Ethiopian cotton producers are struggling to sell their goods as Value-Added Tax (VAT) hikes prices and local demand plummets. To survive, many are now exploring foreign markets.

Local producers also face stiff competition from cheaper imports. While Ethiopian cotton sells for 185 Br per kg before VAT and 212.75 Br with VAT, textile manufacturers are pushing for a price drop to 160 Br per kg.

However, imported cotton is being sold for 210 Br per kg, making it a more attractive option for buyers.

The Ethiopian Cotton Association (ECA) says that it is supporting local producers to export their commodity and integrate them into global trade. As a result, a total of 300 tonnes of cotton has already been exported, with another 300 tons set to follow.

Tsegaye Abebe, executive director at the Association, says VAT exemptions once helped sustain the sector, but recent policy changes have removed these benefits, making trade difficult.

"The market is cold as ice," he said.

Tsegaye warns that the 15pc price increase from VAT has made it nearly impossible to sell cotton, as textile manufacturers cannot absorb the additional cost.

He says cotton production is shrinking annually, with the entire value chain disrupted.

"If the situation continues, we may have to import cotton instead," he said. "Farmers will be forced to switch to other crops."

Cotton prices have soared from last year’s 130–140 Br per kg to 185 Br before VAT and 212.75 Br after VAT. Producers say rising production costs, labour shortages, and higher fuel prices are making it harder to stay profitable.

Cotton growers are struggling with soaring expenses. Land preparation costs jumped from 800 Br to 2,000 Br per hectare, with unused land preparation skyrocketing to 28,000 Br per hectare, and irrigation costs surged due to fuel price hikes, with pump operation expenses rising from 10,000 Br to 25,000 Br per hectare.

Machinery prices also sharply increased, tractors now cost 11 million Br, up from 3.8 million Br, while a single tractor tyre has risen from 80,000–100,000 Br to 280,000 Br.

Farmers also say pesticide sprayers more than tripled in price, from 12,000 Br to 42,000 Br, ginning costs increased from 3–5 Br per kg to over 8 Br per kg, and transport costs ballooned, the 300-km trip from Gewane to Adama went from 280–300 Br per quintal to 555–625 Br per quintal.

These skyrocketing expenses have left producers struggling, with large amounts of unsold cotton sitting in storage.

The Association, which represents over 65 companies, has formally requested the Ministries of Industry, Finance, and Agriculture to exempt cotton production and sales from VAT.

The Association argues that smallholder farmers, who operate on thin margins, cannot absorb the extra tax. VAT makes local cotton less competitive, increasing costs for domestic textile manufacturers and international buyers. Countries like India, Pakistan, and Bangladesh impose little to no VAT, giving them an edge in global markets.

In the 2023/24 production year, the country cultivated 84,000 hectares of cotton, about three percent of total agricultural land. Out of it, 30pc of production relied on irrigation, while 70pc depended on rainfall.

Smallholder farmers contributed 26pc, while large-scale producers accounted for 74pc. Total production reached 55,000 tonnes, with an average yield of 1.8 tonnes per hectare.

The country has an estimated three million hectares of land suitable for cotton cultivation, with the potential to produce 5.5 million tonnes annually. This could generate over 10 billion dollars in revenue and create more than 2.4 million jobs.

The Ethiopian Textile & Garment Manufacturers Association (ETGAMA) has complained about VAT’s impact on cotton prices. Goshu Negash, the Association’s president, says that manufacturers are forced to absorb the cost difference, as market conditions do not allow price increases.