The South African cotton industry is one of the subsectors that were hard hit by lockdown because all agricultural products exports, except for alcoholic beverages and tobacco were banned for the 21st day in March-April in spite of harvesting and processing continuing. Even though the country is a net importer of cotton, around 80% of the total production is also exported majorly to the neighbouring countries thus exports play a crucial role to the overall being of the sector.
The industry’s problems were exacerbated by pressure from the domestic market as the retailer industry (such as Edcon – the largest buyer of the locally produced cotton) is also financially constrained due to economic setbacks that resulted from the covid-19 outbreak.
With Sub-Saharan Africa which is the main market for South Africa’s cotton negatively affected by the pandemic, the country needs to find an alternative market as most economies regionally are battling to get on their feet. Thus, the weak demand for cotton.
Data from the International Trade Centre shows that South Africa exported 1 138 tons of cotton in July 2020 as compared to 1 646 tons exported in July 2019, representing a decline of 31% y-o-y. This decline can be attributed to the lower demand regionally as already mentioned.
However, recent developments from the global market include imposed sanctions against Chinese cotton imports into Europe and the U.S. China happens to be the biggest exporter by margins in the world. This development might benefit South Africa. The imposed ban on Chinese cotton exports was the result of Europeans accusing Xingjian province (China) of using slaves and child labour. This resulted into the U.S increasing its ban on cotton from the province of Xingjian, which happens to be the main producing area and a significant textile zone in China.
The U.S, which is the second largest cotton exporter in the world is likely to benefit despite the fact that cotton production for 2020/21 marketing season is estimated to be 300 000 bales lower. Thus, the U.S is also in need of substantial amounts of cotton imports. By July, South Africa had already exported few kilograms of cotton to the U.S.
One would argue that other prominent exporters such as India, Brazil and Australia can sufficiently supply the European market but both Brazil and Australia are said to have already sold out their cotton for this season. As a result, Brazil is now reported to be importing cotton to supply its domestic textile industry.
Although these shifts in global cotton trade are bound to positively affect cotton prices, it is still relatively early to make conclusive decisions. Domestically, cotton prices were already negatively affected by weaker local demand with slow shipments to China and the global market at large with weakening rand against dollar worsening the situation. These developments might have a positive effect on international prices of cotton and subsequently the local market. The United State Department of Agriculture Supply and Demand estimated cotton prices to be well above 65 cents at the beginning of October 2020.
Basing on data from International Trade Centre for 2020/21 season so far, South Africa’s cotton has been exported to Taipei (China) with 601 tons, followed by Viet Nam, Lesotho, Eswatini and Botswana with 194 tons, 110 tons, 93 tons, 76 tons, respectively.
The current situation in China and the difficulties the Sub-Saharan African region is facing economically, both Europe and U.S might prove to be an opportunity for South Africa to export some cotton to save this marketing season and this might ultimately buffer the industry’s financial stress as the industry is still in its infancy in terms of development.
By Thabile Nkunjana, junior economist at National Agricultural Marketing Council, email: Thabile@namc.co.za, twitter: @ThabileNkunjana