Cotton hectarage declined this year by 16 percent, registering 307 000 hectares, compared to 422 ooo hactares in the previous season.
Seed cotton prices paid by buyers currently range from 0.38c/kg to 0.48c/kg. Romsdal is offering the lowest prices at 0.38 cents, with Sinotex, Viridis, SinoZim and Fahad offering 0.48 cents.
About 98 percent of seed cotton produced in the country is contracted based, with merchants providing farmers with inputs in return for selling the crop to the ginners. However the low prices being offered by ginners has sparked side marketing incidences, as other buyers are offering contracted farmers high prices than they have been offered by their contracting companies.
AMA's encouragement is aimed at creating fair competition and sanity in the cotton market. When resources are scarce, price takes the rationing function. In the case of low cotton yield this year, it follows then that price should increase to ration cotton supplies.
However, the Cotlook “A” Index, which is used to determine the international price of cotton, has been falling down for the past few months. As at 28 June 2013, the index was 91.3 cents per pound, compared to 234 cents per pound in June 2011. The graph below indicates the movements in the Cotlook index over the past eight months.
“Any efforts by any buyer or association to twart competition will result in AMA taking necessary action against the offender. Competition is encouraged at Common Buying Points, once the farmer has fulfilled his/her contractual obligation,” said AMA.
AMA explained that seed cotton contracts are volume based, as enshrined in Statutory Instrument 63 of 2011. “The farmer can then sell his free cotton to the company offering the highest price,” added AMA. The Authority also warned buyers to buy seed cotton only in areas they financed and from designated Common Buying Points.
The price of seed cotton has been low for the past two years, owing to the global economic meltdown and the Eurozone crisis. Last year, the government had to intervene when the ginners were offering 29 cents and 40 cents for the lowest and highest grades respectively.
Government intervened with an order which raised the buying price from 29 cents to 77 cents for the lowest grade per kilogram; with Grade A cotton fetching 84 cents, a big jump from about 40 cents. Grade B was to be sold for 81 cents and 79 cents for Grade C. Government also threatened that ginners that did not comply would lose their licenses
A total of 42 million kgs of seed cotton has been purchased since the beginning of the marketing season.
Post published in: Business