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  • 1.2-THE WORLD COTTON MARKET-THE IMPORTANCE OF COTTON IN WORLD TRADE

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  • The importance of cotton in world trade

    Chapter 1 - The world cotton market - The importance of cotton in world trade 

     
     

    Cotton is essentially produced for its fibre, which is universally used as a textile raw material. Cotton is an important commodity in the world economy. Grown in more than 100 countries, cotton is a heavily traded agricultural commodity, with over 150 countries involved in exports or imports of cotton. The six largest consuming countries are also among the top seven producing countries. Cotton trade accounted for about 30% of world output from 1980/81 through 2004/05, but this share rose to almost 40% in 2005/06.

    As world cotton production inevitably varies from year to year, variations in supply can cause wide fluctuations in price. The estimated nominal value of world exports dropped from a high of $13 billion in 1994/95 to $6 billion in 2001/02 and rebounded to approximately $12 billion in the 2005/06 marketing season (August-July). World cotton trade is not highly concentrated compared to other commodities. About 500 firms are involved in cotton exports worldwide.

    World cotton exports reached 3.6 million tons in 1926/27, and that level was not surpassed until the early 1950s. Exports climbed to 9.8 million tons in 2005/06. The United States plays the leading role in cotton exports. Raw cotton was the United States’ largest merchandise export from 1803 through 1937, and the United States has been the largest cotton exporter since 1834 (with only one exception in 1985/86).

    Cotton is also a very political crop because of its importance in world trade and to the economies of many developing countries. In many countries, cotton exports not only are a vital contribution to foreign exchange earnings but also account for a significant proportion of GDP and tax income. Cotton is playing a major role in economic development in Africa: 37 of the 53 African countries produce cotton and 30 are exporters. Most Central Asian republics from the former Soviet Union are also very dependent on cotton exports.

    Based on average export values in 2004/05, cotton was among the top three export products in 10 countries, and the average share of cotton exports in total product export earnings exceeded 10% in seven countries.


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    Source : UNCTAD.

    Nevertheless, cotton represents a very small share of world trade in terms of value. In UNCTAD export statistics by product, cotton ranked 170th on average 2004/05 values, accounting for 0.11% of world product exports in 2005 ($11.4 billion).

    The cotton export market is relatively concentrated. With an index value of 0.386 in 2005, cotton is ranked twenty-first among all commodities according to the concentration index calculated by UNCTAD (an index value that is close to 1 indicates a very concentrated market; values closer to zero reflect a more equal distribution of market share among exporters or importers). The cotton import market is less concentrated. With a concentration index value of 0.294, cotton is ranked thirty-fourth among all imported commodities. However, the structural change index value of 0.378 in 2005 reveals a significant change in the composition of importers compared to the reference year (1995).

    The ICAC Secretariat has studied the structure of world trade since 1994 and compiles a list of cotton-trading companies every year. The world cotton industry is not very concentrated by the standards of industrial markets and the international cotton shipping industry is highly competitive About 500 firms are engaged, at least in part, in international trade in cotton.