Communication from the Commission to the Council and the European Parliament - Proposal for an EU-Africa partnership in support of cotton sector development
Date: 2004-02-12
Institutions: European Commission
Subjects: Africa, competitiveness, cooperation agreement (EU), cotton, development aid, economic development, international market, production aid

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 12.2.2004 
COM(2004) 87 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

Proposal for an EU-Africa partnership in support of cotton sector development 

EN 

   EN 

 
 
 
  
  
  
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

Proposal for an EU-Africa partnership in support of cotton sector development 

1. 

1.1. 

1.2. 

2. 

3. 

The cotton sector. ......................................................................................................... 3 

Challenges on the world cotton market........................................................................ 3 

Context and problems of the African cotton sector. .................................................... 4 

Objectives for EU action.............................................................................................. 4 

Outline of a partnership in favour of the cotton economies in Africa. ........................ 6 

3.1. 

Obtaining fairer international trade conditions on the cotton market. ......................... 6 

3.1.1.  Action within the agricultural negotiations of WTO ................................................... 6 

3.1.2.  Market access ............................................................................................................... 6 

3.1.3.  Export competition....................................................................................................... 7 

3.1.4.  Domestic support ......................................................................................................... 7 

3.1.5.  Trade related technical assistance – helping developing cotton producers to defend 

their interests. ............................................................................................................... 7 

3.2. 

Supporting cotton producing countries and regions in Africa ..................................... 8 

3.2.1.  Consolidating the competitiveness of African cotton economies ................................ 8 

3.2.1.1.  Main elements for supporting cotton producing regions. ............................................ 8 

3.2.1.2.  Valorising the EPAs for the development of the cotton economies ............................ 9 

3.2.2.  Elaborating a framework to mitigate the effects of price volatility. .......................... 10 

4. 

Implementation considerations and sources of funding............................................. 10 

2 

 
 
  
 
1. 

THE COTTON SECTOR. 

1.1. 

Challenges on the world cotton market. 

The  world  cotton  sector  faces  several  major  challenges.  All  of  these  affect  also  developing 
and  least  developed  producers  particularly  in  Africa.  Indeed  cotton  plays  in  a  number  of 
African countries a key role in the economy and development efforts.  

A  general  overview  of  the  state  and  trends  of  the  world  cotton  market  allows  for  a  better 
understanding of the specific challenges and situation within which the African cotton sector 
operates and needs to develop. 

Although  at  global  level,  international  cotton  trade  represents  a  limited  share  of  production 
(approximately  30%)  some  developing  countries  are  heavily  dependent  on  it:  for  example, 
between  30  and  40%  of  export  earnings  in  Benin,  Burkina,  Chad,  and  Mali,  come  from 
cotton.  The  West  and  Central  African  region,  with  about  12%  of  world  exports,  is  an 
important  player  in  the  international  cotton  market,  although  well  below  the  United  States 
which accounts for 30%. Other important exporters comprise Uzbekistan (13%) and Australia 
(12%). China is the largest cotton producer as well as consumer, but only occasionally exports 
part of its production. On the other side, the European Union is a major importer of cotton, 
and about a third of its imports come from West and Central Africa. In addition South-East 
Asia, as well as Brazil, are becoming increasingly important importers due to their growing 
textile  industries.  This  trend  is  expected  to  be  amplified  by  the  forthcoming  liberalisation 
foreseen  under  the  Agreement  on  Textiles  and  Clothing.  Global  cotton  demand  is  only 
expected  to  grow  moderately  over  the  next  decade,  in  line  with  population  increase  (1,8% 
annually). 

Cotton prices as those for most agricultural commodities show a long-term decreasing price 
trend and strong short term fluctuations. These have been significantly influenced by China's 
sporadic  entry  in  the  world  market,  both  for  imports  and  for  exports,  which  highlights  the 
need  for  deeper  analysis  of  the  characteristics  of  the  world  cotton  market  in  order  to  better 
understand  its  determinants.  Prices  of  agricultural  commodities  are  determined  by  several 
factors, in particular: the level of demand, which reflects changes in the economic situation of 
major  importers,  as  well  as  substitution  effects  from  other  similar  products;  the  level  of 
supply, which derives from the commodity chain structures in place, agro-technical capacity 
and local unpredictable natural conditions; and the level of stocks. The long term decline of 
cotton  prices  has  averaged  0,2%  per  annum  between  1960  and  1984,  and  has  accelerated 
thereafter to 0,9% per annum between 1985 and 2002. It has been closely linked to increases 
in  productivity  and  reduction  in  production  costs,  as  well  as  to  the  competition  of  synthetic 
fibres. 

Subsidisation regimes in several producing countries, in particular in the industrialised world, 
add to the general downward pressure on prices. There are different types of subsidies applied 
to  cotton  in  the  United  States  and  the  European  Union  and  the  Union  is  spending  only  a 
fraction of the amount put at the disposal of cotton producers in the US (€ 0,8 billion in the 
EU vs € 2,9 billion in the US in 2001-02). Due to subsidisation, prices paid to domestic cotton 
farmers were 90% and 154% above world prices in 2001/02 in the US and EU respectively. 
This  has  direct  impact  on  cotton  production  in  both  countries.  Nevertheless,  unlike  the  US, 
the  EU  is  a  minor  player  in  terms  of  global  production,  accounting  for  just  2%  of  world 
output.  Therefore  the  EU  has  only  a  marginal  influence  on  price  formation  in  international 

3 

 
 
  
 
markets. However in terms of volume, EU production represents approximately 70% of West 
and Central African exports. 

The  2001-02  season  witnessed  particularly  low  prices,  which,  in  West  and  Central  Africa 
where  there  is  no  price  support,  have  led  to  serious  difficulties  for  the  cotton  sector.  Prices 
have  risen  sharply  again  more  recently  illustrating  the  dramatic  short–term  volatility  with 
which cotton producers have to cope.  

1.2. 

Context and problems of the African cotton sector.  

Cotton  is  a  vital  export  commodity  in  a  number  of  African  countries.  Two  to  three  million 
producers  and  some  15  million  people  depend  directly  or  indirectly  on  the  cotton  sector. 
Many of them belong to the poorest sectors of society. Price levels and stability directly affect 
their  capacity  to  earn  a  living.  Sudden  recent  fluctuations  in  price  have  highlighted  the 
vulnerability of the African cotton sector.  

While generally, cotton produced in Africa is competitive, in particular in West and Central 
Africa,  there  is  potential  for  further  strengthening  its  competitive  position.  In  addition,  the 
dynamic character of the domestic and international environment raises serious challenges for 
the future of the sector. In terms of external factors, as analysed above, the long term decline 
of  prices  and  significant  short  term  fluctuations,  as  well  as  heavy  international  competition 
influenced by trade distorting subsidies, are serious concerns, that deserve consideration both 
at domestic and international level. As to domestic challenges, limited flexibility of the sector 
in  meeting  changing  demands,  and  a  slow  rate  of  technological  innovation  have  to  be 
addressed as a matter of priority. If these international and domestic threats are not adequately 
recognised  and  tackled,  a  decline  of  the  sector  could  result.  This  would  imply  severe 
consequences  in  terms  of  impoverishment  of  rural  areas,  intensification  of  migrations  and 
even risks for the stability of the cotton-dependent countries. 

During the preparation process leading to the World Trade Organisation  (WTO)  Ministerial 
Conference  of  Cancún,  four  of  the  West  and  Central  African  countries1  voiced  concerns  in 
WTO  regarding  the  situation  of  their  cotton  sectors.  The  initiative  put  forward  by  these 
countries  aims  at  obtaining  specific  negotiations  within  the  Doha  Development  Agenda  for 
cotton, focussing on two demands: 1) establishing a mechanism “for phasing out support for 
cotton production with a view to its total elimination”, and, 2) as a transitional measure “until 
cotton  production  support  measures  have  been  completely  eliminated  cotton  producers  in 
LDC  should  be  offered  financial  compensation  to  offset  the  income  they  are  losing,  as  an 
integral part of the rights and obligations resulting from the Doha Round”2. This initiative has 
met a lot of sympathy across WTO membership.  

2. 

OBJECTIVES FOR EU ACTION 

The  EU  view  is  that  concerns  of  West  and  Central  African  countries  regarding  their  cotton 
sector  should  be  addressed.  The  Council  of  17th  November  2003  “recognised  that  this  is  a 
vital issue for those countries and invited the Commission to examine the situation in depth 
and to inform the Council accordingly”. 

1 
2 

Benin, Burkina Faso, Chad and Mali 
WTO Document TN/AG/GEN/4 of 16 May 2003 

4 

 
 
  
 
                                                 
Given the European Union’s and its Member States’ history of involvement with the cotton 
sector in Africa, its long standing relationship with the continent under the successive Lomé 
Conventions  and  now  the  Cotonou  Agreement  and  its  role  as  a  major  international  trading 
partner,  the  European  Commission  proposes  that  the  Union  enter  into  a  partnership  with 
Africa with the aim of supporting the development of the cotton sector in a comprehensive, 
structural  and  sustainable  manner.  Although  the  four  West  and  Central  African  countries 
Benin, Burkina, Mali and Chad have been most active on the international scene to highlight 
the  challenges  facing  their  cotton  sector,  the  EU  proposes  to  collaborate  within  this 
partnership with all African ACP countries where cotton is a key element of the economy. As 
the  cotton  situation  and  national  priorities  may  differ  across  countries,  involvement  of  each 
country will have to be discussed and agreed with each of them. 

For the cotton initiative to succeed and have the desired impact, it should be both realistic and 
comprehensive and involve actions at all three levels - international, regional and domestic. It 
should  build  on  the  lessons  of  past  cooperation,  complement  existing  initiatives  but  also 
address new challenges faced by the sector. It aims to provide elements of a response to the 
problems impacting negatively at the micro level on producers and the sector as a whole, as 
well  as  at  the  macro  level  on  the  economies  concerned.  Considering  the  nature  of  the 
necessary improvements, the proposed partnership requires a long term perspective including 
regular assessments to ensure its continuing relevance in an evolving context. 

In  order  to  address  the  crisis  faced  by  the  cotton  economies  in  Africa  in  a  realistic, 
comprehensive  and  sustainable  manner,  the  proposed  partnership  encompasses  two  main 
objectives: 

– 

– 

Obtaining fairer trade conditions on international cotton markets. 

Supporting cotton producing countries and regions in Africa. 

The  latter  element  goes  beyond  the  specific  WTO  related  request  of  the  West  and  Central 
African  countries  but  the  European  Commission  believes  that  both  elements  proposed  are 
essential,  and  form  an  integrated  package  that  will  permit  us  to  tackle  the  issue  in  a 
comprehensive  manner.  In  addition,  the  goal  of  modifying  international  market  conditions 
through  WTO  negotiations  can  only  be  reached  in  the  medium  term,  and  additional  partly 
more  short  term  oriented  activities  to  consolidate  and  improve  the  situation  have  to  be 
launched  in  parallel.  Moreover,  countries  will  only  be  able  to  benefit  from  improved 
international trade conditions if present shortcomings of their cotton sectors are overcome.  

This proposal represents a practical application of the principles and analyses put forward in 
the Commission communication “Agricultural Commodity Chains, Dependence and Poverty - 
A  Proposal  for  an  EU  Action  Plan”,  adopted  in  parallel  to  this  one.  Within  this  context  the 
present  proposal  on  cotton  aims  to  focus  efforts  of  the  Commission  and  Member  States  as 
well as other important actors, the World Bank, the IMF and relevant other UN agencies and 
above  all  the  countries  concerned,  around  a  set  of  approaches  and  activities  to  address  the 
problems of the cotton sector. 

5 

 
 
  
 
3. 

OUTLINE OF A PARTNERSHIP IN FAVOUR OF THE COTTON ECONOMIES IN AFRICA. 

3.1. 

Obtaining fairer international trade conditions on the cotton market. 

3.1.1.  Action within the agricultural negotiations of WTO 

The European Commission (EC) supports an effective and specific solution within the WTO 
agricultural  negotiations.  Only  within  this  framework  will  all  WTO  members  be  able  to 
engage in negotiations on the basis of their respective interests and therefore be likely to find 
a balanced solution that will also do full justice to the cotton issue.  

Being integrated within agricultural negotiations will however not mean that the specificity of 
the  cotton  issue  is  lost.  On  the  contrary,  the  EC  considers  that  cotton  negotiations  could  be 
given the specific attention they deserve and the results could be made subject to specific time 
frames for implementation where appropriate. 

The  EC  does  not  support  the  concept  of  financial  compensation  as  put  forward  by  Benin, 
Burkina  Faso,  Mali  and  Chad  at  WTO,  because  this  is  not  foreseen  under  WTO  rules. 
However, the EC proposes a comprehensive set of initiatives containing elements on market 
access, export competition and internal support.  

3.1.2.  Market access 

Enhanced market  access is  the backbone of any  trade related package of activities. Without 
unrestricted  and  complete  market  access  to  all  major  markets,  the  opportunities  for  existing 
and  potentially  expanded  cotton  production  in  Africa  will  remain  limited.  The  European 
Commission  considers  that  all  developed  countries  should,  as  a  minimum  commitment, 
follow the example set by the EU under its “Everything but Arms” (EBA) scheme and fully 
open their markets to all products, including cotton and cotton based products, from all LDC. 
In fact the EU is one of the main import markets for African cotton. There can be no doubt 
that the future opening of other important developed markets to LDCs and others will provide 
significant additional market opportunities for cotton producing and exporting countries. 

In addition it needs to be taken into account that the most dynamically growing markets are 
nowadays to be found in the more advanced developing countries. In fact the South and East 
Asian  economies  become  increasingly  important  as  cotton  importers.  Therefore,  a 
contribution from these countries is also of utmost importance and they should as a minimum 
provide unrestricted access for cotton from the Least Developed Countries.  

Tariff  escalation,  i.e.  increasing  tariffs  with  increasing  degree  of  processing,  makes  the 
development  of  industrial  processing  chains  in  raw  material  producing  countries  more 
difficult.  Tariff  escalation  hence  negatively  affects  the  opportunities  to  develop  a  textiles 
industry based on locally produced cotton. While the EU, under its preferential trade regime 
has  granted  fully  unrestricted  market  access  for  all  textiles  and  related  products  from  ACP 
countries,  the  phenomenon  of  escalation  still  exists  in  other  major  markets.  The  European 
Commission  will  support  efforts  aimed  at  addressing  the  problem  in  the  relevant  non 
agricultural market access negotiations. At the same time, general liberalisation under WTO 
may erode the preferences where they are enjoyed by developing country cotton producers. In 
cases in which this will pose a challenge for African countries the European Commission will 
also support its consideration in the negotiations. 

6 

 
 
  
 
3.1.3.  Export competition 

Export  subsidisation  by  powerful  competitors  can  impair  the  competitiveness  of  products 
from  developing  countries  such  as  African  cotton  and  undermine  their  success  in  export 
markets.  Within  the  negotiations  in  WTO  all  forms  of  subsidies  granted  for  the  export  of 
cotton  have  to  be  put  on  the  table  for  reduction,  be  they  applied  within  explicit  and  easily 
recognizable  schemes  or  be  they  implicitly  integrated  within  the  framework  of  other 
mechanisms such as subsidised export credits. The European Union does not apply any forms 
of  export  subsidies  to  cotton,  but  other  major  producers  such  as  the  United  States  do.  The 
Commission  believes  that  all  of  them  have  to  be  eliminated  for  products  of  interest  to 
developing countries like cotton. It will work towards this goal within the DDA to create as 
much as possible a level playing field for African cotton exporters.  

3.1.4.  Domestic support 

As regards domestic support to the sector, subsidies linked to production can have a distorting 
effect on markets since they can lead to increased production and exports. These effects are to 
the  potential  disadvantage  of  those  producers  in  poorer  countries  that  do  not  benefit  from 
equivalent levels of support. Therefore, an effective package of activities in favour of African 
cotton  producers  should  also  focus  on  the  substantial  reduction  of  those  components  of 
domestic support for cotton that distort markets and trade. The European Commission intends 
to work towards that goal within the agricultural negotiations of the DDA.  

As has been mentioned, the EU accounts just for 2% of global production and has hence only 
a marginal influence on the formation on world prices. Nevertheless, in order to reduce any 
impact,  the  European  Commission  has  recently  proposed  to  de-couple  60%  of  its  domestic 
support from production, i.e. grant it as direct income payment to farmers, that is, unrelated to 
production levels. The European Commission urges the Council and Parliament to lend their 
full support to the measures proposed with a view to securing their rapid approval and faithful 
implementation.  Within  DDA,  the  European  Commission  will  work  towards  securing  a 
commitment from major cotton producing countries currently applying production distorting 
support to undertake reforms similar to those enacted by the EU.  

In  addition,  the  European  Commission  will  establish  a  mechanism  that  will  allow  it  to 
monitor  the  impact  of  its  subsidy  schemes  and  reform  measures  on  cotton  production  and 
trade and invites all major players in cotton markets granting domestic support to follow the 
idea. This will help to increase the transparency of any effects on international markets and 
trade and will assist in assessing the need for further reform measures. 

3.1.5.  Trade related technical assistance – helping developing cotton producers to defend 

their interests. 

Finally, it is obviously important to support African countries in identifying, presenting and 
defending  their  cotton  related  interests  in  the  multilateral  trade  context.  The  EC  therefore 
intends  to  allocate  appropriate  resources  to  these  issues.  Funding  for  trade  related  technical 
assistance  and  capacity  building  is  currently  available  under  the  €10  million  WTO  Support 
Facility  and  the  €20  million  EPA  Support  Facility.  In  addition,  a  new  €50  million  trade 
related assistance facility has been recently approved and can also be used to contribute in this 
regard.  Furthermore,  various  activities  undertaken  by  the  EU  Member  States  have  also 
assisted in strengthening the trade related capacity of the African cotton producing countries 
and will continue to do so.  

7 

 
 
  
 
3.2. 

Supporting cotton producing countries and regions in Africa  

As  outlined  in  the  Commission  Communication  on  “Agricultural  Commodity  Chains, 
Dependence and Poverty”, the overall objectives of a plan to support commodity dependent 
developing  countries  should  be  to  improve  income  for  producers  and  reduce  income 
vulnerability,  at  both  producer  and  macro  level.  The  main  lines  of  action  for  that  purpose 
emphasise developing national and international commodity strategies, coping with long term 
price  decline,  managing  commodity  risks  and  accessing  finance,  diversifying  around 
traditional  commodities,  successfully  integrating  with  the  international  trading  system,  and 
enhancing  sustainable  corporate  practices  and  investments  in  commodity  dependent 
developing countries. 

3.2.1.  Consolidating the competitiveness of African cotton economies 

3.2.1.1.  Main elements for supporting cotton producing regions. 

Improvements in the cotton economies of African countries are part of wider developmental 
issues and should as such be anchored in development plans of countries and regions (and in 
particular linked to the fight against poverty and the related Poverty Reduction Strategy). In 
this  framework,  there  is  an  essential  need  for  national  ownership  of  any  programme  to 
consolidate the cotton sector. 

The main aims of such a programme are presented hereafter. These elements apply more or 
less  to  different  countries  and  regions,  depending  on  their  specific  conditions.  They  are  not 
necessarily  exhaustive,  and  should  be  adapted  on  a  national  basis.  In  particular  in  terms  of 
timing, the state of advancement of the sectoral reforms, which most countries are engaged in, 
means priorities among interventions may vary. 

– 

– 

At the level of cotton growing regions and countries: update and actively stimulate 
the implementation of comprehensive plans for sustainable development of cotton 
areas. This requires considering the more general framework of regional as well as 
local  development,  with  due  respect  for  environmental,  social  and  health  issues. 
Essential  elements  of  that  framework  include  appropriate  infrastructure,  as  well  as 
decentralised  administrative  and  management  capacity,  but  above  all  strengthened 
governance at all levels.  

In  addition,  as  the  rural  economies  in  which  the  cotton  sector  is  inserted  are  made 
vulnerable,  in  some  cases,  by  excessive  dependency  on  a  single  commodity,  a 
comprehensive  approach  to  the  development  of  such  regions  should  include 
supporting  options  for  diversification  around  the  cotton  sector  in  the  medium  and 
long term. Diversification options relevant for poverty reduction could be researched 
both  in  staple  crops  and  in  emerging  or  more  traditional  cash  crop  sectors,  which 
would  complement  cotton  production.  Support  to  diversification  can  take  place  in 
particular  in  the  fields  of  private  sector  support,  technological  innovation,  and 
strategy development at government level. 

At the level of the cotton specific policy and institutional environment (at in-country 
regional, national and regional scale): strengthen the development of cotton related 
policies and institutions, which enable sectoral reforms aiming notably at securing 
farmers’  interests  and  at  stimulating  private  sector  development,  while  ensuring 
complementarity of involvement of the public sector. Policies (amongst which price 
policies)  should  be  based  on  a  thorough  knowledge  of  the  sector  and  its  national 

8 

 
 
  
 
specificities. There is a general recognition that removing the remaining institutional 
bottlenecks  in  the  cotton  sector  in  several  countries  could  bring  about  important 
efficiency gains. This refers to institutions at all levels of the chain (strong producer 
organisations, an efficient industrial sector, focussed public sector interventions), as 
well  as,  at  a  general  level,  effective  labour  market  institutions.  Functional 
institutional arrangements are needed to ensure the provision of essential services to 
the sector (financing, advice, inputs, marketing, etc.). Interprofessional bodies, with a 
balanced representation of all parts of the chain, have an important role to play in the 
development of the sector; their functioning should therefore be strengthened. 

At  the  level  of  the  cotton  chain:  encourage  investments  in  chain  integration 
activities.  This  includes  the  development  of  vertical  diversification  and  industrial 
processing, to increase the added value of cotton products from the African region, 
ensuring  adequate  sharing  of  benefits  across  the  chain.  The  opportunities  for  the 
latter  should  be  explored  and  developed  in  a  regional  perspective,  building  on 
comparative  advantages  of  the  different  countries.  Potential  developments  should 
also take into account the trends of the international trading environment of textiles, 
and  focus  on  specific  regional  and  export  markets.  Specific  markets  (such  as  fair 
trade  and  organic  cotton),  which  open  opportunities  for  added  value  on  the  cotton 
market, also need to be approached from a chain perspective. 

including  at  small  holder 

At the level of cotton producers: favour technological innovation and adaptation in 
the  African  cotton  sector, 
level.  Maintaining 
competitiveness  will  require,  in  line  with  major  international  producers,  reducing 
production costs, limiting environmental impacts and upgrading quality of output and 
work.  Developing  specific  products,  such  as  organic  and  fair  trade  cotton,  also 
requires  specific  technical  and  managerial  skills.  Research  has  an  important  role  to 
play  in  this  perspective,  as  well  as  regulatory  developments,  training,  and  the 
efficient supply of services and inputs to producers. 

At  the  level  of  the  international  cotton  market:  promote  the  consolidation  of 
international market shares of African cotton, notably through quality recognition. 
This  requires 
the 
establishment of a Universal Cotton Classification System, with participation of the 
African cotton sector, as well as ensuring implementation capacity of such a scheme 
in Africa. 

to  differentiate  fibre  qualities,  supporting 

in  particular, 

– 

– 

– 

3.2.1.2.  Valorising the EPAs for the development of the cotton economies 

The  EU  is  currently  engaging  in  negotiations  with  ACP  regions  on  the  establishment  of 
Economic  Partnership  Agreements  (EPAs).  These  negotiations  are  meant  to  instrumentalise 
trade  for  development.  They  hence  provide  an  ideal  opportunity  to  also  support  the 
development of the cotton sector within the framework of these negotiations. EPAs combine 
market  access  issues  with  provisions  on  all  relevant  trade  related  areas,  regional  integration 
and  complementary  development  co-operation  activities.  Since  there  is  already  full  market 
access  in  the  EU  for  cotton  and  textiles  from  the  ACP,  the  EPA  process  can  not  add  any 
further  opportunities  in  this  respect,  although  it  can  offer  wider  market  access  in  other 
products which should support diversification. Furthermore as regards trade related areas and 
regional  integration,  the  EPA  process  can  be  instrumentalised  to  assist  in  enhancing  the 
competitiveness and prospects of the cotton sector.  

9 

 
 
  
 
Thus attention will be devoted to identifying and agreeing on appropriate solutions in the area 
of  trade  facilitation  and  investment  clauses.  Landlocked  cotton  producing  countries  for 
example  stand  to  benefit  from  regional  solutions  on  transit  within  the  context  of  trade 
facilitation arrangements, while greater predictability and credibility of investment protection 
in conjunction with harmonised regional markets will help to attract direct investment, foreign 
or local. Using the mechanism of regional preparatory task forces, it is foreseen to link and 
support  the  actual  establishment  and  utilisation  of  these  provisions  through  related 
development co-operation activities. 

3.2.2.  Elaborating a framework to mitigate the effects of price volatility.  

Price volatility is recognised to be one of the main causes of difficulties for cotton producers 
and cotton dependent economies. The proposed partnership in support of the development of 
the cotton sector should thus provide an innovative framework to address the consequences of 
this problem, in particular by means of: 

– 

– 

– 

Providing  support  to  access  market-based  mechanisms  to  manage  the  revenue 
risk  of  cotton  producers,  notably  via  the  ginners.  A  first  line  of  support  includes 
capacity  building  and  technical  assistance  and  should  take  into  account  the 
experience of the World Bank Commodity Risk Management initiative, which aims 
at bringing the potential buyers of the risk instruments into contact with international 
providers,  with  a  focus  on  commodities  with  a  clear  link  to  poverty  reduction.  A 
second  line  of  support  could  be  explored,  namely  the  potential  for  a  regional 
insurance fund to back the market based instruments. 

Mobilising  the  international  financial  institutions  (IMF,  World  Bank,  etc.)  to 
integrate  commodity  shock  provisions  into  their  current  mechanisms  (e.g.  Poverty 
Reduction  Growth  Facility,  Poverty  Reduction  Strategy  Credit,  Compensatory 
Finance  Facility).  These  should  consider  the  type  of  possibility  included  in  the 
Highly Indebted Poor Countries Initiative, which foresees additional debt alleviations 
in case of external shocks leading to a degradation of exports earnings. 

Revising the FLEX instrument, in order to facilitate the access of ACP countries to 
this  mechanism,  in  support  of  national  budgets,  in  case  of  significant  losses  in 
government revenues due to a shortfall in export earnings. The Commission intends 
to  propose  in  May  2004  to  the  ACP-EC  Council  of  Ministers  the  appropriate 
amendments to Annex II of the Cotonou Agreement, so as to allow for applicability 
of the new conditions already for cases corresponding to 2003.  

4. 

IMPLEMENTATION CONSIDERATIONS AND SOURCES OF FUNDING 

The  process  of  defining  the  scope  and  measures  of  the  partnership  will  require  the  input  of 
Member  States  and  especially  of  the  concerned  cotton  producing  African  countries 
themselves.  The  EC  will  pay  special  attention  to  co-ordinating  its  activities  closely  with 
Member  States  and  other  actors  such  as  the  World  Bank  and  the  IMF,  thereby  seeking 
synergies  and  complementarities  of  action.  In  this  perspective,  appropriate  consultation  and 
coordination  actions  will  be  carried  out.  Amongst  other  things  in  the  first  half  of  2004  the 
European  Commission  intends  to  organise  a  seminar  on  the  issues  concerned  involving  all 
stakeholders together with interested Member States. 

10 

 
 
  
 
As a concrete step towards implementation of the above programme in particular as it relates 
to  its  development  co-operation  elements,  the  European  Commission  proposes  to  establish 
cotton task forces for the regions concerned consisting of representatives of governments, the 
Commission and other relevant stakeholders with a view to discussing, encouraging and co-
ordinating activities taking into account the existing processes and interventions. These task 
forces could meet as subgroups of the Regional Preparatory Task Forces currently being set 
up  in  the  various  ACP  regions  to  ensure  the  linkage  between  the  EPA  process  and 
development co-operation. 

As  the  present  initiative  is  proposed  in  the  form  of  a  partnership  between  the  EU  and  the 
concerned countries and regions of Africa, the concept of joint efforts in favour of the cotton 
sector  is  at  the  heart  of  the  scheme.  This  means  that  the  concerned  countries  concretely 
demonstrate their commitment to the development of their cotton sector, in particular in the 
framework of national policies, budget allocations and aid programming exercises.  

As  regards  the  funding  of  activities  in  support  of  African  cotton,  the  partnership  relies  on 
important instruments and facilities already in place. Together with the countries concerned, 
these  can  be  re-focussed  and  used  towards  supporting  cotton  producing  regions.  As  regards 
directly trade related assistance needs concerning the cotton issue (consultation, definition of 
positions,  advice,  negotiations  etc.),  as  mentioned  above,  the  €  10  million  WTO  support 
facility, the € 20 million EPA support facility and the forthcoming € 50 million Trade.Com 
facility are available.  

With regard to wider development support for cotton, the existing funding from national and 
regional  indicative programmes  under the European Development  Fund (EDF) can be  used. 
The mid-term review of the different ACP country strategies and programmed allocations will 
take  place  in  2004.  It  will  be  an  important  opportunity  for  the  concerned  countries,  in 
partnership with the European Commission, to revisit the currently existing funding priorities 
(under  the  so  called  “A  envelope”)  and  where  necessary  attach  greater  priority  to  cotton 
related themes such as agriculture and rural development taking into account that the overall 
envelope  for  particularly  performing  countries  will  be  increased.  If  these  funds  are  not 
sufficient,  a  further  possibility,  under  circumstances  still  to  be  discussed  and  agreed,  could 
involve  drawing  on  the  additional  envelope  allocated  to  each  country  for  unforeseen  needs 
(“B envelope”), beyond the use of FLEX. 

At  regional  level,  the  Regional  Indicative  Programmes  foresee  allocations  for  regional 
integration, including trade, as focal sectors, which can be used in favour of the cotton sector. 
This could be done in particular in close co-ordination with the related activities under EPA 
and, of course, the national actions. The Commission intends to propose securing additional 
funding for cotton under the so called “intra ACP Co-operation” facility.  

As regards the issue of price volatility, the foreseen revision of conditions for the applicability 
of the FLEX mechanism will lead to additional budgetary support to help countries face the 
consequences, at the level of State budget, of a fall in export earnings. 

Member States and other donors’ contributions can also be expected and will be part of the 
co-ordination exercise.  

11 

 
 
  
 
Annex: Facts and Figures on World Trade in Cotton 

2001-2002 

Production 

‘ Exports 

Imports 

‘ 

000 T 

World 
West and 
Central Africa 
Other ACPs 
EU 
Brazil 
China 
USA 
India 
Pakistan 
Uzbekistan 
Australia 
Rest of World 

21414 
1098 

283 
563 
766 
5313 
4421 
2678 
1807 
1067 
697 
2721 

% world 
production 
‘
5,1%

1,3%
2,6%
3,6%
24,8%
20,6%
12,5%
8,4%
5%
3,3%
12,7%

000 T 

000 T 

‘
801

183
295
147
74
2395
13
35
740
664
966

‘
16

5
784
55
98
5
381
218
0
0
4850

Net 
Exporter 
000 T 

‘ 
785 

178 
-489 
92 
-24 
2390 
-368 
-183 
740 
664 
-3884 

Source: Foreign Agriculture Service (FAS)-online 

Importance of cotton to West and Central Africa  

•  In  2001-2,  West  and  Central  Africa  produced  1.1m  tonnes,  representing  5.1%  of  world 

production and exported 801 000 tonnes of cotton, representing 12.7% of world trade. 

•  During  the  period  1998-99,  cotton  represented  30%  of  Mali’s  total  exports,  40%  of 

Benin’s, 33% of Chad’s and 44% of Burkina Faso’s. 

EU market  

•  In 2001-2, EU production accounted for 2.6% of world production and EU exports account 

for 4.7% of world cotton exports. 

•  The EU is a net cotton importer and the world largest importer of cotton. About a third of 

its imports came from West and Central Africa in 2002.  

•  Between 20% and 80% of cotton exports from Mali, Benin, Burkina Faso and Chad reach 

the EU 

12