Cotton Subsidies

This essay calls for the end of cotton subsidies in the US and the EU to help lift struggling African farmers out of poverty:

Africa’s Bitter Harvest, by G. Pascal Zachary, Project Syndicate: Souley Madi is one of the most productive cotton growers in the Badjengo Cameroon... Thanks to a combination of intense heat and periodic Sahelian rains, Madi consistently produces clean, high-quality cotton... But, as the next growing season approaches, Madi ... faces a difficult decision: how much cotton should he grow this year? Prices for cotton were so low last year that Madi cut his acreage. He earned less from cotton last year than the year before, and much less than he earned five years ago...

This year Madi may grow even less cotton, even though the crop is the main source of income for himself, his two wives and his five children. On some of his land, he now grows corn and peanuts instead of cotton. But cotton potentially offers the best payback, because it has cash value on the international market and can be stored for long periods ...  A state-owned cotton company collects his cotton relatively efficiently, gins it nearby ... and then sells the lint on the international market, generally paying Madi promptly and fairly.

Madi’s earnings help him keep his children in school, even at the height of the cotton harvest. Having attended secondary school himself, he believes that his children will better their lives through education. He knows his children’s future depends on better prices for cotton. But forces beyond Madi’s control ... are restraining cotton prices, creating a global glut ... The United States government pays billions of dollars to cotton growers... The European Union also contributes to low cotton prices, paying farmers in Greece about $1 billion a year to grow the crop at a loss.

Such subsidies are a global scandal, yet large payments to ... American and Greek cotton growers seem likely to persist for many years. The best chance to end cotton subsidies soon was lost last December ... at the World Trade Organization’s meeting in Hong Kong. The US and Europe offered only a token reduction, scotching a deal. ... The powerful US cotton lobby wants no change ... European farmers also want to maintain current subsidy levels, and EU members say that they are unlikely to make any reductions before the end of the decade.

Take away subsidies and cotton prices will rise, perhaps as much as 15%. “There’s real money here for the individual African,” says Daniel Sumner, an economist and cotton expert at the University of California. ... Africans are trying to make the best out of a bad situation. In some parts of Africa, cotton growers are expanding production... In Uganda, where civil wars in the 1970’s and 1980’s devastated farming, cotton growers are making a major comeback. In Zambia, cotton output is soaring. In both countries, foreign investors are opening gins and assisting growers.

In Cameroon, where cotton is the main source of income for nearly five million people, record crops were posted last year and the year before. “Our farmers ...” says Ali Batour, a manager with Cameroon’s Sodecoton, the state-owned marketer. “...deserve a fair price.” But Souley Madi is resigned to receiving unfair cotton prices, perhaps for a long time. ... Tapping his forehead, Madi insists, “We are waiting for the situation to change.” For how long, he says, “depends on God.”

It seems inconsistent of those who are continuously espousing the benefits of free and open markets to stand in the way of change that might make a difference in worldwide poverty reduction. Setting aside the obvious political difficulties, which I'll note in a moment, are there good reasons (e.g. to protect the jobs of illegal farm labor) for crop subsidies to continue?

As for the politics, how has the National Cotton Council in the US reacted? The Council's arguments for maintaining the subsidies are mainly that cotton farmers are being asked to carry an undue share of the burden of reduced farm subsidies and that the proposal does not go far enough in opening foreign markets to US producers.

But you could just as easily argue that cotton farmers benefit unfairly from the subsidies relative to domestic farmers who face the same foreign competition and market access problems, but do not receive government subsidies, and that subsidies distort the market undesirably in any case. It is also not evident that these kinds of selective subsidies are the best policy response to general foreign market access problems:

NCC ‘losing confidence’ in WTO process, chairman says, by Forrest Laws, Southwest Farm Press, March 28: The latest proposal from the C-4 West African countries for “reforming” the U.S. cotton program is only serving to undermine what little confidence U.S. farm groups have left in the World Trade Organization... The proposal ... calls for even deeper cuts in farm program payments to cotton producers than those tabled by U.S. Trade Representative Rob Portman at the WTO meetings last fall...

For National Cotton Council leaders already concerned about the movement away from market access and domestic support measures in the WTO’s Doha Round negotiations, the C-4 proposal is more bad news, says NCC Chairman Allen Helms. ... Helms noted that WTO ministers have set a date of April 30 to finalize modalities and July 31 for submitting tariff reduction schedules, signaling an intense period of further negotiations.

“Cotton is already being asked to give up more than others, and we anticipate pressure for further concessions,” said Helms. ... “...This continued insistence by some for unfair treatment of cotton only serves to erode U.S. agriculture’s confidence in the WTO, which can have important political ramifications.” ...

“The European Union and other countries were unable to offer increased market access for agriculture but as the pressure mounted on the EU, it maneuvered other issues to the forefront, including a focus on cotton and the plight of poor countries,” Helms said. Cotton is listed in the sub-section of the agricultural text and is singled out for special treatment, he noted. ...

“The Council is deeply concerned with the ramifications ... and believes it is also an ominous warning to other commodities,” says Helms, a producer from Clarkedale, Ark. “Despite our best efforts, the WTO is attempting to move away from a single undertaking for all of agriculture to deal with one commodity separately.”

He said the Council will continue to work very closely with USTR, USDA and Congress to counter any efforts to further isolate and discipline cotton. “We are also working with other agricultural groups to insist on the necessary gains in market access that must arise in order to sustain any commitments for reductions in overall domestic support that do not isolate cotton,” he said. ...

Repeating one phrase, "This continued insistence by some for unfair treatment of cotton ... can have important political ramifications."

Comments

[Ninjaplease]

Well then, clearly growing cotton must not be their comparative advantage, no?

Let them adapt or starve, no?

I'm sure the global economy will create new and good jobs there, just like in America, no?

Having Africa jump into the global market will benefit all of its people among all of its nations, no?

You see, there will be some winners and some losers, but over all, the general economy will increase, raising all boats...

I mean... These cotton growers could just get retrained as Radiology Technicians or Dialysis Technicians, no?

[No Name]

Lets all return to autarky ninjaplease. Everything will be so much better there, right??

[anne]

No; autarchy is decidedly not the issue, the issue as China has shown decisively is trade and investment in return for technology transfer. Those emerging countries that dirve this bargain are thriving or beginning to thrive as never before. If you think that China is limited to selling low technology products, then think again. This must be the direction of Mexico or Bolivia or Nigeria or Tanzania.

[anne]

We fail to understand what China has done to set a path of sustained rapid development. Technology transfer, education, infrastructure development, sustaining as much of a social benefit base as possible with leadership pressure. There is development; there is China, India, Brazil, South Africa....

[NinjaPlease]

"If you think that China is limited to selling low technology products, then think again."

Only a fool would think that China is incapable of creating the same products/technology currently only made in America.

Comparative advantage pretty much only applies to Vidalia Onions, sugar, tobacco, and a few other goods where climate makes all the difference. For every single other product and or service, there is no difference no matter where it is made, except that in some places, it costs less to produce it.

My point is that Africa has many poor people living on very much less than $1 a day. I've said to peers many times, that Africa, atleast the countries whose governments that are fairly stable, would be the ideal place to setup a call-center or for a manufacturing facility---their comparative advantage is that they'd be an even cheaper cost of labor than India or China.

"autarchy is decidedly not the issue, the issue as China has shown decisively is trade and investment in return for technology transfer"

I don't know how you came up with that one, but no tariffs against goods produced in China is the reason for their growth--most of their own people can't buy the crap their making in factories, the things they produce are for export primarily.

There's no technology transfer since clinton gave them military tech a number of years ago. China has been working on a Dragon CPU to compete with Intel, AMD, transmeta & Via for years and it is VERY FAR behind, but they'll catch up eventually.

It is foolish to think that any job with a higher education prerequisite can't be done cheaper in China, India, Brazil, Mexico, etc. So then, what is our long term "value add" as "Educated" American workers thats going to keep our jobs here? WHAT?

It seems that Marx had the right idea, we all need to become managers of businesses, except he forgot to tell us that its because those will be the only jobs available that pay above minimum wage.

[anne]

Oh, but I understand and agree, and think your comments always thoughtful :) The question is not catching up really, rather being open to increasingly open study, technical adaptation and experimentation, and increasing social openness to reinforce. The creativity in the arts actually promises so much more from the economy. Nice :)

[a]

Nija,

In the Long run, ideally, every country should be equally resourceful, people as well educated as Americans and as innovative. Comparative advantage will still be there, because I am sure no matter how seemingly the Chinese the Indian can copy everything the Americans can do now, there are things inherent in the culture that is not copiable --- like, culture itself. In the long run, there may not be scarecity of material product, entertainment and leisure might be required by all people in the world...

What is there to be so afraid of? If you are screaming like hell when China and India can compete, then I feel that you are only so generous to Africa because you think Africa can't catch up. If you are so convinced that call centers in Africa is a good business venture, I encourage you seriously explore it and make money and benefit from the trade! It would be good for everyone, I firmly beleive.

Relax, your country is the richest country in the world, give other countries a little room to make money.

[hirvi]

"The European Union also contributes to low cotton prices, paying farmers in Greece about $1 billion a year to grow the crop at a loss."

That looks very high to me, and I think they get just over half of that. Still a lot, to be sure, but it's not $1 billion.

[ucdagecon]

I've had the chance to work with Pro.Sumner over at the Ag Issues Center here on campus and it was amazing to see the reaction of cotton growers to Dans work awhile back. They actually questioned the mans patriotism for doing honest work!!!

[anne]

http://www.nytimes.com/2005/12/18/weekinreview/18porter.html?ex=1292562000&en=7052b74a369f5a60&ei=5090&partner=rssuserland&emc=rss

December 18, 2005

Ending Aid to Rich Farmers May Hurt the Poor Ones
By EDUARDO PORTER

BY now, it's almost a truism: the protectionist agricultural farm policies of the big, rich nations - mainly the European Union, the United States and Japan - are essentially barring poor countries from development.

That belief is what led to much of the bickering last week between trade ministers from rich and poor countries at the World Trade Organization meeting in Hong Kong. Many development advocates argued that subsidies and tariff protections for farmers in industrialized countries lock poor farmers out of the rich world market. "High tariffs keep them out of key markets, and tariffs and subsidies together drive down the world price of their exports," wrote Paul Wolfowitz, the head of the World Bank, in a recent opinion article in The Los Angeles Times. "Without the income that trade could provide, it is their children who go hungry and who are deprived of clean water, medicines and other basic necessities of life."

Virtually every economist will agree that agriculture is one of the world economy's most distorted sectors, and that dismantling industrialized nations' farm supports would give many farmers in the developing world better access to markets in wealthy countries.

However, some economists are warning that if the industrialized world ends its farm subsidies and lowers its tariff barriers to agricultural imports, poor countries may not be helped, but harmed.

"Everybody is saying that the last barrier to the development of these poor countries are the subsidies in rich countries. That's the wrong diagnosis," said Arvind Panagariya, an economics professor at Columbia University. "The least developed countries would be hurt by agricultural liberalization by the developed countries."

In a paper published in April, three economists - Nava Ashraf from Harvard, Margaret McMillan from Tufts, and Alix Peterson Zwane from the University of California, Berkeley, concluded that agricultural supports boosted the per capita income of two-thirds of 77 developing nations, including most of the poorest countries, like Burundi and Zambia.

Developing countries that are big agricultural exporters - including Brazil, Argentina, Indonesia, Thailand - are undoubtedly hurt by the farm subsidies. But these countries are not among the poorest.

Rather, many poor nations are big importers of farm goods, so they benefit from the lower agricultural prices caused by support policies in rich countries. Tariffs and subsidies keep cheaper imports out of the industrialized countries and encourage their local farmers to produce more. This raises the domestic prices of their farm goods. Yet, as it artificially boosts production of agricultural products, it pushes worldwide prices down....

[anne]

Development based on agriculture simply has not worked and I have no sense that it can work either politically or economically. Politically farmers from France to America and Japan will have subsidies, economically flowers from Kenya or cocoa from Bolivia are not stable enough venues to development. Emerging countires must subsidize agriculture, as does China, and look for a technology base for trade demanding technology transfer for all the business that can be attracted.

[anne]

Mexico needs to subsidize agriculture, but the sadness of Mexico is that there has been so little techology transfer in exchange for access to the market by international investors. China is already making cars for export to Europe, Mexico is only assembling cars.

[a]

"Rather, many poor nations are big importers of farm goods, so they benefit from the lower agricultural prices caused by support policies in rich countries."

But what resource did they use to import farm goods? Do they have any other income? Which countries are they? I guess I need to find the original research papers.

I think China succeeded because China did not open up to trade till late 90's. Zambia, due to the copper crisis in the 70's had to accept huge loans from IMF and in return had to open up its domestic market and privatize their industry, as a result, today Zambia's textile industry is non-existent and people ware 2nd hand t-shirt from Salvation Army (the documentary T-Shirts travel). Due to historical reasons, Zambia is put on the track of perpetual debt... To say that Zambia benefit from the European subsidy is a strech to me. In fact, IMF made so much out of the interest payment of the country, (where most of the money probably goes to Europe) that I really think there should be a pay-back time.

No wonder no one wants to borrow money from IMF and World Bank now.

To see this side of the globalization, "Globalization and Its Discontent" is a good book to start with.

[anne]

What foolishness; imagine suggesting building a country on trade-marginal agriculture products when what counts is a technical base. Indeed build a technical base for agriculture, but do not heed advice to rely on agriculture. Subsidize agriculture as a social support as in China through the period of technical deepening elsewhere. Apple production in China, mangoes, oh they are lovely, in India, soy in Brazil is not what development must be based on. But, look to even generic drug production in Brazil and there is a base for sustained development.

[anne]

Hirvi

Now, I expect you to explain how Finland is bent on world domination through monopolizing classical music and do not for a moment think beyond classical for there are limits beyond which we will resist :)

[anne]

http://www.nytimes.com/2006/04/05/arts/music/05adri.html?ex=1301889600&en=f2c220113ab1df86&ei=5090&partner=rssuserland&emc=rss

April 5, 2006

The Opera 'Adriana Mater' Addresses Motherhood in a War Zone
By ALAN RIDING

PARIS — At its most powerful, opera takes human, religious and political dramas of the past and gives them enduring relevance. "Adriana Mater," the new opera by the heralded Finnish composer Kaija Saariaho, borrows its haunting narrative from our own age and shows it to be a story for all time.

Its setting is a modern war, modern because it could be happening now, yet primitive because its weapons include rape. Thus, while the country is not named, the plot inevitably evokes the Bosnian war of the 1990's, with its grim legacy of rape and ethnic cleansing.

But here there is a twist: Adriana Mater is raped by a soldier from her own community. Ignoring the advice of her sister, Refka, Adriana refuses an abortion and rears a son, Yonas, to believe that his father died a war hero. At 17, he learns the truth. When the man, Tsargo, returns to the village, Yonas decides to kill him.

A story of such intensity demands music of equal power, and to judge by the enthusiastic response of the Bastille Opera's packed house at Monday's world premiere, Ms. Saariaho succeeded in forging a work on an emotional scale only occasionally heard in contemporary opera.

The cast comprises just four characters — Adriana, Refka, Yonas and Tsargo — who are backed by an amplified offstage chorus. The opera's changing moods are, in turn, defined by richly varied orchestration, both explosive and reflective, as well as by the urgent parlando and lyrical arias of the vocal parts.

"Adriana Mater" is Ms. Saariaho's second opera. And as with her first, "L'Amour de Loin," presented at the Salzburg Festival in 2000 and since widely performed, she has again joined forces with the Lebanese writer Amin Maalouf as librettist and the American director Peter Sellars.

But "Adriana Mater," which was commissioned by the Paris National Opera and the Finnish National Opera, is a far darker work, one searingly painful in its depiction of humanity.

"If there is not a lot of action, there must be big feelings," Ms. Saariaho, 53, a soft-spoken woman known to be intensely private, said in an interview a few days before the premiere. "I am more for big feelings than a lot of action. I did not say I wanted something sad or violent. It just happened by itself."

Ms. Saariaho, the mother of two, said she was drawn to the subject of motherhood, still moved by the memory of another heart beating inside her....

[anne]

Imagine actually exporting Finnish mothers, classical mothers at that. There is insidious development :) By the way, you do not want to know what the Finnish stock index has done these years unless that is you happen to be in the Finnish market....

[hirvi]

hehehe!

Anne, I don't know if you watch such absurdities, but if you've seen our entrant for Eurovision Songs this year, you'll see we have no hope for more :-)

[anne]

Fiins are many things, but above all they eternally lack hipness. Only charm can save you :)

[anne]

http://www.calvorn.com/gallery/photo.php?photo=6388&u=99|1|...

King Rail Feeding
Long Island--Tobay.

Poor innocent Finns :)

[hirvi]

"Only charm can save you"

And innovation.

I mean, until not so long ago, your idea of mobile phones was something the size of a walky-talky that connected with no other network except for its own.

Now you have small phones that fit in a handbag, instead of a suitcase, and you can speak with everyone (I think).

Where did that idea come from? :-)

[anne]

There is a long way to go with wireless communications, through developed and emerging markets, and Nokia is not behind-hand in innovation. By the way, I use Skype or Google Talk for much of my phoning. Skype for all international phoning. What a pleasure.

[hirvi]

Skype is an excellent innovation, although many companies here won't use it right now for security reasons.

Maybe some new innovation will make it safer?

But I know firms that use it, and their phone bills have sunk dramatically, they say.

[anne]

Puzzling, tech students have several tmes mentioned that Skype coding is stronger than any standard phone coding. We must ask about this, but I have found no criticism. That may mean however that my secret agent status has already been compromised. Hmmm....

[anne]

http://www.nytimes.com/2006/04/06/technology/06pogue.html?ex=1301976000&en=09022e425c1720fb&ei=5090&partner=rssuserland&emc=rss

April 6, 2006

Internet Calls Untethered From Your PC
By David Pogue

WHY does Skype get so much hype? Sure, this software lets you make free "phone calls," computer to computer, anywhere in the world. But it wasn't the first such program, it's not the most feature-laden, and it's still a mystery to most people over 25.

Yet somehow, Skype is changing everything. Twenty-five million people are using it to make free calls, much to the annoyance of the phone companies. College students call home and friends with it. Business travelers keep in touch with the family. Visitors to the United States chit-chat with their buddies in Europe, Japan or wherever. The software — free from skype.com and available for Mac, Windows, Linux and PocketPC — is pitifully easy to use, and the sound quality is more like FM radio than a phone call.

Skype's popularity has caused some impressive ripples in the fabric of business and society. The word is now a verb, à la Google ("Have your people Skype my people"). Last fall, eBay bought Skype for $1.3 billion and 32.4 million shares of eBay stock. And most intriguing of all, an entire industry of Skype accessories has sprung up.

But one niggling footnote continues to dog Skype: to make free calls, you and your conversation partner must both sit there in front of your computers, nerdlike, wearing headsets. You can call regular telephones, but that's not free. (Rates are complicated, but 2.1 cents a minute is typical.) And you still have to sit handcuffed to your computer.

Wouldn't it be nice if you could make and receive Skype calls from your home phone or any ordinary cellphone?

Enter the VoSky Call Center ($60 at actiontec.com), nicknamed the Liberator. (All right, I gave it that nickname, but still.) It's a tiny black box, about the size of a sandwich, that connects to a Windows PC (with a U.S.B. cable), to your phone line and to your telephone. An exceptionally clear instruction sheet walks you through the installation....

[anne]

What is telling and sad is that African friends, beyond South Africa, do not use Skype to call to computers in Africa, because internet computer connections are both difficult to come by and too expensive.

[anne]

Returning then to development, when we refer to the need for technology transfer this must accompany education and infrastructure development. Free education is quite essential, but can be slow in coming.

[dryfly]

Development based on agriculture simply has not worked and I have no sense that it can work either politically or economically.

Politically it is FAR more difficult than economically.

I was watching the history channel a night or so ago (in a hotel in rural Missouri - trapped)... and they were talking about the history of 'processed food'... the show made the point that from about 1880 until about 1920 food processing (especially milling) was a larger business than either steel or automobiles... and it was VERY high tech by the standards of the day.

Today, with population increasing & the need to better people's health (especially less obesity) it is possible a second revolution in food processing - one that is (1) more sustainable and (2) provide healthier foods could do both utilize the agricultural assets of many of these developing countries and also transfer technologies that would lead to higher standards of living.

And this 'model' might even allow for 'organic demand'... countries growing their economies without being so reliant on export markets. Lord knows many of these places have lotsa hungry mouths.

But to get it started the developed countries will need to export to pay off the incoming capital... The trouble will be the ag subsidies in the west that both protect our domestic producers & drive down the world prices outside of our borders. Developing countries have to clear two hurdles before the even get to the starting line.

[Bruce Wilder]

I do not know the details of cotton subsidies, but did anyone look at the price stabilization aspects of the subsidies? Government subsidies are rarely the simple bounty described in introductory textbooks.

Agricultural subsidies in the U.S., at least, mostly started off life as price stabilization and insurance schemes. Price stability in at least some agricultural products is hard to achieve, and without government intervention, private schemes, run by the likes of Cargill and ADM, tend to grind the farmer to dust.

I know African countries have farmers' cooperatives and trade boards, pitiful and corrupt though they may be, but might we be a bit optimistic about the ability of farmers elsewhere to benefit from trade in a commodity?

The U.S. could benefit from reducing or ending agricultural subsidies across a wide swath, no doubt, and assembling the political will to do so would be a worthy project. But, this narrative of third world farmers benefitting seems more than a trifle naive.

[dryfly]

But, this narrative of third world farmers benefiting seems more than a trifle naive.

Bruce - I used to work for one of those mega-grain trader/processors you mentioned... without better regulation & visibility on an international scale those companies would indeed grind farmers to dust here and oversees... we were spectacularly good at that.

However it is equally 'naive' to think 'technology transfer' as anne suggested a few entries above will do the trick alone. I now work in mfg & see how easily & effectively multi-national tech & mfg companies grind their parties to dust... here & abroad. They are just as good at that as the ag folks were/are.

Both ag & tech can work for 'us' here and 'them' over there but only with good supervision by regulatory bodies (ie 'good cops') else there will be a lot of manipulation of transfer pricing & currencies, milking existing subsidies & unproductive tax arbitrage.

Those cops - domestic or int'l - aren't on the beat right now as far as I can tell.

[Yartrebo]

Anne: I hate it when people post or repost advertisements (or articles that read like advertisements) on forums.

Skype is total poorly functioning, privacy invasive, ad-infested proprietary crap. Even if it wasn't I hate being advertised to, especially covertly.