Supporting farmers’ incomes in times of uncertainty

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Recent years have not been easy for cotton producers in Burkina Faso. The average production per producer is on a downward trend, having decreased from 2.9 tons in 2014 to 2.4 tons in 2018. For the most recent campaign (2018/2019), the production did not exceed 436 000 tons, a 29% decrease compared to the previous campaign and the country dropped to the 4th rank of African cotton producers. 

Since the country’s decision to phase out from genetically modified cotton, the pressure of pest infestation on cotton fields has become rampant to the extent that many farmers chose to abandon cotton production. Those who decided to continue were forced to spend more money on increased pesticide use and physical labour. Yet, cotton remains the main source of monetary income of rural areas. The sector benefits from important subsidies from the Government and the Fonds de Lissage, a “price smoothing fund” established in 2007, assumes a decent farm-gate price, independently of the volatility of international prices. The inclusion of farmers in contract schemes, which involves the provision of inputs on credit and an annual guaranteed price, provides them with much needed stability in rural areas. 

Cotton prices at collection and export (FCFA per kg)

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Source: Data collected from SOFITEX and UNPCB
 

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ITFC supports SOFITEX, the main cotton ginning company of Burkina Faso, in providing a timely payment to producers (less than one month after collection).  The relationship with SOFITEX dates back to 2006 when the first operation was approved under Structured Trade Finance. For the most recent transaction (2018/2019), ITFC disbursed US$ 85 million which represented approximately 37.4% of the total estimated cost of purchase of the raw cotton for the season. By providing crop finance at low cost, ITFC support is most likely to provide a basis for bargaining power during annual price negotiations between producers, ginning companies and the Government. During the ITFC financing period (since 2008), producers’ prices have increased by 14% in Burkina Faso. 

The operation is contributing to a key sector of the economy, cotton being the second-largest source of export revenues, comprising 12 per cent of total exports, and fiber exports generating around 50% of the country's foreign exchange inflows. ITFC financing was crucial to keep the producer’s motivation to cultivate the crop and to maintain the trust between the value chain stakeholders.

“Since I produce the cotton, the yields have never been so low. This is mainly due to pest infestation and the low quality of fertilizers. But it is still better than other crops. At least we can estimate how much we will earn at the end of the campaign and when we will be paid. There were years when even after all the cotton was sent to the factory and processed, we waited for one to two months for payment. But now there is a big difference and we are paid in seven to ten days. I can use the money to pay for my kids' schools and other basic expenses of the household” Kakuy Ouanko, cotton producer.

The participation of smallholder farmers’ in contract farming schemes with exporters is an important way to ensure they get their share from agri-food exports and the increased value in export sectors (FAO, 2016). The contract farming business model ensures that farmers are able to access their inputs needs to produce on credit. The inputs loans allow the exporters to access and to buy the harvest from the farmers. ITFC is supporting contract farming schemes by providing pre-export finance to state-owned agricultural companies. The financing allows ITFC clients to provide producers with the timely payment of their production, less than one month after collection. In 2019, ITFC redistributed US$ 290 million worth of income to groundnut and cotton producers in West Africa.

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In 2019, ITFC redistributed US$ 290 million worth of income to groundnut and cotton producers in West Africa.