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Subsidies on cotton continue worldwide
Aug '11
Even though market price of cotton doubled to a record high during the 2010-11 season, subsidies amounting to US$ 1.3 billion were dolled out to cotton producers worldwide during the period.

As per Cotlook A index, the average price of cotton during the 2010-11 season was 1.64 cents a pound, a rise of 110 percent compared to the average price of 0.78 cents a pound in the 2009-10 season.

There was also a rise in the world production of cotton during the 2010-11 season, and the value of cotton harvested amounted to over US$ 90 billion, up 136 percent over US$ 38 billion of revenue earned during the earlier season, according to the data from the International Cotton Advisory Committee (ICAC).

During the same period, however, the percentage of the world cotton crop backed by subsidy or some form of direct support increased from 52 to 53 percent. In fact, in some countries, there was a rise in state support to farmers, as well as subsidies in the form of crop insurance or help in export.

The total sum given out as subsidies fell by nearly 60 percent from US$ 3.2 billion in 2009-10 to US$ 1.3 billion in 2010-11, but almost all of the dip was accounted for by China, the largest cotton producing county.

China reduced subsidies on cotton production by 83 percent to US$ 329 million, and lost the top rank in global subsidy to the European Union, which produces less than one percent of global cotton output.

The figure of US$ 1.3 billion given out in cotton subsidies worldwide does not include payments that are not given as direct support like subsidies on crop insurance or help for export. Hence, it does not portray the actual total support received by cotton farmers.

For example, farmers in US were awarded a subsidy of 6.67 cents per pound, based on historical area and yield, totaling an estimated US$ 588 million. This amount is not included in the direct subsidy of US$ 1.3 billion handed over to farmers worldwide. The figure of US$ 588 million remained the same in the earlier season too as it is not based on current area and yield.

In spite of a decline in direct support to many crops over the years, direct government subsidies to cotton still continue and are being overly protected by several large cotton producing countries. For instance, the US did not reform its current regime of payments to cotton growers, despite it being declared unlawful by the World Trade Organization (WTO). Rather than modifying the subsidy structure, the US preferred to pay-off Brazil when the latter won a WTO complaint.

Even at the Doha round of trade talks, there was no agreement on reform of cotton subsidies. West African cotton growing countries have been particularly interested in the issue.

According to the ICAC data, the US provided US$ 319 million in direct subsidies to cotton cultivators during 2010-11 season, recording a fall of 29 percent year-on-year. This amount was little less than the subsidy of US$ 329 million given by China, which produces double the amount of cotton grown in the US.

The subsidy given by European Union to cotton growers increased by 4.2 percent to US$ 368 million, which indicates the weakness of the US dollar. However, the EU gave the highest amount of subsidy amounting to approximately US$ 350 a bale or over 70 cents a pound.

Turkey increased its support by 17.7 percent to US$ 306 million. Since Turkey pays on the basis of cotton volume, it reflects an increased harvest.

Fibre2fashion News Desk - India

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