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

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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
a few years, it indicates that some of the obstacles mentioned above could beovercome and that new ways of doing business could emerge.PERFORMANCE OF OIL SECTORS, SEED PRICING,AND RETURNS TO FARMERSFor this study, a key performance indicator for the oil sector is the price thatginners pay (or receive) for cotton seed. Given the competition from importedpalm oil in all the study countries, the main determinants of the cotton seedprice are expected to be the following:■■■■■■Whether the country is landlocked (a major determinant of the overlandtransport cost incurred by imported palm oil). Note that this partially compensatesginning companies in landlocked countries for the high free-on-truckminus free-on-board costs they incur when exporting their lint.The level of tariff protection (if any) offered to domestically produced edibleoils. In Benin, Burkina Faso, and Mali, a common external tariff of 5percent applies to edible oil imports. However, some smuggled oil importsavoid this tariff and also avoid the 20 percent value added tax that is appliedto domestically produced oils. Thus, domestically produced oils are at a netdisadvantage when compared with these smuggled oils.Whether oil processors are able to brand cottonseed oil so as to raise itsprice above that of imported palm oil.The quality of oil produced insofar as this quality reflects the degree of processing.Discussions in Tanzania suggest that it could cost twice as much toproduce high-quality oil (deodorized, neutralized, cleaned, and gossypolremoved) as to produce a semi-refined oil.The strength of demand for cottonseed cake from the domestic livestockindustry.The efficiency of the oil processing sector.A recent survey by the International Cotton Advisory Committee (ICAC) providesuseful information with which to benchmark the valorization of cottonseeds with world market standards. According to the ICAC survey, globally a kilogramof seeds fetches on average 18 U.S. cents/kg, which represents a good incomefor the grower. The data by region show that cotton seed has a higher value innon-WCA African countries and in Asia, where a kilogram is sold at 22 U.S.¢/kgand 20 U.S.¢/kg, respectively. A kilogram of cotton seed after ginning is sold at13 U.S.¢/kg in North America (average of Mexico and the United States) and10 U.S.¢/kg in South America. Cotton seed prices are the lowest in West Africancountries, where a kilogram of seed is sold at 7 U.S.¢/kg (Chaudhry 2007).Table 8.1 shows the cotton seed prices paid by oil processors in the ninestudy countries in 2006. The table shows that the price paid in Zimbabwe wasmore than twice the price paid in Burkina Faso (the lowest recorded within theVALORIZATION OF SEED COTTON BY-PRODUCTS 101
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AGRICULTURE AND RURAL DEVELOPMENTOr
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AGRICULTURE AND RURAL DEVELOPMENTSe
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© 2009 The International Bank for
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Section II. Historical Background a
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BOXES, FIGURES, AND TABLESBoxes2.1
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5.2 Summary of Pricing Mechanisms i
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eference are limited to neighboring
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ACKNOWLEDGMENTSThis study was carri
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ABBREVIATIONS¢ U.S. centACPAgricul
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US$U shWAEMUWCAWTOU.S. dollarUganda
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output markets, improving productiv
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etween these competing needs, provi
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■■■■■competition increase
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monopolies range from 0.98 to 1.15,
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macroeconomics, developments in com
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central body and that the state nee
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CHAPTER ONEIntroductionDavid Tschir
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The debate about how to deal with t
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Figure 1.1 Map of Africa Highlighti
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hypotheses about sector performance
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to reach 25 million tons of lint in
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cotton production was introduced in
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Figure 2.2 Nominal Cotton Prices (U
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Box 2.1 (Continued)Togo, 39 percent
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Box 2.2 Cotton SubsidiesCotton subs
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efers specifically to the presence
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picking, storage, handling, or tran
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national monopoly (state-owned or p
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SECTION TWOHistorical Background an
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shares belonging to governments, an
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Changes Made Since the End of the 1
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long-term development strategies, (
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possible link between price-setting
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production fell further, to lows of
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all aspects of the chain from input
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suggestions (a) of establishing fas
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Figure 4.1 Decision Tree for Cotton
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Figure 4.2 African Cotton Sector Ty
Page 86 and 87: Box 4.1 Is This Typology Specific t
Page 88 and 89: 52Table 4.1 Trading Off: Strengths
Page 90 and 91: CONCEPTUALIZATION OF THE LINKS BETW
Page 92 and 93: chosen in this book and the impact
Page 94 and 95: Table 4.3 Expected Performance alon
Page 96 and 97: Box 4.2 (Continued)Second, farmers
Page 99: SECTION THREEComparative Analysis:C
Page 102 and 103: PRICING MECHANISMS IN WCAPricing me
Page 104 and 105: efore planting, price risk in the s
Page 106 and 107: Table 5.3 Summary of Producer Share
Page 108 and 109: Finally, FOT price shares in WCA ro
Page 110 and 111: MALI AND CAMEROON: GOVERNMENT MONOP
Page 112 and 113: Significant in Mozambique, the comp
Page 114 and 115: Zimbabwe transitioned during the 19
Page 116 and 117: Box 6.1 (Continued)A move from a co
Page 118 and 119: 82Table 6.1 Summary of Input Supply
Page 120 and 121: 84Table 6.1 (Continued)IndicatorsCo
Page 123 and 124: CHAPTER SEVENQuality ControlGérald
Page 125 and 126: Tanzania Competitive 1 2 Very lax n
Page 127 and 128: Figure 7.1 Estimated Premium for To
Page 129 and 130: all fiber coming from Africa—are
Page 131 and 132: Box 7.1 (Continued)newly liberalize
Page 133 and 134: CHAPTER EIGHTValorization of SeedCo
Page 135: competitive market in some of the o
Page 139 and 140: should eventually make a difference
Page 141 and 142: CHAPTER NINECotton ResearchDuncan B
Page 143 and 144: With regard to human and financial
Page 145 and 146: ■■■Be involved in setting res
Page 147 and 148: made royalty payments to CRI. When
Page 149: and to identify complementary inves
Page 153 and 154: CHAPTER TENYields and Returns toFar
Page 155 and 156: fact that 55 percent of cotton is p
Page 157 and 158: Yields by Farmer TypeTo assess perf
Page 159 and 160: Factors beyond company services als
Page 161 and 162: Table 10.1 Summary Crop Budgets by
Page 163 and 164: According to the focus group inform
Page 165 and 166: Figure 10.6 Net Margins after All C
Page 167 and 168: All other variables in the budgets
Page 169 and 170: Table 10.2Summary of Average Yield
Page 171 and 172: ■■■■impression is given tha
Page 173: were based on a 2005 cotton farmer
Page 176 and 177: more recent data are not available
Page 178 and 179: Figure 11.1 Estimated Average Ginni
Page 180 and 181: to buy seed cotton immediately afte
Page 182 and 183: 146Table 11.3 Overall Competitivene
Page 184 and 185: 148Table 11.4 Total Value Added per
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Figure 11.3 Total Value Added per c
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CHAPTER TWELVEConclusionsPatrick La
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Table 12.1 Summary of Expected and
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Valorization ofby-productsValue of
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Macro impact■ Total value addedpe
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across concession zones, with newer
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high yields. However, a mixed pictu
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governance and regulatory structure
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against price and exchange rate ris
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Improvements in the Delivery of Ext
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esistant, “stacked” genes), and
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Just as improved sector management
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More-competitive systems are perhap
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■■■■Interprofessional commi
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were to occur, it would most likely
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APPENDIX AStatistical Tables181
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1989/90 43 111 383 40.7 95 0.491990
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1989/90 62 150 416 41.0 95 0.671990
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1989/90 43 89 482 41.3 95 0.651990/
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1989/90 99 189 521 42.8 85 0.541990
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1997/98 31 327 95 33 to 35 2,950 83
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1994/95 82 344 238 33 207.0 40.0119
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Table A8 ZambiaSeasonLint productio
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Table A9 ZimbabweSeasonLint product
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Table A10 Ginning and FOB-to-CIF Co
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1997/98 1.64 598 210 75 49 74 7.619
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1987/88 17,609 31,238 564 414 911 4
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206 NOTES11. Important cotton secto
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208 NOTES47. Benin is not included
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210 NOTES79. In Zimbabwe and Zambia
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BIBLIOGRAPHYBadiane, Ousmane, Dhane
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and Instability, ed. A. Sarris and
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World Bank. 2007. Strategies for Co
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CFA exchange rate, 17-18b, 19fcompa
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input credit and extension in, 77-8
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firm types, 211n93fixed prices, for
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productivity, 119, 121f, 205n8,209n
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key indicators, 56-58, 57-58t,155-5
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focus group discussions by farmerty
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technology transfer, 170-71by typol
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ECO-AUDITEnvironmental Benefits Sta
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