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

are paying farmers compared with what they “should” be able to pay; it shouldnot be seen as indicative of how well farmers are remunerated in an absolutesense. For example, average prices actually received by farmers have been verysimilar in Zambia and Tanzania; however, Tanzania’s performance relative toFOT is much better than Zambia’s because ginners in Zambia have generateda very high quality premium not enjoyed in Tanzania, but they pass little of thispremium on to farmers.CONCLUSIONSFocusing first on ESA, four patterns stand out. First, Mozambique (the region’sonly monopoly sector) paid extraordinarily low prices before 1995, in part as aresult of additional costs that the companies had to bear: maintenance of privatemilitias during the war, and substantial costs to keep roads open. As thesecosts disappeared during the final two periods, prices improved, but their FOTshare remained the lowest in the region.Second, and perhaps a surprise, FOT shares in Zambia and Zimbabwe (concentratedsectors) were relatively high in the five years following reform, evenmatching those in Tanzania and Uganda, which had more competitive sectors.Shares in both Zambia and Zimbabwe, however, dropped sharply during 2000to 2005, clearly underperforming Tanzania and Uganda. We observe that thenewly privatized sectors in both Zimbabwe and Zambia were making particularefforts to attract additional smallholders to cotton during 1995–99, while thefall in price shares during 2000–05 can be attributed to the fact that the sectorsdid not pass on to farmers the benefits of higher quality premiums on worldmarkets (Zambia) or a major real exchange rate devaluation (Zimbabwe). The1995–99 experience shows that farmers can receive reasonable prices underconcentrated systems, while the 2000–05 experience shows that, in the absenceof appropriate regulation, farmers are vulnerable to changes in the objectivesor conduct of the dominant firms.Third, considering the entire 10 years since 1995 (the postreform era inESA), Tanzania and Uganda clearly paid a higher share of FOT to farmers thanany other country in the region. Both sectors have competitive structures. However,although competition remains unregulated in Tanzania, it has becomehighly regulated in Uganda since 2003. In Uganda, the continuing attractiveprices are likely the result of ginners’ need to increase capacity utilization (verylow at about 20 percent), their knowledge that farmers in Uganda move in andout of cotton based largely on relative prices (a dynamic seen much less inWCA), and therefore the need to pay attractive prices if the ginners are to attractgrowers. In Tanzania over the past few years, ginners have become more sophisticatedregarding knowledge of global market prices and trends, ability to negotiatewith buyers, understanding of price exposure, and use of market-basedapproaches to mitigate that risk.PRICING SYSTEMS AND PRICES PAID TO GROWERS 71