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  • 6.6.1-MARKET PROFILES-THE STRUCTURE AND CHARACTERISTICS OF THE DOMESTIC MARKET

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  • The structure and characteristics of the domestic market

    Chapter 6 - Market profiles - South Africa 

     
     

    Cotton sector strategy

    In 2001, a Strategic Plan for South African Agriculture was published with its main strategic goal “to generate equitable access and participation in a globally competitive, profitable and sustainable agricultural sector contributing to a better life for all”.*

    In support of President Thabo Mbeki's call for closer partnership between the public and private sectors to develop action plans to help realise this vision, South Africa's cotton growers, input suppliers, output processors and the National Department of Agriculture developed a strategic plan for the South African Cotton Sector with the following strategic objectives:**

    • Growing farm output to a stable 370,000 lint bales by 2007,
    • Broadening participation to enable emerging farmers to contribute on average 25% of the national cotton crop by 2007 and 35% by 2014,
    • Ensuring sustainability through ongoing commitment from all major role players and through forms of support and methods of operation that are affordable, internationally acceptable (economically, socially and environmentally) and that do not compromise competitiveness,
    • Raising productivity by training at least 60% of emerging farmers by 2007 and by improving research and extension services and technology transfer,
    • Expanding exports by value, diversity, country of destination and client base, and
    • Accelerating the elimination of unfair competition through promoting regional/international co-operation and through more effective lobbying in international trade forums.

    Cotton production

    In the 2007/2008 marketing season, South Africa has an estimated 11,363 hectares planted to cotton with an average yield of 2,844 tons/hectare. According to the latest cotton outlook published by Cotton SA*** (2nd November 2007), the 10th estimate for the 2006/07 production year indicates a total crop of 56,562 lint bales. The expected crop is 24% down from the previous season, is far below the strategic goal for the sector and the smallest in more than 40 years, mainly due to:

    • Low international cotton prices in recent years partly due to subsidies provided by the governments of many cotton producing countries;
    • The local currency, the Rand, which remains relatively strong against the US dollar;
    • More favourable prices of other competing crops and therefore large cotton areas have been planted to maize, wheat and sunflower; and
    • The fact that local cotton farmers effectively have no tariff protection as 99% of all imports are from SADC in terms of the free trade agreement which has a zero tariff for cotton.

    About 54,600 lint bales are estimated to be produced from seed cotton, 25% down from the previous season. The balance of 1,962 lint bales relates to expected seed cotton purchases by local ginners from Swaziland (down 22% from the previous season), Botswana and Namibia.

    Table 7: Cotton Crop Report – 10th Estimate – 2006/2007 Production Year (31st October 2007)

     

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    Imports

    In 2006, South Africa's imports of cotton (HS5201) totalled 44,971 tonnes with a value of US$52 million. Although South Africa is a net importer of cotton lint with some 40% to 60% of its needs being imported annually, imports have been declining and between 2002 and 2006, the volume of imports declined by 6%. This corresponds to the overall decline in cotton lint consumption in South Africa over the period.

    The SADC Free Trade Agreement allows for cotton to be imported into South Africa from fellow member states at a zero rate of duty. There are some major producers of cotton in the SADC region including Tanzania, Malawi, Zambia and Zimbabwe. As a result, virtually 100% of South Africa's cotton imports are from the SADC region. Zimbabwe is the leading supplier accounting for 50% of imports in 2006. According to Cotton South Africa, growers in SADC countries are paid considerably less for their cotton than South African growers and regional ginners are thus able to aggressively compete in the South African market.

    The exception is organic cotton. There is very little organic cotton grown within the SADC region with Tanzania being the only producer of consequence. All organic cotton is therefore sourced from outside of the SADC region and attracts the full R1.60 per kilogram tariff. Although not specified as a separate item in the statistics, cotton importers report that the bulk of organic cotton requirements are currently imported from India.

    Organic cotton is likely to be a key driver for cotton imports over the next few years as retailers, specifically Woolworths, convert a large percentage of their clothing stocks to organic. In a recent article,**** the organic cotton business project manager for Woolworths, Emil Grey, was quoted as saying that Woolworths anticipate their organic cotton ranges to generate revenues of R400 million (US$ 57.1 million) by 2012 up from R30 million (US$4.3 million) in 2006. This massive increase in sales will convert into a massive increase in the use of organic cotton. In 2008, Woolworths expects to use 2,200 tonnes of organic cotton, an increase of 22% over the 2007 figure. Only 30 tonnes or 1.4% of demand will be sourced locally - the rest will be imported.

    Consumption

    Total cotton lint consumption in the 2007/08 marketing season is estimated at 47,000 tonnes. As illustrated in the figure below, cotton lint consumption has been declining over the last decade and consumption in 2007/08 is 44% less than in the 1997/98 marketing year. This trend is likely to continue. In the 2007/08 marketing year, some 85% of cotton lint demand will be met through imports from the SADC region.

    The key reason for the decline in consumption is the general decline of the local textile and clothing sector as the industry struggles to remain competitive in the face of growing imports from China. Over the last decade, a number of large spinners have closed their operations and have turned to importing yarn that is more competitively priced than the yarn being produced locally. This has impacted negatively on the local demand for cotton lint.

     

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    Table 8: South Africa’s imports of cotton, not carded or combed (HS520100) by origin, 2006

    Click to enlarge 

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    Table 9: Cotton Lint Production, Imports, Consumption and Exports
    (Swaziland included)
    Volume: tonne


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    Pricing

    The Cotlook A Index is the most common pricing index used in South Africa for cotton lint. The A price Index is an index of the level of offering prices on the international market. The daily quotation is an average of the cheapest five quotations from a selection of sixteen upland cottons traded internationally. Prices are expressed in US dollars or cents per pound (lb), c.i.f. for delivery at a Northern European port.*****

    Table 10: Average Monthly A Index and Corresponding RSA Price

     

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    *Cotton Sector Strategy, Cotton SA.
    **Ibid.
    ***Current Market Report, Cotton SA.
    ****“Woolies backs organic cotton project”, Business Day, 9 January 2008.
    *****Quality Standard-Setting in the Global Cotton Chain and Cotton Sector Reforms in Sub-Saharan Africa, August 2003, Marianne Nylandsted Larsen.