ITC study recommends stronger ties between African cotton market and Asia

12 August 2013
ITC News
A new technical paper examines the potential of African-Asian cotton trade and gives an overview of world cotton production, consumption and trade in 2007-2012

Stronger ties between cotton producers and ginners in Africa and Asian buyers can improve the market positioning of African cotton, according to ‘Improving Africa’s Cotton Value Chain for Asian Markets’, a new study by the International Trade Centre. As African producers are small players in the Asian market, the study suggests building stronger supplier-consumer ties to reinforce the market positioning of African cotton. This is particularly important for Africa, since cotton is among the top exports of many countries on the continent.

The study shows that African cotton companies and farmers face a number of obstacles that limit their export revenues, particularly in terms of improvements along the value chain.

While much has already been achieved through supply-side assistance to improve the quality of African cotton, efforts are still needed to rebuild the sector’s poor image in key markets.

Obstacles in exporting

A major problem facing African cotton producers and ginners in exports is falling prices. During the early stages of the on-going global financial crisis, demand for cotton dropped significantly and subsequently also hit production. More recently, production has rebounded and reached a record of 27 million tons in 2011-2012. Still, world cotton consumption is lagging behind production. This trend was considerably reinforced in 2011-2012. As a result, the international price for cotton has decreased, leading some countries to raise their subsidies in line with price declines. This in turn has fuelled the price decline further.

Many cotton producing countries – and especially the European Union and the United States of America – continue to grant subsidies to their cotton growers that substantially distort the market for cotton. Because African countries are relatively small players in the world cotton market, they have a limited impact on international cotton prices.

In addition, spinning mills in Asia often perceive African cotton to be of inferior quality (mainly related to contamination issues), which prevents producers from applying any premium on their cotton. The small size of African producers forces them to trade via international merchants so that direct links between the seller and its client are non-existent. As a consequence, African exporters do not receive feedback as to whether their cotton meets clients’ needs or not.

Improving Africa’s cotton value chain for Asian markets

The world’s production of cotton is increasing and the industry is being transformed by new technologies that have improved cotton productivity and quality. This has also enabled the development of varieties that can be grown successfully under various climatic conditions.

Building direct ties between African cotton producers and Asian buyers will create opportunities for technical cooperation and knowledge transfer – it will also improve the reputation of African cotton. In the end, this will allow African producers to obtain a premium on the price of their cotton.