Strengthening Mozambique’s Cotton Sector through Price Stabilization Measures

Mozambique’s cotton sector plays a crucial role in the rural economy, supporting thousands of smallholder farmers. However, the industry is highly vulnerable to external shocks, including global price fluctuations and climate risks. In response to the sharp decline in international cotton prices during the 2019/20 season—exacerbated by the COVID-19 pandemic—the Mozambican government piloted a price stabilization subsidy of 6 MZM/kg, totaling USD 2.7 million. This initiative aimed to protect farmers from economic losses, maintain production levels, and ensure the sustainability of the sector.

Key Findings

The subsidy had a transformative impact on cotton production, leading to a remarkable 55% increase in the following season (2020/21), reversing an anticipated decline of 18% without intervention. The initiative not only secured farmers’ incomes but also generated an additional USD 17.9 million for the economy, demonstrating a high return on investment of USD 6.70 per dollar spent. This success highlights the critical role of price support mechanisms in stabilizing smallholder farming systems against volatile market conditions.

The implementation process was swift and transparent, achieved through collaboration between government agencies, industry stakeholders, and independent auditing bodies. The efficiency of the system ensured that funds were directly transferred to farmers without intermediaries, reinforcing trust and accountability in public-private agricultural initiatives. Furthermore, the subsidy model provided valuable insights into how targeted interventions can be designed to mitigate financial instability for producers, serving as a reference for future policy frameworks.

Despite its success, the lack of a long-term price stabilization mechanism leaves the sector exposed to recurring market volatility. The introduction of the Price Stabilization Mechanism (MEP) in 2021/22, with a savings fund exceeding 110 million MZM, was a step towards sustainability. However, continued financial and institutional support is required to maintain minimum producer prices in the face of international price downturns. The experience of Mozambique underscores the importance of structured agricultural policies to enhance resilience and competitiveness in global markets.

The 2019/20 cotton price subsidy pilot served as a pivotal intervention in stabilizing Mozambique’s cotton industry, preventing farmer displacement, and promoting economic growth. While short-term measures proved effective, long-term solutions—such as a permanent stabilization fund or agricultural insurance—are necessary to shield farmers from future price shocks. Scaling up these interventions through sustainable funding mechanisms will be key to securing the future of Mozambique’s cotton industry and ensuring the well-being of smallholder farmers.

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