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ICAC - Production & Trade policies affecting cotton industry
Aug '11
70th Plenary Meeting of the International Cotton Advisory Committee (ICAC), which will be held in September 2011 in Argentina, this report provides a brief description of direct production and trade subsidy programs worldwide and an assessment of the impact of subsidies on international cotton prices.

Subsidies to the cotton industry, including direct support to production, border protection, crop insurance subsidies, minimum support price mechanisms and export subsidies, are estimated at $1.3 billion in 2010/11 down from $3.2 billion in 2009/10 and $5.5 billion provided in 2008/09. Five countries provided subsidies in 2010/11, and the subsidies averaged 5 cents per pound, down from seven countries providing 11 cents per pound on average in 2009/10. More countries have cotton production support programs, but because of high prices the programs did not result in actual spending in 2010/11.

Record prices for cotton lead to a sharp decline in subsidies paid to producers during 2010/11. The Cotlook A Index averaged 61 cents per pound during 2008/09, 78 cents per pound in 2009/10 and 164 cents per pound in 2010/11. As a consequence, government interventions in a number of support programs in several countries were not triggered this season. Pakistan, Mexico and India have minimum support price programs, but because market prices were higher in 2010/11, these programs did not result in payments to producers. However, if prices were lower these programs would be effective.

The share of world cotton production receiving direct government assistance, including direct payments and border protection, increased from an average of 55% between 1997/98 and 2007/08, to an estimated 84% in 2008/09. During 2009/10 the share declined to 52%, and is estimated at 53% of production in 2010/11. Since 1997/98, there is clearly a negative correlation between the Cotlook A Index and the amount of subsidy provided to the world cotton industry, as well as the number of subsidizing countries.

Some countries provided subsidies for cotton inputs in 2010/11, especially for fertilizers, storage, transportation, classing services and other marketing costs.

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International Cotton Advisory Committee (ICAC)

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