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

competitive market in some of the other countries. Vertical relationships cover awide spectrum, from full integration with cotton ginning (as in Cameroon, mostcottonseed oil processors in Tanzania, and three new companies in Zimbabwe),through various forms of vertical coordination (Société Nouvelle CITEC inBurkina Faso and larger companies in Zimbabwe), to market relationships.Transaction cost economics (Williamson 1985) can provide insights intothe varying vertical relationships. In the African context, large-scale processingequipment for high-quality oil (deodorized, neutralized, cleaned, withgossypol removed) is a fairly specific asset. In Africa, either vertical integrationor coordination could strengthen the incentives for investment in oil processing.Thus, in Zimbabwe three large-scale oil processors have maintained closerelationships with the two largest cotton companies through regular interactionon the National Cotton Council (NCC). 62 By contrast, outside of Westand Central Africa (WCA) and Zimbabwe, processing operations are muchsmaller and often produce lower quality oil. Many of the new processingplants being installed in Burkina Faso, Mali, Tanzania, and Zimbabwe uselow-cost Indian equipment. For such plants, relying on spot market purchasesof seed presents only a modest risk.However, the main factor explaining observed variations in sector structure isnot the techno-economic attributes of different types of processing equipment,but policy choice. Until the 1990s, in WCA countries vertical integration oflarge-scale oil processing within the parastatal cotton company was part of thedevelopment model for the national cotton sector. In subsequent years, an earlypart of the reform process was the privatization of the oil processing activities.These privatizations have rarely been open and transparent, however. In Mali, aprivate monopoly was created by the divestment of the state from HuileriesCotonnières du Mali (HUICOMA). The new company has performed so farpoorly and is now in dire financial straits, with smaller operators entering themarket in competition. In Burkina Faso, the French company Développement desAgro-Industries du Sud, a shareholder in the main cotton company SOFITEX, isalso the majority shareholder in the main private oil processor. Cameroon, theone country in the sample where little significant reform of the cotton sector hastaken place, is also the one country where ginning and oil processing haveremained integrated. Oil processing in Cameroon is managed in an entrepreneurialmanner and contributes to the overall stability of the cotton operation.In East and Southern Africa (ESA), where the cotton market has been liberalizedsince 1994/95 (earlier in Mozambique), oil processing is entirely in privatehands. Given the small proportion of national edible oil consumption thatcottonseed oil supplies in these countries (table 8.1), its processing has limitedstrategic importance. As a general rule, where multinational trading companieshave invested in cotton production in these countries, they have shown littleinterest in cottonseed oil processing because volumes are too small for companiesprimarily interested in international markets. Oil processing has thus beenleft to domestic or Asian entrepreneurs.VALORIZATION OF SEED COTTON BY-PRODUCTS 99