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

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Figure 4.1 Decision Tree for Cotton Sector TypologyIs competition allowed for thepurchase of seed cotton?YesNoMarket-basedRegulatedAre there many buyingfirms or few?Is there more than onecotton buyer?Many Few No YesCompetitivesystemConcentratedsystemNationalmonopolyIs each firm assigned anexclusive geographical areain which to buy seed cotton?YesNoLocalmonopolyHybridsystemSource: Authors.For market-based systems, two further distinctions can be made: those with“many” buyers of seed cotton (competitive systems) and those with “few” suchbuyers (concentrated systems). Necessarily subjective, this distinction is neverthelessmeaningful when one compares a country such as Tanzania (more than30 buyers) with Zambia before 2006 (one dominant buyer, one large competitor,and two or three other very small buyers).COMPETITION AND COORDINATIONPoulton et al. (2004: 521) defined coordination as “effort or measures designedto make players within a market system act in a common or complementaryway or towards a common goal.” They noted that the pursuit of effective coordination“may . . . require effort or measures designed to prevent players frompursuing contrary paths or goals.” In the neoclassical ideal of perfect competition,the only coordination required is vertical coordination between players atdifferent levels of the system, and this coordination is fully achieved through46 POULTON AND TSCHIRLEY
the price mechanism. Coordination among players at one level in the system—horizontal coordination—does not appear in this model. Yet North (1990)argued that implicit in the perfectly competitive model, and essential to anyreal world approximation of it, is a highly sophisticated set of institutions thatmake information available and that define and enforce the “rules of thegame.” Poulton et al. (2004: 521) suggest that in the real world, where the perfectlycompetitive ideal never fully holds, it “becomes more likely that there willbe some form of trade-off between competition and coordination.” Thishypothesized trade-off is at the center of the proposed typology, and it is possibleto summarize expectations of the sector types with respect to their likelyperformance in each dimension.Competitive systems are characterized by large numbers of ginners, withopen market competition for seed cotton purchase among them. These systemshave high incentives for efficiency, but they are likely to find it difficultto achieve horizontal coordination across firms to ensure input credit, extension,and lint quality. National monopolies (the single-channel systems thathave been common in WCA) solve the coordination problem by consolidatingmost downstream activities in a single firm. However, this solution comesat the cost of potentially very low incentives for efficiency; for example, ginningand overhead costs may rise, and performance on input credit andextension quality may also decline over time. Concentrated systems and localmonopolies are likely to lie toward the middle in each dimension. Concentratedsystems are dominated by two or perhaps three major ginners, whichcompete directly for the right to buy seed cotton from farmers (that is, thereis no geographical segregation of their activities). The competition is focusedon getting producers to sign up with a particular company for a given seasonand tends to be based as much on the quality of services provided to producersas on seed cotton price. Once a growing season is under way, themajor ginners generally respect the contracts that each has reached with particularproducers for the duration of that season. Local monopolies do notrely on this self-policing approach, instead they prohibit companies fromcompeting for seed cotton outside their specified zones. Expected differencesin performance between concentrated systems and local monopolies are notlarge; however, policy, regulatory capacity, history, and other factors canheavily affect firm behavior and performance.According to figure 4.1, the basic difference between competitive and concentratedsystems lies in the number of ginning firms within the sector. Thus,the concentrated sectors shown in figure 4.2 (Zambia and Zimbabwe) wereboth, until fairly recently, effectively duopolies in which the top two firmsaccounted for 90 percent or more of seed cotton purchases. By contrast, inTanzania there are about 30 ginners, the top five of which account for onlyabout 40 percent of seed cotton purchases (and these top five typically changefrom year to year). However, the number of ginning firms within the sector isA TYPOLOGY OF AFRICAN COTTON SECTORS 47
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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
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etween these competing needs, provi
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■■■■■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 78 and 79: all aspects of the chain from input
Page 80 and 81: suggestions (a) of establishing fas
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
Page 129 and 130: all fiber coming from Africa—are
Page 131 and 132: 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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