National Cotton Council: Oxfam Report Misrepresents Impacts of U.S. Cotton Program

The National Cotton Council says a recent report by Oxfam based on a previously discredited economic model is yet another attempt to wrongly portray the U.S. cotton program as the primary determinant of the financial condition of West African producers.

Cotton farmers in the West African countries of Benin, Burkina Faso, Chad, and Mali (collectively known as the C-4 countries) are once again being used as the centerpiece of a campaign by a publicity-seeking outside organization attacking farm programs in developed countries, with particular attention focused on U.S. cotton. Oxfam and its paid consultants continue to generate and publicize economic studies which conveniently ignore the complexities of world fiber markets. West Africans need to attract investment, need improved market access to China and other textile markets, and need assistance in acquiring and utilizing affordable inputs and technology. The misguided campaign essentially ignores the institutional problems, which are the primary barriers to attracting investment and promoting competition - perhaps because the contributors benefit from the existing monopolistic system.

The economic model, developed by Julian Alston and Dan Sumner (who was paid by Brazil to develop an economic model against the U.S. cotton program and to serve as a member of the Brazil delegation in the WTO case), generates price impacts that are three to four times larger than separate and independent studies by Texas Tech University and the Food and Agriculture Organization of the United Nations. Those independent studies attributed world price impacts of only 1% -2% to the presence of the U.S. cotton program, and that was including the now-discontinued Step 2 provision of the cotton program.

The Oxfam analysis contradicts data from their own report. Their own charts demonstrate no linkage between movements in annual average world prices and internal West African producer prices. Yet, the Oxfam report inexplicably assumes a strong relationship in those prices.

Already, the conclusions of the Oxfam report are being met with a critical eye. Harvard economist Dani Rorik concluded that the elimination of subsidies would be "little more than a blip" hardly noticeable for West African producers and cautioned advocacy groups to not oversell any potential impacts.

The Oxfam promotional paper virtually ignores the serious internal problems plaguing West African cotton producers. A recent report by USDA's Foreign Agricultural Service notes that "the well documented internal inefficiencies in the cotton sector continue unresolved and underfinanced." These problems are generally caused by a monopolistic supply and purchase system that prevents competition among cotton buyers, gins or input suppliers in West Africa and results in high prices for fertilizer and seed which are often inferior, over-priced and unavailable at critical times in the growing season. The lack of competition also means low prices for farmers when they market their crop in a monopolistic system. The price received by West African cotton producers is well-documented as being far below their counterparts in most of the cotton-producing world - including Brazilian, Indian, and Chinese cotton farmers.

In addition to receiving less for each pound of fiber than their counterparts in other countries, West African cotton farmers are losing ground in terms of productivity. While virtually every cotton-producing country in the world has seen dramatic increases in yields, West Africa's yields are stagnant or declining and are now only one-half to two-thirds of the world average.

Unfortunately for West African cotton farmers, the prospects for narrowing the productivity gap with other countries are not good under their current system. A recent study by the International Fertilizer Development Center found that degradation of farmland across sub-Saharan Africa has accelerated over the past decade. In addition, some governments in West Africa continue to reject genetically-enhanced crops while adoption in China, India, and Brazil is allowing their farmers to reap the benefits of improved yields and lower costs. A World Bank study concluded that developing country welfare would be enhanced far more from allowing the adoption of biotech cotton than by the removal of all cotton subsidies and tariffs.

Compounding the internal problems, because West Africa's currency is linked to the Euro, recent movements in the Euro/dollar exchange rate are increasing costs, reducing international competitiveness, and escalating financial difficulties.

Since many West African farmers derive a significant portion of their income from cotton, they need assistance, particularly on the developmental side. The U.S. cotton program has not led to the inequities they perceive and outside organizations and their paid consultants do a disservice to West Africans by focusing on the U.S.
cotton program rather than the need for assistance and changes that will solve the problems.

U.S. cotton farmers and their families have invested their hard-earned dollars in research and promotion programs that can improve the financial situation for all farmers who operate in an open and competitive system. U.S. farmers have also supported targeted outreach efforts designed to improve quality and productivity for their friends and counterparts in West Africa.

Unfortunately, U.S. farmers cannot assist in addressing the economic damage caused by the lack of competition in West Africa.

The U.S. cotton program is an important component of the comprehensive safety net provided to agriculture and rural America.

Current programs support the rural economy without distorting individual commodity markets. Furthermore, farms and businesses directly involved in the production, distribution and processing of cotton employ more than 230 thousand workers and produce direct business revenue of more than $27 billion. Accounting for the ripple effect of cotton through the broader economy, direct and indirect employment surpasses 520 thousand workers with economic activity in excess of $120 billion.