BURKINA FASO SEEKS TO WIN BACK TITLE AS AFRICA'S TOP COTTON

UNCLAS SECTION 01 OF 02 OUAGADOUGOU 000596

SIPDIS

AF/W FOR EMILY PLUMB, JASON HUTCHISON
ACCRA FOR USAID
USTR FOR LAURIE-AGAMA
DAKAR ALSO FOR FAS AND FCS

E.O. 12958: N/A
TAGS: ETRD EAGR ECON EAID EFIN PREL UV
SUBJECT: BURKINA FASO SEEKS TO WIN BACK TITLE AS AFRICA'S TOP COTTON
PRODUCER

OUAGADOUGO 00000596 001.2 OF 002


Reftels: A) OUAGADOUGOU 0692; B) OUAGADOUGOU 0488;
C) OUAGADOUGOU 0234


1. Summary: During the 2007/2008 growing season, drought and
localized flooding, coupled with a softening of world cotton prices,
led to widespread dissatisfaction among cotton farmers and the
subsequent defection of many producers to cereal production. To
encourage cotton production, farmers are being offered increased
producer prices and more than $15 million in seed and fertilizer
subsidies, along with financial support from the newly created
"Fonds de Lissage."


2. The GOBF hopes that this year's cotton crop will almost double
to over 600,000 tons. This figure will be augmented by Sofitex's
plans to sow 15,000 ha with pest-resistant biotechnology (Bt) cotton
from Monsanto, a U.S. company. End Summary.


3. Cotton, which contributes 75 percent of foreign exchange
earnings, is crucial to Burkina Faso's economy. The 2007/2008
growing season was marked by poor rainfall punctuated by significant
flooding in certain regions. These poor growing conditions coupled
with depressed world cotton prices led to a 45-percent decline in
production (360,000 tons for three cotton companies, Faso Cotton,
Socoma, and Sofitex in lieu of the 500,000 tons produced in
2006/2007). Consequently, farmers in some areas of the country
decided to forgo cotton cultivation in favor of more lucrative
cereal crops.


4. Despite last year's difficulties, cotton parastatal Sofitex, the
flagship of the Burkinabe economy, is hoping to breathe new life
into the nation's troubled cotton industry through a publicity
campaign and a series of monetary incentives that it hopes will
encourage increased cotton cultivation.


5. Government and parastatal optimism appears to ignore the
escalating level of debt experienced by all three cotton companies,
which has forced them into drastic recapitalization schemes. It is
unclear at this point if these schemes will be successful in
stabilizing the troubled cotton sector.

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Cotton Parastatal, Ag Minister
Paint a Rosy Picture for 2008/2009 Campaign
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6. As a prelude to the 2008/2009 cotton season, Burkina Faso's
three cotton producers Sofitex, Faso Coton, and Socoma, held a Forum
on April 17-26 with the National Cotton Producers Union of Burkina
Faso (UNPCB) to discuss the future of the nation's cotton industry.
The day before, Sofitex's Director General, Celestin Tiendrebeogo,
told the press that, despite the 45-percent decrease in production
during the 2007/2008 season, he remained optimistic and believed
that production in excess of 600,000 tons was achievable for the
upcoming growing season.


7. During his April 16 meeting with the press, Tiendrebeogo stated
that cotton production was still profitable and he was convinced
that Burkina Faso could once again become known as "Africa's largest
cotton producer." He added that despite last year's unfavorable
harvest, Sofitex earned a 10 percent profit margin that allowed it
to pay an additional 10 CFA (USD 0.02) to local farmers, bringing
the 2007/2008 producer price from 145 CFA (USD 0.34) to 155 CFA (USD
0.37) per kilo for Grade One cotton. For the 2008/2009 season, the
producer price is set at 165 CFA (USD 0.39) per kilo for Grade One
and 140 CFA (USD 0.33) for Grade Two cotton. Sofitex has also
committed to pay an additional 15 CFA (USD 0.035) per kilo if the
production goal of 650,000 tons is achieved.


8. In addition to price increases for the 2008/2009 season, the GOBF
has offered other incentives to rekindle farmers' interest in the
cotton sector. The GOBF has given approximately $15.5 million in
subsidies for improved seed and fertilizer. As a result, farmers
will see a decline in input prices, from approximately $47 to $29
for nitrogen-phosphorus-potassium (NPK) fertilizer, and $31 for
urea, a low cost nitrogen fertilizer. The Government has also
activated the newly created safety net, the "Fonds de Lissage" which
allowed Sofitex to pay producer bonuses. Funded with (USD
23,251,746) from the French Development Agency (AFD),this newly
created fund was designed to diminish the risks associated with
volatile world cotton prices and help the cotton industry respond to
changing world market conditions. It is hoped that this fund will
allow the cotton sector to remain unscathed through repeated periods
of price decline, while maintaining producer profitability.

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9. During the May 30 opening of the 2008/2009 agricultural campaign,
Laurent Sedego, the recently appointed Minister of Agriculture,
Water Resources and Fishery, echoed Tiendrebeogo's optimism that the
previous year's production of 310,000 tons would more than double to
621,605 tons during the 2008/2009 season. Sedego reasoned that an
increase in world cotton prices, government subsidized farmer
inputs, and the "Fonds de Lissage" would give the cotton sector "the
shot in the arm it would need to boost 2008/2009 production to
record levels."

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Despite Optimism the Reality of Debt Remains
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10. Despite displays of optimism, all three companies face serious
deficits that could jeopardize additional producer bonuses. In
2007, Sofitex reported losses of approximately $29.52 million. This
debt forced Sofitex into an $82 million recapitalization, which
brought initial capital levels to approximately $92.4 million. The
recapitalization was funded by the GOBF, which took over shares from
the French-owned Dagris and refinanced those owned by UNPCB. The
GOBF has promised to identify a buyer for the Dagris shares by the
end of 2008. A pool of banks has agreed to reschedule Sofitex's
$104.8 million debt for the 2004/2005 and 2005/2006 harvests for a
period of five years. For the 2007/2008 cotton season, Sofitex
borrowed $103.8 million from an off-shore pool of banks and $142.8
million from local banks to buy improved seed and fertilizer.
Sofitex is currently in negotiations with local banks to obtain
funding for fertilizers to be used during the 2008/2009 season.
Despite a forecasted harvest of 600,000 tons for 2008/2009, Sofitex
still expects a loss of approximately $4 million.

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Monsanto Bt Cotton Hung by a Thread
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11. In an attempt to further increase production, UNPCB has been
working closely with the U.S. company, Monsanto, to finalize plans
that would place 15,000 ha of Bt cotton into commercial production.
After five years of field and laboratory testing, Monsanto and UNPCB
has signed a licensing agreement that allows Sofitex to grow
Bollgard II, pest-resistant, transgenic cotton.


12. On March 17 the GOBF issued an administrative order detailing
the requirements for the importation and production of transgenic
cotton seed varieties. At the last minute, Monsanto announced that
it would delay commercialization of genetically modified cotton
seeds in Burkina Faso because the order contained conditions that
were unfavorable to the development of transgenic technology.


13. In an April 30 letter to Salifou Sawadogo, Burkinabe Minister of
the Environment, Monsanto wrote that it would be unable to initiate
production of transgenic cotton seed for the 2008/2009 season unless
four articles in the current administrative order were revised.
Monsanto asserted that the proposed one-year authorization in the
Order was not realistic and requested a five-year window that would
allow the parties to more effectively plan for future growing
seasons. Monsanto also stated that 12 years of nutritional and
toxicity analyses had provided ample scientific evidence that Bt
cotton was safe for both consumers and the environment, and objected
to the excessive liability requirements demanded by this agreement.


14. Upon hearing the news of a possible halt to the planned
commercialization of the Bt cotton in Burkina Faso, Ambassador
discussed the issues with both Prime Minister Tertius Zongo and
Monsanto reps. The PM then interceded and instructed that the
administrative order be changed to meet Monsanto's terms. At the
June 16 Council of Ministers meeting, the GOBF authorized Sofitex
and the agricultural research institute, Institut de l'Environnement
et de Recherches Agricoles (INERA),to sign a license agreement with
Monsanto for import, production and marketing of transgenic cotton
seed varieties Bollgard II. The forecasted 15,000 ha are now
scheduled for planting with Monsanto's Bollgard II.

JACKSON