The global cotton market has changed: What does it mean for African producers?

30 May 2014

Abstract: The cotton global market is rapidly shifting, with a new US Farm Bill and China abandoning its stockpiling policy.  After reaching a long awaited agreement in Bali, and with the latest developments in cotton this article addresses what WTO LDCs  can expect on the forefront of the global cotton market.

Cotton has been a very contentious issue for the past decade within global trade liberalisation negotiations.  Concurrently, a group of African countries comprised of Benin, Burkina Faso, Chad and Mali (also known as Cotton-4) united forces to become the key protagonists of the fight against price depressing cotton subsidies. Moreover, major players in the global cotton market are changing their positions with regard to cotton policies; the US recently passed its much anticipated Farm Bill, while China is abandoning its stockpiling policy of cotton. What will that mean for Least Developed Countries (LDCs)?

Bali ministerial declaration

Cotton was an integral part of the package that the LDCs Group submitted during the ninth Ministerial Conference (MC9) held in Bali.  The ministerial decision on Cotton [WT/MIN(13)/41; WT/L/916] was very simplistic with no elaborate solutions to the actual problem of subsidies. The decision therefore did not amount to any new or significant improvement for developing countries and LDC’s with regard to the issue of cotton.

In 2012/2013, ten countries provided subsidies averaging 26 cents per pound which was up the average of 17 cent per pound in 2011/2012 according to the International Cotton Advisory Committee (ICAC).  A major concern for the issue is that it has been divided in two components: (1) trade-related component; and (2) development component.  With most of the attention and efforts focused on the development component, the most important component – trade distortions – has been left untouched.  With regard to market access, developing countries declaring themselves in a position to do so, have agreed to provide duty-free and quota-free (DFQF) market access for products originating from LDCs. To date China, the world’s largest cotton importer has included cotton to its DFQF scheme which will have repercussions for Cotton-4 and other cotton producing LDCs.

Regrettably, the progress that the cotton issue made in the global trade liberalisation talks this past decade came to a halt with the non-compliance of the US to the recommendation of the WTO Panel and Appellate Body to eliminate its trade distorting subsidies in the US – Upland Cotton Dispute (DS267).

Brazil – US cotton subsidies dispute & new US Farm Bill

In 2002, Brazil brought a claim before the WTO against the US regarding prohibited and actionable subsidies provided to US cotton producers.  These subsidies provided payments to US farmers when cotton prices fell below a certain level. At the time, the US was the top exporter of cotton. The US reached an agreement with Brazil to avoid retaliation; the US would subsidise Brazilian cotton-farmers through a fund providing approximately $147 million a year to Brazilian cotton producers while it brought its Farm Bill in conformity with its WTO obligations.  This could have been the end of it but subsidies have the reputation of being controversial because they come in different forms and can be altered over time to conform to WTO obligations.

The new US Farm Bill no longer has a guaranteed price, however, it contains a new program known as the Stacked Income Protection Program (STAX) – designed by the National Cotton Council (NCC), a powerful cotton farmers lobby group, which allows cotton producers to buy insurance that protects most of their income when crops fail or when markets drop.  STAX has been defined as an insurance policy funded by US taxpayers and according to the NCC, insurance programs are allowed under WTO rules, but realistically, STAX has the effect of guaranteeing farmer’s incomes will not fall below the revenues expected, which amounts to a contradiction with WTO obligations.  Although US subsidies have had important repercussions on the global cotton market, attention must be turned to China, the largest provider of cotton subsidies.

 New trends and developments in the global cotton market

With an evolving global cotton market, supply and demand is no longer what it used to be. With recent trends, such as increasing demands of biofuel and handmade fibre, cotton fields are being substituted for other crops in the US.  The ICAC forecasts that the cotton production will decrease by 25 percent for the season 2013/2014.  The decrease in US cotton production has led to an increase in price. However, this result is misleading since China, currently a leading importer of cotton, has been stockpiling its cotton since 2011.  This policy of stockpiling cotton to set a cotton price floor leads to diverting raw materials from textile mills which resulted in the import of cotton yarn. The stock is estimated at more than half the world’s cotton stock. 

China recently dropped its stockpiling cotton policy for a region-specific subsidies system.  This will surely have repercussion on the African cotton producers, as China is the key market of these African cotton producers.  In 2012/2013, China accounted for 43 percent of world imports.  This number will decrease over the next years with the flow of very high levels of stock.  Additionally, China’s new subsidies policy will continue to contribute to trade distortions, as it has always been the main global cotton market issue.

The price of cotton in the next years will hopefully become more representative of reality. African cotton is to be introduced to a new world cotton contract, which will give a better representation of the prices in the global marketplace. West African cotton from countries such as Benin, Burkina Faso, Cameroon, Ivory Coast and Mali together with other net cotton exporters like Australia, Brazil, and India will end the rule of the US cotton in the determination of global cotton prices.


Cotton is clearly an important issue for developing countries and LDCs.  The key protagonists of cotton have managed to bring the issue to a higher level within the WTO agriculture negotiations but there is still much work needed.  There is little chance that this issue gets the attention it deserves if it is always presented with alternatives such as demands for development assistance.  Cotton-4 could have a stronger voice with the help of all other cotton producing LDCs.  They need to focus on one issue, that of the subsidies reduction and elimination of trade distortions.  The ICAC predicts that over the next 10 years, important shifts will occur; cotton production in Africa is expected to triple in 2022/2023 reaching 9 percent of the world’s total production whereas production in China is forecasted to decrease by approximately 15 percent.  Although cotton prices have stabilised well above average, the situation is not sustainable and cotton prices will inevitably drop in the future with any release of those global cotton stocks on the market.  Cotton-4 and LDCs need to be at the top of their game for what is to come as the global cotton market is shifting.

Author: Amanda P. Dakouré Barrister & Solicitor to the Law Society of Upper Canada. LL.M. Graduate from the London School of Economics.

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