According to the commodity website Agrimoney.com, India is taking over from China as the top cotton grower, following a larger than expected drop in Chinese cotton production. Chinese cotton output is expected to fall by over 10% in 2013/14, down from 6.7 to 6 million tonnes. This follows changes in Chinese government support policy. China will however retain its place as the world’s top consumer of cotton. Indeed, China’s subsidy reforms are expected to slow down the decline in China’s cotton demand (down just 1% in 2014–15 compared to a 17% decline since 2011).
In terms of trade, Chinese cotton imports are projected to fall by 30% in 2014/15 to 2.2 million tonnes, a level some “60% below the record two seasons ago”. For 2015–16, USDA is forecasting Chinese import demand at 1.7 million tonnes.
Declining Chinese cotton production led the International Cotton Advisory Committee (ICAC) to increase its forecast for cotton prices next season. ICAC has reduced its projections for total world cotton production by 540,000 tonnes to 25.16 million tonnes, with its projections for stock levels falling 170,000 tonnes to 20.87 million tonnes.
USDA data on cotton prices show a maximum price variation of 14.5% in average monthly prices over the past year, with five reversals in the direction of price changes in the past year. In addition, cotton prices have remained stubbornly below the 100 US cents/lb level since April 2012, averaging around 40% of the price levels experienced at the March 2011 price peak. The average spot price on 19 June, at 78.4 cents/lb, was 11.5% below the monthly average since April 2012.
In May 2014, the Tanzanian government announced that it was to establish a Crop Price Stabilisation Fund, which would include cotton (as well as coffee, cashew nuts and tobacco). The fund is expected to “start operating during financial year 2014/15”. The government considers that price stabilisation could facilitate on-farm investment, within the framework of contract farming arrangements, and is looking to promote the use of improved model contracts for cotton farming in order to address a number of identified shortcomings.
In 2011, contract farming initially boosted cotton production, as 351,151 tonnes of cotton was produced, the second largest crop ever produced in Tanzania. However, a shortage of finance for the following season reduced the inputs used by farmers, with production falling to 246,767 tonnes. Cotton nevertheless remains the most important export crop, with Tanzania’s Daily News noting that “more than 2 million people directly or indirectly [depend] on the crop for their livelihoods.”
Concerns have long been expressed over the possible effect of Chinese cotton sector reforms on global cotton markets. It is far from clear how the declines in Chinese cotton production and even more dramatic declines in Chinese cotton import demand will feed through into global market prices. Much will depend on how markets react to the announcement of specific production and trade figures. However, given the level of global stocks, the decline in Chinese import demand may well have a greater impact on market prices than declines in Chinese cotton production.
Against this background, the establishment of a crop price stabilisation fund in Tanzania would appear a timely measure to try to reduce the production consequences of price volatility.
Given the growing influence of Chinese policy on global cotton market prices, ACP governments of cotton producing countries may well wish to consider a joint approach to the Chinese government for support to the establishment and management of such cotton crop price stabilisation facilities, or similar initiatives to better manage the production consequences of price volatility, in part linked to evolving Chinese policies.