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.
China has been supporting prices in the world cotton market during the past three seasons with purchases for the State Reserve, and these purchases will have to moderate. The government of China will likely pursue a slow and managed liquidation of the Reserve over many years, which will allow prices to gradually move lower toward the long run average of the Cotlook A Index of 73 cents per pound. While no farmer wants prices to decline, cotton must compete with polyester in the world fiber market, and lower cotton prices will enhance the quantity of cotton being used in textile mills.
With competitive pressures from other exporters weakening over the next five years, and the quantity of cotton being used in the textile industry increasing as prices gradually decline, there will be opportunities for increased production and exports of cotton from Africa. Starting from a small base, there are also opportunities for expanded textile industry activity in Africa.
There is now convincing empirical evidence that the cotton sector requires strong regulation of private sector activity in order to ensure the delivery of inputs to growers and the procurement of seed cotton. African governments can emulate the best practices already being implemented in several African countries so as to best facilitate increases in cotton yields and production.
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