Regulator seeks price cushion for cotton industry

• Farmers in western and eastern regions complaining that they are unlikely to get a significant income from their crop due to the low prices compared to the high cost of inputs
• Cotton prices hit an all-time high in 2011, with the producer price reaching Sh65 per kilo from Sh32 the previous year
• The prices started to dip this year, settling at Sh45 and going further down to current Sh35, the lowest in the last three years.

A sharp decline in cotton prices is threatening to stifle the growth of the sector that is central to the government’s efforts to spur growth of textile industry.

Farmers in western and eastern regions have been complaining that they are unlikely to get a significant income from their crop due to the low prices compared to the high cost of inputs.

Cotton Development Authority (Coda) has called a meeting on Monday next week involving government officials, parastatal heads and representatives of the disciplined forces to implore on them to buy locally manufactured apparel as a cushion to low prices.

Cotton prices in the international market have gone down in recent months.

The prices hit an all-time high in 2011, with the producer price reaching Sh65 per kilo from Sh32 the previous year.

The prices started to dip this year, settling at Sh45 and going further down to current Sh35, the lowest in the last three years.

“The margins have become extremely low but there is nothing we can do because they are dictated by the international market. The problem we have is that there is already too much cotton in the country and no market because the spinners are hardly buying lint from us,” said Coda vice-chairman, Mr David  Masika.

Mr Masika is also the proprietor of Makueni ginneries.

The prevailing international prices is 86.75 US cents per kilo and the local ginneries are buying at 74 US cents per kilo when other costs like transportation, storage and ginning are factored.

Coda acting managing director, Mr Antony Mureithi, the prices are set to dip further to 80 US cents in the coming months as major producers harvest their produce.

“Kenya needs to introduce a price stablisation mechanism like other countries to cushion the farmers from price volatility,” said Mr Masika.

The government organises farmers’ representatives and ginnery owners to set prices for the year considering the international market situation, the local cost of production, the expected increase in demand and supply.

Global cotton prices have experienced wild swings, mostly dictated by major producers and consumers.

In March, India announced a ban on cotton exports sending the prices soaring at the New York commodity prices, with Chinese importers scrambling for the commodity from the US.

The ban, that came only six months after controls on cotton exports were removed, however, drew sharp criticism from farmers as its domestic prices declined and the decision was reversed within days.

A similar ban was put in place in April 2010, but was lifted after several months.

Other countries that have been facing tight supply situation are Pakistan and China.
There are 24 ginneries in the country but only eight are active.

The spinners often opt for cotton from Tanzania and Uganda where the prices are lower and the sellers provide a 90-day credit window that is not offered in Kenya.