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

Box 6.1 (Continued)A move from a concentrated system toward a competitive one involves aqualitative change in the nature of competition within the sector: from competitionfor producers at the start of the season (with those producers thenreceiving a range of preharvest services to assist their production) to pricecompetition for seed cotton at harvest time (with incentives for providing preharvestsupport undermined by side selling). In both Zimbabwe and Zambia,increased competition has undermined input credit provision; in Zimbabwe,it also undermined the country’s previous reputation for high-quality lint(chapter 7). Worse, competition may undermine input credit or lint quality—with long-term consequences for the industry—before it has any positiveeffect on prices paid to farmers. For example, there is little evidence thatincreased competition in Zimbabwe has yet improved the seed cotton pricesreceived by the majority of farmers. Finally, while movement from a concentratedto a more competitive system can happen quickly in the absence ofappropriate regulation (see next section of this box), reversing that changemay be more difficult (see text of this chapter). If, as this study suggests,highly competitive sectors are likely to perform poorly in most of SSA, thensuch structural change may impose long-term losses on these countries.Inadequate regulatory structures are a key reason for instability. A keyinsight from the typology in this book is that the appropriate roles of ginners,farmers, and the government differ markedly across sector types. In concentratedsystems, governments need to provide an environment in which thesmall number of buyers can coordinate input credit provision and qualityenhancement, while ensuring that farmers receive remunerative prices. Thissituation could suggest that limited barriers to entry be established in theform of conditional buying licenses so that only companies with a demonstratedcommitment to productivity and quality should be allowed in. Suchbarriers would avoid many of the damaging consequences of uncontrollednew entry into concentrated sectors, but barriers could also further reducethe effectiveness of new entry in raising seed cotton prices. For this reason, itis also suggested that more formalized approaches to price setting may beneeded to ensure remunerative prices to farmers. In the latter, strengthenedfarmer associations would be much preferred to direct government involvementin price setting. In all cases, a government needs to carry out its rolecollaboratively with private investors and farmers.Though governments in ESA have a limited history of working in thisway, positive signs are emerging in both Zambia and Zimbabwe. In the former,the government worked closely with ginners and farmers to proposerevisions to the Cotton Act, which is now awaiting submission to Parliament.If enacted, the act would establish a reasonably balanced public–privateapproach to sector management. In Zimbabwe, actors are considering a codeof good conduct that cotton companies must adhere to if they are to receivean export permit.(continued)80 TSCHIRLEY