A Study of the Impact of Common Agricultural Policy of EU On Production of Cotton in Greece: Implications for U.S. Cotton Exports

Greece is the largest producer of cotton in Europe and sixth largest exporter worldwide in 2010 (FAOSTAT). Cotton constitutes about nine percent of the total value of agricultural production in Greece. Currently Greece exports about three quarters of its cotton production, increasing by an average of almost ten percent over the period 2002-09. Though Greece may be small in terms of production and exports of cotton compared to that of US, it is an important competitor to US as the second largest supplier of cotton to neighboring Turkey.  Turkey is also a major market for US cotton, the second largest U.S. export market after China (FAOSTAT).  In this context, it is important to understand how changes in Common Agricultural Policy (CAP) in 2013 and ongoing economic crisis in Greece will impact its cotton sector.  Will area under cotton cultivation change in future, thereby impacting its exports to Turkey?

The objective of this paper is to assess how changes in the CAP will impact the profitability of Greek cotton producers and potential implications for Greece as a competitor in the world cotton market. Updated estimate of costs of production are used in developing a representative farm model for Greek cotton production. The effects of changes in critical variables on farm level profitability such as the direct payments through Common Agricultural Policy (CAP) of European Union (EU) are examined. The study also provides insights about the impact of recent austerity measures by the government of Greece to overcome the economic crisis in that country.