World Fiber and Textile Model

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World Fiber and Textile Model

• Texas Tech University

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Effects of U.S. cotton programs on world cotton
market
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Objectives

• To prepare medium-term outlook for the U.S. and
  world cotton market.
• To analyze the effects of alternative policies
  and external factors on production, utilization,
  farm and retail prices, farm income, trade, and
  government costs.
• To brief staff members of the U.S. Senate and
  House Agriculture Committees on projections for
  U.S. and world cotton markets.

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Baseline Projections

• Assumptions
• Continuation of current farm policy.
• specific assumptions for the economy, weather,
  and global situation.
• Macro projections (GDP, exchange rate and
  deflators) used are same as FAPRI.
• Normal weather.

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Fiber Types

• Natural Fibers (staple)
• Plant fibers cotton, jute, linen and hemp
• Animal Fibers wool and Silk
• Man-Made Fibers (filament and staple)
• Cellulosics (Reconstituted plant fibers) Rayon
  and acetate
• Synthetics (Petroleum based polymers) polyester,
  nylon and acrylic

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Fiber Coverage

• Cotton
• Wool
• Synthetics (Staple and Filament)
• Cellulosics (Staple and Filament)

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World Consumption of Major Fibers
2003
1960
4.6
17.1
40.7
52.8
9.9
68.4
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World Wide Fiber Consumption
000 MT
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Annual Fiber Prices
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Country Coverage

• Africa Egypt, other Africa
• Asia Oceania India, China, Taiwan, Japan,
  Pakistan, S. Korea, other Asia
• Europe EU-15, Eastern Central Europe,
  Other Europe
• North America USA, Canada, and Mexico
• Latin America Brazil, Argentina, Other Latin
  America
• FSU Russia, Uzberkistan, other FSU
• Middle East Turkey, other ME
• Rest-of-the-word

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Major cotton producing countries

• USA
• China
• India
• Pakistan
• Australia
• Uzberkistan
• Brazil
• Egypt

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Major cotton exporters

• USA
• Australia
• Egypt
• Uzbekistan
• Other middle east
• Other Africa
• Other FSU

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Major cotton exporters

• China, Taiwan, Japan, India, South Korea,
• Canada, Mexico, and Brazil,
• Europe EU-15, Eastern Central Europe
• Turkey
• Russia
• Other Asia and Other Latin America

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Major Cotton importers

• China, Taiwan, Japan, India, South Korea,
• Canada, Mexico, and Brazil,
• Europe EU-15, Eastern Central Europe
• Turkey
• Russia
• Other Asia and Other Latin America

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Model Overview
Domestic Cotton Price
Cotton Imports
A-Index
Cotton Begin. Stocks
Cotton End. Stocks
Cotton Production
Cotton Consumption
Cotton Exports
A-Index
Yield
Cotton Area Harvested
Cotton Mill Use
Synthetic Utilization
Manmade Fiber Mill Use
Wool Mill Use
Synthetic Capacity
Manmade Fiber Trade
Synthetic Production
Man-made Fiber Production
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U.S. Fiber Model
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USA
Canada
China
ROW
India
Other ME
Pakistan
Other Africa
A-Index Price
S. Korea
Other LA
Japan
Other Asia
Australia
Mexico
Egypt
EU-15
Turkey
Argentina
FSU
Brazil
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U.S. Cotton Supply Model
Cotton Expected Net return
Acreage Response
Delta
Yield
National Cost of Production




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Chinese and Indian Cotton Supply

• China
• Yellow River valley
• Yangtze River valley
• Xinjiang region
• Rest-of-China
• India
• Northern Region
• Central Region
• Southern Region
• Rest-of-India

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Chinese Regional Cotton Production
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Medium-term Global Market Outlook
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Cotton Market This Year and Beyond
Million Bales
Cents/Pound
Cents/Pound
Million Bales
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U.S. Textile Imports vs Cotton Mill Use
Million Pounds
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China vs ROW Cotton Imports
000 Bales
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World Cotton Trade vs U.S. Exports
000 Bales
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Brazil and India Rising Competitors for U.S.
Cotton
000 Bales
000 Bales
India
Brazil
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Recent Policy Analysis

• Impacts of U.S. Cotton Programs
• Cotton in a Free Trade World
• Impacts of Step 2 Program Elimination on the U.S.
  and World Cotton Market
• Assessing the Impacts of the Chinese TRQ System
  and U.S. Subsidies on the World Cotton Market
• Effects of Chinese Currency Appreciation on the
  World Fiber Markets
• Impacts of Indian and Chinese MFA Eliminations on
  the World Fiber Markets

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Just Completed

• Measuring Impacts of the CAFTA-DR Agreement on
  the Textile Industry.
• United States Safeguard Measures Against Chinese
  Textile Exports Implications for the Cotton
  Market

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Brazilian WTO Petition

• Brazil, filed a petition with WTO settlement body
  in September 2003 complaining that U.S. cotton
  subsidies such as marketing loans, export
  credits, commodity certificates, direct payments
  and counter cyclical payments are depressing
  world prices and are injurious to Brazilian
  farmers.
• The petition was supported by Australia and West
  and Central African (WCA) countries

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West and Central Africa (WCA) Petition

• WCA countries of Benin, Burkina Faso, Mali and
  Chad have also filed a petition with WTO that
  they are losing export earnings of US 1 billion
  a year as a result of subsidies by the United
  States and the European Union.

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Regional Shift in Brazilian Cotton Production
NNE
Expansion
SSE
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Brazil Rising Competitor for U.S. Cotton
000 MT
000 Bales
Cotton Exports
Soybean Exports
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Government Payment Mechanism Under New Farm Bill
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Effects of U.S. cotton programs on world cotton
market
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Change in U.S. Cotton Acreage
000 Bales
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Change in Southwest Cotton Acreage
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Change in U.S. Cotton Exports
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Effects on U.S. Farm Price
Cents/lb
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Impacts on Cotton A-Index Price
Cents/lb
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Supply Response from Competing Exporters
Percentage
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U.S. Proposal

• Reforms in all three pillars of the agriculture
  negotiations
• Domestic Supports
• Market Access
• Export Competition
• Contingent on meaningful Commitments by all
  members except the least developed countries

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U.S. Proposal on Domestic Support

• Bound AMS Level (b 25 and higher)
• 83 reduction in the final bound total AMS for
  the European Union and Japan
• 67 billion euros (b 80) to 11.4 billion euros
  (b 13.5)
• 3,973 billion yen (b 33.7) to 675 billion yen
  (b 5.7)
• Bound AMS Level (b 12-b 25)
• 60 reduction in the final bound total Aggregate
  Measurement of Support (AMS) for the United
  States
• 19 billion dollars to 7.6 billion dollars
• Largely includes marketing loan payments and
  counter cyclical payments
• Bound AMS Level (b 0 b 12 )
• 37 reduction in the final bound total AMS for
  the developing and other developed countries

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Our Analysis

• Scenario 1
• What it takes to achieve 60 reduction in the
  total U.S. AMS bound level in five years if U.S.
  acts unilaterally?
• Major impacts on price, farm income, production,
  consumption and trade
• Scenario 2
• What it takes to achieve 60 reduction in the
  total U.S. AMS bound level in five years if rest
  of the world liberalizes along with the United
  States?
• Major impacts on price, farm income, production,
  consumption and trade

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Any Program Cut in the U.S. will Lead to

• United States
• Lower production
• Higher price
• Lower exports
• Lower consumption
• Lower government payments
• ROW
• Higher production
• Higher Price
• Lower consumption
• Higher exports

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What it takes to get 60 AMS Reduction?
Unilateral vs. Multilateral Reforms
9
12
4
8
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Unilateral vs. Multilateral Reforms Impacts on
U.S. Cotton Net Farm Income
19
26
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Impacts on U.S. Farm Price Unilateral vs.
Multilateral Reforms
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Concluding Remarks

• Big No-No to unilateral U.S. cuts to achieve 60
  percent AMS reduction
• Cotton net farm income drops by more than 26
• Bad even if other major players join the
  bandwagon and open up their markets
• 18 reduction in cotton net farm income