Zimbabwean cotton production expands, while global cotton subsidies remain high
06 October 2011
According to press reports, Zimbabwe’s cotton shipments in 2010–11 will increase by 20% to 408,000 bales. Zimbabwean cotton typically attracts a premium on international markets because of its quality. The improvement in production follows legislation which has ‘brought stability’ to the sector. New regulations establish a clearer and more stable legal framework for relations between growers and ginners, and this is improving supplies of seeds and chemicals to small-scale growers, while curtailing ‘side marketing’ by producers, whereby they sell their crop to a company other than the ginnery supplying the inputs. This needs to be seen against the backdrop of farmers’ actions in early July 2011 which saw production being withheld from the market in protest against low cotton prices. Subsequently the minimum selling price was raised from US$0.75/kg to US $0.85/kg.
In July 2011 it was reported that the Singapore-registered company Olam was seeking a deal with the government of Zimbabwe ‘in order to enhance the country’s cotton production levels’. The company is already the second largest operator in the Zimbabwe cotton sector, servicing 26,000 cotton farmers producing on 52,000 ha of land. The aim of the deal is to improve the quality and yield of cotton produced.
At an international level, press reports indicate that ‘world cotton producers received $1.3bn in subsidies’ in 2010–11, ‘despite market prices doubling to a record high’ (from $0.78/lb to an $1.64/lb). Data from the International Cotton Advisory Committee imply that ‘with output rising too, the value of farmers’ cotton crops soared to more than $90bn, from $38bn the year before’.
The press report notes that ‘while the headline level of payments more than halved, from $3.2bn in 2009-10, the decline was nearly all accounted for by China, the top cotton producing country’. This led the EU to take top spot ‘in the global subsidy league – even though the EU produces less than 1% of world cotton’. In 2010/11, ‘the European Union lifted its support by 4.2% to $368m’, although this was in part a statistical anomaly linked to the weakening of the US dollar against the euro. The analysis notes the ongoing failure of the US to reform its cotton subsidy programmes, despite the findings in the WTO against its support programmes.
Editorial comment
With global cotton prices so high, there is considerable interest in investing in cotton production in low-cost producers such as Zimbabwe, despite the continuing macro-economic uncertainty. However the levels of subsidisation which continue to prevail in the cotton sector highlight the relevance of ACP efforts to obtain a comprehensive resolution of cotton issues in the context of the WTO negotiations. With the negotiations apparently at an impasse, the WAEMU governments made direct representations in the US and EU around cotton subsidy issues in March 2011 (see Agritrade article ‘ WAEMU cotton initiative launched’, April 2011).
Given that EU cotton subsidies were equivalent to $350 a bale or US$0.70/lb (90% of the international price prevailing in the 2009/10 season), it would seem that EU coupled support measures in the cotton sector play an important role in sustaining EU cotton production. This looks likely to continue under a reformed CAP (see Agritrade article ‘ Multi-annual budget framework sets scene for CAP reform proposals’, September 2011).
As the EU plays a minor role in global cotton production, it is unclear to what extent unilateral EU action on cotton subsidies would assist ACP producers in obtaining improved prices. The subsidies of the US, given the country’s role in the international cotton trade, remain the critical issue in terms of the effects of subsidy programmes on international cotton prices.
