Massive US cotton subsidies are encouraging over-production and export dumping and driving down world cotton prices. What are the consequences for producers in developing countries? Are US subsidies illegal under WTO rules? If they are allowed to continue, will this put an end to hopes that agricultural exports could lift Africans out of poverty?

‘Cultivating poverty: the impact of US cotton subsidies on Africa’, a report from Oxfam International, argues that America’s cotton barons are growing rich on government transfers while African farmers suffer the consequences. The Bush Administration may advocate open markets, but in reality US subsidies close markets for vulnerable farmers and assist a handful of US producers.

In central and west Africa, over 10 million people depend on cotton production. It is the major source of foreign exchange for Burkina Faso, Mali and Benin. They are efficient low-cost producers: production costs are three times higher in the US than in Burkina Faso. Despite this comparative advantage, African producers are losing income and market shares as world prices slump.

The scale of subsidies is extensive. Each acre of US cotton farmland attracts a subsidy of US $230 – equivalent to the average annual income in Burkina Faso. In 2001-2002, America’s 25 000 cotton farmers reaped a bumper subsidy harvest of US $3.9bn – a sum larger than Burkina Faso’s GDP and three times the total USAID budget for Africa. The largest 10 per cent of producers receive three-quarters of total payments.

Oxfam estimates that the income lost to African producers is equivalent to the value of a third of total US aid to Africa. Mali received US $37m in US aid in 2001 but lost US $43m as a result of lower cotton export earnings. US subsidies cost Mali 1.7 per cent of GDP and 8 per cent of export earnings.

The report notes that:

• While cotton growers in the US could shift to other crops, the scope for substitution in the Sahel (southern Sahara) – where cotton is the main cash crop for a large section of the rural population – is limited.
• Cotton provides an important revenue source for governments to spend on health and education.
• Removing the US subsidy system would lift world cotton prices by 26 per cent.
• Although developing states have a good case to make under WTO rules, they are vulnerable to retaliatory action because of their dependence on aid and debt relief and the threat of unilateral withdrawal of trade preferences.

Brazil has launched a complaint that US cotton subsidies breach WTO rules. Whatever the outcome, Oxfam argues that the US is violating the spirit of free trade. Any agricultural agreement in the Doha development round must include:

• a ban on agricultural export dumping at prices below the cost of production
• a binding timetable to eliminate all forms of export support, including export credit subsidy programmes, before the Fifth WTO Ministerial Conference in September 2003
• removal of currently permitted subsidies that generate over-production
• restructuring of domestic support in rich countries towards less-intensive agriculture and measures aimed at enhancing the welfare of small farmers rather than large-scale corporate agriculture.

Source(s):
‘Cultivating poverty: the impact of US cotton subsidies on Africa’, Oxfam Briefing Paper, by Kevin Watkins and Jung-ui Sul, September 2002 Full document.

Funded by: Oxfam International

id21 Research Highlight: 20 August 2003

Further Information:
Oxfam International
266 Banbury Road
Oxford OX2 7DL
UK

Tel: +44 (0)1865 313939 / 3639
Fax: +44 (0)1865 313770
Contact the contributor: advocacy@oxfaminternational.org

Oxfam International

Other related links:
'How fair is ethical trade? A look at Uganda’s organic cotton sector'

'Softening the blow. Safety nets for redundant cotton textile workers left stranded by India's economic reforms'

'King Cotton under Market Sovereignty: The Private Marketing Chain for Cotton in Western Tanzania, 1997/98' from IIS

'Peasant cotton cultivation and marketing behaviour in Tanzania since liberalisation'

See the Cotton and Wool Yearbook