African cotton market doesn't benefit from too much competition

March 12, 2004

An international team of researchers are challenging conventional wisdom that the more competitive a market is, the more successful it will be, in the current edition of World Development.

The study led by Imperial College London concludes that greater competition in African cotton market systems is not always linked to better performance. Rather, in situations where the regulatory framework within the sector is weak, a balance must be struck between the degree of competition and coordination between operators.

With African cotton exports in 2002-03 accounting for 20 per cent of total world output and worth an estimated US $1.56 billion, the researchers sought to discover what type of market system works best.

By analysing cotton marketing, processing and export in six African countries where the sector has been privatised, the international team of researchers argue that unbridled competition can have negative consequences. The researchers say that while some competition in the cotton sector is desirable to keep producer prices up and to encourage innovation, the quality of cotton has to be managed and poor producers need access to production inputs and technical advice.

The team of researchers from the UK, USA, Denmark, Zimbabwe, Zambia, Tanzania and Mozambique, argue that achieving this balance requires a degree of coordination between stakeholders in the sector. Where capacity for formal regulation is weak, this is most readily achieved when major operators in the sector work together.

Economist and Research Fellow, Colin Poulton in Imperial's Department of Agricultural Sciences and lead author of the study explains:

"Trade liberalisation in the cotton market is high on the political agenda following the collapse of the World Trade talks last autumn. Much attention has been focused on the need to abolish the huge subsidies that countries like the United States and EU give to their farmers.

"Cotton is one of the major exports for almost a third of African countries and it is one of very few commodities in which Africa's share of world exports has increased over the past 20 years. Millions of poor households are heavily dependent on cotton for their livelihoods. What we've done is look at how liberalised African cotton sectors can best be organised, so as to continue to compete effectively on the international market and to respond to any new opportunities that arise."

By examining the recent experience of cotton production in Ghana, Mozambique, Tanzania, Uganda, Zambia and Zimbabwe, the researchers highlight the influence of liberalisation on southern and eastern African cotton market systems.

"Under liberalisation there's been an influx of private capital, management expertise and entrepreneurship, which has in most cases contributed to a resurgence in production," says Mr Poulton. "Producers have benefited from prompter payment and now receive a higher financial share of the final price for cotton lint.

"But there are many challenges too. Producers have to maintain the high quality standard of cotton lint; they require efficient delivery of inputs; access to credit and technical advice; and research into improved seed varieties and pest control - which all require some form of coordination."

The researchers identified three distinct types of market structure that have evolved in response to the challenges of privatisation:They conclude that the concentrated, market-based system found in Zambia and Zimbabwe has been most successful in meeting common coordination challenges while still maintaining reasonable prices to consumers.

"Concentrated, market-based systems are dominated by two or three large operators, who show the way in terms of service provision. Even if these operators don't work together, the market share of an individual firm can give sufficient security to invest in input credit or improved quality control," says Mr Poulton.

"In local monopoly systems, each firm is given exclusive rights by the state to provide services to, and buy seed cotton from, a particular geographic area. The performance of these systems has been somewhat disappointing, arguably due to the nature of the incentives provided by the concession contracts. Finally, systems with numerous small operators have struggled most with issues of quality control, input credit and extension provision.

"There is more than one way to achieve coordination. A strong regulatory agency can force operators to act within given rules or operators can agree to follow certain codes of practice set up by themselves. A big issue is how to curb opportunistic behaviour, which ignores these codes. Sometimes the only way to do this is by limiting the number of players competing in a given area - hence the local monopolies. But the concentrated market-based system achieves a balance between some competition and the ability to control the behaviour of operators in the market.

"Having analysed the experience of privatisation in these six African countries we now believe that this framework could be applied to the analysis of any market system, and provides insights into the appropriate role of the state in supporting and regulating private economic activity," he added.
The research was funded by the UK Department for International Development (DFID), with additional assistance from the United States Agency for International Development and the French Ministry of Foreign Affairs.

For further information, please contact:

Judith H Moore
Imperial College London Press Office
Tel: 44-207-594-6702
Mobile: 44-780-388-6248

Notes to editors:

Journal: World Development (March 2004)

Title: 'Competition and coordination in liberalized African cotton market systems'

Authors: Colin Poulton (1), Peter Gibbon (2), Benjamine Hanyani-Mlambo (3), Jonathan Kydd (1), Wilbald Maro (4), Marianne Nylandsted Larsen (2), Afonso Osorio (5), David Tschirley (6), and Ballard Zulu (6)

(1) Imperial College London, Wye, Ashford, Kent, UK
(2) Institute for International Studies, Copenhagan, Denmark
(3) University of Zimbabwe, Harare, Zimbabwe
(4) Universities of Dar es Salaam, Dar es Salaam, Tanzania
(5) INIA, Maputo, Mozambique
(6) Michigan State University, East Lansing, MI, USA

About Imperial College London
Consistently rated in the top three UK university institutions, Imperial College London is a world leading science-based university whose reputation for excellence in teaching and research attracts students (11,000) and staff (6,000) of the highest international quality. Innovative research at the College explores the interface between science, medicine, engineering and management and delivers practical solutions that enhance the quality of life and the environment - underpinned by a dynamic enterprise culture.

Imperial College London

Related Cotton Articles from Brightsurf:

NTU scientists report plastic could be 'eco-friendlier' than paper &cotton in Singapore
Scientists from Nanyang Technological University, Singapore (NTU Singapore) have modelled the cradle-to-grave environmental impact of using different types of shopping bags and report that in cities like Singapore, single-use plastic bags (made from high-density polyethylene plastic) have a lower environmental footprint than single-use paper and multi-use cotton bags.

Research recommends integrated approaches to managing reniform nematodes in cotton
While there are many pests affecting cotton, the reniform nematode is one the most damaging, with the ability to cause annual losses of approximately $33 million within the Mid-Southern United States.

Nematode has potential to reduce cotton yields by 50 percent
The reniform nematode is one of the most commonly found pests of cotton, with the ability to cause severe economic damage.

HudsonAlpha plant genomics researchers surprised by cotton genome
Plant genomics researchers at HudsonAlpha Institute for Biotechnology announce the surprising results of a cotton sequencing study led by Jane Grimwood, Ph.D., and Jeremy Schmutz, who co-direct the HudsonAlpha Genome Sequencing Center (HGSC).

Picking up threads of cotton genomics
In Nature Genetics, a multi-institutional team including researchers at the US Department of Energy (DOE) Joint Genome Institute (JGI) has now sequenced and assembled the genomes of the five major cotton lineages.

Neither surgical nor cotton masks effectively filter SARS COV-2
Both surgical and cotton masks were found to be ineffective for preventing the dissemination of SARS-CoV-2 from the coughs of patients with COVID-19.

Fungi found in cotton can decrease root knot nematode galling
Gregory Sword and colleagues at Texas A&M University inoculated cotton seeds with a diverse array of fungal isolates and tested the resulting seedlings in greenhouse trials for susceptibility to gall formation by root knot nematodes.

Why does your cotton towel get stiff after natural drying?
The remaining 'bound water' on cotton surfaces cross-link single fibers of cotton, causing hardening after natural drying, according to a new study conducted by Kao Corporation and Hokkaido University.

Long-term analysis shows GM cotton no match for insects in India
In India, Bt cotton is the most widely planted cotton crop by acreage, and it is hugely controversial.

What if mysterious 'cotton candy' planets actually sport rings?
Some of the extremely low-density, 'cotton candy like' exoplanets called super-puffs may actually have rings, according to new research published in The Astronomical Journal by Carnegie's Anthony Piro and Caltech's Shreyas Vissapragada.

Read More: Cotton News and Cotton Current Events is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to