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Two sides to cotton debate

With a farm bill pending, U.S. growers insist they need government subsidies, but the WTO says such measures depress prices, hurting foreign farmers.

December 03, 2007|Alan Bjerga and Shruti Date Singh | Bloomberg News

Suleymane Soro always grew cotton on his 17-acre farm in Ivory Coast, supporting his wife and six children in a mud home he built himself. It has no running water, no electricity -- and this year, little cotton.

"We are completely discouraged," said Soro, who couldn't buy seeds and fertilizer after the local ginning company failed. His profit fell two-thirds this decade, to $262 last year. He turned to corn to survive.

About 6,500 miles away on 800 acres in West Texas, Kelli Merritt watches the cotton market with the same attention she devotes to shooting wild hogs that wander too close to her crop. The pigs are easier to control. Prices, though rising, remain 20% below their level four years ago. Unlike Soro, she has a safety net: U.S. subsidies that paid her $98,097 in 2006.

Soro and Merritt are two faces of the more-than-$280-billion farm bill pending in the Senate. The legislation, similar to a House-passed measure President Bush threatened to veto, would continue subsidy programs that totaled $3.1 billion in the 2005-06 fiscal year.

U.S. farmers like Merritt say the payments are vital. The World Trade Organization says they distort trade and lower prices, hurting farmers like Soro.

The U.S. is hardly the only country to support its domestic growers. China, the largest producer, provides $1.4 billion in annual aid through import quotas that keep Chinese prices above those elsewhere, according to the International Cotton Advisory Committee, a Washington-based association of producing and consuming countries.

The European Union, a much smaller producer, gave its farmers $300 million in aid in the last crop year.

Merritt, 49, lives in the brick house she and her ex-husband built 26 years ago. She was in the top 17% of recipients of U.S. cotton subsidies in 2005, the latest year for which figures are available publicly, according to the Environmental Working Group, an organization favoring subsidy reductions that keeps a database of farm payments.

The top 1%, who received 23% of the payments that year, got an average of $556,716.

Farmers around nearby Lubbock couldn't get by without the promise of government support because bankers wouldn't lend growers money for the next crop, Merritt said.

The problem for farmers such as Soro is that subsidies encourage excess production, which pushes down prices, the advisory committee says. It estimates prices would rise 10% over three to four years if subsidies ended worldwide.

The U.S. is often singled out for criticism by Brazil and other developing nations because most of its crop is exported, said Terry Townsend, executive director of the cotton advisory committee.

Trade threats are having little effect on the U.S. farm bill debate in Congress. Sen. Tom Harkin (D-Iowa), chairman of the Senate Agriculture Committee, says U.S. growers seem willing to keep their subsidies and take their chances before the WTO.

"The votes aren't there to change cotton programs," said Harkin, whose committee approved its farm bill. The committee expects the measure to cost about $288 billion over five years.

Like the bill passed by the House of Representatives in July, it would create a program to subsidize cotton bought by domestic textile mills, attempting to shore up demand hurt by a shift of the global garment industry to China. It would make only minor adjustments to existing subsidy programs.

President Bush, seeking to avoid further trade conflicts, threatened to veto the House bill, which will ultimately have to be reconciled with the Senate's package.

Even if U.S. production and exports were cut significantly, the poorest countries would get little benefit, said Samarendu Mohanty, associate professor at Texas Tech University in Lubbock.

Prices have fallen since 1995, when the industry benchmark price reached a peak of $1.194 a pound, according to Cotlook, a British market research firm that tracks prices, supply and use. The benchmark average this marketing year may be 71 cents a pound, up from 59 cents last year, Townsend's group estimated.

The drop has withered exports from nations competing with larger producers on the world market. The value of exports from Ivory Coast fell to $129.3 million in 2006, an 18% decline since 2001, according to the United Nations.

African nations including Ivory Coast are responsible for about 18% of global cotton exports. In West Africa alone, about 10 million people are dependent on the fiber, especially in regions where other crops are difficult to grow.

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