World Bank review of incoherence in the cotton sector
Citation
CTA. 2003. World Bank review of incoherence in the cotton sector. Agritrade, November 2003. CTA, Wageningen, The Netherlands.
Permanent link to this item: http://hdl.handle.net/10568/52784
Abstract/Description
The World Bank released a staff trade note on September 10th 2003
...
Notes
The World Bank released a staff trade note on September 10th 2003
looking at the impact of OECD cotton-sector subsidies on developing
countries. Cotton was cited as an example 'where rich countries'
trade policy negates the otherwise positive effects of their development
policies'. The paper maintains that 'the cotton market is highly
distorted' and that 'subsidies in relatively wealthy countries depress
global prices'. This results in depressed incomes for millions of
poor small holders in African countries. The paper looks in particular
at the impact on Benin, Burkina Faso, Chad and Mali.
The paper profiles the pattern of global cotton production (including
production costs) and production trends over the past 40 years.
It notes that 'real cotton prices have declined considerably during
the last 40 years and that they 'are currently half their 1960s
levels'…. 'the current low level of cotton prices have been
undoubtedly influenced by the support provided by major players'.
The paper outlines the nature of the high levels of cotton subsidies
in the USA and that in 2001/02 'producer prices in the United States
were 91% higher than world prices'. In the EU internal 'producer
prices in Greece and Spain were 144% and 184% higher than world
market prices'.
The US$3.7 billion in subsidies provided to 25,000 US cotton farmers
is 'three times the entire US aid budget to Africa'. At current
prices it costs Burkina Faso more to get its cotton to market than
the revenues it receives. Annual losses to African cotton farmers
resulting from US subsidies are estimated at US$250 million a year.
In Benin the 40% reduction in farm-gate prices which has occurred
has led to a 7% reduction in rural per capita incomes and an increase
in the incidence of poverty amongst cotton growers from 37% to 59%.
Removal of support would 'reduce production and consequently boost
prices, allowing third-world farmers to compete and earn profit
on their crops'. Over the next ten years full liberalisation of
the cotton sector would result in:
an average increase of 12.7% in cotton prices;
a 5.8% increase in world cotton trade;
a 12.6% increase in African cotton exports.
However such a liberalisation would in the case of the EU lead
to a 70% reduction in EU cotton production. The paper concludes
that 'cutting subsidies would have major positive effects for poverty
reduction, particularly in Africa'.
Comment:
A 70% reduction in EU cotton production is scarcely an outcome consistent
with the commitment under CAP reform to avoiding land abandonment.
A complete liberalisation of the cotton sector and dismantling of
systems of support is thus beyond the range of policy options which
the EU is willing to consider under any reform of the cotton sector.
Indeed, current proposals suggest only a partial decoupling of support
in the cotton sector and only partial integration of the cotton
sector into the system of single farm aid payments. For the EU the
issue is about changing the basis of support to the cotton sector
not withdrawing such support.
While the EU is a relatively minor player in terms of cotton-sector
distortions, with the US playing the major role, should the US decide
to embark upon reform it is likely to follow an even more cautious
approach to reform of the cotton secretor than the EU. The production
and income gains to African farmers from any movements towards cotton-sector
reform are thus unlikely to be substantial.
Subjects
MARKETING AND TRADE;Collections
- CTA Agritrade (English) [583]