By helping West Africa's cotton sector, is the EU helping West Africa?

From the European Union:

The cotton sector in Benin, Chad, Burkina Faso and Mali employs around 2 million workers. This means that in these countries about 15 million people depend on cotton production and export for their living.

In the major cotton producing African states, cotton accounts for between 50 and 80 percent of exports. Any downward pressure on cotton prices puts these people at serious risk. The subsidisation of cotton exports by developed countries has a disastrous effect on prices for these countries, and that is why the EU has called for the elimination of all forms of exports refunds for cotton.

The EU has led the way in reforming its domestic policies on cotton. EU cotton subsidies have no distorting effect on the international market, and the EU pays no export subsidies for cotton. Under the Everything But Arms system all African cotton producers have tariff and quota free access to the EU market.

…

For the implementation of the EU-Africa Partnership on Cotton, the EU has made available substantial financial assistance. More than € 260 million has been allocated to cotton programmes and projects since 2004. This has been a substantial and major source of support that can be used in mitigating negative effects of the fall in cotton prices on the macro-economies of the countries concerned. This total amount is by far the most important contribution to cotton by any development partner.

I hate to be a pessimist, but cotton will never be the goose that laid the golden egg for West Africa. When cotton subsidies in the United States finally do go down, there is no guarantee that prices will increase enough to pay off for the millions of African farmers hoping to make a killing from cotton. The question to ask is if prices do increase, how much will these farmers see? West African cotton companies are still too bankrupt and too corrupt to allow higher prices to trickle down. High oil prices worldwide guarantees that the cost of petroleum-based inputs – fertilizer and insecticides – will remain high, further cutting into farmers' profits. Cheaper synthetic fibers will also dampen cotton demand, especially if prices do increase.

Let’s say that West African farmers do make a (relative) killing in post-subsidy cotton. The logical thing will be that more people will jump at the chance to grow the crop. They’ll ignore food staples and will put great harm on the already weak soil of the Sahel, which is an ignored by-product of West Africa’s dependence on cotton. As the quantity of West African cotton rises, its quality – once quite high, now so-so – will again drop: they’ll be less time and less people around to do the important cleaning by hand that once made cotton from this area extremely sought after. Lower quality cotton translates into lower world prices. (One way to increase the number of hands at harvest time is to pull the kids out of school. I think we understand the long-term effects of that.)

If the European Union wanted to help African cotton farmers, it should do so by finding them alternative crops to enrich themselves. Small fields of high-priced, high-quality organic grown cotton may do the trick for some. But not too many. How about a regional market for foodstuffs like maize, sorghum and the fruits and vegetables Africans cultivate? This would especially be important as food prices promise to remain in the stratosphere for at least the short-term. Growing cotton should never be a priority in a region where millions of farmers work hard, but still cannot feed their own people.

More bad news for Africa’s cotton farmers: Plunging dollar

VOA recently reported that cotton production for Sofitex, Burkina Faso’s largest cotton company, is far below expectations. Poor rains are to blame, but Sofitex officials call it a wasted opportunity. With world cotton prices on the rise, the company, which controls 85 percent of Burkina Faso’s cotton industry, will only bring in 380,000 tons of cotton, well below the estimated 600,000 tons.

Cotton executives across the continent have long pointed a finger at U.S. cotton subsidies for depressing world prices. With worldwide cotton demand increasing and supplies decreasing, cotton farmers could expect high prices for the next year. However, the weakening dollar could dampen those predictions, according to Bloomberg News.

Cotton prices have increased 13 percent this year, but the gap between the Euro-pegged CFA and the falling dollar has largely offset those benefits. The CFA is the currency of former French colonies in West Africa, including Senegal, Burkina Faso, Cote d’Ivoire, Mali and Benin, all cotton producing countries. Cotton accounts for 5 to 8 percent of GDP across West Africa.

Cotton from companies like Burkina Faso's Sofitex and Cameroon's Sodecoton is bought and sold on the world market in U.S. dollars. Farmers are paid in CFA francs, the euro-pegged local currency of 14 western and central African countries. Compared with a year ago, the dollars their crops fetch in world markets buy about 9 percent fewer CFA francs for food and shelter.

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Most of the region's ``cotton producers are now on the verge of operating at a loss and sinking into debt,'' Alby wrote in the October issue of the Paris-based bank's Conjoncture publication. ``Meanwhile, the main ginning and marketing companies have chalked up heavy losses over the last two seasons, of which a large part has been supported by the government.''

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The CFA franc has followed the euro up about 57 percent against the dollar since U.S. President George W. Bush took office in January 2001 as investors seek better returns outside the U.S.

The dollar's decline has been a boon to U.S. exporters, including Nike Inc. and Colgate-Palmolive Co. and helped narrow the U.S. trade deficit 0.6 percent in September.

For people in the poorest countries, a shift in the exchange rate can eliminate a month's food, says Daniel Sumner, an economist at the University of California, Davis, who wrote a study on cotton subsidies for Oxfam America, a Boston-based aid group.

Fifty dollars can be ``enough to feed a child for a year,'' he said. ``It's enough to pay the school fees for three to four children.''

Payments to farmers from cotton companies in western Africa have fallen an average 15 percent since 2004, International Cotton Advisory Committee data show. Production in western and central Africa may decline 21 percent this year, according to Dagris SA, a Paris-based company owned by the French government that holds stakes in African, Asian and Latin American cotton producers.

The U.S. and cotton subsidies: They giveth but they don't taketh

The answer is No.

That’s what Burkina Faso’s President Blaise Compoare should have said to Assistant Secretary of State John Negroponte during his Tuesday visit to Ouagadougou. As a way to patch over differences regarding cotton subsidies, Negroponte claimed the U.S. government will work extra hard to place Burkina Faso cotton on the U.S. market:

"We have worked with certain parties, notably the farmers, to see how to arrange contacts with American operators to place Burkinabe cotton on the American market - particularly the very high quality cotton that you produce here," he told the BBC.

It was the first peep from a U.S. official after the World Trade Organization up-held a previous ruling filed by Brazil that claims U.S. cotton subsidies unfairly depress world prices. According to the Environmental Working Group, the U.S. government has handed over $19.1 billion in subsidies to cotton farmers between 1995 and 2005.

As the WTO announced its decision in mid-October, Congress began debating the 2007 Farm Bill. These five-year plans of financial outlay and agriculture programs contain the controversial (and now illegal) agriculture subsidies. However, the Bill in its current form on the Senate floor leaves cotton subsidy program largely intact. (The Bush administration has threatened to veto the bill if the subsidies remain in the bill.)

Negroponte visited Ouagadougou while on a five-nation West African tour. In Ouagadougou, he also claimed that the U.S. would not consider repealing cotton subsidies until the European Union also did the same.

Reuters:

"In the framework of the Doha Round negotiations, we have clearly indicated that we are ready to reduce our farms subsidies on the condition that our European Union partners can equally make the same gesture so we can work together in this direction," Negroponte said.

The tortuous Doha trade talks, dubbed the "Development Round" for their declared focus on the need to boost exports from the developing world, have already dragged on nearly three years past the deadline originally agreed in Qatar in 2001 with no guarantees a deal will be reached.

The BBC story provides a helpful statistic: European Cotton runs roughly to the tune of 6 percent of American cotton. The U.S., on the other hand, maintains its role as the world’s second largest grower of cotton (behind China) making up 40 percent of the world cotton market.

I’ve complained loudly about the fact that Burkina Faso – and other West African cotton producers – must reform their cotton sectors which steal and rob from the region’s cotton farmers. However, underlying my logic is the fact that U.S. subsidies irreparably harm the world cotton price. Cotton farmers in the U.S states have grown too much cotton for world production since the beginning of this new century.

There’s another argument: If this government cares anything about how it’s perceived abroad – and it most likely doesn’t – this proves to knee-jerk anti-Americanists that the U.S. is a government of hypocrites. This is not an anti-Bush rant. Democrats in Congress should also take the blame. The U.S. government forces free-trade down the throats of the developing world with one hand while writing checks to corporations to grow cotton with the other.

Talk about having it both ways.

I've got a better idea, Negroponte. It's time to begin phasing out the illegal subsidies. Have a shred of pride.

Non-essential reading on cotton

Because what needs to be said has mostly already been said.

Try this, anyway.

I can't vouch for the rest...
With that, I think I’ve gotten most of my thoughts on cotton out of the way. One perk is that my friends have been patiently asking me to shut up on the subject, and truthfully, cotton had been out of my life for a long, long time. But some people don’t learn – especially not the Congress of the United States, who is apparently debating the Farm Bill 2007 and not giving too much thought about reducing any of the subsidies. You can’t say they weren’t warned.

The problem with covering cotton is that it gives proof to newspaper editors that there is yet another imperfect window from which to view upon our pretty Africa. (The new face of African poverty: cotton farmers picking by hand.) The latest batch of cotton stories comes around just in time before newspapers were running out of wire service stories about crazed villagers burning women who were witches, or female genital mutilation or some strange new case of lupus in Mozambique. The funny + sad thing is that some paper in Kansas got the photos screwed up for the lupus and burning witch story. I wonder how many noticed?

In the newsworthy department, the good thing about cotton is that it affects more than 12 people. Make that 10 million folks spread across state lines. In Burkina, you can’t say cotton isn’t king when everyone from the field hands to the bar owners surely know when cotton checks come in. The parties go on for days – just like when the new batch of meth hits small northwestern towns. (And you wonder why none of the kids never seem to go to school.)

The bad thing about the latest preponderance of cotton stories is it’s the lefties who mostly get it all wrong. I usually have a pretty healthy streak of vengeance (my mid-western upbringing), but I tire of the sloganeering around the unproven fact that falling U.S. subsidies will lead to better lives in West Africa. Better lives for whom? The yahoos who park the cotton company trucks in bars throughout the cotton belt? (They are worse than the phone company guys – but at least those guys are good at making themselves look busy; it’s just too bad they not busy working. They’re busy hauling firewood to sell in town.)

IRIN, the UN news service, is always very quick to jump on the anti-U.S. subsidies bandwagon (as if that’s stepping out on the ledge of intellectual appraisal), and they’ll let that mouthpiece from the Burkina cotton union speak until the cows come home, but they’ll never cast a skeptical eye towards the union itself (which shouldn’t call itself a union since it lacks any shall we say adversarial aspects.) nor Softitex or any of their shenanigans in the field.

This reminds me of a story I heard. A town in southern Burkina has now gotten away from cotton after the local Sofitex agent was repeatedly threatened and eventually smacked around by farmers tired of waiting for the Sofitex truck to pick up their crops. After the beating, the Sofitex trucks came a few months later – we’re talking March/April – and the farmers vowed never to grow the crop again. The person who told me this said the fields are mostly empty, a very eerie sight indeed.

Another story: Said mouthpiece of the cotton union has an American cotton symbol on the front of his huge 4x4. I thought that was pretty funny when I saw it. (You want to know where the increasing profits are going to go, check out how the cotton union decks itself in next season. It’s like when your white trash neighbors knock over some small town bank. Everybody knows they did it, but the cops are just waiting for them to park their new BMW – paid in cash – on the front lawn to see if they’re that dumb. They usually are. We’ll see what the cotton union comes up with next.)

One thing the piece failed to mention: Cotton farmers as a whole provide a little better for their families in the food security department. They have, by and large, more money to buy corn and other cereals. This most likely means they are richer – and answers questions as to why cotton is popular. To me, it’s still a moot point. If everybody starts growing cotton, that doesn’t take away the other issues facing the crops: environmental damage, credit problems, monoculture.

Anecdotally, cotton farmers seem richer. But they still have to eat – and someone has to grow corn and sorghum.

With that, let it end. At least until next year.

Cotton redux: finding a winner

One issue I forgot to bring up during the debate on cotton in West Africa: Who is going to profit the most from the estimated six to 14 percent increase in world cotton prices? Probably not West Africa.

That’s right. If U.S. farmers lose a good portion of their subsidies – and it looks like they will certainly lose something – don’t count on West Africans from picking up the slack from falling U.S. production. That’s because West African cotton has already expanded 10-fold in the past thirty years. However, the region has seen an actual decrease in its yield per hectare.

According to World Bank economist John Baffes, in the 1970/71 harvest, West and Central African cotton farmers produced 109,000 tons of cotton from 644,000 hectares (about 2.4 acres), giving them a yield of 169 kilograms/hectare.

In 1989, the Africans produced 498,000 tons from 1,101,000 hectares, producing a yield of 452. Other than the season of 1990/90, West Africans have not had a yield that large. But it still lagged beyond yields posted for the rest of the world. (In 88/89, the world scored 546.)

The West and Central Africans have doubled production since 88/89, but their yields have not topped 452, which they hit in 2004/05. (They’ve generally been better than 400 for most of this century, however.) Since 2000, world yields are much higher: from 598 to a whopping 744 in 04/05, followed up by 723 two seasons ago.

The question is why have African yields stagnated? It could be bleached soil with the decreasing efficacy of inputs. It also may be also a lack of GM, yes genetically modified crops. American officials always point out that 30 percent of world cotton stocks are now grown genetically. For most Africans, however, GM remains unpalatable.

There’s always the question of technology. The richer countries in the world are pushing aside those countries who can’t afford to keep up with yield-increasing technologies. Because Africa’s corrupt cotton sector is mostly broke – and beholden to their states for funds – they’ve not had a chance to invest in new technologies.

One country that has greatly modernized its cotton sector? Brazil. Yes, the country that took the U.S. and its subsidies to court has been moving and shaking up its cotton sector for a while. According to the trade publication, Cotton Farming, Brazil’s industry is a sleeping giant.

In 2003, members of the U.S. trade delegation took a tour through Brazil and this is what they had to say about its cotton industry: “Brazil has many pluses ­ excellent weather, sufficient rainfall, good soil composition and access to the world's best-performing varieties. What it doesn't have are efficient infrastructure, stable currency, sufficient ginning capacity and government support programs.”

(Notice the lack of government support programs as a negative.)

In 2002, Brazil produced roughly 847,000 tons of cotton on 735,000 hectares, a yield of 1,150. However, the Brazilians told the U.S. trade delegates they were planning on making use of another 150 million to 200 million acres for cotton. That’s about the same amount of space the U.S. uses for its entire cotton crop.

Brazil is now importing cotton for its own mills, which are mostly described as being very modern. It needs to fix its transportation infrastructure, the U.S. team said. But other than that, the sky is the limit.

"The take-away message for U.S. producers is that we need to keep our eyes on Brazil. If the world price ever gets up in the 70 or 80-cent range, this country has unlimited potential. It could become a juggernaut if it really wanted to move in that direction."

With the nail in the coffin for U.S. subsidies, prices may begin inching that way. It sure shows that the country really knew what it was doing when it took the U.S. to the WTO.

It also proves that more of some of the fight over subsidies was fought in the court of public opinion. Brazil was very careful not to highlights its modern industry, and at the same time point out how U.S. subsidies were harming African nations.

You can feel National Cotton Council’s chairman Woody Anderson’s frustration at being whipped by the richer nations of the developing world. “The developed versus developing country dichotomy advanced by some in Cancun was a clear attempt to move the Doha Round negotiations away from reciprocity,” he said in testimony at the House Agriculture committee in 2004. “Additionally, under the current structure of the WTO, which allows self-designation, Brazil claims the same economic position as Mali, and China claims the same exemptions as Nigeria.”

More cotton

I (somewhat) recently participated in a Q & A with Na Eng, an American journalist who spent a few months of last year in Burkina Faso and Lubbock, Texas. Her report on subsidies, agriculture and living standards of these two regions aired on the PBS program NOW, where she is works as a producer.

Thoughts on cotton

Here are some thoughts on last week’s World Trade Organization ruling against U.S. cotton subsidies. The ruling actually upheld a previous decision stating the U.S. has not done enough to make cotton subsidies legal under world trade agreements. The ruling stems from Brazil’s 2002 complaint to the WTO that U.S. cotton supports depress world prices and creates undue harm to Brazilian cotton farmers. The U.S. government expressed disappointment at last week’s ruling and officials said they would read into the fine print before deciding whether to appeal.

Appeal or not, the U.S. should read the writing on the wall: The era of huge subsidies to cotton farmers is most likely over. And that’s a good thing. The U.S. government could find better ways to spend $30 billion, the cost of cotton subsidies in 2005.

The WTO’s ruling was met with extreme glee in Burkina Faso and other cotton-producing countries in Africa. But hold on. While the long-term prospects are now better for African cotton farmers, African governments should worry about becoming even more dependent on cotton.

First, the Good News
Whenever it happens, the reduction of U.S. subsidies will decrease world prices, perhaps by as much as 14 to 20 percent. What’s interesting is that cotton prices are already predicted to increase, because: 1) cotton production has barely outstripped consumption for the past few years; 2) next year cotton mill use is expected to rise four percent in Asia and two percent in the rest of the world; and, 3) American cotton production is already forecasted to decrease because farmers will most likely grow more corn (and less cotton) because of corn’s financial advantages from the interest in ethanol.

It’s true: Higher cotton prices are better for cotton farmers everywhere. Especially in Africa. In a June 2007 report for Oxfam, a group of economists found that without U.S. subsidies, cotton farmers in the C-4 (Mali, Burkina Faso, Chad and Benin) could see a revenue increase up to 22 CFA per kilo. In Burkina Faso, where the average farm is 2.1 hectares and the average yield is about 1 metric ton per hectare, that means added revenue of between 22,000 and 88,000 CFA. (With the most common exchange rate at about $1 = 500CFA, that’s between $45 and $180 per year. Good money in a country where the individual poverty rate lies around $150 per year.)

The economists, from the University of California at Davis, added the savings up across the two to three million cotton farms in the C-4 and found the added money could feed an extra one million children. Their math looks like this: In Burkina Faso the average farm consists of 11 people, seven adults and four children. The additional income generated from higher prices roughly compares to 40 to 160 percent of the money these families already spend on food. So a family can then feed an extra .4 to 1.6 people per household, which they average out to be roughly one person. If you multiply this to two to three million households spread out over the C-4, the amount rises to about two million adults or one million children.

Of course, the money doesn’t have to be spent on food. “The added revenue received by cotton farmers may be used to meet many demands other than food,” the researchers write. “This might include more access to rural schooling, improved health care or other household expenditures.”

How much benefit?
For me, the question isn’t whether C-4 cotton farmers see price increases; the question remains, how much of a price increase will they see?

If we go from past experience, cotton farmers shouldn’t get their hopes too high.

The cotton sectors of the C-4 are mostly managed by state firms, legally protected monopolies responsible for selling farmers seed and inputs, collecting the cotton, ginning it and delivering large bales to port to be sold on the international market. Before the growing season begins, these cotton firms “announce” a price they will pay for each kilo of cotton. (In Burkina Faso, they pay two prices, dependent on quality.) Anyway, farmers’ cooperatives have trouble bargaining down the prices for inputs and seeds (where they are forced to pay about 20 percent above cost) and cannot negotiate the price paid for cotton. Because the cotton firms are usually the only source of credit in the agricultural zone, farmers are literally at their mercy for their livelihoods.

This paternalistic relationship isn’t uncommon in Africa. Think of these cotton firms as marketing boards, institutions set up during colonial times (and kept after independence) for creating a system to pay farmers who grow commodities: palm oil, cocoa, coffee, rubber, peanuts, etc. Like cotton firms, marketing boards provide equipment to farmers, collect the crops and most importantly, sell the crops on the international market. The well-paid executives set the price early in the season, they say, to protect farmers from the wildly fluctuating international market.

However, two things happened on the way to market. When the marketing boards’ prices was set higher than the world price, the marketing boards lost money, which had to be recouped by another area of the budget or by the World Bank or some such agency. So, the marketing boards learned another trick: Underbid farmers for the price of their commodity and be guaranteed a profit at the end of the season.

According to research completed for the Cato Institute by a World Bank economist, in the 1980s, West African farmers received about 60 to 70 CFA per kilo of cotton when the world price ranged between 200 and 250 CFA.

In their defense, cotton companies must incur expenses for ginning cotton and delivering the bales to port, which in Burkina Faso’s case, lies 600 miles from Ouagadougou. In a region where diesel fuel costs nearly $4 per gallon, those costs add up quickly. Because the pricing system remains opaque, however, no one knows how the cotton companies arrive at their announced price to farmers.

Even when marketing boards were flush with money, problems arose. In countries with little transparency, the extra income had a way of getting lost. In its study of the cocoa sector in Cote d’Ivoire, the group Global Witness illustrates how president Félix Houphouët-Boigny reacted when cocoa prices unexpectedly rose, greatly increasing state expenditures: He treated the extra money as his personal bank for government (and other) expenditures.

Sidenote regarding the Oxfam study: The discrepancy between world prices and prices offered to C-4 farmers lead the economists to calculate the estimated 20 percent increase on the world market from the loss of U.S. subsidies to percent increase between eight and 14 percent to West African farmers.

The Burkina example
After the collapse of world cotton prices near the end of the 1990s (brought on, in part, by U.S. subsidies), the governments of the C-4 were forced to make changes to their cotton industries. Burkina Faso was ahead of the curve by opening up the cotton sector and allowing competition.

Much has been said about this perestroika. The government of Burkina Faso reduced its interest in the state-monopoly Sofitex and allowed “competition” to spread throughout the country. Kind of. What the state allowed was two new cotton firms to begin doing business. However, these firms couldn’t go out and lure farmers away from the much-loathed Sofitex. That’s because the government divided the country into three unequal regions, each firm doing business in its own territory. As you can guess, Sofitex maintained 85 percent of the country’s share of cotton and the other two firms claw for the final 15 percent.

In other news of dependency: The other two firms must defer to Sofitex for resources like trucks to pick up and deliver the cotton. (In a poor country like Burkina Faso, there are a finite number of trucks.) Farmers working in the non-Sofitex zones must wait until all Sofitex cotton is picked up before the trucks can be hired by other firms. The longer cotton waits in the villages, the more likely it will be ruined by weather or eaten by animals.

It is reasons like this that most cotton farmers view Sofitex as their first enemy and U.S. subsidies second.

Wait, there’s more
Cotton already represents 60 percent of the crop revenue in the C-4 and accounts for between 2.5 and 7 percent of its GDP. Both the World Bank and the IMF have desperately attempted to diversify the agriculture base in these countries. Monocrop horticulture is not only dangerous economically, but environmentally. Only ten years ago much of Burkina Faso’s crop was wiped out by white flies. Farmers appear to be increasing their use of pesticides and fertilizers each year, bleaching an already weak soil (and losing more profit to buy the products).

Cotton is also very labor intensive. Years ago, West African cotton was known for its high quality because it was hand-picked and much cleaner than the rest of the world’s machine-picked cotton. As cotton expanded throughout the region, however, its quality has diminished. This could be a factor in ramping up future cotton production if and when prices increase.

There’s another problem with increased production. Today, larger-scale farmers have two choices to harvest cotton. They can reduce their profits by hiring people to help harvest; or, they can get their kids to work for free. (Remember, family size is quite large in rural Africa.) It’s a well-known fact, however, that once kids begin missing school for the harvest, they most likely won’t return. A kid pulled out of school not only cancels any of Oxfam’s stated-gains from higher priced cotton, but further diminishes the long-term wealth of the family.

In the end, the loss of U.S. subsidies will be a good thing for the world. If anything, it should force an awakening in West Africa, where politicians have long pointed a finger and declared U.S. subsidies have crippled their economies. But the political class of these countries has set up a system that pushes cotton and its byproducts on farmers through unfair forms of credit, even though the efficacy of pesticides is falling and the fields are literally being sucked dry by a harsh crop. If the subsidies didn’t get the farmers, monoculture may one day haunt them.

With the fall of subsidies, we can hope for one thing: the Presidents of the C-4 look at themselves in the mirror and ask: Who is screwing whom?