Working to Eliminate Smallholder Disadvantages
February 11, 2011 While the global economic crisis has, indeed, wreaked havoc on all facets of the cotton industry, we expected that to happen.
What was unexpected, and has become more intriguing, is the pace at which the industry managed to recover. Certainly, players need not to be complacent with the record prices despite the fact that fundamentals are the driving force behind the positive changes.
It is an appropriate time to remember that although the current supply is constrained by weather and other factors, those same variables–once considered favorable–can result in surpluses rather than deficits.
Taking stock of the current market, two things have become evident: The current high prices have sent shockwaves to all cotton-producing countries across the globe, and cotton has now become a lucrative option for growers compared with alternative crops.
As expected, record prices will lead to increased acreage … which will lead to record production … which will in turn affect the dynamics of supply and demand in both the short and long term.
Overcoming fundamental challenges
From the perspective of resource-poor farming communities, cotton production poses a host of serious, fundamental challenges:
• low productivity due to inadequate use of inputs (caused by lack of sufficient credit);
• low levels of mechanization, which leads to inefficient operations;
• inadequate cotton research, resulting in a failure to realize the crop’s potential;
• insufficient extension services that make knowledge transfer to farmers an insurmountable task;
• quality-related issues that reduce profitability;
• low levels of value addition, including varolization of cotton byproducts that cause direct loss of revenue; and
• subsidies provided by rich countries to their farmers, facilitating unfair competition, weak stakeholders’ associations, etc.
Drastic measures are required to address the challenges the industry is facing before it can prosper in the ever-unpredictable cotton business. To that end, Tanzania is implementing its second Cotton Development Strategic Plan, which targets a production of 275,000 tons of lint by the 2014/15 season (the highest Tanzania has ever produced was 130,000 tons during 2005/06).
The transformation of the industry is centered on the following pillars:
• revival of seed multiplication system and processing of seeds for planting;
• rolling-out of contract farming by the 2011/12 farming season, which will address the issues of input supply on credit, provision of reliable extension services and supply of picking bags to minimize contamination;
• adoption of conservation agriculture;
• increased usage of ox-drawn weeders and planters;
• adoption of Bt cotton following approval of bio-safety regulations;
• expanding the instrument testing capacity; and
• strengthening of the stakeholders’ associations to facilitate self-regulation and the strengthening of the Cotton Development Trust Fund.
In order to create a sustainable business environment for cotton, circumstances dictate that the smallholder producer must address all inefficiencies in order to remain competitive. As a golden rule, high-quality cotton will always have a place in every segment of the market–which is not the case for contaminated cotton.
On the other hand, researchers need to think hard about the appropriate farming system, which can make cotton more competitive than alternative crops. This is important to entice farmers not to abandon cotton in times of low prices.
Looking ahead, risk management instruments need to be developed for cotton business transactions. At the farm level, introduction of crop insurance will mitigate the risks associated with the vagaries of weather, which is a threat to the contract farming arrangement. And, since contract sanctity is the lifeblood of any business entity, it is imperative that contracting parties fulfill their obligations under all circumstances.
Value addition is one area where little has been done to improve the welfare of smallholder producers. For example, due to technological advancements, cotton stalks can now be used to produce particle boards. Bringing those types of technological innovations into the value chain equation will speed up the process of liberating the rural poor.
Investors are invited to look at Africa as the next destination for textile industries. Meanwhile, there is a need to develop the handloom industry for the resource-poor farmer–who is usually idle for six months between crops–to add value and earn more from cotton.
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