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Cablegate: Ivoirian Cotton Sector Hanging by a Thread

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E.O. 12958: N/A


1. Summary. Poor management and world market factors, along
with the seven-year military-political crisis, have resulted
in a 63 percent reduction in Ivoirian cotton production since
the late 1990s. Cotton is grown almost entirely in the Forces
Nouvelles (FN)-controlled north, but the sector is still
characterized by substantial government intervention, despite
privatization of much of the state cotton company several
years ago. There are some signs of improvement in areas where
the private sector has been able to restore farmer
confidence. Additional improvement could take place if the
GOCI streamlines the structures that govern the sector and
provides better seed varieties and more micro-credit. End


2. During the colonial period, officials introduced cotton in
the north in an attempt to reduce economic disparities with
the more developed south. Cotton remains concentrated in the
region north of Bouake, where the climate is more amenable to
the crop. The cotton growing season is from May through
November; ginning activity peaks in November and December.

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3. Since the early days of Ivoirian cotton production, the
government has had significant involvement: CIDT, the state
cotton company, provided farmers fertilizer (the most costly
input), insecticide, herbicide, and seeds. After the
harvest, CIDT bought cotton from the farmers, deducting the
cost of the inputs it had provided. CIDT also made road
improvements and carried out social projects in the
cotton-growing region.

4. In 1998, at the recommendation of the World Bank, the GOCI
sold many of CIDT's assets to private companies; CIDT kept
only two gins. The GOCI assigned each company a zone in
which it could operate and required each farmer to deal only
with the company in his zone.


5. Not long after it entered the market, one of the private
companies, LCCI, began to experience financial difficulties.
Eventually, it stopped providing inputs to farmers, who were
still legally prohibited from selling their product to other
firms. As its situation further deteriorated, LCCI could no
longer afford to pay farmers. In 2006, LCCI filed for
bankruptcy. But the firm's problems had a negative financial
and psychological impact on many farmers and convinced them
to stop growing cotton.

6. By the time of LCCI's failure, the Ivoirian cotton sector
had already been in decline for almost 20 years, beginning
with a decrease in demand associated with the worldwide
recession of the early 1980s. The situation has worsened
over the past ten years as a result of several factors. The
world price of cotton from 1989 to 1998 averaged USD 1,642
per metric ton; but from 1999 to 2008, it averaged only USD
1,282 per metric ton (a decrease of 22 percent).
Additionally, the depreciation of the U.S. dollar (the
currency in which cotton sales are denominated) vis-a-vis the
CFA (which is pegged to the euro) and increasing competition
from China have had a negative impact.

7. The political/economic crisis that began in 2002 has hurt
the cotton sector in much the same way it has affected other
sectors concentrated in northern Cote d'Ivoire (reftel). As
a result of violent conflict in the region, Filiature et
Tissage de Gonfreville (FTG), a privately owned cotton
spinning and weaving company located in Bouake, closed from
September 2002 to February 2003, causing a loss of both
domestic and international customers. The absence of customs
enforcement, another result of the crisis, has allowed the
entry of smuggled cotton goods and counterfeit textiles
tariff-free. Additionally, because of the fragility of the
political climate, companies in the cotton-growing region
have found banks unwilling to lend them money.
Transportation costs have increased as a result of inadequate
road maintenance and numerous FN barricades on the highways.


ABIDJAN 00000732 002 OF 003

8. For the three growing seasons ending in 2001-2002, Cote
d'Ivoire produced an average of 361,868 metric tons of cotton
per year. For the following four growing seasons, ending in
2006-2007, the country produced on average 291,827 metric
tons per year, a decline of 19 percent. For the 2006-2007
and 2007-2008 growing seasons, production averaged only
132,676 metric tons per year, a decrease of 63 percent from
the 1999-2002 level. As of November 2009, USDA projected
world cotton production of 102.74 million 480-pound bales, or
49.3 billion pounds, for the current season. Thus, Cote
d'Ivoire's average annual cotton production over the past two
seasons has averaged only about 0.6 percent of world

9. Today, approximately 150,000 farmers grow cotton in Cote
d'Ivoire. Most farms are 3-4 hectares (roughly 5-7 acres),
and most are worked by hand, without draft animals. Average
national production last year was 859 kilos per hectare,
which, somewhat surprisingly, is quite close to the USDA
projection of U.S. production of 870 kilos per hectare for
the current season. There are currently six cotton-ginning
companies in Cote d'Ivoire: COIC, Ivoire Coton, Dopa, CIDT,
Sicosa, and SECO (a subsidiary of OLAM, an Indian
agricultural firm that purchased an LCCI gin in
Ouangolodougou in 2008).

10. Although there is complete vertical integration in some
firms, such as UNINORD (the parent company of Dopa and
FTG), which buys cotton from farmers and ultimately sells
shirts, sheets, and other cotton products in the retail
market, Cote d'Ivoire exports approximately 90 percent of its
ginned cotton--primarily to Europe and Asia--with no further
transformation. Ivoirian firms export most of their finished
textiles to other African countries and to Europe. It is
unlikely that the Ivoirian cotton sector would benefit
substantially from AGOA, were it to become eligible for the
program in the future.


11. While the GOCI has altered the structure of the sector
over time, the basic system remains entrenched: private
cotton companies and scaled-down, state-owned CIDT provide
inputs, including technical assistance, to farmers and buy
cotton from them, deducting the cost of the inputs. The GOCI
abolished the zone system in 2005, but farmers generally
cannot afford to sell their cotton to gins located far from
their farms. Most farmers belong to cooperatives, which
gather cotton from the various farms to make transportation
more efficient.

12. Each May the GOCI sets the price that gins must pay
farmers based on international prices from the previous
season's harvest. For the 2008-2009 season, the official
GOCI price for top-grade cotton is CFA 185 (USD 0.42) per
kilo (compared to approximately USD 1.32 per kilo for U.S.
farmers). OLAM/SECO, reports that input costs are almost CFA
150 (USD 0.34) per kilo. Thus, Ivoirian farmers are clearing
only about USD 0.08 per kilo.

13. The GOCI also dictates the price that gins charge farmers
for fertilizers. Through the 2005-2006 season the GOCI
provided a subsidy for fertilizer, allowing the ginners to
pay the farmers more for their cotton. For the 2006-2007 and
2007-2008 seasons, in the absence of GOCI subsidies, the
Islamic Development Bank provided fertilizer subsidies.
Neither the GOCI nor the Islamic Development Bank has
announced a fertilizer subsidy for this season.

14. While cotton is the primary cash crop of north-central
Cote d'Ivoire, most cotton farmers grow equal proportions of
cotton and corn. Additional crops grown by cotton farmers
include rice, millet, sorghum, peanuts, and yams. Farmers
use the ginner-provided inputs for these food crops as well.
Thus, failure to provide inputs or to subsidize them has an
effect on food supplies as well as cotton.

15. Like many other businesses operating in northern Cote
d'Ivoire, cotton companies currently pay taxes to the GOCI as
well as unofficial taxes to the FN (reftel). Ginners pay a
levy to the Autorite de Regulation du Coton et de l'Anacarde
(ARECA) and another levy to Audit Controle et Expertise
(ACE), a state agency responsible for quality control and
weighing cotton. Additionally, they pay a fee to the Comite
de Suivie des Filieres Coton et Anacarde (CSCA), an

ABIDJAN 00000732 003 OF 003

organization set up by the FN, and to an association of
cotton companies, known as the Association
Inter-professionelle de la Filiere Coton (Inter-coton).


16. It is difficult to see how the Ivoirian cotton sector,
with its extremely limited capital and government-dominated
set-up, can remain competitive today. The low cost of labor
is the saving grace of the sector. Cotton executives say the
high degree of manual labor provides gins with much cleaner
cotton than the cotton picked by machine, thus reducing
ginning costs.

17. There are some encouraging signs for the sector.
OLAM/SECO has made significant progress at its gin in
Ouangolodougou. Of the 35,000 hectares of potential cotton
farms near the OLAM/SECO gin, only 8,000 were in production
in the 2007-2008 season. This season, 17,000 hectares are in
production. OLAM/SECO ginned 5,500 tons of cotton last year
and expects to gin substantially more this year. Gin
managers believe restoration of farmers' confidence that the
company will provide inputs and technical assistance combined
with OLAM/SECO's guarantee of payment have had a highly
positive effect in the region.

18. Streamlining the GOCI structures that are involved (as is
under consideration in the cocoa sector) and eliminating FN
levies would benefit the sector. Cotton experts say
additional research to develop better seed varieties is
another key to increasing output. Increasing the
availability of oxen or other draft animals, and more
veterinarians to care for them would further boost output.
Micro-credit to allow farmers to purchase work animals,
better quality plows, or even tractors would significantly
help the sector as well.

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