Policy Recommendations

  • Complete decoupling of EU subsidies to cotton farmers.
  • Within the WTO's Doha Round, European Union and African leaders should urge the United States to start reducing their subsidies.

Case: Cotton

24-06-2009 Restructuring the cotton industry: from four to an eight year plan.

Recently, on May 25th 2009, the Council decided to prolong the period of restructuring of the cotton sector from four to eight years. A decision that the Parliament agreed with in a report by the parliamentary committee on Agriculture earlier this year in April. Restructuring the cotton sector primarily means that the aid that the EU has been given to farmers does not only depend on the amount of hectares anymore. This so-called uncoupling of sector aid can be very positive for cotton producers in developing countries since it eliminates a mechanism that distorts the cotton market. But through this amendment, that prolongs the restructuring process, the EU delays the partial uncoupling of sector aid, which means negative consequences of the cotton policy for developing countries will not reduce.

In 2008, the European Parliament and Council approved the proposal by the European Commission regarding the restructuring programmes for the cotton sector in the EU. This proposal was adopted after quite some amendments. It includes partial uncoupling of sector aid. This aspect of the regulation is particularly important seeing as this will have potentially positive effects on the cotton industry in developing countries, such as Mali and Benin. Why is that? A large part of the aid for the European producers of cotton depends on the hectares on which cotton is grown. The EU stimulates overproduction in this way, since the farmers get more money when they maintain more cotton fields, even though the demand on the market does not comply with the produces quantity. This leads to the fact that cotton producers in the EU can place their cotton on the market for very low prices. Cotton-producing farmers of developing countries, who of course lack this kind of subsidies, do not get a fair chance on the world market. Seeing as a large part of the population in several African countries depends on the income of cotton for their livelihoods, this policy is of crucial importance for them.

So the uncoupling of aid would stimulate European farmers to produce an amount of cotton that reflects the demand of consumers, in stead of producing as much as they can. As a result, the cotton market will be less distorted.  

A regulation that will reform the cotton industry in Europe and will restructure and reduce the aid for cotton-producing farmers, can potentially be of great help for people in developing countries. However, this amendment for the regulation is mainly aimed at the cotton industry in the EU as becomes clear in the proposal of the Commission to extend the regulation to eight years: the national restructuring programmes aim to aid the European cotton sector in view of the difficulties posed by the changed legal and market context. Specifically, the cotton ginning industry in some production areas is faced with considerably overcapacity.[1] Nothing is said about the consequences for developing countries, or about the consistency with other policies or objectives of the EU. Although this is worrying, the regulation is still a step in the right direction as it includes partial uncoupling of aid for producers of cotton. The extending of the regulation to eight years does not have any effect on the substance of the regulation. It will however influence the chance of succeeding, because it will take time for the producing countries and factories to comply with the new measures. As it is said in a report on the amendment: Seeing as four years of restructuring will not allow all the measures to be adopted to achieve the intended restructuring objectives, because of the particularly difficult situation facing the industry.[2] The new regulation regarding the reform of the cotton industry is important to the EU, seeing as an earlier regulation for restructuring had to be annulled after a decision of the European Court of Justice. An indictment of the Spanish Government had led to this ruling, as is explained into more detail in the incoherence case study on the subject of cotton, that can be found on the EU Coherence website. Hence it is understandable that the Commission wants to tackle this problem right this time and this may require more time. However the EU Coherence Programme considers it to be important that the interests of cotton producers in developing countries are taken into account as well.

There is unfortunately another big problem regarding the cotton industry and world market. The biggest cotton-exporter in the world is the United States, because they largely subsidy the American cotton producers as well. As long as the US does not change its aid measures and through that stops disturbing the cotton market in an unnatural way, the necessary change will hold off.  

Here you can find the procedure files from the original proposal that led to the new regulation and from the amendment to prolong until 2017.

Notes
[1] Commission/Council: initial legislative document on amendment Regulation 637/2008 http://www.europarl.europa.eu/oeil/FindByProcnum.do?lang=en&procnum=CNS/2009/0008

[2] Report on the proposal for a Council regulation amending Regulation (EC) No 637/2008 as regards the national restructuring programmes for the cotton sector. To be found on: http://www.europarl.europa.eu/sides/getDoc.do?type=REPORT&reference=A6-2009-0200&language=EN#title2