Against the background of China’s growing influence in global cotton markets, the C4 cotton-producing African countries – Benin, Mali, Chad and Burkina Faso – have concluded a technical cooperation agreement with China. Under the agreement, China is to ‘provide machinery, expertise and materials in a bid to increase and improve the quality of local production’. The Chinese commerce minister Chen Deming suggested that this was ‘a step towards outsourcing production to Africa’, declaring that ‘in [the] longer term, we may relocate some of the textile and apparel industry into Africa’. The agreement was presented as part of China’s support for the WTO ‘aid for trade’ programme.
Analysts have however expressed scepticism as to the benefits of the agreement, pointing out that ‘Chinese companies prefer buying cotton from the US because of its good quality and lower price, especially with the appreciation of the Chinese currency [the] yuan’. Compared to US and Indian supplies, ‘African cotton is more expensive … and carries no guarantee of quality.’
A number of Chinese companies have already opened textile manufacturing plants in Africa. This includes the Yuemei Group, ‘which owns cotton fields, garment plants and sales offices in African countries including Mali and Ghana.’ Yuemei also operates in Nigeria.
At the global level, while Chinese restocking in January 2012 helped to ease declines in the cotton price, by February the International Cotton Advisory Committee was reporting less positive prospects for global cotton markets as a result of stock levels equivalent to over six months’ consumption. It was expected that cotton farmers, whose output this season is expected to ‘hit a five-year high of 26.8m tonnes’, will respond to declining prices by reducing the area under cotton. Production is then expected to fall by 1.9 million tonnes in 2012/13.
This is a dramatic turnaround from the previous season, when a stocks-to-use ratio of 37% fuelled ‘a record price of 227 cents a pound on New York futures market in March ’. The March 2012 benchmark price in contrast is around 93.68 cents/lb, some 59% lower than the previous year’s peak.
Alongside the United States, China is a heavy subsidiser of cotton, and the signing of the technical cooperation deal in Geneva on the fringes of the WTO Ministerial meeting may well have been timed to deflect criticism away from this underlying reality.
More generally, Chinese companies are becoming more heavily involved in the West African cotton sector as privatisation processes proceed. China is also becoming a major export market for West African cotton. While this can be seen as opening up new market possibilities, the critical question remain the purchase price for this cotton and the price this generates for farmers.
Simply redirecting trade towards Asia within traditional patterns of commodity export trade will not necessarily bring any additional benefits to cotton producers in West Africa. The challenge is to use the new dynamic arising from expanding Asian demand to redefine the insertion of West African cotton production within global cotton and textile supply chains.
It is unclear what opportunities the expanding trade with China presents in this regard, compared to opportunities in traditional markets where greater differentiation in cotton usage is emerging (see Agritrade articles ‘ Analysis of developments in the organic cotton market’, 6 October 2011, and ‘ Fair-trade cotton to boost cotton production in West and Central Africa’, July 2011). These developments need to be seen in the context of an 80% decline in West African cotton exports to the EU over the last 10 years, and exports to China in 2010 over seven times larger than the volume of cotton exports to the EU.