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.
|
ITC ASSISTANCE
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.