Brussels, 16/09/2003 (Agence Europe) - In its communication of 23 September, the European Commission is to propose that aid to cotton be decoupled from production, and thus come under the "green box" category according to WTO terminology (programmes which do not target specific products and which include direct support to farmers' revenue with no link to either production levels or current prices). By committing to abolish all Community support to cotton under the amber box (internal support measures reputed to have the effect of distorting production and exchanges, and which have reached their ceiling or need to be reduced), the EU is responding in part to the hopes and concerns voiced by African countries under negotiations at the WTO (EUROPE of 10 September, p.10 and of 9 September, p.13).
The Commission is suggesting that the proportion of agricultural expenditure that goes to support for cotton producers be transferred to the funding of two new income support measures:
- a single payment per holding regime (decoupling): 60% of expenditure per Member State to support producers will go to a single payment per holding regime. In the draft communication, the Commission states its view that this kind of reform "would help to silence criticism on the international scene about problems of distortion of exchanges caused by the existing Community deficiency payment mechanism".
- new aid to production in the form of payment per hectare: the remaining 40% will be used to grant producers a payment per hectare up to an area limit of 425,360 (national envelopes of 340,000 hectares for Greece, 85,000 for Spain and 360 for Portugal). The total sum of this aid will be reduced proportionally one requests exceed the maximum surface area for a Member State. Payment by surface area will be awarded according to specific criteria linked to the producer's membership of an interprofessional organisation. This must have been approved by the Member State, and cover an area of at least 20,000 hectares. The activities of these organisations will be funded by their members and by a Community subsidy of 10 EUR per hectare (4.5 million EUR in total, to be included in the Member States' national envelopes).
The difference between the cost of all market expenditure for cotton and that of the two revenue support measures, some 100 million EUR, will go towards a restructuring fund in cotton production areas. This sum, to be shared between Member States, will become an additional financial instrument for rural development.
How the Community regime works
Cotton is a product which does not appear in Annex I of the Treaty instituting the European Community, which lists all products which benefit from the common agricultural policy. The regime for cotton was brought in in 1981, by the adoption of protocol 4 annexed to Greece's accession Act. The aid is intended to support producers' income, but is supported by the ginning industry: it is granted to the latter on the condition that the producer has received a minimum price per tonne of non-ginned cotton (100.99 EUR for 100 kilograms currently, according to the regulation dating from 2001). This system helps to protect producers against large price fluctuations on the world market, whilst allowing processors to buy Community fibres at world price levels. Aid per tonne of non-ginned cotton is equal to the difference between a guide price set by the Council (106.30 EUR per kilogram at present) and the world market price set by the Commission, on the basis of quotations form the international fibres market.
If production exceeds reference levels, a "stabilising mechanism" provides for reductions in the guide price and of the minimum price having an effect of the total sum of the aid. Since the 2001/2002 commercialisation campaign, the price reduction mechanism has been considerably reinforced. The reductions in price of 0.5% for every 1% over national guaranteed quantities have been toughened up: once a Community production threshold of 1.5 million tonnes shared between Greece (1.138 million tonnes) and Spain (362,000 tonnes) has been reached, the reduction percentage of 0.5% of prices increases progressively. This increase in the reduction percentage is 0.02 percentages points per 15,170 tonnes for Greece and 4,830 tonnes for Spain.
The regime applicable for cotton production carries no restrictive measures in exchanges with third countries (be it customs duty or import quotas): access to the European market is totally free. Furthermore, the regime does not comprise support measures for exports such as export refunds.
Greece and Spain remain the two main Member States to produce cotton (the small Italian production has come to an end since Portugal started its small production). Cotton is grown almost only on irrigated land, with the particular use, in Spain, of seeds under plastic and the use of the "drop by drop" irrigation technique. The main production areas are very localised, in Thessalia (for Greece) and Andalusia (for Spain). Areas sown at Community level have progressively increased in size: around 300,000 ha at the time when Spain and Portugal joined the EU, around 400,000 ha from 1992/1993 to finally reach 500,000 ha as of 1995/96. Since 2000, production has been reduced to around 470,000 ha on average.
The main cotton producing countries are China (22.6% of the world share in 2001), the United States (20.1%), India (13.1%), Pakistan (9.0%) and Uzbekistan (5.5%). Africa (franc zone) makes up 4.5% of world production, and the EU 2.5%. At the present time, the United States (30% of the world market) still remains the leading exporter, ahead of Uzbekistan (13%) and Africa (12%). Since 2002 ("Farm Bill"), the American cotton producers have been able to enjoy three kinds of support measures (decoupled fixed aid of $147/tonne, compensatory aid of $1.146/t and "counter-cyclical" payment of $1.636/t when the overall producer receipts are below the guidance price). All American aid is subject, in the WTO yellow box, to a ceiling of $19.1 million annually.
Constructive proposals for resolving the African problem
In the context of negotiations on the Doha programme for development currently in progress, a number of African countries have called on the WTO to adopt measures intended to bring the price of cotton down on the world market. In response to this request, the European Commission last weekend proposed a constructive solution aimed at regulating the trade aspects linked to the current weakness of cotton prices on the world market. This solution would be integrated into the global talks with a view to opening the trade of agricultural products in the following three areas:
Market access: The Commission has already proposed that the least developed countries should benefit from access free of taxes and quotas to the markets of the developed countries. The abolition of tariff and quantitative restrictions will open the markets of rich countries to products originating in the poorest countries of the world.
Aid for exports: The EU has proposed the abolition of all forms of export subsidies for products that are of interest for developing countries. This proposal is part of the EU-USA compromise text on agriculture adopted on 13 August 2003. The cotton would naturally be one of the main products on that list.
Domestic support: The EU has undertaken to considerably reduce all forms of internal aid that have an effect on trade distortion. Cotton is part of the agricultural negotiations and will be treated in conformity with the modalities adopted for reducing the forms of aid that generate the most trade distortion ("orange box").
The Commission recalls that the recent fall in world prices for cotton has had serious consequences in several Western African and Central African countries, where cotton is the main source of revenue for a large population, estimated at around 10 million. In some of the less developed countries, cotton is the main commercial crop and the most important source of export receipts and public receipts. By way of example, during the period 1999-2000 cotton accounted for 79% of exports from Mali, 65% of exports from Benin and 56% from Chad.
The Commission explains that prices on the world market for cotton depend on several factors (the level of production and demand worldwide, the price of man-made fibres, the level of subsidies linked to production in the major cotton exporting countries, and the level of border protection), and that, if all these factors come into play, one can nonetheless see that the considerable drop in cotton prices over recent years has clearly been determined by demand. According to the Commission, the share of cotton in the consumption of fibres worldwide, which has gradually fallen over the past 60 years, has fallen to a level that is hardly more than 40% of total fibre consumption (whereas it was 65% in the sixties). The Commission admits that further aid reductions that distort trade, recommended by the Doha Development programme, would contribute to redressing world market prices somewhat, not only for cotton but also for other commodities.