Crises in cotton of Francophone Africa Fatality or

Crises in cotton of Francophone Africa Fatality or challenge for multidimension cooperation? Michel FOK 1 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Cotton making Maizels' ideas topical ones Cotton forcing itself into the WTO arena in September 2003 ¢ Rehabilitating a few of Maizels ideas ¢ l l l 2 Commodities crises call upon international cooperation Subsidies = issue to be dealt with Financial compensation along the issue of subsidies Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Modest contribution trying to be in line with Maizels' book ¢ Providing insight on l l l 3 Cotton crises and their implications Influencing Factors of cotton crises Suggestions to prevent cotton crises or alleviating their potential consequences Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Cotton crises & implications Continuing process of cotton crises ¢ Major consequences in the world ¢ Consequences in FACs ¢ 4 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Visualisation of cotton crises Source: Fok, 1997 & ICAC 5 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Cotton crises & decreasing trend of world price Source: data from Fok, 1997 & ICAC 6 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Cotton crises and US cotton support programme Source: data from USDA, ERS 7 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

High subsidies not necesarily detrimental to others FACs' cotton have benefitted from the US cotton policy in the 1960 -70 s! ¢ Modalities of subsidies matter more than the principle of subsidies ¢ Maizels was right in being pessimistic (realistic) about subsidy phasing out? ¢ l l 8 Doha Round is stuck! Challenge to address: figure out more efficient and fairer subsidy modalities Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Crises: factor of questioning FACs' cotton sector organization Process of cotton sector reforms ¢ …with mitigated outcomes ¢ 9 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

FACs are losing ground Source: data from ICAC 10 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Widening yield gap Source: data from ICAC 11 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

FACs' Productivity: back to 25 years earlier! Source: data from ICAC 12 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Serious reduction of cotton exportation earnings Value in Billion CFA Franc Reference year for loss calculations: 1998 Source: calculated from data of Rapport Zone Franc, Banque de France 13 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Reduced share in export earnings… Except in Burkina Faso Export Value in Billion CFA Franc Because of gold (yellow and black) 14 Source: Reports of Banque de France Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Influencing factors of cotton crises Demand factors ¢ Supply factors ¢ Price formation factors ¢ 15 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Reduced demand from industrialized countries (EU) Importation of cotton fibre in Europe Source: from data of EUROSTAT Demand divided by three in less than ten years… …with increasing market share of the USA! 16 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Global demand hurt by the competition from synthetics? Fatality of decreasing share of cotton in the textile fibre market? …some room for resistance? No so much from DCs Source: ICAC, 2007 17 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Preference for cotton when per capita income increases Positive prospects are possible as countries with huge populations are reaching higher income levels and where hot temperatures should further push to preferring cotton garments Source: Fok, 1997 18 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Per capita end-use consumption of cotton fibre Great margin of demand increase from DCs Source: ICAC, 2007 Globally speaking, some uncertainties remains about the effect of the competition from synthetics and the evolution of the cotton demand 19 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Substantial increase of the international transactions …without increase of the world price. Tragedy of King's law? 20 Issue of instant supply response? …or issue of price formation? Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Implications of the changes in textile industry ¢ More stringent requirement for quality demand l ¢ Just-in-time management l l 21 As Maizels has anticipated Factor not addressed by Maizels More demanding towards suppliers …that only international traders, so far, have succeeded to respond …with possible implications on price formation Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Supply factors Subsidies ¢ Technology change ¢ Socio-economic reasons ¢ 22 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Supply sustained by Cotton subsidies ¢ ¢ Maizels aks for international agreements he was pessimistic about their abolition l ¢ Uncertain price effect of subsidy abolition l 23 He seems to be right! And surely short-term effect at best Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Supply sustained by Cotton subsidies ¢ The African protest has relaunched somehow the debate on the relevance of supply control l ¢ Pay more attention to subsidy program with some supply control l 24 Justified by the view that agriculture is different and regulation is needed The specific case of the EU cotton regime! Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Supply enhanced by yield gain ¢ Yield progress linked to technology evolution l Probably some impact of biotech India has overpassed the USA and ranks second to China in cotton production! ¢ What if Pakistan follows the same biotech way? ¢ 25 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Tricky deal of technology progress? ¢ Technology progress needed to adapt to price decline l l 26 …or trend of price decline fed by technology progress? Possible risk when no control of supply Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Tricky deal of technology progress? ¢ Wise to consider yield progress at reasonable cost in FACs l l To limit financial risks to resource-poor producers Biotech: available solution • passionately debated • …might be a financially-risky option if cotton price declines l More attention to other technical solutions • Because less financially costly 27 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Supply sustained by the lack of alternative cash crops While more cash in needed ¢ …further more after the SAPs ¢ l 28 More cash is needed to accede to welfare services Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Price Formation Market structure: concentration ¢ Dramatic changes in the marketing of FACs' cotton ¢ Amazing prices for FACs' cotton ¢ (Exchange rate = amplifier of cotton crises) ¢ l 29 But not specific to FACs Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Oligopolistic market structure About 12 companies trading more than 200 000 tons yearly, but only 9 trading African cotton 30 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Rather recent invasion of FACs by international traders ¢ Before 1991: marketing through marketing agent l l l ¢ 31 mainly at CIF position Contact with final users No intervention of traders "marketing liberalization" = part of the reform of FACs' cotton sector Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Rather recent invasion of FACs by international traders ¢ Now, no more sales through marketing agent l l ¢ Sales exclusively at FOB position No more contact with final users Unilateral change of trading rules l No full respect of the rules and bylaws to which the contracts refer to • No more contradictory control (notably of quality) • Timing of delivery not always respected by traders when world price is low ¢ Indications of asymetric power l 32 …and FACs' insufficient command/power in dealing with marketing Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

FACs are victims of abusive price formation? Market price indicators: Better quality without market premium 33 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Questionable price discount against FACs' cotton imported into Europe CIF, US cent/lb Source: EUROSTAT Time lag makes difficult comparison to A index but the observed discounts to other origins of cotton are quite questionable 34 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Moving out cotton crises or alleviating their effects ¢ Actions of international dimension l l l ¢ Actions of national and regional dimension l l l 35 Cotton Subsidies, supply control and assistance fund Marketing Transaction monetary unit Marketing coordination Income stabilization vs price stabilization R&D for productivity Global public good of productivity gain diversification Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Subsidy reduction along supply control ¢ ¢ Not realistic to expect total and rapid subsidy phasing out Negotiate subsidy reduction instead l ¢ Advocate subsidy reduction along with changes of subsidy modalities l ¢ 36 Hence complying fully with Doha Round objective Favour modalities leading to some supply control Claim the allocation of the subsidy savings to feed an assistance fund DCs Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Multi-lateral and bilateral moves to improve marketing outcomes ¢ Demand the initiation of some control process of the TNCs l l ¢ At least similar to what has been decided for the State Trading Enterprises …do not miss the opportunity that Doha Round is stuck and not over! Escape the market power of TNCs by negotiating long term supply contracts with preferential price l l China is an opportunity Implement through a regional cooperation of FACs? • Following Maizels' idea…but not easy 37 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Transaction monetary unit Not realistic to ambition a New Third World currency ¢ Advocate the adoption of a new unit based on a basket of existing hard currencies ¢ l 38 Open and adaptable to the change of international economies Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

FACs' marketing coordination realistic? Desirable… ¢ But too late, places are yet invaded by TNCs without interest for coordination ¢ A few actions are possible ¢ l 39 Marketing by using the existing common standard of cotton types Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Income stabilization better than price stablization Stabilization with reference to purchasing power ¢ Get out the trap of decreasing productivity by exclusive consideration of seedcotton price ¢ l l 40 Leading to less intensification which has costed more and more Move to consider relative prices of inputs and outputs Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

R&D enhancement with limited human and financial resources More resources are needed ¢ Better use of limited resources through more regional approach ¢ l Vs coexistence of national approaches Time for regional long-term R&D programs ¢ Emphasis on developing cultivation techniques with reasonable financial risks ¢ 41 Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Productivity gain = public good Public because deisred by all stakeholders ¢ Public because of many positive externalities ¢ Then the associated cost must be shared ¢ l 42 Get out the current trick where the poorest are asked to bear alone the cost and risk of productivity gain Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Diversification from cotton ¢ ¢ ¢ Ask firstly some preservation of cotton production for a while! Ask for long-term commitment Assimilable to public good as well l l ¢ Diversification asks for…diversified approaches of implementation l 43 Hence efforts must be shared Just talk = not sufficient! and firstly implementation operations and to draw lessons from them Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK

Conclusion Maizels' ideas are quite topical in the cotton case ¢ Some attempt to show topical they are ¢ Not all Maizels' recommendations are realistic today ¢ l 44 But quite valuable in figuring out new mechanisms and actions to defend Workshop in memory of A. Maizels, London, 19 -20/09/2008 M. FOK