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

all fiber coming from Africa—are typically superior to those of the cottons usedin the calculation of the Cotlook A Index. Political interference has played somerole in Mali’s poor performance. Mozambique’s poor performance reflects thelegacy of a nearly unregulated local monopoly system with original concessioncompanies uncommitted to productivity and quality; while quality is likely betteramong the newer affiliated ginners (Dunavant, Plexus, Companhia Nacionalde Algodão (Mozambique)/Développement des Agro-Industries du Sud), it willtake time for them to overcome the country’s poor reputation.In theory, monopoly systems should be able to exert the same control overtheir supply chains as concentrated sectors. If they take a hard line on thequality of seed cotton received, thereby penalizing poor quality through pricediscounts or, in extreme cases, refusal to accept delivery at all, farmers have noalternative outlet at which to sell. However, the social and political context isalso important. Unlike in concentrated sectors, where the notion of competitionis extremely helpful in this regard, there is an expectation that the companies,as monopolies, will accept all seed cotton delivered to them. This ideais particularly strong within the national monopoly system in Mali, whereresponsibility for grading has been transferred to producers’ associations. Asa result, grading is very lax. There are large stated price differentials betweengrades, but these differences result in 99 percent of the crop being purchasedas First grade regardless of the subsequent lint classifying results. Contaminationis often not taken into account, and little care is given to the cleanlinessof cotton before it reaches the gin.The effect of Tanzania’s competitive system is clearly seen in the decline in itspremium since liberalization and its resulting 2.0¢/lb average discount relative tothe Cotlook A Index (figure 7.2). The negative impact of competition on cottonquality in Tanzania was first highlighted by Gibbon (1999). Unregulated competitionundermines the ability of ginners to control their supply chains, whilethe limited vertical coordination between the large number of small, independentginners and the country’s lint exporters weakens the incentives that ginnersface to produce high-quality lint. For most of the postliberalization period(excluding the bumper years 2004 and 2005), the large number of ginners wasassociated with serious excess ginning capacity. Thus, ginners scrambled to buyavailable seed cotton. As a result, if one ginner seeks to impose strict gradingrequirements during seed cotton buying, farmers take their cotton to a competingbuyer who is more lenient. 59 The laxity of grading means that unscrupulousfarmers can also adulterate their seed cotton with sand, water, rocks, or otheritems to increase the weight of their bales. Farmers claim that they do this inresponse to buyers’ practices of tampering with the weighing scales. Meanwhile,an exporter buying lint from a number of ginneries cannot be sure of getting ahigher price for better quality, especially if selling forward. However, if exportersdo obtain a good price, they do not necessarily pass that on to the ginner inquestion. Many ginners, therefore, place more emphasis on increasing turnoverthan on raising quality. Box 7.1 explores these issues in more detail.QUALITY CONTROL 93