Can budget support to the cotton sector be used more efficiently? An assessment of the policy support measures in Mali and Burkina Faso

In Burkina Faso and in Mali, cotton is the main cash crop, export of cotton lint accounting for 60 percent and 15 percent of the value of national exports, respectively, in 2014. To maintain the level of cotton production, the Governments of Burkina Faso and Mali support the sector by ensuring stable and remunerative prices for producers. Indeed, analyses based on the Monitoring and Analysing Food and Agricultural Policies (MAFAP) methodology show that the policy environment supported producer prices by 21 and 12 percent in Burkina Faso and Mali, respectively, between 2005 and 2012. To do this, a price stabilization fund is implemented to support the sector in case prices on the international market fall. The MAFAP analysis shows that this type of price intervention, with other cotton-related budgetary transfers, represented 9 percent of food and agricultural expenditure in Burkina Faso between 2006 and 2012 and 31 percent in Mali. The present analysis assesses the level of policy support to the cotton sector in both countries. This is done, first, by calculating and discussing the level of price distortion within both countries for the 2005-2012 period, using the observed Nominal Rates of Protection at producer level. Two adjusted NRP are also computed, one using an adjusted benchmark price for cotton 2014 Annual Meeting of the International Agricultural Trade Research Consortium (IATRC)that is netted out of policy interventions at the international level (Anderson, 2006) and one using an alternate, non-misaligned CFA Franc to US dollar exchange rate (BCEAO, 2013). The comparison between the three nominal rates of protection provides insights on the level of domestic price distortion that compensates endogenous inefficiencies (high production and transport costs) against price distortions that result from exogenous causes (international price distortions and Euro to Dollar exchange rate misalignment). The cost of the price distorting policies, but also of other budgetary transfers such as input subsidies and the building and maintenance of infrastructure, is then examined for Burkina Faso and Mali. A budgetary allocation analysis is proposed, along with the computation of Nominal Rates of Assistance that reveal the full extent of policy support to the cotton value chain. The value chain inefficiencies are then discussed, using the Market Development Gap indicator, which was computed for the cotton value chain in both countries. The analysis reveals that a higher producer price that could be obtained by Mali and Burkina Faso producers, should inefficiencies be corrected through sound investment policies.