Mill-delivered prices and prices received by farmers can vary substantially by quoted international values. Most of the South African cotton is sold by utilising marketing pools as it is popular because it offers substantial economies of scale in marketing. In this arrangement, each ginner pools the producer’s cotton into larger lots and manage the marketing of the pool’s cotton. The ginner uses the size of the marketing pool to negotiate higher premiums for cotton than when individual producers would have marketed the cotton themselves. Farmers are normally offered a below-market, up-front cash distribution based on the amount of cotton placed in the pool. Then as the cotton is sold to merchants or textile mills, the net proceeds of the sales are distributed back to the farmers. In all cases, prices for individual lots of cotton will reflect discounts or premiums for quality different from the base quality quoted in the international markets. The main advantage of the marketing pool is that it offers a form of price risk management since each producer will receive the average price achieved by the entire pool, adjusted for the quality delivered, and does not have to worry that his or her particular cotton was sold when the market price was lowest.

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