September 30, 2002

US Subsidies Blamed for Cotton Price Slump

According to a new report by the non-governmental organisation, Oxfam International, American cotton subsidies are destroying livelihoods in Africa. Subsidies given to American cotton farmers encourage over-production and export dumping, which have driven down world cotton prices to record lows. Oxfam decries that "while America's cotton barons get rich on government transfers, African farmers suffer the consequences".

Mozambique produces around 100,000 tonnes of raw cotton per year in a sector involving 300,000 peasant households. It plays a pivotal role in the country's agricultural sector, with almost two thirds of cash crop land occupied by cotton. However, Mozambique's cotton producers have been hit hard by the drop in prices, with cotton exports in the first half of 2001 falling by 49.1 per cent, from 16.3 to 8.3 million US dollars. Cotton production has dropped as peasant farmers switch to other crops because of the price slump. Oxfam calculates that Mozambique loses six million US dollars a year as a direct result of cotton subsidies given in the United States. The returns from cotton production in Africa are declining as the agro-industrialists in America receive windfalls from the American taxpayer.

According to the report, agricultural subsidies in the United States are at the heart of a deep crisis in the world cotton markets. Oxfam points out that "while the US advocates free trade and open markets in developing countries, its subsidies are destroying markets for vulnerable farmers. No region is more seriously affected by unfair competition in world cotton markets than sub-Saharan Africa". Perhaps because of their relative weakness, no African country has taken action against the powerful United States.

However, the Brazilian Government has taken the issue of cotton subsidies to the World Trade Organisation (WTO), where it has filed a complaint. A second Brazilian complaint to the WTO concerns The European Union's subsidies to sugar farmers. Cotton prices have halved since the mid-1990s, and in real terms are now lower than at any time since the world recession of the 1930s. More than ten million people depend directly on cotton production in central and west Africa, with many millions more indirectly dependent on it for their livelihood. Oxfam states that the US bears much of the responsibility for the slump in prices, and points out that the US has expanded production despite the slump. Last year American cotton farmers produced a record crop of 20.3 million tonnes - a 42 per cent increase over 1998. The area planted by cotton has increased by six per cent during the same period. Oxfam points out that "the scale of government support to America's 25,000 cotton farmers is staggering, reflecting the political influence of corporate farm lobbies in key states. Every acre of cotton farmland in the US attracts a subsidy of $230". In total, the subsidy given to cotton farmers in the US in this period came to 3.9 billion dollars, which is more than the entire GDP of Burkina Faso where two million people depend on cotton production. The 3.9 billion dollars spent on cotton subsidies is more than three times the entire USAID budget for Africa. Oxfam points out that the economic losses inflicted by the US cotton subsidies far outweigh the benefits of US aid. For example, Mali received 37 million dollars in US aid in 2001 but lost 43 million dollars as a result of lower export earnings.

According to Oxfam, the financial damage has grave implications for poverty. While cotton growers in the US can shift to other crops, the scope for substitution is much more limited in the Sahel. Grown alongside maize and other cereals, cotton is the main cash crop for a large section of the rural population. It is also an important source of government revenue for spending on health and education.

While politicians in the US like to refer to subsidies going to 'family farms', Oxfam declares that farm subsidies are designed to reward and encourage large-scale, corporate production. The largest 10 per cent of cotton farms receive three quarters of total payments. In 2001, just ten farms between them received subsidies equivalent to 17 million dollars.

Oxfam puts forward a number of policy recommendations including: a ban on agricultural export dumping; an agreement on a binding timetable to eliminate all forms of export support before the Fifth WTO Ministerial Conference in September 2003; the removal of sugar subsidies from the 'Green Box' of currently permitted subsidies that generate over-production; and the 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. (AIM)

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