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

In Tanzania, the first private oil processors entered the cotton sector soonafter liberalization as a way to guarantee access to seed supplies. Several cottonginners recently entered oil processing, although it is not clear whether theseginners are seeking to stabilize the price they realize from their seed (see therecent price fluctuations reported in table 8.1) or are responding to the attractiveprofits obtained by the existing oil processors.In Zimbabwe, investment in oil processing equipment by Indian- and Tanzanian-ownedcotton companies has been observed during 2005–07. Thisinvestment is a response to a national shortage of edible oil, part of the ongoingeconomic crisis in the country. Until 2000, the three established oil processorssupplied about 80 percent of national oil requirements using a blend of soybeanoil and cottonseed oil in roughly equal proportions. With the onset of the fasttrackland redistribution program, however, soy production contracted rapidly,while cotton production has recently been lower than it was during 1999–2001.The shortage of local raw materials has been compounded by a lack of foreignexchange for either imported materials or edible oil. Thus, attractive profits canbe obtained by those who control the supply of scarce cotton seeds.In general in Africa (except possibly South Africa) farmers do not own thecotton seed. To “own the cotton seed,” farmers either need to own ginneries orto toll gin. The latter option is easier but still requires significant volumes perconsignment—mandating a degree of farmer organization that is lacking inmost countries. Farmers also need to be able to finance their own productionwithout cotton company credit, thus remaining free of obligations to thesecompanies. However, in Zimbabwe a company called Cottrade did set up a tollginner operation (see box 8.1). Even though Cottrade’s experience lasted onlyBox 8.1 Toll Ginning in ZimbabweIn Zimbabwe, Cottrade offered a brokerage service for farmers during theperiod 2000–04 whereby they arranged toll ginning contracts and assistancewith the sale of both lint and seed, for a 2 percent commission. With the exitof commercial farmers, Cottrade tried to work with groups of smaller producers.In the years when COTTCO and Cargill failed to pass the benefits ofexchange rate depreciation on to producers, organized producers could getmuch more money through Cottrade than through traditional channels.However, few were sufficiently organized or could produce the necessary volumeswithout company credit. In 2004, the exchange rate stabilized and thegap between what farmers could achieve through Cottrade and normal channelsnarrowed significantly. This narrowing seems to be what persuaded Cottradeto cease brokerage operations, but lack of progress with farmer organizationmay have been a contributory factor. In 2006, Cottrade beganoperating more like a traditional ginning company in Zimbabwe, purchasingseed cotton and processing it.100 GERGELY AND POULTON