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Africa’s offensive against US cotton subsidies

Western Africa last May launched an offensive against the United States and the European Union, accused of massively subsidising cotton production, therefore depressing cotton prices on the international market. Any reduction in subsidies could lead to higher cotton prices, they expect.

When visiting Africa recently, US president Bush was again asked removing US cotton subsidies in order to reduce poverty on the black continent.

A few weeks ago, four African countries launched a joint offensive at WTO’s headquarters in Geneva, proposing a “sectoral initiative in favour of cotton”. Negotiations over agriculture subsidies are at the heart of current Doha Round of trade talks with a compromise possibly being found at the coming WTO’s ministerial conference, due in Cancun in next September.

Benin, Burkina Faso, Chad and Mali decided concentrating efforts on cotton subsidies granted to their domestic farmers by the United States, the European Union and China. In a draft paper, the four countries requested a full removal in cotton subsidies, accused of depressing prices on the international market. In Francophone West Africa, cotton exports account for a large part of total exports. Since they do not process cotton fibers, all cotton producing countries in the region are highly dependent on the level in international prices.

Along with fibers from Central Asia, African cotton is in direct competition with US fibers on the international physical market. Africa, Egypt included, is the second largest cotton exporter in the world, after the United States. The sharp decline in world prices in the past season dramatically depressed West Africa’s economies. “When the price of cotton was 35 cents a pound in late 2002, the production cost was, on average, 47 cents a pound in Western and Central Africa against 73 cents a pound in the United States,” said Malian president Amadou Toure when speaking to US lawmakers in June. Mali is West Africa’s largest cotton producer.

US subsidies were estimated at US$2.3 billion in 2001 by the ICAC (International Cotton Advisory Committee), against US$700 million for the European Union and US$1.2 billion in China. In the past ten years, African cotton producing countries began modernising their cotton industry. Under pressure from the World Bank, they began privatising ginning plants, allowing foreign companies to buy, modernise and build capacities.

Cost of production of West African cotton fibers are considered as very low, compared with other producing countries as a result. Although they request a removal in subsidies in the US, Europe and China, African countries do not expect an immediate elimination. In exchange, they have asked subsidising countries to offer some financial compensation, based on the level of subsidies granted to domestic farmers. Washington actually refuses adopting such a sectoral approach and prefers discussing all agriculture subsidies together. By accepting to reform its heavy subsidising system a few days ago, the European Union allowed a clear progress in international negotiations, on the other hand.

Spain and Greece are expected to reject any reduction in cotton subsidies, however. In China, in addition, subsidising production is a way to control millions of cotton farmers and avoid social unrests in rural areas. The PRC will not easily renounce in its subsidies.

As a consequence, African nations may not expect any fast reduction in cotton subsidies, as recently explained by Brazil’s negotiators in Geneva. Far from proposing some negotiated agreement, Brazilia preferred filing a complaint with the WTO’s Dispute Settlement Body a few months ago. A panel was finally set up on May 8 in order to examine US cotton subsidies.

A large series of countries joined the case in order to reserve their “third-party rights”, including Canada, Australia, India, Pakistan, the European Union and Benin. With US cotton subsidies attacked on two fronts, the US could be forced proposing some new limit in financial support to farmers for the coming years. Another solution would consist in “decoupling” subsidies and production, therefore guaranteeing a minimum income for US farmers instead of further boosting cotton output.