Les systèmes de fixation du prix

d’achat du coton-graine en Afrique

à l’épreuve de la volatilité

Gérald Estur

11èmes Journées de l’A.C.A.

Lomé, Togo, 21 mars 2013

Sommaire

• Panorama des modes de fixation des prix

• Contraintes et défis

• Principes et objectifs

• Forces et faiblesses

• Conclusions et recommandations

Pricing Systems

• Producer price are directly or indirectly linked to international cotton prices in most countries.

• Producers sell lint in countries where cotton is harvested mechanically.

• Producers sell seed cotton in countries where cotton is handpicked.

• Cotton prices and/or revenues benefit from some form of direct or indirect support/subsidy in almost all producing countries.

Pricing Mechanisms

• Market price or administered?

• Price set by: government, ginners, cotton board / interprofession, producers? officially homologated ?

• Negotiated or calculated?

• Pricing formula taking into account ginner costs? producer costs?

• Producer price based on percentage of world price?

• Price set: before planting, before marketing, at purchase, pluri-annually?

• Indicative or minimum guaranteed price?

•

Pricing Mechanisms

• Pan-territorial (national, region, ginnery)?

• Price set at: farm gate, collection point, ginnery gate?

• Quality differentials?

• Pan-seasonal? Fixed or revisable (during or at the end of marketing season)?

• Price paid cash or after delivery? Advance payment?

• Price support or stabilization fund?

•

Pricing Mechanisms

• Price-setting mechanisms in Africa depend on the cotton sector structure, and mainly on the degree of competition between ginners.

• Ginners must have secure supply of seed cotton to be able to guarantee producer price prior to plantings (marketing monopoly, concessions, contract farming).

• In competitive sectors, producers are more exposed to market price fluctuations.

Pricing Mechanisms

• WCA countries:Pan-seasonal, pan-territorial minimum guaranteed pre-planting price based on price projections.Producer price is a percentage of international price.Final price based on actual average price (in countries with price support fund).Higher price risk for ginners.

• ESA countries:Price fixed before marketing based on international price projection minus costs.Increased price risk for producers, and more fluctuations in production.

Impact of Volatility

• ESA Countries

• WCA Countries

World price 100 50 150

Ginner (cost + margin) 40 40 40

Producer (residual) 60 10 110

World price 100 50 150

Producer (60%-share) 60 30 90

Ginner (40%-share) 40 20 60

Pricing Systems

• Fixed pre-planting price:Benin, Chad, Côte d’Ivoire, Senegal

• Pre-planting price + eventual top-up payment at the end of season: Togo, Ghana

• Price support fund: Mali• Price smoothing fund: Burkina Faso , Cameroon

• Marketing floor price based on formula:Kenya (before planting), Malawi, Mozambique, Tanzania, Uganda, Zimbabwe

• No formula: Ethiopia, Nigeria, Zambia

Constraints and Challenges

International cotton prices are extremely volatile!

Daily Prices –2010/2011 Crop

75

100

125

150

175

200

225

250

janv-10 mars-10 juin-10 sept-10 déc-10 févr-11 mai-11

Cotlook A Index (US cents per pound CFR Far East)

Source : Cotton Outlook

Daily Prices – 2011/2012 Crop

75

100

125

150

175

janv-11 mars-11 juin-11 sept-11 déc-11 févr-12 mai-12

Cotlook A Index (US cents per lb CFR Far East)

Source : Cotton Outlook

Daily Prices - 2012/2013 Crop

75

80

85

90

95

100

mai-12 juil-12 oct-12 janv-13

Cotlook A Index (US cts per lb CFR Far East)

Source: Cotton Outlook

Cotton Price Projections are not Reliable

405060708090

100110120130140150160170

90/91 93/94 96/97 99/00 02/03 05/06 08/09 11/12

Projection

Actual

Cotlook A Index season average forecast in Avril (US cents per pound)

Sources: ICAC, Cotton Outlook

No Perfect Reference for Cotton Prices

• Cotlook A Index based on quotations from merchants not on actual prices of sales to spinners.

• Cotlook A Index has become less relevant for prices of lint sold by ginners to merchants.

• ICE cotton futures market is not perfectly correlated with international cotton prices for physical cotton (“basis” fluctuations).

• There is no price reference for cotton seeds as they are not traded internationally.

Basis Fluctuations

0

10

20

30

40

Jan-10 Jan-11 Jan-12 Jan-13

Cotlook A Index minus NY nearby futures (US cents per lb)

Sources: Cotton Outlook & ICE Futures U.S.

Constraints and Challenges

• Exchange rate are volatile (production costs in local currency while lint is sold in dollars).

• Estimates of production costs always contentious as they vary from one stakeholder to the other, and from one season to the next.

• The share of the reference price that can be allocated  to farmers is highly dependent on the world price and on the level of  production.

Exchange Rates are Volatile and Unpredictable

425

450

475

500

525

550

575

Jan-10 Jan-11 Jan-12 Jan-13

CFA/USD

Source: ECB

Which Reference Price is Right?

750

1000

1250

1500

1750

2000

2250

2500

Jan-10 Jan-11 Jan-12 Jan-13

Cotlook A Index equivalent in CFA/kg FOB

Source: ECB

Constraints and Challenges

• Ginners needs cotton growers more than growers need ginners: farmers have a choice between crops, whereas a ginnery without cotton is worthless.

• “Competition is important to ensuring efficiency and equitable sharing of benefits between farmers and ginners. Yet, too much competition makes it difficult or impossible to engage in the coordination needed to provide important services such as quality control, input credit, research, and extension.” (World Bank study).

The Issue of Productivity

• Price is only one component of producer’s revenues.

• Low productivity translates into lower producer prices.

• Ginning outturn is a key factor.

The Issue of Quality

Cotton price depends on:

• Fiber properties (“fiber”)• Contamination (“only fiber”)• Reputation (“more than just fiber”): cotton

trade is based on the principle of the “sanctity of contracts”.

African cotton is discounted due to the perceived risks of contamination, despite the fact that hand-picked cotton produces better lint.

Objectives of Pricing Systems

• Contribute to improving performance and competitiveness of the cotton sector.

• Increase transparency to build trust and foster cooperation between stakeholders.

• Mitigate risks of intra-seasonal price volatility.

• Reduce inter-seasonal price volatility.

Principles of Pricing Systems

• Fair allocation of revenues and risks between producers and ginners.

• Producer price determined on the basis of the operating costs of efficient ginners, otherwise ginners’ inefficiencies would be passed on to producers.

• Domestic lint competitive with price and quality of imported lint.

Price-setting Best Practices

• Simple and transparent formula: producer price calculated as a fixed percentage of lint and seeds sales, based on easily accessible and verifiable references.

• Flexibility within the season, allowing for adaption to volatile world prices: price to be revised periodically.

• Minimum support price.

Conclusions

• No perfect price-setting mechanism.• Pricing mechanisms based on averages cannot

cope with high volatility.

• Need to have consensus between producers and ginners.

• Seedcotton price must be linked to world price of lint.

• Seedcotton price is just one component of producers’ revenues: increasing productivity of producers and ginners stands out as the top priority for improving the competitiveness and profitability of cotton production in Africa.

Merci pour votre attention !