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

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all aspects of the chain from input supply to lint marketing before liberalization,the orderly privatization of the parastatals led to effective duopolies. In1995/96, the Cotton Company of Zimbabwe Ltd. (COTTCO), the privatized successorto Cotton Monitoring Board (CMB), was joined in the market by Cargill.Cargill established a 25 percent market share in its first two years of operation,a share that has remained stable ever since. In Zambia, the assets of Lintco weresold in two parts to Lonrho and Clark Cotton. These operations were subsequentlysold to Dunavant and Cargill, respectively, and these companies stilldominate the market.In the first few years after liberalization, the concentrated sectors werefound to perform best (Poulton et al. 2004). Zimbabwe completed its transitionto a smallholder-based system, with COTTCO’s credit scheme (based onthe scheme established by CMB in 1992) an important part of the story. Strictattention to quality by COTTCO and Cargill allowed the sector to maintain itsexcellent reputation for quality on international markets. Meanwhile, Zambiaachieved a strong increase in production because of a gradual increase in yieldsamong established farmers and large increases in the number of farmers. Thisproduction increase was temporarily interrupted by side selling of seed cotton,caused by the entry of a number of new firms in 1998 and 1999. However, severalof these firms exited when world lint prices fell. Meanwhile, Dunavant, whichhad bought out Lonrho during this period, introduced a system of independent“distributors” to handle credit and extension provision to farmers, which contributedto a further expansion of production. Clark’s more traditional systemof extension agents was quite effective—the distributors trained by Dunavantfocus primarily on input distribution and credit recovery, and only to a secondarydegree on extension advice. 37 In addition, both companies spearheadedcampaigns against polypropylene contamination, which laid the foundationfor a sizable increase in the price premium that Zambian lint now receives onworld markets.Meanwhile, Tanzania and Uganda struggled to support farmers in a highlycompetitive output market. Efforts by individual companies to provide inputcredit were quickly abandoned because the credit could not be recovered. TheUganda Cotton Ginners and Exporters Association experimented with aninnovative scheme to provide chemicals to producers on a sectorwide basis, butit had to abandon the effort for various reasons. Eventually, in 2003, the sectormoved to a zoning system that severely restricted competition, as a way to giveginneries the security to invest in extension provision and input supply. 38Starting in 1999, Tanzania began experimenting with an input trust fund toprovide farmers with minimal access to chemical input. This fund was subsequentlyreplaced by a passbook (forced saving) system, which was superior ina number of ways. As in Uganda, a sectorwide solution had to be sought to theinput supply challenge because the private incentives do not exist for individualcompanies to provide input in a highly competitive output market. Anadditional challenge in Tanzania was maintaining the quality of seed cotton42 GERGELY AND POULTON
and lint. Liberalization accelerated the decline in lint quality that had begunearlier, because seed varieties were soon mixed and a scramble for seed cottonundermined farmers’ incentives to supply good quality seed cotton to buyers.After a short-lived boom induced by high world prices, production fell sharplyin Tanzania after liberalization. In Uganda, it has remained disappointingly stablesince liberalization. The challenges of increasing productivity and production in asector with numerous small to medium ginners have encouraged multistakeholdercollaboration in both countries, but with uneven results. In Tanzania, atleast, this collaboration now appears to be bearing some fruit.Meanwhile, a fairly dramatic change in sector organization has occurred inZimbabwe since 2001 and a similar change may now be occurring in Zambia.In Zimbabwe, the onset of economic crisis in 2001 made acquisition of foreignexchange a top priority, and cotton production appeared an attractiveway of achieving this goal. In addition, the real exchange rate depreciatedspectacularly during 2001 and 2002, but the existing cotton companies didnot pass on the benefits to farmers. As a result, the total number of ginnersrose from 5 in 2000/01 to 17 in 2006/07. The overall effect of this dramaticchange is still to be determined, but it is clear that the sector now faces similarchallenges on quality control, input supply, and extension provision asdescribed above for Tanzania.Established players in the sector realized that the new circumstancesrequired a new regulatory framework. In 2004 cotton sector stakeholders presenteda draft set of regulations to the Zimbabwe Minister of Agriculture, butas of mid-2008 the changes had not been approved. Instead, consensus wasreached on stricter licensing procedures for 2007 that required all cotton lintexporters to demonstrate that they had supported smallholder cotton farmers.As in Uganda and Mozambique, it appears that attempts to strengthen incentivesfor provision of preharvest services by ginning companies will come at thecost of reduced competition in the seed cotton market.In Zambia, new companies have also entered the sector since about 2005and there has been a resurgence of side selling of seed cotton. Unlike in 1997,however, these new entrants are backed by investment in new ginneries, so itseems unlikely that the sector will return to its former duopoly structure. As inZimbabwe, the new entry appears to be associated with low seed cotton pricessince the early 2000s and also with instability in the real value of the exchangerate. In Zambia, the kwacha appreciated rapidly (but temporarily) before the2006 election, limiting the prices that companies could pay for seed cotton.This change, however, occurred at a time when farmers were already dissatisfiedwith prices, thus compounding their dissatisfaction and making themwilling to switch allegiance to new players.In Zambia, there has been an intermittent debate about a new regulatoryframework for the sector ever since the first burst of new entry and side sellingin 1997. The major points of contention have been enforcement of contractsand prompt resolution of disputes when they occur. There have beenHISTORICAL BACKGROUND AND RECENT INSTITUTIONAL EVOLUTION 43
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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
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ABBREVIATIONS¢ U.S. centACPAgricul
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US$U shWAEMUWCAWTOU.S. dollarUganda
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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 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 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
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
Page 123 and 124: CHAPTER SEVENQuality ControlGérald
Page 125 and 126: Tanzania Competitive 1 2 Very lax n
Page 127 and 128: 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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