On formulating resolutions to the problem facing the African producers on the world cotton market

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On formulating resolutions to the problem facing
the African producers on the world cotton market

• Presentation by the Director CTA to the
  EU-African Cotton Forum
• July 5-6, 2004

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Introduction

• The statement of the issue so eloquently outlined
  by previous speakers is an important one in that
• It brings us back to an old issue in ACP EU
  relations the importance and impact of trade in
  agricultural commodities to ACP economic social
  well-being
• It is doubly important because, what we may call
  today the cotton subsidies case provides a
  concrete example of inequity in circumstances
  where the masters of the system, the OECD states,
  have already benefited disproportionately from
  the first phase of the accelerated liberalisation
  reforms they sold to the world under the UR. This
  fact alongside apparent double standards on
  subsidies, has in the eyes of many informed
  observers helped to bring into question the
  legitimacy of the governance of the global
  trading arrangements.
• So, although the EU is not the only player in
  town, walking away form the problem would not be
  costless, politically.
• At the same time the issue raises many questions
  for the ACP states who in seeking redress will at
  some point find themselves pitted against the
  rich as well as the poor. It is also a challenge
  to their inertia, weak economic and development
  policies and inadequate collaboration and
  alliance building.

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ACP EU Cooperation, Agriculture Lomé

• IACP-EU relations have always been informed by
  the explicit recognition of the link between
  international agricultural trade and ACP
  development and more importantly, had sought to
  attenuate the adverse consequences of low
  unstable commodity prices on investment and ACP
  welfare. Hence, the special characteristic of the
  Lomé Convention and the tools employed to address
  these particular problems
• non-reciprocity
• stabex in particular
• Today with different concerns driving global
  trade rules and the need to negotiate a Cotonou
  trade regime to supercede Lomé we are faced with
  the question of how to deal with the extreme
  vulnerability which still characterizes the
  structure of ACP trade.

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African Agriculture Development

• In SSA economies, industrial growth is
  increasingly dependent on agricultural growth
  either thru
• backward linkages or
• on demand originating from rural population
  (because of de-industrialisation which seems in
  many African states seems largely associated with
  trade liberalisation and privatisation)
• But agriculture is in a parlous condition in many
  states and as a consequence growth in many states
  has been negative (UNCTAD, 2001 p27, 34)

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VULNERABILITY DUE TO

• Extreme
• Trade dependence
• Market dependence and
• Commodity dependence
• Not to mention asymmetrical application of
  international trade rules
• An indication of the commodity dependence may
  be had from the a look at the 1999 figures
• True, the worst case was GB 94 of whos foreign
  exchange earnings were attributable to coffee but
  cotton gave rise to only slightly less
  distressing cases
• Mali 46
• Chad - 42
• BF 39
• Benin - 38
• The passage of time has not attenuated this
  fact, in 2001 the figures were 42, 34, 45, 65,
  respectively.

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African Agriculture Development

• When an economy is so dependent on a single
  commodity it has nowhere to turn when the terms
  of trade deteriorate, as occurred in the period
  since 1995. (if cotton sneezes)
• Among the main economies whose commodity dollar
  was buying less tractors and equipment from the
  EU were
• Years 1998 1999 2000
• Mali 11 -23 -28
• Chad -6 -15 -20
• B.Faso -4 -16 -25
• Benin -7 -14 -16

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The state of African agriculture

• Deteriorating terms of trade has been the result
  of relatively sharp declines in world
  agricultural prices in 2000 non-oil commodity
  prices were between 1/3 and 2/3 lower than prices
  three decades earlier (UNCTAD, 2001, p 37/8)
• Prices have also been volatile prices of
  African coffee, cocoa, cotton and copper exports
  exhibited wider fluctuations than those for
  manufactures and other commodities overall
  terms of trade between the trough peak of the
  price cycle in the 1990s real prices for these
  products rose by 128, 116, 28 30 49,
  respectively (P37 40). Between their peaks and
  1999 they declined by 35, 15, 28, 70 and 13 and
  continue to date. This has predictable
  consequences for macro-economic management and
  discouragement of investment.
• IBRD it can be estimated that for each dollar
  of net capital inflow to SSA from the ROW, some
  25 cents went back as net interest payments and
  profit remittances abroad, more than 30 cents
  leaked into capital outflows and reserve
  build-up, while 51 cents made up for terms of
  trade losses. These figs indeed imply a net
  transfer of real resources from SSA to the ROW
  (UNCTAD, 2001, p 36).

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COTTON POVERTY ALLEVIATION

• The economic social significance of the crop
  cannot be exaggerated for SSA
• 2-3mn farmers are employed in the sector
• Some 15 mn persons, most of whom are very poor
  many of whom reside in marginal/disadvantaged
  geographical areas, are directly dependent on the
  operations of the sector
• Production is labour intensive which means that
  incremental increases in output have direct and
  positive impacts on employment and, not merely on
  income levels, but on income distribution a
  matter of no little significance to the
  international community if poverty alleviation
  and food security are their goals
• It is also a major source of fiscal incomes
  govt revenues/taxes the instability of which
  contribute in no small measure to the growth of
  failed states among LDCs which has
  characterised the post-1980s era.

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THREATS TO AFRICAN COTTOM

• These are many
• In spite of the high quality of African cotton
  there is competition from synthetic products and
  from GM cotton. In the latter regard cotton is
  one of the 4 commodities, the production of
  which, most closely associated with the GMO
  debate. In terms of acreage these are
• 1. Soya
• 2. Maize
• 3. Canola (HY rape)
• 4. Cotton
• Because the industry is under-capitalised it is
  especially susceptible to external shocks
• NO I HAVE NOT FORGOTTEN THE CASE OF SUBSIDIES I
  believe that that aspect has been already well
  aired. So suffice it for me to mention it at this
  point.

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RESOLUTIONS REMEDIES

• In view of this variety of causes, the solutions
  would of necessity be multi-faceted, if they are
  to be effective.
• Those remedies would depend on our goals which
  should be the achievement of reasonable and
  stable incomes as well as relatively remunerative
  prices for producers, This means that one has to
  look beyond subsidies
• Achievement of higher incomes would in turn
  require the exploration of
• Diversifying output into products with more
  bouyant demand more flexible supply response
  capabilities Exploiting the value chain by local
  processing of output in recognition of the
  historical fact that in almost every developed
  state cotton and textiles provided a large part
  of the the base for economic transformation
  industrial take-off.
• Market diversification via product
  differentiation e.g - careful market analysis to
  identify take advantage of niches demand for
  biological cotton e.g., and fair trade
  preference etc
• Capitalisation the application of improved
  techniques of production to improve
  productivity to maintain and increase
  competitiveness
• Addressing the international trade environment
  including the application of rules
• It would also require attention be paid to
  institutional issues such as strengthening and
  clearly defining the roles of the various actors
  in the sector state vs. farmers vs policy
  -makers in decision-making, industrial vs
  agricultural, foreign vs local, investors vs
  speculators etc

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INSTITUTIONAL STRENGTHENING TECHNICAL
ASSISTANCE ROLE PLAYING

• In the light of this multitude of tasks the
  question of technical assistance would arise and
  in particular the role of the international
  community the EU has prominent place
• The actors will themselves need to determine
  their role especially as regards goal definition,
  regional cooperation and the tasks associated
  with fighting their case in the international
  trade arena.
• The CTA can play a role in so far as the
  importance of ICM is recognised. I should add
  that the cotton states have made much more of the
  range of our skills than have other sectors in
  the ACP. This is not the time to expand on that
  theme but can have an idea from the literature
  available to the meeting

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CTA SUPPORTING ACP TRADE NEGOTIATIONS

• Improving the content, coverage delivery of
  targeted information thru AGRITRADE PORTAL in
  particular
• Strengthening ACP negotiating capacity thru
  support for info exchange via strategic
  conferences specific technical workshops -
  employing conventional modern tools such as
  e-discussion which preceded this conference.
• Improving the dialogue at national regional
  levels consultative workshops
• Promoting standing dialogue via appropriate IC
  tools using electronic fora, CD-ROMS, briefing
  notes etc
• Responding to requests to help devise implement
  lobbying strategies cotton, SPS, fisheries
  (draft model agreements)
• Commissioning technical studies subsidies in
  fisheries, SPS, sugar, cotton, bananas
• ICM support Cancun assistance (cotton)
  disseminating rum experience

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CONCLUSION

• Special feature of this exercise on which the
  producers and EU have embarked is the search for
  remedies a search beyond the shouting
• There is clear recognition of inequity of the
  current situation a growing realisation on the
  ACP part that in what are clearly dynamic
  circumstances no single step will constitutes
  permanent remedy/silver bullet
• Also imperative that, in taking this small step,
  we try to show the world what lies behind the
  unique platform of cooperation what can be
  achieved with goodwill, good intentions and good
  sense! We need it to succeed.

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CTA OBJECTIVES
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CTA OBJECTIVES