Texas Cotton's Subsidies Help Destroy Africa's Cheaper Farmers
Bloomberg News, October 30, 2007

Suleymane Soro always grew cotton on his 17-acre (7-hectare) farm in the Ivory Coast, supporting his wife and six children in a mud home he built himself. It has no running water, no electricity -- and this year, no cotton.

``We are completely discouraged,'' says Soro, who couldn't buy seeds and fertilizer after the local ginning company failed. His profit fell two-thirds this decade, to 120,000 CFA francs ($262) last year. He turned to corn to survive.

About 6,500 miles (10,460 kilometers) away on 800 acres in West Texas, Kelli Merritt watches the cotton market with the same attention she devotes to shooting wild hogs that veer too close to her crop. The pigs are easier to control. Prices, while rising, remain 20 percent below four years ago. Unlike Soro, she has a safety net: U.S. subsidies that paid her $98,097 in 2006.

Soro and Merritt are two faces of the more-than $280 billion farm bill the Senate may vote on next week. The legislation, similar to a House-passed measure President George W. Bush threatened to veto, would continue subsidy programs that totaled $3.1 billion in the 2005-2006 fiscal year.

U.S. farmers like Merritt say the payments are vital. The World Trade Organization says they distort trade and lower prices, hurting farmers like Soro.

``America's farm bill is the world's farm bill,'' says Raymond C. Offenheiser, president of Oxfam America, a Boston- based antipoverty group that is pushing to reduce U.S. payments. ``For Africans, it could make the difference whether they can put their kids in school or get health services or better diets.''

China, European Union

The U.S. is hardly the only country to support its domestic growers. China, the largest producer, provides $1.4 billion in annual aid through import quotas that keep Chinese prices above those elsewhere, according to the International Cotton Advisory Committee, a Washington-based association of producing and consuming countries.

The European Union, a much smaller producer, gave its farmers $300 million in aid in the past crop year.

``Don't come after us because we've been the big guy on the block and leave these other countries to subsidize,'' says Merritt, a licensed commodities broker and fourth-generation cotton farmer.

``In a fairy-tale world, we'd like to see straight supply and demand,'' she says. ``If you are going to take our subsidies, then take theirs.''

Merritt, 49, lives in the brick house she and her ex- husband built 26 years ago. She was in the top 17 percent of recipients of U.S. cotton subsidies in 2005, the latest year for which figures are available publicly, according to the Environmental Working Group, an organization favoring subsidy reductions that keeps a database of farm payments.

Buddy Holly

The top 1 percent, which received 23 percent of the payments that year, got an average of $556,716.

Farmers around nearby Lubbock, where Buddy Holly formed his 1950s rock band, couldn't get by without the promise of government support because bankers wouldn't loan growers money for the next crop, Merritt says.

The problem for farmers such as Soro is that subsidies encourage excess production, which pushes down prices, the advisory committee says. It estimates prices would rise 10 percent over three to four years if subsidies ended worldwide.

``There would be less U.S. surplus dumped on the international market,'' says Roberto Azevedo, an economics official with Brazil's foreign affairs ministry. ``The living conditions of cotton producers in Third World and poor countries will improve significantly,'' says Azevedo, whose government successfully challenged U.S. support programs before the Geneva- based WTO.

U.S. Is Singled Out

The U.S. is often singled out for criticism by Brazil and other developing nations because most of its crop is exported, says Terry Townsend, executive director of the cotton advisory committee.

U.S. mills will use 4.6 million bales of the fiber this crop year, less than half what they consumed a decade ago. Exports this crop year will total 16.7 million bales, more than three times the next-highest shipper, Uzbekistan, according to the U.S. Department of Agriculture.

``China is an importer,'' Townsend says. ``Other countries -- Mexico, Brazil, Turkey -- provide subsidies, but they are small relative to the U.S.''

Allenberg, Cargill, Dunavant

The U.S. ended one form of subsidy last year. Responding to a 2004 WTO ruling against the U.S., it terminated so-called Step 2 payments to exporters and domestic textile mills. Such payments totaled $349 million in fiscal 2006, according to the USDA. After the program ended, U.S. exports of the fiber fell to 13 million bales in the 2006-2007 crop year, down from 18 million the final year of Step 2.

Stopping Step 2 kept most subsidies intact while ending payments to companies that benefited from the program. These included Allenberg Cotton Co., Cargill Cotton and Dunavant Enterprises Inc., all based in or near Memphis, Tennessee. Allenberg, a unit of Paris-based Louis Dreyfus Group, and Dunavant each received about $260 million from 1995 until Step 2's end, according to Environmental Working Group. Cargill, a unit of Cargill Inc., got more than $200 million, according to the group.

Officials of the three companies said they had no comment for this story.

On Oct. 15, Brazil said the WTO ruled the U.S. needed to cut subsidies further, a decision the organization will not confirm until it makes an official announcement.

`Votes Aren't There'

Trade threats are having little impact on the U.S. farm bill debate in Congress. U.S. Senator Tom Harkin, chairman of the Senate Agriculture Committee, says U.S. growers seem willing to keep their subsidies and take their chances before the WTO.

``The votes aren't there to change cotton programs,'' says Harkin, whose committee approved its farm bill last week. The committee expects the measure would cost about $288 billion over five years.

Like the bill passed by the U.S. House of Representatives in July, it would create a program to subsidize cotton bought by domestic textile mills, attempting to shore up demand hurt by a shift of the global garment industry to China. It would make only minor adjustments to existing subsidy programs.

President Bush, seeking to avoid further trade conflicts, threatened to veto the House bill, which will ultimately have to be reconciled with the Senate's package.

Following Demand Abroad

U.S. farmers dismiss complaints about overseas sales, saying producers are only following demand as textile mills move abroad. And they don't accept the argument that subsidies boost output.

``If they increase production, then why are we the only major producing country that cut production?'' asks Mark Williams, a Farwell, Texas, farmer.

The U.S. will produce about 18.15 million bales this year, down from 21.6 million in 2006, according to the USDA. China, which buys 40 percent of the world's cotton, is expected to grow 35.5 million bales, nearly double the production eight years ago. India, which didn't subsidize last year when it surpassed the U.S. as the world's second-biggest producer, is forecast to produce 23.5 million bales this year.

Even if U.S. production and exports were cut significantly, the poorest countries would get little benefit, says Samarendu Mohanty, associate professor at Texas Tech University in Lubbock. Brazil would benefit most, followed by Australia, according to a 2004 report by the university's agricultural and applied economics department.

`Expanding Like Crazy'

``Now, I would add India, which is expanding like crazy,'' he says.

The Bush administration and congressional allies would like to reduce government payment levels for all crops. Not doing so, says Acting Agriculture Secretary Chuck Conner, would be ``painting a bull's-eye on our back.''

Indiana Republican Richard Lugar, who plans to introduce an amendment that would end trade-distorting subsidies, says Harkin's proposal puts all U.S. crop exports at risk, ``because it would perpetuate a cotton program that has repeatedly been found to violate world trade rules.''

Prices have fallen since peaking in 1995, when the industry benchmark price reached $1.194 a pound, according to Cotlook Ltd., the Birkenhead, U.K.-based market researcher that tracks prices, supply and use. The benchmark average this marketing year may be 71 cents a pound, up from 59 cents last year, Townsend's group estimated Oct. 1.

The drop has withered exports from nations competing with larger producers on the world market. The value of exports from Ivory Coast fell to $129.3 million in 2006, an 18 percent decline since 2001, according to the United Nations.

Little Else Grows

African nations including Ivory Coast are responsible for about 18 percent of global cotton exports. In West Africa alone, about 10 million people are dependent on the fiber, especially in regions where other crops are difficult to grow.

That's the case in the northern part of Ivory Coast where Soro lives, near Korhogo, about 75 miles (120 kilometers) from the border with Burkina Faso. While cocoa is the country's biggest export, cotton is vital in the north because, like West Texas, it is so arid little else grows.

``The north is too dry to grow anything else,'' says Nicolas N'Guetta, executive secretary of Ivory Coast's growers' association, Intercoton.

`It's Very Hard'

Because of falling world prices, ``the average cotton farmer is poorer today than he was 10 years ago,'' N'Guetta says. ``It's very hard to make ends meet.''

Soro, who says he is about 49, says he's doing his best to hang on.

``We are all cotton farmers here,'' he says, smoking a cigarette as he sits in the shadow of a tree, his three youngest children and those of a neighbor plowing a field with two oxen. ``Everybody has always grown cotton.''

Considered an educated man because he is one of the few French-speakers in his village, he says the reasons prices have fallen are a mystery to him and his neighbors.

``We just don't understand it anymore,'' he says.