The African Institute for Corporate Citizenship (AICC) has said the country’s cotton marketing system has been greatly crippled by a shortage of buyers, a development that has left the farmer at the expense of vendors.
However, Cotton Council of Malawi (CCM) Chief Executive Officer, Cosmas Luwanda, said the council expects the situation to normalise in the coming weeks as it has licenced three buyers this year.
According to AICC, the shortage of buyers has come because private companies did not apply for a license, and demanded that CCM revises certain terms stipulated in their contracts.
The proposed changes include the revision of price to a lower price set to reflect the international trends which have depicted a downward spiral.
The development, according to AICC, forced CCM to license Admarc only to buy seed cotton from farmers at K389 per kg.
AICC Chief Executive Officer, Felix Lombe, on Friday attributed the situation to the uncertainty of the cotton market both at the local and international scenes.
Lombe said absence of the three private ginners has created a vacuum in the market.
“Farmers have turned to free riders or vendors who have taken advantage of this situation to buy at very low prices averaging between K150 per kg and K250 per kg. Vendors are most likely to sell to Admarc as soon as they start buying.
“The worse-case will emanate where farmers or vendors especially those operating within the boundaries of Malawi selling their seed cotton outside,” Lombe said.
Malawi is this year expected to produce 45,000 metric tonnes of cotton up from the 10,000 in the 2018/19 season.
At the minimum price set by government, the cotton would earn growers around K17 billion.
“Unfortunately, Admarc does not have financial capacity to buy it all as of today. They currently received K5.2 billion from the government to buy all agricultural commodities including cotton. However, the company needs closer to K100 billion for that endeavor. The delays of market actors is likely to leave farmers, government and CCM on the losing end considering the investment made this far,” Lombe said.
Luwanda, however, said his organisation is in constant touch with Admarc on the need to recapitalize to buy the required amounts of cotton on the market.
“In addition, the traditional ginners had opted out of buying cotton this year because of the uncertainty surrounding the impact of Covid-19 on the international market. Initially, they had anticipated that the disease will have a colossal impact on the business,” Luwanda said.
On Friday AICC said there is need to reconsider value addition to Malawi’s cotton, saying the country exports only lint from cotton and does not undertake any value addition beyond ginning.
Lombe said the reduced uptake of lint at the international market should be a lesson that unless we invest in our own value addition, any disruption at the international market will hit specific industries more than would have been the situation if value addition was increased.
He added that government should use the law to flush out vendors to allow the farmers get fair and uniform prices.