MONEYWEB / 14 DECEMBER 2018 - 00.40 / ANTIONETTE SLABBERT
The cotton industry in South Africa has been revived thanks to a R200 million government-funded programme that has unlocked private sector investments and buying power worth hundreds of millions.
One such investment is the R72 million Loskop Cotton ginnery outside Marble Hall in Limpopo, which has just started operating and will enable further exponential growth in cotton production in the area and bring relief to communities beset by rampant unemployment and poverty.
Image : Web
Further industry investments have been made in another ginnery as well as 11 cotton strippers and 24 cotton pickers. These big machines cost up to R10 million each.
The successful cotton programme, known as the Sustainable Cotton Cluster and funded by the department of trade and industry (dti), is however coming to an end in March next year. An application to extend the programme has been submitted and a decision is expected by March.
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If the programme is interrupted, the revitalisation of the industry could lose momentum and further large investments, skills development and job creation could be put at risk.
The programme started almost five years ago with in-depth research to determine, among other things, the demand, the state of each element in the whole supply chain and ways of optimising production.
Retailers on board
One of the key breakthroughs was when retailers got on board. Mr Price and Edcon are currently at the forefront in making offtake commitments in advance, which gives farmers assurance that there is a buyer for their product even before they start planting. Woolworths has also become involved.
With this promissory note in hand, funding is much more readily available and cotton farming becomes far more viable.
As a result, cotton production has grown from 25 000 bales of lint in 2013 to more than 200 000 bales in the past season.
The number of small-scale farmers in the Marble Hall area alone grew from not more than 10 to 240.
The cluster has also promoted and trained producers in the sustainable principles and methods of the Better Cotton Initiative (BCI) and 40% of the cotton farmers are now BCI licensed. For the past season 32% of the lint bales are BCI-compliant, which is of further appeal to the global cotton market.
According to Joseph Kempen, CEO of Loskop Cotton, the company realised in advance that its existing ginnery would not have enough capacity to process the increased cotton production.
A ginnery processes the cotton after it has been picked, separating the lint fibre from the seeds. From there the lint goes to a laboratory in Pretoria, whereafter it is further processed – in terms of spinning, dying and weaving – at other plants.
Farmers working together
The Loskop ginnery is owned by a company that has 15 farmers as shareholders. The company is aimed at enabling cotton farming, rather than profit. These shareholders signed surety for the R72 million funding obtained for the new ginnery that was put in operation last month.
Kempen says the Loskop ginnery is the biggest and most modern in Africa. Its capacity increased from eight bales per hour to 45. One such bale weighs up to 8 000kg.
“What we used to do in a week, we can now do in a day,” he says.
Currently 45% of the lint produced at Loskop is exported to Mauritius for spinning, dying and weaving before it is brought back to South Africa for further production and the creation of products.
If the Sustainable Cotton Cluster programme continues, says Kempen, the momentum in the industry will result in further growth. Further upstream investment is however required. Spinning, dying and weaving are highly technical processes and require substantial capital investments.
Flexibility and speed
For retailers supporting the local industry, however, it makes absolute sense. Currently the lead time between placing an order and having the product on the shelf is around 18 months. By keeping the total supply chain in South Africa, that could be cut to six months, he says.
For retailers this would mean more flexibility to adjust to fashion trends and market demand, which reduces risk.
Kempen says the industry has massive potential to reduce unemployment and poverty in the rural cotton-producing areas. A lot of unused land is available and the demand from local retailers amounts to more than 1.5 million bales. That is 7.5 times the past season’s production.
The one factor that currently limits growth in production is the availability of funding, especially for small-scale farmers who rent communal land. Kempen says if these farmers could use their land to secure funding, drill for water to start irrigating their crop, and improve their infrastructure as owners, they would be able to grow exponentially.
* The industry has submitted its application to extend the Sustainable Cotton Cluster programme to the dti and hopes to get a response by March next year.
LINK : https://www.moneyweb.co.za/news/south-africa/government-funded-programme-unlocks-r72m-cotton-ginnery-investment/
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