On 15 March 2011, the West African Economic and Monetary Union (WAEMU) launched a lobbying offensive to put the demands of the C4 group of West African cotton-producing countries for cotton sector reform back at the top of the WTO agenda. The initiative aims to secure ‘a substantial reduction or even elimination of domestic subsidies that distort international cotton trade’, through the proposals to be tabled as part of the CAP reform process and the review of the US Farm Bill.
Analysis posted by the IDEAS Centre, a Geneva-based think tank, argues that it is high time to reach agreement on the methodology to be used to reduce cotton subsidies. The ACP group has supported workshops in Geneva to examine the options available, and has even assessed the ‘advisability … of lodging a dispute settlement complaint against the US’. It is reported that current high cotton prices are not helping efforts to move the issue forward, since they are allowing subsidising governments to side-step responsibility for the trade effects of their domestic subsidy policies.
The analysis highlights the EU’s insistence that it is ‘complying with the Hong Kong criteria for dealing with cotton in an ambitious, rapid and specific fashion thanks to its 2004 reform’, but notes the existing subsidy reduction commitments on the table in the Doha Round and the commitment to going even further in the cotton sector. The IDEAS Centre analysis argues that the conjunction of reform discussions in both the EU and US, alongside the current high world market prices, offers an opportunity to comprehensively address the concerns of African cotton-producing countries.
Cotton outlook ‘A’ index 2007–11 (middling 1-3/32 inch staple, cif Liverpool, US cents/lb)
In terms of world market price trends, the USDA, in its March 2011 cotton-sector estimates, maintained that with stocks at historically low levels, ‘prices are likely to remain high for the next season’. According to USDA figures, for the past five seasons global cotton consumption has been ahead of global production, although consumption fell back strongly in 2008/09 (-10.8%), before recovering in 2009/10. This saw global cotton exports fall 23% in 2008/09, before recovering 18% in 2009/10. In the coming season production is expected to fall slightly (-1.7%), while exports are expected to increase 8.5%.
Meanwhile in West Africa high cotton prices have stimulated a considerable production expansion in 2010, although farmers remain wary of overinvestment, given the volatility in cotton markets, linked to the structural distortions in cotton production and trade at the global level arising from subsidy programmes.
Changes in cotton production in selected West African cotton-producing countries 2009–2010 (production in 480-lb bales)
While political lobbying to put cotton issue back on the agenda of the EU and US trade negotiators is undoubtedly necessary, it appears that considerable technical work will need to be initiated in consultations with the agricultural departments dealing with the preparation of proposals for reform of the cotton sector as part of the 2013 round of CAP reforms and as part of the discussion on the next US Farm Bill. As far as the EU CAP reform is concerned, technical work will be needed on precisely how the demands contained in the C4 proposals should be translated into specific cotton sector reform proposals.
Currently 65% of EU cotton sector support is integrated into the single farm payment. The question arises of what is to happen to the 35% of support which is provided in the form of coupled assistance. The current allocation in the 2011 budget to coupled support in the cotton sector is €256 million. This needs to be seen in the light of the recent EU Council discussions which highlighted the need to continue with coupled support in certain sensitive sectors. However, it remains to be seen whether cotton will be defined as a sensitive sector.
Ensuring that C4 proposals are translated into specific cotton-sector reform proposals is in part a technical question of how the transition away from coupled support (which is an underlying principle of the CAP reform process) can best be managed, and in part a political question of how those members states which currently benefit from this support can be persuaded to abandon it. Any efforts to promote the C4 agenda will need to ‘walk on both legs’, if C4 concerns are to be effectively integrated into the ongoing CAP reform process.