With the current crisis the world lives in, many industrial buyers have come forward and announced decreases in the price at which they are willing to buy. For larger suppliers a change in a few cents per Kilogram can represent a deep loss in revenue, leading to decreased profits and eventual wage reductions.
Small farmers and producers also see the consequences in a harsher way, a decrease in price can deeply impact their tight profit margin; with a large producer this can mean a bad cycle, seeing as most have a “cushion” if there are losses, while small suppliers rarely can afford such luxury.
Mozambique is currently facing this dilemma, cotton buyers have expressed their concerns over the above average price of Mozambican cotton. On May 11th, The first meeting between representatives of the National Producers Forum (FONPA) and the Associação Algodoeira de Moçambique (AAM) in Maputo failed to produce an agreement on the reference price.
FONPA advocated maintaining the reference price of first-class cotton at 23.30 meticais per kilogram, and 17 meticais per kilogram of second, plus a ginning rate of seven meticais per kilogram, as was the case last year. FONPA said that a price reduction this year would affect farmers’ incomes, which are already very low, and warned that it could spur a mass abandonment of the crop in the next campaign. Minister of Agriculture and Rural Development Celso Correia noted that the country must find ways to improve the income of the small farmers involved in cotton production, suggesting an agreement between small farmers and producing companies to allow farmers to produce, as well as cotton, other high-yield crops.
On the other hand, even if there is no reduction in price, the Mozambican government has announced a plan to subside cotton prices. According to government officials, the plan is to “Ensure that 1 million Mozambican have food on their table.” Minister Celso Correia’s first intervention towards the “zero hunger” utopia, challenging the processing companies and the almost 200,000 small farmers to add to the production of the so-called “white gold” other cash crops, such as soy and corn, with access to subsidies that could amount to$4 m USD in 2020 alone.
“Cotton is a cash crop that many fail to understand is not only an economic but also social [pillar] for Mozambique. It is clear that it remains one of the export references, (…) but it also represents jobs and, above all, represents about 200,000 families working in the value chain,” the minister said. “Our history is full of ups and downs in this sector, but it is important to mention that these families remain firm because their source of income, their source of life, comes from this activity(…) It is discussing how one million Mozambicans will put food on the table, it is discussing how one million Mozambicans will pay for their basic needs, how will one million Mozambicans address their challenges and, above all, manifest their dreams,” Minister Correia declared.
According to Minister Correia himself, over the past three months, during and previous to Covid-19, the government has studied the impacts of the commercialization of cotton and other crops and found that the farmer’s income is not “satisfactory.” He added that many farmers due to the current cotton prices resort to other crops as a source of income, and still it is not enough for the average 5 person family to escape the poverty status. The Government has estimated that these families only have an income of around 12,000 meticais, around $175 USD shared among five individuals and other household costs. João Ferreira dos Santos, president of the AAM, recalled that “we had a relatively high stable price of around 23 meticais/kilo for some time, but we knew it would fall at some point – commodities are like that. We have been talking for many years about the need to have a crisis management mechanism that we can apply at times like these, when the price goes down, exactly to stabilise production levels – to intervene in years like these, like the one we are experiencing.”