Struggling cotton producer, Cottco Holdings Limited has raised grave concern over the latest interest rates hikes by the Reserve Bank of Zimbabwe (RBZ) underlining the need for cheap capital to sustain its operations.
The Central Bank recently raised the bank policy rate to 200 percent from 80 percent with the intention to discourage borrowing for currency hoarding for speculative purposes and also curb money supply into the economy which has been the major driver of inflation.
Inflation reached 191.6 percent in June putting pressure on authorities to take drastic measures.
In its trading update to June 30, 2022 Cottco was critical of RBZ latest stunt.
“The increase in local borrowing rates to 200% per annum is also of additional concern as the Company needs to access credit from time to time for operational needs.”
The company said it was seized with raising capital for value addition projects and acquisition of additional hybrid seed which was likely to be sourced from borrowing.
At the start of the 2021 Cotton Buying Season, the Company had a legacy debt of ZWL$3.3 billion arising from the high producer prices set in 2020 season, against a declining lint price in that same period, unfavorable exchange rates and a prolonged buying season.
“This constrained the Company’s ability to secure adequate funding for the 2021 season and whilst the Company
was able to pay farmers ZWL$3 billion, the balance of ZWL$956 million was outstanding,” said Cottco.
It also said inflation coupled with speculative pricing by suppliers in order to keep ahead of inflation continues to put pressure on its margins.
The 1st Quarter ended 30 June 2022 is traditionally the commencement of the intake season and intake officially
commenced on 13 June 2022, which was about a month later than usual as the bulk of the crop was a late crop owing to the delay in first rains.
As at 13 July 2022, intake stood at 34,497 tonnes, and intake is expected to peak in July and August 2022.
The company said payment modalities have been put in place for the current season to improve farmer viability and ensure that farmer payments are made timeously.
