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

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