PROCEEDINGS. 63rd Plenary Meeting of the International Cotton Advisory Committee

Transcription

1 PROCEEDINGS 63rd Plenary Meeting of the International Cotton Advisory Committee Mumbai, November-December 2004

2 PROCEEDINGS OF THE 63rd PLENARY MEETING Enhancing Cotton Competitiveness ICAC Washington DC USA

3 International Cotton Advisory Committee, 2004 Price: US$50.00

4 FOREWORD At the invitation of the Government of, the 63rd Plenary Meeting of the International Cotton Ad vi so ry Com mit tee was held in Mumbai, from November 28 through December 3, The International Cotton Advisory Committee is an association of governments having an interest in the pro duc tion, export, import and consumption of cotton. It is an organization designed to promote cooperation in the solution of cotton problems, particularly those of international scope and signifi cance. The functions of the International Cotton Advisory Committee, as defi ned in the Rules and Regulations, are To observe and keep in close touch with developments affecting the world cotton situation. To collect and disseminate complete, authentic, and timely statistics on world cotton production, trade, consump tion, stocks and prices. To suggest, as and when advisable, to the governments represented, any measures the Advisory Committee con sid ers suitable and practicable for the furtherance of international collaboration directed towards developing and main tain ing a sound world cotton economy. To be the forum of international discussions on matters related to cotton prices. MEMBER GOVERNMENTS Argentina Australia Belgium Benin Brazil Burkina Faso Cameroon Chad China (Taiwan) Colombia Côte d Ivoire Egypt Finland France Germany Greece Iran Israel Italy Korea, Rep. of Mali Netherlands, The Pakistan Paraguay Philippines Poland Russia South Africa Spain Sudan Switzerland Syria Tanzania Togo Turkey Uganda United Kingdom United States of America Uzbekistan Zimbabwe Office of the Secretariat 1629 K Street NW Suite 702 Washington DC USA Telephone: (202) Fax: (202) secretariat@icac.org Internet:

5 CONTENTS STATEMENT OF THE 63rd PLENARY MEETING, ENGLISH 7 STATEMENT OF THE 63rd PLENARY MEETING, RUSSIAN 11 STATEMENT OF THE 63rd PLENARY MEETING, ARABIC 15 MINUTES Inauguration 19 Attachments Report of the Chairman of the Standing Committee 20 Report of the Executive 21 Plenary Sessions First Plenary Session 24 Statements by the International Organizations, Member Countries and non-member Countries Second Plenary Session 27 Government Measures Open Sessions First Open Session 28 Economic Outlook and Cotton Prices Second Open Session 30 The Role of Importance of National Cotton Sector Associations Third Open Session 31 Trading Cotton on an Instrument Based Classing System Fourth Open Session 33 Strenghthening the Input Supply Chain to Small Holders Fifth Open Session 35 Facilitating Adoption of Best Agronomic Practices by Small Holders Sixth Open Session 37 How to Make Cotton Price Risk Management Effective Globally Seventh and Eighth Open Sessions 44 Report of the Chair of the Committee on Cotton Production Research Ninth Open Session 39 Improvement of Cotton Trading Practices Tenth Open Session 40 Strategies for Cotton Demand Enhancement Closing Session 42 Steering Committee First Meeting 43 Attachments Working Paper I: Election of Standing Committee Offi cers 44 Working Paper II: Proposals to Encourage Timely Payment of Assessments 44 Report of the Chair of the Committee on Cotton Production Research 44 LIST OF DOCUMENTS AND WORKING PAPERS 46 REPRESENTATION LIST 46 Statements of the Meeting, which are an integral part of the full record of the meeting, are published separately.

6 PROCEEDINGS OF THE 63RD PLENARY MEETING 7 STATEMENT OF THE 63rd PLENARY MEETING Enhancing Cotton Competitiveness The International Cotton Advisory Committee met in Mumbai, during November 29-December 3, 2004 for its 63 rd Plenary Meeting since Representatives from 48 governments and 9 international organizations participated in the meeting. 1. The Secretariat estimates that world cotton production is at a record of over 24 million tons in 2004/05. Good weather and increased planted area explain much of the rise in production. However, advances in technology, including better tools of pest management, are helping to reduce input use, lower production costs and expand cotton production. The development of new technologies is causing cotton supply to expand faster than demand. Production and export subsidies in cotton distort fair trading practices and dampen international prices. Consequently, the Secretariat estimates that average cotton prices are likely to be approximately 20 cents per pound lower during the next five seasons than the average of the last thirty years. Lower real cotton prices will affect producers incomes and export revenues, especially in countries that are slower to adopt new technologies, and will result in additional pressures to lower production costs. 2. World cotton consumption in 2004/05 is being stimulated by lower prices, stronger world economic growth and ongoing efforts to promote consumption. World cotton mill use is forecast to grow by 5% in 2004/05 to more than 22 million tons for the first time. World trade in cotton rose 24% between 2000/01 and 2003/04 and reached a record of 7.3 million tons. According to the Secretariat, world cotton use and trade will benefit from the full elimination of quotas on textile and apparel trade among World Trade Organization (WTO) members on January 1, 2005, and continue to benefit from consumer promotion programs. 3. The Committee strongly supports the trade and development aspects of the Initiative on Cotton under the auspices of the WTO, and expects they will contribute to a successful outcome to the talks on agriculture in all three pillars of reform. The overwhelming majority of member governments reaffirmed that production and export subsidies distort cotton production and trade causing negative impacts on cotton farmers, especially in the developing and least developed countries. The Committee urged that these subsidies be removed. The Committee directed the Secretariat to communicate these views to the WTO. The Committee urged governments to look for ways to reduce tariff and non-tariff barriers on raw cotton, cotton textiles and apparel in order to expand real market access, and therefore increase trade in cotton products. The Committee directed the Secretariat to reactivate the Working Group on Government Measures. The Working Group on Government Measures will make recommendations to the ICAC conducive to the elimination of cotton export subsidies and all other subsidies and government measures that distort cotton production and trade. The Committee determined that the ICAC should seek Observer Status with the Subcommittee on Cotton of the WTO. The Working Group is directed to report on an ongoing basis to the Standing Committee and to the 64 th Plenary Meeting. 4. The Committee received a report from its Expert Panel on Commercial Standardization of Instrument Testing of Cotton (CSITC). In previous meetings, the Committee had been informed that instrument-based evaluation systems are superior to traditional hand-classing methods of grading cotton. The Expert Panel recommended seven actions to encourage worldwide testing of cotton with standardized instrument testing methods and procedures. The actions include definition of specifications for cotton trading, definition of international test rules, implementation of test rules, certification of testing laboratories, definition and provision of calibration standards, specification of commercial control limits for laboratories, trading and establishment of arbitration procedures. The report from the Expert Panel includes specific actions and identifies responsible parties for the achievement of each recommendation. The Committee endorsed the report of the Expert Panel and instructed the Secretariat to encourage the responsible parties to implement the recommendations gradually. The Committee expressed its appreciation to members of the Expert Panel on CSITC for their service to the cotton industry and authorized continued operation of the Expert Panel on CSITC. 5. The Committee received a report from its Second Expert Panel on Biotechnology of Cotton. The Committee was informed that biotech cotton varieties are planted on an estimated 24% of world cotton area, accounting for 35% of world production and 31% of world exports. The Expert Panel cited fourteen key findings. The Committee also noted that a growing number of countries have been successfully introducing biotech cotton, and in these countries experience is showing that some of the fears associated with these crops may have been unjustified. In addition, the Expert Panel provided some recommendations for the adoption of biotechnology for developing countries. The Expert Panel recommended that novel gene characteristics be introduced through local varieties as a component of an integrated pest management system, and that biotech not be seen as a replacement or alternative to sound pest management practices. The Expert Panel noted that the existence of a centralized regulatory process to evaluate and control biotech varieties, the capacity to educate farmers in the use of biotechnology, and

7 8 NOVEMBER-DECEMBER 2004 legislation to protect germplasm and technology are pre-requisites for the successful evaluation and adoption of biotech cotton. The Committee expressed its appreciation to members of the Expert Panel for their efforts and authorized continued operation of the Expert Panel on Biotechnology of Cotton to study and report on changes in technology as necessary and to supplement information in the Second Expert Panel Report and other ICAC documents. 6. Private sector associations that represent all segments of a national industry and all regions of a country can enable cotton industry participants to unite in the achievement of common goals and to advocate with one voice for balanced, growth-oriented policies and programs. The Committee was informed that the cotton industries of many countries are fragmented. The Committee was told of successful examples of the formation of national cotton industry associations, and of the benefits to countries of the formation of national associations able to speak with one voice for the sector. The Committee encouraged the formation of national cotton sector associations and recommended collaboration between associations through membership in the Committee for International Co-operation between Cotton Associations (CICCA). 7. Cotton is grown on an estimated 100 million farms in more than 80 countries. The average area planted to cotton by growers is 0.4 hectares, and in some countries, average size is just 0.2 hectares. The Committee was informed that in many countries, the primary constraints to increased cotton production among smallholder cotton producers are a lack of inputs and a lack of access to affordable credit which prevents the purchase of inputs in a timely manner. It was noted that in some countries, there are adequate inputs and investments in research, but agricultural practices used by smallholder cotton producers often remain outdated owing to lack of knowledge. It was further noted that smallholders often are not able to benefit from tools of price risk management to provide protection against fluctuations in market prices. The Committee heard of successful programs in many countries to ensure that smallholder cotton producers have access to quality inputs on a timely basis, coupled with agronomic information to ensure the implementation of best practices. The Committee also heard of efforts to make price risk management effective globally. A number of different systems to support smallholders were identified. 8. The Committee on Cotton Production Research organized a technical seminar on the topic, How to Improve Yields and Reduce Pesticide Use. Speakers from four countries offered examples of successful strategies to minimize the use of pesticides without sacrificing yields. Year-round implementation of integrated pest management programs is the key to economical control of pests, and farmers must understand pest life cycle behavior in order to control them efficiently. Crop nutrition must meet basic metabolic plant needs without providing luxury nutrient supplies that result in excessive plant growth and larger pest populations. The Committee received technical advice on optimal use and application of fertilizer and pesticide, and advice on the use of scouting systems correlated with weather reports to determine optimal timing of pesticide applications. The boll weevil is a major pest in many countries. Experts recommended blending biotech cotton with other components of integrated pest management systems if biotech cotton varieties are used. The Committee decided to hold the 2005 Technical Seminar on the topic Rapid Instrument Testing: Opportunities for Breeders and other Segments of the Industry and the Need for Uniform Definitions. 9. Defaults on contracts for international trade in cotton are a significant problem imposing costs on the entire cotton chain. Factors contributing to this situation include a lack of familiarity with international trading rules and arbitration procedures and restrictive currency regulations that inhibit price risk management activities. Member governments were informed of efforts by the private sector to ensure broad awareness of contract terms and arbitration procedures and the introduction of measures to discipline firms not in compliance with agreed international trading rules. Governments recognized that a proliferation of trading rules governed by separate national organizations increases the costs and risks of international trade in cotton, and the Committee supported the concept of standardized international trading rules. Variations in international trading rules based on specific considerations should be freely agreed between the contracting parties without intervention. Governments were urged to lift regulations that prohibit orderly use of cotton futures and options so that price risk management tools are available to all market participants. Governments were urged to ensure that valid international arbitral awards are enforceable in each country. 10. Boosting consumption of cotton is a strategic challenge facing the cotton industry. The Committee heard that per capita consumption of cotton is rising in countries with national programs that provide positive information about cotton to domestic consumers. According to the Secretariat, efforts to improve cotton s competitiveness through research and promotion have boosted world cotton use by approximately 300,000 tons per year over the last five years. The Committee received a report on the activities of the International Forum for Cotton Promotion and agreed that the work of the IFCP is important and should continue. The Committee encouraged national cotton organizations to join the IFCP and to develop programs of demand enhancement in their countries. 11. The Committee received a report from its Private Sector Advisory Panel. The PSAP supported a streamlined format for plenary meetings to ensure that matters of interest are discussed. The PSAP expressed appreciation for the work of the Secretariat

8 PROCEEDINGS OF THE 63RD PLENARY MEETING 9 and the current schedule of Secretariat publications. The PSAP agreed that the forum for negotiation of reductions in government measures that distort production and trade is the WTO. The PSAP agrees that cotton should continue to be included in the agricultural negotiation framework of the WTO. The PSAP recommended that the ICAC continue to work to raise the profile of cotton in multilateral forums, to include WTO matters in the agenda of each plenary meeting and to continue to publish annual reports on government measures affecting cotton production and trade. The PSAP encourages continued support of the International Forum for Cotton Promotion by the ICAC. The PSAP supports continued work on the topics of biotechnology and instrument testing of cotton. The PSAP observed that the support of governments in providing for the rule of law and ensuring that international arbitral awards are easily enforced in each country is a crucial component in efforts to improve the efficiency of cotton trade. 12. The PSAP expressed concern that the largest cotton producing and consuming country in the world is not a member of the ICAC. Efforts to encourage greater transparency in government policies and market statistics by all governments would improve the functioning of the world cotton industry. The executive director was urged to explore new approaches to the involvement of non-member countries in the ICAC, such as including representatives from the private sector in the PSAP and perhaps involving non-member countries in the agenda of plenary meetings. 13. The Committee welcomes the announcement made by the European Union and its member states that the European Commission is considering applying to become a member of the ICAC. 14. The ICAC expressed its appreciation to the Common Fund for Commodities for supporting commodity development and acknowledged the benefits to the cotton industry of projects financed by the CFC. Since the Fund became fully operational in 1991, a total of fifteen cotton projects have been approved involving over $21 million in grants and loans from the CFC. 15. The Committee thanked the Government and cotton industry of for their hospitality and generosity in serving as host of the 63 rd Plenary Meeting. It was noted that attendance at the 63 rd Plenary Meeting was record high, and the efforts of the Secretariat and Organizing Committee in preparing for the meeting were much appreciated. The Committee accepted with great anticipation invitations from the Government of the UK to host the 64 th Plenary Meeting in Liverpool during September 25-29, 2005 and the Government of Brazil to host the 65 th Plenary Meeting in Goiania during September 11-15, MEMBER GOVERNMENTS Argentina, Australia, Belgium, Benin, Brazil, Burkina Faso, Cameroon, Chad, China (Taiwan), Colombia, Côte d Ivoire, Egypt, Finland, France, Germany, Greece,, Iran, Israel, Italy, Republic of Korea, Mali, Netherlands, Pakistan, Paraguay, Philippines, Poland, Russia, South Africa, Spain, Sudan, Switzerland, Syria, Tanzania, Togo, Turkey, Uganda, United Kingdom, United States of America, Uzbekistan, Zimbabwe.

9 10 NOVEMBER-DECEMBER 2004 ANNEX I SUPPLY AND DISTRIBUTION OF COTTON December 3, 2004 Years Beginning August Est. Proj. Proj. Million Metric Tons BEGINNING STOCKS WORLD TOTAL CHINA (MAINLAND) USA NET EXPORTERS NET IMPORTERS 1/ PRODUCTION WORLD TOTAL CHINA (MAINLAND) USA INDIA PAKISTAN BRAZIL UZBEKISTAN OTHERS CONSUMPTION WORLD TOTAL CHINA (MAINLAND) INDIA EU, C. EUR. & TURKEY PAKISTAN EAST ASIA & AUSTRALIA USA BRAZIL CIS OTHERS EXPORTS WORLD TOTAL USA CFA ZONE UZBEKISTAN AUSTRALIA GREECE BRAZIL CHINA (MAINLAND) IMPORTS WORLD TOTAL EAST ASIA & AUSTRALIA EU, C. EUR. & TURKEY CIS SOUTH AMERICA CHINA (MAINLAND) TRADE IMBALANCE 2/ STOCKS ADJUSTMENT 3/ ENDING STOCKS WORLD TOTAL CHINA (MAINLAND) USA NET EXPORTERS NET IMPORTERS 1/ ENDING STOCKS/USE 4/ COTLOOK A INDEX 5/ * 60* 1/ Includes Argentina, China (Mainland), Colombia,, Mexico, Pakistan, Turkey and traditional importers. 2/ The inclusion of linters and waste, changes in weight during transit, differences in reporting periods and measurement error account for differences between world imports and exports. 3/ Difference between calculated stocks and actual; amounts for forward seasons are anticipated. 4/ World-less-China (Mainland) ending stocks minus China net exports, quantity divided by world-less-china consumption. 5/ U.S. Cents per pound. The projections for 2004/05 and 2005/06 are based on net China (Mainland) trade and world-less-china (Mainland) ending stocks-to-use ratio. */ 95% confidence interval extends 12 cents above and below the point estimate.

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17 PROCEEDINGS OF THE 63RD PLENARY MEETING 19 Inauguration 9:00 AM, Monday November 29, 2004 Mr. Wajahat Habibullah in the Chair The SECRETARY GENERAL called the meeting to order and introduced Mr. Wajahat Habibullah, Secretary (Textiles) as CHAIR of the Plenary Meeting. The CHAIR said it was an honor for to host the 63 rd Plenary Meeting and that was gratified by the record response to their invitation. He said that liberalization and globalization are bringing structural change to the world economy, and international competition will become even fiercer after January Therefore, the theme of the 63 rd Plenary Meeting is most appropriate. He noted that n production will be record high in 2004/05 and that cotton plays a vital role in the n economy. Nevertheless, there is a need to improve quality and lower the costs of production in order to be competitive in international trade. He urged increased research into the use of cotton by-products. Mr. Habibullah said that biotech cotton varieties are a useful tool of pest management. He denounced government measures that distort cotton production and trade. Mr. Habibullah s remarks are a statement of the meeting. The CHAIR introduced the Guest of Honor, Mr. Vilasrao Deshmukh, Honorable Chief Minister of Maharashtra, Government of Maharashtra State. Chief Minister Deshmukh said that he was pleased to attend the 63 rd Plenary Meeting of the ICAC, and he welcomed delegates, observers and guests to. He noted that the ICAC promotes cooperation in cotton affairs and provides members a continuous understanding of the world cotton situation. He said that the cotton industry is plagued by a downward shift in prices, declining per capita consumption, environmental concerns, resource constraints and distortions to production and trade due to government measures. He said that cotton and cotton textiles play a key role in economic growth in both developed and developing countries. Mr. Deshmukh noted that cotton yields in are below the world average, primarily because of a lack of irrigation. Nevertheless, is a major exporter of cotton yarn and fabric and plays a significant role in the world cotton economy. He reported that the Government of is taking steps to improve the competitiveness of the n cotton industry. He reported on progress made by the Technology Mission on Cotton. He reported on the Technology Upgradation Fund to encourage modernization in the textile industry. He reported that the Government of now permits commercial cultivation of biotech cotton. The government is working to encourage contract farming so as to facilitate technology transfer and input availability to small holders. The Government allows futures trading of cotton. He noted that per capita cotton consumption is declining and that there were apprehensions for the health of the cotton economy in the long run. He said that there is an urgent need to abolish production and export subsidies given in developed countries. He called for an end to unnecessary barriers to trade in cotton and cotton textiles. The CHAIR thanked the Chief Minister for his remarks. Mr. Deshmukh s remarks are a statement of the meeting. The CHAIR introduced the Chief Guest, Mr. Shankenh Vaghela, Honorable Minister of Textiles, Government of. Minister Vaghela welcomed all delegates and observers. He stated that the theme of the 63 rd Plenary Meeting was most appropriate. He said that the world cotton industry faces many challenges, including a downward shift in prices, declining per capita consumption, environmental concerns, resource constraints and distortions to production and trade caused by government measures. He said that cotton had been part of the history of since before independence, and that cotton continues to be a major contributor to the economy. However, he observed that there is room for improvement in the industry, including expanding irrigation and developing new seed varieties. He predicted that area devoted to biotech cotton would increase. The Minster denounced subsidies paid to producers in developed countries. He called for an end to subsidies that distort production and trade, and he called for an end to tariff and non-tariff barriers to trade. He asked that all countries cooperate on research and development. The CHAIR thanked the Honorable Minister for his remarks. Mr. Vaghela s remarks are a statement of the meeting. The CHAIR introduced Mr. Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, Government of. Mr. Ahluwalia said he felt privileged to be invited to speak to the Plenary Meeting. He reported that n economic growth averaged 6% per year recently and that a transition to 8% growth was feasible. He said that a steady process of liberalization and economic reform was leading to a sea change in the economic structure of. He said that one result of reforms was expanded economic growth in the private sector. He observed that the MFA resulted in egregious distortions to world trade in textiles and apparel, and he called for a complimentary liberalization of trade in agricultural products under the WTO talks. He hat is encouraging increased foreign direct investment, and he noted that needs more investment in health and education to achieve higher economic growth. He said that improvements in agricultural productivity through the Technology Mission on Cotton, increased irrigation, expanded access to technology, strengthening the value chain through contract farming would contribute to faster national economic growth. He said that needs to place a greater emphasis on infrastructure development through private-public partnerships. The CHAIR thanked Mr. Ahluwalia for his remarks. The CHAIR introduced Mr. Luc Devolder, Minister Plenipotentiary Western European Countries and North America, Federal Public Service for Foreign Affairs, Government of Belgium. Mr. Devolder serves as Chair of the Standing Committee. Mr. Devolder expressed his thanks and congratulations to the Government of for the excellent planning of the meeting. He observed that the ICAC is well managed and that national contributions to the Committee s budget are used efficiently. He said that the budget process of the Committee is smooth and transparent. He observed that over that last few years the Standing Committee has changed from a purely administrative body to a forum for discussion among governments and the private sector. Mr. Devolder commented on the volume and quality of Secretariat reports on cotton supply, use and prices and technical information. He said that Secretariat efforts to promote the interests of cotton deserved support. He thanked members of the Private Sector Advisory Panel for their role in facilitating increased interaction between the ICAC and the Standing Committee. On a less positive note, he observed that membership in the ICAC declined during the past year, and he urged all countries to support the work of the ICAC. He thanked countries for the opportunity to serve as Chair ad interim of the Standing Committee and endorsed the nominations of M. Ibragimov as Chair, Mr. Mkhize as First Vice Chair and Ms. Cores as Second Vice Chair. The Report of the Chairman of the Standing Committee is attached. The CHAIR thanked Mr. Devolder for his report as Chairman of the Standing Committee, and he introduced the Secretary General to give the Report of the Executive. Mr. Townsend said that the mission of the ICAC is to assist governments in supporting a healthy world cotton economy. The Committee achieves this mission by raising awareness of cotton issues, by providing information necessary for decision-making and by facilitating cooperation among industry segments and governments on matters of shared international concern. He said that four major issues are challenging the cotton industry today, including the development of new technologies that are changing the structure of production, competition with chemical fibers, government measures that distort production and trade and the continued problems caused by contract defaults. He described ways in which the Committee is contributing to government and industry efforts to meet each of these challenges. He noted that the Secretariat aids in technology transfer by serving as a clearinghouse for technical information. The ICAC contributes to demand enhancement through support for the

18 20 NOVEMBER-DECEMBER 2004 International Forum for Cotton Promotion, and that the ICAC is facilitating increased use of instrument testing systems to improve cotton quality. He said that the ICAC helps to raise the profile of cotton within the WTO and serves as the source for information about government measures in cotton. He noted that the ICAC endorses contract sanctity and encourages all countries to ensure that valid arbitral awards are enforceable. The Report of the Executive is attached. The CHAIR thanked the Secretary General and introduced the delegate of EGYPT, host of the 61 st Plenary Meeting in 2002, to give welcoming remarks on behalf of all delegates. The delegate thanked the Government of and the Organizing Committee for the warm welcome and excellent preparations. He noted that all delegates had been met at the airport and made to feel fully welcome upon arrival in. He observed that preparations and arrangements for the meeting were excellent, and that the record attendance was a reflection of the appreciation shown by all countries. The delegate also thanked the Secretariat for their efforts to prepare documents and complete registration for delegates. He said that the agenda and arrangements for the meeting showed excellent planning and preparation. He said that the 63 rd Plenary Meeting was off to an excellent start and he was sure that the meeting would be a success. The remarks of the delegate of Egypt are a statement of the meeting. The CHAIR thanked the delegate of EGYPT and all delegations for the words of thanks and appreciation. The meeting was adjourned at 10: 30 am. ATTACHMENTS Report of the Chairman of the Standing Committee Luc Devolder Belgium On behalf of the members of the Standing Committee, I would like to express sincere thanks and congratulations to the Government of, in particular the Ministry of Textiles, and to the Organizing Committee for the excellent planning of this meeting. No effort has been spared to ensure its success. We have all been touched by the warm welcome we received here in Mumbai. Let me add that it is most fitting that a Plenary Session with the theme of Enhancing Cotton Competitiveness takes place in a country that plays such an important role in all branches of the cotton industry: production as well as trade and consumption. At the outset, I wish also to thank the Executive of the ICAC, Mr. Terry Townsend, and all members of his staff for the hard work they put in the preparation for this plenary and for providing guidance, support and assistance to the members of the Standing Committee. Without them, the Committee would not have been able to perform its duties. I can assure all Governments here represented that, with Terry and his colleagues, the ICAC is in very good hands and that the national contributions to the Committee s budget are used in the most productive and efficient way. For me personally, the past four years as delegate of Belgium to the Standing Committee and as its Chairman ad interim during the last fifteen months have been a most interesting and gratifying experience. I did learn a lot about an industry that for many countries and regions, especially in the developing world, is an important, if not the most important provider of resources and jobs. One of the main tasks of ICAC therefore is, in my opinion, to promote the cultivation, research, marketing and use of cotton. The Standing Committee has endeavored to make its contribution to the realization of this task. Over the last few years, the Standing Committee has changed from a purely administrative and supervising body to a kind of forum where government representatives and, at regular intervals, representatives of the private sector meet to be informed about and to discuss matters of interest to the cotton industry. It is in this framework that special attention has been given to subjects such as the role of government measures, means and ways to improve the quality of cotton production, and the increasing use of genetically engineered seeds. At the invitation of the Secretariat, experts in these and other fields came to the Standing Committee meetings to inform the delegates and to engage them in often lively exchanges of information and opinions. I recall more specifically a most interesting debate about the outcome and possibly broader consequences of the case brought before the WTO in the framework of its dispute settlement competency. The panel decision in this case, the future of textile trade after the expiration of the Multi Fibre Agreement and the ongoing negotiations on agriculture in the Doha Development Agenda, will have serious repercussions for all cotton producing, trading and consuming nations. I am confident that ICAC and the Standing Committee will continue to follow these developments very closely. Of course, the attention given to these more general topics did not mean that the Standing Committee neglected its more traditional duties. As the body mandated by the member states to exercise financial oversight of the Advisory Committee, one of its principal tasks is to examine and to approve the annual budget. Having been closely involved in the activities of the Subcommittee on the Budget, which prepares the decisions of the Standing Committee, I can attest to the thorough professionalism with which the Secretariat, under the leadership of the executive director, prepares and executes the budget in total transparency. These qualities, together with the rigorous fiscal responsibility adopted by the Secretariat, result in a very smooth process, which is not always the case in intergovernmental organizations. In exchange for their financial contributions, governments expect service and one of the main services ICAC provides is information. The Secretariat has made remarkable progress in this area. In the meetings of the Standing Committee we receive regular reports on the situation of the cotton industry, including forecasts on yields, consumption, trade and prices, as well as special reports on specific topics such as the developments in the use of biotechnology. But this is only the tip of the iceberg. The quantity and quality of the information collected, processed and published by the Secretariat is most impressive. Thanks to the increased use of new technologies, this information is increasingly available in an easily accessible, user friendly and timely manner. The Secretariat has to be recommended for this service but the best way to show appreciation is that government administrations, the private sector, and the public at large use this information, provide the data necessary to prepare the publications and let the Secretariat know how it could be even more responsive to existing needs. I would like to take this opportunity to draw particular attention to some of the other activities of ICAC. First is the role of advocacy on behalf of the cotton industry. Numerous are the demarches undertaken to promote the interests of the cotton industry towards individual countries, other industrial and commercial sectors as well as international organizations. The Secretariat deserves firm support for these efforts. Second is the role of ICAC in the training of experts. The participation of members of the Secretariat in meetings and seminars worldwide and the organization of training sessions in Washington should be further encouraged and, if possible, receive more funding than is the case now. Third, but the not the least important, is the enhanced interaction of ICAC and the Standing Committee with the private sector. The members of the Private Sector Advisory Panel deserve special thanks for the efforts they put in an effective, constructive and very much appreciated dialogue. Before concluding and perhaps on a less positive note, I would like to make a remark concerning membership. Over the last years, several countries have withdrawn from ICAC and only one new member has joined the organization. This evolution takes place at the same time as ICAC demonstrates new strengths in its performance as advocate for the cotton industry, provider of information and facilitator of cooperation with the private sector, governments and international organizations. I want to urge all member countries to continue to support ICAC and to this, among other things, by paying their contributions well in time and by encouraging their

19 PROCEEDINGS OF THE 63RD PLENARY MEETING 21 embassies in Washington to actively participate in the meetings of the Standing Committee. On top of that, all members could play an important role in convincing other nations to join the organization in order to further strengthen it as the principal and most representative promoter of the cotton industry worldwide. Before concluding, I would like to thank all the delegates and observers for their participation in this Plenary Session. I am sure the presentations, discussions and other events will be of considerable value thus making the trip to Mumbai worthwhile. At the end of this Plenary Session, my mandate as Chairman ad interim of the Standing Committee will also come to an end. I thank those who elected me at the 62 nd Plenary Session for their confidence. It was an honor for me and for my country to serve. My thanks also to my fellow members of the Committee, to the delegates who took upon them the burden of chairing the subcommittee meetings, and to the Secretariat. A special thank you goes to the delegate of Uzbekistan, Mr. Bakhtiyor Ibragimov who has been serving as Vice Chair. The Standing Committee has recommended his election as Chair for the coming year as well as the election of the delegate of South Africa, Mr. Siphiwe Mkhize as First Vice Chair and of the delegate of Spain, Ms. Elena Cores as Second Vice Chair. I personally support these nominations. You can be assured that the Standing Committee will be in excellent hands. Thank you for the interesting and challenging job you have given me. My best wishes for a productive Plenary Session and for the future of the International Cotton Advisory Committee. Report of the Executive Terry P. Townsend Activities of the Committee The mission of the ICAC is to assist governments in supporting a healthy world cotton economy. The Committee achieves this mission by raising awareness of cotton issues, by providing information necessary for decision-making and by facilitating cooperation among industry segments and governments on matters of shared international concern. The Committee and the Secretariat have been active and effective in achieving these objectives during the past year. I would like to report on the major challenges facing the cotton industry and ways in which the Committee is serving to meet those challenges. Technology Change The Secretariat has been raising awareness and providing information about technology in cotton since the 1960s when technical seminars were added to the agendas of plenary meetings. The work of the Secretariat in areas related to technology has increased in prominence during the last fifteen years, and through the work of the Technical Information Section, the Secretariat has become a world leader in highlighting emerging issues related to technology in cotton. The Secretariat is the acknowledged clearinghouse for information on cotton technology among an informal network of more than 240 cotton research centers around the world. The Secretariat publishes quarterly technical reports on cotton research, and reports on the cost of production, production practices and current research in cotton. The Secretariat also supports and helps to organize regional technical network meetings and a World Cotton Research Conference every four years that enhance the development of technology through increased communication among researchers. New technologies are fundamentally changing world cotton production, leading to increased supply and lower real prices over the long run. Since World War II, agriculture has been transformed by increased mechanization, expanded use of chemical fertilizers, improved education in rural areas, the development of pesticides and the extension of electricity to rural areas. The process of technology change in agriculture is continuing, and may even be accelerating. In the cotton sector, the most visible of the new technologies is biotechnology. Biotech cotton varieties already officially account for 24% of world cotton area and about one-third of world production and trade, although the real level of biotech production is probably higher. Biotech cotton is primarily risk reducing (because of reductions in yield variation due to insect pressure) and cost reducing, leading to larger area and greater production. Biotech varieties in China (Mainland) are planted on 60% of cotton area. GE varieties account for about 60% of area in Australia, three-fourths of area in the USA, 6% of area in, and field trials are underway in other producing countries. Officially enumerated biotech cotton varieties will probably account for half of world production by Incremental advances in proven technologies such as irrigation management, pesticide formulations and pesticide applicators, low till and no till production systems, crop rotations and other management techniques implemented through integrated pest management (IPM) and best management practices (BMP) are also contributing to lower production costs and expanded cotton production. All of the technologies are being enhanced by the revolution in information technology, making possible great improvements in management efficiency and control of input applications. Secretariat publications on biotechnology began in the early 1990s, even before biotech cotton was planted commercially. The Secretariat regularly updates material on biotechnology in reports to the Standing Committee and with articles in the Recorder. All of these reports are available on the web. Based on a recommendation from the Private Sector Advisory Panel, delegates to the 62 nd Plenary Meeting instructed the Secretariat to form a Second Expert Panel on Biotechnology in Cotton. The purpose of the Expert Panel is to provide a comprehensive fact-based report about the benefits and costs and implications of latest developments in biotechnology in cotton since the Committee received a report from its First Expert Panel on Biotechnology in Cotton in Eight leading cotton scientists from around the world representing divergent views on biotechnology were identified by the Secretariat and approved by the Standing Committee. Dr. Gary Fitt from Australia chaired the Second Expert Panel. Members of the Expert Panel circulated draft copies of chapters for the report prior to their meeting in July in Washington. After two days of discussions in Washington, Expert Panel members completed drafts of chapters and these were compiled by the Chair and edited into a finished document, including the summary. This report is an excellent compendium of the benefits and costs of the use of biotech cotton varieties, and the work of the Expert Panel is much appreciated. Their report will be presented to the Plenary during the Eighth Open Session. Competitive Challenges Competition is at the heart of a market economy, and all commodity industries face competitive challenges from manufactured products. Timber must compete with fabricated wood products and the development of plastics. Coffee, tea, orange juice and milk must compete with each other, and with soft drinks, powdered drinks and other beverage choices. Copper must compete with fiber optic cables. Sugar competes with corn sweeteners and artificial sweeteners. Cocoa must compete with palm oil. Grains compete with each other and with oilseeds, and other examples of competitive pressures affecting natural commodity industries abound. For cotton, competition with polyester is a very powerful challenge that is accelerating as chemical fiber production technology results in lower costs of polyester production and an increased range of uses for chemical fibers. Cotton s share of world fiber use exceeded 60% in the 1960s, fell to 50% during the 1980s and currently stands at 39%. While cotton use is rising in absolute terms, the rate of increase over the last ten years was just 1.3% per year, compared to world population growth of 1.7% per year and growth in chemical fiber use of more than 4% per year, resulting in reduced consumption per capita and declines in market share. Many factors affect end-use demand, including fiber prices, fiber quality, new developments in spinning technology, consumer income and consumer preferences. Cotton as a commodity industry must remain competitive with polyester

20 22 NOVEMBER-DECEMBER 2004 and other chemical fibers in all facets of competition if the industry is to continue to grow. The role of the ICAC in helping the industry to meet competitive challenges is to provide objective information on fiber consumption at the mill and retail levels, and to provide technical information about quality issues. In addition to statistical and technical information that the Secretariat has provided since its founding in the 1940s, the Committee now also facilitates the work of national cotton industry bodies in providing positive information about cotton to consumers through the work of the International Forum for Cotton Promotion (IFCP). In recent years the Secretariat has worked to increase awareness of the benefits of instrument classing of cotton for producers and spinners. Following an instruction from the 62 nd Plenary Meeting, the Secretariat helped to formulate an Expert Panel on Commercial Standardization of Instrument Testing of Cotton (CSITC). The Secretariat provides a wealth of statistical information to the cotton industry and governments. The Secretariat provides weekly, monthly and annual statistical reports on the world cotton situation, monthly reports on supply and demand of extra-fine cotton, and annual reports on government measures, changes in cotton supply, the demand for cotton, the structure of trade and developments with e-commerce. Forecasts from the Secretariat are sufficiently accurate to provide a basis for policy making and investment decisions. Over the last 16 seasons since the Secretariat began forecasting season averages of the Cotlook A Index, the average error of forecasts of world production and consumption given at each plenary meeting for the current season is less than 1.5%, and the average error for the season ahead has been 2%. Forecasts of average prices for the current season have correctly indicated the direction of change in all but two seasons, and the correlation between forecasts and actual prices for the current season is 80%. Forecasts of prices given at each plenary meeting for the season ahead have correctly identified the direction of change 10 out of 15 times. World Apparel Fiber Consumption Survey During the past year, the Secretariat completed a cooperative study with the Commodities and Trade Division of the Food and Agriculture Organization of the United Nations (FAO). This survey has a long history. The work was begun in the 1960s by FAO at a time when the shares of wool and cotton in world fiber mill use were falling rapidly due to technology change and expanded production of chemical fibers. Advocates of natural fiber industries recognized that a missing component in efforts to expand demand was a basic lack of knowledge of fiber market shares at the retail level in countries. The annual surveys were conducted by FAO as an objective and neutral statistical organization. Because of budget considerations, combined with a shift in priorities within the FAO, the fiber consumption survey was discontinued after During 2000 and 2001, the Secretariat reached an agreement with the Commodities and Trade Division of FAO to cooperate to revive the survey using methods and conversion factors identical to those used by FAO up to The ICAC helped to identify sources of data and cost-effective methods of collection, and FAO did most of the analytical work. The result is the World Apparel Fiber Consumption Survey with data for 1992, 1996 and 2000 that has been available since early The data cover 113 countries and provide an excellent tool of demand analysis for the cotton industry. IFCP Demand enhancement is crucial to the long term strategic success of the cotton industry, and the experience of the USA demonstrates empirically that it is possible to raise consumer awareness of fiber content, strengthen consumer impressions of the positive attributes of natural fibers and encourage technical change and fashion trends favorable to increased cotton use. The International Forum for Cotton Promotion (IFCP) represents a new approach to demand enhancement work based on national programs, funded from domestic sources, led by the private sector and focused on providing positive information to domestic consumers about the value of cotton. The creation of the IFCP was facilitated by the ICAC, consistent with our role in furthering cooperation in the cotton industry. The IFCP serves as a clearinghouse for proven techniques of cotton demand enhancement and provides concrete examples of programs that can be easily replicated on a cost effective basis. The IFCP conducted an excellent two-day workshop on demand enhancement techniques in Cary, North Carolina in May 2004 with the active support of the U.S. cotton industry. I want to thank the organizations that have voted to join the IFCP for their vision and commitment to the cotton industry in supporting demand enhancement, and I urge delegates to visit the IFCP web site at Instrument Testing The Secretariat has monitored developments in instrument testing of cotton for a number of years. During the 61 st Plenary Meeting in Cairo in 2002, representatives of producers and consumers agreed that the cotton industry needs to move forward in the adoption of instrument based quality evaluation systems, and during the 62 nd Plenary Meeting in Gdansk in 2003 representatives of merchants and spinners agreed that an international agreement on the use of instrument based quality evaluation systems is needed to standardize quality test results. Following an instruction from the Committee, the Secretariat formed an Expert Panel on Commercial Standardization of Instrument Testing of Cotton (CSITC). The purpose of the Expert Panel is to recommend actions on how best to encourage the expansion of instrument testing of cotton at the producer level and to ensure that the results of instrument tests from all laboratories around the world are sufficiently standardized as to be commercially relevant to spinners. Almost all cotton is already evaluated using instrument testing systems by merchants and spinners, because spinners face competitive pressures that require them to utilize the technical characteristics of cotton in order to optimize spinning results. However, only about one-third of world cotton production is instrument tested at the producer level. This leaves producers at an economic disadvantage to buyers in the marketing of cotton and means that the incentives to produce the qualities of cotton desired by spinners are often distorted by antiquated hand-classing systems on which producer prices are based. Andrew Macdonald of Brazil chairs the Expert Panel on CSITC, and the Rapporteur is Zibigniew Rostwitalski of Poland. The Panel includes thirteen additional members representing the geographic diversity of the cotton industry and includes producers, spinners, merchants, cotton controllers and testing laboratories. The CSITC panel met in Bremen in March 2004, and members have exchanged views via . A second meeting took place in Mumbai prior to this plenary meeting. The Expert Panel will report to the plenary meeting during the Third Open Session, and the recommendations from the Expert Panel on CSITC are expected to provide a way forward for the cotton industry on this important subject. Government Measures The issue of government measures that distort cotton production and trade is one of the most important facing the industry. While cotton accounts for only about 1% of the subsidies received by the agricultural sector in OECD member countries, the distortions in cotton are substantial. The venue for the negotiation of reductions in government measures that distort agricultural production and trade is the World Trade Organization (WTO). During 2004, the talks on agriculture in the WTO have continued in Geneva, and on August 1, 2004 the General Council of the WTO reaffirmed the Doha Ministerial Declaration and approved a framework agreement that is designed to facilitate the successful conclusion of the Doha Round by the end of The agreement refers to significant reforms in agricultural policies and addresses specifically the cotton sector. While progress in the Doha Round seems to be slow, the tide of history is moving in the direction of reductions in direct support for agriculture and in favor of decoupled payments linked to broad objectives of rural development and environmental protection. Already under the 2002 farm bill, approximately half of all payments to U.S. cotton producers are no longer linked directly to