The 2007 Farm Bill has been getting a lot of attention in the press these days, and not just because it is an election year.  Most controversial are the agricultural subsidies contained in the five-year, $280 billion bill, the small number of farmers who will pocket them, and the fact that these subsidies violate international trade rules. The World Trade Organization (WTO) has ruled repeatedly over the past few years that the U.S. government's cotton subsidy program encourages overproduction and depresses world market prices.

The U.S. must eliminate these trade distorting subsidies or else face retaliation in other markets. What our press doesn't discuss very much is how these market distortions hurt cotton farmers in west Africa and Latin America who, like U.S. growers, sell most of their crop in export markets. Oxfam (www.oxfamamerica.org), an international relief and development aid organization, is a leader in calling for the reform of international trade as a means to reduce poverty and hunger in the developing world. Its “make trade fair” campaign reveals how agricultural subsidies in rich countries impoverish millions in Africa. To understand the cotton controversy, we must untangle the threads tying U.S. agricultural policy to rural poverty in Africa.

Cotton is a major export for countries in west and central Africa, which together account for 15 percent of the world’s cotton fiber trade. About 2 million rural households depend directly on the income gained from cultivating cotton. African governments also rely on cotton as an important source of foreign exchange. Cotton accounts for more than one-quarter of export revenues for many countries in the region. But since the mid-1990s the world price of cotton, when adjusted for inflation, has fallen to levels not seen since the Great Depression of the 1930s. In 2001-02, world cotton prices dropped to 42 cents per pound, well below the long-term average of 72 cents per pound. Analysts predict that prices will continue to range between 50-60 cents per pound for the next decade.

Numerous studies point to cotton subsidy programs in the European Union and especially the United States as a major cause of plummeting prices. Cotton producers in the United States are unable to produce cotton below 70 cents per pound. But they continue to produce it at record levels because of government subsidies that pay them the difference between market prices and a subsidized target price of 72 cents per pound. Since U.S. cotton accounts for a large share (40 percent) of world cotton exports, eliminating these subsidies would logically lead to a decline in U.S. cotton production and exports. Assuming that demand for cotton remained at current levels, ending subsidies would result in higher world market prices that could boost incomes and reduce hunger vulnerability for African cotton-producing households. Oxfam estimates that world cotton prices would be 11 cents per pound higher if cotton subsidies were eliminated in the U.S. and EU. African governments would also recuperate what are believed to be important foreign exchange losses linked to U.S. cotton subsidies. During 2001-02, these losses amounted to 12 percent of Burkina Faso's export earnings, 8 percent of Mali's, and 9 percent of Benin's.

At the Doha meetings of the World Trade Organization in 2001, the industrial countries of the global North made a commitment to “correct and prevent restrictions and distortions in world agricultural markets... with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support
(www.wto.org/english/tratop_e/agric_e/negs_bkgrnd07_modalities_e.htm).
Lack of progress in fulfilling these commitments led to the collapse of the 2003 WTO meetings in Cancun, where the trade ministers of cotton-growing countries refused to take up the North's agenda until trade reform issues were discussed. With the support of the west African cotton growing countries cotton-growing of Burkina Faso, Chad, Mali, and Benin, Brazil filed a complaint with the WTO alleging that U.S. subsidy programs violated the WTO's trade rules.  In 2004, a WTO panel ruled in favor of Brazil, declaring that U.S. cotton subsidies do indeed distort world market prices. The U.S. government made minor changes to its subsidy program, but not enough to satisfy the WTO. In December 2007, a WTO panel found that the U.S. had failed to comply with the 2004 ruling. The 2007 Farm Bill passed by both houses of Congress would leave the cotton subsidy program virtually unchanged.

A complicating factor in any discussion of the cotton controversy is the currency exchange rate. Since cotton is traded on world markets in U.S. dollars, the exchange rate between the dollar and national currencies influences farmer incomes. In French-speaking west Africa, farmers are paid in West African Francs (FCFA) for their crops. The FCFA is tied to the euro, which has been strong in relation to the U.S. dollar in recent years. The effect of exchange rates on cotton grower incomes was apparent between August 2002 and January 2004. The world price of cotton rose by 54 percent over this period but due to the depreciation of the dollar, farmers paid in FCFA received only a 19 percent increase.

Lost income from low world cotton prices and unfavorable exchange rates deepens poverty and increases hunger vulnerability in millions of households in west and central Africa. For example, research shows significant relationships between cotton and cereal production in Burkina Faso, Cote d'Ivoire, and Mali. Cotton cultivation provides growers access to credit and cash to invest in new technologies that enable them to produce more maize, millet and sorghum. A decline in cotton incomes results in declining investments in agricultural technology and reduced cereal production.

Research in Benin revealed that the incidence of household poverty increased by 6-8 percent among cotton growers following the 40 percent drop in farm level prices in 2001-02.  Poverty deepened in Mali and Burkina Faso between 2004 and 2006 when cotton prices fell by 20 percent. Francois Traore  head of the West African Cotton Producers Association, underscored the gravity of the situation when he said to a BBC reporter: "When [the price] falls, one cannot look after the family."
African cotton grower incomes are also tied to the structure of their national industries. The cotton industries of central and west Africa were historically parastatal operations controlled by national governments and foreign firms. The French Company for the Development of Textile Fibers (CFDT) now called Development of Agro-Industries of the South (DAGRIS), was a major shareholder and exporter of African cotton until the 1990s. Since then, the World Bank has required African governments to privatize their national cotton companies as a condition for receiving development aid. The bank believes that privatization will lead to greater competition and higher prices for producers. But the World Bank’s model of privatization has given private investors monopolistic control over cotton growing regions resulting in little price competition. Plus ca change, plus c'est la meme chose (The more things change, the more they stay the same!)

Towards the end of 2007, world cotton prices climbed to 70 cents per pound, the highest in a decade. Higher prices stemmed in part from the reduced area planted in cotton in the U.S.demonstrating again the influence of U.S. cotton production on world prices. Surging demand for corn for ethanol production combined with agricultural subsidies for growing corn induced many U.S. cotton growers to switch crops, resulting in a 12 percent decline in cotton production in 2007.  Increased corn acreage also had the effect of driving up prices for soybeans and wheat. The U.S. National Cotton Council predicted that cotton production would fall an additional 19 percent in 2008 as cotton growers planted soybeans as well as corn to take advantage of booming commodity markets.