This Selected Issues paper and Statistical Annex analyzes the cotton sector in Burkina Faso. The paper highlights that the effect of the sharp drop in international prices of cotton since mid-2001 was much better managed in Burkina Faso than in most of the neighboring cotton-producing countries. The reforms implemented in the cotton sector since 1998 are summarized. The paper also emphasizes that this reform process has been successful is securing and expanding cotton production in Burkina Faso.

Abstract

This Selected Issues paper and Statistical Annex analyzes the cotton sector in Burkina Faso. The paper highlights that the effect of the sharp drop in international prices of cotton since mid-2001 was much better managed in Burkina Faso than in most of the neighboring cotton-producing countries. The reforms implemented in the cotton sector since 1998 are summarized. The paper also emphasizes that this reform process has been successful is securing and expanding cotton production in Burkina Faso.

Burkina Faso: Basic Data, 1996-2001

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Sources: Burkinabè authorities; and staff estimates.

GDP per capita at constant 1995 U.S. dollars

Calculations for 2000 are based on HIPC Second Decision Point, and using current end of period exchange rate.

In percent of exports of goods and nonfactor services.

I. The Cotton Sector in Burkina Faso

1. For some time now cotton producing countries in Western and Central Africa have been looking into liberalizing their activities away from the integrated monopsony that characterizes the organization of cotton production in that region. Cotton production in West and Central African countries has increased four-fold on average since the early 1980s. In the case of Burkina Faso, production rose from 50,000 tons of cottonseed during the 1980/81 campaign to 400,000 tons for the campaign 2001/02 (see Figure 1). Despite this success, the system has shown its limits as it favored rent seeking when world prices were high and required government subsidies when international price fell, resulting in severe distortions and fiscal crises.

Figure 1.
Figure 1.

Seed Cotton Production, 1990-2001

(In thousands of metric tons)

Citation: IMF Staff Country Reports 2002, 093; 10.5089/9781451803754.002.A001

Source: IMF, World Economic Outlook (WEO); and Burkinabè authorities.

2. Cotton is the main cash crop in Burkina Faso and accounted for 57 percent of exports receipts in 2001. The sector provides revenues to more than 2 million people. In Burkina Faso as in most of CFAF countries, the cotton sector has been organized as an integrated monopoly. Key decisions on cultivation, processing and marketing are made by SOFITEX, formerly a public enterprise, which was granted monopolistic powers. SOFITEX provides inputs on credit, which arc deducted from the payment for cottonseed delivered by farmers. SOFITEX also provided services such as road maintenance, rural extension services, quality and pest control, etc. Producer prices are determined by SOFITEX in consultation with the government. A bonus (ristourne) representing 50 percent of pre-tax profit from the previous campaign is added to this price.

3. Following the 1994 devaluation of the CFA franc, cotton production in Burkina Faso more than doubled, as was the case for most CFAF countries. However, the sector remains very vulnerable to external shocks, mainly to the amount of rainfall and changes in international prices. To secure a high level of production and thereby revenue for about 20 percent of the population, the Burkinabè authorities decided to implement gradual reforms geared toward increasing private sector participation in the cotton industry. In particular, in early 1999, the government sold shares amounting to 30 percent of SOFITEX’s capital to cotton producers’ organizations, thereby becoming a minority shareholder in SOFITEX with 35 percent of the capital. Since then, producers and SOFITEX have had a very close and harmonious relationship in managing the cotton sector, with only minimal interference of the government.

4. The effect of the sharp drop in international prices of cotton since mid-2001 was much better managed in Burkina Faso than in most of the neighboring cotton producing countries (see Figure 2). SOFITEX made a particular effort to improve the quality of inputs and intensify extension services to farmers. As a result, yields increased from about 600 kg/ha in 1995 to 1140 kg/ha in 2001, making Burkina Faso one of the most efficient producers in Africa. SOFITEX also adopted very prudent management and commercial policies; in particular, an appropriate policy of forward sales and cost-cutting measures allowed it to break even in 2001/02.1 The average cost of production of cotton fiber has declined continuously from CFAF 693/kg in the campaign 1998/99 to CFAF 648/kg in the campaign 2000/01. In addition to improved management, a further liberalization of the sector has been pursued.

Figure 2.
Figure 2.

Cotton Export Price, 1990-2001

(In CFA francs per kilogram)

Citation: IMF Staff Country Reports 2002, 093; 10.5089/9781451803754.002.A001

Source: World Economic Outlook (WEO); and Burkinabè authorities.1/ WAEMU price deflated by the average CPI of its member countries.

5. The reforms implemented in the cotton sector since 1998 are summarized in Box 1 this reform process has been very successful is securing and expanding cotton production in Burkina Faso. The potential for improvement in the cotton sector is still very large because endowments in machinery and technical know-how remain poor and unevenly distributed. Following the increase in the producer price from CFAF 169 per kilogram of cottonseed in 2000/01 to CFAF 200 per kilogram (including a bonus of CFAF 25 per kilogram) in 2001/02, cultivated areas are estimated to have risen by close to 35 percent (see Table 1). Continued efficiency efforts, through better quality control of inputs further strengthened the gains in yields by an estimated 8.3 percent. Overall, seed cotton production increased by about 45.8 percent to reach 400,000 tons (see Table 2). The higher producer price and larger production in 2001/02 increased producers’ gross revenue by about 72.6 percent, contributing to about 21 percent of GDP growth in 2001. The impact of higher revenue on poverty incidence in the cotton area has been confirmed by the comparison of two household surveys in 1994 and 1998. These surveys, which were the basis for measuring poverty and defining Burkina Faso’s PRSP, indicate that while the incidence of poverty at the national level increased from 44.5 percent in 1994 to 45.3 percent in 1998, in the cotton production area, it declined from 50.1 percent to 42.4 percent. Moreover, this increase in revenue is expected to have positive spillovers on other sectors of the economy. With the growth multiplier estimated for Burkina Faso,2 the increase in cotton growers’ gross revenue (CFAF 33.6 billion, or 2 percent of GDP) should generate another 3.7 percent of GDP in local nontradable income. Also, a stronger cotton production will have a direct impact on ginning and transport activities that will materialize in 2002

Table 1.

Burkina Faso: Performance of the Cotton Sector, 1997/98 - 2002/03

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Table 2.

Burkina Faso: Impact of Cotton Production on Incomes, 1998/99–2002/03

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Sources: Société des Fibres Textiles (SOFITEX); and Fund staff calculations.

Summary of the Reforms Implemented in the Cotton Sector Since 1998

The main aspects of the reform process in the cotton sector are summarized as follows:

  1. Producers associations have been strengthened with support from the donor community.

  2. Early in 1999, 30 percent of the capital of SOFITEX was transferred to the producers. The government’s share in the capital of SOFITEX has declined to 36 percent.

  3. Transportation activities have been spun off to the private sector.

  4. New planting zones (East and Center) have been opened where the private sector is free to invest in ginning activities. SOFITEX is planning to sell its ginning factories in these zones.

  5. Crop credits are now extended to the producers’ associations using joint guarantees (cautionement solidaire) at the level of each association. As a result, performing producers have weeded out poorly performing ones, and productivity has increased significantly (yields improved by 31 percent in 1999/2000).

  6. The cotton is sold to SOFITEX at a fixed producer price plus a bonus representing the distribution of half of SOFITEX pre-tax profit in the previous campaign.

  7. Input supply, especially pesticides and herbicides, is being gradually liberalized.

6. The 2002/03 campaign could be compromised if international prices continue to drop. SOFITEX’s break even point is an average exports price of CFAF 645/kg of lint (one of the lowest in the region), and a producer price at CFAF 175/kg of seed cotton. The company will pursue its precedent policy of forward sales. In case the international price of cotton drops further, SOFITEX stands ready to renegotiate a lower producer price with the farmers so as to guarantee the equilibrium of the sector. In the medium-term, prospects for international prices of cotton will depend on several factors, and in particular on the programs aimed at supporting cotton production prices in some developed and developing counties countries.3 If such policies were pursued, they would lead to continued overproduction and low international prices, and jeopardize cotton production in more efficient producing countries like Burkina Faso

7. Next steps. Ongoing reforms aim at further strengthening producers’ associations and progressively limiting SOFlTEX’s role. Three key issues will need to be addressed in the medium term. The first one is to secure the financing of inputs by the private financial sector, from which SOFITEX intends to withdraw. The rapid expansion of the microfinance networks in the cotton-producing regions should help broaden the access of producers’ associations to credit. The number of private suppliers of inputs providing fertilizers and pesticides to farmers is growing. During a transitional period of two campaigns, SOFITEX intends to monitor very closely the quality of inputs offered to farmers so as to maintain the good quality of the Burkinabè cotton.

8. The second key issue is related to the price mechanism. Until now producer prices were determined by SOFITEX in cooperation with the producers’ organizations, with only indirect reference to international prices. This link between producer prices and international prices should become more automatic. With the assistance of the World Bank, discussions are ongoing on how to implement such a mechanism, with full participation of cotton producers.

9. With the opening of two zones and the decision of SOFITEX to sell its ginning plants in these zones to private operators, competition will increase in the cotton sector in Burkina Faso. In a truly competitive market, the farmer should be able to sell his seed-cotton to whomever he wishes at a freely negotiated price. He could alternatively pay a negotiated fee to a private enterprise for ginning his seed cotton and therefore keep ownership of the cotton fiber and sell it freely. In the case of Burkina Faso, as in all CFAF countries, because individual farmers and producers associations are not yet equipped to collect and process information on the conditions of the market, it is likely that the transfers of power and decision from the ginning companies to the farmers will take some time.

10. Burkina Faso is resolutely pursuing its liberalization policy towards the cotton sector. The development of new cotton-growing regions, fully managed by the private sector, should further promote competition in the sector. Also, the government has already indicated its intention to further reduce its shareholding in SOFITEX in favor of the producers’ associations. The main feature of the successful cotton sector reform in Burkina Faso has been its gradual approach to liberalization and the involvement of producers in the management of the company, and the intention is to continue proceeding along these lines.

1

SOFITEX always sells part of its production in February, before the level of production in the US and in China are announced. In 2000/01, this has allowed SOFITEX to secure the highest average sale price in the region.

2

Burkina Faso, Country Assistance Strategy, Report No. 21285-BUR, (November 2000), notes: “Growth multipliers for Burkina Faso indicate that for each dollar of income generated in the agricultural tradable sector $1.88 of additional income will be generated in the local nontradable sector due to linkages.”

3

According to the joint IMF/World Bank position paper on cotton sector strategy in West and Central Africa (January 15, 2002), the level of assistance to eight countries (representing 53 percent of World output) with such programs amounted to $5.4 billion in 1998/99. Since then, these subsidies have increased even more.

Burkina Faso: Selected Issues and Statistical Annex
Author: International Monetary Fund