginner. Technically, it is back to the old days of monopoly.

“There comes a time when you have spent a lot on inputs, but there is just Admarc as a buyer, and you wonder what you will do with the yield,” he says.

Cotton Farmers Association (Cofa) vice-president Nkhonjera agrees. She says the problem with having one ginner is that farmers do not have a choice and cannot make any demand to better their production and marketing.

According to Nkhonjera, the lack of inputs worsens things, and farmers start jumping from one crop to another, just to make a living.

“Because of these challenges, you find that the number of people growing cotton is going down, which is bad not only to household income, but also national economy. We need some change, we need the input back,” she adds.

The country produced less than 10 000 metric tonnes (MT) of cotton during the 2016/17 season—down from 100 000 MT in the 2011/2012 growing season, a year government injected K1.6 billion to scale up seed production.

Like in the event of maize production, which surged after introduction of the Farm Input Subsidy Programme (Fisp) during the 2005 farming season, evidence shows that production of cotton increases each time there is provision of inputs towards farmers.

Failed Input supply systems

For instance, the four input supply models by various actors in the cotton value players in Malawi show increase in tonnage of cotton yielded, but a slump each time farmers are left to source inputs in their own as is the case at the moment.

Take the Admarc Input Supply Model implemented in the mid-1990s and 2000s, for instance. In this system, Admarc was the de-facto supplier of cotton inputs and buyer of the crop from the same farmers.

According to a position paper on cotton production in Malawi by the African Institute of Corporate Citizenship (Aicc) under this arrangement, farmers got inputs on time. The inputs included seed, pesticides, sprayers and some fertilisers.

The paper is titled ‘Cotton Sector at the Crossroads in Malawi: A business case for government investment and inputs’.

“Crop production financing was provided through the Smallholder Agriculture Credit Administration (Saca), which later evolved into Malawi Rural Finance Company (MRFC), which was then being managed by the Ministry of Agriculture,” it recollects.

The good thing with this model was that Admarc had a robust, closed marketing structure to be able to recover the loans in close collaboration with Saca and MRFC.

With market liberalisation, some farmers opted to go for private sector players, and privatisation of Admarc Ginnery in 2002, the input supply system collapsed, according to Aicc.

Between 2003 and 2005, the country had a Cotton Development Association (CDA) Model, which was driven by private sector players such as Clark Cotton Malawi and Nasfam, who provided inputs to farmers.

The inputs were being provided at concessionary prices of between 5-15 percent of prevailing commercial prices.

Production increased by about 12 percent from 53 000 MT to about 60 000 MT during the initial years, according to the Aicc December 2017 Malawi Cotton Outlook (Malcotton Outlook).

Cultivation area, according to Malcotton Outlook, increased by almost 40 percent—from 63 447 hactares to 88 000 hactares—while lint output increased from 5 610 MT to 15 400 MT.

But the CDA Model, according to the position paper, suffered self-inflicting death due to the entry of new players who were buying cotton during the following marketing season and yet did not invest towards inputs the previous year,.

Government intervened in the 2011/12 fiscal year, when it injected K1.6 billion to the Ministry of Agriculture to provide inputs such as seed, insecticides and sprayers on loan to farmers.

This model, Cotton Production Up-Scaling Investment, was based on the assumption that the initial injection, which was a revolving fund, would be recapitalised through a levy which was allocated to various chain players in the sector.

According to the planned system by the Ministry of Agriculture at that time, ginning companies accounted for 45 percent, cotton growers 40 percent, with the remainder shared between spinners and seed crushers.

Presenting a budget statement for the 2011/2012 fiscal year, the then Finance Minister Ken Kandodo estimated that the resources would assist smallholder cotton farmers who would cultivate over 200 000 hectares of cotton fields which could generate over $300 million of foreign exchange in the next 12 months.

While production increased to 100 000 MT, this system, too, just like the CDA and the Admarc Input Supply Model failed, but mostly because of poor accountability mechanisms, monitoring and enforcement of input quality and standards.

This was also due to poor loan recovery systems, and general management of the fund.

Actually, statistics from the Aicc, show that from 100 000 MT, production fell the following year in 2012/13 to just 40 000 MT due to failure to properly manage the new model.

The last model to be implemented—Contract Farming (2013-2015)—which was implemented by ginners to resuscitate production and injected K2 billion, got problems due to bad weather, resulting in farmers not paying back K1.3 billion to ginners.

Implication of failed systems

The sector currently is on the verge of collapsing due to continued dwindling of production over the past five years, which is costing government billions of kwacha, but also huge debts shared among key players in the sector.

A position paper by Aicc shows key players—farmers, ginners, suppliers and banks—owe each other close to $1 billion.

According to the paper, ‘Cotton Sector at the Crossroads in Malawi: A business case for government investment and inputs’, with the current system of allowing smallholder cotton farmers source inputs on their own, without any organised input supply system, all sectors are losing out.

Worse still, Aicc notes that Malawi lost $60 million in the 2016/2017 growing season due to production.

“The decline in cotton production levels to less than 10 000 MT in the 2016/17 growing year resulted in loss of foreign exchange in excess of $60 million by government, shrinking of economic activities within the sector and reduction in employment levels.”

Effects of low production, include generation of just $652 915 worth of cooking oil from an estimated 5555 MT of cotton seed that was sourced domestically, according to Aicc.

Proposed $4.8 million injection

Aicc has since proposed an economic and business action, which asks government to inject an initial $4.8 million into a cotton input fund as a short to medium-tern input supply intervention.

Chrispin Namwera, the cotton programme manager at Aicc, this new system, called Sustainable Input Supply Model for Malawi, offers two categories on how the sectors can be resuscitated. They are the perfect and probabilistic models.

On the perfect model, Namwera says the proposal assumes that only government will support cotton input provision with a one-off capital injection of $4.8 million.

He admits that the arrangement places burden on government alone in the first year. The Fund Manager is expected to run the affairs of the fund on behalf of the Cotton Council of Malawi (CCM).

“The stages of this model are that government will commit to inject $4.8 million to CCM, then CCM will identify a fund manager. Thirdly, Cotton Farmers Association (Cofa) groups will have to be identified and registered by the Fund Manager, Cofa and CCM.

“Thereafter, the supplier will provide inputs, with facilitation of the Fund Manager. Then ginners bid to buy cotton from Cofa groups because cotton will have to be sold in groups,” he says.

According to him, ginners will channel money into bank accounts for groups, where the banks will deduct the loan and the balance will be deposited into farmers’ individual accounts.

Under the probabilistic model, Aicc proposes that while government, through CCM, will bear the initial injection of $4.8 million, the subsequent recapitalisation shall be through the farmer contribution as well as levies on ginners, seed crushers and spinners.

“Unlike the first model, both the initial and recapitalized funds shall be managed directly by the Cotton Fund of CCM.

“At the beginning of each year, CCM in consultation with other players shall decide on the actual levy amount per kilogrammes which in the initial three years shall be contributed from cotton stakeholders as follows: ginners 40 percent, farmers 45 percent, seed crushers 10 percent and 5 percent for spinners,” explains Namwera.