WORLD TRADE  
ORGANIZATION  WT/CFMC/W/37 
 1 October 2008 
 
 (08-4621) 
 Original:   French 
  
DIRECTOR-GENERAL'S CONSULTATIVE FRAMEWORK 
MECHANISM ON COTTON 
 
Cotton Projects
 
 
Communication from Cameroon 
 
 
 The following communication, dated 1 July 2008,  is being circulated at the request of the 
delegation of Cameroon.  
_______________ 
  
COTTON DEVELOPMENT COMPANY OF CAMEROON AND 
COTTON PRODUCER'S ORGANIZATION OF CAMEROON 
 
PROJECT FOR MANAGING RISKS CAUSED BY THE VOLATILITY 
OF COTTON PRICES IN THE REPUBLIC OF CAMEROON 
 
 
1. Background 
1. Cameroon's cotton-growing area covers most of  the Extrême Nord (with the exception of the 
department of Logone and Chari) and Nord provinces, as well as the northern fringe of Adamaoua 
province.  Cotton plays a strategic role in these regi ons inasmuch as it is grown on over 92 per cent of 
the farms.  Cotton grown on these farms covers one third of the agricultural surface area used for 
crops and provides close to 63 per cent of farm ca sh income (excluding stock breeding).  It accounts 
for up 46 per cent of net income from agriculture (excluding stock breeding), compared to 38 per cent for cereals and 16 per cent for other crops. 
2. Cotton is grown on over 370,000 farms.  Conseque ntly, it is a vital factor in creating wealth 
(through the production of cotton lint, edible oil and cattle feed), the monetarization of rural areas and 
poverty alleviation, benefiting over 2.5 million inhabitants. 
3. The cotton subsector is managed by SODECOTON ( Sociéte de Développement du Coton – 
Cotton Development Company) and the OPCC-GIE ( Organisation des producteurs de coton du 
Cameroun – Cotton Producers' Organization of Cameroon)  within a partnership framework that has 
grown increasingly stronger.  Cotton production rose from 28,000 tonnes of seed cotton in the years 
1973/1974 to over 300,000 tonnes in 2004/2005.  It s performance represents a benchmark for 
countries in the subregion both as regards the modernit y of agricultural practices, yields per hectare, 
control of production costs, level of payments to cotton producers, as well as the dissemination of innovative technology for soil conservation and sust ainable farming methods (preventing erosion, 
direct sowing and keeping seeds under the cover of pl ants or cloches) as part of the DPGT and ESA 
projects. WT/CFMC/W/37 
Page 2  
 
  4. Nevertheless, the fall in cotton prices since 1995, both in United States dollar and CFA franc 
terms, exacerbated by the continued large pr oduction subsidies given by the major producing 
countries and, in recent years, by the depreciation of the United States dollar against the Euro (and as 
a result also the CFA franc) has made the financia l equilibrium of the cotton subsector as a whole 
even more fragile, but particularly so in Camer oon.  The mechanism for stabilizing the buying price 
for seed cotton introduced into the cotton subsector in 1995 has worked well until now, but the 
consistent low price for cotton in CFA franc term s during three consecutive seasons will lead to the 
almost total disappearance of reserves at the end of the 2007/2008 season. 
2. Current mechanism for fixing th e buying price for seed cotton 
5. Since the OPCC-GIE was set up in 1996, the buy ing price paid to pr oducers for seed cotton 
has been determined after discussion and agreem ent between the OPCC-GIE's Governing Board and 
SODECOTON: 
- the floor price for buying seed cotton is de termined in May, before the agricultural 
season starts; 
 
- when SODECOTON makes a profit on sales of cotton lint, it pays a price addition 
into a current account administered by th e OPCC-GIE after the lint has been sold. 
 6. The current account administered by the OP CC-GIE is entered into SODECOTON's books, 
where is it remunerated at the rate in effect in the banking sector. 
7. This current account is managed by the OPCC- GIE's Governing Board in accordance with its 
articles of incorporation.  The Board may decide the following: 
- to transfer to producers all or part of the price addition received from SODECOTON 
in the form of a rebate at the end of the season; 
 
- to support the floor price for buying seed cotton if the price of cotton lint falls or to 
subsidize the price of fertilizer if its purchase price rises; 
 
- to contribute to the producers' savings account managed by the OPCC-GIE in order to 
increase producers' capacity to buy shares wh en SODECOTON is privatized (current 
resources amount to CFAF 7.358 billion); 
 
- to use the assets in the current account to  prefinance the purchase of part of the inputs 
(fertilizer and pesticides) needed for the ag ricultural season (the margin levied on the 
supply of agricultural inputs enables the day-to-day operations of the OPCC-GIE to be financed). 
 
8. This mechanism has worked well so  far because of the excellent climate of trust that prevails 
between the OPCC-GIE and SODECOTON.  It has, however, reached its limit after five consecutive 
years of crisis in the cotton subsector.  There is no prospect of a serious recovery in cotton prices in CFAF terms in the coming year because of the c ontinuing depreciation of the United States dollar 
against the Euro.  The balance remaining in the cu rrent account will allow producers to be paid the 
price addition announced by the OPCC-GIE at the start of the 2007/2008 season (CFAF 20/kg.), but 
the current account will then be virtually em pty and will no longer allow the prefinancing of 
agricultural credit (CFAF 20 to 25 billion in a normal year).  WT/CFMC/W/37 
 Page 3 
 
 
  9. Like other cotton subsectors in West and Central Africa, it is essential to maintain a 
mechanism to manage the "price ri sk" caused by extremely sharp fluc tuations in cotton prices on the 
international market, a situation that is currently exacerbated by the weakness of the United States 
dollar compared to the Euro a nd, consequently, the CFA franc.  
  WT/CFMC/W/37 
Page 4 Trend in the price of seed cotton and the OPCC-G IE current account from 1996-1997 and 2007-2008 
 
 
 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 
(CFAF/kg. seed cotton)  Purchase price  for seed cotton  
Floor price top grade OPCC price addition
 160 
0 175 
0 175 
0 155 
25 180 
5 160 
20 175 
0 175 
10 185 
5 150 
20 160 
15 155 
20 
Net price for the season 160 175 175 180 185 180 175 185 190 170 175 175 
(CFAF millions) Producers' account  
Net SODECOTON payments Net OPCC-GIE payment Total paid to producers Net SODECOTON payments Net OPCC-GIE payment
 34,828 
0 
34,828 
100% 
0% 30,795 
0 
30,795 
100% 
0% 34,752 
0 
34,752 
100% 
0% 30,131 
4,801 
34,932 
86% 14% 43,384 
1,152 
44,536 
97% 
3% 40,174 
4,940 
45,114 
89% 11% 41,668 
0 
41,668 
100% 
0% 43,164 
2,336 
45,500 
95% 
5% 56,503 
1,530 
58,033 
97% 
3% 31,675 
4,154 
35,829 
88% 12% 29,429 
2,653 
32,082 
92% 
8% 17,360 
2,240 
19,600 
89% 11% 
(CFAF millions) OPCC-GIE account  
Price addition paid to OPCC-GIE by 
SODECOTON, allocation of OPCC-GIE 
resources 
 
Price addition for producers 
 
Input subsidies 
 
Payments to savings account 
 
Payments to current account    
4,367 
 
0 
 
0 
 
2,184 
 
2,183  
 
3,631 
 
0 
 
0 
 
1,816 
 
1,815  
 
3,875 
 
0 
 
0 
 
0 
 
3,875  
 
2,920 
 
-4,801 
 
0 
 
0 
 
-2881  
 
10,368 
 
-1,152 
 
0 
 
2,304 
 
6,912  
 
3,705 
 
-4,940 
 
0 
 
0 
 
-1,235  
 
1,158 
 
0 
 
0 
 
0 
 
1,158  
 
2,581 
 
-2,336 
 
-245 
 
0 
 
0  
 
- 
 
-1,530 
 
0 
 
0 
 
-1,530  
 
1,039 
 
-4,154 
 
0 
 
0 
 
-3,115  
 
- 
 
-2,653 
 
0 
 
0 
 
-2,653  
 
- 
 
-2,240 
 
0 
 
0 
 
-2,240 
Balance Producers' Savings Fund 2,184 4,000 4,000 4,000 6,304 6, 304 6,304 6,304 6,304 6,304 6,304 6,304 
Balance OPCC-GIE current account 1,815 3,630 7, 505 4,624 11,536 10,301 11,459 11, 459 9,929 6,814 4,161 1,921  WT/CFMC/W/37 
 Page 5 
 
 
  3. What mechanism to implement? 
10. Recent studies on managing market risk in West and Central Africa's cotton subsector have 
resulted in the design of an articulated management model that involves a number of tools (market instruments, smoothing mechanisms, regional funds …)  to mitigate the impact of fluctuations in 
global cotton prices on the income of the subsector and of producers. 
11. As far as Senegal and Burkina Faso are con cerned, these studies were developed further 
following the workshop held in Dakar on 24 a nd 25 November 2005.  The conclusion was that a 
robust mechanism that could not be manipulated and did not distort the market should be put in place 
(using external reference data accessible to a ll stakeholders).  Such a mechanism should not 
encourage uneconomic or uncontro lled expansion of production. 
12. Four tools are proposed for West Africa:
1 
- a smoothing mechanism for lint prices and the seed cotton purchase price; 
 
- a price risk management fund instead of the existing "support funds"; 
 
- a regional fund able to intervene if  the smoothing mechanism is exhausted; 
 
- utilization of market instruments to counter any fall in prices below the floor price 
used as a benchmark; 
 
- the risk caused by exogenous shocks and not transferable to third parties (market 
instruments) to be assumed through govern ment and/or international intervention. 
 13. The mechanism to be set up should also aim to offset the effects of price fluctuations on the 
income of the cotton subsector as a whole (producer s and cotton companies) and not only that of 
producers alone so as to ensure that the latter can go on working.  It would therefore be managed by 
the cotton industry association, whose members would be the leading producers' organization(s) and 
the cotton company or companies. 
14. Setting up a regional fund is highly sensitive b ecause the various components of the subsector 
in the subregion all have their own special feat ures whereas the rules under which the fund is to 
intervene must be identical for all components. 
15. The utilization of market instruments will require an experimental period lasting three years 
in order to test the tools used on the New York  market because, in the opinion of the experts 
themselves, the cost is high and there are many constraints (market liquidity for transactions exceeding several thousand tonnes, regulatory constrai nts in the franc zone, exchange risk, difference 
between the physical market and the forward market, real cost of transactions …). 
16. In the case of Cameroon's cotton subsector, beca use of the situation in the subsector in 
neighbouring countries, articulated market risk mana gement could be based on only four tools in the 
first instance: 
- the smoothing mechanism; 
 - the price risk management fund; 
                                                     
 
1 Étude de faisabilité d'un programme de gestion articulée du risque prix pour les filières cotonnières 
de l'Afrique de l'Ouest et du Centre – Novembre 2006 – C. Ravry, J.J. Pesquet, N. Gergely, G. Estur, F. Bioche. WT/CFMC/W/37 
Page 6  
 
   
- utilization of market instruments;  - absorption of external risks through gove rnment and/or international intervention. 
 4. Smoothing mechanism 
4.1 Principle of smoothing cotton lint prices 
17. The mechanism for fixing the "floor price" for buying seed cotton from producers and the 
distribution of a "price addition" to the OPCC-GIE cu rrently in effect in Cameroon's cotton subsector 
has functioned remarkably well because of the excellent relations between the OPCC-GIE and 
SODECOTON.  Nevertheless, in a situation of c ontinuing crisis, implying a downward trend in the 
"floor price" paid by SODECOTON from one season to  the next, there is a real risk that producers 
will contest their representatives and SODECOTON.  In order to prevent this, it is necessary to set up 
a mechanism based on market price reference data that are publicly and easily accessible. 
18. The purpose of such a mechanism is, on the on e hand, to maintain the principle of a 
guaranteed floor price announced at the start of the s eason and, on the other, to minimize fluctuations 
from one year to another.  It would be based  on the principle of "simple exponential smoothing
2" of 
prices over four seasons (Index A average over the three previous seasons plus forecast for the coming season). 
 Smoothed price n/n 
+ 1 = (Ian-3/n-2  * A3 + Ia n-2/n-1  * A2 + Ia n-1/n * A + Ia n/n+l) / (1 + A + A2 + A3) 
19. The smoothing coefficient A which best meets the objective is 0.72.  The formula therefore 
becomes: 
 Smoothed price n/n+1 = (0.343 * Ia n-3/n-2 + 0.49 * Ia n-2/n-1  + 0.7 * Ia n-1/n  + Ia n/n+1) / 2.543  
4.2 Smoothing mechanism in Cameroon  
4.2.1 Mechanism 
20. The cotton season takes place in three stages:  the growing season, followed by the collection 
and ginning season and, lastly, the season for shipping co tton lint.  It in fact lasts for 20 months, from 
1 May of the year n-1 to 31 December of the year n. 
21. Example = 2008/2009 season: 
• Growing season:  May to October 2008; 
• collection and ginning season:  November 2008 to April 2009; 
• shipping cotton lint season:  December 2008 to December 2009. 
22. Cotton lint is sold throughout the year on the basis of auctions of lots every week and is 
usually forward sold for 3, 6, 9, 12, or 15 months  from the date of the auction, depending on market 
openings.  Sales are at the price that particular da y and are immediately quoted in Euros, for f.o.b. 
delivery at Douala.  Two indices are used to analyse supply: 
                                                      
2 Prof. Jean Cordier.  WT/CFMC/W/37 
 Page 7 
 
 
  • the Cotlook A Index Far East adjusted to an f.o.b. price; 
• the New York forward price at 3, 6, 9, 12 or 15 months for forward sales and 
shipments to be made between December of the year n-1 and December of the year n. 
23. The "smoothed price" is determined by: 
• simple exponential smoothing of the Cotlook A Index Far East f.o.b. for the previous 
three seasons (May n-4 to April n-3, May n-3 to April n-2, May n-2 to March n-1)3; 
• the arithmetic averag e of five New York forward sales best corresponding to the 
period for delivery of cotton lint in the n-1/n season (October and December year n-1, 
March, May and July of the year n) publ ished from 1 to 31 March of the year n-1.4 
24. The simple exponential smoothing is calculated using Prof. Jean Cordier's formula: 
Cotrend = (0.343 *  Ian – 3/n–2+ 0.49 *  Ian-2/n-l + 0.7 *  Ian-l/n * A +TNY n – 1/n) /2.533 
25. The Cotlook A Index Far East f.o.b. is determin ed by deducting from the A Index the cost of 
f.o.b. to c.i.f. currently estimated at CFAF  50/kg. (originally 4.5 cents/lb on the basis of 
US$1.3 = €1.0). 
26. For the three previous seasons, the reference €/ US$ exchange rate is equal to the average 
daily value of the €/US$ rate during the periods fro m May n-4 to April n-3, from May n-3 to April n-2 
and from May n-2 to March n-1. 
 Source:  http://sdw.eu.bc  
 Index:  Statistics – Exchange rates – US Dollar 
 Daily table:  Reference rates over last four months 
27. In the n-1/n season, the reference €/US$ exch ange rate is the average of the reference 
exchange rates used for international transactions  on the New York forward market (for delivery in 
October and December of the year n-1, March, Ma y and July of the year n) published on the first 
Monday of the month of April n-1. 
4.2.2 Smoothing of the purchase price for seed cotton  
28. As is the case in other components of the cotton subsector in West Africa, the principle that 
the value of seed cotton accounts for 60 per cent of the production cost of cotton lint and that the average yield of lint after ginning is 42 per cent has been accepted.  On that basis, the floor price for 
buying seed cotton is set accord ing to the following formula: 
 Floor price
 = Cosmoothed  * 60% * 42%  
Which when rounded up gives: 
 Floor price  = Cosmoothed  * 0.252 
                                                      
3 May n-2 to March n-1 in order to be able to announce the floor price for buying seed cotton on 
15 April of the year n-1. 
4 SODECOTON's cotton selling policy is based on the principle of regular forward sales during the 
season (weekly or twice weekly) in or der to follow market trends more closely and is therefore more generally 
indexed on the New York forward market. WT/CFMC/W/37 
Page 8  
 
  4.3 Price Risk Management Fund (FGRP)  
29. The purpose of the Fonds de gestion du ri sque prix (FGRP) (Price Risk Management Fund) is 
to ensure a balance in the subsector and payment of  the purchase price of seed cotton to producers if 
prices fall below the "lint trend price". 
4.3.1 Financing the FGRP 
30. Taking into account the price fluctuations recorded over the past 20 seasons, the FGRP will 
be set up in such as way as to guarantee a "price risk " of CFAF 100/kg. lint on an f.o.b. basis over one 
season or twice CFAF 50/kg. over two successive seasons. 
31. Calculated on the basis of an annual average production objective of 250,000 tonnes of seed 
cotton (the volume for the period 2001-2005), corresponding to 105,000 tonnes of lint, it would 
eventually require a minimum of CFAF 10 billion. 
32. Resources would initially be in the form of a concessional loan to the Association 
interprofessionnelle du coton du Cameroun (AIIC) (Cameroon Cotton Industry Association) – yet to 
be setup – for 15 years with a grace period of five years, to be guaranteed by SODECOTON.  The initial resources would cover 60 per cent of the objective set, i.e. CFAF 6 billion. 
33. The FGRP will be kept in a special remunerated
5 account with a commercial bank.  The latter 
will manage the funds in accordance with the ru les set in the industry agreement between the 
OPCC-GIE and SODECOTON when the Fund is set up. 
4.3.2 Mechanism for providing the FGRP with resources and for its intervention  
34. Contributions are made to the FGRP when th e average A Index Far East recorded over the 
period May n-1/April n, or "reference price" (Co refn-1/n) is higher than the "smoothed price".  It 
intervenes, however, to the benefit of the cotton subsector when the "r eference price" is lower than the 
"smoothed price". 
A. MECHANISM FOR CONTRIBUTING TO THE FGRP 
35. Contributions to the FGRP will be based on the " théorie du grenier"  (storehouse theory)6 with 
contributions that are: 
- proportional to the gross margin earned by the subsector that exceeds the "smoothed 
price" (the higher the gross margin, the higher the contribution to the FGRP); 
 
- inversely proportional to the level of replenishment of the Fund (the more closely the 
Fund's reserves are to its ceiling, the lower the contribution to the FGRP). 
 
36. This mechanism allows some of the subsector's margins to be systematically redistributed to 
producers and the cotton company when the pr ice is higher than the "smoothed price". 
37. The mechanism6 for replenishing the Smoothing Fund and redistributing the margins to 
stakeholders uses the following progressive replenishment formula (Z): 
                                                      
5 Around 3 to 4 per cent based on the rates currently applicable in Cameroon. 
6 Model proposed by Louis Goreux – Working document " Prix plancher et fonds de lissage ", 
22 March 2006.  WT/CFMC/W/37 
 Page 9 
 
 
  Z = 80 + 0.5 X – 0.8 Y – 0.005 XY 
Where:  Gross margin to be redistributed 
= (Co ref n-l/n – Co smoothed  n-l/n)  * tonnage seed cotton 
bought  * 42%. 
 Z = % of the gross margin to be paid into the FGRP; 
 X = surplus of the "smoothed price" in percentage terms, i.e.:  (Co ref n-l/n – Co smoothed  n-l/n)/ 
Cosmoothed  n-l/n); 
 Y = rate of growth of the Fund be fore replenishment, as a per centage of the maximum amount 
in the Fund. 
38. The following formula shows the amount of contributions to the FGRP: 
AFgrp = Gross margin (in CFAF) x Z (percentage). 
39. This amount will be paid out by SODECOTON at the end of the ginning season, at the latest 
by 30 June of year n. 
B. MECHANISM FOR FGRP  INTERVENTION  
40. The FGRP intervenes when the "reference price" for lint in the n-1/n season is lower than the 
"smoothed price". 
41. SODECOTON's drawing right is calculated as a percentage of the production of cotton lint 
according to the following formula: 
 Drawing right = Co smoothed – Co ref) * tonnage of cotton lint bought * 42%. 
42. Payment is at the end of the collection and gi nning season, at the latest by 30 June of the 
year n. 
4.4 Purchase price addition for seed cotton 
 
43. A "price addition" (C price) is paid to cotton producers when the "reference price" is higher than 
the "smoothed price". 
44. The gross margin to be distributed is divided into three parts: 
(i) contribution to the FGRP according to  the mechanism described in section 
4.3; 
(ii) division of the balance into two equal parts:  50 per cent paid to the OPCC-
GIE as a  "price addition" and 50 per cent paid into the SODECOTON's accounts. 
45. The price addition (C
price) paid to the OPCC-GIE will therefore be: 
 (C price) = (gross margin – A Fgrp)/2 WT/CFMC/W/37 
Page 10  
 
  46. The OPCC-GIE's Governing Board decides on how the "price addition" should be used:  
rebate to producers according to their producti on of seed cotton, contribution to the Producers' 
Savings Fund, replenishment of the OPCC-GIE current account ( inter alia for the prefinancing of 
agricultural inputs). 
47. The "price addition" is determined at the end of the ginning season, on 31 May of year n, and 
is paid to the OPCC-GIE by 30 June of year n at the latest. 
5. Market instruments 
48. The use of forward market instruments for co tton lint may, under certain conditions, enable 
cotton lint to be valued at a price at least equal to the floor price of the smoothing tunnel.  This would help to prevent use of the Smoothing Fund's resour ces while at the same time ensuring the financial 
balance of the cotton subsector at a time when pric es are falling.  Three market instruments could be 
used: 
5.1 Forward sales contracts 
49. The marketing of cotton lint is part of the programme for collecting and shipping production 
during the first months of the ginning season.  Cotton lint is usually sold in advance during the 
12 months preceding the ginning season.  There are four possible ways of selling: 
 - sale at the money-of-the-day price (the case of Cameroon); 
 
- sale according to a timetable and rules for deferred fixing of prices determined in 
advance; 
 
 - sale according to an average of indices; 
 
- sale in accordance with the price on the New York Cotton Exchange (NYCE).  In this 
case, a minimum price may be guaranteed but it will be reduced to take into account the cost of the guarantee. 
 
50. In any event, it is preferable to have a quot ation in Euros to offset the exchange risk. 
5.2 Transactions on the New York Cotton Exchange (NYCE)  
51. These transactions may be of interest in cases – not very common so far – in which the cotton 
company has no buyer even though prices on the in ternational market are higher than its production 
costs.  They require the cotton company to be appr oved by a broker, which must also be approved, 
and the transaction must be approved by the New Yo rk Stock Exchange.  Sales are in United States 
dollars. 
52. There are two types of transaction: 
 - sales on the New York forward market; 
 
 - sales options or "puts". 
 
5.2.1 Sales on the New York forward market 
53. Paper cotton sales may take place over 24 months with  five due dates annually (March, May, 
July, October and December) and invol ve contracts for 50,000 lbs (i.e. 22.6 tonnes (100 bales)).  Once  WT/CFMC/W/37 
 Page 11 
 
 
  the physical  cotton has effectively been sold, the New York forward contracts previously concluded 
are bought up.  If the market rises, the physical  cotton will have been sold at a better price than the 
paper cotton, but the New York transaction will have ma de a loss, and vice versa if the price falls.  
These transactions are costly, how ever, and require proper know-how. 
 - the sales are made in United States dollars and the exchange risk has to be covered; 
 
- coverage of the physical cotton in New York is basically linked to the production of 
American cotton and only evolves un satisfactorily with the price of physical cotton 
from other sources (disparity between the A Index and the New York Index); 
 
- intervention on the New York market involves costs, as well as the need to make a 
deposit and to meet the margin call immediately if prices fall. 
 
5.2.2 Buying options  
54. Options or "puts" consist of buying the right to sell a New York contract without any 
obligation to purchase.  The buyer of the option pays a premium that varies according to supply and 
demand for the option in question.  Whether prices ri se or fall, the buyer of the option only loses the 
amount of the premium paid: 
 - if prices rise, the buyer does not take up his option.  He pays the cost of the premium; 
 
- if prices fall, the buyer can take up his option for sale of New York contracts.  He 
then divides up the contracts by buying them back.  The margin earned from this 
option allows the physical drop in prices to be offset in part after the cost of the 
premium has been deducted. 
 55. Care must be taken, however:  the cost of the premium "y" is proportional to the square of the 
risk covered (difference between the f.o.b. price at  the time the option was taken and the price of the 
option) and it can be extremely high: 
 Y = 0.2402 
X2 – 0.0863 X – 0.0739 
 Where Y  = cost of the premium as a percentage of the f.o.b. price at the time the option was taken 
 
 X  = price of the option. 
 56. It is therefore advisable: 
 - to decide on an option which corresponds to the floor of the smoothing tunnel; 
 
 - to cover oneself only when the f.o.b. pri ce of the day when the option was taken is 
close to the amount of the option. 
 57. The Etude de faisabilité d'un programme de ges tion articulée du risque prix pour les filières 
cotonnières de l'Afrique de l'Ouest et du Centre (Feasibility study on an articulated price risk management programme for the cotton subsector in  West and Central Africa) proposes that these 
instruments should only be used when the cost of the premium is less than 10 per cent of the amount 
of the option (although the cost of this guarantee rais es the production cost of cotton lint by an equal 
amount and will be borne by the cotton company …). WT/CFMC/W/37 
Page 12  
 
  58. Use of such market instruments requires very reliable information and an in-depth knowledge 
of the mechanisms of cotton companies and ba nks.  The training of SODECOTON's marketing 
managers would have to be ensured under component  4 (Building the capacity of the actors) of the 
articulated price risk management programme for the cotton subsector in West and Central Africa. 
6. Assuming the risks caused by exogenous shocks 
59. The smoothing mechanism and the use of mark et instruments should help to secure a 
minimum level of income for producers and the financial balance of the cotton subsector.  
Nevertheless if, after one or two consecutive years of  crisis caused by factors external to market rules 
alone (current situation:  subsidies by the ma jor producers, weakness of the United States dollar 
against the CFAF, exponential increase in the price of fertilizer), smoothing results in a floor price 
that is so low that it cannot be borne by producers, the subsector is in jeopardy.  Market instruments 
cannot be used because they would be too costly and the Price Risk Management Fund will not have 
sufficient resources to guarantee producers a minimum income.  This risk cannot be transferred to 
third parties (insurance mechanisms) and must ther efore be covered by the State as a "disaster". 
6.1 Discouragement or disaster threshold? 
60. During the period 2005/2006 and 2007/2008, cotton production collapsed.  The factor that 
triggered this collapse was the combined impact of the fall in the purchase price paid to producers for 
seed cotton and farmers' growing indebtedness caused by rising fertilizer prices.  The result was a 
change in the attitude of producers towards expansio n of cotton growing in order to limit the need for 
loans for this crop and, at the same time, a noti ceable transfer of some agricultural inputs towards 
other crops.  The effects were felt immediately and followed each other rapidly:  lower yields led to 
lower income and problems in repaying loans so the area under cotton diminished and inputs were 
increasingly used for growing cereals, and so on. 
 
 
 
 Effect of the trend in fertilizer prices and farmer's indebtedness  
 on the gross margin/hect are and cotton production
0 20 40 60 80 100 120 140 160 180 
2004/05  2005/06  2006/07 2007/08Price of fertilizer in "CG
equivalent"  
Producers' debts  
Seed cotton production
Gross margin/hectare WT/CFMC/W/37 
 Page 13 
 
 
  Cotton season  2004/05 2005/06 2006/07 2007/08 
Seed cotton purchase price CFAF/kg. 190 170 175 175 
NPKSB fertilizer price CFAF/kg. 220 230 304 340 
Hectare of cotton CFAF/hectare 215,027 231,993 203,023 137,868 
Tonnes of cotton CFAF /tonne 303,822 220,574 187,453 111,000 
Yield Tonnes/hectare 1.413 0.951 0.923 0.805 
 WT/CFMC/W/37 
Page 14  
 
  61. An analysis of the collapse in production ove r the past four years shows the following: 
(a) A triggering factor
:  the CFAF 20/kg. drop in seed cotton prices in 2005  
(-10 per cent) in comparison with 2004, which did not lead to a reduction in the area sown but to a drop of 33 per cent in yields  because of lower consumption of fertilizer 
(even though the latter's price only rose slightly (+4.5 per cent)); 
(b) An exacerbating factor
:  a sharp rise in the cost of fertilizer in 2006 (+32 per cent) 
and again in 2007 (+12 per cent) while the purchase price for seed cotton rose slightly (+3 per cent), resulting in continuation of the downward trend, which became much 
worse in 2007. 
62. While it can be considered that during the period 2005-2006 the combination of the "seed 
cotton purchase price/fertilizer price" reached the "d iscouragement threshold", it is undeniable that in 
2007 this same combination was well below the "disaster level";  compared with the 2004/2005 season, the results for 2007/2008 showed: 
(a) a 36 per cent decrease in the area under cotton; 
 
(b) a 43 per cent drop in yields; 
 
(c) a 63 per cent collapse in production. 
63. It would seem that the real indicator to be ta ken into account is not the purchase price of seed 
cotton in the strict sense but the "fertilizer price/ seed cotton purchase price" ratio.  When this ratio 
exceeds 1.3, it is below the "discouragement thr eshold", but when it exceeds 1.5, it approaches the 
"disaster threshold". 
Cotton season 2004/05 2005/06 2006/07 2007/08 
Price of seed cotton (top grade) CFAF/kg. 190 170 175 175 
Price of NPKSB fertilizer CFAF/kg. 220 230 304 340 
Price of fertilizer in "CG equivalent" Kg. cotton 
index 1.16 
100 1.35 
117 1.74 
150 1.94 
168 
Producers' debts CFAF/tonne 
index 66,644 
100 81,465 
122 100,831 
151 107,081 
161 
Seed cotton production Tonnes 
index 303,822 
100 220,574 
73 187,453 
62 111,000 
37 
Producers' debts CFAF/hectare 
index 94,165 
100 77,455 
82 93,098 
99 86,213 
92 
Gross margin/hectare CFAF/hectare 
index 174,295 
100 84,177 
48 68,481 
39 54,683 
31 
 
 
64. The border line between the "discouragement threshold" for producers above which they 
reduce the area under cotton and cultivate it less intensiv ely in order to limit the financial risk, and the 
"disaster threshold" above which the majority of producers abandon cotton or massively transfer input 
credit to other crops, is extremely tight.  WT/CFMC/W/37 
 Page 15 
 
 
  65. In any event, utilization of the smoothing mechanism should allow the cotton industry 
(OPCC-GIE and SODECOTON) to bring to the attention of government authorities in good time the risk of a "disaster" when the floor price fo r buying seed cotton falls below this threshold 
(CFAF 175/kg.?) so that the State can mobilize the fi nancing needed to deal with the disaster using 
national or international resources. 
7. Measures to be implemented 
66. The articulated price risk management progr amme for the cotton subsector in West and 
Central Africa does not provide for the financi ng of the smoothing mechanism and price risk 
management for the Cameroonian cotton subsector, wh ereas such financing is provided for the cotton 
subsector in Burkina Faso and Senegal.  Th e cotton subsector in Cameroon and its leading 
stakeholders (OPCC-GIE and SODECOTON) have s hown a high degree of maturity in managing the 
"price risk" (see section 1), but the mechanism put in place in 1995 is becoming exhausted after the 
shocks suffered during the past four years.  An ar ticulated price risk management mechanism needs to 
be established for Cameroon's cotton subsector, base d on those being introduced for the subsector in 
Burkina Faso and Senegal. 
67. The following action needs to be taken: 
7.1 Establishment of a cotton industry association in Cameroon 
68. The FGRP should be managed by the cotton in dustry association of Cameroon (AICC), yet to 
be set up.  The institutional frame work for such an association, bringing together OPCC-GIE and 
SODECOTON, and for the FGRP, as well as the dr afting of precise rules for the FGRP's operation 
(fixing the floor price, smoothing tunnel, replenishm ent of funds, distribution of margins, intervention 
by the Fund) could rapidly be undertaken by  the Cameroonian subsector's stakeholders. 
7.2 Cotton industry/Government agreement  for management of the disaster risk  
69. An agreement should be negotiated between th e Government, the cotton industry and the 
technical and financial partners in order to intr oduce special support tools for disaster situations. 
70. Two actions need to be taken for this purpose: 
(a) a study to determine precisely the thresholds of "discouragement" and "disaster" 
according to the type of farm (size and level of technology) and to estimate the 
macroeconomic impact of reaching th ese thresholds on Cameroon's economy; 
(b) workshop to present the study on the impact of the discouragement and disaster 
thresholds and the measures to be implemented at the national level. 
7.3 Training of stakeholders  
71. The creation of the smoothing fund and rational utilization of market instruments must 
necessarily be accompanied by an explanation of the new mechanism for all stakeholders in the cotton 
subsector and the training of elected officials and managers in the OPCC-GIE and SODECOTON: 
(a) training of the OPCC-GIE's elected offi cials and the SODECOTON's advisory 
mechanism on the smoothing mechanism to be introduced; 
(b) dissemination and explanation of the princi ples and of the mechanism to each group 
of producers; WT/CFMC/W/37 
Page 16  
 
  (c) training SODECOTON and commercial ba nk officials on the use of market 
instruments. 
7.4 Introduction of the articulated price risk management mechanism  
72. Introduction of the articulated price risk mana gement mechanism will involve the following: 
(a) the establishment of the Price Risk Management Fund by the AICC, to be kept in a 
remunerated account with a commercial bank which will manage the Fund on behalf 
of the AICC in accordance with the rul es to be specified by the latter; 
(b) support for the financing of market instruments during a three-year trial period at the 
rate of 75 per cent of the cost in year 1 for 2,000 tonnes of cotton lint, 50 per cent in year 2 for 5,000 tonnes, and 25 per cent in year 3 for 10,000 tonnes. 
8. Cost of the project 
73. The financing could be provided as follows: 
(i) Financing of the following action by the artic ulated price risk management programme for 
the cotton subsector in West and Central Africa: 
• study of the impact on the discouragement and disaster thresholds; 
 
• workshop to specify the measures to be taken in the event of disaster; 
 
• training SODECOTON and bank officials in the use of market instruments; 
 
• support for the financing of use of market instruments over a three-year trial period. 
 
(ii) Financing of the following action under this project: 
• training of the OPCC-GIE's elected offi cials and the SODECOTON's advisory 
mechanism on the smoothing mechanism to be introduced; 
 
• dissemination and explanation to each group of producers; 
 
• financing of the Smoothing Fund's initial resources. 
 74. The total cost of the project would be CFAF 6,365 billion, broken down as follows (see 
Annex 6):  WT/CFMC/W/37 
 Page 17 
 
 
   
 Year 1 Year 2 Year 3 Total 
1.  Smoothing Fund 
Initial contribution to the Smoothing Fund   
CFAF 60/kg. lint  
6,000,000  
0  
0  
Cost of component 1  6,000,000 0 0 6,000,000 
2.  Smoothing mechanism 
 
Training workshops for OPCC-GIE and 
SODECOTON officials 
 
Training workshops for elected officials of 
groups 
 
Dissemination and promoting awareness among producers 
 
Creation of a cotton industry association 
 
Preparation of the industry's agreement on the 
mechanism   
 
 
5 workshops 
 
 
100 workshops 
 
 
2,000 workshops 
 
1 workshop 
 
 
1 workshop  
 
 
2,500 
 
 
3,000 
 
 
4,000 
 
500 
 
 
500    
 
 
2,500 
 
 
3,000 
 
 
4,000 
 
500 
 
 
500 
Cost of component 2   10,500   10,500 
3.  Disaster management mechanism 
 
Discouragement and disaster thresholds impact 
study 
 
Study of the disaster management mechanism     
 
 
65,000 
 
30,000   
 
 
65,000 
 
30,000 
Cost of component 3   0 95,000 0 95,000 
4.  Market instruments 
 
Training workshop on use of market instruments 
 
Support for the financing of market instruments   
 
1 session 
 
Tonnes/lint 
 
Rate of support  
 
30,000 
 
2,000 
 
75%  
 
 
 
5,000 
 
50%  
 
 
 
10,000 
 
25%  
 
30,000 
 
17,000 
Cost of component 4  CFAF 40/kg. lint 60,000 100,000 100,000 260,000 
Cost of the articulated price risk management 
mechanism   
6,070,500  
195,000  
100,000  
6,365,500 
 
 
75. The financing would be broken down as follows :  CFAF 6 billion (€9.146 million) from the 
project, CFAF 355 million from the articulated pri ce risk management programme for the cotton 
subsector in West and Central Africa (€0.541 million) and CFAF 10.5 million from the OPCC-GIE and SODECOTON (€0.016 million).  In addition, th e latter will guarantee repayment of the loan. 
 Year 1 Year 2 Year 3 Total Euros '000 
Project 
CFAF '000  99% 
6,000,000  0% 
0 0% 
0 94.3% 
6,000,000   
9.146  
OPCC-GIE + SODECOTON 
CFAF '000 0% 
10,500 0% 
0 0% 
0 0.2% 
10,500  
16 
Articulated price risk management 
programme 
CFAF '000 1% 
 
60,000 100% 
 
195,000 100% 
 
100,000 5.6% 
 
355,000  
 
541 
Cost of the OPCC-GIE capacity-
building component  
6,070,500  
195,000  
100,000  
6,365,000  
9.703 
Euro equivalent 9,253,811 297,256 152,439 9,703,506  
 
9. Expected impact of the introduction of a price risk management mechanism 
76. The introduction of a smoothing mechanism, th e FGRP and the use of market instruments 
will enable the following: 
(a) at the start of each season, determinatio n of the floor purchase price for seed cotton 
with reference to the market price and estimated prices for the coming season; WT/CFMC/W/37 
Page 18  
 
  (b) mitigation of the fluctuations in cotton prices to the benefit of both producers and the 
cotton company, while remaining in complian ce with the WTO's rules.  There will be 
no distorting effects on the market and no encouragement to increase production if prices fall. 
77. The FGRP will be kept in a remunerated account  with a commercial bank.  It will allow the 
financial balance of the cotton subsector and produ cers' income to be guaranteed.  It will support 
producers and the cotton company in their negotia tions to obtain input credits (OPCC-GIE) and 
seasonal loans (SODECOTON). 
78. The price risk management will be undertaken by the cotton industry association.  The 
mechanism for fixing the floor price for buying seed  cotton, contributions to the Smoothing Fund and 
redistribution of rebates will comply with precise ru les which cannot be manipulated or contested by 
one or other of the parties.  This mechanism can be transposed to a privatized cotton sector. 
79. The use of market instruments will be tested fo r three consecutive years.  This will show the 
advantages and disadvantages of using them.  Such instruments should limit recourse to the FGRP if 
prices collapse. 
80. In the case of exogenous shocks or the collapse of prices, the cotton industry association will 
be in a position to inform government authorities even  before the start of the agricultural season so 
that the State can trigger the disaster management  mechanisms and mobili ze the necessary financing 
in good time.  
   WT/CFMC/W/37
 Page 19Annex 1 
 
Purchase price of seed cotton and OPCC-GIE current account 
 
 
 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 
Purchase price of seed cotton  (CFAF/kg. seed cotton)  
Floor price top grade  
OPCC price addition 160 
0 175 
0 175 
0 155 
25 180 
5 160 
20 175 
0 175 
10 185 
5 150 
20 160 
15 155 
20 
Net price for the season 160 175 175 180 185 180 175 185 190 170 175 175 
Producers' account  (CFAF millions) Average 
2003/4-2007/8 
Net SODECOTON payments 
Net OPCC-GIE payment Total paid to producers 
Net SODECOTON payments 
Net OPCC-GIE payment 34,828 
0 
34,828 
100% 
0% 30,795 
0 
30,795 
100% 
0% 34,752 
0 
34,752 
100% 
0% 30,131 
4,801 
34,932 
86% 
14% 43,384 
1,152 
44,536 
97% 
3% 40,174 
4,940 
45,114 
89% 
11% 41,668 
0 
41,668 
100% 
0% 43,164 
2,336 
45,500 
95% 
5% 56,503 
1,530 
58,033 
97% 
3% 31,675 
4,154 
35,829 
88% 
12% 29,429 
2,653 
32,082 
92% 
8% 17,360 
2,240 
19,600 
89% 
11% 35,626 
2,583 
38,209 
93% 
7% 
OPCC-GIE account  (CFAF millions) 
Price addition paid to OPCC-
GIE by SODECOTON, allocation of OPCC-GIE 
resources 
 
Price addition for producers 
 
Input subsidies 
 
Payments to savings account 
 
Payments to current account   
 
 
4,367 
 
0 
 
0 
 
2,184 
 
2,183  
 
 
3,631 
 
0 
 
0 
 
1,816 
 
1,815  
 
 
3,875 
 
0 
 
0 
 
0 
 
3,875  
  
1,920 
 
-4,801 
 
0 
 
0 
 
-2,881  
  
10,368 
 
-1,152 
 
0 
 
2,304 
 
6,912  
 
 
3,705 
 
-4,940 
 
0 
 
0 
 
-1,235  
 
 
1,158 
 
0 
 
0 
 
0 
 
1,158  
 
 
2,581 
 
-2,336 
 
-245 
 
0 
 
0  
 
 
- 
 
-1,530 
 
0 
 
0 
 
-1,530  
 
 
1,039 
 
-4,154 
 
0 
 
0 
 
-3,115  
 
 
- 
 
-2,653 
 
0 
 
0 
 
-2,653  
 
 
- 
 
-2,240 
 
0 
 
0 
 
-2,240 
Balance Producers' Savings 
Fund  
2,184  
4,000 4,000 4,000 6,304 6,304 6,304 6,304 6,304 6,304 6,304 6,304 
Balance OPCC-GIE current account  
1,815  
3,630 7,505 4,624 11,536 10,301 11,459 11,459 9,929 6,814 4,161 1,921 
  
  WT/CFMC/W/37 
Page 20 Annex 2 
 
Calculation of the reference index and the floor price for buying seed cotton 
 
 
 
Prices and price estimates   €/US$ 
A Index in April 04/March 05 61.52 cts/lb A Index Far East as of August 2004 1.247 
A Index in May 05/April 06  55.77 cts/lb  A Index Far East  1.250 
A Index in May 06/April 07  57.74 cts/lb  A Index Far East  1.295 
A Index in May 07/April 08  61.00 cts/lb CGIC indices Augus t-July 06/07 and 07/08 1.444 
NY forward Oct. 08 to July 09 86.51 cts/lb July 08 to May 09 1.589 Reinhart 17/03/08 
 
Average index in CFAF/kg. f.o.b.  Smoothed trend 
A Index in CFAF f.o.b. May 04 to April 05 = CFAF 713.44 c.i.f. 
 May 05 to April 06  = CFAF 645.37 c.i.f.  
 May 06 to April 07  = CFAF 644.78 c.i.f.  
 May 07 to April 08  = CFAF 610.90 c.i.f.  
 May 08 to April 09  = CFAF 787.04 c.i.f.  
 
Exponential smoothing over four years 2008/09 
Smoothed A Index = (67.28*0.73+61.52*0.72+56.77*0.7+56.00)/(1 +  0.73 + 0.72 + 0.7)  = CFAF 691.66/kg. f.o.b. 
  
Floor price for buying seed cotton Basis=100% smoothed index 
Floor price 691.66 * 0.252 = CFAF 174/kg.  WT/CFMC/W/37 
 Page 21 
 
 
  Annex 3 
 
Calculation of the New York forward price in March 2008 
 
 
Date July 2008 Oct. 2008 Dec. 2008 March 2008 May 2008 Average 
03 March 83.52 85.33 87.45 89.41 89.96  
04 March 86.52 88.33 90.45 92.41 92.96  
05 March 90.52 92.33 94.45 96.41 96.96  
06 March 91.11 93.51 95.53 97.57 98.44  
07 March 87.11 89.51 91.53 93.57 94.44  
08 March       
09 March       
10 March 83.11 85.58 87.53 89.7 90.44  
11 March 79.11 82.23 84.24 86.65 87.68  
12 March 83.11 86.23 88.24 90.65 91.37  
13 March 84.61 87.66 89.69 92.27 92.93  
14 March 83.39 86.53 88.53 91.16 91.81  
15 March       
16 March       
17 March 81.9 85.36 87.19 89.86 90.56  
18 March 77.9 81.36 83.19 85.86 86.56  
19 March 77.23 80.43 82.34 85.01 85.91  
20 March 74.23 77.43 79.34 82.01 82.91  
21 March 73.83 77.1 79.28 81.84 82.67  
22 March       
23 March       
24 March       
25 March 76.23 79.58 82.28 84.74 85.63  
26 March 77.56 81.91 84.74 87.29 87.99  
27 March       
28 March       
29 March       
30 March       
31 March       
Average 81.82 84.73 86.82 89.20 89.95 86.51 
€/US$ 17/03/08 
US$/CFAF 1.5771 
416 1.5839 
414 1.5901 
413 1.5961 
411 1.6002 
409 1.59 
412.60 
CFAF average 750.41 773.33 790.53 808.24 811.10 786.72 
 WT/CFMC/W/37 
Page 22  
 
  Annex 4 
 
Cost structure of Cameroonian cotton lint 
 
 
Production Costs (CFAF/tonne)  
Tonnes Fixed Variable Total 
Purchase of seed cotton (top grade) 200,000 0 165,000 165,000 
Support costs  14,262 5,115 19,377 
Cost of buying seed cotton  11,042 5,878 16,921 
Cost of seed cotton supplied to the market  25,304 175,993 201,298 
Maintenance of rural roads  6,432 0 6,432 
Transport of seed cotton  2,932 9,991 12,923 
Cost of seed cotton delivered to the factory  34,668 185,985 220,653 
Lint ex factory equivalent  cost 42.00% 82,543 442,821 525,364 
Ginning costs 84,000 38,658 47,733 86,391 
Classing  914 1,222 2,136 
Storage – maintenance of lint  1,890 2,571 4,461 
General administrative costs  31,190 0 31,190 
Interest on seasonal loans  0 6,442 6,442 
Cost of lint ex-factory  155,195 500,788 655,984 
Transport and transit to Garoua  9,063 4,769 13,832 
Transport to Douala  0 48,191 48,191 
F.o.b. cost  0 18,219 18,219 
Taxes and levies  0 1,555 1,555 
F.o.b. export cost of lint  164,258 573,523 737,781 
Processing of seed cotton at the oil mill  0 -83,333 -83,333 
Cost of f.o.b. export of lint minus value of seed cotton  164,258 490,189 654,447 
 
Share of seed cotton in the production cost structure of cotton lint 60.03%  WT/CFMC/W/37 
 Page 23 
 
 
  Annex 5 
 
Contributions to the Smoothing Fund and distribution of the margin 
 
 
Principles  
 The Fund should be provided initially with resources to guarantee the floor price if prices fall 
during the first years.  The initial resources should be provided in the form of a subsidy. 
 Subsequent replenishment of the Fund w ill be based on the "storehouse theory" with 
contributions in inverse proportion to  the level at which the Fund is replenished.  This will allow the 
systematic redistribution of part of the subsector 's margins to producers and to the cotton company 
when prices are high. 
 The Fund's aim will be to cover a price risk of  CFAF 100/kg. below the smoothed floor price.  
The ceiling will be determined as a ratio of  the production target set for each year. 
Progressive contributions method  (Goreux formula)  
 Contributions will be in propor tion to the positive margin derived from the average price over 
the year (April/March) and the ceiling price of the smoothing tunnel.  They will be inversely proportional to the rate at which the Fund is replenished. 
 Calculation of contributions for each year will be according to the formula: 
Z = 80 + 0.5 X – 0.8 Y – 0.005 XY. 
Replenishment X Surplus as a p ercentage of the tunnel ceilings 
Y 0 5 10 15 20 25 30 35 
0 80 83 85 88 90    
10 72 74 77 79 81 83 86  
20 64 66 68 70 72 74 76 78 
30 56 58 60 61 63 65 67 68 
40 48 50 51 53 54 56 57 59 
50 40 41 43 44 45 46 48 49 
60 32 33 34 35 36 37 38 39 
70 24 25 26 26 27 28 29 29 
80 16 17 17 18 18 19 19 20 
90 8 8 9 9 9 9 10 10 
100 0 0 0 0 0 0 0 0 
 
Example of application  
 Smoothed price:  CFAF 692 f.o.b.  US$/€ parity = 1.60  Average price recorded during the year April n to March n+1:  CFAF 740 f.o.b.  - Coefficient for financing the Fund before replenishment:  35 per cent. 
 
  X = ((740 / 692) * 100) -100 = 8.80 
 WT/CFMC/W/37 
Page 24  
 
    Y = 35 
   Z = 80 + (0.5 * 6.94) – (0.8 * 35) – (0.005 * 6.94 * 35) = 54.25 
 The replenishment of the Fund will therefore be 54 per cent of the positive margin achieved 
in the subsector. 
Distribution of the margin after replenishment of the Fund
 
 The margin to be distributed to stakeholde rs in the subsector (producers and the cotton 
company) corresponds to the amount of the positive ma rgin minus unpaid sums due for the loan taken 
out in order to provide the Smoothing Fund with  its initial resources and the contribution to the 
Smoothing Fund.  WT/CFMC/W/37 
 Page 25 
 
 
  Annex 6 
Cost of the "articulated price risk management" component 
 
Activities  
  Year 1 Year 2 Year 3 Total  
1.  Smoothing Fund  
Initial contribution to the 
Smoothing Fund   
CFAF 60/kg. lint  
6,000,000  
0  
0  
6,000,000 
Cost of component 1  6,000,000 0 0 6,000,000  
2.  Smoothing mechanism  
 
Training workshops for OPCC-
GIE and SODECOTON officials 
 
Training workshops for elected 
officials of groups 
 
Dissemination and promoting awareness among producers 
 
Creation of a cotton industry 
association 
 
Preparation of the industry's agreement on the mechanism   
 
5 workshops 
 
 
100 workshops 
 
 
2,000 workshops 
 
 
1 workshop 
 
 
1 workshop  
 
2,500 
 
 
3,000 
 
 
4,000 
 
 
500 
 
 
500    
 
2,500 
 
 
3,000 
 
 
4,000 
 
 
500 
 
 
500 
Cost of component 2   10,500   10,500 OPCC-GIE and 
SODECOTON 
(training and 
communication)  
3.Disaster management 
mechanism 
 
Discouragement and disaster 
thresholds impact study 
 
Study of the disaster management mechanism     
 
 
65,000 
 
 
30,000   
 
 
65,000 
 
 
30,000 
Cost of component 3    95,000  95,000 Articulated price risk 
management 
programme for 
cotton subsector in 
West and Central 
Africa 
4.  Market instruments 
 
Training workshop on use of 
market instruments 
 
Support for the financing of market instruments   
 
1 session 
 
 
Tonnes/lint 
 
Rate of support  
 
30,000 
 
 
2,000 
 
75%  
 
 
 
 
5,000 
 
50%  
 
 
 
 
10,000 
 
25%  
 
30,000 
 
 
17,000 
Cost of component 4  CFAF 40/kg. lint 60,000 100,000 100,000 260,000 Articulated price risk 
management 
programme for 
cotton subsector in 
West and Central 
Africa 
Cost of the articulated price 
risk management mechanism  6,070,500 195,000 100,000 6,365,500  
 
 
Breakdown of financing (in CFAF '000)  
 Year 1 Year 2 Year 3 Total 
Project 
CFAF ‘000  99% 
6,000,000  0% 
0 0% 
0 94.3% 
6,000,000  
OPCC-GIE + SODECOTON 
CFAF ‘000 0% 
10,500 0% 
0 0% 
0 0.2% 
10,500 
Articulated price risk management programme CFAF ‘000 1% 
60,000 100% 
195,000 100% 
100,000 5.6% 
355,000 
Cost of the OPCC-GIE capacity-building 
component 6,070,500 195,000 100,000 6,365,000 
Euro equivalent 9,253,811 297,256 152,439 9,703,506 
 
__________