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

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picking, storage, handling, or transport, and the presence of foreign matter in thefiber offsets the theoretical advantage conferred by manual picking. Because contaminationof raw cotton by foreign matter is the main concern for quality yarnand fabric producers, spinners tend to prefer machine picked cotton to handpickedcotton. As a result, handpicked cotton has lost its advantage and nowtrades at a discount to machine picked cotton. The elimination of contaminationthus stands out as the first priority for quality improvement in SSA.More than FiberAlong with fiber characteristics, other criteria, such as reputation and othermarketing factors generally not included in contracts, can have a lasting influenceon cotton prices. However, nonquality premiums and discounts are hardto quantify because each shipper and spinner may have different opinions ona specific growth or origin.Pricing of lint is significantly influenced by the way cotton is marketedand shipped. The spinning industry today is especially concerned about consistencyin shipments. Customers require homogeneous and reliable yearroundshipments, with consistent cotton characteristics, standardized baleswrapped in cotton cloth, and bale per bale instrument classification data.Because some countries can offer bale per bale Standardized Instrument forTesting of Cotton data, the lack of reliable cotton quality data on each balenegatively impacts the price of cotton that is classified manually. The homogeneityof deliveries depends on seed cotton grading, lint classification, andbale allotments.In marketing, perception may take a long time to catch up with facts. Trustand reputation matter in the cotton business and the market rewards originsand shippers that have strong records of delivering according to quality standardsand with consistency, while respecting contract terms. Premiums anddiscounts attached to internationally traded cotton derive partly from the reputationof national origins.LINT MARKETING STRATEGIES: THE ROLE OF THEINTERNATIONAL COTTON MERCHANTUntil the mid-1980s, most lint produced in Africa was sold by national cottoncompanies and marketing boards to international merchants or to spinnersthrough commissioned agents. Today, two types of companies supply lint tothe world market out of SSA: (a) independent ginners sell lint to internationalcotton merchants (b) ginning companies affiliated with such merchants (“affiliatedginners”) sell lint to or through their mother companies. 24 Internationalcotton merchants thus play a leading role in the marketing of African lint.Affiliated ginners are present in all countries in this review except Cameroonand Mali, which continue to operate national monopoly sectors. Most lint24 BAFFES AND ESTUR
from SSA is handled by independent ginners. These ginners include very largecompanies—the national monopolies of Mali and Cameroon and the formernational monopolies in Burkina Faso and Benin (SOFITEX and SONAPRA,respectively)—and smaller private companies, most in ESA. As a general rule,these independent ginners have little knowledge of the world cotton market,very limited ability to use risk management tools, and receive very little feedbackfrom the end users. International cotton merchants are thus in a strongnegotiating position when dealing with independent ginners.In WCA, forward sales contracts at fixed price have been used extensivelyfor decades, primarily as a way to secure input and crop financing. Sales arecontracted in euros per kilogram free on board, offsetting the exchange risk.Ginners usually base their prices on the Cotlook A Index, 25 valued at the forwardexchange rate for the shipping period considered. Forward sales at fixedprice in euro per kilogram are an effective way of mitigating risks, althoughhigh percentages of forward sales increase the risk of not being able to deliverthe contracted quality and may lead to oversold situations. Smaller independentginners in ESA are generally not in a position to guarantee the volume andthe quality of their production before it is ginned, are not able to store lint foran extended period, and therefore seldom engage in forward sales. They primarilydeal with price and exchange rate risks by adjusting their buying priceover the course of the season and by selling the lint as it is ginned.Merchants carefully select sellers to guarantee contract performance. Largeparastatal companies in WCA are considered reliable by merchants, defaultingonly in good faith, while private independent ginners have mixed reputations.Merchants generally consider it much easier to purchase cotton in WCA countriesthan from independent ginners in ESA countries because offers are notspread over numerous small trading companies, 26 and the volume is sufficientto ensure year-round shipments, while quality standards are relatively consistent.In contrast, small independent ginners in ESA are generally not in a positionto guarantee consistent or year-round shipments and large volumes.In addition to fixed price contracts, some basis pricing is done “on call”the Cotlook A Index, “on call” the African franc zone quotation in CottonOutlook, or “on call” New York futures. On call pricing means that the buyer(or seller) agrees to a volume and delivery date, but that the price will befixed at a later time. Major fluctuations in the basis (arithmetic difference)between spot prices and the New York futures can present challenges to hedgingof African cottons.Competition among buyers and among ginners of seed cotton within a producingcountry may increase the producer price, especially when there is overcapacityin ginning. Among the countries included in this study, this practiceis most common in Tanzania and Uganda. Yet the immediate impact ofincreased competition between ginners and exporters is to put pressure on theselling price of lint because buyers (merchants and spinners) always takeadvantage of competing offers from several sellers to buy from the cheapest. AMARKET CONTEXT 25
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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
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 34 and 35: macroeconomics, developments in com
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 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
Page 86 and 87: Box 4.1 Is This Typology Specific t
Page 88 and 89: 52Table 4.1 Trading Off: Strengths
Page 90 and 91: CONCEPTUALIZATION OF THE LINKS BETW
Page 92 and 93: chosen in this book and the impact
Page 94 and 95: Table 4.3 Expected Performance alon
Page 96 and 97: Box 4.2 (Continued)Second, farmers
Page 99: SECTION THREEComparative Analysis:C
Page 102 and 103: PRICING MECHANISMS IN WCAPricing me
Page 104 and 105: efore planting, price risk in the s
Page 106 and 107: Table 5.3 Summary of Producer Share
Page 108 and 109: 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/
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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
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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
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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
Page 264 and 265:
key indicators, 56-58, 57-58t,155-5
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focus group discussions by farmerty
Page 268 and 269:
technology transfer, 170-71by typol
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ECO-AUDITEnvironmental Benefits Sta
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