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Cotton Prices, Consumption to See Further Declines

The global cotton industry is likely to continue to see declines in price and demand next year as the economic downturn intensifies.

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GENEVA — The global cotton industry is likely to continue to see declines in price and demand next year as the economic downturn intensifies, said experts at a recent conference hosted by the United Nations Conference on Trade & Development.

“In the short term, the cotton market looks rather unsettled,” said Brian Moir, senior economist with the U.N. Food & Agriculture Organization. “The present crisis will continue to affect cotton consumption. Consumers are likely to spend less, both by moving downmarket and by deferring purchases, and some processors will have difficulties. Factories will close, thus creating further problems for raw cotton.”

Moir noted rising prices for food have pushed farmers, particularly in the U.S., to shift their crop land away from cotton to higher-profit crops like maize and soybeans. He estimated the contraction in cotton supply “will tend to mitigate the price declines likely in 2009 and 2010.”

Supachai Panitchpakdi, secretary general at the UNCTAD, was equally downbeat, projecting global cotton imports to fall by 9 percent to 7.5 million tons in 2008-09. Panitchpakdi told trade ministers, diplomats and cotton industry experts that production is expected to decline 6 percent to 25.4 million tons. Chinese factories are already beginning to cut back on staff and production levels as orders from the U.S. and European Union have plummeted, he noted.

Pascal Lamy, director-general of the World Trade Organization, said the expected decline in consumer purchasing power in rich economies, coupled with more stringent credit conditions and general uncertainty will push prices to even lower levels than the projected contraction in cotton production.

Andrei Guitchounts, an economist with the International Cotton Advisory Committee, said global mill use of cotton this year is expected to contract by 5 percent, while use in China is projected to decline by 6 percent, marking a sharp departure from the average annual increase of 12 percent in the last eight years.

Ministers from poor African cotton-producing nations said the falling prices would severely impact millions of poor farmers and renewed their calls for the U.S. to slash billions of dollars in subsidies given to American farmers.

Under the reverse mechanism of U.S. cotton support schemes, experts note, subsidies to American farmers are increased when world prices fall and decreased when they are high.

Lamy said he recognizes the role cotton has played in the collapse of the Doha global trade talks, which faltered in July.

“There is unanimity that without a deal on cotton there can be no modalities on agriculture and industry, and without modalities there will be no open road which leads to the conclusion of the round,” said Lamy.

On Saturday, a revised blueprint on lowering tariffs for industrial goods and services was received with the same skepticism that led to the breakdown of the talks in July.

Ahmadou Diallo, Mali’s minister of commerce and industry, said, “Cotton needs to be treated as a matter of priority. For African countries, it’s a crucial issue.”

Top African officials have warned they may walk away if any U.S. offer falls short of their demands that American cotton subsidies be slashed and capped. David Miller, U.S. agricultural counsellor, told delegates the U.S. is committed to a cotton outcome in the talks.

Ramadan Issa, Chad’s minister of trade, said cotton is indispensable to her country’s economy and cautioned its disappearance would have serious consequences, triggering migration movements, violence and a deterioration or rural poverty. About 20 million African farmers, many surviving on only $1 a day, depend on cotton production, African trade diplomats noted.

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