Organization and Performance of Cotton Sectors in Africa ... - infoDev

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efore planting, price risk in the short run is borne by the cotton companiesthat will have problems operating profitably if market prices during the seasonfall below the level of the announced price. In the long term, taxpayers anddonors also carry risk because the companies may need to be financially supportedby the governments. Following the cotton price decline of the late1980s, along with an overvalued Communauté Française d’Afrique (CFA)franc, several cotton companies had to be bailed out; the financial difficultiesof most cotton companies in the region since the end of the 1990s are similarto the problems experienced at that time.PRICING MECHANISMS IN ESABefore the reforms of the early 1990s, cotton pricing mechanisms in ESAclosely resembled those of WCA in that a cotton parastatal (or cooperativeunions in Tanzania and Uganda) was the sole buyer of cotton at a preannounced,panseasonal, and panterritorial price. Following reform, pricingmechanisms in the region became more market linked, flexible, and diverse, inline with the diverse sectoral types that have emerged (table 5.2). No countryin the region operates a stabilization fund, nor have any generated sectorwidedeficits that the government had to cover.Mozambique operates the only local monopoly system in the region and isthe only country that maintains a fully administered, panseasonal, and panterritorialprice. The government’s role in price setting is strong in Mozambique,in part because of the very weak state of farmer organizations in thecountry. In Zambia and Zimbabwe’s concentrated sectors, preplanting priceshave been maintained, but this practice reflects business decisions by thedominant firms as they exercise price leadership in the sector; the governmenthas no say in pricing in either country. 44 Prices paid to farmers throughoutthe region are much more strongly linked to medium-term, and even shortterm,movements in the Cotlook A Index than they are in WCA. The way inwhich this linkage happens varies greatly, however. For example, prices inZambia largely adjust only year to year as a result of price leadership byDunavant, while in Tanzania and more recently in Zimbabwe (because ofescalating inflation), they fluctuate throughout the marketing season. Even inUganda’s hybrid system, which attempts to eliminate competition amongfirms, prices vary over the course of the marketing season.COMPARING PRICING PERFORMANCE AT THE FARMER LEVELTable 5.3 shows the share of the FOT lint price received by farmers in each of thestudy countries over the period 1990–2005. Producer prices for seed cotton areadjusted to lint equivalent using the average ginning outturn ratio, and any inputcosts borne by the companies are added to this result, to show the net valuereceived by farmers. The Cotlook A Index is then adjusted to FOT on the basis of68 BAFFES, TSCHIRLEY, AND GERGELY
Table 5.2 Summary of Pricing Mechanisms in ESA Countries, 2006Pricing element Mozambique Tanzania Uganda Zambia ZimbabweCurrent structure Local monopoly Competitive Hybrid Concentrated ConcentratedAdministered price? Yes No Only preplanting price No NoPanterritorial? Yes No Only preplanting price Yes for individualNocompanies, butprices vary acrosscompaniesPanseasonal? Yes No No Yes NoHow set?Negotiated betweengovernment andginners; very littledirect role of farmersCompetitive marketprice, no priceleadershipCDO sets pricebefore marketing incollaboration withginners’ associationDunavant acts asprice leaderPrice leadership byCottco and Cargill;newer companiesgenerally pay moreAnnouncedpreplanting?No No Yes Yes, only byDunavantYes (Cottco andCargill only)Adjusted beforeharvest?n.a. n.a. Not formally, but actualprices paid dofluctuate overmarketing seasonYesContinually adjustedover season becauseof hyperinflationSecondary paymentafter marketing?No No No No Yes (Cottco andCargill only)Linked to Cotlook A Yes in principle, not soYes Yes Yes YesIndex? aclearly in practiceStabilization fund? No No No No NoSectorwide deficits? No No No No NoSource: Authors.Note: n.a. = not applicable. CDO = cotton development organization.a. The cotlook A Index is an index published by Cotlook Limited, an independent Merseyside-based company engaged in publishing cotton news for morethan 75 years. The A Index is widely regarded as the reliable barometer of world cotton values, and is referred to by the major international cotton organizations,such as the ICAC.69
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AGRICULTURE AND RURAL DEVELOPMENTOr
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AGRICULTURE AND RURAL DEVELOPMENTSe
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© 2009 The International Bank for
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Section II. Historical Background a
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BOXES, FIGURES, AND TABLESBoxes2.1
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5.2 Summary of Pricing Mechanisms i
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eference are limited to neighboring
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ACKNOWLEDGMENTSThis study was carri
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ABBREVIATIONS¢ U.S. centACPAgricul
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US$U shWAEMUWCAWTOU.S. dollarUganda
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output markets, improving productiv
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etween these competing needs, provi
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■■■■■competition increase
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monopolies range from 0.98 to 1.15,
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macroeconomics, developments in com
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central body and that the state nee
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CHAPTER ONEIntroductionDavid Tschir
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The debate about how to deal with t
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Figure 1.1 Map of Africa Highlighti
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hypotheses about sector performance
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to reach 25 million tons of lint in
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cotton production was introduced in
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Figure 2.2 Nominal Cotton Prices (U
Page 54 and 55: Box 2.1 (Continued)Togo, 39 percent
Page 56 and 57: Box 2.2 Cotton SubsidiesCotton subs
Page 58 and 59: efers specifically to the presence
Page 60 and 61: picking, storage, handling, or tran
Page 62 and 63: national monopoly (state-owned or p
Page 65: SECTION TWOHistorical Background an
Page 68 and 69: shares belonging to governments, an
Page 70 and 71: Changes Made Since the End of the 1
Page 72 and 73: long-term development strategies, (
Page 74 and 75: possible link between price-setting
Page 76 and 77: production fell further, to lows of
Page 78 and 79: all aspects of the chain from input
Page 80 and 81: suggestions (a) of establishing fas
Page 82 and 83: Figure 4.1 Decision Tree for Cotton
Page 84 and 85: Figure 4.2 African Cotton Sector Ty
Page 86 and 87: Box 4.1 Is This Typology Specific t
Page 88 and 89: 52Table 4.1 Trading Off: Strengths
Page 90 and 91: CONCEPTUALIZATION OF THE LINKS BETW
Page 92 and 93: chosen in this book and the impact
Page 94 and 95: Table 4.3 Expected Performance alon
Page 96 and 97: Box 4.2 (Continued)Second, farmers
Page 99: SECTION THREEComparative Analysis:C
Page 102 and 103: PRICING MECHANISMS IN WCAPricing me
Page 106 and 107: Table 5.3 Summary of Producer Share
Page 108 and 109: Finally, FOT price shares in WCA ro
Page 110 and 111: MALI AND CAMEROON: GOVERNMENT MONOP
Page 112 and 113: Significant in Mozambique, the comp
Page 114 and 115: Zimbabwe transitioned during the 19
Page 116 and 117: Box 6.1 (Continued)A move from a co
Page 118 and 119: 82Table 6.1 Summary of Input Supply
Page 120 and 121: 84Table 6.1 (Continued)IndicatorsCo
Page 123 and 124: CHAPTER SEVENQuality ControlGérald
Page 125 and 126: Tanzania Competitive 1 2 Very lax n
Page 127 and 128: Figure 7.1 Estimated Premium for To
Page 129 and 130: all fiber coming from Africa—are
Page 131 and 132: Box 7.1 (Continued)newly liberalize
Page 133 and 134: CHAPTER EIGHTValorization of SeedCo
Page 135 and 136: competitive market in some of the o
Page 137 and 138: a few years, it indicates that some
Page 139 and 140: should eventually make a difference
Page 141 and 142: CHAPTER NINECotton ResearchDuncan B
Page 143 and 144: With regard to human and financial
Page 145 and 146: ■■■Be involved in setting res
Page 147 and 148: made royalty payments to CRI. When
Page 149: and to identify complementary inves
Page 153 and 154: CHAPTER TENYields and Returns toFar
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fact that 55 percent of cotton is p
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Yields by Farmer TypeTo assess perf
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Factors beyond company services als
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Table 10.1 Summary Crop Budgets by
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According to the focus group inform
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Figure 10.6 Net Margins after All C
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All other variables in the budgets
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Table 10.2Summary of Average Yield
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■■■■impression is given tha
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were based on a 2005 cotton farmer
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more recent data are not available
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Figure 11.1 Estimated Average Ginni
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to buy seed cotton immediately afte
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146Table 11.3 Overall Competitivene
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148Table 11.4 Total Value Added per
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Figure 11.3 Total Value Added per c
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CHAPTER TWELVEConclusionsPatrick La
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Table 12.1 Summary of Expected and
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Valorization ofby-productsValue of
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Macro impact■ Total value addedpe
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across concession zones, with newer
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high yields. However, a mixed pictu
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governance and regulatory structure
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against price and exchange rate ris
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Improvements in the Delivery of Ext
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esistant, “stacked” genes), and
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Just as improved sector management
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More-competitive systems are perhap
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■■■■Interprofessional commi
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were to occur, it would most likely
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APPENDIX AStatistical Tables181
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1989/90 43 111 383 40.7 95 0.491990
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1989/90 62 150 416 41.0 95 0.671990
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1989/90 43 89 482 41.3 95 0.651990/
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1989/90 99 189 521 42.8 85 0.541990
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1997/98 31 327 95 33 to 35 2,950 83
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1994/95 82 344 238 33 207.0 40.0119
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Table A8 ZambiaSeasonLint productio
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Table A9 ZimbabweSeasonLint product
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Table A10 Ginning and FOB-to-CIF Co
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1997/98 1.64 598 210 75 49 74 7.619
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1987/88 17,609 31,238 564 414 911 4
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206 NOTES11. Important cotton secto
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208 NOTES47. Benin is not included
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210 NOTES79. In Zimbabwe and Zambia
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BIBLIOGRAPHYBadiane, Ousmane, Dhane
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and Instability, ed. A. Sarris and
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World Bank. 2007. Strategies for Co
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CFA exchange rate, 17-18b, 19fcompa
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input credit and extension in, 77-8
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firm types, 211n93fixed prices, for
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productivity, 119, 121f, 205n8,209n
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key indicators, 56-58, 57-58t,155-5
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focus group discussions by farmerty
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technology transfer, 170-71by typol
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ECO-AUDITEnvironmental Benefits Sta
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