Int. j. econ. manag. soc. sci., Vol(3), No (7), July, 2014. pp.

354-367

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Cotton Market Competiton in Tanzania: A Competititon

Assessment Framework
Deus Dominic Ngaruko*
Centre for Economics and Community Economic Development, Open University of Tanzania
P.0.Box 23409 Dar es Salaam, Tanzania
Bahati D.Mbilinyi
Faculty of Business Management, Open University of Tanzania
P.0.Box 23409 Dar es Salaam, Tanzania
*Corresponding author: deus.ngaruko@out.ac.tz

Keywords
Seed cotton market,
Competition Assessment Framework,
Tanzania

Abstract
The broad objective of this paper is to examine performance of the cotton sector with a view to
identifying competition issues that need to be dealt with under the Tanzania Fair Competition Act and
issues that may likely require policy interventions. The guidelines set out in the Competition
Assessment Framework were used throughout to ensure that the findings are focused to competition
issues within the relevant market. Most of the information used in this study was gathered from village
focus groups, structured interviews with producers and cotton ginners. Data were analyzed qualitatively
through corroboration of facts. The relevant market was found to be seed cotton procurement in the
Western Cotton Growing Areas (WCGA). Anticompetitive actions such as horizontal and vertical
integrations were very commonly practiced. The introduction of contract farming is seen as a way to
cement the vertical integration which if not checked may worsen competition for seed cotton even
further. We finally conclude our study by pointing out that the Fair Competition Act, 2010 must become
an instrument for generating optimal outcomes by directly influencing the market structure for seed
cotton such as controlling of informal mergers. Policy coherence, consistency and complementarities
are thus important, as there is need for the competition policy to be an integral part of overall national
policy framework. In order to improve seed cotton market competitiveness we point out several specific
recommendations all around five key market competition areas: licensing and regulations, marketing of
inputs and production, cotton quality issues, producer price setting, and government intervention and
support.

1. Introduction
Cotton is one of the most important traditional export crops in Tanzania. The sector is a major source of livelihood to about
500,000 rural smallholder farmers owning between 0.5 to 10 acres (Average 1.5 acres) prevailed by handwork based.
Furthermore, cotton production in Tanzania remains rain-fed, labour-intensive and low in quality. The cotton growing area is
divided into west and east as Western Cotton Growing Area (WCGA) and Eastern Cotton Growing Area (ECGA) respectively.
The WCGA encompass regions including Mwanza, Shinyanga, Singida, Mara, Kagera and Tabora producing 95% while ECGA
include Morogoro, Manyara, Tanga and Kilimanjaro with a low production of 5% of the total cotton produced. Report by RLDC
[1] points out that cotton production in Tanzania is mainly conventional, largely for export with a total earning of $90-100 million
Tsh per annum where about 80 % is exported mostly to Asia as lint. The total land under cotton cultivation in Tanzania is
estimated between 400,000 to 500,000 hectares characterized by high fluctuations in production; 350,000 tons and more in good
years to hardly 100,000 tons of seed cotton in bad weather years. [2] point out that these average cotton yields in Tanzania are
amongst the lowest in Africa. Production has been erratic and input use has declined dramatically. Tanzania competes with
Zimbabwe to be the largest cotton producer in Southern and Eastern Africa. Cotton is one of the three most important export cash
crops in the country, along with coffee and cashew. After struggling for several years, production of seed cotton in Tanzania
reached record levels in 2004 and 2005, and cotton became the largest export earner of all agricultural commodities in the country.
In both these years, Tanzania ranked as the 6th largest lint producer in Africa, according to ICAC data. From a wider perspective,
the Tanzanian cotton sector is interesting because, of all the liberalised cotton sectors in Africa, it has been closest to the
competitive ideal. Despite high local taxes and transport costs, the sector does pay reasonably attractive prices to producers.
However, the highly competitive market structure has also presented significant challenges, especially in relation to seed supply,
quality control and seasonal credit [3]. Tanzania and Uganda present contrasting responses to the common challenges of seed
supply, quality control and seasonal credit. In Uganda, where the number of ginning companies is similar to Tanzania, current
arrangements impose major restrictions on competition. In contrast, there is widespread support for maintaining a competitive
market model in Tanzania, although there is also recognition that this can only be effective if a public agency - currently Tanzania
Cotton Board (TCB) and the associated Cotton Development Fund (CDF) - plays a complementary coordination role.
In turn, this raises interesting questions about the accountability of the public agency to sector stakeholders. Tanzania thus
represents an interesting study in public-private collaboration and sector governance. It also represents an important test case of
whether a competitive market model can be made to work for African cotton.

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International Journal of Economy, Management and Social Sciences Vol(3), No (7), July, 2014.

1.1 Cotton sector regulatory reforms in Tanzania

Until the onset of economic reforms in the early 1990s, the cotton sector was characterised by wide spread state regulations and
intervention, although the instruments and agents used changed from time to time. Until the mid 1970s, cotton marketing was
organised through a three tier system consisting of primary cooperative societies, regional cooperative unions, and the parastatal
Cotton Board (CB). The latter performed overall regulatory functions and was responsible for sale of cotton lint on domestic and
export markets. Regional cooperative unions (RCUs) had a legal monopoly in purchasing and ginning all seed cotton while
primary societies purchased seed cotton on behalf of the RCUs. The RCUs were formally abolished in 1976; however, the primary
purchase and ginning came under direct management by the Tanzania Cotton Authority until the former system was reintroduced
in 1982. This lasted until the cooperative reforms in 1991-92. Throughout this period, pan-territorial and pan-sectoral prices were
announced in advance of each season. The liberalisation of the cotton sector began in the 1992-93 season. In 1993 the government
removed the fixed producer price system, while the monopolies of the RCUs and the CB were abolished through amendment of
the cotton Act. The Cottons Boards role was redefined in terms of managing quality control of cotton lint and other by-products.
A new statutory instrument, the Cotton Regulations of 1995, specified that private agents were allowed to enter the market in
every stage from primary purchase to exports of lint, provided that licenses were obtained from the Cotton Board and in advance
of each season. In the early years of liberalisation the RCUs remained major players despite the inroads of the private sector,
mainly because they controlled almost half of the total ginning capacity and operated the largest seed cotton buying networks.
Most of the new private buyers constructed their own ginners, partly because the cooperatives refused to permit new entrants to
gin their seed cotton on contract basis. A strong competition at the primary purchase stage has resulted in a higher share of the
export market price for lint being passed through to the farmer since the mid 1990s. In addition, with the abandonment of pan
territorial and pan-seasonal prices, the proportion of the export price received by a farmer depends critically on time of selling and
geographical location.
Several recent studies in Sub-Saharan Africa of previous regulated crops conclude that quality of cotton has deteriorated as a
result of market liberalisation. This is explained by the fact that the transition from a single channel (parastatals) to a multichannel (private) marketing system was generally poorly handled [4]. Rules and regulations regarding the operations of the private
sector took too long to prepare and the industry functioned for around two years without approved regulations. The cotton sector
is currently characterised by a large number of smaller and under-capitalised companies with a short-term interest of maximising
cash revenue and a small group of large companies with higher fixed investments and inter alia a longer term commitment. The
latter group may have an interest in the existence and enforcement of effective quality control procedures, but the former may be
tempted to circumvent such controls (as in the early years of liberalisation), undermining both the credibility of quality controls
amongst farmers and the broader reputation of the national crop. The current market study is timely in that studies undertaken on
cotton have rarely focused on the competition in the sector from the Competition Assessment Framework (CAF) perspectives of
the cotton buyers. It is likely that this study has come out with key competition issues to be scaled up by FCC to increase fairness
in competition amongst cotton buyers
1.2 Competition Assessment Framework: An overview
DFID provides an account of the key features of the Competition Assessment Framework (CAF) that was adopted in this paper.
DFID describes fair competition in markets as crucial for economic and social development, and for reducing poverty. Yet, anticompetitive practices and policies are common, diminishing the opportunities for innovation and growth, and making consumers
worse off. Developing country governments need to identity and address anti-competitive arrangements and practices in both the
private and public spheres. This Framework is intended as a convenient and user-friendly introduction to approaching this task.
While the Framework is designed for national sector assessments, it could be used also at the sub-national level, such as for
individual states in federal countries. The Framework is intended as a flexible diagnostic tool that poses sets of questions that are
grouped by theme. The questions begin with the selection of sectors for assessment. Table 1 summarises the seven steps that
analyse the state of competition in the selected sector is:
identifying the markets and competitors,
examining the market structure,
looking for barriers to entry,
looking for anticompetitive conduct, c
considering vested interests and the principal beneficiaries,
identifying government policies or institutions that limit competition, and
Draw conclusions.
Because economic conditions, laws and institutions can vary greatly between countries, not all of the questions in the Framework
will be applicable in all situations. A competition assessment analyses the strength of competition in the relevant market/s, and
identifies any factors impeding more effective competition. Key issues are: the structure of the market, entry barriers and anticompetitive conduct. Where competition is found to be limited, an estimate should be made of the likely extent of the harm that
results from this. An assessment should conclude with a view on whether there are competition problems in the sector that require
correction, and if so, what the most appropriate remedies are. Assessing the barriers to competition can be done at varying levels
of technical sophistication. CAF provides a substantive introduction to the subject, especially for developing country policy
makers. Characteristics of competitive industries include a wider range of product choice, the entry and exit of firms, changes in
the ranking of leading firms and in the size of their market shares, and active product development and innovation.

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International Journal of Economy, Management and Social Sciences Vol(3), No (7), July, 2014.

Competitive industries are also likely to show pricing that responds to changes in market conditions, such as changes in input
costs. An industry does not have to display all of these characteristics to be considered competitive, but the absence of many of
them might suggest a lack of competition. Assessments of the effects on competition of particular restraints may be undertaken in
a variety of ways, and the appropriate methods will depend on the information and resources available. The effects may include
influences on the perceptions of market participants and prospective market entrants, as well as hard data.
Table1 Key issues of the Competition Assessment Framework
Step
1

Area of assessment
Identify the Relevant
Markets and the
Competitors
Examine the Market
Structure

Key issues
group of product, geographic limits,
wholesale, as well as retail markets

Conclusion required
What are the relevant market/s, and who are the main suppliers (or
buyers, if relevant)?

importance of the main suppliers in the

market, Market shares, measures of
market concentration
barriers that either prevent entry, entry
prices, gender-based barriers,
three
barrier categories: natural, strategic and
regulatory
State-owned
enterprises,
Public
procurement, regulated sectors, Trade
policy and industrial policy, Unequal
enforcement of laws and regulations

Does the market structure suggest that competition might be

limited?

Look for Barriers to

Entry

Ascertain if
Government Policies
or Institutions Limit
Competition

Consider Vested
Interests

stakeholders who are opposed to

increased competition in a market,
Importance/Influence Matrix

Look for Signs of

AntiCompetitive
Conduct by Firms

likelihood of anti- competitive practices,

horizontal issues, vertical issues, other
factors, collusion among competitors,
abuse of dominance by firms with market
power, mergers and acquisitions

Draw Conclusions

conclusions of each of the sections in the

Framework reviewed, the causes, effects
and possible remedies should be assessed

Are there any significant barriers to entry in the relevant markets?

If so, what are their effects on competition? Do any policy-based
reasons for these barriers appear justified?
Does the operation of state-owned enterprises, or the conduct of
public procurement, or sector regulation, or the existence of trade
and industrial policies, or the unequal enforcement of laws and
regulations appear to limit the scope for competition? If so, how
significant are the effects on the welfare of consumers or on the
input costs of producers? How does the extent of the impact on
consumers and producers compare with any public benefits likely
to result from the operation of any of these government policies?
Who are the key stakeholders, what is their position on
competition, what is their influence, and how important are their
views? Knowing this will help to provide the basis for a realistic
assessment of what will be needed to modify any constraints that
exist, and to introduce more effective competition.
Does the conduct of the firms in the market suggest either that
suppliers are coordinating their behaviour, through collusion or
tacitly, or that large suppliers with market power are using their
dominance in anti-competitive ways, or that suppliers are not
following good operational practice? If so, how significant do the
effects appear to be?
What shortcomings have been identified in the state of competition
in the market/s studied, and what recommendations are appropriate
to remedy these?

Source: Summarised from CAF [5]

The broad objective of this paper is to study performance of the cotton sector with a view to identify competition issues that need
to be dealt with under the Tanzania Fair Competition Act and issues that may likely require policy interventions. Specifically the
study was guided by the following specific objectives:
(i) To identify relevant cotton markets and competitors
(ii) To identify barriers to entry to relevant cotton market
(iii) To examine if government policies or institutions limit competition in the relevant cotton market
(iv) To examine existence of vested interests in the relevant cotton market
(v) To identify anti-competitive conduct in the relevant cotton market
2. Study methodological issues
Most of the information used in this study was gathered from village focus groups, structured interviews with producers and
cotton ginners as well as interviews with selected stakeholders in the Tanzanian cotton sector from mid March to Mid May 2011
in the Western Cotton Growing Areas (WCGA). Following discussions with these institutions four villages in predominantly
cotton growing areas in Shinyanga and Mwanza regions were selected to give a thorough and diverse experience of production
and marketing of the crop. Focus group discussions, observations and informal interviews with producers were done in Lamadi
and Lukungu villages in Mwanza; Mwambiti Village in Shinyanga; and Lutugiga village at the border between Bariadi and Magu
districts. In total 48 producers across the four villages were interviewed. The Ward Executive Officers, Village chair persons and
Village/Ward Extension Officers for each of the villages were also individually interviewed.
Managers of five private ginners and Nyanza Cooperative Union, executive officers of TCA, TACOGA, and CDTF were also
interviewed. Main questions here were posed to find out information including licensing and regulatory procedures, marketing of
inputs and seed cotton, quality standards of seed cotton, pricing of cotton, and role of government in the cotton sector. Data
collected from interviews were analysed through thematic issues analysis methods while documentary data analysis was mainly
used to analyze published data. Overall, the guidelines set out in the Competition Assessment Framework (DFID, 2008) were used
throughout to ensure that the findings are focused to competition issues within the relevant market.

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International Journal of Economy, Management and Social Sciences Vol(3), No (7), July, 2014.

3. Main findings
The Competition Assessment Framework defines a market as a group of products (services and goods) most buyers regard as
being reasonably substitutable for each other, taking account of their respective prices and conditions of sale. In order to identify
the relevant cotton market that conforms to the CAF definition the first process was to examine the whole value added chain
functions for cotton. This examination was guided by the steps laid down in the CAF sub section 3.1-3.4. Figure 1 presents the
five functions which range from cotton inputs to exports and in fact each of these functions form a specific market centred on the
exchange of goods and services within the specific market. The market competitors are all along each core function ie input
suppliers, producers, buyers, ginners and exporters. These actors are influenced by external influences from organizations and
institutions supplying support services and also from those setting policies, rules and regulations across each core function.
However, competition becomes more complicated when the actors can influence one another in performing core functions.
3.1 Relevant cotton market
Following interviews with key informants such as ginners, TCB officials and farmers, emphasis was placed on two core areas of
cotton value chain from which relevant market and its associated competitors would be identified i.e. production input supply and
seed cotton procurement. These were the areas where significant competitive transactions in cotton value chain were taking place.
Documentary analysis was intensively used to verify information from stakeholders interviews. Although both the supply of
production input and procurement of seed cotton form strong evidence as being two significant relevant markets in the cotton
industry, the current study concentrated on seed cotton procurement in the WCGA as the relevant market. The main competitors
are ginnery companies, registered private agents, unregistered private cotton buyers and cooperative unions.
3.2 Market structure of seed cotton procurement
The assessment of the market structure for seed cotton procurement was guided by the CAF subsections 4.1-4.5. In this study we
use quantity of procured and ginned seed cotton as proxy measure of the market share of the buyers. Appendix 1 summarises list
of main actors in the seed cotton and their relative market power exercised by each ginnery in selected regions comprising the
WCGA. It can be observed that about half (48.2%) of seed cotton in Mwanza is procured and ginned by only 3 giant ginneries:
Afrisian-Sangu, Birchand Oilmill and KCCL-Bukoli. Each of these is having over 10% share. The other 14 ginneries in Mwanza
are sharing the remaining 51.8% whereby majority are ginning less than 5% of the total ginned cotton in the region. Unlike in
Mwanza, in Shinyanga there were only 2 ginners each owning above 10% share with total share of about 22% i.e. Gaki
Investment (10%). and Kahama Oilmill (11.9%). The remaining 80% of ginned cotton was shared by the remaining 23 ginners. In
Mara region, the two ginners - S&C Bulama and Olam (T) ltd were ginning about 88.9% of cotton in Mara and about 11.1 % was
ginned by Badugu Ginnery Co.Ltd. In Tabora the ginning business is dominated by only two companies and only one ginnery in
Singida region.The names of top ten companies across all ginners in the WCGA in terms of market share companies hold is also
indicated in the fifth column in appendix 1. It is indicated that the largest share of ginned seed cotton comes from S&C BulamaMara (8.0%) followed by Olam (T) Ltd-Mara (7.0%). This implies that about 15% of all seed cotton in the WCGA is ginned by
these two companies which arelocated in Mara region. Given the fact that Mara produces only 17.1% of all seed cotton, it is
unlikely that these two companies are competing with any ginner in procuring seed cotton from Mara region. In fact the two
companies have procurement agencies all over the WCGA. The other ginneries in the top ten are indicated to have market shares
ranging between 3.7% 7.2% all from Shinyanga region. Some forms of competition are likely to exist during the lint cotton
export. Actors in this segment of the cotton supply chain are fewer than ginnery owners. The actual number of ginnery companies
which do export cotton lint is very small. It was found out that firms that do export cotton are in stiff competition in that it is not
predictable of the approved exporters. Due to the fact that production of cotton is highly fluctuating, some local ginners normally
fail to attain contractual supplies with the importing commission agents leading to unnecessary penalties. This has forced many
exporting firms to concentrate on ginning and hence only less than five ginners were involved in the export of cotton. These are
facing competition from foreign companies which use local ginners to collect as many bales of cotton as possible but the foreign
company buys the cotton lint bales at agreeable price. Exporters are not registered by the TCB nor can TCA intervene in the
registration of the new entrant in the exporting firm. The exporting firms are registered in the country like any other exporting
firm in other sectors.
Figure 1 shows that 80% of cotton purchased and ginned in the country is exported leaving 20% only for domestic textiles. [6]
point out that 60% of total exported cotton lint is exported to Far East countries; including Bangladesh, China, India, Malaysia,
Indonesia, Pakistan, Taiwan, Philippines, South Korea, Others are Portugal, Italy, United Kingdom, Germany, Spain, Turkey,
Kenya, Rwanda and Democratic Republic of Congo. There are many challenges that face locally based export firms which have
forced them avoid participate in the export market. One general manager of the ginnery located in Kahama whose company was
once exporting cotton lint summarized these challenges into three major categories:
a) Declining cotton quality- Although cotton lint produced in Tanzania is among the best in the world market, Tanzanian
cotton is leading worldwide in terms of poorly ginned cotton. This is due to the deliberate distortion of produced cotton
by farmers and cotton procurement commission agents whereby seed cotton is splashed with moisture or sometimes sand
is added in order to increase cotton weight.

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International Journal of Economy, Management and Social Sciences Vol(3), No (7), July, 2014.

b) Price determination in the world market is not predictable for majority of cotton exporting firms. The price of lint in
Tanzania is pegged to the CIF Western Europe lint price. The Free on Board (FOB) Dar es Salaam price is US cents 0.74
per pound less the Cost Insurance and Freight (CIF) of the Western Europe price while the Ex-ginnery Price is US cents
1.91 per pound less the CIF Western Europe price. The reference price of lint used for formulation of the floor price in
2007 for instance was US cents 72.9 per pound (ex ginnery) based on the 'A' index (NE) Cotton Exchange in the year
2007 was US cents 75.13 per pound (Busi et al, opt cit). In 2008 the cotton prices drastically fell and were on a long term
low 42 cents per pound. The repercussions on the local market can already be felt as cotton lint buyers have reduced the
quantity they buy or are waiting to see how the market develops further.
c) Supply fluctuations of the cotton production but the exports needs to be certain and continuous. The ginnery manager
explained:
.Last season we faced difficulties in procuring required volume of ginned cotton bales from other ginneries. Our
contracting firm in Europe has sued our company of resultant losses and if we lose the case we will have to pay huge
penalties that my company cannot afford.
Since the buyers of seed cotton are ginnery owners, and since the TCB bylaws allows provision of seed cotton procurement
licenses to buyers who have ginning plants, it is obvious that cotton farmers (suppliers) have no say on price negotiation. This
suggests that the cotton ginnery owners procure cotton and supply it to their own ginning plants. The subjective provision of seed
cotton procurement licenses to ginning companies by TCB significantly reduces competition in this market. In some areas like
Mara where there are only two buyers of seed cotton the market is generally monopsonistic in nature. In areas like Shinyanga
where there are many small ginning companies, informal (illegal) acquisition of small ginneries by giant ginnery companies
reduces the market competition by creating anticompetitive vertical integrations.
3.3 Barriers to entry to the seed cotton procurement market
3.3.1 Natural barriers
(a) High entrance and registration fees
For small ginners, registration and license fee are regarded very expensive and therefore prohibitive to trade, however, for
financially powerful ginners, such as OLAM, the costs seems to be quite fare. This was supported by one marketing officer of
OLAM,
.if you would know the investment and running costs of our ginnery, you would be sure that for us, the fees put forward do not
create any fear. We are in this kind of business for some times now and we are proud to say that we have been very successful. We
have a competitive advantage of being financially in a good position and we can run the office throughout the year with some
permanent staff. We have stable systems of buying cotton and distribution of inputs.
The entire registration and licensing process, although considered to be free of charge, involves a good deal of resources in terms
of cash, time and expertise. Licensing is perceived highly expensive by small ginners. However, the expenses were not considered
an extreme for large ginneries.
(b) Barriers to operate a ginning plant
Investment capital for inventing a ginnery as per interviewed TCA and TCB officials is said to be over TShs 2 billion. The
ginnery registration process begins with acquisition of a surveyed land and registration application request to TCB where business
write-up is required along with other requirements which include among other things, the TCA membership certificate that
comprise of payment of US$ 5,000 as membership fee and Tsh 500,000 annual subscription fee. The plant is then built after
approval by the TCB and provision of ginning license after proper inspection and testing of the plant facilities is granted.
Thereafter, a surveillance check-up is prerequisite by TCB throughout the registered period where inspections will be conducted.
In the case of observation of low ginnery performance and substandard equipment, the respective ginnery will have committed an
offence. The ginnery is therefore subjected to withdrawal of ginning license and in some cases may lead to closer of the plant. One
TCB official reported that:
.generally, one mistake warrants to US$1000 while on severe cases the ginning registration license will be counseled...
It was further found out that the ginners can procure cotton from any region irrespective of the physical location of the ginnery
plant. This has been described by many ginnery owners as the major barrier for some ginneries in the procurement process. For
instance Olam (T) Co LTD procures seed cotton from a network of its full time employees and transport network all over the
WCGA to purchase cotton although the factory is located in Mara region. However, smaller ginners located in more remote areas
such as Kahama, with no full time procurement staff and reliable transport network rely on locally produced cotton whereby they
do compete with other external giant ginners from other regions. The impact on this is that many small ginners are closing down
due to inadequate volume of seed cotton they can procure as described by one of the managers of small ginnery owners in Bariadi
district:
..Last year I did not do business because I failed to compete on cotton prices..all the farmers surrounding my ginnery sold
their cotton to S & C Bulama company whose plant is in Mara region. This company raised prices to TSh 1000 per kilo of seed
cotton. I decided to sell my small amount of cotton I had procured by then to this ginnery because the volume I had acquired was
not enough to feed my factory and I could not be able to repay the loan to my banker. I got profit though since I had bought
cotton at TSh 400 per kilo and I had about 10MT which I later sold at TShs 1000 per kiloto this big company.

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3.3.2 Strategic barriers

(a) Predatory market behaviour
The above confession suggests that the larger companies are capable of reducing their average cost by scaling up their
procurement base whereas small ginners do operate at relatively higher operational costs. However, the smaller ginneries were
found beneficial to some bigger companies since they are contracted by larger ginners to facilitate the marketing processes as
described here under by a manager of one of the giant ginneries in Mwanza:
We normally do not trust smallholder famers as we do with registered businesses (small ginners). Some small ginnery owners do
not have sufficient capital to procure cotton. they use their ginnery plants as collateral to access bank loans. However, the
loans are in most cases insufficient to run the plants and related ginning processes. We therefore enter into agreement with such
ginnery owners to rent their plants to us and we pay them rental fees. The rental fees we pay them are just enough to enable them
pay back the loan and associated bank interest and retain the balance.
(b) Cotton Quality distortion by hired agents and traders
Distortion of quality standards of seed cotton by private hired procurement agents is one of the strategic barriers that buyers
were complaining of. Farmers reported to encounter a problem of buyers tempering with weighing scales and bridges. They
reported that the scales weighed more weight at the beginning of the buying season, but along the way, the same pack would
weigh less. When suppliers were asked if it served them better to sell the cotton seed to the ginnery factories directly they
complained on tempered weighing bridges by factory staff although the price seemed to be slightly higher than at buying posts.
However, the ginnery owners oppose this claim and suggested that certainly the problem was with the commissioned recruits
(agents) who worked in the buying posts on behalf of large ginning companies. On the other hand ginnery owners reported
contamination of the seed cotton by farmers by use of water and/or soil and use of oil extracts from the lizards commonly termed
as mafuta ya kenge as was reported to commonly done in Bariadi. The latter seemed to have had a significant increase in weight
of seed cotton at the weighing balances. Some interviewed farmers opposed but some agreed and claimed that they were
responding to the tempering of weighing scales to compensate on the weights waved by the buyers. Despite existence of
regulations and enforcement rules set by TCB, nothing stringent is done to the reported malpractices and the problem therefore
persists. This certainly barred some buyers from areas found to be prone to seed cotton quality distortion
(c) Strategic buying posts
The purchasing and processing system of Tanzanian cotton currently is dominated by private and regionally located ginners and
buyers that are legally licensed to purchase at village buying posts and within a localised area. However, it is evident that ginners
purchase cotton beyond their officially designated area, the trend that is reported to increase over time. The seed cotton buying
practices involves existence of buying posts in villages, commonly three buying post per village. Farmers have to transport their
seed cotton to the nearest buying post. Either, farmers are free to choose a buyer offering most attractive prices. However,
farmers responses revealed limited choices of buyers due to a close relationship between buyers which result to offering
insignificant difference in prices. Inadequate buying posts were also reported which necessitated high transportation costs of
cotton from the farming area. It is evident from this discussion that the formalized picture regarding cotton purchasing, processing
and pricing practices differs noticeably from reality in the villages under study. The marketing process can hardly be deemed
competitive across all areas of cotton production in Tanzania. The fact that farmers obtain market prices from buyers (ginners) at
the village buying post, competition between buyers in a respective village ought to have resulted in increased choice for farmers
and therefore competition between buyers based on price. However, due to the fact that buyers are allocated to procure seed cotton
from given villages, this requires buyers to only buy seed cotton from the allocated posts; this reduces number of buyers in the
specific area, and therefore weakens the supposed competition.
3.3.3 Regulatory and policy barriers in the allocation of buying posts by TCB
As noted before, the supply of cotton production inputs (mainly seeds and agrochemicals) is closely linked with seed cotton
procurement. The supply of these two inputs is highly regulated. The government provides subsidizes prices these inputs by
means of input vouchers. The supply of seeds is controlled and regulated by TCB whereas the supply of agrochemicals is the
mandate of CDTF. The district local governments have mandate to supply input vouchers to farmers and also to pay suppliers of
inputs after presenting the vouchers. The buyers who own ginneries and with own trucks are commissioned by TCB and CDTF to
supply seeds to predetermined villages. However, the ginners have to have made prior lobbying in the districts where they
anticipate buying cotton well in advance before the input supply season starts. Small ginnery companies are unable to lobby for
input supply and hence right to buy seed cotton from such buying posts where the bigger ginners have had influence through seed
input supply. All this is unnecessary bureaucracy which increases transaction costs to buyers, which in turn lowers market price
and reduces competition for seed cotton. This barrier is very significant in areas of Shinyanga region where there are numerous
small ginnery owners who cannot afford to buy cotton from distant villages.
The interviews with such smaller ginnery owners prove that there is growing concern that many of these small ginners are closing
business or being bought by bigger ginning companies. If cotton buying isnt linked to input supply its likely that more buyers will
participate and competition and hence market price for seed cotton will also improve.

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3.4 Government policies and institutions and their influence on competition

3.4.1 TCBs too many roles and too much regulatory powers
The Cotton Board has several roles. It regulates the industry, inspecting the quality of lint and other by-products; announces
indicative prices; and collects and disseminates statistics. The board is supposed to certify the quality of seed cotton collected at
all buying posts and to inspect the variety and quality of lint at the ginneries. A lack of adequate resources severely limits these
inspections, however. In practice, ginneries send samples to the board from each bale of cotton ginned, and the board simply
informs ginneries if samples are deficient. Cotton is seldom inspected at buying posts. TCB cotton inspectors are given the right to
"reject" cotton if found of low quality at the ginnery level (i.e. after the seed cotton has been procured by the ginning accompany).
Not only is it not clear what "rejection" means, but the quality control scheme appears not to be functional at all while it is
characterized by corruption. Interviews with ginners indicated that quality inspectors would "accept or reject" cotton on the
basis of whether a side-payment of the equivalent of $US 30 per truck load had been made. By statute the board is supposed to
ensure free competition, fair trade, and to set and monitor indicative prices as established by market forces [8]. According to the
2001 Cotton Industry Act, TCB is entitled to do anything or enter into any transaction which in the opinion of the Board is
calculated to facilitate the proper and efficient carrying out of its activities and the proper exercise of its functions under the
provision of this Act [9]. The boards involvement in these practices simply adds one more unnecessary layer of bureaucracy. The
Tanzania Cotton Industry Act of 2001 gives powers to the Director of TCB to make necessary criteria for one be allowed to grow
cotton. TCB is empowered by law to authorise areas where cotton can be grown. In fact from this year (2011/2012) all farmers
will have to be in groups of about 60 farmers for them to qualify for access to TCB services. At an individual farmers level,
cotton farming has been driven by individual initiative and willingness to pursue and there is no policy or regulatory authority that
may bind farmers to involve them into the farming activities. However, farmers expressed their drive towards cotton growing as
part of their life as expressed in the following citation:
.we are not getting much profit from cotton growing and sometimes no profit at all because of high investment and low market
prices offered by buyers, however, we will not stop growing cotton because it is part of our culture and we feel like it is our
obligation as we saw our elders and parents growing, we have been part of it since our childhood until now, even if we fail to
acquire inputs, we will have to grow even a quarter an acre
However, in the forthcoming contract farming, farmers will be required to form groups which shall have some rules to guide the
group in the formation and conduct. This may includes, entry and exit strategies, conditions to join groups and others will be
stipulated and therefore market actors will have to abide by the set rules.
3.4.2 Bureaucratic procedures to license buyers
3.4.3 Centralistic pricing determination of seed cotton
Cotton buying as per TCB directives involves, survey of areas where cotton has been grown and those places where it is doing
very well, following request for buying at the village government office, then the request is sent to district authorities where a
cotton inspector is a member of a district cotton development committee. The committee assesses the buyers buying and storage
facilities which is pre-requisite for any buyer, past performance of the buyer in regard to payment of required levies and past
company conduct excellence. When they agree with the status an approval permit is given and the names of qualified buyers in a
respective district compiled and sent to regional cotton committee chaired by Regional Commissioner where TCB is represented
by one officer from a zonal office. After thorough screening at the regional level the names are finally sent to TCB zonal board
committee which after screening the qualified buyers are approved and provided buying license authorizing them to buy in the
specified areas. Despite the fact that seed cotton buying license is provided free of charge, the license acquisition process is done
in every buying season and therefore a very costly and time consuming process. This may act as a barrier to some potential buyers
due to bureaucratic procedure which unnecessarily increases cost of obtaining buying license by potential buyers. Furthermore,
the decision on who should buy where as it is done by TCB may interfere with competitiveness of some buyers in certain
localities because TCB dictates where one should buy seed cotton. One may request to buy cotton near the ginnery plant location
for ease of transportation but may be required by TCB to buy cotton from somewhere else. The current pricing policy requires
TCB, TCA, and TACOGA to meet, each with own derived price. TACOGA considers costs involves in production and TCA takes
into account the costs incurred in buying and processing of seed cotton whereas TCB makes reference to the world market prices
of lint and derives the proposed price based on the 60% of the world market price. The three meet and discuss until they come out
with an indicative price (price floor) of seed cotton in the respective buying season. Table 2 presents how the market price was
determined in 2009/2010 season including the components on the determining factors by TCA, TACOGA and TCB. TCA had
proposed the smallest price (TSh 550 per kilo) and TACOGA had proposed the highest figure (TSh 650 per Kilo) whereas TCB
came out with a mid price of Tsh. 620 per kilo (equivalent to 60% of world market price).

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CONSUMPTION
RETAILING

WHOLESALING
PRODUCING GARMENT

TEXTILE MAKING
SPINNING AND
WEAVING

80% EXPORT
MARKET

20% LOCAL MARKET

STALLS, SHOPS,
OPEN MARKETS

PRIVATE
TRADER
S

WAREHOUS
E, SHOPS

HANDCRAF
T ARTICLES

GINNING (LINT, OIL,

SEED CAKE)

19 TEXTILE
INDUSTRIES

LINT
HANDLOOM
MATERIAL

YARN

SEED BUYING

48 OPERATING GINNERIES 2009/10 (OUT OF 62 INSTALLED)

62 REGISTERED BUYERS

PRODUCTION
(SEED COTTON)

INPUT

500,000+ HOUSEHOLDS IN WCGA AND ECGA

TCB, DISTRICT COMMITTEE TASK FORCE, PRIVATE SUPPLIERS,

RESEARCH INSTITUES: SEEDS, PESTICIDES, FERTILIZERS

Figure 1: The Tanzanian Cotton/Textile Sector Map

Source: [7]
The consensus was TSh. 600. Closure observation of the determinants of price by these three institutions suggests that the seed
cotton is highly levied and meets substantial amount of transaction costs which can be avoided to make prices more competitive.
Despite the set price for seed cotton at the beginning of the buying season, interviews with farmers and key informants in the
WCGA it was obvious that there was significant increase in prices for seed cotton in various buying posts. For instance it was
noted that in the 2009/10 season prices increased by 100%, from Tsh 600 at the beginning of the buying season (June 2010) to
Tshs 1,200 by September 2010 particularly in some buying posts in Shinyanga due to increased competition by private buyers to
meet their contracts. An Increased competition for seed cotton was evident towards the end of buying season which in turn
increased price of seed cotton in respective buying posts.

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Table 2: Marketing Price Determining Factors by TCA, TACOGA and TCB in 2009/10 season
Stakeholder
Determining factors
Tshs/kg
Derived Price
TCA
Buying expenses
3500
550.00
Transportation expenses
30.00
Ginning expenses
65.00
CDTF levies
15.00
District level levies (CESS)
20.00
Bank charges/interests
07.00
Other marketing expenses
380.00
Total
552.00
Approximate
550.00
TCB
60% of world market
620.00
620.00
TACOGA
Buying expenses
25.00
650.00
Transportation expenses
25.00
Ginning expenses
60.00
CDTF levies
25.00
District level levies
20.00
Bank charges/interests
10.00
Other production expenses
468.00
Profit margin
16.50
Total
649.50
Approximate
650.00
Indicative (floor) Price
NA
NA
600.00
Source of data: Various documents from TCB, 2009-2010
What was evident from the interviews with producers was a deep sense of misinformation on how price setting is done and
knowledge of the indicative price far earlier before buying season begins. Farmers obtain market prices from buyers (ginners) at
the village buying posts during the respective buying season (i.e. between June and September). Some farmers pointed existence
of some seed cotton buyers who approached them with the intention of buying seed cotton harvesting (i.e. early before the formal
buying season starts). Availability of the indicative price immediately after it is agreed upon would help suppliers sell their cotton
at a reasonable price. The changing role of the state and respective governmental agencies has influenced the way institutional
structures have developed, where power and political influence remain crucial in determining winners and losers in the cotton
market. There are some observations regarding the current ad-hoc and un-harmonized institutional systems in Tanzania despite
deliberate attempts to improve various input, pricing, purchasing and quality systems in the cotton subsector. Some of these
attempts include the introduction of contract farming over voucher and passbook a system which is likely to face significant
weaknesses. For example, TCBs allocation of contracted ginners to relative villages to distribute inputs through written contracts
will reduce choice by farmers to sell their seed cotton.
3.5 Existence of vested interest in cotton sector
3.5.1 Stakeholders with vested interest in the provision of supporting services
(a) Research institutions
There are two cotton research centers in Tanzania; the Ukiriguru Agricultural Research Institute (ARI) Mwanza for the WCGA
and the Ilonga Research Institute Morogoro in the ECGA. They develop the now widely used UK 901 variety and disseminate
findings relevant actors in the sector. In this group are universities (such as SUA), some consultancy firms (such as Technoserve)
and NGOs (such as RLDC). Noting that there is huge investment fund going into the cotton sector, these institutions are in a way
holding stake in the development of the crop. Research institutions have no objection the increased market competition among
buyers for seed cotton procurement.
(b) Regional Cooperative Unions (RCU)
The survival of the RCU depends on the existence of vibrant primary societies at village levels. Cotton is at the heart of majority
of coop societies in cotton producing areas hence the RCUs are more closely linked to cotton than to any other crop especially in
Mwanza and Shinyanga where the respective RCUs (Nyanza Coop Union-RVCU and Shinyanga Regional Coop unionSHIRECU) are still running some cotton ginneries. Increased competition is a threat to RCUs due to their reduced influence and
dominance over seed cotton farmers and buying posts.
(c) Tractor service providers
These are needed for tilling and sometimes weeding in areas where contract farming is practiced. In the 2010/2011, these services
were provided by agro companies in other crop sub sectors e.g. Tanga Katani Ltd, which deals with sisal production. The services
are a side business especially during off season in these other crops. These stakeholders will be interested to supply contracted
services to few powerful farmers hence are likely in favor of monopolistic competition type of market.

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(d) Financial Institutions

These include commercial banks and others offer credit to cotton buyers during buying season. Banks such as CRDB bank have
been offering huge short term loans to ginnery owners (cotton buyers) prior to buying season. As noted before, many small
ginnery owners use the ginning plants to acquire loans from banks but the funds are too little to fund all the buying and ginning
operations. As a result the acquired loans are diverted to businesses other than cotton buying. This practice has reduced actual
buying competition. The banks will be more interested to see profitable competitive market for seed cotton (as opposed to self
destructive completion that is likely to exist with too many buyers of cotton without profitable ginning capacity).
3.5.2 Stakeholders with vested interest in mitigating business environment
Business members Organizations are TCA, TACOGA, primary cooperative societies and RCUs, TCCIA, MVIWATA and CTI.
Some of the directly involved are discussed below.
(a) Tanzania Cotton Board (TCB)
TCB replaced former TCMB (Tanzania Cotton and Marketing Board) in 2001 enacted with the Cotton Industry Act of 2001. The
role of the TCB is to put in place a legal and regulatory frame to improve and develop the cotton industry. It acts as regulator but
intervenes also in the market core function as service provider for inputs (seeds, chemicals) and controls seed cotton buying by
registering authorized buyers.TCB is also aimed at improving and developing the cotton industry by promoting, facilitating and
monitoring the functioning of the entire production, marketing, and processing and export chain of cotton business.
(b) Tanzania Cotton Association (TCA)
The association comprises of persons, firms or corporate bodies holding licenses under the Tanzania Cotton Industry and
Licensing legislature as cotton buyers and ginners. It is also consists of associate members who are individuals, associations
institutions, corporate bodies and exporters who are members for the purpose of supporting the objectives of the association
materially and financially.. In addition TCA deals with matters concerning the grading and classification of Tanzania cotton and
take action to encourage improvement in research, seed multiplication etc. TCA has strived to ensure that there are few buyers of
cotton and its interest is to avoid competition for seed cotton. Increased competition is a threat to the interests of the few powerful
members of the association as previously outlined in section 2.2 of this report.
(c)Textile Industry
By 2008 there were 19 textile industries which were operating in the country. Majority if not all procure their cotton lint from
local producers. Majority of the industries will wish to see competitive procurement of seed cotton as this can assure them of
supplies from multiple sources (suppliers) where they can negotiate on lower prices. However some textiles like Mwanza Textile
Ltd, which procures seed cotton straight from buying posts, are facing stringent competition from other buyers. This implies that
such textile companies will not be in favour of increased competition as this gives more negotiation powers to suppliers. It was
revealed from interviews with ginnery owners that Mwanza textile factory was raising prices of seed cotton in order to meet
ginning capacity of its plants, and this was reported to TCA to reconsider its membership in TCA. The other ginnery owners were
of the opinion that Mwanza textile shouldnt be buying seed cotton straight from buying posts but cotton lint from ginning
companies (active buyers of seed cotton).
(d) Private consultants
A large cotton development program financed by the Tanzanian Gatsby Trust (TGT) was launched in 2008 to among other things
pilot the competitive contract farming. Implementers were TechnoServe (TS) and Golder Associates. Private sector partner
companies were Badugu, Cargill, Olam, S&C and Shindika group (Scott) which are active seed cotton buyers and ginners. Its
likely that an imperfectly competitive/failing cotton market gives more rationale for such international grant awardees like
TechnoServe (TS) to apply field experiments of technologies (such as contact farming) that seem to have worked better well
elsewhere.
3.5.3 Stakeholders importance/Influence matrix
The competition assessment framework proposes a hypothetical matrix of influence showing power in which a stakeholder has to
affect the level of competition in a market. The matrix also shows the level of priority the researcher feels should be given to
satisfying the needs and interests of the stakeholder concerned. Table 3 presents the importance/influence matrix for seed cotton
procurement market in the WCGAs. The power of the stakeholders who are placed in rectangle B will require the most attention if
a policy change is to be sought as a result of a competition assessment in the seed cotton market. In order to improve competition
in the seed cotton procurement there is need to:
(i) gain the cooperation of financial institutions (commercial banks) which provide finance to seed cotton buyers every
season,
(ii) counter the influence and interests of the association of the cotton buyers (TCA) and
(iii) revisit powers of the Tanzania Cotton Board stipulated in the Cotton Act
The stakeholders in rectangle A rank next in significance, and a successful policy change will require that their interests are kept
satisfied. Stakeholders in rectangle D would need to be kept informed, while the reactions of those in rectangle C need only to be
monitored, with the expenditure of minimal effort.

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Table 3: Stakeholders importance/influence matrix

High importance/
Low influence
RECTANGLE A
Research institutions
Regional Cooperative Unions (RCU)
RECTANGLE C
Tractor service providers
External donors
Low importance/
Low influence

High importance/
High influence
RECTANGLE B
Financial Institutions
Tanzania Cotton Board
Tanzania Cotton Association
RECTANGLE D
Local government authorities
Oilmill and textile Industries
Low importance/
High influence

3.6 Anticompetitive conduct by seed cotton buyers

3.6.1 Horizontal integration
Horizontal integration occurs when a firm is being taken over by, or merged with, another firm which is in the same industry and
in the same stage of production as the merged firm. This process is also known as a "buy out" or "take-over". The goal of
Horizontal integration is to consolidate like companies and monopolize an industry. Some existing giant ginning companies
possess branches which are identified as Company A or/and company B. The branch ginneries take orders and reports to parent
ginnery through systems set by the company. The companies do operate as if they are independent and they also get licenses to
buy seed cotton from various buying posts. In practice, the franchising twin/sister ginneries do not compete although they are
managed separately. This makes it possible for them as, buyers to communicate and collude on the fixed price and there will be no
price differences/fluctuations between the two at the buying posts hence denying producers freedom of choice. Some of such
companies with same names but separated by A and B as indicated in appendix 1 are Birchand Oil Mill (A and B), Afrisian
(Sangu and Shinyanga), NIDA TEX(T) LTD (A and B), ALLINCE (A and B), MWANHUZI (BIORE(T) LTD and Bibiti) etc.
3.6.2 Vertical integrations
Vertical integration is one of the methods some ginneries have used in avoiding the hold-up problem. Giant ginners have been sub
contracting smaller ginners licensed to buy and gin seed cotton whereby the larger ginner meets cost of plant inspection for the
small ginnery and pays for procurement of seed cotton by the small ginner. The small ginner processes the seed cotton on behalf
of the giant ginner. Although two ginners may seem to be competitors (independent actors) in the market they are actually
operating as one firm although each has own legitimacy. Almost all ginnery companies operating in Shinyanga region has at least
one small ginnery company operating on behalf of the bigger one. For example Mwanza Tex (2001) Ltd operated Ilungu-Mwatex.
Ginnery companies such as S&C - BULAMA and Olam (T) were found to secretly operate numerous small ginning companies in
Shinyanga but due to short stay in the area it was difficult to substantiate these claims. Of course many of the cooperatives with
ginneries were all vertically coordinated by regional cooperative unions. SHIRECU would provide advance payments to its
members (cooperative societies) comprising of producers of seed cotton thereby reducing possibility of farmers selling their
cotton elsewhere but to their SHIRECU ginneries. Some ginneries are also financed by giant ginners and enter into some kind of
vertically integrated contractual agreements whereby small firms act as franchisees of the giant ginners. This is evidenced by a
manager of one Ginnery Company in Magu district:
.There are other small ginners who do not qualify for bank loans. We normally finance them to procure cotton for us because
they are more trusted by farmers in their locality. In most cases we use their ginneries and pay rental fee because it is sometimes
costly to transport cotton to our factory located outside the locality but this is only made a deal after they have accepted to
procure the seed cotton to be ginned at their factories. Other competitors (bigger ginners) are also doing this and this has raised
contractual costs with such smaller ginneries.
However due to the fact that private buyers have been able to raise prices in some areas, some farmers have been abandoning
selling their cotton to their own cooperatives. The newly introduced contract farming is envisaged to cement the vertical
integration and if not properly coordinated, competition is likely to be ineffective leading to even lower producer prices than it is
currently.
3.6.3 Other problems/anticompetitive conducts
Responses from suppliers (producers)
Other problems that farmers pointed out to affect seed cotton competition are itemized as:
Unreliable weighing scales due to buyers tempering with them as a result of reduced amount of sales
Lack of access to information on seasonal cotton prices.
Fluctuation of prices leading to higher prices towards the end of the season when almost all seed cotton has been bought
at lower prices.
Buyers offer same price, no competition - there is tendency to collude amongst buyers in a given area.
Farmers were not aware of existence of TACOGA, therefore they were not well represented in the pricing process.

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Response from Ginners.

High costs of registration to the TCA especially for small ginners (US$ 5,000 as membership fee and Tsh 500,000 annual
subscription fee), which is a prerequisite process in obtaining license from TCB.
High bureaucracy in acquisition of licenses and registration.
Sometime, farmers contaminate the cotton as a means towards obtaining more weights, this affects the quality of cotton,
especially the exported one
Political interference in the business, some ginners may come and buy in a certain village while they had not secured
formal buying license and allocation to do so.
Poverty, which necessitate selling of poor quality cotton at lower prices or just before or at the beginning of the buying
season when prices are still very low. Some sell the farm even before harvesting.
The recently launched network, Pambanet which aims at frequently providing information to farmers, if not checked,
will result into rise of price during the buying season-which will be add cost to buyers.
Control of ginners to adopt the price volatility, i.e. Even if the price rises, they should use the market price
4.0 Conclusion
The Competition Assessment Framework is a key instrument that has guided this study especially in the identification of relevant
market, competitors and their relationships, and also in identifying types of barriers and vested interests in the relevant market as
well as how regulations and policies can impede competition in the relevant market. The analysis of data collected from key
informants and detailed corroboration of facts, suggest that the relevant market is seed cotton procurement in the WCGA.
However other significant markets that had influence on the seed cotton market were also identified, for example the input supply
market and lint export market. The actors in the seed cotton procurement actors are fragmented across regions in the WCGAs. It
was found out the there were in general about 48 active registered buyers of seed cotton in the 2009/2010 buying season. However
the total number of ginnery companies was considered to be about 6 in 2010 in the WCGA, and according to TCB ginnery
inspector the number of new ginneries has significantly increased in the past five years. The study has revealed that the seed
cotton market is highly concentrated. The market structure was assessed by the market share of the quantity of seed cotton
procured as a proxy measure of market share following CAF. It was found that 3 out of 17 ginnery companies in Mwanza bought
about half of cotton produced in Mwanza. The same trend was evident in Shinyanga where a quarter of seed cotton was procured
by only 2 giant ginnery companies out of 25 registered ginnery companies in the region. In Mara region there were only 3 buyers
only with 88% of seed cotton going to OLAM (T) Ltd and S&C-Bulama Companies. Anticompetitive actions such as horizontal
integrations and vertical integrations were very commonly practiced. The introduction of contract farming is seen as a way to
cement the vertical integration which if not checked may worsen competition for seed cotton. We finally conclude our study by
pointing out that the Fair Competition Act, 2010 must become an instrument for generating optimal outcomes by directly
influencing seed cotton market structure (e.g. control of informal merger in the seed cotton market). As it stands now, the
exercising of powers entrusted to it by the Cotton Industry Act of 2001, the Tanzania Cotton Board (TCB) seems to impede fair
competition in the seed cotton procurement market. There is clear sign that some large buyers have significant influence on TCB.
This is evidenced by the very close proximity of the headquarters of Olam (T) Ltd and TCB where the two share a building and
many other utilities (the former is a tenant). If cotton prices decrease as a result of market concentration, then ginnery mergers
must be closely scrutinized. Policy coherence, consistency and complementarities are thus important, as there is need for the
competition policy to be an integral part of overall national policy framework. The newly institutionalised cotton contract farming
needs to be Competitive Contract Farming where a good number of ginners have to be involved in the evaluation by farmers, a
process during which FCC may be highly needed to safeguard interests of both large and small buyers of seed cotton.
5.0 General Recommendations
Based on the findings of this study we come out with several specific recommendations all around five key competition areas:
licensing and regulations, marketing of inputs and production, cotton quality issues, producer price setting, and government
intervention and support.
Licensing and regulations
The TCA executive team should be asked to reconsider reviewing the registration fees in order to reduce initial invention costs of
ginneries to encourage more ginneries to participate in the cotton marketing crew in order to increase competition amongst them.
The fewer the players in the cotton market results to less competition rate.
Cotton quality issues
In the effort to fighting against cheating using weighing scales every village should buy their own scale and this should be the one
to be used by buyers under the supervision of the village agricultural officers and overseen by the TCB district officers. There
should be a regular surveillance check-up for all weighing scales in the village buying posts to ensure fairness on the amount sold
and earned by farmers. Moreover, ginnery weigh bridges should frequently be calibrated to make sure that they are in good order,
and do not steal farmers cotton on delivery at ginneries entrance. People tampering with weighing balances in order to
fraudulently steal farmers cotton should be dealt with according to the law. A sustainable strategy to combat cheating using
weighing scales should be devised. For the time being, District councils should buy a weighing scale for each village, for
benchmarking with buyers weighing scales.

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Market price setting

Farmers involvement in price setting should be increased, starting with awareness on how the price is being arrived at, who are
responsible organs for price setting and important things normally involved in obtaining the market price. The determinants of
producer prices as set by ginners through TCA, producers as set by TACOGA and government through TCB must be clearly
known to all stakeholders. We found that the assumptions that lead to the final producer price by ginners are not realistic and they
are hidden. Farmers on the other hand do not have clear understanding on production cost and determination of profit margin as
ginners do. Similarly TCB sets price floor based on the world market price signals which are not known to farmers. It was found
that TCB assumes that the export price of cotton is 60% of the world market per kilo of cotton lint and hence starts deducting
levies and other associated costs to come up with producer price (price floor). Exactly as to how TCB, TACOGA and TCA reach
to their individual estimates requires in-depth investigation and mitigation. It could be the source of very low producer prices.
Despite the arrangement that only ginnery owners should be permitted to buy seed cotton from 2011/12 buying season, a thorough
investigation and frequent unexpected visits in the village farms need to be done to ensure there is inexistence of individual
buyers/brokers who buy and store them and then latter sell the seed cotton to ginneries. Information on the set price for seed
cotton should be disseminated to farmers at least two weeks before the buying season begins. The price should be communicated
to farmers through district and village government authorities and not through buyers as per current practice.
Government intervention and support
Law enforcement against seed cotton buyers tampering with weighing scales in order to deliberately steal farmers cotton should
be implemented effectively and timely to permanently combat the misconduct. In spite of the governments plan to resort into
Contract Farming as one of the ways to increase productivity and improve competition, the following matters need a critical
examination and implementation;
Farmers and other stakeholders should be educated and sensitized on the process and conduct way before time.
TCB should ensure the concluded contracts are fair and do not exploit any of the contracted part
Proper systems are in place including Vouchers system, seed and pesticides collection and distribution system,
competitive allocation of ginneries in respective regions and districts, consideration of other farmers who will not opt for
contract farming and entry and exit protocols in the farmers group as requisite for contract farming and seed cotton
procurement.
Reference
[1] Busi M., Lyaro S., Matto, W., and Conrad H. Cotton market development strategy for central Tanzania: Proposal to RLDC
Board; 2008.
[2] Bargawi H. Tanzanias Agricultural Institutions in Flux: Lessons from coffee and cotton producing villages. NCCR trade
regulation working paper No. 2009/20; 2008.
[3] Poulton C. and Maro W. Analysis of organization and performance of African cotton sectors: The Cotton Sector of Tanzania.
The World Bank; 2009.
[4] Larsen Marianne N. Re-regulating a Failed Market: The Tanzanian cotton sector 1999-2002 Working paper subseries on
globalization and economic Restructuring in Africa no. xxiii; 2003.
[5] DFID.Competition Assessment Framework: An operational guide for identifying barriers to competition in developing
countries; 2008
[6] Busi M., Lyaro S., Matto, W., and Conrad H. (2008) Cotton Market development strategy for central Tanzania: Proposal to
RLDC Board; 2008.
[7] Kabissa, J. C. B. and Myaka F. A. Sustainable Cotton Production Systems for Small Holders in Developing Countries. Paper
presented at the 59th Plenary Meeting of the International Cotton Advisory Committee, Cairns, Australia; 2000.
[8] Tanzania Cotton Board. http://www.tancotton.co.tz.
[9] Cotton Industry Act of 2001

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Appendix 1 List of seed cotton buyers and their market shares for 2010/11 in WCGA
S/
N

GINNERY

MWANZA
1 AFRISIAN-SANGU
2 BIRCHAND OIL MILL A
3 BIRCHAND OIL MILL B
4 LAMANDI - CHESANO
5 COPCOT
6 MWALUJO - MSK
7 I.C.K COTTON OIL LTD
8 KASAMWA - NCU
9 MWANZA TEX (2001) LTD
10 ILUNGU - MWATEX
11 ILUNGU - (EX - MATONGO)
12 ILUNGU - KBL
13 MANAWA GINNERIES LTD
14 MANAWA (EX - KIRIGURU)
15 KCCL - BUKOLI
16 S.M. HOLDINGS
17 MAGU - NCU(1984) LTD
SUB - TOTAL
SHINYANGA
1 ALLINCE - A
2 ALLINCE - B
3 MAJAHIDA - NGS INVESTMENT
4 AFRISIAN - SHY
5 MWANHUZI - BIORE(T) LTD
6 MWANHUZI - BIBITI
7 AL - ADAWI (LALAGO)
8 NIDA TEX(T) LTD - A
9 NIDA TEX(T) LTD - B
10 FRESHO INVESTMENT
11 GAKI INVESTMENT
12 HASSANAL WALJI
13 JAMBO OIL MILL
14 KCCL - KAHAMA
15 AHAM INVESTMENT
16 KAHAMA OIL MILL
17 NSAGALI - NYAKABINDI
18 SHIRECU - SOLA
19 SHIRECU - LUGURU
20 SHIRECU - MASUMBWE
21 VITRECS OIL MILL
22 INTERGRATED COTTON
23 LISHA INVESTMENT - LUGURU
24 KISUMWA MACHINERY
25 BOFA
SUB - TOTAL
MARA
1 S&C - BULAMA
2 OLAM (T) LTD
3 BADUGU GINNERY CO.LTD
SUB - TOTAL
TABORA
1 VEARIAN (T) LTD
2 ROKO INVESTMENT
SUB - TOTAL
SINGIDA
1 BIOSUSTAIN (T) LTD
SUB - TOTAL
GRAND TOTAL

COTTON
GINNED (KG)

MARKET
SHARE
(%)-Region
Sub Total

MARKET
SHARE
(%)-Grand
Total

BALES
PRODUC
ED

BALES
DISPATCH
ED

BALES
BALANCE

3,852,890
5,841,220

12.8
19.5

2.4
3.6

6,274
10,715

6,274
10,700

15

1,651,538
2,391,870
1,027,341
2,435,740
515,383
233,540
564,800
15,060
1,113,220
1,959,476
40,960
4,470,190
2,748,803
1,158,530
30,020,561

5.5
8.0
3.4
8.1
1.7
0.8
1.9
0.1
3.7
6.5
0.1
14.9
9.2
3.9
100.0

1.0
1.5
0.6
1.5
0.3
0.1
0.3
0.0
0.7
1.2
0.0
2.8
1.7
0.7
18.6

2,833
4,490
1,471
4,308
926
Loose Lint
643
26
1,779
3,200
78
7,617
4,791
2,299
51,450

2,833
4,490
1,471
4,308
926

643
26
1,779
3,200
78
7,617
4,791
2,299
51,435

3,970,051
9,455,149
4,784,070
7,650,208
3,666,440
341,400
1,275,829
6,014,099
662,763
7,843,970
9,846,140
1,523,355
6,336,380
9,190,300
3,357,762
11,561,635
2,966,745
1,060,523
381,880
396,520
1,845,520
691,940
1,817,543
596,454
35,700
97,272,376

4.1
9.7
4.9
7.9
3.8
0.4
1.3
6.2
0.7
8.1
10.1
1.6
6.5
9.4
3.5
11.9
3.0
1.1
0.4
0.4
1.9
0.7
1.9
0.6
0.0
100.0

2.5
5.9
3.0
4.7
2.3
0.2
0.8
3.7
0.4
4.9
6.1
0.9
3.9
5.7
2.1
7.2
1.8
0.7
0.2
0.2
1.1
0.4
1.1
0.4
0.0
60.2

6,500
15,819
7,139
13,497
6,107
450
1,991
11,142
1,277
12,017
14,772
2,520
9,836
15,183
5,550
18,992
4,742
1,860
629
635
3,138
1,123
3,360
1,046
60
159,385

12,017
14,772
2,520
9,636
15,183
5,550
18,992
4,742
1,860
629
635
3,138
1,123
3,360
1,046
60
153,994

5,391

13,197,860
11,311,586
3,054,534
27,563,980

47.9
41.0
11.1
100

8.2
7.0
1.9
17.1

22,993
17,476
5,575
46,044

22,993
17,476
5,575
46,044

3,066,198
1,657,775
4,723,973

64.9
35.1
100

1.9
1.0
2.9

4,832
3,039
7,871

4,832
3,000
7,832

39
39

1,933,234
1,933,234
161,514,124

100
100
100

1.2
1.2
100

3,874
3,874
268,624

2,749
2,749
262,054

1,125
1,125
6,570

6,500
15,819
7,139
13,497
4,155
450
1,991
9,180

15
1,952
1,962
1,277
200
-