1. U.S. Cotton Perspective The Next Steps for Africa October 26, 2006 Woodrow Wilson Center Washington, DC

2. Cotton Production

3. Cotton Prices, CIF North Europe

4. Factors Influencing World Cotton Markets Between 2000 and 2006, China, India and Pakistan use industrial policies, high border measures, tax incentives and refunds, and free financing of construction. Increase their cotton spinning from 44.6 million bales to 79.7 million bales, accounting for 66% of world mill use of cotton fiber. China will produce 14.6 million tons of polyester in 2006, up from just 4.9 million tons in 2000, subsidized with non-performing loans and tax incentives. Asia now produces more polyester than the entire world just a decade ago.

5. World Polyester Production – China now accounts for more than 50% of textile polyester production.

6. World Fiber Production

7. More Factors Influencing World Cotton China is the largest importer of cotton, administration of import quotas depresses world cotton prices. Chinese imports face variable duties with lower priced cotton being assessed a higher duty. Allocation of import quota often tied to agreement that subsequent textile products produced from the imported fiber are exported. Allocation of import quotas is linked to an equivalent purchase of more expensive Chinese cotton. Texas Tech study finds elimination of China TRQ system has almost 3 times the impact on world prices than complete elimination of all US cotton programs.

8. China Cotton Supply & Use

9. U.S. Retail Cotton Consumption

10. Cotton Prices, CIF North Europe

11. ITMF Contamination Survey

12. Contamination Issues Reflected in Price International Textile Manufacturers Federation (ITMF) surveys textile mills about contamination problems Collect results based on 16 types of contamination

13. More Factors Influencing World Cotton Utilization of manmade fiber production capacity has trended lower in recent years, pressuring manmade fiber prices lower. Recent yield increases have lowered marginal costs and maintained downward pressure on prices. India’s outlays on ag subsidies now total more than $12 billion, or 14% of total government expenditures.

14. Trends in Cotton Yield In 1995, gap was 200 pounds. Today, the gap is more than 425 pounds. Sub-Saharan Africa All Other Countries

15. Impact of Yield on Gross Revenue Cotton yields in other countries have increased by almost 200 pounds per acre. At today’s world price of $0.57 per pound, that amounts to more than $100 per acre of additional revenue due to yield growth

16. Cotton Prices, CIF North Europe

17. Price Impacts of Cotton Programs International Monetary Fund, March ‘03  Estimates the effects on welfare and world prices of removing agricultural support applied to ten products (including cotton) in industrial countries  Removal of Support Across All Countries Increases World Cotton Price by 2.8%.

18. Price Impacts of Cotton Programs Food and Agriculture Organization of the UN, April ‘04  Analyzed the complete elimination of domestic cotton subsidies, as notified to the WTO, and tariffs on raw cotton  World price increases by 3.1%. The authors indicate that the U.S. is responsible for 66% of the price increase or 2%.

19. Price Impacts of Cotton Programs Texas Tech University, May ‘04  Analyzed the effects of elimination of U.S. cotton subsidy programs on the world cotton market using a partial equilibrium model of the world fiber market  Over the 1999-2002 period, the analysis concludes that removal of all U.S. cotton programs would result in an increase in the world price of cotton by 2.4%.

20. Value of C-4 Cotton Production Cotton production in the C-4 countries averaged 2.75 million bales per year over 2000-04 Over the same period, world price averaged $0.56 per pound Value of C-4 cotton production averaged $734 million per year @ world prices

21. Assessing Impacts Annual value of C-4 cotton production is $734 million Analyses conclude world price impacts of all governments’ cotton programs only between 2 and 3% C-4 claim of between $300 and $400 million is 41% to 54% of the total value of C-4 production Damage claim dramatically overstated

22. Why do these Studies Find Relatively Smaller Price Impacts than Other Work? Other studies, such as analysis by ICAC, assume high-price years in mid-1990’s approximates production in the absence of the program. Uses this base period as standard for measuring subsequent years Demand elasticities in other studies are extremely small, thereby exaggerating price effect

23. Other Issues Affecting C-4 Producers Movement of CFA Franc relative to the dollar has increased cost of production by $0.20 per pound (Source: ICAC, January 2005) C-4 growers receive smaller proportion of world price than counterparts in other countries such as Brazil and China Production in China, India and Pakistan has increased substantially in recent years

24. If US Production falls, Brazil will fill the gap.

25. Brazil Will Fill the Gap In 2003, a 20% price rise precipitated a 2 million bale increase in production just in Brazil. Such an increase in production naturally dampens price rises. Brazil and India are two countries with highest potential to dramatically increase production.  Brazil has available acreage and large, mechanized operations  India has low yields that could increase significantly.

26. Cotton Production