In a surprise move, Cabinet this week announced that it had approved new producer prices for cotton, maize, soya bean and other small grains. The prices are in RTGS Dollars, much to the surprise of producers especially cotton farmers who expected to be paid part of their proceeds in foreign currency.
“Cabinet approved the proposal by the Minister of Lands, Agriculture, Water, Climate and Rural Resettlement to review producer prices for maize, small grains, wheat, soya beans and cotton as follows: maize and small grains, RTGS$726 per metric tonne; wheat, RTGS$1 089.69 per metric tonne; soya bean, RTGS$918 and cotton RTGS$1 950 per metric tonne… In US dollar terms the prices are now aligned to the import parity prices in the region,” read part of the post Cabinet briefing.
Just a day earlier, state media had carried a story that cotton farmers would be paid half their money in foreign currency. This move had been hailed as a panacea to reduced productivity and side marketing which has plagued the industry over the past few seasons. Now, it looks like there are no payments to be made in foreign currency yet.
Low producer prices left the cotton industry on its knees with production going as low as 28 000 tonnes in 2015. Inadequate inputs and poor government support also weighed in. However, renewed interest from government and contractors injected a massive boost and the Agriculture Marketing Authority reported outputs of more than 73 million kilograms in 2017. This figure jumped to about 142 million kilograms last year. But, competition from cheaper Chinese textile imports and second-hand clothes continues to wreak havoc resulting in fresh calls to further strengthen support by the government.
Cotton brings in foreign currency through exports so the move to pay producers only in RTGS dollars seems to be both ill-advised and mistimed. The RTGS dollar continues to lose value both on the interbank and parallel markets. So, although the new producer prices seem to be in line with current exchange rates, things can change drastically in a matter of weeks. Moreover, basic farming inputs prices also keep rising and may soon be beyond the reach of many.
All in all, the increases in producer prices for cotton, maize, soya bean and other crops is a welcome move, but one that may soon be overtaken by the exchange rate movements. And, it is a fact that it will be very difficult for government to effect another price review anytime soon. This brings us to the reason why they should just pay forex earners in forex in the first place. That way, they preserve value, motivate and capacitate players in the industry to produce even more in future.