Viability Analysis of Smallholder Cotton Production under Contract Farming in Zimbabwe

The prevalence of contract farming in the cotton industry of Zimbabwe implies that it has become the dominant marketing system. Even the “free” (independently produced) cotton is eventually sold to the contracting cotton merchants owing to enacted regulations which compel all prospective cotton buyers to finance production through contract farming to be licensed to purchase seed cotton from farmers. However, the prevailing seed cotton marketing system is riddled with pricing related challenges characterised by price negotiation impasses that recur every marketing season, prompting Government intervention in a supposedly free market system. While farmers accuse cotton merchants of colluding in undertaking unfair pricing practices, the merchants blame it all on the farmers for failure to increase yield levels to international standards. This study seeks to conduct a comparative price analysis using secondary data, to identify farm-level profit margins for contracted and non-contracted seed cotton and explore the impact of different contract structures on farmer profit. Results of this study show that a non-contracted farmer realises better returns than a contracted farmer due to savings made from procurement of interest-free and cheaper inputs. Alternative options, though few, are available for the non-contracted farmer to minimise production costs unlike the contracted farmers. However, contracted farmers have guaranteed markets and less hassles in inputs sourcing. All things being equal, it would be advisable for farmers to produce their cotton independently and realise higher returns.