No Slide Title

Les systmes de fixation du prix

dachat du coton-graine en Afrique

lpreuve de la volatilitGrald Estur

11mes Journes de lA.C.A.

Lom, Togo, 21 mars 2013SommairePanorama des modes de fixation des prix

Contraintes et dfis

Principes et objectifs

Forces et faiblesses

Conclusions et recommandations

Pricing SystemsProducer 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 MechanismsPrice-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 MechanismsWCA 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 VolatilityESA Countries

WCA Countries

World price10050150Ginner (cost + margin)404040Producer (residual)6010110World price10050150Producer (60%-share)603090Ginner (40%-share)402060Pricing SystemsFixed pre-planting price:Benin, Chad, Cte dIvoire, Senegal

Pre-planting price + eventual top-up payment at the end of season: Togo, GhanaPrice support fund: MaliPrice 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

Cotlook A Index (US cents per pound CFR Far East) Source : Cotton Outlook11Daily Prices 2011/2012 Crop

Cotlook A Index (US cents per lb CFR Far East) Source : Cotton Outlook12Daily Prices - 2012/2013 Crop

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

Source: Cotton Outlook13Cotton Price Projections are not Reliable

Cotlook A Index season average forecast in Avril (US cents per pound)Sources: ICAC, Cotton OutlookNo Perfect Reference for Cotton PricesCotlook 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

Cotlook A Index minus NY nearby futures (US cents per lb)Sources: Cotton Outlook & ICE Futures U.S.Constraints and ChallengesExchange 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

CFA/USDSource: ECBWhich Reference Price is Right?

Cotlook A Index equivalent in CFA/kg FOBSource: ECBConstraints and ChallengesGinners 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 ProductivityPrice is only one component of producers revenues.

Low productivity translates into lower producer prices.

Ginning outturn is a key factor.

21The Issue of QualityCotton 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.

22Objectives of Pricing SystemsContribute 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.

23Principles of Pricing SystemsFair 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.

24Price-setting Best PracticesSimple 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.

25ConclusionsNo 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 !