Business and Finance
Global cotton prices projected to decline
Cotton farmers in Uganda should tighten their belts for tougher times as global prices are predicted to fall. Information from the International Cotton Advisory Committee (ICAC) indicates that global cotton trade is predicted to decline by 18 per cent in the new season beginning next month (August).
Experts in the industry say, if this comes to pass, it will be a big blow to Uganda’s cotton sector which has just started showing signs of recovery.
Mr Amdan Khan, managing director, Rwenzori Cotton Ginners—an exporting company, in an interview with Prosper said: “It’s unfortunate we have no control over the global prices.”
With the current price of cotton lint, a farmer gets about 84 cents of a pound per each and 14 cents is spent on inland transportation from Kampala to Mombasa port.
Last year, according to information from the Uganda Export Promotion Board (UEPB), cotton exports earned the country a total of $86 million (Shs215 billion) out of the 25,857 tonnes exported.
This was a record performance in more than five years and the last highest performance was in 2006, when a total of 18,480 tonnes worth $20 million was registered. The year 2008 was the worst, when the country only exported a total of 7,960 tonnes worth $13.2 million.
“The only area where we could earn a premium is through value addition but all the 95 per cent of the cotton produced is exported as lint; thus, placing it against tougher competition with those countries which add value,” Mr Khan said.
Uganda exports her cotton through merchants and it ends up in the USA, China, Singapore, Bangladesh, Rwanda, Nigeria, Pakistan, Turkey and DR Congo.
Mr Khan says: “Because of its good quality, Uganda’s cotton is used to blend in other cottons.”
Cotton is grown in Kasese, Northern and West Nile, some parts of the Eastern Uganda. The crop which was introduced in the country by the colonialists in 1901 later became one of the leading export commodities.
The crop is used for lint and the seed for the production of oil. However, industrial players say that with the increasing Palm oil imports, cotton seed is losing meaning.
“This is a challenge for exporters to find both lint and seed because farmers are shifting to other more paying commodities,” Mr Khan said.
In USA, the volume of cotton traded in the present year ending in July 2012, is expected to be 9.2 million tonnes. ICAC said: “Cotton use in mills is estimated to be down by 7 per cent this year. Volatility, high price and the slow growth in the global economy are some of the reasons for the decline in the cotton yarn demand and hence the cotton mill use.”
China is attributed to the increase in the global cotton trade this year. According to the ICAC, Chinese government rebuilt its cotton reserve enabling a leap in the global cotton trade this year. This situation will change in the new season.
For the new cotton year, cotton imports by China are projected to fall by 50 per cent and the import quantity is expected to be about 2.7 million tonnes.
Global cotton production is estimated to decline in the new season by 8 per cent and will be about 24.9 million tonnes.