As cotton farmers, ginners and other stakeholders are embroiled in internal struggle for or against contract farming that may cripple the sector, it has emerged out that Tanzania ginners on the international default list are hindering the nation’s cotton sector.
The presence of ginners in the list consequently lead to downgrading Tanzania’s cotton due to erosion of trust among some traders at the international levels, and inadvertently, affects their counterparts who have been meeting their contractual obligations.
Tanzania Cotton Association (TCA) chairman Christopher Mwita Gachuma said on Saturday in an interview that it was prudent to ensure none of country’s ginners is blacklisted as it does not serve to improve the standing of the sector in competition with other nations.
“Tanzania’s cotton used to be in the past placed at a better position than America’s. Unfortunately, the country has not been able to maintain the high standards, ” he told a meeting of cotton stakeholders held in Mwanza.
According to data from the UN Food and Agriculture
Organisation’s (FAO), Tanzania ranks 17th country in world production of raw seed cotton, well below other African nations like Burkina Fasso and Nigeria, but suffering very poor productivity and quality standards.
Available information indicates that seven ginners in Tanzania have been blacklisted in recent years and cannot sell their cotton in the world market, giving the sector a bad name.
They have been blacklisted for violating their own sales contracts with international buyers and have subsequently been placed on the “default list” of the International Cotton Association (“ICA”). The ICA is the world's leading international cotton trade association and arbitral body.
The list is a service of the ICA to its members and cautions international buyers from doing business with sellers or ginners who have previously defaulted on contracts, costing their counter-parties substantial losses in the competitive international cotton market.
Internationally, continuing inclusion of these defaulting ginners in the domestic market for raw seed cotton may have negative consequences for Tanzania’s cotton market over-all.
According to ‘Cotlook A’ index, Tanzanian cotton consistently suffers a discounted price when compared with cotton grown in other markets.
Within the ‘Cotlook A’ index, an internationally important pricing indicator representing the average of the five lowest bids for ginned cotton lint, the price offered for Tanzanian cotton is consistently lower than the other four.
In July of 2011, traditionally the month with the highest level of seed cotton trading in Tanzania, the discount suffered in international markets by Tanzanian exporters ranged around five percent.
While such discount may also be attributable to other factors, the trustworthiness of Tanzania’s ginners must be a factor.
Ginners included in the ICA default list in 2011 include: Badugu Ginning Company of Musoma, Chesano Cotton Ginnery of Magu, Integrated Cotton Field of Mwanza, Jambo Oil Mills & Ginnery of Shinyanga, Japs & Scraps of Dar es Salaam, KBL Enterprises also of Mwanza, MSK Solutions of Dar es Salaam, Nsagali Company of Bariadi, Roko Investments of Tabora and Vitrics Oil Mill of Shinyanga.
Emanuel Silanga, managing director of Nsagali Company, said he had negotiated with his creditors and instituted measures that had seen his company on the way from being deleted from the list so as to continue with the business.
TCA chair Gachuma confirmed some of the ginners were negotiating and would eventually get out of the list but added it was important in the first place for ginners to avoid getting in the list by meeting their contractual obligations.
Gachuma said contract farming would help to redeem Tanzania’s cotton standing in the international market. He said overall Tanzania’s cotton was being treated as third rate in the world. Only assured quality produce would help the standing quality to go to the top.
Cotton sector stakeholders want contract farming to be improved, not scrapped. The cotton sector in the country is in limbo following lack of clear directive regarding contract farming, which had been initially endorsed by TCA and the regulatory authorities, giving hope for the revival of the third largest export crop in the country, which over 16 million people depend on for survival.
Across section of ginners say the cotton sector in Tanzania would fall into deep waters if contract farming is halted following a wide concerted opposition by some ginners, who are not able to meet the new demands in terms of investments to support the venture.
Gachuma says that most ginners support the contract faming module but some have problems with the way it was being implemented.
“I believe we’ll be able to come to a consensus on the best way forward in improving contract farming. It is important for ginners and farmers to speak with one voice so as to work for the assurance of the cotton sector’s future,” he says.
A representative of one of the major buyers of the produce, Jagan Gopinath of Olam Tanzania strongly advises that if the contract farming model for the cotton sector fails, it would be difficult for private investors to top up their stakes in the sector.
It’s apparent that ginners who have invested billions in contract farming want the concept to go on while others who find themselves short of necessary funding, feel that they were being pushed out of the business because of the heavy investments required.
“The best way forward to increase productivity and quality of cotton produced in Tanzania is contract farming, which is win-win for all. It enables the stakeholders including the government to keep a watch at the whole value chain. It is the only viable way. I am telling this based on our experience in Zambia, Ghana, Mozambique, Zimbabwe and Ivory Cost,” says Jagan Gopinath .
He says that contract farming has revived cotton sector successfully in Mozambique, Zambia and Zimbabwe.
“This is going to be the same case in Tanzania, but if we allow the non-investing ginners free-for-all buying without supporting farmers with inputs, we will be taking steps backward,” he told the stakeholders meeting.
Sunday Mtaki, a consultant to the cotton industry, also feels that a lot of efforts invested to revive the crop will all come to cropper if cotton farming is thrown out and the nation will have to go back to the drawing board.
Contract farming is a private-sector transaction facilitating farmers and ginners collectively investing land, labor, credit, high-value inputs, education and technology to their mutual benefit.
Ginners form a “platform” from which rural Tanzanians may secure the means of production to transform themselves into productive cotton farmers.
“Without implementation contract farming, Tanzania’s cotton sector faces immediate peril. Record levels of planted acreage achieved this season will not be repeated as without organised support of ginners in securing and distributing significant levels of inputs on a credit basis, farmers may not be able to make it, says the chief executive officer of Singida-based Bio sustain Ginnery, Dr RiyazHaider.
about 13 ginners and four co-operative unions have already invested in contract farming, and facilitated distribution to farmers of most of the record quantities of pesticide (3.8 million acrepacks) and seed (nearly 30 thousand MT) called for by the Tanzania Cotton Board (TCB) this season and coordinated by the Cotton Development Trust Fund (CDTF), a private-sector agent facilitating input procurement on behalf of farmers, ginners and the TCB. The investment and other actions of these 17 ginners and co-operatives have supported the lion’s share of a record amount of acreage devoted to seed cotton production (estimated at nearly 1.4 million acres).
Despite the achievement, farmers groups says there is still a shortage of inputs. Last year, these same 17 ginners and co-operatives bought over 80 percent of the crop while still reporting significant under-utilization of their ginneries. This season, they have signed production contracts with nearly 4,000 farmer business groups (FBG) comprised of nearly 250,000 Tanzanian cotton farmers.
In contrast, about 18 ginners who have not invested in contract farming have signed production contracts with only about 1,000 FBGs representing less than 80,000 farmers.
Despite of not investing into the system, these ginners have distributed only a small fraction of the seed and pesticides made available to farmers this season.
Ginners supporting contract farming want the government to maintain an enabling environment for investment by maintaining the rules of contract farming as stipulated by the TCB as they feel that allowing “free rider” ginners, who have not invested in contract farming, will just kill the sector.
Some non-investing ginners want free riders to buy the crop from anyone, which encourages side buying from contracted farmers, and leads to grossly tip down the balance of scale.
Accordingly, if the ability of invested ginners to collect on loans extended to farmers is inhibited by government’s licensing of “free-riding” non-investing ginners, then investing ginners cannot be held accountable for their input-related obligations.
Implementation of contract farming has been opposed to the Minister of Agriculture, Food Security and Co-operatives by a group of ginners, who have failed to invest in contract farming as stipulated by the TCB.
The 18 ginners that have not invested in contract farming this season purchased only about 17 percent of last year’s crop. Seven of these 18 ginners are currently on the “default list” of the International Cotton Association.
“Inclusion on such list indicates that these ginners have defaulted on significant contracts with international cotton traders and that these ginners will not likely be able to access international cotton markets in selling the product of whatever level of seed cotton they might purchase if licensed,” says.
Furthermore, continuing inclusion of these defaulting ginners in Tanzania’s cotton sector may be detrimental to the sales efforts of Tanzania’s non-defaulting ginners among international cotton buyers. Failure of government to act to uphold the rules of contract farming will result in significant hardship for Tanzanian farmers.
In his closing statements to Saturday’s TCA meeting, Gachuma called upon ginners that have not yet invested in contract farming to meet their related obligations by May 15.