News Release
|
|
|
|
Poul Nielson
|
Pascal Lamy
|
No. 16/04
February 12, 2004
EUROPEAN COMMISSION ADOPTS ACTION PLAN TO HELP
DEVELOPING COUNTRIES FIGHT AGRICULTURAL COMMODITY DEPENDENCY AND SUPPORT THE DEVELOPMENT
OF THE COTTON SECTOR IN AFRICA
The European Commission has today taken a number of initiatives to help developing
countries enhance their export performance and reduce their vulnerability from
price fluctuations of major international agricultural commodities such as
cotton and coffee. The key objectives of these initiatives are to improve
the income of commodity producers in
developing countries and reduce producers' and states' income vulnerability
to price fluctuations. The initiatives involve a comprehensive EU action plan
on agricultural commodity dependency and a wide-ranging strategy for the support
to the cotton sector in
Africa. The Commission also proposes to simplify the criteria to benefit from
FLEX, the EU instrument to compensate
African, Caribbean and Pacific (ACP) countries for short term fluctuations
in export earnings.
Poul Nielson,
EU Commissioner for development and
humanitarian aid said: “The problems faced by many commodity dependent
developing countries today are acute and potentially very damaging. They can be
reduced but there is no magic formula. The affected countries must be prepared
to take the lead and drive the necessary comprehensive response to the dependency
problem. The EU must stand ready to offer its full support. With the proposal
of a commodities action plan we have outlined a common vision for this support,
which will now have to be followed up by Member States. A first concrete step
will be the adoption of the revised FLEX instrument, in partnership with ACP countries.
This would underline the EU's willingness to offer immediate solutions to the
urgent problems faced by these countries."
Welcoming today's action
plan EU Trade Commissioner
Pascal Lamy
added: “Commodity dependent developing countries are particularly disadvantaged
in their efforts to reap the benefits of a more open international trading system.
The case of African cotton producers is a clear example of this. Market access
is important and has to be improved in a number of major markets, including developing
ones. But trade alone is clearly not a sufficient answer as we have witnessed
in the case of African cotton, which already has full market access in the EU..
We need to support the development of the supply side. We must also continue our
efforts to reduce trade distorting support. These are key objectives of the on-going
WTO negotiations which need to re-start in earnest if development friendly outcomes
such as these are to be assured.”
Internationally traded
agricultural products such as cotton, sugar and cocoa provide a major source
of employment and income for millions of people in developing countries as well
as a major source of revenue for their governments. Fifty-four commodity dependent
developing countries (CDDCs) today generate over 20% of their total export earnings
from three or less agricultural commodities.
The
cotton sector in Africa exemplifies the commodity dependence problem. Some African
countries rely on the cotton sector to provide as much as 39% of their exports
earnings. Fifteen million workers are employed by this sector alone in
Africa.
The action plan adopted
today constitutes the basis for a comprehensive response to agricultural CDDCs,
which, unable to counter the sharp decline and volatility in international prices,
find themselves caught in a vicious circle of declining income, declining investment,
stagnating competitiveness, persistent poverty and dependence.
An EU action plan on Agricultural Commodity Chains, Dependence and Poverty
The Commission's action
plan identifies six major areas of intervention:
- Putting
the commodity problem on the agenda:
support commodity dependent developing countries (CDDCs) in elaborating comprehensive
commodity strategies covering critical parts of the commodity chain and fully
integrating these in their overall poverty alleviation policies. The EU should
also play an active role in reforming the international commodity bodies, making
them more receptive to development concerns.
- Responding
to price decline: support the implementation
of commodities strategies. In the context of the on-going negotiations for Economic
and Partnership Agreements (EPAs) between the EU and ACP regions, it is also proposed
to back regional initiatives in support of commodity development such as regional
networks of farmers’ organisations, quality-enhancing services, investment promotion
or commodity branch organisations. A total of EUR 600 million has already been
allocated for trade-related assistance within the EPA negotiations.
- Managing
risks and increasing access to finance:
support for new financial instruments and commodity risk insurance schemes to
fight against inadequate access to finance and cushion against price fluctuations.
Support for the development of insurance tools at macroeconomic level to counter
fluctuations in commodity prices which reduce predictability of government revenues
and limit developing countries' ability to implement the reforms in favour of
sustainable development and poverty alleviation. Finally the EU instrument to
compensate for losses of export earnings (FLEX) will be simplified to ensure it
reaches those most in need (see below).
- Support
for diversification: the EU should
assist CDDCs to make informed choices on promoting diversification and support
the implementation of these choices. Provision of direct aid to local producer
diversification is also proposed.
- Successful
integration of CDDCs in the international trading system:
the Commission stands ready to pursue this goal in the on-going WTO talks under
the
Doha Development Agenda, as well as through the 2006 revision of the EU's
system of trade preferences in favour of developing countries (GSP)
and in the on-going review of the EU's rules of origin. The recent launch of a
Helpdesk for exporters from developing countries is a further contribution
to this end.
- Enhancing
sustainable corporate practices and investments in CDDCs:
it is proposed to engage international commodity companies in the promotion of
corporate social responsibility, sustainable codes of conduct, promotion of public
private partnerships and promotion of international competition.
A
support strategy for the African cotton sector
Building on the above general
vision, the Commission also proposes a specific strategy for an EU-Africa partnership
in support of the cotton sector based on two complementary axes of intervention:
- Obtaining fairer trade
conditions on international cotton markets: the EU supports the calls from the
four African cotton producers (Benin, Burkina Faso, Mali and Chad) to pursue a
reduction in trade-distorting subsidies within the WTO. In particular, within
the agricultural negotiations in the Doha Development Agenda the EU calls for:
- Better
market access for Least Developed Countries exports of cotton and textiles: developed
countries should give duty free and quota free access for cotton and textiles
from the world Least Developed countries, in line with the EU's
Everything But Arms (EBA). It is also proposed to address the erosion of trade
preferences and tariff escalation.
- (ii)
Elimination of all forms of export subsidies in this sector.
- iii)
Reduction in trade distorting domestic subsidies: the EU, which is a minor cotton
producer (2% of world production) is currently discussing a comprehensive reform
of the EU support for its cotton producers by partly de-coupling support from
production, thus abandoning the most trade distorting support.
- Trade-related technical
assistance: helping developing countries to defend their interests. The EU has
already allocated more than EUR 80 million in supporting African countries to
identify, present and defend their cotton related interests.
- Supporting African cotton
producing countries in consolidating the competitiveness of their cotton sectors,
including implementation of comprehensive development plans for the cotton producing
regions; strengthening of cotton related institutions and policies; facilitation
of the integration within the cotton chain; improvement of responsiveness to evolutions
of markets and technologies; and promotion of quality recognition.
- The potential of Economic
Partnership Agreements for the cotton sector is stressed and the Action plan also
includes measures to mitigate the impact of price fluctuations including access
to mechanisms to manage revenue risks and compensation for sudden losses of export
earnings through the EU's FLEX instrument.
As a first concrete step
to co-ordinate activities, during the first half of 2004 the Commission intends
to call an international seminar on cotton including all stakeholders concerned,
ie., cotton producing African countries, EU member states and international institutions
such as the World Bank or the IMF.
FLEX improving compensation of export earnings losses
As another concrete step,
the Commission proposes to expand and simplify the use of the FLEX instrument
to compensate for export earning losses.
FLEX was introduced in 2000
in the framework of EU ACP co-operation to assist governments facing sudden losses
of revenues. It provides additional budgetary support to ACP countries that have
registered: (i) A 10% loss in exports earnings (2% in the case of LDCs); and (ii)
a 10% worsening of the programmed public deficit. Past experience shows that these
eligibility criteria have been too stringent. From 2000-2 in only six out of fifty-one
cases have ACP's been able to meet both criteria. Support from FLEX in the six
cases has totalled EUR 35.65 million.
It is proposed to extend
to landlocked countries and island states the special clause on a 2% loss in export
earnings applied to LDCs and eliminate the 10% benchmark on the worsening in the
programmed public deficit.
Had the proposed criteria
been applied to the fifty-one cases from 2000-2002, ACP countries would have received
EUR 255 million through the FLEX system. This would have represented a 600% increase
in the use of the instrument.
Changes in FLEX will have to be adopted by the EU Council in view of a final decision
by the EU-ACP Council of Ministers in May 2004. The proposed changes would then
come into force in the first half of 2004, providing a timely and effective response
to vulnerability of price fluctuations for the cotton producing countries and
other CDDCs.
For more information go
to:
http://europa.eu.int/comm/trade/issues/global/development/index_en.htm
Facts and Figures about agricultural commodities, dependence and poverty
The Context
Internationally traded
agricultural commodities, such as coffee, cocoa and cotton are, directly or indirectly,
major sources of employment and income for millions of people in developing countries.
Through taxation and redistribution, they make major contributions to the provision
of basic services such as health and education in these countries.
Fifty-four commodity dependent developing countries (CDDCs) today generate over
20% of their total export earnings from three or less agricultural commodities.
For some like Burundi
the dependence on one single commodity exceeds 75% of total exports. Three or
fewer primary commodity exports constitute the bulk of their export revenue. These
countries are located mainly in Sub-Saharan Africa, but also in the Caribbean
and Central America. Many are LDCs, landlocked or small island states.
Between 1970 and 2000,
prices for some of the main agricultural exports of developing countries, such
as sugar, cotton, cocoa and coffee, fell by 30 to 60 percent (constant dollars).
Although the long-term downward trend in real prices requires producing countries
to address the competitiveness of their commodities continuously, these countries
have few resources to counter the situation.
International commodity
markets are characterised by cyclical trends: relatively long (and increasingly
deeper) periods of low prices and short periods of high prices. There is important
volatility within these cycles. These price patterns create vulnerability both
for individual producers and at the macro level. They discourage investment and
lead to macroeconomic imbalances: curtailing export earnings, debt service capacity,
imports, credit availability, government revenues and provisions of basic services
such as health and education.
Commodity chains cover
a range of steps from the primary producer to the final consumer, through collection,
primary processing, wholesale, export and import, further processing or packaging
and retail. Producers receive a very small percentage of “value added” within
the chain. They have always had weak bargaining power in markets dominated by
large (sometimes monopoly) purchasers and have faced inelastic demand and severe
price swings attributable to supply fluctuations. For many producers, the alternative
income opportunities are few, making the impact of price falls even greater.
With the abandonment of
international market intervention and domestic market reforms in the 1990s, commodity
producers in developing countries have largely been left on their own in their
struggle with the demands of the market. Often governments have not introduced
adequate policies to accompany liberalisation. In developing and transitional
countries, the private sector has replaced commodity-trading organisations such
as marketing boards. However, supporting policies remain weak: producers and traders
have great difficulty in, e.g., accessing credits and other services.
The international market
environment is also changing. In the past, commodities were homogenous and the
retail sector focused primarily on cost competition. More recently, processors
and retail chains are increasing margins by shifting into a diversified range
of branded products and by creating new market segments.
Commodity processors and
retail chains are increasingly integrated within the commodity chain, to ensure
stable access to supply, better control the chain and be able to trace their products
down to production levels. There is also an important ongoing concentration: transnational
corporations are dominating most markets and prefer to work with large-scale suppliers.
Commodity issues have now
moved back onto the international agenda. The poverty implications of recent price
falls have prompted the international community to make general commitments to
take action (e.g., the Third UN Conference on the Least Developed Countries in
Brussels, 2001; the Doha Declaration of November 2001; the Finance for Development
Conference in Monterrey, 2002; the World Summit for Sustainable Development in
Johannesburg, 2002; the United Nations General Assembly, 2002). Most recently,
two groups of commodity-dependent countries (West/Central Africa and East Africa)
have focused the attention of the on-going WTO talks on their plight, arguing
for special efforts to improve their situation.
The specific situation of cotton
The
recent fall in world cotton prices has had a serious impact in several West and
Central African countries, where cotton is the main source of income for a large
population, estimated at about 10 million people. In some of the less developed
countries cotton represents the main cash crop and the largest source of export
receipts and government revenues. For instance, cotton represented 79% of
Mali's exports,
65% of Benin's and 56% of Chad's in period 1999-2000.
To get to the bottom of
the problem, it should be noted that the world market price for cotton depends
on several factors: the level of world production and consumption, the price of
synthetic fibre, the level of production-linked subsidies in major cotton exporting
countries and the level of border protection.
While all of the above factors play a role, the significant decline of cotton
prices in recent years has clearly been demand-driven. The share of cotton in
world fibre consumption, in gradual decline since the 1960s, has dropped to just
over 40% of total fibre consumption (down from 65% in the 1960s).
What is the EU's role in the cotton market?
The impact of the EU on
world cotton prices is minor for the following reasons:
The EU market is wide open to cotton imports, including textiles and clothing.
The EU applies a zero tariff on cotton imports from ACPs as well as from the world's
49 poorest countries (LDCs).
The EU is the world largest importer of cotton.
Between 20% and 80% of cotton exports from Mali,
Benin, Burkina Faso and Chad reach the EU.
The EU is a price-taker and not a price-maker:
Since the EU is not a net exporter of cotton, but the largest importer of cotton
worldwide, it has little, if any, influence on world prices.
EU production represents
less than 3% of world production, while EU exports only account for 4% of world
cotton exports. The EU is a net cotton importer.
EU does not have export
subsidies for cotton.
EU
domestic subsidies for European cotton growers are subject to a production ceiling.
When the quantity is exceeded, the amount of the support is decreased. The support
provided by the EU is mostly destined for small cotton growers in rural areas
in Greece
and Spain.
For more information on
the action plan go to:
http://www.eurunion.org/legislat/AfricaCotton.htm
Figures on World trade in cotton
|
2001-2002 |
Production
|
'
|
Exports
|
Imports
|
Net
Exporter
|
|
'
|
000 tons
|
% world
production
|
'
|
'
|
'
|
|
World
|
21414
|
'
|
'
|
'
|
'
|
|
West
and Central Africa
|
1098
|
5,1%
|
801
|
16
|
785
|
|
Other
ACPs
|
283
|
1,3%
|
183
|
5
|
178
|
|
EU
|
563
|
2,6%
|
295
|
784
|
-489
|
|
Brazil
|
766
|
3,6%
|
147
|
55
|
92
|
|
China
|
5313
|
24,8%
|
74
|
98
|
-24
|
|
USA
|
4421
|
20,6%
|
2395
|
5
|
2390
|
|
India
|
2678
|
12,5%
|
13
|
381
|
-368
|
|
Pakistan
|
1807
|
8,4%
|
35
|
218
|
-183
|
|
Uzbekistan
|
1067
|
5%
|
740
|
0
|
740
|
|
Australia
|
697
|
3,3%
|
664
|
0
|
664
|
|
Rest
of World
|
2721
|
12,7%
|
966
|
4850
|
-3884
|
Source: Foreign Agriculture Service (FAS)-online.
Press Contact: |
Anthony
Gooch
202-862-9523 |
