Sofreco final scoping study - 9 september 2016 (2)

Federal Democratic Republic of Ethiopia Private Enterprise Programme Ethiopia
(PEPE)
SCOPING STUDY REPORT
NATIONAL COTTON DEVELOPMENT
STRATEGY (2015-2030)
August 2016
I1904
92-98 boulevard Victor Hugo - 92115 Clichy Cedex - France
Tel. +33 1 41 27 95 95 – Fax. + 33 1 41 27 95 82
E-mail: agrind@sofreco.com

Scoping Study Report
TABLE OF CONTENTS
TABLE OF CONTENTS.................................................................... 1
ACRONYMS AND ABBREVIATIONS.............................................. 6
PROJECT SYNOPSIS.....................................................................11
EXECUTIVE SUMMARY .................................................................12
1 PROJECT RATIONALE..........................................................19
1.1 Preamble.............................................................................................19
1.2 Rationale of the Consultant’s Services ...........................................19
1.2.1 The Context .........................................................................................19
1.2.2 Consultant’s Services and Milestones .................................................20
1.2.3 Thematic Areas Covered by the Scoping Study..................................21
2 THEMATIC AREA A: PRODUCTION AND PRODUCTIVITY.22
2.1 Production Level and Trend .............................................................22
2.2 Farming systems in Ethiopia............................................................25
2.2.1 Categorisation of Cotton Farms in Ethiopia.........................................25
2.2.2 Production Level for Each Producing Zone ........................................27
2.2.3 Trends of Production............................................................................27
2.2.4 Cotton Production Potential of Ethiopia...............................................29
2.2.5 Consequences from the Production Trends ........................................30
2.2.6 Production 2014-2015 per Production System....................................31
2.3 Production Practices and Trends ....................................................34
2.3.1 Technical Issues ..................................................................................34
2.3.2 Cultivation Practices (Large Scale Commercial
Farmers/Smallholders)........................................................................38
2.3.3 Harvest/Post-Harvest Practices (Including Contamination
Management) ......................................................................................39
2.3.4 Trends in Cultivation/Post-Harvest Practice ........................................41
2.4 Production Cost and Margins...........................................................41
2.4.1 Price of Seed-cotton per kg Paid at Ginnery/Farm-Gate (Based on
Quality/Grade).....................................................................................41
National Cotton Development Strategy - Ethiopia 1

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2.4.2 Comparison between Ethiopian and West African costs of
production............................................................................................46
2.5 Production Constraints.....................................................................48
2.5.1 Technology ..........................................................................................48
2.5.2 Infrastructure........................................................................................48
2.5.3 Labour Shortage ..................................................................................49
2.5.4 Access to Finance................................................................................49
2.5.5 Institutional...........................................................................................49
3 THEMATIC AREA B: PROCESSING AND VALUE
ADDITION ...............................................................................52
3.1 Present and Potential Markets for the Ginning Industry ...............52
3.1.1 Identification of Markets for Lint Cotton in Volume and Quality...........52
3.1.2 Estimation of Cotton Lint Surplus/Deficit for 5 Years Historical
Statistics Until 2015.............................................................................54
3.1.3 Assessment of Current and Future Demand and Supply of Cotton
to the Textile Industry..........................................................................57
3.1.4 Identification of the Cotton Seed Market (Local) .................................60
3.2 Profile and Performance of the Ethiopian Ginning Industry.........61
3.2.1 Profile of Ethiopian Ginning Industry ...................................................61
3.2.2 Standard Cotton Ginning Process .......................................................64
3.2.3 Condition and Performance of the Ginning Industry............................70
3.2.4 Assessment of Other Variable Costs...................................................79
3.2.5 Summary..............................................................................................80
3.3 Value Added in the Ginning Industry...............................................83
3.3.1 Cotton Quality Delivered by the Industry and Grading Procedures
(by Ginners and/or Third Parties)........................................................83
3.3.2 Prices Currently Obtained Ex-Ginnery (Lint, Seed, Planting Seed)
And Prices Paid For Seed-cotton - Revenues And Value Added In
The Ginning Industry...........................................................................87
4 THEMATIC AREA C: COMPETITIVENESS AND MARKET
ACCESS..................................................................................89
4.1 Domestic Demand for Imported Lint in Recent Years ...................89
4.2 Constraints to Marketing Efficiency and Opportunities for
Improvement......................................................................................92
4.2.1 Assessment of Marketing Efficiency in Terms of Market Information
(ICT, MIS)............................................................................................92
4.2.2 Assessment of Marketing Efficiency in Terms of Quality
Assessment: Appropriate Standards, Grading System and
Procedures..........................................................................................93
4.2.3 Assessment of Marketing Efficiency of Local Lint in Terms of
Logistics Costs ....................................................................................97
4.2.4 Opportunities to Achieve a Better Response to Market Signals
through Improved Marketing Efficiency...............................................97
4.3 Opportunities, Constraints and Required Support Actions for
Accessing New Export Markets.....................................................100
4.3.1 Opportunities, Constraints for Accessing Non-Conventional New
Export Markets (Organic, Fair Trade, Sustainable) ..........................100
4.3.2 Export Promotion and Branding of Ethiopian Cotton.........................105
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4.3.3 Affiliation and Participation in Appropriate Regional and
International Trade Programs ...........................................................106
4.3.4 Handloom...........................................................................................108
5 THEMATIC AREA D: VALUE CHAIN ORGANISATION AND
SUPPORTING SERVICES....................................................111
5.1 General Organisation of the Cotton Sector in Ethiopia ...............111
5.2 Price Management System .............................................................113
5.2.1 The Recently Introduced Price Management System For Lint
Cotton................................................................................................113
5.2.2 Assessment of Requirements and Constraints for Improving
Stakeholders’ Participation and System Sustainability .....................115
5.3 Input Supply Contracting Systems ................................................116
5.3.1 Existing Contracting Systems, Input Packages and Level of
Integration along the Value Chain in the Various Production Areas.116
5.3.2 Assessment of the Requirements and Constraints to Secure Adequate
Input Supplies, Particularly through Seed Multiplication
Systems.............................................................................................117
5.4 Financing Mechanisms of the Value Chain...................................120
5.4.1 Existing Financing Mechanisms in the Sector, both for Working
Capital and Investment .....................................................................120
5.4.2 Assessment of Requirements and Constraints to Improve the
Financing Mechanisms of the Sector................................................124
5.5 Cotton Research System ................................................................125
5.5.1 Present Status of Cotton Research Programs and Resources
(Seed Selection and Others).............................................................125
5.5.2 Current Cotton Research Needs and Gaps.......................................128
5.5.3 Reasons for the low performance of the cotton research..................129
5.5.4 Research Strategies and Directions ..................................................130
6 THEMATIC AREA E: POLICY AND REGULATION.............131
6.1 Assessment of the Existing Specific Regulatory Framework for
Cotton...............................................................................................131
6.2 Assessment of the General Regulatory Framework Applicable
to the Cotton Sector........................................................................131
6.2.1 General Regulatory Framework for Water Management...................131
6.2.2 General Regulatory Framework for Agricultural Investment support 133
6.2.3 Bio Safety and GMO Regulatory Framework ....................................133
6.2.4 General Regulatory Framework for Industrial Investment .................134
6.2.5 Trade Licences ..................................................................................136
6.2.6 General Regulatory Framework for Standard Elaboration and
Enforcement......................................................................................137
6.3 Current Cotton Policy......................................................................138
6.3.1 National Cotton Policy Formulation and Dissemination Processes in
Ethiopia .............................................................................................138
6.3.2 Sector Policy Development Requirements vs. Sustainability Criteria
for Market Access .............................................................................139
7 THEMATIC AREA F: SOCIAL IMPACT AND
ENVIRONMENTAL COMPLIANCE.......................................142

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7.1 Impact Analysis of Intensive Production Systems ......................142
7.1.1 Introduction ........................................................................................142
7.1.2 Nature and Extend of Economic Impact of Conventional Practices
in the Main Cotton Production Areas (Revenue) ..............................144
7.1.3 Nature and Extend of Social Impact of Conventional Practices in
the Main Cotton Production Areas ....................................................146
7.1.4 Nature and Extend of Environmental Impact of Conventional Practices
in the Main Production Areas (Land Use, Water Management, Pest
Management).....................................................149
7.1.5 Potential Impact of GMO Adoption ....................................................157
7.1.6 Lessons Learnt ..................................................................................161
7.2 Sustainability Risks Associated with Climate Change in Cotton
Production .......................................................................................162
7.2.1 Climate Change and Subsequent Changes of Farming Practice
Observed in the Main Cotton Production Areas................................162
7.2.2 Receptiveness of Cotton Producers to Participate in Weather-
Derived Risk Insurance Scheme.......................................................167
7.3 Sustainability Risks Associated with Human Factors in Cotton
Production .......................................................................................170
7.3.1 Sustainability of Cotton Production in Relation with Local
Communities Rights (Governance)...................................................170
7.3.2 Sustainability of Cotton Production in Relation with the Use of
Casual Labour (Health and Safety, Gender Equity)..........................172
7.3.3 Lessons Learnt ..................................................................................173
7.4 Opportunities and Constraints in the Design and
Implementation of Sustainable Cotton Projects ..........................174
7.4.1 Assessment of Sustainable Requirements and Trends on Major
Export Markets ..................................................................................174
7.4.2 Addressing Social and Environmental Impact in the Design of
Sustainable Cotton Projects (Eco-Friendly Technologies) ...............178
7.4.3 Lobbying and Advocacy Requirements in Buyer Countries for
Sustainable Cotton Projects..............................................................183
7.4.4 Lessons Learnt ..................................................................................185
APPENDICES:
Appendix 1: Monthly Rainfall in Ethiopian Cotton Growing Areas (Long-Term
Averages)
Appendix 2: Zonal Production in Ethiopia
Appendix 3: Cotton Production in Ethiopia 2011-2015
Appendix 4: Main Cotton Pests in Ethiopia
Appendix 5: Production Costs in Large Irrigated Farms and in Smallholder
Farm
Appendix 6: Ethiopian Lint Grading and Price Management System
Appendix 7: Estimation of Working Capital Requirements for Two Business
Models in the Ethiopian Cotton Sector (For 1 ha)
Appendix 8: Documents Received from the Beneficiary in August 2016

Appendix 9: The Cotton Corporation of India, an Example of a Supporting
Government Agency
ANNEX: Field Visits Reports (as a separate volume)

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Acronyms and Abbreviations
ACRONYMS AND
ABBREVIATIONS
AbTF Aid by Trade Foundation
ACA African Cotton Association
ACTIF African Cotton and Textile Industries Federation
AGOA African Growth and Opportunity Act
AILAA Agricultural Investment Land Administration Agency
AISCO Agricultural Inputs Supply Enterprise
APMC Agricultural Produce Market Committee
AwBA Awash (River) Basin Authority
BCI Better Cotton Initiative
BMP best management practice
bph bales per hour
Bt Bacillus Thuringiensis
CA Conservation Agriculture
CBE Commercial Bank of Ethiopia
CCI Cotton Corporation of India
CmiA cotton made in Africa
CO2e carbon dioxide equivalent
Cotlook cotton outlook (cotton market monitor)
CROPWAT piece of software designed for the calculation of the right amount of water needed for
the irrigation of crop fields
CSA Central Statistical Agency
DAP diammonium phosphate
DAE Day after emergence
DBE Development Bank of Ethiopia
DFID UK Department for International Development
DP 90 variety from Delta Pine Seed Company
DTMPCI double trigger multiple peril crop insurance

EAC East African Community
ECOWAS Economic Community of West African States
ECPGEA Ethiopian Cotton Producers, Ginners and Exporters’ Association
ECX Commodity Exchange in Addis Ababa
EEA Ethiopian Economics Association
EIA Environmental impact assessment
EIAR Ethiopian Institute of Agricultural Research
EIC Ethiopian Insurance Corporation
EIIDE Ethiopian Industrial Inputs Development Enterprise
ELS Extra-long staple cotton
ETB Ethiopian Birr
ETIDI Ethiopian Textile Industry Development Institute
FAO Food and Agriculture Organisation
FDI Foreign direct investment
FDRE Federal Democratic Republic of Ethiopia
FSU Former Soviet Union
FT fair trade
GE genetically engineered (crop)
GDP gross domestic product
GHG greenhouse gas
GM genetically modified
GMO GM organism
GoE Government of Ethiopia
GOT ginning out turn
GSP generalised system of preferences
GTP Growth and Transformation Plan
ha hectare
HHP highly hazardous pesticide
HVI high volume instrument
ICA International Cotton Association
ICAC International Cotton Advisory Committee of FAO
ICT information and communications technology
IFAD International Fund for Agricultural Development
IFPRI International Food Policy Research Institute
ILO International Labour Organisation
IPCC International Panel on Climate Change
IPM integrated pest management
IRAC Insecticide Resistance Action Committee
ITC International Trade Centre (Geneva)
K potassium
kg kilogramme
LAFCU Lumme-Adama Farmers Corporative Union

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m metre
m
2
square metre
m
3
cubic metre
METB million ETB
MFI microfinance institutions
MIS marketing information system(s)
MoANR Ministry of Agriculture and Natural Resource of the FDRE
MoARD Ministry of Agriculture and Rural Development of the FDRE
MoFED Ministry of Finance and Economic Development of the FDRE
MoI Ministry of Industry of the FDRE
MOWIE Ministry of Water, Irrigation and Energy of the FDRE
MS Microsoft Company
MSP minimum support price
Mt million t
MUSD million USD
MW megawatt
N nitrogen
NBE National Bank of Ethiopia
NGO non-governmental organisation
NISCO Nyala Insurance SC
NMA National Meteorological Agency
NSC National Steering Committee for Cotton
NVRC National Variety Release/Registration Committee
NWG National Working Group
ºC degree Celsius
OE Organic exchange
OPP Obsolete Pesticide Project
P phosphorus
Pan UK Pesticide Action Network UK
PEPE Private Enterprise Programme Ethiopia (funded by DFID)
PP polypropylene
PPP public-private partnership
qt quintal
RBA River Basin Authority
RBO River Basin Organisation
RR “Roundup Ready” (GM crop tolerating glyphosate herbicide)
SC seed-cotton
SC share company (when following a firm name)
SEEP ICAC Expert Panel on the Social Environmental and Economic Performance of
Cotton Production
SMART specific, measurable, attainable, relevant, trackable (criteria or indicators)
SNNP Southern Nations, Nationalities, and Peoples' Region of the FDRE
t tonne (metric)

TC technical committee
TIDI Textile Industry Development Institute
TIN Tax payer registration number
TWG Technical Working Group
UK United Kingdom
UN United Nations
UNFCCC United Nations Framework Convention on Climate Change
US United States (of America)
USA United States of America
USAID US Agency for International Development
USD US dollar
USDA US Department of Agriculture
VSI voluntary sustainability initiative
WAF West Africa
WARC Werer Agricultural Research Centre
WB The World Bank
WCED UN World Commission on Environment and Development
WCP water crop productivity
WFP World Food Programme
WICI weather index crop insurance
WRSI water requirement satisfaction index
All dates are according to the Gregorian Calendar (day/month/year).

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Disclaimer
This study has been prepared by SOFRECO from information provided by the
Ministry of Industry of the Federal Democratic Republic of Ethiopia and a number
of other sources. Neither SOFRECO nor the UK Department for International
Development (DFID) nor DAI Europe Ltd take any responsibility for losses incurred
by any person or government or corporate body which relies on the information
contained in this report.
The contents of this study are the sole responsibility of SOFRECO and can in no
way be taken to reflect the views of DFID or any organisation mentioned in the
report.

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PROJECT SYNOPSIS
Designation Information
Client: DFID
Beneficiary: Federal Democratic Republic of Ethiopia
Oversight Body: Ministry of Industry
Programme: Private Enterprise Programme Ethiopia (PEPE) (2013-2020)
Assignment: National Cotton Development Strategy (2015-2030)
Contractor:
DAI Europe Ltd
2nd Floor, 63 Gee Street, London EC1V 3RS, UK
Subcontractor
(or the Consultant)
SOFRECO
92-98, boulevard Victor Hugo, 92115 Clichy cedex, France
Subcontract Agreement
Reference Number
14013B/PO1355/Sofreco
Dated 26 November 2015
Amendment No. 1 Signed on 11 December 2015
Amendment No. 2 Signed on 29 March 2016
Amendment No. 3 Signed on 19 May 2016
Mission Supervision
and Guidance:
Technical Working Group (TWG) of the National Steering Committee (NSC)
for Cotton
Start/End: 01 December 2015 – 19 August 2016

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EXECUTIVE SUMMARY
Ethiopia now produces on average 55,000 tonnes lint cotton for the past 5 years (2011-2015).
the current gap is 20,000 tonnes lint yearly gap to meet the domestic demand of the developing
textile industry. It targets at least lint self-sufficiency and eventual surplus for export when the
estimated country production potential is fixed at 1 million tonnes seed-cotton.
The present due diligence of the national cotton value chain is the first stage
towards the further identification of a (2015 – 2030) National Cotton Development
Strategy and of a relevant Road Map. It has been implemented through field visits,
from December 2015 to June 2016, in 6 Regions cumulating more than 90 % of the
cotton production (quoted by alphabetic order: Afar, Amhara, Benishangul Gumuz,
Gambela, SNNPR, Tigray) as well as through meetings with a very broad range of
stakeholders of the value chain. Six core thematic areas are tackled.
Thematic Area A - Production and Productivity
Ethiopian farmers have been growing cotton for centuries and it still remains the
traditional smallholder cash crop grown from first rains (mid-June to end
September) to harvest (September – December) on est. 80,000 ha, out of which
40,000 ha by small producers (including 30% irrigated) and 60,000 ha by
commercial farms. The 136,000 tonnes/year national production is built from
yields ranging from 2-3 t/ha raw cotton in irrigated areas to 1.2 – 1.7 t/ha in rainfed
farms. The lint gap (20,000 tonnes/year) is compensated by imports now
monopolised by a state company.
The value chain provides incomes to est. 57,000 smallholding cotton farmers, jobs
to est. 150,000 workers employed in 1,020 cotton producing commercial farms and
est. 2,000 jobs in 21 ginneries.
Large-scale “commercial” and medium-scale cotton farms contribute to more than
70% to the nation’s lint production, many of them producing under irrigation
(Awash and Omo valleys) while Western Ethiopia (Humera, Metema, Benishangul-
Gumuz, Gambela) depends on rainfalls. Smallholder production is mainly
constrained by low technical productivity (compared to large-scale irrigated or
mechanised farming), climatic changes effects and the competition of more
profitable cash crops.
Cultivation practices are quite different from large mechanised farms to smallholder
farms. Regarding the latter, irrigated cropping in the Afar Region and South Omo

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area follows mono-cropping whereas the cropping system in the rainfed areas of
Western Ethiopia is mixed (i.e. sesame, sorghum and maize).
Farmers in North Gondar (Amhara Region) recently adopted the CmiA
1
sustainable
production system while farmers in the Arba Minch area (SNNPR) try to start
organic
2
cotton production
The “no change” long-term trend partly explains the very modest improvement of
technical productivity or production. Apparently no cotton growers use herbicides
although weeding is a serious issue requiring a lot of hand labour difficult to get.
However, progress is noticed (ex: jute instead of polypropylene bags to control
contamination).
Unlike lint, there is no seed-cotton market price system but there has been a
steady decline in the price of seed-cotton during the last two years. Although there
are no clear data on this issue, most of the cotton produced in Ethiopia is actually
sold as lint and seed, after commission ginning. The high trash content in seed-
cotton is directly correlated to the absence of quality-supportive incentive.
Lint (and consequently seed-cotton) price decrease lead to very low even negative
gross margin of the cotton crop. Unless productivity increases (yields) and/or some
of the costs can be reduced, only an increase of the price of seed-cotton, up to at
least 12 ETB/kg, can make cotton an attractive crop for farmers and lead to a
significant increase of production.
Technical constraints to improving cotton productivity and production may easily be
reduced or removed in the short-term but the medium to long-term binding
constraint require a proper strategy of development of the sector. Challenges as
land development, input supply, availability of farm machineries and implements,
ginneries, oil pressing mills could be considered as potential investment
opportunity areas whereas others like cotton classification and grading, marketing,
technology generation and dissemination can be addressed through coordination,
collaboration, partnership, information technology, training and professional
management
Thematic Area B - Processing and Value Addition
There is 21 installed plants, 16 ginneries are operational, providing approximately
2 000 jobs. Most plants are using the saw ginning technology (17). Global
estimated capacity is 180,000-270,000 tonnes seed-cotton per season but their
geographical distribution leads to ginning capacity gaps (2,000 t/year in Gambela
up to 42,000 t/year in Tigray) except in Addis Ababa (4 units 37,000 tonnes with 1
not functional) and Oromia (5 units 116,000 tonnes). This unbalanced geographical
distribution is being compensated by a trend to relocate westwards, when cotton
competes with other crops for water resources.
Poor infrastructure and outdated technology impact production and maintenance
costs as well as the lint and seed quality when seed-cotton is handpicked with high
trash and contaminant concentration. Other negatively impacting factors are:
storage infrastructure deficiency, missing equipment along the processing line
(feed control, lint cleaning, moisture restoration, bad quality bales cover, rare fire
protection), lack of quality control.
1
Cotton made-in Africa.
2
Not certified yet.

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Ginning yield only is 36 % in Ethiopia, to be compared to 42 % in Western Africa
(both handpicked)
Ginneries operation face numerous constraints: due to inadequate geographical
capacity distribution, frequent long distance raw cotton transport leads to high
costs and insufficient moisture content at ginning impacting fiber quality, raw cotton
contamination (stones, polypropylene,..), shortage of labour force in Addis and Afar
Regions linked to low wages and mitigated by migrants from the South, frequent
power cuts, difficult access to spare parts (and to foreign currency), long terms of
payments and poor support from the banks, no curriculum and resource for specific
staff training.
The major business model prevailing is that of private self-standing companies only
providing ginning services with the exception of Tiret (Amhara) ginning for
producers and traders and buying cotton, and ELSE International Ginnery &
Spinning developing integration through a 560-ha farm in the Omo Valley to
overcome quality problems.
Please explain the business models properly a) farm integrated ginners b) self-
standing c) fully integrated ginnery (garment/textile/spinning/farm).
Contract farming is poorly developed due to the following factors: delivery time and
schedule are generally not met, product remote quality control is practically
impossible, rain-fed production contracted quantity delivery is at high risk,
Middlemen are managing the cotton marketing scheme and are missing real
market links and no raw cotton quality control is applied.
Thematic Area C – Competitiveness and Market Access
Ethiopian Supply and Demand, and Positioning
Since 2010, consumption has shown a strong growth in Ethiopia and has
increased by 3 times. It is now lagging behind, stabilising at about 40,000 t/year
and, since 2014, Ethiopia is a net importer of cotton, mainly from India, including
some organic. Cotton seeds production has increased accordingly but market
easily absorbed this production since cotton edible oil is popular and the demand
for cattle feeding is strong.
Ethiopia vs. East Africa: Ethiopia represents today about 50% of total East Africa
consumption, Tanzania being the second largest consumer. East Africa is
traditionally a cotton exporter, led by Tanzania but East Africa production has
strongly decreased in the past year, because of unfavourable international prices
and a complex local market situation. Imports, excluding Ethiopia, in East Africa
remain negligible: Ethiopia can only rely on its own consumption to find a
local/regional market.
Overseas: mainly due to China’s strategic policy, world cotton market is full of
stocks, accounting for almost one year of consumption. However, since 2014
China has shifted its policy and is now releasing huge stocks on its domestic
market. This now strongly limits China’s imports, while the Chinese imports
represented the main cotton market driver for the last 15 years. World export
opportunities are rare. Currently, China is getting rid of its stock and started buying
new stock which is inducing world price to increase nowadays.
On the longer term (2025) perspective, China will again be a strong importer as
well as Vietnam, Indonesia, Bangladesh or Turkey, which will have a strong

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consumption growth. Only Turkey has a domestic production (covering roughly
50% of their past requirements). Indonesia, Vietnam and Bangladesh are fully
dependent on imports. The USA, India and Central Asia will remain important
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exporters, but exported quantities shall remain stable. However, West Africa and
Brazil shall increase their exports. Becoming a major cotton exporter will obviously
imply to compete with the West African exporting countries.
Ethiopia is in deficit of cotton, and it shall increase over the next years due to
consumption growth while exports possibilities, within East Africa or in the World,
appear today limited, because of huge world stocks and lower imports demand.
Competition with Brazilians or West African cotton will be very challenging,
especially considering their quality: very low contamination, homogeneity, high
grade and long staple length. Ethiopian strong domestic consumption represents a
huge opportunity with both industrial and handicraft textile industries able to absorb
a wide variety of cotton.
Export Opportunities
Despite the Ethiopian cotton deficit context, three labels have a good development
and visibility in international markets: BCI (for Better Cotton Initative), CMiA and
Organic cotton. They have been created for final users who want to make
sure that purchase environmentally and socially friendly items. They are an
opportunity to tap with a clear potential advantage.
Joining international cotton associations can also help Ethiopian cotton to be more
visible in the world market (International Cotton Association created by merchants
and spinners 175 years ago, African Cotton Association, pan African producers
Association) and the AGOA program provides the competitive advantage of trade
preferences with USA for export of finished products. Ethiopia also benefits from EU
prefercial trade agreement, i.e. EBA which is the 80% destination for the garment
export .
Muya Brand (Addis Ababa) and Jano Hand Craft (Arba Minch) illustrate success
stories confirming that handloom market opportunities are huge since it can
process almost any cotton quality.
Assessment of Cotton Quality Constraints
Seed-cotton received at the ginneries is not representative of what handpicked
cotton should be: leaf content is far too high, contamination is very important (jute
bags, PP or PE covers). Long transportation from fields to gins, a lot of dust, water
and oil also deteriorate seed-cotton quality. It is not known if Ethiopian cotton is
sticky or not and where. Seed-cotton quality has room for improvement, from fields
to gins, in order to improve cotton profitability and reputation.
Lack of quality monitoring and control: cotton quality is determined by the spinners,
when transformed. Made at this stage of the value chain, it is too late since it may
average down sale price because of non-homogeneous lots. Farmers do not know
exactly which quality they produce, ginners do not know exactly the quality of the
seed-cotton they are paying for, and spinners never know what they will have
available for spinning.
Cotton quality grading in Ethiopia is more demanding than international
requirements: grading is based on HVI (technological grading) asking 48-hour
conditioning for testing, following American standards (complicated criteria for non-
textile engineers). HVI is currently utilized by ETIDI to test lint cotton and yet not
decentralized upto district level. This renders difficult any monitoring from fields to
gins and limits reactivity. Visual classing (basis of handpicked cotton) is rapid and
generally very efficient; it is following very simple criteria understandable by all
actors of textile industry: farmers, ginners and spinners. It is on this basis that the

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majority of offers are being made on the international market.

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Quality monitoring and grading have to bring clarity to quality in order to enable
farmers and ginners to pay/receive the right price and spinners to be offered
homogeneous lots meeting their specific requirements.
Assessment of Constraints in Terms of Market Framework
The market framework offers a lot of different combinations to market seed-cotton
or cotton lint inside the industry. It reduces market transparency and clarity for
smaller operators.
EIIDE (a Governmental body) intervention is targeting to encourage cotton
cropping by providing liquidity in relationships between producers and spinners but
also provides some credit facilities and handles cotton imports. EIIDE has no limit
in volume or value to support liquidity, but it seems that members are in great need
of training about what cotton market is and how to improve their competences for a
better performance. Yet, EIIDE only buys lint cotton and yet not raw cotton/seed
cotton. EIIDE intervention is one year old it may then be an opportunity to
evaluate this organisation and clearly define its role to contribute to the
simplification of Ethiopian cotton market and improve all operators efficiency and
transparency. The organization has also serious limitation on the number of
geographically distributed warehouses.
Farmers are bearing a lot of risks and this may be limiting their willingness to
produce more cotton. This is also detrimental to ginners who may not have as
much cotton to gin as they expect. Market fluidity is also impacted by logistics
challenges. Limited quality control and monitoring worsen this situation since there
is no clarity for the operators about these crucial pieces of information: what is
produced? what is available? what is required? This is particularly the case for the
handloom sector, which could generate much more work, added value and
demand. Today, farming appears to be the crucial point for the textile industry
development: no farmers, no cotton!
Thematic Area D – Value Chain Organisation and Supporting Services
and Thematic Area E – Policy and Regulation
Input Supply
There are very few contract farming systems where a large farm would supply the
inputs to out-growers, mainly because of lack of financing capacities.
Fertiliser imports are undertaken by AISCO (public company) based on declared
farmers. Cooperatives deliver inputs to smallholders, through a credit system,
based on loans from commercial banks often guaranteed by the Regional
Government. The other inputs are most of the time supplied by private dealers.
The Difficult access to foreign currency represents indeed a limiting factor for the
supply of critical inputs (such as the insecticides for instance).
Cotton seed production and supply are poorly organised, most of the seed being
supplied by a few large farms using the same seed from year to year. A seed
certification system, involving the cotton research centre, private breeders and
seed multiplication farms is necessary.
Value Chain Financing
Ways of investments and working capital cotton production financing depend on
the farms size:

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3
 Development Bank of Ethiopia (DBE) finances new or expansion of large
investments projects in the agricultural sector (including cotton) with a 200 ha
minimum cultivated area. Despite assessments of business plans by the Bank
and a close monitoring of the use of the funds is expected, it appears that large
amounts of funds have been actually diverted from their initial purpose during
the last years.
 Commercial Bank of Ethiopia (CBE) provides loans to large commercial farmers
(minimum 30 ha of land), after assessment by a technical team.
 Cooperatives face difficulties and are dependent on guarantees from
government bodies to obtain loans from the banking system; so far, they are not
able to purchase the seed-cotton produced by their members (or very small
quantities) and private dealers finance this operation.
 Smallholders rely on micro-finance institutions, usually efficient but with serious
challenge in , but not suitable to finance investments (high interest rates).
Considering the two main cotton business models (seed-cotton and lint sale),
requirements in working capital financing are quite similar for the two main cotton
business models (seed-cotton and lint sale): about 25,000 ETB/ha or est. 2.5 billion
ETB for a 100,000 ha cotton area.
Thematic Area F – Social Impact and Environmental Compliance
Agro-climatic conditions are good (as for instance in the Gafo Goma zone,
SNNPR), conventional practices, along with limited diversification efforts appear
sufficient to secure satisfactory margin, despite high costs and delays of imported
inputs, coupled with high logistics costs. The economic attractiveness of organic
production is limited.
Social impact: commercial farms provide a series of benefits on top of wages,
usually including housing, food, drinking water and medical treatment. Workers
exposure to pesticides is generally high, due to frequent lack of personnel
protective equipment but varies with the region and the practices. Despite the
freedom of association, no workers association operates in the cotton farming
industry. (pls include some few words on the social impact on workers and
surrounding neighbours).
Environmental impact: there are significant variations in the proper use of
pesticides on cotton, depending on regions.
Water management: surface irrigation is the only methods practiced on cotton but
farmers are sometimes facing increasing difficulties in getting sufficient amounts of
water (for instance: Omo Valley). Salinisation represents an acute problem for land
use, and is in progress. The Werer Agricultural Research Centre has been
studying water management practices but its findings did not reach end users and
practices are largely unchanged.
Soil conservation: large scale commercial farms have sometimes been growing
cotton for many years, without any rotation and mostly without fertiliser. Good soils
(volcanic, black cotton soils) offer the “mining agriculture” farming system
opportunity, which is not sustainable in the long run. While alternative conservation
agriculture on large cotton farms is becoming in many countries a major agronomic
issue (for instance: no tillage in Brazil), they have not reached Ethiopia so far.
Biodiversity and land use: in many areas (for instance: South Omo area), the
number of trees to be kept in the fields for environmental protection and
biodiversity are not considered by investors, some of them being even engaged in

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charcoal production while clearing the forest. In some cases, local communities are
being pushed towards National Parks (for instance: Mago, Hamar & Bana National
Parks) and the game population is drastically reducing.
Climate change: country wide studies and projections have shown that average
climatic variables will shift and weather variability will intensify; future temperature
projections of the IPCC mid-range scenario (compared to the 1961 to 1990 normal)
predict an average rise of temperature by 0.9 ºC to 1.1ºC by 2030, 1.7 ºC to 2.1ºC
by 2050 and 2.7 ºC to 3.4ºC by 2080. Rainfalls should increase by 1.4 to 4.5%, 3.1
to 8.4%, and 5.1 to 13.8% over 20, 30 and 50 years respectively. While cotton
production is not likely to be affected unfavourably by these two factors, the
increase in frequency of extreme climatic events is critical: 4 out the 7 censored
floods and one of the 3 censored droughts in the 1960- 2010 period occurred in the
last 12 years. In 2014, violent floods in Middle Awash practically destroyed all
cotton crops. Against this background, weather insurance packages relevant to
small farmers were introduced in three regions in 2010 by NYSCO Company,
based on a rainfall deficit computation panel. Farmers’ unions are the main availing
channel of such micro-insurance products. By the end of 2010, the number of
farmers insured was over 2,000, for food crops essentially, notably grain legumes.
No cotton producers union joined the scheme yet, and no commercial investor has
really expressed interest for such a scheme.
Sustainable cotton requirements and trends on export markets: the supply
increased significantly in the last few years. It was estimated to represent 8% of
global production in 2014 and its share should reach 13% in 2015. Nearly 2 million
tonnes of Better Cotton were produced in 2014 and the gap between production
and consumption however is widening. Better Cotton ginner uptake was just below
50% of production in 2014. In spite of major brands and retailers having committed
to source more sustainable cotton (IKEA commitment: 100% sustainable in 2015
for instance), sustainable sourcing has slipped down the agenda of many others
mainly due to a lack of awareness of sustainable cotton, a confusing number of
labels on the consumer side, and difficulties to manage sustainable cotton supply
on company side.
The Voluntary Sustainability Initiatives (VSIs) are stepping stones on the way to
organic production and Fair Trade, which are the most demanding systems
requiring sustainable cotton farming complex systems (but similar systemic
concepts may also be applied to other VSI) and also requiring a sustainable cotton
farm environment, involving trade relations between farmers and the value chain,
and supporting services in terms of finance, research and education.
Lobbying and advocacy for sustainable cotton projects in buyer countries: it falls
under the framework of the four pillars - GoE’s green economy strategy. Ethiopia
could tap into climate funding for GHG abatement, notably the carbon market and
emerging international funds under the UNFCCC (cf. Australia’s industry’s best
management practice program and specific module for the management of cotton
farms natural assets).

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1 PROJECT RATIONALE
1.1 Preamble
The present document is the Scoping Study foreseen in the Terms of Reference
(ToR) of the above Project.
A first issue (rev1) was developed from Consultant’s meetings and investigations in
Ethiopia from 30 November 2015 till 11 May 2016, including several visits in Addis
Ababa, its surroundings and in other FDRE Regions.
A second issue (rev2) was issued following additional field visits in the SNNPR and
in Tigray Region.
The present final issue follows the National Validation Workshop held in Addis
Ababa on 12 July 2016 and chaired by their Excellencies the Minister of Industry
and the Minister of Agriculture and Natural Resources.
Some useful documents were also transmitted to the Consultant following the
Workshop (see list in Appendix 8).
1.2 Rationale of the Consultant’s Services
1.2.1 The Context
The Federal Democratic Republic of Ethiopia is a landlocked low income country of
the Horn of Africa with a high central plateau and lowlands around, divided by the
South/North Great Rift Valley. It has a 99.5 million multi-ethnic and multi-religion
population on a 1,104,300 km
2
territory (including 104,300 km
2
lakes) and natural resources are concentrated on small reserves of gold, platinum,
copper, potash, natural gas and hydropower.
The country is a federation of 9 regional states (divided into woredas and kebeles)
with full legislative, executive and judicial powers over their own internal affairs,
and two self-governing cities (Addis Ababa and Dire Dawa).
Cotton is grown on an estimated area of 80 000 ha, out of which 40 000 ha by
small producers (including 30% irrigated) and 60 000 ha by commercial farms, with
a national production estimated to 55,000 tonnes of lint per year.

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Yields are ranging from 2-3 t/ha raw cotton in irrigated areas to 1.2 to 1.7 t/ha in
rainfed farms.
More than 90% of the domestic production is concentrated in 6 states where most
areas receive rain from mid-June to end September. Cotton is harvested in the
September – December period (see Appendix 1: Monthly Rainfall In Ethiopian
Cotton Growing Areas).
Cotton production provides incomes to an estimate of 57 000 smallholding cotton
farmers, jobs to an estimate of 150 000 workers, employed in 1 020 cotton
producing commercial farms; Cotton ginning employs an estimate of 2 000 people
in 21 ginneries.
The national production does not meet the demand of the expanding textile
industry and the gap, estimated 20 000 tonnes lint/year on average, is
compensated by imports now monopolised by a state company.
The Government seeks opportunities to develop the textile, garment and apparel
sector on the basis of the following assets:
o Promotion of incentives to attract investment, including FDI, in a developing
industry,
o Availability of trainable labour force and low cost electricity,
o Technically estimated potential for domestic cotton production (3 million ha
whenmillion is cultivated) to overcome the 20, 000 tonnes/year lint
deficit now compensated by currency-costing imports for the
textile/garment/apparel industry.
1.2.2 Consultant’s Services and Milestones
In this context, the Government has transferred responsibility of the cotton sector
from the Ministry of Agriculture to the Ministry of Industry (MoI) two years ago and
the latter leads the present identification of a National Cotton Development
Strategy (2015-2030) to be integrated in GTP 2 once endorsed by Ethiopian
Authorities.
After implementation of a tending procedure, a subcontract agreement number
14013B/PO1355 has been signed accordingly between DAI Europe Ltd and
SOFRECO on 26 November 2015 for the DFID-financed Private Enterprise
Programme Ethiopia (PEPE) supporting the Ministry of Industry (MoI), with the
purpose to design a National Cotton Development Strategy.
This Scoping Study report involved the participation of:
 7 international experts; and
 7 national experts, from 30 November 2015, date of first meeting in Addis
Ababa with His Excellency Ato Tadesse, State Minister at the Ministry of
Industry, till submission of this report.
Visits by the Consultant to stakeholders were performed in the periods:
 December 2015;
 March-April 2016; and in
 May-June 2016 (thanks to Amendment 3 to the Consultant’s Contract).
Field visits reports are presented as a separate volume in Annex.

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1
1.2.3 Thematic Areas Covered by the Scoping Study
The following Scoping Study report is structured according to the 6 thematic areas
defined in the ToR, namely:
 Thematic Area A: Production and Productivity;
 Thematic Area B: Processing and Value Addition;
 Thematic Area C: Competitiveness and Market Access;
 Thematic Area D: Value Chain Organisation and Supporting Services;
 Thematic Area E: Policy and Regulation;
 Thematic Area F: Social Impact and Environmental Compliance.

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3
2 THEMATIC AREA A:
PRODUCTION AND
PRODUCTIVITY
2.1 Production Level and Trend
It is widely believed according to anecdotal sources that Ethiopia recently added
more value than any other sub-Saharan Africa to the cotton-textile value chain.
Current seed-cotton production levels however still explain neither the cotton sub-
sector’s potential nor the satisfying of domestic-industry’s demand.
Recent years have seen a decline in cotton production levels which may be
explained by factors such as (i) market fluctuations
3
, ( ii) (iii) the comparative
advantage in rain-fed production of other crops such as sesame and sorghum
(Berhanu and Asefa, 2014).
Large-scale “commercial” and medium-scale cotton farms contribute on average
more than 70% to the nation’s lint production and many of these farms produce
under irrigation especially in the Awash Valley and the Omo Valley. Some of the
Western Ethiopia farms such as those in Humera, Metema, Benishangul-Gumuz
and Gambela however depend on rain-fed cotton production.
Large-scale farmers struggle against natural and human made uncertainty such as
the emergence of new pest, water-scarcity and salinity. There are also and perhaps
more importantly human-made factors that are critical to the survival of these
cotton farms such as security
4
and land-use rights
5
. Large-scale farmers and
smallholders depend on1980s-varieties but they are believed to have lost their
potential-yield-capacity and fibre quality through identity-change that in turn was
due to outcrossing and mixing in the ginnery or elsewhere.
It is generally acknowledged however that there is vast potential in Ethiopia for
increased large scale farms and smallholder production of cotton. It grows in a
wide range of ecological zones including areas where food crop production is no
3
Adverse movement in price or quantity demanded.
4
Narrowly-defined such as economic and broadly-defined such as political.
5
Included in previous footnote.

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Thematic Area A: Production and Productivity
22 SOFRECO

5
longer financially profitable
6
. Ethiopian farmers for centuries grew cotton and it still
remains the traditional smallholder cash crop. Smallholder cotton production has
been contributing at least 30% to total cotton production and mainly satisfying the
demand of the handloom industry and weavers. However, smallholder production
is mainly constrained by:
 Low technical-productivity compared to that of the large-scale irrigated or
mechanised production;
 Climatic changes effects;
 Development of cash crops more profitable than cotton.
The low cotton productivity
7
of smallholders is mainly due to:
 Lack of or poor extension service, less research
outreach;
 Lack of access to improved variety and quality-seed;
 Poor pest control;
 Knowledge gap in crop-management.
The next figure shows a map of the evolution of seed-cotton production (t) in
Ethiopia from 2011-2015nshown in Appendix 3 (data from ETIDI).
In order to assess the potential of cotton production in Ethiopia, it is necessary to
compare the actual cotton area grown (and number of farmers) with the total
potential cotton growing area. A table with all the minimum necessary information
has been designed and is presented in Appendix 2. It has to be filled up, only with
the zones suitable to cotton production in Ethiopia. The table is designed for the
previous production year (2015 cropping season), but it would be useful to have
the data for the last three years.
8
6
Although comparative advantage is a dynamic process or concept i.e. what is financially profitable today may
not be financially profitable tomorrow.
7
Technical productivity.
8
The 2015 cropping season has been bad because of the poor rainy season.

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Seed-cotton Production (in tonnes) by Region between 2011 to 2015

7
2.2 Farming systems in Ethiopia
2.2.1 Categorisation of Cotton Farms in Ethiopia
It is generally considered that there are two types of cotton farms in Ethiopia:
 Smallholders; and
 Large scale “commercial” farms.
However, designating large farms as “commercial” farms does not prevent
smallholders to not sell their product on the market!
Indeed, smallholders usually cultivate and sell one crop (“cash crop”), cotton or
sesame for instance as many smallholders are not subsistence farmers in Ethiopia,
according to the definition of such of farm, as shown in the table below:
Criteria Subsistence farm Commercial farm
Purpose of farming Own consumption Profit
Size Small Big
Use of machinery  no machines Machines
Relationship of farm with
other business
 no relations A lot, agribusiness
There can be several ways of categorising farms, according to their respective
objectives. It would be interesting to consider a categorisation that can be useful
for the development of the cotton sector, in terms of strategies of support to each
of the identified categories of farms.
Actually, one could consider that there are three categories of cotton farms in
Ethiopia, the main criteria of distinction being the size. There are also other criteria
of differentiation such as:
 The farm machinery;
 The buildings;
 The internal organisation;
 The services supplied or received;
 The access to finance;
 The cotton business model.
The table below describes the characteristics of the three types of farms. Cotton
production can be developed with the three categories of farms, but the
motivations for growing cotton are specific to each of them. The identification of
those issues will be crucial in order to design a strategy of development of the
cotton production in Ethiopia. It should be possible to design “tailor made” support
programmes for the three categories of farms:

26 SOFRECO
Typology of Cotton Farmers in Ethiopia
Farm
Services Services
Types
size
Farm machinery Farm Buildings Internal organisation supplied to other received from
Access to finance Cotton business
(Area in and credit model
ha)
farmers other farmers
A
Small
< 30 - None - None 100% family - ++ Tractor
services
Contract
farming
Inputs through
cooperatives
Micro finance
institutions
No collateral
Sale of seed-cotton
(to coops or traders)
B
Medium
30 – 200 + One tractor +
plough / disc
harrow
+ Storage facilities
Shed
Family business: owner
= manager + max 2
permanent employees
+ Tractor
services
(ploughing)
- Inputs through
cooperatives
Loans from
commercial banks
Collateral
Sale of seed-cotton or
sale of lint
C
Large
> 200 +++ Several
tractors +
various kinds
of machinery
+++ Several kinds of
buildings
(storage,
workshop,
administrative
buildings)
Owner usually different
of the manager;
Several departments
(Technical, Machinery,
Accounting etc.)
More than 5 permanent
employees
++ Contract
farming with
neighbouring
smallholders
- Inputs through
cooperatives
Loans from
commercial banks
and Development
Bank of Ethiopia
Collateral
Sale of lint after
commission ginning
Source: CBE and DBE financing criteria; etc.

2.2.2 Production Level for Each Producing Zone
Unfortunately, data related to zone-disaggregated raw cotton production and
number of cotton producers are not available.
However, it may be stated that the Afar regional influence in cotton production has
recently declined. The Lower Awash Valley was completely converted to state-
owned sugarcane production while more than 8 000 ha, historically cultivated to
cotton, on the Amibara farm in the Middle Awash Valley were also converted to the
production of sugarcane in order to feed the state-owned Kesem Sugar Plant.
Currently, the cotton production is nationally more and more concentrated in the
Western regions of Ethiopia, although some opportunities may exist in the Somali
Region for instance.
2.2.3 Trends of Production
For the period 2011-2016, raw cotton production trend at regional level is illustrated
in Appendix 3
9
.
As zonal-level, raw cotton production data was unavailable or not made available
as mentioned earlier. This makes the assessment of the situation very difficult, as
the regional level is too wide for detailed analysis of the data. Also, although tables
(templates) were provided to the TWG (ETIDI)
10
, no data were supplied to the
Consultant about (i) the general farming situation: number of farmers (large scale
farms and smallholders), area cropped for the main crops, (ii) the disaggregated
figures of irrigated and rain-fed areas per type of farms, (iii) the production per
zone, types of farms, etc. To our knowledge, data are available at the various
Ministry of Agriculture bureaux (regions, zones and districts), where there are
teams of specialists who gather this kind of information.
This illustrates (i) a lack of coordination between the Ministry of Agriculture and
Natural resource and the Ministry of Industry (ETIDI) and (ii) the absence of an
efficient monitoring and evaluation system in the cotton sector.
The graphs below show the evolution of the cotton area, production and yield per
region from 2011 to 2015:
10
ETIDI is the only designated organization responsible to follow up cotton production throughout the country.

28
28
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The following observations can be made by taking into consideration the existing
data:

 For the large farms, cotton area cropped and production show significant
variations from year to year. As an average over 5 years, cropped area
represents 56 000 ha and yearly production 95 000 t.
 The large farms represent about 70% of the area cropped and 72% of the seed-
cotton production.
 The average (2011-2015) seed-cotton yields are quite similar per region, Afar
being the best, thanks to the irrigated farming systems used in the region.
2.2.4 Cotton Production Potential of Ethiopia
According to MoANR (2002 and 2008) estimation, Ethiopia has more than 3 million
ha potential land for cotton production.
The 2002 Report categorised
1
identified potential into:
 High potential and
 Medium potential areas.
The criteria for categorisation are:
 Feasibility for full irrigation and availability of abundant water (rivers, ground
water);
 Full mechanisation; and
 Rainfed production and/or supplementary small-scale irrigation.
An area falling into the high potential category is generally a vast lowland suitable
for full irrigation and full mechanisation.
Medium potential category area is suitable for rainfed production and/or small-
scale supplementary irrigation.
Under medium potential, the MoARD report included pocket areas that are either
growing perennial cotton (Birrsheleko in Amahara Region) or areas that are not
growing cotton currently (parts of Borrena, Dedesa, Belesa, Raya Valley, etc.).
According to this categorisation, 1,986,530 ha (or 66%) of the potential is suitable
for full irrigation while 1,014,280 ha (or 34 %) potential is suitable for rainfed and
small-scale supplementary irrigation.
However, aforementioned potential is also suitable for various crops (industrial,
cash and food crops). High potential area is equally suitable for sugarcane
plantation while medium potential area is suitable for sesame, sorghum, fruits and
vegetables etc. Hence, unless there is a well-defined incentive for cotton
production, it could be difficult to exploit identified potential for cotton sector
development.
For each region (by alphabetical order), cotton production areas are estimated in
the following table according to their potential:

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Region
High potential Medium potential Total potential
area (ha) area (ha) area (ha)
Afar 150,000 50,000 200,000
Amhara 544,303 134,680 678,710
Benishangul 79,930 223,240 303,170
Gambela 262,850 53,600 316,450
Oromia 205,490 201,930 407,420
SNNP 385,400 215,530 600,930
Somali 150,000 75,000 225,000
Tigray 208,830 60,300 269,130
Total 1,986,530 1,014,280 3,000,810
Source: MoARD, 2002, 2008 and Key informants (Ato Bante Kassie, Cotton development
directorate, Director- ETIDI, Ato Arkebe G/Egziabher, National cotton Research
Coordinator, WARC-EIAR, Dr. Workafes, Team Leader, AILAA – MoANR)
Consultant’s comments:
 This total potential area suitable for cotton is “theoretical” and does not mean
that it will or can be sown with cotton. Some other factors have to be
considered, as the necessary crop rotation, diversification at farm level etc. It is
therefore very difficult to assess a realistic potential figure for cotton production
in Ethiopia.
 However, taking into consideration those figures and comparing with the two
largest producers of West Africa, namely Burkina Faso and Mali, with a much
lower potential area and a production of 500,000 to 600,000 t/year of seed-
cotton, a national production of 1 Mt/y of seed-cotton appears as a realistic
objective, which may be achieved over a 10 year-period, for instance.
2.2.5 Consequences from the Production Trends
The main production trend is the shift from Eastern to Western Ethiopia. One of the
main consequences is the fact that the ginning capacity becomes less and less
adapted to the situation.
The table and the graph below show the ginning capacity per region (by
alphabetical order), in comparison with the average 2014-2015 production:

Ratio
Ginning Capacity Average Seed- Ginning
Region T seed-cotton/ cotton Production Capacity/SC
year
11
2014-2015 Production
%
Addis-Ababa 36 740 0 NA
Afar 31 660 25 000 127%
Amhara 54 500 38 400 142%
Benishangul 13 700 0%
Gambela 9 630 9 650 100%
Oromia 116 260 0 NA
SNNP 17 510 33 000 53%
Tigray 30,00
0
26 700 112.4%
Total 273 920 146 450 187%
Comparison between ginning capacity and average
seed-cotton production (years 2014-2015) per
region
150 000
100 000
50 000
0
Ginning capacity Tons
seed-cotton / year
Average Seedcotton
production 2014-2015
Although the total ginning capacity is much higher than the curent production, there
is clearly an over-capacity in some region (Oromia, Afar, Addis) and, at the
contrary, a deficit in the growing cotton production regions (SNNP, Amhara,
Benishangul, Gambela).
2.2.6 Production 2014-2015 per Production System
The Appendix 3 shows, for the 2 last cropping seasons, the area grown in cotton
and the production of seed-cotton, for the (i) large farms and the smallholders and
(ii) the irrigated and rain-fed crops.
The table and the graphs below summarise the data for the two years:
11
See chapter 3.2.3

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Type of Farm &
Farming System
Cotton Area (ha)
Seed-Cotton Production
Seed-Cotton Yield (Qt/ha
(T)
2014 2015 2014 2015 2014 2015
Large Irrigated 26 299 13 168 65 748 36 352 25 28
Large Rain-fed 42 311 29 047 71 929 39 754 17 14
Small Irrigated 955 1 476 2 388 3 984 25 27
Small Rain-fed 29 013 21 594 37 723 34 776 13 16
Total 98 578 65 284 177 787 114 866 18 18
45 000
40 000
35 000
30 000
25 000
20 000
15 000
10 000
5 000
0
Evolution 2014-2015 of the area in cotton (ha) per type
of farm & farming system
Large Irrigated
Large Rainfed
Small Irrigated
Small Rainfed
2014 2015
80 000
70 000
60 000
50 000
40 000
30 000
20 000
10 000
0
Evolution 2014-2015 of the seed-cotton production
(Tons) per type of farm & farming system
Large Irrigated
Large Rainfed
Small Irrigated
Small Rainfed
2014 2015

Seedcotton yield (Qt / ha) 2014 & 2015 per type of farm
and farming system
30
25
20
15 2014
2015
10
5
0
Large Irrigated Large Rainfed Small Irrigated Small Rainfed
The year 2015 has been a very bad year for cotton (and other crops), because the
rainfall has been poor in most of the regions (actually, there was not enough rain at
the beginning of the cropping season and too much at the end). Therefore, it is
quite difficult to draw any conclusion of the only two years of data.
In terms of relative proportion of each Type of farm/Farming system, the table
below show the evolution of the situation from 2014 to 2015 cropping seasons:
Year 2014:
Type
Area
Irrigated Rainfed Total
Large scale 26,7% 42,9% 69,6%
Smallholders 1,0% 29,4% 30,4%
Total 27,6% 72,4% 100,0%
Type
Production
Large scale 37,0% 40,5% 77,4%
Total 38,3% 61,7% 100,0%
Year 2015:
Type
Area
Large scale 20,2% 44,5% 64,7%
Total 22,4% 77,6% 100,0%

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Type
Production
Large scale 31,6% 34,6% 66,3%
Total 35,1% 64,9% 100,0%
2.3 Production Practices and Trends
2.3.1 Technical Issues
Soil Fertility and Fertiliser Recommendations
The availability of N, P, K, and water are the major constraints in cotton production
in most cotton producing environments (Morrow and Krieg, 1990). Nitrogen is the
nutrient, to which cotton most consistently responds and plays a major role in
determining the expression of a wide range of plant variables such as plant size,
fruit intensity, boll retention rate, boll size and total number of bolls per plant
(Bouquet et al, 1993; Silvertoothet al, 1999). Nitrogen is generally considered a
yield limiting factor in cotton production systems that demand for optimum yield.
Time of application of nitrogen is also critical factor with respect to its availability at
different crop growth stage. Nitrogen requirement of cotton reaches maximum
during the period from peak squaring to blooming and continues through major
boll-filling stage (Silver tooth et al., 1999).
Most of previous investigations in several cotton producing countries indicated a
positive linear relationship between N fertility level and yield. In a 3-year
experiment, lint yield increased linearly with N fertility levels each year, attaining
maximum yield of 1842 kg ha
-1
at 224 kg ha
-1
(Fritschi et al., 2003). The authors
also reported a positive linear relationship between N fertility level and fibre
strength while Boman and Westerman (1994) showed no relationship between
fibre strength and N rate. Lower lint quality in terms of fibre length, length
uniformity and fibre strength was observed in plots that did not receive N
fertilisation (Bauer and Roof, 2004).
Sawanet al. (2006) reported significant increase in yield with increase in N rate
from 95 to 143 kg ha
-1
. The mean values of 2.5 and 50% span length, micronare
and flat bundle strength were also significantly increased by the use of the higher N
rate but effects were too small to affect use quality. In a long term experiment at
Oklahoma, lint yield was significantly increased with application of N and P while K
did not affect lint yield (Girma et al., 2007).
Nitrogen-deficient cotton may become chlorotic and not photosynthesise enough to
meet the demands of plant growth; have reduced leaf area and use water poorly
which in turn reduce growth, increase fruit shedding and decrease yield (Radin and
Mauney, 1984; McConnell, 1998). Excessive levels may result in excessive
vegetative growth at the expense of reproductive development thereby reducing
economic yield.
Mono-cropping has remained the dominant production system in most of major
cotton production areas in Ethiopia with no or little addition of external input which
often reputed to result in depletion of essential plant nutrients as well as
deterioration of soil physical, chemical and biological properties. Cotton is

considered a low residue crop that may not provide sufficient residue to the soil
(Daniel et al., 1999). Thus it can be expected that continued mono-cropping with
cotton could result in low total soil N and organic matter and poor soil protection.
Middle Awash cotton growing soils are predominantly Vertisols and Fluvisols
having alluvial origin deposited from Awash River. Previously, the area was known
to be under natural forest and grassland ecology before introduction and expanded
production of cotton. It used to be a high potential area for cotton production and
yield was considerably high.
Total N of soils of Melka Werer Research Centre and Melka Sedi State Farm were
however, reported to be low (Kamaraet al, 1990). State farms were used to apply
nitrogen fertiliser in the form of urea at the rate of 100 kg/ha split-applied half at
planting and half at peak flowering on farms where positive response and
economic return were expected. Lately however, based on results of the research
centre, it was realised that there was poor response to fertiliser application to
cotton in the area that would not warrant economic benefit. As a result, fertiliser
application has been terminated.
Similar to Middle Awash cotton soils, soil fertility assessment study by Engdawork
et al. (2002) revealed that total N of Arba Minch State Farm was very low in all
described profile while level of available P was in medium to high range. Level of K
was also high in the entire soil described. The low level of N in the soils was
attributed to low rate of decomposition of organic matter by microorganisms owing
to the prevailing high temperature in the area.
Yield levels remained low and were particularly prevalent in some of the farms
which often considered as older. Stunted growth, premature senescence,
pale/bright green appearance of leaves and ultimately recorded lower yield has
been noticed in some of the cotton farms. These observations led to further and
continued investigations on fertiliser studies, exhaustion trials (see chapter 7.1.4).
Pests Problems
Existing cotton pests
Because of the nature of agro ecology where cotton is growing, insect pests are
among the major yield and quality limiting factors. There are 68 known insects that
attack cotton (Geremew and Ermias, 2006). In Ethiopia, the crop is heavily
attacked by several types of insects such as boll worms, aphids, thrips, jassid,
seed bug, flea beetles and others (Geremew and Ermias, 2006) and mealy bug
(Meisso, 2014). Besides the yield reduction, toward the end of the growing season
after most of the cotton bolls are open sucking insect pests deteriorate the quality
of lint through their sugary secretions termed as ‘honey dew’ which significantly
affects the downstream processes such as spinning. Studies indicated that seed-
cotton yield losses caused by bollworms, sucking pests in general and cotton aphid
alone were 36-60%, 22%, and 14% respectively.
Bollworms are the most common pests in all cotton growing regions of Ethiopia.
There are four known bollworms that feed on cotton flowers (square) and cotton
boll namely, African boll worm, Sudan boll worm, Spiny boll worm) and Pink boll
worm.
Mealy bug (Phenacoccussolenopsis), a new invasive pest to Ethiopia, has become
headache of cotton producers cotton since its arrival in the middle Awash, Afar

36
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Region. Currently, mealy bug is reported to be prevalent in all cotton growing
regions although it’s not devastating as the middle Awash area. The bulk of
chemical insecticides are being heavily used to control cotton pests with high risk
to human health and the environment. See Annex (4) for cotton pests, chemicals
used for each pest and IP options.
Use of Integrated Pest Management (IPM)
In cotton growing areas of Ethiopia, conventional reliance on synthetic pesticides
has caused serious health and environmental problems, not least in the
accumulation of stockpiles of hazardous, obsolete insecticides. The joint national
Obsolete Pesticide Project (OPP) by the Ethiopian Federal Government and the
United Nations Food and Agriculture Organisation (FAO) collected and repacked
1,500 tonnes of out-dated and poorly stored pesticides in 2003, which were sent to
Europe for disposal. Of these, 10% (150 tonnes) came from only 15 stores in the
Awash cotton plantations area (Tadesse Amera, 2009). IPM utilises all suitable
techniques and methods in as compatible manner as possible and maintains the
pest population below the economic injury level. Often, the term includes all
elements contributing to an effective, safe, sustainable and economically sound
crop protection system. The Ethiopian Institute of Agricultural Research has carried
out research since the 1960s into Integrated Pest Management (IPM) of cotton
pests. IPM options, particularly those with significant reduction in use of chemical
insecticides either were not available or had technical limitations to apply them.
Hence, large-scale farms and farmers have made little use of these
recommendations. Ethiopia’s draft national IPM Policy therefore identifies cotton as
one of the five major crops where IPM should be introduced as a priority. In 2006,
the ‘prevention’ component of the OPP (now part of the Africa Stockpiles
Programme) supported a 10-month IPM training for small-scale farmers through
the Farmer Field School (FFS) methodology, focusing on cotton in the Arba Minch
area in the SNNPR and farmers are exploiting IPM (Tadesse Amera, 2009).
In 2014, cropping season molasses trap as IPM to control bollworm was introduced
to farmers at Metema and Quara districts of North Gondar Zone as part of CmiA
sustainable cotton production. Since then, this practice expanded to all cotton
growing regions including mechanised large scale producers in the middle Awash,
SNNPR, Gambela and Tigray (Berhanu Woldu, 2016).
Weed Management and Use of Herbicide
Weed Management
Weeds and their competition are the major constraints in cotton production in
Ethiopia and elsewhere. Weeds reduce the yield of cotton, impair the quality,
increase cost of hand and mechanical tillage, fertiliser and herbicides, prevent
efficient irrigation water management and harvesting, and serve as hosts and
habitats for pests (Kohel and Lewis, 1984). In the middle Awash, yield of cotton
was greatly reduced due to the naturally-occurring mixed weed population in which
a seed-cotton yield loss of 62.43 - 96.21% occurred when weeding was completely
denied throughout the crop growing season (Esayaset al., 2013). A previous
similar experiment conducted at the same place indicated a seed-cotton yield loss
of 73% when weeding was not practiced throughout the crop growth period
(Tadesse and Ahmed, 1985).

As cotton-weed competition is concerned, the critical period of cotton plant is very
important to determine the effective time of weed management in which weeding
results in higher yield and economic advantage. In this connection, Zimdahl (1980)
noted that the time of weed removal is as important as the weed removal itself. The
critical period represents the time interval between two separately measured
components: the maximum weed-infested period or the length of time that weeds
which have emerged with the crop can remain before they begin to interfere with
crop growth; and the minimum weed-free period or the length of time a crop must
be free of weeds after planting to prevent yield loss. The two threshold points,
onset and end of the critical period, were determined to be 20 and 60 DAE,
respectively. Weed control practices should be given due attention during this
period in order to get better seed-cotton yield (Esayaset al., 2013).
A study by Esayaset al. (2007), found that the best and most economical cultural
practice to control cotton weeds in Middle Awash is to use: pre-planting irrigation +
pre-planting machine cultivation + manual cultivation at 15, 35 and 75 DAE (days
after emergence). The report also indicated that providing a basket of options for
agricultural producers with different economic status is believed to be a good
approach. Accordingly, for small scale cotton farmers that practice dry planting and
cannot afford machine cultivation they can use: manual cultivation at 20, 40 and 75
DAE and at 15, 35 and 75 DAE, respectively.
Herbicide Use
Weeding is purely manual operation on most of the farms. At the time of labour
shortage or family members are not available for the purpose, chemical weed
control can be utilised as a final resort. Although pre-plant, pre-emergence and
post emergence chemicals are available in the market (see table), the use of
herbicides in cotton is rare in Ethiopia for various reasons.
Irrigated large-scale farms use pre-plant irrigation and “lilistone” (trailed-rotary-
chopper) cultivation during planting in which emerging early flush of weeds are
reduced as pre plant weeding mechanism. This practice is well established in the
middle Awash Area and SNNPR. After slashing they use residual moisture for
planting and they come back for irrigation after 14/21 days after emergence.
Subsequent three time hand weeding (15 DAE, 30-40 DAE, 65-70 DAE) after
emergence is common.
Large-scale farms in rainfed areas prepare land when it is dry, otherwise rain
interruption will complicate land preparation operation.
Few small-scale farmers at Metema and Quara and other areas use
roundup/glyphosate as pre- land preparation weed control mechanism in a limited
condition.
The reasons behind total refusal of herbicide by cotton producers are:
 There is no effective (effective for grass and broadleaved weeds) post
emergence chemical recommendation for cotton.
 Pre-plant and pre-emergence chemicals do not fit rainfed large scale producers
(at least according to producers, and time of land preparation)
 Research institutes and chemical suppliers in the country are not enthusiastic
on handling verification trials on cotton herbicides as equally as they do for
cereals or cotton insect pests.

38
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SOFRECO
Table: Available or Recommended herbicides for cotton
Registered
herbicides
Time of Application Status
Roundup /
Glyphosate
Pre-planting/pre-land preparation Broad-spectrum
Under Commercial use by
small-scale farmers
Stomp Pre-planting/pre-land preparation Recommended for cotton, under
commercial trial by large scale
producers in Benishangul area
Codal gold Pre-emergence broad spectrum
(effective)
Recommended for cotton, not
commercialised yet
Fusilade forte Post-emergence (grass weed) Recommended for cotton, (less
effective) and not commercialised
yet
Source: MoANR, Animal and Plant Health Regulatory Directorate
2.3.2 Cultivation Practices (Large Scale Commercial
Farmers/Smallholders)
The cultivation practice including planting periods of commercial
12
farmers and
smallholders varies in different cotton-producing regions depending mainly on
climatic condition and producer-capacity.
The cultivation practices are quite different according the type of farms, i.e., large
mechanised farms and smallholder farms.
Pest control, a major issue with cotton, is quite similar with both types of farms. The
table in Appendix 4 shows the main types of pests in Ethiopia and the various ways
of fighting them, by using chemicals or IPM solutions. During the last years, the
use of molasses traps has been successfully introduced with smallholders, mainly
through the CmiA project, to fight against bollworms. It has later been tried with
some large-scale farms and has shown good results; it is likely to expand in the
coming years.
Large and medium-scale farmers
In irrigated areas such as the Awash Valley in the Afar Region and the Omo Valley
in the SNNPR, land preparation starts in January by clearing the stalks of previous
crop while ploughing begins in March and April. Large-scale and medium-scale
farms use the disk plough to make a good tilt. Land-levelling and ridging are
important operations that allow irrigation-water movement.
In the irrigated Middle Awash and Gamo Gofa Zone, around Arba Minch in the
SNNPR, cotton-planting commences in mid-April to mid-May while planting for
irrigated production in the South Omo Valley in the SNNPR is conducted in May to
August. Row-planting in irrigated areas is a common practice using a row-
planter. The row space is normally 90 cm with a plant-spacing of 20 cm. Most of
the large-scale and medium- scale farmers use a delinted seed rate of 15-20
kg/ha. Replanting and thinning operations follow to maintain the desired population
of 55 000-70 000 plants/ha. Open-channel irrigation using either the siphon or the
furrow is the most common practice. In the Afar Region and South Omo area,
farmers use pre-plant irrigationas early weed management. Starting from 20
days after plant-emergence to
12
Large-scale and medium-scale.

harvesting, most of the farmers weed at least three times
13
excluding mechanical
cultivation
14
in order to facilitate irrigation-water movement. Some of the large
farms, such as the Amibara Enterprise, use areal spray but most of the farmers use
tractor-mounted or motorised-sprayers to control insect pest.
In the rain-fed areas of Metema, Humera, Gambela and Benishangul-Gumuz,
planting is conducted in June-July following the onset of rainfall after clearing and
land preparation. Most of the rain-fed medium-scale cotton-farmers use the
broadcasting type of planting as it is not complicated. Such broadcasting however
has the following drawbacks (i) high competition and high seed consumption and
(ii) difficulty in (a) weed management (b) optimum-plant maintenance (c) cultivation
(d) thinning (e) gap-filling (f) replanting (g) spraying (h) pest scouting and (i)
harvesting. These drawbacks have long been recognised by the GoE extension
service.
Smallholders
The cultivation practice of smallholders in Amhara, Tigray and the SNNPR includes
use of the oxen-plough for land preparation. The smallholders use broadcasting
and fuzzy seed of 35-40 kg/ha. Delinted-seed-use by farmers has recently
increased although empirical data on this is still unavailable. Weed management
and insect-pest control is the same as that for large-scale farmers. Afar
smallholders are recent converts to farming and to its mechanisation.
Irrigated cotton production in the Afar Region and South Omo area follows mono-
cropping whereas the cropping system in the rain-fed areas of Western Ethiopia is
mixed i.e. sesame, sorghum and maize are planted alternately as rotation by large-
scale farmers, medium-scale farmers and smallholders. Farmers in the Arba Minch
area in the SNNPR also plant cotton with cassava, banana and maize as a pattern
or in rotation.
Some of the farmers in North Gondar in the Amhara Region recently adopted the
CmiA
15
sustainable production system while farmers in the Arba Minch area are
also trying to start organic
16
cotton production.
2.3.3 Harvest/Post-Harvest Practices (Including Contamination
Management)
Manual cotton picking is the common harvesting practice in Ethiopia. Large-scale
farmers on irrigated fields pick twice with the first picking done after 70% of the
bolls are open while the remaining cotton is harvested three weeks after the first
harvest. Unlike the irrigated area, large-scale and small-scale rain-fed farmers
often harvest their cotton once when all of the bolls are open.
All the handling of seed-cotton is done manually and by using bags of various
sizes. No system of bulk handling and compaction of seed-cotton have been
experimented.
The main competitive advantage of African cotton comes from manual harvesting.
Seed-cotton picked by hand is cleaner, and the lint obtained has fewer neps and a
lower short lint content than machine-picked cotton, which must be cleaned more
13
20 Days after Emergence (DAE), 40 DAE and 65 DAE.
14
Furrow opening.
15
Cotton made-in Africa.
16
Not certified yet.

40
40
SOFRECO
vigorously at the ginnery, since it has a higher content of vegetable matter. Over
time, the theoretical advantage conferred by manual picking has been lost because
of the presence of foreign matter in the lint. As contamination of seed-cotton by
foreign matters is the main concern for quality yarn and fabric producers, spinners
tend to give preference for machine-picked cottons over handpicked cottons. Also
hand picking is time consuming and laborious compared to very efficient and few
work force requirement of machine harvest. The share of mechanically harvested
cotton now exceeds 55% of the world export market.
Although Ethiopia has abundant human power for any labour intensive jobs like
cotton farming, high cost of labour for harvest would make cotton unattractive
business. Moreover, transportation cost of labour from SNNPR, security issue, and
strong competition from sugarcane and coffee plantation would urge for
considering mechanical harvesting. Adoption of machine harvest is uneasy job
as current production system by large scale and small scale producers all over the
country needs adjustment that comes with significant cost and changes in
agronomic practices. For machine harvest, it requires suitable varieties (compact
type), seed rate for mechanical harvesting of cotton should be increased to attain
higher plant density compared to conventional manual picking. As the height of the
plants need to be uniform and much lower than in the conventional way, the plant
population needs to be much higher in order to achieve sufficient yields. In the
conventional way, the cotton plant will have much more branches and more
number of bolls per plant than in the cotton field cultivated for mechanical
harvesting. The inter-row and inter-plant spacing for mechanical harvesting is also
much less to accommodate more number of plants. The cotton plants that are
going to be mechanically harvested also need to be sprayed with defoliant
chemicals in order to make proper planting method, use of harvest aids like
growth regulator, defoliants and boll openers to enable the harvesting process
clean and efficient. In the gin, high impact pre-cleaner is required before ginning to
overcome high trash compared to handpicked cotton. Since the cotton passes
through the machines, the fibre quality would be impacted, increase short fibre
content and neps. This can be minimised with roller ginning with additional high
impact pre-cleaner installation. Roller ginning produces lint that is longer, has fewer
short lint, seed coat fragments, and neps.
Adoption of mechanical harvest is not an overnight process and the major drivers
of long lasting processes are cost of labour, agronomy and Government policy.
These 3 factors played a role in different cotton growing countries around the
world. In the USA, it took 30 years to achieve 100% mechanisation, Brazil took 45
years to achieve 100% mechanisation, Turkey reached 75% of mechanisation in
15 years and China took 20 years to reach 15% mechanisation.
Over all, mechanical harvest is an invention of 1940s and it took several decades
to become attractive everywhere. Hence, before introduction of the technology for
wide use, feasibility study and clustering of producers is very important as along
with suitable agronomic practice, volume of production might be determining for
profitability of machine picking. However, private companies with profound capacity
could take advantage of the technology.
One issue related to the mechanical harvesting of cotton that should also be
considered is its cost. It would require high investments and use significant
amounts of foreign currency. At the moment, the price of a “state of the art” cotton
picker amounts to about USD 600,000, without including the other equipment
needed to purchase (cotton modules system, etc.).

17
The use of herbicide has been developed in Western and Central Africa since the early 80s.
May2014
June
July
Aug
Sept
Oct
Nov
Dec2014
Jan2015
Feb
March
April
May
June
July
Aug
Sept
Oct
Nov
Dec2015
2.3.4 Trends in Cultivation/Post-Harvest Practice
The long-term cultivation practice trend is essentially one of “no change” which
explains partly why there has been little or no sustained increase in technical
productivity or production.
Apparently, very few cotton growers use herbicides in Ethiopia, although (i)
weeding is a serious issue, requiring a lot of hand labour and it is difficult to get in
some places and very expensive (100 ETB/man-day), (ii) herbicide are widely used
on cotton crops for several decades everywhere in the world, including Africa.
17
In order to fight the contamination problems, some farmers have started (in
SNNPR for instance) to use jute bags instead of the traditional polypropylene ones.
This trend has to be encouraged, as contamination is a serious issue in some
areas.
2.4 Production Cost and Margins
2.4.1 Price of Seed-cotton per kg Paid at Ginnery/Farm-Gate
(Based on Quality/Grade)
Unlike with the lint price, there is no market price system for seed-cotton. Although
there are no clear data on this issue, most of the cotton produced in Ethiopia is
actually sold as lint and seed, after commission ginning.
ETIDI is supposed to do weekly surveys of the price of seed-cotton in the 6 cotton-
producing regions of Ethiopia (total of 19 contacts, including ginneries and
producers), as done for the lint. Unfortunately, those data were not supplied to the
Consultant.
From the interviews with cotton producers and buyers, it appears that there has
been a steady decline in the price of seed-cotton during the last two years, from
approx. 14 ETB/kg to approx. 10 ETB/kg at the moment. This trend is clearly linked
to the decrease in the world price of cotton lint, as explained in paragraph 5.1. It
should be noted that the recent evolution of the world prices of crops in competition
with cotton at farm level have also shown a similar or even worse (sesame)
decline, as shown in the graph below:
120
Relative evolution of the monthly worlds prices from May
2014 to December 2015 (source: World bank)
100
80
60
Sesame
Cotton
40
Maize
20
Sorghum
0

42
42
SOFRECO
In terms of proportion of the value chain received by the seed-cotton producers, if
we consider 10 ETB/kg for SC, 38% of ginning out turn and 32 ETB/kg for lint, the
proportion is (1 x 10) / (0.38 x 32) = 10/12.16; representing 82.2% (for lint).
This rate is quite good compared to similar rates in the world. In francophone
African countries, for instance, it is usually around 70%. This can be explained by
the fact that cotton can be sold in Ethiopia to the local textile industry that is
prepared to pay the lint at a price equal to the world price + the cost of importing
lint from abroad, while the West and Central African lint exporters can sell their lint
at the world price – the cost of exporting lint to the foreign markets.
If we consider the same proportion of the lint price paid to the producers (82.2%),
the SC price could be higher with a better ginning outturn (GOT). For instance, with
a GOT = 40%, the SC price would be (32 x 82.2%) x 40% = 10.52 ETB/kg instead
of 10 ETB/kg. The use of varieties with better GOT and the improvement of ginning
quality should therefore be a priority of the cotton sector.
However, the usually low GOTs are somehow misleading as the percentage of
trash is most of the time very high in the SC. With a standard trash rate, the “real”
GOT would be higher, as shown in the example below, where it has been
considered a 3% trash ratio in the seed-cotton instead of 7% often measured (with
a similar proportion lint/seed):
Seed-cotton components Average current situation Improved seed-cotton
quality
Lint ratio 38% 39.6%
Seed ratio 55% 57.4%
Total 93% 97%
Photograph of a polypropylene bag with a high proportion of trash:
(Awash farms, December 2015):
Presently, because of the high rate of trash in the seed-cotton, it can be considered
that trash is paid to the cotton producers at the price of cotton!
This is encouraged by the fact there is no incentive for quality seed-cotton, with no
differential prices between good quality low-trash content seed-cotton and poor
quality high-trash content seed-cotton.
In most of African countries, the seed-cotton price system involves different prices
according to the quality. Below is an example of “box” showing two qualities of

seed-cotton (grades A & B, used in Ghana), with a difference of price of at least
10% between the two types
18
:
The perspectives for the cropping season 2016-2017 do not look very promising for
the cotton prices, as for most of the agricultural commodities. In Francophone
countries, the prices have already been set, at an equivalent of 9 to 9.5 ETB/kg of
seed-cotton for the highest grade.
Profitability of the Seed-Cotton Business Model
The business model based on the purchase of seed-cotton is mostly used with
smallholders, from whom private traders buy their production, gin it and then sell
lint and seed. Below is an estimation of the profit of such a business model, using
the current prices:
Assumptions made:
 Purchase price of seed-cotton: 10 ETB/kg;
 Sales prices: 32 ETB/kg for lint & 6 ETB/kg for seed;
 Ginning outturn: 38% lint and 55% seed (7% trash);
 Ratio Lint/Seed: 38% SC/55% SC  69%;
 Costs of transport and handling: 1 ETB/kg;
 Cost of commission ginning: 1.50 ETB/kg of SC (incl. handling).
Estimation of profit for one kg of lint:
Estimation of income and costs ETB/kg of lint
Income
Lint: 1 kg x 32 ETB/kg = 32.00
Seed: 1/0.69  1.45 kg of seed x 6 ETB/kg = 8.70
Total = 40.70
Costs
Purchase of seed-cotton: 1 kg lint/38% = 2.63 kg SC x 10 ETB/kg = 26.30
Ginning (and handling at ginnery): 2.63 kg of SC x 1.5 ETB/kg = 3.95
Transport and handling of SC: 2.63 kg x 1 ETB/kg = 2.63
Transport and handling of Lint: 1.0 kg x 1 ETB/kg = 1.00
Transport and handling of Seed: 1.45 kg x 1 ETB/kg = 1.45
Total = 35.33
Profit per kg of lint = 40.70 – 35.33 = 5.37
Profit per kg of seed-cotton = 5.37 x 38% 2.04
18
The West African “grade B” seed-cotton is better that most of the seed-cotton seen during the mission.

44
44
SOFRECO
It should be noted that this “gross-profit” does not take into account the financial
costs and other miscellaneous costs (cost of trade license, taxes, etc.).
Direct Cost per kg to Produce Seed-Cotton Ex-Farm (Inputs, Hired Labour)
and Gross Margins
From the numerous interviews with cotton farmers in all the regions, a lot of data
has been gathered, that can enable the calculation of the cost of production of
seed-cotton at farm level. However, the analysis of all the data collected shows it is
a difficult task as some of the information are contradictory and obviously
sometimes unreliable.
In Appendix 5, estimations have been made for large scale irrigated farms and
smallholder farms, based on the data collected during the interviews with the
farmers and farm managers.
Large Scale Farms Costs of Production: Irrigated Cotton
Large-scale farms show significant variations between the unit costs, and also the
quantity of inputs used. This results in very different costs of production per kg of
seed-cotton. In the tables presented in Appendix 6, two situations have been
considered: a “low cost” farm and “high cost” one.
The main differences (rounded figures) in costs are: (i) the cost of labour, from
below 50 ETB/man-day (Gambela) up to 100-150 ETB/man-day (Amhara), (ii) the
cost of harvesting (linked to the cost of labour), from 1.5 to 2.5 ETB/kg of SC, (iii)
the cost of insecticides, from 1,000 to 3,500 ETB/ha, (iv) the cost of irrigation, from
100 to 1 000 ETB/ha, (iv) the cost of fertiliser, from 0 (no fertiliser used) up to 150
kg/ha and (vi) the cost of diesel, from 25 to 50 litres/ha.
From those different figures, two estimations of the costs of production have been
made, with the same yield of 30 qt of SC/ha; the graph below shows the
breakdown of costs:
Comments:
 The total costs of production are very different between the two options, from
3.76 to 8.9 ETB/kg of seed-cotton. This result is however misleading, because

CostinBirr/kgofseedcotton
each option uses the lowest cost for each component of the total costs. In fact
some of factors are high and some are low. The average direct cost of
production is probably about 6 ETB/kg.
 In regions where the cost of labour is very high (> 100 ETB/man-day), the use
of herbicide is an absolute necessity, and should lead to a decrease of at least
50% of the weeding costs.
 The total costs of production, including fixed costs, are very difficult to estimate,
because they depend of every specific farm situation.
 The gross margin depends of course a lot of the selling price of seed-cotton;
with the current price of 10 ETB/kg, some of the farms will definitely make a loss
with cotton, especially when taking into consideration the fixed costs of the
farms.
Large Scale Farms Costs of Production: Rain-Fed Cotton
Estimations have also been made for large farms rain-fed cotton; two options have
also been considered, high and low unit costs of production. An average yield of 15
qt of seed-cotton/ha has been considered. The graph below shows the breakdown
of costs:
Breakdown of direct cotton costs of production for
large rainfed farms: low and high costs
12.00
10.00
8.00
6.00
4.00
Other direct costs
Labour
Inputs
2.00
0.00
Low cost High cost
Similar comments as for the irrigated farms can be made for the rain-fed ones.
Because of the lower yields, the cost of production of the rain-fed cotton is higher
than the irrigated one. The high costs farms are probably at the moment making a
loss with the present price of cotton.
Smallholders farms costs of production
Detailed figures were gathered in Amhara region, currently main smallholder area
for cotton production. The estimation of the costs of production are summarised in
the table in Appendix 5. The yield has been estimated at 15 qt of SC/ha.
A shown in the graph below, the total cost of production is estimated at 9.2 ETB/kg
of SC, which is currently just below the selling price.

Sofreco final scoping study - 9 september 2016 (2)

Sofreco final scoping study - 9 september 2016 (2)

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