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Cotton in the World Economy

Why Talk About Cotton in the WTO?

Cotton is grown commercially in around 80 countries, while grain and oilseeds are grown in virtually every country. Cotton area accounts for only about 2.5% of the world’s arable land.The value of world cotton production in the current season (August 2017 to July 2018), will be about US$50 billion. In comparison, the value of world production of soybeans, maize, wheat or rice are each around $130 billion to $160 billion. Therefore, cotton is neither the largest crop in terms of land area, nor the most valuable in terms of production value.Additionally, cotton is primarily a fiber crop, not a food crop, which means it is not usually associated with food security, a traditional focus of government concern.

So why is cotton the focus of the Talks on Agriculture at the WTO?

Put simply, cotton is a uniquely appropriate focus of WTO attention because it connects people to markets. Cotton is a driver of economic development and is of critical importance to the economies of developing and least developed countries, including most countries in Africa. In addition, production and trade in cotton are distorted by a plethora of government measures.

Cotton can be stored for years without loss of value. It does not require refrigeration, and when baled and stored properly, it does not degrade in quality and is not vulnerable to mold, bacteria, insects or vermin. A bale of cotton packed to international standards is sufficiently dense that oxygen is squeezed from the interior, preventing the establishment of fire or the survival of diseases or insects. A bale will not absorb water, and if the bale ties are not broken will float indefinitely.

Cotton can be transported over rough roads for thousands of kilometers without damage. If a bale falls out of the back of a truck or off the side of a rail car, you just brush off the dust, put it back and continue on.

Cotton has a high ratio of value to weight and density, so it can be economically shipped from interior locations. For a bale of cotton shipped from an average location in the United States to an average destination in East Asia, freight represents one-sixth of the landed value. For wheat, corn and soybeans, freight alone represents one-half the landed value of a shipment between the United States and East Asia.

These are the reasons why cotton is grown in landlocked regions like Mali, Burkina Faso and Chad, Zambia and Zimbabwe, Uzbekistan and Xinjiang, Northern Texas and Central Maharashtra, thousands of kilometers from ports and weeks from shipping destinations. Cotton is grown on the frontiers of global trade, and in many regions, cotton is the only viable economic activity available, providing incomes to millions.

Further, cotton is central to economic development and poverty alleviation, and cotton contributes to food security. Grain crops are in the grass family and have horizontal roots, good for stabilizing soil but leaving crops vulnerable to water and heat stress. Cotton is a woody perennial with vertical roots that typically descend 1.5 meters, allowing it to provide an economic yield in semi-arid and arid regions where food crops would fail. Cotton is grown in rotation with food crops, and its vertical roots breakup the hardpan and draw nutrients from below the surface into the top soil. As a cash crop, cotton often serves as collateral against input loans to farmers in developing countries, allowing farmers access to fertilizer, insecticides and seeds for food crops that would otherwise be unavailable. Consequently, production of food rises in areas where cotton is grown.

Cotton also provides cash incomes that enable farmers to purchase food, as well as paying for school fees, clothes and health care. For many small holder households in Africa and elsewhere, basic sustenance is provided by food crop production and animal husbandry, but cotton is the only source of cash income for the family. The governments of some developing countries, including the C4, provide cotton inputs to low income families as a form of social support, as an alternative to direct cash assistance.

These are the reasons why it is appropriate to talk about cotton in the WTO.

Cotton Trends

World cotton production and consumption have risen from 7 million metric tons in 1950/51 to 26 million tons today; the average annual increase has been nearly 300,000 tons. When looked at in the long run, and especially with a trend line imposed, world cotton production seems to be climbing steadily. However, there have been distinct periods of plateaus and jumps to new levels.

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World production climbed at a relatively steady rate during the 1950s, 1960s, 1970s and into the early 1980s, reaching 16 million tons. Then in a single season in 1984/85, the world total jumped by a statistically unprecedented one-third to 21 million tons, and then saw-toothed around that level for another 20 years. Then, there was another one-year phase change in 2004/05, and world production jumped to a new plateau of more than 25 million tons, where it remains today.

The first two-decade plateau of about 20 million tons coincided with economic policy changes in China under Premier Deng Xiaoping in the late 1970s and early 1980s that led to a six-foldincrease in production in China, boosting the world total. That was followed by the breakup of the Soviet Union in the early 1990s, which led to a halving of production in Central Asia, offsetting increases elsewhere, and leaving the world total just shy of 20 million tons.

The ongoing plateau began in 2004/05 when the cumulative impacts of the adoption of biotechnology in agriculture, incremental advances in traditional varietal breeding and the application of information technology to crop management led to a jump in the average level of world production to 25 million tons.

Analysts did not anticipate either of the first two phase changes in the levels of world production, and we will surely miss the next structural shift. However, cotton scientists, the people who really understand the implications of new technologies in the pipeline, believe that the current plateau will continue into the next decade.

World cotton production rose to 26 million tons in the current season ending in July, and production is expected to remain about as high in the season that will start in August 2018. World cotton use is forecast to climb to nearly 27 million tons in 2018/19, which will finally mark a full recovery to the level achieved prior to the recession a decade ago. World trade in cotton is forecast to climb to 9 million tons, the highest in several seasons.

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India, China, and the United States account for two-thirds of world cotton production, while China, India and Pakistan account for a similar percentage of world cotton consumption.

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Fiber Consumption

As noted earlier, world cotton use reached 27 million tons in 2007/08 and is forecast to finally reach that level again in the coming season. Economic factors obviously account for the decline in cotton use during and just after the recession in 2008, but the growth of polyester production and inaccurate criticisms of the environmental impacts of cotton production have contributed to weak demand growth for cotton during the past decade.

World production of synthetic fibers, of which polyester is by far the most important, rose from less than 1 million tons in 1960 to more than 60 million tons today. Polyester alone accounted for about 55 million tons of world fiber use in 2017, more than double the amount of cotton used. Cotton’s share of world fiber use has fallen from about 80% in the 1960s to 50% during the 1980s and to about 25% today. It is self-evident that competition with polyester is having a huge negative impact on the quantity of cotton used each year.

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Technology Demonization

Another factor affecting cotton consumption with potentially far-reaching ramifications for all of agriculture, not just cotton, is the rejection of modern tools of agricultural production by opinion leaders in developed countries.

For thousands of years, starvation was common to the human experience, and only in the last 70 years with the widespread adoption of mechanization, synthetic fertilizers and pesticides, and in the last 20 years, biotechnology, has the human condition fundamentally changed to a world of relative abundance. Today, famine is associated with war and ethnic cleansing, but otherwise, we live in a world of such abundance that consumers in rich countries can afford to indulge almost any preference. Agricultural science, along with medicine and sanitation, can take credit for the greatest gains in human lifestyle in history since the 1950s.

But, memories are short, and most urban consumers today are far, far removed from the realities of agricultural production. Instead of celebrating the success of agriculture, many environmental groups and retailers seeking brand differentiation are conducting campaigns of demonization of agricultural technology. Since cotton is a highly technical crop, those campaigns fall directly on the cotton industry.

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There are many examples of negative information about the world cotton industry being disseminated by various interest groups. The most common claims are that pesticides and fertilizers are harmful and that cotton requires excessive amounts of these, that agricultural chemicals are used indiscriminately, resulting in damage to the health of cotton farmers, farm workers and neighbors, that because water is scarce its use on cotton is wasteful, that biotechnology is dangerous and therefore cotton is dangerous, and that in some countries the cotton industry contributes to political repression and poverty.

All of these allegations are either gross exaggerations, distortions, or flat out falsehoods.Nevertheless, many of these concepts have entered mainstream acceptance, especially in Europe and Japan, and cotton consumption is being affected. In response, the cotton industry is joining with other commodity groups to provide fact-based information about the efficacy and safety of agricultural technologies, but once negative perceptions become embedded, they are hard to offset.

Higher Prices

Despite the growth of polyester and negative allegations, in testimony to the resilience of the industry, cotton consumption and trade are climbing, stocks are falling, and prices are above average.The Cotlook A Index, an indicator of prices of cotton of average quality delivered to locations in East Asia, rose from 70 cents per pound in 2015/16 to 83 in 2016/17 and 85 in 2017/18. Since 1973/74, the A Index has averaged 73 cents per pound. Therefore, the current price level looks attractive in nominal terms.

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However, in real terms, cotton prices have been falling for decades. Using a world GDP deflator from the IMF, the 1973/74 Cotlook A Index was more than $3 per pound in 2017 dollars. In real terms, the Cotlook A Index in 2015/16 of 70 cents per pound was the lowest in the post-World War Two era, and the rise to 83 cents in 2016/17 and 85 in 2017/18 were still among the lowest levels in real terms in eight decades.

The decline in the deflated value of world cotton production is an indicator of the cost pressures faced by farmers. Cotton is not alone among commodities in seeing declines in the terms of trade as the world economy diversifies and consumers spend a greater proportion of disposable income on electronics, entertainment, travel, health care, housing and other items, and less on traditional commodity goods such as clothing.

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Between 35 and 60 million family units are engaged directly in cotton production worldwide, including 3 million to 4 million households in Sub-Sharan Africa. When family labor, hired-on farm labor and workers in ancillary services such as transportation, ginning, baling and storage are considered, total involvement in the cotton production sector each year is estimated at between 150 million and 190 million people around the world, or 2-3% of the world’s population. In Sub-Saharan Africa alone, employment in the cotton sector is between 40 million and 50 million people, or 4%-5% of the one billion population total.

World average gross revenue per household from cotton production is about $1,000 a year. However, the range around that average is enormous, with a small holder in a developing country growing cotton on one-half a hectare receiving about $400 in gross revenue. In contrast, a large mechanized operation in Australia, Brazil or the United States might gross more than $2 million, and really large operations might gross more than $50 million a year. The mode, or most common experience, including a representative family unit in Sub-Saharan Africa, would be a household receiving between $400 and $1,000 a year in gross revenue from cotton production, and net revenue would be between $125 and $300 per year. Such a household would earn additional non-cash income from food production.

Sub-Saharan African Cotton Production: Rebound to Pre-Recession Levels

Sub-Saharan African production reached 1.6 million tons in 2017/18, representing 6% of the world total, and production is forecast at 1.6 million tons again in 2018/19. Sub-Saharan cotton area was 5.4 million hectares in 2017/18 (16% of the world total), and the yield was about 290 kilograms per hectare (representing less than 40% of the world average yield). Of the 1.6 million tons of production in 2017/18, 1.1 million tons were grown in the CFA Zone, and the balance of 450,000 tons came from other Sub-Sharan countries.

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Cotton area in Sub-Saharan Africa trended upward from about 3 million hectares in the early 1990s to more than 5 million currently. The cotton yield for Sub-Saharan Africa varied between 275 kilograms of lint per hectare and 375 kilograms, and the yield in 2017/18 is not significantly different from its level of 30 years earlier. With the increase in area planted, production climbed from a little below one million tons to the current level.

Among Sub-Sharan African producing countries, Mali (304,000 tons), Burkina Faso (258,000 tons), Benin (183,000 tons), Cote d’Ivoire (170,000 tons) and Cameroon (116,000 tons) are the largest in 2017/18. The levels of production in 2017/18 were either record or nearly record high in each of the five countries and represented a return to production levels recorded in the mid-2000s.

However, the rise in production since 1990 represented increased area devoted to cotton, not an improvement in yields. Yields in Sub-Saharan Africa fell from 375 kilograms per hectare in 2004/05 to about 300 kilograms currently. Of the five largest producers in Africa, only Cameroon maintained yields in the pre-recession and post-recession eras; the yield in Cameroon was about 500 kilograms per hectare in both periods.

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Yields are a function of the quantity, quality and correct application of fertilizer and other inputs such as insecticides and planting seeds. In a natural setting, such as a forest or pasture where nothing is harvested by humans, the environment will reach a natural balance. But in any commercial setting where humans are harvesting produce from crops, a natural balance is impossible, and soil nutrients must be replaced. Therefore, even with the best agronomic practices, commercial production of agricultural crops will deplete soils of nutrients, and steps must be taken to maintain soil health by rotating crops and adding nutrients through the application of fertilizer. Crop rotation is a universal practice, and common rotations in Africa include cotton, maize and cassava or a legume such as beans.

Cameroon is the only large Sub-Saharan African producer that has been able to supply farmers with adequate amounts of fertilizer in a timely manner each season so as to be able to preserve soil fertility and maintain cotton yields.In other countries, soil fertility is declining as input availability to farmers has diminished.

Sub-Saharan Africa received approximately $900 million in cotton-specific development aid between 2004 and 2016 under initiatives catalogued by the World Trade Organization, in Annex 1 to the Director General’s Evolving Table on Cotton Development Assistance (WT/CFMC/6/Rev.24).

Nevertheless, the average yield across Sub-Saharan Africa of 290 kilograms of lint per hectare in 2017/18 was no greater than it had been two decades earlier. While the development aid was helpful in achieving specific objectives such as training scientists and farmers, supporting research, and encouraging sustainable production practices, the aid could not supplant the diminished availability of inputs.

Identity Cottons

World cotton production is increasingly dis-aggregated by the marketing program or initiative under which it is produced. There are many programs to collect data, encourage improvements in production practices or assure consumers of responsible production practices; some of the programs are organized by producers in a particular country, some are sponsored by input suppliers, and some are multinational initiatives facilitated by the private sector and governments. Because cotton is increasingly identified in marketing channels by the program under which it was produced, these are called “identity cottons.”

World production of the four major identity cottons (Organic, Cotton made in Africa (CmiA), Better Cotton Initiative (BCI) and Fairtrade) is estimated at 3.2 million tons in 2016/17 (14% of the world total), up from 2.6 million tons in 2015/16 and 2.1 million in 2014/15.(There is a lag in reporting by each identity program, and data for the current season have not yet been reported.) The proportion of world cotton production under various identity programs is likely to increase, and BCI has an objective of accounting for 30% of world production by 2020.

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World production of organic cotton grew from very small amounts in the early 1990s to a peak of 175,000 tons in 2008/09. Production dropped sharply after the recession as retailers and brands withdrew from sponsorship of organic cotton programs. Production in 2015/16, the most recent year for which statistics have been published,was 108,000 tons. The most recent data reported by Fairtrade is for 2014, when about 7,000 tons of lint were produced.

Organic and Fairtrade cotton production are falling because they require about twice as much work and yields are lower than conventional cotton. One hectare of organic cotton typically requires around 170 days of labor per year, compared with 90 days per year for conventional cotton.Excellent growers with sound agronomic knowledge require premiums of about 20%, but average growers experience greater yield losses compared with conventional production, and they require correspondingly greater premiums. However, premiums paid for organic cotton have fallen from 15% to 5% over the last decade.

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The Director General’s Evolving Table on Cotton Development Assistance (WT/CFMC/6/Rev.23) from November 2017 includes nine projects involving organic and/or Fairtrade cotton in Africa totaling about $27 million. One of the projects with a value of $3 million is in the project formulation stage.

Production of certified organic cotton in Sub-Saharan Africa totaled 4,542 tons in 2015/16, down from 8,922 tons five seasons earlier. Projects involving organic and/or Fairtrade cotton do not seem to be having discernable positive impacts.

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Production under CmiA totaled 346,000 tons in 2014/15, the most recent season for which country-by-country data are available,and production in Sub-Saharan Africa under BCI accounted for an additional 46,000 tons. Production under the two identity programs combined was 392,000 tons, or one-fourth of production in Sub-Saharan Africa in 2014/15. Governments have spent nearly $9 million on projects involving CmiA and BCI in Sub-Saharan Africa since 2006. There are no impacts on Sub-Saharan African yields or production of either program that are apparent in national statistics, but the programs may have positive impacts on participating households.

Cotton made in Africa and BCI are growing, while organic and Fairtrade cotton are shrinking. The major difference is that CmiA and BCI allow the use of modern agricultural technologies (CmiA does not accept biotechnology), while organic and Fairtrade require the use of labor intensive technologies from the early 20th Century. CmiA and BCI are initiatives that help farmers improve by providing training in the use of Best Management Practices, and farmers find such help useful. Organic and Fairtrade are only produced if premiums of at least 20% are paid, and few retailers are willing to guarantee such premiums.

Government Measures in Support of Cotton Production

The International Cotton Advisory Committee (ICAC) estimates that cotton-specific support provided by governments will total nearly $6 billion in 2017/18, the current season. The ICAC includes direct support to production, border protection, crop insurance subsidies, and minimum support price mechanisms in its calculations. The ICAC does not include fixed payments, or area payments, subsidies for research or construction of infrastructure, because these are not cotton specific. About three-fourths of all support is provided by China, with the USA, Turkey and the EU accounting for essentially all the rest.Small amounts of support are provided by several other countries.

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Support per pound of production this season ranges from about 50 cents in Spain and Greece to approximately 30 cents in China, 20 cents in Turkey, 10 cents in the USA and about 5 cents in a few other countries.

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The Government of China provides support to the cotton industry with three major interventions and two smaller programs. The major interventions include import quotas and tariffs, the operation of a buffer stock, and direct payments to producers. Subsides for using high-quality planting seeds, and a subsidy for transportation of cotton from Xinjiang to mills in eastern and southern China, are the two smaller programs.

Cotton mill use in China is about 2 million tons greater than production, and imports bridge the difference. Consequently, domestic prices are highly influenced by the cost of imported cotton.

China is obliged to establish a calendar year tariff-rate-quota (TRQ) under the terms of its WTO accession agreement. The in-quota tariff is 1% for the first 894,000 tons of imports each year. Additional import quotas are released based on the requirements of domestic spinning mills. The additional quotas can carry a tariff of 1%, or quotas can be based on a sliding scale of tariffs ranging from 5% to 40%.

China also maintains a strategic reserve, or national cotton buffer stock. China releases cotton to the market from the reserve through a system of auctions when there is a shortage, and replenishes the reserve in times of abundance, thus supporting prices. Since 2014/15, there have been no purchases by the government into the reserve. Since 2015/16, China issued only the TRQ import quotas of 894,000 tons per calendar year. As a result of government interventions and quotas, domestic cotton prices in China have exceeded international prices during the past three seasons, to the benefit of domestic farmers.

In addition to quotas, tariffs and a buffer stock, China provides direct payments to cotton producers. Payments to producers in Xinjiang, the far-western region, are based on the difference between a target price and an average market price each season. Xinjiang accounts for about three-fourths of total production. In the Eastern Provinces, a flat rate per ton is paid to farmers, regardless of the level of market prices.

The Government of the United States provides direct support to cotton farmers through four basic mechanisms: insurance against declines in revenue, insurance against declines in yield, a price floor and subsidies given to farmers to offset the cost of ginning. These mechanisms are mind-numbingly complicated, with formulas used to calculate the benefits received by each farmer on each farm while respecting WTO commitments and also balancing the interests of each region within the United States and each program crop. The premiums for the insurance programs are calculated on an actuarilly sound basis, but the government subsidizes more than half the premiums.

The revenue insurance program is called STAX, for Stacked Income Protection. Under STAX farmers who choose to purchase the insurance receive an indemnity if gross revenue (price times quantity) falls below a threshold selected by each farmer. Less than half of cotton farmers choose to buy this insurance, and those who do generally choose low thresholds which provide protection only in cases of bankrupting revenue declines. STAX, which was implemented in 2015/16, has not been popular and will not continue after 2018/19.

Yield insurance, or crop insurance, is available in many different versions, ranging from insurance against drought to insurance against pest attack resulting in yield loss, and even insurance against damage from fire. The insurance is sold to farmers through private companies, but the government subsidizes the premiums. About 90% of all cotton produced each year in the United States is covered by some form of yield insurance.

The U.S. government provides a guaranteed purchase price for cotton under a program called the Marketing Loan. The floor price varies by region of production and by quality of cotton, and the average is about 50 cents per pound of lint. Market prices have been far above the price floor for several seasons, and so this provision has not been effective for some time.

Finally, the government has given farmers a payment based on their acres harvested during the last two seasons under a program called Cotton Ginning Cost Share. Like STAX, this program will not be available beginning in 2019.

Support provided by the European Union, Turkey, and Colombia is simply a premium paid to farmers per acre harvested or per kilogram of seed cotton production. Of course, there are formulas and regulations to guard against fraud and ensure accurate payments to each farmer, but the basic concept is simply a payment to augment incomes.

Cotton producers in the European Union receive 65% of total support in the form of a single decoupled payment (income aid) and the remaining 35% in the form of an area payment (coupled, or production aid calculated by multiplying area harvested by a fixed payment amount). Only the production aid is included in the support calculations made by the ICAC because the income aid is decoupled from production volumes. If total aid to cotton farmers is considered, support per pound in Spain and Greece would be approximately $1.50. Payments in Turkey and Colombia are based on kilograms harvested.

India has a system of minimum support prices (MSPs) for each variety of cotton in each state, but market prices have been above the MSPs in recent years. The Government of India also provides fertilizer subsidies and debt forgiveness for small holders. Several other countries also subsidize cotton inputs, including fertilizer and planting seeds.

Summary

Cotton is not the largest, nor is it the most valuable crop in the world. However, cotton connects people to markets and provides economic opportunities on the frontiers of the world economy. World production and consumption are just now returning to the levels of a decade ago prior to the 2008 recession, and cotton growers in Africa and elsewhere are benefiting. Nevertheless, much greater benefits could be captured if African economies did a better job of providing inputs to growers to result in greater yields.

Cotton-specific development aid and identity production initiatives such as BCI and Cotton made in Africa, have numerous specific positive impacts, but the foundational objectives of raising cotton yields and incomes from cotton farming will only be fully realized when the problems of logistics and input supply are solved.Statistics make clear that organic and Fairtrade cotton are charities, not vehicles of economic development, and support for such practices are best left to charitable organizations, not governments.

World cotton production and trade remain distorted by government measures which provide advantages to farmers receiving benefits, and those distortions are likely to continue.

Age of Cheap Polyester Ending As Environmental Concerns Mount

AGE OF CHEAP POLYESTER ENDING AS ENVIRONMENTAL CONCERNS MOUNT

Cotton has been attacked by environmental groups for decades for the use of pesticides, fertilizer, and water. Meanwhile, the man-made fiber industry has experienced unchecked growth with hardly a word regarding the damage caused by fossil fuel extraction, fiber production and end-of-life disposal of man-made fiber products, especially in China.

As China started to industrialize in the early 1980s, textile production was a leading area of investment. In 1990, polyester fiber production in China was about 1 million tons, but by 2015, polyester production in China had grown to approximately 35 million tons, equal to 70% of the world total. The 35-fold increase in polyester production in China in 25 years is the single biggest factor reducing world demand for cotton today.

Since 1990, China’s man-made fiber sector has enjoyed record growth, with fixed asset
investment breaking all records as new capacity was added throughout the supply chain, from
the production of feedstocks to finished fiber products. This growth occurred with little consideration for air and water quality. The policy of economic growth and jobs first meant that
any attempt to enforce the few regulations which existed were systematically overlooked. During this period, China became the largest man-made fiber feedstock and fiber producer in the world and came to dominate the sector.

There has been wholesale destruction to China’s water, air and soil caused by the unparalleled pace of industrialization over the past twenty years. Recent reports indicate that 80% of the
underground water supply is unsafe to drink. Any visitor to Beijing in the winter can testify to the smog and the “Airocalypse”, the term used to describe the periods when the air is unhealthy and almost unbreathable.

Previous Chinese government appeared to view environmental issues as part of a western conspiracy to limit China’s growth. However, things have changed under the leadership
of Xi Jinping. President Xi took office in November of 2012 and has led a radical shift in Chinese environmental policy, with air and water quality exceeding economic growth in terms of importance to his government’s agenda. Other data, such as from social media and
spending habits, illustrate that the issue has become extremely important to the Chinese people.

One significant difference in the administration of Xi Jinping is that the Communist party has reasserted power from the top down. In the past, local governments often ignored directives from Beijing, and city, county and provincial leaders focused on economic growth, often at any cost to the environment or individual rights.

However, under Xi Jinping, Beijing’s directives now override local economic concerns, and a series of important new laws and enforcement initiatives were launched in late 2016 to tackle air and water pollution. These programs have real power, and the effort to rein in industrial pollution is influencing almost every major business that has an impact on air or water quality.

China’s production of MEG and PTA,the main raw materials for polyester fiber, entered a phase of uncontrolled growth after the global financial crisis of 2008. China responded to the financial crisis with the launch of a$586 billion stimulus plan that allowed for the flow of funds into investments in industrial sectors at subsidized interest rates and easy terms.

Chemical feedstock industries have large capital requirements, and the stimulus plan
provided the capital for these industries to rapidly expand. In just the last five years, PTA
capacity in China has grown by more than 200%, and in 2016 China accounted for 56% of global PTA production. In addition, from 2011 to 2017, China’s MEG production increased more than 500%. A large block of these MEG plants use coal as a feedstock.

Polyester staple fiber accounts for about 22% of China’s total polyester production, and filament accounts for 51%. Viscose fiber production has also accelerated in recent years, with China today accounting for 65% of global production.

There are no comprehensive statistics on the number of polyester fiber production plants in China, their ownership, sources of financing or operating costs. However, the growth in polyester production in China has been so rapid, so enormous and so incongruous with investment patterns in other countries in Asia, that it is impossible to believe that industry expansion is a result of competitive, private sector investment.

The cost of construction of a polyester plant with a capacity of 250,000 tons per year is estimated at about US$150 million. It has been widely reported that the national, provincial and local governments in China encourage industrial expansion through loans that are never repaid made by government-owned banks. There are numerous stories in China of “ghost cities” and industrial plants producing only for inventory because they have no customers. Given the emphasis by all levels of government in China on textile production since 1990, it is highly likely that much of the expansion of polyester production capacity occurred with the help of loans that have become grants. It would be naïve to think that the expansion in polyester production in China occurred because Chinese consumers were demanding more polyester or that other market forces encouraged such growth. The expansion resulted from the industrial policies of the Government of China.

Enormous Polluter

The man-made fiber sector has been an enormous polluter of both air and water. Until now, environmental controls were not enforced in China. However,the new initiatives have begun the process of bringing these industries into compliance, and pollution controls are having significant impacts on the man-made fiber sector and textile operations. Viscose fiber plants in a few areas have been forced to close due to smog emissions, and the polyester fiber supply chain has had major disruptions due to shut downs and closures. Coal based MEG plants have been forced to close because of air pollution.

Much of China’s man-made fiber production base is located only a few hundred miles from either Beijing or Shanghai, and these populations are demanding clean air and safe water. Average income based on measures of purchasing power parity for the Tianjin region is US$33,290, for Beijing $32,995, Shanghai $32,684 and for the entire province of Shandong it is $27,428. The importance of the spending power of this population is now more important economically than the benefit of the jobs provided by the older industrial plants. Consequently, the man-made fiber sector will be either forced to close or to install treatment facilities.

Polyester staple fiber (PSF) is made up of virgin polyester and recycled polyester. The recycled PSF plants do not have end-of-pipe wastewater treatment systems, and thus they release a host of potentially dangerous substances, including antimony, cobalt, manganese salts, sodium bromide and titanium dioxide. To install the necessary water treatment equipment would end the economic advantage of the recycling process. In the crackdown on pollution, the recycled polyester fiber plants are being shut down.

In addition to water pollution issues, the recycled PSF plants in many areas are fired by coal, and in East China this is a chief source of air pollutants. In Hebei, which is close to Beijing, a number of plants have been recently closed which removed as much as 500,000 tons of production capacity from the market. This, plus the other closures, has had a significant impact on prices.

The demonization of cotton is very misguided. The facts are quite clear: the process of converting crude oil, natural gas and coal into a wearable fiber is very damaging to the environment if expensive environmental safeguards are not in place. This fact is now coming to light in China. The enforcement of the environmental standards and cleanup will be costly, which could mark an important turning point for the cotton industry.

Since the 2008/09 global financial crisis, cotton has lost approximately ten percentage points of market share, driven by the production of cheap man-made fibers, especially polyester fiber. The production of cheaper apparel has caused environmental destruction in the regions in which artificial fibers have been produced.

The pace of expansion of feedstock and polyester fiber and filament production may have peaked. New capacity will be much more expensive to bring on line as plants will be required to meet stricter environmental standards. Energy consumption in East China is changing, and the days of cheap coal based plants are over. Any feedstock plants using coal or coal based energy will be closed or will have to invest inexpensive new equipment. PSF is a heavy consumer of water, and this is becoming a precious commodity.

In the near-term, China’s production capacity of PSF is adequate, so there is enough idle capacity to come on-line to fill demand. However, additional growth will be much costlier.

These new dynamics mean that a PSF floor price is developing in China, which indicates that cotton should expect an increase in consumption just from changes in fiber blends. This floor price will be near the 55 – 60 cents per pound level for now, and may even move higher.

Cotton still faces a battle with consumer preference, its ability to innovate and meet changing tastes. Cotton also faces the task of communicating to the consumer the environmental cost of man-made fiber production, while also improving its own track record. Nevertheless, the changing price dynamics of polyester staplefiber in China will be an important global macroeconomic development during the next decade.

China’s Clampdown on Pollution is changing the Textile Environment

CHINA’S CLAMPDOWN ON POLLUTION IS CHANGING THE TEXTILE ENVIRONMENT

China’s move to enforce environmental regulations has entered a new phase, and by one estimate, a third of all factories in China have experienced at least some temporary closures. The Chinese Purchasing Manager Index (PMI) for October declined to 51.6 from a 5-yearhigh of 52.4 in September. The large-company PMI remained above 50,but the medium- and small-company PMI’s contracted to 49.8 and49.0, respectively; any index value below 50 denotes contraction. The China National Bureau of Statistics (NBS) said that the PMI for high energy-consuming and polluting companies declined as a result of the government’s crackdown on pollution violators.

The regulatory clampdown is showing no signs of weakening. Factories that burn coal or use electricity generated by coal, factories that are heavy water users and factories that discharge pollutants into water or air, are being shut down or forced to make significant investments in expensive treatment technology. Some factories are being closed altogether because they simply cause too much environmental damage. Even if a factory complies, a subcontractor could be shut down, disrupting the supply chain.

As of 2017, the size of the disruption is only a ripple going through the textile supply chain, but this is only the beginning. Other than new factories in the western region of Xinjiang,most of the country’s massive petrochemical, man-made fiber, textile and apparel operations are in Eastern China, which has the dirtiest air and water in the country.Iconic textile regions, such as Shandong and Hebei, are at the heart of the pollution crackdown.

The primary raw materials for producing polyester and other man-made fibers are crude oil, coal and natural gas, and one key target of the pollution crackdown is the use of coal. Polyester is produced from Purified terephthalic acid (PTA) and monoethylene glycol (MEG). Both are sometimes made from coal, and production of each has been affected by the closure of coal based plants.

While new production capacity is reportedly set to come on line in the man-made fiber sectors of China,there are also indications that the environmental regulations are curtailing domestic production and leading to increased imports of fiber. The increase in Chinese polyester fiber production from 1 million tons in 1990 to 35 million tons by 2015 put significant pressure on South Korean and Taiwanese producers, formerly the largest exporters. Ironically, in recent months China has actually begun to import polyester staple fiber. Imports in September from South Korea were up100% from a year ago, and imports from Taiwan and Thailand were also noted. This is quite unusual.

Recyclers Affected

As crazy as the argument seems, there is a lot of hype in the apparel world regarding yarns made from recycled plastic water bottles, calling them Eco-Friendly. Recycling has become a big business in China, but the recycling process is energy intensive, and a large number of recycling plants have been closed in recent months. China has also announced that as of the end of2017, it will no longer allow the import of plastic bottle waste which is used as a raw material, leading to reduced prices for bottle waste in exporting markets. China is aggressively moving away from the products which have destroyed its environment. This will have huge consequences as it shakes the foundation of the global man-made fiber industry.

Viscose Production Curtailed

Much-hyped viscose fiber, which has taken market share from cotton due to its advantage in adding softness to products, is also being affected.Breaking down wood pulp into a fiber is environmentally damaging unless expensive equipment is installed, which has not happened in much of the Chinese industry. Water is an important resource for viscose manufacturing, and plants in China have typically been built adjacent to rivers and linked to their pollution.

Bamboo is also a popular raw material for viscose fiber in China and a couple of other locations in Asia. Bamboo has been promoted as a more environmentally friendly type of viscose because the bamboo is typically grown on marginal land. However, the process to breakdown bamboo is also harmful to the environment unless the process is strictly controlled. Worker safety is a major concern. Twenty-one companies in China now account for 65% of global viscose fiber production. One of the largest is in Jiangxi Province and has been sighted for releasing untreated waste water into China’s largest fresh water lake, Poyang, and for contaminating nearby rice fields.

Polyester Costs

The production cost of polyester fiber is increasing and will continue to move higher. Chinese fabric cost will move higher,as well. Unlike cut and sew operations, which can migrate to the cheapest locations, man-made fiber production and dyeing and finishing operations, which are linked to the discharge of untreated effluent, are capital intensive and cannot be moved easily. India, which would be one logical relocation target, already has a pollution crisis of its own. Vietnam, which has drawn some of the largest investments in textile production in recent years, has already taken a tough stance on dyeing and finishing after seeing what these industries have done to the Chinese environment. Therefore, THE AGE OF CHEAP POLYESTER IS OVER.

We expect the impact of the crackdown on pollution in China to actually be evident in the2018/19 season in the cotton industry and will have an effect on prices by stimulating demand. Increases in world cotton mill use may be stimulated if the CotlookA Index falls to less than 75 cents per pound.

End of Era in the WTO

The End of an Era: Cotton is no Longer Prominent in the WTO

Summary: The WTO completed its 11th Ministerial Conference on 13 December in Buenos Aires. The closing statements were remarkable for the omission of any reference to cotton. Cotton as an industry and African cotton producers have had their moment in the diplomatic sun, but that moment is passing. Trade negotiators are tired of talking about cotton. Donors are tired of funding cotton projects that don’t do any good. Multilateral institutions like The World Bank, the Food and Agriculture Organization of the United Nations (FAO) and the United Nations Commission on Trade and Development (UNCTAD) are losing interest in cotton, and in commodity industries generally, and they are shifting focus back to more generic issues such as women’s empowerment and food security.

The End of an Era: Cotton is no Longer Prominent in the WTO

The World Trade Organization (WTO) completed its 11th Ministerial Conference (MC11) since its founding in 1995 on 13 December 2017 in Buenos Aires, and the closing statements were remarkable for the omission of any reference to cotton. (https://www.wto.org)

MC11ended with modest progress on reducing fishing subsidies and pledges to avoid imposing customs duties on electronic transmissions for two years. There was no mention of cotton in the closing statements.

Cotton has been called a “litmus test” of the commitment of developed countries to the Development Round, and a “poster” for the Doha Development Agenda (the Doha Round), and in previous WTO ministerial meetings, cotton was a major issue. MC11 marks the end of an era in which cotton and issues related to cotton were central to international trade negotiations. Now, cotton is just one more commodity again.

The Doha Round of multilateral trade negotiations was launched in 2001 with most countries eschewing sectoral specific initiatives, and if you were to have picked a commodity to serve as the poster for development within the Round, it would probably not have been cotton. The gross value of world cotton production is smaller than for other major crops. For example, the gross value of world cotton production in 2001 when the Doha Round was launched was about $30 billion. In contrast, maize was $87 billion, soybeans $49 billion, sugar cane as well as beets were $52 billion, and wheat was $93 billion. (FAO, 2015). Additionally, cotton is primarily a fiber crop, not a food crop, which means it is not usually associated with food security, a traditional focus of government concern.

Nevertheless, cotton rose to prominence in the Doha Round, because the President of Burkina Faso attended a WTO meeting in 2003 (it is unusual for a head of state to attend such a meeting) and demanded that cotton be addressed specifically. Speaking on behalf of Benin, Burkina Faso, Chad and Mali, collectively known in the WTO as the C4, the President of Burkina Faso noted that cotton is the only good of any significant value exported by the C4, and he asserted that subsidies in developed countries depressed world prices thus hindering efforts at income generation and economic development in developing countries. He stated simply that the C4 could not support completion of the Round unless the cotton issue was resolved, an ominous threat in an institution that requires unanimity.

The prominence of cotton became official in 2005 at the next WTO meeting in Hong Kong, when member governments agreed to treat cotton “ambitiously, specifically, and expeditiously within the talks on agriculture” in the Doha Development Agenda, the only commodity singled out for specific treatment. From then until this year, at every WTO meeting in which agriculture was discussed, cotton was a prominent part of each conversation.

The 2011 Geneva WTO Ministerial Conference reaffirmed the commitment of members of the WTO to address cotton “ambitiously, expeditiously and specifically”, within the agriculture negotiations.

The Bali Ministerial Declaration issued in December 2013, included a specific “Decision” in which Ministers said again that they would address cotton “ambitiously, expeditiously and specifically”, within the agriculture negotiations.

At the Tenth WTO Ministerial Conference in Nairobi in December 2015, Ministers again issued a specific “Decision” on cotton, with countries pledging to grant duty-free and quota-free market access for exports by Least Developed Countries (LDCs) of cotton-related products and to eliminate export subsidies on cotton.

But, at the 11th Ministerial Conference just completed, cotton was just one of many issues and special interest concerns competing for the attention of government leaders. There were events and activities related to cotton conducted on the margins of MC11, but these were not central to discussions among ministers.
One cotton-specific achievement announced in Buenos Aires was the launch by the WTO and the International Trade Commission (ITC) of a “cotton portal.” The portal is supposed to provide a single online entry point for all the cotton-specific information available in WTO and ITC databases. The Cotton Portal includes information on market access, trade statistics, and country-specific contacts related to cotton market access to make it easier for cotton exporters, importers and investors to contact each other and complete trade deals.As interesting as the launch of the cotton portal is, and not to diminish the work of the ITC, the addition of a new source of data on cotton trade contacts is hardly a major diplomatic achievement. The fact that this was the only cotton-related activity announced at the WTO meeting in Buenos Aires shows that trade officials have grown weary of talking about cotton.

Why Cotton is No Longer a Focus of WTO Talks

The fact that cotton is no longer central to talks in the WTO is partly a reflection of the reduction in subsidies in developed countries. Subsidies for cotton paid to farmers in the EU were mostly decoupled from current production decisions in 2006 and remain smaller than they were previously, and subsidies for cotton in the United States have fallen from between $3 billion and $5 billion a decade ago to about $1 billion today. Thus, subsidies paid to farmers in the EU and United States are no longer major sources of distortion to world cotton production and trade.

In addition, the structure of the world cotton market has changed fundamentally since the Hong Kong Ministerial was held in 2005. China is now the largest consuming country and India the largest producing country and second largest exporter. The major sources of distortion in world cotton production and trade today occur in China (the State Reserve) and India (Minimum Support Prices), but subsidies paid to farmers in developing countries are not a focus of discussion in the WTO.

Another reason cotton is no longer central to the WTO agenda is that the reform of trade policies in the cotton sector, coupled with development assistance (foreign aid) is not helping African farmers anyway. The premise underlying the talks on cotton in the WTO was that subsidies paid to farmers in developed countries led to oversupply and reduced market prices, thus harming the interests of African farmers. However, the Cotlook A Index, which averaged about 55 cents per pound between 2001 and 2005 when the Sectoral Initiative on Cotton in the WTO was launched, is currently above 80 cents. In addition, about $900 million in donor aid has been spent since 2004 or is committed under current projects in support of the cotton sector of Sub-Saharan Africa. Despite the rise in market prices and the support given to the cotton sector, the average yield across Sub-Saharan Africa of 330 kilograms of lint per hectare today is the same as it was two decades ago, and total production of about 1.5 million tons is the same as it was when the Doha Round started. So, why bother to focus on cotton if it is not going to do any good?

Implications

Cotton as an industry, and the C4 as a group, have had their moment in the diplomatic sun. That moment is passing. Trade negotiators are tired of talking about cotton. Donors are tired of funding cotton projects that don’t do any good. Multilateral institutions like The World Bank, the Food and Agriculture Organization of the United Nations (FAO) and the United Nations Commission on Trade and Development (UNCTAD) are losing interest in cotton, and in commodity industries generally, and they are focusing on more generic issues such as women’s empowerment and food security.

Natural Fibre Demand Rising

A Rising Tide Lifts All Boats

Summary:
According to the Discover Natural Fibre Initiative, world production of all natural fibers rose by an estimated 8% to approximately 33 million tons during 2017, led by increases in abaca, coir, cotton, jute and wool. As will other natural fibers, world cotton mill use is rising and is estimated by ICAC at more than 25 million tons during 2017/18. The across-the-board increase in world natural fiber production and consumption indicates that the world economy is significantly stronger than prominent economists are estimating.

A Rising Tide Lifts All Boats

According to the Discover Natural Fibre Initiative (DNFI.org), world production of natural fibers rose by an estimated 8% to approximately 33 million tons during 2017, led by increases in abaca, coir, cotton, jute and wool. A strong world economy with increased purchases of apparel and home furnishings, 5% annual growth in paper production, increased use of natural fibers in composite materials and rising awareness of pollution linked to chemical fiber products are encouraging expanded use of natural fibers.

Cotton is participating in the increase in world natural fiber production and consumption. World cotton mill use is estimated by ICAC to be rising to more than 25 million tons during 2017/18. Despite cotton prices that remain 20 cents per pound above the long run average, despite polyester prices that remain lower than cotton, despite a drumbeat of efforts to demonize cotton by advocates of organic agriculture and retailers seeking brand differentiation. Despite all this, amazingly, cotton mill use is rising. Cotton use is still several percentage points less than the record of nearly 27 million tons achieved a decade ago, but it is climbing from the post-recession low of 22 million tons in 2011/12. Apparently, the world economy is much stronger than many economists believe, and apparently consumer preference for cotton is sufficiently resilient to withstand the exaggerations and falsehoods told by those who demonize.

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Cotton is not alone in experiencing growing demand. World demand for abaca, known as Manila hemp, is between 100,000 and 120,000 tons. However, growth to between 120,000 and 150,000 tons is forecast by 2022. World industrial hemp harvested area reached 120,000 hectares in 2016. Prices of hemp short fibers have been trending higher and reached 80 Euro cents per kilogram at the factory gate in Central Europe in 2016. World production of raw jute is increasing from 2.6 million tons in 2015/16 to 3.265 in 2016/17 and an estimated 3.4 million tons in 2017/18. World production of sisal was about 145,000 tons in 2016. The largest end uses of sisal are twine and pulp and paper production, and demand is rising with increased paper production around the world. World wool production has been negatively affected by droughts in Australia and South Africa during the past year. Nevertheless, demand for fine wools used in active and leisure wear is rising as consumers become more aware of the positive attributes of wool and the negative effects of microfiber pollution.

world_fiber

What is behind the rise in production and use of natural fibers in the face of continuing 6% annual gains in polyester use? The most likely answer is strong economic growth, combined with beneficial consumer preferences for natural fibers.

World mill use has trended upward since World War II and reached 20 million tons by the mid-1980s. The breakup of the Soviet Union led to a decade of decline in the world total of cotton use, and mill use did not reach 20 million tons again until 2000/01. Use rose rapidly in the early 2000s with the end of the Multi-fiber Arrangement and strong economic growth, but then plummeted during the 2008-09 recession and because of the spike in cotton prices in 2011. Mill use has been climbing since 2011/12, not because of competitive prices or large available supplies or strong promotion efforts by retailers. Rather, mill use of cotton is rising because consumers are buying stuff, and even with a continuing loss of market as a share of total fiber use, mill use of cotton in absolute terms is rising. This suggests that economists are underestimating the strength of the world economy.

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World real (inflation adjusted) growth in Gross Domestic Product (GDP) averaged 3.5% per year between 1980 and 2016. International Monetary Fund estimates put real GDP growth in 2017 at 3.6%, barely above the long run average, and growth over the next five years is estimated at 3.7% to 3.8% per year. According to the IMF, growth is slowing in China but rising in other developing countries. Economic growth in the United States and other developed countries is rising this year but declining again over the next five years. Overall, the economic picture painted by IMF data indicates a world economy growing barely faster than average.

However, data on prices and quantitates in the world market for cotton and other natural fibers indicates that the picture drawn by the IMF is not capturing something. Economic growth must be stronger than indicated by the IMF for cotton use to be rising despite prices 20 cents per pound above the long run average.

Mill use is climbing in China, India, Vietnam and Bangladesh and remaining steady in the United States while falling slightly in Europe. Statistics on trade in textiles and clothing are lagged by many months, but retail sales of apparel and home furnishings must be climbing in developed countries. Reports of strong sales growth at retail in Europe and the United States during December suggest that pipeline stocks of apparel and textiles are probably low, and this means that mill use is likely to actually strengthen during 2018.

Overall, the picture is very encouraging for cotton and all natural fibers. Cotton prices remain distorted by the huge state reserve in China, and until that reserve is completely liquidated cotton prices will remain higher than average. That cotton consumption in absolute terms is rising despite high prices indicates that the world economy is growing by more than just an average rate, and it indicates that the underlying consumer preference for cotton remains very strong.

Organic Cotton: Hard to Grow

Organic Cotton: Hard to Grow

Some consumers profess a preference for organic cotton, and advocates have been successful in cultivating positive connotations for organic cotton as being soft, healthy, and sustainable. If there is a market, you would think someone would be willing to supply it, but world production of certified organic cotton (cotton that has been certified to have been produced to USDA or EU organic standards by an accredited certification authority) has been falling.

World production of organic cotton grew from very small amounts in the early 1990s to a peak of 175,000 tons in 2008/09. The most recent data reported by the Textile Exchange (http://textileexchange.org/publications/)is that production fell to 108,000 tons of lint on 302,000 hectares in 2015/16, indicating that the average organic yield was 357 kilograms of lint per hectare, less than half the world average.

There are no published data on organic cotton for 2016/17 and 2017/18, but if production were rising, advocates would be quick to publicize that fact. Therefore, it is probable that production of organic cotton has not climbed, at least not very much, during the most recent two seasons.

cotton_hard

In 2015/16, India accounted for 60,000 tons of organic cotton production, 55% of the world total, followed by China, 15,000 tons, Kyrgyzstan and Turkey, 8,000 tons apiece, and Tajikistan, 6,000 tons. A big part of the reason for the decline in world organic cotton production is because production in India fell from 103,000 tons in 2011/12 to the current level.

Production of organic cotton in Turkey is falling as farmers shift to alternative crops and because of political unrest in the Southeastern portion of the country near Syria. Production is rising in Central Asia under the influence of programs supported by the Government of Switzerland, but much of the organic cotton produced is marketed simply as cotton without an organic premium. Worldwide, only about 70% of the cotton certified as organic is actually purchased as organic cotton; the rest is sold as conventional cotton because of weak demand.

Organic Cotton Techniques

All agriculture was organic for thousands of years until around the end of World War II, and today any farmer, anywhere, could grow organic cotton if he or she chose to. Just as weaving cloth using a traditional hand loom requires great skill and many hours of effort compared with using a modern loom, so does organic cotton require skill and effort compared with producing conventional cotton. Nevertheless, any farmer wanting to grow cotton organically could do so.

Organic cotton is grown and harvested without the use of chemical fertilizers, pesticides or herbicides, growth regulators or defoliants. Cultivation practices vary, but the use of seeds with biotech traits, synthetic pesticides, fertilizers and growth regulators are prohibited. Since organic cotton producers are denied the use of tools that conventional farmers use, it obviously takes more work to grow organic cotton.

Organic cotton production is a farming system that encourages the development of biological diversity to take care of crops needs.The foundations of organic cotton production include the use of locally-adapted varieties tolerant of pests, legume-based crop diversification, crop rotations, and intercropping to maintain soil health, the use of organic sources of fertilizer, and pest management based on prevention through the use of natural enemies and trap crops.

Fertile soil containing organic carbon is a prerequisite for all crop production, including cotton production. In organic systems, soil fertility is enhanced by implementing crop rotations with legumes, using cover crops to protect soil between the harvest of one crop and the planting of a succeeding crop, composting green plant material to produce organic fertilizer, and mulching. Fertilizer mined from natural sources can be used to improve fertility, but synthetic fertilizers must not be used.

On average, a farmer producing one hectare of organic cotton must collect between 15 tons and 50 tons of green material, including cotton stalksand farm yard manure, and compost that material for a year to produce between 3 tons and 8 tons of organic fertilizer. The 3-8 tons of organic fertilizer must then be spread over a field and incorporated into the soil.

In contrast, a conventional farmer will also employ crop rotations, cover crops, and mulches, but a conventional farmer will apply an average of 250 kilograms of fertilizer per hectare per year. The purchased fertilizer will contain labelled proportions of nitrogen (N), phosphorus (P) and potassium (K), while the NPK balance in organic fertilizer will vary with the green material from which it was produced.

Cotton plant nutrient requirements will vary each season depending on temperatures, rainfall and pest pressure, and conventional farmers can respond with additional fertilizer applications as plant needs are assessed. In contrast, organic cotton farmers have a much more difficult time applying additional dosages of tons of organic fertilizer across fields once plants are established.

In organic cotton systems, weed management is achieved through the selection of fields free of perennial weeds, use of clean seeds, crop rotations, cover crops, and mulches, and of course weeding using a hoe or mechanical cultivation. Organic cotton farmers can also expose top soil to direct sunlight to sterilize soil. Conventional cotton farmers are free to use each of these techniques of weed control, but they are also eligible to use herbicides.

Pest management in organic cotton is achieved through the use of pest-tolerant varieties, conservation of natural enemies and releases of predators, parasites and pathogens to attack pests. Organic cotton farmers are encouraged to intercrop with cowpea to serve as habitat for beneficial insects. Organic farmers use trap crops, such as castor, marigold and okra to attract pests or pest larvae for easier destruction. Light traps on timers, bird perches, and pheromone traps are additional techniques of pest management in organic cotton. Neem-based sprays are permitted, although the efficacy of such applications is questionable. After all, if neem-based sprays worked, all farmers would use them. Sprays containing Bacilusthuringensis (Bt) are also allowed. Organic cotton farmers are permitted to release parasites into fields. Early sowing, early picking and the cultivation of short-season varieties will also aid in pest management.

Conventional cotton producers are free to use all of these techniques, and they also have access to insecticides. However, the use of insecticides will kill beneficial insects as well as target pest, requiring judicious use.

Declining Organic Cotton Production in India

India is the largest producer of organic cotton because it has a large textile base for processing, and because it is easier to navigate the business environment in India than in China. However, production is declining in India for a multitude of reasons. The primary reason that more cotton is not produced under organic cotton standards in India is because it takes twice as much work. One hectare of organic cotton in India requires around 170 days of labor per year, compared with 90 days per year for conventional cotton.

Another reason for the decline in organic cotton production is that price premiums are falling. Almost all organic production around the world is sponsored by brands and retailers seeking differentiation in the market place or by governments wanting to encourage sustainable production practices and economic development. Prior to the world recession in 2008, most retailers were profitable, and some had budgets to support organic cotton as part of their corporate social responsibility efforts or for positive public relations. However, many of those retailers lost money during the recession, ending such expensive gestures.

As of 2018, there are still not enough brands and retailers willing to enter into contracts of at least three years (the period required to convert designated acreage from conventional to organic production) with growers at prices that would offset the cost of conversion from conventional cotton, increased labor requirements, greater year-to-year variability in organic yields and lower average fiber quality. Excellent growers with sound agronomic knowledge require premiums of about 20%, but average growers experience greater yield losses compared with conventional production, and they require correspondingly greater premiums. However, premiums paid in India for organic cotton have fallen from 15% to 5% over the last decade.

Organic cotton farmers face other barriers to increased production, including a lack of seed breeding efforts focused on non-biotech varieties with desirable fiber traits, the need for extensive documentation and the vestiges of scandals involving false documentation that undermine the credibility of Indian organic cotton certification, and a lack of markets for cowpea, okra and other crops used as rotation crops or intercrops with organic cotton.

The Future

Organic cotton takes a lot of work and a lot of knowledge, and without price premiums of 20% or more, organic cotton will not be grown in any volume.

World textile and clothing markets are highly competitive, and consumers base purchase decisions on style, color, fit, feel, price and other metrics. In inflation adjusted terms, prices of apparel at the retail level are declining, not rising, and consumers are spending a smaller share of their disposable incomes on commodity items such as clothing. Consequently, outside of niche brands with low volumes and high prices catering to an urban clientele ignorant of the realities of agriculture, no buyers of organic cotton are likely to emerge who are willing to pay such premiums. The chance that large retailers accounting for hundreds of thousands of tons of cotton per year will start paying premiums for organic cotton are remote.

Consequently, production of organic cotton worldwide is more likely to continue downward than to rise.

The End of an Era: Cotton is no Longer Prominent in the WTO

The End of an Era: Cotton is no Longer Prominent in the WTO

Summary: The WTO completed its 11th Ministerial Conference on 13 December in Buenos Aires. The closing statements were remarkable for the omission of any reference to cotton. Cotton as an industry and African cotton producers have had their moment in the diplomatic sun, but that moment is passing. Trade negotiators are tired of talking about cotton. Donors are tired of funding cotton projects that don’t do any good. Multilateral institutions like The World Bank, the Food and Agriculture Organization of the United Nations (FAO) and the United Nations Commission on Trade and Development (UNCTAD) are losing interest in cotton, and in commodity industries generally, and they are shifting focus back to more generic issues such as women’s empowerment and food security.

The End of an Era: Cotton is no Longer Prominent in the WTO

The World Trade Organization (WTO) completed its 11th Ministerial Conference (MC11) since its founding 1995 on 13 December 2017 in Buenos Aires, and the closing statements were remarkable for the omission of any reference to cotton. (https://www.wto.org)

MC11ended with modest progress on reducing fishing subsidies and pledges to avoid imposing customs duties on electronic transmissions for two years. There was no mention of cotton in the closing statements.

Cotton has been called a “litmus test” of the commitment of developed countries to the Development Round, and a “poster” for the Doha Development Agenda (the Doha Round), and in previous WTO ministerial meetings, cotton was a major issue. MC11 marks the end of an era in which cotton and issues related to cotton were central to international trade negotiations. Now, cotton is just one more commodity again.

The Doha Round of multilateral trade negotiations was launched in 2001 with most countries eschewing sectoral specific initiatives, and if you were to have picked a commodity to serve as the poster for development within the Round, it would probably not have been cotton. The gross value of world cotton production is smaller than for other major crops. For example, the gross value of world cotton production in 2001 when the Doha Round was launched was about $30 billion. In contrast, maize was $87 billion, soybeans $49 billion, sugar cane as well as beets were $52 billion, and wheat was $93 billion. (FAO, 2015). Additionally, cotton is primarily a fiber crop, not a food crop, which means it is not usually associated with food security, a traditional focus of government concern.

Nevertheless, cotton rose to prominence in the Doha Round,which unusually made because the President of Burkina Faso want to attended a WTO meeting in 2003 (it is unusual for a head of state to attend such a meeting) and in which he demanded that cotton be addressed specifically. Speaking on behalf of Benin, Burkina Faso, Chad and Mali, collectively known in the WTO as the C4, the President of Burkina Faso noted that cotton is the only good of any significant value exported by the C4, and he asserted that subsidies in developed countries depressed world prices thus hindering efforts at income generation and economic development in developing countries. He stated simply that the C4 could not support completion of the Round unless the cotton issue was resolved, an ominous threat in an institution that requires unanimity.

The prominence of cotton became official in 2005 at the next WTO meeting in Hong Kong, when member governments agreed to treat cotton “ambitiously, specifically, and expeditiously within the talks on agriculture” in the Doha Development Agenda, the only commodity singled out for specific treatment. From then until this year, at every WTO meeting in which agriculture was discussed, cotton was a prominent part of each conversation.

The 2011 Geneva WTO Ministerial Conference reaffirmed the commitment of members of the WTO to address cotton “ambitiously, expeditiously and specifically”, within the agriculture negotiations.

The Bali Ministerial Declaration issued in December 2013, included a specific “Decision” in which Ministers said again that they would address cotton “ambitiously, expeditiously and specifically”, within the agriculture negotiations.

At the Tenth WTO Ministerial Conference in Nairobi in December 2015, Ministers again issued a specific “Decision” on cotton, with countries pledging to grant duty-free and quota-free market access for exports by Least Developed Countries (LDCs) of cotton-related products and to eliminate export subsidies on cotton.

But, at the 11th Ministerial Conference just completed, cotton was just one of many issues and special interest concerns competing for the attention of government leaders. There were events and activities related to cotton conducted on the margins of MC11, but these were not central to discussions among ministers.

One cotton-specific achievement announced in Buenos Aires was the launch by the WTO and the International Trade Commission (ITC) of a “cotton portal.” The portal is supposed to provide a single online entry point for all the cotton-specific information available in WTO and ITC databases. The Cotton Portal includes information on market access, trade statistics, and country-specific contacts related to cotton market access to make it easier for cotton exporters, importers and investors to contact each other and complete trade deals.As interesting as the launch of the cotton portal is, and not to diminish the work of the ITC, the addition of a new source of data on cotton trade contacts is hardly a major diplomatic achievement. The fact that this was the only cotton-related activity announced at the WTO meeting in Buenos Aires shows that trade officials have grown weary of talking about cotton.

Why Cotton is No Longer a Focus of WTO Talks

The fact that cotton is no longer central to talks in the WTO is partly a reflection of the reduction in subsidies in developed countries. Subsidies for cotton paid to farmers in the EU were mostly decoupled from current production decisions in 2006 and remain smaller than they were previously, and subsidies for cotton in the United States have fallen from between $3 billion and $5 billion a decade ago to about $1 billion today. Thus, subsidies paid to farmers in the EU and United States are no longer major sources of distortion to world cotton production and trade.

In addition, the structure of the world cotton market has changed fundamentally since the Hong Kong Ministerial was held in 2005. China is now the largest consuming country and India the largest producing country and second largest exporter. The major sources of distortion in world cotton production and trade today occur in China (the State Reserve) and India (Minimum Support Prices), but subsidies paid to farmers in developing countries are not a focus of discussion in the WTO.

Another reason cotton is no longer central to the WTO agenda is that the reform of trade policies in the cotton sector, coupled with development assistance (foreign aid) is not helping African farmers anyway. The premise underlying the talks on cotton in the WTO was that subsidies paid to farmers in developed countries led to oversupply and reduced market prices, thus harming the interests of African farmers. However, the Cotlook A Index, which averaged about 55 cents per pound between 2001 and 2005 when the Sectoral Initiative on Cotton in the WTO was launched, is currently above 80 cents. In addition, about $900 million in donor aid has been spent since 2004 or is committed under current projects in support of the cotton sector of Sub-Saharan Africa. Despite the rise in market prices and the support given to the cotton sector, the average yield across Sub-Saharan Africa of 330 kilograms of lint per hectare today is the same as it was two decades ago, and total production of about 1.5 million tons is the same as it was when the Doha Round started. So, why bother to focus on cotton if it is not going to do any good?

Implications

Cotton as an industry, and the C4 as a group, have had their moment in the diplomatic sun. That moment is passing. Trade negotiators are tired of talking about cotton. Donors are tired of funding cotton projects that don’t do any good. Multilateral institutions like The World Bank, the Food and Agriculture Organization of the United Nations (FAO) and the United Nations Commission on Trade and Development (UNCTAD) are losing interest in cotton, and in commodity industries generally, and they are focusing on more generic issues such as women’s empowerment and food security.

DNFI Innovation in Natural Fibres Award 2017

DNFI Innovation in Natural Fibres Award 2017

Popzyk and Klein Win in Worldwide Voting

Popzyk Klein_Fraunhofer

Marie-Isabel Popzyk, Scientific Assistant at Aachen University and Dr. Roland Klein, Group Manager at the Fraunhofer-Institute in Germany, were selected through a process of on-line voting by participants in more than 100 countries to win the 1st Discover Natural Fibres Initiative (DNFI) Innovation in Natural Fibres Award.

Their submission, “Reduction of the moisture absorption of natural fibers and production of no-twist yarns for use in structural components,” showed that up to 100% bio-based, natural fibre reinforced plastics (NFRP) with low moisture absorption can be developed for application in structural components. The researchers noted that natural fibres, such as bast fibres, are becoming increasingly important in composites and other technical applications such as composites. Natural fibres are environmentally friendly and characterized by low density and high mechanical properties. Compared to the production of glass fibre reinforced plastics (GRP), approximately 30% less CO2is emitted by NFRP, and energy consumption is reduced by approximately 40%.

Terry Townsend, Chair of DNFI, noted that the research by Popzyk and Klein characterizes the dynamic nature of natural fibre technology. From performance apparel fabrics to innovative biocomposites, natural fibres represent solutions to 21st Century challenges.

Ms. Popzyk and Dr. Klein added that their innovation can ……overcome two of the most critical issues of natural fiber reinforced plastics, which are the moisture uptake and reduced mechanical properties compared to GRP. The joint activities between Aachen University and Fraunhofer will help to utilize NFRP in applications, which are currently under reserve of GRPand CRP.

The voting process for the DNFI Innovation Award began in July 2017 when a subcommittee of DNFI members winnowed the list of many excellent nominations to five finalists. Worldwide voting was conducted during August and September.

Ms. Popzyk and Dr. Klein will be officially recognized for their achievement at the Biocomposites Conference Cologne (BCC), 6 – 7 December 2017, Maternushaus, Cologne. Information about the conference is available at http://biocompositescc.com,

About DNFI

The Discover Natural Fibre Initiative (DNFI) was created in January 2010 as an outgrowth of the International Year of Natural Fibres 2009, declared by the United Nations General Assembly. The purposes of DNFI are to advance the interests of all natural fibre industries and to encourage increased use of natural fibres in the world economy. DNFI is a voluntary association of individuals and organizations with interests in promoting natural fibres through collaboration, consultation and cooperation. The Organization (www.dnfi.org) works to further the interests of natural fibres by serving as a platform for information exchange, by providing statistics on fibre production and use, and by working to raise awareness of the benefits of natural fibre industries to the world economy, environment and consumers.

DNFI Innovation Award Press release

DNFI Innovation in Natural Fibres Award 2017
The deadline for award submissions is
28 July 2017

The Discover Natural Fibre Initiative (DNFI) was created in January 2010 as an outgrowth of the International Year of Natural Fibres 2009, which had been declared by the United Nations General Assembly. The purposes of DNFI are to advance the interests of all natural fibre industries and to encourage increased use of natural fibres in the world economy. DNFI is a voluntary association of individuals and organizations with interests in promoting natural fibres through collaboration, consultation and cooperation. The Organization (www.dnfi.org) works to further the interests of natural fibres by serving as a platform for information exchange, by providing statistics on fibre production and use, and by working to raise awareness of the benefits of natural fibre industries to the world economy, environment and consumers.

The DNFI Annual Innovation in Natural Fibres award will recognize innovation in the development of products and processes using natural fibres and research involving natural fibres. Candidates for a DNFI Innovation Award are requested to send the appropriate submission form to DNFI, e-mail: Secretariat@DNFI.org.

Awards will be judged in three categories: Innovative products/components orapplications, Innovative processes/procedures and Research and science.

The Evaluation criteria are Outstanding scientific work and technical feasibility, the Level of improvement or effectiveness of the innovation over existing products or processes,the Degree to which the innovative product or process has been implemented, and Potential for opening new outlets, markets or sectors for products made of natural fibres.

Deadlines: the Closing date for applications is 28 July 2017. Short-listed competitors will be notified by 1 September 2017. Worldwide voting will be conducted during September 2017, and Winners announced 6 October 2017.

Winners will be recognized by press release and announcement at the Plenary Meeting of the
International Cotton Advisory Committee October 2017, the Biocomposites Conference Cologne
(BCC, www.biocompositescc.com) December 2017, and the International Wool Textile
Organization Congress May 2018.

Application and Submission forms are available on the DNFI web site.