High interest rates take toll on cotton firms

A combination of high-interest rates and low cotton output could lead to more defaults among Zimbabwe cotton companies, some industry executives have warned.

Zimbabwe more than doubled interest rates to 200 percent in July this year in a bid to curb speculative borrowing and tame inflation.

Cotton companies had secured loan facilities in local currency to pay farmers during the 2022 marketing season.

The hike in the interest rates affected the existing loans.

“With the production expected to significantly decline plus high-interest rates, we are likely to see some companies defaulting,” said one executive with a leading cotton firm.

The Reserve Bank of Zimbabwe bank raised its policy rate to 200 percent from 80 percent with effect from July 1 after annual inflation hit almost 192 percent in June.

Zimbabwe is this year set to record the lowest cotton output in three years largely due to bad weather conditions.

With deliveries almost drying up, farmers have delivered 53 000 tonnes of raw cotton.

This would be 53 percent lower than the initially projected yields or a 34 percent drop from last year.

The late onset of rains and erratic rainfall patterns led to a reduction in cotton output.

This year’s producer price consists of US$0,30c plus $32 per kilogramme.

Zimbabwe’s agricultural sector is facing growing risks as a result of extreme weather and shifting of the seasons as a result of climate change and cotton has not been spared.

According to a report produced by Cotton 40, an initiative working for a sustainable and climate resilient cotton industry, 40 percent of cotton-producing regions are likely to see their growing seasons shortened by rising heat, while drought could hit half of the global crop by 2040.-ebusinessweekly