URL: http://www.nytimes.com SUBJECT

1221 of 1258 DOCUMENTS

The New York Times
January 14, 2007 Sunday

Late Edition - Final

Out of Africa: Cotton and Cash
BYLINE: By G. PASCAL ZACHARY
SECTION: Section 3; Column 1; Money and Business/Financial Desk; Pg. 1
LENGTH: 3362 words
DATELINE: Lira, Uganda
''WHERE is he?'' the old woman asks. ''Where is he?''

Finding Dennis Okelo used to be easy. The old woman -- and most other people in a village outside of Lira, the provincial capital of northern Uganda -- went directly to Mr. Okelo's fields. He was always in one of his ''gardens,'' with his slacks rolled up above his calves and a short hoe close by. Or he was seated outside of his mud-brick house under a banana tree.

Then cotton growing revived in Uganda, and Dunavant Enterprises came to town about five years ago, paying cash on delivery. After three seasons of growing cotton for Dunavant, the world's largest privately owned cotton broker and one of the biggest family-owned agribusinesses in the United States, Mr. Okelo, who owns less than three acres and has two wives and a passel of children, had saved $300, about double his annual earnings before Dunavant started buying his cotton.

Last summer, Mr. Okelo opened a grocery store, which is where the old woman finally found him: smiling, standing behind the wooden plank that serves as his service counter in a shop the size of a utility shed. The grocery, one of two in the village, carries dried foods, cooking oil, matches, cosmetics, batteries and candy.

''Before Dunavant, no one came to help us,'' says Mr. Okelo, 40, who has farmed a variety of crops in these parts for about 20 years.

Dunavant's decision to operate on the ground here is a little-noticed sign of the new scramble for African resources. While the pursuit of oil, gas and minerals grabs more attention around the continent, farm crops are also lucrative and coveted -- perhaps none more than cotton. Cargill, another family-owned American agribusiness, is also chasing a piece of Africa's annual cotton sales, though with less intensity than Dunavant.

All of this is occurring amid a face-off between American and African cotton growers. Although the United States and Africa have vanishing textile industries, they remain the world's two leading exporters of raw cotton, with about $4.9 billion and $2.1 billion, respectively, in annual cotton sales, amounting to more than half of the $12 billion market worldwide.

Because of tectonic shifts in textile production that have made China and India global leaders, Americans, the richest cotton growers in the world, compete directly with Africans, the world's poorest. And Dunavant Enterprises, based in Memphis, buys from both, at essentially the same price. Finally, the pursuit of cotton in Africa is drenched in history. More than two hundred years ago, American cotton growers imported slaves from Africa to turn cotton into one of the nation's economic engines. Contemporary cotton kings, in yet another commentary on how small the world has become, go directly to Africa for their product -- and, led by Dunavant, they are helping Africans become more competitive with American growers.

''The whole situation is magnificent news, especially when the problem has been zippo investment by large corporations in Africa,'' says Robert H. Bates, an economist at Harvard and a specialist in African agriculture.

Others agree.

''Part of the good news is that the Dunavants and the Cargills will be in Africa for a long time,'' says John Baffes, an economist and cotton analyst at the World Bank. ''Those guys are willing to invest a lot of money and to buy in good years and bad years.''

In parts of Africa where farmers have been rocked by instability of various sorts -- from H.I.V. to civil war to abusive, government-run farm corporations -- consistency is a welcome virtue. ''For Africans who have struggled with globalization,'' Mr. Baffes added, ''this is a validation.''

IN his small shop, Mr. Okelo knows nothing of global developments in the cotton trade even though he is a direct beneficiary of them. He started farming during the lean years in Uganda, after the ouster of the country's notorious dictator, Idi Amin, when the cultivation of cotton lagged so badly that production nearly ceased and farmers treated the crop like a weed.

A few years ago, as Uganda's production began to revive, Dunavant's trainers taught Mr. Okelo to grow cotton in straight rows and to use a string to measure precisely the distance between rows, to maximize plantings. Mr. Okelo's new methods are basic, but in a part of Africa where farmers work the land chiefly with a hoe -- and tractors, fertilizer and pesticides are rarities -- even basic improvements can lead to large gains in production.

''Cotton is the crop that gives farmers the best money,'' Mr. Okelo said. ''I want Dunavant to be even closer to me.''

So do thousands of other African farmers in Uganda, Mozambique and Zambia, the three countries where Dunavant operates cotton gins and buys virtually every boll offered. In Zambia, where it has its oldest and largest African operation, Dunavant buys directly from 180,000 small farmers, relying on hundreds of its own purchasing agents. To help expand production in Zambia, a land-rich southern African country, Dunavant lends millions of dollars a year to farmers at the start of each growing season; the farmers repay at harvest time. Last year, the lending in Zambia amounted to $10 million.

The program ''makes us the largest microfinancier in Africa,'' said Rickard Laurin, a Swede who oversees Dunavant's African operations and has worked for the company since 1978. Dunavant is so well-connected to farmers off the beaten track that social welfare agencies have begun to partner with the company to provide services to remote refugees uprooted by civil war in northern Uganda and to Zambia's rural H.I.V. and AIDS sufferers.

To be sure, African cotton is profitable for Dunavant -- and a clever hedge against any fall in American production. The United States' 25,000 cotton farmers, chiefly in Texas, California and Mississippi, depend heavily on about $2 billion in government subsidies, which encourage farmers to grow and export more cotton, thus driving down international prices and reducing the incomes of African cotton growers, in the eyes of many economists. This dynamic -- of subsidized American exports hurting poor Africans -- was one factor that led to the suspension of the World Trade Organization's negotiations known as the Doha round of talks, which were intended to help farmers in poor countries.

Though no one predicts a quick demise to American cotton subsidies, support of farmers with taxpayer dollars will have to be renewed by Congress before the Farm Bill expires this year. Mr. Laurin says he believes that it is ''only a matter of time'' before the subsidies disappear and that Dunavant's entry into Africa is partly motivated by such possibilities. If the subsidies go, the price of African cotton, produced with lower costs for land and labor, will become more attractive -- leaving Dunavant well-positioned to reap the benefits of working with loyal farmers like Mr. Okelo.

Even with this sunny scenario, some critics worry that growing cotton is so labor-intensive and hard on soils that farmers run the risk of forgoing essential food crops to focus on cotton. The revival of cotton also raises ghosts from the past. ''Cotton was bound up very closely with colonialism, and in many places farmers were forced to grow cotton,'' said Allen F. Isaacman, an historian at the University of Minnesota and co-editor of ''Cotton, Colonialism and Social History in Sub-Saharan Africa.''

Cotton prices are a source of constant tension in Africa, with multinational ginners, such as Dunavant, paying farmers about half of the world price for baled cotton. (The companies then have to pay to collect raw cotton from weigh stations and have to gin it.)

Proponents of expanded cotton production in Africa acknowledge that current, lower prices discourage some farmers from taking up the crop because growing it is so time-consuming and expensive. Many farmers have also not forgotten the earlier era of higher cotton prices, analysts say, and prefer to sit things out in the hope that prices rise.

Yet the willingness of private companies to pay cash on delivery for cotton is a great motivator, because money is scarcer than food for most African farmers. For agribusiness, ''Africa is the last frontier,'' says Mr. Laurin, who argues that Africa is the perhaps the world's only region with the potential to grow vastly more cotton. China and India, as well as Brazil, another cotton powerhouse, could also grow more, especially with boosts from the spread of higher-yielding, genetically modified cotton. But analysts say that these countries have competing uses for their land -- higher-value crops, for example, or industrial or suburban development.

There is another reason for optimism about Africa: Some countries, including Sudan, Zimbabwe and Uganda, are growing much less cotton than they did in the past. So shifts in the cotton trade have raised hopes that Africans can ''go back to the future'' and become a global cotton power, said Maggie Kigozi, chief of Uganda's investment authority in Kampala.

Forecasters outside of Uganda also see bright opportunities in African cotton.

''There's more room for investment and expansion in Africa than anywhere else in the world,'' said Terry Townsend, executive director of the International Cotton Advisory Committee, a Washington-based association of countries that produce, trade and consume cotton. ''You come into Africa with organization and technology, and you can achieve substantial gains.''

WILLIAM B. DUNAVANT Jr., the family patriarch and the chairman of Dunavant Enterprises, came to this very conclusion in the late 1990s. At the time, American cotton growers were flush with subsidies and production was trending higher. For Dunavant, the path of least resistance would have been to ride the American boom. But Mr. Dunavant, who is known as Billy, embraced Africa as the next big thing in cotton production long before his competitors did.

''We wanted to get into Africa on the ground floor,'' he said in an interview. ''We see great potential in the next 10 to 15 years.''

Mr. Dunavant has a reputation for being a pioneer in foreign markets. In 1973, for example, he was one of the first American traders to sell cotton to China. And he built a small Memphis firm, inherited from his father in the 1961, into a global powerhouse.

''He's a very sharp businessman,'' said Carl G. Anderson, an emeritus professor of agricultural economics at Texas A & M University who has served over the years with Mr. Dunavant on the boards of various industry associations. ''He's a strategic planner with a special understanding of cotton markets. When he sees an opportunity for his business, you can bet he's evaluated it very carefully and come up with a workable plan.''

Officials at Dunavant officials say its revenue was about $1.5 billion in 2006. The company markets four million bales of cotton a year and, at its peak during the year, employs about 10,000 people in 80 countries; about 1,000 work in Memphis.

Though it depends almost entirely on buying cotton on the open market, Dunavant entered Africa through acquisitions and operated by vertical integration: buying existing gins, running collection stations, even helping farmers grow cotton.

In 1999, Dunavant bought the Zambian cotton operations of Lonrho, the Anglo-African company, and committed to expanding Zambia's cotton production. A few years later, Dunavant bought a small Ugandan company and retained the management, a Ugandan-Indian family. Keeping the managers was a shrewd move, because it allowed the company to expand faster while preserving relations with local leaders, analysts say. (Dunavant pursued the same strategy in Zambia.)

Dunavant's timing was good. In Africa, cotton has long been government-dominated. During and after World War II, both the British and French governments saw cotton as a strategic crop for their African colonies and created government ''marketing boards'' that essentially nationalized the cotton group and, by law, required farmers to sell their cotton to the state at fixed prices. African countries, after gaining their independence in the late 1950s and early 1960s, maintained these boards.

In Francophone Africa -- the largest regional producer of cotton on the continent, in a wide belt that includes Mali, Burkina Faso, Benin, Cameroon and Chad -- government companies continue to hold an effective monopoly over the growing and marketing of cotton. In former British colonies in Africa and in the former Portuguese colony of Mozambique, cotton was privatized, or ''liberalized,'' in the 1990s, after the sector collapsed under the weight of government corruption, mismanagement or (in the case of Uganda and Mozambique) civil war. Governments either sold off existing gins to private owners, as in Zambia and Uganda, or awarded concessions to private companies to start new operations, as in Mozambique.

''Liberalization has made Africa accessible,'' ending a long period when multinational agribusiness companies ''ignored Africa like the plague,'' said Professor Bates of Harvard.

The combination of liberalization in eastern and southern Africa and solid performance by state cotton companies in West Africa made cotton a striking agricultural success story, in contrast to images of hunger and malnutrition in Africa that tend to dominate reports from charities and international aid agencies. Indeed, while Africa's overall share of world agricultural trade fell by half from 1980 to 2000, its share of the cotton trade doubled, said Mr. Baffes at the World Bank.

In Zambia, Dunavant quickly reaped the benefits of privatization by applying basic management skills to the cotton trade. In the space of five years, cotton output grew sixfold, with the crop peaking at 54,000 tons of ''seed'' cotton in 2005.

''We saw the fastest growth in cotton production in the world in those years,'' Mr. Laurin said.

Dunavant also won over farmers by paying cash on delivery, reassuring entrepreneurs who still had memories of unpaid debts from state-owned companies. Credit also helped. Independent distributors offered small loans to farmers to cover purchases of fertilizer and pesticides, which raised yields. Dunavant invested in new gins and subsequently grabbed a majority of the Zambian market. A study by Michigan State University called Dunavant's program a ''good example of private institutional innovation under liberalization.''

In Uganda, cotton output also rose sharply, though not as fast as in Zambia. Still, Dunavant is the largest buyer of cotton in Uganda, and the country is an important test case for the ability of private multinational corporations to revive African production. The country, which has ideal growing conditions and ample land, was once one of the world's most important producers of cotton; the industry was initially nurtured when Uganda was a British possession. There were no plantations, and the British imported Indians to run gins and to collect raw cotton from small African growers. Over time, Indian brokers assumed huge power and wealth in the cotton trade.

Uganda's independence in the early 1960s left cotton farming undisturbed until Idi Amin came to power in the 1970s. He expelled immigrants from India and nationalized the cotton gins; a succession of civil wars destroyed production. By the late 1980s, Uganda was producing virtually no cotton. Production resumed in the '90s, but the state-owned cotton company repeatedly disappointed growers, offeringi.o.u.'s that were never redeemed. In 1995, a new government privatized the cotton sector, selling off state assets piecemeal. Among the buyers were former Indians who had once owned the gins.

Mr. Dunavant says his company's achievements in Africa ''come not without pain.'' Mr. Laurin, who visits Africa often from his base in Geneva, adds: ''We have problems. It's not just a bonanza.''

War is among those problems. One morning last summer, Brijesh Patel, a Dunavant manager, set off by car into territory where armed rebels held sway. Before he left, the electricity went off, shutting down the gin for the day. Mr. Patel, a native of India and part of the extended family that runs Dunavant's operations in Uganda, professed to be unafraid of the infamous Lord's Resistance Army, whose chief is wanted on war crimes charges by the International Criminal Court.

''They don't want us foreigners,'' Mr. Patel said gamely. Grace Baluka, a member of his staff who trains farmers in growing methods, shook her head, suggesting otherwise. ''Patel is not a coward,'' she said.

Later in the day, Mr. Patel made his two-hour journey safely, meeting with hundreds of poor farmers who had been displaced by the rebel activity and lived in refugee camps. Using an interpreter, he offered them free seeds and tractors for plowing land and let them know that Dunavant pays cash on delivery. The farmers broke into murmurs and volunteered to plant a crop. Mr. Patel was pleased; he figured that lingering threats of violence reduced cotton output in northern Uganda by as much as a third.

''We will boom when peace finally comes for good,'' Mr. Patel said.

ZAMBIA, where peace does hold, presents different challenges. Unexpectedly, the country's currency appreciated rapidly in late 2005 because of rising international demand for copper, of which Zambia is a major supplier. In the space of a few months, cotton prices, which are set internationally in dollars, fell sharply when converted into Zambian kwachas. Because Dunavant pays farmers in local currency, cotton effectively went down in price and, last year Zambian production fell for the first time in the decade. Dunavant lost money on its operations there, Mr. Laurin said.

''We have a bit of a problem right now,'' he said dryly.

Though the value of Zambia's currency remains strong, Dunavant is offering Zambians a somewhat higher guaranteed price, hoping to stimulate production. ''We have to do something to promote the crop,'' Mr. Laurin said.

Besides paying firm prices, Dunavant continues to encourage farmers to use better methods. In Zambia, it has hired 286 trainers, each of whom supervise 10 ''lead'' farmers who receive free fertilizer and special training for a single demonstration plot. In turn, each of these farmers works with 15 neighbors, serving as a role model for improved practices.

In Uganda, the company runs a similar program, relying on a small cadre of university-trained extension officers who ride the rough dirt roads of the countryside on company-issued motorcycles. Ms. Baluka, one of these rough riders, drove out for a visit last summer with Gasper Ocen and his wife, Esther, to see how their cotton farm was faring.

The Ocens, who have grown cotton the last two years for Dunavant, earned $100 during the last season, money they used to send their two teenage sons to boarding school for the first time. Cotton is their only cash crop, and they are rebuilding after rebels burned them out of their village in 2003. Last summer, the couple bought a steel plow; in the future, they said, they will till their land with the help of a rented team of oxen instead of the hoes they used previously. The plow should enable them to grow more cotton, perhaps three acres this season.

The couple proudly showed their plow to Ms. Baluka, who then explained how best to use it, aware that the Ocens might become discouraged with unfamiliar equipment. Before Ms. Baluka began talking to the Ocens two years ago, no one had ever bothered to visit them to discuss farming methods. At one point in her lesson, Ms. Baluka grabbed the plow and wielded it expertly.

''You cannot convince someone to do something that you cannot do yourself,'' she said, muddying her shoes.

When Ms. Baluka finished, Esther Ocen bowed low, deeply at the knees, and held out her hands in thanks. The two women clasped hands for a long time. Then Ms. Baluka said farewell, hopping on her Dunavant motorbike and kicking up dirt as she sped away to advise another farmer growing cotton for a company located halfway around the world.

URL: http://www.nytimes.com
SUBJECT: COTTON FARMING (90%); AGRICULTURE (89%); COTTON & COTTONSEED (89%); FARMERS & RANCHERS (89%); FAMILY (88%); GEOLOGY & GEOPHYSICS (78%); PRIVATELY HELD COMPANIES (74%); IMPORT TRADE (74%); GROCERY STORES & SUPERMARKETS (74%); COTTON MARKETS (75%); COMMODITIES BROKERS (70%); COSMETICS & TOILETRIES (70%); COMPANY EARNINGS (69%); EXPORT TRADE (65%); TEXTILE MFG (60%); TEXTILE MILLS (60%); INTERNATIONAL TRADE (65%) Cotton; International Trade and World Market; Sales; Farmers
COMPANY: CNINSURE INC (62%)
ORGANIZATION: INTERNATIONAL COTTON ADVISORY COUNCIL (59%) Dunavant Enterprises; Cargill Inc
TICKER: CISG (NASDAQ) (62%)
PERSON: G Pascal Zachary
GEOGRAPHIC: MEMPHIS, TN, USA (79%) TENNESSEE, USA (79%) AFRICA (97%); UNITED STATES (96%); ZAMBIA (96%); UGANDA (94%); MOZAMBIQUE (92%); INDIA (79%); CHINA (79%) Africa
LOAD-DATE: January 14, 2007
LANGUAGE: ENGLISH
GRAPHIC: Photos: Dennis Okelo, above left, saved enough money to open a village grocery store in Uganda after farming cotton and selling it to Dunavant Enterprises. The company also operates gins in Zambia, above right. (Photo by G. Pascal Zachary)

(Photo by Dunavant Zambia)

William B. Dunavant Jr. embraced the African cotton market long before his competitors. (Photo by Lance Murphey/The Commercial Appeal)

(Photo by Dunavant Zambia)(pg. 1)

Farmers in Zambia receive advice from Dunavant Enterprises on better methods, then share that knowledge with their neighbors. (Photo by Dunavant Zambia)

Dunavant entered the market in Africa by buying existing gin operations, like this one in Petauke, Zambia. (Photo by Dunavant Zambia)

Esther Ocen with a new plow in a village near Lira, Uganda. The plow should enable her and her husband to grow more cotton this season. (Photo by G. Pascal Zachary)(pg. 7)Map of Africa highlighting Mozambique, Uganda and Zambia: Dunavant operates gins in Mozambique, Uganda and Zambia. (pg. 7)Chart: ''World Cotton Exports''Africa is the world's second-largest cotton exporting region, after the United States.COTTON EXPORTSAUG. '05 - JULY '06United StatesTHOUSANDS OF METRIC TONS: 3,821AfricaTHOUSANDS OF METRIC TONS: 1,588Central AsiaTHOUSANDS OF METRIC TONS: 1,525South AsiaTHOUSANDS OF METRIC TONS: 893East AsiaTHOUSANDS OF METRIC TONS: 664South AmericaTHOUSANDS OF METRIC TONS: 514European UnionTHOUSANDS OF METRIC TONS: 478Middle EastTHOUSANDS OF METRIC TONS: 260OtherTHOUSANDS OF METRIC TONS: 52(Source by International Cotton Advisory Committee)(pg. 7)

Download 4.36 Mb.

Share with your friends: