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WTO cotton discussions: Little progress, growing concerns

12 August 2012

According to analysis from the WTO Secretariat prepared as part of discussions within the Director General’s Framework Mechanism on Cotton, ‘the negotiations on cotton have seen little progress since the April 2011 “Easter Package”… because some members are unready to move on cotton until the overall agricultural negotiations progress further.’

‘African and other countries pressing for reform said they were disappointed at the lack of progress in the talks.’ Representatives of the C4 group of countries – Benin, Burkina Faso, Chad and Mali – also expressed concerns at the new US Farm Bill. With cotton prices falling, it is feared that cotton subsidies will once again rise. According to the International Cotton Advisory Committee, ‘cotton prices peaked in the 2010/11 season at over $2 per pound, but are now falling back below the $1/lb mark and are not far above the 60 c/lb average for 2000-2009.’

These price declines are attributed to increased production in response to higher prices and competition from polyester. At current low levels, however, there is less volatility in cotton prices, and prices are moving within a narrower range ‘20-25% above and below the average for the season, compared to double that range in 2010/11’.

The WTO report highlighted the levels of development assistance provided to cotton producers mainly in Africa. Since 2005:

  • some US$278 million has been ‘spent on completed assistance for cotton’;
  • another ‘$92 million has been spent on ongoing programmes worth a total of $310 million in promised assistance’;
  • a further US$1.4 billion has been spent on completed or continuing projects for agriculture and infrastructures in these cotton producing countries, with a total of $5 billion committed.

According to WTO Deputy Director Harsha Vardhana Singh, ‘South-South cooperation has emerged as a key aspect of the implementation of the mandate on the development assistance aspects of cotton’, with significant contributions from Brazil, China, India and Pakistan. Recipients of this assistance, however, highlighted ‘the gap between the assistance that has been committed and the aid actually delivered’.

The WTO Secretariat briefing follows the resolution on cotton approved by ACP Council of Ministers in June 2012, which called on the EU to:

  • ‘ensure ambitious treatment for cotton by applying 100% decoupling of support for European cotton producers’;
  • ‘identify alternative instruments…to assist the European cotton producers, including for diversification towards other viable production or activities’;
  • ‘further support the implementation of the [ACP] regional and national cotton strategies… to demonstrate their own commitment to finding a sustainable response for the competitiveness of their cotton sector.’

The resolution further urged the US authorities to ‘seize the opportunity of the Farm Bill reform to bring the cotton support granted to their farmers into complete conformity with the WTO rules and to refrain from adopting any measures which could cause even further distortion on the international cotton market.’

The resolution also called on WTO members ‘to ensure that cotton is treated as a priority and included in any intermediate WTO agreement on modalities’. 

Editorial comment

In June, the C4 group, with their visit to the United States, and the ACP Council of Ministers, with their resolution on cotton, both sought to bring pressure on the EU and the United States to reduce their subsidies to the cotton sector, at the same time as the WTO group noted little progress in this area. Raising the issue is timely, as the next US Farm Bill and the EU reform of the CAP in 2013 are under discussion, and the political choices made will determine future subsidies.

In Europe and the United States, the discussions on the CAP or the Farm Bill are taking place at a time of significant budgetary pressures, and so on balance indicate a reduction in subsidies. In the case of the Farm Bill, the cuts will be at least US$23 billion, and the US will be abandoning direct payments to move to an entirely insurance-based system (of income support and crop insurance), in line with farmers’ wishes. This support system will give greater strength to the market.

If the Farm Bill and reform of the CAP are important for the future of subsidies in the cotton sector and for the ACP, so too are the policies followed by the large emerging economies, particularly China, the world’s biggest consumer, importer and producer of cotton, and India, second largest exporter in the world. China, and to a lesser extent India, influenced cotton prices in 2011/12, notably by the establishment of a minimum price in China and, in the case of India, by the re-establishment of the national reserve or the short period of the cotton export ban. According to a study by US consultancy bureau DTB Associates, financed by four US agricultural organisations, price support for cotton in 2010/11 was:

  • US:                         US$1,562
  • Brazil:                    US$1,616
  • China:                    US$1,886

India:               US$1,998. 

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