Most of the countries give subsidy for cotton production aiming to promote the growth of the cotton industry. It has been noticed that since the reporting of government subsidy began in 1997-98, there has been a tough negative correlation between the government subsidies and cotton prices. When the prices of cotton are high, subsidies tend to decline, and when the prices are low, subsidies rise. Cotton is a crucial crop for many poor countries of the world. Cotton subsidies not only influence international prices but also affect the livelihoods of many poor farmers around the world.

Another reason why cotton subsidy has been attracting a lot of attention is the large stake the middle-income countries like China and Brazil have in the cotton trade. Hence, cotton subsidies have become a crucial point of discussion at international trade negotiations. Moreover, the economies of poor countries like Mali, Chad, Burkina Faso, Benin, etc., also known as the Cotton-4 countries, are highly dependent on cotton for their livelihood and export revenue. Cotton provides livelihood to 10 million poor people in these countries.

In countries like Brazil, India, Pakistan, and Mexico, minimum price programs were not initiated during 2013-14 as the market price of cotton was very high compared to the government prices. Moreover, in 2013-14, the subsidies to the cotton industry, which included border protection, crop insurance, direct support to production, and minimum support price system, were estimated to be $6.5 billion down compared to $7.4 billion in 2012-13.

Between the years 1997-98 to 2008-09, the share of world cotton production getting direct government help, which included direct payments and border protection, increased from an average of 55% to 84%. However, this share declined to an average 47% during 2009-10 to 2013-14. The share of cotton production was estimated to be 44% in 2013-14. Some countries have provided subsidies especially for fertilizers, storage, transportation, marketing costs, etc., in 2013-14.

The Chinese government enhances cotton production by applying border protection measures based on quotas to control the cotton imports and its price. Additionally, China also maintains cotton reserve which serves as a national buffer stock. The national cotton reserve is managed by the CNCRC (China National Cotton Reserve Corporation). Cotton is released from the reserve to the market through auction when there is a shortage and is refilled during plenitude.

The Chinese government also implemented minimum support price system in the last 3 years (2011-2013) by purchasing cotton directly from the producers and restoring their cotton reserve. In 2012-13, China purchased 6.5 million tons while it auctioned 3.7 million tons from the reserve to mills at an average price of 135 cents/pound. At the end of 2013-14 the estimated size of the reserve was 11.6 million tons which is 149% of the mill use by China and 57% of the total world stock. Chinese government has followed the policy of refilling the cotton reserve for three consecutive years. This helped to keep the world trade upbeat in domestic as well as international market. Apparently, this policy also resulted into decline in the mill use and market share of cotton in China.


The Chinese government has decided to put an end to refilling of cotton reserve; instead it would provide direct subsidy to the cotton producers in Xinjiang at a price of 19800 yuan/ton. The details regarding the implementation of the new subsidy program is not disclosed. The government interventions and quotas have been given to boost the domestic price paid to the farmers. The cotton producers have received the benefit of subsidy of around $4.8 billion in 2013-2014.


Apart from this, the Chinese government has kept aside an amount of $150 million/year for giving subsidy to the farmers for using high quality planting seeds. Moreover, China has been paying subsidies for transportation of cotton from Xinjiang to mills in eastern and southern China which amounted to $160 million/year. All types of subsidies provided by the Chinese government amounted to $5.1 billion in the year 2013/2014.


In U.S. the farm bill was implemented in 2008 to provide subsidy to the cotton producers. The farm bill 2008 supports the producers in many ways such as Direct payments (DP), counter cynical payments, marketing loan gains, loan deficiency payment and crop insurance. During the year 2012-2014, the cotton producers received only one subsidy of crop insurance while other subsidies were not given due to enormously high market prices.


The cotton producers in U.S. got $593 million through direct payment in the year 2013-14. However, the DP aid is not counted as a subsidy by the ICAC secretariat. In addition, the crop insurance protects the producers against almost all losses that causes decline in the crop yield. In U.S. almost 90% of the cotton land is covered under this crop insurance. It is estimated that the crop insurance subsidies were $453 million in the year 2013-14.

 

As the prices remained relatively high, no payments were made under the U.S. Pima competitiveness program since May 2010. The new farm bill signed by President Obama on February 2014 indicates a significant change in the farm policies. It has removed the facility of guaranteed payments, while eligibility of payments will depend on decline in prices, crop failure or reduction in revenues.


In India, Minimum Support Price (MSP) system is followed for supporting the cotton producers. However, the growers did not get any direct payments from the government nor did the government make any direct purchases during 2013-14 as the market prices were above the MSP. The cotton farmers in India are benefitted as they receive fertilizer subsidies and debt waive off by the government. In addition, there are several programs laid down by the government to support cotton production for eg. facilities are provided for production and distribution of quality seeds. Under the government scheme Technology Mission, the ginning and pressing units and improvement of cotton marketing are given importance. Apart from these aids, the government also supported the textile industry with many programs that provided direct support and flexible loans.


The European Union Common Agricultural Policy was amended in 2009-10. Till then the cotton growers received 65% of government support in form of income aid and 35% in form of production aid. In EU, the major cotton producers are Spain and Greece. To get the production aid; the eligibility criteria in Greece was set at 250,000 hectares and 48,000 for Spain. Moreover, it should be on an agricultural land authorized by EU member states for cotton production, seeds sown under authorized range and yielded under normal conditions. The government aid is given for cotton production of fair, reliable and saleable quality. In 2013-14, Greece received direct support subsidy of $274 million while Spain received an estimated amount of $91 million.


The government of Turkey provides subsidy to the cotton producers by paying a premium for per kilogram of cotton seeds. Earlier, the premium paid for certified cotton seeds were higher than non-certified seeds. However, since 2012-13 no premium has been given for non-certified seeds. The premium set for 2013-14 was 27 US cents for 1kg of lint. The total payments to cotton producers in Turkey reduced from $488 million in 2012-13 to $452 million in 2013-14 due to reduced cotton planting.

 

The government of Columbia provided an estimated amount of $18 million as direct assistance to the producers in 2013-14, whereas in 2012-13 it was $21 million. Many countries in West Africa provide subsidy for cotton production, especially for fertilizers and planting seeds. In 2013-14, Burkina Faso granted $30 million, Mali gave $38 million, Cote d Ivoire provided $14 million and Senegal spent $2 million on cotton subsidy.


Brazil follows a marketing program called Equalizer Price Paid to the Producer (PEPRO) that provides direct subsidies to cotton producers based on guaranteed prices. This program has been used for several seasons to support the farmers. The minimum guarantee price was set at R$(Brazilian real) 44.60 per 15 kg of lint in July 2014. The government also provides subsidized credit for production, investments and marketing. The annual credit for production provided by the government during the last decade was estimated to be $500 million. The government also provides loan at subsidized rate of interest to low income cotton growers. The annual subsidy received by cotton producers in form of subsidized rate of interest was $75 million in the past decade.

 

Cotton producers are in a debate over subsidies. The important questions that need answers are- Who will be the global gainers if subsidies are reformed or abolished? What options are available to those cotton producers who are unable to compete in the global market? What kind of support will be given to the poorest cotton producing countries in future trade negotiations? The countries need to cautiously form their trade policies and provide subsidies that will not only boost the cotton industry but also support the cotton producers.


References:

1.      aefjn.org

2.      cip.cornell.edu

3.      International cotton advisory committee