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

expansion for an attractive seed cotton price. As has been seen with newentry in both Zimbabwe and Zambia in recent years, such sectors can becontestable, which should provide an incentive to incumbent firms to keeppaying attractive prices to producers. However, if they cease to continuepaying attractive prices and other firms enter, the change in sectoral structurebrings challenges as well as advantages.Failures in the market for seasonal finance (and hence input access) andquality control mean that competitive sectors have had to look to governmentagencies to play an active role that goes beyond the provision of conventionalpublic goods. This expanded role raises the potential for government failure—and, indeed, government agencies in both Tanzania and Uganda (classifiedhere as a hybrid system but with a large number of private ginning companies)have faced such challenges. Thus, the development of mechanisms by whichother stakeholders can hold government agencies accountable for their actionsbecomes critical to overall sector performance.The regulatory challenge is arguably greatest in the local monopoly system,where theory predicts that performance will be enhanced by the settingand impartial implementation of transparent rules for concession allocation,periodic performance evaluation, and reallocation. This is a tall ordereven in a developed economy, let alone an African economy with much lessexperience at government capacity building. However, there may be strongpressures for a local monopoly system from cotton companies that are skepticalof their ability to make a market-based system work. In addition, thefact that a local monopoly system has a legal foundation may give it a degreeof stability.A range of variants is possible on the basic local monopoly model. Specifically,decisions about pricing may be made at a central level (through some sectorwideprice-setting mechanism, as currently happens in Burkina Faso andMozambique) or a decentralized, that is, concession, level. This arrangementmay also be true of other decisions. As with hybrid systems, the performanceof a local monopoly is likely to be heavily influenced by the detailed rules of thegame governing such decision making.The past history of national monopoly systems suggests that one of thebiggest challenges is how to prevent politicians from meddling in sector governance.Cameroon shows that this prevention can be accomplished (albeitperhaps in special circumstances), while experiences in Burkina Faso andTanzania show that this challenge is not confined to national monopoly systems.One of the main justifications for intervention by politicians is to ensurethat producers receive a fair price for their seed cotton. However, history isreplete with cases where political intervention achieved the opposite outcome(a recent example being Mali from 1994 to 2002). Another key challenge facingnational monopoly systems, therefore, is how to ensure that farmers’interests are safeguarded, in particular that company operating costs are keptunder control so that attractive prices can be paid to producers.A TYPOLOGY OF AFRICAN COTTON SECTORS 53