- Brief overview of world cotton chain
Full-scale vertical integration, from growing cotton to the marketing of end-use products, is unusual in the developed countries' cotton sectors. One notable exception regarding the United States (US) cotton industry is the Plains Cotton Cooperative Association (PCCA). This cooperative accounts for about 15% of US production. In addition to growing, ginning, warehousing cotton and producing cottonseed oil, PCCA owns a number of textile mills for the manufacture of end-use products. By contrast, although to varying extents, liberalised cotton sectors in developing countries still exhibit a relatively high degree of vertical integration.
As in the case of some Francophone West African countries, foreign companies have acquired equity interests in the former parastatals, as they seek to secure consistent and timely supplies of cotton.
The cotton sectors of developed and developing countries differ in various respects, including: the size of cotton farms; the level of mechanisation (in harvesting, processing, and grading systems -visual and instrumental); and uses of harvested cotton.
China has been producing cotton for 2000 years. The major cotton producing areas are the Yellow and Yangtze River Valleys, accounting for more than three fourths of China's cotton output. Traditionally, the most commonly cultivated species of cotton was Gossypium hirsutum. New cotton varieties were introduced from the United States in the 1950s and 1960s. The most important cultivars now include Deltapine, Stoneville and Coker.
China's cotton sector became fully centralised in 1953, after the introduction of the first Five-Year Plan. The procurement and marketing of cotton was monopolised by the government procurement agency, the Supply and Marketing Cooperatives (SMC) system. Farmers were assigned compulsory quotas for delivering cotton to the local branches of the SMC at administered low prices. SMC controlled the whole marketing process, from purchasing through processing to marketing. State intervention distorted domestic supply and demand, and also affected movements in world cotton prices.
Since the 1980s, China has made changes to its cotton policy toward an increased market orientation. A major institutional change occurred in 1978 when land use rights were contracted to individual farmers under the "Household Responsibility System" (HRS). In 1985 a "contracted purchasing" scheme replaced the united procurement system.
Another step toward market-oriented system was eventually
established in the early 2000s. For instance, under the new system, domestic
textile firms granted from authorisation delivered by provincial authorities
were allowed to purchase cotton directly from growers, the growers association,
or the local branches of the SMC.
The cotton industry has generated considerable revenue in the United States (by value, cotton ranks fifth among agricultural commodities). The United States is the second-largest producer of cotton, supplying approximately 20% of world output. The United States remains by far the largest exporter of cotton in the world, accounting for about one fourth of world exports.
Main cotton producing States in the United States
Source: UNCTAD secretariat
The main cotton producing States include Texas, Mississippi, and California. In the period 1965 to 2003 they accounted for a combined 60% of US production. Cotton acreage began shifting to Western States in the 1960s and 1970s, but has started shifting back to traditional cotton-growing regions since the 1980s. Texas still remains the largest single cotton-producing State (above one fourth of domestic output since the mid 1960s), despite the fact that its share has been declining. Most of the cotton grown in the United States is of two varieties, upland cotton (Gossypium hirsutum) and extra-long staple (ELS) cotton (Gossypium barbadense), which is also referred to as American Pima cotton.
US cotton chain
Source: UNCTAD secretariat
Cotton farming has consolidated into larger farms since
the second world war. Over the last fifty years, the number of cotton
farms dropped by 98% (down to 31,500 in 2000 from 2 millions in the 1930s),
whereas cotton acreage has declined by 25%. Therefore, the average farm
size has increased. Cotton farms are primarily owned by individuals and
families (according to US figures - Industry Trade Summary- 80% of farms
are individual or family-owned) and are dedicated to cotton monoculture.
Cotton gins are located in close proximity to cotton farms.
For more information on the US cotton industry, please refer
Summary, US International Trade Commission, January 2001 (PDF 1.31
The former Soviet Union's share in world cotton production rose considerably in the 1960s and early 1970s (the region contributed one fourth of global output in 1975). But since then the share had been declining (20% in 1983 and 13% in 1991). The levels eventually dropped following the collapse of the Soviet Union. In 2003, the former Soviet Union contributed only 8% of world cotton. Over the period (1991-2003) cotton production was concentrated in four countries, namely, in order of importance, Uzbekistan (accounting for one third of supply), Turkmenistan (18%), Tajikistan (8%), and Kazakhstan (5%). Uzbekistan still plays a prominent role in world cotton production. Its share had declined over the first half of the 20th century, compared with the early 1900s (in 1913, the levels stood at 150,000 tonnes, or 75% of the then Russian Empire's output). But since the 1960s Uzbekistan has partially recovered its position.
The Central Asian Republics have continued the system of central planning in the cotton sector that prevailed in the former Soviet Union.
Cotton marketing structures in Uzbekistan
Source: International Cotton Advisory Committee
Cotton farms vary considerably in size (ranging between 10 to 2,000 hectares in Uzbekistan). Output per hectare has declined over the years (please, refer to the crop section). The decline in cotton yields is attributable to specific difficulties affecting productivity in several Central Asian Republics, including the low level of mechanisation and shortages of spare parts (an exception being Uzbekistan, which has the industrial capacity to manufacture parts), as well as lack of fuel (despite the compensatory exchange agreement in force between the Central Asian Republics and the Russian Federation). Low soil fertility and difficulties with procuring inputs added to the stagnation of production levels. Finally, yield fell due to poor quality of planting material (with the exception of Uzbekistan, at the forefront of agricultural research in Central Asia).
There are approximately 250 active gins in the Central Asian Republics, predominantly handled by State-enterprises. Ginning capacity is under exploited (it is used at 50%) and the equipment involved is often outdated and therefore unsuitable to meet market requirements. In addition, active ginning facilities are relatively energy-intensive, and an increase in domestic prices for fuel would likely affect their economic viability.
Government agencies set cotton-specific plans and production quotas, as well as prices for seed cotton and for most of the inputs used in cotton production. The national targets are implemented by signing, with growers. contracts stipulating the minimum quantity of seed cotton to be delivered at administered prices. When the specified conditions are not met, cotton is sold at state procurement prices (30% of the market price for cotton). Since 2002, approximately 50% of cotton production has been handled in this way. By contrast, when the desired quantity of cotton is produced at the specified conditions, it would theoretically be possible for growers to sell cotton on the international market. All exporters shall require a special license. However, trading posts have been set in Uzbekistan, Kirghizstan and Kazakhstan free to export without license.
Similarly, export restrictions have been set as regards cottonseeds in order to sustain the domestic cottonseed oil market.
Fore more information, please refer to "Cotton Taxation in Uzbekistan", World Bank, August 2005.
Although Africa is not the largest cotton exporter (it would account for an estimated 10-15% of world exports), cotton is of critical importance to many African countries. Cotton is the largest source of export receipts in several West and Central Africa (WCA) countries. The cotton sector is also key to rural poverty reduction, with cotton-related activities accounting for a large share of rural employment (about 6 million people are involved in the cotton industry in WCA).
Although each country is organized in a different way, it is possible to give a brief review of some common features and of recent developments in Sub-Saharan Africa (SSA) cotton production and marketing chains. The cotton sectors in the CFA franc zone countries in WCA have until recently been characterized by a single parastatal company that controlled the provision of inputs and other services to farmers, and operated as the sole buyer of the entire cotton harvest. In certain countries, some services that were previously performed in-house have then been contracted to external operators, such as the subcontracting of cotton harvesting to private companies (as in the case of Togo). However, reliance on external operators has remained confined to large-scale farms (generally, more than 20 hectares). Under a regime of public monopoly, government agencies supplied most of the inputs used in cotton production by issuing invitations to tender based on producers estimates. With the reform of the system, procurement of inputs was delegated to producers associations and private traders. A major disadvantage is now the lack of credibility of domestic private actors (with no track record) vis-à-vis the financial institutions concerned. For example, as documented in an article by "Tropical and Mediterranean Markets" (issued on 12/7/02), "... Invitations to tender were launched for the supply of seeds, but a bank guarantee problem did not make it possible for these calls to succeed...".
Productivity continues to be hampered by outdated production techniques and equipment, problems related to storage and the poor state of the infrastructure. All these factors make transactions more expensive and accentuate still further the fluctuations in the price of food crops throughout the year.
In particular, ginning facilities in West African countries are old and their equipment is often obsolete (only one factory out of four integrates pneumatic systems for cotton loading, cotton bailing press are old, and the like), leading to numerous inefficiencies. The poor state of infrastructure often hampers timely delivery of inputs to producers (which in turn might delay the season and increase exposure to phytosanitary risks) and the delivery of seed cotton for ginning factories (which might jeopardise efficiency in processing operations and affect lint quality).
Almost all export from West African countries is in raw cotton. According to Enda, only 6% of cotton would be locally made into end products, which means that processing opportunities at the domestic level are not fully exploited. Several factors have contributed to this situation.
First, selling prices received by domestic producers in foreign markets are sometimes more remunerative than local prices. Such a price differential may encourage export of cotton in raw forms to the detriment of diversification into cotton yarn and fabric exports and cottonseed production. For example, producer price differentials have been largely responsible for raw cotton exports from Cameroon and Benin to Nigeria. Ivory Coast reported a remarkable outflow of cotton in raw form (an estimated 40,000 tonnes of seed cotton went to Mali and Burkina Faso in 2003-2004) as a consequence of political instability in the North of the country.
Secondly, it is often economically more viable to import vegetable oil at more competitive prices (for example, palm oil from South East Asia), rather than to locally process cottonseeds into cottonseed oil. Similarly for cotton yards and fabrics, and clothing, since textile and apparel imports from China and Pakistan are more competitive
Finally, food commodity aid might depress prices for cottonseed oil in the receiving country and severely limit incentives to invest in the sector. This explains why oil mills in some cases function at 25-30% of their capacity (Syfia international) and meet their supply requirements by importing cotton from abroad (in this respect, see the cotton chart for Nigeria).
Source: Marchés tropicaux (22 March 2002)
Cotton is the main cash crop and the largest source of export receipts for Benin. It accounted for one third of Benin's exports in the period 1995 to 2000, or approximately 164 million US dollars per annum. Cotton production is also critically important to rural welfare, since cotton-related activities employ about 45% of rural households. In the early 2000s, about 20% of the cultivated area in Benin was under cotton (the Borgou province in the North was the main cotton producing region).
Benin also has productive capacity in cottonseed oil through the companies Fludor-Benin S.A. and SHB-Bohicon ("Sociétés des huilleries du Bénin"). Their oilseed-crushing capacity is 210,000 tonnes of cottonseeds per annum, or 30,000 tonnes of oil.
Benin has made major efforts to restructure and privatise the cotton sector. Major reforms have led, inter alia, to (i) the transfer of the industrial and commercial activities of the "regional action centres for rural development" (CARDER) to the State-owned National Agricultural Promotion Company (SONAPRA); (ii) a formal lifting of the purchasing monopoly of SONAPRA for seed cotton; (iii) the entry of new ginners; (iv) the progressive liberalisation of the input market; (v) the fixing of cotton prices more closely related to export; and (vi) preparations for privatising the State enterprise SONAPRA.
Benin still prohibits the export of seed cotton. This ban
makes it possible to guarantee supplies to domestic factories, which grind
seed cotton as a raw material. Benin has an installed ginning capacity
of 20 units. Ten plants belong to SONAPRA, while private actors, either
foreign companies (LBC/Aiglon, Louis Dreyfus, Kamsal, IBECO, MCI, Sodicot)
or the local private sector (Talon and cooperatives) have invested in
the private plants (SONAPRA retained a 35% share in each of them). Each
cotton company was allocated a quota proportional to its installed capacity,
which contributed to segment the market and restrict entry.
Management of the supply chain is by large in the hands of the industry stakeholders' organisations. At the private level, three main bodies can be identified:
(i) The Professional Association of Distributors of Agricultural Inputs (CAGIA): established in 1988 by the 77 farmers' associations at the sub-prefectoral level, CAGIA is a cooperative of input providers responsible for the allocation of licences for the supply of inputs.
(ii) The Interprofessional Cotton Association (AIC): established in 1999 by the Federal Union of Producers (FUPRO) and the Professional Association of Cotton Ginners of Benin (APEB), AIC coordinates marketing of inputs and seed cotton and arbitrates financial and economic claims among the key stake holders. By means of the SDI corporate vehicle, AIC is the main importer and distributor of cotton insecticides.
(iv) The Agency for Guaranteeing Payment and Collection
(CSPR): set in 2000 by FUPRO, APEB and CAGIA, the C.S.P.R. is a clearing
house for all financial transactions dealing with the sale of cotton inputs
and seed cotton.
Cotton production and marketing structures in Benin
Source: French Embassy in Cotonou, Economic Commission (dossier on cotton - French only)
Two companies (CSI et Fruitex) operate outside this framework, having set up their own marketing channels for the distribution of inputs.
The State's withdrawal from the cotton sector has favoured the emergence of private business. Since 2000, the private sector has been in control of the import and distribution of inputs (seeds, pesticides, etc.) and has provided about half of the country's ginning capacity. Since the advent of the private sector, there have been some difficulties in having access to inputs in sufficient quantity. In volume terms, cotton inputs per producer fell from about 30,000 tonnes in the early 1990s to less than 10,000 at the beginning of the 2000s. Over the same period, input prices doubled, from 100 francs CFA/kg in 1990 to approximately 200 francs CFA/kg in 2000.
Cotton exports accounted for approximately 40% of exports from Burkina Faso over the period 1995-2000, or approximately 105 million US dollars per annum. Cotton is the main exported commodity in terms of value, and generates income for approximately 2 million people in the country.
Cotton production is concentrated in West Burkina Faso (the main producing areas are Comoé, Kossi, Mouhoun, and Kénédougou). Most cotton-farms are family-owned and small-scale (on average one hectare, although the level of planted area may rise to 20-30 hectares). Burkina Faso is the first West African country to have officially authorised, as of 2003, field trials of transgenic cotton.
Burkina Faso's cotton sector is one of the strongest agro-industries in Africa. SOFITEX, the former State enterprise, is still responsible for most of the commercial and industrial activities of the sector. Producers' involvement moved forward in 1999, when the national cotton producers' association ("Union nationale des producteurs de coton du Burkina Faso" - UNPCB) purchased a 30% share in SOFITEX. DAGRIS ("Developpement des Agro-Industries du Sud"), a French public holding company dedicated to cotton cultivation in the franc zone, holds a 34% share, whereas the Government has retained a share of 35%. Private sector banks hold the residual 1% share. Despite State's divestiture, the enterprise is still integrated along the value chain (purchasing of seed cotton, sale of inputs, processing, marketing). Transport has been liberalised.
A distinguishing feature of the sector is the organisation of producers at the local level in cotton producers' associations, which interface with SOFITEX.
Transport of seed cotton from primary markets to the ginning plants is mainly carried out by SOFITEX. Producers' associations are paid net of inputs purchased from SOFITEX. Proceeds are then distributed among the members of the association. Seed cotton is ginned and the lint is exported to South-East Asia (66%) and Europe (20%), with Africa and South America accounting for the balance. The guaranteed base price to the producers is set before the crop year and may include bonus payments (in case of profit, producers receive a higher premium the following season), the return premium being 50% to growers, 25% to the State, and 25% to Sofitex. The same system is applied in Ivory Coast and Benin, although extra payments tend to be less frequent and more modest.
Burkina Faso also produces cottonseed oil (Citec).
Source: Marchés tropicaux (22 March 2002). Notice that since 2005 some changes have occurred.
Burkina Faso has well-established cottonseed processing activities. Among the operating oil mills is SN-Citec (in which SOFITEX maintains equity interests).
The National Union of Burkina Faso Cotton Producers ("Union nationale des producteurs de coton du Burkina Faso" - UNPCB) is the umbrella organisation that co-ordinates producer organisations with representation at departmental, provincial and national levels.
Source: UNCTAD secretariat
A management committee ("comité de gestion de la filière coton" - CGFC) sets prices for seedcotton and cotton inputs and manages a fund for the stabilisation of producer prices jointly with UNPCB.
The IPS/Reinhart consortium and Dagris have extended their control over
the Centre and East zones respectively; SOFITEX has kept its position
in the West zone.
Cotton is the second largest source of export receipts in Central African Republic, with an annual average of approximately 18 million US dollars over the period 1995-2000. Cotton cultivation employs more than 100,000 people and another 800,000 are involved in cotton-related activities.
SOCADETEX (" Société Centrafricaine de Developpement des textiles") is the main corporate actor in the cotton sector. SOCADETEX was established in 2002 following liquidation of the State enterprise SOCOCA ("société cotonnière centrafricaine"). It is controlled by foreign investors (49%). The State holds a 15% share and the local private sector accounts for the remaining 36%.
The sector was partially liberalised in 1999 (price flexibility for seed cotton), which led inter alia to an increase in the price of inputs. Input prices almost doubled between 1995 and 2000. In the early 2000s, inputs would account for almost 40 percent of the producer price (up to 50% if taxes and other additional charges were included).
Cotton is grown primarily in the North-West and the South-East, where small-scale cotton farming prevails. Productivity continues to be hampered by the outdated equipment. Seed cotton harvested from the field (picking occurs in September-November) is transported to the ginning facilities by old trucks. The 6 active gins are equipped with outdated machineries. Virtually all of the ginned cotton is exported. Oil is extracted from cottonseeds in the Bangui factory or in Chad. SOCADETEX plays a major role in the marketing of cotton by-products.
Cotton accounted for about 3% of Ivory Coast's agricultural exports over the period 1995-2000. As a source of export earnings cotton ranks far behind cocoa or coffee, which accounted for a combined 40% of exports over the same period. Nonetheless, cotton generated more than 140 million dollars of export earnings a year.
Source: Marchés tropicaux (22 March 2002)
Up to the late 1990s, a single vertically integrated state
enterprise ("Compagnie ivoirienne de développement des textiles"
- CIDT) was responsible for organising virtually all services needed for
cotton production and marketing. CIDT was broken down into three companies
of comparable sizes (by allotted zone) in 1998. However, this did not
lead to competition: the price of seed cotton remained the same for the
three zones; in addition, each company retained exclusive purchasing rights
within its zone.
Each company is responsible for the purchasing of cotton
throughout its allotted area. This is often implemented by signing contracts
with growers stipulating the area to be planted and the quantity of seed
cotton to be delivered.
According to some commentators (refer in particular to L. Goreux, "Reforming the Cotton Sector in Sub-Saharan Africa", Africa Region Working Paper Series No. 47, March 2003), URECOS-CI could recreate a filière intégrée whereby producers would own the ginneries.
One active factory exists in Ivory Coast for the extraction of oil from cottonseeds.
Over the period 1995-2000, cotton exports accounted for an important share of total export revenues (35%, or approximately 178 million US dollars). In value terms, cotton was the second major source (behind gold) of foreign exchange earnings. Cotton is primarily grown on small farms in the Sikasso, Segou and Koulikoro areas, South of the river Niger, as well as in the Western district of Kita. Cotton is grown on almost 160,000 farms, covering about one third of the cultivated land. About 40% of rural households, or 2.5 million people, rely on cotton production and related activities for their income. Power source is for a large extension animal traction.
The cotton chain in Mali
Source: UNCTAD secretariat
Source: Marchés tropicaux (22 March 2002)
Virtually all of seed cotton (95%) is handled by the Compagnie
Malienne des Textiles (CMDT). In 2004 CMDT was co-owned by the Malian
government with 60% of the share, and the French company DAGRIS, with
the other 40%. State's withdrawal from CMDT is envisaged, and producers
are currently allowed to buy into CMDT capital. The farmers' union, the
"Syndicat des Producteurs Cotoniers et Vivriers du Mali" (SYCOV)
has become a full partner with the CMDT and the government in negotiations
over fixing input and cotton prices.
Cotton production is concentrated in the Gay, Maradi, and Tohua areas, which account for a combined 80% of Niger's cotton output (global cotton production in Niger is about 10,000 tons a year). Most cotton production activities are carried out by farmers working on small family farms using traditional methods. Producers are provided with seeds imported by the state enterprise "Société Cotonnière du Niger" from Benin.
Two companies dominate cotton production and processing
Source: Marchés tropicaux (22 mars 2002)
Marketing structures in Niger
Source: UNCTAD secretariat
Cotton accounted for approximately 3% of total exports in Senegal during 1995-2000. Cotton was the third source of export earnings for Senegal (some 28 million US dollars over the 1995-2000 period). Cotton is grown in nearly every region (it covers almost one third of cultivated acreage). However, production is concentrated in the South-Eastern part of the country (South of the Kahone-Tombouctou belt, as well as in the Casamance and Kédougou regions).
Senegal's cotton production was managed through the parastatal
SODEFITEX ("Société de développement des fibres
textiles"). SODEFITEX was privatised in November 2003. Producers
acquired 30% of the company's shares (they had no equity interest prior
to privatisation). Sodefitex's ownership structure is as following:
On the production side, the company supervises around 70,000
cotton farmers, who sell their production to Sodefitex. In addition to
providing inputs (seeds), the company is responsible for ensuring prices
to producers through its purchasing operations. Sodefitex processes the
cotton grain into fibre at five ginning units (with a combined capacity
of 65,000 tonnes of seed cotton).
Cotton is crucially important to the national economy, both in terms of income generation for farmers and for export revenue. More than 2 millions people (almost 40% of the country's total population) are occupied in the sector. Cotton accounts for two thirds of total exports from Chad. Chad's cotton production is largely exported to the European Union. France, Germany, Belgium, Portugal, and Spain are the largest importers of Chadian cotton.
Chad's cotton sector
Source: UNCTAD secretariat, based on Cotton sector reform in Chad: an institutional analysis (study commissioned by the World Bank)
The cotton belt lies in the Southern part of the country. Most cotton farms are still family-owned and operated (with average household size of 5 to 6 people). The average farm size is 1-2 hectares.
The Chadian cotton industry exhibits a structure of vertical
integration, dominated by
Nine ginning factories are active in the South of the country (Sahr, Koumra, Moundou, Kelo, Gounou-Gaya, Léré, Pala, and Kyabe). Besides, Chad has installed capacity with respect to cottonseed processing activities, particularly oil and soap mills. The oil and soap marketing segments of CotonChad were reorganised in 2003 as part of a broader reform program under the auspices of the International Monetary Found (IMF). Under the program, cotton seed processing activities (oil and soap production) had been separated from cotton-ginning operations and privatised, essentially abandoning the structure of vertical integration.
In 1999, the Government of Chad set up a Cotton Sector Reform Committee (CTRC) that would evaluate the potential scenarios for reform. CTRC was concerned with improving the incomes of cotton farmers through the liberalisation of the sector and the promotion of strong cotton producer organisations.
Cotton accounted for about 18% of total exports from Togo during 1995-2000, averaging 18 million US dollars per annum over the period. Cotton is the largest source of export receipts (it superseded phosphates as the main foreign-exchange generating commodity in the early 2000s). More than 200,000 people (half of rural labour) are occupied in the sector.
Source: Marchés tropicaux (22 March 2002)
Cotton is primarily grown in the South of the country on small, rain fed farms, with an average land area of 1 hectare. Although other commodities are also grown as cash crops, cotton represents the single largest source of household income, accounting for up to 70% of farmers' income.
There are about 2000 producers' associations responsible for input distribution and seed cotton delivery. Producers' associations operate under the technical supervision of SOTOCO ("Societe Togolaise de Coton"). Cotton is picked manually, although mechanical means are being introduced (most often by external service providers). Harvested cotton is made into fibres or further processed to extract oil. NIOTO ("Nouvelle industrie des oléagineux du Togo") manufactures edible oil from raw cotton. As regards fibre processing activities, liberalisation of the ginning and spinning sectors have allowed the entry of three new companies: SICOT-SA ("Société industrielle de coton"), whose main commercial partner is the controlling Suisse company "Aiglon"; SOPIC ("Société de production industrielle de coton"); and SOCOSA ("Société cotonnière des savanes") established (as for SOPIC) by the Continental Eagle corporation (65%) and the trading company Louis Dreyfus (20%).
For further information, please refer to:
According to UK Trade & Investment cotton and cotton by-products account for more than one third of total exports from Pakistan.
Cotton marketing structures in Pakistan
Source: Comparing the Seed cotton and Wheat Marketing Chains in Sindh (H. R. Lohano, L. E. D. Smith, M. Stockbridge) - The Pakistan Development Review (spring 1998)
For more information on marketing structures in Pakistan,
please refer to the following websites: