Challenges and Issues in the African Cotton Sector 1
COTTON IN AFRICA 2
THE IMPORTANCE OF COTTON IN AFRICA A vital cash crop for millions of Africans (about 3.5 million cotton farms in 35 countries out of 54). Engine of rural and agro-industrial development : - 300 ginning factories in cotton areas; - Oil mills and textile mills. Proven contribution to poverty alleviation and food security. Major source of export revenues: -3 rd agricultural commodity after cocoa and coffee; - > 25% of total exports in several countries. 3
OVERVIEW OF THE COTTON ISECTOR IN AFRICA 4.5 million ha in 2013/14 (14% of world cotton area) 93% rainfed (Gossypium hirsutum) Smallholder farms; labor intensive; low input use 100% handpicked; mostly saw-ginned 1.5 million tons lint (6% of world production) 1.3 million tons exported (15% of world total) 320,000 tons spun locally (1.4% of global mill use) 4
Top African Producers 2013-2014 Thousand tons of lint 0 50 100 150 200 250 300 Burkina Faso Mali Côte d'ivoire Benin Cam eroon Egypt Tanzania Nigeria Zim babwe Mozam bique Malawi Zam bia Ethiopia Togo Chad Source: ICAC
AFRICAN COTTON IN THE WORLD 6
Cotton Area 2013/14 Pakistan 9% Brazil 3% Uzbekistan 4% Other 11% India 36% USA 9% Africa 14% China 14% Source: ICAC
Biotech Cotton % of world cotton area 75 50 25 0 96/97 98/99 00/01 02/03 04/05 06/07 08/09 10/11 12/13 Source: ICAC
Top World Producers 2013/14 Thousand tons of lint 0 2 4 6 8 China India USA Pakistan Brazil Africa Uzbekistan Australia Turkey Other countries Source: ICAC
Cotton Production 2013/14 Uzbekistan 4% Africa 6% Turkey 3% Australia 3% Other 7% China 26% Brazil 6% Pakistan 8% USA 11% India 26% Source: ICAC
Top World Exporters Million tons lint (2013/14) 0 0,5 1 1,5 2 2,5 3 USA India Africa Australia Uzbekistan Brazil Greece Other countries Source: ICAC
Exporters 2013/14 Uzbekistan 7% Greece 3% Brazil 5% Other 9% USA 26% Australia 12% India 23% Africa 15% Source: ICAC
Shares of African Cotton in the World 25% 20% Exports 15% 10% 5% Production Mill Use 0% 90/91 95/96 00/01 05/06 10/11 Source: ICAC
CONSTRAINTS AND RISKS 14
MAJOR CONSTRAINTS - Weather hazards (rainfed cultivation) & climate change - Uneducated farmers lacking equipment - Low use and high costs of inputs - Landlocked cotton areas - Poor infrastructures (transport & energy) - Price taker, export dependent - Weak integration of the cotton value chain - Local processing uncompetitive - Lack of technical expertise & market knowledge - Governance & regulation issues; political instability - Unfair competition (fraudulent imports, subsidies) - Negative reputation and perception in the market 15
AFRICAN COTTON IS HIGHLY EXPOSED TO RISKS. African cotton farmers, among the poorest in the world, are ill-prepared to deal with the various risks facing them (weather risk, price volatility, etc).. Most cotton farmers have no cash to buy the inputs required for successfully growing cotton.. Price volatility affects all stakeholders in the cotton sector: farmers, ginners/cotton companies, merchants, spinners, banks, States.. African cotton farmers are much less supported by their governments than their counterparts in the 4 largest producing countries (China, India, USA, Pakistan), and even less in ESA than in the franc zone. 16
Cotton Price Volatility Season-average Cotlook A Index* (USD cents per pound CFR) 170 164 150 130 110 90 94 70 50 30 Average 73/74 09/10 42 70/71 75/76 80/81 85/86 90/91 95/96 00/01 05/06 10/11 * August n to July n+1 ; source: Cotton Outlook 17
Volatility of Producer Prices USD cents/kg seed cotton 100 75 50 Malawi Tanzania Zambia Franc Zone average Mozambique Uganda Zimbabwe 25 0 00/01 02/03 04/05 06/07 08/09 10/11 12/13 Sources: national cotton associations
Ending Stocks (July 31 st ) Thousand tons of lint 23 20 18 China Out of China 15 13 10 8 5 3 0 90/91 95/96 00/01 05/06 10/11 15/16 Source: ICAC
GOVERNMENT DIRECT SUPPORT TO COTTON (US $BN) 8 6 4 2 0 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 Source: ICAC 20
THE ISSUE OF PRODUCTIVITY 21
Average Yields 2013/14 kg lint per hectare 0 400 800 1200 1600 2000 2400 China India USA Pakistan Brazil Africa Australia Uzbekistan Turkey World Source: ICAC
Yield Differentials kg lint per hectare 750 650 550 World 804 India 581 450 350 Africa 332 250 90/91 95/96 00/01 05/06 10/11 Source: ICAC 23
Productivity Average yield in Africa/ World average yield (kg lint/ha) 100% 75% 50% 25% 0% 90/91 95/96 00/01 05/06 10/11 Source: ICAC
kg lint per hectare Average Yields by Region 1000 North Africa (irrigated) 800 600 400 Franc Zone (rainfed) 200 Other Sub-Sarahan countries (rainfed) 0 90/91 95/96 00/01 05/06 10/11 Source: ICAC 25
PRODUCTIVITY IS KEY FOR IMPROVING INCOMES FROM COTTON. The price is just one component of cotton farmers incomes.. Low productivity translates into low revenues for farmers and ginners.. Cotton farmers are price takers but they have an influence on yields.. An African cotton farmer who produces less than one ton of seed cotton per hectare has a bleak future. 26
THE GINNING OUTTURN IMPACTS PRODUCER PRICES 30% 32% 34% 36% 38% 40% 42% 44% Franc Zone Zimbabwe Zambia Mozambique Malawi Uganda Tanzania Kenya A lower ginning outturn translates into a lower producer price: All other things being equal, the price that can be paid to producers is 20% higher with a ginning outturn of 42% than with a 35%-GOT. 27
TOPIC 1 SUSTAINABILITY, INNOVATIONS AND INDEX-BASED INSURANCE: CHALLENGES FOR AFRICAN COTTON FARMS 28
THE ISSUE OF QUALITY 29
INTERNATIONAL COTTON MARKET World imports: about 7.5 million tons in 2014-2015 (China 20%) 97% «upland» cottons (Gossypium hirsutum) 3/4 medium and long staple length: ring spinning 1/4 short staple length: rotor spinning (open end) 3% extra-long staple cottons (Gossypium barbadense), roller ginned: very fine yarns 30
COMPETITORS OF AFRICAN COTTONS - Man-made fibers (No. 1: polyester) - Machine-picked cottons (50% of exports) - Cottons from large farms under irrigation - Cottons from other hand-picked origins (India) - Cottons from other African countries - Cottons from the same origin sold by others 31
THE ISSUE OF AFRICAN COTTON QUALITY The price of cotton lint depends on: - lint characteristics ("fiber") ; - contamination by foreign matters, real or perceived ("only fiber") ; - the way cotton is classed, baled & shipped ("more than just fiber") ; - the reputation of the origin and the seller (sanctity of contracts). The price of African cotton is discounted vs other origins, because of the perception of the risk of contamination associated with manual picking. 32
PRICE DIFFERENTIALS 0 2 4 6 8 10 12 14 16 California SJV Australia Uzbekistan Texas Zimbabwe Cameroon Zambia Chad Côte d'ivoire Mali Benin Burkina Faso India Tanzania Quotations in Cotton Outlook for higher grades (SM 1-1/8 ) minus Cotlook A Index (USD cents per pound) Source: Cotton Outlook, (12/07/2013) 33
THE CHALLENGE OF CONTAMINATION. Contamination of lint by foreign matters (not from the cotton plant) is the most serious problem facing spinners of cotton (vs contamination-free polyester).. Non-cotton fibers (primarily polypropylene) can lead to downgrading, or even outright rejection, of yarns, fabrics or clothes.. Manual picking is perceived as the main cause of contamination.. The level of risk, real or perceived, of contamination translates into significant price differentials.. In fact, the reputation of African cotton is more contaminated than the cotton itself. 34
Picking cotton in the USA in the early 20th century Picking cotton in Africa nowadays Harvesting cotton in the USA
TOPIC 2 - MARKETING: A NEW REGIONAL APPROACH FOR PROMOTING AND IMPROVING THE QUALITY OF AFRICAN COTTON 36
THE ISSUE OF VALUE ADDITION 37
Cotton Mill Use 2013/14 USA 3% Africa 1% Other 8% Other Asia 11% China 32% Brazil 4% Bangladesh 4% Turkey 6% India 21% Pakistan 10% Source: ICAC
Source: ICAC Mill Use Thousand tons lint 1000 750 500 250 Indonesia Bangladesh Africa Vietnam 0 90/91 95/96 00/01 05/06 10/11
Cotton Mill Use 2013-2014 Thousand tons lint 0 25 50 75 100 Egypt Ethiopia Morocco Tanzania South Africa Nigeria Sudan Franc Zone Tunisia Other countries Source: ICAC
Cotton Mill Use Thousand tons lint 450 400 350 300 250 200 150 100 50 0 North Africa Other Sub-Saharan countries Franc Zone Ethiopia 90/91 93/94 96/97 99/00 02/03 05/06 08/09 11/12 Source: ICAC
WAEMU Textile Market Imports 17% Domestic production 17% Smuggled clothes 49% Used clothes 17% Source: Studies on the creation of 2 regional support funds for the cotton textile sector October 2009
CONSUMPTION OF TEXTILE FIBERS IN AFRICA End-use of textile fibers (est. from ICAC data): 2.5 kg/capita/year; cotton share: 40% Population (2015): 1.2 billion End-use of cotton fiber: About 1.2 million tons Cotton mill use: 320,000 tons of lint (2% of production in 2013/14) 43
TOPIC 3 - PROCESSING DEVELOPING THE COTTON- TEXTILE IN AFRICA: OPPORTUNITIES AND CHALLENGES 44
STRENGTHS AND OPPORTUNITIES FOR AFRICAN COTTON - Very low carbon print. - Lower costs of production in Africa (vs China, USA, Brazil). - Production should trend lower in several countries, notably in the USA. - Wide margin for improvement both in terms of productivity and quality. - Large reserves of uncultivated arable land. - World average yield expected to level off. - Superior characteristics of lint ginned from hand-picked seed cotton. - Potential markets for lint in Africa (Egypt, Ethiopia). - Wide scope for value addition. - Stronger US dollar benefiting exporters. 45
CONCLUSIONS: REASONS FOR HOPE 46
HOW TO IMPROVE THE COMPETITIVENESS OF AFRICAN COTTON - Increase productivity - Insure against weather risks - Reduce producer costs - Optimize export logistics - Build capacity of producers and ginners - Improve quality - Minimize contamination - Adopt instrument testing - Increase transparency and traceability - Build consensus among stakeholders - Regulate the cotton sector - Change spinners negative perception - Protect the domestic textile industry 47
Agricultural Commodity Prices Average monthly indexes in nominal US dollars (basis 2000 = 100) 400 300 Cotton Agriculture 200 100 0 2000 2002 2004 2006 2008 2010 '2012 '2014 Source: World Bank
SUCCESS STORIES TO EMULATE In Africa: - Cameroon had the highest average yield for rainfed cotton in Africa (514 kg lint/ha over more than 200,000 ha) and paid a high producer price in 2013/14. - Quality approach in Senegal. - Optimization of export logistics in Mali. Africa should draw lessons from the very rapid emergence of India, a customer turned into a competitor. 49
Cotton in Africa vs India (2013/14) Africa India Population 2015 (bn) 1.2 1,3 No. cotton farms (est.) 3.5 7.5 Area (million ha) 4.47 11,65 Average yield (kg lint/ha) 332 581 Production (million tons lint) 1.48 6.77 Exports (million tons lint) 1,.3 2.0 Imports (million tons lint) 0.185 0.15 Mill use (million tons lint) 0.32 5.04 Source: ICAC
COTTON PRODUCTION POTENTIAL IN AFRICA Planted area: 5 million hectares Average yield: 1.5 t seedcotton / ha Ginning outturn: 40 % Yield: 600 kg lint /ha Production: 3 million tons lint 51
MANY THANKS FOR YOUR KIND ATTENTION 52