Category Archives: Cotton Policies

Dead Aid

 

Dead Aid: Sub-Saharan Africa

With a Ph.D. in Agricultural and Resource Economics from Oregon State University in the USA, Dr. Terry Townsend is a consultant on commodity issues. He is currently working with the African Cotton and Textile Industries Federation (ACTIF). He served as executive director of the International Cotton Advisory Committee (ICAC) and has also worked at the United States Department of Agriculture for fve years, analyzing the U.S. cotton industry and editing a magazine devoted to across-section of agricultural issues.

Dambisa Moyo, is a Zambian-born international economist and author who analyzes the world economy and global affairs. She has worked at The World Bank and Goldman Sachs and currently serves on the boards of several international companies. She argues in her 2009 book, “Dead Aid,” that foreign aid undermines economic growth in Africa by distorting incentives.

Dead Aid

She argues that more than $1 trillion in development aid has been transferred from rich countries to Africa in the last 50 years, but Africans are worse off because of it. She says that overreliance on aid has trapped developing nations in a vicious circle of aid dependency, corruption, market distortion, and further poverty, leaving them with nothing but the “need” for more aid.

The international aid industry has studiously ignored her book and its implications. Maybe it’s time to pay attention to her.

India versus Sub-Saharan Africa

Consider the contrast in cotton industry performance between India and Sub-Saharan Africa. In the 1990s, yields in both were about equal. Agriculture in both is dominated by hundreds of millions of small-holders, many of whom are illiterate or poorly educated, speaking hundreds of different languages, divided ethnically and geographically, with limited access to technology and mechanization, and exhibiting a welter of traditional cultures.

India sought and received no foreign aid devoted to improvement of cotton production and yields during the 2000s, and instead launched a Technology Mission on Cotton (TMC) that sought to increase cotton production and improve quality through research, extension, regulation and incentives, all domestically inspired and implemented.

In contrast, Sub-Saharan Africa requested and received millions of dollars in direct cotton-specific development aid, relying on donor-funded projects rather than domestic and regional initiatives.

And, the result: the average yield across Sub-Saharan Africa of 331 kilograms of lint per hectare in 2015/16 was the same as it had been two decades earlier. In contrast, the Indian yield climbed from about 300 kilograms per hectare in the early 1990s to 480 by 2015/16, after rising to 570 kilograms in 2013/14.

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Development Assistance

Nearly $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.

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. 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. In response, member governments of the WTO formed a Subcommittee on Cotton in 2004, and the WTO Secretariat began tracking development assistance provided to Benin, Burkina Faso, Chad and Mali (the C4) and all Sub-Saharan African cotton producing countries.

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As of November 2016, the total value of cotton-specific development assistance provided for 47 African beneficiaries and others that had been completed was $581 million, of which $310 million had been targeted at the C4. 175 separate projects were enumerated, including projects supported by the European Commission, France, Germany, Netherlands, Sweden, Denmark, the UK, Japan, Switzerland, the U.S., Brazil, the Common Fund for Commodities (CFC) with the International Cotton Advisory Committee (ICAC), the Food and Agriculture Organization of the United Nations (FAO), the International Trade Center (ITC), the United Nations Commission on Trade and Development (UNCTAD), the Organisation of Islamic Cooperation (OIC) with the Islamic Development Bank, United Nations Industrial Development Organization (UNIDO), and The World Bank. Projects ranged from support for a conference on GMO cotton, improvements in rural roads serving cotton areas, support for HVI classing, miscellaneous studies, support to producer organizations, support for technical assistance to small holders, training and capacity building for small-scale farmers, value chain cotton sector support, and approximately 165 more.

In addition to projects already completed, another 29 projects are currently being implemented and 6 projects are in the formulation stage. These additional 35 projects are valued at $281 million, of which $151 million are targeted at the C4. Donor countries and organizations supporting ongoing projects include Australia, the European Commission, France, Germany, Netherlands, Sweden, Switzerland, the United States, The World Bank, CFC with the ICAC, FAO, ITC and UNCTAD. Some of the ongoing projects include ethical cotton production in Kenya, Support income increase of smallholder cotton producers through better quality and access to markets – Phase 2, Improvement of productivity and sustainability of farms in cotton areas, Fair trade and organic cotton in West Africa, Cotton made in Africa, Initiative Sustainable Trade (IDH): Cotton Value Chain Development, Programme for the development of the cotton sector in Africa, South-South cooperation for the promotion of decent work in cotton-producing countries in Africa and Latin America, Competitiveness and sustainable strengthening of the cotton sector through the reinforcement of cotton farmers’ capacities in the Integrated Production and Pest Management, Zambia: Empowering women in the cotton sector, and about 25 others.

Finally, in addition to cotton-specific projects, both those that have been completed and those that are ongoing, another $4.1 billion has been committed for agriculture and infrastructure-related development assistance for 31 African beneficiaries and others. These 67 projects are not cotton specific, but they are aimed at general support and improvement of the agricultural sectors of African countries, of which cotton is an important component. Of the $4.1 billion in general support to agriculture in Sub-Saharan Africa, $2.3 billion have been spent in the C4 alone. These projects have been supported by Australia, Canada, Japan, the U.S. and The World Bank. Projects under the category of general support to agriculture include Official Development Assistance for Agriculture, volunteer sending program to enhance economic and social conditions of poor and marginalized communities – support for sustainable agriculture, Farm Radio International: “Radio for Farmer Value Chain Development” – support for sustainable agriculture, Monitoring and evaluation in agricultural policy, Small-scale irrigation development Project, Project for the improvement of the living environment in the southern area of Lusaka, Millennium Challenge Corporation Board, Fostering Agricultural Productivity in Mali, and 60 more.

According to the ICAC, there are about 900,000 households producing cotton in the C4, meaning that $461 million in cotton-specific development assistance since 2004 amounted to about $500 per household, or two to three times annual average cash earnings among rural households. In the rest of Sub-Saharan Africa, there are about 2.6 million households producing cotton in any one year, and the $401 million in cotton specific development assistance averaged $154 per household, equal to about one year of annual average household cash income.

And yet, despite all that spending on all those projects, there was no gain in yields in Sub-Saharan Africa, and while yields in the C4 are higher than in other countries of Sub-Saharan Africa, there was again no gain in yields despite all the project spending.

Cotton Made in Africa and BCI

Among the development projects notified by governments in the WTO table, Germany supported the establishment of Cotton made in Africa, and Germany, the Netherlands and Switzerland supported the establishment and growth of BCI. Contributions through 2016 totaled more than $20 million, and the Netherlands is in the process of approving another tranche of $18 million through 2020.

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Both CmiA and BCI work with farmers to identity best practices and encourage adoption. CmiA is operating in Benin, Burkina Faso, Cameroon, Cote d’Ivoire, Ethiopia, Ghana, Malawi, Mozambique, Tanzania, Uganda, Zambia and Zimbabwe. BCI is operating in Senegal, Mali and Mozambique. Between them, BCI and CmiA accounted for about 450,000 tons of cotton production in 2015/16, representing more than one-third of total production in Sub-Saharan Africa. Both initiatives report that yields rise by about 20% among participating farmers compared to control groups of non-participating farmers. And yet, despite all the spending and all the efforts, all well-conceived and executed, yields in Sub-Saharan Africa did not rise during the past decade.

Organic and Fair Trade Cotton

In a testimony to futility, the WTO table includes 9 projects sponsored by the European Commission, France, Germany, Switzerland, and the United States devoted to expansion of organic and/or Fair Trade cotton in Africa and other countries. The completed projects total $19.3 million, and there is a new project worth $2.4 million sponsored by France that is still in the project formulation stage. Certified organic cotton production worldwide was only 112,000 metric tons in 2014, of which about 80% was in India. Production of organic and Fair Trade cotton in Africa might have reached about 30,000 tons in 2016. In other words, development spending on organic and Fair Trade cotton since 2004 totaled about $600 per ton of organic or Fair Trade cotton produced in 2014.

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Implications

Agriculture is complex, and there are always many culprits associated with poor performance. The major factors that affect yields are technology, technology extension to growers, logistics covering the purchase, transportation and ginning of seed cotton, and input use. While the $900 million in cotton-specific development aid, and $4.1 billion in general agricultural improvement development aid, spent in Africa during the past decade was well intended, and it may have achieved many objectives such as women’s empowerment or improvements in food security, the aid did not achieve its central objective of cotton sector development. It is time to reflect on whether aid really is Dead Aid as Moyo asserts. The assertions that CmiA and BCI result in production improvements deserve rigorous scrutiny, and the philosophical infatuation by science deniers with organic cotton should end.

Will India Lead?

Cotton is an industry in decline. For approximately two centuries, cotton benefited from industrialization, population growth and income growth to drive consumption higher. However, two centuries of an upward trend has come to an end unless structural changes in cotton’s competitive situation are made.

At the time of the invention of the cotton saw gin in the 1790s, world production of cotton for commercial use was probably only about 2,000 tons of lint. (Commercial producers are distinct from what may have been millions of households producing yarn and fabric by hand for own-consumption using cotton harvested from wild plants or garden-like crops.) By the start of the civil war in the United States in 1861, world cotton production had climbed to about one million tons, and by the mid-1930s, prior to the start of World War II, world cotton use had reached about 4 million tons per year. Between the end of World War II and 2007, world cotton consumption climbed to 26.6 million tons. However, eight years later in 2015, despite population growth of 8% or 600 million, and world real GDP growth of 18% since 2007, world cotton consumption was still 2.9 million tons, or 11%, less than it was at its peak.

In the Age of Sail, all lines and sails on ships were made of natural fibers, mostly hemp and sisal for ropes, and linen for sails, and millions of tons of each fiber were produced each year. As late as the 1960s, world hemp production was still nearly 400,000 tons per year, sisal production totaled 750,000 tons per year, and flax fiber production used to make linen fabric totaled about 700,000 tons. Today, with the exception of museums, all ships’ lines and sails are made of nylon, polypropylene or polyester, and world production of hemp has fallen to less than 60,000 tons, sisal production has fallen to less than 300,000 tons, most of which is used in agricultural twines and cordage, and world linen production is estimated at 300,000 tons.

Prior to the advent of “fast fashion” and “casual Fridays,” wool was a major apparel fiber. In the 1960s, wool accounted for 10% of world apparel fiber use, and production for all uses including carpets reached 1.8 million tons, clean basis, in the early 1990s. Today, wool accounts for 1% of world fiber use, and production has fallen to 1.2 million tons. Just as with wool and other natural fibers, the world may realize years from now that Peak Cotton has passed.

The Role of China

The primary reason for cotton’s decline is the growth of polyester production, combined with the operation of the Chinese State Reserve. World production of polyester climbed from 5 million tons in 1980 to 9 million by 1990, to 19 million by 2000 and then to 37 million in 2010 and 50 million tons this year. Production of polyester in China has increased from about 10% of the world total in 1990 to about 70% today, and as shown by Ethridge, “Policy-Driven Causes for Cotton’s Decreasing Market Share of Fibres,” this growth is a direct result of policy choices in China.

In addition to promoting polyester production, the Government of China maintains a strategic reserve of cotton, serving as a national buffer stock. China releases cotton to the domestic 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.

The result is that cotton consumption in China is being discouraged through a process of rationing associated with the operation of the State Reserve. At the same time, the same State Reserve withholds cotton from the world market, and therefore world cotton prices are being maintained above a level to which they would otherwise fall in competition with polyester.

Relative fiber prices are extremely important in determining fiber market shares. When introduced in the 1950s, prices of polyester were far higher than those of cotton, but prices of polyester reached parity with cotton in 1972 and have been correlated in the decades since. The most recent 8-year interval, from 2008 to 2015, has been brutal to the competitive interests of cotton. During this period, cotton prices have averaged 42 cents per kilogram more than prices of polyester, a premium of 26%.

High cotton prices are undermining the competitiveness of cotton relative to polyester. Since 2007, cotton’s share of world apparel fiber consumption has fallen from 38.4% to 27.6%, a staggering loss of market share of more than 10 percentage points. The volatility in cotton prices during 2008 and 2010/11, before China began building a state reserve in 2011, caused much demand destruction. Arguably however, China’s persistence in maintaining a state reserve at a time while polyester prices have fallen to less than 50 cents per pound in China is contributing to a continued slide in market share that now threatens the long term viability of cotton as an industry. It is not too strong a statement to say that the world cotton industry, and the welfare of millions of producers, is being held hostage to the intentions of the Government of China regarding industrial policies that promote polyester production and the cotton reserve that prevents cotton consumption.

Biofuel Mandates

As of 2016, 64 countries have biofuel mandates or targets for their domestic liquid fuel supplies. The mandates with the largest impacts are in the United States, the EU-27 and China. The U.S. government requires that 18 billion gallons of biofuel, primarily corn ethanol, be blended into the U.S. fuel supply during 2016, and approximately half of all the corn produced in the United States is devoted to biofuel production. In the EU-27, between 5% and 7.5% of liquid fuels must be composed of biofuels, and China hopes to reach a 10% biofuel share of the national fuel supply by 2020.

The result of the biofuel mandates is that prices of corn, and soybeans which are a substitute for corn in cattle rations, have moved structurally higher over the last decade. The U.S. average farm price for corn was $1.28 a bushel from the end of World War II to 1972/73 (a bushel of shelled corn is defined as 56 pounds or 25.4 kilograms). The average farm price rose to $2.36 through 2007/08, and since 2007/08 the average U.S. farm price has increased to $4.35. The structural increase in corn prices coincide with the announcement of biofuel mandates in 2007. Prices of soybeans have followed a similar pattern.

Meanwhile, the average level of the Cotlook A Index is the same today as it was during the 1970s, 1980s and 1990s, while costs of cotton production have been rising, while yields per hectare have been flat. As a result, with the prices of grains structurally higher while the price of cotton is the same as it has been for decades, farmers are exercising rational judgment and shifting land from cotton to grains where possible.

World cotton area has varied in a relatively narrow channel between 31 million hectares and 36 million hectares since 1950, with no trend either up or down. However, cotton is now at the bottom of that band, and with biofuel mandates encouraging shifts toward grain and oilseed production, cotton area may slip below 31 million hectares over the rest of this decade.

Can Cotton Unite? Will India Lead?

To avoid the fate that has befallen other natural fibers, the world cotton industry must unify to educate governments on the impacts of Chinese policies that promote production of manmade fibers while preventing the consumption of cotton. While cotton has many advantages over polyester, it must nevertheless compete with alternative fibers on the basis of price. No fiber, not even premium fibers such as wool and silk, much less cotton, can maintain demand for long if prices are uncompetitive. No matter what technical performance advantages a fiber may possess, nor how preferred by consumers, if the incentive to substitute becomes great enough, engineers and designers will find a way to utilize the cheaper fiber. Only India possesses the diplomatic and economic influence sufficient to lead a world effort to induce the Government of China to change its current mix of policy options that are proving so toxic to the interests of the cotton world.

To avoid the fate that has befallen other natural fibers, the world cotton industry must unify to standardize industry practices in order to improve efficiencies and promote consumption. The industry needs to adopt worldwide universal permanent bale identification tags (PBI) with barcodes linked to standardized instrument testing of cotton (SITC). The industry must adopt and actually enforce a zero-tolerance policy for contract defaults. The industry needs to move toward universal adoption of standardized bale sizes, densities and coverings. And, the industry must adopt best practices in field and gin hygiene to reduce contamination. As the largest cotton producer, only India possesses the diplomatic and economic influence sufficient to lead such a world effort.

To avoid the fate that has befallen other natural fibers, the world cotton industry must unify to advocate for technology acceptance among consumers and regulators. The denial of technology by NGOs and government agencies is contributing to the strangulation of the world cotton industry and the loss of competitiveness to polyester. In order to compete with polyester, cotton yields have to rise and the cost of production must fall; this is a fundamental reality of a competitive world economy in which consumers exercise choice based on fashion, fit, color, feel, price, availability and other factors. If cotton cannot supply market demands at prices consumers will pay, cotton will go the way of wool, linen, silk, ramie, hemp, sisal and other fibers whose markets were once measured in millions of tons and are now niche fibers.

It is technology that will enable yields to rise. It is technology that will enable farmers to produce more cotton with less resource use, thus lowering real costs and environmental impacts, and it is technology that will enable an improvement in intrinsic fiber quality parameters to meet consumer preferences. But, just as conservative politicians in the United States reject the science underlying global warming, so NGOs, thought leaders and regulators in the United States, and especially in Europe, reject the science underlying modern agricultural production technologies. As the largest cotton producer, only India possesses the diplomatic and economic influence sufficient to lead an effort to overcome the trend toward technology denial now building in the United States and Europe.

Will India Lead?

For approximately a century, since World War I, the United States has been the de facto trend setter, innovation developer and political leader of the cotton industry. However, the United States is now in decline within the world of cotton. With 2.8 million tons of production in 2015/16, the United States accounted for just 13% of the world total, the lowest proportion of world cotton production accounted for by the United States since the invention of the saw gin in the 1790s.

India is now the largest cotton producer, the second largest exporter, and within a few years India will be the largest producer of cotton textiles. With increases in economic power, will India have the political capacity, the judgment, the temperament and above all, the national will, to supplant the United States in leadership of the cotton world?

Evaluating the WTO Nairobi Outcome on Cotton

The Tenth WTO Ministerial mandates that all countries prohibit cotton export subsidies by 2017. Since the United States eliminated a program called “Step 2” in 2006, no country has provided subsidies for Upland cotton exports.

The Tenth WTO Ministerial mandates that developed countries, and those developing countries declaring that they are able to do so, provide duty-free and quota-free access for cotton from LDCs. As of 2016, no developed country imposes either duties or quotas on imports of cotton, and China is the only developing country of any market significance to impose quotas or duties.

All subsidies distort, and cotton farmers in the EU and the United States still benefit from subsidies. However, the subsidies received by farmers in the EU and the United States are now mostly decoupled from current production decisions, and depending on price patterns, are likely to be significantly less than subsidies received in earlier decades.

1b. Final Report Evaluating Nairobi – What Does the Outcome Mean for Trade in Food and Farm Goods

 

Overcoming Good Intentions: Government Measures do More Harm than Good

Governments always mean well, and sometimes government programs actually achieve desired results. Nevertheless, government measures that distort production, consumption and trade always do more harm than good, and in a highly competitive world economy, cotton would be better off with less government “support,” not more. Continue reading

WTO Disciplines Should Apply to All

In the Age of Sail, all lines on ships were made of natural fibers, mostly hemp and sisal, and millions of tons of both fibers were produced each year. As late as the 1960s, world hemp production was still nearly 400,000 tons per year and sisal production still totaled 750,000 tons per year. Today, with the exception of museum ships, all ships’ lines are made of nylon, polypropylene or polyester, and world production of hemp has fallen to less than 60,000 tons while sisal production has fallen to less than 300,000 tons, most of which is used in agricultural twines and cordage.

Prior to the advent of “fast fashion” and “casual Fridays,” wool was a major apparel fiber. In the 1960s, wool accounted for 10% of world apparel fiber use, and wool production for all uses including carpets reached 1.8 million tons in the early 1990s. Today, wool accounts for 1.2% of world apparel fiber use, and production has fallen to 1.1 million tons.

Prior to the invention of manmade fibers, all apparel fibers were natural, and in the 1800s and early 1900s, cotton probably accounted for 85% of world fiber use. However, with the development of nylon, rayon, polyester, and other manmade fibers, cotton’s share has fallen. In the 1960s, cotton still accounted for two-thirds of all apparel fiber use. By the 1980s, cotton’s share had fallen to half, and today, cotton’s share of world fiber consumption is less than 30%, and falling. World cotton consumption reached 26.6 million tons in 2007, but eight years later in 2015, despite population growth of 8% or 600 million, and cumulative world real GDP growth of 18%, world cotton consumption is still 2 million tons less than it was at its peak. Just as with sisal, wool and other natural fibers, the world may have passed peak use of cotton. Continue reading

Availability Cascade, Information Cascade and Reputation Cascade: The Relevance of Cascades to Cotton

Summary: An “availability cascade” is a self-reinforcing process of belief formation, in which repetition of a belief triggers a chain reaction of additional repetition. Merely because the belief is repeated, it becomes widely accepted. In other words, a belief becomes irresistible simply as a result of its repetition.

Cotton is suffering from an availability cascade of demonizing allegations that have become so thoroughly interwoven into the consciousness of retailers, organic cotton advocates and environmental and social activists that objective information, no matter how powerful, contrary data, no matter how well researched, and historical perspective, no matter how valid, are automatically rejected as invalid, unacceptable and illegitimate.

Examples of availability cascades of negative information about cotton include the Aral Sea, pesticide use and water consumption.

13b. Availabilty Cascade

Incentives Matter: Why Environmentalists, Retailers and NGO’s are Slowly Strangling the Cotton Industry

Summary: The world cotton industry is being slowly strangled by loss of market share to polyester. Campaigns of demonization contribute to this strangulation. As one example, the C&A Foundation Annual Report 2014 uses evocative language, exaggeration, and repetition of allegations years out of date to demonize, rather than inform, in the service of enhancing the C&A brand. The report is unremarkable, except that it is recent, and serves as an example of efforts by NGO’s, retailers and environmentalists to build sales and enhance careers, while undermining the livelihoods of tens of millions of cotton households. Only by volubly challenging those who demonize, with public, specific, fact-based rebuttals, will the cotton industry be able to make demonization expensive and thus shift the structure of incentives that currently makes demonization profitable.

12a. C&A Foundation report 2014

The 2014 Farm Bill and Cotton: Proof that the WTO Matters

The 2014 farm bill (Agricultural Act of 2014) fundamentally reduced the level of agricultural subsidies for all the program crops, and the bill changed the way that subsides are calculated by eliminating the Direct Payments, Countercyclical Payments, and Average Crop Revenue Election Payments and substituting revenue insurance programs, including the Stacked Income Protection Plan (STAX) for upland cotton—almost all cotton in the world is classified as upland.

Farm bills are products of diverse influences, including policy objectives, political pressures and budget limitations. The 2014 farm bill was uniquely influenced by an additional factor, the legal ramifications of the Brazil cotton case in the World Trade Organization (WTO).

In WTO parlance, upland cotton was treated “specifically” and “ambitiously,” within the 2014 farm bill, and such treatment would never have happened but for the legal pressure brought by Brazil under the Dispute Settlement Mechanism within the World Trade Organization (WTO), augmented by the force of moral suasion brought by African countries and their supporters within the Talks on Agriculture in the Doha Development Agenda (the Doha Round).
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What is Wrong With Buffer Stocks?

Why shouldn’t countries build buffer stocks?

 In mid-March 2015, the Ministry of Textiles of the Government of India floated a proposal to guard against year-to-year fluctuations in cotton production by limiting exports in order to build a “reservoir” for use by the domestic textile industry (Business Standard, March 18, 2015).  What’s wrong with this proposal? Continue reading

The 2014 US Farm Bill and its Implications for Cotton Producers in Low-income Developing Countries

The Agricultural Act of 2014, the U.S. “farm bill,” will provide substantially less support to the cotton sector of the United States than has been provided under previous farm bills. Given that the government of the United States is mandating the use of biofuels in the US fuel supply, prices for corn and soybeans will probably remain higher on average than they were in the past. Accordingly, U.S. cotton production is likely to trend downward toward 3 million tons of lint per year over the next five years as harvested area in regions where cotton competes with corn and soybeans moves toward the biofuel crops. The increases in prices of corn and soybeans will also affect planting decisions in other major cotton producing countries. Accordingly, the supply of cotton from competing exporting countries, especially the United States, is likely to be reduced in the future.

Continue reading