The Many Paths of Cotton Sector Reform in Eastern and Southern Africa: Lessons from a Decade of Experience

May 4, 2006 - Author: David Tschirley, Colin Poulton, and

IDWP 88. David Tschirley, Colin Poulton, and Duncan Boughton. 2006. The Many Paths of Cotton Sector Reform in Eastern and Southern Africa: Lessons from a Decade of Experience

EXECUTIVE SUMMARY:
Cotton is a rare economic success story in Sub-Saharan Africa (SSA), generating cash incomes
for millions of smallholder households and allowing the continent to capture a rising share of
world trade in the crop. Specific characteristics of the crop, especially its need for purchased
inputs and the typical inability of smallholder farmers to access these on a cash basis, have
fueled concern that the economic reforms sweeping the continent since the early 1990s may
derail this remarkable success story. At the same time, technology has driven sharp declines in
real prices over the years, putting severe pressure on inefficient systems; the massive subsidies
provided to cotton farmers in developed economies have added to the difficulties for African
producers.

With cotton sector reform in much of SSA a decade old, it is now possible to begin learning from
experience. This paper assesses the record of five countries in southern and eastern Africa:
Tanzania, Uganda, Zimbabwe, Zambia, and Mozambique. The paper focuses on the course of
reform in each – initial conditions, key elements of the reform, and institutional response to it –
and draws lessons for policy makers, donors, and researchers.

Our conceptual approach suggests that there may be a trade-off between competition and
coordination in cotton systems. More precisely, it suggests that the structure of the cotton
market in a producing country may strongly influence which challenges are most difficult to
meet and which types of institutions need to emerge if the system is to be sustainable. Prereform
institutional set-ups ranged from Tanzania and Uganda’s cooperative based systems, to
Zimbabwe and Zambia’s single channel systems, to Mozambique’s “concession” system.

The review of reform experience highlights three points. First, initial conditions (prior
institutional set-up and performance), and thus the motivation for reform, varied widely across
the countries. Second, the reform path in each country shows strong path dependency: historical
and pre-reform institutional set-ups either re-emerge or strongly condition the choice of postreform
institutions. Finally, there has been a great deal of institutional “churning” in most
countries, centered primarily on the need to ensure input provision and credit recovery. The
cooperative-based cotton systems in Tanzania and Uganda lead quickly after reform to highly
competitive markets for seed cotton. Price competition was intense and farm prices improved,
but each country saw the collapse of its input supply system and a decline in lint quality. As a
result, the two countries that most closely approached the competitive ideal in market structure
saw the most direct and persistent state involvement in efforts to ensure input provision to
farmers. Zimbabwe and Zambia, each with single channel marketing systems prior to reform,
maintained relatively concentrated sectors. Through the early part of this decade, each
performed much better on input provision and cotton quality than did Tanzania and Uganda.
Perhaps surprisingly, each also paid attractive prices to farmers. Recent developments in
Zimbabwe, however, may be undermining some of this success. In reforming its cotton sector,
Mozambique returned to the concession model prevalent during the colonial era. Key postreform
themes have been the absence of any systematic approach to evaluate and re-award
concession areas, widely divergent performance between early investors and new entrants, and
the government’s openness to new investment, albeit always within the concession model. Until
recently the country clearly lagged its neighbors in productivity and quality, but new entrants
since the early 2000s have begun to change this.

The paper shows that each country brought a very different history into its reform process, and
each has used very different approaches to solve common problems of input distribution, credit
recovery, and quality control. Overall, the picture is relatively positive. Fears that reform would
undercut the basis for effective interlocking of transactions and also complicate collective
decisions on long-term investment have often proved well founded. Yet predictable benefits of
reform, such as higher prices, more timely payment, and reduced pressure on state budgets, have
also been realized. It also seems clear that analysts at the outset of reform underestimated the
persistence and ability of sector participants – both public and private – to innovate in pursuit of
workable solutions to the specific problems unleashed by reform in their countries.

We draw several lessons from this experience. First, though cotton sectors face common
technical challenges, workable solutions must be responsive to local conditions. The recent
experience of Tanzania (and, arguably, Mozambique) should encourage policy makers to work
with sectors as they are, rather than to try to radically influence sector structure or to impose a
“textbook” solution to a particular problem from outside. Second, institutional innovation is the
key to improving performance in cash crop sectors; large injections of public capital are not
needed. Third, direct state management of funds from industry levies is problematical. Vesting
regulatory and coordination functions within multi-stakeholder bodies may be the most
promising approach for many sectors. Fourth, the principal objective for institutional innovation,
and the appropriate role for public agencies in promoting innovation, varies with the structure of
the market for seed cotton. In sectors where many firms compete for seed cotton, the main
objective should be to ensure effective and efficient coordination, so as to enable the provision of
public/collective goods and to provide assurance for asset specific investment. In sectors with
less direct competition among firms, the main objective should be to provide incentives for
strong performance in pricing and service provision. Finally, regular “deliberative fora” are
invaluable for building trust between stakeholders and seeking innovative solutions to tackling
sector-wide problems.

Tags: cross-country, idwp, value chain


Related Topic Areas

Cross-country


Authors

Duncan Boughton

Duncan Boughton
517-432-6659
boughton@msu.edu

David L. Tschirley

David L. Tschirley
517-355-0134
tschirle@msu.edu


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Food Security Group

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