Can contract farming be a game changer for Ethiopian cotton?

By Tewodros Belachew, Senior Intervention Manager, EP

I often imagine what it would be like for Ethiopia to increase cotton production to the level of its “largest untapped potential in the world.” With its 3 million hectares of land suitable for cotton cultivation, it would be able to compete with leading cotton producers, Pakistan at 2.6ml hectares and China at 3.3 million. As the global demand for cotton and cotton production grows this year, the reality is that Ethiopian cotton production continues to decline, producing about 34,000 tons of lint this year, 30% less than last year.

Why can’t Ethiopian cotton production performance be better?

The reasons for the under performance have been identified and articulated through various processes at various national platforms and reports. On the production side, our major challenges include limited access to quality seeds and crop protection chemicals, labor shortage, and poor agronomic and post-harvest practices. On top of this, lack of access to finance, lack of coordinated efforts by key stakeholders and the absence of sustainable market linkage constrain the cotton development. Ultimately, this led to a ‘low cost, low output’ farming environment, the sole objective of which is getting a better margin in that particular crop season.

Who’s best placed to improve Ethiopian cotton production?

Cotton is a top cash crop for the country with lopsided strategic importance for the government and the textile industry than for the cotton farmer. The government, through a well-designed institutional structure/support, is best placed to benefit from the establishment of an integrated local value chain that serves as a catalyst for increased investment with significant job creation potential. If this is in place, textile and apparel manufacturers could benefit from improved cost (materials account for 60-70% of garment production cost), compliance with international market requirements, and deliver with speed, which is a critical competitive edge in the fast fashion market. In such a manner, the existing gap between the textile industry and cotton farmers needs to be bridged.  

On the other hand, the introduction of innovative private-sector-driven business models that could incentivize farmers to produce cotton at the right quality and quantity would result in incentive led improvements on the production side. Only then can we ensure return on investments in cotton production trickles down to the farmer, who will be motivated to produce quality cotton for an internationally competitive cotton and textile value chain.

Contract farming as the best model

I strongly believe that customizing and adopting a contract farming model that is fit for the Ethiopian farming environment is the preferred model to respond to the existing market failure which comes at the cost of farmer livelihood and the existence of commercial cotton farming in Ethiopia. The primary goal of contract farming is vertical alignment of farmer and manufacturer to improve incomes and profitability. Moreover, if designed and implemented properly, it could be the magic business solution to organize and shape strategic partnerships, promote innovation and learning, and facilitate access to finance, which leads to sustainable value chain partnership.

If all strategic partners look up and take in a long view beyond, they might well take up contract farming as one of the options toward a developed cotton industry in Ethiopia that benefits all. 

Disclaimer: These are the views of the author and do not necessarily reflect those of Enterprise Partners or UKaid.