Organization and Performance of Cotton Sectors in Africa ... - infoDev

Figure 2.2 Nominal Cotton Prices (US$ per kilogram) and Agricultural PriceIndex (October 2001 = 1.0), January 1985–September 20083.02.5index2.01.51.00.5Jan-85Jan-87Jan-89Jan-91Jan-93Jan-95cottonJan-97Jan-99agricultureJan-01Jan-03Jan-05Jan-07Source: World Bank, Commodity Price Data.commodities have responded to increased energy costs much more stronglythan cotton. 14EXTERNAL FACTORS AFFECTING WORLD LINT PRICESTwo major factors affecting African cotton trade—but for the most part notunder full control of individual governments—must be underscored: (a) theimpact of exchange rate variations, that is, the relative value of the nationalcurrency with respect to the dollar; and (b) the distortions created on theworld market for cotton lint by the subsidies paid by some of the Organisationfor Economic Co-operation and Development countries and by China to theircotton producers.Exchange RatesBecause cotton is traded in U.S. dollars (as are most commodities), cottonprices are affected by the movement of the U.S. dollar in addition to allother factors affecting cotton prices. For example, the U.S. dollar’s strengthafter the East Asian financial crisis was partly responsible for the collapse ofcommodity prices in the late 1990s and early 2000s. Similarly, the weaknessof the U.S. dollar contributed to the commodity price boom at the middleof the 2000s. 15 However, all cotton producers are affected by the variabilityof the currency in which their cotton is sold. Countries examined in thisreport are affected by three exchange rate–related issues: (a) appreciation of16 BAFFES AND ESTUR