News Release No. 2003/017/S

Contact: Kristyn Ebro 202-458-2736
Kebro@worldbank.org

COTTON PRODUCERS FACE LOSSES BECAUSE OF RICH COUNTRY SUBSIDIES, SAYS ICAC REPORT
World Bank and ICAC collaborate on cotton’s role in world economy

WASHINGTON, July 11, 2002 - Cotton producers in developing countries face annual losses of some $9.5 billion as a result of subsidies benefiting rich countries, says a new report by a Washington-based cotton group released this week at a World Bank-sponsored meeting. The report suggests total losses to developing country producers have amounted to $23 billion during the past four years, and that removal of direct subsidies worldwide would have a net positive effect of 31 cents per pound on average international cotton prices.

The world cotton industry is suffering through one of its most painful periods for producers with average cotton prices hitting a 30-year low of 42 cents per pound, halving the incomes of many developing country cotton producers, says the study, Production and Trade Policies Affecting the Cotton Industry, by the International Cotton Advisory Committee (ICAC).  Average international cotton prices this season will be the lowest since 1972-73, and when adjusted for inflation, rank as the lowest in history.  The recent fall in the world price of cotton is particularly affecting export revenues for some of the poorest African countries.

“Despite the efforts of the cotton industry to expand the demand for cotton, which will reach a record in 2002-03, and despite an expected  reduction of supply and  higher economic growth in major economies, excess production will continue to affect prices in international markets, and cotton prices are expected to remain well below the long-run average during the next several years,” said Alfonso Liévano, Chairman of the Standing Committee of ICAC.

The World Bank and ICAC this week co-sponsored the Cotton and Global Trade Negotiations Conference, in Washington, DC with the aim of bringing together ministerial level government officials, international organizations such as the Food and Agriculture Organization (FAO) and World Trade Organization (WTO), scholars, non-governmental organizations, and all segments of the private industry to examine the importance of cotton in the world economy and assess the opportunities that exist for cotton under the agenda of the WTO.

The ICAC report follows an analysis by the World Bank from February that spelled out the financial burden global cotton subsidies are imposing upon cotton producers in West and Central Africa, the lowest-cost producers in the world. Faced with international competitors receiving $4.8 billion in subsidies annually, governments in West and Central Africa are spending as much as $60 million a year subsidizing their own cotton farmers, money that instead could be used to build schools, train doctors or immunize children. If the U.S. alone cut subsidies to cotton farmers, worth $2.1 billion in 2001, the World Bank estimates the cotton price would improve 12 cents a pound and translate into revenue gains of $250 million a year for West and Central African farmers.

“The World Bank is concerned about events in the cotton industry and the negative effects it is having on poor cotton farmers in developing countries around the world,” Ian Johnson, World Bank Vice President for Sustainable Development, told the conference.

Conference participants agreed that cotton producing countries can help themselves by continuing to improve their efficiency and adopting national programs to promote cotton consumption.  Cliff Samson, Assistant Secretary, Field Crops Branch, Agriculture, Fisheries and Forestry-Australia, said the international cotton industry has, as a result of its own deliberations, an opportunity now to showcase itself as a leader among international trading rural industries. 

“The industry has the opportunity to work through WTO members to create pressure within the WTO forum to achieve reform in the main areas of concern in agriculture, that is, domestic support, export subsidies, and market access,” said Samson.

César Gaviria, Secretary General of the Organization of American States (OAS), pointed to the importance of trade liberalization. “The international community has at its disposal a valuable tool to reverse this bleak situation, and in the process, help those countries that produce cotton most efficiently turn cotton production into a key engine of poverty reduction - the tool I am referring to is trade liberalization,” said Gaviria.

Cotton is an important cash crop, and the most important raw material for the textile industry – occupying 40 percent of the world fiber market.  It represents a major export for many countries.  For example, 22 percent of Benin’s income is tied to cotton.  In Burkina Faso, it represents the most important export product with 60 percent of the total export market, employing two million people directly.  In Tanzania, it accounts for nearly 40 percent of the export earnings.  And in India, the textile industry which is significantly dependent on cotton, is the second largest provider of employment after agriculture, providing direct employment to 35 million people and constituting one-third of total exports.

A number of market factors are contributing to the decline in world cotton prices.  Weak consumer demand resulting from the recent economic slowdown, and continuous competition from synthetics is preventing world cotton consumption from more rapid growth .  In addition, improved technology, the strength of the US dollar, and the expansion of cotton production into new areas contributed to the increase in the world cotton supply in 2001.  However, government measures that insulate producers in some industrial countries from declines in market prices, resulting in increases in production in those countries are also contributing to the current imbalance between world cotton supply and demand.

For more on the ICAC study or this week’s cotton conference at the World Bank, please see the website:
http://icac.org/icac/Meetings/cgtn_conf/english.html

You can find the electronic version of the World Bank study at the following web addresses:
In English: http://econ.worldbank.org/view.php?type=5&id=16313
In French: http://econ.worldbank.org/view.php?type=5&id=16315

For more on the World Bank’s cotton study, call Kristyn Ebro at 202-458-2736.