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Crises in cotton of Francophone Africa. Fatality or challenge for multi-dimension cooperation?. Michel FOK. Cotton making Maizels' ideas topical ones. Cotton forcing itself into the WTO arena in September 2003 Rehabilitating a few of Maizels ideas

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Crises in cotton of Francophone Africa

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Crises in cotton of francophone africa
Crises in cotton of Francophone Africa

Fatality or challenge for multi-dimension cooperation?

Michel FOK

Workshop in memory of A. Maizels, London, 19-20/09/2008


Cotton making maizels ideas topical ones
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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Modest contribution trying to be in line with maizels book
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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Cotton crises implications
Cotton crises & implications

  • Continuing process of cotton crises

  • Major consequences in the world

  • Consequences in FACs

Workshop in memory of A. Maizels, London, 19-20/09/2008


Visualisation of cotton crises
Visualisation of cotton crises

Source: Fok, 1997 & ICAC

Workshop in memory of A. Maizels, London, 19-20/09/2008


Cotton crises decreasing trend of world price
Cotton crises & decreasing trend of world price

Source: data from Fok, 1997 & ICAC

Workshop in memory of A. Maizels, London, 19-20/09/2008


Cotton crises and us cotton support programme
Cotton crises and US cotton support programme

Source: data from USDA, ERS

Workshop in memory of A. Maizels, London, 19-20/09/2008


High subsidies not necesarily detrimental to others
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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Crises factor of questioning facs cotton sector organization
Crises: factor of questioning FACs' cotton sector organization

  • Process of cotton sector reforms

  • …with mitigated outcomes

Workshop in memory of A. Maizels, London, 19-20/09/2008


Facs are losing ground
FACs are losing ground organization

Source: data from ICAC

Workshop in memory of A. Maizels, London, 19-20/09/2008


Widening yield gap
Widening yield gap organization

Source: data from ICAC

Workshop in memory of A. Maizels, London, 19-20/09/2008


Facs productivity back to 25 years earlier
FACs' Productivity: back to 25 years earlier! organization

Source: data from ICAC

Workshop in memory of A. Maizels, London, 19-20/09/2008


Serious reduction of cotton exportation earnings
Serious reduction of cotton exportation earnings organization

Value in Billion CFA Franc

Reference year for loss calculations: 1998

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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Reduced share in export earnings
Reduced share in export earnings… organization

Except in Burkina Faso

Export Value in Billion CFA Franc

Source: Reports of Banque de France

Because of gold (yellow and black)

Workshop in memory of A. Maizels, London, 19-20/09/2008


Influencing factors of cotton crises
Influencing factors of cotton crises organization

  • Demand factors

  • Supply factors

  • Price formation factors

Workshop in memory of A. Maizels, London, 19-20/09/2008


Reduced demand from industrialized countries eu
Reduced demand from industrialized countries (EU) organization

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!

Workshop in memory of A. Maizels, London, 19-20/09/2008


Global demand hurt by the competition from synthetics
Global demand hurt by the competition from synthetics? organization

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

…some room for resistance?

No so much from DCs

Source: ICAC, 2007

Workshop in memory of A. Maizels, London, 19-20/09/2008


Preference for cotton when per capita income increases
Preference for cotton when per capita income increases organization

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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Per capita end use consumption of cotton fibre
Per capita end-use consumption of cotton fibre organization

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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Substantial increase of the international transactions
Substantial increase of the international transactions organization

…without increase of the world price.

Tragedy of King's law?

…or issue of price formation?

Issue of instant supply response?

Workshop in memory of A. Maizels, London, 19-20/09/2008


Implications of the changes in textile industry
Implications of the changes in textile industry organization

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Supply factors
Supply factors organization

  • Subsidies

  • Technology change

  • Socio-economic reasons

Workshop in memory of A. Maizels, London, 19-20/09/2008


Supply sustained by cotton subsidies
Supply sustained by Cotton subsidies organization

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Supply sustained by cotton subsidies1
Supply sustained by Cotton subsidies organization

  • 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!

Workshop in memory of A. Maizels, London, 19-20/09/2008


Supply enhanced by yield gain
Supply enhanced by yield gain organization

  • 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?

Workshop in memory of A. Maizels, London, 19-20/09/2008


Tricky deal of technology progress
Tricky deal of technology progress? organization

  • Technology progress needed to adapt to price decline

    • …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


Tricky deal of technology progress1
Tricky deal of technology progress? organization

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Supply sustained by the lack of alternative cash crops
Supply sustained by the lack of alternative cash crops organization

  • While more cash in needed

  • …further more after the SAPs

    • More cash is needed to accede to welfare services

Workshop in memory of A. Maizels, London, 19-20/09/2008


Price formation
Price Formation organization

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Oligopolistic market structure
Oligopolistic market structure organization

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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Rather recent invasion of facs by international traders
Rather recent invasion of FACs by international traders organization

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Rather recent invasion of facs by international traders1
Rather recent invasion of FACs by international traders organization

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Facs are victims of abusive price formation
FACs are victims of abusive price formation? organization

Market price indicators: Better quality without market premium

Workshop in memory of A. Maizels, London, 19-20/09/2008


Questionable price discount against facs cotton imported into europe
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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Moving out cotton crises or alleviating their effects
Moving out cotton crises or alleviating their effects into Europe

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Subsidy reduction along supply control
Subsidy reduction along supply control into Europe

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Multi lateral and bilateral moves to improve marketing outcomes
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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Transaction monetary unit
Transaction monetary unit outcomes

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Facs marketing coordination realistic
FACs' marketing coordination realistic? outcomes

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Income stabilization better than price stablization
Income stabilization better than price stablization outcomes

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


R d enhancement with limited human and financial resources
R&D enhancement with limited human and financial resources outcomes

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Productivity gain public good
Productivity gain = public good outcomes

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Diversification from cotton
Diversification from cotton outcomes

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


Conclusion
Conclusion outcomes

  • 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

Workshop in memory of A. Maizels, London, 19-20/09/2008


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