On formulating resolutions to the problem facing the African producers on the world cotton market

1. On formulating resolutions to the problem facing the African producers on the world cotton market Presentation by the Director CTA to the EU-African Cotton Forum July 5-6, 2004

2. Introduction The statement of the issue so eloquently outlined by previous speakers is an important one in that: It brings us back to an old issue in ACP EU relations – the importance and impact of trade in agricultural commodities to ACP economic & social well-being It is doubly important because, what we may call today ‘the cotton subsidies case’ provides a concrete example of inequity in circumstances where the masters of the system, the OECD states, have already benefited disproportionately from the first phase of the accelerated liberalisation reforms they sold to the world under the UR. This fact alongside apparent double standards on subsidies, has in the eyes of many informed observers helped to bring into question the legitimacy of the governance of the global trading arrangements. So, although the EU is not the only player in town, walking away form the problem would not be costless, politically. At the same time the issue raises many questions for the ACP states who in seeking redress will at some point find themselves pitted against the rich as well as the poor. It is also a challenge to their inertia, weak economic and development policies and inadequate collaboration and alliance building.

3. ACP EU Cooperation, Agriculture & Lomé IACP-EU relations have always been informed by the explicit recognition of the link between international agricultural trade and ACP development and more importantly, had sought to attenuate the adverse consequences of low & unstable commodity prices on investment and ACP welfare. Hence, the special characteristic of the Lomé Convention and the tools employed to address these particular problems; : • non-reciprocity & • stabex in particular Today with different concerns driving global trade rules and the need to negotiate a Cotonou trade regime to supercede Lomé we are faced with the question of how to deal with the extreme vulnerability which still characterizes the structure of ACP trade.

4. African Agriculture & Development • In SSA economies, industrial growth is increasingly dependent on agricultural growth either thru: • backward linkages or • on demand originating from rural population (because of de-industrialisation which seems in many African states seems largely associated with trade liberalisation and privatisation) • But agriculture is in a parlous condition in many states and as a consequence growth in many states has been negative (UNCTAD, 2001 p27, 34)

5. VULNERABILITY DUE TO: Extreme: Trade dependence Market dependence and Commodity dependence Not to mention asymmetrical application of international trade rules An indication of the commodity dependence: may be had from the a look at the 1999 figures: True, the worst case was GB 94% of who’s foreign exchange earnings were attributable to coffee but cotton gave rise to only slightly less distressing cases: Mali – 46% Chad - 42% BF 39% Benin - 38% The passage of time has not attenuated this fact, in 2001 the figures were 42, 34, 45, 65%, respectively.

6. African Agriculture & Development • When an economy is so dependent on a single commodity it has nowhere to turn when the terms of trade deteriorate, as occurred in the period since 1995. (if cotton sneezes…) • Among the main economies whose commodity dollar was buying less tractors and equipment from the EU were: • Years – 1998 1999 2000 • Mali – 11 -23 -28 • Chad -6 -15 -20 • B.Faso -4 -16 -25 • Benin -7 -14 -16

7. The state of African agriculture • Deteriorating terms of trade has been the result of relatively sharp declines in world agricultural prices – in 2000 non-oil commodity prices were between 1/3 and 2/3 lower than prices three decades earlier (UNCTAD, 2001, p 37/8) • Prices have also been volatile – prices of African coffee, cocoa, cotton and copper exports exhibited wider fluctuations than those for manufactures and other commodities & overall terms of trade – between the trough & peak of the price cycle in the 1990s real prices for these products rose by 128, 116, 28 30 & 49%, respectively (P37 &40). Between their peaks and 1999 they declined by 35, 15, 28, 70 and 13 % and continue to date. This has predictable consequences for macro-economic management and discouragement of investment. • IBRD “ it can be estimated that for each dollar of net capital inflow to SSA from the ROW, some 25 cents went back as net interest payments and profit remittances abroad, more than 30 cents leaked into capital outflows and reserve build-up, while 51 cents made up for terms of trade losses. These figs indeed imply a net transfer of real resources from SSA to the ROW” (UNCTAD, 2001, p 36).

8. COTTON & POVERTY ALLEVIATION The economic & social significance of the crop cannot be exaggerated for SSA: 2-3mn farmers are employed in the sector Some 15 mn persons, most of whom are very poor & many of whom reside in marginal/disadvantaged geographical areas, are directly dependent on the operations of the sector Production is labour intensive which means that incremental increases in output have direct and positive impacts on employment and, not merely on income levels, but on income distribution – a matter of no little significance to the international community if poverty alleviation and food security are their goals It is also a major source of fiscal incomes – govt revenues/taxes the instability of which contribute in no small measure to the growth of ‘failed states’ among LDCs which has characterised the post-1980s era.

9. THREATS TO AFRICAN COTTOM These are many: In spite of the high quality of African cotton there is competition from synthetic products and from GM cotton. In the latter regard cotton is one of the 4 commodities, the production of which, most closely associated with the GMO debate. In terms of acreage these are: • 1. Soya • 2. Maize • 3. Canola (HY rape) • 4. Cotton • Because the industry is under-capitalised it is especially susceptible to external shocks • NO I HAVE NOT FORGOTTEN THE CASE OF SUBSIDIES – I believe that that aspect has been already well aired. So suffice it for me to mention it at this point.

10. RESOLUTIONS & REMEDIES • In view of this variety of causes, the solutions would of necessity be multi-faceted, if they are to be effective. • Those remedies would depend on our goals which should be the achievement of reasonable and stable incomes as well as relatively remunerative prices for producers, This means that one has to look beyond subsidies • Achievement of higher incomes would in turn require the exploration of: • Diversifying output into products with more bouyant demand & more flexible supply response capabilities Exploiting the value chain by local processing of output in recognition of the historical fact that in almost every developed state cotton and textiles provided a large part of the the base for economic transformation & industrial take-off. • Market diversification via product differentiation e.g - careful market analysis to identify & take advantage of niches & demand for biological cotton e.g., and fair trade preference etc • Capitalisation & the application of improved techniques of production – to improve productivity & to maintain and increase competitiveness • Addressing the international trade environment including the application of rules • It would also require attention be paid to institutional issues such as strengthening and clearly defining the roles of the various actors in the sector – state vs. farmers vs policy -makers in decision-making, industrial vs agricultural, foreign vs local, investors vs speculators etc

11. INSTITUTIONAL STRENGTHENING & TECHNICAL ASSISTANCE: ROLE PLAYING • In the light of this multitude of tasks the question of technical assistance would arise and in particular the role of the international community – the EU has prominent place • The actors will themselves need to determine their role especially as regards goal definition, regional cooperation and the tasks associated with fighting their case in the international trade arena. • The CTA can play a role in so far as the importance of ICM is recognised. I should add that the cotton states have made much more of the range of our skills than have other sectors in the ACP. This is not the time to expand on that theme but can have an idea from the literature available to the meeting

12. CTA: SUPPORTING ACP TRADE NEGOTIATIONS • Improving the content, coverage & delivery of targeted information – thru AGRITRADE PORTAL in particular • Strengthening ACP negotiating capacity thru support for info exchange – via strategic conferences & specific technical workshops - & employing conventional & modern tools such as ‘e-discussion which preceded this conference. • Improving the dialogue at national & regional levels – consultative workshops • Promoting standing dialogue via appropriate IC tools – using electronic fora, CD-ROMS, briefing notes etc • Responding to requests to help devise & implement lobbying strategies – cotton, SPS, fisheries (draft model agreements) • Commissioning technical studies – subsidies in fisheries, SPS, sugar, cotton, bananas • ICM support – Cancun assistance (cotton); disseminating rum experience

13. CONCLUSION • Special feature of this exercise on which the producers and EU have embarked is the search for remedies – a search beyond the shouting • There is clear recognition of inequity of the current situation & a growing realisation on the ACP part that in what are clearly dynamic circumstances no single step will constitutes permanent remedy/silver bullet • Also imperative that, in taking this small step, we try to show the world what lies behind the unique platform of cooperation & what can be achieved with goodwill, good intentions and good sense! We need it to succeed.

17. CTA OBJECTIVES

18. CTA OBJECTIVES