The International Centre for Trade and Sustainable Development (ICTSD) has published an information note, Cotton: Trends in global production, trade and policy. The paper notes that with cotton prices above historical averages, trade and production has evolved substantially. However, while developing countries dominate production and milling, they play a more limited role in export. Within the developing country group, LDC producers play only a minor role in production (5% of global production), but a much higher role in exports (11%).
The paper notes that there appears to be a long-term trend away from cotton production in the US, although this is unlikely to have any immediate effect on the levels of US cotton exports. The future structure of US support payments, on the other hand, is likely to have important consequences for the price effects of US cotton export policies.
In recent years, the export share of the ACP C4 cotton-producing countries (Benin, Burkina Faso, Chad and Mali) has increased from 3 to 6% due to larger crops. However, other developing country cotton exporters, notably Brazil, India and Uzbekistan, now export sufficiently large quantities to have a potential impact on global cotton prices.
In terms of the WTO cotton subsidy issue, the ICTSD paper notes that China, rather than the USA, has been the largest provider of cotton subsidies since 2009/10, according to the International Cotton Advisory committee (ICAC). ICTSD notes that Chinese support for the cotton sector increased more than fivefold between 2007/08 and 2012/13. The EU, for its part, provides the highest level of support per tonne of production to its cotton producers.
As a result of the operation of Chinas minimum support price policy and import quotas, cotton prices in China have been kept well above international cotton prices. The ICTSD analysis maintains that if stocks held by the Chinese government had not increased to such an extent, stocks in the rest of the world might have accumulated faster and international cotton prices might have declined further. The threat of these Chinese stocks nevertheless now hangs over the market.
To date, releases of cotton from Chinese stocks have not been large enough to significantly undermine domestic and international prices. However, depending on the scale and basis of future sales from stocks, such releases could reduce the need for Chinese imports and depress world cotton prices. ICTSD maintains that international cotton prices are likely to remain depressed over the next two years.
The ICTSD note also observes that changing patterns of global cotton consumption (switching from Europe to Asia) have removed the previous freight advantages that African producers enjoyed, as African cotton producers are now remote from the main markets in Asia. The Chinese market is now the largest destination for African cotton, for example, accounting for nearly half of Benins exports in 2010 (up from zero in 1999). Currently, duties of between 5 and 40% are imposed by China on out-of-quota cotton imports (its annual quota is 894,000 tonnes), with cotton currently excluded from Chinas duty-free, quota-free programme. There is therefore scope for China to extend tariff preferences to African cotton suppliers.
According to ICTSD, policies in both developing and developed countries remain critical to the development of cotton prices. ICTSD suggests that ACP cotton producers may wish to focus on two key issues:
- securing duty-free, quota-free access to the Chinese market, through quota expansion, reduction of out-of-quota tariffs, or the inclusion of cotton in Chinas duty-free, quota-free programme;
- ensuring that US support payments exclude any minimum price support component.
Meanwhile, according to reports on the Cotton Development Assistance consultations at the WTO, there has been no substantive progress on the underlying issues of concern to the C4 group of ACP cotton producers.