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  • 3.6.7-COTTON MARKETING-WAREHOUSE RECEIPT SYSTEMS

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  • Warehouse receipt systems

    Chapter 3 - Cotton marketing - Warehouse receipt systems 

     
     

    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.