SA's cotton value chain could be losing about R20.4 billion in opportunity cost, claims agtech CEO

The number of cotton ginners declined from 24 to 7. (iStock)
The number of cotton ginners declined from 24 to 7. (iStock)
  • South Africa's cotton production has grown by almost 800% since 2013.
  • The country does not have the spinning capacity to convert the lint into yarn.
  • This meant 84% of last year's lint cotton had to be exported.

Most of South Africa's lint cotton (about 84%) is exported for processing and then the final product is imported again, leading to an estimated opportunity loss for the local industry of about R20.4 billion along the beneficiation value chain.

This is according to Thomas Robbertse, CEO of agtech company IQ Logistica (IQL), who based his research on the 2018/19 production year's output of 51 000 tonnes of lint cotton. Agtech is a term for the use of new digital technologies to measure efficiency along agricultural value chains.

He says South Africa's cotton production has grown by almost 800% since 2013 following the establishment of the South African Sustainable Cotton Cluster (SCC). The aim of the SCC is to build capacity in the Southern African cotton industry value chain. The SCC was funded by an initial grant of R200 million from the Department of Trade and Industry. 

"Despite the solid growth that the South African cotton industry has experienced in the last seven years, the country still lacks the capacity and skills within the value chain to take full advantage of local beneficiation," says Robbertse.

"And although the local cotton ginners have up to now been able to absorb the surge in cotton production, South Africa does not have the spinning capacity to convert the lint into yarn, meaning that 84% of last year's lint cotton had to be exported."

He says the set-up of a cotton spinner is very capital intensive, costing anything from R1 billion upwards to install. 

"Despite the number of ginners declining from 24 in the heyday of local cotton production to the present seven ginners, it is still able to accommodate the cotton that is currently farmed. However, South Africa lacks spinning capacity, meaning that most of the lint cotton is exported for processing and manufactured into clothing items, before being imported again," he explains.

Last year's cotton lint was exported at about R24/kg, while the finished product was imported at around R500/kg. The exports do earn the country foreign exchange and help farmers to offset some of their input costs like fertilizer, fuel and equipment, which are all dollar-based.

"Based on the export of about 42 840-tonnes of cotton lint and the concomitant value loss of R476/kg (R500/kg – R24/kg), the opportunity loss in local beneficiation to the economy comes to roughly R20.4 billion. Not to mention the many potential employment opportunities that have gone wasted," says Robbertse.

"Even if we were to build spinning capacity in South Africa, there would still be a huge skills shortage because of the demise of the clothing textile industry over the last 30 years brought on by trade liberalisation and global competition, which unfortunately also led to cheap imports."

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