In the mean time, cotton producers in America are seeing a tremendous increase in their production surplus, due to the subsidies they are benefiting from, while West African cotton producers are on the verge of bankruptcy, incapable of competing with American subsidies or of establishing a trade war. Rural communities across the developing world are suffering directly as a consequence of those subsidies.
It is well know that the United States supports “Free Trade” and “Trade liberalization” in developing countries, but the establishments of those cotton subsidies is paradoxical because they are against the development of Free Trade and are completely against the principle of perfect competition. Since the US exports 40% of the world’s cotton (Fair-trade Foundation Report) its domestic policies affect West-Africans countries whose trade balance depends on cotton exportation (Mali, Burkina Faso, Togo etc).
Cotton in the American and West African economy
Cotton is relatively a minor component of economic activity in developed countries – accounting for 0. 12 % of total trade (WTO), but its production plays a major role in some developing countries, like in West Africa. In Benin, Burkina Faso, Chad, Mali and Togo, cotton accounts for 5-10% of the national GDP (World Bank), more than one third of total export receipts and over two-thirds of the value of agricultural exports. In Cote d’Ivoire and Cameroon, which are among the largest African cotton producers, cotton production accounts for 1. 7 and 1. 3 % of their GDP.
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Conversely, we can see that West African countries heavily depend on the trade of cotton to increase their national welfare. By having a domestic policy that decreases the world price of cotton-which does not really increase the U. S national welfare- the US jeopardize developing countries ability to grow domestically and in the international arena. Further, with a diminished producer surplus, West African countries find themselves in the obligation to export their costly cotton at a price way below their marginal cost, which directly constitute a violation of WTO ratifications under its imperfect competition principle.
Why Cotton subsidies in the US The US initially established its cotton subsidies in 1995. This was an initiative intended to protect its producer surplus. Essentially the US uses its monopsony power to produce cotton at a level that would decrease the global price. Indeed, the United States, according the Department of Agriculture, pays $20m every year to farmer in direct subsidies as “farm income stabilization”. According to the WTO, “for every dollar a U. S farmer earn, 62 cents comes from some of government aid”.
Subsidy programs give the opportunity to farmers to export their crops at a constant price level, reassuring their production all year round. The United State assumes much of the responsibility of decreasing the food crops price around the world. The United State and other developed countries play a big part on the decrease of agricultural prices. According to the International Cotton Advisory Council –ICAC,” the eradication of cotton subsidies would increase the pound of cotton by 11 cents, therefore a 26 % increase of world price”, that would subsequently increase the exports of developing countries.
The only comparative advantage of the United States resides in the usage of production subsidy. Indeed, more efficient producers in developing countries see their comparative advantage disappear due to American subsidies. The price of cotton per pound is three times more expensive in the United States than in Burkina Faso (WTO).
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However, faced with increasing production surplus, American cotton farmers have increased their production while prices have been falling steadily.
This decrease of World price directly undermines the principles of “Free Trade” which advocate removal of trade barriers and the establishment of an optimal trading environment for countries to compete with one another. The United States protects 25. 000 cotton producers at a gigantic scale, few countries could actually compete; for every acre of cotton land each producer receives approximately $230 (Department of Agriculture).
During the year of 2002, American cotton producers receive %3. 9, twice the amount received in 1992 (Department of Agriculture).
Such policies are both detrimental and overwhelming. Put into perspective for West African countries US subsidies pose a significant threat to Burkina Faso’s inhabitant, where more than 2 million people depend on cotton production (USAID).
Half of them leave under the poverty line Impact of the American subsidies According to the International Cotton Advisory Council, West Africans countries are actually losing growing amount of their national welfare and their government revenue because of the American subsidies.
A study by ICAC suggest that in 2002, “West African countries lost $301m in 2002 alone” (ICAC), which is one third of what American agencies provide in financial aid (USAID, PEACE CORPS etc. ); Eight countries in West Africa actually lost two-thirds (191 millions) of the total loss in Africa. The U. S subsidies provoked disastrous domestic crises in every single country in West Africa: Burkina Faso lost 1 % of it GDP in 2002 and 12 % of its government revenue (OXFAM), Mali lost 1. 7 % of it GDP and 8 % of its government revenue (OXFAM), Benin lost 1. % of its GDP and 9 % of its government revenue (OXFAM) Those losses underline the deficit of these countries budget balance and their difficulties to pay their foreign debt, in fact the economic losses due to American subsidies are far greater than advantage resulting from American financial aid. For example, Mali received 37 millions $ in 2001 (USAID) but lost 43 million dollars in government revenue (ICAC).
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In addition, countries like Benin, Burkina Faso and Chad that benefited from a sovereign debt relieve found themselves in the same situation they were before the international initiative.
Consequently, it’s fair to say that US subsidies actually decrease significantly West African’s national welfare and government revenue, and worsen poverty. Compare that to the fact the U. S. subsidies are three times greater than USAID donations to all Africa (500m inhabitant).
The financial damages provoked by U. S subsidies have had tremendous implication on poverty. It’s fair to say that American cotton producers could have been easily transferred to other agricultural production.
American producers who are affected by the cotton industry could have transferred their activity to another production in which they would have a “real” comparative advantage on. Indeed, cotton producer could easily shift to corn production for instance, whereas, producers in West African countries have only an comparative advantage in cotton production ( E. g. Burkina Faso, Mali).
Plus, the cotton industry doesn’t constitute for the US a major source of exportation revenues nor its major exporting good.
However, for the majority of West Africans countries, cotton revenues are much needed to fund essential programs for their development, such as public health, education and sanitation programs. West African countries don’t have other alternative to cotton, since they are taking advantage to their “given” comparative advantage. As we can see the US cotton subsidies have a huge impact on West African countries, it affects their economy and increase poverty. Currently many developing countries are appealing their government to formally urge the U.
