MALI'S COTTON SECTOR STRUGGLES FOR SURVIVAL

UNCLAS SECTION 01 OF 02 BAMAKO 000340 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EINV ECON EAGR ECIN EIND ML SUBJECT: MALI'S COTTON SECTOR STRUGGLES FOR SURVIVAL ¶1. (SBU) Summary: Tiena Coulibaly, Director of the parastatal Malian Textile Development Company (CMDT) and former Director of Mali's Cotton Privatization Agency provided the Embassy a sobering account of Mali's flailing cotton sector. Heavily saddled with debt and unable to fund Mali's upcoming cotton season without as yet unrealized international assistance, the CMDT's precarious financial position has been further exacerbated by the recent drop in global cotton prices. Nevertheless, Coulibaly claimed that the CMDT's perpetually delayed privatization process continued to advance and said a public offer for CMDT shares was slated for July 2009. In a May 18 presentation to the international donor community in Mali, International Monetary Fund (IMF) African Department Deputy Division Chief Xavier Maret said the World Bank would likely allocate a hefty sum to stabilize the sector. With the CMDT approximately USD 50 million in debt, however, even a World Bank bailout may not be enough to save Mali's once proud cotton sector. End summary. -------------- Cotton Yields Unravel as Debt Builds -------------- ¶2. (SBU) Director of Mali's cotton parastatal company (CMDT),Tiena Coulibaly, a U.S. trained agricultural economist with a Ph.D. from Purdue University, told the Embassy that Mali's cotton sector continued to decline over the 2008/9 harvest season, producing the lowest output in 20 years (201,000 tons). CMDT has also not received payment for much of the cotton fiber already delivered to neighboring ports in fulfillment of prior contracts with buyers. Of the 85,000 tons of fiber produced in 2008/9, 36,000 tons are sitting at port as merchants refuse to pay the 2008 prices to which they previously agreed. Instead, merchants are insisting on paying the lower current prices, effectively defaulting on their contracts. Coulibaly lamented that CMDT had little legal recourse, and was forced to wait in hopes that prices would increase or that merchants would honor their contracts. ¶3. (SBU) Saddled with debt, CMDT was unable to pay cotton producers for the 2008/2009 harvest. The Malian cotton industry relies on credit, with CMDT and the government of Mali underwriting input credits provided to producers, which are deducted from payments to farmers for their seed cotton. The CMDT markets and gins the cotton, helps to transport it, trains producers, and fixes the price before the harvest begins. A decline in production has increased the average cost of production of fiber, and the decline in world market prices means that CMDT continues to produce at a loss - as it has for over three years. Coulibaly said banks were now lending only the amount for which the banks' own lending was insured. This meant that farmers have received only 39 percent of payments due for the 2008/9 harvest. CMDT is currently unable to finance the inputs needed for the 2009/10 growing season. -------------- CMDT's Optimistic Forecast for 2009/10 -------------- ¶5. (SBU) Coulibaly emphasized the strategic importance of Mali's cotton industry, arguing that cotton farming has a multiplier effect on the economy and that any decline in cotton production was accompanied by a decline in the production of other cereals, as farmers used the same inputs for their co-located crops. Illustrating this point, Coulibaly said in 2006/7 cotton production was 415,000 tons and the production of other cereals reached 1,800,000 tons. In 2008/9, cotton production was 201,000 and the production of other cereals declined as well, to 1,200,000 tons. Coulibaly said two million head of cattle in the cotton growing zone would also be affected by any decline in the cotton sector. ¶6. (SBU) The Malian Finance Ministry has organized a series of meetings with international donors aimed at rescuing the atrophying cotton sector. CMDT hopes to stem this decline in 2009/10 and is forecasting a harvest of 330,000 tons. USDA, on the other hand, is forecasting Mali's cotton production for 2009/10 to decline below 200,000 tons due to eroding farmer incentives and uncertainty over the future of the CMDT. Coulibaly said the CMDT hoped to reach its optimistic 2009/10 target of 330,000 tons by again subsidizing inputs - a move that would require funding from international donors. The Finance Ministry initially estimated it would require CFA 42 billion (USD 84 million) to finance the 2009/10 harvest. This figure has subsequently been pared down to what Coulibaly said reflected the realities of the global economic crisis. The final sum requested by the Finance Ministry was CFA 23 billion (USD 46 million). Of this, CMDT planned to use CFA 6 billion (USD 12 million) to shore up its cotton processing plants for the upcoming campaign, postponing other necessary upgrades until additional funding became available. Coulibaly praised the USAID funded West Africa Cotton Improvement Program (WACIP),stating that such support had been instrumental to the survival of Mali's cotton sector, and expressed hope that this support would continue. ¶7. (SBU) Coulibaly said plans for privatizing CMDT were "continuing normally" even though the deadline for privatization has been pushed BAMAKO 00000340 002 OF 002 back to 2010. The World Bank (WB) began working with the GOM to privatize CMDT in 2001. Coulibaly said a public offering for CMDT shares was scheduled to begin in July. In the meantime, CMDT is taking steps to prepare for privatization by establishing an office to classify the quality of cotton produced. The CMDT also established a committee of agronomists and producers to regulate input costs and cotton prices. ¶8. (SBU) In a May 18 presentation to Mali's international donor community, International Monetary Fund (IMF) African Department Deputy Division Chief Xavier Maret said the IMF was working with the Malian government to stabilize the decline in the cotton sector. In the short term, Maret said government subsidies were needed to stem job losses and underwrite the 2009/10 cotton campaign. World Bank Senior Agricultural Economist Agadiou Dama told the Embassy on June 2 that the WB was finalizing a USD 70 million allocation to Mali's agricultural sector, including cotton, though he did not specify how much of this would be earmarked for cotton. -------------- Comment: 200,000 Tons and What Do You Get? -------------- ¶9. (SBU) Rescuing Mali's declining cotton sector is a top priority for both the Malian government and the IMF, which regards the privatization of Mali's cotton parastatal as a central tenet of the GOM's poverty reduction strategy framework. International donors may well contribute to this goal, however, this funding, including the amount allocated by the WB, may not go far enough toward solving the structural issues that have plunged CMDT into debt. Given the CMDT's current inability to pay cotton producers and declining global prices that reduce cotton growers' profitability even further, finding private investors willing to gamble on Mali's unraveling cotton sector will become increasingly difficult. End comment. LEONARD