According to the latest USDA annual report on the EU cotton sector, EU cotton production has declined by about 50% since the 2006 reforms. However, ‘following the cotton reforms in MY [marketing year] 2009/10 the EU-27 planted area and production have progressively increased and are forecast to remain stable during MY2012/13.’ and it is maintained that ‘the EU-27 industry remains uncompetitive’. Between 2010/11 and 2012/13, EU cotton production is projected to increase by 41.2% (from 249,000 to 354,000 tonnes). The EU however remains ‘a minor producer of raw cotton’, according to the report.
EU27 cotton lint production 2010/11–2012/13
|Area harvested (ha)||293,000||352,000||353,000|
|Total domestic consumption||81,000||67,000||75,000|
Source: USDA Foreign Agriculture Service (FAS) Rome and Madrid estimates.
Between 2010/11 and 2012/13 EU exports of cotton are projected to increase by 45.5% (from 211,000 to 307,000 tonnes). The increase in cotton lint exports was attributed to ‘increased production in Greece’. Turkey and Egypt are the main markets for EU cotton exports (80%), but cotton exports to Egypt fell in the last quarter of 2011, following the imposition of an import ban by the Egyptian authorities.
Greece accounts for between 82 and 85% of EU27 cotton production. In MY 2011/12 Greek cotton production was up 42%, ‘due to increased acreage and more effective pest control’. Cotton accounts for more than 8% of total agricultural output in Greece, with more than 75,000 farmers involved in production. According to USDA, since cotton is not produced under contract and ginners compete for supplies, ‘seed cotton prices have increased from €0.52/kg at the beginning of the season to nearly $1.20/lb in mid-November’ 2011.
However, the financial crisis is negatively affecting the cotton market, and is ‘creating risks and uncertainty’, with Greek ginners facing difficulties in selling their output. Without bank financing, ‘many ginners and cooperatives cannot hold back their stocks until prices improve’. In response, efforts are taking place to find new outlets for Greek cotton: in the first months of 2012, exports of cotton to China were initiated (37,162 tonnes).
The Greek textile sector is facing severe difficulties. With production falling 18% and orders declining 20%, exports have also fallen by 4–5%, so the textile sector is looking for state support to revitalise the sector, including repayment to enterprises of VAT owed on exported products.
In Spain, the EU’s second largest cotton producer, production in 2006 declined following the implementation of reforms, reaching a record low in MY 2008/09. However, changes to the EU aid payment system, along with favourable producer prices, have seen a ‘progressive recovery of the area planted to cotton over the last three marketing years. Actual output levels are also affected by pest infestation levels and weather conditions at harvest time. In 2011/12, ‘yields reached a five year record at 2.6 MT/ha’. Good producer prices are thought to have encouraged plantings for the 2012/13 MY.
Spain’s farm-gate raw cotton prices 2007/08–2011/12
Source: MAGRAM and FAS Madrid estimates
Despite the recovery and improved yields, USDA argues that Spanish cotton production is unlikely to recover to pre-reform levels, considering that the future of Spanish cotton production ‘will be tied to development in the subsidy scheme’, particularly the 2014 round of reforms. In 2011/12, adjusted coupled payments (amount per ha for the national guaranteed area divided by the actual area under production) ‘will amount to about 1,024 euros per ha’. This is equivalent to €394/tonne (17.9 US c/lb).
In addition, so-called Article 69 payments are also made available, ranging from €562.85/ha (2008/09) to €289.81/ha (2010/11). Adjusted to take account of the actual acreage under cotton, this was equivalent to a further €220.8/ha in 2010/11 or €84.9/tonne.
In this context, the USDA maintains that a flat-rate single payment would ‘quite negatively’ impact on Spain’s cotton sector.
Between 2009 and 2011, the EU budget allocation to coupled cotton sector area payments increased by 6.2%. EU support payments equivalent to around 22% of projected average cotton prices for 2012, almost 33% of the lowest prices on the New York futures market in June 2012 (66.1c/lb), set in context the USDA assertion that the future of Spanish cotton production ‘will be tied to developments in the subsidy scheme’. Given the importance of cotton to agricultural production in Greece and the economic difficulties faced in both Greece and Spain, the decision to maintain the option of coupled payments after 2014 would suggest that no major revision of current support arrangements is likely during the forthcoming round of CAP reforms.
In terms of the external effects of EU cotton sector policies, the decision of the Egyptian authorities to ban imports has left EU producers searching for new markets. While this has to date focused on Chinese markets, the rumoured pending sales of cotton from state-held stocks in China could well adversely impact on these efforts, leaving EU producers once again seeking new markets, potentially increasing competition for ACP producers if this includes markets currently served by ACP exporters .