Oxfam: Fabrication, Flaws and Fallacies

The NCC prepared a paper entitled "Oxfam: Fabrication, Flaws and Fallacies" in response to Oxfam's claim that Chinese cotton farmers are beset by U.S. cotton subsidies.

Published: December 11, 2005
Updated: December 8, 2005

National Cotton Council

A recent paper and press release by Oxfam concerning Chinese cotton farmers beset by U.S. cotton subsidies is a rewrite of history. No one even vaguely familiar with the world fiber and textile markets would have made the outrageous assertions and ludicrous allegations espoused by Oxfam. The conclusions of Oxfam regarding Chinese cotton production are seriously flawed. 

It is difficult to critique a work that is so strained and baseless. It is best to begin with actual facts:

  • China is the world’s largest producer of cotton, user of cotton, and exporter of textiles.  China’s growth as a user of cotton and exporter of textiles is unprecedented in the history of manufacturing. 
  • Generally, the Chinese government carefully manages the cotton market in China to ensure domestic prices are higher than world prices.
  • In 2005 the Chinese government offered incentives to entice producers away from cotton and toward feed grains.
  • China has added dramatically to the world glut of polyester fiber over the past 10 years, dipping deeply into demand for cotton fibers.
  • China first created the largest level of cotton stockpiles in the world during its forced development of the Xinjiang cotton industry.  That stockpile was exported at a time that caused the implosion of the world cotton market – leading to low prices that have never been fully exorcised from the market.
  • China’s agreed upon market access amounts to less than 10 percent of its total use of cotton.  China has a great deal of control over the amount of cotton imported into China and the value of that cotton.

From 1994 to 1998 Chinese cotton farmers produced 102.9 million bales of cotton while Chinese mills consumed 97.1 million bales, adding to their domestic cotton stock. During that same period the Chinese government, through various agencies that control cotton reserves, imported 12.5 million bales of cotton increasing their annual carryover stocks from 10.8 million in 1994 to 26 million bales in 1998, and China held 52% of the world’s cotton stocks. This extraordinary turn of events created some of the strongest cotton prices seen in 30 years. Then, as the Asian financial crisis plunged virtually all internationally traded commodity prices to 40-year lows, the Chinese government began to dump cotton from their stocks and pushed world cotton prices even lower. Eventually the world price fell to 40 cents per pound.

China has historically maintained a large textile industry. But by 2000, when it was clear that there would be an accession agreement bringing China into the WTO and giving it much greater access to the world’s textile and apparel markets, China’s focus on textiles became intense. The increase in Chinese textile and polyester fiber production capacity has been unmatched in history. In 2000, Chinese textile mills used 23.5 million bales of cotton and China’s farmers grew 20.3 million bales. The United States shipped virtually no cotton to China. In 2004, China’s mills used 38.5 million bales of cotton and China grew 29 million bales. China imported 6.4 million bales of which 3.5 million bales was U.S. cotton. Oxfam’s reporter appears to ignore the 3 million bales of cotton entering China from West Africa, the former Soviet Union and Australia.

China’s surge in textile manufacturing is not simply supplying new world demand. Most of the increase in China’s share of the world textile market is at the expense of the developing countries and has removed textiles and apparel manufacturing as an avenue for development. In the United States and the European Union, textile and apparel imports from China increased by nearly $9 billion in the first eight months of 2005, while imports, mostly from developing countries and LDCs, fell by nearly $5 billion dollars.

Chinese polyester production grew from 22 million bale equivalents to 44.5 million bale equivalents in the incredibly short period between 2000 and 2004. The entire world only produced 42 million bale equivalents of polyester in 1992. Polyester competes directly with cotton in a wide range of textile and apparel applications. China’s polyester production expansion directly reduces opportunities for cotton sales by Chinese farmers. For the past 18 months, polyester prices in China have been several cents per pound under average polyester prices in Asia and 8 to 10 cents per pound less than cotton. Oxfam has a naïve, one-dimensional view of the world fiber market.

The WTO accession agreement stipulated China would have a cotton TRQ of 4 million bales with a 1% in quota duty. Any cotton access beyond that TRQ is entirely at the discretion of the Chinese government as the over-quota duty is prohibitive. For the past several years Chinese mills have consumed considerably more cotton than China’s farmers have produced. Chinese authorities have not permitted the textile mills free access to foreign cotton with the result that Chinese farmers have received considerably higher prices for their cotton than their foreign counterparts.  Such restrictions in market access depress world cotton prices and deny exporting countries such as West Africa critical market access. Prices for cotton inside China are considerably higher than world prices as their textile mills, with the stimulus of government subsidies and access to new markets, consume ever higher quantities of fiber and Chinese farmers are unable to meet the soaring demand. 

The latest USDA Foreign Agricultural Service report on China states:  “In an effort to curb the decline of grain production, the government of China started area based subsidies to grain crops in 2004. This policy, in part, resulted in a higher per-unit profit for grain crops than cotton; thus, cotton area is expected to decline in MY2005/06.  Given China’s very limited arable land, if forced to choose between subsidizing cotton and grain production, the government of China is likely to subsidize or otherwise support grain so it can feed the people. Farmers, especially those in the Yellow River region, are expected to adjust their crop mix according to comparative profit per unit. In fact, the annual swing in cotton area ranged from 11 to 22 percent over the past five years. Therefore, the government of China has its work cut out for itself if it expects to maintain a stable cotton production area."

This shift in planting is occurring despite internal cotton prices in China that are 12% to 15% higher than cotton prices received by farmers in most of the world.

Oxfam bemoans the plight of the Chinese cotton farmer and the volatility of cotton prices. Agricultural commodity prices can and do fluctuate significantly in response to weather induced crop changes.  Further, in many years the Chinese government highly insulates the Chinese farmer from the movement in international cotton prices by tightly controlling international trade in raw cotton.

Oxfam continues to drag out estimates from old studies that have been refuted or substantially discounted, while failing to report results from recent studies by FAO and the International Monetary Fund. These recent reports show the estimated cumulative impacts of all subsidies by all countries producing cotton only contribute a 2.5% to 3% reduction in average world prices. 

One can only hope that the distortions and misrepresentations by Oxfam regarding the world cotton situation have hopefully reached a zenith with this latest nonsense. The truth about China’s capacity for impacting the world’s fiber and textile markets is serious enough without resort to fabrication.  

Oxfam’s mission is to eliminate poverty and hunger around the world.  These are admirable goals. Unfortunately, Oxfam’s tactics have devolved to spreading bad economics as widely and broadly as possible, hoping no one stops long enough to investigate the facts or question the “analysis.”