Cotton and Products Annual 2012

An Expert's View about Cotton in Greece

Posted on: 21 Apr 2012

EU-27 cotton production, which has declined about 50 percent since the 2006 reforms, represents less than 1 percent of world production,

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 3/20/2012 GAIN Report Number: GR1201 EU-27 Cotton and Products Annual Cotton and Products Annual 2012 Approved By: Jim Dever Prepared By: Ornella Bettini (FAS/Rome) Marta Guerrero (FAS/Madrid) Report Highlights: Only two European Union (EU-27) Members States (MS)?Greece (80 percent) and Spain (20 percent) ?grow significant amounts of cotton commercially. EU-27 cotton production, which has declined about 50 percent since the 2006 reforms, represents less than 1 percent of world production, consumption, and trade. Following the cotton reforms in MY 2009/10 the EU-27 planted area and production have progressively increased and are forecast to remain stable during MY 2012/13. MY 2012/13 EU-27 cotton imports are forecast to remain steady at low levels, as the EU-27 industry remains uncompetitive. Cotton and Products EU-27 EU-27 Cotton Lint Production (Hectares, Metric Tons) 2010/11 2011/12 2012/13 Area Harvested 293,000 352,000 353,000 Beginning Stocks 7,000 2,000 11,000 Production 249,000 350,000 354,000 Imports 38,000 30,000 25,000 TOTAL Supply 294,000 382,000 390,000 Exports 211,000 304,000 307,000 Use 34,000 20,000 20,000 Loss 6,000 6,000 6,000 TOTAL Dom Cons 81,000 67,000 75,000 Ending Stocks 2,000 11,000 8,000 Total Distribution 294,000 382,000 390,000 Source: FAS Rome and Madrid estimates PS&Ds for all EU-27 MS may be found at: http://www.fas.usda.gov/cots/cotton.asp Production The EU-27 is a minor producer of raw cotton. Current EU-27 cotton policy is detailed in Regulation 1782/2003, revised by Regulation 864/2004, and amended by Regulation 637/2008. EU-27 cotton production has declined by more than 50 percent following Common Agricultural Policy (CAP) reforms effective in 2006 that decoupled payments and reduced support and market barriers for a number of crops, including cotton (see ?Study on the Cotton Sector in the European Union? at www.lmc.co.uk). Production may stabilize through 2013 when additional reforms are expected to be implemented that could further reduce incentives to produce cotton. The EU-27 does not permit farmers to cultivate biotech cotton. Only two EU-27 Members States? Greece (80 percent) and Spain (20 percent) ?grow significant amounts of cotton commercially. Following the cotton reforms in MY 2009/10 the EU-27 planted area and production have progressively increased and are forecast to remain stable during MY 2012/13. Consumption EU-27 cotton lint consumption is forecast to recover steadily despite a stiff competition from lower-cost Asian and South East Asian spinners. EU-27 textile and apparel processors source most of their products offshore. Some EU-27 processors split production between the EU-27 and third countries to take advantage of marketing opportunities. Cotton Council International works with EU-27 entities to source products made with U.S. cotton. Trade MY 2011/12 EU-27 lint exports increased significantly because of increased production in Greece. MY 2012/13 EU-27 cotton lint exports are forecast to remain stable. Turkey and Egypt represent about 80 percent of the export market for EU-27 cotton. The fourth quarter of 2011 has been characterized by reduced cotton exports to Egypt after the import ban (Ministerial Decree 1864/2011) imposed on 25 October 2011. MY 2012/13 EU-27 cotton import demand is forecast to remain steady at low levels, as the EU-27 industry remains uncompetitive. There are no restrictions on importing lint or products produced from biotech cotton. EU-27 Cotton Lint Trade EU-27 Cotton Lint Imports (MT) Aug-Jul 09/10 Aug-Jul 10/11 Aug-Dec 10/11 Aug-Dec 11/12 EU-27 8,034 7,065 2,548 1,835 Germany 1,697 2,128 899 672 Belgium 872 1,193 354 170 Portugal 1,785 1,121 370 426 Extra EU-27 30,655 32,266 10,649 8,911 Turkey 14,541 12,979 4,558 3,782 Honduras 2,938 2,896 1,418 832 India 1,779 2,233 335 1,302 Pakistan 2,148 2,101 772 487 Mauritius 2,021 1,733 706 223 World 38,689 39,331 13,197 10,746 Source: GTA EU-27 Cotton Lint Exports (MT) Aug-Jul 09/10 Aug-Jul 10/11 Aug-Dec 10/11 Aug-Dec 11/12 EU-27 36,564 36,801 16,983 15,594 Germany 6,808 11,203 4,308 2,962 Italy 11,028 5,994 3,410 4,452 Portugal 5,782 4,171 1,399 1,216 Bulgaria 4,390 1,957 1,216 354 France 4,367 6,373 3,117 3,353 Extra EU-27 211,250 160,651 116,149 114,880 Turkey 148,710 88,205 68,739 23,971 Egypt 26,748 27,789 6,343 3,414 Indonesia 13,598 12,398 6,959 10,158 Morocco 7,318 7,945 2,145 1,925 Pakistan 3,488 4,343 2,877 1,569 World 247,814 197,452 133,132 130,474 Source: GTA Stocks Ending stocks for MY 2012/2013 are expected to be slightly down from the previous year. EU-27 Cotton Products Major European textile and apparel producers include Germany and Italy. Textile production across Western Europe is declining due to lower manufacturing costs in Eastern Europe, Asia, and elsewhere. Source: German textile and fashion confederation EU-27 Cotton Yarns Trade EU-27 Cotton Yarns Imports (MT) 2009/10 2010/11 India 107,226 98,496 Turkey 72,325 66,490 Pakistan 37,321 37,492 Egypt 19,260 25,328 China 17,078 15,829 Syria 12,337 14,052 Uzbekistan 19,320 12,059 Indonesia 8,900 6,420 Bosnia 6,629 5,132 Turkmenistan 2,648 2,411 World 321,270 302,913 Source: GTA EU-27 Cotton Yarns Exports (MT) 2009/10 2010/11 Tunisia 4,457 4,450 Morocco 2,989 3,638 Switzerland 2,582 2,732 Croatia 2,489 2,410 Turkey 2,037 2,275 Belarus 1,212 1,902 Algeria 1,925 1,825 Ukraine 1,501 1,616 Egypt 1,256 1,584 Mexico 1,229 1,436 World 32,505 34,459 Source: GTA EU-27 Cotton Fabrics Trade EU-27 Cotton Fabrics Imports (MT) 2009/10 2010/11 Pakistan 94,695 88,245 China 63,156 67,882 Turkey 48,914 47,654 India 23,196 26,228 Thailand 8,873 9,424 Indonesia 8,018 8,760 Morocco 5,432 5,948 Switzerland 5,504 5,846 United Arab 4,793 5,824 Uzbekistan 7,320 4,641 World 299,958 303,460 Source: GTA EU-27 Cotton Fabrics Exports (MT) 2009/10 2010/11 Tunisia 40,803 39,473 Morocco 29,268 33,255 Turkey 15,185 15,160 United States 6,006 7,589 Macedonia 5,641 6,884 Ukraine 5,004 5,276 Switzerland 4,665 5,153 Hong Kong 3,004 2,768 Mali 2,540 2,500 Brazil 1,326 2,223 World 159,832 169,693 Source: GTA GREECE Cotton Lint Production (Hectares, Metric Tons) 2010/11 2011/12 2012/13 Area Harvested 230,000 285,000 285,000 Beginning Stocks 2,000 0 5,000 Production 204,000 290,000 300,000 Imports 5,000 2,000 2,000 Total Supply 211,000 292,000 307,000 Exports 171,000 261,000 270,000 Use 34,000 20,000 20,000 Loss 6,000 6,000 6,000 TOTAL Dom Cons 40,000 26,000 34,000 Ending Stocks 0 5,000 3,000 Total Distribution 211,000 292,000 307,000 Source: FAS estimates Production Cotton is a major agricultural crop in Greece, accounting for more than 8 percent of total agricultural output. More than 75,000 farmers grow cotton, producing about 80 percent of the EU-27 crop. Cotton is planted from March 1 to April 15; the harvest occurs from October 1 to November 30. Most cotton is irrigated and machine harvested. Thessaly, Macedonia, and Mainland Greece are the major cotton- producing areas. There are approximately 30 ginning companies in Greece with 65 gins. About 80 percent of the companies are private and the remainders are cooperatives. The top 5 companies handle about 60 percent of ginning capacity. Area, yields, and production suffered a significant decline in 2006 due to the implementation of the EU cotton reforms. After MY 2009/10 low production, bad quality, defaults, and delivery problems, the Greek cotton market is struggling to regain its reputation and position in national and international markets. MY 2011/12 Greek cotton production has been good, up almost 42 percent from last season due to increased acreage and more effective pest control. Initial delays during the planting period due to constant rainfalls and low temperatures have been offset by warm and sunny days in August and September. Greece?s financial crisis has negatively affected the cotton market, creating risks and uncertainty. Greek ginners are facing difficulties in selling their output for the first time in many years, although prices have stayed above $1/lb. Without banks? assistance, many ginners and cooperatives cannot hold back their stocks until prices improve. There is also a lot of debate about the survival of cooperatives that used to receive a large percentage of agricultural loans. Moreover, considering last season?s defaults and delivery issues, international cotton merchants have decided to narrow their focus and buy only from the top ginners/exporters as a reward for their last season?s high rating performance. Ginners generally do not contract with growers, but compete with each other to purchase the crop. Seed cotton prices have increased from ?0.52/kg at the beginning of the season to nearly $1.20/lb. in mid- November. Current lint process is reported to be around $0.93/lb. FOT. MY 2012/2013 Greek cotton area and production are forecast to remain steady if weather remains stable. Apart from that, it is not easy to make forecasts for the next season, especially for small and medium-sized ginning companies that may be forced to quit ginning or lower their production even more. Consumption Domestic spinners consume approximately 10 percent of lint production and the remainder is exported. About 58 percent of cottonseed production is exported (mainly to Italy) and the remainder is crushed for oil (and oilseed cake) or retained for seed. Textile products According to the Association of Hellenic Textile Industries (SEVK), the Greek textile industry is facing tough times as not only the sector?s production has dropped by 18 percent, but domestic orders have also slumped 20 percent. A negative trend has dominated the export market, which has been shrunk by an additional 4-5 percent compared to last year after a brief period of optimism at the beginning of 2011. The problems for the Greek textile industry are compounded by the absence of liquidity in the market, meaning that banks have pulled the plug on all sources of funding, forcing a number of businesses to seriously consider closing down entirely. The SEVK has also complained about the amount of interest charged on loans, which can exceed 10 percent. Given these circumstances, the industry is looking for an intervention of the State to revitalize the sector, starting with a settlement of millions of euro in value-added tax owed by the state to businesses in the sector with high export activity. A number of Greek businesses are exploring alternative avenues of funding by approaching potential investors as far afield as the United States and China. For companies with an outward-looking approach and a strong brand name, the inflow of capital from a foreign investment fund is just the thing to offset the negative international image of the domestic market. Trade Greece is a major cotton exporter. Turkey has been the main destination for Greek cotton during MY 2010/2011 representing 70 percent of total exports. The fourth quarter of 2011 has been characterized by reduced Greece?s cotton exports to Egypt after the import ban (Ministerial Decree 1864/2011) imposed on 25 October 2011. Greek ginners are expanding their distribution channels rather than selling only to traditional buyers. Thus, during the first months of 2012, Greece started exporting huge quantities (37,162 MT) of cotton to China. Small amounts of cotton are imported for blending in the domestic spinning industry. Cotton Lint Exports (MT) Aug-Jul 09/10 Aug-Jul 10/11 Aug-Dec 10/11 Aug-Dec 11/12 EU-27 25,423 20,331 9,906 6,882 Germany 5,153 8,122 3,392 4,108 Italy 10,983 5,659 3,316 1,414 France 2,877 1,297 919 510 Bulgaria 4,390 1,884 1,216 354 Extra EU-27 204,431 137,049 88,169 81,184 Turkey 148,710 86,877 68,303 23,948 Egypt 26,748 27,789 6,343 3,114 Indonesia 13,494 9,274 5,687 9,695 Pakistan 3,352 2,039 1,133 1,468 Japan 1,836 3,170 1,739 838 World 229,854 157,380 98,075 88,066 Source: GTA Cotton Lint Imports (MT) Aug-Jul 09/10 Aug-Jul 10/11 Aug-Dec 10/11 Aug-Dec 11/12 World 6,706 6,508 2,044 1,442 EU-27 1,546 1,355 516 426 Belgium 250 428 118 88 Bulgaria 433 404 105 193 Extra EU-27 5,160 5,153 1,528 1,016 Turkey 4,039 2,994 1,117 707 Pakistan 1,081 1,027 372 130 Source: GTA SPAIN Cotton Lint Production (Hectares, Metric Tons) 2010/11 2011/12 2012/13 Area Harvested 63,000 67,000 68,000 Beginning Stocks 5,000 2,000 6,000 Production 45,000 60,000 54,000 Imports 33,000 28,000 23,000 Total Supply 83,000 90,000 83,000 Exports 40,000 43,000 37,000 TOTAL Dom Cons 41,000 41,000 41,000 Ending Stocks 2,000 6,000 5,000 Total Distribution 83,000 90,000 83,000 Source: FAS estimates Area and Production Spain is the EU?s second largest cotton growing Member State representing about 20 percent of the total EU-27cotton production. Cotton production in Spain suffered a significant decline in 2006 due to the implementation of the EU cotton reforms, reaching a record low in MY 2008/09. The modification of the payment system in MY 2009/10, along with favourable prices paid to producers has enabled a progressive recovery of the area planted to cotton over the last three MY. Virtually all Spain?s cotton is grown in irrigated land in Andalusia. Cotton production is progressively concentrating in the provinces of Seville and Cadiz. While prices paid to farmers and the volume of EU subsidies are critical factors for planting decisions the main factors that affect final yields are the absence of pests and weather conditions at the harvest season. In MY 2011/12, yields reached a five-year record at 2.6 MT/ha thanks to the low incidence of pests, water availability and mild temperatures throughout the beginning of the fall. For MY 2012/13 good prices for raw cotton received by farmers would likely encourage plantings. Nevertheless, it seems quite unlikely that production levels before the 2006 reforms are recovered. Spain?s Farm Gate Raw Cotton prices 2007/2008 2008/09 2009/10 2010/11 2011/12e Price (Euros/100 kg) 32.95 29.90 22.62 46.03 50.00 Source: MAGRAMA (Ministry of Agriculture, Food and Environmental Affairs) and FAS Madrid estimates. In Spain seed cotton prices increased from ?0.48/kg at the beginning of the season to nearly ?0.59/kg in November 2011. Raw cotton processing The EU?s gin restructuring program reduced the number of ginning plants from 28 in MY 2007/08 to only seven (Dafisa, Surcotton, Coalsa, Eurosemillas, Comasa, Indesa and Algosur, a farmers? cooperative) since MY 2010/11. According to industry in Spain raw cotton processing rates are as follows: Cotton Lint yield = 32-33% (national weighted average) of total Seed Cotton delivered to ginneries Cottonseed yield = 54% (national weighted average) of total Seed Cotton delivered to above ginneries The remaining 13-14% is moisture and waste. Consumption and Textile Products Cottonseed production is not crushed, but used directly as animal feed (mostly dairy cows). Domestic consumption of cotton lint remained stable throughout 2011. While cotton yarn and fabric production in Spain grew marginally in 2010 driven by improved export markets, production of yarn declined in 2011, being only partially offset by a marginal increase on fabrics production. Delocalization and financial constrains are seen as the main factors driving the decrease. Cotton Yarn and Fabric Production (MT) 2004 2005 2006 2007 2008 2009 2010 2011 p Yarn 110,768 79,527 72,507 65,949 44,013 38,030 40,198 39,275 Fabrics 112,466 96,501 80,608 47,766 30,815 27,888 29,059 29,666 Source: AITPA (Association for Industrial Textile Cotton Processing) p: provisional data According to industry sources, exports of yarn and fabrics continued its upward trend in 2011 while home textile exports declined. Policy Since MY 2008/09 the national guaranteed area was reduced to 48,000 ha. As a result, the budget is fully used even though correction factors are needed. Coupled payment varies every year depending on the total cotton acreage. Likewise, cotton payments under Article 69 Cotton Policy MY MY MY MY MY 2008/09 2009/10 2010/11 2011/12 2012/13 National Guaranteed 70,000 48,000 48,000 48,000 48,000 Area (ha) Coupled payment 1,039 ?/Ha. 1,400 ?/Ha. 1,400 ?/Ha. 1,400 ?/Ha. 1,400 ?/Ha. Budget for coupled ?67,200,000 ?67,200,000 payment ?72,730,000 ?67,200,000 ?67,200,000 Budget for article 69 ?13,430,000 ?13,430,000 aid ?13,430,000 ?13,430,000 ?13,430,000 National envelope for ?6,134,000 ?6,134,000 ?6,134,000 ?6,134,000 cotton gin restructuring process and machinery contractors According to data Published by FEGA (Spanish Agricultural Guarantee Fund) in MY 2011/12 total cotton acreage eligible to receive subsidies was 65,619 Ha. As a result, the coupled payment adjusted for MY 2011/12 will amount to about 1,024 Euros per hectare. Subsidies per Hectare 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12e Coupled payment (?/ha) 1,039 ,039 1,039 1,400 1,400 1,400 Coupled payment adjusted 1,039 1,039 1,039 1,19 1,105 1,024 (?/ha) Article 69 payment (?/ha) 259.35 323.81 562.85 480.47 289.81 N/A Integrated farming aid: 350 350 350 350 350 350 Under 40 ha. 210 210 210 210 210 210 Between 40 and 80 ha. 105 105 105 105 105 105 More than 80 ha. Source: FEGA and FAS Madrid estimates. CAP reform Future prospects for Spain?s cotton sector will be tied to developments in the subsidy scheme, especially when the CAP reform currently under discussion will be implemented. Spain?s agriculture is very diverse. According to FEGA (Spanish Agricultural Guarantee Fund) the average value of the single payment per hectare amounted to 278 Euros in 2011. Nevertheless, there is a great variability within the different regions since the crops grown originated different amounts during the reference periods. In AndalucĂ­a, where virtually all cotton is grown single payment is on average 435 Euros per hectare. A flat rate single payment would impact quite negatively to Spain?s cotton sector. Trade Morocco is the main destination for Spain?s cotton lint, representing over 40 percent of Spain?s exports. Portugal is the main intra-EU destination and Turkey is by far Spain?s largest supplier of cotton lint. The PSD tables are prepared based on an August 1 to July 31 marketing year. HS codes considered for Lint Cotton trade data: 5201, 5202, 5203. HS codes considered for Yarn Cotton trade data: 5204, 5205, 5206, 5207. HS codes considered for Fabric Cotton trade data: 5208, 5209, 5210, 5211, 5212.
Posted: 21 April 2012

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