Zimbabwe’s largest cotton processor, Cottco Holdings Limited, is in talks with the government and banks to secure US$6.8 million to pay off its debt to cotton farmers, its new chief executive officer Priscilla Mutembwa said on Monday.
The debt stems from delayed payments to farmers who delivered their crop to Cottco, due to the shortage of foreign currency in the country. The Reserve Bank of Zimbabwe had set the export retention threshold for cotton farmers at 85% earlier this year, meaning that they would receive 85% of their earnings in US dollars and the rest in local currency.
Mutembwa, who was appointed last week, said she would engage the Finance and Investment Promotion ministry, the central bank and financial institutions to raise the funds and avoid further delays.
“We have to pay farmers, so she is working on a plan to engage the banks, to engage the Finance minister (Mthuli Ncube), to engage the Reserve Bank to ensure that they get liquidity from the banks,” Cottco’s chief operating officer Munyaradzi Chikasha told reporters on Friday.
He said Cottco had paid US$16.7 million out of the US$23.5 million that was due to farmers for the 2023 cotton marketing season, leaving a balance of US$6.8 million.
He added that Cottco would use part of its export proceeds to clear the debt once it received them from the central bank.
“Once we get the export, and I’m sure that should improve the liquidity position of the banks, we will be in a position then to re-utilise part of the proceeds and pay the farmers, so we are working flat out to make sure that we move our products,” he said.
Cottco faces liquidity challenges that affect its ability to pay farmers on time and provide adequate support for their farming activities.
Mutembwa said Cottco’s market share had dropped by 10% and that timely payments were crucial to improve it.
Cotton production in Zimbabwe increased to 90 000 tonnes in the 2022/23 season, thanks to increased hectarage, government support and better payment modalities, according to market research firm Morgan&Co.
However, the firm warned that a forecast surplus in the global cotton industry could result in lower producer prices for Zimbabwean farmers.