100% Cotton

From Reuters:

CANCUN, Mexico (Reuters) – The United States came under fire for its heavy cotton subsidies Monday with African nations saying free trade talks are meaningless unless Washington stops throwing money at its farmers… [Benin’s trade minister] and ministers from fellow African cotton producers Mali, Burkina Faso and Chad called for the WTO to approve a total ban on subsidies for cotton farmers by 2006.

This has been boiling up for a while now. To put things in perspective, Burkina Faso is one of the poorest countries in the world, and cotton is one of their few cash crops. Most of their cotton farms operate on 1-3 acres, with the planting, weeding and harvesting done by hand. You’d think such farming couldn’t be as efficient as the economy of scale achievable by large-scale U.S. agribusiness, but in fact it costs about 73 cents to produce a pound of cotton in the U.S. and only 21 cents per pound in Burkina Faso.

A few other facts from a 2002 Oxfam briefing paper:

  • In 2001/2002, U.S. farmers received subsidies amounting to $3.9 billion, more than the entire GDP of Burkina Faso, and three times more in subsidies than the entire USAID budget for Africa’s 500 million people.
  • The value of subsidies in 2001 exceed the market value of output by around 30 percent. In other words, cotton was produced at a net cost to the United States.
  • Based on models from the International Cotton Advisory Board, Burkina Faso lost 1% of GDP and 12% of export earnings due to U.S. subsidies.
  • The largest 10 per cent of U.S. cotton farms receive three quarters of total payments. In 2001, ten farms between them received equivalent to $17 million.

It’s unclear how this WTO case will play out. African countries are in an extremely weak negotiating position, because they rely heavily on aid, debt relief and trade preferences. For example, the aid relief provided by the U.S. under the Africa Growth and Opportunity Act (AGOA) can be unilaterally withdrawn, as can U.S. food aid. (The AGOA aid, ironically, is conditional on African governments liberalizing agricultural markets, including cotton.) On the other hand, the conflict is bringing visibility of the problem to Capitol Hill at a time when farm subsidies are being challenged.