Reform of US cotton subsidies could feed, educate millions in poor west African countries

As Ministers from Brazil, India, The US and EU are meeting in Germany to try to reach a deal in WTO talks, Oxfam releases a new report 'Impacts of Reductions in US Cotton Subsidies on West African Cotton Producers' (on Oxfam America website) which shows that a substantial reform of American cotton subsidies could lead to increased income to feed an additional million children for a year or pay school fees for at least two million children living in extremely poor West African cotton growing households. It is widely accepted that a reform of cotton subsidies will have to be part of any WTO deal.

The study, one of the first of its kind after the US reformed a controversial export subsidy program called “Step 2,” estimates by how much farmer incomes in West Africa could actually increase after further subsidy reform, and what these gains would mean in practical terms for a typical West African cotton farmer’s household. 

“Previous studies my colleagues and I have done clearly show the trade distorting effects of US cotton subsidies by lowering the world price of cotton, with results at the aggregate level,” said Daniel Sumner, Director of the University of California Agricultural Issues Center, Professor with the Department of Agricultural and Resource Economics at University of California, Davis, and one of the authors of the Oxfam report. “But these new numbers show that even a modest increase in the world price of cotton that only partly reaches the farmer could greatly improve the daily lives of some of the world’s poorest people, and could literally mean that millions of poor people could be fed.”

A typical cotton producing household in West Africa has about 10 family members, an average life expectancy of about 48 years and an adult literacy rate of less than 25 percent. Cotton is often the only source of cash income for these families who live on less than $1 a day per person. Added income from increased cotton prices could make a world of difference, according to Oxfam. The study found that with a complete removal of US cotton subsidies, the world price of cotton would increase by 6-14%, prices that West African farmers would receive for their cotton would increase by 5-12%, and household income would increase by 2.3 to 5.7%. This increase would result in additional income that could cover all health care costs of four to ten individuals for an entire year, or schooling costs for one to ten children, or a one year supply of food for one or two children.

“This data clearly exposes the hypocrisy of current policies, giving international aid with one hand and taking with the other through unfair trade rules,” said Marita Hutjes, acting Head of Make Trade Fair campaign. “With the US Congress looking at the Farm Bill right now, and renewed interest in the Doha round, this study shows how reform could help millions of poor people who are ready to lift themselves out of poverty through farming and fair trade.”

Because American producers get more federal subsidies with each additional bushel they produce, current farm programs encourage overproduction with the surplus dumped on the international market, lowering prices and undercutting the livelihoods of millions of poor farmers around the world. This situation is not only unfair, but it is also illegal under World Trade Organization (WTO) rules. In a case brought on by Brazil, a WTO dispute panel found in 2004 that $3.2 billion in annual cotton subsidies and $1.6 billion in export credits paid by the US in cotton and other commodities went against international trade rules. While the US acted to remove a part of export subsidies as a result of the case, not much movement has taken place to reduce other trade-distorting cotton subsidies, leaving the US vulnerable to possible retaliation by Brazil.

“Any delay in reforming the US subsidy program would signal that the US is not serious about a new global trade agreement and, most importantly, would mean continued suffering for millions of poor African farmers who are undermined by US subsidies and dumping." continued Marita Hutjes. “Poor countries badly need fairer trade rules and an end to trade distorting subsidies if they are to reduce poverty. What they don’t need is an international trade deal done at any cost, that exposes them to further dumping, and undermines future development prospects".