When world prices fall, the US government compensates its farmers by paying them more in subsidies. In the most recent crop year (2004/2005), when cotton prices were low, US producers received about $4.2 billion in subsidies. The total value of the crop was approximately $4.2 billion, so US producers earned as much from government subsidies as they did from selling cotton.

Farmers in Africa do not have the luxury of such comprehensive support. For many, who live on just a dollar a day, falling prices signal destitution.

“The case of cotton demonstrates the unacceptable unfairness in the world trading system. US cotton subsidies cause overproduction and dumping, push down world prices and lead to drastic losses for Africa,” said Celine Charveriat, Head of Oxfam International’s Make Trade Fair campaign.

“US failure to reform its cotton subsidies could cause the collapse of the world trade talks again at the Ministerial in Hong Kong, just as they did in Cancun in 2003.” she added.

Earlier this year, the World Trade Organization (WTO) ruled that the subsidies the US pays its producers are illegal because of their trade-distorting effect. But since the ruling, the US has done little to reform these subsidy programmes, missing deadlines to comply with the ruling in July and September this year. Although the US Administration has proposed measures, the US Congress has failed to enact the necessary legislation. Recent US proposals to cut domestic support make no specific mention of cotton and do not guarantee African cotton producers the reforms they need.

Charveriat: “For some very poor countries, achieving progress on cotton offers the biggest opportunity of the Doha Round. With 20 million African farmers dependent on cotton for their livelihoods, you can understand why. But, since this issue emerged in 2002, there has been virtually no progress. Everyone knows what needs to be done: there is no excuse for delay, this cannot be brushed under the carpet.”

Notes:

 Between August 1999 and July 2005, US producers of cotton received more than $18 billion in US subsidies, according to the most recent USDA data available.
 The market value of this production during this same period was $ 23.39bn. This translates into a subsidization rate of 86% - i.e. for every dollar received by cotton farmers from their sales, they received an additional 86 cents in subsidies.
 An overwhelming majority of cotton subsidies (79%) go to the top 10% of the biggest producers.
 US share of world exports increased from 24.82% in 1999 to 39.54% in 2004/2005.
 In 2004/2005, average world cotton prices were 35% lower than during the previous year.
 In the meantime US cotton subsidies more than doubled (from $1.750 billion to $4.3 billion).
 According to a study by economists at the University of California-Davis the full elimination of distorting cotton subsidies, bringing the US in full compliance with the WTO ruling, would increase the income of the 33 cotton-exporting countries in Africa by 12%. The estimate losses of export revenues for African countries are based on this figure.