Global patterns

Global patterns

Another 49 companies handle about 20 per cent. The smaller companies handle the rest. Both private and state-owned companies are involved: the latter controlling 60 per cent. Private companies dominate trade in most other commodities. The preponderance of state agencies means that government policies kick in to affect pricing, mainly through subsidies. Developed nations offer the biggest subsidies, distorting international trade, usually to the detriment of third world producers.

More than a fourth of the earnings from raw cotton production come from government support to the cotton sector subsidies, in other words. Support to the cotton sector is greatest in the us, followed by China and the eu. The combined support (domestic and export subsidy) provided by the us government to cotton producers is pegged at us $4 billion. China provides us $1.5 billion, while the eu's support of us $ 900 million is mainly for Spain and Greece. Subsidy encourages surplus production and deflation of prices. International prices have decreased continuously over the last 30 years (see graph: Downturn) when the us started its aggressive subsidy programme, through funding storage in 1985 and price support in 1996.

In this century, the us has gone a step further. us cotton imports are now covered by the Step-3 Farm Policy of 2002, which allows imports of specified quantities for specific periods of time, thus protecting domestic production. The us subsidy system is based on direct payments to farmers who can sell cotton in world markets at prices well below the cost of production. Production costs are us $1.70 per kg but its cotton is sold at us $1.18 per kg. Export subsidies for 2005-2006 amount to us $ 360 million. The same goes for the eu subsidy. Its support programme began in 1981 when Greece and Spain joined eu's Common Agricultural Policy. Together, Spain and Greece accounted for 2.5 per cent of world production and 6 per cent of world exports in 2001, but they account for 16 per cent of world cotton subsidies. "If the eu subsidy is removed, the cotton crop will be wiped out from Greece and Spain," says a 2005 Oxfam report. The average level of assistance across subsidising countries is us $0.58 per kg, 48 per cent of average prices.

Trade tidings
The worst losers are farmers in the least developed countries (ldc). This subsidy is helping only a few thousand farmers in the developed nations but is putting millions of poor Africans into a death trap. For example the us $4- billion subsidy that the us gives is only meant for 20,000 farmers who cultivate cotton in that country," says D K Nair, secretary-general of the Confederation of Indian Textile Industry (citi). The fact that many countries in west and central Africa are heavily dependent on cotton exports makes the situation worse. In Benin, Burkina Faso, Chad, Mali and Togo, cotton accounts for two-thirds of agricultural exports and one-third of the total exports, meaning many livelihoods depend on growing cotton. In many non-African countries too, cotton is a major source of export revenue. In Uzbekistan, Tajikistan and Turkmenistan, it accounts for 45, 20 and 15 per cent of total commodity exports and make a significant contribution to gdp (8 per cent in Uzbekistan and Tajikistan, and 4 per cent in Turkmenistan).

At the individual level, a fall in prices means attrition of incomes that are already, in many cases, close to subsistence level. At the macro level, it means that adverse terms of trade reduce revenues of governments in these countries and therefore their capacity to put in place programmes for livelihood security -- say, in this case, subsidies to their cotton farmers. It's a vicious circle. In the wto era, Brazil disputed the issue of cotton subsidies of the us in April 2004. The dispute-settlement panel ruled in favour of Brazil. The cotton issue is so important for the livelihood of the African nations that the wto ministerial in Hong Kong decided to remove all kinds of export subsidies from cotton by 2006 and allow a duty-free and quota-free market access for exports from ldcs. But this is cosmetic surgery, given that export subsidies account for less than 7 per cent of total subsidies given by developed countries. Most subsidies are domestic and remain untouched by wto rulings.

Tariffs are also an issue. The average world import tariff on cotton is 5.3 per cent, ranging from China's 90 per cent to zero for 64 countries including members of eu, Australia and Turkey. Of the other large cotton-producing countries, Brazil imposes a tariff of 9.2 per cent, India 10 per cent, Pakistan 5 per cent and Uzbekistan 30 per cent. The average tariff for West and Central African countries is 7 per cent. The us has variable tariffs ranging between nothing and us $0.31 per kg.

Low support
India trades in almost all segments of the cotton market either as buyer or seller. Projected figures show it will be the third largest producer, second largest consumer and fourth largest exporter of cotton in the world in the 2005-2006 season. It used to be the 10th largest importer till last year. This year, however, imports are likely to see a decline of 600,000 bales from last year's 1,200,000 bales. India will end with the second highest closing stock of cotton this year (see box: Balance sheet), more than the us and just below China. a pact that ensured that textile trade was freed from tariff and non-tariff barriers -- at the turn of 2004 has opened opportunities for India's textile exports. India has always been a big player, but has played second fiddle to China, ever since it implemented its policy of market socialism under Deng Xiaoping in the early 1980s.