Strong Growth Potential For African Cotton
BMI view: We see strong potential for growth in cotton production in Africa over the coming years. This will come from increasing use of biotechnology, sector privatisation, government support for input purchase and generally improving business environment in these countries. The failure of recent WTO trade talks to provide a level playing field for African cotton producers is the only downside risk we see to production and export growth in the medium term.
The FAO forecasts cotton production in Sub-Saharan Africa to increase by 20.7% between 2013 and 2017. This is quite impressive growth by global standards, considering that we forecast cotton production to increase by 27.5% over the same period in Brazil, and only 13.3% in India and 3.0% in China.
|Selected Countries/Region - Cotton Production Growth, % change (2013-2017)|
The International Cotton Advisory Committee (ICAC) also sees Africa's share of the global cotton market increasing in the next 10 years, while Asia's share will decrease. The committee forecasts African cotton production to represent 9.0% of global production in 2022/23 compared with 4.0% in 2012/13. By contrast, China's cotton output will represent only 15.0% of global production in 2022/23, compared with 27.0% in 2012/13.
|Selected Countries/Region - Share of Global Cotton Production (As % Of Total)|
This growth will come from the more widespread use of GM cotton seeds in the region. The most important producers in the region, Burkina Faso and Mali, have favourable biosafety laws and started field tests as early as 2003 and commercialisation in 2009. Monsanto is the main player in these countries and is collaborating with local cotton companies to improve Bt cotton varieties. Cotton companies have said that Bt cotton yields 30% more than conventional cotton if farmers follow the technical itinerary and use enough organic fertiliser. Contrary to Burkina Faso, Mali already has more efficient pest management. Mali was able to use a threshold method that reduced the quantity of pesticides by 80% (from 7 litres/hectare (ha) to 2-3 litres/ha) used for cotton. However, the country is also using more GM cotton to improve quality and productivity in its fields.
|Production Growth Only Based On Area Expansion|
|Select Regions - Cotton Average Yields (kg/ha)|
Most producers in the region have also gone through a phase of restructuring of their cotton industry, which will boost efficiency, investment in the sector and economies of scale over the coming years. In Burkina Faso, Sofitex was privatised in the early 2000s and other private players such as Faso Coton and Socoma have played a significant role in the expansion of the sector since then. Mali's Mission of Restructuration of the Cotton Sector (MRSC) started in 2001 and achieved all its dedicated tasks by 2010, when the Compagnie Malienne pour le Développement des Textiles (CMDT) was completely privatised. The government organised several international tenders to privatise the four subsidiaries created in 2008, but the subsidiaries were eventually offered to the union of farmers. In Cote d'Ivoire, privatisation of the cotton industry was completed very early in 1998 but the military crisis of 2002, the lack of fund for research, and disorganisation of farmers left the industry in total disorder. Between 2010 and 2012, the government and its financial partners provided technical assistance through research programmes, increased use of animals for traction, and fertiliser subsidies, which helped production to reach 352,000 tonnes in 2012/13, compared with 50,000 tonnes in 2008.
|Only Using Half Of What Needed|
|Select Countries - Nitrogen Use On Cotton in 2011 (kg/ha)|
Even if we believe government subsidies and attractive price fixing will help production growth, the main issue the governments in the region will need to address is the very low fertiliser consumption for the cotton crop in the region. The ICAC estimated that in 2011, Sub-Saharan African countries used an average of 42.5kg/ha of nitrogen on their cotton crop, compared with 148.0kg/ha for the rest of the world. On the back of that, Burkina Faso pays around XOF14.9bn a year to help farmers purchase fertilisers for their cotton crop. Mali paid XOF18.0bn in subsidies to its cotton sector, most of which helped to buy fertilisers. Cote d'Ivoire has not recently announced the amounts it will dedicate to input price subsidisation, but spent about XOF7.0bn on the cotton sector three years ago.
|A Multispeed Region|
|Francophone West Africa - 2014-2023 Annual Average Real GDP Growth, %|
Business environments, especially in Cote d'Ivoire, Burkina Faso and Senegal, have made small improvements in the past decades, which supports our view that the cotton industry will attract more foreign investment and expand over the coming years. However, Mali and Chad are still suffering from severe political instability, which could deter investors from supporting the cotton industry, at least in the short term. We are the most optimistic about Cote d'Ivoire in terms of economic growth between 2014 and 2023. The country is recovering from a decade of political and economic crises, and we believe that it is set for broad-based growth on the back of surging foreign investment and an improving consumer sector. Our bullish forecast that annual growth will average 7.9% is, however, highly contingent on the government of Alassane Ouattara maintaining political stability in the country. A disputed election in 2015 could cause another political crisis, knocking the country off its reform track. We also expect Burkina Faso and Senegal to experience strong growth and their stable political outlook to attract investment in expansion for their respective cotton industries in the medium term.
|Dumping Cash On Cotton Crop|
|India - Subsidy Payment Category (As % Of Total Subsidy Budget)|
The failure of recent WTO trade talks to provide a level playing field for African cotton producers (mainly by reducing the amount of subsidies the EU, US and now China and India provide to their cotton farmers) is the only downside risk we see to production and export growth in the region over the medium term. The 'Cotton 4' group , composed of Chad, Mali, Benin and Burkina Faso, expressed their dissatisfaction with current draft text presented at the Bali Conference. These countries pushed for the agreement to allow cotton from the least developed countries to enjoy duty-free, quota-free market access into developed countries and at least some developing countries by 2015. They also asked to eliminate remaining export subsidies for cotton in developed countries immediately and to find a uniform method to cut domestic support for cotton by 2014. Finally, the 'Cotton 4' group has been complaining that only the US and the EU have been making progress on limiting trade distortions while China and India have actually increased cotton interventions measures in the past years. China is now the world ' s largest subsidiser of cotton, with total payments three times as high as the US. India has implemented 15 trade-distorting cotton interventions since 2008, which is far more than other large emerging market offenders such as China (which implemented three) and Brazil (two).