Contract farming in Zambia’s cotton sector: Challenges to salvage a success story
David Tschirley (Michigan State University), Isaac Minde, (ICRISAT), Stephen Kabwe (Food Security Research Project, Zambia)
Introduction
We summarize the evolution of Zambia’s cotton sector since reform in 1994, highlighting the robust and sustained growth through 2006, followed by stagnation since that time. We set the stage for the rest of the paper by asking “what are the causes of the recent stagnation?”, and “what can be done to re-launch robust growth?”
The World Cotton Market
We review price and production trends in the world cotton market, then focus on key structural and behavioral characteristics that directly influence Zambia’s cotton sector: (a) the expansion of GM cotton and its implications for competitiveness, (b) the strengthening role of international cotton merchants in cotton production as well as trade, and (c) technological changes in the spinning industry, their impact on quality premia, and implications for African cotton in general, and Zambian cotton in particular.
Contracting for cotton in Zambia
We first characterize the evolution of contract farming with smallholders in Zambia since 1994, highlighting (a) the changing (over time) and heterogeneous (across companies) nature of the (informal) contracts with farmers, focusing on the input, extension, and pricing services provided by companies and the reciprocal expectations placed on farmers, (b) the fluctuating structure of the sector at ginning level and its implications for the ability to maintain contract farming relationships, especially as it affects the probability of side-selling, (c) the role of the public sector in helping or hindering contracting relationships, and (d) the effectiveness of recent efforts at creating a public-private self-regulatory structure that promotes horizontal coordination within the sector to strengthen contracting relationships.
Throughout this discussion we draw on experience from other countries throughout Africa regarding the relationship between sector structure and the feasibility of contract farming, and on experience developing self-regulatory approaches to this problem.
Next, we use panel household data to assess the effectiveness of observed contracting relationships in driving (a) productivity growth, (b) lint quality improvements, (c) sustained farmer commitment to the sector (a key predictor of sector success will be the size of the dedicated core of farmers producing cotton nearly every year and improving their practices over time), and (d) broad farmer participation in the sector.
We close by noting apparent sharp recent reductions in yield and discuss the factors that may be contributing to this and their relationship to the quality of contract farming relationships.
Conclusions
We conclude by focusing on the emerging self-regulatory structure in the country, identifying the key steps that need to be taken to make it an effective framework for promoting contract farming in cotton, and assessing the factors that will influence the ability of stakeholders to take these steps.