[Kaspar]

From Business Daily, Nairobi
http://allafrica.com/stories/201004160328.html

Kenya's campaign to increase the production of cotton and elevate it to an export crop faces a major setback as US domestic farming policies continue to distort prices in the international market.

A study released on Thursday by the Geneva-based International Centre for Trade and Sustainable Development (ICTSD) says that cotton prices would have risen over a 1998-2007 base period if the US had cut subsidies that were deemed unlawful by a dispute panel at the World Trade Organisation (WTO), following complaints by Brazil.

African farmers could have gained from a 3.5 per cent average increase in world cotton prices if the US had moved quickly to implement the recommendations of an international trade panel, the study says.

The study was commissioned by ICTSD and conducted by Mario Jales of Cornell University.

His model, however, assumes perfect price transmission, which he notes is unrepresentative of reality in African countries

"There is an urgent need to rebalance existing trade rules that permit developed countries to highly subsidise domestic production, depress world prices, push farmers elsewhere out of production and impair prospects for economic advancement in the developing world", Mr Jales said.

In Kenya, cotton used to be one of the export crops up to mid 1980s when its fortunes started to dwindle with the advent of trade liberalisation.

Industry statistics indicate that annual cotton production has kept its decline streak, falling from 20,000 bales a year in 2007 to only 8,000 bales last year due to drought.

Michael Powon, the CDA managing director says the country expects to harvest 40,000 bales of cotton this year, a projection that players in the domestic textile industry that consumes 80,000 annually have faulted.

Local textile factories currently import close to 80 per cent of their raw cotton from low cost international markets but Tanzania which has comparative advantage in yarn production has been fighting to include it in East African Community's lists of sensitive products that attract higher tariffs to enter the region.

Close to 80 per cent of textile produced by Kenya's export oriented firms are sold in US and the AGOA trade facility

A recently-announced deal to resolve the dispute, on the eve of punitive retaliatory trade measures that Brazil was due to impose on the US, could leave African countries dependent on a negotiated settlement at the WTO.

Under the bilateral accord, the US will review its export credit programme and provide $150 million in compensation to Brazilian producers - leaving cuts to the controversial "counter cyclical" payments and marketing loan payment programmes to be discussed in subsequent talks.

The ICTSD paper also finds that farmers in poor countries could have gained from an average 6 per cent increase in world cotton prices over the same base period, if the US had accepted proposals made by African nations to slash the lavish subsidies enjoyed by rich country producers.

Cotton production in the US, Mr Jales notes, could have declined by as much as 15 per cent, the study suggests, if African proposals in the draft Doha accord were applied to historical output levels over the ten-year period examined by the study, and production in the EU could drop by as much as 30 per cent.

However, production volumes could increase by as much as 3 to 3.5 per cent in Brazil, Central Asia and West Africa - with production values growing by up to 13 per cent.

Similarly, if African proposals that are included in the Doha draft were applied to trade flows over the ten-year period that the study examines, US export volumes would have fallen by 16 per cent on average.

Average export volumes would have increased dramatically for Brazil and India (12-14 per cent), and by a lower but still substantial amount in Uzbekistan, the 'C-4' West African cotton producing countries (Benin, Burkina Faso, Chad and Mali), and Australia (2 to 2.5 per cent).

"The adoption of ambitious domestic support reforms for cotton in the Doha Round would be a significant step towards the establishment of a fair and market-oriented trading system" added Mr Jales.

I found this somewhat ironic, it looks like all of Obama's ardent supporters in Kenya should be heartbroken.