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U.S. Cotton Perspective
The Next Steps for Africa
October 26, 2006
Woodrow Wilson Center
Washington, DC
Million Bales
0
20
40
60
80
100
120
140
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
US Sub-SaharanBrazil China, In, PakWorld
Cotton Production
Cents per Pound
30
40
50
60
70
80
90
Aug
-97
Aug
-98
Aug
-99
Aug
-00
Aug
-01
Aug
-02
Aug
-03
Aug
-04
Aug
-05
Aug
-06
Africa A Index Memphis
Cotton Prices, CIF North Europe
Factors Influencing World Cotton Markets
Between 2000 and 2006, China, India and Pakistan use industrial policies, high border measures, tax incentives and refunds, and free financing of construction. Increase their cotton spinning from 44.6 million bales to
79.7 million bales, accounting for 66% of world mill use of cotton fiber.
China will produce 14.6 million tons of polyester in 2006, up from just 4.9 million tons in 2000, subsidized with non-performing loans and tax incentives. Asia now produces more polyester than the entire world just a decade ago.
Thousands of Tons
0
5,000
10,000
15,000
20,000
25,000
30,000
97 98 99 00 01 02 03 04 05 06
Rest of World
China
World Polyester Production – China now accounts for more than 50% of textile polyester production.
Thousands of Tons
0
5,000
10,000
15,000
20,000
25,000
30,000
97 98 99 00 01 02 03 04 05 06
China Rest of World Cotton
World Fiber Production
More Factors Influencing World Cotton China is the largest importer of cotton, administration of
import quotas depresses world cotton prices. Chinese imports face variable duties with lower priced
cotton being assessed a higher duty. Allocation of import quota often tied to agreement that
subsequent textile products produced from the imported fiber are exported.
Allocation of import quotas is linked to an equivalent purchase of more expensive Chinese cotton.
Texas Tech study finds elimination of China TRQ system has almost 3 times the impact on world prices than complete elimination of all US cotton programs.
Million Bales
-10
0
10
20
30
40
50
60
95 96 97 98 99 00 01 02 03 04 05e 06f
Net Imports Production Use Stocks
China Cotton Supply & Use
Million Bale Equivalents
0
4
8
12
16
20
24
28
95 96 97 98 99 00 01 02 03 04 05 06f
Imported Domestic
U.S. Retail Cotton Consumption
Cents per Pound
45
50
55
60
65
70
75
80
85
90
Au
g-0
2
No
v-0
2
Fe
b-0
3
Ma
y-0
3
Au
g-0
3
No
v-0
3
Fe
b-0
4
Ma
y-0
4
Au
g-0
4
No
v-0
4
Fe
b-0
5
Ma
y-0
5
Au
g-0
5
No
v-0
5
Fe
b-0
6
Ma
y-0
6
Au
g-0
6
Africa A Index Memphis
Cotton Prices, CIF North Europe
Index 1989 = 100
60
80
100
120
140
160
180
89 91 93 95 97 99 01 03 05
US West Africa
ITMF Contamination Survey
Contamination Issues Reflected in Price
International Textile Manufacturers Federation (ITMF) surveys textile mills about contamination problems
Collect results based on 16 types of contamination
Pounds per Acre
0
100
200
300
400
500
600
700
800
95 96 97 98 99 00 01 02 03 04 05 06
Trends in Cotton YieldIn 1995, gap was 200 pounds. Today, the gap is more than 425 pounds.
Sub-Saharan Africa
All Other Countries
Impact of Yield on Gross Revenue
Cotton yields in other countries have increased by almost 200 pounds per acre.
At today’s world price of $0.57 per pound, that amounts to more than $100 per acre of additional revenue due to yield growth
Cents per Pound
30
40
50
60
70
80
90
100
Aug
-97
Aug
-98
Aug
-99
Aug
-00
Aug
-01
Aug
-02
Aug
-03
Aug
-04
Aug
-05
Aug
-06
Africa CA/AZ Memphis
Cotton Prices, CIF North Europe
Price Impacts of Cotton Programs
International Monetary Fund, March ‘03 Estimates the effects on welfare and world
prices of removing agricultural support applied to ten products (including cotton) in industrial countries
Removal of Support Across All Countries Increases World Cotton Price by 2.8%.
Price Impacts of Cotton Programs
Food and Agriculture Organization of the UN, April ‘04 Analyzed the complete elimination of domestic
cotton subsidies, as notified to the WTO, and tariffs on raw cotton
World price increases by 3.1%. The authors indicate that the U.S. is responsible for 66% of the price increase or 2%.
Price Impacts of Cotton Programs
Texas Tech University, May ‘04 Analyzed the effects of elimination of U.S.
cotton subsidy programs on the world cotton market using a partial equilibrium model of the world fiber market
Over the 1999-2002 period, the analysis concludes that removal of all U.S. cotton programs would result in an increase in the world price of cotton by 2.4%.
Value of C-4 Cotton Production
Cotton production in the C-4 countries averaged 2.75 million bales per year over 2000-04
Over the same period, world price averaged $0.56 per pound
Value of C-4 cotton production averaged $734 million per year @ world prices
Assessing Impacts
Annual value of C-4 cotton production is $734 million
Analyses conclude world price impacts of all governments’ cotton programs only between 2 and 3%
C-4 claim of between $300 and $400 million is 41% to 54% of the total value of C-4 production
Damage claim dramatically overstated
Why do these Studies Find Relatively Smaller Price Impacts than Other Work?
Other studies, such as analysis by ICAC, assume high-price years in mid-1990’s approximates production in the absence of the program. Uses this base period as standard for measuring subsequent years
Demand elasticities in other studies are extremely small, thereby exaggerating price effect
Other Issues Affecting C-4 Producers
Movement of CFA Franc relative to the dollar has increased cost of production by $0.20 per pound (Source: ICAC, January 2005)
C-4 growers receive smaller proportion of world price than counterparts in other countries such as Brazil and China
Production in China, India and Pakistan has increased substantially in recent years
Brazil Production (Thousand Bales)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
95 96 97 98 99 00 01 02 03 04
If US Production falls, Brazil will fill the gap.
Brazil Will Fill the Gap
In 2003, a 20% price rise precipitated a 2 million bale increase in production just in Brazil.
Such an increase in production naturally dampens price rises.
Brazil and India are two countries with highest potential to dramatically increase production. Brazil has available acreage and large,
mechanized operations India has low yields that could increase
significantly.
Million Bales
0
20
40
60
80
100
120
140
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
US Sub-SaharanBrazil China, In, PakWorld
Cotton Production
