Subsidising the rich; Dumping on the poor
- The cost of cotton: Cotton subsidies
- The cost of cotton: Dirty cotton
- The cost of cotton: Funding exploitation
- Sweat-shopping: Introduction
- Ethical Commitments
- Sweatshopping: Feeling the 'squeeze'
- Sweat-shopping: The role of companies
- Sweat-shopping: A change of clothing
- FAQ: Where can we find an 'ethical' supplier?
Unfair trade policies keep millions in poverty
10 million people in West Africa depend on cotton for their livelihoods. Cotton is the region’s biggest employer and provides crucial export earnings - needed to invest in infrastructure and basic services such as education and health care.
White gold?
istockphoto.com/jaroslaw wogcik
Cotton should be helping farmers out of poverty, but instead they are struggling to survive. They are being ripped off by unfair trade policies set thousands of miles away which drag down the price of cotton across the world.
West African farmers should have the competitive edge — they can produce cotton more cheaply than farmers in the United States — the world’s biggest cotton exporter.
A subsidy is a grant given by governments to producers to help them with the costs of production and selling.
But the US government gives its cotton farmers more than $3.5 billion in subsidies each year.
This support means that their goods can be sold for less than the cost of production (known as ‘dumping’), allowing them to undercut more efficient producers in developing countries. Subsidies also encourage the overproduction of cotton. Increases in global supply cause prices to plummet even further. Poor farmers are driven further into poverty; many lose their livelihoods altogether.
The West African cotton-producing countries of Benin, Burkina Faso, Chad and Mali are among the poorest in the world.
In 2002 Burkina Faso received $10 million in US aid, yet lost $13.7 million in export earnings as a result of US subsidies
Oxfam has calculated that if the US removed its cotton subsidies the increased income for cotton farmers in West Africa “would provide the resources to feed at least one million children who would otherwise be hungry.”
“Interestingly, in the countries where they subsidize, only about 5 per cent of the population are farmers. Here, farmers represent some 80 per cent of a population that is becoming increasingly impoverished on land that is itself becoming poorer, without the least help from the state.” - National Union of Cotton Farmers of Burkina Faso
Democracy and the WTO
Power rules
West African governments and Brazil have both challenged US cotton subsidies in the World Trade Organisation (WTO). In 2005 the WTO decreed that US cotton subsidies distorted world trade and that the system should change. Yet the US has still not implemented any significant changes.
Major reform of the international trade system is needed if the benefits of world trade are to be shared equitably. At the moment, power still decides who benefits from trade.
FAIRTRADE Mark
Fairer Trade
In the absence of major reform Fairtrade aims to boost the power of some of those producers marginalised by an unjust trading system. Fairtrade cotton became available in 2005.
- Producers of Fairtrade cotton are guaranteed a fair and stable price for their goods — based on the actual costs of sustainable production, ensuring they can meet their basic needs.
- In addition farmers receive a Fairtrade premium — a payment to invest in their communities or businesses. Farmers’ groups decide democratically where they will invest the payment. Producers in Mali are planning to use their premium to dig a well, and build a school and health centre.
- Fairtrade assists producers in diversifying, reducing their dependence on just one crop. In Mali, Fairtrade is enabling cotton producers to increase maize production to ensure self-sufficiency and expand sales to local markets.
- Fairtrade helps farmers organise — for example by working together in co-operatives — giving them more power in the marketplace.
- Fairtrade helps farmers become more environmentally sustainable — helping them reduce pesticide and water use.
Sources and further reading
Impacts of Reductions in US Cotton Subsidies on West African Cotton Producers Julian M. Alston, Daniel A. Sumner, and Henrich Brunke for Oxfam America, June 2007.
Redressing a global imbalance: The case for Fairtrade Certified Cotton, Fairtrade Foundation, November 2005
Truth or Consequences: Why the the EU and the USA must reform their subsidies, or pay the price, Oxfam, November 2005
A round for free: How rich countries are getting a free ride on agricultural subsidies at the WTO, Oxfam, June 2005
Who will be left to cheer the end of illegal US cotton subsidies? Why African cotton farmers cannot afford US inaction on cotton subsidies, Oxfam, March 2005
WTO Sub-committee on cotton. “WTO members on 19 November 2004 set up a body to focus on cotton, as required in the 1 August 2004 decision — sometimes called the “July Package” — covering all the WTO negotiations. The agreement to create a body to focus specifically on cotton is part of WTO member governments’ response to proposals from four African countries — Benin, Burkina Faso, Chad and Mali — to tackle the sector … The proposal described the damage that the four believe has been caused to them by cotton subsidies in richer countries, called for the subsidies to be eliminated, and for compensation to be paid to the four while the subsidies remain, to cover economic losses caused by the subsidies.”