At a time when Chinese actions are drawing greater attention the ICAC has reported that China provided 4.3 billion USD, 33 US cents a lb., in direct cotton subsidies in 2017/18 to growers. This included the benefit of the import protection provisions but did not include the ongoing cost of the 2011, 2012 and 2013 Reserve procurement scheme which continues as the Reserve continues to hold stocks and offer them annually at a reduced price. The level of the cotton subsidy is very likely to draw future discussions in the WTO. The ICAC estimates China spent a record 8.3 billion USD in direct cotton subsidies in 2014/15 compared to US provided subsidies of 960 million USD in 2017/18 with 560 million of that in subsidized crop insurance rates. Chinese subsidies in 2017/18 represented nearly 72% of all global subsidies provided to cotton farmers worldwide. Total global subsides in 2017/18 reached an estimated 5.916 billion USD and China accounted for nearly 72% of that.
The failure of the global cotton industry to challenge China on the subsidies is shocking considering the damage done to producers globally. As a result of the US adherence to a WTO ruling US cotton subsidy dropped to below a billion USD and was mainly insurance, which is debatable as to its real benefit. Brazilian and Australian growers received no subsidy. The over production in China forced Turkey to spend 398 million USD of badly needed funds to support cotton growers. Even the African Franc Zone which is poverty stricken had to spend an estimated 81 million USD to promote cotton production. It is not a stretch to say that Chinese subsides have caused tens, if not hundreds, of millions of USD to be spent which could have gone to lifting living standards in these truly developing nations.
The ICAC estimates do not consider the cost of the Reserve program where cotton is stored for 5 years are more, purchased at above market prices and then sold at much lower prices. When these costs are prorated then the cost per lb. will nearly double. The MSP program in India was not a major cost in 2017/18 but will be a feature in 2018/19, the ICAC also indicated it could not find a way to calculate a true cost of seed and input subsides. The US has already announced a discussion of the MSP at the WTO while remaining silence about China which raises the question why? This should be sorted out as the US moves to an Indian alliance on trade.
23 – 25 million bales or more of cotton have been produced annually because of the Chinese subsidies and if these subsidies did not exist global prices would have advanced and cotton prices would have been able to benefit from expanding cotton use as emerging markets economies expanded. Instead growers outside of China suffered as Beijing caused havoc with global supply and demand. It has been frustrating that the US has failed to challenge China at the WTO on its cotton subsidy level. This appears tied to China’s role as one of the largest cotton importers and the US industry playing defense after losing the WTO case by Brazil.
China’s subsidies in cotton and man-made fiber have created havoc as overproduction has resulted in economics based on artificial supply and demand.Source: Jernigan Global