Presentation Outline. Introduction. Declining trend is largely due to: 11/15/08

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1 State of the Cotton Industry and Prospects for the Future in Ghana Presented By Mr. Kwaku Amoo-Baffoe November, 2008 Presentation Outline Introduction Institutional Arrangement for Cotton Production in Ghana Cotton Research and Extension Farming Strategies and Motivation for Cotton Production Challenges and Constraints to Cotton Production Prospects for the Future Introduction Cotton is a major source of foreign exchange earnings in more than 15 countries in Sub-Saharan African (SSA) Crucial source of cash income for millions of rural people in these countries. Critical in the fight against rural poverty. World Bank and other development institutions have been and are currently assisting many cotton exporting countries of SSA to improve their cotton sector performances through projects supporting investment, as well as policy and institutional reforms. Over the years, there has been a declining trend in the development of the cotton industry in SSA. Declining trend is largely due to: Declining and volatile world cotton prices Trade distorting interventions by countries like the USA and EU. Increasing trend in consumption of synthetic fibers. In Ghana, cotton is produced in the three northern regions; Upper East, Upper West and Northern Regions. Cotton production has rather been erratic has never reached 40, 000 tones Yield levels have never exceeded 800kg/ha In comparison, Burkina Faso is actually producing more cotton each year (since 2004) than the total cumulated production of Ghana since

2 Institutional Arrangement for Cotton Production in Ghana Cotton Development Board Established in 1968, with mandate to: stimulate the production of cotton, ensure adequate supply of raw materials undertake research on improved varieties Privatized and re-constituted into the Ghana Cotton Company Limited (GCCL) in 1985 with 30% of its shares taken by government. Zoning of Cotton Production A principle of demarcating the cotton growing areas into an exclusive zone for particular companies. Farmers within a zone are limited to dealing only with the company assigned to operate in that zone. Initiated by the Ministry of Food and Agriculture to address malpractices in the cotton industry as result of proliferation of cotton companies Some malpractices are: companies poaching farmers of other companies Companies offered unsatisfactory services to farmers farmers registered and received inputs from two or more companies but then sold their cotton to other companies farmers avoided payment for inputs received on credit farmers diverting some of the inputs to food crop production farmers selling input acquired on the open market Cotton Production Assistant s (CPAs) employed by companies to support group formation and farmer registration also cheated their employees by registering ghost farmers. Results of malpractices - High indebtedness of cotton companies to the Agricultural Development Bank (ADB) ADB as a result has since 2000 ceased to fund the cotton companies. Consequently, smaller cotton companies not able to operate effectively and suspended operations. To date only 4 out of the 16 companies are left 2

3 Group Formation Strategy of working with farmers in small producer groups Cotton Producer Groups (CPG) CPG size vary from about three members to as many as fifty or more members. CPG s basically at the community level and are linked to Cotton Farmers Associations (CFAs) CPGs relate to cotton companies through zonal officers and CPAs. Cotton Farmers Associations (CFAs) Represented at all levels national, region and district Functions: Initial screening of members before registration by cotton companies Receipt of farm inputs from cotton companies for onward distribution to members Record data on land preparation, farm inputs and seed cotton marketing for use by CPAs. Contribute to pay any outstanding debts should any member default Monitor cotton production activities by members Shortcomings of CFAs Although well structured, it is not very active as it should Lack adequate training on group formation and dynamics and are not guided by any set principles. Cotton Research and Extension In Ghana extensive research is being carried out in the food crops and cocoa sectors to the disadvantage of cotton Cotton companies provide extension service to cotton farmers through the Cotton Production Assistant s. Farming Strategies and Motivation for Cotton Production Projections from the 2000 population census show average number of farmers growing cotton from 2001 to 2006 was 33,000 (16.5% of total number of farmers in the three northern regions) Major crops grown in addition to cotton are maize, sorghum, millet, groundnuts, cowpea, rice, yam and cassava Motivation for growing cotton is associated with: returns from other food crops. the residual effects of cotton fertilizer which improves the yield of maize. 3

4 Comparative Disadvantages of Cotton Production It is a non-food cash crop Must be grown solely on the field Labor intensive especially harvest time Period for its cultural practices compete with other staple food crops Has higher storage risk and cannot be stored to reap higher prices in future Price Fixation Mechanism Based on negotiation: Producers consider all producer cost, expected average yield and profit per hectare. Cotton companies consider world price of cotton lint, deduct all marketing cost. These methods often lead to incompatible figures resulting in disagreements. Challenges and Constraints Lack of credit Late input delivery Poor Quality Seed Poor Producer Price Inadequate Labour Inadequate Education and Extension Services Subsidies Challenges and Constraints Lack of credit ADB has stopped financing the cotton sector. As a result, many companies have ceased production and size of operation reduced Late input delivery Tractors for ploughing are in short supply and contribute to delay in land preparation Poor Quality Seed Good treated cotton seeds are scarce and not accessible, resulting in over dependence on third or fourth generation imported seeds Poor conditions under which imported seeds are transported lead to low viability and vigor of the cotton seed Poor producer price Producer price of seed cotton is very low leading to low returns, thereby deterring farmers from cultivating the crop Inadequate labor: Cotton production is labor intensive. Competition for labor for weeding of cotton and sorghum at same the time. 4

5 Inadequate Education and Extension Services Low literacy levels and inadequate technical skills of farmers The CPAs who provide extension services, are themselves hardly trained and lack technical skills. Ratio of Agricultural Extension Agents (AEAs) to number of cotton farms woefully inadequate. Subsidies Various trade-distorting interventions in the cotton market exist. Most important being the domestic support (subsidies) given to cotton farmers by the US and the EU. Studies have indicated that cotton prices on the world prices would have been higher by 10% to 15% if the subsidies were substantially reduced. Subsidies also results in excess supply of cotton which further amplify price fluctuations. Prospects for the Future Favorable Policy Environment Availability of Land Number of Cotton Growers Ginning Capacity Commitment of Private Companies Ready Market Prospects for the Future Favorable Policy Environment The Food and Agriculture Sector Development Policy has outlined strategies and programs to develop the cotton sector. Increase the availability of improved planting materials adoption of improved agronomic practices expansion of average farm size per holder. Strongly promote out grower- nucleus farmer linkage French government support to develop the cotton sector. Availability of land Adequate land for cotton production in the three northern regions where cotton is grown. Only 30.2% of land is currently under cultivation out of 57.1% of land area suitable for agriculture. Favorable climatic conditions in the northern sector Other areas have been found to be conducive for cotton production. Number of cotton growers Total number of active cotton farmers is estimated to increase from 33,000 (20%) to about 110,690 (67%). Expected average area per farm will increase from 0.55 ha to 1.5ha with an average yield of 1.25 tones of seed cotton. Ginning Capacity Existing ginning capacity of the cotton companies is far beyond actual production. 5

6 Private Companies Commitment of private companies to develop the cotton sector in Ghana. Made substantial financial investment resources in the industry committed to expanding operations. Reduction of the private cotton companies to 4 will enhance smooth operation Thank you 6

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