JOHN BAFFESTHE WORLD BANK
“THE MULTILATERAL TRADING SYSTEM:A US-AFRICA DIALOGUE ON COTTON”
IDEAS & CARNEGIE ENDOWMENTWASHINGTON, DC
JULY 20, 2009
Cotton in WCA: Trade Opportunities and Ways to Realize
Them
1
All commodity groups and most commodity prices increased during the boom
Change (%) in nominal price, 2003 to 2008
Source: The World Bank
2
The gap between cotton and agricultural prices is likely to persist
3
Real, MUV-deflated Indices, 1980 = 100
Source: World Bank
Cotton
Agriculture
Cotton did not join the boom, why?4
Rapid expansion of biotech cotton, especially in China and India put pressure on the supply side.
The cotton sector is still subsidizedGlobally, there is less substitutability between
cotton and grains (e.g., cotton and maize) than among grains (e.g., wheat and maize), hence the recent biofuel demand for other maize and edible oils did not affect cotton as much
Share of biotech cotton in selected countries
Source: ICAC and Cotton Outlook
Cotton area under biotech varieties, 2007/08
5
China and India dominate global cotton production
Share (%) of world total
Source: International Cotton Advisory Committee
6
Production in WCA cotton is declining, why?
7
Yields have been stagnant and (lately) decliningCotton prices in CFAf terms are even lower
compared to US$ termsMost WCA cotton companies are inefficient,
thus not fully prepared to cope well with issues such as price variability and high quality fiber requirements
Poor marketing efforts (characteristic in many AFR cotton producing countries)
Inefficient use of cotton by-products
Cotton prices in CFAf terms lag behindtheir US$ counterparts
Nominal price indices (2000=100)
Source: World Bank
8
What can (or cannot) be done9
Increase efficiency of ginning companiesMake better use of cotton by-products, especially in
the current environment of high edible oil pricesImprove marketing effortsReduce subsidies within DohaMacro environment (i.e., exchange rates) is
important but goes beyond C-4 and cottonOften the development of textiles and clothing
(T&C) industries is advocated but: (i) the history of this industry in AFR is not encouraging; (ii) many studies have shown that, with a few exceptions AFR is not very competitive in T&C; and (iii) even is a T&C industry becomes successful, cotton will be traded at world prices.