Sunday, December 18, 2005

WTO and U.S. cotton subsidies

I've been reading Pietra Rivoli's Travels of a T-Shirt which gives lots of information about subsidies to U.S. cotton farmers and now at the Hong Kong meeting of the World Trade Organization I read that Americans are bowing to pressure from four West African cotton-farming nations to (this is from the Bloomberg account): "expedite deep cuts in payments to cotton producers."

It will be interesting to see what is meant by "deep cuts in payments" because cotton subsidies are both enormous and complex.

Rivoli points out that cotton farming has been coddled since the founding of the country, but protectionism has escalated during the Bush administration. This might seem surprising since the administration pursues free-trade policies, including for example a pan-American trade pact. But cotton farming is a Texas thing and the biggest farms are not far from the Bush ranch in Crawford.

And so it was in 2002 that U.S. subsidies guaranteed cotton farmers a minimum of 72 cents per pound, while the average world price of cotton was about 38 cents per pound (that was the price in 2004). Rivoli says that the subsidies in 2000, that is before the increases of 2002, were about $4 billion, which she says "exceed the entire GNP of a number of the world’s poorest cotton producing countries, as well as the United States entire USAID budget for the continent of Africa."

The list of protections is impressive. The 2002 Farm Bill contains a pretty comprehensive insurance program that protects farmers against just about everything that can go wrong from bad weather to deadbeat purchasers.

On the other hand, she also points out that subsidies have not induced farmers to become fat and lazy. Though you might expect government payments to result in inefficient production methods, U.S. cotton production has become the most efficient in the world. Through cooperative ventures among farmers (coops and farmer-owned corperate ventures for ginning, storage, distriubtion, and marketing), through academic reasearch and the adoption by farmers of the benefits of this research, through mechanization and innovation by entrepreneurs, and through training and support from the USDA Rivoli shows how a 1,000-acre family farm, operated by husband and wife with only occasional part-time help from high-school students, can produce 500,000 pounds of cotton a year. That's enough cotton for 1.3 million T-shirts from the work of just two people, both in their 80's. I find this almost unbelievable.

As she says, between the subsidies and the efficiency, there's no way for third-world countries to compete with U.S. cotton farmers.

And this leads to another question: Even if the U.S. does follow through on its promise and does actually "expedite deep cuts in payments to cotton producers," and these cuts include the more-or-less hidden supports of crop insurance and the like, even then, how will primitive farmers be able to compete with U.S. high-tech farming.

The policies and the government structures in west African nations do not enable poor farmers to become efficient. The contrary is the case: policies and bureaucratic gouging discourage efficiency. And every other infrastructure need is lacking: education, credit at reasonable cost, availability of quality seed, labor-saving machines, and chemicals (such as pesticides).

The major result of lifting U.S. subsidies is likely to be an expansion of cotton growing in other countries where large-scale farming is feasible and other infrastructure needs are becoming available (education, research, etc.). China is the primo example of such countries. India possibly as well -- in time. Maybe Brazil, though less likely. I expect the west African farmers who are the ostensible beneficiaries won't see much benefit. As someone said, if the lifing of subsidies results in increases in the cost of cotton world-wide, it's more likely to generate increases in the Swiss bank accounts of African "kleptocrats" than to better to lot of the poor. Alas.

Comments? I'd be delighted to be shown evidence to the contrary.

End note: The U.S. may not lift subsidies after all. From Bloomberg: "In Washington today lawmakers criticized the proposed compromise saying it requires the U.S. cut subsidies and tariffs without demanding the same of India, Brazil and other developing nations."

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