- There is no short-term relief in sight for the cotton industry in Benin, Burkina Faso, Chad and Mali, according to an analysis by the International Monetary Fund (IMF). The potentially lucrative export sector is suffering from low prices due to production subsidies in Western countries, new competition from Asia, an unfavourable euro-dollar exchange rate and low productivity in Benin, Burkina Faso, Chad and Mali.
IMF leader Rodrigo de Rato in Cotonou, Benin, recently met with the Trade Ministers from Benin, Burkina Faso, Chad and Mali, as well as the European Commission, the World Bank and the World Trade Organisation (WTO). Conference participants had "recognised the serious challenges facing the West and Central African cotton sector, with cotton prices unlikely to rise significantly in the period ahead," according to the IMF.
The growth of the cotton sector in West and Central Africa over the past four decades was generally seen as "one of the major export success stories of sub-Saharan Africa." This was in particular the case in Benin, Burkina Faso, Chad and Mali, where the performance of the cotton sector now affects overall economic performance.
The viability of the sector is however under pressure as farmers and ginners are facing declining world cotton prices, exacerbated by the euro-dollar exchange rate - accounting for a 20 percent drop of local currency cotton prices - distortions in global agricultural trade including producer subsidies in some major cotton producing countries, a surge in output from other developing countries including China, Brazil, India and Pakistan, and slow productivity gains in cotton producing African countries.
These developments in the cotton sector could have adverse macroeconomic effects in the region, the IMF leader warned in a statement released today. It could lead to a reduction in economic growth, weakening the fiscal and external position and straining efforts to reduce poverty, Mr Rato warned.
The participants of the Cotonou conference had however concluded that on the mid-term, there was a hope to revitalise the sector. They reached a consensus that "a multi-pronged response is necessary" to reach this aim. The governments of Benin, Burkina Faso, Chad and Mali had already implemented to varying degrees sector reform strategies to increase producer's involvement in management, reduce costs of ginning companies through privatisation and open up competition in the ginning sector.
Several steps could be taken by national governments, the participants agreed. Raising efficiency was seen as key to the long-term viability of the cotton sector and boosting farmer incomes. This would also strengthen the ability to cope with external shocks. Steps to realise this included the adoption of high yielding genetically modified cotton, more cross-border trade in cotton and strengthened producer associations.
Most important were however the efforts to get fairer trade terms on the global market, where the US and Europe are heavily subsidising their cotton production. The elimination of cotton subsidies and other price-distorting factors would lead to higher cotton prices in the short run and spur production in non-subsidising countries. "We see this as an important part of an ongoing effort to further liberalise world trade," the statement said.
At the WTO, a so-called Cotton Sub-Committee has been established following the lobbying from the governments of Benin, Burkina Faso, Chad and Mali. The committee addresses both the trade and developmental aspects of cotton, and African government here aim at eliminating cotton subsidies in Western countries. The IMF and the World Bank have already expressed their strong support for the African initiative.
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