King Cotton Report

KING COTTON

I.Intoduction, Issues and Assumptions:

Back in the 1930s US started the practice of giving subsidies to farmers and the largest single recipient of which are cotton farmers.

Fact No.1 – US cotton farmers received $5 billion in subsidies and that’s for a crop that was only worth $4 billion!

Fact No. 2 – Subsidies to cotton farmers amounted to $19.1 billion between 1995 and 2005.

1. Subsidies given to cotton farmers

a. Subsidy disbursement skewed towards large rich farmers.(top 10% received 81% of all payments)

b. Cost of production of US cotton is high, almost three times higher than low cost producing countries.

c. U.S. cotton subsidies result in overproduction, which depresses the world price for cotton.

d. Major economic shocks due to U.S. cotton subsidies.-

Burkina Faso- lost 1% of GDP and 12% of export earnings

Mali- lost 1.7% of GDP and 8% of export earnings

Benin- lost 1.4% of GDP and 9% of export earnings. Impact is harsh.

2. 2000, Brazil files a complaint against US in the WTO.

a. 2005, WTO required the U.S. govt. to remove subsidies.

b. Response: U.S. removed a program that compensated U.S. cotton mills and exporters for buying U.S. cotton. Majority of subsidies remained intact.

c. Formal investigation is being conducted.

II.Analysis

From the point of view of other cotton producing countries, the US was manipulating the outcome of global free trade and free markets, since its huge production of cotton can very well be dumped in the global market at lower costs. This will make the global cotton trade imbalanced in favor of the US.

American cotton subsidies are destroying livelihoods in Africa and other developing regions. By encouraging over-production and export dumping, these subsidies are driving down world prices – now at their lowest levels since the Great Depression. While America’s cotton barons get rich on government transfers,...