On Mon, 23 Jun 2003 03:36:45 -0500, "Gordon Couger"
wrote:

Interfering with trade is bad for business.

A murderous subsidy

By Shehryar Mazari

Oxfam International's recently published study Cultivating Poverty has
opened a can of worms. In the report, the much-respected aid
organization, which focuses on world poverty problems, charges that US
subsidies to big American cotton farming operations were wiping out
Third World cotton farmers and directly contribute to mass poverty in
some of the world s poorest countries.

And the US government's much-ballyhooed post-9/11 claims of helping
develop Third World economies have suddenly foundered amid accusations
that it has been actively pursuing poverty-inducing policies.

Given that in March 2002 only, US President George W. Bush publicly
acknowledged that poverty was a primary source of international
instability, and that the advance of development is a central
commitment of American foreign policy, Oxfam s latest report certainly
ought to cause a sea of red faces in Washington.

The U.S. is regarded as an inefficient and high-cost producer of
cotton. The estimated cost of production for a cotton farmer in the US
comes out to 73 cents per pound in comparison with Central Africa's 21
cents. The subsidies allow the American farmers to overproduce cotton
and dump their crop in the international market at increasingly
reduced prices much to the financial detriment of Third World
producers.

The report focuses on the devastating financial impact of the US
cotton subsidies on Third World cotton-dependent countries such as
Pakistan. In particular it highlights the plight of 10 or more million
cotton growers of poverty-stricken Central and West Africa.

The situation in countries such as Mali and Burkina Faso recognised as
two of the ten poorest nations in the world has become increasingly
bleak. According to an earlier 2002 World Bank and IMF joint study,
the number of people in extreme poverty in these countries could be
halved within six years if the subsidies given to the U.S. cotton
farmers were quickly removed.

It is worth recalling that by 1995 cotton prices had crossed the $1.10
mark. But in 1996, during the time of the Clinton administration, the
U.S. government enacted the Freedom to Farm bill which began a new and
massive cycle of agricultural subsidies. So began a sharp downward
spiral of cotton prices. According to the Oxfam study, once adjusted
for inflation, cotton prices today are lower than any time since the
Great Depression of the 1930s.

In the midst of this steep downturn in world cotton prices and in
defiance of the basic laws of supply and demand, the US has uniquely
persisted in expanding its production. The American cotton farmers
continue to increase their acreages and produce record bumper
harvests. In 2001 they produced 20.3 million metric tons, which was a
42 per cent increase over 1998.

Faced with a static local demand and armed with a subsidy-created
immunity to price changes, the American farmer has flooded the
international market with his cotton crop. At a time of slumping world
prices the volume of US cotton exports almost doubled from 946,000
metric tons in 1998 to 1.8 million tons in 2001.

Last year the US held a 30% share of international cotton exports -
despite growing only 20% of the world's cotton. It is an indisputable
reality that these subsidies allow the US cotton producers to dump
cotton on the world market at prices which bear no relation to the
actual costs of its production.

Not surprisingly then, the Oxfam report charged the US for being
responsible for the severe slump in world cotton prices. In July 2002
the International Cotton Advisory Committee (ICAC), using its World
Textile Demand Model, calculated that in 2001 the US cotton subsidies
reduced the price of international cotton by 26 per cent (which works
out to 11 cents per pound). For a large group of developing countries,
this price collapse has generated major losses, both in the value of
domestic production and in exports earnings.

While Oxfam calculations for the last season (2001-02) peg the cost of
these US cotton subsidies to Central and West Africa at $301 million,
other countries have come up with their own estimates. The Indian
government has calculated its national loss at US$ 1.3 billion. In
South America, the financially plagued Argentina estimates a loss of
more than US$ 1 billion, and the Brazilian Government claims losses of
US$ 640 million.

Closer to home, last season Pakistani farmers produced an estimated
10.6 million bales (or roughly 3.97 billion pounds) of cotton. Using a
conservative market valuation of 42 cents a pound, the total 2001/2002
cotton crop can be valued at US$ 1.67 billion. Adopting the ICAC
subsidy loss of an extra 11 cents places the value of the same crop at
US$ 2.1 billion.

This implies that last season the Pakistani cotton growers were
deprived of approximately US$ 340 million (or Rs. 20.4 billion) as a
result of the US subsidies. This figure, however, does not include the
direct loss to the national economy through reduced earnings on the
export of cotton, yarn and value-added textiles, as well as reduced
revenue from GST.

Compared to the tens of millions of impoverished cotton growers in the
Third World there are only 25,000 [US] cotton farmers. With an average
net worth of $800,000 these U.S. cotton growers received roughly $3.9
billion in subsidy payments last year. This, for producing a cotton
crop that was worth only US$ 3 billion at world market prices.

During the 2001/2002 season, every US acre of cotton farmland
attracted a subsidy of US$ 230. Notwithstanding the constant
Congressional references to protecting family farms the largest 10 %
of cotton farms received three-quarters of the total US cotton subsidy
payments.

Extraordinarily, in 2001, a mere ten US farms between them managed to
receive nearly US$ 17 million in cotton subsidies.

In a recent move, President Bush aggravated the situation further by
approving new legislation granting even greater subsidies to the U.S.
farmers. The new US$ 118 billion, six-year farm subsidy bill enacted
in May this year is seen by its many critics as nothing more than a
political bribe, well in time midterm elections in November.

The Farm bill was passed with overwhelming majority in both houses of
Congress, with US Congressmen keenly eyeing their electoral fortunes
in the coming elections and signed into law by a President, who
despite his zealous ideological sermons on the global benefits of free
trade, is desperately keen to regain his Republican party majority in
the Senate. After the enactment of the Farm bill a caustic editorial
in the prestigious New York Times commented, By inflating farm
subsidies even more, Congress and the Bush administration are
impoverishing and occasionally killing Africans whom we claim to be
trying to help .

It's not just Africans. In Pakistan, seven years of steeply sliding
cotton prices have further weakened an already impoverished rural
economy. Children of small Pakistani farmers are now often found to be
malnourished. Lack of money means inability to afford proper medical
care for children or for pregnant wives. Many die.

The heightened state of American self-centredness is perhaps best
illustrated by the example Kenneth Hood, a large cotton farmer from
Mississippi. Not only did Mr Hood receive $750,000 in subsidies for
growing cotton on his family farm in 2001, he was also the first man
to shake hands with President Bush at the White House, after the
President signed the new farm subsidy bill into law. When asked to
comment about the tragic plight of cotton growers in Africa, Mr Hood
replied, "Maybe the farmers in Africa should be the ones not raising
cotton".

Fortunately for Third World cotton farmers the shadow of World Trade
Organisation (WTO) hangs over this new blitz of US subsidies. Despite
the US Secretary of Agriculture s assertion that the new Farm bill
does not violate WTO s subsidy codes, Brazil has taken it to court.

The fact that last year the US government paid out more in cotton
subsidies than the total market value of its cotton crop underlines
the strength of its case.

By challenging these subsidies the Brazilian Government is raising
issues that go to the heart of inequalities in world agricultural
trade. It is a pity that the attitude of the Pakistan Government has
been historically supine when dealing with American and other Western
trade malpractices. Clearly it is about time Pakistan made an effort
to resist these poverty-inflating US policies by joining other
countries in opposing this blatant economic injustice.