Required Report - public distribution

**Date:** 7/13/2006

**GAIN Report Number:** GR6008

GR6008

**Greece**

**Cotton and Products**

**Annual**

**2006**

**Approved by:**

![](media/image1.wmf)Robin Gray

U.S. Embassy Rome

**Prepared by:**

Stamatis Sekliziotis

**Report Highlights:**

If weather remains favorable through harvest, cotton production in
Greece is likely to continue to climb in 2006, in spite of new CAP
reforms and difficult weather during planting. Part of this growing
output can be attributed to increased yields from U.S. seeds. Even with
the uncertainties associated with the implementation of the new reform
for cotton, Greek farmers planted the total eligible acreage. Returns
from this season will play a major factor in future plantings and the
long-term impact of CAP reform.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Rome \[IT1\]

\[GR\]

Table of Contents

[Executive Summary 3](#executive-summary)

[Production 3](#production)

[Trade 3](#trade)

[Policy & Outlook 3](#policy-outlook)

[PS&D Table, Cotton 7](#psd-table-cotton)

[Export Trade Matrix, Cotton 8](#export-trade-matrix-cotton)

[Import Trade Matrix, Cotton 9](#import-trade-matrix-cotton)

# Executive Summary

# Production

The final cotton output (seed cotton basis) for 2005 in Greece is
reported at 1,200,000 MT. The product was of very good quality, due to
the favorable dry weather conditions that prevailed during harvest. In
spring 2006, cotton planting reached 370,000 Hectares. Due to a
prolonged wet period and flooding in Central Greece (Thessaly Plains),
cotton farmers had to replant their fields. Similar problems were
reported for areas in Central and East Macedonia, but to a much lesser
extent. This resulted in an increase in demand for planting seeds in
April and the beginning of May. The national weighted-average yields for
cotton in 2005 was in the neighborhood of 3,352 kg/Ha (seed cotton
basis). Yields varied from region to region according to weather, soil
conditions, seed variety used and irrigation capacity, but the average
was between 3,000 Kg/Ha to 4,100 Kg/Ha. U.S. cottonseed for planting
provides higher yields to Greek farmers, generally around 4,000 Kg/Ha,
with high quality product. Weather permitting, the 2006 Greek cotton
harvest could reach 1,240,000 MT (cottonseed basis) or 445,000 MT (lint
basis).

The MY 2005/2006 weighted average ratio of seed cotton to lint yield for
the 85 ginning plants operated in Greece, is reported at 36 percent. In
bales (480 lbs), the 2005/2006 output is estimated at 1,984,200 bales,
compared to 1,791,292 a year earlier.

# Trade

Greek exports of cotton lint in CY 2005, were over 300,000 MT, valued at
almost U.S. \$350 million, compared with U.S. \$359.0 million in CY
2004. Of the CY 2005 cotton lint sales, more than 61,000 MT were sold to
EU-25 (valued at just over U.S. \$55.6 million), while Turkey absorbed
44% of 2005 Greek exports. In both 2004 and 2005, product quality was
good and demands from traditional markets in Europe and neighboring
countries were well satisfied. No significant stocks of lint are
reported by the industry. Greek yarn producers buy high quality cotton
lint (long staple) from Syria, Brazil, Egypt and Turkey. Although these
quantities are limited, supplies have gradually increased in the past
few years. Imports in 2005 reached 6,800 MT (valued at U.S. \$9.9
million), compared to just over 3,600 MT a year earlier. The Greek
industry purchased over 450 MT of cotton lint (valued at U.S. \$ 0.2
million) from the U.S., mostly from California. Trade data cited in the
attached PSD are rough estimates on a MY basis. Attached trade matrices
supply precise GOG official data on a Calendar Year Basis.

#  Policy & Outlook

Marketing year 2005/2006 was the last year under the old CAP. As a
result, only 1,100,000 MT of the total production were covered by the
price subsidy system. The remaining 100,000 MT did not qualify for the
EU price subsidy. Greek farmers received a price of approximately 0.88 -
1.0 Euros/Kg for the 1,100,000 MT covered under CAP. While the
production not qualified for the EU price subsidy received 0.29 - 0.38
Euros/Kg. These prices were set for raw cotton delivered to the ginning
plants (seed cotton basis).

According to GOG Ministry of Agriculture and cotton trade sources, the
area planted to cotton for spring 2006 is currently estimated at 370,000
ha. This is an increase from 2005, which was 358,000 ha. Official
sources expected a drop in acreage for 2006, given implementation of the
new cotton CAP reform, and the fact that many farmers feared and/or had
difficulty understanding the operation of the new system. On the
contrary, this year farmers planted the total acreage threshold of
370,000 ha, following the "farm registration" procedure prior to
planting, required under the new CAP. The threshold was implemented
between GOG Ministry of Agriculture authorities and farmer
organizations. The GOG compiled a roster of eligible farmers, known in
Greece as the List of Cotton Producers' Rights. In addition, the GOG
Ministry of Agriculture instructed farmers to increase their cotton
cultivation up to the new EU permitted threshold under the CAP reform.
Following the EU policies on sugar reform, which discouraged a number of
farmers from planting sugar beets, in some regions production on
irrigated acreage was switched from beets to cotton. The GOG Ministry of
Agriculture and the press have emphasized a recent press release (May 1,
2006) by the International Cotton Advisory Committee (ICAC), which
reported an expected three percent increase in world consumption of
cotton in MY 2006/2007. This would amount to almost half a million tons
above world production, resulting in a reduction of world cotton stocks
by July 31, 2007 and an increase in international prices, equivalent to
an increase of the Cotlook A Index, by almost 20%, reaching U.S. 67
cents per pound.

According to the April 2004, Council of Agricultural Ministers decision
concerning EU CAP reform for cotton, 65 percent of the budgeted envelope
will be made available for de-coupled farmer's income aid. This amounts
to €967.0/per hectare (Ha), with a total expenditure of €367.4 million.
It will take the form of a decoupled payment, paid to cotton farmers
whether they grow a cotton crop or not. The Greek Ministry of
Agriculture has already prepared a roster of farmers qualified for
decoupled aid. The acreage in question corresponds to the maximum area
of 370,000 hectares decided by the Council.

+-----------+-------------+-------------------------------------------+
| ######    |             |                                           |
|  Greek Co |             |                                           |
| tton Area |             |                                           |
|           |             |                                           |
| (Planted  |             |                                           |
| under CAP |             |                                           |
| Reform)   |             |                                           |
+-----------+-------------+-------------------------------------------+
|           |             | **MY 2006/07**                            |
+-----------+-------------+-------------------------------------------+
| **Area    | # Eligible  | 370,000                                   |
| Planted** |             |                                           |
| (         |             |                                           |
| Hectares) |             |                                           |
+-----------+-------------+-------------------------------------------+
|           |             |                                           |
+-----------+-------------+-------------------------------------------+
|           | ***E        | 370,000\*                                 |
|           | stimated*** |                                           |
+-----------+-------------+-------------------------------------------+

\* Cotton area planted in 2006 (preliminary estimate)

According to a GOG Joint Ministerial Decision (Ministers of National
Economy and Agricultural Development & Food), No. 34395/Feb. 28.2006,
(EU Regulations Nos. 1258/1999, 1782/2003, 1973/2004 & 796/2004), 35
percent of the budget envelope is dedicated to coupled payments for
farmers growing cotton in 2006. In Greece, the new payment will be
granted for a maximum area of 370,000 Ha. The original proposal was
augmented to 370,000 from 340,000. If the eligible area planted with
cotton exceeds the maximum area, the aid per hectare will be reduced
proportionally. The Council split the 370,000 Ha base into two
portions - the first 300,000 Ha is eligible for aid of 594.1 Euro/Ha and
the remaining 70,000 Ha is eligible for the coupled aid of 342.85
Euro/Ha. The weighted average of the EU aid to be paid on a maximum
acreage of 370,000 hectares of cotton in Greece is calculated at €
546.0/per hectare (Ha), for a total EU expenditure of €202.2 million. If
target acreage is exceeded, a payment policy is applied for acreage up
to 70,000 hectares. The reference period for the reformed CAP was taken
from the average planted cotton acreage in calendar years 2000, 2001,
and 2002.

+---------------------------+-------------------+---------+-----------+
| **Cotton CAP Reform**     | **Decoupled       | **      |           |
|                           | Payment**         | Coupled |           |
| (Beginning MY 2006/07)    |                   | Pa      |           |
|                           |                   | yment** |           |
+---------------------------+-------------------+---------+-----------+
| Maximum Eligible          | **370,000**       | 300,000 | \*70,000  |
| (Hectares)                |                   |         |           |
+---------------------------+-------------------+---------+-----------+
| Producer Payments         |                   | €594.00 | \*€343.00 |
|                           |                   |         |           |
| (Euros/Ha)                |                   |         |           |
+---------------------------+-------------------+---------+-----------+
| Weighted Average Payment  | €967.00           | €546.00 |           |
| to Producers (Euros/Ha)   |                   |         |           |
+---------------------------+-------------------+---------+-----------+
| Percent of EU Budget for  | 65%               | 35%     |           |
| Cotton Farm Payments      |                   |         |           |
+---------------------------+-------------------+---------+-----------+
| Total EU Budgetary        | €367.4            | €202.2  |           |
| Expenditure               |                   |         |           |
|                           |                   |         |           |
| (Millions of Euros)       |                   |         |           |
+---------------------------+-------------------+---------+-----------+

\*If planting exceeds the maximum eligible acreage, then the
co-responsibility payment is reduced to the stated maximum.

Both farming organizations (farmer groups and cooperatives), as well as
individual farmers, are eligible for this aid. Under the new policy, the
EU will support cotton-farming organizations as long as total Greek
cotton production stays under the permitted acreage limitation of
370,000 hectares.

Under the new CAP, assuming that no excess acreage is planted and that
all cotton farmers on the roster raise cotton, these farmers will
receive EU aids of approximately €967.0 /Ha (decoupled aid), plus
approximately €546.0/Ha (partially coupled aid), plus the world price
for cotton. We will report later this summer if 2006 Greek cotton
plantings are in excess of the allowance.

Given these new developments, it is too early to predict average
farmers' per area return or the gross farm income, until the beginning
of the MY 2006/2007. These factors will be decisive for the next
cotton-growing season (2007/2008) and will help with estimates of the
number of farmers likely to continue cotton production in years to come.
Also, participation in the denitrification programs and the benefit from
another EU subsidy of €646.0/Ha, is expected to last until 2009. For the
current cotton-growing season, Greek farmers registered on the Cotton
Producer's Rights List, have indicated that they are unlikely to abandon
cotton. If by the end of the season, they find that their income was
adversely affected by the new CAP reform, in following seasons they may
decide to simply receive the de-coupled amount of €967.0/Ha and utilize
land formerly planted to cotton for alternative crops, such as durum
wheat, forest farming, tree crops and other commercial crops.

# PS&D Table, Cotton

![](media/image2.wmf)

# Export Trade Matrix, Cotton

# 

# ![](media/image3.wmf) 

# Import Trade Matrix, Cotton

![](media/image4.wmf)