Sunday, April 14, 2024
BusinessUnforeseen cotton surplus pulls down prices, disappointing growers

Unforeseen cotton surplus pulls down prices, disappointing growers

Farmers criticize absence of bail-out policy

The local cotton industry is having a rough year since demand from local industries hasn’t kept up with the oversupply of cotton being produced, leaving growers disappointed.

The surplus cotton production is at risk of being discarded, and industries are unable to buy even if the price of local cotton has dropped by sixty percent compared to the previous year.

A kilogram of local cotton is being sold for 23 birr, down from 54 birr last year and 60 birr the year before. Cotton growers told The Reporter that even at this low price, they are struggling to find buyers.

The issue stems in part from a miscalculation of demand and supply for the year, as well as a misalignment between cotton producers and textile businesses.

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Ethiopia produces 60,000 metric tons of cotton per year on average. However, output has been poor in the last two years due to the COVID pandemic and a lack of inputs. The price has risen as a result of the two years of poor production before it started to decline recently.

Producers cultivated additional cotton land this year due to the highest prices recorded in the preceding two years. As a result, cotton production increased significantly this year. On the contrary, ginneries, textile businesses, and cotton importers showed little interest, despite the fact that there is a surplus of cotton this year. As a result, the price has been reduced by more than half since last year.

According to Melkamu Telake, board chairperson of the association composed of cotton producers and ginneries, the farmers and commercial producers are currently in dire situations. Besides the price fall of raw cotton, they are also not getting paid for what they sold as factories are being supplied with credit.

“The producers do not even have enough warehouses to store their produce,” he said, explaining how they are being forced to supply through credit. He also indicated that there is a large volume of uncollected cotton from farmlands that may be damaged when the rainy season arrives in a few months.

The textile factories, on the other end, are also unable to acquire the cotton in large amounts as they are operating at their full capacities, the association’s board disclosed.

“The farmers could have had the upper hand had they produced oilseeds like sesame and other crops. Unlike cotton, they would have more advantage in the market as they could either sell the crops at a good price or at least use them at homes,” Melkamu said.

Sabotage activities by the factories and ginneries in assessing the production before they go to the market, only to lower the value of cotton after production, is also part of the problems, Melkamu implies. He is also concerned about lower production by next harvesting season, as the farmers take the hard lesson.

An official at the now defunct Ethiopian Textile Industry Development Institute (ETIDI) talked to The Reporter on the condition of anonymity that the price of cotton is mostly determined by the international price. Thus, buyers of the product usually refer to the international prices.

He can see that the cost of making cotton locally was going up to keep up with international market. The international price is gradually falling below the cost of production, raising the question of how countries might alleviate the consequences.

“Unlike countries like India, there is no system for the cotton market in Ethiopia,” the official said. “India has the Minimum Support Price (MSP) system to protect farmers from such incidents. When the international cotton price is lower than the cost of production, the governments can step in and fill the gap.” The official recommends that government has to purchase surplus cotton production, in a bid to absorb the farmers’ loss and maintain the market balance.

Lack of regulation to set the minimum price, non-existing marketing platforms as well as unavailability of subsidy to cotton are what the official believes is lacking in Ethiopia mostly.

This is also echoed by Melkamu, who is urging the government to set up at least the minimum price for the product as “it can guarantee producers to know how much it would be sold before even going to production.”

In Ethiopia, there are around 20 ginneries, the most of which are inoperable due to a lack of spare parts. Producers are located in areas where they could produce more cash crops, thus might as well switch to production of other crops as a result, Melkamu and the official said.  Cotton production could be lower next year if cotton producers are discouraged by this year’s poor demand and switch to other crops.

[speaker]
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Video from Enat Bank Youtube Channel.

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