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

The debate about how to deal with these problems is rooted in several factorsat the intersection of characteristics of cotton as a crop and the rural settingin much of SSA. First is the widely appreciated fact that cotton productionrequires substantial use of external inputs, specifically treated seed, fertilizers,and insecticides. 3 A second factor is that markets in SSA for inputs, especiallycredit for inputs, frequently fail for smallholder farmers. Although seed andfertilizer for a crop like maize may be relatively available in markets and frequentlypurchased by smallholder farmers, specialized insecticides and seed treatmentsfor cotton are less likely to be available, and credit is almost never accessibleby unorganized smallholders. Additionally, because cotton is produced in ahighly competitive export market, efficiency is paramount throughout thechain. At the farm level, farmers must use the right inputs in the right way ifthey are to earn reasonable returns from the crop, and if they are to produceenough product to sustain the ginning companies. Control over the input mixand extension assistance to ensure proper use are issues in which ginners havevested interests. Bundling inputs and extension into a package creates efficienciesfor the distributor and as a result, most approaches to the input creditproblem have featured interlocked transactions. A ginning firm wishing topurchase the farm output provides some level of extension advice along withinputs to farmers on credit, and attempts to recover the credit upon purchaseof the farm’s product.Such arrangements, known as contract farming or outgrower schemes, havegoverned production of a wide range of cash crops throughout the developingworld for many decades. 4 When effective, these arrangements allow smallholderfarmers to profit from a crop they might ordinarily not be able to plantand allow processors to benefit from low costs of production. 5 Yet the conditionsunder which interlocked transactions can be expected to emerge and persistare relatively restrictive (Delgado 1999; Benfica, Tschirley, and Sambo2002). 6 Numerous examples exist of failed efforts, primarily related to theinability of processors to recover input credit (Stringfellow 1996; Glover 1990).Though the structure of the cotton market lends itself to contract farmingoperations, it too has frequently been threatened by acute credit default crisesin many countries. Additionally, over the longer term, cotton systems can beundermined by the inability of participants in the supply chain to agree on anddevelop financing mechanisms for investments in research, extension, riskmanagement, and quality control.The performance of cotton input credit and extension systems in SSA isstrongly influenced by the structure and behavior of the market for seed cotton.Because changes in the structure of the output market are central to anysectoral reform, they have the potential to dramatically affect input-creditextensionsystems. It should not be surprising, therefore, that proposedreforms have engendered great concern about possible unanticipated negativeeffects on these systems. As early as 1988, a major comparative review of cottonsector performance in Anglophone and Francophone countries of SSAINTRODUCTION 5