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Removal of subsidies on cotton trade and growth of the cotton industry in Africa SARPN/EJN Regional Strategy Meeting on Hong Kong Outcomes, 6 April 2006 By Ntando Ndlovu - ZIMCODD
Outline • African Cotton Industry • Commitments on removal of subsidies • Growth prospects and implications for poverty reduction in Africa • Possible intervention strategies on Cotton By Ntando Ndlovu - ZIMCODD
AFRICAN COTTON INDUSTRY • Africa contributes 8-10% of world cotton product and 20% of exports • Produces 1,7 million tons of cotton seed annually • 15 million people directly employed in the cotton industry (in SADC 3m largely small scale farmers, supporting an estimated 15 million dependants) • Cotton production 5- 10% of Africa’s GDP • Comparative advantage in cotton production By Ntando Ndlovu - ZIMCODD
African Cotton industry cont. • SADC yield averaging 750kg/ha v 1 300kg/ha in RSA and 1 500kg/ha in other countries • Africa’s transformation less than 5% v 100% elsewhere e.g. China, Pakistan • Poor institutional infrastructure, marketing systems and conformity with WTO standards. By Ntando Ndlovu - ZIMCODD
HK commitments to remove / reduce subsidies • Para 11- commitment to address cotton issues “ambitiously, expeditiously and specifically” • Eliminate exportsubsidies by end of 2006-modalities finalized by 30/04/06 • Duty & quota free market access for LDC from commencement of implementation period! • Elimination of domestic subsidies over a shorter period- 1/3 of general applicable deadline of 2013? By Ntando Ndlovu - ZIMCODD
Commitments cont. • Bilateral, multilateral and regional banks supported development assistance to help African producers deal with “income declines in the cotton sector until end of subsidies” • USA – AGOA, EU- Anything but Arms, UNIDO/ AfDB – 9 West & Central African Countries, WTO coordinated bidding for all 33 cotton growing countries- fundedbysamedonors By Ntando Ndlovu - ZIMCODD
Gaps in the HK “deal” • Export subsidies insignificant v total trade distorting subsidies. • World Bank study estimates at 12.9% increases in prices or US$283million in income if all subsidies are removed (other estimates 0-36% increase in incomes for African farmers) • Partial reduction translates to ¼ of estimated gains. By Ntando Ndlovu - ZIMCODD
Growth prospects and implications for poverty reduction • Removal of export subsidies per se will have minimal effect on international prices • Assuming total elimination of trade distorting subsidies “expeditiously”- global prices my increase by at least 12.9%- critical starting point! • This may not necessarily trickle down to farmers hence contribute to poverty reduction if Africa’s supplyconstraints are not addressed By Ntando Ndlovu - ZIMCODD
Growth prospects cont. • While all 32 cotton growing African countries (except RSA) need development assistance to increase productivity, meet SPS stds, improve infrastructure and cushion themselves against impact of subsidies, current packages are selective. • Africa only processing less than 5% of her cotton hence urgent need for beneficiation/ value addition By Ntando Ndlovu - ZIMCODD
Growth prospects cont. • Africa lacks internal (regional and national) strategies for the full development of the cotton sector • Low and fast shrinking domestic markets for textile products ( worsened by concessions on NAMA) • Technological challenges- GMO?, processing technology? By Ntando Ndlovu - ZIMCODD
Implications for poverty reduction • In the current context there are are only limited cotton induced prospects for poverty reduction in Africa that can be linked to reduction and even elimination of trade distorting subsidies. • The arrangements will at best ensure that Africa can provide lint (rawmaterials) on one hand and a deep and vibrantmarket for finished products on the other. By Ntando Ndlovu - ZIMCODD
Possible interventions and strategies • Total removal of all trade distorting subsidies as a starting point for firmer international prices • Capacity building for farmers to ensure efficient production, better quality, effective utilization of available support services and general representation in local policy formulation and implementation. • Alternatives to cotton dependence for small scale farmers without sacrificing national sovereiginty on essential cotton products • Direct support for the cotton chain and protection. By Ntando Ndlovu - ZIMCODD
THE END - Thank you!!! By Ntando Ndlovu - ZIMCODD