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

more recent data are not available (except producer prices, which are the2006/07 actual prices). It has, however, been verified that costs have not dramaticallychanged in recent years in these countries, because domestic andimported inflation (mainly from imported equipment and oil) were more orless balanced by cost reductions. Benin is not included in this sample becauserecent reliable data were not available.COMPANY COST EFFICIENCYThe indicator for company performance is the adjusted cost from farm gateprices to free-on-truck (FOT). This adjusted figure excludes taxes and the costof critical functions, because these costs depend on policy and other factorsunrelated to the efficiency of company operations. The value of seed is notdeducted from the total cost figure because the performance of the seed market(and the value the companies can, therefore, get from seed sales) is alsobeyond the influence of the companies. These factors are brought back into theanalysis when overall competitiveness and macro impacts of the cotton sectorare considered.This chapter focuses first on ginning costs as perhaps the key cost element inthis indicator. Ginning costs in WCA (all national or local monopolies) rangefrom US$0.134 to US$0.234 per kg of lint (table 11.1 and figure 11.1). In ESA,these costs are much lower—ranging from US$0.081 to US$0.123—for countriesoperating at reasonably high capacity utilization rates (Tanzania, Zambia, andZimbabwe). For Mozambique and Uganda, which operate at about 20 percent ofcapacity, costs are comparable to those in WCA, at US$0.20 per kg and US$0.237per kg, respectively. These are the only two countries in the region that do notallow open competition between ginners: Mozambique operates a local monopolysystem, and Uganda operates a hybrid system with purchase quotas. Boththese systems protect ginners from most competitive pressures and thus reduceincentives for cost containment. At 100 percent capacity utilization rates in allcountries, there would be no overlap in ginning costs between the two regions:WCA countries would range from US$0.13 to US$0.20 per kg, while those inESA would range from US$0.07 to US$0.12 per kg.A combination of technical and structural factors likely contributes to thisstark difference in ginning costs between the two regions. First, WCA uses onlysaw gins. Investment costs (and hence depreciation costs) for saw gins are substantiallyhigher than for roller gins. Roller gins are predominant in Uganda andalso widely used in Tanzania. 79 In addition, a number of ginners in Tanzania andUganda import equipment from India, often secondhand. Some Zambian ginnersinstall used saw gins. All this equipment is much less expensive than the U.S.or European equipment purchased by WCA cotton companies. Second, energy ismuch cheaper in Zimbabwe (less than US$0.001 per kg of lint), 80 Zambia(US$0.005 per kg), and Tanzania (US$0.009 per kg) than in WCA countries140 GERGELY