WT/CFMC/39  
25 April 2013  
(13-2194)  Page: 1/4  
 Original: French  
 
  DIRECTOR-GENERAL'S CONSULTATIVE FRAMEWORK 
MECHANISM ON COTTON 
COMMUNICATION FROM BURKINA FASO 
 The following communication, dated 18 April 2013, is being circulated at the request of the 
delegation of Burkina Faso.  
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  1  COMMENTS BY BURKINA FASO ON THE TABLE ON NATIONAL COTTON SECTOR 
REFORMS 
1.1.  Among the domestic reforms launched by Burkina Faso, we note the introduction, 
in December 2012, of a new tool known as the "Cotton Inputs Fund" whose modus operandi  and 
main benefits are presented below. 
2  MODUS OPERANDI  OF THE INPUTS FUND, WHICH SERVES AS A GUARANTEE FOR 
COTTON INPUT SUPPLY OPERATIONS 
2.1.  The following main conclusions were endorsed: 
- the Fund will serve as a guarantee that should enable cotton companies to raise the 
funds they need through the banking system  - without risk and without having to 
resort to their cash accounts - to finance the supply of inputs on the basis of 
competitive tenders involving several suppliers, with the assurance that they will be 
able to pay the suppliers either in cash or by a letter of credit. 
 
- about CFAC 30 billion are needed to ensure the efficient operation of the Fund, 
broken down as follows: (i) CFAF 10 billion as a grant; (ii) CFAF 10 billion as a concessional loan (20 years at a rate of 1.5%) to be obtained through the banking 
system. 
 
- from an institutional standpoint, the Fund will be under the responsibility of the 
Interprofessional Cotton Association of Burkina (AICB), which groups together the 
various cotton companies and the producers. 
 
- however, in order to avoid any confusion with the legal personality of the AICB, the 
study recommended that a specific legal mechanism be created for the Inputs Fund 
along the lines of the Smoothing Fund. Accordingly, on 16 October 2012, the Inputs Fund Association of Burkina (AFICB) was created to manage the Inputs Fund. 
 
- the study also recommended entrusting the Fund's resources to a local commercial 
bank to be selected through competitive bidding. The call for bids was issued, a local bank was declared the successful bidder, an d an agency contract was signed between 
the AFICB and the successful bidder on 27 December 2012. 
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  - the selected bank will operate on the ba sis of Technical Regulations developed by 
the AFICB, which set out the modalities for providing guarantees for the letters of 
credit issued by the commercial banks for the cotton companies, and the procedures 
for monitoring the setting up by the banks of the input credits for the cotton producer 
groups (GPC). 
 2.2  AGENT BANK GUARANTEE PROCEDURES 
2.2.1  Assessment of the total amount of guar antees to be shared among the cotton 
companies 
2.2.  On the basis of the information transmitted by the AICB on the estimated amount of 
purchases for each cotton company and depending on  the amount available, the agent bank will 
inform each company by mail of the total amount of guarantees it can provide for the purchase of 
inputs for the cotton season. The distribution is based on the percentage share of total purchases 
in relation to the total amount available under the Fund in the accounts of the agent bank. 
2.2.2  Request by the commercial banks for a guarantee bond 
2.3.  The commercial banks send a mail to the agent bank specifying the volume, the duration and 
the probable expiry dates of the letters of credit to be opened in order cover the orders of the 
cotton companies. The mail specifies the percentage  of the total amount of the letters of credit 
required as a guarantee. It is accompanied by  a letter of commitment to provide the credit, 
the memorandum of understanding signed with each cotton company and a chart showing that the input credits are effectively in place before the expiry date of the letter of credit. 
2.2.3  Ensuring that the term of the letter of cr edit is compatible with the memorandum 
of understanding 
2.4.  For each guarantee bond request, the agent bank examines the different memorandums 
of understanding that have been signed to ensure that the input credits for the GPCs will 
effectively have been put in place by the commercia l bank before the expiry date of the letter of 
credit. If this is not the case, the agent bank asks the commercial bank to extend the term of the 
letter of credit so that the above condition can be met. 
2.2.4  Formalization of the guarantee 
2.5.  Once the request has been made, the total volume of the guarantee provided to the cotton 
company in question for the season determined and the existence of the letter of credit 
established, the agent bank sends a mail to the requesting commercial bank specifying the amount 
of the guarantee bond provided. The total amo unt of guarantees provided for each cotton 
company cannot exceed the amount specified by the agent bank. 
2.2.5  Time-limit for providing the guarantee 
2.6.  The agent bank must send the guarantee bond letter to the requesting commercial banks no 
later than ten days after receipt of the letter of request. 
2.3  MONITORING OR CONTROLLING THE PR OVISION OF INPUT CREDITS FOR THE 
COTTON PRODUCERS' GROUPS (GPC) 
2.7.  Compliance with the memorandum of understanding is essential to the smooth functioning of 
the input funding scheme and to the effe ctiveness of the guarantees provided. 
2.8.  Indeed, the GPC input credits need to be set up by the commercial banks and the associated 
transfers between the cotton companies and the co mmercial banks made before the expiry of the 
letters of credit that they are intended to reimburse. 
2.9.  Consequently, it is important for the agent bank to monitor these memorandums to detect 
any delays. WT/CFMC/39 
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  2.3.2  Monitoring the execution of the memorandums 
2.10.  The agent bank asks the operators (cotton companies and commercial banks) to 
communicate the following: 
- the memorandums of understanding conclu ded between each cotton company and the 
commercial banks financing the GPC input credits; 
 
- the tripartite memorandums of understanding concluded between the cotton 
companies, the commercial banks and the UNPCB; 
 
- the order letters sent by the commercial banks to the cotton companies; 
 
- the letters of transmittal accompanying the invoices of the cotton companies to the 
commercial banks with a summary showing the cumulation of invoices sent by date; 
 
- the confirmations by the commercial banks of the GPC credit amounts provided, with 
a summary showing the cumulation of credits by date; 
 
- an irrevocable transfer commitment from the cotton companies for the invoiced 
amounts for inputs, made available to the GPC by the commercial banks. 
 2.3.3  Compliance with the memorandum of understanding 
2.11.  For each cotton company, the agent bank chec ks that the documents transmitted during the 
different stages mentioned in connection with the monitoring of the execution of the memorandums comply with the timetable appearin g in each memorandum of understanding as 
well as the timetable showing that the input credits are effectively in place prior to the expiry 
of the letter of credit. 
2.3.4  Annual Audit 
2.12.  All transactions resulting from the execution of the Technical Regulations of the 
Cotton Inputs Fund are subjected to an annual audit by a certified external auditor. 
3  ADVANTAGES OF THE COTTON INPUTS FUND 
3.1.  The main advantages of setting up this Fund are the following: 
a. opening a letter of credit for suppliers is a way of ensuring that there is no longer any 
risk of non-payment, and the added cost of that risk can be deducted from the quotations. 
This facility will enable the cotton companies to choose the best possible moment to 
issue their calls for tender and will possibly enable them to modify the Incoterms governing the calls for tender, thereby promoting competition among suppliers, 
increasing the number of suppliers, and improving prices. 
 
Moreover, in case of cash payments, the savings would amount to about 6.5%, whereas they would amount to somewhere between 8% and 8.4% in the case of 
payment by letter of credit. Savings of 8% applied to the current purchasing volume of 
CFAF 67 billion would represent about CFAF 5.4 billion per year. 
 
b. there will be reliable funding of fertilizer purchases, even if the cotton companies are 
suffering from cash flow problems. 
c. it will be possible to pay for seed cotton more rapidly, since the cash accounts of cotton 
companies will not be affected by purchases of cotton inputs. 
d. the organization of bank pools to finance cotton inputs will help to stabilize annual 
funding of inputs by spreading the ri sks over a broader base of banks. WT/CFMC/39 
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  e. early purchases of inputs will enable to GPC to be supplied more quickly than is currently 
the case. 
f. there will be a reduction in the amount of the annual government subsidy in relation to 
what it would have been without the Fund, with the level of subsidization depending on 
the policy applied in fixing the transfer price for cotton inputs.  
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