7. The marketing structure seems initially to have been highly competitive with many small traders and itinerant hawkers competing for the farmers' business. Following the Gun War of 1880-81 between the Basotho and the decade-old colonial administration, when a number of traders fled the country or sold their licenses, the trading structure became markedly more concentrated as some traders acquired the licenses and stations of others. In 1920, one trader Frasers (a trading chain in southern Africa), owned 46% of the trading stations in the three most populous lowland districts of Lesotho. Several other traders also had multiple stations and dominated trade in particular locales. This pattern has persisted. In the 1980s, Frasers had about one third of the private licenses for wool and mohair purchases.
8. Providing a measure of competition to the trading stations were the hawkers, or itinerant traders. Initially, although they could not establish permanent trading stations, they were not restricted as to what they could trade in. Because of transport constraints, however, they invariably bought and sold in small lots and operated mostly in the remote areas, distant from the established trading stations. In the first few decades of the 20th Century, there were often as many as four times licensed hawkers as traders. In contrast to traders, who were invariably white, hawkers were often Indian, mixed race, or Basotho. Compared to trading, capital requirements for hawking were relatively low. Profits were lower as well. By the 1950s, hawking declined as hawkers were forbidden to trade in wool and mohair as authorities attempted to control more closely the classing of fleeces.
9. Traders occupied a relative monopoly-monopsony position in their trading locale. The following factors, inherent in the nature of the business or the specific conditions of the trade, contributed to this:
a. Transport was difficult, time-consuming, and expensive owing to the very mountainous terrain. This limited farmers' ability to "shop around" with their clip (if clipped at home) or with their flocks (if clipped at the trader's station). Nonetheless, contemporary reports from the 1920s to the 1960s suggest that some of this was done (Biggs, 1964; Stutley, 1960; Pim, 1935; Sayce, 1924).b. Capital requirements and risk were high. Traders had to provide wool and mohair storage and classing facilities and they had to advance payment to farmers in anticipation of sales at uncertain prices on the world market in South Africa. One analyst estimated that in 1958 a capital investment of $154,000 was required for these purposes (Stutley, 1960, p. 233).
In addition to these "natural" constraints on competition, traders instigated several "rent-seeking" restrictions. The most important of these was:
c. Restrictive licensing. As early as 1890, the Basutoland Traders Association (BTA) was formed to lobby the government. It sought to limit the entry of Indian traders into the business, fearing the "unfair" competition of the allegedly narrower Indian trading margins. As a result, Indian traders were largely confined to only one district. The BTA also sought to restrict the number of licenses granted for any one trading location and to limit the number of new entrants into the industry. The government Licensing Board was for the most part sympathetic to these concerns of "over-trading" and "unfair competition" in its granting of licenses. Strict limits on the number of trading locations in population centres were set while at the same time Basotho and Indian traders were often denied licenses in these areas and pushed out to the less desirable rural locations.
Finally, traders themselves adopted a number of trading practices which effectively limited competition. These included:
d. Provision of credit against commodity sales. Farmers could purchase consumer goods on credit but had to pledge their output as collateral. Although this credit was often useful - even necessary - it did limit the ability of farmers to "shop around".e. Payment with script or chits. Some traders would not pay cash but would give farmers chits to be used for the purchase of consumer goods in their store. This effectively bound the farmer to sales and purchases from the same trader.
f. Employment of touts to encourage producers to deal with a particular trader. Their impact was ambiguous, however, since they also acted as market intelligence agents and helped to advertise the prices offered by the various traders.
As a result of these factors or practices, there was the widespread belief amongst farmers that traders were taking advantage of them (see, e.g., testimony before the Basutoland National Council, 1964).
10. In the 1950s, the government, seemingly with the urging of the Catholic Church, encouraged the formation of co-operative societies to provide greater competition in the purchase of wool and mohair as well as to eliminate what was thought to be excessively high traders' margins. By 1958, 14 co-ops had been formed. However, they were never able to handle more than 10% of the total clip. Although traders opposed these coops and sometimes even practiced predatory pricing against them, their ultimate failure was more due to their own financial and managerial problems. By the 1960s, most of the cooperative societies established for the purpose had ceased to function.
11. Also in the 19950s, the government found it necessary to respond to Basotho demands for increased participation in trading. Although Basotho held a majority of restricted traders' licenses (which forbade them to purchase wool and mohair), only 3 of the 193 general trading licenses were held by Basotho 1932. After 1953, no new licenses were issued to non-Basotho, although existing licenses could be transferred to anyone. By 1958, however, still only 14 of the 215 general trading licenses were held by Basotho.
12. At Independence in 1966, the government felt compelled to respond to stock keepers' complaints with institutional reforms to the marketing structure. Although private traders were not forbidden to purchase wool and mohair, the number of licenses issued to this category of traders was greatly restricted. In 1973, the parastatal Livestock Marketing Corporation (LMC) was established to buy wool and mohair through government-established shearing sheds in direct competition with private buyers. This was followed in 1975 by the Lesotho Mohair Industries (LMI) which sought to bypass South African markets and to sell directly to European buyers. Neither venture was successful owing to under-capitalization, lack of adequate personnel and transport, and poor management. As a consequence, large quantities of processed wool and mohair remained unpurchased and the prices paid to farmers were sometimes lower than those offered on the South African markets. Turmoil in the marketing system led some farmers to bypass official channels while others reportedly slaughtered many of their animals.
13. In 1978, the activities of LMC and LMI were terminated and many of their activities were undertaken by a section of the Ministry of Agriculture, the Livestock Products Marketing Services (LPMS), which continues to operate today. LPMS does not take possession of the clip but acts only as a marketing agent for farmers shearing at government woolsheds. In addition to this, it provides certain regulatory functions including the inspection of the facilities of private traders, the maintenance of classing standards and training of classers, inspection of scales, licensing of private traders, and, in conjunction with traders and the Ministry of Agriculture, the determination of tracers' prices and margins.
14. In 1971, South Africa instituted a one-channel marketing system whereby all wool and mohair, including Lesotho's, are marketed through the South African Wool and Mohair Boards with the farmers' marketing co-operative, Boeremakelaars Koop BKP (BKB), acting as the sole broker. All wool and mohair is pooled by the boards and is sold by a dual-payment system by which farmers are given an advance payment (determined by the boards) before and a post-payment after final marketing. This permits all producers to share equally in the effect of high and low prices, regardless of when their fleeces are sold. A Stabilization Fund, financed by levies on producers, effectively establishes a floor selling price. In addition, Lesotho is eligible for EEC STABEX assistance should its export earnings from wool or mohair fall below an agreed multi-year average. In 1987/88, Lesotho received STABEX support for its mohair sales.
