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

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long-term development strategies, (b) the coordination mechanisms were notreally enforced, and (c) the government played an ambiguous role with respectto vested interests.The next country to privatize will be Mali, where the governmentannounced in May 2008 that CMDT would be sold to four private companies,each with a regional monopoly. In Cameroon, the privatization of thecotton company SODECOTON is on the agenda, but no timetable has beenagreed on because of the mixed attitude of some stakeholders, who fear thatit might endanger the positive role that cotton has played in rural developmentand social stability in the northern region of the country. Other privatizationsare also planned for the short term, in Benin (SONAPRA) and Chad(COTONTCHAD). These new privatizations should build on the experienceof Burkina Faso. However, the likelihood of attracting strong and professionalinvestors, given prevailing market conditions and financial difficulties,is a concern.Evolution of Government’s Role and Empowerment of IPCsThe creation of Interprofessional committees (IPCs) to take over monitoringand coordination responsibility in the cotton supply chain has been viewed asa way to remedy the deficiencies of the traditional state-controlled model andas a way of complementing the strengthening of farmer unions. Progress inoperationalizing IPCs has been mixed:■■■■Benin created the first IPC in 1999. The body was given a legal mandate buthas been struggling to exercise its power since it was created, because finaldecision making remains with the government.Burkina Faso created its IPC in 2006 and empowered it to regulate relationshipsbetween stakeholders in the sector, especially for the fundingand provision of critical functions (extension, research, and road maintenance)and decisions on producer prices. These responsibilities were previouslyexercised by the government. The capacity of the Burkina FasoIPC to effectively manage the sector remains weak, as revealed by therecent financial crisis, by the marginal role of the two private cotton companiesin decision-making processes, by the residual influential power ofthe government (in particular, through SOFITEX and local parastatalbanks), and by the absence of regional coordination bodies in each of theconcession zones.An IPC is scheduled to be created in Mali in 2008 (after the privatization ofCMDT).In Cameroon there is only one cotton company and one farmer organization.The creation of an IPC has not, up to now, been deemed necessary to achievecomanagement of the supply chain, but the two stakeholders have reached ahigh degree of cooperation in the decision-making process on all sector issues.36 GERGELY AND POULTON
Evolution of Producer Pricing MechanismsOne major drawback of the monopoly system for ginning companies is that itrequires fixed producer prices. When producer prices are fixed before planting,ginning companies take on great risk. The extent of this risk was fully revealedin the 2003/04 season, during which world prices dropped nearly 30 percent,creating trading losses for the ginning companies. All WCA countries have hadto face this issue in recent years.With the building up of producer organizations, all WCA countries in thestudy shifted from prices administered by the government to prices set jointlyby the cotton companies and producer organizations. In all of these countries,the price mechanism was, at least until the 2004 crisis, linked to a stabilizationfund designed to support producer prices when the world market was low, andto be replenished when the world market was high (by paying farmers lowerprices than could otherwise be paid). The rationale for these funds was to avoiddramatic drops in producer prices and to limit market risks for cotton companies.These support funds functioned well in Burkina Faso and Cameroon until2004. Since then, however, they have fallen victim to the unsustainably highprices agreed to among cotton companies and producer unions. In Cameroon,the fund was exhausted by 2006, though it was sufficient to cover sector lossesand so did not draw on the government budget. In Burkina Faso, the fund hasbeen depleted and could not cover the deficits during the 2005 and 2006 seasons.In Mali and in Benin, the funds were exhausted before 2004 and, therefore,could not be used when world market prices started to fall. The losses in thecotton sectors of those countries were covered by direct government subsidies.To remedy this situation, the Burkina Faso IPC adopted in 2006 a newprice-setting mechanism, based on a formula linked to world market trends.This system represents a move in the right direction but was not correctlyapplied for the 2006/07 season, resulting in additional losses for the cottoncompanies. In Mali, a new system was adopted for the period 2005 to 2008based on a conservative initial producer price 36 and on sharing of the actualselling price, at the end of the season, between producers and the cotton company.This system reduced the losses of the cotton company, yet it was unableto completely eliminate the losses during the 2007 season.Establishing price mechanisms that are acceptable to farmers and sustainablefor cotton companies (while providing incentives for them to be morecost efficient) appears, therefore, to be one of the major challenges for WCAcotton sectors in the near future. This challenge is especially important ifother features of the model (announcement of the producer price before theplanting season, panterritorial pricing, obligation to purchase all seed cottonoffered) are not reconsidered (that is, as long as no additional steps are madein liberalizing the sector).WCA cotton sectors are currently engaged in discussions, with the assistanceof donors (in particular, Agence Française de Développement), on aHISTORICAL BACKGROUND AND RECENT INSTITUTIONAL EVOLUTION 37
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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
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 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 74 and 75: possible link between price-setting
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Page 78 and 79: all aspects of the chain from input
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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
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Page 106 and 107: Table 5.3 Summary of Producer Share
Page 108 and 109: Finally, FOT price shares in WCA ro
Page 110 and 111: MALI AND CAMEROON: GOVERNMENT MONOP
Page 112 and 113: Significant in Mozambique, the comp
Page 114 and 115: Zimbabwe transitioned during the 19
Page 116 and 117: Box 6.1 (Continued)A move from a co
Page 118 and 119: 82Table 6.1 Summary of Input Supply
Page 120 and 121: 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
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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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