CHAPTER 4
How Africa Missed the Cotton Revolution John Baffes
Although agricultural commodity prices may diverge from each other for short periods of time, they are expected to converge over the longer term since they respond to the same fundamentals and exogenous shocks. Moreover, when supply and demand conditions force prices to deviate, producers will shift land and other resources from lower to higher priced crops while consumers will shift from higher to lower priced products, thus balancing the market and inducing price convergence. Yet, during the past decade, the cotton market defied that logic. Between 2000–04 and 2005–09, the real agricultural commodity price index increased by 38 percent while real cotton prices declined 4 percent (figure 4.1). More surprisingly, world cotton production increased 13 percent. That is,
This chapter was prepared under auspices of the U.K.-supported Global Trade and Financial Architecture project. The views expressed are personal and should not be attributed to the World Bank. I would like to thank Ataman Aksoy, Jock Anderson, Armelle Gruère, Tassos Haniotis, Bernard Hoekman, Melinda Smale, Kimberly Pfeifer, and Terry Townsend for comments and suggestions on earlier drafts. Comments by seminar participants at the International Monetary Fund (March 1, 2011) and a meeting with staff of the International Food Policy Research Institute (March 17, 2011) are greatly appreciated. 125