Report compiled for the 2006 Paris International Agricultural Fair
All you need to know about cotton
Origins of the crises
The successive cotton crises have resulted from:
Structural falls in demand
Competition from artificial fibres (cellulose fibres and oil-based synthetics) has reduced cotton's relative share of textile fibre markets. Since the late 1980s, its market share has gradually shrunk to a low of 40%.
This drop in demand may also be linked to changing consumer buying habits as a result of higher income levels, leading consumers to switch to other fibres.
Globally speaking, the fact that countries with large populations (China, Brazil and India) have now achieved greater economic development raises fears of reduced demand for cotton from those countries.
Supply outstripping demand
Supply surpluses are now seen as a structural phenomenon, due to market distorsion. This is the perverse effect of the support policies adopted by some of the major producing countries and denounced by other countries. This view is primarily held by advocates of agricultural trade liberalization, which is supposed to result in higher, more stable world prices.
Abnormal market functioning
Commodity trading has become increasingly concentrated, irrespective of whether the commodities concerned are of agricultural origin. The market is now an oligopoly, comprising just a small number of players, who thus have a real influence on prices. It is safe to assume that the speculative strategies adopted by players in an oligopoly serve to exacerbate global market price falls.
The specific nature of agricultural products in the light of globalization
A recent book published by CIRAD highlights the specificities of agricultural products and how they are produced. On the one hand, demand is not substantially influenced by prices (in other words, demand does not grow much even if prices fall significantly), and on the other hand, producers are reluctant to take risks, which may mean they produce less. As a result, were agricultural product trading to be liberalized totally, prices would vary more significantly and more frequently. The end result would be entirely contrary to the arguments put forward by the advocates of increased liberalization.
The expression of more stringent market demands
There are also many observers who do not attempt to look into the origins of crises; they are content to try to adapt their production decisions to the prevailing market.
This may result in their partial or total withdrawal from cotton production:
- by adjusting the area planted with cotton. This is only an option for producers who can use their means of production for other crops so as to maintain or increase their financial income.
- by cutting production costs at field level. There are two contrasting ways of doing this. The first is to revise the production model, for instance by reducing the degree of intensification and adopting a radically different technological approach. Organic production is one example of this. The other is to look for new ways of boosting productivity by continuing to intensify. Many countries and observers see the fact that genetically modified varieties are now available as a practical and promising solution in this respect.
Adapting operations so as to cut production costs is seen as a necassity, not only at field level but also at every stage of the cotton commodity chain.