Growing cotton to produce food: Unravelling interactions between value chains in southern Mali

Motivation: Most transaction cost economic frameworks, commonly used to examine and explain the co-ordination of agricultural transactions, use a linear approach for a single product transaction. This ignores the concurrence of multiple transactions by smallholder farmers in developing countries. Purpose: This study aims to understand co-ordination among multiple product transactions by smallholder farmers and to identify ways to remove impediments to market participation. It develops an adapted transaction cost framework, considering contract types and forms of market participation as building blocks for co-ordination structures. The framework was applied to explain co-ordination structures between smallholders and buyers of cotton and cereals in southern Mali. Methods and approach: To make the framework operational, we did the following: (1) selected transaction characteristics; (2) elaborated benchmarks to describe the intensity of transactions; (3) identified co-ordination structures; and (4) scored the intensity of transactions. Both quantitative and qualitative data were collected. Findings: The majority of farmers grew cotton and sold it to a parastatal company, the sole buyer, that also supported the provision of inputs. Inputs were used to grow not only cotton, but also cereals. Most farmers sold cereals on spot markets to collectors and traders. Using different structures allowed smallholders to obtain inputs and services, to pursue different income sources over the year, and to balance flexibility and security. Policy implications: Collective organizations of smallholder farmers should be supported to improve their financial and managerial capacities to allow them to co-ordinate better with buyers and input suppliers. Institutional innovations to better balance risks for smallholders and buyers deserve consideration. These innovations include crop insurance, long-term credit, and warehouse receipts.