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

with the introduction of a credit scheme designed to assist smallholder farmersin expanding their cotton production. By the time of sector liberalizationin 1994, smallholders accounted for 60 percent of production; their share hadrisen to almost 90 percent by the onset of the fast-track land redistributionprogram in 2001.Cotton Sector Reform and Evolution in ESAMozambique was the first of the countries in this study to embark on thoroughreform of the cotton sector. In 1986, the first of four joint venture companies,a collaboration between the government of Mozambique and Lonrho, wasestablished and given exclusive rights to run a cotton concession area in CaboDelgado province. Because the country was still fighting a civil war, developingcotton production entailed high costs (including some infrastructure investmentand hiring private militia to protect company assets), so local monopolyrights over cotton purchase were considered necessary to give some assuranceof a return to investment. However, the sector continued to be based on suchlocal monopolies, and some have argued that the open-ended nature of theconcession rights is at the root of subsequent disappointing performance.The first concessions were granted to fully private companies in Mozambiquein the 1990s; by 2002 there were at least 12 companies promoting cotton, allwithin the concession system. However, there were two periods—in the mid-1990s and around 2000—when new entrants began buying in concession areas,effectively challenging the concession system. On the one hand, this changereflected dissatisfaction with the performance of some of the existing concessioncompanies. On the other hand, it reinforced any reluctance that thesecompanies had to invest in better service delivery, because they could not besure of capturing the returns. Both issues were eventually resolved by grantingnew concessions to the more powerful new entrants. In addition, the entranceof several international companies has raised hopes that sector performancewill begin to improve. Notions of liberalizing the market receded, replaced in2007 with proposals (not yet implemented as of mid-2008) to more rigorouslymonitor the performance of concession companies and to re-award concessions,perhaps on a five-year cycle.The other four ESA countries in the study (Tanzania, Uganda, Zambia, andZimbabwe) all liberalized their cotton sectors during 1994/95, when worldprices were near an all-time high.The initial structure of the liberalized sectors mirrored their preliberalizationorganization. In Tanzania and Uganda, where ginning was historically dominatedby roller gins (cheaper and with few economies of scale) in the hands ofdecentralized cooperatives, a large number of private buyers and ginnersentered the sector. Both countries quickly grew to more than 30 seed cottonbuyers. In Zambia and Zimbabwe, where ginning was historically dominated bysaw gins (larger and more expensive), and where a single parastatal controlledHISTORICAL BACKGROUND AND RECENT INSTITUTIONAL EVOLUTION 41