Chad cotton stages partial recovery
16 September 2013
According to the latest WTO Trade Policy Review (TPR) of the country, Chad’s production of cotton has staged a partial recovery in the last 2 years and exports have begun to grow again, despite both domestic and external constraints. Production fell sharply from 164,500 tonnes in 2001 to just 35,100 tonnes by 2009, and the relative decline in exports was almost as great, but a partial recovery brought production back up (though only to 78,900 tonnes in 2011 and 118,000 tonnes in 2012). Export data are available only to 2011, but their level that year was more than twice the 2009 level.
The TPR identifies a number of domestic constraints affecting cotton, including soil quality, poor roads, high energy costs and weak farmers’ organisations. The WTO Secretariat also recognises some of the external constraints: “plummeting cotton prices on the world market and the weakness of the dollar against the euro”, to which the CFA franc is pegged. The combination of external and domestic problems has meant that the regulated price paid to farmers was always above the actual price obtainable on the market during the period 2001–09, so the state has had to fund the gap. According to the TPR, “the survival of the cotton sector depends on various types of government support.”
In terms of the immediate future of cotton prices, at the beginning of August 2013 the International Cotton Advisory Committee (ICAC) cut its forecast for the price of cotton in the 2013–14 season from 115 US cents/lb to 108 c/lb. This reflected an increase “in the ICAC estimate for world cotton stocks at the close of the season” and a lower forecast for global cotton demand. However, this still implied an increase in cotton prices from the current price level of 91 c/lb. The ICAC estimates are at variance with USDA global estimates, which include a reduction of 1 million bales due to lower production in China’s main cotton producing province.
The WTO TPR observes that taxes on imports and exports form an important part of the Chad government’s revenue, with some 29% of government non-petroleum revenue derived from taxes on foreign trade in 2012. These include both tariffs and VAT levied on imports, as well as relatively small export taxes. However, as a large, sparsely populated and landlocked country, Chad faces in a severe form the problem facing many countries when using trade taxes as a source of revenue (or to protect domestic producers) – smuggling. Chad imposes an export duty of 8% on live animal exports, and the TPR reports “numerous levies” on both livestock imports and exports, thus “[driving] a large proportion of trade into the informal sector”. The TPR also highlights the sugar sector as being “threatened by illegal imports, mainly from Sudan”.
Editorial comment
The references made in the WTO review to “external constraints” affecting Chad’s cotton can be seen as referring to the cotton subsidy policies of OECD states, notably the USA and the EU.
Given all the other problems affecting the cotton sector specifically and agriculture more generally in Chad, the impact of US and EU cotton subsidies on global markets is something cotton producers in Chad could well do without.
However, as highlighted by the report on ICAC forecasts, Chinese cotton sector policies are increasingly overhanging world cotton market price developments (see Agritrade articles ‘ Chinese stock levels place limits on cotton price recovery in 2013’, 25 March 2013 and ‘ Changes in Chinese cotton policy imminent?’, 15 July 2013). In this respect, the policy issue of what happens to Chinese cotton stocks (which have arisen as a result of significant levels of government support to cotton producers) is critical. The policies of China can be seen as complicating efforts in the WTO to get to grips with the issue of dismantling US and EU cotton sector support programmes.
As an LDC, Chad is eligible for the ‘Everything But Arms’ trade regime, and as a consequence does not have direct export interests at stake in the EPA negotiations. However, members of a customs union – even an unevenly applied customs union such as CEMAC – will be affected by the agreements entered into by neighbouring countries that are also part of the customs union. Thus, the choices made by fellow CEMAC members (particularly Cameroon) in terms of their engagement with the EPA process will carry implications for Chad and CEMAC as a whole.
