AFRICAN COTTON DEVELOPMENT INITIATIVE2011 AID FOR TRADE GLOBAL REVIEW: CASE STORY

Date of submission: 15February2011

Region: AfricaCountry: Benin,BurkinaFaso,Cameroon,Chad,Coted’Ivoire,Ethiopia,Kenya,Malawi,Mali,

Mozambique,Senegal,Tanzania,TogoUganda,ZambiaandZimbabweType: CottonSectorDevelopmentAuthors: MatthiasKnappe,ProgrammeManager,Cotton,Textiles&ClothingContact details: MatthiasKnappe,DivisionofMarketDevelopment

InternationalTradeCentre,www.intracen.org,GenevaPhone:+41227300321Email:knappe@intracen.org

EXECUTIVE SUMMARY

ThecottonsectoriscentraltoAfrica’seffortsinfightingpoverty.Itprovidesincomeformillionsofpeople,especiallythoselivinginruralareas,andisanimportantsourceofforeignexchangeearnings.Africa,bothfrancophoneaswellasanglophone,hastraditionallybeenanimportantcottonproductionbase.Butalmost80%ofcottonfibre isprocessed intoyarn inAsia. Incontrast,fibre transformationrates inAfricaareatanhistoriclow,withonly5%offrancophoneand43%ofanglophoneAfricancottonbeingprocessedonthecontinent.Onaverage,83%ofsub-SaharanAfricancotton isexportedas lint,almostexclusivelythroughinternationalmerchantstoAsia.

InorderforAfrica’scottonsectortorealizeitspotential, it isnecessarytoattendtoallofthecomplementaryfacetsalongtheentirevaluechain.ITC’sprogrammeisdesignedtoaddressthosemultiplefacetsandtobringaregionalapproach,alongwithcapacitybuilding,intothemix.

The resultshavebeenpositive.Regionalstrategieshavebeendeveloped.TheAfricanCottonAssociation isdevelopinganewbusinessplantohelpovercomethetaintedreputationofAfricancotton.CottonexpertsfromChina,IndiaandTurkeyhavesharedtheirexpertisewithindividualsandbusinessesintheAfricancottonsector.DirectsalesofAfricancottontoAsiahaveincreased,withordersofuptoUS$10million.

Anextstepintheprogrammecouldbetoincludetheretailsector.CloselinkagescanbeforgedbetweentheretailsectorintheWest,thetextileindustryinAsiaandAfricancottonstakeholders.Suchanapproachofdirectlylinkingthegrowerstotheretailerswouldsecurehigherpricesforginnersandseed-cottonfarmers,whilealsobenefittingthetextileandretailenterprises.

ISSUES ADDRESSED

Closerinteractionwithclientsandcottonconsumersisvitaltomaintaininternationalcompetitiveness.

Thehighrateofcottonexports,theshiftindemandfromindustrializedcountriestoAsianemergingeconomiesandanincreasinglyintegratedvaluechainrequirebettermarketlinks.ThisistruenowmorethaneverwiththeemergenceofstrongnewcompetitorssuchasBrazilandIndia.Inthepast,directmarketlinkageswithclientswerenotdevelopedandthereforetherewasnodirectfeedbackloopfromspinningmillsbacktoginningcompaniesandproducers.

TomoveAfrica’scottonsectorforward,productionneedstobestabilized,yieldsincreased,thecotton-relatedvaluechainoptimized,contaminationreducedandpremiumsforcleancottoncaptured.InordertoachievethisandtoimproveAfricancompetitiveness,amorestrategicorientationneedstobegiventoAfricancotton,andfarmersaswellasginningcompaniesneedtobeempowered.Marketing,includingpromotion,isjustoneaspectthatneedstobeaddressedinsuchastrategicapproach.However,itistheaspectthatlinkstheentireprocessbyunderstandingtheclient,addressingtheirrequirementsintheentirevaluechainoperationandfinallypromotingthecottontospinningmills.

AsustainablefeedbackloopfromspinningmillstoginningcompaniesandcottonproducersisthereforevitaltoimproveAfrica’scompetitivenessinasustainablemanner.Inaddition,theginningcompanies’negotiatingpositionswithregardtotradingcompanieswillbeimproved,leadingtomutualbenefits.

OBJECTIVE PURSUED

Theimportanceofaholisticapproachtothevaluechainisstressedbymanyexpertsandassociations.Duringthe67thPlenaryMeetingoftheInternationalCottonAdvisoryCommittee(ICAC)inOuagadougou,forexample,cottonexpertsdiscussedthe‘CompetitivenessofAfricanCottonProduction’andstressedthe importanceof‘traditional’aspectssuchasactivitiesinresearch,financeandreductionofcontamination,butemphasizedaswellthat‘itisalsonecessarytopromoteAfricancotton,and…improvemarketing’.

ITC’sCottonDevelopmentInitiativethereforeaimstomakeAfricaastrongercompetitorintheinternationalcottontradebyboostingcompetitivenessandestablishingstrongerlinkswithcottonimporters,especiallyinAsia.Closerlinkageswithcottonconsumingspinningmillswillleadtocloserpartnershipsbetweenspinner,ginnerandfarmergroups.Thesepartnershipsinturnwillleadtomajorimprovementsalongthevaluechain,includingthequalityofcotton,especiallycottoncontamination,andensuringlong-termstablemarketsforcottonproducedbysmallfarmersinAfrica.ITC’sfinalobjectiveisthereforeahigherprofitabilityofginnersaswellasfarmersthroughtherealisationofhigherlintandseed-cottonpricesand/orthroughefficiencygainsalongthevaluechain.

PROJECT DESIGN AND IMPLEMENTATION

Themarket defines effective competition. A clear understanding of the entire value chain, themarket, theclientsandtheendusersarenecessarytobecomecompetitive.Followingthisguidingprincipleindesigningtheprogramme,ITChasdevelopedamulti-prongedapproachamongareasthatcomplementeachotherandstrengthentheperformanceofstakeholdersalongthevaluechain.

SECTOR STRATEGY DEVELOPMENT

GlobaltrendsmeanAfricancountriesnowneedtothinkregionallywhenitcomestostrategiesforthecottontoclothingsector.Whilesomecountrieshavedifficultyestablishinganentirevaluechainfromcottontotextilesandclothing,thiscanoftenbeachievedattheregionallevel.Regionaleconomiesofscaleandexpertisecanimprovethesector’sperformanceandinturnallowAfricancountriestotapintointernationalmarketsforclothingandfashion,andaddvaluetothecotton.

CAPACITY BUILDING OF COTTON-RELATED ASSOCIATIONS AT NATIONAL AND REGIONAL LEVEL

AttheregionallevelITCissupportingtheAfricanCottonAssociation(ACA)todevelopanewbusinessplantocovertheyears2011–2016.ITCiscollaboratingwithACAtodevelopasystematicapproachforthepromotionofAfricancotton.InEasternandSouthernAfrica,ITCcollaboratescloselywiththeAfricanCottonTextileIndustriesFederationandisworkingwiththeAfricanCottonProducersAssociationtoincreasetheabilityofcottonfarmerstounderstandmarketsandclients.

AtthenationallevelITCisworkinginTanzania,UgandaandZambiatobuildlocalcapacities.

CAPACITY BUILDING IN COTTON TRADE AND MARKETING

The ITCCotton Exporters’Guide provides critical information on cottonmarkets and consumers. It gives adetailedoverviewofthecottonvaluechain.Byusingtheguide’smarketingandtradinganalysis,Africanfarmersandginnersimproveoperationalefficiencyandtheirnegotiatingposition.Theguideisavailableasabookaswellason-lineinEnglish,FrenchandSpanish.

FACILITATION OF SOUTH-SOUTH COOPERATION

ITCisfacilitatingcooperationamongdevelopingcountries,withaspecialfocusonlinkswithinAfricaandbetweenAfricaandAsia.Africacanbestlearnfromthecottonsuccessofotherdevelopingcountriesallalongthecottontoclothingvaluechain,includingcottonproductionandfibretransformation.Theapproachinvolvesfourmainthemes:

Learning fromsuccess.Trainingprogrammesorganizedby ITCallowsuccessfulcottonproducers inChina,TurkeyandIndia,forexample,tosharetheirknowledgewithcottonprofessionalsfromAfrica.

Developingcapacitytotransformcotton.SuccessfultextileandclothingproducersinChina,BangladeshIndia,Thailand,TurkeyandVietnamarerelayingtheirexperiencestoAfricancountriesthroughITCtraining.

Sourcing fromotherdevelopingcountries.Africanproducersareencouraged to searchout suppliers in thedevelopingworldforsavingsonitemsrangingfromseedsandfertilizertotechnology.

Encouragingintra-Africancooperation.BetterknowledgeofthecottonandtextilesectorsinotherAfricancountriesisessentialtoregionalstrategies,yetisoftenlacking.

PROMOTION OF AFRICAN COTTON

American farmersandcooperativesalongwith their counterparts inBrazil and Indiahaveorganizedmarketfamiliarizationmissionstocotton-consumingcountriesinAsiatolearnwhattheirclientsexpectfromthemandtopromotetheircotton.ITCassistsAfricancottoncompanies,independentginnersandproducerstobenefitfromsimilaropportunities.Asaresult,theygainaclearunderstandingoftheentirevaluechainandtheimmediatemarketwheretheircottonisbeingsold.

Direct contactswith the immediate consumers of their cotton, i.e. spinningmills, allowdirect andunfilteredfeedbackonqualityandbuyerrequirements.

REDUCING COTTON CONTAMINATION AT THE PRODUCTION LEVEL

CottoncontaminationinAfricaremainsanimportantissueeventhoughinmanycasesthereputationofAfricancottonis“morecontaminated”thantheactualcottonitself.ToovercomethisITCidentifiesinterestedspinningmillswillingtoassistselectedginningfactoriesinproducingcleanlint.Thisdevelopssustainablebusinessrelationshipsbasedonproductqualityandtrust,leadingtopricepremiumspaidforcleancotton.WealsocooperatewiththeWorldBankandCFC/EU-fundedprojectsthatworkwithfarmerstoproducenon-contaminatedcotton.

PROBLEMS ENCOUNTERED

Ensuringdirect linkswithcottonconsumingspinningmillsanda feedback loop that linksproducersandginningcompaniesclosertothemarket:Africancottoncompanies,independentginnersandproducers(i.e.cottonstakeholders)havehardlyeverhaddirectcontactswiththemarket.Asaresult, theyhavenoclearunderstandingneitheroftheentirevaluechainnortheimmediatemarketwheretheircottonisbeingsold.Directcontactswiththeimmediateconsumersoftheircotton,i.e.spinningmills,havebeenrare,anddirectfeedbackonqualityandbuyerrequirementswassporadicandoftenfilteredbyintermediaries,thusdeprivingsectorstakeholdersofvitalinformationforimprovingqualityandcustomerservices.

RevisinganunfavourableAfricanimageinthemarket.Althoughproductionmethodsandcottonqualityarenothomogenous,Africancottonsuffersfromanegativeimageofbeinghighlycontaminatedcotton.Thisreputationiswidespread.OnlyafewspinnersthatdealwithspecificoriginsknowaboutthequalityandpricedifferentialsforcertainAfricancotton.

Closerinvolvementoflocalbanks.AsaresultofthefinancialcrisisaswellasthesuddenpricehikesinthecottonsectorinMarch2008,banks’lendingpracticeshavebecomemorecautious.Moreover,sometradersreceivelesstradefinancefromtheirbanksandarenotwillingtobuyforwardanymore,whichposesbigproblemsforAfricancottonfarmersandginners.InmanyAfricancountriescottonshipmentsarereleasedonlyonceareputableinternationalbuyerhassignedacontractandopenedaletterofcredit.Manylocalbanksregardonlystronginternationalmerchantsasfullycreditworthy.This,however,doesnotassistAfricancottonstakeholderstobecomeequalpartnersintheinternationalcottonbusiness.

Provisionofamoreregularandcontinuousoffer.NationalproductionlevelsinAfricaarerelativelylowcomparedtomajorworldmarketcompetitors.Asaresult,cottonisonofferduringthefourorfivemonthsofthecottonseasononly,whereas spinningmills needdelivery throughout the year. Thatmakesnational stakeholdersvulnerableinpricenegotiations.

Ex-ginorFOBoffervs.C&Fdemand:Inordertoincreaseturnoverandensurequickrepaymentofbankloans,ginneriesusetoselllintatthegingateorFOBatthenearestport.IncontrastspinningfactoriesbuycottonC&FfordeliveryatanAsianport.Moreover,centralandWestAfricancottoncompaniessellperkginEuros,whileinternationaltradeisdoneinlbs/US$

FACTORS FOR SUCCESS

Before cotton stakeholders can actually engage in amore proactive approach tomarketing, the necessarycondition–afullunderstandingofexternalissuesi.e.thevalue-chainandworldmarkets–needstobemet.Inaddition,cottonstakeholdersneedtofindwaystotranslategainedinformationandknowledgeintoknow-howthatisappliedatnationalandregionallevel(thesufficientcondition).Thisisastep-by-stepapproach:

UNDERSTANDINGTHEVALUECHAINANDTHEVARIOUSSTEPSOFVALUEADDITIONuntil thecottonreachesthefinalconsumerintheformofacottongarment,includinganin-depthunderstandingofcommontradingpracticesandtheiradvantagesanddisadvantages.

UNDERSTANDINGTHESPECIFICMARKETANDBUYER(CLIENT)REQUIREMENTSateachstageofthevaluechain.Thisrefersontheonehandtoproductqualityrequirementsrelatedtothefiberanditscleanliness.Ontheotherhanditreferstotailor-madesolutionsandbusinesspracticesaccordingtothespecificneedsandwishesofcotton-consumingspinningmills.

APPLYVALUECHAINANDMARKETKNOWLEDGEatthenationalandregional leveltobuildcapacitytorespondtomarketandbuyerrequirements.Thisincludesthefollowingactivities:

-Translatingmarketknowledgeandqualityrequirementinsightsintopracticalapplicationattheproduction(i.e.ginningandfarming)stage.-Maintainingtheseapplicationsonalargescalewiththousandsofsmall-scalefarmers.-Buildingthecapacityofmultiplierorganizationsintheformofnationalandregionalproducersandginningassociations.

Inaddition,thefollowingfactorshadanimportantpositiveimpactontheproject’ssuccess:

Full transparency in all operations, including that of international merchants Involving local banks more closely in all operations Inclusive approach of all cotton stakeholders driven by private sector stakeholders at farm or gin level.

RESULTS ACHIEVED

REGIONAL COTTON STRATEGIES DEVELOPED AND ITS IMPLEMENTATION FACILITATED:ITCassistedtheCommonMarketforEasternandSouthernAfrica(COMESA)andtheAfricanCottonTextileIndustryFederationtodeveloparegionalcotton-to-clothingstrategy.Similardiscussionsareon-goingwith theSecretariatof theEconomicCommunityofCentralAfricanStates(ECCAS)foracottonstrategyforCentralAfrica.

INCREASED NATIONAL AND REGIONAL CAPACITY IN COTTON TRADE AND MARKETING: TheAfricanCottonAssociation(ACA) isdevelopinganewbusinessplanfocussingondeliveringcrucialservicestoitsmembers,includingoncommercialisation.ACA’splanwillhelpovercomeAfrica’sreputationofdeliveringcontaminatedcotton,asithasdevelopedacommonapproachandfiberqualitystandardattheregionallevel.NewpromotionalapproachesarebeingdevelopedforTanzanianandUgandanindigenousginners.

IMPROVED NEGOTIATING POSITION OF AFRICAN COTTON COMPANIES VIS-À-VIS INTERNATIONAL TRADERS. “Our relationship has become more healthy as our knowledge and information base is more equal”,statesthesalesdirectorofSODECOTON,Cameroon.

LEARNING FORM OTHER DEVELOPING COUNTRIES AND DEVELOPING CAPACITY TO TRANSFORM COTTON:Othercotton-producingdevelopingcountriessuchasChina,IndiaandTurkeysharedtheirknowledgewithAfricanstakeholdersfromresearchandseeddevelopmenttoginningandtrading.NumerousimprovementshavebeenmadeinAfricaandAfrican-suitabletechnologieshavebeenintroduced.

SUCCESSFUL COTTON MARKETING AND DIRECT SALES:

TanzaniancottonwassoldindirectmarketingactivitiesfromindependentginnerstospinningfactoriesinbothBangladeshandThailandinanamountofapproximatleyUS$10million.Thiswasthefirst-everdirectsalesfromAfricanginneriestoAsiaspinningmills.SalesfromSenegaltoChinaamountedtoapproximatelyUS$3million.ThreeChinesespinningmillsagreedtocooperatewithtwoginnersfromEastAfricafortheimport3,000cottonbales,valuedatapproximatelyUS$800,000.

ThefeedbackfromThailandonthequalityofthecottonreceivedwasverygood.IndividualscorecardassessmentsbythebuyingspinnerresultedinaboveaveragescoringfortheTanzaniancottoninalmostallcategories,exceptforcontamination.Inaddition,aspinningfactoryplanstoinvestUS$6millioninspinningfacilitiesinTanzania

IMPROVING THE IMAGE OF AFRICAN COTTON:Exposingcotton-consumingspinnersfromAsiatotherealitiesofthecottonsectorinAfricaleadstorelationshipbuilding.As“seeingisbelieving,”visitstoAfricaopentheireyesonhowprofessionallytheindustryisorganised,overcomingfalseimages.

LINKING SPINNERS TO GINNERS AND FARMERS TO PAY A PREMIUM FOR CLEANER COTTON:SpinnersfromBangladeshandVietnamvisitedfarmandginoperationsinBurkinaFasoandMaliwheretheyexperiencedtheprofessionalismoftheAfricancottonsectorandtheeffortsundertakentoreducecontaminationlevelsunderaEU/CFCfundedprojectwithwhichITCcooperates.Asaresultspinnersaskedtobecomepartoftheprojectandexpressedtheirwillingnesstopayapricepremiumforcleanercotton.

INCREASING TRANSPARENCY IN FARM INPUTS AND SEED COTTON PRICES DETERMINANTS CREATING TRUST AMONG COTTON STAKEHOLDERS:InZambia,ITCbuiltthisknowledgeamongcottonfarmers,who,asaconsequence,wereabletonegotiatebetterseedcottonpricesfrominternationalginningcompaniesoperatinginthecountry.

LESSONS LEARNED

Competitiveness starts from the marketbyunderstandingmarketandbuyerrequirementsandaddressingidentifiedbottlenecksalongtheentirevaluechainfromcottonresearchtopremiumsavailableinthemarket.Inaddition,cottonstakeholdersneedtofindsolutionsonhowtotranslatetheinformationandknowledgegainedintoknow-howatthenationalandregionallevel.

African cotton producers benefit from directly engaging in cotton marketing.Allfourareasofthetraditional4Pmarketingmix(namelyproduct,price,place(distributionpolicy)andpromotion)canbeaddressedmoredynamically inAfrica.Thesuccessfulpromotionalactivitiesofothercotton-producingcountries,mostnotablytheUnitedStates,showhowabrandimagecanbecreatedinthemarket.IntheAfricancontextthisneedstobetackledjointlybyallstakeholders,includinginternationalmerchants.

Learning from success.Facilitationofsouth-southcooperationcanmakeadifferenceoncottontradeandallaspectsalongtheentirecottontoclothingvaluechain.

Sourcing from other developing countries.EncouragingAfricanproducerstosearchoutsuppliers in thedevelopingworldpromotessavingsonitemsrangingfromseedsandfertilizertotechnology.

Intra-Africa cooperation is ongoing:Senegal,oneoftheleadingcountriesinAfricatoproducecleancotton,openeditsdoorsandtrainedcolleaguesfromTanzania,UgandaandZambia.CottonstakeholdersfromMozambique,Zambia,ZimbabweandMalawiareformingtheMoZaZiMagrouptojointlytacklecommonproblemsandcapitalizeonsynergies.

CONCLUSION

ITC’sactivitiesinthe5areasof i)capacitybuildingintradeandmarketing,ii)capacitybuildingoffarmers’andginners’associations,iii)south-southcooperation,iv)Africancottonpromotion,andv)reductionofcontaminationlevelsarecomplementingandreinforcingeachother.

South-southcooperationactivitiesarealsousedforpromotingAfricancottoninmarketssuchasChina,IndiaandTurkey.WhilepromotingAfricancotton inconsumingmarkets,south-southcooperation initiativesaddressfibretransformation,thereductionofcontamination,andtheprocurementofmoreeconomicinputsintothecottonsectorinAfrica,suchasseeds,fertilizers,chemicals,agriculturalandtextilemachinery.Whencapacitiesofnationalandregionalassociationsareenhanced,itleadstoimprovedmarketingofAfricancottonandtothedevelopmentofmorespecificsouth-southcooperationactivitieswithAsiancottonproducingcountriesaswellasamongAfricancountries.This,inturn,leadstoimprovementsincottonquality.

ITC’sactivities so far havebeenbenefittingcottonstakeholders inAfricaonabroadscale soas to spreadknowledgeandcapacitieswidely.Thismodernapproachwasnecessarybecausemanywaysofdoingbusinesswereoutdated.Thesectorhasseenpositiveresultsbythewayofhigherprices,directsalesandsustainablelinkageswiththetextileindustrywereachieved.

Tobringtheapproachtothenextstep,theretailsectorcouldbeincluded.CloselinkagescanbeforgedbetweentheretailsectorintheWest,thetextileindustryinAsiaandAfricancottonstakeholders.Someinitiativesarealreadybeingobserved.Closepartnershipsalong thevaluechain, including retailers,spinnersandcottonsuppliers(ginnersandfarmers)couldleadtobenefitsforall.Atthesametimeitwillbenefittheretaileraswellasthetextileindustry(oftenfoundinAsia)thatproducesthefinalgarment.Thedirecttradelinkageswillsecurehigherpricesforginnersandthrough increasedtransparencyandempowermentofproducers,aswellashigherpricesofseed-cottonforfarmers,whileservingtheneedsofthetextileandretailpartners.

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