Behind the free fall in Uganda’s cotton production

Tuesday April 5 2016

Workers sort fabric at Fine Spinners Bugolobi,

Workers sort fabric at Fine Spinners Bugolobi, Kampala. The company is operating out of a facility that was previously operated by the now defunct Tri-Star Apparels. PHOTO BY DOMINIC BUKENYA 

By Mark Keith Muhumuza

Ms Betty Okello clutches onto a notebook, taking stock of a day worth of sales for various grain products. In Abwong B Village, Agali Sub-county, Lira District, Okello has been a cotton farmer and buyer for the last 10 years. She is one the farmers that are currently engaged in cotton growing in the Lira district - albeit amidst falling farmer numbers. This is because Uganda’s cotton production has been falling on account of low yields and sometimes abandonment of the crop by the farmer.
“This year (2015 season), I did not make a profit on what I sold. I invested a lot of money but I realised less than 1,500kgs. A field that used to give me three tonnes only leaves me with only half a tonne,” Okello says. She blames the low yields on the poor quality seeds the farmers received from the Cotton Development Organisation.

According to Bank of Uganda (BoU) statistics, exported cotton rose to 63,512 tonnes in 2015 from 40,671 tonnes in 2014. The trend shows a consistent fall in the value of cotton exported despite the improved quantities. The value of cotton exported fell to $20m (Shs67.3b) in 2015 from $22m (Shs74b) in 2014. Much of this is also an attribute of fewer farmers participating in the cotton production process due to falling prices. Lira is a district that was part of the cotton belt in Uganda but, inconsistent prices of cotton have been a contributing factor to the falling production.
“If there is anything that discourages farmers from growing cotton, it is the price. The price is sometimes okay, but most of the time not satisfying. Last year, the price was about Shs1,000 per kilogramme but farmers had anticipated a much higher price,” she narrates.

Uganda’s cotton sector was liberalised in 1994 when the Lint Marketing Board was disbanded, bringing into place the Cotton Development Organisation (CDO). In the process of liberalisation, the government had been anticipating that opening up the sector would make it more efficient and boost production. In the 1980’s, the price of cotton at the farm-gate was paid by the ginneries – co-operatives in most cases – but the government would also provide a subsidy.
“This system always encouraged farmers as a good price was always guaranteed,” says, Mr Bosco Agic, a cotton farmer who we met the Amach Trading Centre, Lira District.

According to CDO, the cotton price is now a function of global prices set at the Liverpool Index. A CDO official tells Daily Monitor that the price fluctuates depending on demand and supply factors. That principle of demand and supply is visible in the farming communities.
Agic explains that when the price goes up, the farmers that grow cotton increase anticipating a consistent increment.
“However, because the price is high in one season, higher production in the following season brings more cotton on the market. The prices then fall,” he explains.
Mr Opio Morish is a cotton farmer who epitomises the demand and supply factor. He has been growing cotton for two years and has witnessed a good season and bad season in terms of pricing.
“Last year (2015), there was competition. The demand from the buyers was high and that means the price was good,” he explain, adding that production fell in 2015 because the price in 2014 was discouraging for farmers.

Unlike other crops like epuripur (white sorghum), which have a ready market and set price, Uganda’s cotton is 90 per cent exported, meaning the price is very much a function of international prices. For the white sorghum, the price for farmers is set by the beer companies. The farmers also sign contracts with the beer companies (Nile Breweries and Uganda Breweries) before the harvest. The cotton farmers are demanding for a similar arrangement but CDO insists that is not possible.
“We only encourage farmers to grow cotton. We also update farmers on the price according to the global trend. That is all we can do apart from giving the farmer better yielding seeds,” an official from CDO told Daily Monitor.

Dysfunctional ginneries
When the government liberalised the cotton sector, the ginneries (the processors) were also sold off to private companies. Additionally, with the collapse of the co-operative movement in the 1990’s, the farmer-owned ginneries also collapsed. What is left is dilapidated structures often left to be grazing grounds for animals.
In a dusty office of the once vibrant North Bukedi Co-operative Union (NBCU) in Mbale Municipality, Mr James Okoboi, the secretary of the nearly defunct union is one frustrated man.

Established in 1958, the union was meant to focus on the growing, ginning and marketing of cotton in the districts of Budaka, Palliisa, Kubuuku and Mbale, among others with about 40,000 members.
“We at least 85 perccent dormant members because cotton growing in the areas has fallen drastically,” Okoboi points out.
In fact, the union faces financial constraints as it struggles to pay off debts that it could not sustain the needs of farmers – like good prices.

“The unions like ours were not prepared for the liberalisation of the cotton sector. The farmers shifted from collective marketing and chose to market their cotton individually,” he adds.
In fact, the North Bukedi Co-operative Union is indebted that three of its ginneries are no longer functioning because they can hardly raise money for operational costs. Part of their imposing warehouse in Mbale town has been portioned out and became rental space. Unions often had the best interests of farmers but they were also accused of not being sustainable and business centred.

“Getting loans from banks is hard. There is a perception that unions are not very good at doing business and raising money,” he adds.
The farmers the NBCU used to represent have also since moved on from cotton to rice and coffee. On several occasions, NBCU has written to the Ministry of Trade on proposals to revive cotton in the region, but the answers have not been forthcoming. He notes that the only way to get a better price for farmers is to encourage value addition of cotton, for instance, the production of surgical cotton wool and revival of the textile industry.

A limping textile sector
In 2008, the National Textile Policy was adopted. In it, it recognises that farm gate prices continue to diminish “due to limited competition for the lint owing to minimal local value addition.”
Since then, however, the textile sector has faced more headwinds than anticipated. In Jinja, the former industrial capital of Uganda is Southern Range Nyanza (Nytil). The textile factory – once a beacon of production in Uganda – is a shadow of its former self. Overgrown grass dominates the factory premises, including the roof.
What used to be a bicycle and car park for workers and shoppers is now almost like a grazing ground. Cows are seen making an occasional presence this area. Inside the factory premises, the building structures have peeling paint and cracked cement floors. It is a symbol of what has become of Uganda’s textile sector.

In 2015, Nytil laid off at least 300 workers as the factory neared closure over an unsustainable business model. Many of the interventions to revive this factory have been through encouraging the army and police to purchase textiles from them. However, this is not a sustainable business model.
Still in the garments industry, Phenix Logistics defaulted on a Shs4.2b loan. In the 2014 annual report by the Uganda Development Bank (UDB), it was a loan guaranteed by the government. The report reveals that the government has been paying back the loan on behalf of Phenix. UDB says it does not comment on specific loans. However, an official within the bank reveals that the failure of Phenix can be attributed to failure to turnaround production and take advantage of local demand. In fact, textile companies have been relying on government bailouts but still, they never seem to return from the loss sinkhole.

The textile factory production has not been for the mass market. At Nytil’s outlet in Uganda House, along Jinja road the walk in’s by individuals buying products is limited. Their largest customers are schools and parents looking for uniforms. This is a stark contrast from arcades downtown that sell imported clothing from China and Turkey, among others. In places such as St Balikuddembe Market, it is even more crowded as second-hand clothes dominate demand from consumers.
Going by BoU statistics, importation of garments and other fabrics declined to $150.3m (Shs506b) in 2015 from $170m (Shs573b). If compared to the value of cotton exports, the gap in between is still wide. Importing of textile materials is still as wide as over $100m (Shs337b).
Recently, leaders from the East African region agreed to utilise cotton and improve the textile sector. They also agreed to work on eventually ridding the region of second-hand clothes.

Local market not lucrative
Uganda as a Least Developed Country (LDC) under the World Trade Organisation, has access to markets in Europe for finished cotton products quota free. Additionally, under the Africa Growth Opportunities Act (AGOA) by the American government, Uganda had access to that market.
Working out of Bugolobi in Kampala, Fine Spinners – the latest garment industry in Uganda – is targeting markets beyond Uganda.

“It is not hard to make clothes for the Ugandan market but it is about the size of the pie. The size of the Ugandan market is much smaller than what our vision is. Our vision is to use 20 per cent of Uganda’s crop. At the moment, we are using 10 per cent of Uganda’s crop so the market is huge out in Europe where we have a competitive advantage,” says Mr Jasvinder Bedi, the executive director, Fine Spinners Uganda.
Fine Spinners is operating out of a facility that was previously operated by the now defunct Tri-Star Apparels. In January 2016, Fine Spinners exported at least 50,000 T-shirts to Denmark.

According to Mr Bedi, all their cotton is sourced from Kasese, Western Uganda. The focus on markets beyond Uganda was a model adopted by Tri-Star Apparels with the exception of the source of raw materials.
“I think most people needed to look at the model. It is very difficult to have an imported supply chain and work in an inland country and then export. I think that is what the previous AGOA factory was doing here in Uganda. They were importing raw materials from China to Mombasa to Uganda and then the time spent in managing logistics and variables was their single biggest challenge. Inbound cargo can be quite a challenging job. Our model is very different,” he adds.

Fine Spinners is targeting production of about 500,000 T-shirts a month and it will increase to 1,000,000 T-shirts a month at the end of this year. Fine Spinners has to stand the test of time because garment factories have been in and out of Uganda. The anticipation is that as production increases, it would also increase demand for local cotton. However, one single factory cannot revive the entire cotton sector.

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