What are US cotton subsidies?
Subsidies are payments made by the US government to farmers. The majority are paid to large industry farms. The exact amounts paid each year will vary as they can be linked to external factors like the market price for cotton which will fluctuate. A recent study by the International Cotton Advisory Committee estimated that over the last 9 years the US has spent over $24 billion on cotton subsidies. The US-based Environmental Working Group notes that 81% of cotton subsidies go to just 10% of the farms.
What’s the problem with US subsidies?
The subsidies paid by the US government to its farmers distort the world cotton market, deflate the world price and enable the US to sell its cotton cheap. Despite being relatively inefficient producers, the US is the largest exporter of cotton. This makes it impossible for efficient producers in Africa and other poor countries to compete on equal terms. A number of developing countries have been calling on the US to reform its subsidy programme. The World Trade Organisation has twice ruled that the US subsidies are illegal – contravening world trade rules – but the US has failed to act.
Why is cotton important to poor countries?
Cotton remains an important global product. World production has doubled in the last 50 years. Over 10 million households in West Africa depend on cotton for their survival. For many it is an essential ‘cash crop’ which they grow and sell to earn an income.
It is vital to the economies of many developing countries – in particular ‘The Cotton-4’ – Benin, Burkina Faso, Chad and Mali. They are among the poorest countries on earth. They are also more efficient producers of cotton than the US: it costs a farmer in Benin $0.35 to produce a pound of cotton; it costs a farmer in the US $US0.80. But they are unable to realize the benefits of this competitive advantage.
Can’t developing country farmers switch to another crop?
In the very long term as poor countries develop this might be the route they choose to take. Certainly reducing total dependence on one volatile cash crop will be extremely important. But at present their options are limited. Until cotton farmers are able to make a fair price they don’t have the money and resources to invest in diversification. Developing countries need to be able to grow and sell cotton to help fuel their development. Realising fairer returns from cotton could also help countries to develop competitive processing and textile industries that would generate further jobs, industry and infrastructure. But with the world market distorted this remains out of reach.
Aren’t cotton prices at an all-time high?
Although there has been a recent spike in the world price of cotton, the price is volatile and in real terms the price has declined. Cotton has lost more than half its value since 1975 once the price is adjusted for inflation.
What would happen if the US did reform its subsidies?
All studies show that the current subsidies deflate prices, which translates to an annual loss of income to African producers of $250 million. That’s a lot of money! If US subsidies were reformed or eliminated producers in poor countries would benefit from higher prices and a much-needed boost in income. Oxfam estimate removing US subsidies would increase the price African cotton producers receive by up to 12%.
How does the World Trade Organisation fit in to all this?
Cotton has been a hotly debated issue at the WTO for years. Failure to agree on cotton has been at the heart of faltering world trade talks which have stalled for nearly 10 years. The World Trade Organisation has ruled that US subsidies are illegal and contravene world trade rules. But the US has failed to reduce its subsidies in line with WTO rules – rules which the US helped to set up.
In 2002 Brazil took the US to the dispute settlement mechanism of the WTO to challenge its cotton subsidies. After a 7-year legal battle Brazil won its case. It had the right to impose sanctions on the US. But the US bought Brazil out by agreeing to subsidise Brazil’s cotton farmers too! And the US continues to illegally subsidise its own cotton farmers.
Other poor cotton producing countries have been left out in the cold. In theory they could also challenge the US through the WTO system but it’s expensive, and time-consuming. And even if they won, the penalty would be to impose sanctions on US imports. This would have very little impact on the US – and no benefit to developing countries or their producers other than a moral victory.
There is a double injustice in the US failure to act on cotton. In 2005 WTO members agreed to treat cotton as a special case – reducing subsidies further and faster than other products under negotiation. But this has come to nothing and the US has not responded to the proposals that African countries made. The US has not only failed to bring its subsidies down to the minimum level required by WTO rules but it has also shown a flagrant disregard for the spirit and commitment of the 2005 agreement.
In 2011 developing country members of the WTO issued a press statement describing the US position on cotton as ‘deplorable’ and calling for action.
What about the Doha Round?
The Doha Round of trade talks are faltering and no wonder when its rich country members have proved unwilling to abide by the rules they helped to create or to respond to the concerns of the poorer members. Decisive and immediate US action on cotton subsidies would be a good start to re-building faith in the multilateral trade system.
Doesn’t the EU subsidise its cotton farmers too?
Yes – but not to the same extent. Although European subsidies are high per capita the total value is much lower. And unlike the US subsidies, the EU subsidies have not been ruled illegal by the World Trade Organisation. However action at the European level is also really important and will help to put further pressure on the US. The Fairtrade Foundation is campaigning to ensure that EU cotton subsidies are reformed as part of the forthcoming review of the Common Agricultural Policy. For more information visit www.fairtrade.org.uk
Are you against all subsidies?
No. We believe there are times when it’s right for a country to subsidise or protect its farmers or industries. Evidence shows that most developed countries used various forms of protection and subsidies to help their industries to get established. We believe developing countries should also have that right. However the volume and extent of the US subsidies on cotton are denying some of the world’s poorest countries the opportunity to develop and distorting world trade to such an extent that they can no longer be justified.
What will happen to the US cotton farmers?
Cutting subsidies to people or sectors that have come to depend on them is obviously a very difficult step to take politically and socially. However it is important to note that the support is concentrated amongst some big farms, with 81% of cotton subsidies go to just 10% of the farms. And although around 400,000 people work on cotton farms in the US, this stands in stark contrast to the 10 million farmers who depend on the crop in West Africa.
Traidcraft would advocate a carefully planned and phased approach which includes diverting the money spent on subsidies towards investment in other crops and supporting poorer farmers to diversify.
What does Traidcraft want to happen?
We are calling on the US to end its illegal subsidies. The US government should:
- immediately announce their intention to comply with the WTO’s ruling and reduce subsidies to the legal level required by the WTO
- Use the forthcoming Farm Bill as an opportunity to further cut cotton subsidies in line with the proposals put forward by African countries
Isn’t it unrealistic to campaign to the US government?
We like to think it’s bold and ambitious! It’s true there are huge vested interests in favour of retaining US cotton subsidies. However:
- There is a political opportunity for reform. The US Farm Bill is being cooked up now with legislation due next year. This is the time and place in the US political system to introduce reform
- There is an international forum. The WTO is meeting in December. With developing countries rapidly losing faith in the entire WTO system it’s a huge incentive for the US to act
- We’re not alone in speaking out on this issue. Developing country governments are extremely vocal in their call to reform US subsidies along with a host of other European, African and American NGOs. We believe our government should be challenging the US on this. And we believe we cannot sit back without helping to bring this issue to the attention of the media, governments and international community.
We hope by speaking out on cotton we will help to get the voices of African cotton producers heard and ultimately help to deliver justice.