Once strewn with a dozen-plus ginners and off takers, Malawi’s cotton industry has been dying a slow and certain death.
“In 2011, we had 12 ginners and off takers. From 2018 to 2020, the number had declined to between three and four.
“The sector has been plagued by challenges such as low production levels, poor access to inputs by farmers due to insecurities, side-buying and side-selling, high loan default rates, low investment levels that have led to low production, among others,” says Cotton Council of Malawi (CCM) Executive Director Cosmas Liwanda.
However, Liwanda is adamant when told that the cotton industry is dying.
He is quick to say that they want to restructure the market.
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“We want to restructure the market by, for example, establishing [cotton] aggregation centres to do away with high levels of loan default, side-buying and side-selling. Tanzania, Uganda, among other countries in Africa, have been using the new system [we are adopting],” he explains.
Side-buying refers to the practice of circumventing established systems to purchase produce.
According to the Cotton Production and Marketing System for 2024-25 Season, which the Agriculture Communication Branch of the Ministry of Agriculture has designed, the sector is on course to embracing changes effective this year.
One of the changes pertains to the adoption of a new market system, one that the Malawi tobacco industry has been using for years.
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“In preparation for the 2024- 25 cotton production and marketing season, Cotton Council of Malawi and the entire cotton sector have adopted a Structured Cotton Market System. The proposed system is meant to bring sustainability to the sector by safeguarding investments; providing a platform for input access by farmers; [promoting] aggregation marketing; and automating recovery of input loans through electronic payments.
“Despite the increased production volumes with government interventions in 2011- 12 and 2019-20, loan recovery has been ineffective due to the absence of a credible system for tracking loans and curbing side trading. The proposed system will, therefore, restore investor trust and confidence and facilitate capitalisation of the Cotton Development Fund as a revolving fund to support development of the cotton sector,” the communication reads.
Liwanda says under the proposed setup, ginners would be requested to contribute to a pool of inputs, which will then be distributed to farmers in the country on a “zero-deposit arrangement”.
The contribution will be based on the declared trading volume to be bought by the ginner.
It is expected that input suppliers for both seed and pesticides, CCM and ginners would agree on an upfront percent payment or commitment towards inputs.
The expectation is that input suppliers would recoup the rest of the money from farmers during the marketing season.
Furthermore, each ginner would be assigned a quota of targeted production, depending on their upfront contribution towards inputs.
In this case, the input costs would be calculated per kilogramme of seed and pack of pesticides to determine loan amounts that each farmer would owe the suppliers.
The system has been designed in such a way that production would take place at selected Agricultural Development and Marketing Corporation (Admarc) depots that have been designated as main aggregation centres.
“No seed cotton will be allowed to be bought or sold outside the aggregation centres. Farmers, through Cotton Farmers Association (Cofa), will establish satellite aggregation centres at other Admarc outlets in their localities and arrange transportation to the nearest main aggregation centre.
“Farmers will tag their seed cotton bales with specific registration numbers for traceability of their cotton at the aggregation centre. In addition to the registration number, expected volume to be produced, loan owed, field particulars, club and location of the farmer will also be part of the documentation for registration, among other important information,” Liwanda points out.
He explains that the system has been made in such a way that it would be easy to trace farmers’ produce.
“At the satellite centre and prior to dispatch of cotton to the main aggregation centre, an officer from the ginners and Cofa shall write a consignment delivery note indicating details of the cotton being transported, thus names of farmers, clubs and assigned lot numbers.
“All money transactions and loan recoveries will occur at the main centres, where all necessary payments and deductions shall be made electronically through banks. This will call for farmers to register their bank accounts or open accounts with designated banks as individuals or as clubs to ease the workload,” the CCM chief points out.
He says since ginners will not have contracts with farmers, CCM and staff at the main centres are expected to determine cotton being given to the ginners, who will be expected to make available the finance and payments done.
Liwanda says a simple data management tool, notably Kobo Collect, would be used to link all data—from farmers’ registration to transactions being done at the different centres for up-to-date monitoring of transactions.
“A proposed Cotton Management Information System has already been identified. This will be used in registration as well as marketing of cotton to ensure that there is no side-buying and selling and that all loans are recovered. This aims at giving confidence to investors in the sector.
“An MoU [memorandum of understanding] has been agreed with Admarc on the working arrangement at the centres. This includes fees which Admarc will receive from the proceedings, loans and other fees to be deducted at the centre. In addition, the MoU will encompass details on labour to be used at the designated centres from CCM, Cofa and ginners.
“The teams may include government staff who may monitor the proceedings as well. The MoU will also stipulate details of equipment for aggregation centres. Following the MoU, banks will be involved in establishing the systems that will be used for the transactions and opening of accounts,” he stresses.
One of the input suppliers, Moses Mhutse, says they are more than eager to participate in the new system.
He says they have experience working on such issues, such that farmers, CCM and other stakeholders can rest assured that things would go as planned.
“We will, as expected, play our part in this,” he says.
On his part, Given Phiri, Solidaridad Programmes Manager, lauds the new system.
He is speaking from a position of experience as he is familiar with the model that Malawi is embracing.
This is because the model was piloted in Salima, Balaka and Neno districts, where it was utilised in the procurement of cotton seed from farmers.
In that case, Masapa Cotton ginners joined hands with Solidaridad.
“We have a role to play. Our role will be ensuring that the system is put to good use,” Phiri, who indicates that they have already identified a systems services supplier with vast experience in Africa, points out.
Meanwhile, farmers have expressed hope that the new system would transform the sector.
Cofa Executive Secretary Synoden Mbalafana says the system would work to the advantage of farmers.
“In the past, farmers were being asked to contribute, upfront, 50 percent of the money that used to go into inputs Now, with the zero-deposit arrangement for a start, farmers are assured that they will get quality seeds even if it is during the lean season.
“The problem we were facing at first was that some input suppliers were selling hybrid seeds at as much as K58,000 per kilogramme. To make matters worse, farmers were being asked to make a 50 percent contribution when they had no money in the pocket because that coincided with the food lean season,” Mbalafana points out.
He adds that the project has other advantages to the farmer.
“Already, stakeholders [seed and pesticide suppliers] have pumped K6 billion into the pool. This means farmers’ interests are protected. Indeed, this is a unique project,” he indicates.
This is happening when cotton has a ready market, with current production levels falling short of the domestic ginner capacity of 300,000 metric tonnes.
In addition, Ministry of Agriculture statistics indicate that cotton’s gross margins are better than those of competing crops such as sesame, maize and soybean.
The ministry further indicates that cotton is drought tolerant, in addition to the fact that its prices are regulated through the farm gate price model.
It also has relatively lower costs of production, especially where it does not require much fertilisers.
The challenge is, financial inclusion remains a challenge in Malawi, with the United Nations Development Programme indicating that “The financial landscape of Malawi is marked by significant levels of financial exclusion, where approximately 60 percent of adults lack access to formal financial services, and only about 14 percent of adults actively utilise formal financial services”.
In fact, it is a Reserve Bank of Malawi (RBM)/United Capital Development Fund (UNCDF) survey of 2020 that unearthed such statistics.
RBM is the regulator of financial institutions in Malawi while UNCDF assists developing countries in the development of their economies by supplementing existing sources of capital assistance by means of grants, loans and guarantees, first and foremost for the least developed among the developing countries.
As such, convincing farmers— most of whom are based in rural areas of Malawi—to open bank accounts could be a tall order—at least for now.
