M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/2008 1 Crises in cotton of Francophone Africa Fatality or challenge for multi- dimension cooperation?

M. FOK Workshop in memory of A. Maizels, London, 19-20/09/20081

Crises in cotton of Francophone Africa

Fatality or challenge for multi-dimension cooperation?

Michel FOK

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/20082

Cotton making Maizels' ideas topical ones

Cotton forcing itself into the WTO arena in September 2003

Rehabilitating a few of Maizels ideas Commodities crises call upon international

cooperation Subsidies = issue to be dealt with Financial compensation along the issue of

subsidies

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/20083

Modest contribution trying to be in line with Maizels' book

Providing insight on Cotton crises and their implications Influencing Factors of cotton crises Suggestions to prevent cotton crises or

alleviating their potential consequences

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/20084

Cotton crises & implications

Continuing process of cotton crises Major consequences in the world Consequences in FACs

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/20085

Visualisation of cotton crises

Price of cotton lint, in US cents/pound

0

20

40

60

80

100

120

1790

1796

1802

1808

1814

1820

1826

1832

1838

1844

1850

1856

1862

1868

1874

1880

1886

1892

1898

1904

1910

1916

1922

1928

1934

1940

1946

1952

1958

1964

1970

1976

1982

1988

1994

2000

2006

2001

1985

19941980

1919

1942

1951

1863

1931

1992

US cents

Source: Fok, 1997 & ICAC

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/20086

Cotton crises & decreasing trend of world price

Moving average 3 years, World price (A Index), in constant US dollar at basis 1990

0

50

100

150

200

250

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

US cents/pound

Source: data from Fok, 1997 & ICAC

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/20087

Cotton crises and US cotton support programme

Support expenses to US cotton growers' income, millions $, basis 2001

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

1933 1938 1943 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003

Source: data from USDA, ERS

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/20088

High subsidies not necesarily detrimental to others

FACs' cotton have benefitted from the US cotton policy in the 1960-70s!

Modalities of subsidies matter more than the principle of subsidies

Maizels was right in being pessimistic (realistic) about subsidy phasing out? Doha Round is stuck! Challenge to address: figure out more efficient

and fairer subsidy modalities

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/20089

Crises: factor of questioning FACs' cotton sector organization

Process of cotton sector reforms …with mitigated outcomes

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200810

FACs are losing groundFranc Zone Africa : Production and exportations (Moving averages, 3 years)

0

200

400

600

800

1000

1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

Production, cotton lint

% World Production

% World Exportations

1000 tons% World

Main countries: Benin, Burkina, Chad, Cameroon, Mali, Togo

Source: data from ICAC

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200811

Widening yield gap

200

300

400

500

600

700

800

1966 1971 1976 1981 1986 1991 1996 2001 2006

World Francophone Africa

Cotton lint yield, World & Major cotton countries of Francophone Africa(moving average on 3 years, except for the two extreme years)

kg/ha

Note: countries considered are Benin, Burkina Faso, Cameroon, Chad, Cote d'Ivoire, Mali, Senegal and Togo

Source: data from ICAC

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200812

FACs' Productivity: back to 25 years earlier!

Moving Average 3 of Fiber Yield, major cotton producing countries of Francophone Africa, kg/ha

350

370

390

410

430

450

470

1980 1985 1990 1995 2000 2005 2010

kg/ha

Note: countries considered are Benin, Burkina Faso, Cameroon, Chad, Cote d'Ivoire, Mali, Senegal and Togo

Source: data from ICAC

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200813

Serious reduction of cotton exportation earnings

Cotton Export earnings

Loss due to price fall

Loss to US$ change variation

1998 5511999 516 67 402000 436 28 -262001 446 218 -582002 475 66 -862003 531 -34 -82004 621 149 1052005 507 122 1162006 509 107 62

Total 4 591 724 145

Value in Billion CFA Franc Reference year for loss calculations: 1998

Source: calculated from data of Rapport Zone Franc, Banque de France

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200814

Reduced share in export earnings…

Total Export Cotton share Total Export Cotton share

1998 328 49% 244 44%2006 808 18% 297 17%

1998 190 63% 248 18%2006 308 65% 401 5%

1998 1 037 4% 154 50%2006 1 938 3% 1 782 2%

Mali Benin

Burkina Faso Togo

Cameroon Chad

Export Value in Billion CFA Franc

Because of gold (yellow and black)

Except in Burkina Faso

Source: Reports of Banque de France

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200815

Influencing factors of cotton crises

Demand factors Supply factors Price formation factors

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200816

Reduced demand from industrialized countries (EU)

FACs E_Europe EU15 N_America Totaltons 149 796 181 351 129 243 19 531 658 818 % total 22,7% 27,5% 19,6% 3,0% 100,0%tons 61 056 38 833 49 682 25 224 223 133 % total 27,4% 17,4% 22,3% 11,3% 100,0%

2007

1999

Importation of cotton fibre in Europe

Demand divided by three in less than ten years…

…with increasing market share of the USA!

Source: from data of EUROSTAT

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200817

Global demand hurt by the competition from synthetics?

Cotton share in the textile fibre market

0,35

0,4

0,45

0,5

0,55

0,6

0,65

0,7

0,75

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Fatality of decreasing share of cotton in the textile fibre market?

…some room for resistance?

No so much from DCs

Source: ICAC, 2007

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200818

Preference for cotton when per capita income increases

cotton all fibreFrance 1972-92 1,98 0,57United Kingdom 1981-92 1,98 0,64USA 1981-92 2,08 0,64Mexico 1965-89 -1,06 0,61Egypt 1982-89 -2,51 -0,94Pakistan 1975-89 -0,92 -0,57

Demand Elasticity to incomePeriod

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

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200819

Per capita end-use consumption of cotton fibre

World Indus. Countries All DCs1960 3,46 4,80 1972 5,00 1980 5,40 2,01 1990 3,80 8,20 2,22 1997 3,85 10,70 2,13 2001 3,82 10,60 2,16 2005 4,00 11,50 2,52

Cotton

Great margin of demand increase from DCs

Globally speaking, some uncertainties remains about the effect of the competition from synthetics and the evolution of the cotton demand

Source: ICAC, 2007

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200820

Substantial increase of the international transactions

World exportations and price index on cotton fibre, moving averages 3 years

4 000

4 500

5 000

5 500

6 000

6 500

7 000

7 500

8 000

8 500

9 000

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

-

10,00

20,00

30,00

40,00

50,00

60,00

70,00

80,00

90,00

100,00

world exportations A index

1000 tons US cents/pound

…without increase of the world price.

Issue of instant supply response? …or issue of price formation?Tragedy of King's law?

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200821

Implications of the changes in textile industry

More stringent requirement for quality demand As Maizels has anticipated

Just-in-time management 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

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200822

Supply factors

Subsidies Technology change Socio-economic reasons

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200823

Supply sustained by Cotton subsidies Maizels aks for international agreements he was pessimistic about their abolition

He seems to be right! Uncertain price effect of subsidy abolition

And surely short-term effect at best

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200824

Supply sustained by Cotton subsidies The African protest has relaunched

somehow the debate on the relevance of supply control Justified by the view that agriculture is different and

regulation is needed Pay more attention to subsidy program with

some supply control The specific case of the EU cotton regime!

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200825

Supply enhanced by yield gain

Yield progress linked to technology evolution 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?

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200826

Tricky deal of technology progress?

Technology progress needed to adapt to price decline …or trend of price decline fed by technology

progress? Possible risk when no control of supply

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200827

Tricky deal of technology progress?

Wise to consider yield progress at reasonable cost in FACs To limit financial risks to resource-poor

producers Biotech: available solution

• passionately debated

• …might be a financially-risky option if cotton price declines

More attention to other technical solutions• Because less financially costly

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200828

Supply sustained by the lack of alternative cash crops

While more cash in needed …further more after the SAPs

More cash is needed to accede to welfare services

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200829

Price Formation

Market structure: concentration Dramatic changes in the marketing of

FACs' cotton Amazing prices for FACs' cotton (Exchange rate = amplifier of cotton

crises) But not specific to FACs

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200830

Oligopolistic market structure

Home Region of companies

1994 2004

USA Allenberg cotton co. Allenberg cotton co.ConticottonDunavant Enterprises Inc. Dunavant Enterprises Inc.Hohenberg Bros. Cny

ECOM USA Inc.Cargill CottonWeil Brothers & Rountree

Europe L. Dreyfus Cotton intern. (B) L. Dreyfus Cotton intern. (B)Copaco (Fr) Copaco (Fr)Paul Reinhard AG (Sz) Paul Reinhard AG (Sz)Stahel Hardmeyer AG (Sz)Ralli Brothers & Coney (UK)

Aiglon Dublin Ltd (Sz)Plexus

Toyo Cotton (Jp)Queensland cotton Corp. (Aus)

Asia-Pacific

About 12 companies trading more than 200 000 tons yearly, but only 9 trading African cotton

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200831

Rather recent invasion of FACs by international traders

Before 1991: marketing through marketing agent mainly at CIF position Contact with final users No intervention of traders

"marketing liberalization" = part of the reform of FACs' cotton sector

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200832

Rather recent invasion of FACs by international traders

Now, no more sales through marketing agent Sales exclusively at FOB position No more contact with final users

Unilateral change of trading rules 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 …and FACs' insufficient command/power in dealing

with marketing

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200833

FACs are victims of abusive price formation?

A Index and quotations for West Africa cotton

35

40

45

50

55

60

65

70

75

80

85

90

95

100

1980 1985 1990 1995 2000 2005 2010

A Index Cotton West Africa

US cents/pound

Market price indicators: Better quality without market premium

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200834

Questionable price discount against FACs' cotton imported into Europe

Source: EUROSTAT

CIF, US cent/lb

A index FACs East & South Africa Greece & Spain Australia1999 52,80 69,73 71,88 61,22 80,27 2000 57,20 61,16 67,78 54,16 71,76 2001 41,80 60,74 63,60 57,34 68,50 2002 55,70 44,85 54,38 41,77 59,16 2003 69,25 51,38 57,34 52,59 62,71 2004 53,50 68,40 67,66 68,93 74,59 2005 55,21 58,38 63,47 59,23 73,08 2006 58,48 54,55 61,18 57,01 64,13 2007 73,00 61,27 64,76 66,67 67,31

Time lag makes difficult comparison to A index

but the observed discounts to other origins of cotton are quite questionable

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200835

Moving out cotton crises or alleviating their effects Actions of international dimension

Cotton Subsidies, supply control and assistance fund Marketing Transaction monetary unit

Actions of national and regional dimension Marketing coordination Income stabilization vs price stabilization R&D for productivity Global public good of productivity gain diversification

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200836

Subsidy reduction along supply control Not realistic to expect total and rapid

subsidy phasing out Negotiate subsidy reduction instead

Hence complying fully with Doha Round objective

Advocate subsidy reduction along with changes of subsidy modalities Favour modalities leading to some supply control

Claim the allocation of the subsidy savings to feed an assistance fund DCs

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200837

Multi-lateral and bilateral moves to improve marketing outcomes

Demand the initiation of some control process of the TNCs 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 China is an opportunity Implement through a regional cooperation of FACs?

• Following Maizels' idea…but not easy

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200838

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 Open and adaptable to the change of

international economies

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200839

FACs' marketing coordination realistic?

Desirable… But too late, places are yet invaded by

TNCs without interest for coordination A few actions are possible

Marketing by using the existing common standard of cotton types

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200840

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 Leading to less intensification which has costed

more and more Move to consider relative prices of inputs and

outputs

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200841

R&D enhancement with limited human and financial resources

More resources are needed Better use of limited resources

through more regional approach Vs coexistence of national approaches

Time for regional long-term R&D programs

Emphasis on developing cultivation techniques with reasonable financial risks

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200842

Productivity gain = public good

Public because deisred by all stakeholders

Public because of many positive externalities

Then the associated cost must be shared Get out the current trick where the poorest are

asked to bear alone the cost and risk of productivity gain

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200843

Diversification from cotton

Ask firstly some preservation of cotton production for a while!

Ask for long-term commitment Assimilable to public good as well

Hence efforts must be shared Just talk = not sufficient!

Diversification asks for…diversified approaches of implementation and firstly implementation operations and to draw

lessons from them

M. FOK

Workshop in memory of A. Maizels, London, 19-20/09/200844

Conclusion

Maizels' ideas are quite topical in the cotton case

Some attempt to show how topical they are

Not all Maizels' recommendations are realistic today But quite valuable in figuring out new

mechanisms and actions to defend