|
World cotton trade is largely defined by its two dominant
participants: China for imports and the United States
for exports. Each country accounts for about 40 percent
of world trade and China’s share is rising.
The end of the Multifiber
Arrangement (MFA) and increased use of genetically
modified (GM) cotton have profoundly altered world cotton
markets in recent years. The economic restructuring and
growth of China and India have been important as well.
During the mid-2000s, world cotton consumption grew at
its fastest rate in decades, and world cotton trade has
grown even faster. The restructuring of world consumption
and trade means that trade policies around the world are
more important to U.S. cotton than perhaps at any time
in the last 100 years.
As world cotton markets have changed in recent years,
the U.S. has maintained its position as the world’s
second-largest producer. About 19 percent of the world’s
cotton has been grown in the United States over the last
three decades. The U.S. share of world consumption has
fallen to about 5 percent—its lowest since the 1800s—as
the end of MFA import quotas allows the comparative advantage
of developing countries to increasingly drive world textile
production and trade.
China has long been the world’s
largest cotton producer and consumer, but in recent years
its soaring economy and global textile trade liberalization
have driven its cotton imports far beyond any other market’s.
As recently as marketing year 2000/01, China was a net
exporter of cotton, but since then imports have risen
to record highs year after year. Not since England in
the 1800s has one country dominated world cotton trade
and consumption as China does today. China’s 2001
accession to the World Trade Organization (WTO) included
a 4.1-million-bale tariff rate quota (TRQ) with a 1-percent
tariff, compared with a 40-percent tariff for above-quota
imports. However, with imports exceeding 15 million bales,
China’s unilateral trade policy decisions are again
a crucial factor in world cotton markets.
Cotton prices in China tend to be above
world prices, but the margin varies in part as policymakers
seek to balance the competing interests of their industrial
and agricultural sectors through trade policy. Textiles
are important to China’s economy, and the sector
thrives on low fiber prices. Textile exports are now 15
percent or less of China’s total exports, but they
have accounted for China’s entire trade surplus
in recent years. On the other hand, China has 20 million
cotton farmers, and their incomes grow as cotton prices
rise. In addition to the size of, and tariffs on, quotas
supplementing the WTO-mandated cotton TRQ, government
policies affecting cotton imports include banking and
finance, exchange rates, and trade and pricing policy
for grains (for more information, see the Policy
chapter in the China Briefing
Room).
India’s domestic textile market
is about half the size of China’s and India’s
textile exports are an even smaller fraction. But India
is a major beneficiary of the end of the MFA, and both
India’s population and income growth are comparable
to China’s. The growing use of GM cotton has shifted
India from one of the world’s largest importers
to one of the world’s largest exporters of raw cotton,
even as textile production grows. India has not been a
steady source of cotton for the world market since the
1930s but, with sharply higher yields, the country has
the potential to be significant exporter as well as the
world’s second-largest cotton consumer.
In Sub-Saharan Africa, 14 countries comprise
the “Franc Zone,” the source
of a little more than 10 percent of the world’s
cotton exports. These countries utilize either the West
African franc or the Central African franc and share similar
production and marketing systems, in addition to a currency
pegged to the euro. The Franc Zone’s production
and exports rose about 70 percent from the mid-1990s to
the mid-2000s, despite a decline of about 50 percent in
real (adjusted for inflation) world cotton prices. A significant
currency devaluation shifted domestic prices
in farmers’ favor, encouraging cotton production.
Yields in these countries are among the world’s
lowest, but area planted to cotton has tended to rise.
Cotton is the only cash crop for many of the region’s
farmers, and accounts for 30-60 percent of all exports
from Benin, Chad, Mali, and Burkina Faso.
Uzbekistan’s exports account for
about 10 percent of world trade. During the early 1990s,
Uzbekistan accounted for about 20 percent of world trade,
but both area and yield has trended downward. Like some
other Central Asian countries that achieved sovereignty
with the collapse of the Soviet Union, Uzbekistan has
not significantly participated in the global shift to
open trade and capital flows. Centralized economic planning
and policies that effectively tax cotton production are
still the norm. The region’s other producers—Kazakhstan,
Tajikistan, Turkmenistan, Azerbaijan, and Kyrgyzstan—together
account for an additional 5 percent of world cotton trade.
More than half the world’s cotton is now imported
by countries that also produce significant amounts of
cotton. Early in the 1990s, cotton producers accounted
for only 15 percent of world imports. Therefore, the world
market has become increasingly dominated by countries
potentially interested in the well-being of their own
cotton-production sector. This occurred just as U.S. cotton
production became significantly more dependent on the
world market. Traditionally, trade barriers to cotton
have been low around the world, but as markets have shifted,
the average tariff facing U.S. cotton exports has risen,
and the importance of open and fair trade has grown.
|
