After the great fall-2012, it is time for a Cotton-White Gold Rush !

After the great fall-2012, it is time for a Cotton-White Gold Rush !

By : Rakesh Manchanda.

Note: A short version of this original text was published by Zambia Daily Mail on 26^th.August-2013.

Why must Zambian farmers continue to stake their trust on the white gold or cotton farming? 

I am facing this difficult question as well as Zambian cotton challenges.

To help answer such questions allow me first to separate the white gold from the yellow metal called Gold. Today across the world we see supporting laws to protect selected community instinct to hoard hard earned or even blood-money in shape of this yellow metal called Gold. Sad !  in the hoarding process of the Yellow metal gold there is no chance for collective growth of Gold stakeholders, except a tax haven opportunity for selected hoarders. There is no jobs creation, as we essentially see in organised cotton as a cash community crop.

A dramatic drop in domestic-international cotton-white gold prices over the past year,2012 has shaken the farmers` confidence in this national old cultural heritage. Does this cotton crash signal the end of the rally that began at the turn of this millennium?

That white gold had suddenly lost its allure for investors is also reflected in ICAC-International Cotton Advisory Committee  data showing that cotton investment and farmer interest was rolling down in 2012-13.

It was recently observed via media and The Post Newspaper in Zambia that the 796 Soya Bean farmers who this year diversified were sitting in small Kasempa District with 5174 bags x 50 Kg and no buyers, although the supportive price initiated by the Farmer`s Union and given to these 796 farmers was 125 K for each 50 Kg bag.

This means in future or even next year a few of these diversified farmers might come back to cotton farming, provided stakeholders are well informed and farmers have ears close to the ground.

Effects of drought, flood and war on the Cotton Prices :

The cotton harvest in Africa, including Zambia is estimated to drop 14 percent due to the late onset of rainy season and thereafter excessive rain. Rains and drought always spoil and damage the annual planned appetite of the global textile mills and are likely to shoot up the market. Unlike war (going on in Republic of Mali-an important cotton grower in W.Africa), flood and drought variables fall in the domain of an act of the God. Private insurance does not cover this loss while ginners are only small stakeholders getting by on bank loans taken out against the their guaranteed assets.

Rain cycle is the `real` subsidy based on the nature`s holistic tax cycle controlled by God and the human environment collectively. Rewards for a bumper crop are then given by nature to the farmers. The challenge starts when there is less rain or more rain. At that time the human subsidy at the cost of a government`s taxpayers is tested.

Government as a weatherman equipped with satellites spends a lot on monitoring rain, but when cotton prices shoot up due to drought or flooding, then the real advantage goes to peddlers & traders, while money is drained out of taxpayers` pockets to cover flood damages to the crop. This short term price fluctuation is unreal and appears subject to no real global financial regulations or government audits.

Cotton buyers suffer from war, flooding and drought as their loan recovery mechanism from the farm to the bank collapses. At times some farmers and even the buying team steal more and show loss at their end with the excuse of war and flooding. If the country is at war driven by internal conflicts , the UN aid needs to compensate damage to farmers and ginners. The onus to make up for flood loss in the shape of a future subsidy lies more with the domestic government and at times also on UN.

What other factors fuel a white gold rally?

With many of the emerging cotton economies entering a growth peak in 2011, and worldwide inflation rising, investors are zeroing in on `white gold` as a hedge. A classic example was the rise in cotton prices in mid-2011,followed by the sudden drop.

These positions surged from 2002 to a peak towards the end of 2011. However, trading interest has fallen by a third since then. `Herd` behaviour is typical among cotton traders who chase assets that are rising and move out equally fast to other green pastures once they sense the price has peaked.

Not the end of the road

With speculators and investors in search of higher returns moving away from white gold, does it mean that cotton prices are now going to fall ?  No ! because there are many factors that are still supporting cotton prices.

Cotton demand that was subdued due to higher prices can revive, as  common sense says demand will continue until the last man is properly clothed. Inflation shapes a concern in most emerging economies. Depreciating value of money will make many investors park at least part of their money in white gold. While many farmers shall continue to grow cotton as this emerges a strong community cash crop that delivers cash at the doorstep.

All these factors with a mixed bag of luck shall save the cotton prices from a deep decline. But a steep rally taking white gold back to its peak as seen in 2011, is ruled out.

There is a sense of urgency to fall back on Cotton, since the future crop market is still not offering any carry to hold on to cash positions. The outlook today for the new cotton crop isn’t really bullish. Trade activity should therefore pick up, as mills stand starving and need to buy plenty of cotton for annual stocks, while merchants are keen to clean out and recover their current crop inventory.

Improving yield and quality of the natural fibre is essential for domestic cotton stakeholders survival in the days to come. The cotton saga is here to stay in Zambia and Africa for both humanity and business.

Cotton Prices: Who is in Control ?(Part-II)

Note : Part-1 of this article text appeared in Daily Mail in Zambia on April 18 2013 and The Post on 10th.April-2013.

International events in the global cotton village that came to a head last year spread one message loud and clear : Zambian Cotton prices are lead, managed and supervised by global cotton prices outside Zambia.

Ginners and contractors monitored by Government all have a lesser role to play.

For the first time in the last 100 hundred years,commodity prices reached maximum in mid-2011 and the very next year in 2012 prices crashed to their lowest ever in the last 10 decades.

This price crash brought a new untested challenge out into the open :

Who sets the cotton prices ?

You can count the number of seeds in a cotton flower. But no-one can count the number of cotton flowers and future wealth that one single seed can produce during a future harvest.

Farmers in 2012 demanded a fair price as they said they had produced a bumper crop, but they felt cheated when the price was reduced by half from 3.60 K to 1.60 K per kilogram.

Farmers in rural area depend only on stories and logic fed to them by traders.

At times, in order to save his job and bounce back from the stigma of blame for the cotton price, a novice buyer unknowingly
promotes the wrong logic that the `big fall` in price is due to the bumper harvest.

So farmers must blame themselves for the price fall. This is where the Ministry of Agricultural and Livestock must be alert and step in to update and support farmers, by utilising radio as an information empowerment tool.

The Government’s role as weatherman and radioman further helps to predict excessive rains or drought in time using satellite technology.

Why was the domestic cotton price of no help in 2012-2013  farming season ?

In the farmer-factory divide, farmers’ concern is loud and clear. Let us understand what happens when cotton under pressure is suddenly declared a `controlled product` and farmers’ domestic prices are protected and frozen without any link to the world lint price.

The classic lesson in Africa came from Zimbabwe during the last 2012 season.

According to the Zimbabwe media & cotton networks last season-2012, the honorable Minister of Agriculture fixed the domestic
support price for farmers at USD 0.77/Kg.

This was more than double the USD 0.30/Kg which contractors had calculated and wanted to offer. At global level the international price was seen rolling down fast from 150 cents to 70 cents per kg.

At this turning point, cotton activity and export in Zimbabwe came to a halt. Reason? The price was not viable for exports.

Contractors only protested mildly. They feared that if they opened their mouths, they would be branded anti farmers.

This incident was the eye opener in the last 100-year history of lint fibre export and cotton-growing. This Ministry price was later
reversed after a few weeks but it led to a huge loss of valuable exports.

Shipments were pre-booked two months in advance and hence were late.

This experiment meant to protect the majority of farmers finally resulted in a complete break-up of the stakeholders’ cotton cycle.

There was a massive loss of local rural jobs. Export goodwill was damaged as the 3-month cotton collection season was reduced to 2
months.

In Zimbabwe, the farmer’s price eventually plummeted to USD 0.30/Kg.

The International Lint price remains the driving force in finalizing any domestic price. The reverse benchmark of the international sale price at the time the lint would have been sold actually dictates control over two other variables such as the cost of production on the farm and the ginners cost of making fibre lint.

Zambia`s small share of the global cotton production and export in the global cotton village has reduced all Zambian cotton stakeholders to price takers and not price fixers.

Due to limited national cash reserves, the Zambian government has to limit its role to providing just one subsidy, that on essential maize, although it has now diversified to rice, sorghum and cotton.

Farmers, through their unions and other stakeholders must understand this volatile link between the world lint market and their local prices. In almost all African cotton-producing countries, the buying price for seed cotton is a result of negotiations between ginners and farmers, which represents the level of prices offered for lint on the international market. More than 97 % of fibre lint is sold outside Africa, in Europe or Asia at a future date while the by-products obtained from crushing ginned grain produce cooking oil, animal cake and soap for a  domestic sale.

The ICAC-International Cotton Advisory Committee states that world cotton production is dropping by 1.5 million tonnes from 27.5 to 26 million tonnes while the market appetite for consuming cotton is rising by 760,000 to 23.5 million tonnes. This supply-demand gap is helping to fetch better cotton prices this year.
The distribution of wealth generated by growing cotton is a tricky juggling act performed by global policy-makers. This invites conflicts worldwide both in agriculture and industry. Farmers are never happy burning their own cotton produce and turning `white gold` into white ash, as happened in Zambia during the 2012 season with reports of farmers` resistance and conflicts with police. There is nothing wrong with collective hard work, national spirit and fair intentions of 99% growth. The fault lies in global cotton financial governance.

Outside the purchasing power of global and local markets, humanity is crying out for more cloth. This establishes that the market is not the true mirror of price.

Real sales with real jobs at cotton-producing sites and its increase by organized audit training are the only ways to increase real cotton production globally. Better prices shall then continue to swim back to Zambia from overseas.

Devising Indo-African cotton rescue plan

Cotton business is undergoing hard times in Africa and India.

Cotton culture that cloths humanity and delivers cholesterol free cotton oil in kitchens is forced by the global system reeling under recession to pit a farmer against the worker.

Let us first understand how one cotton seed sacrifices to generate more fruits and more wealth.

From Seed to the Fruit Distribution:

Transformation of life from seed to fruit remains the human and team responsibility. To convert a cotton seed to fruits a team work and a legislative process is needed. To distribute hundreds of fruits produced by a single seed again a law is required. Collective wisdom of the team work shaped with a correct environment, adequate rainfall, proper sunshine, organic fertiliser, correct rules of team work, appropriate fruit or wealth distribution, sharing with team coordination during monitoring of transformation helps to sustain justice. The whole cycle punctuated by “Give& Take Life Relationship” is controlled by nature popularly named as God and monitored by farmers. Beneficiary remains the 99 % people and Agriculture life style with `unequal` distribution of fruits.
Farmers -Workers division towards rewards and punishment :
Economic policy decisions as regulatory measures have recently rocked the Zambia economy as a land locked African Nation. First is the rise in domestic and industrial workers wages that is almost double then the last year. Second is the buying cost of the cotton from Farmers per kilo is half the cost last year. The floor cost of cotton buying falls down from 3200 Kwacha to 1600 Kwacha per kilo this year. Ratio of farmers and industrial workers in any developing nation is roughly assumed as 7:1. Cotton Business follows global market rules. Cotton economy is not a zero sum game. At times you rob Peter to pay to Pal. When an industrialist or an investor or any government cannot dare to reduce the wage of say a driver in line with cost of the falling global cotton price this year to half then someone has to suffer. When the powerful ginners lobby in Zambia complain of falling cotton yarn prices the end loser is the farmer. How strongly the rise in the wage of an industrial workers help Zambian trickle down economy needs to be seen. The system of global village is pitting a farmer against the worker. Reduction of cotton buying from 3200 Kwacha(32 cents) per kilo to almost half this year indicates how the American driven recession is killing the hard working 99%. Last year when I was in Zimbabwe the cotton buying from farmers went as high as 50-80 cents per kilo. The international sale price of ginned cotton lint to day in Europe spinning mills is 72 cents instead of 150 cents per pound last year in August.
Distribution of fruit and wealth generated is a tricky jugglery practised by policy makers. This invites conflicts worldwide both in agricultural and industrial sites. Farmers are never happy to burn their own cotton produce. But this happened recently in Zambia with reports of resistance and conflict with police. There is nothing wrong in collective hard work, national spirit and fair intentions of 99% to grow. Fault lies with the deliberate design and a disconnect between the wheel of production and the distribution controlled by that 1%. Real sale with real jobs and its increase is the only way to increase real production in the sick factories during ongoing recession.
Technically farmers are entrepreneurs with no right to fix price for their produce. Let us understand the journey of Potatoes in Indian villages instead of cotton in Africa. If the selling of Potatoes is Re1 per Kg.it is the market price controlled by Governments in India and Africa and a farmer has no power to increase or decrease his selling price of Potatoe. When Potatoes are sold from villages and sacks travel to feeder market the price tops up more then ten times. When an industrialist is allowed to make Potaoe chips we see the price of less then 50 gm is approx Rs.10/-.
So here the selective policy acts to give a step motherly treatment and the price of Potatoe chips is as high as two hundred times.
Some of such unregulated market policy have proved to be dangerous for the very survival of agriculture.
Cotton culture and hope in World Trade Organization :
World Trade Organisation today has more then 20 negotiating groups as participating countries. As a traditional global platform of barters WTO positions `give and take` as business interest. This is not a Zero sum game. It is loaded in favour of the participating country`s business lobbies. Stronger the participating country stronger shall be the rewards in shape of taxes, tariffs, import , export customs and investors profit. America continues to subsidise as high as 58% to American cotton growers and farmers. Result the global prices become unreal cotton prices and are forced to fall down? This is demotivating to all engaged in cotton business except Americans and Chinese. Battlelines are drawn and get polished each day in WTO.

The future of cotton oil and cotton garments today finds profit shrinking times in Africa and in India.No survival noises and no clear rescue plans in favour of India,Zambia Mali and Zimbabwe are seen.

Cotton culture in India and Africa :
Cotton culture in India and Africa is a deep rooted and is an old heritage.Congress Government must revisit its glorious past and see how the British Colonial Government in the pre independent India was challenged. A parallel `Charkha`-a small scale spinning alternative- were promoted by Mahatma Gandhi. The Manchester Spinning mills in England faced a fierce competition by Freedom movement of those times. Cotton as `white gold` was the `Fiber of Freedom` in many colonized countries including India. The once pride of India, the Indian Textile industry is today in a shameful isolated stage. Both Indian government and opposition (BJP) are ignoring the much required hospitalization and resuscitation to textile industry. The fact remains that governments are in denial mode as they cannot reverse their past commitments to save US lead global textile industry with advantage in Asia only to China. American government continues to unilaterally design a direct and indirect subsidy to its cotton growers. The subsidy is as high as 58%.This builds an uneven playing field in the global village for other countries. Instead of surrendering to the American and Chinese pressure India-Africa need to boldly defend its cotton and textile interests.Why America Government wants to remove its dirty unemployment mess now at the cost of Africa-India economy ?
Choice less solution : The manufactures, producers and spinning mill owners are today forced to enter the vicious credit market with profits slashing down and the risk mounting high. The situation in West Africa today is so bad that even the `used cloth market` from Europe and US of say 10 containers shipped per month has no buyers in West Africa.Credit risk in presence of a muscular recovery and sales team and supporting account players in addition appears the only way out. New markets need to be searched. Old markets are flooded with credit dumped products. This is the time to motivate real production in the factory which is the biggest future asset. More commitments to the real quality production can definitely increase more indirect work, better opportunity, more jobs, increase in real consumers and sales to newer markets. Bad work habits `identification` in Business and industry is catching up fast. Recession is throwing open newer wounds. Bleeding industry in-house crossfire continues. Successful promoters and top decision makers of the past boom era need to change fast, reboot their expensive costly habits and contribute.
The wheel of running production and running consumption in India and in Africa silently demands better and more human justified global controls. India need to learn from a smaller landlocked countries like Zambia, Zimbabwe and Mali where absence of ports adds value to the end product cost.

Means-ends and seed-fruit cycle builds a metaphor for a system that produces and generates jobs. If one fruit is put in the market to produce more fake fruits without the natural cycle of seed germination the gamble in the civilised world is called the share bazaar. Here the cheer leaders and investors wish to attract investments on the plea that the money in the shape of fruits shall multiply into more fruits. The money as share fails to generate jobs and at times when the market balloon collapses to match the actual growth the `bad fruit` concept as an excuse takes birth. Increase in wages of workers and increase in cost of cotton buying can help put more money in more pockets to buy cotton cloths, cotton, oil animal cake and soap which governments-business lobby forgets again and again.
Unlike a fashionable `stand still` Tread Mill Gym exercise, cotton rescue plan needs a real run for a cotton campaign. There is a long overdue need to have a more equal but a reverse global participatory model from remote villages to the World markets.

Released as original text in Public Interest By :

Rakesh Manchanda- worked as a Director in Zimbabwe, Mali in Grafax Cotton Pvt. Limited and is now in Zambia.

Note: You may reach the published text with few changes and edits today in Zambia Daily Mail in a different title:

Devising Africa`s cotton rescue plan

Rakesh Manchanda,
Grafax Cotton Zambia Limited.
5,Mutankaclose,Roads Park,
Lusaka-Republic of Zambia.
Mobile:0978278371.