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    Connecting Industry to the Market: The Future of Cotton in Africa


    International Trade Forum - Issue 2/2010

    West and Central African cotton producers and exporters present cotton samples and classing boxes to Turkish cotton traders and spinning factories

    Africa has traditionally been an important cotton production base. Before the textiles and clothing quota phase-out, cotton markets were mainly in Europe. Today almost 80% of world cotton fibre is processed into yarn in Asia. In contrast, fibre transformation rates in Africa are at a historic low. Thus, on average, 83% of sub-Saharan African cotton is exported as lint, almost exclusively through international merchants to Asia.

    In 2000, the 27 countries currently members of the European Union imported 1,077 million tons of cotton while China imported 52,000 tons and Bangladesh 192,000 tons. In 2009/10 Europe imported 276,000 tons while China imported 1,893 million tons and Bangladesh 652,000 tons.

    Towards Market-Oriented Culture

    The high rate of cotton exports, the shift in demand from industrialized countries to Asian emerging economies and an increasingly integrated value chain require closer links with the market, especially with the emergence of competitors such as Brazil and India. Closer interaction with clients and cotton consumers is vital to maintain competitiveness. African countries have traditionally focused on production rather than the market. Market linkages towards Europe were secured by Western (often French) mother companies and, increasingly since 2005, towards Asia by international cotton merchants. A market-oriented culture did not develop as market-related aspects were handled outside Africa. Moreover, in the past, cotton sold readily as world cotton demand was higher than production. As a result, direct market linkages with clients did not develop and no direct feedback loop from spinning mills to ginning companies and producers emerged. This is a strategic disadvantage in a declining market, as was the case in the 2008/09 season, and in slow-growing markets as is forecast. World cotton mill use is estimated to recover by 2% in 2010/11, growing to 24.9 million tons, based on the assumption of a continued global economic recovery.

    Competitiveness starts from the market. A clear understanding of the entire value chain and the market, as well as the client and the client's client, is necessary to become competitive. This is obvious with consumer goods such as garments. Without a clear understanding of fashion trends and market and buyer requirements, a clothing manufacturer will not be successful. This, in principle, is no different for a commodity such as cotton. For example, farmers and cooperatives in the United States of America, and more recently their counterparts in Brazil and India, have organized marketfamiliarization missions to cotton-consuming countries in Asia to learn what their clients expect from them, but also to promote their cotton. However, African cotton companies, independent ginners and producers have lacked this opportunity. As a result, they have no clear understanding of the entire value chain or the markets where their cotton is sold. Direct contacts with the consumers of their cotton, i.e. spinning mills, have been rare, and direct feedback on quality and buyer requirements sporadic and often 'filtered' by intermediaries.

    Understanding Value Chains

    Before cotton stakeholders can actually engage in proactive marketing, the necessary condition - a full understanding of external issues, i.e. the value chain and world markets - needs to be met. In addition, cotton stakeholders need to find ways to translate information and knowledge into know-how that is applied at the national and regional levels (the sufficient condition). Thus, gathering knowledge about the value chain, the market and clients, and subsequently applying this knowledge at home - i.e. developing the know-how to engage all cotton stakeholders in Africa - is a step-by-step approach.

    The first step is to understand the value chain and the stages of value addition until the cotton reaches the final consumer in the form of a garment. This mainly includes the spinning process, the fabric-making process, the clothing manufacturing stage and the end consumers' fibre preferences. Understanding the value chain also includes an in-depth understanding of common trading practices, their advantages and disadvantages.

    The second step is to understand the specific market and buyer (client) requirements at each stage of the value chain. To offer the required fibre quality and related services to clients, cotton producers need to understand what exactly they demand. Understanding buyer demands refers, on the one hand, to product-quality requirements related to the fibre and its cleanness. On the other hand, it also refers to tailor-made solutions and business practices according to the specific needs of cotton-consuming spinning mills. In that respect cotton trading and marketing becomes a service-intensive industry.

    During the third step, value chain and market knowledge is applied at the national and regional levels to build capacity to respond to market and buyer requirements. This includes the following activities:

    • Translating market knowledge and quality requirement insights into practical application at the production (i.e. ginning and farming) stage.
    • Maintaining these applications on a large scale with thousands of small-scale farmers.
    • Building the capacity of multiplier organizations - national and regional producers and ginning associations.

    With the necessary and sufficient conditions in place, promotion of African cotton in Asia becomes a vital component in sustaining the African industry.

    Priority Areas of Intervention

    ITC experience in supporting the African cotton industry points to the following priority areas of intervention:

    • Capitalizing on training and marketing activities undertaken and the contacts already established.
    • Rectifying an unfavourable image of African cotton in the market.
    • Addressing contamination issues and communicating success in reducing contamination, which is a major headache for spinning mills and a reason for price reductions. Generally, neither producers nor gin operators have had the opportunity to interact with spinning mills or with fabric and garment manufacturers to understand how, for instance, a small piece of white polypropylene could lead to damage worth several million US dollars at retail level. The African Cotton Association (ACA) is addressing the contamination issue and has developed a common approach and a regional fibre-quality standard. That will help overcome Africa's reputation of delivering contaminated cotton. ITC is helping ACA to create understanding among its members, providing the market perspective and engaging interested spinning mills from major Asian consuming countries. With reduced contamination levels, price premiums are possible in the future. To achieve this, however, success needs to be communicated and spinning mills convinced that clean cotton will be delivered every time.
    • Cooperating more closely with interested spinning mills in the market. While most Asian spinners buy on price and quality quotations, an increasing number are interested in developing closer relationships with cotton companies and independent ginners in Africa to secure long-term supply to satisfy their increasing cotton needs. This includes longer-term buying arrangements as well as the provision of technical assistance to reduce cotton contamination at both gin and farm levels. For example, a spinning mill from Thailand is linking up with a ginner from the United Republic of Tanzania, while mills in Bangladesh and Viet Nam are interested in increasing their market share of West African cotton.
    • Involving local banks more closely in all efforts. As a result of the financial and economic crisis, as well as the sudden price hikes in the cotton sector in March 2008, banks' lending practices have become more cautious. Moreover, traders receive less trade finance from their banks and are not willing to buy forward anymore, posing big problems for African cotton farmers and ginners. In many African countries, cotton shipments are released only once a reputable international buyer has signed a contract and opened a letter of credit. Many local banks regard only strong international merchants as fully creditworthy. This, however, does not help African cotton stakeholders to become equal partners.
      ITC is working with Tanzania's CRDB Bank to support ginners and farmers to understand foreign markets, their requirements and to find markets overseas. The presence of a bank during negotiations with foreign clients makes a difference as financial and contractual concerns are immediately addressed. As a result, Tanzanian ginners were able to achieve their first-ever direct sales to Bangladesh and Thailand.
    • Developing closer cooperation and more equal relationships with international merchants.
    • Providing a more regular and continuous offer through regional cooperation efforts or joint use of bonded warehouse facilities in destination countries (ports). The need need for a more consistent offer requires closer regional cooperation within Africa. In Southern Africa, for example, four countries - Mozambique, Zambia, Zimbabwe and Malawi (MoZaZiMa) - are working in collaboration and cooperating along the entire value chain, from seed development to research to joint marketing and promotion of MoZaZiMa-origin cotton.
    • Utilization of quota-free and duty-free access for African cotton in India and possibly China.
    • Increasing transparency in farm inputs and seed cotton price determinants to create trust among cotton stakeholders. Transparency in ginning cost structures and farm inputs (in cases where ginners distribute seeds, fertilizers, insecticides and pesticides, and operate extension services) is vital to determine accurate seed cotton prices and to build a trusting relationship with mutual recognition and cooperation between traders, ginners and farmers. Knowledge leads to transparency and with a transparent structure, trust will be built, helping to tackle sector-wide issues. In Zambia, ITC built this knowledge among cotton farmers who, as a consequence, were able to negotiate better seed cotton prices from international ginning companies operating in the country.

    However, improved cotton marketing and promotion is not a panacea. Overall, production needs to be stabilized, yields increased, contamination reduced and premiums for clean cotton captured. In order to achieve this, and to improve African competitiveness, a more strategic orientation needs to be adopted and farmers and ginning companies need to be empowered.

    Marketing, including promotion, is just one of many aspects that needs to be addressed strategically. However, it is the aspect that links the entire process from understanding the client, to addressing their requirements in the entire value chain and finally promoting the cotton to spinning mills. A sustainable feedback loop from spinning mills to ginning companies and cotton producers is therefore vital to improve Africa's competitiveness in a sustainable manner. In addition, Africa's negotiating position with trading companies will be improved, leading to mutual benefits in a position of strength.


    Cotton or 'white gold'. With well-germinating seeds and appropriate inputs, cotton fields in Africa could soon look like this field in Turkey. ITC is working with the Turkish cotton industry to provide assistance to Africa under South-South cooperation schemes.



    Tanzanian cotton ginners meet with workers in a spinning factory in China. Many Chinese spinning factories engage people to pre-clean cotton and reduce contamination to a minimum. Reduced contamination means lower costs for spinning factories and thus a price premium is almost certain to be paid for precleaned cotton.


    ITC cooperates closely with the ACA and the African Cotton Producers Association (AProCa), its partners in Africa. Here, ITC's Matthias Knappe is with Adeyemi Achamou Fahala, ACA Permanent Secretary, and M. Bebnone, AproCa Deputy Secretary General.



    To the cotton sector in Africa

    ITC is supporting the African cotton sector with strategy formulation and implementation. ITC efforts are aimed at making Africa a stronger player in the international cotton trade. This depends on boosting competitiveness and establishing stronger links with cotton importers, especially in Asia. Moreover, ITC is facilitating cooperation among developing countries, with a special focus on links within Africa and between Africa and Asia. This involves five main themes:

    Learning from success. Training programmes organized by ITC allow successful cotton producers in countries such as China, India and Turkey to share their knowledge with African cotton professionals.

    Developing capacity to transform cotton. Through ITC training, successful textile and clothing producers are relaying their experiences to African countries.

    Promoting African cotton. ITC links African producers with potential customers through promotional activities in markets such as Bangladesh, Thailand and Viet Nam.

    Sourcing from other developing countries. Encouraging African producers to search out suppliers in the developing world promotes savings on items ranging from seeds and fertilizers to technology.

    Encouraging intra-African cooperation. Better knowledge of the cotton and textile sectors in other African countries is essential to regional strategies, yet is often lacking.

    To compete better, all stakeholders - from farmers and ginners to commission agents and government officials - need a better understanding of destination markets and consumers, as well as the value chain itself. The ITC Cotton Exporters' Guide provides valuable information on cotton markets and consumers, as well as a detailed overview of the cotton value chain. It is available in English, French and Spanish at these web addresses: www.cottonguide.org/; www.guidedecoton.org/; www.guiadealgodon.org.