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  • Why reform is urgently needed for a fair cotton trade and small farmers

  • BlackandWhite

    7. November 2020 at 10:56

    Finding the Moral
    Why reform is urgently
    needed for a fair cotton trade
    Cotton has been at the top of the WTO’s agenda for the past two
    years. However, little has changed so far for small-scale cotton
    producers in West Africa, who will not survive another major
    slump in cotton prices. In July 2004, WTO members committed
    to ambitious and expeditious cotton subsidy reforms. To give
    African producers a chance, it is urgent to turn these
    commitments into action. Oxfam calls for the implementation of
    the Brazil-US cotton panel ruling and a timetable for the
    elimination of all trade-distorting cotton subsidies by the time of
    the Hong Kong WTO ministerial conference in December 2005.

    Cotton has become a symbol of the inequities of global agricultural trade.
    The case of cotton clearly demonstrates how rich-country agriculture
    subsidies cause harmful impacts on developing country farmers. Subsidies
    skew production levels and value, undermining the income of cotton farmers
    in developing countries. Some of the poorest countries in the world are
    cotton producers, and they stand to gain significantly from reforming trade
    and agriculture policies. Yet these countries face a depressed cotton market
    caused, in part, by rich-country subsidies.
    Reform of US cotton subsidies is urgently needed to address the distortions
    in cotton trade that undermine the value of cotton to developing countries.
    Every season, poor cotton farmers face reduced incomes. Each year,
    developing countries which export cotton suffer declining balance of
    payments due to loss of export revenues. The central issue is US cotton
    subsidies, and the reforms needed are quite clear. There is no doubt about
    the unfairness of US trade cotton practices, as the WTO panel has proved.
    The issue now is how these conclusions are going to be implemented. The
    USA must agree to eliminate trade-distorting subsidies at the WTO and
    implement the necessary reforms to its farm programs.
    In crop year 2002, the US government provided $3.4 billion in total
    subsidies to the cotton sector. To put this figure into perspective, it is
    nearly twice the total US foreign aid given to sub-Saharan Africa. It is
    also more than the GDP of Benin, Burkina Faso, or Chad, the main
    cotton-producing countries in the region.
    US subsidies have led to depressed world cotton prices, which in turn have
    cost countries in Africa millions of dollars in lost export earnings. This means
    less revenue, which these countries badly need to fund basic services such
    as education and healthcare, and to finance debt. Oxfam estimates that
    sub-Saharan African countries lost $305 million due to US subsidies in
    crop year 2001. These are some of the poorest countries in the world, and
    these losses are not a one-time event. For the 2002 crop year, Oxfam
    estimates sub-Saharan African countries lost $94.6 million.
    US agriculture and trade policies also undermine the benefits of US foreign
    aid. The losses associated with cotton subsidies exceed the value of US aid
    programs in some of the major cotton-producing countries in Africa. For
    example, in 2002:
    • Burkina Faso: received $10 million in US aid, yet lost $13.7 million
    in export earnings;
    • Chad: received $5.7 million in US aid, but lost nearly the same
    amount in export earnings;
    • Togo: received $4 million in US aid, but lost $7.4 million in export
    Moreover, US cotton subsidies undermine the ability of developing countries
    to pull themselves out of debt. Lost export revenue due to US cotton subsidies in 2002 amounted to between 21 and 33 per cent of total debt
    service payments for Burkina Faso, Benin, Chad, and Mali.
    The impact of US cotton subsidies is not simply on balance of payments or
    debt service. They cause poverty, and West African farmers are particularly
    vulnerable. A recent IFPRI (International Food Policy Research Institute)
    report focused on Benin indicates that a 40 per cent reduction in farmlevel cotton prices leads to a 21 per cent reduction in income for cotton
    farmers and results in an increase in rural poverty of 6–7 per cent.
    In the USA, cotton production has reached historic highs in recent years.
    However, US demand for cotton has slumped, so US exports have surged.
    Export volumes broke records in 2002 and 2003, and will likely do so again
    in 2004. In crop year 2003, the USA exported 76 per cent of its cotton
    production and took a 41 per cent share of world exports. These drastic
    increases could not have been accomplished without government support.
    According to the US Department of Agriculture, without subsidies the
    average US cotton farmer would have lost $871 for each acre planted
    with cotton over the past six years.
    All told, between crop years 1998 and 2002, the USA spent $14.8 billion
    on cotton subsidies. This is virtually the same as the total value of
    cotton produced during that time—$21.6 billion. Harvesting government
    subsidies is nearly as lucrative as growing cotton in the USA. Without
    subsidies, most US cotton production would not be economical.
    Not all US farmers benefit from subsidies. A large majority of farms—67
    per cent—are ineligible for government support because they do not
    grow a select group of subsidized commodities. Of the 33 per cent of
    farms that do get subsidies, the top 10 per cent receive 52 per cent of
    all government payments. And the subsidies for cotton are particularly
    concentrated: the top 10 per cent of cotton farms receive 79 per cent of
    all payments, and the top 1 per cent receive 25 per cent of all
    payments. The average payment in 2002 was $331,000, and 25 farms
    received more than $1 million each.
    Indeed, there are other factors that affect the world market price of cotton.
    Exchange rates, competition from synthetic fibers, competition from other
    cotton producers, and China’s decreasing consumption and demand for
    cotton imports contribute to the gloomy forecast for cotton prices in the
    future. Nevertheless, US subsidies have the effect of depressing prices
    despite market volatility, as the WTO panel ruled in the case brought against
    the USA by Brazil. And yet West African farmers are well positioned as
    some of the most cost-efficient producers to compete in this future market if
    only a level playing field is created.
    An improved cotton market has clear potential to help reduce poverty for
    millions of people. Through the Doha Development Round of negotiations at
    the WTO, a real opportunity exists to make significant reforms to agricultural
    trade policies. Cotton is a litmus test to demonstrate that the WTO, and
    indeed trade itself, can truly serve the interests of less powerful countries
    and poor people.
    The outlook for breaking the deadlock in negotiations on cotton subsidies
    took a positive turn in the spring of 2004, when a WTO dispute settlement

    A paper from 2004 – who knows, how the situation is today?


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