JOHN BAFFESTHE WORLD BANK

“THE MULTILATERAL TRADING SYSTEM:A US-AFRICA DIALOGUE ON COTTON”

IDEAS & CARNEGIE ENDOWMENTWASHINGTON, DC

JULY 20, 2009

Cotton in WCA: Trade Opportunities and Ways to Realize

Them

1

All commodity groups and most commodity prices increased during the boom

Change (%) in nominal price, 2003 to 2008

Source: The World Bank

2

The gap between cotton and agricultural prices is likely to persist

3

Real, MUV-deflated Indices, 1980 = 100

Source: World Bank

Cotton

Agriculture

Cotton did not join the boom, why?4

Rapid expansion of biotech cotton, especially in China and India put pressure on the supply side.

The cotton sector is still subsidizedGlobally, 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

Share of biotech cotton in selected countries

Source: ICAC and Cotton Outlook

Cotton area under biotech varieties, 2007/08

5

China and India dominate global cotton production

Share (%) of world total

Source: International Cotton Advisory Committee

6

Production in WCA cotton is declining, why?

7

Yields have been stagnant and (lately) decliningCotton prices in CFAf terms are even lower

compared to US$ termsMost 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

Cotton prices in CFAf terms lag behindtheir US$ counterparts

Nominal price indices (2000=100)

Source: World Bank

8

What can (or cannot) be done9

Increase efficiency of ginning companiesMake better use of cotton by-products, especially in

the current environment of high edible oil pricesImprove marketing effortsReduce subsidies within DohaMacro environment (i.e., exchange rates) is

important but goes beyond C-4 and cottonOften 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.