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Editorial: Unweaving institutionalised Poverty: African countries must unite against US cotton subsidies

Rangarirai Machemedze

There is a development cataclysm that has evolved largely unnoticed over the past decade. It is the cotton crisis that has affected millions of farmers in most developing countries particularly in West Africa where cotton growers have been driven out of production as a result of artificially managed low prices at the world market. Cotton growers in Southern Africa, particularly Mozambique and Zimbabwe have also been plunged into deep poverty, as incomes from cotton farming continue to dwindle under armpits of an all time low prices offered by cotton merchants.

It is not just the cotton sector, which has been affected, but all the other dependent industries like the textiles which have for years been providing employment to millions of people in developing countries.

As the first article in this Bulletin notes “the problem of low world prices of cotton has largely been influenced by the huge subsidies that Cotton farmers in developed countries get from their governments”. That is true. The subsidies given by cotton producer countries of the North, especially the US, cut world cotton prices by at least 25 per cent causing serious problems for their small and vulnerable economies. The US gives its farmers huge domestic support for agriculture. It was raised to a record $180 billion over a 10-year period under the 2002 Farm Bill, including $3 billion for cotton farmers. This effectively means the farmers are subsidised to the tune of $18 billion year.

During the 2001/02 season, the US spent about $3.9 bn on subsidies and other supports to its 25,000 cotton farmers-- double the 1992 figure. These subsidies have encouraged overproduction in the US, resulting in the flooding of the world market by cotton sold at prices less than it costs to produce. This has depressed prices to levels at which competitors struggle to survive.

With low labour costs and small manageable plots, farmers in Zimbabwe and Mozambique are among the lowest-cost producers of cotton in the world.

The International Cotton Advisory Committee puts the cost of producing a pound of cotton in Burkina Faso at 21 US cents compared to 73 cents in the US itself. However, state subsidies guarantee a minimum price to US farmers -- currently about 52 cents per pound -- regardless of what happens to world prices. US farmers also receive additional payments to top up their income to a target price level. As a result, they continue to expand cotton production -- by 42 per cent between 1998 and 2001 -- oblivious to almost five years of depressed world prices. In 2003, partly due to the continuous flooding of the market by US cotton, world cotton prices fell to 42 cents per pound, far below the long-term average of 72 cents. During the 2001/02 season, the US government paid more to its cotton farmers in supports than the value of the harvested crop -- $3.9 bn in subsidies for a crop valued at $3 bn.

At the Fifth Ministerial Conference of the WTO in Cancun in September 2003, four West African cotton producing countries of Benin, Burkina Faso, Mali and Chad sought to get the WTO to consider the case of their cotton industry on which depend, directly or indirectly, the livelihood of the bulk of their populations.

Although the four countries took the initiative to bring the case of cotton, it is an issue that affects many other countries in Africa and the third world. For example, at its peak, the cotton industry was Tanzania's largest employer, with 14 textile and spinning mills, employing nearly 35,000 people. As a direct result of the impact of trade liberalisation, most of the factories have closed down, and today its contribution to the national economy is insignificant.

A study conducted by the International Cotton Advisory Committee (ICAC) in 2002 has shown that one of the major crops adversely affected by agricultural subsidies US and Europe was cotton in Africa, where farmers lost about $250 million annually. The study, titled "Production and trade Policies Affecting the Cotton Industry", says that the losses incurred by Africa's cotton sector were directly related to the subsidies by the West.

The Cancun conference failed to take off the ground for other reasons, but not before the four West African states had made their point. It was widely recognised that in the interest of equity and fairness, the rich countries, especially the US (for whom cotton is a tiny issue compared to its GDP), should eliminate subsidies that were depriving the livelihood of millions of poor peasants in African countries. The matter, however, was unresolved. The US rejected the West African initiative, twisting the debate around the issue of “sectoral support” to the textile industry to Africa under the Africa Growth and Opportunities Act (AGOA).

The cotton initiative of the four West African countries had the support of the African Union, the LDC group and the ACP group. These countries met in Mauritius in July 2004 (as G90 countries -- an alliance of these small countries was forged at the Cancun conference), and one of the paragraphs in the draft resolution called for strong support for the cotton case. The meeting, however, was attended by Robert Zoellick, the United States Trade Representative. On the last day, when the resolution finally came for adoption, the chairman of the Africa group, the Minister from Rwanda, backed by the Ambassador of Uganda (two close allies of the US in the Iraq war) argued that the cotton paragraph be removed because “it won’t fly”. A compromise draft was eventually worked out, and brought to Geneva as a basis for further negotiations.

In Geneva, at the start of the General Council meeting of the WTO in July, the Africa Group put forward its proposal that included the following: that all forms of cotton export subsidies are eliminated by date of implementation of the Doha results; more than average reductions in domestic support on cotton, and complete elimination of all forms of trade distorting support on cotton by a specific year; a cotton agreement shall be implemented on an early harvest basis starting in 2005, and a date for total elimination of cotton subsidies shall be determined by the next Ministerial irrespective of progress in the rest of agriculture negotiations; technical and financial assistance to meet the needs of cotton developing-country producers; and a working group on cotton to be established.

During the week, Bob Zoellick held a marathon all-night 12-hour meeting with some of the West African countries on the cotton issue. By the end of the negotiations, the cotton issue was more or less dismissed in the so-called July package of the WTO. The four West Africa countries had been “persuaded” to give up their original demand that cotton be treated as a stand-alone issue. They “agreed” that it could be considered within the agriculture negotiations, but be treated as of “special status”. It is clear that despite claims made by the WTO officials, the US has clearly won out. In a compromise text clouded by technicalities, it was agreed that while product specific AMS support (Aggregate Measure of Support plus permitted de minimis plus the Blue box payments) is to be capped in aggregate and reduced in overall terms, there is no requirement for specific product cuts, including for cotton.

It is worth noting that the case won by Brazil in the petition with WTO settlement body as explained in the third article of this Bulletin should work as the basis for putting a lot more pressure at the WTO for the rules to work best for everyone, for the subsidies to phased out within a reasonable time period and for the African countries to be afforded the flexibility to exercise their fundamental human rights. One of them being the right to life.

As we move towards Hong Kong, African countries must develop strategies and tactics to build on their already firm positions and be strong enough to defend those positions particularly on Agriculture, which is the mainstay of millions of people.

Southern Africa already has now embarked on a cotton campaign programme, to rescue the sector and the textiles industry from the jaws of collapse. It is a worthy cause, which should be supported by everyone.

Rangarirai Machemedze is the Acting Director of SEATINI.