Update on EIF Malawi and Togo projects on cotton by-products - Janvier Nkurunziza Officer-in-Charge, Commodities Branch, UNCTAD 11 May 2022

UNITE D NA TIONS CONFE RE NCE ON TRA DE A ND DE V E LOP MENT

Update on EIF Malawi and
Togo projects on
cotton by-products
Janvier Nkurunziza
Officer-in-Charge, Commodities Branch, UNCTAD
11 May 2022

Project objective:
Develop cotton-based industries, reduce the percentage of raw cotton
exported abroad, create employment, and increase revenues for
smallholder farmers, particularly women and youth

Progress since last update in Nov 21:
• Draft feasibility studies have been finalized by end 2021
• National validation workshops took place in February and
  March 2022.
   • 15 February 2022, Lomé, Togo
   • 8 March 2022, Lilongwe, Malawi
• Projects have been extended through May 2022.

National validation
workshop in Togo
• Lomé, 15 February 2022 (among
  the first post-COVID missions)
• 50 stakeholders representing
  government, cotton farmers, civil
  society
• Broad media visibility and
  awareness-raising on cotton
• Gathered input on feasibility
  study.
• Identified priority by-products

National validation
workshop in Malawi
• Took place in Lilongwe, 8
  March 2022
• 50 stakeholders including
  cotton farmers, government,
  private sector, civil society
• Valuable feedback received on
  the feasibility study
• Raised awareness through
  media coverage
• Prioritization of specific by-
  products

Workshop participants
        prioritized their strategic
           cotton by-products
              Malawi                                  Togo

                                                             Seed       Fiber
Stalk   Oil            Linters   Cake   Stalk   Oil
                                                             residues   residues

Visits to key stakeholders took place
during the missions
• Visited key stakeholders on the sidelines of the workshops and
  identified new project opportunities
  • Togo: pilot initiative proposed on using cotton stalk to enrich the soil
  • Malawi: pilot initiative proposed to form aggregation centers that keep
    track of cotton trade and ensure levy collection for the regulator

Finalization of
 feasibility studies
• Feedback from stakeholders in
  both countries has been
  integrated into the final
  versions of the feasibility
  studies that will be published by
  UNCTAD.

Common issues encountered in Togo
and Malawi
• Low cotton prices
• Fewer cotton farmers planting on less land
     • In Togo, number of cotton farmers down from 150,000 in 2019/2020 to
       110,000 in 2020/2021
     • In Malawi, where there are up to 200,000 potential cotton farmers, but planted
       cotton area receded to 17,000 hectares only in 2020/2021
•   Similar yields (Around 600-800 kg per hectare)
•   Low cotton production volumes
•   No established by-product industries
•   Farmers speculatively planting other crops that may be more
    profitable and less cumbersome in terms of treatment (like soybean)

Differences
• Market structure
  • Monopolistic, with single ginner in Togo (NSCT). Regulatory body is the
    Ministry of Agriculture.
  • Liberalised, with multiple ginners in Malawi. Cotton regulator exists, but
    remains weak (Cotton Council), as ginners underreport cotton trade to
    avoid regulator levies.
• Organization of farmers: Togo has an extensive network of
  producers, while Malawi has a looser association.
• History of by-products
  • Togo had one company – Nioto – producing cottonseed oil.
  • Malawi had multiple companies sporadically producing some by-
    products when cotton production volumes where high.

Farmers speculatively abandoning cotton
for other crops due to low prices
Example from Malawi:
• 2021 Farm Gate price originally presented: 399.14 Kwacha per kg
• 20 Kwacha levy per kg to regulator – Cotton Council of Malawi
• 2021 Break-even price set for farmers: 307 Kwacha
• Leading to profit of 72 Kwacha per kg
• Then, mid-season reduction of Farm Gate price by price-setting body
  to reflect changes in international market prices to 360 Kwacha
• Final profit: Only 33 Kwacha per kg (0.04 USD)
• High processing costs, and speculative increases in other crops like
  soybeans.

Low profitability
                                                1 hectare

• The typical smallholder farmer
  harvests 1 to 5 hectares.
• Yields are below a tonne per
  hectare in Togo and Malawi
  (around 700 kg).
• Even with above-average yields
  of a tonne per hectare in a
  season, the cotton farmer would
  make a profit of only 40 USD per
  harvested hectare in a season.
(UN operational rate of 825 Kwacha per USD on
1.4.2022)

Latest decision on                   Crop            2021/22 Minimum
                                                     price (MK/KG)
minimum farmgate                     Chillies        1500

prices in Malawi                     Sesame          950
Minister of Agriculture, 13.4.2022
                                     Paprika         900
Cotton farm gate price only
increased from 360 to 400            Rice polished   700
Kwachas despite high inflation.
                                     Soya beans      480
(The Cotton Farmers Association
had proposed the price of 446        Sunflower       450
Kwachas)
                                     Cotton          400

The fate of cotton
  Abandoned cotton ginnery in Salima, Malawi
(MCC Limited, jointly owned by China and Malawi)

Next steps: Recommendations for
Malawi
• New task force will work on implementing key
  recommendations:
  • Review the Cotton Act of 2013.
  • Creation of an improved regulatory framework to allow for a competitive
    cotton industry.
  • Reliable, stable and improved prices for seed cotton.
  • Increase cotton production and productivity.
  • Establish cooperatives for better bargaining in matters of cotton
    marketing and commercialization.
  • Develop cotton by-product value chains through public-private
    partnerships.

Next steps: Recommendations for
Togo
• New incentives required in the areas of prices, credit and input
  provision, cooperatives and land reform to attract & retain cotton
  farmers:
   • Improve the mechanism to set cotton prices.
   • Better timing of input provision: fertilizer should be made available at the
     beginning of the season to avoid delays
   • Producers should be paid upon purchase, or via contract farming
   • Logistical support needed to help farmers transport their cotton to the
     ginneries.
• Once cotton production volumes are restored, pilot by-product
  processing units (e.g. produce particle boards from stalks) can be
  put in place with funding from donors.

Next steps: EIF project

• One final consultancy launched to better understand farmer
  choices & help implement recommendations of feasibility studies.
• Fundraising is needed for a potential Phase 2.
• Specific capacity-building project proposals need to be
  formulated & included among the overall cooperation requests of
  each country.

Thank you!