West African Cotton Economies Face A Struggle For Survival

The past half-decade has not been kind to the cotton industry of West Africa. Reduced prices and financial problems have hampered cotton business in each of the major cotton-growing countries, and the most recent figures on the 2006/07 crop show that trend continuing, with production falling below preseason targets due to losses in yield and area. Given the financial climate, the 2007/08 crop is facing a world of uncertainty. Recently announced prices in several of the region’s countries show further reduction, while another increase in input costs appears imminent.

Making matters worse, even with lower producer prices, gins in the major West African countries will have a difficult time turning profits based on the current world prices. Inputs for farmers, including seed, fertilizer, and pesticides, are all likely to be delivered late to the fields where they are needed. In short, area reductions will continue – at least where the farmers have a choice.

Part of the problem is one of global economics. Simply put, in the region, cotton is traded in U.S. dollars, while inputs are traded in E.U. euros. The current exchange rate between the currencies prevents farmers from making any headway based on gains made in world cotton prices.

The uncertainty is not just a matter of area loss. So much uncertainty is in the air that the limited credit that was available to producers is drying up. Without credit, the West African industry will face a struggle to avoid outright collapse.

Already, the problems are larger than the profitability of cotton farms. Low returns on their cotton crops have led farmers to market their cereal crops, such as corn, sorghum, and millet. With less money for cotton fertilization, the fertility that typically carries over to the cereal crops is dwindling, meaning smaller cereal crops. The end result has been greater poverty and more problems with malnutrition.

For some countries, the light at the end of the tunnel is the advent of biotechnology, as Bacillus thuringiensis (Bt) cotton varieties — which have re-energized the cotton sectors of Asia and South America — have not yet been cleared to enter the region. Some think these varieties can make all the difference. To others, the problems run too deep already; Bt might be a bandage, but it’s not a cure.

The countries of Benin, Burkina Faso, Chad, Côte d’Ivoire, Mali, and Senegal make up the bulk of West Africa’s cotton production. In total, these countries produced 3.2 million bales of cotton in 2006/07, an 11% decline from 2005/06. Flatness or further reductions are likely for 2007/08. Of this production, 95% to 98% is exported, making the region one of the world’s largest exporting areas.

While all share similar struggles, differences in privatization and market composition makes it difficult to paint all the regions with too broad a brush. The following capsules provide snapshots of the cotton sectors of each country.

Benin

For Benin, 2005/06 was a year to forget. While early goals for the 2006/07 season were close to 500,000 metric tons (MT) of seed cotton production, less than half of that (240,000 MT) is the current prediction for the crop.

Timeliness is everything for Benin. Like many West African countries, transportation and infrastructure development are major problems, accounting for part of the reason that major inputs are all delayed in reaching cotton farmers. The delays pose a major problem, and Benin has struggled mightily since 2005, as severe pest pressures that damaged the crop. Currently, even more problems plague Benin’s farmers: no input or cotton prices have been announced as of mid-May.

Current forecasts still predict a rebound to 505,000 bales from the 2006/07 crop’s expected 462,000.

Working to the country’s benefit has been its level of privatization, at least at the early stages.

Benin was one of the first in the region to undergo efforts to privatize the industry. Before 2000, the government’s National Society for Agricultural Promotion (SONAPRA) controlled all cotton activities in Benin. With international support, Benin began its privatization efforts in the late 1990s. However, recently those efforts have stalled in the face of sluggish industry performance. To stem the crisis caused by low prices and growing debt, the government has taken a more pronounced role in the cotton sector, intervening to set the cotton price in 2006 and awarding SONAPRA the right to import fertilizer and pesticide inputs in 2007/08.

SONAPRA also still controls 10 mills with a combined capacity of around 300,000 MT. Since privatization began, six privately owned companies have built eight mills with a combined capacity of 275,000 MT. Privatization plans had SONAPRA’s existing mills being gradually turned over, with the government, farmers, and workers owning 45% of the mills and private investors owning 55%. These plans have yet to materialize.

In all, Benin has approximately 7,000 MT of spinning capacity, though only 2,000 is currently used. About 98% of Benin’s cotton production is exported, with the bulk shipping to Asia and 10% going to Europe, with some African countries (such as Nigeria) also playing important roles.

Unlike other countries in the region, Benin has kept the development of genetically modified (GM) crops out of its plans for the near-term. Since 2002, the country has kept a self-imposed 5-year mandate on all GM research and development.

Burkina Faso

Burkina Faso’s 350,000 cotton farms average about 2 hectares (Ha) apiece, making logistics in the country difficult. Production in Burkina Faso continues to decline, primarily due to poor yields, with some reduction in area for 2007/08. However, planted area changes should be relatively small, since farmers have little choice in the matter: cotton production is the sole means many farmers in the country have to access fertilizer and pesticide credits.

Since the majority of farmers grow cereals after cotton and see a positive residual effect from using fertilizer on their cotton crops, growers will keep planting cotton in order to gain access to the fertilizer for the carryover effect, regardless of the dwindling returns of the cotton crop.

Burkina Faso began to privatize its cotton sector at the end of the 1990s when the government began selling shares of the producers’ organization, UNPCB. The phase-in of industry privatization lead to the creation of three regional cotton companies. The first, SOFITEX, with 13 gins, makes up 80% of the country’s ginning capacity. It is jointly owned by the government (35%), DAGRIS (34%), and producers (31%). The second, SOCOMA, operates 3 gins in eastern Burkina Faso, and the third, Faso Coton, manages just 1 gin in central Ouagadougou. Both SOCOMA and Faso Coton were formed in 2004. Each company operates by financing inputs for farmers and deducting those costs from the cotton price when the cotton is collected.

Burkina Faso exports 98% of its cotton, with 75% destined for Asian markets (China, Indonesia, Pakistan, Bangladesh, and Thailand, primarily) and 20% bound for Europe (Germany, Italy, Portugal, and Switzerland). A small amount is exported to South America, and only 2% is used domestically. FILSAH DG is the only spinning facility in the country, with a capacity for 5,000 MT of lint, with about 3,000 MT in use. Burkina Faso has one High Volume Instrument (HVI) testing location which classes about a third of the country’s cotton.

The country is a regional leader in the development of Bt cotton, for which field trials have been underway since 2003. In 2006, these trials were expanded to include local varieties, and in 2007, they will take place in every major growing region. Early results have been positive.

There also have been efforts spearheaded by the Swiss NGO Helvetas to urge organic cotton farming, but since farmers depend on the fertilizer used on their cotton crops to boost their cereal yields in the second part of their crop rotation, not many are eager reach for the premium available for organic cotton.

Chad

For the third straight year, Chad’s cotton farmers faced a decline in production in 2006/07. Last season, the slow delivery of inputs in the country led to very late plantings, with some fertilizers and pesticides arriving so late that farmers sold them for cash rather than using them in their fields.

While reforms promised to be in store for CotonTchad in the 2005 “road map” for privatization, those efforts have not progressed. The company, which is jointly owned by the government (75%), DAGRIS (19%), and local banks (6%), has faced such financial hardship that it was almost unable to finance crop purchases and inputs for the 2007/08 season. Reports still arise of farmers being paid less than promised by the company, or in some cases, not receiving payment at all, which has created more instability in the sector.

Production in 2007/08 also looks weak, with similar yields to last year and a small reduction in area. As it stands, Chad’s yields are the worst in the West and Central African regions, and the country’s lack of infrastructure leads to added transport costs.

Chad has no spinning or textile mills, and only a small level of textile production by artisans. Nearly all of the country’s cotton is exported, with the majority being traded to Asia, with about 60% going to China.

Unlike other countries in the region, Chad does not benefit from strong farmer organizations. Chad’s loose organizations are too fragmented to maintain any sort of farmer extension or research activities. The result is that CotonTchad wields almost absolute control over the cotton-related activities of the country.

Côte d’Ivoire

The cotton sector of Côte d’Ivoire consists of about 250,000 smallholder farms. Unlike the rest of the countries in the region, cotton makes up just a small portion (5%-10%) of Côte d’Ivoire’s agricultural exports, with coffee and cocoa presenting better options as cash crops for many growers.

In the past five years, problems have abounded for cotton producers, not the least of which has been the political climate of civil conflict. During that time, cotton farmers ran into major debt trouble, as many failed to turn over their crops to the mills that provided inputs on credit which was to be deducted from the cotton’s sale. Reportedly, as much as U.S. $50 million worth of cotton went undelivered to mills.

The situation created a financial nightmare for ginning companies and postponed input provisions, which has led to a downtrend in production that will likely continue at least through the 2007/08 season.

To help revitalize the cotton sector, the E.U. recently pledged $20 million (USD) to help get farmers out of debt and to provide for general improvements for the cotton industry. This, combined with the Ouagadougou Peace Accord and the elimination of the buffer zone that divided the government-held southern portion of the country from the rebel north, has made Côte d’Ivoire’s situation much more promising. As stability returns to the country and improvements are made to the cotton industry, Côte d’Ivoire should see a return to better times.

Mali

Following two years of production exceeding 1 million bales, Malian cotton production fell 20% in 2006/07, which was largely due to a planned reduction in area by the Malian cotton company (CMDT), as well as the country’s 175,000 cotton farmers shifting more towards higher quality (Grade 1) cotton, rather than growing for quantity alone.

For 2007/08, further reductions are expected, with a forecast harvest of 825,000 bales. CMDT, which is owned by the government (75%) and DAGRIS (25%), calls most of the shots in the country. Its 17 gins have a combined capacity of about 9,500 MT of lint, though they usually run at less than 50% capacity. Three spinning and weaving factories are in the country: COMATEX SA, a joint venture with Malian and Chinese owners creating products for the domestic market; BATEXCI-SAU, a Malian spinning/weaving plant built for exports; and FITINA SA, a spinning company based on exports. Two additional plants are in development, one a spinning/weaving plant (COTEMA), and the other a textile plant (ICOMA SA).

Still, roughly 98% of Malian cotton is exported. Exports are handled by DAGRIS and COPACO, a French agency. The bulk of Mali’s exports are bound for Asia, with about 10% destined for Europe.

Mali’s privatization is well underway. In 2001, the Reconstruction Mission of the Cotton Sector (MRSC) was formed to coordinate the reforms, which have made headway in the past six years. By 2008, there will be four regional cotton companies in different zones, which will be 61% controlled by private interests, the remainder belonging to farmers (20%), the government (17%), and mill workers (2%). Privatization will also lead to the creation of a Cotton Association, a Cotton Classing Office, and a Cotton Exchange. Another goal of privatization is to improve cotton marketing, which includes a plan to establish a national “Mali Cotton” label to promote the country’s products.

Mali is also in the early stages of biotechnology, with regulations near adoption that would allow field testing to begin.

Senegal

Reversing the trends of its neighbors, Senegal achieved a its highest yields in 15 years during the 2006/07 season leading to a record production of 52,000 MT seed cotton. This strong performance also helped the average ginning rate grow to 42%.

Prices remain poor for Senegal’s growers, which is leading SODEFITEX, the former government-run cotton company, to begin a crop diversification program to lead growers to more lucrative crops. For 2007/08, this program will likely cause decreases in cotton area and production.

SODEFITEX handles much of the cotton business in the country, procuring inputs and locking in prices for its farmers’ crops. It has government support, which gives it access to subsidies for input purchases and distribution as well as price control measures.

SODEFITEX has 5 ginning units and a total capacity of 65,000 MT of seed cotton, as well as a cotton seed production unit with a capacity of 1,200 MT.