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Cotton subsidies in rich countries mean lower prices worldwide
Farmers and rural livelihoods suffer from price declines
In Central and West Africa, more than 10 million people depend on cotton production to earn enough cash to pay for the food they eat, says FAO's new report, The State of Agricultural Commodity Markets 2004 (SOCO). For many countries in the region, cotton exports are the most important source of foreign exchange and rural employment.

In a section focusing in on cotton subsidies in developed countries, SOCO profiles the impacts that agricultural subsidies half a world away can have on the livelihoods of people working on farms in the developing world.

In 2001, cotton made up 50 percent of the total agriculture exports of Benin, Burkina Faso, Chad, Mali and Togo -- contributing between 2.5 and 6.7 percent to the GDPs of those countries, according to FAO.

Working on small plots of 1-2 hectares and relying on manual labor, farmers in West Africa are among the lowest-cost producers of cotton in the world. But since the mid-1990s, the price they get for their cotton has collapsed, due to a combination of international and domestic factors. Making matters worse, they face stiff competition from cotton exports from the United States.

Production costs in the United States are three times higher than those in West Africa, according to SOCO, but cotton farmers there benefit from as much as US$4 billion a year in direct subsidies and support. That is more than the entire GDP of Burkina Faso, where 2 million people depend on growing cotton, observes the FAO report.

Cotton production in the United States grew by more than 40 percent between 1998 and 2001, while the volume of its exports doubled -- despite the fact that cotton prices slumped to record lows during this period. FAO estimates that the collapse of cotton prices cost eight West African countries nearly $200 million in lost annual export revenues.

The cost to millions of rural families who rely on cotton as their only source of cash income has also been high. One recent study by the World Health Organization found that West African households that grew cotton in addition to maize had better nutrition and higher incomes. When cotton production grew by 175 percent in the mid-1990s, poverty decreased by 16 percent, says SOCO.

But cotton subsidies in industrialized countries are not the only reason that cotton prices have fallen, notes FAO. In some developing countries, "domestic policies have also penalized cotton producers." Technological change and competition from artificial fibres have been pushing world cotton prices down for the past 50 years. But an FAO study shows that eliminating support to cotton production world-wide would increase world cotton prices by as much as 11 percent. That, says FAO, would prompt an expansion in African exports of at least 9 percent and possibly by as much as 38 percent.
FAO/22511/L. Lizzi

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Cotton subsidies in rich countries mean lower prices worldwide


John Riddle
Information Officer, FAO
(+39) 06 570 53259

FAO/A. Conti

Subsidies in rich countries depress cotton prices worldwide.

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