Aico Africa Ltd., sub-Saharan Africa’s biggest cotton merchant and ginner, said Zimbabwe’s cotton subsidy plan is a “backward step” for the industry.
“History is littered with examples of price controls that have not worked,” Chief Executive Officer Patrick Devenish said in an interview yesterday in Harare, the capital. “They will be good for the industry as a whole but I am not sure how sustainable they would be for government. We producers need to absorb the hard times.”
Aico gained 4.4 percent on the Zimbabwe Stock Exchange the day after Agriculture Minister Joseph Made on May 30 told the state-controlled Chronicle newspaper the government will be the sole buyer of cotton. The stock was unchanged at $0.12 at the close today.
The subsidy will support farmers, Made said. Merchants “want to milk the cotton farmers,” he said by phone yesterday. “Some of them have increased their input costs by 20 percent,”
Made wouldn’t say what the subsidized price will be. “We are still working on the policy,” he said.
Cotton merchants are offering $0.35 to $0.50 a kilogram (2.2 pounds), while farmers want $0.85 to $1.20, the Bulawayo-based Chronicle said.
“Last year when the prices were very high I didn’t see government intervening,” Devenish said. “When you trade in a commodity you take the world price, you are price taker not a price maker.”
Prices for the commodity have plunged 69 percent from a record $2.197 a pound in March 2011 as output grew and demand from textile mills declined for three of the past four seasons.
The prospect of weakening economic growth made cotton the biggest loser in the past year among the 24 commodities tracked by the Standard & Poor’s GSCI Spot Index, which touched an 18-month low on June 4.
Business as Usual
Zimbabwe produced 250,000 metric tons of cotton last year and this is expected to rise to 265,000 tons to 280,000 tons in the 2012 marketing season, according to the Agriculture Ministry.
Aico will continue to do business with Olam International Ltd., even though it halted talks with the Singapore-based commodity supplier on a possible acquisition, Devenish said.
Aico sold Olam 10,000 tons to 20,000 tons of lint a year and they are “a very good and reliable business partners,” he said. “We think highly of them and I think they think highly of us.”
The company will explore other options to fund expansion in Tanzania and Kenya after shareholders voted against a $50 million rights issue, Devenish said.
“We’ve also dipped our toes into West Africa; the plan is by 2014 is to have Seed Co in Nigeria,” he said of the company’s seed-production unit.