COTTON MARKET VALUE CHAIN PROFILE. Figure 1: Cotton Gross Value of Production. Years

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1 COTTON MARKET VALUE CHAIN PROFILE 1. DESCRIPTION OF THE INDUSTRY Cotton remains the most versatile crop grown by mankind. It is noted for its versatility, appearance, performance and comfort and it provides useful products and used to create thousands of jobs in South Africa as it moved from field to fabric. In 23 it was estimated that the cotton industry spent an estimated R223 million on agricultural inputs, paid an estimated R38 million in wages and produced raw material for the processing industry worth about R136 million. However, this situation is changing over the years due to a substantial decrease in the local cotton crop size. The contribution of the cotton industry to the Gross Value of Agricultural Production is summarized in Figure 1. Figure 1: Cotton Gross Value of Production R' / / 2/1 21/2 22/3 23/4 24/5 25/'6 26/'7 27/'8 Years Source: Agricultural Statistics The contribution of the cotton industry to the gross value of agricultural production has shown fluctuations between the years 1998/99 and 23/4 with an average decline experienced from the year 2. The decline is attributed amongst others, to a decrease in domestic production due to competition from cotton imports arising mainly from SADC countries and cheap textile imports from the East. Another factor is low international cotton prices due to subsidies in the developed world; and so this depressed local cotton production. The contribution of this industry to the gross value of agricultural production continued to decline even further between 25 and 27, with a slight increase in 27/8 season. 1

2 1.1. Production Areas Traditional cotton production areas in South Africa are as follows: Limpopo Province in the Springbok flats from Bela-Bela to Mokopane, North West Province covering the areas of Taung, Stella, Delareyville and Maratsane, KwaZulu-Natal in the Makhathini Flats, Mpumalanga and Northern Cape in the lower Orange River, Vaalharts, Douglas and Prieska Districts. This situation has slightly changed over the years with the result that during 28/9 in the North West Province no cotton was grown while in the Limpopo Province cotton production areas also extended to the Weipe and Dwaalboom/Thabazimbi areas. In the SADC region cotton is produced in countries such as Namibia, Swaziland, Botswana, Malawi, Angola, Mozambique, Tanzania, Democratic Republic of Congo (DRC), Zambia and Zimbabwe. Figure 2: SA cotton Production Vs Consumption Tons of Cotton lint Cotton production by SA ginners Cotton Consumption by SA spinners Source: Cotton South Africa 1999/ 2/'1 21/'2 22/'3 23/'4 24/'5 25/'6 26/'7 27/'8 28/'9 Marketing Years As is evident from Figure 2, South Africa s production of cotton is far below the domestic demand while other SADC countries such as Malawi, Mozambique, Tanzania, Zambia and Zimbabwe produce far above their domestic demand. On average the production of cotton lint by South African ginners has been declining continuously between 2 and 28/9 while at the same time is far below the domestic demand by spinners. The deficit shown by Figure 2 above is met through imports, mainly from SADC countries. Cotton consumption by local spinning mills has shown a similar decline as production, as can be seen from Figure 2. This trend can be mainly ascribed to the continued imports of low-priced textiles and apparel from Asia, and also to the relative strength of Rand against the US dollar, all of which impacts negatively on demand for locally manufactured textiles. South African producers are unable to compete with their SADC counterparts as far as production of cotton is concerned. These SADC countries can produce cotton much cheaper than South Africa because they do not have minimum labor wages, amongst others. It is also clear from Figure 2 that cotton consumption by South African spinners have also been declining 2

3 over the period under review. A sharp decline in cotton consumption in South Africa was experienced during 28/9 marketing season due to global economic downturn, which also resulted in a situation where global cotton consumption fell by 12% during the same period Production During the 28/9 production year ha (5 979 under irrigation and 3242 under dryland) were dedicated to cotton production in SA, against ha in 25/6 production year. This represents a decline of 49.9% in area planted over a period of five years. The decrease in cotton production over recent years can mainly be attributed to the following factors: to the perception that cotton is no longer a viable option in view of the more favourable prices of other competing summer crops; cotton prices over recent years have not increased to the same extent as in the case of other summer crops; and the low international prices of recent years, which discouraged any growth in cotton production. Cotton faces stiff competition from crops such as maize and sunflower where prices offer farmers greater profitability whilst requiring less management inputs. According to Cotton SA the following volumes (as shown in Figure 3) of cotton lint were produced over the ten year period starting from Figure 3: Cotton Lint Production in Sout Africa Tons / 2/'1 21/'2 22/'3 23/'4 24/'5 25/'6 26/'7 27/'8 28/'9 Marketing Years Source: Cotton South Africa The volume of cotton produced in the Republic has gradually been declining since the year 2 reaching a 4-year low of tons in 28/9. The greatest quantities of cotton lint for the 26/7 marketing year were produced in the Mpumalanga Province with an amount of bales followed by Limpopo Province with bales and Northern Cape producing bales. The least cotton was produced in the Eastern Cape with 132 bales of cotton lint (each bale = 2kg). The volume of cotton lint production in the country continued to decrease during the 28/9 marketing year with only tons produced. 3

4 Figure 4: Small Scale Cotton Production (2kg lint bales) Production (2 kg bales) North West Northern Cape Kw azulu- Natal 27/' /' Province Limpopo Mpumalanga Eastern Cape Source: Cotton SA Figure 4 shows cotton production by small scale farmers in the various cotton producing provinces and it indicates that cotton by small scale farmers is mainly produced in Kwazulu- Natal North West and Mpumalanga Provinces. The greatest volumes originated from Kwazulu- Natal, Makhathini flats, mainly due to the large concentration of small scale cotton farmers in the region and a grant provided by the KwaZulu-Natal local government for inputs. During 27/ 8 production year the number of small scale farmers producing cotton were estimated at 24 in the North West, 8 in the Northern Cape, 2 26 in Kwazulu-Natal, 37 in Limpopo, 173 in Mpumalanga and 6 in the Eastern Cape Province. Comparing 27/8 season with 28/9, one will note a decline in small scale cotton production North West, Northern Cape, Kwazulu- Natal and Eastern Cape. Cotton production by small scale farmers increased in Limpopo from37 to 495 lint bales; and Mpumalanga from 235 to 425 lint bales. The area devoted to cotton production over the past few years has gradually been declining as can be seen in Figure 5. This is due to the fact that many cotton hectares (irrigation and dryland) have been substituted with maize, wheat and sunflower because of more favorable price prospects for these crops in relation to cotton. The switch to alternative crops can mainly be ascribed to the level of international cotton prices which have lately been very low due to subsidies and government support by developed countries. 4

5 Figure 5: Area Planted vs Production Tons Hectares /' 2/'1 21/'2 22/'3 23/'4 24/'5 25/'6 26/'7 27/'8 28/'9 Years Source: Cotton South Africa Lint (Tons) Seed (Tons) Area Planted (Ha) Figure 5 further indicates that the amount of seed cotton produced by farmers in South Africa has experienced a continuous decline during the years between 1999 and 28 with the lowest level produced in 28/ 9. Additionally, the amount of cotton lint produced by South African ginners has also declined substantially in line with decreases in the production of seed cotton. According to Cotton SA, production of cotton lint by South African ginners for the 28/9 marketing year was about tons, which represents an 11% decrease from the previous season. Various SADC countries are also major producers of cotton. Tanzania was the biggest producer in the 27/8 marketing year accounting for about 37% of the region s cotton output. Cotton lint production in the SADC region is summarized in Figure 6. 5

6 Figure 6: Cotton Production in the SADC region Tons SOUTH AFRICA MALAWI ANGOLA MOZAMBIQUE TANZANIA DRC ZAMBIA ZIMBABWE 27/8 26/7 Source: Cotton SA and the International Cotton Advisory Committee (ICAC) Tanzania produces the largest volumes of cotton lint in the SADC region, followed by Zimbabwe and Zambia. Malawi and Mozambique are also producers of cotton lint in the SADC region with smaller quantities of cotton being produced in other SADC countries such as Swaziland, Namibia and Botswana. During 27/8 season, Tanzania accounted for 4% of total cotton produced by SADC countries, followed by Zimbabwe which contributed 27% to total SADC cotton production. This was different from the 26/7 s situation where Zimbabwe was the largest producer of cotton in SADC Employment In 23 it was estimated that the primary cotton industry employed on average an estimated seasonal and 6 55 permanent workers which could increase to seasonal and permanent workers should local cotton production increase to 74 tons annually, or in a scenario where small scale farmers produce 27% of a crop of 74 tons of cotton lint, an increase of seasonal and permanent workers, as well as an additional small farmers can be expected. 6

7 2. MARKET STRUCTURE 2.1. Domestic Market and Prices Figure 7: Cotton Seed Production & Average Producer Prices Ton /' 2/'1 21/'2 22/'3 23/'4 24/'5 25/'6 26/'7 27/'8 28/'9 Years Rands/ton Seed (Tons) Source: Cotton South Africa & Agricultural Statistics Average Producer Prices (R/ton) Over the past few seasons, cotton production in South Africa has been declining (see Figures 3 and 5) mainly because of the low level of international cotton prices due to subsidies and government support by developed countries which are creating serious distortions in the international market. In the 26/7 and 27/8 production years, local production reached the lowest levels in 4 years mainly due to the following: (i) low international cotton prices in recent years partly due to subsidies provided by the governments of many cotton producing countries; (ii) the Rand which remained relatively strong against the US Dollar; (iii) more favorable prices of other competing crops (which have tariff protection measures in place) and (iv) the fact that local cotton farmers effectively have no tariff protection as 99% of all imports are from SADC in terms of the free trade agreement which has a zero tariff for cotton. Figure 7 confirms that between 1999 and 28 the production of cotton in the domestic market has experienced a continuous decline until less than 4 thousand tons are produced from 26/ 7 until 28/9. The average cotton producer prices were below R2 5/ton between 1999 and 21 and thereafter increased to levels above R3 /ton between the years 22 and 24 primarily due to substantial decreases in the domestic production of this crop. Market forces played their role again when cotton producer prices began increasing from 25 until 28 when production declined again. 7

8 Figure 8: Cotton Average Producer Prices (R/ton) Rand/Ton /' 2/'1 21/'2 22/'3 23/'4 24/'5 25/'6 26/'7 27/'8 28/'9 Years Source: Cotton South Africa Figure 8 shows that prices remained fairly stable between 1999 and 2 with substantial increases experienced between 21 and 24 in response to declining domestic supply. When domestic cotton production declined again between 26 and 27, cotton producer prices increased to a level closer to R3 /ton. The highest cotton price was experienced during 28/9 season due to lower volumes of domestic cotton production in South Africa Cotton Imports In terms of the SADC FTA (Free Trade Agreement) cotton can be imported free of duty from SADC countries since January 24. Some SADC countries are substantial producers of cotton with a total production of about 361 tons of lint in the 25/6 marketing year, more than three times the total SADC consumption and sixteen times the South African production for that year. These countries are very competitive producers of cotton and South Africa is a logical market for them. During the 25/6 marketing year 99% of South African cotton imports were from SADC countries. South Africa is therefore a net importer of cotton lint who imports between 4 6% of its cotton needs annually. Figure 9 outlines cotton imports into South Africa for the past ten marketing seasons. 8

9 Figure 9 : Value of cotton imports from the world Rands Africa Americas Asia Europe Source: Quantec Easy Data The period between 1999 and 28 has seen South Africa importing the bulk of its cotton from the African continent as shown by Figure 9 above. The value of cotton imports between 1998 and 21 was relatively lower because the domestic production of this crop was still relatively high. However, the value of cotton imports increased substantially thereafter in response to declining levels of domestic cotton production. Only minimal amounts of cotton were imported from other such as Asia, Europe and the Americas mainly due to long distance that exists between these regions and South Africa. Years Figure 1: Value of cotton imports from Africa 8 7 Rands Eastern Africa Rest SADC Years Source: Quantec Easy Data 9

10 Figure 1 indicates that the greatest cotton imports that are from the African continent originate mainly from the SADC region followed by Eastern Africa. Over the past ten years our major source of cotton lint in particular is from SADC countries with cotton import values having increased substantially between 2 and 24. South Africa also imported very small quantities of cotton with small values from Eastern Africa between the period 1998 and 24. The SADC Free Trade agreement as well as closeness between South Africa and other SADC countries is the main reason behind such a huge flow of cotton imports from the region to South Africa. Other SADC countries such as Zimbabwe, Tanzania and Zambia have a comparative advantage in cotton production, and this allows them to produce more cotton at a lower price and intensifies their potential to export to less producing countries like South Africa. Figure 11: Value of cotton imports from the SADC region 5 4 Rands Malaw i Mozambique United Republic of Tanzania Zambia Zimbabw e Source: Quantec Easy Data In the SADC region, imports of cotton originated primarily from Zimbabwe and Zambia with increases from Malawi and Mozambique experienced between 23 and 28. Smaller values of cotton imports have also been recorded from Tanzania between the years 23 and 28. As can be seen from Figure 11, the greatest quantities of cotton imported during the period under review were from Zambia and Malawi (about 9% of imports). The stronger Rand to the US$ in relation to the weaker SADC currencies contributes to the fact that cotton from SADC can be discounted in the SA market, thereby making the local crop less attractive to take up. Growers in Zambia and Zimbabwe are paid considerably lower prices than SA growers and thus ginners in these countries can be aggressively competitive when selling into the SA market. Many SADC governments are also providing some or other form of support to their cotton growing sectors. Years 1

11 Figure 12 : Cotton imports by SA Spinners Tons of Cotton Lint / 2/'1 21/'2 22/'3 23/'4 24/'5 25/'6 26/'7 27/'8 28/'9 From SADC (tons) From outside SADC (tons) Source: Cotton South Africa Marketing Years Figure 12 further confirms the observation from Figure 11 that, during the period under review spinners from South Africa imported the largest quantities of cotton from the SADC countries with peaks experienced in 22/3 and 27/8. The volumes of cotton lint imported from non-sadc countries has been below 1 thousand tons and continued declining until 28/ Cotton Exports Figure 13: Cotton Lint Exports 8 Exports quantity (tons) / 2/1 21/2 22/3 23/4 24/5 25/6 26/7 27/8 28/9 Series Marketing Year Source: Cotton South Africa 11

12 During the ten year period under review South Africa exported minute quantities of cotton lint lower than 8 tons on average. Between the period 21 and 25 there were no exports of cotton lint from the Republic of South Africa as this period was characterized by a surge in cotton imports from SADC countries. The highest volume of cotton lint exports was recorded during 27/8 season when the local cotton price was very low, tempting local ginners to seek better prices elsewhere Share Analysis Table 1: Share of SADC countries exports into South African cotton imports (%) Years Countries Angola Mauritius Malawi Mozambique Tanzania Zambia Zimbabwe Source: Quantec Easy Data Table 1 further confirms an earlier observation that the greatest percentage of cotton imports originate from Zimbabwe, Zambia and Malawi. It is also worth noting that between 1999 and 21, Zimbabwe used to command a greater share of cotton imports into SA but the trend started to decline from 24 onwards with increasing share for cotton imports from Zambia in 25 while Malawi also increased its share in 27. By the year 28 Zimbabwe was still the largest exporter of cotton to South Africa in the SADC region although the volumes imported from Zimbabwe recently were not as high as those experienced in the years 2 and 21. Problems related to the economic and agricultural situation in Zimbabwe could probably be having an influence on this trend Processing and the Value Chain tree The first step in the processing of picked cotton occurs at the ginnery where the fiber, which is about 37% of the total mass of the cotton, is separated from the seed. The fiber consists exclusively of cellulose and is the most important product of cotton from a commercial viewpoint. There are currently nine ginneries in South Africa. Seed cotton is either sold by the grower to a ginner who gins the cotton and sells the cotton lint for his own account to spinners (and the seed to processors), or the grower does not sell his seed cotton to the ginner but contracts the ginner to gin it on his behalf on payment of a ginning fee (some growers also own their own gins). In this case the cotton lint and seed remain the property of the producer who then either markets it himself or contracts the gin or someone else to market the cotton lint (or seed) on his behalf. Cotton seed processors use the seed to manufacture animal feeds and the spinners use the cotton lint to spin yarn. Weavers and knitters use the yarn to produce a variety of products such as textiles, towels, denim, canvas, furnishings, etc. 12

13 The various products derived from cotton are outlined in Figure 14. During the course of oil extraction, the seed is processed into fuzzy cotton (3%), hulls (3%), pulp (61%), and cotton waste (6%). The pulp is then further processed into the following products: crude oil (21%), oilcake (74%) and waste (5%). The oil used in the preparation of foodstuffs while the cake or meal is used in the manufacture of fodder. Cotton seed contains a poisonous substance known as gossypol, which is removed from the edible oil during the refining process. The gossypol in the oil-cake is rendered harmless by the addition of chemicals. The major products of cotton lint are weaving yarns (used for toweling, denim, sheeting, etc) and knitting yarns (used in knitted fabrics for T-shirts, underwear, etc). Major products produced from cotton seed are meal (used in cake/meal for flour, feed and fertilizer); oil (used in soaps, explosives, etc), hulls (used for feed, fertilizer, synthetic rubber, etc), linters (used in pulp, medical appliances, yarns and felts) and planting seed. 13

14 Figure 14: Cotton value chain tree explaining its various uses (Cotton South Africa) SEED MEATS HULLS LINTERS Cake & meal Crude Oil Feed (beef & dairy cattle) Fertilizer (mulch) Bran (livestock feed) Pulp (see linters) Furfurals (synthetic rubber) PULP Flour (bread, cake, biscuits) Feed (cattle, sheep) Fertilizer Refined Oil (salad & cooking), mayonnaise, margarine, packing oil. Other (soap, glycerine-explosives, cosmetics, pharmaceuticals; Fatty acids-rubber, insecticides, fungicides, waterproofing) Viscose Cellulose Nitrate Rayon Industrial fabrics, Films, Sausage, etc Plastics, lacquers, smokeless SEED COTTON Absorbent Cotton medical supplies Papers Cellulose Acetate Writing materials, Filters. Yarn, Plastics, films. PLANTING PURPOSES Yarns Felts Lamp & candle wicks, twine, rugs, mops Automotive upholstery, pads, cushions, furniture upholstery CLOTHING Clothes, underwear, gloves, etc. LINT INDUSTRIAL Linings for tyres, bags, ropes, canvas, tents, medical bandages. HOUSEHOLD Sheets, Towels, bedspreads, Curtains, etc 14

15 2.6. Marketing arrangements Since deregulation, local seed cotton and cotton lint are marketed in on of the following three ways: The seed cotton is sold by the producer to a ginner who gins the cotton and in turn sells the cotton lint for his own account to spinners and the seed to processors, either directly or by making use of agents. The gin determines the price the producer obtains for his seed cotton and the producer relinquishes ownership of the cotton. The producer may decide not to sell his seed cotton to the ginner, but contracts the ginner to gin it on his behalf on payment of a ginning fee. The cotton lint and seed remain the property of the producer who then either market these products himself or contracts the gin or someone else to market the cotton lint (and seed) on his behalf. Producers can gin their own cotton in their own gins. They then either market the cotton lint and seed themselves or contract someone else to do it on their behalf. Seed cotton is ginned by the cotton gins where the seed is separated from the fibre the ginning process. The purchase of seed cotton takes place in terms of the grading standards applicable to hand picked and machine picked cotton and linked to the South African Grading Standards for lint. The latter serves as a norm for the sale of the cotton lint. In the event of any disputes arising during the delivery of the seed cotton that cannot be resolved to the satisfaction of both parties, the Quality Control Department of Cotton SA is accepted as an impartial body in the role of arbitrator. In the event of a dispute that may arise during the delivery of cotton lint, international organizations such as the Liverpool Cotton Association and the Bremen Cotton Exchange will fulfill this role. Figure 15 is a complete explanation of the various stakeholders involved in the cotton industry: 15

16 Figure 15: Structure of the South African Cotton Industry PRODUCER LOCAL FARMERS ORGANISATION SACGA (SA Cotton Ginners Association) SACTMA (SA Cotton Textiles Manufacturers Association) GINNER SPINNER REGIONAL / PROVINCIAL ORGANISA- TIONS / UNIONS CLOTHING & HOUSEHOLD TEXTILES LABOUR SACTWU (SA Cotton Textile Workers Union) CONSUMER NATIONAL CONSUMER FORUM SACPO (SA Cotton Producers Organisation COTTON SA RESEARCH INFORMATION GRADING/ TRAINING DEVELOPMENT PROMOTION Source: Cotton South Africa There are five important stakeholders in the cotton industry. These are producers of seed cotton, ginners, spinners, oil pressers and clothing and garment manufacturers. For the 26/7 production season it is estimated that cotton was planted by approximately small scale cotton farmers (representing between 15% and 2% of total cotton lint production), as opposed to approximately 3 commercial farmers. Small scale farmers in the past also represented the vast majority of local cotton growers. The ginning industry is made up of only eight companies or gins. They buy seed cotton from producers, gin it and sell the lint. Ginners also gin the cotton for the farmers who could retain ownership of the lint and the seed, at a cost. In this case, the farmer is then responsible for the marketing of his won product. The output of the ginners is lint and seed. The lint is sold to the spinners and the seed to the oil pressers. There are nine spinners in the spinning industry (from 16 in 23), of which the biggest are Frame Textiles and Da Gama Textile Co. Ltd. These spinners buy the cotton lint from ginners, process the lint and deliver the output (yarn) to the clothing and textile industry. Most of the spinners also perform the task of weavers and knitters and are thus vertically integrated. There is only one oil presser in South Africa. Cotton oil is pressed from the seed, and the oil cake is used as input in animal feeds. 16

17 3. MARKET VALUE CHAIN Figure 16: Cotton value chain PRODUCERS/FARMERS Seed Cotton GINNERS Seed Lint OIL PRESSERS Cake Oil SPINNERS Yarn MANUFACTURERS Fodder Products WEAVERS & KNITTERS Fabric CLOTHING & TEXTILE MANUFACTURERS (Clothing, bandages & other Textile products) TRADE TRADE Source: Adapted from Cotton South Africa 17

18 In order to fulfill South Africa s commitment under the World Trade Organization: Marrakesh Agreement regarding market access, the Directorate: Marketing issues rebate permits under the Market Access rebate scheme to importers of cotton lint for a total of tons (85 55 bales of cotton lint) (for 21) per annum. The import arrangements for cotton lint are as in Table 2. Table 2 TARIFF DESCRIPTION EXTENT OF ANNUAL QUOTA HEADING REBATE TONNAGE 52.1 Cotton, not carded or Full duty less 12% combed (85 55 bales of cotton lint) Source: Government Gazette Notice 1297 of Developments in the cotton industry. A trend that has emerged over the past few years is the establishment of farmer-owned gins as well as the incidence of contract ginning (where the farmer retains ownership of the cotton lint after ginning). About 54% of cotton lint produced for the 25/6 marketing year was by way of contract ginning. This means that farmers are increasingly getting involved in the marketing of their produce than before, although the majority of sales are still being brokered by local cotton traders. As 4-6% of South Africa s cotton requirements are imported annually, three international cotton traders (namely Cargill, Plexus Cotton and Dunavant) are also involved in the local market, in addition to the local commodity traders who also offer import services. Some of these international cotton traders own their own gins in SADC and Cargill also owns gins in South Africa having acquired Clark Cotton in 26. The above two developments show market fragmentation within the industry. 18

19 4. MARKET INTELLIGENCE 4.1. Tariffs There is no restriction on the importation of cotton, but a duty on imported cotton lint of R1.6c/kg is payable. This duty is, however, in terms of the SADC Free Trade Agreement (FTA) not applicable to cotton lint imports from within SADC. The full duty of R1.6c/kg of cotton lint is still applicable to imports from outside SADC, in respect of imports that do not qualify under the WTO minimum market access provision. Cotton originating from SADC countries such as Zimbabwe, Zambia, Malawi, Mozambique and Tanzania incur no import duty Performance Analysis of the South African cotton industry Table 7 Exporters Imported value in 28 (thousand US$) Share in South Africa s imports (% p.a.) Imported quantity in 28 (tons) Unit value (US$/unit) Import growth in value between 24 and 28 (% p.a.) Import growth in quantity between 24 and 27 (% p.a.) Import growth in value between 27 and 28 (% p.a.) World Zimbabwe Zambia Malawi Mozambique Tanzania Uganda Source: ITC Trade Map Tariff equivalent ad valorem applied by SA During 28 South Africa imported a total of tons of cotton at an average value of US$ 1 485/unit. These cotton imports originated mainly from the African continent in SADC member states such as Zimbabwe, Zambia, Malawi, Mozambique, Tanzania and smaller quantities from Uganda. During 28 Zimbabwe commanded 4% share in South Africa s cotton imports followed by Zambia and Malawi which commanded shares of 18.4% and 29.6% respectively. Notably, cotton import quantities originating from Malawi, Mozambique and Tanzania have grown considerably in value terms between the periods 24 and 28. Those from Malawi grew by 4%, while those from Mozambique and Tanzania grew by 43% and 89% respectively during the same period. Even though greater volumes of cotton was imported from Zimbabwe and Zambia, cotton imports from these two countries have generally shown a decline of 23% and 35% respectively, between 24 and 28. The growth rates of cotton import values are presented in Figure

20 Figure 17: Cotton Import Growth in Value between 27 and 28 (%) % World Zimbabwe Zambia Malawi Mozambique Tanzania Source: ITC Trade Map Cotton imports from the world to South Africa declined by 5%, in value terms, between 27 and 28. However imports from countries such as Zimbabwe, Malawi and Tanzania have increased dramatically over the same period. Tanzania has increased its cotton exports to South Africa by 61% in 28 while Zimbabwe and Malawi raised their exports to South Africa by 23% and 16% respectively. A decline was experienced in imports from Mozambique and Tanzania. Imports from Mozambique declined by 46% while those from Zambia declined by 34% 2

21 Source: ITC Trade Map 21

22 The figure above indicates that between the periods 23 and 28 Malawi and Mozambique have increased their share of cotton exports to South Africa with cotton imports originating from Mozambique having increased by 43%. During the same period Malawi and Mozambique have also increased their share of cotton exports to the rest of the world by 5% and 12% respectively. Cotton imports originating from Zambia and Zimbabwe have experienced a decline in terms of value between 23 and 28. Similarly, these two countries have not increased their cotton exports to the rest of the world. 22

23 Source: ITC Trade Map 23

24 If South Africa wishes to diversify its imports of cotton, the biggest markets exist in the United States of America and Brazil. In 28 USA alone accounted for 44% of the total world cotton exports. Between 23 and 28, Brazil has increased its cotton exports to the world by 13% while the USA increased its cotton exports to the world by 4%. Other markets traditional markets for cotton imports remain Zimbabwe, Zambia, Malawi and Mozambique taking into account that cotton from these countries can be imported duty-free. 5. EMPOWERMENT ISSUES AND TRANSFORMATION IN THE SECTOR South Africa s cotton growers together with the input suppliers, output processors and the Department of Agriculture have developed a Strategic Plan for the South African Cotton Sector with the following objectives: broadening participation to enable developing farmers to contribute on average 25% of the national crop by 27 and 35% by 214, raising productivity by training at least 6% of developing farmers by 27 and by improving research, extension services and technology transfer. A cotton gin has been commissioned by cotton farmers in the Vaalharts irrigation area during 24. The gin is a joint venture between IDC and cotton farmers with a BEE component of at least 25% reserved for workers and emerging farmers. Makhathini Cotton Company in KZN is also a BEE firm with 65% black empowerment shareholding. The Cotton Project in the Eastern Cape is a joint initiative by the Eastern Cape Development Corporation and Da Gama Textiles. It involves 5 emerging farmers from Addo, Tyefu, Middeldrift, Keiskammahoek, Qamata, Kat River and the Karoo. A new gin has been commissioned in 25/6 and will eventually jointly be owned by farmers and Da Gama Textiles (the off-take partner of their produce), with small scale farmers having a major share. From 21, Cotton SA established a formal training program for small scale cotton growers at various centres mainly at the Lowveld College of Agriculture in Mpumalanga province, Tompi Seleka College of Agriculture in the Limpopo Province, Mjindi Training Centre and Owen Sithole College of Agriculture in Kwazulu-Natal and Fort Cox Rural Development Centre in the Eastern Cape Province. Up to the end of 26 close to 6 small scale cotton farmers have attended these courses. 5. BUSINESS OPPORTUNITIES AND CHALLENGES The fact that South Africa is a net importer of cotton indicates that there is scope for substantial increases in production without fear of creating surpluses. As cotton is a Summer crop cultivated on the same land as maize, many hectares which are currently under maize can be switched to cotton, which would not only lessen South Africa s dependence on cotton imports but will also contribute to alleviating the overproduction which occurs in the maize industry from time to time. In this respect it should also be noted that because of cotton s drought tolerant ability, it is much more suited for marginal agricultural lands than maize. 24

25 Domestic support and export subsidies provided by governments of many cotton producing countries create serious distortions in the international market. This factor together with the strength of the rand against the dollar and combined with uncertain weather conditions, have placed serious pressure on the domestic cotton production in recent years. International markets for cotton and derived products remain distorted because of the huge amounts of trade and production distorting support granted to cotton producers mainly in the USA, China and the European Union. The South African cotton production industry also faces strong import competition from SADC countries. About 99% of cotton lint imports during the 25/6 season originated from SADC countries. Since January 24 when the SADC Free Trade Agreement allowed duty-free cotton lint imports from SADC countries, South African producers are finding it increasingly difficult to compete with SADC imports. Other factors that constrain commercialization of emerging farmers cotton products. Access to productive land. In most cases small scale farmers do not own the land they farm on. Lack of land tenure as well as own equity make these farmers high risk customers to financial institutions. Lack of institutional support such as limited extension services. Lack of credit since the ginning companies no longer act as intermediaries. Lack of irrigation infrastructure. Lack of regional and provincial structures for emerging farmers in order for them to participate in partnership programs with commercial companies. Lack of knowledge and expertise among small scale farmers relating to cotton agronomy. 25

26 6. GINNERIES 6.1 Cargill Cotton P.O.Box 864 SLOANE PARK 2152 Tel: (11) Fax: (11) geoff_watson@cargill.com 6.2 NSK (Noordelike Sentrale Katoen) P.O.Box 1285 Mokopane 6 Tel: (15) /8/9 Fax: (15) ghefer@worldonline.co.za 6.3 Orange Co-op Ltd P.O.Box 49 Upington 88 Tel: (54) Fax: (54) Makhathini Cotton (Pty) Ltd Room 23 Musgrave Park 18 Musgrave Road Durban 41 Tel: (35) Derek@makcotton.co.za 6.5 NC Cotton Ginnery (Pty) Ltd P.O.Box 38 Marydale 891 Contact Person: Matheus Maree Tel: (53) wilkotb@xsinet.co.za 6.6 Weipe Cotton Gin P.O.Box 55 Musina 9 26

27 Contact Person: Mr. H.Willemse Tel: (15) /7/8 Fax: (15) / Vaalharts Cotton P.O.Box 118 Hartswater 8571 Contact person: Mr. Stan Rudman Tel: (53) Fax: (53) Loskop Cotton (Pty) Ltd P.O.Box 327 Marble Hall 45 Contact Person: Mr. Joseph Kempen Tel: (13) Fax: (13) Da Gama Cotton Gin Co. P.O.Box 23 Adelaide 576 Contact Person: Mr. Adam van der Westhuizen Tel: (46) Fax: (46)

28 The following organizations are acknowledged: South African Cotton Producers Organization (SACPO) P.O.Box Silverton Pretoria 127 Tel: (12) Fax: (12) Cotton South Africa P.O.Box Physical Address: Cotton SA Building Silverton 9 Cycad Place Pretoria Off Watermeyer Street 127 Val de Grace X 1 Tel: (12) Pretoria, RSA Fax: (12) enquiries@cottonsa.org.za Website: South African Cotton Ginners Association (SACGA) P.O.Box 118 Hartswater 8571 Tel: (53) Fax: (53) stan.vhcotton@lantic.net South African Cotton Textile Manufacturers Association (SACTMA) P.O.Box 53 Bruma 226 Tel.: (11) Fax: (11) texfed@jhbmail.co.za Website: Agricultural Statistics Department of Agriculture Tel: (12) Fax: (12)

29 Quantec Easydata P.O.Box Menlo Park Pretoria 12 Tel: Fax: Website: Trade and Industrial Policy Strategies (TIPS) P.O. Box Hatfield Pretoria 28 Tel: Fax: Website: Market Access Map Website: Africa Disclaimer: This document and its contents have been compiled by the Directorate Marketing of the Department of Agriculture for the purpose of detailing the cotton value chain. Anyone who uses the information as contained in this document does so at his/her own risk. The views expressed in this document are those of the Department of Agriculture with regard to the industry, unless otherwise stated. The Department of Agriculture therefore accepts no liability that can be incurred resulting from the use of this information. 29