Commission staff working document - Accompanying document to the Proposal for a Council Regulation amending Regulation (EC) No 1782/2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers, as regards the support scheme for cotton - Cotton Impact Assessment {COM(2007) 701 final} {SEC(2007) 1482}
Date: 2007-11-09
Institutions: European Commission
Subjects: aid to agriculture, common agricultural policy, common organisation of markets, cotton, impact study, producer organisation

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 9.11.2007 
SEC(2007) 1481 

COMMISSION STAFF WORKING DOCUMENT 
Accompanying document to the 

Proposal for a 
COUNCIL REGULATION 
amending Regulation (EC) No 1782/2003 establishing common rules for direct support 
schemes under the common agricultural policy and establishing certain support schemes 
for farmers, as regards the support scheme for cotton 

Cotton Impact Assessment 

{COM(2007) 701 final} 
{SEC(2007) 1482} 

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TABLE OF CONTENTS 

1. 

2. 

2.1. 

2.2. 

2.3. 

3. 

3.1. 

3.2. 

3.3. 

4. 

4.1. 

4.2. 

4.3. 

PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES ..............................5 

PROBLEM DEFINITION ...................................................................................................6 

The cotton regime and its reform .................................................................................7 

The annulment of the 2004 reform ...............................................................................8 

Considerations for the new regime...............................................................................9 

GENERAL OBJECTIVES OF THE COTTON REGIME ...........................................................11 

Origins of the cotton regime.......................................................................................11 

CAP reform.................................................................................................................11 

The objectives of the reformed cotton regime............................................................12 

POLICY OPTIONS..........................................................................................................12 

Production Aid Option (Pre-Reform scenario)...........................................................12 

Mainly Decoupled Option (2004 Reform scenario) ...................................................13 

Full Decoupling Option ..............................................................................................14 

5. 

ANALYSIS OF IMPACTS ................................................................................................14 

5.1. 

Economic impact ........................................................................................................14 

5.1.1.  Methodological considerations...................................................................................14 

5.1.2.  Economic assessment of the Production Aid Option (Option 1)................................16 

5.1.2.1.  Farm level ...................................................................................................................16 

5.1.2.2.  Ginning industry .........................................................................................................18 

5.1.3.  Economic assessment of the Mainly Decoupled Option (Option 2) ..........................18 

5.1.3.1.  Farm level ...................................................................................................................18 

5.1.3.2.  Ginning industry .........................................................................................................21 

5.1.3.3.  Sensitivity analysis of Partial Coupling......................................................................24 

5.1.3.4.  Quality and the obligation to harvest..........................................................................26 

5.1.4.  Economic assessment of the Full Decoupling Option (Option 3) ..............................27 

5.1.4.1.  Farm level ...................................................................................................................27 

5.1.4.2.  Ginning industry .........................................................................................................28 

5.1.5.  Assessment of the impact of each option on Family Farm Income............................29 

5.2. 

Environmental Impact ................................................................................................30 

5.2.1.  Environmental impact of cotton production...............................................................30 

5.2.2.  Environmental impact of alternative crops.................................................................31 

5.2.3.  Environmental assessment of the Production Aid Option (Option 1) ........................32 

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5.2.4.  Environmental assessment of the Mainly Decoupled Option (Option 2)...................33 

5.2.5.  Environmental assessment of the Full Decoupling Option (Option 3) ......................33 

5.2.6.  Environmental impact of the ginning industry ...........................................................34 

5.3. 

Social Impact ..............................................................................................................34 

5.3.1.  Employment in the cotton sector ................................................................................34 

5.3.2.  Social Assessment of the Production Aid Option (Option 1).....................................35 

5.3.3.  Social Assessment of the Mainly Decoupled Option (Option 2) ...............................36 

5.3.4.  Social Assessment of the Full Decoupling Option (Option 3) ...................................36 

5.3.5.  Social impact and rural development .........................................................................36 

5.4. 

Impact on International Relations...............................................................................38 

5.4.1.  Background.................................................................................................................38 

5.4.2. 

Impact of the reform options ......................................................................................38 

5.5. 

5.6. 

5.7. 

6. 

7. 

Impact on the EU Budget ...........................................................................................39 

Impact on Administrative Costs and Simplification...................................................39 

Governance and Participation.....................................................................................41 

COMPARISON OF OPTIONS ...........................................................................................42 

MONITORING AND EVALUATION ..................................................................................46 

7.1. 

Monitoring in the cotton sector ..................................................................................46 

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LIST OF ACRONYMS 

AWU 

CAP 

CMO 

Annual Work Unit 

Common Agricultural Policy 

common market organisation 

DG AGRI 

Directorate-General for Agriculture and Rural Development 

EAGF 

EAFRD 

EU 

FADN 

FNVA 

ISG 

MS 

NGQ 

RD 

SFP 

SPS 

UAA 

WTO 

European Agricultural Guarantee Fund 

European Agricultural Fund for Rural Development 

European Union 

Farm Accountancy Data Network 

Farm Net Value Added 

Inter-Service Steering Group 

Member States 

National Guaranteed Quantity  

Rural Development 

Single Farm Payment 

Single Payment Scheme 

Utilised Agricultural Area 

World Trade Organisation 

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1. 

PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES 

Work  on  the  impact  assessment  for  the  reform  of  the  cotton  regime  was  carried  out  by  a 
European  Commission  Inter-Service  Steering  Group  (ISG)  set  up  by  DG  AGRI  in  October 
2006. The first meeting of the ISG took place on 20 December 2006.  

Thirteen Directorates-General (DGs) of the European Commission were invited to participate 
in the work of the Group1, and the following DGs were actively involved in the exercise: the 
Secretariat-General  (SG),  Environment  (ENV),  Development  (DEV),  Budget  (BUDG), 
Employment,  Social  Affairs  and  Equal  Opportunities  (EMPL),  Economic  and  Financial 
Affairs (ECFIN), Trade (TRADE) and the European Anti-Fraud Office (OLAF). 

The work on the impact assessment was carried out between October 2006 and October 2007, 
during  which  the  ISG  held  a  number  of  meetings2.  First,  the  current  situation  of  the  cotton 
sector  was  analysed  in  depth  and  the  main  problems  arising  from  the  cotton  regime  were 
assessed. The group then identified the objectives of the cotton regime and alternative policy 
options to achieve those objectives. Finally, the economic, environmental and social impacts 
of the policy options were carefully evaluated. 

In  conducting  this  Impact  Assessment  account  has  been  taken  of  ideas  and  opinions  put 
forward by stakeholders in the course of the consultations outlined below3. 

In  addition  to  regular  monthly  meetings  with  MS  representatives  in  the  framework  of  the 
Management  Committee  for  Natural  Fibres,  as  well  as  meetings  with  the  Cotton  Advisory 
Group  on  2  June  2006,  27  October  2006,  27  April  2007  and  3  July  2007,  the  Commission 
services organised a series of consultations.  

Workshops on specific issues were organised in cooperation with Commission DGs: 

•  on  25  May  2007,  DG  DEV  organised  a  meeting  with  development  NGOs,  to  present 
possible  scenarios  for  the  future  reform.  Questions  raised  by  NGOs  included  the 
implications  of  the  reform  for  the  WTO  negotiations  and  the  consequences  of  different 
policy measures for farmers and ginners; 

•  on  21  June  2007,  DG  EMPL  organised  a  meeting  on  cotton,  during  which  workers' 

representatives highlighted the main concerns of employees in the sector; 

•  on  10  July  2007,  DG  AGRI  organised  a  stakeholder  meeting  on  environmental  issues 
related to  cotton production, discussing questions such as water availability, fertiliser and 
pesticide use, rotation systems and agri-environmental support.  

For the purpose of the Impact Assessment two independent studies were commissioned from 
external consultants. On 2 February 2007 a contract was signed with LMC International Ltd 
(LMC) to prepare a report on the socio-economic situation of the cotton sector; the final report 
was  submitted  on  2  July  2007.  The  contract  for  the  second  study,  concerning  the 
environmental  aspects  of  cotton  production,  was  signed  with  Alliance  Environnement 
(regrouping  the  Institute  for  European  Environmental  Policy  and  Oréade  Brèche)  on 
20 February 2007; the final report was submitted on 27 July 2007. 

1 
2 
3 

See Annex 1. 
Idem. 
Full details of the stakeholder consultations are given in Annex 2. 

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On  17  April  2007,  a  delegation  from  the  Junta  de  Andalucía  presented  their  position  on  the 
future  reform  of  cotton  market  to  members  of  the  ISG.  On  8  June  2007,  Professor  Stelios 
Rozakis from the University of Athens presented the results of a quantitative analysis of Greek 
cotton production. 

On  8  May  2007,  in  order  to  gather  contributions  from  a  broad  range  of  individuals  and 
organisations  with  an  interest  in  the  EU  cotton  policy,  DG  AGRI  launched  an  Internet 
consultation. This included various types of questions, aimed at a general public as well as at a 
more  specialised,  expert  community.  The  results  of  this  consultation4  have  been  treated  as  a 
supplementary source of information. 

A  number  of  submissions  on  the  cotton  reform  were  received  directly  from  stakeholders. 
These included, in particular, Spanish associations of ginners, farmers and cooperatives5 and 
the Greek Panhellenic Union of Cotton Ginners and Exporters. 

On 7 September 2007 the Impact Assessment Board issued its opinion (see Annex 12) on the 
draft  text  of  this  document.  In  order  to  take  account  of  their  remarks  a  number  of 
modifications were introduced.  

2. 

PROBLEM DEFINITION 

When  Greece  acceded  to  the  EC,  they  requested  that  support  should  be  given  for  cotton,  as 
this was had an important role in the agricultural economy of some regions. As cotton was not 
considered  an  agricultural  product  (and  therefore  not  listed  in  Annex  I  of  the  EC  Treaty),  a 
specific support regime for cotton was written into the Greek Treaty of Accession as Protocol 
No 4. This was later extended to Spain and Portugal when they joined the EC. 

As the support scheme for cotton was so favourable, it led to a large increase in cotton areas, 
even  in  regions  where  cotton  had  previously  not  been  grown.  Since  1980,  while  the  CAP 
gradually evolved towards a market-orientated approach, based on income support, the cotton 
support regime remained largely unchanged. 

For  this  reason,  in  2004  the  Commission  decided  to  review  the  regime  and  align  it  with  the 
principles  of  the  new  CAP,  while  respecting  the  Protocol.  As  a  result,  aid  was  partly  (65%) 
decoupled. A coupled part (35%) was maintained to  respect  the provisions  of  the  Accession 
Protocol. However, the 2004 cotton reform, with the ratio 35% – 65%, was contested by Spain 
and the Court of Justice annulled it. 

The  central  issue  addressed  by  this  Impact  Assessment  is  the  need  to  find  an  appropriate 
balance between respect for the Protocols6 agreed when the cotton-producing Member States 
acceded to the EC and the progressive move to decoupled support initiated by the reform of 
the common agricultural policy in 2003. In doing so, the Impact Assessment will answer the 
points raised by the Court of Justice in its ruling. 

4 
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6 

See Annex 2 and the full results, provided in a specific report. 
A  joint  position  paper  from  ADESUR  AEDA,  COAG  and  CCAE,  transmitted  to  the  Commission  on 
22 June 2007 and a separate submission from ASAJA dated 27 July 2007. 
Protocol  4  on  cotton  annexed  to  the  Act  of  Accession  of  Greece,  OJ L 291  of  19.11.1979  p. 174; 
extended  to  Spain  and  Portugal  by  Protocol  No 14  annexed  to  the  Act  of  Accession  (OJ L 302, 
15.11.1985, p. 436). For Bulgaria, although support for cotton is included in the SAPS regime currently 
applied,  Article  110a  of  Regulation  (EC)  No 1782/2003  provides  for  a  base  area  and  amount  for  the 
crop-specific payment for Bulgaria. 

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The EU Cotton Sector  

Cotton Production 

Until  2006,  cotton  was  produced  in  four  Member  States  -  Greece,  Spain,  Portugal  and 
Bulgaria. 

The EU-15 cotton area grew steadily until the end of the 1990s, peaking at almost 540 000 
hectares in 1999/2000. Since then it has stabilised at 450 000 hectares. 

Greece is the largest producer in the  Community (381 586  ha in 2006)  with  79 700 cotton 
farmers, mainly in three regions (Makedonia, Thessalia and Sterea Ellada). Cotton accounts 
for 9.1% of final Greek agricultural output. Most farmers grow between 2 and 5 hectares of 
cotton. 

Cotton is grown on good arable land. Over 99% of Greek cotton uses irrigation. 

In  Spain  cotton  is  grown  mainly  in  Andalucia  by  about  9 500  farmers.  Within  Andalucia 
cotton accounts for 4.9% of final agricultural output. In 2006 aid was claimed for 62 839 ha. 

Most  Spanish  farmers  grow  less  than  10  hectares  of  cotton,  but  5%  cultivate  over 
50 hectares. Over 95% is grown with the help of irrigation. 

The main competing crops are cereals, particularly wheat and maize; also sunflowers. 

In  both  countries,  cotton  mainly  uses  family  labour  and  requires  slightly  more  labour  per 
hectare than the alternative crops. 

Cotton Ginning 

Given the relatively high cost of transport, the ginning industry is only interested in locally 
grown unginned cotton. In both Greece and Spain, ginners are specialised and derive most of 
their income from ginning. In Greece, some ginners also crush cottonseed to produce oil and 
meal. 

73 ginning mills were active in Greece in 2005/06; this suggests that total employment in the 
sector is around 3 000 workers (730 full time and 2 200 part time). 

27 ginning mills were active in Spain in 2005/06. Total employment in the Spanish ginning 
industry is estimated at 1 350 jobs – 290 permanent and 1 060 seasonal employees. 

2.1. 

The cotton regime7 and its reform 

The first common cotton regime was set up with the accession of Greece to the EC in 1980, 
then  extended  to  Spain  and  Portugal  in  1986  and,  most  recently,  to  Bulgaria.  Protocols 
annexed  to  the  Accession  Treaties  state,  inter  alia,  that  the  Community  shall  ensure  the 
support of cotton production in the regions where it is important for the agricultural economy, 
by the "grant of an aid to production". 

7 

A presentation of the main features of the EU's economic policy for cotton is provided in Annex 4. 

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Originally, the regime was based on a "deficiency payment", comprising an aid per tonne of 
unginned cotton, granted to processors who paid a minimum price to the farmers that supplied 
them.  The  aid  and  minimum  price  were  fixed  periodically  on  the  basis  of  the  difference 
between an internal target price, “the guide price”, and the world market price. 

Since  accession,  Greece  has  experienced  a  165%  increase  in  its  cotton  area,  while  cotton 
production more than tripled. Spain has seen a relatively smaller increase, with a 45% growth 
in cotton area and a 62% increase in cotton production. So it is clear that the regime did more 
than ensure the continuation of cotton production; it prompted a substantial expansion of the 
cotton area, cotton production and the processing activity.  

The regime was complex to manage and control. More importantly, it was out-of-line with the 
ongoing  process  of  CAP  reform,  whose  main  guiding  principle  is  to  move  away  from  price 
and production support to income support. 

In April 2004, in order to bring it in line with other sectors, the Council adopted a new regime 
for cotton, based on a decoupled income aid and a crop specific (area) payment. The total aid 
of € 803 million for cotton growers was split into four elements: 

•  65% for the decoupled payment (approximately €562 million) 

•  35% for the crop specific area payment (approximately €275 million) 

•  €22 million for the rural development of the regions concerned 

•  €4 million for the creation of Inter-branch Organisations. 

Payments are no longer made via the ginning industry but directly to the farmer. The coupled 
payment is subject to a base area and payable on the opening of the boll, rather than linked to a 
selling obligation. 

Member States can also decide to deduct up to 10% of the decoupled payment and redistribute 
it as an additional crop-specific payment for cotton that meets a minimum quality standard8.  

2.2. 

The annulment of the 2004 reform 

On  7  September  2006,  the  European  Court  of  Justice  annulled  the  2004  cotton  reform9, 
following a legal challenge made by the Spanish Government. 

In its ruling, the Court did not question the nature of the reform, but it did query the way it was 
prepared and adopted. As the Court considered that the Council had failed to take into account 
all the relevant factors and circumstances when deciding the reform, the Court annulled it. In 
particular, it ruled that the Council had not given sufficient consideration either to the labour 
costs linked to cotton growing or to the viability of the ginning industry following the reform. 
The  Court  ruled  that  the  new  regime  should  continue  to  apply  until  a  new  regulation  was 
adopted, "within a reasonable time". 

8 
9 

Article 69 of Regulation (EC) No 1782/2003. 
Established  by  Chapter  10a  of  Title  IV  of  Council  Regulation  (EC)  No  1782/2003,  amended  by 
Article 1(20) of Council Regulation (EC) No 864/2004. 

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The  ruling  of  the  European  Court  of  Justice  was  based  on  the  infringement  of  the 
proportionality principle, in that: 

•  the EC failed to carry out an impact study;  

•  the EC failed to consider family labour costs in the evaluation and decision process10; 

•  The  EC  failed  to  take  into  consideration  the  impact  of  the  new  regime  on  the  ginning 
industry, which, although not included in the Protocol, is directly linked to the business of 
cotton production.  

Consequently,  particular  attention  was  paid  to  the  latter  two  questions  in  the  course  of  the 
impact analysis. 

2.3. 

Considerations for the new regime 

The  objective  of  the  Impact  Assessment  is  to  allow  a  coherent  decision  to  be  made  for  the 
future  of  the  cotton  regime.  This  must  strike  a  fair  balance  between  the  Community's 
obligations under the Accession Protocols – to support cotton production in the regions where 
it  is  important  for  the  agricultural  economy,  by  granting  production  aid  –  and  the  need  to 
integrate cotton into the CAP reform process, which is oriented towards decoupled payments 
that support farm incomes rather than any particular production. 

Any change in the cotton regime will have an impact on cotton farmers, ginners and labourers 
(including seasonal labour). 

As  cotton  production  is  concentrated  in  a  few  regions  of  the  EU,  the  social  and  economic 
impact of the reform are limited to those areas. 

Given that EU cotton production is very small, its global impact is very limited. 

10 

The Spanish government’s contention was that, in calculating the viability of cotton production, on the 
revenue  side  only  the  coupled  portion  of  the  aid  should  be  considered  and,  in  the  calculation  of 
production costs, direct labour costs should be included. 

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Volume/Value 

Trend  
↓ → ↑ 

Table 1: The cotton economy of the European Union 

Cotton  production  as  %  of  the 
value of EU agriculture output 
EU cotton production of which 
Greece 
Spain 
as % of world production 

Apparent consumption 
Trade 
imported into EU 
exported by EU 

World average price  
(CIF North Europe) 
Area: 
Greece 
Spain 
Portugal 
Bulgaria 
as % of total UAA of EU 
as % of world cotton area 
Number of holdings  
Greece 
Spain 
Average yield  
Greece 
Spain  
Average cotton area per farm  
Greece 
Spain 
Number of ginners 
Greece 
Spain 
Turnover of ginning sector 

Year 

2006 
2006 

2006 
2006* 

0.15% 

1.20 mio tonnes unginned cotton 

1.05 mio tonnes unginned cotton 
0.15 mio tonnes unginned cotton 

2% 

0.52 mio tonnes 

0.42 mio tonnes of ginned cotton 
0.29 mio tonnes of ginned cotton 

2006 

1050 €/tonne of ginned cotton 

2006 
2006 
2006 
2005 
2006 

2005 
2005 

445 000 ha 
382 000 ha 
63 000 ha 
400 ha 
2 000 ha 
0.00% 
1.3% 

79 700 farms 
9 500 farms 

2001–2006 
2001–2006 

3.14 tonne/ha unginned cotton 
3.01 tonne/ha unginned cotton 
3.66 tonne/ha unginned cotton 

2005/2006 
2005/2006 

2005/2006 
2005/2006 
2006 

4.5 ha 
11 ha 

73 
27 
Greece – € 412 million 
Spain – € 62 million 

↓ 

↓ 
↓ 

↓ 

→ 
↓ 

↑ 
↓ 
↓ 
↓ 
↓ 

→ 
→ 
→ 

↓ 
↓ 
↓ 
↓ 

EAGGF budget for cotton 

2000–2002 

€ 803 million 

→ 

N.B. the conversion ratio of unginned to ginned cotton is 0.3. 
Source: DG AGRI. 

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3. 

GENERAL OBJECTIVES OF THE COTTON REGIME 

3.1. 

Origins of the cotton regime 

As cotton was not produced by the founding Member States, it was not included in Annex 1 to 
the Treaty of Rome and so did not form part of the original CAP. 

A  support  regime  for  cotton  production  was  introduced  when  Greece  acceded  to  the  EC  in 
1980. It was extended to Spain and Portugal when they joined the EC in 1986 and, recently, to 
Bulgaria. 

Recognising  the  great  importance  that  cotton  production  represents  for  the  economies 
concerned,  the  Protocol  annexed  to  the  respective  Acts  of  Accession  includes  the  following 
provisions: 

1. 
2. 

3. 

This Protocol concerns cotton […]  
A system shall be introduced in the Community particularly to:  
– 

support the production of cotton in regions of the Community where it is 
important for the agricultural economy, 
permit the producers concerned to earn a fair income, 

– 
The  system  referred  to  in  paragraph  2  shall  include  the  grant  of  an  aid  to 
production. 

In  the  context  of  the  "Agenda  2000"  reform  of  the  CAP  in  March  1999,  the  Council  of  the 
European  Union  decided,  inter  alia,  to  maintain  the  cotton  support  system,  but  gave  the 
Council  the  possibility  to  make  adjustments  to  it.  Council  Regulation  (EC)  No 1050/2001 
states, in Article 1(1): 

"The  Council,  acting  by  a  qualified  majority  on  a  proposal  from  the  Commission  and  after 
consulting the European Parliament, shall decide on the adjustments necessary to the system 
introduced  pursuant  to  this  Protocol  and  shall  adopt  the  general  rules  necessary  for 
implementing the provisions of this Protocol." 

The Council emphasised that the system should include the granting of an aid to production. 

3.2. 

CAP reform 

In  recent  years  the  CAP  has  undergone  a  fundamental  reform  that  reflects  the  general  and 
specific  objectives  of  Community  policy,  including  the  Lisbon  Strategy  and  the  Sustainable 
Development Strategy. 

Agenda  2000  aimed  at  increasing  competitiveness,  food  safety  and  quality,  stabilising  farm 
incomes, integrating environmental concerns into agricultural policy, developing the vitality of 
rural areas, simplification and strengthening decentralisation.  

Subsequently,  the  2003  CAP  reform  aimed  to  contribute  to  sustainable  development  by 
increasing the CAP's emphasis on healthy, high quality products, environmentally sustainable 
production methods, including organic production, renewable raw materials and the protection 
of biodiversity. 

This was the context for the reform of the cotton regime, which was adopted by the Council in 
April 2004 and came into force in January 2006. 

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3.3. 

The objectives of the reformed cotton regime 

In accordance with the EU's overall agricultural policy approach, the reform should encourage 
a  competitive,  sustainable  and  market–driven  cotton  sector,  while  safeguarding  the  Protocol 
commitments.  With  this  perspective,  the  different  reform  options  have  been  assessed  on  the 
basis of the following criteria: 

•  The continuation of agricultural activity as a component of the sustainable development of 

the cotton–producing regions 

•  The  compatibility  of  the  support  options  for  cotton  producers  with  the  principles  of  the 

reformed CAP 

•  The  compatibility  of  the  support  options  for  cotton  producers  with  the  EU's  WTO 

commitments and the limitation of any negative impact on developing countries 

•  The stability and control of the EU budget 

•  The competitiveness and market orientation of the cotton sector 

•  The reduction of the impact of cotton production on the environment 

•  Simplification of the management of the support regime for cotton producers 

4. 

POLICY OPTIONS 

Taking  into  account  the  ruling  of  the  Court  of  Justice,  the  aims  of  the  CAP  reform  and  the 
specific objectives of the cotton regime, and following extensive consultation with interested 
stakeholders, three options will be assessed: 

•  Production Aid Option (Pre–Reform scenario) 

•  Mainly Decoupled Option (2004 Reform scenario) 

•  Full Decoupling Option. 

These three options can be seen as representing three distinct policy choices. Any alternatives 
or variations will fall into one of these "families" of option. 

4.1. 

Production Aid Option (Pre–Reform scenario) 

This  option  returns  to  the  regime  in  place  before  the  2004  reform.  It  provides  for  a 
"deficiency" payment to be made to the processor (ginner) on condition that a minimum price 
is  paid  to  cotton  growers  for  the  unginned  cotton.  The  deficiency  payment  represents  the 
difference between an institutional price (the "guide price", previously set by the Council) and 
the world market price, in order to protect farmers from world price fluctuations. This allowed 
ginners to market cotton at world market prices.  

The  aid  was  subject  to  a  ceiling  at  Member  State  level,  the  National  Guaranteed  Quantity 
(NGQ)  which,  if  it  was  overshot,  triggered  a  proportionate  reduction  in  the  deficiency 
payment. 

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Variants  on  this  option  would  be  technically  feasible,  including  the  proposal  by  the  Spanish 
cotton industry. This argues for a 20% decoupling of the payment, “with the remaining 80% 
linked to the final production of cotton […] with the obligation to sow, harvest and deliver to 
the  ginning  industry”.  These  central  features  would  be  supplemented  by  a  quality  premium, 
recognition  of  the  role  of  the  inter-professional  organisations  and  a  restructuring  scheme  for 
the ginning industry, as part of the cotton regime (i.e. not under rural development). 

While the pre-reform regime was not subject to cross-compliance, cotton production aids were 
linked to the observation of certain agronomic and environmental conditions. 

Moreover, as most but not all cotton producers are beneficiaries of the Single Farm Payment 
(SFP)  due  to  their  other  farming  activities,  most  but  not  all  cotton  producers  are  subject  to 
cross-compliance, since SFP beneficiaries are subject to such requirements on the whole farm. 

4.2.  Mainly Decoupled Option (2004 Reform scenario) 

This option continues the regime put in place by the Council in April 2004, as part of the CAP 
reform. It has been in force since 1 January 2006. 

The previous "deficiency" payment is replaced by: 

•  a decoupled payment, 

•  a crop specific area payment limited to a MS base area, 

•  a supplementary aid, depending on the region. 

Of the national envelopes for cotton, 65% is paid to cotton farmers as a decoupled aid. 

To  meet  the  objective  of  supporting  the  production  of  cotton  in  the  regions  concerned,  as 
provided  for  in  the  Accession  Protocols,  35%  of  the  national  envelope  is  paid  to  cotton 
farmers  as  a  cotton-specific  area  payment.  This  specific  area  aid  for  cotton  is  limited  to 
maximum areas defined at national level. 

Both  the  coupled  and  decoupled  payments  are  subject  to  cross-compliance.  In  addition,  for 
environmental  and  quality  reasons,  the  land  on which  cotton  can  be  grown  and  the  varieties 
that can be sown must be authorised by the Member States. 

The remainder of the Community budget for the cotton sector is allocated to financing rural 
development  measures  in  the  regions  affected  by  the  reform.  These  measures  may  include 
restructuring of the industry and marketing.  

Under this regime, Member States also have the possibility11 of using part of the decoupled aid 
to put in place measures that target specific goals. 

In  2006  only  Spain  has  used  this  possibility,  paying  a  supplementary  aid  for  quality 
characteristics, such as maximum impurity of 5%, humidity below 12% and yield higher than 
a locally fixed threshold. 

While  not  specifically  part  of  the  cotton  regime,  in  2006  cotton  producers  in  Spain  and  one 
Greek  cotton-producing  region  had  access  to  agri-environmental  programmes.  These  permit 

11 

Article 69 of Regulation (EC) No 1782/2003. 

EN 

13 

   EN 

                                                 
farmers to benefit from additional payments, on condition that they significantly reduce their 
chemical inputs (particularly the use of plastics and nitrates) and apply frequent rotation with 
non-irrigated crops.  

For this option, the question of the advisable level of coupling was in particular addressed. 

While the decoupling rate agreed by the Council in 2004 has been taken as the starting point, 
consideration was given to the impact of different levels of coupling, in particular whether a 
higher or lower level should be retained 

A further issue that is addressed is the question of boll opening. Under the 2004 reform, the 
crop-specific payment is subject to the cotton being kept until the stage of boll opening. The 
impact  assessment  looks  at  the  possible  alternative  of  introducing  an  obligation  to  harvest, 
together with a minimum quality standard. 

4.3. 

Full Decoupling Option 

This  option  contemplates  the  full  decoupling  of  all  payments  to  cotton  producers,  including 
the current crop-specific area payment. If they choose to continue growing cotton, farmers are 
no  longer  subject  to  area  or  variety  restrictions.  They  can  also  choose  to  grow  other  crops 
without financial penalty. 

The  cross-compliance  and  other  horizontal  requirements  applying  to  other  decoupled 
payments would apply. 

Under  this  option  a  more  or  less  substantial  part  of  the  previously  coupled  aid  could  be 
earmarked for rural development measures in the regions affected by the reform. These could 
include restructuring of the industry, diversification and innovation measures.  

ASAJA,  which  represents  young  farmers  in  the  region,  would  support  this  option12,although 
their  submission  is  not  precise  on  the  share  of  funding  they  would  want  allocated  to  rural 
development measures. 

5. 

ANALYSIS OF IMPACTS 

5.1. 

Economic impact 

5.1.1.  Methodological considerations 

The farmer's decision to abandon cotton will not be based simply on the profitability (or not) 
of growing cotton, but on the greater (or lower) profitability of growing cotton compared with 
that of the alternative crops. 

To  ascertain  the  relative  profitability  of  cotton  and  the  most  likely  alternatives,  the  Gross 
Margin  over  Variable  Costs  was  used,  defined  as  Output  (revenue,  coupled  aid  included) 
minus Intermediate Consumption & Wages13. 

12 
13 

Submission from ASAJA to the Commission dated 27 July 2007. 
For details see schema in Annex 6 and footnote 10 in section 2.2. 

EN 

14 

   EN 

                                                 
An analysis was made for each of the 3 options, comparing the Gross Margin of cotton grown 
using  different  production  methods  (traditional  method,  low  input-low  yield,  under  agri-
environmental  schemes)  followed  by  a  comparison  with  the  Gross  Margin  of  the  alternative 
crops. 

In order to calculate the Gross Margin FADN data was used. 

The FADN model allows the allocation of working time and production costs between cotton 
and other crops. While the results obtained provide a reliable indication, it should be borne in 
mind that the economic behaviour of a farmer is equally determined by other factors such as 
age, the size of the farm, its structure, access to capital, equipment and availability of water, 
etc. 

For this reason, the quantitative analysis was completed by a qualitative assessment carried out 
in the context of the external LMC study, based on questionnaires. 

As  the  level  of  coupled  aid  influences  the  Gross  Margin,  in  the  specific  case  of  Option  2  a 
sensitivity  analysis  was  carried  out  showing  the  effect  on  cotton  area  and  production  of 
different levels of coupled aid (e.g. 30%, 25%, etc). This gives an indication of the the optimal 
coupling rate. 

As  Gross  Margin  over  Variable  Costs  does  not  take  into  consideration  the  remuneration  of 
family  labour,  this  first  step  is  complemented  by  an  analysis  of  the  total  income  of  the 
agricultural holding. The cost of the family (unpaid) labour is estimated by using Family Farm 
Income14, which represents the remuneration of the family (unpaid) labour. It was analysed for 
each option. 

The  farmer's  decision  is  a  complex  process  that  takes  into  account  the  totality  of  the  farm's 
production  system.  The  Gross  Margin  analysis  alone  cannot  reflect  this  composite  reality. 
Family  Farm  Income,  as  an  indicator  of  the  overall  farm  income,  better  captures  the  whole 
economic  logic  of  the  farm  and  gives  an  explicit  answer  to  the  issue  raised  by  the  Court  of 
Justice in its ruling. 

The  analysis  made  shows  that  the  higher  the  Gross  Margin,  the  higher  the  Family  Farm 
Income. In addition, this economic relationship was verified statistically. 

As concerns cotton, the key factors considered by farmers are similar in Spain and Greece: the 
coupled  payment,  agri-environmental  and  supplementary  payments  when  available,  and  the 
price paid for cotton. The availability or not of agri-environmental payments has a significant 
role in influencing the farmer's planting decision. Although not part of the cotton regime, agri-
environmental payments have therefore been taken into account in this analysis.  

The crops considered as possible alternatives to cotton are wheat (soft and durum), maize and, 
in Spain, sunflowers.  

Although  present  in  cotton-growing  regions,  fruit  and  vegetables  and  sugar  beet  are  not 
viewed  as  major  viable  alternatives.  A  switch  to  fruit  and  vegetables  would  require 
considerable  new  expertise  and  long-term  investment.  The  two  most  likely  competitors  are 
citrus fruit and tomatoes for industry. Low prices for citrus and the quota regime for sugar beet 
would seem to preclude major investments in these sectors.  

14 

For more details see schema in Annex 6. 

EN 

15 

   EN 

                                                 
Compared with cotton, maize would require more water and a change in irrigation system15. 
While it may represent an alternative, it would have to be combined with other crops such as 
non-irrigated cereals.  

This  economic  analysis  at  farm  level  is  completed  by  an  analysis  of  the  profitability  of  the 
ginning industry under each option. 

In  this  way,  we  have  taken  into  account  the  ruling  of  the  Court  of  Justice  as  concerns  the 
family labour costs in the farmer’s decision-making process, and the impact of the options on 
the ginning industry. 

5.1.2.  Economic assessment of the Production Aid Option (Option 1) 

5.1.2.1.  Farm level 

Under this option, the gross margin generated by cotton production is extremely high, as most 
– if not all – of the support is coupled to production. 

Cotton would be far more profitable than growing any alternative crop: the gross margin and 
income from cotton would be considerably higher than for maize, durum wheat, or sunflower 
in Spain (Table 2). 

Spanish farmers benefit from a partial coupling in the cereals sector and, for durum wheat, a 
supplementary premium (71.3 €/ha) on top of the quality premium (40€/ha). 

In  Greece,  all  direct  payments  in  the  grain  sector  have  been  fully  decoupled.  The  only 
additional premium is the quality premium for durum wheat (40 €/ha). 

Therefore,  while  this  high  incentive  to  produce  cotton  responds  well  to  the  objective  of 
ensuring  the  continuation  of  cotton  production,  a  coupled  payment  regime  for  cotton  would 
represent an anomaly, as aid for the competing crops is now mostly decoupled. 

In  this  context,  coupled  support  would  have  major  implications  for  cotton  farmers  and 
seriously  hamper  mobility  in  the  sector.  It  would  act  as  a  disincentive  to  move  out  of  the 
sector: any switch from cotton to grain would result in an income loss of over € 1 500 per ha 
in Spain (Table 2) and from € 700–1 000 per ha in Greece (Tables 3 and 4). 

15 

In  Greece  sprinkler  irrigation  is  used  more  frequently  than  in  Spain  by  cotton  growers.  However,  in 
Greece the use of irrigation over the past five years was more seriously affected by water availability. 

EN 

16 

   EN 

                                                 
Table 2: Spain – Gross margin under a Deficiency Payment System16 (€ per ha) 

Cotton 

Durum Wheat 

Maize 

Sunflower 

Revenue 
Price per tonne (€/t) 
Yield (t/ha, unginned) 
Coupled Payment (€/ha) 
Durum Wheat zone supplement (€/ha) 
Quality premium (€/ha) 
Total Revenue 

908 
4.1 

3,751 

Variable Costs (excluding Family Labour) 

1,733 

Gross Margin 
Unpaid Labour (hrs) 
Return to unpaid labour (€/hour) 

2,018 
182 
11.1 

159 
3.4 
59.9 
71.3 
40.0 
711 

346 

365 
134 
2.7 

114 
12.3 
115.0 

1,512 

1,185 

327 
103 
3.2 

233 
2.0 
59.9 

514 

317 

197 
60 
3.3 

Table 3: Makedonia – Gross margin under a Deficiency Payment System (€ per ha) 

Revenue 
Price per tonne (€/t) 
Yield (t/ha, unginned) 
Coupled Payment (€/ha) 
Durum Wheat zone supplement (€/ha) 
Quality premium (€/ha) 
Total Revenue 

Variable Costs (excluding Family Labour) 

Gross Margin 
Unpaid Labour (hrs) 
Return to unpaid labour (€/hour) 

Cotton 

Durum Wheat 

Maize 

839 
3.1 

2,639 

1,169 

1,470 
195 
7.6 

149 
2.5 
0.0 
0.0 
40.0 
413 

381 

31 
79 
0.4 

147 
11.8 
0.0 

1,739 

1,013 

726 
194 
3.7 

Table 4: Thessalia – Gross margin under a Deficiency Payment System (€ per ha) 

Revenue 
Price per tonne (€/t) 
Yield (t/ha, unginned) 
Coupled Payment (€/ha) 
Durum Wheat zone supplement (€/ha) 
Quality premium (€/ha) 
Total Revenue 

Variable Costs (excluding Family Labour) 

Gross Margin 
Unpaid Labour (hrs) 
Return to unpaid labour (€/hour) 

Cotton 

Durum Wheat 

Maize 

867 
3.6 

3,164 

1,177 

1,987 
220 
9.0 

149 
3.9 
0.0 
0.0 
40.0 
621 

429 

191 
98 
2.0 

147 
11.6 
0.0 

1,703 

1,049 

653 
194 
3.4 

NB: Return to unpaid labour covers the remuneration of family (unpaid) labour, also depreciation, rent and the 
cost of capital 

16 

Tables 2, 3 and 4 are based on FADN data and LMC calculations. 

EN 

17 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
As  a  result  of  this  disproportionately  high  incentive  to  produce  cotton,  the  National 
Guaranteed  Quantities  (NGQ)  would  be  likely  to  overshoot  and  the  aid  per  tonne  would  be 
reduced, significantly reducing the gross margin of cotton producers. In the longer term, this 
would, notably, harm the most vulnerable farmers. 

Under this option, the main source of income instability would derive from yield variations, in 
particular linked to weather conditions. 

5.1.2.2.  Ginning industry 

On  the  basis  of  the  US  average  length  of  season17  capacity  utilisation  is  estimated  at  about 
70% in Greece and 41% in Spain. These levels show that, even before the implementation of 
the 2004 reform, the industry was operating with considerable over-capacity. This was built up 
in  the  earlier  context  of  higher  world  prices,  good  market  prospects  (in  particular  due  to 
expanding demand from the Turkish textile industry). 

Under this option it could be expected that cotton supply and capacity utilisation would not be 
significantly  lower  than  2000–2005  average  levels.  Any  increase  in  production  prompted  by 
this  option  would  only  improve  capacity  utilisation  and  reduce  costs  per  unit  of  processed 
cotton.  

In addition, if this option includes the aid (€53/t) paid to ginners for administrative expenses, 
as under the pre-2004 regime, ginners would be guaranteed an additional source of revenue. 

Overall, this option would discourage any reduction in processing capacity and restructuring 
of the ginning industry. 

On  the  basis  of  the  average  ginning  capacity  of  each  Member  State  and  the  2005/2006 
unginned cotton production, the optimal number of mills would be 50 in Greece (against 73 at 
present) and 11 in Spain (against 27 at present). 

5.1.3.  Economic assessment of the Mainly Decoupled Option (Option 2) 

5.1.3.1.  Farm level 

This  option,  which  corresponds  to  the  regime  in  place  since  2006,  led  in  2006  to  a  drop  in 
gross margins for cotton producers. The effect was different in Spain and Greece. In Spain, the 
cotton  area  fell  back  to  pre-accession  levels,  while  yields  dropped  by  about  one  third.  In 
Greece,  which  has  much  lower  production  costs  than  Spain,  the  area  planted  to  cotton 
increased slightly and yields fell by only 20%. In Spain the reductions seem mainly due to the 
effect of regime change, while in Greece the adverse weather conditions seem to have been the 
predominant factor in the lower yield. 

Under  this  option,  cotton  producers  can  choose  whether  to  continue  their  traditional  “high-
input,  high-yield”  production  system  or  to  move  to  a  “low-input,  low-yield”  approach.  In 
addition,  they  may  choose  to  participate  in  agri-environmental  programmes  where  these  are 
available, and so comply with stricter requirements on inputs and agronomic practices. 

In  Spain,  as  shown  in  Table  5,  the  “low-input,  low-yield”  production  system  generates  a 
higher  gross  margin  than  the  traditional  "intensive"  production  method.  This  explains  the 

17 

US parameters: 81 day season based on two shifts (average operating day 17.5 hours). 

EN 

18 

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general  fall  in  yields  seen  in  Spain  in  2006.  Farmers  taking  part  in  agri-  environmental 
programmes  benefited  from  ever  higher  gross  margins.  None  of  the  major  alternative  crops 
achieve comparable results. 

It  is  worth  emphasising  that  these  results  are  achieved  while,  in  Spain  only,  sunflower  and 
competing cereals still benefit from a certain percentage of coupled payment, which has to be 
included  in  the  gross  margin  calculation.  The  possible  removal  of  this  residual  coupled 
payment would further increase the relative competitiveness of cotton, by decreasing the gross 
margin of the alternative cereals.  

For  Greece,  a  separate  micro-analysis  was  made  for  the  two  cotton-producing  regions  (see 
Tables 6 and 7) to reflect the policy variations in each. 

Gross margin and return to unpaid labour from cotton are higher than those for durum wheat.  

In  contrast,  cotton  is  apparently  more  profitable  than  maize  only  when  agri-environmental 
schemes  are  available.  Where  agri-environmental  payments  are  not  made  and  there  are  no 
resource  constraints,  a  shift  to  maize  might  be  expected.  However,  a  significant  shift  is  not 
likely,  at  least  in  the  short  term;  maize  requires,  in  particular,  different  skills,  higher  water 
volumes and different irrigation equipment. 

A  distinction  can  be  drawn  between  older  farmers,  who  are  unlikely  to  invest  in  the  new 
know-how needed to grow maize, or make investments in planting and harvesting machinery, 
or switching from drip to sprinkler irrigation. Younger farmers with good farm structures and 
the possibility to invest are more likely to make the switch from cotton production to maize. 
As  maize  requires  more  water  than  cotton,  a  long-term  switch  to  maize  alone  is  unlikely; 
where water resources permit it, farmers would aim to maximize the area planted to maize and 
supplement this with durum wheat. 

In  Greece,  agri-environmental  measures  have  been  implemented  mainly  in  Thessalia;  about 
half  the  local  cotton  producers  participated.  Despite  lower  yields  and  a  25%  set  aside 
obligation,  cotton  recorded  higher  gross  margins  than  maize  in  this  context.  It  can  be 
concluded  that,  particularly  where  agri-environmental  programmes  are  available,  cotton 
remains the most profitable crop18. In Spain, even when no agri-environmental payments are 
made, cotton is more profitable than the alternatives. This position would be reinforced by the 
removal  of  residual  coupled  payments  to  the  alternative  cereal  crops.  In  Greece,  there  is  a 
greater potential for the cotton area to fall in the long term and be replaced by maize and, to a 
lesser extent, durum wheat. However, it is unlikely that the area planted to cotton would fall – 
in either country – far below the accession level. 

The  “Mainly  Decoupled”  option  gives  cotton  producers  the  freedom  to  remain  in  the  cotton 
sector or choose alternatives, while keeping their decoupled payment entitlements. 

18 

The LMC survey confirms that, in the farmers’ view, cotton remains the most profitable crop. 

EN 

19 

   EN 

                                                 
Table 5: Spain – returns following reform of cotton regime (€ per ha) 

Cotton (trad) 
Supplementary 
payment 

Cotton (agri-
env payments)
Supplementary 
payment 

Cotton (no 
agri-env 
payments) 
Supplementary 
payment 

Cotton 
(low input-
low yield) 

Durum 
Wheat 

Maize 

Sunflower

Price per tonne (€/t) 
Yield (t/ha, unginned) 
Coupled Payment 
(€/ha) 
Agri environmental (€/ha) 
Supplementary 
Payment (€/ha) 
Durum Wheat zone 
supplement (€/ha) 
Quality premium 
((€/ha) 
Total Revenue 

Variable Cost 
(excluding Family 
Labour) 

Gross Margin 
Unpaid Labour (hrs) 
Return to unpaid 
labour (€/hour) 

244 
2.6 
1,039.0 

350.0 
191.0 

244 
4.1 
1,039.0 

191.0 

. 

2,238 

2,206 

1,733 

1,328 

505 
182 
2.8 

878 
153 
5.7 

244 
2.6 
1,039.0 

244 
1.0 
1,039.0 

139 
3.4 
59.9 

129 
12.3 
115.0 

233.0 
2.2 
59.9 

191.0 

1,856 

1,328 

528 
153 
3.4 

71.3 

40.0 

1,283 

643 

1,695 

833 

346 

1,185 

450 
127 
3.5 

297 
134 
2.2 

510 
103 
4.9 

565 

317 

248 
60 
4.1 

Source: 
Notes: 

LMC. 
Cereal prices are based on average prices for the past three years. This is to reflect farmers’ price expectations. 
Costs for "low-input low-yield" are based on the assumption that input costs fall by 75%, irrigation costs by 60%, 
and other costs by 50%; labour costs fall by 25% from the 2005 average. 

Table 6: Thessalia – returns following reform of cotton regime (€ per ha) 

Cotton 

Cotton (agri-environ 
payments) 

Durum Wheat  Maize 

309 
2.5 
528.6 

542.0 
1,843 

1,127 

716 

230 
3.1 

147 
3.9 
0.0 
0.0 
40.0 

611 

429 

182 

98 
1.9 

143 
11.6 
0.0 

1,655 

1,049 

605 

194 
3.1 

Price per tonne (€/t) 
Yield (t/ha, unginned) 
Coupled Payment (€/ha) 
Durum Wheat zone supplement (€/ha) 
Quality premium (€/ha) 
Agri-environmental payment 
Total Revenue 

Variable Cost (excluding Family Labour) 

Gross Margin 

Unpaid Labour (hrs) 
Return to unpaid labour (€/hour) 

Source:  LMC 

309 
3.4 
528.6 

1,567 

1,177 

390 

220 
1.8 

20 

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   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 7: Makedonia – returns following reform of cotton regime (€ per ha) 

Cotton 
(normal yields)

Cotton (2006) Durum Wheat 

Maize 

Price per tonne (€/t) 
Yield (t/ha, unginned) 
Coupled Payment (€/ha) 
Durum Wheat zone supplement (€/ha) 
Quality premium (€/ha) 
Agro-environmental payment 
Total Revenue 

Variable Cost (excluding Family Labour) 

Gross Margin 

Unpaid Labour (hrs) 
Return to unpaid labour (€/hour) 

317 
3.1 
528.6 

1,511 

1,188 

323 

195 
1.7 

317 
2.5 
528.6 

1,320 

1,188 

132 

195 
0.7 

147 
2.6 
0.0 
0.0 
40.0 

418 

381 

37 

79 
0.5 

143 
11.8 
0.0 

1,690 

1,013 

677 

194 
3.5 

Source:  LMC  
Notes:  Cereal prices are based on average prices for the past three years. This is to reflect farmers’ price expectations. 

5.1.3.2.  Ginning industry 

As production support under the previous regime was channelled through the ginning industry, 
which  had  to  pay  a  minimum  price  to  cotton  farmers,  the  turnover  figures  of  ginners  were 
artificially inflated by the amounts in fact transferred to the cotton growers. Under this option, 
as support is no longer paid through the ginning industry, a side effect is an automatic fall in 
the turnover of ginning plants. 

The  main  impact  that  the  ginning  industry  faces  under  this  option  is  the  reduced  supply  of 
locally grown raw material, due to the decrease in yields. As it is not economically viable to 
substitute local unginned cotton by imports, this option leads to a reduction in ginning capacity 
utilisation. 

In addition, ginners no longer receive the aid previously given for administrative costs (53€/t).  

In Spain, the fall in local supply resulted, in 2006, in a decline of average capacity utilisation 
from 41% to 17% (based on US length of season averages19). 6 out of 27 ginning plants did 
not open and one closed permanently.  

The Spanish ginning industry is made up primarily of private enterprises that tend to be highly 
specialised,  with  80%  of  their  income  deriving  from  cotton  ginning.  Consequently,  the 
industry is particularly exposed to policy changes. 

The  fall  in  capacity  utilisation  has  triggered  a  24%  increase  in  variable  costs  and  a  68% 
increase in fixed costs per tonne of unginned cotton. The industry has responded by making 
cut-backs,  especially  in  casual  and  skilled  labour.  Permanent  staff  has  so  far  been  largely 
unaffected.  

19 

US parameters: 81 day season based on two shifts (average operating day 17.5 hours). 

EN 

21 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
The  average  gross  margin  of  the  companies  surveyed  by  LMC  fell  by  about  27%  in  2006 
compared with 2005 and their profitability turned negative (Table 8). An optimal utilisation of 
the processing capacity would lead to a reduction of 75% (from the current 27 ginning plants 
to 7 or 8). 

Table 8: Spanish Ginning Industry Profitability, 2004–2006 
(€ per tonne, unginned cotton, unless otherwise stated) 

2004

2005

2006

Revenue
Ginned cotton 
Cotton seed price
Ratio cotton seed to ginned cotton
Cotton seed revenue
Aid to cover administration (€ per tonne ginned cotton)
Revenue

Costs
Unginned Cotton Purchase (€ per tonne, unginned cotton) 
Aid (€ per tonne, unginned cotton)
Net Cost of Unginned Cotton Purchase to Ginner
Processing coefficient
Net Cost of Unginned Cotton (€ per tonne ginned cotton)

Gross Margin
Transport (€ per tonne, ginned cotton)
Gross Margin (Excluding Transport Costs)

Production Costs (€ per tonne, ginned cotton)
Of which:  Variable costs
                  Fixed costs
Profit
Source:  FADN and LMC calculations 

819.84 
147.32 
164%
240.93 
160.31 
1,221.08 

835.17 
607.00 
228.17 
33%
691.41 

529.67 
56.06 
473.60 

300
148
152
173.60 

863.10 
149.08 
160%
239.00 
160.31 
1,262.41 

863.10 
621.00 
242.10 
33%
733.64 

528.77 
56.06 
472.71 

312
164
148
160.71 

925.37 
168.51 
164%
276.64 
.
1,202.01 

282.56 
.
282.56 
33%
856.25 

345.76 
.
345.76 

451
203
248
-105.24 

In  Greece,  as  the  fall  in  cotton  production  was  small  in  2006,  the  effect  on  the  ginning 
industry has so far been less pronounced. 

The capacity  utilisation of the companies surveyed by  LMC fell  from  70%  in  2003–2005  to 
56% in 2006. 

The impact may have been attenuated by the fact that the ginning industry is mainly organised 
in  multi-activity  cooperatives,  for  which  ginning  represents  only  one  third  of  their  income. 
Almost 75% of the Greek cotton producers surveyed belong to these cooperatives.  

The fall in capacity utilisation has triggered a 8% increase in variable costs and a 24% increase 
in fixed costs per tonne of unginned cotton.  

Unlike in Spain, in 2006, the Greek industry’s lower dependency on cotton, coupled with the 
modest drop in production, resulted in a reduction mainly in unskilled and casual labour.  

The average gross margin of the companies surveyed by LMC was reduced by 50% in 2006 
compared with 2005 and their profitability turned negative (Table 9). Optimal utilisation of the 
processing  capacity  would  see  the  closure  of  over  20  of  the  present  73  ginning  plants,  with 
about 50 remaining operational. 

EN 

22 

   EN 

Table 9: Greek Ginning Industry Profitability, 2004–2006 
(€ per tonne, unginned cotton, unless otherwise stated 

2004

2005

2006

Revenue
Ginned cotton 
Cotton seed price
Ratio cotton seed to ginned cotton
Cotton seed revenue
Aid to cover administration (€ per tonne ginned cotton)
Revenue

Costs
Unginned Cotton Purchase (€ per tonne, unginned cotton) 

Aid (€ per tonne, unginned cotton)
Net Cost of Unginned Cotton Purchase to Ginner
Processing coefficient
Net Cost of Unginned Cotton (€ per tonne ginned cotton)

Gross Margin

944.94 
105.08 
148%
155.20 
160.31 
1,260.45 

260.98 

.
260.98 
34%
767.58 

492.87 

1,010.49 
118.16 
150%
177.27 
160.31 
1,348.07 

298.93 

.
298.93 
34%
879.22 

468.85 

Production Costs (€ per tonne, ginned cotton)
Of which:  Variable costs
                  Fixed costs
Profit
Note: The unginned purchase price quoted by ginners in the questionnaires did not include the aid 

344
215
129
148.87 

349
223
126
119.85 

955.68 
137.88 
146%
200.83 
.
1,156.51 

313.73 

.
313.73 
34%
922.74 

233.78 

397
241
156
-163.30 

Source:  FADN and LMC calculations 

A comparison with the US ginning industry shows the EU industry has scope for improving its 
competitiveness20. While US processing costs are around € 65 per tonne of unginned cotton, in 
Greece they are around € 135 per tonne and € 150 per tonne in Spain. 

The EU industry has a far bigger capacity than the US, but this capacity is inadequately used. 
The disproportionately high capacity leads to higher costs and lower profitability. In order to 
extend the processing period and so cut per unit processing costs, the EU industry built large 
warehouses to store raw cotton. In the US the raw cotton is baled and left at the edge of the 
field until it is processed. 

The EU ginning industry has started to react to its declining profitability by making changes to 
the  work  process.  However,  under  this  option  the  reduction  of  local  supply  will  require  the 
industry  to  substantially  reduce  its  over-capacity,  to  reduce  costs  and  so  improve  its 
profitability. The process will be more marked in Spain, which has a greater over-capacity and 
where there are fewer cooperatives. 

The  impact  on  the  industry  in  both  countries,  although  likely  to  be  substantial,  necessitating 
major  restructuring  and  consolidation,  is  not  expected  to  put  the  whole  ginning  industry  at 
risk.  More  concretely,  the  reform  will  entail  a  reduction  of  cotton  production  and,  as  a 
consequence, ginning capacity will have to be reduced. Part of the ginning industry will cease 
activity, while the remaining part will have to increase its capacity utilisation rate, in order to 
improve its profitability. 

20 

See Annex 7. 

EN 

23 

   EN 

                                                 
5.1.3.3.  Sensitivity analysis of Partial Coupling 

In this section an analysis21 is made of the impact on cotton production of different degrees of 
coupling,  compared  with  the  level  decided  by  the  Council  in  April  2004,  namely  35%.  The 
issue is explored on the basis of the responses given by cotton producers to the LMC survey 
carried out in the regions concerned.  

This  sensitivity  analysis  is  based  on  the  change  in  gross  margin  of  cotton  grown  under 
different production systems, compared with alternative crops. This allows the construction of 
a production function that reflects the likely change in land use between cotton and competing 
crops, as well as expected levels of cotton production. 

As shown in Table 10, with the current level of coupled payment (€ 529 per ha) the cotton area 
in  Greece  will  decrease  slightly  (–4%)  in  the  long  term,  compared  with  the  pre-reform 
situation.  With  a  40%  coupled  payment  (€  605/ha)  the  cotton  area  and  production  would  be 
quite similar compared with the pre-reform situation. In this case the optimal number of mills 
would be about 55 against 73 at present. 

With  a  30%  coupled  payment  (€  453/ha)  both  the  cotton  area  and  production  would  fall  by 
about  18%  compared  with  the  pre-reform  situation.  The  theoretically  optimal  number  of 
ginning plants would be 43. 

Reducing the coupled payment to 25% (€ 370 per ha) results in the cotton area and production 
falling by about 30%. In this case, the theoretically optimal number of ginning plants would 
be 36. 

Table 10: Unginned Cotton Production as Coupled Payments Change – Greece 

Coupled 
Payment

Coupled 
Payment

Total Area

Change in 
area

Total 
Production

Change in 
Production

 per ha
794
741
688
635
605
582
529
476
453
423
370
317
265

%
53%
49%
46%
42%
40%
39%
35%
31%
30%
28%
25%
21%
18%

000 ha
494
470
445
411
387
379
362
321
308
295
262
241
220

%
32%
25%
19%
10%
3%
1%
-4%
-14%
-18%
-21%
-30%
-36%
-41%

000 tonnes
1554
1473
1394
1280
1203
1178
1123
989
949
908
798
729
660

%
35%
28%
21%
11%
4%
2%
-2%
-14%
-17%
-21%
-31%
-37%
-43%

Compared with 2005, last year of the pre-reform regime 
on the basis of the average ginning capacity = 22 000 tonnes per mill 

* 
(1) 
Source: LMC estimates. 

Optimal 
number of 
mills (1)

number
71
67
63
58
55
53
51
45
43
41
36
33
30

21 

For the detailed results see the LMC study. 

EN 

24 

   EN 

€
 
                                                 
In Spain, as shown in Table 11, with the current level of coupled payment (€ 1 039 per ha) the 
long-term  impact  will  be  more  marked.  If  the  cotton  area  levels  out  at  about  65 000  ha 
production will stabilise at around 165 000 tonnes, with the generalisation of low yields.  

With a 40% coupled payment (€ 1187/ha) the change in area would be –17% and production 
would fall by almost 48% compared with the pre-reform situation. However, at about 185.000 
tonnes, production would return to about the same level as at the time of Spain's accession to 
the  Community  in  1986.  The  theoretically  optimal  number  of  ginning  plants  would  be  6, 
against the current 27. 

With  a  30%  coupled  payment  (€890  per  ha)  the  cotton  area  would  fall  by  almost  37%  and 
production by 61%, compared with the pre-reform situation. The theoretically optimal number 
of ginning plants would be 4. 

Reducing the coupled payment to 25% (€727 per ha) results in the cotton area falling by 50% 
and  production  falling  by  69%,  compared  with  the  pre-reform  situation.  In  this  case  the 
optimal number of mills would be 3. 

Table 11: Unginned Cotton Production as Coupled Payments Change – Spain 

Coupled 
Payment

Coupled 
Payment

Total Area

Change in 
area

Total 
Production

Change in 
Production

€ per ha
1559
1455
1351
1247
1187
1143
1039
935
890
831
727
623
520

%
53%
49%
46%
42%
40%
39%
35%
32%
30%
28%
25%
21%
18%

000 ha
84
82
79
75
71
70
64
57
54
50
43
34
24

%
-3%
-5%
-8%
-13%
-17%
-19%
-26%
-33%
-37%
-41%
-50%
-61%
-72%

000 tonnes
218
213
206
195
185
182
166
149
140
131
111
88
63

%
-39%
-41%
-43%
-46%
-48%
-49%
-54%
-59%
-61%
-64%
-69%
-76%
-83%

* 
(1) 

Compared with 2005, last year of the pre-reform regime 
on the basis of the average ginning capacity = 32 000 tonnes per mill. 

Source: LMC estimates 

Optimal 
number of 
mills (1)
number

7
7
6
6
6
6
5
5
4
4
3
3
2

The  results  of  the  2004  reform  (35%  coupled  aid)  at  least  in  the  short  term,  are  somewhat 
different  in  Greece  and  in  Spain.  In  Spain  the  area  under  cotton  went  back  close  to  its  pre-
accession level (–14%), while in Greece it remained stable, mainly due to the slow structural 
change in Greek agriculture. This suggests that it is not necessary to set the coupled payment 
at 40% in order to maintain a significant level of cotton production in Spain and Greece, while 
a further reduction of coupled payment to 30% or 25% could trigger a big reduction in cotton 
production. 

EN 

25 

   EN 

 
If the coupled aid is changed from its current level, it will be necessary to recalculate the level 
of decoupled aid granted to each cotton farmer. In effect, increasing the coupled aid from 35% 
to  40%  would  entail  reducing  the  amount  of  decoupled  aid  from  65%  to  60%.  The  funds 
generated  by  the  reduction  of  the  decoupled  aid  would  then  have  to  be  reattributed  to  the 
coupled aid, to ensure that the overall effect of the adjustment is budget neutral. 

Any adjustment of the coupling rate would inevitably be complicated from an administrative 
point of view, especially if it were to be put in place already in 2008, only the third year of 
implementation  of  the  reformed  cotton  regime.  Difficulties  could  in  particular  arise  where 
payment  rights  have  transferred  from  one  farmer  to  another  since  2006,  as  the  decoupled 
payment  is  calculated  on  the  basis  of  historical  production  levels  or  the  number  of  eligible 
hectares farmed during the first year of implementation of the scheme. 

For  each  of  these  cases  modalities  would  have  to  be  analysed  by  the  Commission  and 
implemented by the Member State, entailing a case by case treatment of each file. If possible it 
would seem advisable that this extra administrative burden should be avoided, at least in the 
short  term.  It  could  therefore  be  concluded  that  35%  appears  to  be  the  optimal  level  for  the 
coupled payment. 

5.1.3.4.  Quality and the obligation to harvest22 

During the consultation process, various stakeholders raised the question whether the current 
regime  is  affecting  the  quality  of  cotton  harvested.  In  this  context  two  specific  issues  were 
raised: low yields and harvesting practices. 

Currently  used  varieties  of  cotton,  usually  preferred  for  their  higher  yields,  are  highly  input 
sensitive.  For  these  varieties,  high  inputs  result  in  good  quality.  The  use  of  lowered  inputs 
results,  in  particular,  in  shorter  fibres  i.e.  lower  quality  cotton.  Other  lower  yield  varieties 
would offer a good quality standard with a low level of inputs.  

Under the present system, the coupled payment is granted only to farmers who keep the cotton 
crop at least until the stage of "boll opening".  

This condition may induce farmers to grow cotton only up to boll opening for the purpose of 
getting  the  coupled  payment.  Abandonment  is  likely  if  harvesting  costs  are  higher  than  the 
expected revenue from the sale of the harvest. In this respect, the yield level is critical in the 
decision whether to  harvest.  Yields23 would need to fall  under  1.3 tonnes  per hectare before 
harvesting becomes uneconomical 

There  is  no  clear  evidence  that  the  boll-opening  condition  affects  the  final  quality  of  the 
harvested cotton. There are indications that harvesting practices that increase impurities in the 
fibres have been used more widely in 2006. However, it is inconclusive whether, and to what 
extent,  the  boll  opening  condition  is  influential  in  altering  harvesting  practices  or  lowering 
inputs. 

The harvesting obligation should have little or no impact on the level of cotton production. It 
could  simplify  the  control  procedure,  compared  with  the  boll  opening  requirement.  It  would 

22 
23 

See also Annex 9. 
It should be noted that no abandonment of production in the field was recorded in 2006. Assuming the 
lowest world price  (199 €/tonne)  in  the  last  12  years  and  average net  harvesting  costs  (255  €/hectare) 
yields should fall below 1.3 tonne per hectare to make harvesting uneconomical. See Annex 6. 

EN 

26 

   EN 

                                                 
also  facilitate  the  definition  and  implementation  of  quality  standards  by  inter-branch 
organisations. 

Thus, the objective of higher quality might effectively be achieved by combining a minimum 
quality standard with a harvesting obligation. 

5.1.4.  Economic assessment of the Full Decoupling Option (Option 3) 

5.1.4.1.  Farm level 

The full decoupling of the crop-specific area payment for all crops would reduce the relative 
profitability  of  cotton. Gross  margins  for  cotton  would  fall  well  below  those  for  other  crops 
and  become  negative  in  all  instances,  except  for  cotton  grown  under  agri-environmental 
programmes in Thessaly (see tables 12, 13, 14). 

If there is no longer any specific incentive to produce cotton, under this option there is a strong 
risk that cotton areas would decline dramatically, at least in the short term24. In Spain it would 
be expected that the cotton area would fall to zero. 

In  Greece  there  would  be  a  decline  in  the  cotton  area;  only  cotton  grown  extensively  under 
agri-environmental programmes would be expected to continue (at present 93 000 hectares in 
Thessaly). 

Table 12: Spain – returns under full decoupling (€ per ha) 

Cotton (trad)

Cotton (agri-
env payments)

Cotton (no agri-
env payments)

Supplementary 
payment

Supplementary 
payment

Supplementary 
payment

244

4,1

0

191

244

2,6

0

350

191

244

2,6

0

191

1.199

1.167

817

Price per tonne (€/t)

Yield (t/ha, unginned)

Coupled Payment (€/ha)

Agri environmental (€/ha)

Supplementary Payment (€/ha)

Durum Wheat zone supplement (€/ha)

Quality premium (€/ha)

Total Revenue

Variable Cost (excluding Family Labour)

1.733

1.328

1.328

Gross Margin

Unpaid Labour (hrs)

Return to unpaid labour (€/hour)

-534

182

-

-161

153

-

-511

153

-

Cotton (low 
input-low 
yield)

Durum 
Wheat

Maize

Sunflower

244

1

0

244

833

-589

127

-

139

3,4

59,9

71,3

40

643

346

297

134

2,2

129

12,3

115,0

1.695

1.185

510

103

4,9

233

2,2

59,9

565

317

248

60

4,1

24 

See Annex 6. 

EN 

27 

   EN 

 
                                                 
Table 13: Thessalia – returns under full decoupling (€ per ha) 

Cotton

Cotton (agri-
environ 
payments)

Durum Wheat

Maize

Price per tonne (€/t)
Yield (t/ha, unginned)
Coupled Payment (€/ha)
Durum Wheat zone supplement (€/ha)
Quality premium (€/ha)
Agri-environmental payment
Total Revenue

Variable Cost (excluding Family Labour)

Gross Margin

Unpaid Labour (hrs)
Return to unpaid labour (€/hour)
Source: 

309
3,4
0

1.038

1.177

-139

220
-

309
2,5
0

542
1.314

1.127

187

230
0,8

LMC

147
3,9
0
0
40

611

429

182

98
1,9

143
11,6
0

1.655

1.049

606

194
3,1

Table 14: Makedonia – returns under full decoupling (€ per ha) 

Cotton (normal 
yields)

Cotton (2006) Durum Wheat

Maize

317
3,1
0

982

1.188

-206

195
-

317
2,5
0

791

1.188

-397

195
-

LMC 

147
2,6
0
0
40

418

381

37

79
0,5

143
11,8
0

1.690

1.013

677

194
3,5

Price per tonne (€/t)
Yield (t/ha, unginned)
Coupled Payment (€/ha)
Durum Wheat zone supplement (€/ha)
Quality premium (€/ha)
Agro-environmental payment
Total Revenue

Variable Cost (excluding Family Labour)

Gross Margin

Unpaid Labour (hrs)
Return to unpaid labour (€/hour)
Source: 

5.1.4.2.  Ginning industry 

As a consequence of the considerable loss of production, the ginning industry would no longer 
have  access  to  sufficient  raw  cotton  to  remain  operational.  Most  ginning  plants  would 
therefore be forced to close, or look for viable supply channels outside the EU.  

While the full decoupling of cotton support is in line with the ongoing CAP reform process, it 
does not respond to the objective of supporting the production of cotton. As it also includes no 
specific  aid  for  production,  this  option  is  unlikely  to  be  in  compliance  with  the  Accession 
Protocols. 

The  provision  for  rural  development  measures  made  under  this  option  would  support  the 
restructuring of the industry and its diversification into new activities. 

EN 

28 

   EN 

 
 
5.1.5.  Assessment of the impact of each option on Family Farm Income 

Using micro-economic data from the FADN for the period 2002–2004, a calculation was made 
of the income generated by cotton in Greece and Spain on different types of holding: <5 ha of 
cotton,  from  5–10  ha  of  cotton,  >10  ha  of  cotton.  This  corresponds  to  the  income  of  cotton 
farmers under Option 1 (Production Aid regime). 

For Option 2, a simulation was made on the basis of the same FADN data for farms switching 
to  low-input,  low-yield  production  systems  (cf  section  5.1.3.1).  The  following  assumptions 
were  made  as  concerns  cotton  yield:  2.6  tonnes/ha  for  Spain  and  3.1  tonnes/ha  for  Greece. 
However,  the  variable  costs  have  not  been  adjusted  downwards  to  reflect  the  lower-yield 
production system. Therefore the calculations may underestimate income. 

For  Option  3,  total  abandonment  of  cotton  production  was  assumed,  with  a  switch  to  maize 
and durum wheat. 

The  results  for  the  three  Options  are  shown  in  Table  15,  for  each  size  of  farm  and  Member 
State. In addition, the table gives the results for Options 2 and 3 in percentage terms, compared 
with Option 1. 

The higher Family Farm Income under the old regime (Option 1) is mainly because: 

•  in  accordance  with  comments  put  forward  by  colleagues  in  DG  ENV  during  the  inter-

service consultation, agri-environmental payments are not taken into account; 

•  under Option 2 farmers switching to the low-input, low-yield production system attained a 

lower return from the market; 

•  under Option 3 the coupled aid is no longer paid. 

Table 15: Impact on Family Farm Income of the three Options 

Member 
State

 Region

Cotton area 

Option 1
FFI 

Option 2
FFI 

Option 3
FFI 

FFI

2/1 

€ per farm

€ per farm

€ per farm

%

3/1

%

Makedonia-Thraki

Thessalia

Total Average for 
Greece

 Andalucia

e
c
e
e
r

G

n
i
a
p
S

1-5

5-10

>=10

Total 

1-5

5-10

>=10

Total 

1-5

5-10

>=10

Total 

1-5

5-10

>=20

Total Average for Spain

Total 

*Maize (80%) and durum wheat (20%)

5.784

10.306

20.080

7.835

5.970

12.076

20.246

10.441

5.843

11.137

20.179

8.839

18.109

45.922

5.654

9.791

18.549

7.514

5.270

9.263

13.016

7.865

5.532

9.543

15.251

7.649

17.152

41.606

6.006

10.673

20.455

8.096

5.434

9.690

13.967

8.257

5.825

10.211

16.588

8.158

17.241

41.393

125.061

46.914

115.814

43.427

114.843

43.225

-2,3%

-5,0%

-7,6%

-4,1%

-11,7%

-23,3%

-35,7%

-24,7%

-5,3%

-14,3%

-24,4%

-13,5%

-5,3%

-9,4%

-7,4%

-7,4%

3,8%

3,6%

1,9%

3,3%

-9,0%

-19,8%

-31,0%

-20,9%

-0,3%

-8,3%

-17,8%

-7,7%

-4,8%

-9,9%

-8,2%

-7,9%

EN 

29 

   EN 

 
In  Greece,  under  Option  2,  if  no  agri-environmental  payments  are  available,  Family  Farm 
Income will fall by between 11.7% and 35.7% in Thessalia, while the drop will be minimal in 
Makedonia. Under Option 3 the fall in income is slightly lower in Thessalia and even positive 
for Makedonia. 

In  Spain,  the  fall  in  incomes  is  less  pronounced,  with  an  average  drop  of  about  7.4%  for 
Option 2 and 8% for Option 3.  

In  the  simulation  of  the  options  results  show  that  income  changes  are  dramatic  only  for 
Thessalia,  where  agri-environmental  payments  play  a  crucial  role.  When  these  payments  are 
excluded  from  the  income  calculation,  the  impact  is  particularly  severe  for  large  farms.  On 
average, the income change is biggest in Greece for cotton farmers with more than 10 ha and 
in Spain for farmers with 5–10 ha of cotton. 

As  explained  in  the  methodology  (Section  5.1.1)  a  correlation  analysis  was  carried  out 
between the Gross Margin and the remuneration of the family labour (FFI). This analysis was 
based  on  the  FADN  sample  of  farms  specialised  in  cotton  production  in  Greece  and  Spain. 
The positive correlation was found to be high between the two economic indicators25. 

The  results  of  the  Gross  Margin  analysis  are  mirrored  by  the  results  of  the  Family  Farm 
Income analysis. In other words, the higher the Gross Margin of a crop, the higher the income 
generated by the farm for the family. 

While  these  analyses  give  a  robust  indication  of  the  likely  economic  response  of  farmers, 
experience shows that their decision will not depend exclusively on the evolution of income, 
but will be quite sensitive to other factors such as water availability, their age and access to 
capital,  and  the  simplification  that  might  be  represented  by  a  switch  to  growing  cereals, 
especially wheat. These elements are difficult to capture. 

5.2. 

Environmental Impact26 

5.2.1.  Environmental impact of cotton production 

Cotton  can  be  grown  using  different  techniques  and  at  different  levels  of  intensity.  The 
intensive  production  of  cotton  is  associated  with  the  following  negative  impacts  on 
environmental resources, in order of importance: 

•  Impact on water quantity: almost all of the EU's cotton area is irrigated. In Greece, some 
groundwater sources are significantly over-used. Cotton is grown in areas where water is a 
limited resource. The use of different technologies has an impact on water use. In Greece 
more sprinklers are used than in Spain, where  drip irrigation is more widespread. Neither 
country applies water pricing, as provided for in the Water Framework. 

•  Impact  on  water  quality:  the  high  input  of  pesticides,  herbicides,  plant  growth  inhibitors 
and  defoliants  required27  for  growing  cotton,  made  worse  when  associated  with 

25 
26 

See Annex 6. 
This chapter is based on studies carried out by Alliance Environnement and the Institute for European 
Environmental  Policy,  supplemented  by  information  from  Prof.  Vlahos  (University  of  Athens)  and  C. 
Giourga (University of Aegean) at the recommendation of WWF. Details of the development of input 
use in the Greek and Spanish cotton sectors are provided in Annex 8. 

EN 

30 

   EN 

                                                 
monoculture, leads to the degradation of ground and surface water quality. In addition, the 
high use of fertilisers leads to eutrophication, as well as increasing contamination of aquatic 
ecosystems.  In  both  Spain  and  Greece  the  cotton  areas  are  concentrated  in  Nitrate 
Vulnerable  Zones  (Nitrates  Directive).  1  ha  of  cotton  uses  about  5 000m3  of  water,  
150–200 kg  of  N,  1.5–3  litres  of  commercial  phytosanitary  products  and  1–2  litres  of 
commercial pesticide products, depending on the number of treatments. 

•  Impact  on  soil:  high  input  use,  irrigation  and  monoculture  represent  high  risks  of  soil 
contamination  and  deterioration  of  soil  quality  (compaction,  reduction  of  soil  organisms 
and  organic  matter,  salination).  In  addition,  post-harvest  residues  for  cotton  contain  less 
organic matter compared with cereals. 

•  Impact  on  biodiversity  and  habitats:  high  input  use,  water  consumption  and  monoculture 
have a negative impact on biodiversity, loss of habitats and biological stability of species. 
Cotton monoculture fosters crop parasites that require an increased use of agro-chemicals, 
which also have an impact on non-targeted organisms. Some pesticides28 used on cotton are 
very toxic and cause damage to fauna and flora. Defoliants have a similar impact. The lack 
of field margins and hedges in cotton fields has a negative effect, mainly on the presence of 
bird  species,  but  also  on  the  landscape.  Water  use  and  the  frequent  over-consumption  of 
groundwater result  in additional pressures to  riparian  and lake ecosystems in the vicinity, 
mainly due to fluctuations in the requirements of water within the cotton cultivation cycle. 
Some  indirect  effects  to  biodiversity  include  an  impact  on  neighbouring  areas  resulting 
from water transfer projects for irrigating cotton. 

•  Impact  on  waste  production:  problems  arise  from  packaging  used  for  inputs  and  plastic 

coverage for growth acceleration. 

The importance of these risks varies according to farming practice, the degree of intensiveness 
and site-specific vulnerability. 

5.2.2.  Environmental impact of alternative crops 

•  Winter  cereals,  sunflowers  and  soya  in  general  require  fewer  inputs  and  less  irrigation. 
Rotation is more varied. Lower inputs means less packaging; plastic cover is not an issue. 

•  Irrigated  fodder  crops  require  fewer  inputs  (no  nitrogen).  Most  crops  are  more  soil-
friendly.  Rotation  is  systematically  more  varied.  Fewer  inputs  mean  less  packaging  and 
plastic coverage is not an issue. 

•  Maize requires slightly less pesticides but more fertilisers than cotton; like cotton, maize is 
grown  as  a  monoculture  and  requires  even  more  water.  Its  impact  on  the  landscape 
represents no visual improvement. All the impacts on biodiversity and habitats associated 
with cotton apply equally to maize. Waste problems are lower and there is no use of plastic. 

•  Vegetables  are  grown  with  comparable  or  higher  input  levels  than  cotton.  The  need  for 
irrigation is the same or higher. The use of plastic cover is more frequent, as is the level of 
packaging waste. 

27 

28 

Cotton  represents  2.4%  of  the  world's  total  agricultural  area,  accounts  for  11%  of  the  world  pesticide 
demand and 24% of the world demand for insecticides. 33 out of 46 products used are toxic to extremely 
toxic. 
These include endosulfan, phorat, deltamethrine, trifluraline and fluometuron. 

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Table 16: Environmental impact of alternative crops to cotton 

Relative  environmental  impact,  where  ☺☺☺,  ☺☺,  ☺  stand  for  less,  (0)  for  neutral  and 
(cid:47), (cid:47)(cid:47), (cid:47)(cid:47)(cid:47) for bigger impact 

Relative environmental impact on 

water 
quality 

water 
quantity 

Non-irrigated  crops:  durum  wheat,  soft 
wheat, other dry cereals and sunflower 

☺☺ 

☺☺☺ 

soil 

☺☺ 

biodiversity 
and 
habitats 

☺☺ 

Irrigated fodder (alfalfa, clover, vetch etc.) 

☺☺ to 
☺☺☺ 

(cid:47)(cid:47) to ☺ 

☺☺ to ☺☺☺ 

☺☺ to ☺☺☺ 

Maize 

Vegetables 

Cotton 

Source: Alliance Environnement 

(cid:47) 

0 to (cid:47)(cid:47) 

0 to ☺ 

0 to ☺ 

0 to (cid:47)(cid:47) 

0 to (cid:47)(cid:47) 

0 to (cid:47)(cid:47) 

0 to (cid:47)(cid:47) 

0 to (cid:47) 

Reference 

waste 

☺☺ 

☺☺ 

☺ 

5.2.3.  Environmental assessment of the Production Aid Option (Option 1) 

Price support has the effect of encouraging intensive cultivation practices. In Greece, rotation 
is hardly practised, while in Spain it is compulsory only for farms growing more than 10 ha of 
cotton. Monoculture of cotton is, therefore, prevalent. 

Under  this  option,  therefore,  the  environmental  impact  would  be  particularly  marked.  The 
problems related to intensive cotton production, as described in section 5.2.1, would be most 
evident,  with  a  strong  negative  impact  on  water  quantity  and  quality,  soil,  biodiversity  and 
waste production. 

The  biggest  problem  is  water  pollution,  as  cotton  is  grown  mainly  in  areas  designated  as 
Nitrate  Vulnerable  Zone  under  the  Nitrate  Directive.  In  particular,  the  lowering  of  ground 
water  levels  has  an  impact  on  water  quality  too,  as  the  remaining  water  resources  are 
becoming more vulnerable to pollution from pesticides and fertilisers. 

In  the  period  2000–2005  Spain  achieved  water  economies  by  supporting  the  replacement  of 
sprinklers by drip-irrigation systems, which combine fertilisation with irrigation and use water 
in a more rational way. In Greece, where sprinkler irrigation continued to be the main system, 
higher water use was recorded. 

When  the  cotton  production  aid  ("deficiency  payment")  regime  was  in  place,  prior  to  the 
reform,  agri-environmental  measures  attracted  a  limited  number  of  participants.  The  high 
prices paid for cotton made the respect of environmental constraints, especially fertiliser use, 
economically  unattractive  for  farmers.  In  this  context,  the  only  viable  agri-environmental 
programme  for  cotton  would  have  been  support  for  organic  cotton  production.  Before  2000, 
neither  country  had  put  programmes  in  place  for  their  Nitrate  Vulnerable  Zones,  imposing 
restriction in fertiliser use. 

However,  under  the  SPS,  all  direct  payments  are  subject  to  cross-compliance  rules.  Good 
(GAEC)  ensure  compliance  with  EU 
Agricultural  and  Environmental  Conditions 
environmental  standards,  which  would  to  some  extent  mitigate  some  of  the  environmental 

EN 

32 

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damage  possible  under  this  option.  In  addition,  agri-environmental  programmes  may  now 
prove more attractive to cotton farmers in some regions. 

5.2.4.  Environmental assessment of the Mainly Decoupled Option (Option 2) 

The environmental impact for this option is based mainly on observations from the first year 
of implementation of the reformed regime.  

In  Greece  in  the  first  year  of  implementation  a  slight  tendency  towards  intensification  was 
noted. A small expansion of cotton area was accompanied by an increased use of inputs. It is 
expected to take some time for Greek farmers to switch to alternative crops. While a change to 
wheat would have environmental benefits compared with cotton, a switch to maize would see 
no  significant  environmental  gains,  and  water  needs  would  be  higher.  Alternatives  could  be 
sunflower or soya. 

In Spain, the cotton area and yields fell in 2006, resulting in a reduction in input use. 75% of 
farmers used fewer inputs and less water and the use of defoliants has dwindled. This option 
has  improved  the  attractiveness  of  integrated  production29,  which  saw  a  big  increase  in 
participation rates in 2006; it now covers 79% of Spain's cotton area. 

While it is difficult to quantify improvements after only one year of implementation, in Spain 
a trend towards extensification is visible; the use of water for irrigation fell by 250 million m3 
and plastic covering is no longer used. 

Under this option, both coupled and decoupled payments are subject to cross-compliance. In 
addition, for environmental and quality reasons, the land on which cotton can be grown and 
the varieties that can be sown must be authorised by the Member States. 

5.2.5.  Environmental assessment of the Full Decoupling Option (Option 3) 

Under this option, cotton production would no longer be economically viable in Spain, where 
it would probably cease completely. 

In Greece, it could be limited to the 93 000 hectares of cotton grown under agri-environmental 
programmes, for which farmers receive an additional premium. However, continuing support 
from  this  Rural  Development  measure  would  have  repercussions  for  Greece’s  agri-
environmental  programme,  as  the  resources  committed  will  not  be  available  for  resolving 
environmental  problems  in  other  regions  and  for  contributing  to  better  land  management. 
Agri-environmental  measures  should  not  become  a  hidden  support  for  cotton  production. 
These payments will anyway have to be re-calculated and this may result in a change in the 
contribution now made to the income of cotton farmers. 

It would therefore seem probable that, under this option, the EU's remaining cotton production 
would be extensive, which would have a lower environmental impact. 

The  main  alternative  crops  replacing  cotton  would  be  wheat,  maize  and  possibly  sunflower 
and soya. While a change to wheat would have environmental benefits compared with cotton, 
a switch to maize would see no environmental gains and water needs would be even higher. 

29 

For details of agri-environmental schemes for cotton in Spain and Greece, see Annex 8. 

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33 

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5.2.6.  Environmental impact of the ginning industry 

The  ginning  industry  is  a  seasonal  industry,  which  generates  relatively  few  environmental 
problems  except  organic  waste,  some  noise  and  dust.  However,  for  technical  and  quality 
reasons the ginning industry favours the use of defoliants. Under the current regime (Option 2) 
their use has been widely reduced. 

5.3. 

Social Impact 

5.3.1.  Employment in the cotton sector 

In the producing regions, cotton plays a central role in the local economy. 

In  Greece  (mainly  Makedonia,  Thessalia  and  Sterea)  79 700  farmers  are  engaged  in  cotton 
farming.  In  Andalusia,  where  98%  of  Spain's  cotton  production  is  concentrated,  there  are 
9 500 cotton farmers.  

On  farms30  specialised  in  cotton  production,  most  of  the  income  is  derived  from  farming 
activities. 

Cotton production is relatively more labour-intensive than the main alternative crops, and in 
particular uses family labour. In Greece family labour accounts for 97.8% of the total regular 
labour force, while in Spain the equivalent figure is 78.6%. 

Table 17: Hours of family labour (2004) 

Cotton 

Maize 

Durum wheat 

Sunflower 

195 

220 

182 

194 

446  

103 

79 

98 

134 

– 

– 

60 

GREECE 

Macedonia 

Thessaly 

SPAIN 

Andalusia 

Source: FADN 

In Greece (Macedonia) the cultivation of maize and cotton requires the same number of hours 
of  family  labour  (195),  while  in  Spain  cotton  requires  more  family  labour  (182  hours)  than 
maize (103), durum wheat (134) and sunflower (60). This implies that a switch from cotton to 
alternative crops would free family labour hours in this Member State. 

Labour is an important element in production costs. In Greece, assuming as opportunity cost 
the  paid  wage,  family  labour  alone  makes  up  about  a  quarter  to  one  fifth  of  the  total 
production  costs  per  hectare.  The  importance  of  family  labour  compared  with  total  costs 
should also be noted. 

Similarly, in Spain, labour is an important element in cotton production costs. Family labour 
constitutes about one third of the total production costs per hectare. 

30 

Some details of the structure of EU cotton-producing farms are given in Annex 5. 

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34 

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Table 18: Labour costs in 2004 (€/ha) 

GREECE - Macedonia

Cotton Maize Durum 

Sunflower

Contracted labour/services
Labour paid
Total family labour
Total
Labour cost/Total cost

GREECE - Thessaly
Contracted labour/services
Labour paid
Total family labour
Total
Labour cost/Total cost

SPAIN
Contracted labour/services
Labour paid
Total family labour
Total
Labour cost/Total cost

Source: FADN 

263
83
593
939
35%

247
30
682
960
39%

465
77
990
1.532
50%

129
46
591
766
37%

167
35
1.381
1.584
55%

215
118
560
892
42%

wheat
55
13
240
308
34%

70
25
303
399
42%

33
13
729
775
67%

-
-
-
-

-
-
-
-

59
50
325
434
59%

In 2005/06 the cotton ginning industry31 employed about 3 200 people in Greece and 1 350 
in Spain. Much of the employment is seasonal (from one third to a quarter)32. 

An overview of the social impact of the three different options, at farm and industry level, is 
given at the end of this section, in Table 19. 

5.3.2. 

Social Assessment of the Production Aid Option (Option 1) 

As it encourages more intensive production which requires a higher use of inputs, including 
labour, this option would be likely to boost seasonal employment in the ginning industry, at 
least in the short term. 

In the long term, however, the continued erosion of competitiveness in the sector could trap 
workers in low value added, poorly paid employment, so endangering the social sustainability 
of the regions concerned. 

As noted in Section 5.1.2.2, the deficiency payment system led to over-capacity in the ginning 
industry. Therefore, even under this option, a restructuring process with a down-sizing of the 
industry's  workforce  would  be  necessary  in  order  to  provide  sustainable,  long-term  rural 

31 
32 

Information on the structure of the EU cotton ginning industry is provided in Annex 7. 
See details in Annex 7 – Tables A7.2, A7.6 and A7.8. 

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35 

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employment. A restructuring could lead to a loss of about 900 work units in Greece and 800 
work units in Spain. 

5.3.3. 

Social Assessment of the Mainly Decoupled Option (Option 2) 

Data for 2006 indicate that the regime change has resulted in a reduction of inputs, including 
labour, in the cotton sector. This decrease was mainly in paid and/or contracted labour, while 
the number of hours worked by family members remained practically the same. 

At  farm  level,  however,  it  is  not  sure  that  there  was  a  drop  in  the  total  labour  employed,  as 
labour  no  longer  used  for  growing  cotton  may  have  been  re-employed  on  alternative  crops. 
Spain could be more sensitive to this fall in labour demand, as maize and wheat require one 
third fewer working hours than cotton. 

As  shown  in  2006,  job  losses  in  the  ginning  industry  could  be  relatively  large,  due  to  the 
reduced supply of unginned cotton, the acceleration of the restructuring process and reduction 
of over-capacity. 

While  losses  would  be  at  the  same  level  as  mentioned  in  Option  1  for  Greece,  1 120  work 
units would be lost in Spain. 

In the long term, the consolidation and restructuring of the industry and consequent gains in 
competitiveness  could  allow  the  industry  to  create  jobs  in  higher  value  added  activities. 
However,  the  overall  employment  balance  in  the  cotton  sector  should  be  expected  to  be 
negative. 

Rural development measures funded under this option will help to create rural employment in 
the regions affected and complementary sources of income for family farm members. 

5.3.4. 

Social Assessment of the Full Decoupling Option (Option 3) 

This option could have a relatively big impact on employment. 

At farm level, it can be assumed that labour no longer required for cotton would be employed 
in growing alternative crops. As the use of unpaid labour is higher for cotton than for maize, 
wheat  or  sunflowers,  some  labour  could  be  released  for  more  profitable  alternatives, 
particularly in Spain. 

As Spain's cotton area would entirely disappear under this option, the ginning industry would 
also close down, as it not economically viable to import raw cotton. This would result in the 
loss of all jobs (1 350) in Spain and an estimated 2 500 in Greece. 

5.3.5. 

Social impact and rural development 

Analysis  shows  that  any  decoupling  rate  will  ensure  the  maintenance  of  farm  income. 
However, the coupled/decoupled regime directly influences cotton production levels. In 2006 
in  Spain  some  producers  switched  to  other  crops  and  others  reduced  their  yields,  which 
resulted in an overall reduction of cotton output. The decoupling rate has an impact on both 
the farmer’s production choice and on the ginning industry. 

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Table 19: Summary of social impacts 

Option 1 

Option 2 

Option 3 

GREECE 

Farm 
level 

Normal trend of 
reduction in agricultural 
holdings 

Slight additional impact: 
a small reduction in 
hours needed per ha 

Slight additional impact: 
a reduction in hours 
needed per ha 

Ginning 
industries 

SPAIN 

Farm 
level 

Ginning 
industries 

Some impact due to 
over-capacity 
(loss of 230 permanent 
and 690 seasonal 
workers) 

Same impact as in 
Option 1 (loss of 230 
permanent and 690 
seasonal workers) 

 Loss of 620 permanent 
and 1 860 seasonal 
workers 

Normal trend of 
reduction in agricultural 
holdings 

Slight additional impact: 
a small reduction in 
hours needed per ha 

Slight additional impact: 
a reduction in hours 
needed per ha 

Greater impact due to 
over-capacity 
(loss of 175 permanent 
and 640 seasonal 
workers) 

Loss of 240 permanent 
and 880 seasonal 
workers 

Loss of 290 permanent 
and 1 060 seasonal 
workers 

The  current  Rural  Development  programmes  have  enabled  cotton  production  to  continue  in 
the  Nitrate  Vulnerable  Zones  of  regions  like  Andalucía  and  Thessaly,  where  restrictions  are 
imposed on fertiliser use. This is also beneficial for the ginning industry, whose supply of raw 
cotton has continued. 

Axis  I  of  the  Rural  Development  measures  can  be  used  to  maintain  the  competitiveness  of 
agricultural activities and to support re-orientatation to other crops. Similarly, these measures 
can  be  used  to  help  restructure  or  re-direct  the  ginning  industry  to  other  processing  and/or 
marketing activities. 

Axis  III  measures  can  be  used  for  investment  and  training  for  economic  diversification 
towards  non-agricultural  on-farm  and  off-farm  activities,  and  in  particular  to  support  the 
retraining of the ginning industry work force where necessary. 

In  2004  the  Commission  proposal  earmarked  a  specific  additional  amount  of  €103  million 
within  the  Rural  Development  programmes  to  finance  the  restructuring  process  in  cotton-
growing regions. Subsequently, in April 2004, the Council decided to reduce this envelope to 
€22 million. In the framework of 2007–2013 Rural Development programmes a total of €154 
million has been allocated to cotton-growing regions as additional Community support. 

EN 

37 

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5.4. 

Impact on International Relations 

5.4.1.  Background 

•  Global  cotton  production  in  the  2006/2007  marketing  year  was  25.4  million  tonnes.  The 
main  producers  are  China,  the  US  and  India  which  together  account  for  over  60%  of  the 
world's cotton production33. 

•  EU  production  represents  only  2%  of  global  output  and  2%  of  world  consumption.  EU 
trade in cotton is completely free: no import duties or quantitative restrictions apply and no 
refunds are paid on exports. 

Cotton  remains  an  internationally  sensitive  issue.  A  number  of  developing  countries  and 
NGOs  have  criticised  the  trade-distorting  policies  of  some  developed  countries  and/or  main 
cotton  producers,  which  they  claim  damage  their  domestic  production.  However,  a  clear 
distinction should be made between the EU and the US. 

The EU both imports and exports cotton (lint), but in net terms, it is an importer. Its trade has 
declined  and  it  is  a  relatively  small  actor  on  world  markets.  By  contrast,  US  exports  have 
greatly increased in recent years and the US has consolidated its position as the world's leading 
exporter of cotton. 

In  the  context  of  the  WTO's  Doha  Development  Agenda  (DDA)  it  has  been  agreed  that  the 
aim should be to make ambitious, rapid cuts in trade-distorting domestic subsidies for cotton 
production. 

The EU's 2004 reform of its cotton regime replaced price support by a system based mainly on 
decoupled income payments, so moving the regime from the amber box to the green and blue 
boxes. US support for cotton remains largely amber box and so subject to reduction. 

The "box" classifications given for each option refer to the system currently in place. 

5.4.2. 

Impact of the reform options 

A return to deficiency payments would contradict the EU's negotiating position in the "Doha 
Round". Production aid for cotton would be classified as amber box. 

The  2004  reform  reduced  the  trade-distorting  effect  of  EU  subsidies  granted  to  cotton.  The 
decoupled aid paid as farm income support is classified as green box. The coupled aid granted 
per hectare of cotton, limited to a fixed base area, is a blue box payment. 

A higher level of decoupling would increase the green box element and reduce the blue box 
element. 

A  fully  decoupled  support  regime  would  be  consistent  with  the  EU's  negotiating  position  in 
the "Doha Round". The decoupled payments would be classified as green box. 

33 

Further details of the EU and world cotton economy are provided in Annex 5. 

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5.5. 

Impact on the EU budget34 

Under  the  2004  reform  the  annual  budget  for  cotton  was  set  at  €803  million,  which  was 
equivalent  to  average  annual  expenditure  for  the  cotton  regime  in  the  2001–2003  reference 
periods. The final decision allocated this amount as follows: €502 million for decoupled aid, 
€275  million  for  coupled  aid,  €22  million  for  rural  development  measures  in  the  cotton 
growing  regions,  and  €4  million  for  inter-branch  organisations.  None  of  the  aid  is  allocated 
directly to ginners. 

The three options assessed are all budget neutral compared with current expenditure. 

Aside from the additional cost of controls, the Production Aid Option implies high variability 
in Community spending. Under the "deficiency payment" system, aid changed every year on 
the  basis  of  the  highly  variable  world  market  price.  In  the  period  1995–2005  Community 
spending varied annually between € 740 million and € 952 million. 

Spending under the Mainly Decoupled Option is far more stable, as the decoupled part of the 
aid is fixed. The only variable element is the area payment, which could only decrease, if the 
area under cotton falls. 

While in the Commission's 2004 proposal, the amount for rural development was set at € 103 
million  and  the  decoupled  payment  was  reduced  by  the  corresponding  amount,  the  Council 
finally  decided  to  earmark  only  €  22  million  for  rural  development  measures,  preferring  to 
further increase the decoupled payment budget. 

Given  the  high  stability  of  the  decoupled  payment,  the  Full  Decoupling  Option  is  the  most 
stable and predictable from the point of view of EU expenditure. 

5.6. 

Impact on Administrative Costs35 and Simplification 

The Production Aid Option implies the establishment of a deficiency system similar to that in 
place  before  the  2004  reform.  A  return  to  this  system  would  entail  significant  adjustment 
costs,  not  only  for  the  Commission  administration,  but  also  for  national  and  regional 
authorities  that  have  now  implemented  the  new  regime  for  almost  two  years,  and  for 
businesses that have adapted to the new system. 

For  the  ginning  industry,  the  granting  of  deficiency  aid  required  information  on  production 
volumes  of  ginned  and  unginned  cotton.  Associated  with  this,  an  advance  payment  system 
required  a  guarantee  system.  This  went  hand-in-hand  with  a  complex  system  of  contracts 
between farmers and ginners, and a system of aid applications to be completed by the ginner. 

Member  States  and/or  regions  would  have  to  carry  out  checks  on  areas  sown,  on  contracts 
between  ginners  and  farmers,  on  the  production  of  ginned  cotton  and  on  the  cotton  ginning 
rate.  In  addition  they  would  have  to  define,  implement  and  control  specific  environmental 
rules for cotton. 

For  the  Commission  administration  this  regime  required  the  constant  monitoring  of  world 
prices, which were the basic element for fixing the level of aid. Other important elements for 

34 
35 

See also detailed expenditure tables in Annex 9. 
Detailed tables for each Option are provided in Annex 11. 

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39 

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determining aid payments concerned production levels; these were provided by the interested 
parties and were difficult and costly to verify. 

In  summary,  this  option  is  extremely  complex  and  burdensome  for  both  beneficiaries  and 
public administrations. 

Table 20: List of measures currently entailing administrative costs 

Information to be notified or tasks to be fulfilled
Quality of unginned cotton
World market price of unginned cotton
World market price of ginned cotton
Estimated unginned production
Determination of actual unginned production
Reduction of guide price
Total budget expenditures
Calculating and fixing aid
Determination of the total eligible quantity
Aid application
Security referred to aid application
Application of supervised storage
Notification of quantity of ginned cotton 
Granting advances on the aid
Establishing security for advance on the aid
Provisional reduction of the guide price
Payment of advance on minimum price
Application for area aid  under IACS
Submission of contracts
Stock records
Checks: areas and productions
Penalty scheme
Communications  Reg.1591/2001 (Art 15)
Report on environmental situation

Information to be notified or tasks to be fulfilled
Objective criteria for approval of eligible areas 
Authorisation of varieties for sowing
Fixing the minimum plant density
Agronomic practices
Calculating the amount of aid 
Authorisation of inter-branch organisations
Operating rules for inter-branch organisations
Aid differentiation (scale)
Classification of cotton parcels for the scale
Communications 

Information to be notified or tasks to be fulfilled
Calculating  producer's entitlement to aid
Aid application
Cross-compliance Annex IV of Reg. 1782/2003
Cross-compliance Good agronomic practices
Administrative controls: - cross-check
Administrative controls spot-check

Producers

X

OPTION 1

Producers

Ginners

Member 
States

Commission

X
X
X
X
X
X
X
X

X

X

X
X
X
X

X

X

X
X

X
X

X

X
X
X
X 

X

OPTION 2

Producers

OIA

X
X
X

OPTION 3

Commission

Commission

Member 
States
X
X
X
X
X
X

X

Member 
States
X

X
X
X
X

Timing/ Frequency
every delivery
every 10 days
every day
twice a year
once a year
three times a year
once a year
once a year
once a year
every delivery
every delivery
every delivery
once a year
every aid application
every delivery
twice a year
twice a year
once a year
several times a year
continuous process
once a year
once a year
several times a year
before end 2004

Timing/ Frequency
once
once
once
once 
once per year
once per year
once 
once 
once per year 
once per year

Timing/ Frequency
once
once per year
once per year
once per year
once per year
once per year

Compulsory/
Optional
O
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C

Compulsory/
Optional
C
C
C
O
C
C
C
O
O
C

Compulsory/
Optional
C
C
C
C
C
C

The  Mainly  Decoupled  Option  would  establish  a  support  system  similar  to  the  post-reform 
regime,  which  has  now  been  operational  for  nearly  two  years.  Adjustment  costs  would 
therefore be minor. 

Compared  with  the  management  of  deficiency  payments,  the  administration  of  direct 
payments  is  lighter  and  derives  mainly,  if  not  exclusively,  from  the  decoupled  and  coupled 
payment system. 

The coupled payment requires the control of areas, but these are comparatively simple and can 
be carried out together with controls for other crops. 

EN 

40 

   EN 

 
The  decoupled  payment  benefits  from  the  mechanisms  put  in  place  for  the  Single  Farm 
Payment and so the marginal cost for its implementation is fairly low. 

Overall, this option is administratively simpler than Option 1 and entails lower costs. 

Although the Full Decoupling Option entails a change to the regime now in force, adjustment 
costs  would  be  relatively  light.  As  the  system  would  be  close  to  that  for  other  reformed 
sectors, no major modification to administrative mechanisms would be necessary. 

The  management  of  this  option  is  lighter  than  for  the  other  two.  The  absence  of  any  crop 
specific payment reduces both the costs and the risks related to controls. 

This option has the further advantage of being in line with the reformed CAP, whose central 
element is the decoupling of income support. Under this option, cotton production would be 
subject to the common rules for direct support. 

5.7. 

Governance and Participation 

There is little participation by beneficiaries in the governance of the Production Aid Option. 
Management  is  carried  out  by  central  authorities  and  the  mechanism  for  fixing  and  granting 
aid is quasi-automatic. 

The Mainly Decoupled Option implies a higher degree of subsidiarity: 

•  decisions  concerning  the  purpose  and  content  of  supplementary  aid  payments  and  agri-
environmental measures require cooperation between stakeholders and public authorities; 

•  for  the  coupled  part  of  the  aid,  the  definition  of  eligibility  criteria,  such  as  land  and 

varieties, necessitates close interaction with the sector; 

•  the conception and application of rural development programmes calls for consultation and 
collaboration,  to  ensure that the needs of the regions affected by the reform of the cotton 
regime are met. 

The  effect  on  good  governance  and  participation  of  the  Full  Decoupling  Option  should  be 
similar to Option 2. 

This  option  offers  total  subsidiarity  to  the  farmer,  who  will  have  greater  flexibility  and 
freedom as to the choice of farming activity, without any loss of direct income support. 

Rural  development  programmes  for 
collaboration from the sector, within the region and/or Member State. 

the  ginning 

industry  would  require  maximum 

EN 

41 

   EN 

6. 

COMPARISON OF OPTIONS 

Option 1 complies fully with the provisions of the Accession Protocol and ensures the highest 
employment levels in the cotton industry, at least in the short term. However, it diverges from 
the mainstream of the CAP reform process, as well as the overall thrust of EU policy towards 
simplification, subsidiarity and budget control. Its approach has the effect of undermining the 
long-term  competitiveness  of  the  sector.  It  does  little  to  meet  public  concerns  regarding  the 
environment and sustainable development. On the international front, this option is contrary to 
the  EU's  negotiating  position  in  the  DDA  and  may  appear  inconsistent  with  the  EU’s 
development policy, in particular vis-à-vis less developed cotton-producing countries. 

Option  3,  which  is  fully  in  line  with  the  objectives  of  the  CAP  reform  process  and 
simplification,  fails  to  comply  with  the  provisions  of  the  Accession  Protocols  regarding  the 
support of cotton production in the relevant regions. It would therefore require a modification 
to these Protocols. Implementation of this option would seriously threaten the existence of the 
EU cotton sector. This option has the advantage of stabilising farm incomes. It allows farmers 
greater freedom of choice and would be positive for the EU's international relations. Although 
there are risks associated with the most probable replacement crop, maize, in the long term this 
option could be environmentally positive. 

Finally, Option 2 strikes a balance between Options 1 and 3. It brings the cotton regime into 
the mainstream of the CAP reform process and responds to the goal of simplification, while 
also  respecting  the  provisions  of  the  Accession  Protocols  regarding  support  for  cotton 
production. It provides momentum for the cotton sector to move in the direction of long-term 
viability and promotes the sustainable development of the cotton-producing regions. It ensures 
a fair income to farmers, enhances the competitiveness of the sector and goes a long way to 
meeting  public  concerns  regarding  the  environment.  On  the  international  front  this  option, 
while not perfect, is quite acceptable, especially in view of the small scale of the EU cotton 
sector. Overall, this option best meets the different objectives of the reform, particularly if it is 
linked with a minimum quality standard and harvesting obligation. 

A comparative overview of the extent to which the three options would be likely to achieve 
the different objectives of the reform is given in Table 21. 

EN 

42 

   EN 

Table 21: Comparison of likely impact of the Options 

☺☺☺, ☺☺, ☺ for positive impacts  (cid:47)(cid:47)(cid:47), (cid:47)(cid:47), (cid:47) for negative impacts 

Likely impact on

Option 1 
Production aid 

Option 2 
Mainly Decoupled 

Option 3  
Full Decoupling 

Expanding area, yields and production.  

Production of 
cotton  

☺☺☺ 

35%  coupled  payment  allows  continuation  of 
cotton production although at lower yields. A 
further  decrease  to  coupled  area  payment 
could lead to a serious fall in production. 

The  introduction  of  a  harvesting  obligation 
associated  with 
quality 
requirement would guarantee quality.  

a  minimum 

☺☺ 

Alternative  crops  are  more  profitable  than 
cotton. Cotton production likely to collapse 
with knock-on effect on ginning industry.  

(cid:47)(cid:47)(cid:47) 

The  expansion  of  production  beyond  a 
certain  NGQ  triggers  the  reduction  of  the 
aid.  This  is  more  harmful  for  the  most 
fragile areas and small producers.  

Income  support  goes  directly  to  farmers  and 
stabilises  their  income  more,  while  allowing 
them to react to market by switching to other 
crops.  

Decoupled income support directly benefits 
farmers and leaves them to choose the most 
profitable  farming  activity.  Provides  good 
income stability.  

Income 

Lower  stabilisation  of  income  than  with 
decoupled payments. 

RD  measures  help  reorientation  process  of 
agricultural holdings. 

☺☺☺ 

☺☺ 

☺☺☺ 

EN 

43 

EN 

 
  
 
 
 
Price  support  weakens  entrepreneurial 
initiative  along  the  whole  chain.  Possible 
rent-seeking behaviour.  

competitiveness 
Ginning 
strengthened by rural development measures.  

industry 

Only profitable and quality production will 
continue. 

☺ 

Market 
orientation 

restructuring 

and 
Necessary 
consolidation  slowed  down,  so  keeping 
competitiveness 
at 
of 
relatively low level.  

industry 

process 

the 

☺☺ 

(cid:47)(cid:47) 

Simplification  

Very  complex  and  burdensome  for  both 
beneficiaries  and  administrations;  controls 
costly and difficult; regime partly based on 
data provided by beneficiaries.  

Relatively 
moderate. 

simple;  administrative  burden 

Simple;  administrative  burden 
common with other reformed sectors. 

low, 

in 

☺☺ 

☺☺☺ 

(cid:47)(cid:47)(cid:47) 

Very low level of subsidiarity 

Subsidiarity  

(cid:47)(cid:47)(cid:47) 

and 

agricultural 

Good 
environmental 
conditions,  together  with  supplementary  aid, 
environmental 
development 
measures to be defined at MS level. 

rural 

and 

and 

agricultural 

Good 
environmental 
conditions,  together  with  supplementary 
aid,  environmental  and  rural  development 
measures to be defined at MS level. 

International 
commitments  

In  contradiction  with  EU  negotiating 
position  in  DDA;  open  to  criticism  from 
developing countries. 

Consistent  with  EU  negotiating  position  in 
from  developing 
DDA.  Low 
countries. 

criticism 

Consistent with EU negotiating position in 
DDA. No negative impact for international 
relations. 

(cid:47)(cid:47)(cid:47) 

☺☺ 

☺☺☺ 

☺☺☺ 

☺☺☺ 

EN 

44 

EN 

 
  
 
 
Social  

Normal  trend  of  reduction  in  agricultural 
holdings;  some  long-term  reduction  in 
ginning industry employment, due to over-
capacity.  

Slightly  higher  impact  than  Option  1;  switch 
to  relatively  less  labour-intensive  production 
systems and crops, in addition to down-sizing 
of ginning industry. 

Slightly  higher  impact  than  Option  2; 
switch  to  relatively  less  labour-intensive 
crops,  in  addition  to  closure  of  most 
ginning plants. 

(cid:47) 

(cid:47)(cid:47) 

(cid:47)(cid:47)(cid:47) 

Incentive  to  expand  areas,  yields  and 
on 
production. 
environment 

Negative 

impact 

Some  possible  environmental  risk  associated 
with replacement of cotton by maize.  

Environmentally  positive,  although  risks 
associated  with  probable  replacement  by 
maize. Cross-compliance applies. 

Environment 

(cid:47)(cid:47) 

Encourages  low-input  low-yield  production 
system. Cross-compliance applies. 

Budget 

Highly variable despite stabilising 
mechanism  

Rather stable 

(cid:47) 

☺ / (cid:47) 

☺☺ 

☺ / (cid:47) 

☺☺☺ 

Absolutely stable 

EN 

45 

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7. 

MONITORING AND EVALUATION 

Monitoring  and  assessing  the  economic,  social  and  environmental  effects  of  EU  public 
policies has become a standard part of the political process, in order to propose further action 
or redirection of the measures, if necessary. 

The  reformed  cotton  policy  will  be  monitored  in  respect  of  the  whole  range  of  potential 
impacts identified in section 5 of this report. Progress towards meeting the objectives listed in 
part 3 will also be assessed. 

The  new  cotton  regime  will  be  included  in  the  multi-annual  evaluation  programme  for  CAP 
policies. 

7.1.  Monitoring in the cotton sector 

Many  of  the  procedures  necessary  for  the  application  of  the  cotton  regime  have  been 
developed  by  Member  States  and  relevant  stakeholders.  Considerable  experience  in 
monitoring  exists  in  the  Commission  services  and  in  the  Member  States.  However,  existing 
statistical  systems  covering  cotton  production,  market  trends,  micro-  and  macro-economics, 
the  evolution  of  regional  patterns  and  the  environment  represent  a  complex  framework  that 
needs to be simplified, adapted and reshaped to provide adequate information. 

Table 22: Indicators for monitoring cotton 

International analysis 

Source 

Main world producers and consumers: current situation and trends 

FAO, FAPRI, USDA outlook 

Main traders by products and regions 

Net-trade 

Prices 

COMTRADE 

FAO/COMTRADE/ICAC 

UNCTAD/FAO/WB/Cotton 
Outlook 

I
R
G
A
G
D

:
d
e
s
o
p
o
r
P

Border protections: comparison of tariffs and quotas (e.g. EU versus US)

WTO/AMAD/OECD 

Internal support: comparison of price and budget support (e.g. EU versus
US) 

WTO/WB/ICAC 

International issues 

Domestic analysis 

Economic importance of cotton in the producing region 

MS producing cotton: volumes, areas and yields – current situation and
trends 

Structural analysis of the EU cotton holdings  

Income of cotton farm 

The cotton system and the reform 

EAGF expenditure 

WTO /FAO/OECD/NGOs 

Source 

MS/EUROSTAT 

EUROSTAT 

EUROFARM 

FADN 

DG AGRI  

EU Budget 

The  Commission  is  responsible  for  monitoring  the  proper  implementation  of  the  provisions 
that  apply  to  the  cotton-specific  aid.  In  this  context,  Member  States  are  required  to  transmit 
information,  in  particular  regarding  the  implementation  of  cross-compliance  and  respect  of 
good  agricultural  and  environmental  conditions  (e.g.  statutory  management  requirements, 
agronomic practices, rotation and soil maintenance). 

EN 

46 

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The Commission services have already defined a series of indicators that cover economic and 
social  dimensions.  These  will  be  completed  by  relevant  indicators  referred  to  in  the 
Communication  on  the  development  of  agri-environmental  indicators  for  monitoring  and 
integration of environmental concerns into the common agricultural policy36. 

Table 16 lists the core elements that DG AGRI will keep under review, in respect of the EU 
situation  and  its  linkage  with  world  markets.  The  potential  sources  of  information  are  also 
indicated. 

Given the relevance of the family labour in the cotton sector and the importance of this sector 
in  certain  areas  of  Greece  and  Spain,  supplementary  indicators  will  be  used  to  capture  the 
main effects of the cotton regime. Specifically:  

Relevance of cotton in terms of area (%) in Macedonia and Thessaly (Greece) and Andalusia 
(Spain): 

Agricultural area utilised for growing cotton (ha)
Total utilised agricultural area (ha)

*100

Family labour in the cotton sector compared with the total agricultural sector (%)37: 

Family labour/regular labour for cotton sector
Family labour/regular labour for agricultural sector

The variables used to monitor the impact of EU cotton policy on local production systems in 
developing countries, in particular Benin, Burkina Faso, Mali and Chad, are listed in Table 17. 

Table 23: Indicators for monitoring cotton in developing countries 

Production in Developing Countries 

Importance of cotton in the producing countries 

Production volumes 

Production yield and quality 

Labour use in cotton production 

Structural analysis of the cotton production 

Environmental impact of cotton production 

Markets and Prices in Developing Countries 

Domestic prices 

Export prices 

Export (Volume and Value) by destination 

Commercial infrastructures: structure and ownership 

These monitoring activities will provide the information needed to meet the commitment made 
by  the  Commission  in  the  Agricultural  Council  of  22  April  2004,  to  prepare  a  report  for 
submission to the Council and the European Parliament by the end of 2009. The monitoring 
has already been initiated by DG AGRI. 

36 
37 

COM(2006) 508 final published on 15.9.2006. 
Values higher than 1 show a relatively greater family labour specialisation for cotton compared with the 
whole agricultural sector, vice versa for values lower than 1. 

EN 

47 

   EN 

 
 
 
                                                 
COTTON IMPACT ASSESSMENT 

ANNEXES 

ANNEX 1 – LIST OF MEETINGS ..................................................................................................... 2 

ANNEX 2 – STAKEHOLDER CONSULTATIONS............................................................................... 5 

ANNEX 3 – PRESENTATION OF THE COTTON SECTOR ................................................................. 12 

ANNEX 4 – DESCRIPTION OF THE EU COTTON REGIME.............................................................. 29 

ANNEX 5 – THE EU COTTON SECTOR ........................................................................................ 36 

ANNEX 6 – COSTS OF PRODUCTION AND GROSS MARGIN ........................................................... 49 

ANNEX 7 – ECONOMICS OF THE GINNING INDUSTRY.................................................................. 62 

ANNEX 8 – ENVIRONMENTAL IMPACTS ..................................................................................... 71 

ANNEX 9 – COTTON FIBRE QUALITY......................................................................................... 75 

ANNEX 10 – BUDGET EXPENDITURE.......................................................................................... 77 

ANNEX 11 – ASSESSMENT OF ADMINISTRATIVE COSTS.............................................................. 79 

ANNEX 12 – REPLY TO IMPACT ASSESSMENT BOARD............................................................... 82 

EN 

1 

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ANNEX 1 – LIST OF MEETINGS 

Date 

Name 

Participants 

02/06/2006  Cotton Advisory Group 

Cotton sector 

27/09/2006  COPA/COGECA 

27/10/2006  Management Committee for Natural Fibres 

Mrs E. Corral   
Mrs B. Reithmayer 

Delegates  to  the  Management 
Committee 

27/10/2006  Cotton Advisory Group 

Cotton sector 

15/12/2006  Management Committee for Natural Fibres 

20/12/2006  Cotton Inter-Service Group No 1 

Delegates  to  the  Management 
Committee 

AGRI,  BUDG,  DEV,  EMPL, 
ENV, OLAF, SG, TRADE 

11/01/2007 

Consultation  with  the  Legal  Service  of  the 
Commission  

DG AGRI Units H1 + C1 

30/01/2007  Management Committee for Natural Fibres 

02/02/2007 

Interservice Steering Group meeting No 2 

Delegates  to  the  Management 
Committee 

AGRI,  BUDG,  DEV,  EMPL, 
ENV, OLAF, SG, TRADE 

02/02/2007  Kick-off meeting socio-economic study 

ISG + LMC 

20/02/2007  Kick-off meeting environmental study 

ISG + Oréade-Brèche 

28/02/2007  Management Committee for Natural Fibres 

30/03/2007  Management Committee for Natural Fibres 

17/04/2007 

Meeting with the representatives of Junta de 
Andalusia 

Delegates  to  the  Management 
Committee 

Delegates  to  the  Management 
Committee 

Secretary  General  +  Permanent 
Representation  of  Spain  + 
DG AGRI and ISG 

EN 

2 

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27/04/2007  Cotton Advisory Group 

Cotton sector + ISG 

27/04/2007  LMC presentation of the ginning industry 

ISG 

24/05/2007  LMC presentation of 2nd interim report 

ISG 

24/05/2007 

Oréade-Breche  presentation  of  1st  interim 
report 

ISG 

25/05/2007  Management Committee for Natural Fibres 

Delegates  to  the  Management 
Committee 

25/05/2007 

Workshop  organised  by  DG  DEV  on 
development 
issues,  with  development 
NGOs 

DEV, AGRI + NGOs 

08/06/2007 

Presentation  about 
the  effects  of  CAP 
reform on Greek agriculture by Prof. Stelios 
of  Agricultural 
Rozakis,  Department 
Economics  &  Development 
the 
Agricultural University of Athens  

of 

DG AGRI + ISG 

21/06/2007  LMC presentation of 3rd interim report 

ISG 

21/06/2007 

Oréade-Breche  presentation  of  3rdinterim 
report 

ISG 

21/06/2007 

Workshop  organised  by  DG  EMPL  on 
issues,  with  employer  and 
employment 
employee representatives 

EMPL,  AGRI,  and  COPA-
COGECA/EFFAT 

03/07/2007 

Ad  hoc  cotton  working  group  of  the  CAP 
Advisory Committee 

DG  AGRI,  COPA  /  COGECA, 
industry, farmers, trade 

10/07/2007 

Workshop  organised  by  DG  AGRI  on 
environmental issues 

of 

the 
Representatives 
of 
Agricultural 
Athens  (Professors  Giourga  and 
Vlahos) and COPA/COCEGA 

University 

11/07/2007  LMC presentation of the final report 

ISG 

13/07/2007 

Presentation and discussion on first draft of 
the Impact Assessment  

ISG 

EN 

3 

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Commission Directorates General and Services  
invited to participate in the Inter-Service Group 

Budget (BUDG) 

Development (DEV) 

Economic and Financial Affairs (ECFIN) 

Employment, Social Affairs and Equal Opportunities (EMPL) 

Enterprise and Industry (ENTR) 

Environment (ENV) 

Eurostat (ESTAT) 

European Anti-Fraud Office (OLAF) 

Regional Policy (REGIO) 

External relations (RELEX) 

Secretariat-General (SG) 

Legal Service (SJ) 

Trade (TRADE) 

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ANNEX 2 – STAKEHOLDER CONSULTATIONS 

Summary of the meetings 

A2.1  Regular meetings 

On a regular basis the services of the Commission presented the timetable of the two studies 
concerning  the  environment  and  the  socio-economics  aspects  of  the  cotton  sector  covering 
following points: 

1. 

2. 

3. 
4. 

5. 

6. 

7. 

the  methodology  of 

Presentation  of  the  terms  of  reference  of  the  evaluation  study  of  the  environmental 
and socio-economic impacts of the CAP reform measures of the cotton regime. 
Informing  the  steering  committee  on  the  launching  of  an  internet  consultation 
concerning  economic,  environmental,  employment,  consumers,  international  trade 
aspects + request of suggestions 
Presentation of the current situation of the cotton sector in the EU and the world 
Presentation  of 
the  evaluation  study  concerning 
environmental aspects of cotton 
Presentation of the family of possible options and the progress of the external studies 
on cotton: 
•  production aid option 
•  partial decoupling option  
•  full decoupling option 
The  Commission  expressed  its  interest  to  collect  information  on  socio-economic, 
environmental and employment issues (see seminars) 
Timing: 
a. 
b. 
c. 
d. 

the first draft of the Impact Assessment (before summer break) 
submission of the draft to the Impact Assessment Board 
finalisation of the Impact Assessment 
adoption of the Commission proposal (November 2007). 

the 

A2.2 Workshops 

The objective of each workshop was to understand the concerns of stakeholders on the reform 
in  the  socio-economic,  environmental  and  international  (development)  issues  in  order  to 
prepare the impact assessment process. 

A2.2.1  DG Development in collaboration with DG Agriculture 

On 25 May 2007 DG Development organised a meeting with the development NGOs, during 
which  the  Commission's  representatives  presented  the  world  market  of  cotton  as  well  as  the 
possible scenarios for the future reform. 

Main concerns of the representatives of the interested NGOs included the consequences of the 
reform on the WTO negotiations. For them the proposed scenario cannot result in a return to 
practices not advised under the WTO agreement. Another issue concerned the implications of 
different  options  on  particular  stakeholders  of  the  cotton  sector  (farmers  and  ginners)  –  the 
consequences shall be much more important for the ginners. The participants asked if the agri-
environmental  aid  could  be  considered  as  a  specific  production  aid.  The  Commission's 

EN 

5 

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representative  replied  that  the  agro-environmental  aid  is  an  additional  compensation  to  a 
farmer for going beyond the compulsory standards (cross-compliance). 

A2.2.2  DG Employment in collaboration with DG Agriculture 

On  26  June  2007,  DG  Employment  organised  a  meeting  and  social  partners  from  COPA 
GEOPA and EFFAT, who act as European social partners in the framework of the agriculture 
social  dialogue  committee.  After  a  presentation  of  the  main  issues  of  the  reform,  the  social 
partners were called to shed light on the different policy options linked to the reform.  

EFFAT expressed its concern about the restructuring of the European Regions whose cotton 
activities will be affected and asked for special aids and tools in order to help these European 
agricultural  Regions.  COPA  GEOPA  expressed  its  concern  about  employers'  activities 
disappearance,  incomes  upholding,  age  structures,  possibilities  of  vocational  training  while 
conversion and European funds that should be allocated to balance this situation. The Greek 
and  Spain  experts  from  COPA  GEOPA  explained  the  importance  of  cotton  in  Greece  and 
raised the issue of competition of this industry and stated that cotton was mainly developed in 
Andalusia, which is an Objective 1 region, according to FEDER. In Andalusia there has been 
no alternative for this region and big investments have been made in this activity for years. DG 
Agriculture  recalled  that  the  Court  did  not  question  the  approach  to  the  reform,  which  had 
been agreed by the Council, and that written contributions should be sent to DG Agriculture 
before the end of July 2007, in order to be taken in to account in the impact assessment. 

A2.2.3  DG Agriculture on environmental issues 

The objective of this consultative group (10 July 2007) was to give the possibility to debate on 
the  absolute  and  relative  (compared  to  the  other  alternative  crops)  environmental  impacts  of 
cotton. Participants were two experts from the Greek WWF – Professors Giourga and Vlahos; 
Spanish  experts  accompanied  COPA-COGECA  and  officials  from  DG  Environment  and 
DG Agriculture. The first part consisted of a general presentation of the cotton sector and the 
environmental aspects of cotton. The second part consisted of a discussion to understand the 
good  and  bad  practices  in  cotton  cultivation,  the  environmental  opportunities  (water  use, 
fertiliser use, pesticide use, rotation, comparison between alternative crops, GMOs). 

Main conclusions after a discussion were that: 

•  when  considering  maize  as  an  alternative  crop  to  cotton  the  main  constraint  will  be  the 
water restriction and maize is not necessarily better for environment than cotton. The needs 
in terms of water for 100 ha of cotton are equal to 70 ha of maize and 30 ha of dry culture; 

•  water  quantity  both  in  Greece  and  Spain  will  be  the  limiting  factor  in  the  future  for 
irrigation crops (as producers are not paying the actual water cost currently). Changes may 
occur in 2009 when the water pricing requirements of the Water Framework Directive will 
have to be implemented; 

•  in  Thessalia  (Greece),  farmers  are  continuing  to  produce  cotton  as  agri-environmental 

payments are making it profitable do so; 

•  Spain  has  made  a  lot  of  effort  to  introduce  integrated  production  schemes  which  has 
improved  the  environmental  performance  of  the  cotton  crop  (e.g.  no  more  plastic  use, 
limitation of fertilisers under Nitrate Directive). 

EN 

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Also  a  meeting  was  attended  (6  June)  on  the  concerning  the  impact  of  pesticides  with  PAN 
(Pesticide  Action  Network)  and  EJF  (Environmental  Justice  Foundation)  in  which  they 
explained the worldwide impact of pesticide use of cotton on environmental and health issues 

A2.2.4  Ad hoc Consultative group on Cotton (organised by DG Agriculture) 

On 3 July a meeting was organised to give stakeholders the possibility to express their main 
concerns, priorities and opportunities for the new proposal for the reform of the cotton regime. 

A  presentation  was  given  as  an  introduction  to  the  discussion  dealing  with  the  following 
matters,  the  current  situation  of  the  cotton  regime  (quantity  and  quality),  the  international 
context,  the  structure  of  the  producers  and  the  ginning  industry,  the  economics  of  cotton 
production, the environmental aspects and the different scenarios that will be analysed before 
a  new  proposal  will  be  done.  The  participants  were  asked  to  comment  on  the  different 
scenarios  and  their  impact  on  cotton  production  (quantity  and  quality),  processing  industry, 
agriculture at regional level, employment and environmental issues. 

Main conclusions were: 

•  certain levels of cotton production should be maintained, as this is an obligation that forms 

part of the accession Protocols of Spain and Greece; 

•  the  cotton  industry  plays  an  important  role  as  it  forms  the  primary  production  in  areas 

where there is a high concentration of cotton production (e.g. Thessalia); 

•  the  quality  of  cotton  was  a  main  concern  of  the  members  present,  as  under  the  current 
reform  the  coupled  payment  is  based  on  the  opening  of  bolls.  A  possible  solution  is  the 
obligation to harvest which would involve a higher supply to the ginning industry; 

•  the  environmental  issues  play  an  important  role  and  the  environmental  impact  can  be 
reduced 
through  alternative  practises  and  agri-environmental  practises  (integrated 
production).  Concerning  the  alternative  crops:  growing  cotton  uses  less  irrigation  water 
than  maize,  but  differences  in  terms  of  pesticides  and  other  environmental  damaging 
aspects should be analysed in detail; 

•  the  cotton  sector  may  have  to  consider  product  differentiation  creating  a  niche-market 
compared to the world market (e.g. high quality cotton). Traders and the representatives of 
the industry underlined the interest to promote the EU quality cotton; 

•  an aid for restructuring the industry should be considered, as ginning plants are closing and 

under the new regime the production may decline to a lower level; 

•  EFFAT raised the fact that a loss employment in the cotton sector is bound to happen. 

A2.3.  Public consultation: Executive summary of the internet consultation 

As part of a general stakeholder consultation the aim of this public internet consultation was to 
collect contributions from a broad range of individuals and organisations that are interested in 
the EU's cotton policy.  

Important limitations in interpretation of the results include the nature of public consultations 
of  this  type.  Respondents  had  to  be  aware  of  the  ongoing  consultation,  had  to  have  internet 
access,  answers  were  anonymously  (background  of  the  respondent  cannot  be  checked), 
misunderstanding  of  questions  on  complex  issues,  over-representation  of  some  stakeholders 
groups.  However  the  latter  problem  can  be  overcome  if  the  stakeholders  are  dealt  with 

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separately  instead  of  together.  In  view  of  the  above  cited  limitations,  this  report  does  avoid 
over-interpreting the results in the utmost details. 

This  document  is  one  of  the  many  documents  stemming  from  the  stakeholder  consultation 
process  for  cotton.  The  aim  of  this  document  is  to  understand  the  main  tendencies  and 
concerns of each stakeholder category. Also it is important to note that quality of the answers 
was  good  and  rational  according  the  stakeholder  group  and  has  helped  the  Commission 
services to understand the priorities of each stakeholder group. 

Six  stakeholder  groups  were  differentiated  farmers,  the  cotton  industry,  consumers,  experts, 
government  and  NGOs.  However  not  all  were  equally  represented.  One  third  of  the  total 
respondents  were  farmers.  The  cotton  industry,  experts  and  the  consumers  were  also  well 
represented  (16–18%  for  each  category).  In  terms  of  geographical  background  responses 
mainly came from Greece and Spain, the main cotton growing areas. 

Economic  issues  prevail  as  the  main  point  of  concern  of  all  stakeholders  is  the  payment 
scheme. About half of the respondents agree with decoupling. It is mainly the ginning industry 
that  most  favours  coupling,  while  experts,  government  and  NGOs  are  mostly  in  favour  of 
decoupling  (mainly  partial,  but  some  also  full).  About  half  of  the  farmers  are  in  favour  of 
completely  coupled  aid  and  the  other  half  are  in  favour  of  decoupling  (mainly  partially,  but 
some also fully). In the reform all stakeholder categories (except for the industry) think that 
the support should go to farmers.  

The cotton industry proposes support to both  cotton farmers and the industry. Simplification 
does  not  seem  to  be  a  main  concern  for  most  stakeholders.  The  majority  of  the  respondents 
responded  positively  to  support  cotton,  although  the  NGOs  were  less  in  favour.  The  main 
priorities  among  all  respondents  (except  the  industry)  are  keeping  environmental  friendly 
production  techniques.  Also  quality  concerns  were  an  important  priority  for  different 
categories (farmers, the industry, consumers and NGOs).  

The  main  environmental  problems  revealed  by  all  stakeholders  are  water  consumption  and 
pollution.  Stakeholders  commented  that  maize  and  sugar  (the  main  quoted  alternatives)  use 
even  more  water  and  fertilisers.  Main  solutions  for  environmental  problems  are  the  use  of 
sustainable  farming  techniques  with  fewer  inputs.  Consumer  and  quality  issues  indicate  that 
there  is  favourable  tendency  to  support  high  quality  cotton  but  among  all  stakeholders 
opinions are mixed whether support should only be limited to these segments of the sector. 

From a global point of view all respondents were positive about the future of the demand for 
cotton. On international issues, farmers and the industry are in favour of maintaining the EU's 
current  2%  share  of  world  production,  while  NGOs,  experts,  consumers  and  government 
recognise  that  EU  cotton  support  has  a  negative  impact  on  developing  countries,  or  believe 
that the EU should help support African cotton-producing countries.  

Social  concerns  of  this  consultation  highlight  the  importance  of  cotton  cultivation  for  the 
economies of the regions concerned. Many stakeholders fear unemployment and rural exodus 
if  the  cotton  reform  is  too  drastic.  Main  alternative  options  cited  are  maize  and  to  a  lesser 
extent durum wheat. All stakeholders are in favour of using rural development programmes in 
cotton  areas  to  improve  the  quality  of  cotton  and  all  are  in  favour  of  agri-environmental 
measures (except for the ginning industry).  

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A2.4.  Specific meetings 

A2.4.1  Representatives of the Andalusian government 

On  17  April  2007  a  meeting  with  representatives  of  the  Junta  de  Andalucía  and  the 
Commission representatives from DG ECFIN, OLAF, DG AGRI C1, D1, Directorate G, G1 
was organised. Teresa Saez (Secretary General of Agriculture and Rural Development, Junta 
de Andalucía) presented the situation of cotton in Spain, the impact of the 2004 reform and the 
Andalusian proposal for a future reform of the cotton sector. 

The Government of Andalusia pointed out that the Judgement of the European Court of Justice 
was  positive  because  no  impact  assessment  was  made  in  the  concerned  municipalities,  no 
account had been taken of the decoupled payment on calculating the profitability of cotton, no 
account had been taken of wages and no impact study had been done on the ginning industry. 
Two studies (socio-economic and environmental) were made by the government de Andalucía 
which were presented at the occasion of this meeting. 

In a first part the characteristics of cotton agri-business in the Andalusian economy in a pre-
reform setting were presented. Cotton agri-business represents 25% of the total employment, 
10% of GGP, 90 000 ha of irrigated land, 10 000 farmers (80% family farmers) and 25 ginning 
plants. There is a complex agro-industrial system associated to the cultivation of cotton (seeds, 
inputs, machinery), concentrated in the very same area where other reforms are currently being 
implemented: sugar beet, processed tomatoes.  

According  to  the  government  of  Andalusia  the  impact  of  the  reform  for  2006/07  campaign 
with  respect  to  2005/06  involved  a  24.8%  reduction  in  crop  area  (to  62 000  ha),  a  45% 
reduction  in  yields,  the  disappearance  of  the  crop  in  the  region  of  Murcia,  2 000  farmers 
(about 20%) that abandoned the crop.  

The  impact  on  the  ginning  industry  was  the  following:  5  out  of  the  25  ginning  industries 
stopped their activity, a decrease of 60% in processed raw material, a quality decrease due to 
the  increasing  use  of  stripper  harvester,  an  increase  in  fixed  costs,  a  38%  decrease  in 
employment due to less work shifts, smaller campaign length, less temporary employment. 

What  the  Andalusian  government  is  proposing  is  not  to  change  from  the  philosophy  of  the 
2003 reform, but to impose a period of adaptation in order to adopt adequate measures for the 
Region.  The  Member  States  should  be  able  to  differentiate  the  coupled  aid  based  on  non 
discriminating  specific  objectives,  like  yields  or  quality,  etcetera.  The  coupled  part  should 
involve  70 000  ha  in  Spain.  The  following  arguments  were  raised  to  propose  the  decoupled 
part of payment should no be higher than 20%: 

•  based on the profitability of cotton, with 65% decoupling is negative (based on Andalusian 

government calculations); 

•  46 000 ha is under integrated production, which requires less use of plastic (about 5 tonnes 
of  plastic  less  than  traditional  production)  and  less  phyto-sanitary  treatment.  The  agri-
environmental aid reaches 60 000 ha of cotton and concerns a payment of €350/ha which is 
given for integrated production is low and lasts only five years (current regime will be valid 
until 2013); 

•  the  traditional  crop  does  not  involve  any  obligation  to  harvest;  consequently  farmers 

cultivate the crop until the opening of bolls, wasting irrigation water and energy; 

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•  concerns were noted on the massive move from cotton to other crops, which could translate 
the  problem  into  other  sectors.  The  region  is  currently  already  undergoing  effects  of 
implementing the sugar reform; 

•  in  order  to  allow  the  whole  chain  to  adapt,  it  is  necessary  that  the  restructuring  and/or 
diversification of the ginning industry (measures like the ones implemented with the sugar 
reform would be preferred). 

A2.4.2  Meeting with Greek Agricultural Economic experts 

Prof.  Rozakis  (Department  of  Agricultural  Economics  and  Development,  University  of 
Athens)  was  invited  to  present  his  work  on  the  "new  CAP  impacts  to  cotton  growers  in 
Greece".  The  sample  was  based  on  987  farms  cultivating  at  least  0.1  ha  of  cotton  and  the 
methodology used was mathematical programming. According to the model, the main current 
results  are  that  a  decrease  in  cotton  cultivated  area  of  about  30  percent  is  to  be  expected 
(mainly  in  Thessaly  (41%)  and  Macedonia-Thrace  (37%)).  Durum  wheat  decreases  overall 
(25%) due to dramatic decrease in Macedonia-Thrace and secondly in Sterea. Durum wheat is 
expected to increase also in Thessaly. It may be replaced by soft wheat (especially in Northern 
Greece).  Alfalfa  is  considerably  increasing  (55%)  mainly  cultivated  in  Macedonia-Thrace 
(threefold) and secondly in Thessaly (149%). Maize doubles its acreage. Not harvested cotton 
is  extensively  cultivated  in  Macedonia-Thrace  aiming  at  the  coupled  subsidy  reserved  to 
cotton.  Further  investigation  with  regard  to  slippage  or  abandonment  of  activities  is  still 
needed. 

A2.4.  Parliamentarian  questions  received  and  4  letters  received  from  COPA,  the 

Greek ginning association and the Spanish ginners 

The notes were answered and considered in establishing a view of the stakeholders.  

A2.5.  General Conclusions 

All  stakeholders  have  had  a  fair  possibility  to  express  their  concerns  at  different  moments 
(January  2007–July  2007),  through  different  contributions  (specific  meetings,  workshops, 
public  consultation,  letter  and  questions)  and  on  different  topics  (regional,  international, 
development, employment, social, environmental, consumer, quality issues): 

It is clear that the current 2004 cotton reform has implied many stakeholders to react as this 
has had socio-economic and environmental implications in the regions concerned.  

From  a  socio-economic  stakeholder's  point  of  view,  the  employment  loss  and  the  possible 
restructuring of the ginning industry must not be neglected. Stakeholders expressed the needs 
for special tools and a period for adaptation to help adapt to a possible new regime. The strong 
regional dependence on cotton in some areas should also be considered. Also very important 
to  consider  is  that  maintaining  cotton  production  is  part  of  the  Adhesion  Protocol  No 4  of 
Greece 

When stakeholders with environmental interests were consulted, it can be noted that although 
Member states may have done efforts to cotton production in Spain and Greece, the intensive 
cotton production does have a strong environmental impact in terms of water use and quality 
and  other  inputs.  Also  the  impact  assessment  should  consider  the  environmental  impacts  of 
alternative  crops,  as  in  some  cases  these  may  replace  the  current  cotton  production.  Finally, 
the 2003 CAP reform emphasises the importance of cross-compliance measures.  

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Development  and  international  players  highlighted  clearly  that  a  proposal  should  be  in  line 
with a strong negotiation position at the WTO and the EU commitments to the least developed 
countries. At several occasions the conditions of coupled aid in terms an obligation to harvest 
versus a boll opening were highlighted. 

It  is  clear  that  a  new  reform  must  take  into  account  the  stakeholders  involved  and  provide 
measures for the ones that may be an unfavourable position. 

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Annex 3 – Presentation of the cotton sector 

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ANNEX 4 – DESCRIPTION OF THE EU COTTON REGIME 

The EU cotton regime was introduced in 1981 with the accession of Greece into the European 
Community and expanded with the accession of Spain and Portugal in 1986. Until the reforms 
of 2004 (which were first implemented in 2006), the main principles of the regime remained 
largely unchanged, although the scheme was revised six times. 

Protocol 4 established a Community support programme for cotton. According to the Protocol, 
the support system is intended “particularly to support cotton in the regions of the Community 
where it is important for the agricultural economy, to permit producers concerned to earn a fair 
income  and  to  stabilise  the  market  by  structural  improvements  at  the  level  of  supply  and 
marketing.”  

Paragraph 3 of Protocol No 4 provided that such a system ‘shall include the grant of an aid to 
production’,  while  paragraph  11  of  Protocol  No  4,  in  its  original  version,  both  required  the 
Council to review the operation of the support system for cotton and provided it with the vires 
to  modify  that  system.  It  was  on  the  basis  of  that  paragraph  that  the  Council  modified  the 
system since its original adoption. 

A4.1  The Regime prior to 2006 

Basic Principles of the Regime 

The basic principles of the regime were that: 

•  producers received a minimum per tonne price for unginned cotton; 

•  this price comprised an unginned cotton price derived from the world market price plus a 

payment from the EC; 

•  the payment from the EC was made to the ginners, who then paid the growers. 

•  the level of payment from the EC was based on the difference between a “guide” price that 

was fixed by the Council and the world market price; 

•  growers  received  a  minimum  price,  which  was  computed  as  the  guide  price  minus  a 

permitted administrative cost which was claimed by the ginners; 

•  the  guide  price  protected  growers  from  fluctuations  in  the  world  price,  but  allowed  the 

ginners to sell cotton fibre at prevailing world market prices; 

•  when  cotton  production  exceeded  certain  reference  levels,  a  stabiliser  mechanism  was 
enacted which reduced the guide and minimum prices with a view towards reducing grower 
prices and hence over-production. 

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Evolution of the Regime 

A4.2 

1981 – 1985 

Under  the  original  scheme1,  the  guide  price  was  set  annually  by  the  Council  and  the  world 
market price for unginned cotton was determined by the Commission. In the latter case, where 
price quotations were not available for unginned cotton, the world price was determined from 
the value of products obtained from ginning and estimated ginning costs.  

Ginners applied for aid from the national authorities no later than the day on which the product 
entered their undertaking. To allow forward contracts to be negotiated, applications could be 
made before the product was physically available.  

The minimum payment was based on a standard quality unginned cotton which was defined 
on the basis of its impurity and moisture contents, length and grade of fibres. 

The guide price was limited to a maximum guaranteed quantity (MGQ) which the Council set. 
If production exceeded the MGQ, a stabiliser mechanism reduced the price actually paid to the 
growers  and  the  aid  they  received.  If  the  estimated  production  before  the  start  of  the  cotton 
year was greater than the MGQ, the guide price was reduced by 1% for every 15 000 tonnes 
by which the MGQ was exceeded. In practice, the MGQ was set at 560 000 tonnes and was 
never exceeded.  

A4.3 

1986 – 1991 

With  the  accession  of  Spain  and  Portugal,  among  whom  only  Spain  was  then  a  producing 
country, the MGQ was increased to 752 000 tonnes with effect from the 1986/87 cotton year. 
In  1987/882,  to  protect  growers  from  a  large  fall  in  the  minimum  price  (due  to  production 
exceeding the MGQ), a cut-off point was introduced below which the guide price could not be 
reduced.  The  cut  off  was  initially  set  at  15%  below  the  guide  price,  but  later  the  maximum 
price reduction was raised to 25%. 

There were a number of limitations to the scheme: 

(cid:132) 

(cid:132) 

(cid:132) 

(cid:132) 

production always exceeded the MGQ between 1986 and 1991; 

although the MGQ was set at 752 000 tonnes, it could be adjusted on the basis of the 
gap found between actual production and estimated production for the preceding year. 
Consequently,  and  despite  the  operation  of  a  cut  off  point,  the  reduction  in  the  guide 
price fluctuated between 6% and 25% each year; 

the quality of cotton produced in the Community was below the standard that formed 
the basis of the regime’s measures determining prices. This was because the regulations 
did  not  take  account  of  organic  impurities  and  so  producers  had  little  incentive  to 
produce clean cotton; and  

as aid was payable no later than the day in which the cotton was lodged, this meant that 
if ginners were unable to sell or hedge that cotton immediately, they were subject to the 
full risk inherent in fluctuating world prices. 

1 
2 

Council Regulation (EC) No 2169/81. 
Council Regulation (EC) No 1964/87. 

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Under Regulation (EEC) No 1152/90 a system of aid for small producers (whose area did not 
exceed 2.5 hectares) was established. Its purpose was to compensate these producers for the 
falls  in  income  brought  about  by  the  stabiliser  mechanism.  The  aid  was  set  at  a  level  to 
compensate for the costs involved in hand picking cotton (this aid amounted to ECU 250 per 
hectare, but the area eligible for payments was  limited to 73 000 hectares  in  order  to ensure 
budget stability). When the area under cotton, exceeded this amount, the aid was reduced in 
proportion to the extent of the overrun. 

A4.4 

1992 – 1995 

In light of the limitations noted above, the operation of the regime was adapted3: 

1. 

2. 

3. 

4. 

5. 

6. 

annual  fixing  of  the  MGQ  was  abandoned  in  order  to  reduce  uncertainty  at  sowing 
time; 

the MGQ was no longer adjusted on the basis of the gap between actual and estimated 
production in the preceding year; 

the  15 000  tonne  tranches  for  establishing  the  reduction  in  the  guide  price  were 
replaced by a coefficient that was calculated using the overrun on the MGQ; 

any reduction in the guide price, when actual production was higher than the MGQ, 
was limited to 20%. However, if the fall in the guide price should have been greater 
than 20%, any excess was carried over and thus served to reduce the guide price in 
the next cotton year. This was known as the “cut-off and carry over system”; 

the  standard  quality  of  unginned  cotton  was  adjusted  to  take  account  of  organic 
impurities; 

aid  applications  from  ginners  could  now  be  lodged  after  the  day  in  which  delivery 
was made to the ginner. 

Production  continued  to  exceed  the  MGQ  and  guide  price  reductions  were  enacted.  An 
objection  that  was  made  to  the  revised  regime  was  that  the  uniform  reduction  in  the  guide 
price was felt to be unfair to Spanish growers whose production, in part due to drought, had 
not expanded, while Greek production continued to expand. 

A further criticism of the measures was that the operation of the scheme for small producers 
led to a change in the production structure and an increase in the number of small farms.  

A4.5 

1995 – 2000 

The regime was further revised in June 19954. On the basis of the EU’s internal demand for 
cotton  fibre  and  taking  account  of  the  areas  judged  suitable  for  production,  the  MGQ  was 
increased. At the same time, to ensure budget neutrality, the guide and minimum prices were 
reduced.  

The MGQ was increased to 1 031 000 tonnes and, to ensure fairness between member states, a 
National Guaranteed Quantity (NGQ) was introduced for each producing country. If national 
production  exceeded  the  NGQ  then  the  aid  was  reduced  proportionately  in  the  country 

3 
4 

Council Regulation (EEC) No 2052/92. 
Council Regulations (EC) No 1553/95 and (EC) No 1554/95. 

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responsible for the excess. The NGQ was set at 782 000 tonnes for Greece and 249 000 tonnes 
for Spain. Other countries with cotton potential were permitted a quota of 1 500 tonnes.  

Under  the  stabiliser  mechanism,  the  price  fell  by  0.5%  for  every  1%  by  which  actual 
production  exceeded  the  NGQ.  However,  aid  to  the  sector  was  required  to  be  at  least 
€770 million in magnitude. In the event of high international prices, when the level of aid per 
tonne was reduced, the reductions in guide price were moderated to ensure that the minimum 
level of budgetary expenditure was reached. 

The guide price was set at €1 063.0 per tonne of unginned cotton and the minimum price at 
€1 009.9 per tonne. The required quality standards were that the cotton was: 

(cid:132) 

(cid:132) 

(cid:132) 

of fair sound and merchantable quality; 

having 10% moisture and a 3% impurity content; 

having  the  necessary  characteristics  to  produce,  after  ginning,  32%  grade  5  fibres 
(white middling) of 28 mm length (1-3/32 inches). 

The world market price for unginned cotton was determined by the Commission on the basis 
of  the  historical  relationship  between  the  world  market  price  for  ginned  cotton  and  the 
calculated price for unginned cotton, rather than an estimate of production costs. 

The world market price was based on the above quality standards, and an average of offers and 
quotes  made  at  one  or  more  European  exchanges  for  a  product  delivered  c.i.f.  Northern 
Europe. The Cotlook “A” cotton price acted as a proxy for this price.  

Under the revised scheme, the cut-off and carry over system was abolished. Aid was received 
when the cotton was ginned, but advance payments could be made when the unginned cotton 
entered the ginner’s undertaking, subject to the provision of adequate security by the ginner. 
The advance could not exceed 40% of the guide price. The balance was paid on ginning and 
before the end of the marketing year.  

The scheme for small producers (Regulation (EEC) No 1152/90) was repealed. 

Over  the  period  production  continued  to  be,  on  average,  above  the  NGQ  in  both  Spain  and 
Greece and in 1999/2000, with low prices, budget expenditure rose to record levels. Portugal 
began  cotton  farming  in  1997/98  and  all  its  unginned  cotton  was  processed  by  Spanish 
ginners.  

A4.6 

2001 – 2005 

A  sixth  amendment  of  the  scheme  was  introduced  in  May  20015.  The  regulation  sought  to 
simplify  the  system  as  the  legislative  arrangements  where  considered  too  complex. 
Consequently, paragraph 11 of Protocol 4 was repealed and replaced by an enabling provision 
(now paragraph 6 of Protocol 4). The paragraph stated that ‘the Council, acting by a qualified 
majority  on  a  proposal  from  the  Commission  and  after  consulting  the  European  Parliament, 
shall decide on the adjustments necessary to the system introduced pursuant  to  this Protocol 
and shall adopt the general rules necessary for implementing the provisions of this Protocol’.  

5 

Council Regulation (EC) No 1050/2001. 

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At  the  same  time,  and  on  the  basis  of  the  new  paragraph  6,  Council  Regulation  (EC) 
No 1051/2001 was adopted. Under the regulation: 

1. 

The  guide  price  and  minimum  prices  were  maintained  at  their  previous  levels.  The 
NGQ was maintained at 782 000 tonnes for Greece and 249 000 tonnes for Spain and 
1 500 tonnes for other member states. However, further penalties were introduced if 
total Community production rose above 1 500 000 tonnes (Table A4.1). 

Table A4.1: Revised NGQ and Enforced Penalties, 2001 – 2005 

NGQ 

'000 tonnes 

1st penalty 

Second NGQ 

'000 tonnes 

2nd penalty 

Greece 

782 

Guide  price  reduction  of 
50%  of  the  %  rate  of 
overshoot 

1.138 

Spain 

249 

Guide  price  reduction  of 
50%  of  the  %  rate  of 
overshoot 

362 

Source:  DG AGRI. 

Additional  2%  penalty 
the  guide  price 
on 
reduction 
each 
for 
15 170  tonnes  above  the 
second NGQ 

Additional  2%  penalty 
the  guide  price 
on 
reduction 
each 
for 
4 830 tonnes  above  the 
second NGQ 

The level of aid to the sector was still required to be at least €770 million and, in the case of 
high  international  prices  when  the  level  of  aid  per  tonne  was  lower,  the  reductions  in  fixed 
prices were moderated to ensure the minimum level of expenditure. 

2. 

3. 

4. 

The  means  for  calculating  the  market  price  for  unginned  cotton  was  set  out  in  a 
formula. The price was recalculated three times each month.  

The  rules  for  advance  payment  were  revised  so  that  an  advance  could  be  made, 
subject to the necessary securities being in place, when unginned cotton entered the 
ginners’  “supervised  storage”  system.  The  advance  could  then  be  made  for  the  full 
value of the aid.  

Under the revised scheme, for the first time, member states were required to consider 
environmental issues in the granting of the aid. The Member States were required to: 

(cid:132) 

(cid:132) 

determine measures to improve the environment, paying particular attention to 
cultivation techniques; and 

develop  research  programmes  into  more  environmentally  friendly  grower 
measures and inform growers of the results of such research.  

In  addition,  MS  could  restrict  the  areas  eligible  for  production  aid  on  the  basis  of  objective 
criteria relating to: 

(cid:132) 

(cid:132) 

(cid:132) 

EN 

the agricultural economy where cotton was the major crop; 

the soil and climatic conditions in the region concerned; 

the management of irrigation water and rotation systems and cultivation methods likely 

33 

   EN 

 
 
 
to improve the environment. 

In Spain, this meant that from 2002/03 a system of compulsory crop rotation was introduced at 
farm level, while in Greece a national decree limiting the production area eligible for aid was 
introduced. This eligible area was set at 393 700 hectares (a 5% reduction on the average area 
in previous years).  

A4.7  The basic principles of the new regime 

In  2003,  the  Mid-Term  review  of  the  Agenda  2000  reform,  provided  a  far-reaching  general 
reform of the CAP. The guiding principle was a move away from price and production support 
for  specific  crops  to  one  of  direct  support  for  farmers’  incomes.  Regulation  (EC) 
No 1782/2003  implemented  the  CAP  reform  and,  from  October  2003,  subject  to  transition 
arrangements  that  were  determined  by  individual  Member  States,  most  aid  to  farmers  under 
the CAP became ‘decoupled’: that is, farmers receive a single farm payment not linked to the 
production of a specific crop. 

To  bring  the  support  schemes  for  cotton,  olive  oil,  tobacco  and  hops  into  line  with  those  of 
other  sectors  of  the  Common  Agricultural  Policy,  the  Council  adopted  Regulation  (EC) 
No 864/2004. For these crops however, a proportion of the aid remained coupled6 (i.e., linked 
to production of the crop). For cotton, the justification for this coupled payment was that the 
adoption of a completely integrated single farm payment scheme would bring significant risk 
of production disruption to cotton producing regions. Consequently the decoupled single area 
payment was set at 65% of the national share of aid available to producers and the remaining 
35%  remained  coupled  to  cotton  but  calculated  on  the  basis  of  a  per  hectare  payment. 
Regulation (EC) No 864/2004 inserted in Title IV of Regulation (EC) No 1782/2003 a special 
Chapter 10a: “Crop specific payment for Cotton”. 

A4.8  Decoupled Aid 

The decoupled aid is paid to producers irrespective of their planting decisions. The number of 
hectares  for  which  the  payment  is  made  is  dependent  on  the  level  of  production  during  the 
reference period 2001 to 2003. 

The amount of decoupled aid differed by member state, and was set at: 

(cid:132) 

(cid:132) 

(cid:132) 

Greece: 

Spain: 

€966 per hectare, 

€1 509 per hectare, 

Portugal: 

€1 202 per hectare. 

Coupled Aid 

The coupled aid is payable on the opening of the bolls, rather than on harvest and all payments 
are made directly to the farmers and not, as before, via the ginners. 

Under Regulation (EC) No 864/2004, for environmental reasons, base areas were established 
in order to limit the areas under cotton. These base areas determined the coupled aid, and were 
set at 370 000 hectares for Greece, 70 000 hectares for Spain and 360 hectares for Portugal.  

6 

In  the  case  of  hops,  the  decision  to  allow  coupled aid was  at  the  discretion  of  the  individual  Member 
State. 

EN 

34 

   EN 

 
                                                 
The amount of coupled aid per eligible hectare was set at: 

(cid:132) 

(cid:132) 

(cid:132) 

Greece: 

€594.0 per hectare for 300 000 hectares and €342.8 per hectare for the 
remaining 70 000 hectares, 

Spain: 

€1 039 per hectare, 

Portugal: 

€556 per hectare. 

Under Article 69 of Regulation (EC) No 1782/2003, a country could deduct up to 10% of the 
decoupled  area  payment  and  redistribute  it  as  a  coupled  payment  subject  to  specific  quality 
norms. This option was selected by the Spain government. The decoupled payment in Spain 
was  reduced  to  €1 358  per  hectare  and  a  supplementary  payment  of  €191  per  hectare  was 
made  if  the  cotton  area  contained  cotton  fibre  with  maximum  impurity  of  5%,  maximum 
humidity of 12% and yield higher than a local minimum. 

Inter-branch organisations 

The reform also provided funds (€4 million of payments) to create inter-branch organisations. 
These  organisations  were  to  be  established  between  growers  and  at  least  one  ginner  with  a 
view to improving the quality of cotton delivered to the ginner. The inter-branch organisations 
could establish rules on certain aspects of the contracts between ginners and growers and have 
the  power  to  differentiate  the  level  of  crop-specific  aid  for  their  members  according  to  the 
quality of cotton produced. 

EN 

35 

   EN 

 
ANNEX 5 – THE EU COTTON SECTOR 

A5.1.  The international context 

The EU cotton sector represents for only about 2% of the world cotton production, which for 
the 2006/2007 crop year was estimated at 24.86 million tonnes. The main three international 
players — China, USA and India — supply over 60% of the world cotton fibre. The C4 group 
of  African  countries7  represents  about  4%  of  the  world  production.  The  expiration  of  the 
Multi-Fibre  Agreement  (MFA)  in  2003  induced  a  considerable  expansion  of  Asian  textile 
industry and exports. Meanwhile, the decline of the EU textile industry squeezed the domestic 
sales  of  ginners  in  Greece  and  Spain  which  were  so  increasingly  obliged  to  look  for  market 
outlets  outside  the  Community.  Over  the  last  five  years,  exports  accounted  for  72%  of 
production in Greece and 45% of production in Spain. Greek exports are dominated by exports 
to  Turkey  and  North  Africa.  In  Spain,  exports  to  the  EU-15  were  the  most  important  until 
2006 (Table A5.1). 

Table A5.1: EU Cotton exports (tonnes, ginned cotton) 

Greece 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

Intra EU-15 

86 599 

116 235 

47 457 

58 869 

43 800 

39 400 

45 629 

Extra EU-15 

203 353 

210 100 

179 018 

225 354 

243 639 

192 960 

286 762 

Turkey 

134 286 

130 444 

109 511 

99 786 

129 161 

90 725 

164 263 

North Africa 

Central Europe 

Other 

17 664 

32 003 

19 402 

12 571 

33 458 

33 627 

11 345 

27 751 

30 412 

18 388 

26 741 

80 440 

47 473 

23 508 

43 496 

47 070 

14 700 

40 466 

55 895 

23 111 

43 493 

Total 

289 952 

326 335 

226 474 

284 224 

287 439 

232 361 

332 391 

Spain 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

Intra EU-15 

Extra EU-15 

North Africa 

ASEAN 

Other 

23 244 

14 412 

10 238 

1 972 

2 201 

20 770 

15 467 

11 019 

509 

3 939 

12 830 

9 131 

8 291 

348 

492 

16 988 

12 675 

5 603 

119 

35 203 

32 228 

12 085 

1 279 

30 970 

23 913 

8 691 

1 572 

30 450 

42 501 

16 168 

8 605 

6 953 

18 864 

13 650 

17 729 

Total 

37 656 

36 237 

21 961 

29 662 

67 431 

54 883 

72 952 

Source:  Eurostat. 

The EU cotton market is not protected by tariff and cotton can be imported from and exported 
to  the  world  market  freely  at  the  world  market  price.  Despite  that  and  its  tiny  world  market 
share,  the  EU  support  system  has  been  seriously  criticised  during  the  Doha  Development 
Agenda.  In  fact,  although  the  EU  sector does not significantly affect the international trade, 
the  nature  of  the  support  attracts  criticism,  as  for  the  US,  from  less  developed  producing 
countries. In Cancun 2003, a group of African countries called for the elimination of subsidies 
and  compensation  for  the  damages  caused  to  them  by  subsidies  granted  to  cotton  in  richer 

7 

Benin, Burkina Faso, Chad and Mali. 

EN 

36 

   EN 

 
 
 
 
 
 
 
 
 
 
                                                 
countries.  It  followed  the  2005  Hong  Kong  Declaration  which  set  up  a  Sub-Committee  on 
Cotton  with  the  purpose  to  prioritise  the  reduction  of  trade-distorting  subsidies  to  cotton. 
Moreover, the panel on cotton US subsidies launched by Brazil make the cotton policy a very 
sensitive issue. 

Blue box support is a support under production limiting programmes that is exempted from the 
general reduction commitment for trade distorting agricultural support if the support given is 
in conformity with Art. 6(5) of the Agreement on Agriculture. This means that support should 
be production-limiting and the payments must be made on the basis of a fixed area and yield. 
Art. 6(5)  does  not  establish  any  link  between  the  Blue  Box  payment  and  the  specific 
production conditions. Coupled payments can therefore be categorised as blue box, regardless 
of the obligation to either harvest the crop or to keep the cotton on the field until boll opening. 

A5.2  Overview of Cotton Production 

Total Cotton Area and Production 

Cotton  is  produced  in  four  EU-27  states,  namely  Greece,  Spain,  Portugal8  and  Bulgaria. 
Production is dominated by Greece and Spain. Production in Portugal and Bulgaria was just 
1 285  tonnes  and  611  tonnes  in  2005,  respectively.  Production  ceased  in  Portugal  in  2006 
following  the  reform  of  the  cotton  regime.  In  the  following  sections,  we  focus  on  trends  in 
Spain and Greece, the largest producers. 

The  EU-15  cotton  area  grew  steadily  until  the  end  of  the  1990s,  peaking  at  almost 
540 000 hectares  in  1999/2000.  Since  then  the  area  under  cotton  has  stabilised  at 
450 000 hectares (Diagram A5.1). 

Diagram A5.1: EU Cotton area 

600

500

400

300

200

100

)
s
e
r
a
t
c
e
h

0
0
0
'
(

a
e
r

A

0
1982/83

1985/86

1988/89

1991/92

1994/95

1997/98

2000/01

2003/04

2006/07

Source:  DG  AGRI,  National  Authorities,  LMC  (Note:  Spanish  data  are  only  included  from  1986/87  with  its 

accession to the EU). 

8 

With only small volumes produced in Portugal, unginned cotton was transported to Spain for ginning.  

EN 

37 

   EN 

 
 
 
 
                                                 
In  Greece  the  cotton  area  peaked  in  1995/96  at  441 000  hectares.  The  area  then  fell  to 
approximately 360 000 hectares, but rose to 383 000 hectares in 2006/07. In Spain, the picture 
has  been  more  erratic:  the  area  peaked  in  1988  at  135 000  hectares  and  then  declined 
dramatically  in  1993/94  through  to  1995/96  owing  to  drought.  The  area  under  cotton  then 
revived, peaking at 114 000 hectares in 1997/98. The area under cotton fell to 63 000 hectares 
in 2006/07 (Diagram A5.2). 

Diagram A5.2: EU-15 Harvested cotton area by country 

500

450

400

350

300

250

200

150

100

50

)
s
e
r
a
t
c
e
h

0
0
0
'
(

a
e
r

A
e
c
e
e
r
G

200

180

160

140

120

100

80

60

40

20

S
p
a
n
A

i

r
e
a

(
'
0
0
0

h
a
)

0
1982/83

1985/86

1988/89

1991/92

1994/95

1997/98

2000/01

2003/04

0
2006/07

Source: LMC (Note: Data for Spain cover only the period since accession to the EU). 

Greece

Spain

With  a  growing  area  and  rising  yields,  EU  cotton  production  peaked  in  1999/2000  at 
1.76 million tonnes of unginned cotton (see Table A5.1a). In 2006/07, total output fell to its 
lowest level since the 1980s. This was due to a combination of impact of regime change (in 
Spain) and poor weather in Greece (Diagram A5.3). 

EN 

38 

   EN 

 
 
 
 
 
 
 
 
Diagram A5.3: EU-15 Unginned cotton production 

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

)
s
e
n
n
o
t

0
0
0
'
(

n
o
i
t
c
u
d
o
r

P

0
1982/83

1985/86

1988/89

1991/92

1994/95

1997/98

2000/01

2003/04

2006/07

Source: LMC (Note: Data for Spain cover only the period since accession to the EU) 

EN 

39 

   EN 

 
 
 
 
Table A5.1a: EU eligible production of unginned cotton 

Greece 

Spain 

Italy 

Portugal 

TOTAL 

1981/82 

1982/83 

1983/84 

1984/85 

1985/86 

1986/87 

1987/88 

1988/89 

1989/90 

1990/91 

1991/92 

333 162 

428 453 

481 246 

561 540 

667 779 

284 550 

600 448 

275 070 

805 856 

383 169 

886 919 

211 599 

709 871 

281 838 

719 449 

279 575 

1992/93(*) 

760 685 

223 932 

1993/94 

985 676 

98 883 

1994/95 

1 191 400 

143 249 

1995/96 

1 364 798 

104 400 

1996/97 

927 650 

300 221 

1997/98 

1 085 482 

379 358 

1998/99 

1 210 900 

337 567 

1999/2000 

1 350 677 

409 518 

2000/2001 

1 272 873 

300 657 

2001/2002 

1 237 103 

336 984 

2002/2003 

1 166 268 

321 540 

2003/2004 

1 006 248 

306 025 

2004/2005 

1 135 534 

368 084 

2005/2006 

1 122 445 

355 348 

99 

29 

34 

333 162 

428 453 

481 246 

561 540 

952 329 

875 518 

1 189 124 

1 098 547 

991 743 

999 024 

984 617 

1 084 559 

1 334 649 

1 469 199 

1 227 871 

1 464 942 

1 548 614 

1 760 268 

1 573 530 

1 574 699 

1 488 651 

1 312 905 

1 504 600 

1 478 233 

1 

0 

102 

147 

73 

0 

612 

843 

632 

982 

440 

(*) 
Source: DG AGRI 

adaptation of the quality standard of unginned cotton. 

The cotton sector in Greece 

Greek production is dominated by four NUTS2 regions (Central Macedonia, East Macedonia, 
Thessalia  and  Sterea  Ellada).  These  areas  account  for  96%  of  the  total  cotton  area 
(Table A5.2). 

EN 

40 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A5.2: Greek cotton area by NUTS 2 Region (hectares) 

2004/05 

2005/06 

Anatoliki Makedonia 

Kentriki Makedonia 

Dytiki Makedonia 

Thessalia 

Ipeiros 

Dytiki Ellada 

Sterea Ellada 

Peloponnisos 

Attiki 

Source:  Ministry of Agriculture. 

54.7 

97.0 

0.0 

150.7 

466.0 

8.1 

54.0 

1.0 

711.0 

365.6 

53.6 

95.1 

1.0 

147.6 

455.0 

7.6 

53.1 

1.0 

684.0 

358.1 

Cotton accounts for 9.1% of final Greek agricultural output. A breakdown of the importance 
of production by region is not available. 

There  are  79 700  farmers  involved  in  cotton  farming  in  Greece;  these  are  concentrated  in 
Anatoliki Makedonia, Kentriki Makedonia, Thessalia and Sterea Ellada. 

The  majority  of  farmers  grow  between  2  and  5  hectares  of  cotton.  The  average  cotton  area 
across all farms was 4.5 hectares in 2005 (Diagram A5.4). FADN data give an indication of 
the  importance  of  cotton  to  the  total  farm  area.  In  20%  of  cases  in  Makedonia,  cotton 
accounted for over 75% of the farm area, while in Thessalia in 36% of cases cotton accounted 
for over 75% of the total farm area (Table A5.3). 

Table A5.3: The importance of cotton to total farm area (number of observations) 

Area under cotton (%) 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

Average 

Makedonia-Thraki 

>25% 

25%–49% 

50%–74% 

75%–99% 

100% 

Ipiros-Peloponi / 
Thessalia / Sterea Ellas 

>25% 

25%–49% 

50%–74% 

75%–99% 

100% 

Source: FADN. 

207 

242 

176 

82 

64 

37 

115 

128 

159 

57 

171 

219 

159 

86 

73 

46 

98 

116 

110 

53 

189 

216 

178 

73 

54 

43 

105 

158 

115 

50 

41 

EN 

182 

201 

143 

69 

56 

43 

95 

144 

108 

45 

199 

184 

114 

65 

50 

42 

79 

134 

90 

54 

170 

196 

104 

64 

54 

36 

93 

125 

103 

49 

186 

187 

116 

62 

45 

36 

77 

121 

92 

57 

29% 

31% 

21% 

11% 

8% 

10% 

21% 

33% 

24% 

12% 

   EN 

 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
Diagram A5.4: Harvested cotton area by farm size in Greece, 2005 

)
a
h

0
0
0
'
(

a
e
r

A

120

100

80

60

40

20

0

30,000

25,000

20,000

15,000

10,000

5,000

0

N
u
m
b
e
r

o
f

F
a
r
m
e
r
s

0 > 1

1 >< 2

2 >< 5

5>< 10

10 >< 20

20 >< 50

> 50

Cotton Area (hectares)

Area

Farmers

In terms of other crops grown on cotton farms, cereals, particularly durum wheat and maize, 
dominate. Sugar beet is also important.  

Over 99% of Greek cotton production is grown under irrigated conditions (Table A5.4). The 
most important type is sprinkle (around 40% of total area), followed by drip (a little more than 
30%).  The  rest  (around  30%)  is  gravity.  The  share  of  drip  irrigation  has  been  growing  in 
recent years. No cotton is grown under plastic. 

Table A5.4: Cotton area in Greece by irrigation type (‘000 hectares) 

Irrigated 

Non-irrigated 

Total 

2001 

389 

15 

404 

2002 

377 

10 

388 

2003 

373 

5 

378 

2004 

361 

4 

366 

2005 

355 

4 

358 

Source:  Ministry of Agriculture. 

The cotton sector in Spain 

Spanish cotton production is dominated by Andalusia, which accounts for 98% of its national 
production. Within Andalusia, the cotton area and production are dominated by Sevilla; Cadiz 
and Cordoba are also important (Table A5.5). 

EN 

42 

   EN 

 
 
 
 
 
 
 
 
Table A5.5: Spanish cotton area by NUTS 3 Region (hectares) 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

Cádiz 

Córdoba 

8.9 

8.7 

12.9 

14.9 

13.9 

11.2 

Huelva 

720.0 

728.0 

846.0 

Jaén 

7.1 

9.1 

5.9 

Málaga 

210.0 

165.0 

107.0 

Sevilla 

Murcia 

Total 

Source: 

48.2 

2.9 

76.8 

70.3 

3.3 

111.3 

63.6 

2.9 

98.5 

15.1 

13.2 

1.1 

6.5 

80.0 

69.9 

2.5 

108.4 

15.7 

9.6 

944.0 

6.7 

167.0 

56.4 

2.1 

91.6 

16.0 

10.1 

1.1 

6.8 

63.0 

54.9 

2.5 

91.5 

12.6 

10.3 

1.0 

6.2 

47.0 

53.7 

2.4 

86.4 

15.7 

11.8 

1.2 

7.0 

49.0 

57.0 

1.9 

94.7 

13.7 

12.6 

1.2 

7.5 

48.0 

52.9 

1.7 

89.5 

14.5 

11.8 

1.1 

7.0 

33.0 

51.7 

1.9 

88.1 

Data on the province of Andalusia (Cádiz, Córdoba, Huelva, Jaén, Málaga and Sevilla): Boletín de Información 
Agraria y Pesquera. Consejería de Agricultura y Pesca. Junta de Andalucía; 
Data on the province of Murcia: Spanish Ministry of Agriculture and Fishery (MAPA). 

Cotton accounts for 1.3% of final Spanish agricultural output, but it is particularly important in 
Sevilla (11.2%), Cadiz (5.9%) and Cordoba (3.2%) (Diagram A5.5). 

Diagram A5.5: Cotton as % of Total Agricultural Output Value in Andalusia, Spain, 2003 to 2005 

)

%

(

t
u
p
t
u
O
g
A

l

i

a
n
F
/
n
o
t
t
o
C

12%

10%

8%

6%

4%

2%

0%

Cádiz

Córdoba

Huelva

Jaén

Málaga

Sevilla

There  are  9 500  farmers  involved  in  cotton  farming  in  Andalusia;  they  are  concentrated  in 
Sevilla, Cadiz and Cordoba. 

The  majority  of  farmers  grow  less  than  10  hectares  of  cotton,  although  the  inclusion  of  the 
cotton area grown on bigger farms brings the average cotton area across all farms to close to 
10 hectares (Diagram A5.6). For many of these farms, cotton is just one of the crops grown. 
On  average,  cotton  accounts  for  50%  of  the  farm  area  on  cotton  growing  holdings  in  Jaen, 
28% in Sevilla and 24% in Cordoba. 

EN 

43 

   EN 

 
 
 
 
 
 
 
 
Of the total number of farms, 38% grow solely cotton; they account for 25% of the total cotton 
area. Wheat, maize, sunflower and sugar beet are the other main crops that are also grown by 
farmers who cultivate cotton (Table A5.6). 

Diagram A5.6: Harvested cotton area by farm size in Spain 

)
a
h

0
0
0
'
(

a
e
r

A

30

25

20

15

10

5

0

3,000

2,500

2,000

1,500

1,000

N
u
m
b
e
r

o
f

F
a
r
m
e
r
s

500

0

0 > 1

1 >< 2

2 >< 5

5>< 10

10 >< 20

20 >< 50

> 50

Cotton Area (hectares)

Area

Farmers

Source: LMC. 

Table A5.6: Crop specialisation in Andalusia 

By farm 

2000/01 

2001/02 

2002/03 

2003/04 

Average 

Only cotton 

Cotton and tree crops 

Cotton and rainfed wheat and sunflower 

Cotton and maize 

Cotton and irrigated wheat and sunflower 

Cotton and vegetables 

Cotton and sugar beet 

Cotton and other arable crops 

3 159 

174 

1 136 

364 

1 316 

219 

1 416 

311 

3 083 

155 

1 214 

1 102 

718 

253 

1 139 

241 

3 027 

247 

1 245 

1 359 

802 

296 

1 236 

399 

3 619 

299 

1 355 

1 382 

794 

366 

1 198 

405 

3 222 

219 

1 238 

1 052 

908 

284 

1 247 

339 

EN 

44 

   EN 

 
 
 
 
 
 
 
By area (ha) 

Only cotton 

Cotton and tree crops 

Cotton and rainfed wheat and sunflower 

Cotton and maize 

26 095 

4 071 

14 604 

3 482 

Cotton and irrigated wheat and sunflower 

20 996 

Cotton and vegetables 

Cotton and sugar beet 

Cotton and other arable crops 

3 116 

12 416 

2 999 

23 980 

3 801 

15 895 

14 192 

13 881 

3 066 

11 210 

2 907 

16 144 

4 312 

15 340 

16 729 

12 978 

2 972 

11 233 

4 711 

20 784 

4 248 

16 649 

18 065 

12 037 

3 644 

11 396 

5 632 

21 751 

4 108 

15 622 

13 117 

14 973 

3 200 

11 564 

4 062 

Source: 

Diagnóstico del sector Algodonero Andaluz. 2005. Consejería de Agricultura y Pesca. Junta de Andalucía. 

Around 96% of production is grown under irrigated conditions in Andalusia. In Murcia, all the 
cotton area is irrigated. Gravity irrigation is the most popular  system (Table A5.7). Between 
2000/01 and 2003/04, 64% of the cotton was grown under plastic. However, in 2006 with the 
increased  use  of  agri-environmental  measures  and  a  move  to  a  less  intensive  production 
system, the area under plastic fell to zero. 

Table A5.7: Cotton areas in Andalusia by irrigation type (hectares) 

Irrigated / rainfed 

Rainfed 

Irrigated 

Type of water application 

Rainfed 

Sprinkle 

Drip 

Gravity 

Total  

Source: LMC. 

2000/01 

2001/02 

2002/03 

2003/04 

3.5 

84.3 

3.5 

19.1 

21.3 

43.9 

87.8 

3.9 

85.0 

3.9 

17.8 

22.1 

45.1 

88.9 

2.3 

82.1 

2.3 

15.4 

21.8 

44.9 

84.4 

3.9 

88.6 

3.9 

15.0 

26.6 

47.0 

92.5 

The cotton sector in Portugal 

Table A5.8: Ginned cotton in Portugal 

Surface (ha) 

Production (t) 

Yield (t/ha) 

Imports (t) 

Exports (t) 

2001/02 

2002/03 

2003/04 

2004/05 

2005/06 

216 

200 

497 

281 

373 

211 

273 

326 

194 

152 

0.926 

0.565 

0.566 

1.194 

0.784 

119 000 

105 000 

85 000 

72 000 

63 000 

0 

0 

0 

0 

0 

Consumption (t) 

125 000 

115 000 

85 000 

70 000 

63 000 

Begin Stks (t) 

End Stks (t) 

34 000 

28 000 

28 000 

18 000 

18 000 

18 000 

18 000 

21 000 

21 000 

21 000 

EN 

45 

   EN 

 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Source: DG AGRI. 

During  the  last  marketing  years  the  cotton  area  in  Portugal  was  between  194  and  497 ha. 
Regarding  the  production  of  ginned  cotton  it  fluctuated  between  152  and  326  tonnes.  While 
the local production is very limited the textile industry has important needs: 125 000 tonnes in 
2001/2002. The consumption decreased significantly during the last years to 63 000 tonnes in 
2005/2006. To meet its needs Portugal imports important quantities of cotton: 119 000 tonnes 
in  2001/2002  and  63 000  tonnes  in  2005/2006.  In  2006  the  area  for  which  the  aid  has  been 
claimed (according to Article 3(1)(a) of Regulation (EC) No 1973/2004) fell to zero. 

The cotton sector in Bulgaria 

According  to  ICAC  the  area  cultivated  with  cotton  in  Bulgaria  between  2001/2002  and 
2005/2006 stabilised at around 9 000ha with a production of 2 000 tonnes of ginned cotton. As 
the  annual  consumption  was  estimated  around  1 800-2 000  tonnes  for  the  same  period, 
Bulgaria had to import between 17 000-20 000 tonnes of ginned cotton. 

For 2006 the cotton area was significantly reduced to 2 000 ha (USDA). Also the imports fell 
considerably to 11 000 tonnes of ginned cotton in order to cover the needs of the industry. 

Nota bene, for Bulgaria, although support for cotton is included in the SAPS regime currently 
applied, Article 110a of Regulation (EC) No 1782/2003 provides for a base area and amount 
for the crop-specific payment for Bulgaria. 

Table A5.9: Ginned cotton in Bulgaria 

Surface (ha) 

Production (t) 

Yield (t/ha) 

Imports (t) 

Exports (t) 

2001/02 

2002/03 

2003/04 

2004/05 

2005/06 

9 000 

2 000 

0.222 

9 000 

2 000 

0.254 

9 000 

2 000 

0.254 

9 000 

2 000 

0.257 

9 000 

2 000 

0.257 

20 000 

19 000 

18 000 

17 000 

17 000 

1 000 

1 000 

1 000 

1 000 

1 000 

Consumption (t) 

20 000 

20 000 

19 000 

19 000 

18 000 

Begin Stks (t) 

End Stks (t) 

Source: ICAC. 

A5.3  Labour 

8 000 

9 000 

9 000 

9 000 

9 000 

9 000 

9 000 

9 000 

9 000 

9 000 

The  FADN  data9  suggest  that  the  importance  of  family/unpaid  labour  for  cotton  production 
declines as the farm size increases. In Greece, the number of unpaid labour hours worked per 
hectare falls from 287 to 150 as the size of the farm increases in Makedonia-Thraki and from 

9

The  estimates  of  family  labour  time  are  based  on  FADN  data,  which  is  a  source  that  provides  data  across  countries  and  crops. 
However, there are concerns regarding the reliability of these data. This arises from the nature of family labour; for instance, if a 
farmer’s  sole  employment  is  in  farming,  the  full  year’s  labour time  will  be  allocated  to  it,  while  in  reality  only  a  proportion  of 
labour time is actually be spent on agricultural tasks. Accordingly, the FADN estimates are likely to overestimate the amount of 
time spent on a particular crop and conversely underestimate the return to labour. In addition, there appear to be inconsistencies 
between the bases on which estimates were prepared of labour use for the same crops in different Member States. 

EN 

46 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
 
362 to 81 in Thessalia/Sterea Ellas (Table A5.8). In Spain, the number of labour hours worked 
per hectare falls from 183 to 69 as the size of the farm increases (Table A5.10).  

Table A5.8: Greece, Unpaid labour hours (hours per hectare) 

Makedonia-Thraki 

> 5 ha 

5–10 ha 

10–20 ha 

< 20 ha 

Ipiros-Peloponi/Thessalia/Sterea Ellas 

> 5 ha 

5–10 ha 

10–20 ha 

< 20 ha 

Source: FADN 

2000 

2001 

2002 

2003 

2004 

Average 

293 

226 

163 

236 

354 

197 

135 

79 

292 

215 

134 

70 

354 

196 

142 

80 

308 

219 

160 

200 

399 

208 

150 

62 

282 

211 

105 

121 

332 

210 

121 

95 

259 

193 

156 

122 

371 

209 

158 

87 

287 

213 

144 

150 

362 

204 

141 

81 

Table A5.9: Greece, Labour hours spent on cotton production, 2005-06 (hours per hectare) 

2006 

90.94 

32.23 

28.57 

151.74 

87.62 

29.86 

5.86 

123.34 

76.77 

27.23 

25.80 

129.80 

73.03 

28.74 

27.08 

128.85 

Change 

2% 

–19% 

14% 

–2% 

11% 

–8% 

–8% 

4% 

–7% 

22% 

–15% 

–4% 

–10% 

0% 

–7% 

–7% 

Farm Size 

< 5 ha 

5–10 ha 

10–20 ha 

> 20 ha 

Source: LMC. 

Labour 

Household 

Paid 

Contracted 

Total 

Household 

Paid 

Contracted 

Total 

Household 

Paid 

Contracted 

Total 

Household 

Paid 

Contracted 

Total 

EN 

2005 

89.55 

39.89 

25.08 

154.52 

79.13 

32.61 

6.39 

118.13 

82.17 

22.41 

30.35 

134.93 

80.78 

28.64 

29.19 

138.61 

47 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A5.9: Greece, Labour hours spent on cotton production, 2005-06 (hours per hectare) 

< 10 ha 

10–20 ha 

> 20 ha 

Source: FADN. 

2000 

166 

94 

61 

2001 

125 

83 

61 

2002 

2003 

2004 

Average 

151 

102 

73 

238 

162 

81 

236 

151 

71 

183 

119 

69 

The falling of labour time with the farm size is confirmed also by the questionnaire, although 
the  hours  worked  per  hectare  are  found  to  be  less  than  in  the  FADN  sample  across  all  size 
categories (Table A5.11). In general, data from the questionnaires suggest that the number of 
unpaid labour hours is more constant over farm sizes than was the case with the FADN data, 
varying  between  75  and  90  hours  per  hectare.  It  is  noteworthy  that  the  number  of  hours  is 
found to be considerably less than those reported by FADN. According to the responses to the 
LMC's questionnaire, cotton is the most important user of family labour in all size categories. 
This has not changed much over the last five years.  

Table A5.11: Spain, labour hours spent on cotton production, 2005-06 (hours per hectare) 

Farm Size 

< 10 ha 

10–20 ha 

> 20 ha 

Source: LMC. 

Labour 

Household 

Paid 

Contracted 

Household 

Paid 

Contracted 

Household 

Paid 

Contracted 

2005 

58.7 

0.3 

8.1 

57.2 

– 

9.8 

23.1 

12.5 

4.4 

2006 

58.1 

– 

5.7 

55.2 

3.0 

9.1 

24.6 

9.3 

3.4 

Change 

–1% 

– 

–30% 

–3% 

– 

–7% 

6% 

–26% 

–23% 

EN 

48 

   EN 

 
 
 
 
 
 
 
 
 
 
ANNEX 6 – COSTS OF PRODUCTION AND GROSS MARGIN 

A6.1 

Production costs prior to the regime change 

On the basis of data of farm producing only cotton, the structure of the production costs for 
this  crop  can  easily  be  observed.  It  emerges  a  quite  different  picture  of  the  farming  costs  in 
Greece and Spain. 

In  Greece,  the  structure  of  the  costs  in  the  regions  concerned  is  quite  similar.  It  strikes  a 
relatively high proportion of fixed costs per hectare of the total production costs —above 40%. 
Depreciation  and  rent  are  the  major  reported  component  of  the  fixed  costs.  In  Makedonia-
Thraki, costs are higher in the smallest farm and the absolute value and the proportion of fixed 
costs  tend  to  decrease  quite  regularly  with  the  increase  of  the  farmed  area's  size,  regardless 
whether  family  labour  is  included  or  excluded.  No  trend  is  instead  clear  in  Thessalia 
(Tables A6.1 and A6.2). 

Table A6.1: Average production costs for 100% cotton farms, Makedonia-Thraki (€/hectare) 

Seed 
Fertiliser 
Crop protection 
Other specific costs 
Energy and fuel 
Contracted labour/services 
Water/irrigation  
Other direct costs  
Labour (paid) 

2000 

2001 

2002 

2003 

2004 

130.9 
167.6 
196.6 
24.1 
177.7 
293.8 
95.6 
12.8 
38.6 

135.0 
163.9 
195.8 
19.0 
182.7 
272.0 
106.9 
14.3 
42.9 

106.5 
148.9 
180.4 
27.9 
171.1 
273.9 
107.9 
9.4 
47.8 

118.1 
143.6 
207.6 
33.5 
176.6 
262.8 
102.9 
12.1 
62.7 

122.2 
154.5 
212.0 
29.0 
182.6 
263.4 
108.3 
13.2 
83.4 

Total variable costs 

1 137.8 

1 132.5 

1 073.9 

1 119.8 

1 168.6 

Machinery 
Depreciation  
Rent 
Interest 

Total fixed costs 

Total costs 

Total unpaid labour (hrs) 
Average hourly wage 
Total unpaid labour 

Total cost including unpaid labour 

Variable cost 
Fixed cost 
Total cost 

52.3 
443.0 
191.6 
11.2 

698.1 

55.2 
469.5 
215.6 
7.9 

748.2 

48.3 
537.8 
276.1 
10.9 

873.1 

50.6 
517.2 
281.2 
11.0 

860.1 

56.3 
572.0 
273.6 
12.0 

913.9 

1 835.9 

1 880.7 

1 947.0 

1 980.0 

2 082.5 

244.3 
2.2 
543.9 

1 627.3 
752.5 
2 379.8 

229.8 
2.4 
550.9 

1 628.3 
803.3 
2 431.6 

239.5 
2.6 
611.7 

1 624.4 
934.3 
2 558.6 

209.1 
2.7 
569.3 

1 632.2 
917.1 
2 549.3 

194.6 
3.0 
593.0 

1 702.3 
973.2 
2 675.5 

Note:  1.  To derive costs including family labour we have valued family labour at the paid labour rate. 

2. 

In  deriving  total  costs  it  is  assumed  that  90%  of  unpaid  labour  is  attributed  to  variable  costs  and  10%  to 
fixed costs. 

Source: FADN, LMC 

EN 

49 

   EN 

 
 
  
 
 
 
 
 
 
 
Table A6.2: Average cotton production costs for 100% cotton farms, Thessalia/Sterea Ellas 
(€/hectare) 

Seed 
Fertiliser 
Crop protection 
Other specific costs 
Energy and fuel 
Contracted labour/services 
Water/irrigation  
Other direct costs  
Labour (paid) 

Total variable costs 

Machinery 
Depreciation  
Rent 
Interest 

Total fixed costs 

2000 

2001 

2002 

2003 

2004 

Average 

142.0 
144.5 
90.8 
20.4 
199.3 
269.5 
26.4 
13.3 
31.0 

937.3 

39.3 
370.3 
205.7 
57.7 

673.1 

152.7 
146.0 
88.7 
16.7 
197.4 
283.4 
24.5 
12.3 
23.7 

155.4 
160.4 
106.6 
17.0 
223.1 
264.9 
38.5 
20.1 
30.2 

162.5 
149.5 
116.2 
9.2 
249.6 
244.0 
41.8 
33.9 
35.7 

201.7 
163.9 
132.8 
11.8 
279.8 
247.5 
48.4 
17.8 
30.3 

162.9 
152.9 
107.0 
15.0 
229.8 
261.9 
35.9 
19.5 
30.2 

945.3 

1 016.1 

1 042.4 

1 134.1 

1 015.0 

44.6 
349.3 
229.6 
18.6 

642.1 

45.8 
389.0 
254.2 
18.1 

707.1 

43.7 
384.0 
275.2 
15.6 

718.6 

37.6 
339.0 
253.5 
8.4 

638.6 

42.2 
366.3 
243.6 
23.7 

675.9 

Total costs 

1 610.4 

1 587.4 

1 723.2 

1 761.0 

1 772.6 

1 690.9 

Total unpaid labour (hrs) 
Average hourly wage 
Total unpaid labour 

231.3 
2.2 
516.7 

239.6 
2.4 
582.1 

248.2 
2.6 
656.9 

210.0 
3.0 
640.0 

220.3 
3.1 
682.5 

229.9 
2.7 
615.6 

Total cost including unpaid labour 

Variable cost 
Fixed cost 
Total cost 

1 402.3 
724.7 
2 127.1 

1 469.2 
700.3 
2 169.5 

1 607.4 
772.8 
2 380.1 

1 618.4 
782.6 
2 400.9 

1 748.3 
706.8 
2 455.2 

1 569.1 
737.4 
2 306.6 

Note:  1.  To derive costs including family labour we have valued family labour at the paid labour rate. 

2. 

In  deriving  total  costs  it  is  assumed  that  90%  of  unpaid  labour  is  attributed  to  variable  costs  and  10%  to 
fixed costs. 

Source: FADN, LMC 

The  components  of  the  variable  costs  per  hectare  are  rather  stable  over  the  years,  with  a 
prevalence  of  contracted  labour  and  services,  crop  protection  and  fertiliser  products,  and 
energy and fuels. Water/irrigation is an important cost in Makedonia-Thraki and less relevant 
in Thessalia. 

Labour is an important element of the production cost. Assuming as opportunity cost "the paid 
wage", unpaid labour alone makes up about one-fourth/one-fifth of the total production costs 
per hectare. If unpaid labour is not considered among the costs, contracted services represents 
about  one-sixth  of  the  total  costs  and  about  one-fifth  of  the  variable  costs.  Taken  together, 
contracted  services,  paid  and  unpaid  labour  represent  about  35–40%  of  the  total  production 
cost of cotton. 

Unlike  in  Greece,  the  cost  structure  of  the  Spanish  farms  producing  only  cotton  is  far  less 
affected by depreciation. Fixed costs per hectare are much less important and tend to decrease 
over  time  in  absolute  and  relative  value.  In  2004  they  represented  about  15%  of  the  total 
production costs. Rent is the main element of the fixed cost, although strongly decreasing over 
2000–2004.  Among  the  variable  costs,  contracted  labour/services  is  the  major  element.  It  is 

EN 

50 

   EN 

 
 
  
  
  
  
  
  
  
 
followed  by  fertiliser  and  crop  protection  products,  and  water/irrigation.  In  the  period 
considered,  in  absolute  value,  variable  costs  increased  considerably  while  fixed  costs 
decreased (Table A6.3). 
With the extension of the farm size, the costs of inputs per hectare seem to decrease while the 
fixed  costs  move  to  the  opposite  direction.  Total  cost  per  hectare  increase  significantly  with 
the  size  of  the  farm,  when  family  labour  is  included,  while  it  slightly  decrease  when  family 
labour is excluded. 

As  for  Greece,  in  Spain  labour  is  an  important  element  of  the  cost  of  cotton  production. 
Contracted labour/services and paid labour weighted about one-third of the total variable costs 
(and one-fourth of the total costs). If unpaid labour wage is added, the spending for labour and 
services is about half of the total costs. 

Table A6.3: Average production costs for 100% cotton farms, Spain, FADN (€/hectare) 

Seed 
Fertiliser 
Crop protection 
Other specific costs 
Energy and fuel 
Contracted labour/services 
Water/irrigation  
Other direct costs  
Labour (paid) 

2000 

2001 

2002 

2003 

2004 

119.9 
146.7 
163.5 
54.5 
138.2 
196.8 
93.4 
27.4 
85.2 

206.7 
189.3 
165.4 
61.4 
116.6 
152.7 
73.6 
46.2 
94.7 

202.1 
286.3 
211.8 
62.0 
92.5 
162.7 
76.3 
46.5 
113.6 

120.6 
230.4 
452.1 
72.6 
59.0 
308.6 
165.4 
55.6 
96.3 

130.3 
253.6 
325.6 
71.9 
78.7 
464.8 
237.2 
94.2 
76.6 

Total variable costs 

1 025.6 

1 106.6 

1 253.8 

1 560.6 

1 732.8 

Machinery 
Depreciation  
Rent 
Interest 

Total fixed costs 

Total costs 

Total unpaid labour (hrs) 
Average hourly wage 
Total unpaid labour 

Total cost including unpaid labour 

Variable cost 
Fixed cost 
Total cost 

46.5 
261.1 
180.3 
25.7 

513.6 

54.2 
121.9 
255.5 
20.4 

452.0 

66.4 
87.1 
323.7 
15.8 

493.0 

44.5 
75.7 
199.7 
9.1 

329.1 

58.8 
61.8 
188.2 
5.1 

313.9 

1 539.2 

1 558.7 

1 746.8 

1 889.7 

2 046.7 

107.0 
5.1 
542.3 

1 513.7 
567.8 
2 081.5 

93.1 
5.4 
504.9 

1 561.1 
502.5 
2 063.6 

110.9 
5.8 
647.4 

1 836.5 
557.7 
2 394.2 

191.8 
5.2 
994.6 

2 455.7 
428.5 
2 884.3 

182.1 
5.4 
990.5 

2 624.3 
412.9 
3 037.2 

Note:  1.  To derive costs including family labour we have valued family labour at the paid labour rate. 

2. 

In  deriving  total  costs  it  is  assumed  that  90%  of  unpaid  labour  is  attributed  to  variable  costs  and  10%  to 
fixed costs. 

Source: FADN, LMC 

A6.2  Comparison with other crops 

In Greece, the costs of production per hectare of cotton are on average higher than the other 
main  alternative  crops  (durum  wheat,  maize  and  for  Spain  sunflower).  The  structure  of  the 
production costs is closer to maize, with a more intensive use of fertilisers and crop protection 
products,  water  and  contracted  services.  The  use  of  services  and  paid  labours  is  in  general 

EN 

51 

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more  important  for  growing  cotton  than  for  maize.  The  unpaid  labour  is  rather  similar  in 
Macedonia but far lower than that of maize in Thessaly (Tables A6.4 and A6.5). 

Table A6.4: Average maize production costs, Thessalia/Sterea Ellas, FADN definition 
(€/hectare) 

Seed 
Fertiliser 
Crop protection 
Other specific costs 
Energy and fuel 
Contracted labour/services 
Water/irrigation  
Other direct costs  
Labour (paid) 

Total variable costs 

Machinery 
Depreciation  
Rent 
Interest 

Total fixed costs 

Total costs 

Total unpaid labour (hrs) 
Average hourly wage 
Total unpaid labour 

Total cost including unpaid 
labour 

Variable cost 
Fixed cost 
Total cost 

2000 

2001 

2002 

2003 

2004 

2005 (e) 

2006 (e) 

132.2 
250.1 
73.1 
45.9 
101.9 
203.5 
111.2 
10.6 
6.7 

935.3 

41.3 
208.4 
112.8 
13.7 

376.2 

143.4 
260.9 
67.4 
37.1 
66.5 
207.2 
108.4 
11.1 
9.3 

911.3 

36.5 
176.8 
76.2 
4.5 

294.0 

131.5 
246.3 
81.7 
53.4 
85.7 
173.0 
100.2 
9.4 
22.8 

904.1 

33.1 
243.0 
226.9 
0.0 

502.9 

135.3 
260.1 
71.1 
38.9 
117.6 
176.3 
97.9 
7.5 
24.3 

929.0 

23.0 
250.8 
214.3 
1.8 

489.8 

124.7 
260.9 
88.6 
34.5 
130.7 
167.5 
99.3 
12.4 
35.3 

953.9 

32.5 
306.8 
184.3 
1.9 

525.5 

127.4 
265.6 
90.0 
35.3 
133.6 
171.5 
101.5 
12.7 
36.1 

141.5 
293.7 
98.7 
37.7 
142.6 
178.2 
104.5 
13.5 
38.6 

973.7 

1 049.1 

32.5 
306.8 
184.3 
1.9 

525.5 

32.5 
306.8 
184.3 
1.9 

525.5 

1 311.5 

1 205.4 

1 407.1 

1 418.7 

1 479.5 

1 479.5 

1 479.5 

434.0 
2.2 
969.2 

513.5 
2.4 
1 247.4 

423.6 
2.6 
1 121.3 

406.7 
3.0 
1 239.3 

445.8 
3.1 
1 381.3 

445.8 
3.2 
1 430.5 

445.8 
3.3 
1 480.8 

1 807.5 
473.2 
2 280.7 

2 034.0 
418.8 
2 452.8 

1 913.3 
615.1 
2 528.3 

2 044.4 
613.7 
2 658.1 

2 197.1 
663.7 
2 860.8 

2 261.1 
668.6 
2 929.7 

2 381.8 
673.6 
3 055.4 

Source: 2003-2004 FADN, 2005 and 2006 based on LMC questionnaire responses. 

EN 

52 

   EN 

 
 
  
  
  
  
  
  
  
  
 
Table A6.5: Average maize production costs, Makedonia-Thraki, FADN definition (€/hectare) 

Seed 
Fertiliser 
Crop protection 
Other specific costs 
Energy and fuel 
Contracted labour/services 
Water/irrigation  
Other direct costs  
Labour (paid) 

Total variable costs 

Machinery 
Depreciation  
Rent 
Interest 

Total fixed costs 

Total costs 

Total unpaid labour (hrs) 
Average hourly wage 
Total unpaid labour 

Total cost including unpaid 
labour 

Variable cost 
Fixed cost 
Total cost 

2000 

2001 

2002 

2003 

2004 

2005 (e) 

2006 (e) 

146.9 
237.5 
134.9 
12.0 
144.8 
130.1 
78.9 
9.1 
18.1 

912.4 

41.4 
349.3 
212.0 
20.6 

623.2 

121.4 
169.2 
87.4 
10.6 
133.9 
139.3 
66.7 
10.5 
3.6 

742.6 

31.7 
307.2 
193.7 
28.2 

560.8 

149.6 
223.5 
121.6 
26.8 
157.0 
135.8 
65.7 
12.5 
44.2 

936.8 

26.3 
424.6 
190.0 
12.5 

653.4 

154.8 
216.0 
133.6 
40.0 
194.1 
141.9 
75.4 
6.0 
10.1 

971.9 

38.6 
392.7 
173.5 
2.5 

607.3 

151.0 
227.8 
144.1 
32.3 
165.6 
128.7 
55.2 
8.2 
46.4 

959.4 

47.6 
342.8 
142.3 
1.5 

534.2 

153.1 
232.2 
146.0 
32.8 
167.8 
129.4 
55.9 
8.4 
47.0 

157.9 
245.7 
149.9 
34.0 
174.1 
136.4 
57.8 
8.7 
48.8 

972.6 

1 013.3 

47.6 
342.8 
142.3 
1.5 

534.2 

47.6 
342.8 
142.3 
1.5 

534.2 

1 535.7 

1 303.4 

1 590.1 

1 579.2 

1 493.6 

1 493.6 

1 493.6 

252.5 
2.2 
562.3 

217.7 
2.4 
522.0 

199.9 
2.6 
510.6 

190.1 
2.7 
517.6 

193.8 
3.0 
590.6 

193.8 
3.2 
622.0 

193.8 
3.3 
643.9 

1 418.5 
679.5 
2 097.9 

1 212.4 
613.0 
1 825.4 

1 396.3 
704.4 
2 100.7 

1 437.7 
659.1 
2 096.8 

1 490.9 
593.3 
2 084.1 

1 532.4 
596.4 
2 128.8 

1 592.8 
598.6 
2 191.4 

Source:  2000–2004 FADN, 2005 and 2006 based on LMC questionnaire responses. 

As for durum wheat, the input of contracted services and labour and unpaid labour is far less 
important,  both  in  relative  and  particularly  absolute  terms.  The  main  variable  cost  elements 
are, in order of priority, fertilisers, seed, services and energy (Tables A6.6 and A6.7). 

EN 

53 

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Table A6.6: Average durum wheat production costs, Thessaly/Sterea Ellas, FADN definition 
(€/hectare) 

2000 

2001 

2002 

2003 

2004 

2005 (e)  2006 (e) 

Seed 
Fertiliser 
Crop protection 
Other specific costs 
Energy and fuel 
Contracted labour/services 
Water/irrigation  
Other direct costs  
Labour (paid) 

64.8 
114.8 
28.9 
1.6 
52.1 
58.6 
1.8 
8.9 
8.9 

74.0 
105.2 
33.0 
0.8 
59.2 
71.5 
1.1 
7.0 
12.0 

75.9 
126.9 
54.2 
9.6 
41.2 
52.7 
2.1 
5.7 
30.2 

62.5 
106.8 
40.4 
1.7 
34.2 
57.6 
0.2 
0.0 
13.8 

79.5 
123.1 
41.2 
3.2 
43.4 
70.2 
0.7 
0.5 
25.4 

81.2 
125.4 
41.9 
3.2 
44.3 
71.9 
0.8 
0.5 
26.0 

Total variable costs 

340.4 

364.0 

398.5 

317.2 

387.3 

395.2 

Machinery 
Depreciation  
Rent 
Interest 

17.6 
147.1 
64.3 
0.0 

18.5 
139.3 
54.0 
2.6 

29.9 
90.9 
105.8 
0.0 

21.3 
144.4 
96.5 
1.6 

13.3 
118.2 
122.1 
0.0 

13.3 
118.2 
122.1 
0.0 

Total fixed costs 

228.9 

214.4 

226.7 

263.7 

253.5 

253.5 

Total costs 

569.3 

578.4 

625.2 

580.9 

640.8 

640.8 

123.1 
2.2 
274.9 

129.0 
2.4 
313.3 

89.6 
2.6 
237.1 

92.4 
3.0 
281.4 

97.9 
3.1 
303.3 

97.9 
3.2 
314.1 

90.2 
138.6 
46.0 
3.5 
47.4 
74.7 
0.8 
0.6 
27.7 

429.4 

13.3 
118.2 
122.1 
0.0 

253.5 

640.8 

97.9 
3.3 
325.2 

Total unpaid labour (hrs) 
Average hourly wage 
Total unpaid labour 

Total cost including unpaid 
labour 

Variable cost 
Fixed cost 
Total cost 

587.9 
256.4 
844.3 

646.0 
245.7 
891.7 

611.9 
250.4 
862.3 

570.5 
291.8 
862.3 

660.3 
283.8 
944.1 

677.9 
284.9 
962.8 

722.0 
286.0 
1 008.0 

Source:  2000–2004 FADN, 2005 and 2006 based on LMC questionnaire responses. 

EN 

54 

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Table A6.7: Average durum wheat production costs, Makedonia-Thraki, FADN definition 
(€/hectare) 

2000 

2001 

2002 

2003 

2004 

2005 (e) 

2006 (e) 

Seed 
Fertiliser 
Crop protection 
Other specific costs 
Energy and fuel 
Contracted labour/services 
Water/irrigation  
Other direct costs  
Labour (paid) 

Total variable costs 

Machinery 
Depreciation  
Rent 
Interest 

Total fixed costs 

Total costs 

Total unpaid labour (hrs) 
Average hourly wage 
Total unpaid labour 

Total cost including 
unpaid labour 

Variable cost 
Fixed cost 
Total cost 

70.3 
98.8 
41.4 
8.9 
53.6 
74.7 
2.8 
5.6 
7.9 

364.2 

16.6 
163.8 
102.9 
10.8 

294.1 

658.2 

78.4 
2.2 
174.5 

75.8 
97.3 
43.5 
9.1 
53.4 
70.4 
2.1 
5.9 
9.6 

367.3 

21.2 
159.8 
101.5 
5.5 

288.0 

655.3 

79.4 
2.4 
190.5 

75.0 
93.3 
38.0 
7.8 
50.2 
75.7 
1.5 
5.7 
3.6 

350.8 

16.5 
171.8 
104.4 
9.7 

73.2 
96.6 
40.8 
8.4 
51.5 
57.5 
1.8 
7.9 
10.2 

348.0 

19.2 
155.3 
105.3 
3.2 

302.4 

283.1 

653.2 

76.3 
2.6 
194.8 

631.1 

88.9 
2.7 
242.1 

70.1 
102.3 
48.0 
9.1 
51.2 
55.5 
2.2 
8.8 
13.1 

360.3 

20.7 
165.4 
109.9 
0.8 

296.7 

657.1 

78.9 
3.0 
240.3 

71.1 
104.3 
48.7 
9.2 
51.9 
55.8 
2.3 
8.9 
13.2 

365.4 

20.7 
165.4 
109.9 
0.8 

296.7 

657.1 

78.9 
3.2 
253.1 

521.2 
311.5 
832.7 

538.7 
307.1 
845.7 

526.1 
321.9 
848.0 

565.9 
307.3 
873.2 

576.6 
320.8 
897.4 

593.1 
322.1 
915.2 

73.4 
110.3 
49.9 
9.6 
53.8 
58.8 
2.4 
9.2 
13.7 

381.2 

20.7 
165.4 
109.9 
0.8 

296.7 

657.1 

78.9 
3.3 
262.0 

616.9 
322.9 
939.9 

Source:  2000–2004 FADN, 2005 and 2006 based on LMC questionnaire responses. 

In Spain the situation is similar. The difference with the cost of producing maize is however 
more  pronounced.  Costs  of  growing  maize  are  about  one-third  less  than  those  for  cotton.  In 
particular,  costs  for  seed  and  energy  are  relatively  higher  for  maize,  while  costs  for  crop 
protection products are relatively higher for cotton. Contracted labour and services, as well as 
water  and  fertiliser  represent  a  similar  share  in  the  variable  cost  structure  of  the  two  crops. 
Unpaid labour is about 80% higher in cotton than in maize, although the weight on the total 
cost of production is similar in the two crops (Tables A6.8, A6.9 and A6.10). 

EN 

55 

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Table A6.8: Average durum wheat production costs Spain, FADN definition (€/hectare) 

2000 

2001 

2002 

2003 

2004 

2005 (e) 

2006 (e) 

Seed 
Fertiliser 
Crop protection 
Other specific costs 
Energy and fuel 
Contracted labour/services 
Water/irrigation  
Other direct costs  
Labour (paid) 

45.3 
52.7 
26.3 
2.1 
49.0 
19.1 
0.0 
13.0 
61.6 

69.0 
83.2 
33.3 
1.1 
42.9 
51.0 
24.0 
22.5 
18.9 

96.0 
70.2 
46.6 
0.0 
64.5 
14.5 
34.6 
27.9 
71.6 

Total variable costs 

269.1 

345.9 

425.9 

16.1 
16.9 
32.6 
0.0 

65.6 

5.3 
56.5 
30.1 
0.0 

91.9 

15.9 
79.7 
82.0 
11.2 

188.8 

334.7 

437.8 

614.7 

49.3 
5.1 
249.9 

93.9 
5.4 
509.5 

59.7 
5.8 
348.6 

Machinery 
Depreciation  
Rent 
Interest 

Total fixed costs 

Total costs 

Total unpaid labour (hrs) 
Average hourly wage 
Total unpaid labour 

Total cost including unpaid 
labour 

Variable cost 
Fixed cost 
Total cost 

66.4 
103.5 
41.2 
1.8 
17.4 
47.0 
0.0 
10.7 
9.9 

297.8 

6.9 
23.7 
53.9 
0.0 

84.5 

382.3 

148.5 
5.2 
769.7 

58.2 
123.7 
37.8 
0.7 
47.2 
32.9 
0.0 
32.5 
13.0 

346.0 

40.7 
22.7 
14.3 
0.0 

77.6 

423.7 

134.0 
5.4 
728.7 

58.2 
123.7 
37.8 
0.7 
47.2 
32.9 
0.0 
32.5 
13.0 

346.0 

40.7 
22.7 
14.3 
0.0 

77.6 

423.7 

134.0 
5.6 
753.2 

58.2 
123.7 
37.8 
0.7 
47.2 
32.9 
0.0 
32.5 
13.0 

346.0 

40.7 
22.7 
14.3 
0.0 

77.6 

423.7 

134.0 
5.8 
779.7 

494.0 
90.6 
584.6 

804.4 
142.8 
947.3 

739.6 
223.7 
963.3 

990.6 
161.5 
1 152.0 

1 001.9 
150.5 
1 152.3 

1 024.0 
152.9 
1 176.9 

1 047.8 
155.6 
1 203.4 

Source:  2000–2004 FADN, 2005 and 2006 based on LMC questionnaire responses. 

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Table A6.9: Average sunflower production costs Spain, FADN Definition (€/hectare) 

Seed 
Fertiliser 
Crop protection 
Other specific costs 
Energy and Fuel 
Contracted labour/services 
Water/irrigation  
Other direct costs  
Labour (paid) 

2000 

2001 

2002 

2003 

2004 

2005 (e)  2006 (e) 

31.1 
18.0 
7.8 
2.2 
40.3 
21.0 
0.1 
6.3 
3.8 

41.2 
59.8 
28.7 
0.3 
40.0 
13.3 
13.7 
16.4 
26.5 

66.3 
61.3 
35.3 
0.0 
55.0 
26.0 
15.3 
27.4 
20.7 

65.3 
25.8 
39.4 
2.2 
28.6 
63.6 
3.1 
54.0 
23.3 

55.1 
51.7 
26.3 
0.0 
30.5 
58.7 
0.2 
44.5 
50.1 

55.1 
51.7 
26.3 
0.0 
30.5 
58.7 
0.2 
44.5 
50.1 

55.1 
51.7 
26.3 
0.0 
30.5 
58.7 
0.2 
44.5 
50.1 

Total variable costs 

130.5 

239.9 

307.2 

305.4 

317.1 

317.1 

317.1 

Machinery 
Depreciation  
Rent 
Interest 

Total fixed costs 

Total costs 

Total unpaid labour (hrs) 
Average hourly wage 
Total unpaid labour 

Total cost including unpaid 
labour 

Variable cost 
Fixed cost 
Total cost 

8.9 
21.7 
9.1 
0.0 

39.8 

12.4 
24.3 
11.2 
0.0 

47.9 

16.0 
37.6 
10.6 
1.1 

65.4 

16.3 
13.8 
65.3 
7.2 

102.7 

18.3 
22.8 
48.6 
0.5 

90.3 

18.3 
22.8 
48.6 
0.5 

90.3 

18.3 
22.8 
48.6 
0.5 

90.3 

170.2 

287.8 

372.6 

408.0 

407.4 

407.4 

407.4 

40.6 
5.1 
206.0 

45.3 
5.4 
245.7 

40.4 
5.8 
236.0 

75.5 
5.2 
391.5 

59.8 
5.4 
325.4 

59.8 
5.6 
336.3 

59.8 
5.8 
348.2 

315.9 
60.4 
376.2 

461.0 
72.5 
533.5 

519.6 
89.0 
608.6 

657.7 
141.8 
799.5 

609.9 
122.8 
732.8 

619.8 
123.9 
743.7 

630.5 
125.1 
755.6 

Source: 2000–2004 FADN, 2005 and 2006 based on LMC questionnaire responses 

EN 

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Table A6.10: Average Maize Production Costs Spain, FADN Definition (€/hectare) 

Seed 
Fertiliser 
Crop Protection 
Other Specific Costs 
Energy and fuel 
Contracted labour/services 
Water/irrigation  
Other direct costs  
Labour (paid) 

2000 

2001 

2002 

2003 

2004 

2005 (e) 

2006 (e) 

125.4 
99.5 
36.0 
0.0 
35.4 
143.2 
32.0 
25.5 
31.9 

155.1 
214.7 
114.2 
0.0 
68.7 
45.8 
78.5 
30.2 
84.4 

155.5 
264.9 
99.7 
0.0 
76.3 
62.7 
54.5 
34.0 
99.7 

223.7 
179.4 
103.4 
0.0 
48.4 
169.8 
102.7 
156.8 
165.3 

189.6 
199.7 
59.4 
0.0 
102.0 
214.5 
171.7 
130.4 
117.8 

189.6 
199.7 
59.4 
0.0 
102.0 
214.5 
171.7 
130.4 
117.8 

189.6 
199.7 
59.4 
0.0 
102.0 
214.5 
171.7 
130.4 
117.8 

Total variable costs 

528.9 

791.7 

847.1 

1 149.5 

1 185.2 

1 185.2 

1 185.2 

Machinery 
Depreciation  
Rent 
Interest 

1.2 
140.7 
213.7 
4.5 

43.9 
82.0 
15.5 
1.0 

70.8 
67.3 
16.5 
0.0 

60.8 
60.1 
74.3 
0.0 

64.3 
76.7 
227.6 
15.0 

64.3 
76.7 
227.6 
15.0 

64.3 
76.7 
227.6 
15.0 

Total fixed costs 

360.1 

142.5 

154.6 

195.3 

383.7 

383.7 

383.7 

Total costs 

Total unpaid labour (hrs) 
Average hourly wage 
Total unpaid labour 

Total cost including unpaid 
labour 

889.0 

60.1 
5.1 
304.5 

934.2 

1 001.8 

1 344.8 

1 568.8 

1 568.8 

1 568.8 

119.1 
5.4 
646.1 

113.8 
5.8 
664.1 

159.9 
5.2 
829.0 

103.0 
5.4 
560.4 

103.0 
5.6 
579.3 

103.0 
5.8 
599.6 

Variable cost 
Fixed cost 
Total cost 

803.0 
390.5 
1 193.5 

1 373.3 
207.1 
1 580.3 

1 444.8 
221.0 
1 665.8 

1 895.6 
278.2 
2 173.8 

1 689.5 
439.7 
2 129.2 

1 706.5 
441.6 
2 148.1 

1 724.8 
443.6 
2 168.5 

Source: 2000–2004 FADN, 2005 and 2006 based on LMC questionnaire responses. 

EN 

58 

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Table A6.11: Spain – the decision whether or not to harvest cotton 

Cotton 

Cotton 
(agri-environ. 
payments) 

Cotton (no 
agri-environ. 
payments) 

Cotton  
(low input- 
low yield) 

No 
Yes 

4.13 

0 
191 
505 

244 
1008 

255 
20 
83 

–165 

Yes 
Yes 

2.56 

350 
191 
878 

244 
626 

255 
20 
51 

558 

No 
Yes 

2.56 

0 
191 
528 

244 
626 

255 
20 
51 

208 

No 
No 

1.00 

0 
0 
450 

244 
244 

255 
20 
20 

481 

Agri-environment payment 
Supplementary payment 

Harvest cotton 
Derived yield (tonnes/ha) 
Payments 
Agri-environment payment (€/ha) 
Additional payment (€/ha) 
Gross margin (€/ha) 

Not harvest cotton 
Revenue forgone 
Sales price (per tonne) 
Sales price (per hectare) 

Costs foregone 
Harvesting (per hectare) 
Transport (per tonne) 
Transport (per hectare) 

Gross margin (€/ha) 

Source: LMC.  

Table A6.12: Returns to cotton and alternative crops (€ per hectare) 

COTTON 

Average (2001 – 2005) 

Makedonia-Thraki 

Thessalia/Sterea 

Spain 

Price per tonne (€/t) 
Yield (t/ha, unginned) 
Total revenue 

Gross margin (excluding family labour) 
Return to family labour (per hour) 
Gross margin (including family labour) 

Total profit (excluding family labour) 
Return to family labour (per hour) 
Total profit (including family labour) 

818.4 
3.2 
2 568.8 

1 436.1 
6.7 
907.10 

574.30 
2.70 
–13.50 

845.9 
3.5 
2 973.8 

1 919.4 
8.5 
1 331.1 

1 250.4 
5.50 
596.80 

940.9 
3.7 
3 435.5 

1 958.2 
14.1 
1 209.1 

1 577.8 
11.20 
745.50 

EN 

59 

   EN 

 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
  
  
  
  
  
  
  
 
 
 
 
DURUM WHEAT 

Average (2001 – 2005) 

Makedonia-Thraki 

Thessalia/Sterea 

Spain 

Income per tonne (€/t) 
Coupled payment (€/ha) 
Durum wheat zone supplement (€/ha) 
Yield (t/ha) 
Total revenue 

Gross margin (excluding family labour) 
Return to family labour (per hour) 
Gross margin (including family labour) 

Total profit (excluding family labour) 
Return to family labour (per hour) 
Total profit (including family labour) 

MAIZE 

Income per tonne (€/t) 
Coupled payment (€/ha) 
Yield (t/ha) 
Total revenue 

Gross margin (excluding family labour) 
Return to family labour (per hour) 
Gross margin (including family labour) 

Total profit (excluding family labour) 
Return to family labour (per hour) 
Total profit (including family labour) 

144.7 
152.1 
341 
2.8 
905.1 

546.8 
6.8 
253.4 

340.6 
4.2 
609.1 

148.8 
152.1 
341 
3.8 
1 052.6 

680.1 
6.8 
419.2 

439.3 
4.4 
147.9 

140.4 
239.4 
247.7 
3.4 
969.6 

617.3 
5.9 
57.5 

513.2 
4.7 
–108.7 

Average (2001 – 2005) 

Makedonia–
Thraki 

Thessalia/Sterea 

Spain 

142 
540.5 
11.9 
2 306.2 

1 307.9 
6.60 
810.60 

732.60 
3.7 
177.4 

148.9 
540.5 
11.9 
2 306.2 

1 371.8 
6.90 
1 158.2 

1 371.8 
6.9 
633.4 

132.5 
398.4 
11.7 
1 944.9 

913.20 
7.90 
323.00 

661.30 
5.7 
5.5 

SUNFLOWERS 

Average (2001 – 2005) 

Makedonia–Thraki 

Thessalia/Sterea 

Spain 

Income per tonne (€/t) 
Coupled payment (€/ha) 
Yield (t/ha) 
Total revenue 

Gross margin (excluding family labour) 
Return to family labour (per hour) 
Gross margin (including family labour) 

Total profit (excluding family labour) 
Return to family labour (per hour) 
Total profit (including family labour) 

– 
– 
– 
– 

– 
– 
– 

– 
– 
– 

– 
– 
– 
– 

– 
– 
– 

– 
– 
– 

241 
239.4 
2.2 
779.9 

482.5 
9 
206.2 

403.2 
7.6 
96.2 

EN 

60 

   EN 

 
  
  
  
  
  
  
  
  
 
 
 
 
  
  
  
  
  
  
  
  
 
 
 
 
  
  
  
  
  
  
  
  
A6.3  Change in costs following the change in regime 

On the basis of the data on the inputs used resulting from the survey carried out by LMC, the 
costs of production for 2005 and 2006 have been estimated. 

As  regards  family  labour  time  spent  on  cotton,  most  of  the  respondents  reported  that  it 
remained  unchanged  between  2005  and  2006.  Paid  labour  fell  while  contracted  labour  rose 
(Table A6.13). 

Table A6.13: Days per hectare spent on cotton production, Greece 

Labour 

Household 

Paid 

Contracted 

2006 

10 

4 

3 

2005 

10 

4 

3 

Change 

0% 

–3% 

6% 

Source: LMC Questionnaire, from a sample of 200 cotton growers 

The  rather  stable  input  use  reported  in  Greece  confirms  other  information  that  the  drop  in 
yields occurred in 2006 was mainly due to adverse weather conditions.  

In contrast, the drop in yield in Spain is more to be attributed to a significant reduction of the 
input use, as it emerges from the LMC's survey. Inputs were found to be lower for fertiliser, 
pesticides and labour (Table 2.19 and Diagram 2.20).  

Family labour was reported to be virtually unchanged between 2005 and 2006, while paid and 
contracted labour decreased (Table A6.14). 

Table A6.14: Days spent on cotton production per hectare 

Labour 

Household 

Paid 

Contracted 

2005 

4.40 

1.03 

0.74 

Source: Questionnaire LMC. 

2006 

4.48 

0.80 

0.58 

Change 

2% 

–22% 

–22% 

EN 

61 

   EN 

 
 
 
ANNEX 7 – ECONOMICS OF THE GINNING INDUSTRY 

A7.1  The role of the ginner 

The  ginner  purchases  unginned  cotton  from  farmers  and  processes  it  into  ginned  cotton  and 
cottonseed.  Purchases  are  on  an  outright  basis.  There  is  no  tolling  of  unginned  cotton  for 
farmers. Responses to the questionnaire revealed that purchases are made on a spot rather than 
forward basis. There are very few ginners who have contracts with individual growers. From 
the gins interviewed, 16% marketed all their cotton themselves, 33% used a marketer/trader, 
while 50% used both.  

Over  the  past  five  years,  the  volume  of  sales  to  EU–15  member  states  has  fallen  as  the 
European textile industry has steadily declined. Ginners in Greece and Spain have had to look 
increasingly outside the Community for markets. Over the last five years, exports accounted 
for 72% of production in Greece and 45% of production in Spain.  

Greek exports are dominated by exports to Turkey and North Africa. In Spain, EU–15 exports 
were the most important until 2006 (Table A7.1). 

Diagram A7.1: EU–15 Cotton ginned exports 

)
n
o
t
t
o
c
d
e
n
n
g
,
s
e
n
n
o
t
(

i

s
t
r
o
p
x
E

450

400

350

300

250

200

150

100

50

0

2000

2001

2002

2003

2004

2005

2006

Intra EU-15

Extra EU-15

Source: Eurostat 

All but one of the Greek ginners interviewed belonged to an inter–branch organisation. These 
were  thought  to  be  useful  for  solving  problems  in  the  sector  and  for  improving  quality.  All 
ginners  purchased  cotton  only  from  other  members  of  the  inter-branch  organisation.  The 
Spanish experience of inter-branch organisations is more mixed. 

Among the companies interviewed, ginning activities accounted for 82% of total revenues in 
Greece and 87% of revenues in Spain. Cooperative ginning operations also have interests in 
input distribution and the contracting of services; hence their revenues from ginning alone was 
lower (Diagram A7.2). In Greece, within the cotton-related activities, a number of companies 
also  crushed  cottonseed  into  oil  and  cake.  Non-cotton  activities  were  linked  to  the 
warehousing and storage of other commodities. 

EN 

62 

   EN 

 
 
 
 
 
Diagram A7.2: Sources of revenues from ginning activities 

)

%

(
e
u
n
e
v
e
R

l

t

a
o
T

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Spain

Greece

Private  Coop

Source: LMC 

A7.2  Capacity and Capacity Utilisation 

Spain 

Out of a total of 29 ginning mills, 27 were active in Spain in 2005/06 prior to the reforms, of 
which 85% were located in Andalusia (mainly in Seville Province) with the remainder located 
in Cartagena Province, in Murcia (Table A7.1). 

Table A7.1: Spain – Location of active ginning mills, 2005/06 

Community 

Province 

No. of mills 

% of total 

Andalusia 

Seville 

Cordoba 

Cadiz 

Jaen 

Murcia 

Cartagena 

Total 

Source: LMC, Spanish Ginning Industry Paper 

15 

5 

2 

1 

4 

27 

56% 

19% 

7% 

4% 

15% 

100% 

Following the reform, in 2006, six of these gins did not open and one was closed permanently. 
Of those that opened, many worked only one or two shifts per day, of eight hours per shift. 

Capacity  levels  are  difficult  to  calculate  since  each  factory  works  for  a  different  number  of 
days and for a different number of hours per day. From the questionnaires, the gins surveyed 
varied in the number of days operated from 50 to 75 during 2005; the average was 58 days. 
The number of hours for which each gin operated each day varied between 16 and 24. On the 
basis  of  the  gins’  own  data,  this  resulted  in  an  average  capacity  utilisation  level  of  72%  in 
2005. In 2006, capacity utilisation among the gins we surveyed fell to just 20% and two gins 

EN 

63 

   EN 

 
 
 
 
 
  
  
  
  
were  closed.  The  gins  that  were  closed  were  part  of  ginning  groups  operating  two  or  more 
gins. 

In  2004,  total  employment  in  the  Andalusia  cotton-ginning  sector  was  over  1 170  workers, 
comprising  over  250  permanent  workers  and  920 seasonal  workers  (equivalent 
to 
11 permanent  workers  and  40  seasonal  workers  per  mill  on  average).  The  provincial 
distribution of employment reflects the distribution of mills by province (Table A7.2). 

Table A7.2: Employment by cotton-ginning sector in Andalusia, 2004 

Province 

Permanent 
Workers 

Seasonal 
Workers 

Total 

% of total 

Seville 

Cordoba 

Cadiz 

Jaen 

Total 

Average no. of workers per mill 

173 

52 

19 

7 

251 

11 

532 

283 

73 

32 

920 

40 

705 

335 

92 

39 

60% 

29% 

8% 

3% 

1 171 

100% 

Source:  LMC, Diagnostico del Sector Algodonero Andaluz. 

Greece 

The high cotton prices seen during the period of 1995–1999 stimulated Turkey to expand its 
textile production, and in turn, Greece expanded its cotton production for exports to Turkey. 
By 2000, Greek ginners expanded processing capacity to meet the demand for more cotton. 73 
ginning mills were active in Greece in 2005/06, of which one third were located in Makedonia, 
with the remainder mainly located in Thessalia, Central Greece (Sterea – Levadia) and Thrace 
(Table  A7.3).  Of  the  gins  in  operation,  eight  are  co-operatives,  the  rest  are  operated  by  the 
private sector. 

Table A7.3: Greece – Location of active ginning mills, 
2005/2006 

No. of mills 

% of total 

Macedonia 

Thessalia 

Sterea (Levadia area) 

Thrace 

Epiros 

Total 

Source: LMC. 

24 

21 

20 

7 

1 

73 

33% 

29% 

27% 

10% 

1% 

100% 

The Greek ginning sector is undergoing consolidation, with two companies, Karagiorgos Bros. 
SA  and  Hellenic  Fabrics/Accas  Group  (the  owner  of  Thrace  and  Thessalia  Ginning  Mills) 
expected  to  account  for  around  30%  of  total  cotton  production  by  2006/07.  These  two 
companies rented a number of poor-performing gins in 2006/07 to reduce transportation costs. 

EN 

64 

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As with Spain, capacity utilisation levels are difficult to calculate as each factory works for a 
different  number  of  days  and  different  number  of  hours.  From  the  questionnaires,  the  gins 
surveyed  from  26  to  110  in  the  number  of  days  operated  during  2005;  the  average  was  75 
days. The number of hours for which each gin operated each day varied between 8 and 24. If 
we take the gins’ own data of daily processing capacity and multiply it by the number of days 
worked during 2005 and assume that this is total capacity, then the average capacity utilisation 
level was 61% in 2005. This over-estimates capacity to the extent that it assumes plants could 
run for 24 hours a day. In 2006, with lower production, capacity utilisation levels fell among 
the gins. Using the same approach, capacity utilisation for the companies surveyed fell to 43%. 

However, the calculation is not as simple as that. Following the change in regime there were 
no  longer  any  restrictions  on  the  number  of  days  per  season  for  which  a  gin  could  operate. 
Previously,  gins  were  obliged  to  operate  during  a  specific  period.  This  was  because  the  Aid 
was  paid  to  the  ginner,  and  it  was  felt  that  by  restricting  the  operation  period,  inspections 
could  be  carried  out  more  easily.  Without  this  restriction,  in  2006  the  mills  were  free  to 
operate for a longer number of days. The gins took advantage of this and increased the number 
of days worked, but reduced the number of hours worked each day. This reduced the need for 
nightshifts and overtime, thus reducing wage costs.  

On average, the number of days worked increased to 81, while the number of hours worked 
per day fell to 13. In total, the number of hours worked by the plants over the whole season 
fell by 16% (Table A7.4). 

Table A7.4: Number of ginning days and hours worked in Greece, 2004–
2006 

Days worked 

Hours per day 

Average 

73.3 

75.2 

80.5 

Total 

2 493 

2 631 

2 818 

Average 

14.8 

15.5 

12.6 

Total 

459 

497 

389 

2004 

2005 

2006 

Source: LMC. 

The average Greek ginning mill employs 10 permanent and 30 seasonal workers; this suggests 
that total employment in the Greek ginning sector is around 3 200 workers. 

Benchmarking 

On  an  industry-wide  basis,  to  derive  an  objective  measure  of  capacity,  we  have  calculated 
capacity  on  the  basis  of  US  industry  parameters.  In  the  US  there  is,  on  average,  an  81  day 
season based on two shifts (average operating time was 17.5 hours). We have recomputed the 
EU  daily  capacity  numbers  using  data  from  ginning  companies,  adjusted  to  allow  for  two 
shifts. Where we have no capacity data (5 companies out of 27 in Spain and 10 out of 50 in 
Greece), we have estimated capacity as the average capacity of the companies from which we 
have data. This puts total ginning capacity at 0.86 million tonnes of unginned cotton in Spain 
and 1.60 million tonnes of unginned cotton in Greece. 

On  this  basis,  the  capacity  utilisation  level  for  the  whole  industry  in  Greece  is  estimated  to 
have  averaged  70%  in  2003–05  and  to  have  fallen  to  56%  in  2006,  while  in  Spain  capacity 

EN 

65 

   EN 

 
 
 
 
utilisation  is  estimated  to  have  been  41%  in  2003–2005,  falling  to  17%  in  2006.  In  the  US 
capacity utilisation is estimated around 75% (Diagram A7.3). 

Diagram A7.3: Average US and EU gin capacity utilisation, 2003–2005 vs. 2006 

n
o

i
t

a
s

i
l
i
t

U
y
t
i
c
a
p
a
C

80%

70%

60%

50%

40%

30%

20%

10%

0%

Greece

Spain

US

2003-2005

2006

Source: Industry Interviews, LMC estimates 

The average gin capacity in the EU is much larger than in the US (Diagram A7.4). In the EU, 
about  half  of  the  gins  have  over  9 000  tonnes  of  annual  capacity,  with  several  rated  at 
22 000 tonnes.  By  contrast,  only  25%  of  US  gins  are  rated  at  over  9 000  tonnes  of  ginned 
cotton, and very few of these have 22 000 tonnes capacity. 

Diagram A7.4: Comparison of US and EU gin capacity by size of gin 

s
n
G

i

l

a
t
o
T

f

o
%

60%

50%

40%

30%

20%

10%

0%

<3,400

3,500 - 4,400

4,500 - 8,900

>8,900

US Europe

Source: Industry Interviews, USDA, LMC estimates 

EN 

66 

   EN 

 
 
 
 
 
 
 
Ginning Production Costs 

From  the  questionnaires  we  are  able  to  gain  an  impression  of  ginning  costs  and  how  these 
have changed. 

Greece 

From the questionnaire respondents, Greek ginning costs averaged €118 per tonne of unginned 
cotton in 2004 and 2005 and rose to €135 per tonne in 2006. Fixed costs accounted for 37% of 
total  costs,  rising  to  39%  in  2006  (Table  A7.5).  Costs  are  higher  in  Makedonia  than  in 
Thessalia (Diagram A7.5). 

Table A7.5: Average Greek ginning costs, 2004–2006 (€ per tonne, unginned cotton) 

Ginning 

Storage 

Sales/marketing/
transport 

Fixed costs 

Other 

Total costs 

44 

45 

50 

8 

9 

10 

9 

9 

10 

44 

43 

53 

13 

12 

12 

117 

119 

135 

2004 

2005 

2006 

Source: LMC. 

Diagram A7.5: Ginning costs, Macedonia vs. Thessaly 

)
n
o
t
t
o
c
d
e
n
n
g
n
u
,
e
n
n
o
t

i

r
e
p
€
(

s
t
s
o
C
n
o
i
t
c
u
d
o
r

P

150

140

130

120

110

100

90

80

2004

2005

2006

Makedonia

Thessalia

Source: Questionnaire and LMC estimations 

With the fall in capacity utilisation, variable costs rose by 9% between 2005 and 2006, while 
fixed costs rose by 23%. The rise in costs would have been greater but for ginners’ efforts to 
reduce costs, such as changing shift patterns. With shorter shifts, the level of unskilled labour 
employed  in  the  gins  fell  by  15%  in  2006.  Skilled  labour  employment  was  unchanged 
(Table A.7.6). 

EN 

67 

   EN 

 
 
 
 
 
 
 
 
 
 
 
Table A7.6: Gin employment levels among Greek questionnaire respondents 
(persons) 

Total employment 

Skilled (ginning) 

Skilled year round 

Unskilled 

94 

90 

82 

26 

24 

23 

20 

19 

19 

49 

47 

40 

2004 

2005 

2006 

Source: LMC. 

Spain 

In Spain, there was a wide range of reported costs, and the size of the ginning operation does 
not  seem  to  have  influenced  the  costs  significantly.  Among  the  questionnaire  respondents, 
ginning costs averaged €100 per tonne of unginned cotton in 2004 and 2005 and rose to €149 
per tonne in 2006.  

Fixed  costs  accounted  for  50%  of  total  costs  rising  to  55%  in  2006  with  the  lower  level  of 
capacity utilisation (Table A7.7).  

Table A7.7: Average Spanish ginning costs, 2004–2006 (€ per tonne, 
unginned cotton) 

Total cost 

Variable  

Fixed 

Fixed % of total 

Source: LMC. 

2004 

99 

49 

50 

50% 

2005 

102 

54 

49 

47% 

2006 

149 

67 

82 

55% 

With the fall in capacity utilisation, variable costs rose by 24% between 2005 and 2006, while 
fixed  costs  rose  by  69%.  In  order  to  reduce  costs  (both  fixed  and  variable),  the  levels  of 
employment fell significantly in 2006. Casual workers and skilled staff linked directly to the 
ginning  operation  were  the  major  losers.  Permanent  staff  were  largely  unaffected  as  ginners 
sought to continue their operations and continue to provide a range of services (Table A7.8). 
Discussions  with  ginners  suggest  that  this  trend  will  continue  in  2007,  but  that  by  2008  the 
number of permanent staff, too, will begin to decline if capacity utilisation levels do not rise. 

Table A7.8: Gin employment levels among Spanish questionnaire respondents 
(persons) 

Total employment 

Skilled (ginning) 

Skilled year round 

Unskilled 

2004 

2005 

2006 

Source: LMC. 

276 

270 

216 

EN 

155 

142 

95 

68 

71 

71 

74 

89 

82 

47 

   EN 

 
 
  
 
 
 
  
Investment 

Capital investment in the gins varies considerably between years. When asked how investment 
in the ginning operation and warehousing had changed over the last five years, in Greece 72% 
of  the  respondents  reported  that  investment  had  increased  over  the  last  five  years.  This 
increase  was  largely  in  increasing  the  capacity  of  ginning  operations  and  improving  ginning 
machinery to increase the quality of production. 

Diagram A7.6: Proportion of Greek gins reporting an increase in investment in 1997–2001 and 
in 2001–2006 

)

%

(

s
n
o

i
t

a
v
r
e
s
b
O

f
o
r
e
b
m
u
N

74%

72%

70%

68%

66%

64%

62%

60%

2001 to 2006

1997 to 2001

Gin Warehousing

Source: LMC estimates. 

EN 

69 

   EN 

 
 
 
 
 
Diagram A7.7: Proportion of Spanish gins reporting an increase in investment in 1997–2001 
and in 2001–2006 

70%

60%

50%

40%

30%

20%

10%

0%

)

%

(

s
n
o
i
t
a
v
r
e
s
b
O

f
o

r
e
b
m
u
N

2001 to 2006

1997 to 2001

Gin Warehousing

Source: LMC. 

In Spain, fewer than 50% of the respondents reported an increase in investment. In the rest of 
cases,  investment  was  unchanged  from  previous  years.  Investment  in  warehousing  capacity 
was also greater in Greece than Spain (Diagrams A7.6 and A7.7). 

EN 

70 

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ANNEX 8 – ENVIRONMENTAL IMPACTS 

Table A8.1: Evolution of input use in cotton sector in Greece (2000/2005) 

Fertilisers (kg/ha) 

Pesticides, 
insecticides and 
fungicides (kg/ha) 

Herbicides (kg/ha) 

Irrigation (m3/ha) 

Increase 

No Change 

Decrease 

48% 

29% 

22% 

Source: Alliance Environnement. 

50% 

36% 

14% 

49% 

43% 

8% 

31% 

59% 

10% 

Table  A8.1  presents  the  evolution  of  input  use  in  the  cotton  sector  in  Greece  from  2000  to 
2005. Between 2000 and 2005 the change in input use in Spain has been insignificant. None of 
the small holdings (below 10 ha) changed its practices, for holdings between 10 and 20 ha the 
majority (75~87%) of holdings showed no changes and for the holdings above 20 ha as much 
as 87~95% of holdings did not change their practice. In the medium-sized holdings, the trend 
was to reduce the input use and the use of phytosanitary products (Table A8.2) 

Table A8.2: Evolution of input use in cotton sector in Spain (2000/2005) 

Farm size 

Evolution 

Fertilisers 
(kg/ha) 

Pesticides, 
insecticides 
and fungicides 
(kg/ha) 

Herbicides 
(kg/ha) 

Irrigation 
(m3/ha) 

< 10 ha 

No change 

100% 

100% 

100% 

100% 

Decrease 

10 – 20 ha 

No change 

Increase 

Decrease 

> 20 ha 

No change 

Increase 

Source: Alliance Environnement. 

25% 

70% 

5% 

0% 

95% 

5% 

16% 

76% 

8% 

5% 

87% 

8% 

8% 

87% 

5% 

0% 

95% 

5% 

8% 

87% 

5% 

0% 

95% 

5% 

The  use  of  plastic  in  cotton  production  has  been  declining  steadily  since  2000,  especially in 
Spain (Diagram A8.1). In Greece traditionally the use of plastic has been much smaller. 

EN 

71 

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Diagram A8.1: Evolution of the use of plastic covers in Spain (1999/2006) 

Area (1000ha) 

90 
80 
70 
60 
50 
40 
30 
20 
10 
0 

No plastic

Plastic

1999  2000  2001  2002  2003

2004 2005 2006

Source : CAPJA 

The pollution of water is identified as the biggest problem, an evidence of this is the fact that 
cotton  is  largely  grown  in  areas  that  have  been  designated  as  Nitrate  Vulnerable  Zone 
according to the Nitrate Directive. A reduction of irrigation water has been noted in Spain. 

Finally,  the  attractiveness  of  agri-environmental  measures  was  quite  limited  under  this 
scenario, as it is evidenced inter alia by the number of participants up to 2005. The high prices 
implied  by  this  scenario  made  the  respect  of  the  environmental  constraints,  especially  to 
fertiliser usage, costly for cotton producers. To have the same degree of farmers' participation 
to  the  agri-environmental  programme,  this  scenario  implies  a  higher  level  of  agri-
environmental payments. 

Diagram A8.2: Change in per hectare input use for cotton in Greece, 2005 vs. 2006 

s
t
n
e
d
n
o
p
s
e
R

f
o
o
N

80

70

60

50

40

30

20

10

0

>50%
increase

25% to 50%
increase

<25%
increase

No change

<25%
decrease

25% to 50%
decrease

>50%
decrease

Seed

Fertiliser

Pesticides Herbicides

irrigation

Labour

Source: LMC 

EN 

72 

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Table A8.4: Change cotton in input use per hectare in Spain, 2005 vs. 2006 

Farm size 

Evolution 

Seed 

< 10 ha 

Decrease 

No change 

Decrease 

10 – 20 ha 

No change 

Increase 

Decrease 

No change 

> 20 ha 

Source: LMC. 

60% 

40% 

45% 

45% 

9% 

44% 

56% 

Fertilisers 
(kg/ha) 

Pesticides, 
insecticides and 
fungicides 
(kg/ha) 

100% 

100% 

0% 

79% 

9% 

12% 

88% 

9% 

0% 

77% 

11% 

11% 

87% 

12% 

Herbicides 
(kg/ha) 

Irrigation 
(m3/ha) 

60% 

40% 

41% 

50% 

8% 

15% 

85% 

60% 

40% 

63% 

27% 

9% 

75% 

21% 

Comparing  the  environmental  impacts  of  the  integrated  production  and  the  most  common 
practices it can be stated that in Spain 40% of small holdings (below 10ha) did not change the 
use of herbicides and irrigation per ha, whereas a significant percentage indicated a decrease. 
Regarding  the  medium-sized  holdings  (10  to  20 ha)  there  were  different  results:  45–50% 
declared no change concerning the use of herbicides and seeds, while an important percentage 
indicate  a  decrease  in  use  of  irrigation,  pesticides,  fertilisers  and  seeds.  As  for  big  holdings 
(above  20ha)  85%  declared  no  change  in  herbicides  use,  whereas  75–88%  mentioned  a 
reduction in the use of irrigation water, pesticides and fertilisers. 

In addition, cross-compliance rules apply. 

Table A8.5: Evolution of irrigated cotton surface in Spain between 2005 and 2006 

2005 

2006 

Area (ha) 

82 624 

1 708 

84 322 

% 

98% 

2% 

100% 

Area (ha) 

59 380 

3 436 

62 816 

% 

95% 

5% 

100% 

Irrigated area 

Non-irrigated area 

Total area 

Source: CAPJA. 

Agri-environmental measures 

Spain 

In order to benefit from the integrated production scheme (350€/ha) the farmers were obliged 
to fulfil several criteria: 

– 

– 
– 
– 

reduction  of  nitrogen  input  by  at  least  20%  (with  a  maximum  quantity  of 
118.3 NFU/ha), 
nitrogen input is forbidden after bolls ripening, 
urea input is forbidden in the second half of the cultivation season, 
reduction in phosphorus and potassium inputs by 20%, 

EN 

73 

   EN 

 
 
 
 
– 

– 
– 
– 

– 
– 

reduction  in  the  number  of  phytosanitary  treatments  (two  treatments  less  for  each 
cultivation cycle in average) and application base pest monitoring, 
elimination of the plastic cover, 
slurries are forbidden, 
spraying  pressure  for  PPP  (plant  protection  products)  below  15ka/cm2  and  PPP  is 
forbidden in unfavourable conditions, 
pest monitoring will be maintained until the end of the vegetative cycle, 
residual herbicides are not permitted either in autumn or on sandy land. 

Since the beginning of 2006 this programme was very successful in Spain and the areas under 
it grew rapidly (Diagram 8.4). 

Diagram A8.4: Participation in the agri-environmental programme in Spain (2003/2006) 

Area (thousand ha)

60

50

40

30

20

10

0

Greece 

2003

2004

2005

2006
Year

The amount of aid for Thessalia ranges from €532–600/ha. The criteria are as follows: 

– 

– 

– 

– 

compulsory set-aside of 25%, 

reduction of nitrogen by 20% in the main crop, 

crop rotation of 25% of the irrigated crops with dry ones, 

obligation to make a soil analysis. 

EN 

74 

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ANNEX 9 – COTTON FIBRE QUALITY 

The quality of cotton fibre is determined by a combination of factors, including: 

(cid:132) 

(cid:132) 

(cid:132) 

(cid:132) 

(cid:132) 

the variety of cotton; 

agronomic inputs such as fertiliser and irrigation; 

weather factors such as rain at the time of harvest; 

harvest practices such as use of defoliants and use of stripper versus picker machines; 
and  

ginning practices such as drying temperature and speed of processing. 

These  various  forces  affect  fibre  characteristics,  e.g.,  strength,  micronaire  (a  measure  of 
maturity), fibre length (also called staple length), leaf (a measure of the amount of impurities 
entrapped  among  the  fibres)  and  colour  (ranging  from  white  to  spotted  or  yellow  stained). 
These  quality  traits  are  the  basis  on  which  the  price  of  ginned  cotton  is  determined,  and  on 
which textile manufacturers decide to purchase particular lots of cotton.  

Until  the  2006/07  season,  Greek  and  Spanish  cotton  was  considered  to  have  good  quality 
characteristics,  with  staple  (fibre)  length  of  over  28  mm  and  colour  generally  below  41 
(Table A9.1).  Furthermore,  in  Greece,  fibre  quality  has  been  improving  because  of  greater 
penetration  of  the  FiberMax  varieties,  which  have  longer  fibre  and  smaller  seed.  FiberMax 
varieties now account for about 40% of cotton production. 

Following the reform, the quality of ginned cotton from the 2006 crop deteriorated compared 
to  previous  years  in  both  Greece  and  Spain.  Some  diminution  of  quality  was  a  result  of 
weather in Greece, but the greatest impact came as a result of poorer farm management. This 
is perceived by ginners to be the result of the requirement that the coupled payment is made on 
boll opening rather than harvest. Lower fertiliser and irrigation use in Spain resulted in shorter 
fibre length. In addition, farmers did not defoliate (the application of a chemical to cause the 
leaves  to  fall  off)  before  harvesting,  which  increased  the  amount  of  leaf  impurities  in  the 
unginned cotton. 

In Greece, the fibre length, fibre strength and colour were reported to be of worse quality in 
2006, than they had been five years earlier. 

Table A9.1: Reported Greek cotton quality, 2006 vs. 2001–2005 (modal response) 

Fibre length  

Fibre strength 

Micronaire 

Colour 

28.50 

27.50 

29.00 

27.50 

4.05 

4.15 

41 

51 

Past five years 

2006 

Source: LMC. 

In Spain, individual quality characteristics were reported by two ginners (Table A9.2). In these 
cases, the fibre length, fibre strength and micronaire were all said to be of a lower quality in 
2006 than it had been in 2005.  

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Table A9.2: Reported Spanish cotton quality, 2006 vs. 2005 

Fibre length 

Fibre strength 

Micronaire 

Colour 

2005 

2006 

27–28.5 

28–28.8 

28.9 

30–30.5 

2.9–4.2 

3.7–4.4 

Strict middling – middling 

Middling – barely middling 

Source: LMC. 

Another  factor  that  has  acted  to  reduce  the  quality  of  both  Greek  and  Spanish  cotton,  but 
which is not related to the new regime, is the increasing use of stripper harvesters. The type of 
cotton varieties grown in both countries is the picker type, with more open bolls, that allows a 
spindle  harvester  to  be  used.  The  spindle  harvester  is  gentler  than  stripper  harvesters  in 
handling  the  plant  and  the  bolls,  so  that  few  impurities  are  incorporated  into  the  unginned 
cotton. However, spindle harvesters are slow and very expensive, and are being replaced by 
stripper harvesters, which are faster and more affordable, but, because they literally beat the 
entire  plant  in  the  process  of  harvesting,  far  more  plant  matter  –  sticks,  leaves,  etc.  –  are 
brought into the gin along with the unginned cotton. 

The reduced quality of Greek and Spanish cotton has affected the potential export market for 
ginned  cotton.  Textile  factories  in  Turkey,  which  has  become  the  key  trading  partner  for 
Greece’s  cotton,  need  relatively  low  grade  cotton.  Therefore,  the  lower  quality  of  the  2006 
cotton is believed to have had only slight impact on Greek exports to its neighbour. However, 
it has affected trade with the Far East, which requires higher qualities. Spain’s trade with the 
Far East is reported to have fallen sharply in 2007, and it substituted that amount with trade to 
Turkey, with whom Spain does not traditionally trade large volumes of cotton. 

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ANNEX 10 – BUDGET EXPENDITURE 

Under  the  old  regime,  expenditure  on  cotton  aid  had  a  floor  of  €770  million,  and  during 
periods when this level of expenditure would not otherwise have been reached, a higher price 
was  paid  to  growers.  This  occurred  in  1996,  1998  and  2001.  Expenditure  peaked  at 
€952 million during 2005 (Table A10.1, Table A10.2). 

Table A10.1: European Commission expenditure on cotton aid (€ million) 

Advance/balances 
for previous years 

Advances 

Balances  

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

–4.5 

0.2 

–0.3 

–0.3 

–11.6 

1.0 

–0.1 

0.5 

2.9 

0.0 

0.0 

575.8 

4.2 

23.6 

12.3 

17.3 

1.0 

1.7 

0.0 

2.1 

0.0 

744.2 

88.9 

601.7 

556.9 

678.5 

622.3 

542.1 

567.5 

653.5 

637.8 

726.2 

Total Greece 

739.7 

664.9 

605.6 

580.3 

679.2 

640.6 

543.0 

569.7 

656.4 

639.9 

726.2 

Advance/balances 
for previous years 

Advances 

Balances  

Total Spain 

0.0 

0.0 

0.0 

0.0 

0.4 

0.0 

–0.1 

0.0 

0.2 

0.0 

0.0 

44.5 

189.7 

108.8 

195.2 

196.7 

157.0 

215.5 

201.5 

163.7 

211.4 

57.6 

30.6 

4.7 

71.9 

28.3 

17.3 

33.5 

18.8 

14.5 

31.6 

14.4 

57.6 

75.1 

194.4 

180.7 

224.0 

214.1 

190.4 

234.4 

216.2 

195.3 

225.8 

Total  

797.2 

740.0 

800.0 

761.0 

903.2 

854.7 

733.4 

804.0 

872.6 

835.2 

952.0 

Source: DG AGRI. 

Table A10.2: EU expenditure on cotton aid (€ million) 

Greece 

Spain 

Total 

Production aid 
2000–2005 
(Option 1) 

Current regime  
2006 
(Option 2) 

(cid:190)  Decoupled 

(cid:190)  Coupled  

(cid:190)  Rural Dev. 

(cid:190)  Interprof. org. 

Full decoupling  
(Option 3) 

(cid:190)  Decoupled 

(cid:190)  Rural Dev. 

(*) 
Source:  DG AGRI. 

Reference period 2000–2002 

629.3 

367.5 

202.2 

17.9 

3.7 

591.3 

573.4 

17.9 

591.3 

212.7 

842 

(cid:190)  Decoupled 

(cid:190)  Coupled 

(cid:190)  Rural Dev 

(cid:190)  Interprof. org. 

(cid:190)  Decoupled  

134.3 

72.7 

4.1 

0.7 

211.8 

207.7 

803.1(*) 

(cid:190)  Rural Dev. 

4.1 

803.1 

211.8 

Under  the  reformed  regime,  the  total  aid  targeted  at  cotton  growers  was  set  at  €803 million, 
based on the average budget spent on production aid over the reference period (2001 to 2003). 

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Initially the Commission proposed that, of this budget, €103 million would be spent on rural 
development programmes, €418 million on decoupled aid and €278 million on coupled aid.  

The basis for this split was that the average aid to the growers (decoupled plus coupled) should 
equal  the  average  aid  actually  paid  during  the  reference  period  less  the  amount  paid  to  the 
ginners (i.e., the difference between the guide price and the minimum price) less a balancing 
adjustment for the difference between the average world price on which the aid applications 
were  fixed  and  the  average  actual  world  price  over  the  same  period.  However,  the  final 
Council  decision  increased  the  proportion  of  decoupled  aid  at  the  expense  of  the  rural 
development funds. 

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ANNEX 11 – ASSESSMENT OF ADMINISTRATIVE COSTS 

Table A11.1: List of measures currently entailing administrative costs 

OPTION 1 

Information to be notified or tasks to be fulfilled 

Producers 

Ginners 

Member 
States 

Commission 

Timing / 
Frequency 

Compulsory 
/ Optional 

Quality of unginned cotton 

World market price of unginned cotton 

World market price of ginned cotton 

Determination of estimated unginned production 

Determination of actual unginned production 

Reduction of guide price 

weighted average of unginned world market price 

Total budget expenditures 

Calculating and fixing aid 

Determination of the total eligible quantity 

Aid application 

Security referred to aid application 

Application of supervised storage 

Notification of quantity of ginned cotton  

Granting advances on the aid 

Establishing security for advance on the aid 

Provisional reduction of the guide price 

Payment of advance on minimum price 

Application for area aid provided under IACS 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

every delivery 

every 10 days 

every day 

twice a year 

once a year 

three times 
a year 

once a year 

once a year 

once a year 

once a year 

every delivery 

every delivery 

every delivery 

once a year 

every aid 
application 

every delivery 

twice a year 

twice a year 

once a year 

O 

C 

C 

C 

C 

C 

C 

C 

C 

C 

C 

C 

C 

C 

C 

C 

C 

C 

C 

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Submission of contracts 

Stock records 

Checks: 

–  declaration of areas sown (spot-check 5%) 

–  contracts 

–  balance between unginned and ginned cotton 

–  final quantity of ginned cotton 

–  stock records provided by ginners 

–  cross-checks between areas sown and areas under 

contracts 

Penalty scheme 

Communications for implementation of Regulation (EC) 
No 1591/2001 (Article 15) 

Report on environmental situation: 

–  determine actions in favour of the environment 

(environmentally friendly practices) 

–  research & development of environmentally friendly practices 

–  diffusion of results to producers 

–  respect environmental legislation 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

C 

C 

C 

C 

C 

C 

C 

C 

C 

C 

C 

several times 
a year 

continuous 
process 

once a year 

once a year 

once a year 

once a year 

once a year 

once a year 

once a year 

several times 
a year 

before 
end 2004 

before 
end 2004 

before 
end 2004 

before 
end 2004 

before 
end 2004 

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OPTION 2 

Information to be notified or tasks to be fulfilled 

Producers/ Inter-
branch organisations 

Member 
States 

Commission 

Timing/ 
Frequency 

Compulsory/
Optional 

Establishing objective criteria for approval of eligible areas  

Authorisation of varieties for sowing 

Fixing the minimum plant density 

Agronomic practices 

Calculating the amount of aid per eligible hectare and 
estimation of eligible area 

Authorisation of inter-branch organisations 

Operating rules for inter-branch organisations 

Aid differentiation (scale) 

Classification of cotton parcels for the scale 

Communications to the producers and Commission (approved 
varieties, criteria for approving land, agronomic practices) 

OPTION 3 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

once 

once 

once 

once per year 

once per year 

once per year 

C 

C 

C 

O 

C 

C 

C 

O 

O 

C 

Information to be notified or tasks to be fulfilled 

Producers/ Inter-
branch organisations 

Member 
States 

Commission 

Timing/ 
Frequency 

Compulsory/
Optional 

Calculating the amount of producer's entitlement to aid 

Aid application 

Cross-compliance: 

–  Annex IV of Regulation (EC) No 1782/2003 

X 

–  Good agronomic practices 

Administrative controls: 

–  cross-check 

–  spot-check 

X 

X 

X 

X 

X 

once 

C 

C 

C 

C 

C 

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ANNEX 12 – REPLY TO IMPACT ASSESSMENT BOARD 

Modifications in response to the Impact Assessment Board comments 

Comment 1 "The report should describe more clearly the problems, relevant for producers 
and/or the processing industry, that the reform aims to address; it should present more clearly 
why a 35%/65% ratio of coupled/decoupled support was found to meet the objectives of the 
reform  in  a  better  way  than  any  other  ratio,  and  why  this  ratio  respects  the  principle  of 
proportionality of EU action.” 

•  Problem definition 

To explain more clearly the rationale behind the reform of the cotton regime, some changes 
have been made, in particular to the introduction of Section 2.  

This  explains  the  EU's  continuing  obligation  to  support  cotton  production  –  made  when 
Greece  and  Spain  joined  the  EC  –  the  subsequent  expansion  of  cotton  production  in  those 
countries, and the unsustainable growth of the cotton ginning industry. 

The  reform  of  the  CAP  in  2003,  introducing  a  decoupled  system  of  support  to  most 
agricultural  sectors,  highlighted  the  anomalous  situation  of  the  cotton  sector.  Questions 
concerning  the  environmental  impact  of  growing  cotton,  together  with  international  calls  to 
reduce CAP support for commodities such as cotton, have added to the pressure to reform the 
cotton regime. 

•  The 35% – 65% ratio 

To explain more clearly why this ratio appears the most suitable, some clarifications have been 
introduced in the following sections: 

5.1.3 

Economic assessment of the Mainly Decoupled Option (Option 2) 

5.1.3.3  Sensitivity analysis of partial coupling. This gives an indication of the likely impact 

of different levels of coupled payment, i.e.25%, 30% or 40%. 

(cid:57) 

(cid:57) 

Tables  10  and  11  (p.27-28)  and  the  respective  explanations  have  been 
modified; 

Tables  12,  13  and  14  (p.30-31)  have  been  added,  together  with  an 
explanatory  text  concerning  the  return  under  full  decoupling  in  Spain, 
Thessaly and Macedonia, respectively. 

Comment  2  "More  information  should  be  given  on  the  extent  to  which  Rural  Development 
measures,  e.g.  agri-environmental  measures,  could  alter  the  presented  forecasts  of  impacts 
under the different options. To what extent could Rural Development measures help mitigate 
negative  impacts,  particularly  social/employment  impacts,  of  the  preferred  option  in  the 
regions concerned?” 

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In  order  to  show  how  agri-environmental  measures  can  affect  farm  incomes  and  may  allow 
farmers  to  continue  growing  cotton,  additional  elements  have  been  added  to  the  Impact 
Assessment: 

(cid:57) 

Tables 5 and 6 on return to unpaid labour with and without agri-environmental 
measures. 

More  emphasis  has  been  given  to  the  role  of  Rural  Development  measures  in  mitigating 
possible  impacts  of  the  reform,  in  particular  in  Section  5.3.5  Social  Impact  and  Rural 
Development. 

The  Impact  Assessment  shows  that,  in  the  medium  term,  the  reform  could  have  major 
consequences both on the farmer's choice of crops and on the ginning industry. As agreed by 
the  Council  in  April  2004,  €22  million  per  year  (€154  million  for  the  period  2007–2013)  is 
now  available  in  additional  rural  development  funding  for  Greece  and  Spain  to  spend  in  the 
regions concerned.  

Comment 3 The report should present more clearly how the issue of family/unpaid labour in 
cotton production has been taken into account in the analysis under the different options and 
in the different cotton-producing regions. 

The  methodology  and  results  of  the  two-step  analysis  provided  in  Section  5.1  have  been 
clarified.  

In addition to the comparison of the gross margin (or profitability) of cotton and the alternative 
crops, a further analysis was made of the impact of the three options on unpaid family labour. 
The  complete  analysis  of  the  close  correlation  between  the  gross  margin  and  the  return  to 
family labour (Family Farm Income) is now set out in Annex 6 to the Impact Assessment. 

Comment 4 More detailed information should be provided for the environmental impact of 
each  option,  also  in  relation  to  alternative  crops  production,  including  quantitative  data  on 
water  demand  and  pollution,  and  soil.  The  Board  invites  DG  AGRI  to  draw  on  specific 
expertise that is available in DG Environment. 

As  suggested  by  the  Board,  DG  AGRI  has  drawn  on  the  expertise  of  DG  Environment  and 
introduced  additional  data,  where  available.  Section  5.2  Environmental  impacts,  has  been 
enhanced  by  comments  received  from  stakeholders,  experts  and  DG  Environment.  In 
particular, details have been added in Section 5.2.1 concerning: 

(cid:57) 

water  quantity  and  quality  (in  particular  with  regard  to  Nitrate  Vulnerable 
Zones under the Nitrate Directive); 

(cid:57) 

biodiversity and habitats. 

A clearer focus has been brought to Section 5.2.2 Environmental impact of alternative crops. 

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