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

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macroeconomics, developments in competing or complementary sectors, andeven luck, also play a role that cannot be ignored. It means that structure doesnot uniquely explain everything either, and that there are some common corechallenges facing all African cotton sectors.The ultimate objective of reform is to strengthen the competitiveness of cottonproduction in the context of the global world market and thereby to ensure longterm,sustainable, and equitable growth for these major sectors of many Africaneconomies. The broad policy objectives include farmer welfare, industry innovation,technical and economic efficiency, and value addition. However, there maybe some trade-offs among these resulting from the tension between competition(incentives) and coordination (controls) within the different systems. The comparativeanalysis based on the typology showed the strengths and weaknesses ofthe various sector types. However, this finding does not mean that the pros andcons of each model are all of equal nature and magnitude thereby tending to offseteach other. This interpretation one would be a very static of the necessarytrade-offs between coordination and competition. To the contrary, the reviewhighlighted important differences in long-term viability across sector types:■■At one extreme, most single-channel systems have become financiallyunsustainable, not only because of the current exchange rate of the CommunautéFrançaise d’Afrique (CFA) franc, but mainly because of theirinability to adapt, manage, and innovate quickly in response to changingcircumstances. At the other extreme, competitive models have serious drawbacksin the current SSA context—that is, weak markets for inputs andfinancial services—which means that they are unsustainable from an environmentalpoint of view.Local monopolies and concentrated systems may offer better prospects forthe future, but subject to a number of critical conditions such as the carefulselection of investors with long-term commitments to the sector’s development,the setting up and enforcement of regulatory frameworks adapted tothe sector’s needs, the strengthening of input and credit markets, and thebuilding up of interprofessional organizations to ensure broadly based representationin sector management.INSIGHTS ON MAJOR CHALLENGES AND FEASIBLEREFORM PATHS FOR SPECIFIC SECTOR TYPESCotton sectors are facing broad generic types of challenges—value added, competitiveness,sustainability—and the need to rearrange pertinent rules and incentivesto meet these challenges. Reform programs should, therefore, be designed tohelp specific sectors face their own peculiar challenges. In effect, relatively littlesustained attention has been paid so far to the precise structure that post-reformsectors could take or why a particular structure might be preferable.xxxiiEXECUTIVE SUMMARY
The report concludes that problems of cost inefficiency and managerial dysfunctionin national monopolies are serious enough, and the politics of improvingperformance under such monopolies is complicated enough, that most ofthem need to move toward a different sectoral structure. But this conclusionshould not be applied dogmatically. Cameroon, with relatively good performanceto date, may be able to maintain its national monopoly to good effect, as long asit reforms its price-setting process and continues to promote productivity.If national monopolies do choose to change, the direction of change is likelyto be toward local monopolies or concentrated, market-based systems. Thereport concludes that moving in WCA to fully privatized markets allowing competitionamong companies, even if the market is initially very concentrated, isrisky because of the possible instability of concentrated sectors. If, instead, thesesectors can use the local monopoly approach to develop sound regulatorymechanisms and build the operational capacity of farmer organizations, concentratedand eventually competitive systems could perform well. During thelocal monopoly phase, care must be taken to ensure that private companies playa greater role in price setting and other decision making than they have so farplayed in Burkina Faso; price setting must also be done in a way that providesreasonable assurance to companies that, if they operate efficiently according tointernational standards, they will be able to earn a reasonable return on theirinvestment. Clear rules for evaluating and retendering concession areas are alsoneeded, as this approach has been a clear failure in Mozambique.The key challenge in Mozambique’s local monopoly sector is how to createincentives for good company performance. In the absence of strong farmerassociations, these incentives have to come from improved rules governing tenderingand retendering of concessions, procedures for monitoring performanceof concessionaires, and careful selection of companies.The key challenge for concentrated sectors is to develop a regulatoryapproach with three characteristics:■■■Clear and transparent licensing rules must be developed to strictly specifythe capabilities and conduct of firms wishing to participate in the sector,and to defend the ability of firms to coordinate on input supply, extension,and quality control.These rules must be strictly enforced, but they must allow enough prospectof entry that incumbents have an incentive to maintain attractive seed cottonprices.Given the problems of relying entirely on the threat of entry to disciplineincumbent firms, it may also be desirable to develop price-setting mechanismsthat are more formalized than the price leadership that has prevailedin concentrated systems so far.Competitive sectors perform poorly on coordination for service provision.The book concludes that such coordination as does occur must come from aEXECUTIVE SUMMARYxxxiii
Page 1: AGRICULTURE AND RURAL DEVELOPMENTOr
Page 4 and 5: AGRICULTURE AND RURAL DEVELOPMENTSe
Page 6 and 7: © 2009 The International Bank for
Page 8 and 9: Section II. Historical Background a
Page 11 and 12: BOXES, FIGURES, AND TABLESBoxes2.1
Page 13: 5.2 Summary of Pricing Mechanisms i
Page 16 and 17: eference are limited to neighboring
Page 19 and 20: ACKNOWLEDGMENTSThis study was carri
Page 21 and 22: ABBREVIATIONS¢ U.S. centACPAgricul
Page 23: US$U shWAEMUWCAWTOU.S. dollarUganda
Page 26 and 27: output markets, improving productiv
Page 28 and 29: etween these competing needs, provi
Page 30 and 31: ■■■■■competition increase
Page 32 and 33: monopolies range from 0.98 to 1.15,
Page 36 and 37: central body and that the state nee
Page 39 and 40: CHAPTER ONEIntroductionDavid Tschir
Page 41 and 42: The debate about how to deal with t
Page 43 and 44: Figure 1.1 Map of Africa Highlighti
Page 45: hypotheses about sector performance
Page 48 and 49: to reach 25 million tons of lint in
Page 50 and 51: cotton production was introduced in
Page 52 and 53: Figure 2.2 Nominal Cotton Prices (U
Page 54 and 55: Box 2.1 (Continued)Togo, 39 percent
Page 56 and 57: Box 2.2 Cotton SubsidiesCotton subs
Page 58 and 59: efers specifically to the presence
Page 60 and 61: picking, storage, handling, or tran
Page 62 and 63: national monopoly (state-owned or p
Page 65: SECTION TWOHistorical Background an
Page 68 and 69: shares belonging to governments, an
Page 70 and 71: Changes Made Since the End of the 1
Page 72 and 73: long-term development strategies, (
Page 74 and 75: possible link between price-setting
Page 76 and 77: production fell further, to lows of
Page 78 and 79: all aspects of the chain from input
Page 80 and 81: suggestions (a) of establishing fas
Page 82 and 83: Figure 4.1 Decision Tree for Cotton
Page 84 and 85:
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
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CHAPTER TENYields and Returns toFar
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fact that 55 percent of cotton is p
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Yields by Farmer TypeTo assess perf
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Factors beyond company services als
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Table 10.1 Summary Crop Budgets by
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According to the focus group inform
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Figure 10.6 Net Margins after All C
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All other variables in the budgets
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Table 10.2Summary of Average Yield
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■■■■impression is given tha
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were based on a 2005 cotton farmer
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more recent data are not available
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Figure 11.1 Estimated Average Ginni
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to buy seed cotton immediately afte
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146Table 11.3 Overall Competitivene
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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/
Page 225 and 226:
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
Page 229 and 230:
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
Page 258 and 259:
input credit and extension in, 77-8
Page 260 and 261:
firm types, 211n93fixed prices, for
Page 262 and 263:
productivity, 119, 121f, 205n8,209n
Page 264 and 265:
key indicators, 56-58, 57-58t,155-5
Page 266 and 267:
focus group discussions by farmerty
Page 268 and 269:
technology transfer, 170-71by typol
Page 270:
ECO-AUDITEnvironmental Benefits Sta
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