Voluntary Report - Public distribution

**Date:** 3/10/2009

**GAIN Report Number:** CO9004

CO9004

**Colombia**

**Cotton and Products**

**Cotton Situation**

**2009**

**Approved by:**

![](media/image1.wmf)R Todd Drennan, Agricultural Counselor

U.S. Embassy

**Prepared by:**

Leonardo Pinzon, Agricultural Specialist and Elizabeth Mello,
Agricultural Attaché

**Report Highlights:**

Colombian cotton production is expected to fall by 14 percent in MY 2008
due to extreme rainfall that forced reduction in area planted affecting
4,000 has of cotton in the Cordoba plains the main producer cotton area
in Colombia. United States is the main supplier and is expected to
export 50,000 tons or 93 percent of total imports in MY 2008.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Bogota \[CO1\]

\[CO\]

**Summary**

Colombian cotton production is expected to decline by 5,000 tons in MY
2008 (August 2008-July 2009) due to a reduction in planted area. Above
average rainfall during the planting season adversely affected over 10
percent of total planted area in the most productive cotton region of
Colombia. At the same time, the heavy rainfall is expected to reduce
average crop yields per hectare. The drop in production is expected to
lead to increased imports of cotton fiber, but the volume will depend on
how well the textile industry does in MY 2009. Colombia's total economic
growth is expected to fall from nearly 3.5 percent in 2008 to just over
one percent in 2009. Earlier this year the government promised Colombian
textile producers that it will eliminate the import duty on cotton in
2009, however, that promise has now been revised to include assurances
that the domestic crop will be purchased.

**Current Situation**

In Colombia nearly 55 percent of cotton land under cultivation is rented
and 36 percent of the cotton farms are smaller than 10 hectares, which
increases production costs and prevents growers from making investments.
Although 40 percent of the cotton area is sown with GMO cotton seed,
which reduces pest applications, the production costs are higher than
with conventional seeds. GMO seeds showed lower tolerance and higher
damage under extreme rainfall conditions, which raised cotton growers'
concerns about expanding cotton area.

Colombian cotton production has been declining since 2005, mainly
because of a drop in price competitiveness due to high production costs.
In MY 2008, cotton production is expected to decline to 30,000 tons,
down 5,000 tons from the previous year, but above the historic lows
registered in 2001 and 2002. The MY 2008 crop was affected by severe
rains in September during the height of the planting season for the
Cordoba and Sucre regions of northern Colombia. The northern coastal
region represents approximately 65 percent of total Colombian cotton
production. The rains reduced planted and subsequently harvested acreage
by 4,000 hectares. In addition, with over 90 percent of the harvest in,
it is expected the average yield will fall from .87 tons per hectare to
.83 tons per hectare in MY 2008.

In MY 2009, the textile industry believes that demand will stabilize and
Colombia will see a recovery in lost sales through 2010. Production is
expected to increase to 36,000 tons as farmers increase planted acreage,
assuming normal weather patterns. The GOC has promised that government
payments will continue, but President Uribe's Presidency terminates in
June 2010. No one knows what will happen after that. Imports are
expected to rise in MY 2009 to 56,000 tons to meet the recovery in
textile demand.

The dynamics of cotton consumption in Colombia rests on Colombian
textile exports and garment industries. The Colombian textile industry
competes with Chinese textile products and depends on the health of the
United States' and that of neighboring countries, Ecuador's and
Venezuela's economies. In this sense, the economic slowdown affected
Colombian textile and garment production, and exports are expected to
decline in MY 2008 to 1,500 tons of cotton equivalent.

The duty free access to the U.S. market for garments and textiles under
the renovation and extension of the Andean trade preferences agreement
(ATPDEA), triggered the expansion of the textile industry and has
resulted in a larger cotton demand since the 2002 (see graph 1).

**Policy**

To promote cotton production, the Colombian government (GOC) offers
cotton growers an ample range of supporting policies. The GOC sets a
minimum guaranteed price for buying locally produced cotton. The growers
and producers agreed on a selling price based on international cotton
prices plus transportation costs and duties, which is lower than the
guaranteed price. The guaranteed price set for the main crop 2008 was
\$1,920 per ton and the average market selling price was \$1,295. The
GOC pays the growers the difference between the actual selling price and
the guaranteed price which reached \$625 per ton in 2008. The GOC also
provides loans to cotton growers under the Agriculture Secure Income
(AIS) program at reduced interest rates which forgives up to 40 percent
of the principal if the resources go to small farmers gathered into
cooperatives.

The Colombian president announced the elimination of the tariff on
cotton imports due to a request from the textile industry to level the
playing field with its competitors, who pay no duty on cotton imports.
The decree to put in place the cotton import duty reduction has yet to
be issued. Industry sources informed us that due to pressure from local
cotton producers, that the government will create a program under the
current Mechanism to Allocate the Quota. This means that Colombian
cotton importers will have to purchase a certain amount of local cotton
to obtain a certificate to import cotton.

**Trade**

United States is the main cotton supplier to Colombia. Colombian cotton
imports from other countries take place when a cheaper price and lower
quality is needed. In MY 2007, U.S. cotton occupied 80 percent of the
market followed by Senegal and Zimbabwe. Colombian cotton imports supply
over 60 percent of total market demand. Cotton imports are expected to
increase to 56,000 in MY 2009 under the assumption that Colombian
textile and garment exports will recover.

Table I.

  --------------- ----------------- ------------------ -------------------
  **Colombian                                          
  Cotton Imports                                       
  (million                                             
  tons)**                                              

  Aug-Jul                                              
  marketing year                                       

                  2005/2006         2006/2007          2007/2008

  United States   49.5              51.0               35.0

  Others          4.6               10.3               9.0

  Total           54.1              61.3               44.0
  --------------- ----------------- ------------------ -------------------

Source: World Trade Atlas

Table II.

  ---------------------- ---------- ---------- -------------- -------------- ------------
  **Colombia**                                                               

  **Cotton**                                                                 

                         ** **      ** **      **Estimate**   **Forecast**   **UOM**

                         **2006**   **2007**   **2008**       **2009**       ** **

  **Market Year Begin**  08/2006    08/2007    08/2008        08/2009        MM/YYYY

  **Area Planted**       0          0          0              0              (HECTARES)

  **Area Harvested**     46000      40000      36000          40000          (HECTARES)

  **Beginning Stocks**   16983      11663      8574           9864           (MT)

  **Production**         42000      35000      30000          36000          (MT)

  **Imports**            61300      44000      53000          56000          (MT)

  **MY Imp. from U.S.**  51000      35000      50000          52000          (MT)

  **TOTAL SUPPLY**       120283     90663      91574          101864         (MT)

  **Exports**            2500       1500       1500           2500           (MT)

  **USE Dom.             105000     79500      80000          89000          (MT)
  Consumption**                                                              

  **Loss Dom.            1150       1089       1110           1150           (MT)
  Consumption**                                                              

  **TOTAL Dom.           106150     80589      81110          90150          (MT)
  Consumption**                                                              

  **Ending Stocks**      11663      8574       9864           9214           (MT)

  **TOTAL DISTRIBUTION** 120313     90663      92474          101864         (MT)
  ---------------------- ---------- ---------- -------------- -------------- ------------

Graph 1

![](media/image2.wmf){width="6.499305555555556in"
height="4.445833333333334in"}