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Friday, April 21, 2006

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."

    Posted by on Friday, April 21, 2006 at 12:12 AM in Economics, International Trade, Policy, Regulation | Permalink  TrackBack (0)  Comments (31)


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