No soft landing

As China opens its markets, US subsidies are making life hard for cotton farmers

China is the world’s biggest producer and consumer of cotton. The development of the textile industry since the 1990s has increased the demand for cotton and benefited millions of Chinese farmers. However, China’s dismantling of state-owned enterprises and liberalisation of its cotton sector as part of its WTO accession commitments have increasingly exposed Chinese farmers to world market forces. Meanwhile, as the USA continues to insulate its own cotton sector in violation of WTO rules, the volume of US cotton imported by China increased by 21 times between 2001 and 2004. The influx of subsidised, low-priced US cotton has contributed to falling domestic cotton prices and the crowding out of local production.

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Summary

Cotton is an important crop for some of the poorest areas of China, and millions of cotton farmers depend on it for their livelihoods. Cotton’s high economic returns have helped, and continue to help, bring many farmers in the poor western provinces of Gansu and Xinjiang out of poverty. Cotton production is not only essential to the development of China’s textile industry; it is also a labour-intensive crop that demands a large workforce in rural areas. It has thus contributed to easing the pressures of rural underdevelopment in China, at a time when the country is faced with seriously high levels of surplus labour and lack of development potential in rural areas.

However, since the liberalisation of the cotton sector at the end of 2001, cotton dumped on world markets by the USA has threatened these opportunities. The increase in demand from the textiles sector has been met by imported cotton. The fall in world prices in 2004/05 reduced the market price of raw cotton by 30-40 per cent, and this had a direct impact on the incomes of Chinese cotton farmers. Many farmers in Xinjiang cannot make ends meet. Even more worrying are the initial signs that imports are crowding out local production. Approximately 870,000 tonnes of China’s 2004/05 cotton crop remained unsold as of March 2005. The low price has alarmed cotton farmers, and in 2005 led to a 10 per cent reduction in the area devoted to cotton farming. Oxfam is concerned that, if this situation continues, Chinese cotton farmers may not be able to compete against imports.

Date of publication: December 2005