Thursday, December 6, 2007

More bad news for Africa’s cotton farmers: Plunging dollar

VOA recently reported that cotton production for Sofitex, Burkina Faso’s largest cotton company, is far below expectations. Poor rains are to blame, but Sofitex officials call it a wasted opportunity. With world cotton prices on the rise, the company, which controls 85 percent of Burkina Faso’s cotton industry, will only bring in 380,000 tons of cotton, well below the estimated 600,000 tons.

Cotton executives across the continent have long pointed a finger at U.S. cotton subsidies for depressing world prices. With worldwide cotton demand increasing and supplies decreasing, cotton farmers could expect high prices for the next year. However, the weakening dollar could dampen those predictions, according to Bloomberg News.

Cotton prices have increased 13 percent this year, but the gap between the Euro-pegged CFA and the falling dollar has largely offset those benefits. The CFA is the currency of former French colonies in West Africa, including Senegal, Burkina Faso, Cote d’Ivoire, Mali and Benin, all cotton producing countries. Cotton accounts for 5 to 8 percent of GDP across West Africa.

Cotton from companies like Burkina Faso's Sofitex and Cameroon's Sodecoton is bought and sold on the world market in U.S. dollars. Farmers are paid in CFA francs, the euro-pegged local currency of 14 western and central African countries. Compared with a year ago, the dollars their crops fetch in world markets buy about 9 percent fewer CFA francs for food and shelter.

Most of the region's ``cotton producers are now on the verge of operating at a loss and sinking into debt,'' Alby wrote in the October issue of the Paris-based bank's Conjoncture publication. ``Meanwhile, the main ginning and marketing companies have chalked up heavy losses over the last two seasons, of which a large part has been supported by the government.''

The CFA franc has followed the euro up about 57 percent against the dollar since U.S. President George W. Bush took office in January 2001 as investors seek better returns outside the U.S.

The dollar's decline has been a boon to U.S. exporters, including Nike Inc. and Colgate-Palmolive Co. and helped narrow the U.S. trade deficit 0.6 percent in September.

For people in the poorest countries, a shift in the exchange rate can eliminate a month's food, says Daniel Sumner, an economist at the University of California, Davis, who wrote a study on cotton subsidies for Oxfam America, a Boston-based aid group.

Fifty dollars can be ``enough to feed a child for a year,'' he said. ``It's enough to pay the school fees for three to four children.''

Payments to farmers from cotton companies in western Africa have fallen an average 15 percent since 2004, International Cotton Advisory Committee data show. Production in western and central Africa may decline 21 percent this year, according to Dagris SA, a Paris-based company owned by the French government that holds stakes in African, Asian and Latin American cotton producers.

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