Category Archives: Cotton

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.

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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.

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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.