The "Cotton Problem" in West and Central Africa: The Case for Domestic Reforms

Cotton subsidies have received considerable attention during the past four years, primarily triggered by the excessive government support received by the cotton sectors in the United States and the European Union. In response to that support, four cotton-producing countries in West and Central Africa -- Benin, Burkina Faso, Mali, and Chad -- have requested that the Doha round of negotiations on trade liberalization contain financial compensation for WCAcountries for as long as those Western subsidies remain in place. Brazil also brought a case to the World Trade Organization, claiming that the U.S. subsidies cause a reduction in the world prices of cotton, thus reducing the income of Brazilian cotton growers.Western cotton subsidies should be abolished, but not much attention has been paid to another, perhaps more important, issue. Many African cotton-producing countries, especially in WCA, must reform their cotton sector in order to allow a greater share of the world price to reach the growers and must foster a policy environment that is conducive to the promotion of new technologies. For the most part, the cotton sectors of the WCA countries are managed by government-owned parastatals. Competition by private entities is limited -- with deleterious consequences for the efficiency of the cotton sectors

Cotton subsidies, the WTO, and the'cotton problem'

Following an 8-year long dispute over cotton subsidies, Brazil and the United States signed a Memorandum of Understanding on April 21, 2010, effectively paving the way for settling the dispute. This paper argues that cotton subsidies are just the tip of the iceberg while a number of other, perhaps more important, issues requireattention and, indeed, political will. Chief among them is the persistent divergence between cotton prices and the prices of other agricultural commodities, which reflects, for the most part, the large supply response by China and India, a direct consequence of con-version to biotech cotton varieties in these (and other) countries. Such response -- which kept cotton prices low, compared with other commodities -- imposes a competitive disadvantage to non-users of biotech cotton. The paper also highlights two additional constraints faced by the cotton producing countries of West and Central Africa, namely, the structural inefficiencies of their primary processing industries (also known as ginning) and the appreciation of the CFA franc against the US dollar. Without downplaying the importance of subsidy elimination, the paper concludes that these impediments should receive high priority in the policy agenda.Economic Theory&Research,Crops&Crop Management Systems,Emerging Markets,Livestock&Animal Husbandry,Agricultural Industry

Restructuring Uganda's coffee industry : why going back to the basics matters

After experiencing a boom during the mid-1990s, the performance of Uganda's coffee industry has been disappointing. Most existing analyses see the sector's problems as quality deterioration, poor marketing position in the global market, weak regulatory framework, and poor infrastructure. Recommendations range from setting up a coffee auction to increasing the share of specialty coffees. This paper concludes that such advice has been largely inconsistent with the stylized facts of the Ugandan coffee industry. It argues that the coffee wilt disease and the effectiveness of the coffee replanting program are the two key issues on which policymakers and the donor community should focus their activities and allocate their resources.Crops&Crop Management Systems,Markets and Market Access,Access to Markets,Water and Industry,Economic Theory&Research

More on the energy / non-energy commodity price link

This paper examines the energy/non-energy commodity price link, based on a reduced form econometric model and using annual data from 1960 to 2008. The transmission elasticity from energy to the non-energy index is estimated at 0.28. At a more disaggregated level, the fertilizer index exhibited the largest elasticity (0.55), followed by precious metals (0.46), food (0.27), metals and minerals (0.25), and raw materials (0.11). By contrast, only a few price indices responded strongly to inflation, although the trend parameter estimate (often viewed as a proxy for technological progress) is negative for agriculture and positive for metals. A key implication of the pass-through results is that for as long as energy prices remain elevated, most non-energy commodity prices are expected to be high.Markets and Market Access,Energy Production and Transportation,Emerging Markets,E-Business,Commodities

Taxing choices in deficit reduction

This paper attempts to: (a) determine whether governments have continuously attempted to align revenues or spending to control the deficit; (b) test for causality between taxes and spending; and (c) quantify the causality effects by; (i) estimating an error correction model, and (ii) calculating variance decompositions and impulse responses. The tests were carried out for the countries of Argentina, Brazil, Chile, Mexico, and Pakistan. The results can be summarized as follows: The governments of Brazil, Mexico, and Pakistan seem to have successfully aligned revenues and spending as means of controlling the deficit over the time period examined, while a similar deduction for Argentina and Chile could not be made. For Brazil, Mexico, and Pakistan, strong instantaneous causality runs both directions. In Argentina and Chile, deficit was found to cause and be caused by expenditures. Impulse responses for Mexico and Brazil were found to have short-run effects only, while for Pakistan the effects were more persistent. In terms of variance decompositions it was found that variations in both revenues and spending are explained in most part by past spending. The above results suggest that to control the deficit, Brazil, Mexico, and Pakistan should attempt to raise revenues and curtail expenditures simultaneously, while Argentina and Chile should control public expenditures as a first priority.Public Sector Economics&Finance,Environmental Economics&Policies,Statistical&Mathematical Sciences,Urban Economics,Public&Municipal Finance