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Cotton in WCA: Trade Opportunities and Ways to Realize Them

Cotton in WCA: Trade Opportunities and Ways to Realize Them. J ohn B affes T he W orld B ank “The multilateral trading system: a us- africa dialogue on cotton” IDEAS & CARNEGIE ENDOWMENT Washington, dc July 20, 2009.

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Cotton in WCA: Trade Opportunities and Ways to Realize Them

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  1. Cotton in WCA: Trade Opportunities and Ways to Realize Them John Baffes The World Bank “The multilateral trading system: a us-africa dialogue on cotton” IDEAS & CARNEGIE ENDOWMENT Washington, dc July 20, 2009

  2. All commodity groups and most commodity prices increased during the boom Change (%) in nominal price, 2003 to 2008 Source: The World Bank

  3. The gap between cotton and agricultural prices is likely to persist Real, MUV-deflated Indices, 1980 = 100 Agriculture Cotton Source: World Bank

  4. Cotton did not join the boom, why? • Rapid expansion of biotech cotton, especially in China and India put pressure on the supply side. • The cotton sector is still subsidized • Globally, there is less substitutability between cotton and grains (e.g., cotton and maize) than among grains (e.g., wheat and maize), hence the recent biofuel demand for other maize and edible oils did not affect cotton as much

  5. Share of biotech cotton in selected countries Cotton area under biotech varieties, 2007/08 Source: ICAC and Cotton Outlook

  6. China and India dominate global cotton production Share (%) of world total Source: International Cotton Advisory Committee

  7. Production in WCA cotton is declining, why? • Yields have been stagnant and (lately) declining • Cotton prices in CFAf terms are even lower compared to US$ terms • Most WCA cotton companies are inefficient, thus not fully prepared to cope well with issues such as price variability and high quality fiber requirements • Poor marketing efforts (characteristic in many AFR cotton producing countries) • Inefficient use of cotton by-products

  8. Cotton prices in CFAf terms lag behindtheir US$ counterparts Nominal price indices (2000=100) Source: World Bank

  9. What can (or cannot) be done • Increase efficiency of ginning companies • Make better use of cotton by-products, especially in the current environment of high edible oil prices • Improve marketing efforts • Reduce subsidies within Doha • Macro environment (i.e., exchange rates) is important but goes beyond C-4 and cotton • Often the development of textiles and clothing (T&C) industries is advocated but: (i) the history of this industry in AFR is not encouraging; (ii) many studies have shown that, with a few exceptions AFR is not very competitive in T&C; and (iii) even is a T&C industry becomes successful, cotton will be traded at world prices.

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