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

y the hybrid regulatory structure, drives this result. Zambia’s figure, which is thehighest of the market-based systems, includes costs involved in achieving a veryhigh-quality premium. Cameroon shows what a national monopoly can achievewhen well managed and left relatively free from political influence, yet its costsare still well above those in Zimbabwe and Tanzania.OVERALL COMPETITIVENESSThe overall competitiveness indicator is the ratio of total FOT costs to total FOTvalue in each sector. The cost side of this indicator is developed by starting withthe adjusted farm gate to FOT costs from table 11.2 and by adding purchase price;profit taxes; payments for critical functions such as extension; input subsidies paidby companies (if any); and anything paid by the companies for research, roadmaintenance, and other public goods. Any taxes included in these costs are notdeducted. Company revenues can be only theoretically estimated because informationis not publicly available on actual selling prices and costs except in WCA’snational monopolies. The calculations are based on Cotlook A Index prices, qualitypremiums as estimated in chapter 7, and information on the value of seed salesfrom interviews in each country.Results are shown in table 11.3. Ratios above 1.0 indicate that the sector isgenerating deficits, thus is unable to cover costs at estimated realized exportprices and sales prices of seed. The WCA monopolies look very poor, with evenCameroon less competitive than any of the ESA countries. High producerprices and high costs for critical functions (lower only than those in Uganda)combine with the high operating costs already documented in table 11.2 todrive this result. Remarkably, Mozambique now looks very competitive, butthis appearance is in large measure caused by the very low prices that thispoorly regulated local monopoly sector pays to its farmers. Zambia emerges asperhaps the most competitive sector, in large measure as a result of the veryhigh price premium it now earns on international markets. Zimbabwe’s revenuesare reduced by the requirement that 30 percent of output be sold on thelocal market at lower prices; yet Zimbabwe’s sector still emerges as relativelycompetitive.In seven of the eight countries in this analysis, cotton companies pay for allor a significant portion of extension. The one exception is Tanzania, which isthe only competitive sector; companies spending money on extension wouldbe at a competitive disadvantage in such a system and so do not provide thisservice. Uganda has a competitive structure, but its regulatory framework(which classifies its sector as a hybrid) allows companies to cooperate in supportingextension (supplemented by donor money). These company costs arecertainly recovered from farmers through the buying price, as they must be inother ESA countries. The sector deficits in the WCA region suggest that these(and other) costs are not being fully recovered. Extension costs are higher inCOST EFFICIENCY, SECTOR COMPETITIVENESS, AND MACRO IMPACT 145