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Cottco seeks cash guarantees

31 Mar, 2023 - 00:03 0 Views
Cottco seeks cash guarantees Cottco made huge payment to farmers recently

eBusiness Weekly

Business Writer

With the 2023 cotton selling season around the corner, Cottco, Zimbabwe’s largest cotton firm is negotiating with its international buyers for the provision of US dollar cash in the event that local banks run out of notes, a senior official said.

While the company is at different stages of negotiating facilities to buy cotton with local banks, Cottco is taking contingency measures to ensure it does not run out of US dollar notes during the forthcoming marketing season expected to start in May.

Cotton farmers will be paid 85 percent in US dollars while the remainder will be paid in local currency at the official exchange rate. The majority of cotton farmers are paid cash since they live in marginalised areas with limited financial services.

“We have noted that the issue of liquidity could affect us and disrupt the marketing season,” Cottco acting accounting officer Munyaradzi Chikasha said in an interview.

“We have approached our customers to bring the liquidity so that we avoid disruptions.

“We are negotiating the facilities with local banks- our previous experiences show us that they may run out of physical notes and when this happens, it opens pathways for side marketing because a farmer can’t keep the crop waiting for us to get cash.

“But that of course comes with guaranteed tonnage that will be supplied to off-takers.”

Chikasha said the company was also negotiating with banks to renew its debt after recording a lower-than-expected output last year. Having initially expected output of 116 000 tonnes, the company only bought 48 000 tonnes after yield was affected by a poor season. This year, the company is expecting output to reach 100 000 tonnes.

“We have a debt of about US$3 million and we are negotiating for a debt rollover,” he said.

“But it’s much better than previous years; we have done much better to reduce the debt.”

Cotton is one of the country’s major agricultural export commodities and is largely grown by smallholder farmers supported under the Presidential Free Inputs Scheme.

Cottco will need US$34 million to buy raw cotton during the upcoming intake season.

The lowest grade (D) will fetch US40c per kg while the premium grade (A) will be sold at US46c per kg.

Farmers will be paid 85 percent in US dollars and the remainder in local currency at the official interbank rate, thus Cottco needs an extra U$6 million Zimbabwe dollar equivalent.

“A number of banks have shown interest in providing us facilities to buy back seed cotton during the next season and we are at different stages of negotiations,” said Chikasha.

“We have done all the submissions; we have provided all the necessary information and we are quite confident that we will secure the facilities.”

He said the facilities, which the banks were offering ranged from US$1 million to as much as US$20 million.

“We want to ensure that all the facilities are in place on time to avoid side marketing,” said Chikasha.

“We don’t want a situation where our competitors take advantage of us not having money to prey on our crop.”

Nearly 350 000 farmers were contracted to grow cotton under the Presidential Inputs Scheme last year and planted about 250 000 hectares. Running for the eighth straight season, the State-assisted scheme has seen cotton production recovering.

Despite occasional production dips during drought seasons, output expanded from 28 000 tonnes in 2014, the lowest in nearly two decades to 145 000 tonnes in the 2017/18 season.

Apart from free inputs, farmers also receive tillage services and agronomy support.

The scheme helped to fill in the gap left by private contractors who scaled down funding citing poor recoveries on their investments due to side marketing.

At peak, Zimbabwe produced 351 000 tonnes of cotton in the 2010/11 season and the Government has since set a target to raise production to 300 000 tonnes by 2025.

Zimbabwe mainly uses open-pollinated varieties (OPVs) but indications are that production could go up to as much as 600 000 tonnes with the use of hybrids seeds.

Experts are urging the Government to ramp up the use of hybrid seeds to boost productivity and cut the risk of crop failures as OPVs are getting more susceptible to diseases.

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