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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?

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Presentation on theme: "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?"— Presentation transcript:

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

2 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

3 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

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

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

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

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

8 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ High subsidies not necesarily detrimental to others FACs' cotton have benefitted from the US cotton policy in the s! 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

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

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

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

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

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

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

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

16 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ Reduced demand from industrialized countries (EU) 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

17 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

18 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

19 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ Per capita end-use consumption of cotton fibre 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

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

21 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

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

23 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

24 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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!

25 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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?

26 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

27 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

28 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

29 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

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

31 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

32 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

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

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

35 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

36 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

37 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

38 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

39 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

40 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

41 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

42 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

43 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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

44 M. FOKWorkshop in memory of A. Maizels, London, 19-20/09/ 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


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