Speeches of the ICAC

Title: Producer Consumer Cooperation in Cotton

Delivered by: Dr. Lawrence H. Shaw, Executive Director.

Delivered to: Standing Committee on Commodities, UNCTAD

Location: Geneva, Switzerland

Date: 02 November, 1995

The History

The International Cotton Advisory Committee (ICAC) was established in September 1939, the week after the outbreak of the Second World War. While not necessarily the oldest organization in producer-consumer cooperation in commodities, it has over fifty years of experience to bring to the table.

In 1939 the problems in cotton were excess stocks and over-production. An International Meeting of the ten largest cotton producing countries was held to see if these problems could be addressed by cooperation. The Meeting was called by the United States of America, the country which held over half the world stocks of cotton in 1939. Participating in the Meeting were Brazil, Britain, Egypt, France, India, Mexico, Peru, Sudan, the USSR and the USA. It is interesting to note that Britain and France, each with a number of colonies around the world, were included as producing countries.

Because of the onset of hostilities, it was clear that cotton cooperation was going to take a back seat for a while. The Committee met in 1940 and 1941 and then suspended further meetings until 1945. When the Committee met again in April 1945, all members of the United Nations were invited to join. Thus the ICAC became a producer-consumer forum at its fourth meeting.

In April 1945, the impact of the war on consumption was not yet appreciated. Because there had been sharply reduced trading volumes in the war years, it was still assumed that excess stocks would plague the postwar cotton economy. Plans were made to develop suitable measures of collaboration to control these excess stocks. By 1946, it was noted that stocks were not as burdensome, but that it was still worthwhile to investigate ways of controlling production. By 1947, stocks were no longer considered excess, and attention shifted to maintaining a flow of information regarding the cotton situation.

By 1949, the ICAC had 22 member countries, a Secretariat of 10 persons and a budget of US$60,000. Its functions were to observe the world cotton situation; to collect and disseminate statistics; to suggest to the members any measures suitable for collaboration; and to serve as the forum for discussion on matters related to cotton prices.

The Committee met generally annually, although in some years two meetings were held. Meetings were held every three years in the USA and in an importing country, and in an exporting country in the intervening years.

By 1952, oversupply began to affect the cotton industry once more. A group was established to study the feasibility of a buffer stock and export quota arrangements. The group met from 1952 to 1954. Cotton, being an annual crop, has the ability to adjust to imbalances of supply and demand in a relatively short period of time. By 1954, it was decided that there was no need for an international agreement to control cotton supplies. The focus of discussions shifted to ways to boost cotton consumption, particularly in light of growing use of synthetic fibers.

The 1960s saw two important actions: First, in 1961, in its 20th Meeting, the ICAC recognized that, in order to keep cotton competitive with man-made fibers and to reduce the cost of production, it was essential to obtain the highest level of quality and the highest possible yield and that there was a need for a much greater exchange of technical information among cotton producing countries and far greater cooperation in the solution of mutual problems. This step was the beginning of ICAC's work to foster cooperation in cotton production research.

Secondly, in the mid-1960s, the ICAC held discussions on how cotton should react to the competitive challenge of synthetic fibers. It was decided that promotion was the responsibility of producers and that a producers-only organization, the International Institute for Cotton, be established for cotton market development.

Initially, cooperation in technical matters was restricted to the development of information on cotton researchers and their organizations and to annual seminars on matters of importance in cotton production research. Cotton market development activities began, funded at a level of around US$5 million, with a somewhat smaller number of countries participating than had been expected, largely due to the costs of membership.

Later in the 1970s and early 1980s discussions were held at UNCTAD in the context of the Integrated Program for Commodities and elsewhere on the creation of a new institution which would be adequately funded to address both the need for a greater exchange of technical information and the need for cotton market development in the face of increased competition from synthetic fibers. This organization, Cotton Development International, would have had research institutes in rainfed and irrigated areas as well as a more heavily funded promotion program. The information activities of the ICAC would likely have been melded into the organization as well. The proposed budget for CDI was US$45 million.

A group of producing countries was unwilling to support the new institution unless it had economic provisions to control supply. A number of other countries were equally adamant in their opposition to economic provisions. Efforts at a compromise were unsuccessful.

Despite the debate over economic provisions, it is still somewhat doubtful that the new organization would have been successful, due to the substantial sums required for its full operation. The International Institute for Cotton received two-thirds of its financial support over the years from the USA; the contributions requested from other countries discouraged membership and led eventually to the withdrawal of several of its core members in later years. In the end, the Institute was forced to close in 1994 from lack of participation by a sufficient number of countries.

In the early 1980s, the ICAC increased its technical information activities by adding a full time staff member for technical information to its Secretariat and by sponsoring regional cooperative research meetings and networks. These efforts continue today, funded at less than US$200,000.

Efforts at establishing an international cotton agreement continued from time to time during the 1960s, 1970s, 1980s and 1990s. In all instances, the Committee decided that the current market system, while imperfect, was better at determining appropriate levels of production, consumption and trade than other measures.

Today the Committee serves as a cooperative effort of producing and consuming countries to keep and disseminate statistics and analysis of the world cotton situation. Since 1987, the Committee's Secretariat has made regular forecasts of world cotton prices. The Committee meets in Plenary Session once a year in a member country to discuss the cotton situation and problems affecting the fiber. The total budget of the Committee is US$1.2 million, only a fraction of a percent of the US$15 billion value of world cotton trade.

Developments in the Structure of the Industry

The cotton industry has never fully corresponded to the primary commodity-exporting model. The United States has been an anomaly in recent history, as a developed country supplier of a raw commodity to processing industries in developing countries. In its early history, of course, it was a developing country supplying raw materials to industrialized countries in Europe. In recent times, the country has grown both as an exporter of cotton and as a processor of cotton. At the same time it remains a vibrant market for consumer cotton products, both those produced by domestic textile mills and by the textile mills of developing countries. It has supplied cotton to producing countries where output could not keep up with the demands of its textile industry. In some years countries thought of as producers have been the world's largest importers of cotton.

In the 1970s and 1980s, developed countries represented two-thirds to four-fifths of the demand for textile products. In 1996, developing countries will account for more than 50% of textile product demand for the first time.

A number of other developed countries have been significant cotton producers: Australia, Israel, South Africa, Greece and Spain.

A number of developing countries have become major exporters of cotton: the countries of West Africa grew in the last 25 years from insignificant producers to major suppliers.

In general, there has been a trend toward increasing processing in the producing countries. Today the ten largest producing countries consume in textile mills 70% of world cotton production, up from 55% ten years ago.

Role of the Common Fund

With the coming into force of the Common Fund for Commodities, cooperation in cotton has benefited. As noted by ICAC surveys of research work in cotton, there has been little actual cooperative research undertaken in the past. Due to Common Fund projects, Argentina, Paraguay and Brazil are working together to solve a common insect problem. Israel and Egypt, to be joined by Zimbabwe and Ethiopia, are working to develop environmentally safe control measures for another insect. Research institutes in the United Kingdom and the USA, with specialized fields of expertise, are cooperating with an institute in Pakistan to develop genetic resistance to a virus disease. Representatives of nine producing countries have met together to discuss their common production problems.

Lessons to be Learned

ICAC has prospered as a small producer-consumer forum for over 50 years. It is an organization where any and all problems of the cotton industry can be discussed. Initially, it was organized to see about establishing an international cotton agreement to control supply. Circumstances, partially the fact that supply and demand can come into balance in a relatively short period of time, led to discussion of measures for market control but never to their adoption. It has focused on larger problems, such as the need for increased research on cotton and for cotton market development, but has never had the resources to tackle these problems in a big way.

Producer-only or producer dominated organizations have not been successful in cotton. The producer caucus of the late 1970s became a splinter group which faded away. The producer funded International Institute for Cotton was in existence for nearly 30 years, but suffered during most of them from lack of funding.

Organizations which require large sums of money have also not been successful in cotton. The International Institute for Cotton had difficulty maintaining a budget of $5 million. The CDI, with a proposed budget of $45 million never really got off the ground.

National organizations have had more success than international organizations where large sums are required.

Involvement of Private Industry

The ICAC, while an intergovernmental body, has always had close ties with the private entities in the cotton industry, farmers, farmers organizations, ginners, processors, textile mills and traders. The industry is willing, within limits, to support an international forum for discussion of cotton matters. Industry has regularly supported the functioning of ICAC in the case of eighteen countries; with the increasing unwillingness of governments to fund, industry support may be even more necessary in the future for fora such as ICAC to continue.

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