Conrad Mwanawashe Business Reporter
THE Cotton Company of Zimbabwe is set to undergo a restructuring that may lead to job losses and expansion of its business to include other crops. Cottco will also look for both a “suitable technical and financial partner” if it is to survive the latest crisis. A proposed deal with China-Africa Cotton Development Limited collapsed and Cottco has been forced to seek other investors.
The latest move is part of measures earmarked by the company’s board in a proposal for judicial management filed at the High Court. Cottco adopted the moves to align costs to the new levels of lower cotton production.
Cottco’s business was modelled to process crop of 100 000 tonnes to break even with national output at 145 000 tonnes.
However, Cottco only manages to process less than half the required tonnage to break even. The company traditionally has had a market share of between 30 percent and 40 percent.
“The company needs to restructure its operations and align costs to the new levels of lower cotton production, that is, 40 000 tonnes.
This means that Cottco will trim some of its activities and potentially downsize.
Cottco faces challenges that include its overdependency 100 percent on cotton, shrinking margins, high levels of farmers’ credit defaults and high levels of side marketing (farmers selling to competitors and not honouring contracts).
Other challenges include high costs of inputs compared to the region.
The company said seed is selling locally at least 50 percent more expensive than in the region.
It cited unionism among farmers, shrinking cotton crop and volatile international prices as some of the risky the cotton sector has to contend with.
Measures proposed by Cottco board to resuscitate the fading cotton giant include lobbying for the adoption of the GMO crop to be competitive.
“The company/industry need to lobby for a pricing mechanism that allows ginners to adopt a fixed pricing margin model where a pricing strategy such as the six month average cot look price can be used,” said Cottco.
The board wants to expand the company’s business to include soya and, potentially, tobacco to make use of the company infrastructure, distribution network and know how, as the company already has relationships with other grain traders such as Olam and Louis Drefus.
“Fertiliser trading and distribution should also be added to the business plan to take advantage of the heavy countrywide infrastructure, distribution network and Cottco brand,” the company said.