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From Africa Recovery, Vol.17 #1 (May 2003), page 18

Mounting opposition to Northern farm subsidies

African cotton farmers battling to survive

By Gumisai Mutume

In the small, remote village of Logokourani in western Burkina Faso, cotton is everything. It is the mainstay of that rural community, providing the major, and in some cases the only, source of income for many inhabitants. Cotton pays for health and education. It helps build houses and schools. Not too long ago, when exports of cotton increased in value, production expanded in that part of the country, raising village incomes.

But the collapse of the cotton price on the world market -- it has fallen by 54 per cent since the mid-1990s -- threatens the very existence of communities such as Logokourani. "Cotton prices are too low to keep our children in school, or to buy food and pay for health," notes Mr. Brahima Ouattara, a small-scale cotton farmer in Logokourani. "Some farmers are already leaving. Another season like this will destroy our community."

Loading bales of cotton in Zimbabwe: Northern subsidies make it harder for African farmers to compete.

Photo : ©FAO / T. Reddy

While the major factors behind the declining price are varied and complex, the most significant is the increase in government subsidies paid to cotton farmers in the US, some analysts say. Similarly, agricultural subsidies in the European Union (EU) are cited as major factors in the decline of the world price of sugar. Rich nations of the Organization of Economic Cooperation and Development spent about $360 bn on agricultural supports during 2001, for a range of commodities. The practice of paying such subsidies to farmers in industrial nations is facing increased opposition from developing countries, which charge that subsidies foster unfair trade and flood world markets with cheap goods, thereby eroding commodity prices.

The non-governmental organization Oxfam argues that production and export subsidies in the US have devastated not only small communities in Africa, but entire regions. In a study on the impact of US cotton subsidies on Africa, Cultivating Poverty, released in September, the NGO outlines the devastation through a series of interviews with small-scale farmers on the continent, including Mr. Ouattara.

During the 2001/02 season, the US spent about $3.9 bn on subsidies and other supports to its 25,000 cotton farmers, the NGO notes -- 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 West and Central Africa 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. Last year, 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.

The only comparative advantage cotton growers in the US have is access to subsidies, without which they could not compete internationally, notes the director-general of Senegal's state-owned cotton enterprise, Mr. Ahmed Bachir Diop. "Our farmers are more competitive on the world market because, without subsidies, we are able to produce quality cotton at production costs that beat all competitors...."

Unfair advantage

Northern subsidies place poor African farmers at a big disadvantage, notes the Oxfam report: "By driving down prices for these farmers, US taxpayers -- along with their European counterparts in other product groups -- bear a direct responsibility for poverty in Africa." It charges that US subsidies directly led to losses amounting to more than $300 mn in potential revenue in sub-Saharan Africa during the 2001/02 season. US subsidies have a major influence on the world market because a large proportion of US production -- more than 50 per cent -- is exported, making the country the largest exporter by a wide margin.

As recently as May 2002, the US passed legislation to further increase the amount the government pays farmers. The new Farm Act provides an additional $83 bn in farm expenditure, above the $100 bn spent on existing programmes. Cotton growers, mainly comprising corporate agricultural companies, are expected to receive an additional $2.5 bn annually during the next 6 years.

"Several Central and West African nations are victims of injustice by the US and EU. These countries subsidize their agricultural producers, ignoring the rules of the WTO."
-- President Blaise Compaoré, Burkina Faso

This has inflamed an already raging controversy around agricultural subsidies, and has stirred anger in developing countries. Brazil has lodged a legal challenge against the US at the World Trade Organization (WTO), charging that Washington is in breach of a "peace clause" in the organization's Agreement on Agriculture. The clause, ironically introduced at the insistence of the US and the European Union (EU) during the Uruguay Round of trade negotiations, protects a country from challenge to its subsidy regimes as long as it does not raise them beyond levels set in 1992. Brazil is challenging US cotton subsidies because, it charges, the figure paid out in 2002 is double that of 1992. The WTO limits overall US spending on certain types of farm programmes to $19 bn annually. However, utilizing a complex web of farm supports, subsidies and credits, the country actually spends about $49 bn annually.

But the debate over agricultural subsidies is often clouded by legal language and technical jargon. US officials insist their country is in compliance because its subsidies (those that fall under WTO rules) do not distort international trade. US officials also accuse developing countries of lumping all US subsidies in a single basket, even though WTO rules lay out different schedules for different types of supports. But leaders and activists in developing countries insist the US is not playing fair.

Ignoring WTO rules

"Several Central and West African nations are victims of injustice by the US and EU," says President Blaise Compaoré of Burkina Faso. "These countries subsidize their agricultural producers, ignoring the rules of the WTO. Such practices are undermining the fragile national economies of countries that depend on cotton." Burkina Faso earned 57 per cent of its export revenue from cotton last year, while neighbouring Benin earned 75 per cent.

There is growing consensus that much of the blame also lies with the shortcomings of the WTO pact that was intended to fairly govern trade in agricultural products, the Agreement on Agriculture. The agreement, which came into force in 1995, in theory requires all member countries to reduce subsidies that hinder trade. But numerous loopholes, and rules weighted in favour of the more dominant members of the WTO, have not only allowed industrial countries to avoid reducing agricultural subsidies, but to continue raising them in some cases.

US Trade Representative Robert Zoellick has repeatedly told the media that the US is not doing anything illegal, but simply taking advantage of the limits set in the WTO agreements. "If you want us to change, sit down at the table with us. We are going to negotiate in America's best interest."

The Agreement on Agriculture is currently under renegotiation in Geneva and is scheduled for completion by 2005. This new round of negotiations was launched in Doha, Qatar, in November 2001, when industrial nations agreed, for the first time, to comprehensive negotiations with a view to completely phase out agricultural subsidies. However, continuing differences have stalled progress in the talks so far (see article "WTO Watch: Global agricultureal trade talks stall").

By February 2003, the chasm between developing and developed countries had not narrowed, prompting a group of 50 civil society groups from around the world to issue a statement condemning the continued reluctance by industrial countries to negotiate areas of development concern to poor countries, such as agricultural subsidies. In the statement, the organizations called for new rules to allow poor countries to introduce import controls on agricultural goods produced unfairly. "Hypocrisy and double standards still rule the day," said Mr. Bob van Dillen of Catholic Aid Agencies, one of the 50 groups that signed the statement.

Aid undermined

One of the main criticisms against agricultural subsidies is that they work directly against efforts by donor nations, including the US, to combat poverty in developing countries. An estimated 96 per cent of the world's farmers live in developing countries, with some 2.5 billion people depending on agriculture for a livelihood. Many seek an opportunity to trade their way out of poverty through a fair trading system. But over the years, unfavourable trade terms have been a major factor in the erosion of the market share of poor nations. According to the WTO, the share of developing countries in world agricultural exports fell from 40 per cent in 1961 to 35 per cent last year.

Because the economies of many poor countries depend overwhelmingly on just one or a few products, they are especially vulnerable to declines in commodity prices. The impact of the collapse of world cotton prices, for example, has fallen heavily on Central and West Africa, a region highly reliant on the crop for export earnings. Cotton production in the region has multiplied by five since the early 1970s, and about 95 per cent of the region's cotton is exported. Nine West and Central African countries together account for 15 per cent of global cotton exports. Oxfam reports that eight of these countries incurred 65 per cent of the $300 mn loss in potential revenue in all of sub-Saharan Africa in 2001 due to the poor cotton prices. Benin, Burkina Faso, Mali, Cameroon and Côte d'Ivoire were hit hardest.

"Frankly, we are starting to doubt whether rich countries really want to reduce poverty in developing countries," notes a joint statement against agricultural subsidies by cotton producers' federations in Benin, Burkina Faso and Mali. Despite declarations of intent to reduce poverty in poor countries, domestic policies in rich nations have often had the opposite effect. In West Africa, losses in export revenue outstrip the amount of economic assistance provided by Washington. Mali received $37.7 mn in US aid in 2001 but incurred losses of $43 mn due in large part to US subsidies, Oxfam reports. The 25,000 cotton farmers in the US receive more in subsidies than the entire gross domestic product of Burkina Faso -- one of the world's poorest countries, where more than 2 million people depend on cotton for their livelihood.

Nigerian groundnut farmer: Selling his crop at a decent price is more beneficial than receiving foreign aid.

Photo : ©World Bank / Yosef Hadar

"There is no point in giving with one hand and taking with the other," UN Secretary-General Kofi Annan told the World Food Summit in June 2002, commenting on the impact of agricultural subsidies. "You put yourself in the shoes of a small developing country which cannot export its agriculture products because of restrictions and tariffs, a small developing country that cannot compete on the world market even if it could export, because the richer farmers in the richer countries are heavily subsidized."

Industrial countries also have been criticized for applying double standards by erecting high tariffs in agriculture, an area of export importance to developing countries, while at the same time compelling developing countries to open their own markets. Precisely with the intent of promoting free market policies in Africa, the US passed the Africa Growth and Opportunity Act (AGOA) in 2000. It provides preferential access to the US market to countries that liberalize trade, promote the rule of law and adopt free market policies. Even though more than 30 countries are deemed to have qualified for AGOA, Africa only constitutes 2 per cent of US merchandise imports. African agriculture ministers from West and Central Africa who met in Côte d'Ivoire in June 2002 noted that conditions attached to AGOA make the measure counter-productive because it offers market access to African textiles in exchange for buying US cotton.

European Union no better

When critics cite the US for the negative impact of its subsidies, Washington often deflects criticism to the 15-member EU, charging that subsidies in that region are far worse than its own. Subsidies and other supports to farmers in the EU amounted to an estimated $93 bn last year -- nearly double the $49 bn the US spent. To illustrate the absurdity of the subsidies in relation to human development, World Bank chief economist Nicholas Stern uses the example of an average European cow, which receives $2.50 per day in subsidies while 75 per cent of Africans live on less than $2 a day. These subsidies have allowed the region to dominate world trade even in the most unlikely of agricultural products.

"Some of the results are bizarre," says Mr. Stern. "We see sugar beets grown in Finland whilst poor sugar cane producers and cutters in the tropics struggle to make a living." Even though its production costs are more than double those of countries with a natural comparative advantage such as Brazil, Thailand and Mozambique, the EU is now the second largest sugar exporter from being a net importer 30 years ago. The EU spends about $3.3 bn annually in supports on sugar exports, and in mid-2002 was paying its processors a guaranteed price three times that offered on the world market. Due to EU subsidies, prices on the world sugar market have fallen 17 per cent, the World Bank reports.

"It is hypocritical to preach the advantages of free trade and free markets and then erect obstacles in precisely those markets in which developing countries have a comparative advantage."
-- Nicholas Stern, chief economist, World Bank

Countries such as Mozambique, struggling to revive its sugar exports following the end of a civil war, do not stand a chance. More than 23,000 people are employed in Mozambique's sugar sector, making it the single largest source of employment. The country's major economic goal is to rehabilitate its mills and increase the number of those employed in the sector to 40,000. But it has to contend with poor world prices and the inability to out-compete the EU, even in African markets. The EU exported 770,000 tonnes of sugar to Algeria and 150,000 tonnes to Nigeria last year.

"Interestingly, in the countries where they subsidize, only about 5 per cent of the population are farmers," notes the National Union of Cotton Farmers of Burkina Faso. "Here, farmers represent some 80 per cent of a population that is becoming increasingly impoverished on land that is itself becoming poorer, without the least help from the state."

Mounting opposition

While the issue has generally played out in the negotiating rooms of the WTO, in recent times the campaign against agricultural subsidies has broadened into growing global opposition. From small-scale farmers in Africa to government ministers, non-governmental organizations, movements protesting some of the effects of globalization and multilateral institutions such as the World Bank, the rallying call is the same -- industrial countries must remove restrictive policies that continue to prevent poor nations from benefiting from trade.

"It is hypocritical to preach the advantages of free trade and free markets and then erect obstacles in precisely those markets in which developing countries have a comparative advantage," Mr. Stern of the World Bank told the Centre for Economic Studies at Munich University, Germany, in November. "That hypocrisy does not go unnoticed in developing countries."

He noted that the US Farm Act and a recent agreement in Europe to delay the reform of the EU common agricultural policy "are deeply damaging." It had been largely expected that the reform of the policy would initiate subsidy reductions.

The Bank notes that the effect of Northern subsidies undermines some of its work. Burkina Faso for instance incurred losses of $27 mn in potential revenue last year, roughly the same amount it saved in debt repayments under the Bank's Heavily Indebted Poor Countries initiative, a programme to reduce poor countries' debts. The Bank also notes that full elimination of agricultural protection and subsidies in rich countries would increase global trade by 17 per cent. As a result, agricultural exports from low- and middle-income countries would grow by 24 per cent and rural incomes in these countries would be boosted by 6 per cent, or about $60 bn.

As international opposition grows, the issue of agricultural subsidies is now a frequent agenda item at global and regional meetings. In June 2002, Canadian Prime Minister Jean Chrétien told the annual Group of 8 Summit that the biggest favour the North could do for Africa would be to lower subsidies and tariffs. At last year's World Summit on Sustainable Development in South Africa, negotiators from developing countries wanted a declaration calling for the rapid elimination of subsidies. But those from industrial nations, mainly the EU, walked out of those meetings. In outrage, farmers groups and civil society organizations dumped heaps of European sugar outside cafés used by delegates.

In Abidjan, Côte d'Ivoire, in June, agriculture ministers from West and Central Africa expressed fears that under the current unfavourable conditions, their nations face the risk of being ejected from the world market by less competitive, highly subsidized countries. They recommended the establishment of a regional coalition to defend the interests of the region within multilateral institutions such as the WTO.

"Advocacy and lobbying activities should be carried out at the international level on the impact of agricultural subsidy polices on West and Central African countries and their populations," the ministers declared.

Seeking redress

However, there is still no common position on the continent on how best to seek redress for the current crisis. A number of proposals are emerging. Farmers from Benin, Burkina Faso, Mali and Senegal recently called on their governments and on the West African Economic and Monetary Union to file "petitions" with the WTO in support of Brazil's legal action against US subsidies. Oxfam notes that on the basis of data in its report, Central and West African producers have strong grounds to claim $334 mn in compensation for lost earnings for the period 1998-2001.

Sugarcane field in Kenya: Due to EU subsidies, prices on the world sugar market have fallen 17 per cent.

Photo : ©Charlotte Thege

No African nation has yet filed a legal suit against agricultural subsidies at the WTO. Many are cash-strapped, dependent on aid and debt relief from the very countries they would be challenging. Many are also wary of the potential for retaliatory action.

Rather than confront industrial countries, others, including Mr. Diop of Senegal's state cotton enterprise, have raised the idea of negotiating for compensation from industrial nations for losses caused by their subsidies.

Some African countries have attempted to protect fragile domestic markets by raising import charges. Senegal imposed a 20 per cent surcharge on cheaper rice that flooded the market after the country had reduced tariffs to 10 per cent in 1995. To protect their cotton sectors from collapse, West and Central African countries spend an estimated $60 mn annually on cotton subsidies. But there are limits to such expenditure, as governments also need to finance priority areas such as health and education. In addition, conditions imposed under IMF economic reforms limit government spending to agreed budgetary targets.

Another option is to continue negotiating for new, favourable terms at the current talks on the WTO agriculture agreement. At those negotiations, developing countries are pushing for a binding timetable to eliminate subsidies.

"What is disgusting to us is that the rules prohibiting subsidies were supported and organized within the WTO by the same powers that are today giving subsidies to their farmers," notes Burkina Faso's Agriculture Minister Salif Diallo. "There's something wrong somewhere."

US subsidies: who benefits?

In theory, US agricultural subsidies are supposed to keep producer prices low and benefit consumers down the line. However, critics charge that US subsidies are regularly used to keep less efficient domestic producers sheltered from foreign competition. These subsides are often applied together with trade tariffs, preventing cheaper products from entering the US market and thus making certain goods more expensive for US consumers. For instance, subsidies and supply restrictions limit the amount of cheaply produced Caribbean sugar entering the US. While raw sugar prices in the US averaged 21.17 cents per pound during the first quarter of 2002, on the world market they averaged 7.12 cents. And despite the lower production costs of foreign sugar, the US requires the price of imported sugar to match domestically produced sugar.

A Washington-based think-tank, the Cato Institute, reports that despite claims by farm lobbyists that government supports target small farmers and vulnerable communities, at least 58 per cent of US farmers do not get subsidies. Producers of five crops -- wheat, soybeans, maize, rice and cotton -- receive 90 per cent of all federal farm handouts. In the 2001/02 agricultural year, farmers received $230 for each acre of cotton, compared to $40-50 for wheat and maize. According to the US Department of Agriculture, more than 73 per cent of cotton subsidies go to the richest 10 per cent of farmers in the sector. The richest 1 per cent collect 25 per cent of subsidies.

***See also:***

New strategies needed to combat hunger, disease and rural poverty

Famine and AIDS: a lethal mixture

Senegal: to fight hunger, modernize farming

Eradicating tsetse flies from Africa


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