Ethiopian government to address financing needs of cotton growers following export ban
28 November 2011
With a ban on the export of cotton in place in Ethiopia since October 2010, a new credit facility was set in place in September 2011 to provide finance similar to the ‘pre-shipment export credit’, formerly made available. The export ban was introduced against the background of concerns that rising international prices would deprive the local textile industry of raw materials. The new facility was established following lobbying from the cotton growers’ association.
However the conditions required for accessing the credit, namely having a contract with a textile or garment manufacturer, are felt to undermine the negotiating powers of farmers in their contractual negotiations on price. According to some growers, relations between growers and textile and garment manufacturers have ‘gone sour since the export ban was imposed’. The Ethiopian Ministry of Agriculture is currently scheduling meetings with all parties to try to address the current state of relations in the sector.
Editorial comment
Issues related to the functioning of the cotton supply chain appear to have arisen in Ethiopia. In this context, recent initiatives in Tanzania to strengthen the functioning of the supply chain could provide useful lessons. Here, an initiative supported by the Gatsby Foundation and implemented by the Tanzanian government included:
- support for improving the organisation of farmers in Farmers’ Business Groups, which then deal with input procurement;
- increased support to research and extension services to improve yields;
- the establishment of ‘contract farming’ arrangements between farmers’ groups and cotton ginners, with clear mutual obligations being entered into, supervised by the Tanzanian Cotton Board.
The initiative is taking place within a broader comprehensive cotton and textile development strategy focused on expanding value-added processing (see Agritrade article, ‘ Improving the functioning of the supply chain seen as key to Tanzanian c...’, March 2011).
However, this requires a redefinition of the role of government agencies in support sector development, with the focus on facilitating and regulating commercial relations. This may constitute a major challenge for public sector bodies in ACP countries.
Against this background, there would appear to be scope for collaboration with the EU authorities on the elaboration of appropriate policy tools to be used in strengthening the functioning of particular supply chains.
