ayusmann: ASSESSING THE IMPACT OF COTTON PRODUCTION, A CASE STUDY IN TUMU, THE SISSALA EAST DISRICT OF THE UPPER WEST REGION OF GHANA

CHAPTER ONE

1.0 INTRODUCTION

This chapter covers the back ground of the study, problem statement, objectives and research questions, justification for undertaking this study, objectives and the scope of the study.

1.1 BACKGROUND TO THE STUDY

The Agriculture sector is key to overall economic growth and development of Ghana. In the national development agenda, agriculture is expected to lead the growth and structural transformation of the economy and maximize the benefits of accelerated growth. Significant improvements in the productivity of the agriculture sector are required to raise the average real incomes of Ghanaians as a whole. The food and agriculture sector also has direct impact on the attainment of some of the Millennium Development Goals (MDGs).

Agriculture continues to be the largest sector of Ghana’s economy, contributing about 39% of GDP compared to about 26% for the industry sector and 31% for the services sector. Arable and industrial crop production has increased only marginally over the last 10 years with the only exception being cocoa which increased significantly between 2000 and 2005. Cotton and coffee production declined very significantly in the last decade. While there is little reliable information on the livestock sub-sector, it is known that the country’s meat situation is deficit to the tune of over 95,000 metric tonnes annually. There is similarly a deficit of about 460,000 metric tonnes with respect to fish.

In Ghana, besides cocoa and coffee, cotton also known as white gold is the only industrial crop that is cultivated in the northern part of the country. Cotton is a major source of foreign exchange earnings in more than fifteen (15) countries in Sub-Saharan Africa (SSA) and a crucial source of cash income for millions of rural people in these countries. The crop is therefore critical in the fight against rural poverty. The World Bank and other development institutions have been and are currently assisting many cotton exporting countries of SSA to improve their cotton sector performances through projects supporting investment, as well as policy and institutional reforms. Over the years, there has been a declining trend in the development of the cotton industry inSSA. This trend is largely due to, among others, declining and volatile world cotton prizes which have been attributed to trade distorting interventions by countries like the USA and EU who subsidize their cotton production. Further, there has been an increasing trend in consumption of synthetic fibers.

Cotton is a soft, fluffy staple fiber that grows in a boll, or protective capsule, around the seeds of cotton plants of the genus Gossypium. The fiber is almost pure cellulose. Under natural condition, the cotton balls will tend to increase the dispersion of the seeds. The plant is a shrub native to tropical and subtropical regions around the world, including the Americas, Africa, and India.

There are four commercially-grown species of cotton, all domesticated in antiquity:

Gossypium hirsutum – upland cotton, native to Central America, Mexico, the Caribbean and southern Florida, (90% of world production)

Gossypium barbadense – known as extra-long staple cotton, native to tropical South America (8% of world production)

Gossypium arboreum – tree cotton, native to India and Pakistan (less than 2%)

Gossypium herbaceum – Levant cotton, native to southern Africa and the Arabian Peninsula (less than 2%)

The two New World cotton species account for the vast majority of modern cotton production, but the two Old World species were widely used before the 1900s. While cotton fibers occur naturally in colors of white, brown, pink and green, fears of contaminating the genetics of white cotton have led many cotton-growing locations to ban growing of colored cotton varieties which remain a specialty product.

Successful cultivation of cotton requires a long frost-free period, plenty of sunshine, and a moderate rainfall, usually from 600 to 1200 mm (24 to 48 inches). Soils usually need to be fairly heavy, although the level of nutrients does not need to be exceptional. In general, these conditions are met within the seasonally dry tropics and subtropics, but a large proportion of the cotton grown today is cultivated in areas with less rainfall that obtain the water from irrigation. Planting time in spring in the Northern hemisphere varies from the beginning of February to the beginning of June. The area of the United States known as the South Plains is the largest contiguous cotton-growing region in the world. While dry land (non-irrigated) cotton is successfully grown in this region, consistent yields are only produced with heavy reliance on irrigation water drawn from the Ogallala Aquifer. Since cotton is somewhat salt and drought tolerant, it is an attractive crop for arid and semi-arid regions. As water resources get tighter around the world, economies that rely on it face difficulties and conflict, as well as potential environmental problems. For example, improper cropping and irrigation practices have led to desertification in areas of Uzbekistan, where cotton is a major export.

1.2 STATEMENT OF THE PROBLEM

The three northern regions have good potential lands for the cultivation of cotton in Ghana. In the Sissala East Region of the Upper West Region, cotton has been cultivated for over three decades know. Due to the large production of cotton within the district, the Ghana cotton company set up a gin factory in the early eighties (1980s) to handle the production and processing of cotton within the district then called the sissala district. As the only industrial crop that can be cultivated within the area, many of the farmers went into the production of cotton for the following reasons:

1. To produce raw materials to feed the factory and

2. For their own economic benefits.

Were these reasons accomplished? Initially, farmers produced enough cotton to feed the gin factory cited in Tumu, district capital of the then sissala district and now sissala east district. The factory would operate twenty-four (24) hours a day, seven ( 7) days a week throughout the year due to the fact that farmers were able to meet their production targets in a season. Both permanent and casual staffs were employed with sufficient job security throughout the year to work in the only factory on the land. Administrators, electrical and mechanical engineers made up they permanent staff of the company whilst some of the drivers, senior secondary and junior secondary graduates constituted the casual workers. The category of drivers employed included truck drivers and tractor operators. The service of a private security firm was also hired to guard the premises of the factory. Due to the insufficient number of vehicles of the company in the district, trucks were also hired to cart cotton from farm yards to the gin factory thereby improving the financial status of truck owners within the district and beyond. Over three decades of cultivating cotton in the sissala land, it is difficult for one tell whether the farmers are really benefiting from the cultivation of cotton, the environment too has never been the same since.

1.3 OBJECTIVES OF THE STUDY

The objectives of the study are to:

· Find out the benefits of cultivating cotton to the farmers.

· Assess the impact of the cotton industry on the people of Tumu in the sissala east district.

· Examine the environmental hazards associated with cotton cultivation.

· Forecast the possible seed cotton production for the next five years.

1.4 RESEARCH QUESTIONS

For the objectives of the study to be fully achieved, the following research questions have been coined for appropriate answers.

a. How long have farmers been cultivating cotton in the sissala east district?

b. What assistance do farmers benefit from the cotton industry?

c. Does the industry meet its annual production targets?

d. What is the corporate social responsibility of the cotton company in the district?

e. What are the effects of cotton production to the environment?

1.5 SCOPE OF STUDY

The research study is an academic exercise on the impact of cotton production in Tumu, the capital of the Sissala East District (SED) of the Upper West Region (UWR) of Ghana. The production of cotton in Ghana is operated using the out-growers system where farmers are pre-financed with inputs mainly fertilizers and chemicals. The study therefore focuses mainly on Ghana Cotton Company Limited unit based in Tumu, whose sole operations involves the provision of credits to farmers in the form of inputs for the production of seed cotton for cash in return. Do the farmers actually get what they deserve in return for their effort to feed the Ghana Cotton Company with the basic raw material? Are the employees satisfied with the terms and conditions of the company? How has the company benefited the district? Are there any environmental hazards associated with the operations of the company in the district?

1.6 JUSTIFICATION OF STUDY

· The study will contribute to the existing literature on cotton production not only in the Sissala East District, but the nation as a whole and could be a basic tool for future policy making by the Ghana cotton company and others.

· This study is expected to improve upon the level of cotton production in the district and thereby sustain the operations of the gin factory in the district so as to boost the job security of the factory employees by ensuring consensus building through dialogue between the two parties, that is between the company’s management and they cotton farmers.

· Assess the environmental impact of the operations of the company in the district and its effect on the populace in the district.

· The study will also serve as a basis for further research in the impact of cotton production and related topics by researchers and graduate students.

1.7 ORGANIZATION OF THE STUDY

The study report is organized under five chapters. Chapter one comprised the background, problem statement, objectives, research questions, scope of the study and limitations of the study. Chapter two reviewed literature related to the study. It focuses on the cotton companies operations in Ghana, the role of the peasant out-growers, loan management for sustainability and the credit policy, the socio economic importance of cotton production, cotton production in Ghana and the impact of cotton production on the environment. Chapter three reflects the procedure used to carry out the entire study. It reveals units of sample size and methods of sampling, the experimental design, and data collection and analysis. Chapter four summarizes the findings and discussions of the study. While chapter five draws conclusions and make recommendations based on the findings of the study.

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 COTTON PRODUCTION IN PRE- INDEPENDENT SUB-SAHARAN AFRICA

Research by some scholars has documented the “forced cotton production policy initiated in 1938 to support the nascent textile industry in Portugal. Peasants were required to grow a certain number of hectares of cotton in what was evaluated as cotton growing areas. One quick reaction by the peasants, according to Thompson (1991) was “to cook the seeds distributed by the Portuguese before planting them; if yields were low for three consecutive years, the area was judged not conducive to cotton growing, and they were excused from the quota. Many did grow cotton and when they took it to the market, they received one-tenth of the price for the same grade as white farmers.” As a result of this programme, food crop production stagnated and declined, along with the emaciated bodies of the peasants. Famines became frequent. For Portuguese merchants, the system was very profitable. Cotton production increased from 338,000kilograms in 1926 to 29 million kilograms in 1946. The rate of return on investment was400 percent, even with the Portuguese government paying only half the world market price for cotton” (Thompson 1991).

2.2 COTTON COMPANIES OPERATIONS IN GHANA

Cotton companies in Ghana provide on credit, fertilizers and insecticides and carry outland preparation works for out-growers and purchase their cotton produce in return. The out-growers therefore are expected to pay for the cost of inputs through the seed cotton they in turn offer to the company during the purchasing season. A farmer’s ability to pay back the loan therefore depends to a large extent on the volume of seed cotton he or she produces for sale to the sponsor Cotton Company. The gross value of the seed cotton purchased is determined at a marketing center, the total cost of credit is deducted and the net amount (if any), is paid to the farmer. Where the gross value of the seed cotton purchased from the farmer is inadequate to cover the cost of inputs supplied, the farmer invariably is deemed to have failed to pay for his loan. The operations of cotton companies in seed cotton production involve a huge investment of funds, especially in the pre-financing of out-growers. Inputs loan management therefore revolves around an attempt to balance profitability and liquidity. Many business organizations that extend credit facilities to their customers liberalize their credit terms to generate more sales, towards possible profit. The longer the credit term, the greater will be the amount of debtors and the greater the possible strain on the firm’s liquidity.

2.3 INSTITUTIONAL ARRANGEMENT FOR COTTON PRODUCTION IN GHANA

Cotton Development Board: Recognizing the potential of cotton production, the Government of Ghana in 1968 established the Cotton Development Board (CDB) with the mandate to stimulate the production of cotton, ensure adequate supply of raw materials to local textile industries and undertake research on improved varieties. The CDB performed its functions effectively with increasing production until 1977 when production began to fall due to declining producer prices relative to food crops. The CDB was privatized and re-constituted into the Ghana Cotton Company Limited (GCCL) in 1985 with 30% of its shares taken by government.

2.3.1 ZONING OF COTTON PRODUCTION

Zoning is a principle of demarcating the cotton growing areas into an exclusive zone for particular companies. This means that, farmers within a zone are limited to dealing only with the company assigned to operate in that zone. The zoning principle was initiated by the Ministry of Food and Agriculture to address malpractices in the cotton industry. At the time when seed cotton production was falling, there was also a proliferation of cotton companies. This proliferation was characterized by extensive malpractices by key actors. While cotton companies poached farmers of other companies and offered unsatisfactory services, farmers registered and received inputs from two or more companies but then sold their cotton to other companies, thereby avoided payment for inputs received on credit. Some farmers went to the extent of diverting some of the inputs to food crop production and even attempted selling them on the open market. Cotton Production Assistants (CPAs) employed by other companies to support group formation and farmer registration also cheated their employees by registering “ghost” farmers. The malpractices resulted in high indebtedness of the companies to the Agricultural

Development Bank (ADB) which has since 2000 ceased to fund the cotton companies. Consequently, several of the smaller cotton companies were unable to operate effectively and had to suspend operations. To date only 4 out of the 16 companies are left. Companies currently operating in Ghana, with their corresponding zones are:

2.3.2 COTTON COMPANIES OPERATING IN GHANA

Table 2.1 A table showing cotton companies and their zones.

COTTON COMPANY	ZONE/DISTRICTS
Nulux Plantation Limited	Saboba/Chrirpon, East Gonja
Intercontinental Farms Limited	Gambaga (East Mamprusi)
Plantation Development	Wa,Bole, Nadawli, Jirapa/Lambusi
Ghana Cotton Company Limited	Yendi, Savelugu/Nanton, West Mamprusi, East and West Sissala Napkanduri (East Mamprusi), Bunkpurugu, Bolgatanga, Builsa-Sandema

These four (4) companies have a total of six (6) ginneries equipped with high quality and modern machinery.

2.3.3 GROUP FORMATION

Cotton companies have adopted the strategy of working with farmers in small producer groups within communities’ instead of as individual farmers. The sizes of the Cotton Producer Groups (CPGs) vary from about three members to as many as fifty or more members. The CPGs who are basically at the community level and are linked to Cotton Farmers Associations (CFAs), perform the following functions:

v Conduct initial screening of members before registration by cotton companies

v Receive farm inputs from cotton companies for onward distribution to members

v Record data on land preparation, farm inputs and seed cotton marketing for use by CPAs.

v Contribute to pay any outstanding debts should any member default.

v Monitor cotton production activities by members

The Cotton Production Groups relate to cotton companies through zonal officers and Cotton Production Assistants (CPAs). The CFAs are represented at the district, regional, zonal and national levels. Although the CFAs seem to be well structured, it is not very active as it should. The groups also lack adequate training on group formation and dynamics and are not guided by any set principles.

2.3.4 BACKGROUND OF GHANA COTTON COMPANY LIMITED

Ghana Cotton Company Limited (GCCL) is a private company engaged in cotton production, processing and marketing. It is the market leader in Ghana’s cotton industry with a 70% domestic market share. GCCL was formed in 1985 as part of the Ghana Government’s strategy for reviving the cotton production industry in Ghana. Since its revival in 1985, seed cotton production has increased from a level of 856 tons in 1985/86 to over 24,000 tons in 1998/99. GCCL was initially constituted as a semi-private company with a 30% government ownership (GCCL, 2001).The primary focus of G.C.C.L’s operations over the last 10 years has been the revival of the cotton industry in Ghana. It was essentially a joint venture between government and private firms with an interest in cotton production. The Ghana cotton industry has changed dramatically since its revival. GCCL is now a private company with no direct government shareholding. The cotton industry in Ghana has been completely deregulated and GCCL no longer enjoys a monopoly position. All government subsidies have been withdrawn and all companies operating in the industry must do so on a purely commercial basis. Until 2010 where the Government launch the cotton support programme and farmers are enjoying subside on fertilizers. The industry is now characterized by fierce competition. While GCCL remains the market leader. Since deregulation of cotton industry in Ghana, Ghana Cotton Company Limited’s main area of competition has been in the area of production factors, particularly cotton farmers. This is because G.C.C.L’s production is directly linked to the number of cotton out- growers it is able to recruit and sponsor. Sponsored farmers are expected to sell their seed cotton to GCCL. There is therefore competition for farmers among cotton companies in the industry (GCCL, 2010). Formally, there were thirteen cotton companies in Ghana that compete with Ghana Cotton Company Limited in the northern savanna belt of Ghana. However, of these only four are in operation namely, Ghana Cotton Company Limited, Plantations Development Limited (PDL), Nulux Plantation Limited (NPL), and Intercontinental Farms Limited. Unlike Ghana Cotton Company Limited, these companies have adopted a policy of only targeting the most productive and profitable areas in the cotton-growing belt (GCCL, 2001).

2.3.5 THE NATURE OF GHANA COTTON COMPANY’S BUSINESS

Ghana Cotton Company Limited’s operations encompass all elements of the cotton production and processing chain, from pre-financing of cotton out-grower costs to the processing of seed cotton into lint and cotton seed. It has significant expertise in cotton inputs procurement and distribution, logistic management, haulage trucks, tractors and other vehicle fleet management and ginnery plant construction, operation and management. Until recently the market for the company’s lint was mainly the local textile firm. However, the elimination of import controls on textiles by the Government of Ghana has resulted in the dumping of cheap textile imports from countries such as China, and the weakening of domestic demand for lint cotton by the local textile firms. Ghana Cotton Company Limited now targets the export market and has strategically registered its new Pusu-Namango ginnery plant under the export free zone scheme to take advantage of the elimination of duties. As a free zone registered manufacturing plant, at least 70% of lint produced from this ginnery must be exported. The cotton seed is mainly exported to Europe (GCCL, 2006).

2.4 COTTON FOR SUSTAINABLE SOCIO-ECONOMIC DEVELOPMENT

As a form of employment, farmers mostly in the three Northern Regions engage in the production of the crop to increase their incomes. Large scale cotton production by the then Cotton Development Board of the Ministry of Agriculture started in 1968,long after many other countries in West Africa (Mali, Burkina Faso, Benin, Togo and La Cote d’Ivoire) had done so. Successes achieved in these countries in terms of production continue to serve as benchmarks for Ghana. For instance, while Ghana only managed to produce 36,000 metric tons of seed cotton in 2006/7, Burkina Faso produced a colossal 700,000 metric tons.

The fortunes of Ghana Cotton Company Limited (GCCL) have drastically declined over the years due to both internal and external factors. Some of these include little attention paid by government to the sector, the absence of subsidies to cotton farmers, high interest rates on loans for agriculture, poor loan recovery from farmers, mismanagement and above all, a bearish world market price for the commodity. The effect is that the booming textile industry in the past is now a pale shadow of itself. The few firms still in operation now have to depend heavily on raw material imports. Cheap imported textile products price out those of local firms on the market. If Ghana were to reverse the situation, then Ghana Cotton Company Limited has to be supported to deliver. As it stands now, the Company is able to attract only a few out-growers. Inadequate support to these farmers coupled with untimely delivery negatively affect yields.

2.5 THE ROLE OF THE PEASANT OUT-GROWER

Ghana, like many other developing countries, still depends largely on peasant agriculture for both food and cash crops. However, improvement in the productivity of this sector is faced by many characteristic problems and deficiencies associated with this type of agriculture. According to the Food and Agriculture Organization to the United Nations (FAO), “the restrictions imposed by so-called “traditional” techniques on the household labour force are among the main causes for the persistence of subsistence economies in tropical and sub-tropical Africa and also in a large part of Mediterranean Africa”(ANNEX V Inputs supply and incentive policies 1986). In sub-Saharan Africa four-fifths of agricultural energy is provided by human labour. It is estimated that the same proportion of arable land is worked with primitive hand tools. With such tools the average household can only cultivate 1.5 to 2 hectares. A number of policies have been implemented over the past twenty years to increase farm labour productivity through a better use of energy (FAO 1986). These policies have set out to improve hand tools, to introduce animal drawn equipment and also to promote more widespread use of tractors. The most systematic strategies have been those implemented in West Africa where animal traction has been encouraged to boost cotton production and groundnut output and, in some cases, rice production (FAO 1986). According to the FAO report, in Mali 78% of the cotton crop is now based on animal traction, 60% in Burkina Faso and Senegal, and 38% in Chad. Peasant agricultural production is generally undertaken in extreme weather conditions with erratic rainfall distribution. The soil, which is cultivated usually, has varying degrees of fertility and this leads to land productivity differential even between farms not far apart. The lack of fertilizers and technical know-how usually keeps the yields low. Unsatisfactory arrangements for marketing the farm produce complicate the extent to which the peasant sector can be assimilated into the exchange-monetized economy (Ellman 1998).

Agricultural production in Ghana is still mostly undertaken by smallholder farmers on relatively small plots of land and is very labour intensive. Shifting cultivation in both the forest and savanna zones is practiced, a new parcel of land is opened up each year for cereal production, followed usually by roots crops and plantains in the forest zone, or groundnuts or cotton in the savanna zone. According to Ellman (1991) “this method of cultivation is open to risks such as fluctuations in seasonal rainfall and soil fertility and unreliable access to inputs. By adopting a low-input method of production, risk is reduced. Yields however are also reduced, while the ability to respond to factors such as good rainfall patterns is further limited by the unavailability and cost of inputs such as fertilizer, insecticides and simple farm tools.” Under these circumstances of uncertainty and total absence of crop insurance, many peasants are scared of getting into any type of indebtedness involving substantial monetary magnitudes. In fact it is a virtue not to borrow. Thus one of the distinctive features of a peasant family is collective self-reliance. According to Rwegasira (1991), “the needs of financial capital in peasant agricultural operations are obvious particularly where methods geared to increasing productivity are concerned”. He contends that credit finance may be required for irrigation schemes, fertilizers, seeds and many other related inputs. However, it is not always possible for the finance institutions commissioned to assist these peasants to dish out money to prospective borrowers because it is not clear how to go about evaluating the peasant credit-worthiness.

Cotton companies in the post-independent era therefore needed a new philosophy to attract and maintain peasant farmers in the production of cotton. For an organization to succeed, or simply to survive, it needs a new philosophy, which must be directed towards sustainability. Therefore, policies put in place to direct the overall affairs of any organization should be designed towards achieving this goal. One such policy adopted by many organizations is the granting of credits to customers, or alternatively granting of credits in the form of inputs loans for the production of required raw materials that the firm urgently required.

2.6 LOAN MANAGEMENT FOR SUSTAINABILITY

Management is the skill of attaining predetermined objectives with and through the voluntary cooperation and effort of other people. Linder (1995), states that “The art of management is the art of clearly communicating and diligently monitoring tasks and goals, then fairly rewarding the people who achieve them, they have made a commitment to them on the basis of corporate good and personal interest”. He contends that the loan management process is not conducted in a vacuum. It is performed in harmony with the board of directors, the CEO and the other members of the management team. Sobol, etal. (1992) stated that “where all the sections – strings, woodwinds, brass, and percussion – understand their interwoven roles, but none has authority over the other. Other than the leader, the conductor, there are no “bosses” in the symphony but they all must blend their efforts to produce just the right sound.” Credit or loan management revolves around an attempt to balance profitability and liquidity. This implies that many business organizations that extend credit facilities to their customers liberalize their credit terms to generate more sales, towards possible profit. The longer the credit term the greater will be the amount of debtors and the greater the possible strain on the firm’s liquidity (Denis 1987).The quality of loan management is an important element in a profitable and soundly run financial or commercial institution. Linder (1995), contends that capable loan management possesses the following:

v Industry expertise to assist the CEO in planning.

v The technical expertise to design and administer the necessary systems and controls to carry out the board’s policies and require compliance with applicable laws and regulations.

v The ability to manage day-to-day operations to achieve the institution’s performance goals.

The loan manager in every organization or institution engaged in lending plays many different roles, which should be delineated in the job description. Linder (1995), outlines these roles to include:

· Leader – An effective leader attempts to realize his or her full potential and inspire subordinates to strive for their potential.

· Spokesman – Since the subordinates expect their manager to represent them inside and outside the firm, these duties cannot be ignored.

· Adjudicator – The loan manager spends considerable time reacting to exceptions and resolving conflicts. Negotiation skills and conflict management are key elements of the job.

· Nerve Center – The loan manager acts as a central processing unit by gathering, evaluating, and disseminating information and acting as a liaison with other areas of the organization. This pivotal role is characterized by problem-solving and decision-making.

· Thermostat – Constantly evaluating the environment, the loan manager adapts the lending unit to changing conditions such as new competitive threats or regulatory opportunities (managing change).

· Control Tower – The loan manager allocates the time, talent, and other resources of the lending unit to maximize results, this role includes delegation, coaching, and counseling.

Sustainability is usually understood in a financial sense as if a program is able to cover its costs, it is said to be sustainable. Over the long term, however, this is no more than one indicator of institutional sustainability, or continuing long-term ability to manage the program so that it both maintains its mission and is financially sustainable. According to Beets (1990), “Sustainability can be defined as the ability of a system to maintain productivity in spite of large disturbances such as repeated stress or a major perturbation”. For Ghana Cotton Company Limited, the perennial decline in seed cotton production coupled with heavy deficits on unpaid loans is a big challenge to the management of the company.

2.6.1 CREDIT POLICY

A credit policy refers to those decision variables that influence the amount of trade business organizations extends to their customers (Pandey 1995). The starting point in formulating a credit policy is the characteristic credit terms of the industry. A firm must meet the terms provided by other firms in the industry. However, when the customer is a poor credit risk, the terms would be altered in a downward direction to protect the firm extending trade credit. According to Beets (1990), “a central task in formulating credit policy is an evaluation of the credit worthiness of the potential customer. To evaluate the credit risk, the credit manager considers the “Cs” of credit: character, capacity, capital, collateral, and conditions”. He further explains the “Cs” as follows:

• Character :-“This refers to the probability that the customer will honour his obligations. This factor is of considerable importance because every credit transaction implies a promise to pay. There is thus a moral hazard of whether the promise will be fulfilled”.

• Capacity :-“This is judgment of the ability of the customer. This is gauged by the past record of the business”.

• Capital :- “This is measured by the general financial position of the firm.”

• Collateral :-“This is represented by assets which the customer may offer as a pledge for security of the credit that is extended to him”.

• Conditions :-“This refers to the impact of general economic trends on the firm or special development in certain areas of the economy that may affect the customer’s ability to meet his obligations” (Beets 1990).

The credit policy of a firm affects its working capital by influencing the level of book debts. The credit terms to be granted to customers may depend upon norms of the industry to which the firm belongs. But a firm has the flexibility of shaping its credit policy within the constraint of industry norms and practices. According to Pandey (1995), “the firm should be discretionary in granting credit terms to its customers. Depending upon the individual case, different terms may be given to different customers. A liberal credit policy, without rating the credit-worthiness of customers, will be detrimental to the firm and will create a problem of collecting funds later on”. Studies have repeatedly pointed to the need for a greater supply of institutional credit-especially where hired labour and modern inputs are needed to raise productivity. Thus, though the institutional mobilization of rural savings is essential, it may be counterproductive to abolish or undermine rural credit beforehand. Lele (1992), points out that this is because costs of purchased inputs increase when currencies are devalued, subsidies are removed, and internal transport costs are increased as a result of the general inflation caused by devaluations but there is relatively little further scope to raise prices. The promotion of cash purchases even as input prices increase is likely to reduce input use, especially among low-income producers. Financial Business organizations hardly do without granting some credits. Many organizations extend credits to their trusted customers with ulterior motives of increasing their sales turnover, in order to improve the profit margin. In view of these motives, trade creditors rely on several sources of information to assess the customer’s credit worthiness.

The feedback received shall be analyzed, the outcomes of which will be part of final decision either to grant the creditor or not. Some micro-financing programs have worked successfully. The rate of recovery in some cases is about 97% (Harper 1998). The basic reason could be that the beneficiaries are more conscious of their obligation to repay their loans. In some instances timing of credited livery is the best. However, certain unfavourable micro-economic environment has not assisted beneficiaries of various credit schemes. Beneficiaries of credits must develop a credit culture in which borrowers understand they need to repay and creditors have trust that this obligation will be honoured. Inadequate credit, either from the government or commercial banks, is clear factor that deters production of agricultural products. The policy prevails that peasants must have substantial collateral in order to borrow. Programmes of credit for marginal farmers, who need it most, are non-existent or minimal. In Zimbabwe, for example, only 10% of the peasants receive loans compared to 95% of the large-scale commercial farmers (Thompson 1991). According to Thompson, (1991) “in some of the least endowed communal lands, the percentage of peasants receiving loans is as low as 2 or 3 percent. This is consistent with the policy of the Agricultural Finance Corporation (AFC) to avoid loans to high risk producers, yet it defeats the growth with equity, goal of the government, producing the same discrepancies in incomes as in production”. Credit for peasant production has the same negative bias in virtually all the sub- Saharan countries, and solutions are not easy to find. Most credit schemes in these countries will continue to support the master farmers, rather than assist the marginal farmers over the threshold to lucrative production. Dorward etal, (1998) contends that the culture of strategic default by smallholder borrowers in Africa is a major deterrent to commercial investment in smallholder agriculture. Politicians have done much to encourage this damaging mindset. They should provide the lead in moving to the new "rules of the game" in liberalised markets. The message in the late 1990s should be that the rules of the game have changed. In liberalized marketing systems, reliable repayers should be rewarded with access to future lending, whilst defaulters will find themselves unable to profit from borrowing. In some national cotton production chains, inputs can be provided to farmers beneath the real cost by correlatively reducing the seed cotton purchase price as compensation. In Ghana, in principle, only the seeds are free of charge and the other inputs are sold at cost price. The attained bank credit levels forced the Company to buy, recently, inputs under supplier’s credit, a more costly operation whose financial cost is given in the input cost price and not in financial charges (GCCL 1996).

2.6.2 THE CREDIT PERIOD

Pandey (1995) defines credit period as “the length of time for which credit is extended to customers”. It is generally stated in terms of a net date. For example, if the firm’s credit terms are net 35‟, it is expected that customers will repay credit obligation not later than 35 days. According to Pandey (1995) a firm’s credit period may be governed by the industry norms. But depending on its objective, the firm can lengthen the credit period. On the other hand, the firm may tighten its credit period if customers are defaulting too frequently and bad-debt losses are building up. The credit period available to cotton out-growers is normally the whole cotton-growing season, that is, from May to February the following year. Within this period, the company commences the credit procedure by providing land preparation and inputs distribution lasting approximately six months (May to October). Because of the system used, producers are indebted to the company until their seed cotton is marketed. The marketing of the seed cotton usually covers a period of three months (November to February the following year).

2.6.3 SOURCES OF LOANS FOR THE PEASANTS

There are, or have been, in most countries, special schemes through which poor people, particularly in rural areas, can access loans. These loans are usually at very low rates of interest, and are thus potential loss makers for the banks. Loans under these schemes are also often tied to particular activities or inputs, which have not been chosen by the borrowers and may not be suitable for them. According to Harper, (1998) “this only exacerbates the problem of non-payment, which is itself often abetted by political interests, and the result is that few people benefit, and whatever credit culture that may have existed is destroyed and the banks are forced into massive losses. Bankers come to regard banking for the poor as political chicanery, as charity, or as a necessary but loss-making government-mandated necessity”. In micro financing, as in many fields, the institution that does the job may be more important than the details of the job itself. There are certainly many examples of well-designed programmes which have failed because the implementing institutions were unable to manage them properly, as well as successes which clearly owed more to the competence of the institution than to the virtues of the program itself. Mismanagement may be the fault of incompetent managers rather than the institution as a whole, but the wrong institution, even with the best managers, is unlikely to be able to make a success of a micro finance program, however well it has been designed ( Harper1998).An appraisal done on the operations of Ghana Cotton Company Limited in 2001 by a mission composed of three CFDT experts (Gilbert Dorey, Economist; Bernard Esteulle,Agronomist; and Jean-Marc Guimard, Ginning expert) stated in their draft report that, “GCCL is virtually in the situation of suspension of payment. The support from Agricultural Development Bank, which is also second shareholder (15%), enables to pursue the activity. Lint cost prices are far too high, mainly because of fixed charges in excess for a company of that size and of back up to cotton growers (inputs, motorization and credit) showing a deficit”.Ellman (1998) on his part indicate that, “a firms success and even survival, it’s ability and willingness to maintain production and to invest in fixed or working capital are to a very considerable extent determined by its financial policies, both past and present”. Financial goals of a firm are the quantitative expressions of the firm’s mission and strategy, and are set by its long-term planning system as a trade-off among conflicting and competing interests. For most people in commercial banking, lending represents the heart of the industry. Loans therefore dominate assets holdings and generate the largest share of operating income. As with any investment, extending loans to businesses and individuals involves taking risks to earn high returns. Returns come in the form of loan interest, fee income, and investment income from deposits. The profitability of agricultural loans follows cyclical trends in the farm economy (Kock 1998).Kock, (1998), contends that “agricultural loans are similar to commercial loans and industrial loans in that short-term credit finances seasonal operating expenses, in this case, those associated with planting and harvesting crops. Much like working capital loans, the proceeds are used to purchase inventory in the form of seed, fertilizers, and pesticides and to pay other production costs. Farm operators expect to repay the debt when the crops are harvested and sold. The fundamental source of repayment is cash flow from the sale of harvested crops in excess of operation expenses”. Agriculture loans however differ from other loans because agriculture is perceived by most governments to be a vital national industry. Most governments therefore lend considerable sums to farmers through its farm credit system. Banks often work with some agencies to keep farmers operating, even when it appears that they will sustain large near-term losses. Loan losses are a natural by-product of extending credit. Banks and other institutions lending credits cannot forecast with perfect accuracy which loans would be paid in a timely manner. Otherwise, no bad loans will be made without some form of fraud. Still management can pursue policies that limit problem loans (Koch, 1998).Problem loans and loan losses are caused by a variety of factors, some controllable and some uncontrollable. According to Koch (1998) “controllable factors are those that reflect overall bank policy as well as inadequate credit analysis, loans structuring, and loan documentation. Uncontrollable factors typically reflect adverse economic conditions, adverse changes in regulations, environmental changes surrounding the business operations, and catastrophic events. While there is little to be done to prevent uncontrollable problems, effective credit-granting procedures can significantly reduce other sources of losses”. The Food and Agriculture Organization (FAO) indicates that, “a number of credit institutions are just not experienced enough to handle small farmer credit so other approaches must be envisaged. Amongst these, of interest is an already existing system, which could still answer certain needs. Credit is distributed through an industrial or export crop marketing body. Guarantee of loan recovery at the time of marketing has, in fact, enabled these credit systems to function fairly well whenever the marketing bodies have been run along relatively competitive lines. These systems have also proved to have initiative, as shown by the introduction of group credit or barter systems which by-pass the financial institutions. The inputs, which are provided in advance, are paid for, in kind, after the harvest. Though these systems are limited by their specific nature they are nevertheless justified in well-defined circumstances. Desai (1993), identify a host of reasons for delinquency in repayment of agricultural loans in some selected countries. For example the delinquency in the repayment of loan is attributed to the delay in loan sanction, low crops yield, adverse weather, and delay in getting animal traction package. Roberts (1985) focused on those small farm holders who can generate sufficient production and income to have a surplus above their subsistence and immediate family requirements, which they can use to repay a loan. He identified four general categories of small farmers and rural poor as follows:

• The small holders who have enough land and labour to produce subsistence living and also surplus but fail to do so because of lack of management and required inputs.

• The farmers who may have the same amount of land as the previous category, but have a tenant status.

• The farmers who do not have sufficient land to feed themselves under any known system that they can develop at present.

• The landless labourers who depend on agriculture for their living.

According to Roberts (1985), “Many agricultural financial institutions sponsored by Governments have attempted to advance loans to the first three categories above without any sound method of distinguishing between those recipients who could, and would, repay except under very adverse circumstances and those who either could not or would not repay. The result has been failure to establish a continuing sound financial system for those small farmers who are motivated and would develop if they received the proper training in technical skills and sound farm management plus the necessary capital inputs.” The main factors which seem to have influenced agricultural production in most African countries, according to Chole (1990), include input policy; guaranteed producer prices, “reliable” market facilities, research and extension policy and provision of infrastructure and roads. Added to this is the role of the political party machinery and farmers‟ clubs and other local institutions in mobilizing rural population to engage in agricultural activity”. The management of input loans to cotton out-growers requires a new philosophical approach. Most of the information available in the literature review is based on management of inputs supplied to food crop farmers. Nevertheless, the information gathered therein is appropriate in finding answers to problems of managing the input loan scheme run by cotton companies in Ghana as well. A combination of exploratory and descriptive research was conducted to enable the researcher get a clearer understanding of the challenges facing management of Ghana Cotton Company Limited with respect of loan management. Both primary and secondary data was collected from the company and other stakeholders like the out-growers. Information from the Accounts, Internal Audit and Production were gathered with the permission of the management of the company. Data gathered from various sources therefore constitute the basis for any conclusions to be made.

2.6.4 GROUP LIABILITY

Lending to groups has been a feature of many donor and NGO programmes. In seasonal agriculture, all have to borrow at the same time, and all face similar patterns or risk, so that in a bad year, group liability may actually encourage group default. To avoid this, monitoring of borrowers production activities by the lender is required and repayments may need to be rescheduled where factors outside farmers control genuinely undermine their ability to repay. Commercial micro-finance schemes inspired by the Grameen Bank, typically also work on the principle of group liability. However, many rely on regular repayments as a substitute for monitoring of loan use which has limited their relevance to seasonal agricultural production. Meanwhile, some contract farming schemes have collapsed as a result of opportunistic traders offering to buy farmers' production at higher output prices than those available within the scheme. Stringfellow et al (1996), report some success in using group liability mechanisms to strengthen repayment in interlocked contracts for high value crops within relatively concentrated (albeit still multi-buyer) output marketing systems. As contract farming schemes often include an advisory component, this provides an opportunity for the lender to monitor the production activities of borrowers. The process of group formation, however, requires care, particularly when the instigation comes from the lender rather than group members themselves. Success may therefore depend on the presence of commercially-oriented NGOs able and willing to provide the necessary group "animation".

2.7 PRODUCTION AND YIELD LEVELS IN GHANA

In Ghana, cotton is produced in the three northern regions; Upper East, Upper West and Northern Regions. Since the evolution of cotton production in 1968, the trend in volumes produced has rather been erratic and production has never reached 40,000 tonnes. Yield levels have never exceeded 800kg/ha. There is a striking difference when Ghana is compared to Burkina Faso. Burkina Faso is actually producing more cotton each year (since 2004) than the total cumulated production of Ghana since 1968. Ghana’s cotton production amounts to less than 1% of the West and Central African production, although Ghana has excellent conditions for cotton production. The trend is shown in the graph below.

FIGURE 2.1 A graph showing cotton production in Ghana and Burkina Faso.

The productions of cotton in Ghana in metric tons from the year 2000 to 2005 respectively are as follows 35,503, 17,506, 22,851, 16,822, 20,155 and 21,000, metasip(2010).

CHAPTER THREE

3.0 METHODOLOGY AND PROFILE OF SISSALA EAST DISTRICT

3.1 METHODOLOGY

3.1.0 INTRODUCTION

This chapter presents the research methodology. It details with the process that was used to conduct the study. The study was prepared in an empirical manner. Therefore primary data is the main basis of the study. Data from secondary sources found relevant to the work was equally sourced. The study was largely incorporated a variety of methods to produce the expected output.

A brief profile of the district in which the study area is located is also included in this chapter. The profile includes the location and size, the relief and drainage systems, vegetation and climate and the demographic characteristics of the district.

3.1.1 RESEARCH DESIGN

The researcher considered the nature of the research study and decided to adopt the descriptive and exploratory research techniques. The descriptive research technique seeks to determine the answers to who, what, when, where, and how questions that may arise from the study in dealing with the objectives of the research. Descriptive research method may provide important information in many situations that is needed to solve basic problems. Descriptive research techniques also provide accurate information, although errors cannot be completely avoided. This type of research will attempt to determine the extent of differences in the needs, perceptions, attitudes, and characteristics of sub-groups (Mark 1997).

Exploratory research on the other hand is the type of research, which is conducted to clarify or define the nature of a problem. It does not give conclusive evidence in itself. Rather, it opens up for more research work to be done. Exploratory research is therefore conducted with the expectation that subsequent research will be required to provide conclusive evidence (Mark 1997). The design is further narrowed to a case study of a particular geographical location and specifically on the Sissala East District, Tumu of the Upper West Region of Ghana.

3.1.2 STUDY POPULATION

The study population will be the management staff of the Ghana Cotton Company Limited in the Sissala East District, Tumu. Field staff in the company engaged in the supervision of the farmers cotton fields. Potential respondents were farmers who are engaged in cotton production and persons who could provide vital information on the subject matter.

3.1.3 SAMPLE SIZE AND SAMPLING PROCEDURE

The process of sampling involves any procedure that uses a small number of items or parts of a whole population to make conclusions regarding the whole population. A combination of sample techniques was used to determine sample population and sample units. Non probability sampling was found relevant to the study hence methods of non-random sampling were largely used. Simple random sample techniques such as purposive sampling and quota sampling methods were used to select management of GCCL and cotton out-growers.

3.1.4 DEVELOPMENT OF INSTRUMENTS

The researcher used surveys as a method to generate primary data. Survey is a research technique in which information is gathered from a sample of people by use of a questionnaire. The research study relied solely on both primary and secondary data for information required for the research work.

3.1.5 PRIMARY DATA

The researcher carried out interviews with Ghana Cotton Company Limited sponsored farmers in the Sissala East District, Tumu. This tool was used to elicit information regarding their performance for the years. Self-administered questionnaires were sent out to the management of GCCL Tumu. The task of writing a questionnaire, determining the list of questions, and designing the exact format of the questionnaire is an essential aspect of the development of research design. The researcher therefore adopted the use of questionnaires and in-depth personal interviews to gather information from management and farmers respectively.

a) SELF-ADMINISTERED QUESTIONNAIRE

This method was one of the most challenging to the researcher because it relied solely on the efficiency of the written word rather than an interview. Respondents in this category included management staff of Ghana Cotton Company Limited and other field staffs who provide technical advice to the farmers. The researcher therefore decided to use this tool because of the under-listed advantages:

• Geographical Flexibility,

• Relative low cost,

• Respondent convenience,

• Standardized questions.

The self-administered questionnaires were used to gather information from ten management staff on issues relating to:

• The existing policies put in place to ensure that cotton farmers are able to utilize their inputs loans and fulfill their obligations with the company.

• What alternative mechanisms should be put in place to transfer the risk of producing cotton to the out-growers?

• Their personal views about the sustainability of the company in the face of the declining loans recovery.

• Measures or strategies needed to recapture the market share in the cotton industry.

• In their opinion why farmers are failing to produce enough cotton to pay off their loans.

• How management think sustainability can be achieved.

b) PERSONAL INTERVIEWS

These are direct communications wherein interviewers in face-to-face situations ask respondents questions. The researcher spent between 20 to 25 minutes in interviewing cotton farmers in the Sissala East District who are predominantly illiterate and some staff members of the Ghana Cotton Company Limited in Tumu.

The reason for the choice of this method includes:

• Opportunity for a feedback.

• Opportunity to ask probing questions.

• Length of interview is ideal and flexible.

• Expects high participation.

The majority of the farmers interviewed were uneducated peasants farmers and therefore questionnaires were avoided. Rather personal interviews were conducted with the majority of the farmers. The farmers were asked questions relating to:

▪ The farmer’s age and gender.

▪ Number of years in cotton production.

▪ What motivates him or her to crop cotton.

▪ Other farms apart from cotton fields.

▪ Number of farm hands

▪ Sources of financial or other assistance to manage farm land.

▪ Reasons for not being able to pay off input loan.

▪ What measures the sponsored companies should adopt to improve its services to out-growers.

▪ who owns cotton farms.

▪ What kind of help, if any does a farmer need.

3.1.6 SECONDARY DATA

Secondary data was primarily obtained from GCCL to monitor the number of farmers, total number of hectares cultivated for cotton production and the output recorded over the past ten years.

3.1.7 METHOD OF DATA ANALYSIS

Secondary data collected from the Sissala east district assembly and GCCL Production unit in Tumu forming about 10% of the entire data gathered. The researcher therefore used tabulation as a means of analyzing the secondary data gathered. Primary data generated from the respondents was also be analyzed. The main method of analysis was descriptive, making use of time series and forecasting in t. Statistical Package for Social Science (SPSS).

3.2.0 BRIEF DISTRICT PROFILE

3.2.1 LOCATION AND SIZE

The Sissala East District is located in the North- Eastern part of the Upper West region of Ghana. It falls between Longitudes. 1.30⁰ W and Latitude. 10.00⁰ N and 11.00⁰ N. The district has a total land size of 4,744 sq km – representing 26% of the total landmass of the region. It shares boundary on the North with Burkina Faso, on the East with Kassena Nankana and Builsa Districts, to the South East with West Mamprusi District, South West with Wa East and Nadowli Districts and to the West by Sissala West District.

The district, due to its position, has an advantage for trade and other cross border activities. This locational advantage is a potential for the development of the local economy. This notwithstanding, the district by its location, also faces the threat of illegal immigrants from neighbouring countries. An example is the insecurity posed by the insurgence of Fulani herdsmen into the district which has become a yearly ritual.

On the whole however, the Sissala East district, by its location, is well positioned for enhanced socio-economic, cultural and political interaction with the neighbouring districts as well as Burkina Faso.

3.2.2 RELIEF AND DRAINAGE

The topography of the Sissala East district could be described as gently undulating. It is generally characterized by gentle latitudes of between 330 and 365m in the northern part descending to 220m and 290m in the Valley of the Sissili River. The district is mainly drained by the Sissili River and its tributaries flowing in the south-eastern direction to join the White Volta. This is coupled with several tributaries and other unnamed streams. A significant characteristic feature of most of these rivers and streams is their perennial nature of their flows. The flow of the Sissili River itself reduces to intermittent pools in the dry season. The constant drying of the rivers necessitate the drilling of boreholes to supplement the seasonal shortage of water in the district which in one way might have accounted for the out migration of the population during the dry season. The numerous tributaries of the Sissili River provide an advantage for the construction of more dams in addition to the already existing ones. The rich valleys of the Sissili River maintain a vegetative cover that provides an abode for wildlife and further protect the land from erosion.

3.2.3 VEGETATION AND CLIMATE

Sissala East District is located in the Guinea Savannah vegetation belt. The vegetation consists of grasses with scattered fire resistant trees such as the Sheanut, the Baobab and Dawadawa trees. Acacia is also a common tree of this vegetation belt. The heterogeneous collections of these trees meet domestic requirements for firewood and charcoal, construction of houses, cattle kraals and fencing of gardens. The shorter shrubs and grasses provide fodder for livestock. These activities need to be enhanced by providing the appropriate means of transport for them. But they have to be appropriately controlled and managed if the environment is to be sustained. The sheanut tree is one of the great economic assert of the District and head portage has been the most common means of transporting the fruits from the farm to the house. The climate of the Sissala East District is tropical continental as experienced in the northern regions of Ghana. Throughout the year, temperatures are high with a minimum of 23ºC at night and a maximum of 42ºC during the day and this favours plant growth. The mean monthly temperature ranges between 21ºC and 32ºC. The highest monthly maximum temperature rises up to 40ºC before the rainy season in May with lowest minimum temperature falling to about 12ºC in December when the Harmattan winds from the Sahara dries up the vegetation.

The rainfall type which is conventional in nature is characterized by a single rainy season from May to September/October. That is five to six months with the total number of rain ranging between 70 to 80 days with a mean annual rainfall of about 121mm as recorded in Tumu station in 1999, with extreme annual rainfall ranging between 397mm and 635mm. As a result of the single maximum rainfall prevailing in the district all year round, crop production is mostly done during the rainy season (May to September/October). However, since farming is the major occupation of the people, it means that their major sources of livelihood and income are limited during the dry season apparently resulting in the migration of the youth to the south in search of greener pastures. There is thus, the need to have adequate irrigation facilities to promote and enhance agricultural activities in the dry season. In addition, it is imperative to identify and provide alternative source of livelihood to the people to complement their occupation and improve their income generating capacity.

The greatest climatic influence on the vegetation in the district is the long dry season from November to March when the relative humidity is very low and the vegetation dries up under the influence of the dry harmattan winds. The forest reserves cover a total area of about 267sqkm and encourage a rich stock of mammalian wildlife.

3.2.4 DEMOGRAPHIC CHARACTERISTICS

The district population is currently estimated at 56,528 (2010) with an annual growth rate of 1.7% and a population density of 12 persons per sq. km which is lower than the regional and national averages of 24 and 77 respectively Out of the current estimated total population of 56,528, males make up 27,503 and females 29,025 thus giving male/female ratio us 51:49. Patches of high density are found in the relatively urban settlement such as Tumu, Wellembelle, Sakai, Nabugubelle, Nabulo and Bujan. The settlement pattern is highly dispersed that, it takes one not less than 10km to the next community. Majority of these settlements are rural by nature.

TABLE 3.1: Sex Distribution.

YEAR	TOTAL	FEMALE	MALE	AVERAGE HH SIZE
2000	52,165	26,872	25,293
2010	56,528	29,025	27,503	6.4

Source: Ghana Statistical Service, 2010

The table 1.2 below details the population for two (2) broad age groups as per the recent release of the Population and Housing Census data.

Dependency Analysis: This gives an age dependency ratio of about 1:1 indicating that there is less pressure on the working population and the high propensity or ability to save.

TABLE 3.2: Age Distribution and Population Growth Trend

Age Yrs	1-17			18+
Age Yrs	TOTAL	FEMALE	MALE	TOTAL	FEMALE	MALE
2000	23,758	11,964	11,794	28,407	14,908	13,499
2010	27,544	13,133	14,133	28,984	15,614	13,370

Source: Population and Housing Census, 2010

FIGURE 3.1: Map of Sissala East District

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Source: SEDA

CHAPTER FOUR

4.0 DATA PRESENTATION AND ANALYSIS

4.1 INTRODUCTION

This chapter attempts to analyze both the primary and secondary data collected with methodologies already discussed in the previous chapter.

4.2 DEMOGRAPHIC CHARACTERISTICS OF RESPONDENTS

Respondents were classified into the following demographic characteristic:

v Age and gender

v Educational attainment

v Family size and marital status

In view of the researcher, these demographic characteristics have so much bearing on responses given by the respondents on the state of cotton production in the district. In all, the study sampled 50 respondents basically males in terms of gender. The reason for a unitarily male dominated sample of respondents is that female mostly do not farm cash crops as cotton, those with cotton farms are usually managed by sons and hence where represented by them in the sample. Besides this, it is believed that female farmers are very good in vegetable production and also assist their male counterparts on their farms.

TABLE4.1: A table showing the age distribution of respondents

AGE OF RESPONDENT
		Frequency	Percent	Valid Percent	Cumulative Percent
Valid	20 - 30YEARS	19	38.0	38.0	38.0
	31 - 40YEARS	22	44.0	44.0	82.0
	41 - 50YEARS	8	16.0	16.0	98.0
	50+YEARS	1	2.0	2.0	100.0
	Total	50	100.0	100.0

Source: Researcher’s Fieldwork. May, 2013

Of the fifty (50) respondents sampled, the age bracket 31 – 40 years has the highest frequency of 22 counts making up 44% of the sample population. This is followed by the age bracket 20 – 30 years with a count of 19 comprising 38% of the sample population. The age bracket 20 – 40 years makes up the working group in the district in terms of agricultural production. The age bracket 41 – 50+ years have a total count of 9 constituting 18% of the sample population indicating that little is expected from people from this bracket because very few of them farm cotton in the district.

In a nutshell, the production of cotton in the district cuts across all age groups in the Sissala East District with majority of the farmers falling within the age group 20 – 40 years constituting the productive age.

The figure below gives a pictorial view of the age distribution of the respondents who are into cotton production in the district.

FIGURE 4.1: A pie graph showing the age distribution of respondents in percentage

Figure 4.2 is a cluster graph that represents the marital status of respondents categorized according to their ages. The number of married respondents is 31 counts making 62% of the sample size and the rest with a count of 19 constituting unmarried or single respondents. Three are married whilst sixteen unmarried within the age bracket 20 – 30 years, nineteen are married whilst three unmarried within the age bracket 31 – 40 years, within the age bracket 41 – 50 years and 50+ years, there are only eight and one married persons respectively. There are no divorced cases.

FIGURE 4.2: A cluster graph showing the frequencies of the age and marital status of respondents

In term of education, respondents of the study area were quite literate. About 10.00% and 8.00% had had secondary and tertiary education respectively. 42.00% had acquired basic education, and 40% having no education at all. This level of literacy as shown in table 4.2 enhanced the research, especially during the data collection.

This was because most of the respondents understood the issue involved in the topic “the impact of cotton production on the people of the Sissala East District, Tumu of the Upper West Region.”

Besides education, the level of experience in the cultivation of cotton by the respondents has also imparted their contribution.

TABLE 4.2: A table showing the educational distribution of respondents

EDUCATIONAL LEVEL
		Frequency	Percent	Valid Percent	Cumulative Percent
Valid	NON	20	40.0	40.0	40.0
	PRIMARY	7	14.0	14.0	54.0
	JSS/JHS	14	28.0	28.0	82.0
	SSS/SHS	5	10.0	10.0	92.0
	TERTIARY	4	8.0	8.0	100.0
	Total	50	100.0	100.0

Source: Researcher’s Fieldwork. May, 2013

Due to the respondent’s long experience in agricultural practices, about 82.00% have sited their farms three miles or more away from their homes. This is because the farmers in the study area practice the extensive system of livestock rearing thereby considering it prudent locate their crop farms away from the livestock.

4.3 CREDIT FACILITIES

The Ghana Cotton Company Limited of the Tumu zonal area assists farmers with credit facilities such as land preparation, inputs such as fertilizers and pesticides, viable seeds and free consultation within the study area. All respondents make use of this provision to enable them cultivate the seed cotton for the company. Almost all of them are beneficiaries of the credit facilities provided by the company. Cotton Production Assistants (CPAs) employed by the company to support group formation and farmer registration are also responsible for the distribution of these credit facilities to the farmers.

Unfortunately, poor yields experienced by farmers over the years have been the major reason for their inability to pay for the facilities credited to them. Whereas some farmers in the same locality presented attractive yield per unit, others performed woefully with reasons such as;

Ø The irregular phenomenon of the weather.

Ø Late land preparation for the crop production.

Ø Diversion of the inputs to other crops.

Ø Poor germination of seed provided and

Ø Late inputs distribution.

Desai (1993) identified a host of reasons for the delinquency in repayment of agricultural loans in Upper Volta which include the delay in loan sanction, low crop yield, adverse weather and delay in getting animal traction, a situation not different in the Sissala East District.

58.00% of the respondents are satisfied with the terms and conditions of service provided by the company with the reason that the credit facilities offered them is encouraging and boost their production if properly applied.

4.4 OBLIGATION OF GCCL TO THE DISTRICT

4.4.1 CORPORATE SOCIAL RESPONSIBILITY

The corporate social responsibility of GCCL is the process of continuous improvement in standard of business practice and actions relating to our community engagements, environmental safeguards and dealing with people. Conduct business with high levels of integrity and responsibility that is governed by credible principles and honour its business obligations with absolute integrity.

GCCL recognize that success and satisfaction depends on the growth and development of the community in which we live. As part of our commitment to the community, GCCL supports the economic development of the community by contributing to bring measurable improvements in the lives of people. They will continue to contribute financial resources towards promoting good health, provision of portable water and the general improvements in the standards of living of people.

GCCL is a place where all employees feel valued and ready to contribute to the vision of the company, regardless of gender, ethnicity, religion, sexual orientation or gender identity.

The company upholds the human rights of staff, eliminate any form of employment discrimination and all forms of illegal workplace practice, treat staff with dignity and respect and pay competitive wages and appropriate benefits. The company also respects the freedom of association of all employees. GCCL’s labour conducts comply with the relevant international conventions and labour laws of Ghana.

Developing ways to conserve and protect the environment is central to the operation strategy of the GCCL. The management policies of GCCL also aim to ensure the compliance of the environmental protection legislations of Ghana and thrive to reduce pollution at all levels.

4.4.2 IMPACT OF GCCL ON THE DISTRICT

Very little can said concerning the impact of GCCL in the district by the respondents besides the company’s premises. The company has insignificantly contributed towards infrastructural development in the district since its inception. Last year, the company donated an ambulance to the district hospital for the transfer of health cases within the district which was warmly welcomed.

Besides the company’s regular staff, an average number of twenty four thousand, eight hundred and fifteen (24,815) farmers are contracted yearly with each cultivating an average of 0.9 units in the cultivation of seed cotton for the company. Most of these farmers financially are able to meet their economic demands through the output of their farms thereby reducing the level of poverty in the district.

4.5 GCCLs IMPACT ON THE ENVIRONMENT

The activities of farmers during the cultivation of seed cotton come along with a series of practices that are of concern regarding the environment. These practices include land preparation and the use of agrochemicals which degrade the land and affect the natural habitat. While habitat conversion is a problem associated with the activities of cotton production, the most important production impacts are the use of agrochemicals (especially pesticides) and water. The quality of soil and water and the impact on biodiversity in and downstream from the fields are also major concerns. Finally, because of the high use of pesticides there are a number of human health concerns, both for farm workers and for nearby and downstream populations.

4.6 THE FUTURE OF THE COTTON INDUSTRY IN THE DISTRICT

The amount of seed cotton that is produced annually by the farmers in the district varies tremendously due to the disparities of the terms and conditions at the beginning of each season. In the season 2000/01, the number of farmers who cultivated seed cotton is 37,308 with an average unit per farmer being 0.9. In the 2002/03 season, 16,050 farmers cultivated seed cotton for the company with an average unit per farmer being 0.8 and 29,719 farmers produced in the 2005/06 season with an average unit per farmer being 1.27.

Figure 4.3 shows the variations encountered in the level of production of seed cotton from 2000/01 season to 2012/13 season. The figure also shows a linear trend model for seed cotton production in the district indicating a declining trend. A feasible five year production output for seed cotton has been forecasted with the following results ceteris paribus (other things being equal).

Fitted Trend Equation: Yt = 15175 - 723.768*t

Where t is the time period and also the independent variable and Yt is the dependent variable or the forecast.

TABLE 4.3: A table showing the forecast for the next five years.

Period Forecast

2014 5042.50

2015 4318.73

2016 3594.96

2017 2871.20

2018 2147.43

FIGURE4.3: A trend analysis plot for seed cotton

CHAPTER FIVE

5.0 SUMMARY OF FINDING, CONCLUSIONS AND RECOMMENDATIONS

5.1 INTRODUCTION

This section of the study presents the summary of findings, conclusion and it then proceeds to offer recommendations based on the findings drawn from the study.

5.2.1 SUMMARY OF FINDING

As a form of employment, farmers mostly in the three Northern Regions engage in the production of seed cotton to increase their incomes. Large scale cotton production by the then Cotton Development Board of the Ministry of Agriculture started in 1968,long after many other countries in West Africa (Mali, Burkina Faso, Benin, Togo and La Cote d’Ivoire) had done so.

Successes achieved in these countries in terms of production continue to serve as benchmarks for Ghana. For instance, while Ghana only managed to produce 36,000 metric tons of seed cotton in 2006/7, Burkina Faso produced a colossal 700,000 metric tons.

As it stands now, the Company is able to attract only a few out-growers. Inadequate support to these farmers coupled with untimely delivery negatively affect yields.

The story of the Sissala East District is indifferent as the number of farmers continues to reduce annually together with drastic low annual records of production.

The constraints and challenges encountered by cotton farmers in the Sissala East District include:

LATE INPUT DELIVERY

Timing is very important for good cotton yield. Inadequate credit facilities results in untimely delivery of inputs to cotton farmers. Tractors for ploughing are in short supply and contribute to delay in preparation of land for cultivation.

POOR QUALITY SEED

The cotton industry depends on third or fourth generation seeds imported from neighboring countries. Good treated cotton seeds are scarce and not accessible. Seed from neighboring countries cannot be guaranteed and the conditions under which they are transported contribute to a large extent to the low viability and vigor of the cotton seed.

POOR PRODUCER PRICE

The producer price of seed cotton is very low and deters farmers from engaging in its cultivation. As the price has remained constant over the years, cost of inputs has been increasing.

INADEQUATE LABOUR

Cotton production is labor intensive. In the producing areas, there is competition for labour for weeding of cotton and sorghum at the same time. Additional labour is therefore needed to support cotton farmers.

INADEQUATE EDUCATION AND EXTENSION SERVICES

Farmers in general have low literacy levels and inadequate technical skills. The CPAs who provide extension services, are themselves hardly trained and lack technical skills in cotton cultivation. The ratio of Agricultural Extension Agents (AEAs) to number of cotton farms is woefully inadequate.

SUBSIDIES

There are various trade-distorting interventions in the cotton market. The most important being the domestic support (subsidies) given to cotton farmers by the US and the EU. Several studies have indicated that cotton prices on the world prices would have been higher by 10% to 15% if the subsidies were substantially reduced. In addition, the subsidies also results in excess supply of cotton which further amplify price fluctuations

The Company’s broken down fleet of tractors and haulage trucks compounds the problem. In spite of the fact that Company plans to cultivate 30,000 hectares of cotton come 2011, this may not succeed if support does not come by way of a re-engineering of the Company. Credit is essential for agricultural development in the developing countries. Circumstantial evidence shows that where agriculture has grown rapidly, institutional credit has expanded more quickly. Although farmers as producers greatly prefer to hold their savings in physical productive assets on their own farms, they must also rely on external credit at various point in time, generally because the realization of income and the act of expenditure do not occur at the same time. A cotton farmer, for example, harvests his crop once in a year, whereas his consumption is continuous. In order to shift production functions upwards, farmers must be able to purchase modern inputs such as high yielding varieties of seeds, fertilizers, and irrigation equipment. Thus l ending companies like GCCL should promote both credit and deposit services: credit to tide farmers over the deficit period and to enable them to take advantage of the new technological opportunities. It is very important that before recommendations are made certain pertinent issues must be discussed. These issues relate to the future of the input loan scheme and cotton production potential in Ghana.

5.2.2 CONCLUSION

The Sissala east district is endowed with fertile land capable of bettering the standard of living of the local people if adequately put to use especially in agricultural processes. Cotton being a major cash crop that has good potentials of high yield in the district can be a source of employment to the people of the district who are predominantly farmers if much attention is given to it. Credit is the kingpin for development of any industry and it is rather so in the case of the cotton industry in Ghana, which is not considered to be a highly remunerative field. Credit is essentially required by farmers who cannot afford to meet certain requirements out of their own resources. The mere provision of credit for one or two items is not adequate enough for a cotton input loan scheme to yield the desired results. All the problems of mounting overdue and bad debts facing GCCL as a result of out-growers poor yield would not miraculously stop. The causes of such problems are many and more complex. They can only be handled adequately in a multifactorial way at both the managerial as well as farmers level. Adequate control measures are therefore recommended to ensure that the out-growers honour their obligations to produce enough seed cotton to sustain the cotton industry in the district and pay off their loans.

5.2.3 RECOMMENDATIONS

As a measure of improving and sustaining the industry and also providing a source of livelihood for the farmers, the following recommendations have been suggested:

the formation of cotton producer groups, development of animal traction, pre-financing farmers and subsidies on agricultural inputs to reduce cost of production.
Any medium term strategies should include the introduction of a crop rotation system with food crops that would help the restoration of soil fertility.
As a long term strategy, it is prudent to work towards the establishment of an autonomous sustainable revolving fund that would support the activities of cotton farmers. In Tanzania for instance, the Tanzania Gatsby Trust (TGT) launched a special programme to increase cotton production to 1,500,000 bales by the year 2015 from the current 700,000 bales. It did set aside $7.2 million for the period 2008 to 2010.
Major policy decisions including the adoption of Genetically Modified (GM) technologies and drip irrigation systems to improve productivity and to reduce costs ought to be considered. The U.S., China, India and many other countries have applied GM Technology with considerable success.

References

African Agriculture (1986). The next 25 years (Annex V) Inputs Supply and Incentive Policies (FAO).

Asefa, A. (1987). A Review of the Performance of Agricultural Finanace in Ethiopia: Pre-Post Reform Periods. Adis Ababa University Press.

Beets, C. W. (1990). Raising and Sustaining Productivity of Smallholder Farming Systems in The Tropics.

Chole, E. (1990). Food Crisis in Africa: Policy and Management Issues. 576 MasjidRoad, Jangpura, New Delhi. Vika Publishing House PVT. Ltd.

Dawes, M., Murota, R., Jera ,R., Masara, C. and Sala, P. (2009). Inventory of Smallholder Contract Farming Practices in Zimbabwe. SNV Netherlands Development Organisation.

Dennis, C. E. (1987). Credit Analysis: Trying it All Together Part 1 Robert Morris Associates. Desai, M. B. (1993). Institutional Finance for Agricultural Development. An Analytical Survey of Critical Issues.

Dorward, A., Kydd, J. and Poulton, C. (1998). Smallholder Cash Crop Production Under Market

Ghana Cotton Company Limited, (2013). Cotton Production

Liberalisation: A New Institutional Economics Perspective (eds.). (CAB International, forthcoming).

Ellman, A. (1998) Smallholder cash crop production, processing and marketing inTanzania: who benefits? ODI, London. AgREN Newsletter 37.

Harper, M.(1998). Profit For The Poor – Cases in Micro-financing. Southampton Row, London U.K. Intermediate Technology Publications Limited.

Kock, W. T. (1998). Bank Management. Harcourt Brace, Tovanovich, Orlando, Florida.The Dolden Press.

Larson,B and Frisvold, G. (1996). Fertilizers to support agricultural development in Sub-Saharan Africa: what is needed and why? Food Policy 21(6), 509-525.Lele, U. (1992). Aid to African Agriculture: Lessons from Two Decades of Donors Experience. Baltimore and London. John Hopkins University Press.

Linder, S. W. (1995). Total Quality Loan Management. Chicago USA. Probus Publishing Company.

Mark, S. (1997). Research Methods for Business Students. 128 Long Acre, London WC 2E9 AN London. Pitman Publishing.

Mosley, P. (1993). Policy and capital market constraints to the African greenrevolution: a study of maize and sorghum yields in Kenya, Malawi and Zimbabwe,1960-1991. Discussion Paper in Development Economics 6. Department ofEconomics, University of Reading.

Pandey, I. M. (1995). Financial Management. New Delhi. Vikas Publishing House PVTLimited. Ravegasira, K. (1991). Financial Analysis and Institutional Lending Operations Management in a Development Country. Dar es Salaam. Dar-es Salaam University Press.

Roberts, R.A.J. (1985). Farm Management: Inputs to Rural Financial Systems Development. (FAO Agricultural Services Bulletin 65).

Sissala East District Assembly (2012). The Profile of the Sissala East District.

Sobol, R. M., Soloum, R.S. and Wall, R. (1992). The Visionary Leader. Rocklin, CA:USA. Prima Publishing.

Stringfellow, R., Coulter, J. Lucey, T. McKone, C. and Hussein, A. (1996). The provision of agricultural services through self-help in Sub-Saharan Africa: synthesis report for phase I. ODA Project R6117CA. NRI, Chatham.

Thompson, B. C. (1991). Harvest Under Fire- Regional Co-operation For Food Security in Southern Africa. Zed Books Limited.

APPENDIX A

UNIVERSITY FOR DEVELOPMENT STUDIES

FACULTY OF MATHEMATICAL SCIENCES

FINANCIAL MATHEMATICS OPTION

NAVRONGO CAMPUS

QUESTIONNAIRE FOR THE COTTON FARMERS IN THE SISSALA EAST DISTRICT

These questionnaires are intended to collect data that will help the researcher to “Assess the Impact of Cotton Production on the people of Tumu, the Sissala East District of the Upper West Region”. The exercise is for academic purpose only. Whatever information you give will be kept confidential. Please, complete this questionnaire with appropriate answers with brief reasons or tick where necessary.

Date …………………………………….

BACKGROUND OF RESPONDENTS

1. Gender: Male [ ] Female [ ]

2. Age:

i. 20 – 30 years [ ] ii. 31- 40 years [ ] ii. 41-50 years [ ] iv. Above 51 years [ ]

3. Marital status

Married [ ] ii. Single [ ] iii. Divorced [ ]

4. Family type

Extended family [ ] ii. Nuclear family [ ]

5. What is your family size?

1-4 [ ] ii. 5-9 [ ] iii. 10-14 [ ] iv. 15-19 [ ] v. 20+ [ ]

6. What is your level of education?

non [ ] ii. Primary 1-6 [ ] iii. JSS/JHS [ ] iv. SSS/SHS [ ] v. Tertiary [ ]

7. Farmer’s community of residence is ……………………………………..................

8. The community in which farm is located is …………………………………….......

9. Distance of farm from place of residence

One mile radius [ ] ii. Two miles radius [ ] iii. Three miles radius [ ]

iv. Four miles radius [ ] v. More than four miles radius [ ]

10. What is the size of your farm?

1-5 hectares [ ] ii. 6-10 hectares [ ] iii. 11-15 hectares [ ]

iv. 16-20 hectares [ ] v. 20+ hectares [ ]

11. Do you hire labour to work on your farm?

Yes [ ] ii. No [ ]

If yes, answer question 12, otherwise GOTO question 13.

12. What type of labour do you hire to work on your farm?

i. Unskilled [ ] ii. Semi-skilled [ ] iii. Skilled [ ]

13. Do you receive assistance from the cotton company?

Yes[ ] ii. No[ ]

14. If yes, what assistance do you get from the company?

i Ploughing of farmland(s) [ ] ii. received seeds [ ]

iii received inputs [ ] iv. free consultation [ ]

v. Others ( specify) ………………………………………………………

15. How long have you been farming cotton?

1 - 5 years [ ] ii. 6 - 10 years [ ] iii. 11 - 15 years [ ]

iv. 16 – 20 years [ ] v. More than 20 years [ ]

16. Are you happy with the terms and conditions of service of the company?

i. yes [ ] ii. No [ ]

17. How has the company benefited the district?

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

18. What is/are your reason(s) for your answer?

19. How can the production of cotton be improved in the district?

APPENDIX B

UNIVERSITY FOR DEVELOPMENT STUDIES

FACULTY OF MATHEMATICAL SCIENCES

FINANCIAL MATHEMATICS OPTION

NAVRONGO CAMPUS

QUESTIONNAIRE FOR THE COTTON COMPANY PERSONALS IN THE SISSALA EAST DISTRICT

These questionnaires are intended to collect data that will help the researcher to “Assess the Impact of Cotton Production on the people of Tumu, the Sissala East District of the Upper West Region”. The exercise is for academic purpose only. Whatever information you give will be kept confidential. Please, complete this questionnaire with appropriate answers with brief reasons or tick where necessary.

Date…………………………………

BACKGROUND OF RESPONDENTS

1. Gender: Male [ ] Female [ ]

2. Age:

i. 20 – 30 years [ ] ii. 31- 40 years [ ] iii 41-50 years [ ] iv. Above 51 years [ ]

3. Division:………………………………………

4. Position held:………………………………….

5. What is the core business of the company?

i. Pre-financing the production of seed cotton ii. Marketing and processing of seed cotton

iii. Sale of farm inputs to farmers

6. What is the current market share of the company’s operation?

i. 100%-80%) ii. 80%-60% iii. 60%-40%) iv. Below 40%

7. What marketing strategies do you employ to attract farmers to grow cotton? …………………………………………………………………………………………………………………………………………………………………................................................................... ………………………………………………………………………………………………………………………………………………………………………………………………………………

8. Do you compete with other companies or organizations for the farmer?

i. Yes [ ] ii. No [ ]

9. What type of credit facilities do you offer to your farmers to produce cotton?

i. Cash [ ] ii. Farm Inputs [ ] iii. Both cash and inputs [ ]

iv. Others (specify)………………………………………………………………………………

10. Does the company cultivate its own farms? i. Yes [ ] ii. No [ ]

11. What is the most acceptable mode of re-payment of credits by farmers?

i. Seed cotton [ ] ii. Cash [ ] iii. Any other method [ ]

12. Who determines the seed cotton price?

i. The cotton companies [ ] ii. The farmer [ ] iii. Government [ ]

iv. Cotton farmers and companies [ ]

13. In your opinion is the seed cotton price attractive to the farmer?

i. Yes [ ] ii. No [ ]

13. How will you describe the percentage rate of credit repayment over the past three years?

i. Very good [ ] ii. Good [ ] iii. Bad [ ] iv. Very Bad [ ]

14. What has been the percentage rate of loan recovery for last years?

i. 100%-80% [ ] ii. 79%-60% [ ] iii. 59%-39% [ ] iv. 39% and below [ ]

15. How can cotton production be improved in the districts?

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

ayusmann

Tuesday, June 11, 2013

ASSESSING THE IMPACT OF COTTON PRODUCTION, A CASE STUDY IN TUMU, THE SISSALA EAST DISRICT OF THE UPPER WEST REGION OF GHANA

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