Structure, Reforms and Performance of the Ugandan Cotton Sector

Abstract: Uganda has fertile soils and climatic conditions well suited for cotton production. The country has a competitive advantage in the good intrinsic quality of its cotton, the cheap labour and the fact that cotton is handpicked. There is a ready market for the cotton once it is harvested and there are many areas of use, such as textile, medical supplies, cooking oil, soap and animal feed. In spite of those favorable circumstances, the Ugandan cotton sector is struggling with low productivity and profitability. The majority of the cotton producers in Uganda belong to low income households and enhancing the performance of the cotton sector could substantially improve their financial situation. Cotton production in Uganda flourished in the beginning of the last century. With independence in the early 1960s, the parastatal company Lint Marketing Board (LMB) was created to buy and export cotton. The LMB had monopsony power, mean¬ing that there was virtually no competition in the Ugandan cotton sector, which deteriorated its performance. To remedy this, the cotton sector was liberalized in 1994, which led to increased competition, but diminished incentives for coordination. As a result, the areas of input supply and extension services are worse off compared to before the reforms; quality has deteriorated and contamination is a big problem. The lack of coordination has also had a negative impact on transport from farmer to ginnery and credit accessibility is practically nonexistent. One of the major achievements is the increase in producers’ share of revenue and the fact that farmers now get cash for crops. Poverty still persists, though, partly due to the low and volatile world market price, but also because of the sector’s disappointing performance. Productivity has gone up since liberalization, but Uganda still lags significantly behind the rest of the world. Improved inputs, especially the introduction of genetically modified cotton, and better farming techniques could increase yields and thus improving the competitiveness of Ugandan cotton. Farmers’ organization could also augment productivity, as it would promote larger scale production. Furthermore, it would give them more leverage and political voice.