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buyers of ripping them off while the ginners on the other hand are convinced they are paying a fair price to farmers.
Every year, we hear of clashes between seed cotton buyers and farmers over prices, making it even the more important for the two parties to understand how prices are arrived at. We know that almost 98 percent of seed cotton produced in the country is contracted, with merchants providing farmers with inputs based on the agreement that they would sell the crop to the ginners.

In Zimbabwe, the domestic producer prices for seed cotton are a result of negotiations between ginners and farmers. The basis upon which the prices are negotiated is the international price projections as reflected by the Cotlook “A” Index, which represents the level of prices offered for lint on the international market.
Since the lint is sold at a future date, the price of seed cotton is thus set on the principle of a constant seasonal pool price, which depending on the market trends, an adjustment at the end of the buying season will be based on actual average world lint prices.

The price adjustment comes at a time when the ginner will be in a position to tell the final price at which to sell the lint on the world market. It is very important for us farmers to understand that the agreed pricing formula provides for constant sharing of profit or loss by ginners and farmers, especially in the event of an increase or reduction in price.
By being paid a seasonal price, the growers will not incur any risk in the event of a decline in world prices while they also stand to benefit in any upside potential when the adjustment is paid.

The negotiated prices are always subject to approval by the Cotton Marketing Technical Committee of the Agricultural Marketing Authority. It is also a requirement of the cotton regulations that the ginner pays the grower according to the official grades and that payment of the Adjusted price is competitive as each company will pay differently based on its own final lint sales prices obtained on the international market.
At this juncture, it is very important to understand the reason we always refer to international lint prices in arriving at seed cotton prices. Ninety percent of our lint is sold on the global market, hence the reference to the Cotlook “A” Index and the New York Futures.

These are international sources of daily price quotations in US cents per pound. Intenational price offers are monitored each business day and the quotations are intended to reflect the competitive level of offering prices on a given day.
The Cotlook Indices are thus acknowledged by the cotton trading fraternity worldwide, governments and international organisations such as the International Cotton Advisory Committee (ICAC) as accurate measures of the fluctuation of international lint values. Resultantly, Zimbabwean ginners are therefore price takers as their prices for seed cotton are determined by what happens on the international lint market.

Farmers, through their representative bodies really need to understand the link between the world lint market and local prices for seed cotton in order to avoid the clashes we always have between them and the ginners. I believe, it is the function of both the ginners and the farmer representative bodies to appraise farmers of this otherwise in the absence of a clear understanding, farmers will always view ginners with growing suspicion.

Why do prices have to be reduced?
In my conversation with the David Machingaidze, the managing director of Cottco, one of the major players in the cotton industry, he told me that cotton textile industries are no longer able to absorb cotton price increases of unprecedented dimensions as happened during the early part of this year. Demand for lint has drastically disappeared and mills are not ordering lint as they expect to buy at cheaper prices later. China, the biggest consumer, has a huge accumulation of yarn stocks and therefore a reduced appetite. So, local ginners whose crop is exclusively for the Chinese market, are the worst affected.

When the buying price of 85c/kg for Grade D was agreed at, the daily Cotlook “A”Index was around 235c/lb and the ICAC projected average was 162c/lb to June 2011. This became irrelevant when international lint prices drastically dropped by 37 percent.
According to Machingaidze, who is also the chairman of Cotton Ginners Association, the drop meant that from 85c/kg, the prices should have come down to almost 54c/kg.

However, ginners did not pass the entire fall to farmers. Viability of both farmers and ginners is extremely important for the continuation of the input support programme for cotton in Zimbabwe. If the international markets continue to fall, ginners will obviously be forced to adopt downward price review.
Owing to the volatility of the market, most cotton producers in West and Central Africa as well as Eastern and Southern Africa are being paid some form of seasonal pool price, which is subject to review at the end of the season. It is a fact though that seed cotton prices in Zimbabwe are higher than prices in the region. Just as a comparison, seed cotton prices in Zambia are 68c/kg for all grades and no grading is done there,

Mozambique prices are between 50-65c/kg, depending upon the zone in which one is operating and Malawi is in the range 65 -70c/kg.
What is the long-term outlook?

There seems to be no indication that lint prices will get back to the levels experienced early in 2011 because of reduced demand. There is thus need to look at improving yields and quality as a way of enhancing viability.

Seed cotton producers the world over share similar challenges with producer prsices, however some of the more successful countries manage to keep their farmers on the land by providing subsidies. Countries like India have become more competitive through the use of biotechnology and have also provided minimum support prices to their farmers.
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