March, 1996 21123 No. 14 Agriculture k*_ Technology Notes The Agricultural and Forestry System Division (AGRAF) The World Bank Cotton Production and Marketing Fundamentals Five countries (China, India, Pakistan, the United States, and Uzbekistan) account for over 70 percent of world cotton production. This crop is also an important source of foreign exchange and employment in many smaller cotton-producing countries and considerable World Bank lending has gone for cotton-related project compo- nents. Because cotton industries are complex, this Note highlights the basic features of cotton production and marketing, including structural and policy issues important for efficient industry development. Cotton production, processing, and mar- keting are particularly strongly integrated, and at the same time are undergoing sig- nificant structural change. Many countries are privatizing cotton ginning and market- ing. Since cotton is the primary raw ma- terial for the spinning industry there are several externalities that need careful con- sideration in the privatization process. Increasingly, as trade is liberalized, as envi- ronmental and health concerns over pesti- cide use grow, and as competing demands for irrigation wvater increase, different agronomic practices will he required to sustain cotton production. Importance of Cotton Cotton is a leading source of exports and l employment in many countries. The cot- ton sector in Uzbekistan, for example, pro- u vides 75 percent of all export earnings and .0 employs 40 percent of the workforce. -u Fifty million Chinese households grow Many countries are privatizing cotton ginning and marketing. cotton, which occupies roughly 3 percent of the cultivated land but accounts for be- crop competes with cotton for value added nual income of Mali's cotton zone is five tween 7 and 10 percent of agricultural out- in processing and over 60 million people times the national average. The cotton put. The textile industry employs 9 million derive an income from the cotton textile sector in that country has grown at 8.4 per- workers and accounts for about 25 percent sector. cent per annum and accounts for 50 per- of total export value. The cotton textile in- Cotton is equally important in the small- cent of all exports. dustry in Pakistan employs over 35 percent er cotton-producing countries. For exam- of the industrial labor force and accounts ple, Tanzania's cotton sector provides a liv- Cotton Policy for over two-thirds of total exports, while ing for 40 percent of the population and Cotton policies are largely determined by cottonseed oil accounts for 85 percent of accounted for 15 percent of the export the trading objectives of the country con- the vegetable oil produced. In India, no earnings during the past decade. The an- cerned. Some countries export raw cotton AGRTN Technology Notes pound) of 14 growths of Middling (1 3/32" The World Bank has provided approximately $3.7 billion for quality) cotton. The Cotlook B index is the cotton-related financing in the last eight years. similar average of a number of growths of Strict Low Middling (1 1/32" to 1 1/16" Since 1988, the World bank has funded 51 projects involving credit, irrigation, re- quality) cotton. search and extension, integrated pest management (IPM), or agricultural sectoral re- Farmgate prices may be quoted either in structuring with a total investment of $6.6 billion. Of this, the World Bank has pro- lint or seed cotton. Caution is necessary as vided $3.7 billion that directly or indirectly involves cotton. Specific cotton develop- to what price is quoted to avoid misinter- ment projects have been initiated since 1988 in the Central African Republic, Togo, pretation. The determination of the farm- and Uganda involving a total investment of $91.4 milion. A cotton improvement pro- gate price from the lint price is given in the ject in Uzbekistan involving a total investment of $84.6 million (of which the World box on the next page. Bank will provide $66.0 million) is being negotiated. The lint-equivalent farmgate price can Source: Author be used to calculate the producer's share either of the lint export or mill price or of the end product's price (yam or piece goods) at the point of export. Any costs be- while others have strong textile sectors, ex- of government price interventions passes yond the farniigate are regarded as miarket- porting value-added cotton yarn, fabric, or the risk to the growers. ing costs. In some countries, seed cotton is piece goods. Uzbekistan exports mainly collected in the village, in which case the raw cotton, while China produces cotton Requirements of farmer does not incur any transportation cheifly to supply the domestic textile in- the Textile Industry costs and the producer price is the same as dustry, which produces finished piece Traditionally, length, grade (color plus the farmgate price. In other countries, goods for the domestic and export mar- trash), and micronaire (a value influence however, the farmer has to deliver seed kets. India also produces cotton largely for by fineness and maturity) have determined cotton to a collection center or ginnery and the domestic textile industry, while the price of cotton. Fiber length is closely incurs transportation costs which may be Pakistan exports cotton yam. correlated with fineness, is variety-depen- substantial. These marketing costs should Cotton production cannot be studied in dent, and determines the end use of the be deducted from the price the farmer is isolation from cotton-consuming indus- crop. Color often indicates damage paid to determine the farmgate price. tries. This is because of the close links be- caused by diseases, insects, or the weather, Reliable international comparisons re- tween cotton production and the cotton while trash indicates the efficiency of pick- quire the use of the same producer price, textile industry, and the effect of the end ing and the extent of cleaning during gin- or at least identification of the farmgate use of raw cotton on government policies. ning. High-volume instrumentation (HVI) price or producer price at the ginnery. In Any changes in government policies provides a rapid assessment of these and calculating the farmer's share, the prices should be considered in tenns of their ef- other fiber qualities and has increased the used (annual averages or prices taken at a fect on the growers, on the textile industry, awareness of plant breeders, growers, and certain time of the year) should be identi- and on international trade. ginners to the needs of spinners. fied since the season and supply situation For example, privatization of marketing Cotton spinners desire cotton with high exert a significant influence on the market in many countries has resulted in uncon- spinnability, delivered as contracted at a price and hence on price ratios. trolled inoveinmeuit of seed cotton, leading reasonable price. By producing the type of to increased variability due to varietal mix- cotton that the spinners want and ensuring Large-Scale vs. Smaliholder ing both in the bale and in planting seed. a regular supply, producers can expect Cotton Production In the absence of crop hygiene, privatiza- higher prices and little difficulty in mar- Large-scale mechanized cotton produc- tion could also contribute to the dispersion keting their produce. In the past, this has tion usually leads to higher yields than of certain pests and diseases. In order to been achieved in many countries through small-scale manual production because of minimize variability, varieties should be price interventions by governments and by timely, more efficient field operations. grown in selected areas, particularly by mandated single-variety areas and ginneries. Smallholders give food security prece- smallhold-farmers. At the very least, in a dence over cash crops, leading to reduced given area all varieties should have similar Cotton Price yields attributable to late planting, thin- fiber properties. There are two major price indices for cot- ning, and weeding. Government price interventions, either ton, both continually updated by the pub- Smallholder tractors and equipment are through a declared price in advance of the lication Cotton Outlook (Liverpool). Both precluded in many developing countries season or a minimum floor price which are widely used as indicators of interna- by lack of workshops and fuel. Animal only comes into play if the world price is tional offering prices. The Cotlook A index traction could improve timeliness in field lower, absorb the price risk but also isolate is the average of the cheaper quotations, operations but competition for labor for producers from market signals. Removal (CIF northern Europe in U.S. cents per cultivation remains a constraint. page 2 March, 1996 Utilization of animal-drawn equipment for all crops should improve overall farming Determination of the Farmgate Price of Cotton standards. from the Lint Price Consolidated cotton plots, treated as sin- gle units, provide advantages of scale. CIF price Shared equipment, labor and resources fa- Shipment, insurance costs etc. cilitate a restricted planting period, an im- ' S portant aspect of integrated pest manage- = FOB price in exporting country ment (IPM). - Lint ,marketing costs (transportation, storage, handling, etc.) Large-scale producers enjoy marketing Trader's profit advantages. Based on a world average = Lint price at ginnery yields it takes about 37 hectares produce + Value of cottonseed 100 bales (21.7 metric tons net), the size - Ginning costs - Seed cotton marketing costs (transportation, storage, handling, etc.) necessary for a forward price contract. Large-scale growers produce sufficient - Lev' (if applicable) cotton to make forward contracts for their crops, but it would take 75 to 150 small- = Farmgate price per unit of lint (lint equivalent price) x Ginning outturn (GOT) holders, averaging this yield on one-quar- ter to one-half hectare each, to produce = Farmgate price per unit seed cotton 100 bales, precluding forward-contracting Source: Gilloan and others 1995 by individual farmers. Cotton that is pro- duced by many smallholders has to be combined into marketable lots by a pri- vate or public entity. Marketable lots are essential for both forward and cash mar- two to three years, rendering not only the degrade the environment, however, both keting. Bt cotton varieties but also Bt-based pesti- on and off the farm. cides ineffective. Many major irrigation schemes, notably in Biotechnology and Variety Western China, Egypt, the Sudan, Pakistan, Improvement Quality Planting Cottonseed Central Asia, the United States, and more Successful variety improvement depends Timely availability of quality planting seed recently Turkey, were developed specifical- on clearly defined objectives, adequate ge- is essential for successful cotton produc- ly to produce cotton. These schemes are in netic variability, and appropriate instru- tion. Poor-quality seed leads to poor crop arid or semi-arid areas and have experi- mentation and evaluation methods. More establishment, reduced yields, and in- enced problems with soil degradation due breeding programs have failed through creased fiber variability. Poor-quality seed to waterlogging and salinity. Uzbekistan lack of objectives than from lack of genet- also leads to excessive seeding rates. faces not only these problems but wider en- ic variability. Nonetheless, biotechnology Unless quality is corrected, efficient seed vironmental degradation due to the dessica- provides the breeder with a means to multiplication programs are not feasible. tion of the Aral Sea, a direct result of ex- widen variability and to introduce specific With the exception of Mali and Mexico, panding irrigated area for cotton farming. characters into the base genotype. This seed supply is weak in many cotton-grow- Cotton has been blamed for the problems supplements but does not replace tradi- ing developing counties. Seed supplies in arising from both the excessive use of water tional breeding. Mali are handled by the parastatal market- and pollution of waterways. The problems The main developments in transgenic ing organization CMDT which has a vest- are not necessarily related to cotton per se cotton have been the introduction of a ge- ed interest in ensuring the timely supply of but to excessive use of water, poor water de- netic mechanism from Bacillus quality seed to ensure regularity of supply livery, poor application techniques and sys- thuringiensis (Bt) to enable the cotton and quality, while Mexico relies largely on tems, or inadequate drainage. plant to produce endotoxins that control commercial companies in the United Salinity is an inevitable threat where irri- certain lepidopterous insects (such as States for seed. gation plus rainfall is less than the evapo- moths) and to develop resistance to a rative demand, as it is in arid areas. If irri- range of herbicides. Cotton that can resist Irrigation and Drainage gation plus rainfall exceeds evaporative de- a wide range of herbicides can survive Cotton requires more water than many mand (usual in humid areas), there is a net spraying to control less-resistant weeds. other crops. Irrigation has increased cot- descent of water through the soil that Bt-type cotton could play an important ton production by enabling the crop to be leaches out salts. Without exception, all role in IPM, but unless resistance manage- grown in arid areas where it would other- the countries with desert and ment techniques are applied, pests will de- wise be impossible or by increasing yields Mediterranean climates in the broad belt velop resistance to the endotoxins within of rainfed crops. Improper irrigation can of irrigated cotton that stretches from page 3 AGRTN Technology Notes Spain to Central Asia and those with simi- lar climates in North and South America have salinity problems. Cotton production is not sustainable when it depletes or degrades either non-- renewable resources that are used in cot- ton production or those affected by cotton production. Irrigation has a potential to have a major impact on the environment through salinity and rising water tables, contamination of groundwater, or degra- dation of wetlands and lakes (or all of these). These factors have to be taken into account in all irrigation schemes and re- quire action by both the farmers in im- t proving irrigation efficiency and by the ena- gineers operating the systems through im- s proved design and operation. Large-scale growers produce sufficent cotton to make forwtrd contracts for their crops. Integrated Pest Management toxicity. The license on many older, more Advisory Council, the Canada Egypt Over-relance on chemical pest control toxic products has expired, permitting wide McGill Agricoltural Response Program, causes resurgence of harmful pests by production, marketing and utilization with the Commnon FundsJfor Commdities, and eliminating natural enemies and causing insufficient regard to healthi hazards. The the World Bank that was published as a pesticide resistance. 1PM integrates ler- quaity of pesticides, particularly when im- World Bank Technical Paper (Gillham and tural, biological, natural and chemical con- ported in bulk and repackaged, should be others 1995). trol measures and is the key to sustainable monitored to ensure that the product cotton production. reaching farmers is what it purports to be Recommended Reading 1PM strategies, adapted to local condi- and that the concentration is according to tions, usually incorporate cbhemical con- specification. Unregulated pesticide distri- Eisa, Barghouti, Cillbam, and AN-Saffy. trol, crop residue destruction, and often bution is incompatible with 1PM and has 1994. Cotton Production Prospects for regulation of seed cotton movement to contributed to pyrethroid-resistant boll- the Decade to 2005: A Global Overview. prevent dispersion of pests and diseases. worms, Helicoverpa arnaigera, in China Technical Paper No. 231. Washington, Chemical control requires timely applica- and India. Rational pesticide use requires D.C.: The World Bank. tion, based on action thresholds, of the registration and area wvide regulation of ap- most effective chemical against the pest, at proptiate pesticides for specific situations. Kohel and Lewis (eds). 1984. Cotton. an appropriate rate, with efficient, proper- Quarantine regulations are necessary to No 24 in series Agronomy. ASA-CSSA- ly calibrated equipment. Also, insect pop- prevent the spread of insect pests and dis- SSSA, Inc. Madison, Wise. ulation dynamics generally necessitate re- eases in seed cotton or cottonseed thlat is gional 1PM measures covering all crops, moved both within and between countries. Mauney and Stewart (eds). 1986. often across political boundaries. Cotton Physiology. The Cotton Pesticide registration should take account This note has been based on research span- Foundation Reference Series Number 1. of both the efficacy of the product and its sored by the International Cotton The Cotton Foundation, Memphis. References Ciliham, FE.M., TM. Bell, TV Arin, C.A. Matthews, C. Le Rumneur, and A.B. IHearn. 1995. Cotton Production Prospects for the Next Decade. Tecnical Paper No. 287. Washington, D.C.: The World Bank. page 4