Malawi: Cotton farmers in a poverty, inequality trap

02 July 2009, Daily Times
URL: http://www.dailytimes.bppmw.com/article.asp?ArticleID=13654

Blantyre:  This article is a contribution to the on-going debate on farm-gate prices and how these impact on the cotton farmer in Malawi. It discusses the social and economic plight of the cotton farmer on one hand and the state intervention through minimum cotton producer price to facilitate social protection on the other hand: 

The Malawi cotton industry shows serious discontinuities in the entire value-chain following the Structural Adjustment Programme (SAP) that removed the elaborate system that supported cotton farming in the country.  Through the Agricultural Development and Marketing Corporation (ADMARC) cotton farmers had access to credit, insurance, farm input and collaborative organisations for support and advice.

Since the SAP, smallholder cotton growers have been exposed to extensive market failure, high transaction costs and risks as well as service gaps. Incomplete markets and institutional gaps have tended to impose huge costs in foregone growth and welfare losses for the cotton smallholder farmers, threatening their competitiveness and, in many cases even their survival.  Conversely, this SAP could best be described as a case study of how doctrinaire economics serving international corporate interests can destroy a productive base. Since the SAP, important roles once played by ADMARC in the cotton economy have never been filled by the private sector hence the service gaps.

While discussion on the SAP is beyond the scope of this article, it is important to note that SAP in the Malawi cotton economy was not simply about re-aligning investment but rather a complete divesture by the state from a key industry which did not have the structures to pick up the pieces.

Against this background, some ten years today Malawi is faced with a plethora of challenges in its pursuit to rejuvenate the cotton economy and position cotton at the centre of the country's industrial development thrust.   The state has to balance the promotion of positive freedom from poverty among its citizenry in the rural cotton farming areas, protecting it from any further marginalisation and exploitation while at the same time encouraging greater participation of the private sector and foreign capital injection.

The state must help eliminate the major causes of poverty which include poor economic opportunities as well as a system which consigns its rural cotton smallholder farmers to systematic social deprivation.  The cotton smallholder farmers group is characterized by low disposable income, food insecurity, poor housing, poor water and sanitation. These are the people that require the protection of the state from the overly dominance of the ‘big boys'.

Malawi has to manage attempts of by the privileged coterie of expatriates in this same cotton economy who live in subsidised housing complete with free furnishings, dine in comfort and seclusion. In stark contrast, the rural cotton farmer who does the bulk of work all year round has to toil to earn a pittance.

Yet, Malawi has to provide a policy environment that enables continued flow of foreign capital formation while nurturing the indigenous domestic investors. It has to establish policy arrangements that provide fairness in trade, market structures and level-playing field for all stakeholders in this important cotton industry. As in the application of Hegelianism dialectic relation theory, the state must also oversee and manage the balance of power and might or the relative identity where one group is posited as indifferent and the other as different.

Based on the current national annual output of 70-thousand tons of seed cotton against regional outputs of over 110-thousand tons in Mozambique, over 120-thousand tons in Zambia, and over 400-thousand tons in Zimbabwe respectively, Malawi still needs state intervention and involvement in the cotton industry if we are to encourage the cotton farmers to continue mining the ‘white gold' of Malawi!

Apart from institutional capacity building, for Malawi to return to its levels of production of the 1980's record harvests of 100,000 tons of seed cotton, Malawi needs to motivate its smallholder cotton group by raising both its profitability and productivity.  Our smallholder cotton farmers remain at risk and vulnerable all the time as Malawi has to compete in a world market place in which major competitors from the super powers are heavily subsidised in an environment exhibiting high price volatility and, at times, variable weather conditions that result in significant yield variations.

There is a strong case for protection of this group from an insecure livelihood. This viewpoint is supported by the absence of the practice of paying the farmers an initial price at the time of purchase of seed cotton followed by a second payment later in the season if the price subsequently realized on the lint export market justifies this.

The system as it stands today, means that the Malawian farmer is on the losing side even in a year where the prices on the international market are good as there are no mechanisms for those benefits to be passed back to the farmer.  The absence of an active futures market for non-US cotton, most of which is priced against the CotLook A index, gives rise to both basis risk and liquidity problems only makes matters worse for the farmer.

But, getting back to basics: Why focus on exports to "Ulaya," with all these complexities? Within the SADC, there is always demand for cotton lint, cotton yarn and cotton fabric. South Africa and Madagascar represent a large unexplored and unexploited market for cotton lint, yarn and fabric.

Madagascar is predominant in the textile and garment manufacture under the Fair Trade scheme. Arguably, despite the 100 years that this country has known and grown cotton, as an industry the cotton sector remains in its nascent stage.

It is an established fact that from the cotton ball, over 53 industries can emerge from the primary value-chain of linters, meats and hull. Linters producing such products as absorbent cotton, paper stock, cellulose, lamp and candle wicks. Lards, mayonnaise, margarine and glycerine are some products from the cotton meats. On the other hand, cotton hull produces fertilizers, fuel, filler for plastics among other items. The farmer grows cotton and supplies it at harvest in its wholesome state.

Notably in our country, there are only ginning, edible oil extraction and livestock feed outputs from cotton. Should the country not be exploring to get the most from the cotton crop?  Fibre from the ginning can be used for several spinning, weaving and finishing capacities locally for a variety of export products under bilateral and multilateral arrangements. Cotton provides excellent economies of scope.  Where cotton can be bought as seed cotton it does not necessarily have to be traded as lint, it can be exported as yarn whose value is much more than lint, at about 130%.

In conclusion therefore, there are many opportunities which can be exploited in the cotton industry but the structural inefficiencies and pricing inadequacies need urgent attention first. Malawi as a country needs to develop a clear strategic focus of the industry, where it should be and how it can get there and then commit on that path.

*   Bilison Itaye is a consultant and researcher with Institute of Development Policy Studies Unit, University of Zimbabwe. He is currently consulting with Kotton Development and Investment (KODI) which is working to establish a smallholder cotton out-growers scheme for certified cotton seed multiplication in Malawi. He has vast experience in the textile and garments industry and serves as a member of the Working Group of the United Nations International Trade Centre on Regional Strategy for Eastern and Southern Africa on Cotton, Textiles and Garments Value-Chain Integration.