Charles Kazooba
29 June 2008
Nairobi — Kampala is conducting crisis meetings between public and private sector players to exploit a boom in global cotton prices after the country registered its lowest crop yield in the past 10 years.
The price of a kilogramme of cotton in Uganda, the only African country exporting raw organic cotton, rose from Ush450 ($0.25) to about Ush900 ($0.5), surpassing the government's indicative price of Ush700 ($0.4).
High domestic cotton prices in China are reported to be a signal for higher international prices. Given the current role of China as the biggest producer and consumer of cotton, a large discrepancy between Chinese and international prices is predicted to cause abrupt movements in cotton prices around the globe.
The Ugandan cotton agency has announced that cotton production dropped by over 50 per cent raising fears that the country's textile industry, which consumes 10 per cent of the produce, could be hit.
Cotton Development Organisation managing director Jolly Sabune said only 65,000 metric tonnes of the crop were harvested in the financial year 2007/8, earning $30 million compared with $50 million in 2004/5.
She said the decline resulted from farmers' reluctance to employ scientific methods, although the government had contracted private companies to offer extension services.
In 2007, according to the Uganda Export Promotion Board, cotton export earnings experienced a slight decline of four per cent - from $20.4 million in 2006 to $19.5 million. However, volumes exported declined by 12 per cent from 18,480 metric tonnes in 2006 to 16,230 metric tonnes in 2007. Cotton production fell to 134,000 bales, mainly due to low price disincentives.
The situation, according to Ms Sabune, could worsen since the planting season is yet to end, with little planting done due to lack of seeds. The season started in May.
Marck Van Esch, managing director of Boweevil, one of the ginning companies, estimated that the planting season would wind up in August.
The EastAfrican has established that the country has run out of seeds because ginners decided to hoard the seeds for oil processing rather than for future sowing. The farmers have also stopped growing organic cotton because of the government's strict condition that they should not grow any other crop within a radius of one kilometre.
However, the government has met all stakeholders in the industry to solve the crisis. Numerous meetings have been held in Kampala between ministers, Members of Parliament and the ginners to solicit for seeds.
An inter-ministerial meeting on the cotton seed crisis in the country on June 20 resolved to meet ginning companies to persuade them to release the seed stocks they are holding. The meeting was a directive from the Speaker of parliament to the Prime Minister after the issue became a subject of debate in the house.
The Speaker had earlier reiterated the economic importance of cotton to the country and the importance of parliament's intervention.
Subsequently, after explaining the crisis to the ginners and the likely further rise in prices, private firms pledged 450 metric tonnes of seeds.
The government requires about 1,000 metric tonnes of seeds to distribute to farmers in northern Uganda, a traditional cotton-growing area. There are about 23 major districts that grow cotton in Uganda, which is 50 per cent of the country.
Uganda's indicative figures show a declining trend in production of cotton seeds from 94,000 tones in 2002 to 39,000 tones in 2008.
The Cotton Development Organisation has accused two ginners - Cotton Klub and Dunavant-Uganda - of buying up all the lint cotton.
But even with the seeds that have been mobilised in the emergency, the government is uncertain of their quality.
"We will treat and package the seeds, then give them to the farmers. There is no time to delint and grade," Ms Sabune said.
Private companies have differed with the government over the latter's sole rights to determine the quality of the seeds.
The companies are demanding that the government liberalise the exercise.
The decline in Uganda's cotton production, however, echoes a general drop in world output. World cotton production is projected to decline slightly in 2008-09 to 26 million tonnes, according to the International Cotton Advisory Council, although higher prices have been predicted.
Declines in production are forecast in the US, Brazil, and Turkey due to competition from grains and soybeans. These reductions could offset increases projected in Asia, West Africa and Australia.
Global cotton mill use is expected to remain stable at 26.7 million tonnes in 2008-09 due to slower world economic growth and higher prices of cotton relative to polyester.
World consumption is expected to exceed production in 2008-09. As a result, world stocks are forecast down by six per cent to 11.3 million tonnes. World imports are expected to increase by five per cent to 8.8 million tonnes in 2008-09 due to projected higher imports by China.
The cotton industry in Uganda was liberalised in 1994 and since then there has been some recovery in production levels. However, cotton only accounts for between two and five per cent of the country's exports compared with 25 per cent in the 1970s.
Uganda's performance, which has deteriorated by 33 per cent since the peak period of 2003 when the country earned about $33 million is expected to impact heavily on the local textile industry, which consumes about 10 per cent of the cotton produced.
The country is one of the few in sub-Saharan Africa benefiting from Agoa, under which the US government opened up its $11 trillion market to duty-free and quota-free access for more than 4,500 products including locally manufactured garments.
Two companies; Tri-Star Apparel and Phenix Logistics - were exporting garments to the American market, but the former collapsed in November 2006, leaving the government with a bill of $20 million in cash, assets and guarantees it had accorded the company.
Before its collapse, Tri-Star exported goods worth $300,000 in 2002, $2.8 million in 2003, $3.8 million in 2004, $4.8 million in 2005, and $0.6 million in 2006.
The company, however, made losses of Ush7 billion ($3.5 million) in its first two years of operations alone, according to an audit report prepared at the end of 2003.
In the wake of Tri-Star's collapse, President Yoweri Museveni offered to support Phenix Logistics to enable it to build up capacity to export to the US.
Phenix Logistics has exported nine consignments to the US under Agoa worth Ush1.4 billion ($844,948) although it was supposed to meet a target of $4 million.
In the 1950s, cotton was the second most important traditional cash crop in Uganda, contributing 25 per cent of total agricultural exports. By the late 1970s, this figure had dropped to three per cent.
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