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Cotton: Malian producers will be paying the price

09.03.2006
Cotton is one of the main cogs in the machinery of the African economy: it accounts for 60% of agricultural export revenue and 5 to 10% of GDP in producing countries, and supports 10 million people, including 3.3 million in Mali.

Moreover, excluding subsidies, the cotton sector is competitive and exports more than 90% of what it produces. However, over the past ten years or so, the huge subsidies granted to producers in the United States (US$ 2.3 billion in 2001/2002), China ($ 1.2 billion in 2001/2002) and Europe ($ 700 million per year) have driven down cotton fibre prices. The price per kg dropped from $ 2.53 in 1995 to $ 0.82 in 2001.

To counter this fall, Mali adopted a reform in January 2005 of the mechanism for determining the price paid to seed cotton producers. The new agreement was a radical step: the basic price is now linked to the world market price, rather than to production costs. The purchasing price per kg of “grade one” cotton fell from CFAF 210 in 2004 to between CFAF 160 and 175 in 2005. Moreover, the minimum price system is no longer guaranteed. What will be the short- and medium-term consequences of the reform for producers and the Malian cotton commodity chain as a whole? To answer that question, CIRAD conducted a field study in the Malian cotton-growing zone, funded by the NGO OXFAM. The results speak for themselves.

On a microeconomic level, applying the new purchasing price will undoubtedly result in a negative margin for producers. In effect, the price will generally not be sufficient to cover seed cotton production costs. Moreover, given that the new price mechanism will result in a drop in incomes among cotton producers (around CFAF 30 billion) and rural populations, it will probably exacerbate poverty in Mali.

On a macroeconomic level, the likely loss for the Malian economy as a whole will be between CFAF 62.32 and 136.5 billion, corresponding to a drop of between 1.86 and 3.9% in the country’s GDP. Moreover, the new mechanism has been introduced at a time when the commodity chain is also suffering from major difficulties linked to the Compagnie malienne de développement textile’s financial problems, while input costs are rising and yields are falling in the cotton-growing zone. This is compounded by the fall in export revenue and in incomes among cotton producers as a result of the price slump.

These various points raise another, broader issue: are the Millennium Development Goals initiated by the United Nations and the Doha agenda* being implemented under the World Trade Organization coherent and above all compatible? Achieving the Millennium Development Goals, particularly a 50% reduction in global poverty by 2015, means implementing determined public policies that are mostly out of step with the increasing liberalization imposed under the Doha Round.

Kako Nubukpo | alfa
Further information:
http://www.cirad.fr/en/actualite/communique.php?id=382

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