March 10, 2005

Cotton prices fall

Cotton producers are faced with a collapse in the world market price for cotton - bad news indeed for both the Mozambican peasant farmers who grow the cotton, and for the concessionary companies that provide the farmers with inputs and buy their crop. According to the latest figures from the Mozambican government's Cotton Institute (IAM), the price of first grade cotton fibre has fallen from a high point of 76 US cents per pound last year, to just 51 cents a pound now (a decline of almost 33 per cent). The fall in prices is a particularly severe blow because cotton production has been on the increase in Mozambique. Indeed, according to the IAM, the 2004 cotton harvest exceeded all expectations. The amount harvested was 93.205 tonnes, as against 54.114 tonnes in 2003 - a rise of 72 per cent. But most of this cotton is still in Mozambique. Around 18.800 tonnes have been exported, which brought in earnings of around 21.000 US dollars. Mozambique has no choice but to export its cotton, since the national textile industry lies in ruins, with giant textile factories such as Textafrica in Chimoio, or Texlom in Maputo closed, their workers unemployed, and their obsolete equipment rusting or sold off. This year cotton producers are also likely to see their earnings fall sharply. In 2004, the companies paid 5.000 meticais per kilo for first grade cotton and 3.500 meticais a kilo for the second grade variety (at current exchange rates there are about 19.000 meticais to the US dollar).
The fall in the world market price, and the appreciation of the metical against the dollar over the last few months put pressure on the companies to reduce the price they pay to the producers. Although the government has the last word in fixing the price, it cannot opt for a price at which the cotton companies would lose money, at the risk of driving them out of business. The world cotton market is distorted by the massive subsidies that some governments, notably that of the United States, offer to their cotton farmers.

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