Marketing systems for agricultural commodities, including
cotton, have changed considerably since the 1980s and have affected
the livelihoods of over two billion farmers in commodity-dependent
developing countries. International stocks and price management
mechanisms have been dismantled, leading to steady decline and
increased short-term variability in commodity prices. Domestic
cotton marketing systems have also been reformed in most developing
countries, with the State's involvement in input and output
marketing, as well as in setting domestic producer prices, being
substantially scaled back or abolished. The parastatal cotton
marketing boards are no longer directly involved in cotton exports,
their role being primarily limited to sector policy-making.
Second-tier cooperatives, the cooperative unions, which used to
dominate domestic procurement of cotton, have become rathermarginal
players. These reforms have allowed increased private sector
participation in cotton marketing, but the impact has been rather
mixed due because of the following constraints: - Lack of trade finance, limiting price competition (especially
at the farm gate) and also leading to concentration of market power
in a few foreign companies, which have access to relatively cheaper
offshore finance.
- Decline in cotton quality, accompanied by loss of quality
premium enjoyed by exporting country. This is often due to weak
enforcement of quality standards in private trade and non-payment
of quality premiums at the farm gate, although further down the
marketing chain some traders enjoy premiums for quality.
- Lack of certainty regarding the other party's performance,
especially where traders from producer countries lack the required
track record.
- Price uncertainty, originating in part from global price
volatility but accentuated by significant intra-seasonal price
swings as producers are often compelled to sell because of
household cash needs rather than by expected price movements.
This section discusses how the use of warehouse receipts systems
(WRSs) can help address some of these constraints and thereby
improve benefits to producers from the reforms. Cases from Uganda
and the United Republic of Tanzania illustrate how WRSs can
simultaneously help address some of these problems, notably by
easing access to finance, reducing transaction costs (through the
use of standardized grades and trading by description), and
shortening the commodity chain linking farmers to end-users. |