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

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esearch and better production practices, reduce variability of lint qualitythrough more rigorous seed cotton grading and lint classification, control contaminationthrough capacity building and price incentives, and optimize qualitymanagement in ginning. Efforts must also be made to generalize the use ofcotton cloth wrappers for bales and, ultimately, to develop container loading atthe gins and optimize export logistics.However, the typology developed in chapter 4 highlights a key conundrumin African cotton systems: while concentrated (and perhaps monopoly) sectorsare more likely to achieve the coordination needed to improve quality,they are not necessarily ready to pass the resulting price premiums on tofarmers. For example, the comparative analysis in previous chapters showedthat farmers in Tanzania have received slightly higher prices than did farmersin Zambia, despite the much higher price premium in Zambia. Solvingthis riddle—how to capture the very significant price premiums available toAfrican cotton while sharing some of that benefit with farmers—probablyrequires much stronger farmer organizations than are currently found inSSA. In concentrated systems, these organizations would have to bargainwith the large ginners for remunerative prices on the basis of solid knowledgeof world prices, realized export prices, quality premiums obtained, andcost structure borne by ginners. In competitive systems, these organizationswould need to focus on training farmers about the benefits of increasedquality, and on monitoring prices paid by companies to ensure transmissionof quality premiums. 86Marketing PracticesDiscussion in chapters 2 and 7 highlighted the fact that African cotton sectorscommonly lose revenue from weaknesses in lint marketing, not just lint quality.Some weaknesses are largely beyond the control of the cotton sector, especiallywhere a landlocked country relies on the export infrastructure of a neighbor.African port facilities are often inefficient and shipping unreliable, while thepoor state of national road networks contributes to high internal transport costsand delays. As a major export industry in many African countries, the cottonsector should be lobbying hard for improved infrastructure. This area may alsobe one where international development finance can assist.African sectors are also progressing slowly with the introduction of highvolume instrument testing of lint. Use of instrument testing on a bale-by-balebasis requires purchasing the expensive equipment, training scientists, andequipping laboratories to provide reliable results from such equipment underAfrican conditions. Introduction of this equipment will require increasedinternational technical assistance beyond current levels.With regard to marketing practice at firm level, cotton ginning companiesaffiliated with international merchants (referred to in this book as “affiliated ginners”)have better access to market information and also benefit from hedging166 LABASTE, POULTON, AND TSCHIRLEY
against price and exchange rate risks covered by their parent companies. Amongindependent ginners, larger firms such as the parastatal companies of WCA, andCOTTCO in Zimbabwe, are better placed than smaller, often also newer, rivals tooffer large volumes of particular quality lint or year-round sales, or both. Theyshould also possess greater accumulated knowledge of international markets andbe better placed to bargain with international merchants. 87Many options exist for independent ginners in SSA to improve marketingperformance. Forward sales, the most common marketing method in the cottonbusiness, are the easiest and most effective marketing strategy to coverrisks. The flexibility and effectiveness of such sales can be enhanced if they aresupplemented by the use of market instruments such as futures and options.The application of these instruments can be specified in the physical contractarrangements with merchants. Ginners can also spread their risks by committingportions of the total production to different marketing options: cash salesafter ginning and other options requiring commitment before harvest, forwardsales at fixed price, “on call” at price-to-be-fixed contracts, and minimumguaranteed price contracts. Direct sales from ginners to spinners throughcommissioned agents can save the cost of intermediation by merchants whileimproving the quantity and quality of market knowledge available to the ginners.A final potential tool for improving the marketing of African cotton iselectronic trading. E-trade platforms can be a very effective means of transparentprice discovery brought about by real-time multilateral bids and offers,and online contracting can reduce transaction costs.To realize improvements such as those recommended above, independentginners in SSA need to be informed and trained to better understand theworld cotton market and prices, to master cotton trade rules and regulations,and to understand how to use risk management techniques that are based onfutures and options contracts. There is a potential role for internationalorganizations in this area.Finally, stronger farmer organizations can also work to the advantage ofthe sector if it allows more systematic contractual trade relationships betweenfarmers and ginners. Examples could include more formalized contractfarming relationships than currently exist, with such contracts specifying predeterminedvolumes of seed cotton to trade and with precise quality specifications.Stronger farmer organizations might also be better informed aboutworld markets and be better able to negotiate a pricing approach that is tiedto world prices, including recognition of world market premiums for quality.Considerable institutional strengthening and training will be required first toreinforce producer organizations.Valorization of Seed Cotton By-ProductsAs emphasized in previous chapters, the performance of the oil and cake sectors(which affects the price that ginners receive for their seed and, ultimately, theCONCLUSIONS 167
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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
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Box 4.1 Is This Typology Specific t
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52Table 4.1 Trading Off: Strengths
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CONCEPTUALIZATION OF THE LINKS BETW
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chosen in this book and the impact
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Table 4.3 Expected Performance alon
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Box 4.2 (Continued)Second, farmers
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SECTION THREEComparative Analysis:C
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PRICING MECHANISMS IN WCAPricing me
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efore planting, price risk in the s
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Table 5.3 Summary of Producer Share
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Finally, FOT price shares in WCA ro
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MALI AND CAMEROON: GOVERNMENT MONOP
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Significant in Mozambique, the comp
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Zimbabwe transitioned during the 19
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Box 6.1 (Continued)A move from a co
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82Table 6.1 Summary of Input Supply
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84Table 6.1 (Continued)IndicatorsCo
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CHAPTER SEVENQuality ControlGérald
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Tanzania Competitive 1 2 Very lax n
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Figure 7.1 Estimated Premium for To
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all fiber coming from Africa—are
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Box 7.1 (Continued)newly liberalize
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CHAPTER EIGHTValorization of SeedCo
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competitive market in some of the o
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a few years, it indicates that some
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should eventually make a difference
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CHAPTER NINECotton ResearchDuncan B
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With regard to human and financial
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■■■Be involved in setting res
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made royalty payments to CRI. When
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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
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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
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Page 173: were based on a 2005 cotton farmer
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Page 178 and 179: Figure 11.1 Estimated Average Ginni
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Page 182 and 183: 146Table 11.3 Overall Competitivene
Page 184 and 185: 148Table 11.4 Total Value Added per
Page 186 and 187: Figure 11.3 Total Value Added per c
Page 189 and 190: CHAPTER TWELVEConclusionsPatrick La
Page 191 and 192: Table 12.1 Summary of Expected and
Page 193 and 194: Valorization ofby-productsValue of
Page 195 and 196: Macro impact■ Total value addedpe
Page 197 and 198: across concession zones, with newer
Page 199 and 200: high yields. However, a mixed pictu
Page 201: governance and regulatory structure
Page 205 and 206: Improvements in the Delivery of Ext
Page 207 and 208: esistant, “stacked” genes), and
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Page 211 and 212: More-competitive systems are perhap
Page 213 and 214: ■■■■Interprofessional commi
Page 215 and 216: were to occur, it would most likely
Page 217 and 218: APPENDIX AStatistical Tables181
Page 219 and 220: 1989/90 43 111 383 40.7 95 0.491990
Page 221 and 222: 1989/90 62 150 416 41.0 95 0.671990
Page 223 and 224: 1989/90 43 89 482 41.3 95 0.651990/
Page 225 and 226: 1989/90 99 189 521 42.8 85 0.541990
Page 227 and 228: 1997/98 31 327 95 33 to 35 2,950 83
Page 229 and 230: 1994/95 82 344 238 33 207.0 40.0119
Page 231 and 232: Table A8 ZambiaSeasonLint productio
Page 233 and 234: Table A9 ZimbabweSeasonLint product
Page 235 and 236: Table A10 Ginning and FOB-to-CIF Co
Page 237 and 238: 1997/98 1.64 598 210 75 49 74 7.619
Page 239: 1987/88 17,609 31,238 564 414 911 4
Page 242 and 243: 206 NOTES11. Important cotton secto
Page 244 and 245: 208 NOTES47. Benin is not included
Page 246 and 247: 210 NOTES79. In Zimbabwe and Zambia
Page 249 and 250: BIBLIOGRAPHYBadiane, Ousmane, Dhane
Page 251 and 252: 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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