By Anna Fitzpatrick, Contributing Reporter
RIO DE JANEIRO, BRAZIL – As cotton prices soar on the world market, the pressure is on in Brazil to maximize its position as the world’s fifth largest producer of the commodity. With a favorable WTO ruling over the U.S. last year and ensuing trade deal, Brazil is expected to significantly increase the amount of cotton it produces, though trade barriers in the U.S. remain largely the same.
Perverse weather conditions last year, in all of the world’s major cotton growing regions: China, India, Pakistan and U.S. and increased demand from China have caused the price of cotton to reach US$2 a pound, a jump of almost 150 percent since the beginning of 2010. Retailers in Brazil and elsewhere have signaled that price increases will be passed on to consumers, an inflationary pressure that has seen retail share prices decrease.
During a dispute lasting eight years the World Trade Organisation (WTO) ruled in Brazil’s favor in a clash with the U.S. over subsidies paid to American cotton farmers. The ruling highlighted that subsidies in the U.S. were directly damaging Brazil. Despite the favorable ruling O Globo reported recently that U.S. trade policies were still costing the Brazilian cotton industry US$1 billion annually.
Although subsidies are still in place, due to global shortages, prices have increased and Brazilian farmers have enlarged the amount of land dedicated to the crop in the past year from 835,700 hectares to 1.304 million hectares, according to the National Supply Company (Conab).
The latest estimate from the IBGE (Instituto Brasileiro de Geografia e Estatística) regarding the annual cotton harvest this year is that 4.5 million tones will be collected compared with 2.9 million tones collected in 2010, an increase of 53.7 percent. The institute states that the planted area of the product grew 43.7 percent this year versus last year because of the higher prices.
However, with many soy farmers particularly in the state of Mato Grosso, choosing to plant cotton during the inter-harvest period rather than corn, heavy rain and a shortage of equipment are threatening to delay the harvest.
A worry for the world’s largest exporter of soy, which is planted twice a year in the area. The cotton crop must be picked by September 15th to ensure that the fields are free of vegetation for the set legal period, and the soy can then be planted.
As yet in Mato Grosso, much of the increased acreage newly dedicated to cotton has not so far been sprayed with pesticide due to the heavy rainfall in the area. As a result the crop is yet to be harvested, causing much worry in the area. Already, expectations are being lowered for the amount of cotton that will be able to be produced this year and Brazil is expected to be importing cotton.
The shortage of cotton on the global market has resulted in Brazil needing to import the crop despite being such a large producer. However, negotiations with government agencies have resulted in the exemption of 250,000 tons from import taxes.
The executive of the Brazilian Textile and Apparel Industry Association or ABIT, Fernando Pimentel has emphasized the potential for Brazil in harvesting this “white gold” nevertheless warning, “Currently we have quantity, quality and global integration, but one must be aware that products originating in the raw material can also generate wealth. We cannot run the risk of exporting too much and then having to import a finished product, now with increased cost”.