A new cotton marketing business that allows growers to sell cotton post-ginning could be a game-changer for the Australian cotton industry.
Raw Cotton Australia (RCA) was founded in 2015 by Rain Agribusiness directors Peter Horton, Tim Whan, and Ian Grellman in the wake of continued grower frustration about the discounts they received for cotton below base-grade, and the lack of premiums for cotton that graded higher.
With a view to shake up the existing cotton supply chain in Australia and create value for both buyers and sellers, Mr Whan, Narrabri, said RCA allowed farmers to sell their physical cotton on the spot market rather than forward selling.
“In the same way a farmer would normally allocate pre-sold bales to a merchant at ginning time, they now have the option to simply allocate unsold bales to Raw Cotton Australia,” he said.
RCA then pays for ginning and arranges for immediate movement of the farmer's bales to the closest warehouse, in either Sydney, Brisbane or Melbourne.
By selling post ginning, growers could market their product on the spot market with the knowledge of its specifications, therefore targeting buyers from whom they could extract maximum value, while also realising its true value.
“In addition, we have now given buyers the opportunity to purchase cotton directly from farmers in one easily accessible marketplace.”
Other benefits included no pressure to sell unless it suited the farmer, competitive rates for bale storage, the elimination of payment risk by selling on the farmer’s terms, and a wider range of selling options.
Mr Whan said RCA could also provide the opportunity for buyers to access cotton from individual farmers and establish supplier relationships.
RCA is now in its third growing season and Mr Whan said this year the company expects 250,000 bales to go through its warehouses.
This is the equivalent of just five per cent of this season’s projected crop, and aims to do so by targeting the cotton unsold towards the tail of the season.
Mr Whan said that over time forward marketing opportunities would develop organically around what they are doing.
“Already we are receiving calls from interested third parties looking to develop businesses on the back of what we are doing,” Mr Whan said.
He said the RCA model was the first independent business to offer this sort of service on a large scale.
“It’s actually quite unbelievable to think a grower previously had no real option to sell post ginning. Imagine if you had to sell your grain before you knew the quality.”
A key component of RCA’s model was it offered finance. Mr Whan said RCA was able to fund the costs associated with moving the bales from the cotton gin to its warehouses, including the ginning costs.
“By being able to do this we are keeping in line with current industry practice where the merchant normally pays for the ginning, we can also give growers a cash advance to assist with cash flow,” Mr Whan said.
“Our objective is to make the whole process very simple for growers. They let the gin know the bales are committed to Raw Cotton Australia, and we handle things from there, including helping them to sell the cotton based on the quality they have produced.
“We segregate the cotton into specific qualities and in container sized lots to make the cotton more attractive and accessible to buyers.”
Upon sale, RCA charges a flat rate fee for the management and sale of the product.
Fellow director, Mr Grellman, said this system also allowed merchants to take advantage of the post ginning market, allowing them to offload risk, and come in and out of the market more easily.
“It also gives them access to cotton they may not have had otherwise,” Mr Grellman said.
Mr Whan said this model also created opportunity for branding and traceability, something that was far more difficult previously.