Abstract
This Selected Issues paper and Statistical Appendix analyzes sources of economic growth in Benin. It concludes that the policies implemented since the early 1990s paved the way for higher growth rate by raising total factor productivity as well as capital accumulation. The paper examines the cotton sector reform in Benin and the subsidies by major producing countries. It also analyzes recent trends in Benin’s external competitiveness, and conducts an analysis of the equilibrium exchange rate to assess whether the movements in the real effective exchange rate in Benin were consistent with the underlying macroeconomic fundamentals.
II. The Cotton Sector Reform in Benin and the Subsidies by Major Producing Countries7
14. The production and export of cotton play a pivotal role in the economy of Benin. Cotton exports constitute on average about three quarters of total annual merchandise exports, and contribute around 7 percent to GDP. An estimated 2 million persons, on a total population of 7 million, depend on the cotton sector for their livelihood. It is by far the most important crop in Benin that is grown and exported on a commercial basis; other crops are produced as subsistence crops or for sale on local markets.
15. In light of the economic and social importance of the sector, the government has engaged in the last 15 years in a far-reaching reform program, aimed at reducing inefficiencies in the sector so as to enhance cotton production and improve the producers’ share in export revenue. In parallel, on the international scene, Benin has recently taken the initiative in the framework of the World Trade Organization (WTO)—together with Burkina Faso, Mali, and Chad—to call for the elimination of subsidies by the world’s major cotton-producing countries, as these have been a major source of downward pressure on world prices.8
16. The following sections review the cotton sector reforms and their impact, and give a brief overview of the support mechanisms in major producing countries and their implications for Benin.
A. The Cotton Sector Reform in Benin
Major phases of the reform
17. As in other countries in West Africa, the cotton sector in Benin was initially dominated by a state-owned enterprise (SONAPRA), which was responsible for all the major operations in the sector, including the provision import and distribution of inputs to farmers, the purchasing and ginning of cotton lint, and the international marketing of cotton fiber. Domestic producer prices were set by the government. At the end of the 1980s, the government embarked on reforms aimed at modernizing the sector, from a monopolistic and centrally administered system to a more competitive cotton sector. The reform was supported by the World Bank and the French Cooperation.
18. From 1989 to 1992, some initial efforts were made to improve efficiency within the sector, reduce processing costs, and improve export marketing procedures. In addition to improving the efficiency of SONAPRA, the reforms strengthened producer organizations at the district and regional levels, and improved cotton sector research to introduce higher yielding varieties.
19. In a second phase of the reform, which started in 1992/93, some key functions operated by SONAPRA were transferred to the private sector. In 1992/93, the transport of seed cotton was privatized, and input importation and distribution were partially transferred to the private sector. In 1995, the government granted licenses to three private companies to gin cotton and export their production; five additional licenses were granted in 1997/98.
20. In a third phase, which started in 2000, the authorities abolished SONAPRA’s seed cotton marketing monopoly, transferred the input supply management to the private sector, and discontinued setting mandatory domestic producer prices.9 SONAPRA’s central role in the sale and delivery of cotton lint to the ginners and the management of the financial flows within the sector were transferred in 2000 to a new body (Centrale de Sécurisation des Paiements et de Recouvrement-CSPR), established by the AIC. At the same time, the producer-owned cooperative Coopérative d’Approvisionnement et de Gestion des Intrants Agricoles (CAGIA) assumed SONAPRA’s role of organizing the procurement of inputs by selecting input distributors through a bidding process. Starting in 2001, the producer price has been freely negotiated between ginners and producer organizations.
21. In parallel, a strategy for the privatization of SONAPRA’s ginning plants was adopted by the government in May 2002; at that time, the private sector controlled about 50 percent of the installed ginning capacity in Benin. In 2003, the authorities, in cooperation with the World Bank, recruited an investment bank to help carry out the privatization in full transparency. The privatization process, however, incurred delays and it had not been finalized by mid-June 2004 as scheduled.
22. Overall, Benin’s reform process is the most advanced in the region. Benin has moved away from the integrated state monopoly; private companies account for half of the ginning capacity; and the privatization of SONAPRA, which accounts for the rest, is under way; prices and marketing decisions are negotiated among stakeholders; and the import of inputs are subject to a competitive bidding process.
| Reform Summary, 1992-2002 | |
|---|---|
| 1992-93 | - The transport of seed cotton is subcontracted by SONAPRA to private firms - Private firms can bid for seasonal contracts to provide inputs |
| 1995 | The governement grants licenses to three private enterprises to gin cotton and export their production |
| 1997-98 | Five additional ginning companies obtain licenses |
| 2000 | The CSPR is created by sector participants to take over the primary marketing of seed cotton from SONAPRA, bringing to an end SONAPRA’s monopsony |
| 2000-01 | End of the monopsony of SONAPRA |
| 2001-02 | - The CSPR is solely responsible for input recovery, seed collection, and price determination - Input supply management is transferred to the private sector - Discontinuation of the government’s policy of mandatory setting of producer prices. |
| 2002 | A strategy for the privatization of SONAPRA is adopted |
| Reform Summary, 1992-2002 | |
|---|---|
| 1992-93 | - The transport of seed cotton is subcontracted by SONAPRA to private firms - Private firms can bid for seasonal contracts to provide inputs |
| 1995 | The governement grants licenses to three private enterprises to gin cotton and export their production |
| 1997-98 | Five additional ginning companies obtain licenses |
| 2000 | The CSPR is created by sector participants to take over the primary marketing of seed cotton from SONAPRA, bringing to an end SONAPRA’s monopsony |
| 2000-01 | End of the monopsony of SONAPRA |
| 2001-02 | - The CSPR is solely responsible for input recovery, seed collection, and price determination - Input supply management is transferred to the private sector - Discontinuation of the government’s policy of mandatory setting of producer prices. |
| 2002 | A strategy for the privatization of SONAPRA is adopted |
Difficulties with the reform program
23. While Benin is well advanced in reforming the cotton sector, the reform process has been affected by various setbacks:
The accumulation of payments arrears by some ginners in 2001. In order to avoid the recurrence of such problems, the CSPR prohibited ginning companies in arrears from making further purchases of seed cotton and required a downpayment from ginning companies, equivalent to 40 percent of their seed cotton allocation before the beginning of the harvest.
Irregularities in the provision of inputs. In the last two campaigns, large quantities of inputs were sold outside the competitive bidding process established in the context of the reform. As the inputs did not meet the quality requirements, crop yields suffered; furthermore, the CSPR experienced cash flow problems, resulting in late payments to farmers.
Dissatisfaction among farmers with the management of some producers’ organizations. This has led to the establishment of new organizations and financial imbalances for the existing ones.
Quota system for ginners. The total annual production capacity of ginners is sizably higher than the level of annual production. To ensure minimum capacity utilization for every ginner, the system of annual cotton seed quotas (proportional to existing installed capacity) has been kept, which prohibits competition among ginners.
24. The authorities have decided to take action to strengthen the institutions established during the reform process and avoid the recurrence of a parallel circuit for input provision; measures to that effect have been devised with the support of the World Bank, including the adoption, before the start of the 2004/05 harvest season, of a regulatory framework defining the role and responsibilities of the government and the stakeholders. This regulatory framework will establish sanctions against those who operate outside the normal procedure; the absence of such sanctions was viewed as a root cause of the recent disturbances.
25. However, the next step of the reform—the establishment of a competitive system of contract farming that would allow for decentralized pricing, eliminate the administrative allocation of seed cotton, and encourage competition among ginning companies—still needs to be defined. In the meantime, the authorities are reinforcing the institutional, technical, and commercial capacities of producers with the assistance of the World Bank under the Cotton Sector Reform Project (which started in 2002).
Impact of the reform on production and producer prices
26. There is no clear impact of the reform on production and producer prices (Table II.1).10 Cotton production increased rapidly during the first phase of the reform, more than trebling from 1990 to 1996; since then, however, production has stagnated.11 The producers’ share of export revenues, which hovered around 53 percent in the early 1990s, sharply declined to only 25 percent in 1994, following the devaluation, as the increase in export prices (in local currency terms) was not fully reflected in domestic prices. In the following years, the position of the farmers improved, with their share reaching 68 percent in 1999. Since then, however, the domestic share declined, to only 50 percent in 2004—close to their share in the early 1990s.12
Benin - Cotton Prices and Production, 1990-2004
For the crop season ending in the indicated years.
Farm gate price in CFAF per kilo of unginned cotton. The prices quoted are net of contributions to the financing of extension services. In 2003-04, payments for extension services were CFAF 15 per kilo.
Index A: Liverpool prices for delivery at European ports (c.i.f).
Domestic and foreign sales prices as recorded by SONAPRA.
Net receipts by farmers in percent of total revenue from exports and domestic sales of fibre and grain.
Benin - Cotton Prices and Production, 1990-2004
| Year | Annual Cotton Production 1/ | Average Annual Cotton Prices | Farm Gate Prices in Percent of World Prices 5/ | ||||
|---|---|---|---|---|---|---|---|
| Lint | Fibre | Grain | Lint 2/ | Fibre 3/ | Grain 4/ | ||
| (In thousands of metric tons) | (In CFAF per kilogramme) | ||||||
| 1990 | 105 | 43 | 60 | 95 | 496 | 35 | 43 |
| 1991 | 146 | 59 | 82 | 100 | 478 | 33 | 47 |
| 1992 | 177 | 75 | 95 | 100 | 338 | 27 | 63 |
| 1993 | 162 | 69 | 89 | 100 | 362 | 31 | 58 |
| 1994 | 278 | 116 | 153 | 110 | 976 | 46 | 25 |
| 1995 | 266 | 111 | 148 | 140 | 1,082 | 34 | 30 |
| 1996 | 349 | 143 | 195 | 165 | 908 | 35 | 42 |
| 1997 | 349 | 141 | 195 | 200 | 1,020 | 35 | 46 |
| 1998 | 359 | 151 | 196 | 200 | 852 | 66 | 51 |
| 1999 | 335 | 140 | 183 | 225 | 721 | 50 | 68 |
| 2000 | 363 | 155 | 197 | 185 | 927 | 33 | 45 |
| 2001 | 338 | 144 | 184 | 200 | 776 | 37 | 57 |
| 2002 | 415 | 173 | 226 | 200 | 711 | 40 | 63 |
| 2003 | 338 | 144 | 182 | 180 | 813 | 43 | 49 |
| 2004 | 333 | 140 | 177 | 190 | 853 | 35 | 50 |
For the crop season ending in the indicated years.
Farm gate price in CFAF per kilo of unginned cotton. The prices quoted are net of contributions to the financing of extension services. In 2003-04, payments for extension services were CFAF 15 per kilo.
Index A: Liverpool prices for delivery at European ports (c.i.f).
Domestic and foreign sales prices as recorded by SONAPRA.
Net receipts by farmers in percent of total revenue from exports and domestic sales of fibre and grain.
Benin - Cotton Prices and Production, 1990-2004
| Year | Annual Cotton Production 1/ | Average Annual Cotton Prices | Farm Gate Prices in Percent of World Prices 5/ | ||||
|---|---|---|---|---|---|---|---|
| Lint | Fibre | Grain | Lint 2/ | Fibre 3/ | Grain 4/ | ||
| (In thousands of metric tons) | (In CFAF per kilogramme) | ||||||
| 1990 | 105 | 43 | 60 | 95 | 496 | 35 | 43 |
| 1991 | 146 | 59 | 82 | 100 | 478 | 33 | 47 |
| 1992 | 177 | 75 | 95 | 100 | 338 | 27 | 63 |
| 1993 | 162 | 69 | 89 | 100 | 362 | 31 | 58 |
| 1994 | 278 | 116 | 153 | 110 | 976 | 46 | 25 |
| 1995 | 266 | 111 | 148 | 140 | 1,082 | 34 | 30 |
| 1996 | 349 | 143 | 195 | 165 | 908 | 35 | 42 |
| 1997 | 349 | 141 | 195 | 200 | 1,020 | 35 | 46 |
| 1998 | 359 | 151 | 196 | 200 | 852 | 66 | 51 |
| 1999 | 335 | 140 | 183 | 225 | 721 | 50 | 68 |
| 2000 | 363 | 155 | 197 | 185 | 927 | 33 | 45 |
| 2001 | 338 | 144 | 184 | 200 | 776 | 37 | 57 |
| 2002 | 415 | 173 | 226 | 200 | 711 | 40 | 63 |
| 2003 | 338 | 144 | 182 | 180 | 813 | 43 | 49 |
| 2004 | 333 | 140 | 177 | 190 | 853 | 35 | 50 |
For the crop season ending in the indicated years.
Farm gate price in CFAF per kilo of unginned cotton. The prices quoted are net of contributions to the financing of extension services. In 2003-04, payments for extension services were CFAF 15 per kilo.
Index A: Liverpool prices for delivery at European ports (c.i.f).
Domestic and foreign sales prices as recorded by SONAPRA.
Net receipts by farmers in percent of total revenue from exports and domestic sales of fibre and grain.
B. Subsidies by Major Producing Countries and its Impact on Benin
27. The prospects for growth of farmer’s incomes and rural poverty reduction in Benin are also affected by developments in the international markets. International cotton prices and trade are strongly influenced by domestic subsidy schemes and trade restrictions, including direct producer payments, price supports, export subsidies, import tariffs, and the preferential import arrangements under the WTO Agreement on Textiles and Clothing. These subsidies and restrictions reduce world market prices for cotton below the levels that would prevail in a liberalized environment. In this section, we will review the geographical structure of world cotton production, the subsidy systems in the United States, the European Union, and China, and their impact on international prices and on Benin producers.13
World cotton production and trade
28. Table II.2 shows the geographical structure of production, exports, and imports of cotton fiber in recent years. The largest producers are China, the United States, India, Pakistan, and Uzbekistan, which together generate more than two-thirds of the volume of world production. Among these five countries, three countries (China, India, and Pakistan) have a level of domestic consumption exceeding their domestic consumption. Among the group of large producers, only the United States and Uzbekistan are sizable net exporters. Cotton production in the European Union is relatively small (less than 3 percent of world production) and confined to three countries: Greece, Spain, and Portugal. Benin’s production represents less than 1 percent of the volume of world production.
Cotton Fiber: World Production, Exports, and Imports, 2001-2003
Benin, Burkina Faso, Cameroon, Chad, Côte d’Ivoire, Mali, Togo.
Cotton Fiber: World Production, Exports, and Imports, 2001-2003
| 2001 | 2002 | 2003 | 2001 | 2002 | 2003 | |
|---|---|---|---|---|---|---|
| (In thousands of metric tons; year ending July 31) | As a share of the total | |||||
| Production | ||||||
| China | 4,420 | 5,320 | 4,920 | 22.7 | 24.7 | 25.5 |
| US | 3,742 | 4,420 | 3,747 | 19.2 | 20.5 | 19.5 |
| India | 2,380 | 2,686 | 2,313 | 12.2 | 12.5 | 12.0 |
| Pakistan | 1,816 | 1,802 | 1,736 | 9.3 | 8.4 | 9.0 |
| Uzbekistan | 975 | 1,055 | 1,022 | 5.0 | 4.9 | 5.3 |
| West Africa | 1,039 | 952 | 967 | 5.3 | 4.4 | 5.0 |
| European Union | 519 | 517 | 477 | 2.7 | 2.4 | 2.5 |
| Other | 4,569 | 4,761 | 4,077 | 23.5 | 22.1 | 21.2 |
| Total | 19,460 | 21,513 | 19,259 | 100.0 | 100.0 | 100.0 |
| Exports | ||||||
| US | 1,472 | 2,395 | 2,591 | 22.8 | 36.2 | 37.4 |
| Uzbekistan | 800 | 810 | 798 | 12.4 | 12.2 | 11.5 |
| West Africa 1/ | 675 | 788 | 793 | 10.4 | 11.9 | 11.4 |
| Australia | 849 | 662 | 595 | 13.1 | 10.0 | 8.6 |
| Syria | 212 | 180 | 120 | 3.3 | 2.7 | 1.7 |
| Tajikistan | 110 | 119 | 140 | 1.7 | 1.8 | 2.0 |
| Other | 2,352 | 1,664 | 1,895 | 36.4 | 25.1 | 27.3 |
| Total | 6,470 | 6,618 | 6,932 | 100.0 | 100.0 | 100.0 |
| Imports | ||||||
| China | 306 | 203 | 605 | 5.3 | 3.3 | 9.2 |
| Indonesia | 520 | 550 | 500 | 9.0 | 8.9 | 7.6 |
| Turkey | 285 | 500 | 493 | 5.0 | 8.1 | 7.5 |
| India | 340 | 450 | 467 | 5.9 | 7.3 | 7.1 |
| Mexico | 473 | 383 | 434 | 8.2 | 6.2 | 6.6 |
| Thailand | 360 | 387 | 410 | 6.3 | 6.3 | 6.2 |
| Other | 3,462 | 3,681 | 3,669 | 60.3 | 59.8 | 55.8 |
| Total | 5,746 | 6,154 | 6,578 | 100.0 | 100.0 | 100.0 |
Benin, Burkina Faso, Cameroon, Chad, Côte d’Ivoire, Mali, Togo.
Cotton Fiber: World Production, Exports, and Imports, 2001-2003
| 2001 | 2002 | 2003 | 2001 | 2002 | 2003 | |
|---|---|---|---|---|---|---|
| (In thousands of metric tons; year ending July 31) | As a share of the total | |||||
| Production | ||||||
| China | 4,420 | 5,320 | 4,920 | 22.7 | 24.7 | 25.5 |
| US | 3,742 | 4,420 | 3,747 | 19.2 | 20.5 | 19.5 |
| India | 2,380 | 2,686 | 2,313 | 12.2 | 12.5 | 12.0 |
| Pakistan | 1,816 | 1,802 | 1,736 | 9.3 | 8.4 | 9.0 |
| Uzbekistan | 975 | 1,055 | 1,022 | 5.0 | 4.9 | 5.3 |
| West Africa | 1,039 | 952 | 967 | 5.3 | 4.4 | 5.0 |
| European Union | 519 | 517 | 477 | 2.7 | 2.4 | 2.5 |
| Other | 4,569 | 4,761 | 4,077 | 23.5 | 22.1 | 21.2 |
| Total | 19,460 | 21,513 | 19,259 | 100.0 | 100.0 | 100.0 |
| Exports | ||||||
| US | 1,472 | 2,395 | 2,591 | 22.8 | 36.2 | 37.4 |
| Uzbekistan | 800 | 810 | 798 | 12.4 | 12.2 | 11.5 |
| West Africa 1/ | 675 | 788 | 793 | 10.4 | 11.9 | 11.4 |
| Australia | 849 | 662 | 595 | 13.1 | 10.0 | 8.6 |
| Syria | 212 | 180 | 120 | 3.3 | 2.7 | 1.7 |
| Tajikistan | 110 | 119 | 140 | 1.7 | 1.8 | 2.0 |
| Other | 2,352 | 1,664 | 1,895 | 36.4 | 25.1 | 27.3 |
| Total | 6,470 | 6,618 | 6,932 | 100.0 | 100.0 | 100.0 |
| Imports | ||||||
| China | 306 | 203 | 605 | 5.3 | 3.3 | 9.2 |
| Indonesia | 520 | 550 | 500 | 9.0 | 8.9 | 7.6 |
| Turkey | 285 | 500 | 493 | 5.0 | 8.1 | 7.5 |
| India | 340 | 450 | 467 | 5.9 | 7.3 | 7.1 |
| Mexico | 473 | 383 | 434 | 8.2 | 6.2 | 6.6 |
| Thailand | 360 | 387 | 410 | 6.3 | 6.3 | 6.2 |
| Other | 3,462 | 3,681 | 3,669 | 60.3 | 59.8 | 55.8 |
| Total | 5,746 | 6,154 | 6,578 | 100.0 | 100.0 | 100.0 |
Benin, Burkina Faso, Cameroon, Chad, Côte d’Ivoire, Mali, Togo.
Subsidies in the major cotton-producing countries
29. The level of assistance to cotton production in major producing countries is monitored by the International Cotton Advisory Committee (ICAC). According to this institution, direct support to cotton production (estimated at US$4.5 billion in 2002) exists in the United States, the European Union, China, Turkey, Brazil, Mexico, and Egypt. In addition, several countries apply import restrictions in the form of import tariffs and quotas.
30. Financial support to the cotton sector in the United States is specified in the 2002 Farm Bill, which provides for agricultural support mechanisms for the period 2002-08. The support mechanisms for cotton production include the following:
Direct payments. There are direct payments to producers of US$0.0667 per pound of upland cotton, on the basis of specified payment yields and base acres.
Minimum support price. The bill specifies a target price for upland cotton of US$0.7240 per pound. If national market prices are below the target price, payments are made to cover the difference (so-called counter-cyclical payments, which have been made permanent in the 2002 bill).
Marketing assistance loans. The government provides to cotton growers interest-bearing short-term market assistance loans related to the volume of production at a rate of US$0.52 per pound. Repayment of a market assistance loan for upland cotton will be effected at a lower rate to the extent that the world market price for cotton is below US$0.52 per pound. In case the producer has not chosen to contract a market assistance loan, he is entitled to a loan deficiency payment related to the volume of production, based on the difference between US$0.52 per pound and the world market price.
Subsidies to exporters and domestic users. If domestic cotton prices exceed world market prices (as specified in the bill), the government pays to exporters and domestic users a subsidy related to the volume of their purchases, based on the difference between the domestic and world market prices.
Import tariffs and quotas. Finally, the United States maintains a system of tariffs and tariff quotas on the importation of cotton.
31. The inclusion of cotton in the Common Agricultural Policy (CAP) of the European Union dates from 1981, the year of accession of Greece to the European Community. The current regime is based on a minimal price per ton for producers and a guide price for ginners. The ginners, who pay the minimal price to producers, receive payments based on the volume of production and the difference between the guide price and world market prices. Since 1995/96, the guide price has been fixed at 1,063 euro per ton, and the minimal price for producers at 1,009.90 euro per ton.14 Total payments are subject to a ceiling for each member state (the National Guaranteed Quantity), which is equivalent to 782,000 tons of cotton lint for Greece, 249,000 tons for Spain, and 1,500 tons for other countries. In case of excess production at the country level, penalties in the form of reductions in subsidies apply. There are no other support mechanisms for the cotton sector under the CAP. Imports of cotton lint are not subject to tariff or nontariff barriers.
32. In April 2004, the European Union adopted reforms of the cotton support mechanism in the context of a wider reform plan affecting olive oil, tobacco, and sugar proposed by the European Commission in 2003.15 The reform emphasizes support to producer incomes rather than product support through the transfer of 65 percent of the current production-related payments (measured on the basis of a reference period) to the single farm payment scheme, starting in 2006. Under this scheme, producers would have more flexibility in the choice of crops. The remaining 35 percent would be transformed in acreage-base payments.
33. Detailed information on support mechanisms in China is not readily available, and existing studies on China’s regime reach contradictory conclusions. The ICAC estimated total government support at between $0.8 billion and $2.6 billion during the period 1998-2003, through support prices, export subsidies, and import tariffs.16 Cheng and Beghin (2003), however, came to the conclusion that China taxed its cotton sector on a net basis by 20 percent during 1997-2000.17
The impact of the subsidies on world market prices.
34. Several studies have assessed the effects of support mechanisms and trade restrictions on world market prices. Although the outcomes vary widely, the studies confirm that the impact of the distorting measures on prices is significant. The Food and Agricultural Policy Research Institute (FAPRI) estimated that the removal of producer subsidies and import barriers would generate the largest gains in exports in Africa: over a ten-year period, exports would be higher than in the baseline scenario by 12.6 percent.18 Other recent research in this area includes work by the ICAC, Derek Quirk, and Stephen Tokarick.19 Reflecting the differences in assumptions, periods covered and model specifications, their conclusions differ: Tokarick estimates a price impact of 2.8 percent, Quirke 10.7 percent, and the ICAC a range of 30 percent to 70 percent.20
35. Elimination of the subsidies in the world’s major cotton-producing countries would significantly help reduce poverty in Benin, where the cotton sector is the major contributor to the livelihood of one-fourth of the population. The increase in world cotton price would improve the revenue of the farmers by about 20 percent—assuming it is entirely reflecting in a similar increase in the producer price. The result is based on FAPRI study, as it represents a mid-range of estimates. In view of the large differences among the different studies, however, the result should be viewed as preliminary and indicative only.
Prepared by Richard Harmsen.
Benin co-sponsored the “Sectoral Initiative in Favor of Cotton" in the current round of WTO multilateral negotiations which was tabled at the WTO Ministerial Conference in Cancun in September 2003. The initiative called for (i) the phasing out of support for cotton production by developed countries, with a view to its total elimination; and (ii) financial compensation for cotton producing LDCs to offset their loss of revenue until support for cotton production has been completely phased out. On July 31, 2004, the General Council of the World Trade Organization (WTO) adopted a decision on the framework for further negotiations in the context of the Doha Round of multilateral trade liberalization. As regards agricultural trade, the decision calls for the elimination of export subsidies, to be implemented by a date that has yet to be agreed. There is also broad agreement on the reduction of trade-distorting domestic support measures for agricultural production, which will need to be specified in future negotiations. A WTO subcommittee on cotton will be established to discuss issues relating to market access, domestic support, and export competition in the cotton sector.
To that effect, an apex organization (Association Interprofessionelle de Coton - AIC) was created at end-1999 to coordinate the stakeholders of the sector (producer organizations, ginners private and SONAPRA, and input importers and distributors).
The poverty and social impact analysis (PSIA) of cotton sector reforms, which the authorities are currently preparing with the assistance of the World Bank, is expected to provide an analysis of the impact of the reforms later this year.
Cotton production increased by 23 percent in 2002 owing, in particular, to favorable weather and the higher producer prices during 2001 and 2002.
Domestic costs, other than the price paid to producers, comprise inputs, extension service, 1g3inning costs, and transportation and insurance.
For a recent comprehensive study of the world cotton market, see John Baffes, Cotton: Market Setting, Trade Policies, and Issues, World Bank Policy Research Working Paper 3218, Washington 2004.
This is equivalent to $0.55 per pound at an exchange rate of $1.20 per euro.
See Commission of the European Communities, 2003, Communication from the Commission to the Council and the European Parliament, (COM) 2003, 554 final, Brussels.
See International Cotton Advisory Committee, Production and Trade Policies Affecting the Cotton Industry, Washington, D.C., 2003.
See Cheng Fang and John Beghin, 2003, Protection and Comparative Advantage of Chinese Agriculture: Implications for Regional and National Specialization., in D. Sumner and S. Rozelle, Agricultural Trade and Policy in China: Issues, Analysis and Implications (Aldershot).
See Food and Agricultural Policy Research Institute, 2002, The Doha Round of the World Trade Organization: Liberalization of Agricultural Markets and its Impact on Developing Economies.
See Derek Quirck, 2002 Trade Distortions and Cotton Markets: Implications for Global Cotton Producers, Canberra, and Stephen Tokarick (2000), Measuring the Impact of Distortions in Agricultural Trade in Partial and General Equilibrium, IMF Working Paper WP/03/110, 2003.
The ICAC emphasizes that the study may overestimate the price effects of removing subsidies, because second-round effects of higher prices (including, for instance, effects on demand for cotton products) are not taken into account.