C-4 countries raise concerns over falling cotton prices

Bidhu Bhushan Palo | The Dollar Business The Cotton-4 (C-4), the main four cotton producing countries in Africa, have raised concerns over subsidies and trade policies after the International Cotton Advisory Committee (ICAC) said in its 2014-15 outlook that world cotton trade could shrink significantly this year and probably in years to come. Global cotton exports have seen a decline this year mainly due to policy changes in China, the world’s largest cotton importer. After aggressive purchases in recent years, China has said that it will restrict cotton imports until domestic cotton reserves see a significant decline. China also says that restrictions on textile imports by developed countries have led to lower production in China. According to the ICAC, China imported around 5.4 million tonnes of cotton in 2011-12 (about 50% of total global imports), but the country’s cotton imports are expected to decline to 2 million tonnes in 2014-15, resulting in a 20% decline in global cotton trade. Meanwhile, global ending stocks of cotton are expected to reach a record high of around 21.6 million tonnes in 2014-15, compared to around 8.6 million tonnes of stocks in 2009-10, and the projected total global exports of around 7.9 million tonnes in 2014-15.  Several cotton exporting countries including India, USA, and countries in Africa are worried about the decline. India is expected to become the world’s largest cotton producer this year, but declining exports (expected to decline around 45% y/y) have led to a crisis for cotton farmers in India. Recently, the Cotton Association of India (CAI) said that 2014-15 could see the biggest ever government cotton procurement (MSP) operation in India. However, there are concerns that such support mechanism could result in even higher cotton stocks next year and C-4 countries (Benin, Burkina Faso, Chad and Mali) have asked for details of MSP at the World Trade Organisation (WTO). The countries have also asked details of trade policies of China. Cotton is one of the commodities that is highly dependent on global trade. On average, around 25-30% of cotton produced is exported. However, the share of exports to production in most of the top cotton producing countries, barring India (around 18%), is much higher. USA, which is the world’s largest exporter, ships around 68% of total cotton production in the country, Fr Africa exports around 94%, Uzbekistan around 67%, Rest of Africa around 65%, and Brazil around 38%. Australia exports almost all the cotton it produces.    

This article was published on December 6, 2014.