International Cotton Advisory Committee - Cost of Production

[adios]

Hey nicky do you have $150 to spare on getting a detailied report on the cost of cotton production for various countries around the world? I don't feel like ponying up the money at least not yet for the report. Anyway here's a link to what I felt was an interesting article on the cost of cotton production:

Cost of Production (http://www.icac.org/icac/cotton_info/Research/COP/english.html)

Some excerpts I found interesting:

"ICAC data is the only source of information on the cost of production of raw cotton at the international level."

The Wall Street Journal has been on the "warpath" regarding US subsidies to agriculture. I find many of the articles presenting hollow arguments, however, due to the lack of economic data to support the arguments. Apparently economic data isn't readily available though at least not for cotton production.

"The data must be used carefully. Differences in production practices, variations in the input supply systems among countries and direct and indirect technical and financial support to farmers in the form of free seed, technical advise, etc., makes comparisons difficult among countries. From the data presented here it is clear that some countries calculate opportunity costs while in other countries no such data are available. The significance of various inputs is also different in different countries and also makes inter-country comparisons difficult. Costs of individual inputs are more reliably compared among countries. "

Leveling the playing field among trading countries seems to be a hopeless task, perhaps a Utopian idea.

"In most cases the price of planting seed also includes the cost of treatment. This is also true for West African countries where seed is supplied free to farmers and is already treated but may not be delinted."

Seems like this may be a type of subsidy.

"In some cases the total cost is higher than the value of seedcotton or the value of lint plus seed. One possible reason for such an imbalance is family labor employed in the farm operations, which is not counted by some countries. Some countries have various programs to provide financial support to farmers who otherwise may cease to produce cotton under normal conditions. "

Again leveling the playing field or perhaps even agreeing what a level playing field is for cotton production seems to be an impossible task. Not sure though.

"Information on land rent for cotton and the value of seed sold after ginning is not available from many countries. Thus for the sake of inter-country comparisons, land rent and value of seedcotton have been deducted from the total cost and referred to as ”Net Cost.’ Similarly, variable cash expenses and cost of seedcotton are determined excluding land rent. As was the case in the previous survey, net cost per hectare is the highest in Israel among all countries who participated in the survey. However, net cost per kg of lint is closer to Israel÷s in Kenya, Sudan, Syria and the USA. The reason for the higher cost per kg is either high cost per hectare or low yields per hectare. Cost per kg of lint and seedcotton shows that seedcotton costs per kg are less variable among countries."

Supporting the notion in my mind that West African cotton may be cheaper to produce than US cotton.

"Data for cost per kg of lint compared among exporting countries showed that among major cotton producing countries it is least expensive to produce cotton in China (Mainland), Brazil and Pakistan followed by Turkey and Australia. High yields reduce cost per kg of lint, and data for high yielding countries“yielding over 1,000 kg lint per hectare“indicate that parts of South Africa and China (Mainland) produce higher yields at minimum cost per kg lint."

Looks like these are probably the lowest cost producers. It would be interesting to read the report and do the comparisons but I'm not ready to spend $150 on it at least not yet.

[nicky g]

Me neither, I'm afraid. Thanks for the link and comments - will look into it a bit. There have definitely been definitive statements by groups such as Oxfam that various poor countries can produce various agricultural products more cheaply than the US, but are undercut by subsidies (sorry, I know that's very general); I thought cotton was one of them, but I can't be sure. I'll try to track a few down and hopefully we can look at what data they're based on. I would be really surprised if other forms of help eg free seed could come anywhere close to matching US and EU subsidies, which you must admit are on a scale that those countries could simply never afford. Also we've not even begun to discuss Western tariffs on third world goods.

[nicky g]

By the way, my plan to stop spending time posting here was stillborn, as you can see. /images/graemlins/confused.gif

[nicky g]

From an Oxfam report on cotton:

"Since the steep downturn in world prices began in the mid-1990s, US cotton production has appeared to defy the standard laws of supply and demand. By international standards, the US is not a particularly low-cost producer. The US Department of Agriculture estimates the average cost of producing one pound of cotton in the US to be 73 cents per pound. However, one-third of output is produced at costs
above this level.6 By contrast, the most recent survey of the costs of producing raw cotton states that average production costs in Burkina Faso amount to 21 cents per pound.7 Productivity levels are also lower in the US than in other major exporting countries: approximately 20 per cent lower than in Brazil or China, for example. Yet while international prices have fallen by 54 per cent since the
mid-1990s, the US has expanded its area under cotton cultivation and increased output, apparently defying the signals from the international market."

Cultivating Poverty (http://www.oxfam.org/eng/pdfs/pp020925_cotton.pdf)

There are a couple of somewwhat suspicioius things worth noting about the data; the comparisons are from two different reports, which may have used different methodologies and which look at different time periods. I don't know, and it doesn't say, if Burkina Faso is representative of other countries. Finally, I notice that the US example is of "cotton" while the Burlina Faso one relates to "raw cotton" - this may not be comparing precisely the same products. Nevertheless it seems a huge gap. The fact that US cotton is repeatedly sold at less than the cost of production also demonstrates the impossibility of competing. As I said before, though there may be various "hidden" subsidies to African farmers, it is surely impossible that they would come anywhere close to the billions spent by the EU and US. By the way for anyone reading this I want to make clear that the EU is just as guilty as the US - one of the main culprits is my own country, Ireland - and it seems the Eu trade Commissioner Pascal Lamy was one of the chief culprits at Cancun, absolutely refusing to budge on Western subsudes and tarriffs while demanding the poor countries discuss yet more liberlisation of their own markets. The report also mentions some Chinese subsidies.

Some more:
"The United States accounts for approximately one-half of the world’s production subsidies for cotton (Annex 4). In 2001/02 the value of US cotton production amounted to $3bn at world market prices. In the same year, the value of outlays in the form of subsidies to cotton farmers by the USDA’s Commodity Credit Corporation (CCC) was $3.9bn.10 In other words, cotton was being produced at a net cost to the American economy."

Worth having a look; at the rest. It details its sources; unforunately none of them are weblinks, but I'm sure most of them are easily available on the net.

[nicky g]

One more quote, which is based on and references ICAC research:

"Various attempts have been made to capture the impact of US
subsidies on world prices. Any reduction in American exports
resulting from the withdrawal of government support would be
expected to raise world market prices, stimulating a supply response in other countries. This in turn could partially – or totally – offset any price changes. Similarly, higher prices would be expected to reduce the growth of cotton consumption.

For all of these problems, joint research by the UN's Food and Agriculture Organisation and the International Cotton Advisory Committee has provided some important insights. Using the ICAC's World Textile Demand Model, this research found that the withdrawal of subsidies would result in a decline in US production of 1.4m tons, or around 10 per cent. The overall effect, taking into account increased production by lower-cost exporters, would be to raise world prices by 11 cents per pound, or by almost 26 per cent.11"

[adios]

No doubt about it large subsidies produce gluts.

"Using the ICAC's World Textile Demand Model,"

That would be an interesting model to look at. Yes this the kind of analysis that has meaning to me.

" this research found that the withdrawal of subsidies would result in a decline in US production of 1.4m tons, or around 10 per cent. The overall effect, taking into account increased production by lower-cost exporters, would be to raise world prices by 11 cents per pound, or by almost 26 per cent.11"

Ok I accept that statement at face value.

BTW When I mentioned West African subsidies I wasn't comparing those subsidies with the magnitude of US subsidies. The point is that "leveling the playing field" is an extremely challenging goal due to the fact that unraveling all of the ways that countries support their industries in a matter that allows for free trade seems very complicated. I suspected the Cancun conferance would be a failure when the EU came up with it's list of agricultural products it wanted to keep as "protected" before the conferance. I read in the WSJ a few days ago that the trend is for bilateral agreements among countries. Still probably leaves the West African cotton farmers out in the cold though.