Analysts: indebted firms allowed to buy cotton

The ninth cotton stakeholders meeting held here on Tuesday approved the licensing of cotton buyers with outstanding debts to farmers and Cotton Development Trust Fund (CDTF), a move some analysts have described as a blatant abuse of the law.

Regulations under the cotton buying legislation prohibit the licensing of cotton buyers with outstanding debts but heated debate ensued when the government, through the Tanzania Cotton Board (TCB), announced its intention to bar indebted buyers from participating in the coming crop buying season.

"We had already resolved the issue with the former Minister for Agriculture, Food Security and Co-operatives that indebtedness should never be the criteria for licensing," fumed one cotton buyer, who according to sources is among the highly indebted trader.

The buyers and a group of some Members of Parliament teamed up to vehemently defend their licensing in disregard of the law. The meeting finally agreed to have all licence applicants allowed to buy the crop, but directed that the debts be settled before the board issues the release order for export of their consignments.

Earlier, during the hot debate, the Deputy Minister for Agriculture, Food Security and Co-operatives, Mr Adam Malima said the meeting had only two options - to repeal the legislation or compel buyers to pay their outstanding debts within the prescribed period.

"If we want to help these buyers, we have either to repeal the law or have the licence applicants settling their debts," Mr Malima said as he read the sections of the law that prescribes the qualifications for getting licence. 

The proponents of the licensing of the indebted buyers argued that the licence denial will weaken competition because only a few buyers will qualify, subjecting the 14 million people that depend on cotton to face adverse economic consequences.

Some cotton buying companies, mostly locals, reportedly refused to contribute the 50m/- each to the CDTF from which they had taken pesticides for distribution to the crop growers, despite reports that they sold on cash about half of the pesticides.

The CDTF, which is embroiled in serious financial constraints due to minimal collections from last season's cotton sales and failure by the government to release over 6bn/- grant to support development, compelled the fund to procure pesticides on credit and loan them to cotton buyers.

The 50m/- demand from each buyer was to be used in paying half of the CDTF loan to suppliers of pesticides. However, default of the loan whose 50 per cent had to be paid by January 2012, has subjected the fund to high interest that accrues on the outstanding debt.

Meanwhile, the fate of this year's crop buying season remains bleak as stakeholders failed to agree on the opening farm gate price. The meeting postponed the discussions to next Monday when a team of cotton buyers, growers and  the regulator will deliberate and agree on the price.

While producers have vowed never to sell their produce at the price below 1,000/- per kilogramme, buyers have ruled out the likelihood of paying above 500/- due to the prevailing prices in the world market.
Source: The Daily News,http://www.dailynews.co.tz , reported by Masato Masato
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