Sunday, March 09, 2008

The developed world's cotton subsidies are crushing west African cotton.

Source: Globe and Mail—“U.S. cotton subsidies rip apart the fabric of Malian life”

Richer nations that do not rely on aid from multilateral institutions like the World Bank subsidize agricultural commodities such as cotton. The United States, for example, dominates the global cotton market as the world’s largest producer. This is made possible by the massive subsidy doled out each year by the US government, which provides domestic cotton producers with between $2- and $3-billion in subsidies each year. China and the European Union also provide sizable subsidies for their cotton producers.

On the other hand, nations like Mali, where the entire GNP (gross national product) amounts to only a fraction of the US cotton subsidy alone, large incentives for agricultural producers are simply not possible. Additionally, Mali and other developing nations that rely on financial assistance from the World Bank are prohibited from providing any subsidy for their agricultural producers.

The seriousness with which the Bank enforces this condition against borrower countries was evidenced in 2004 when the Malian government attempted to protect its farmers from plummeting cotton prices. The Bank cut off all budgetary support to the impoverished nation until the paltry subsidies extended to cotton farmers were withdrawn.

However, the negative effects of over-subsidized cotton from the developed world—in particular the US—is felt by the entire cotton-producing region of western African, not just Mali. With the support of a coalition of west African countries, Brazil challenged the legality of US cotton subsidies before the World Trade Organization (WTO) in 2003. In 2004, the WTO found that the US cotton subsidies were illegal, but the US has done almost nothing to change its policies, instead opting to engage in protracted appeals so as to continue its anti-competitive practices for as long as possible.


Do you agree with the World Bank’s condition on assistance prohibiting borrower countries from providing any subsidies to local producers?

Do you think such a policy is fair given that the Bank’s leading donors provide such heavy subsidies to their own producers?

As long as subsidies are permitted—and used—by the developed world, is it fair to prohibit the developing world from use of this tactic (given that almost all the developing world relies on assistance from the World Bank and IMF)?

Does this policy approach serve to advance the goal of poverty elimination or does it only exacerbate the problem?

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