When The US Pays Others To Keep Its Cotton Subsidies

Thursday, April 22, 2010

A couple of weeks ago, I read an interesting commentary by Michael Grunwald in Time Magazine entitled, “Why the U.S. Is Also Giving Brazilians Farm Subsidies.” If you are into cotton, textiles or international trade, I encourage you to read his column. In reading his piece, I was particularly struck by his opening questions:

“What could be more outrageous than the hefty subsidies the U.S. government lavishes on rich American cotton farmers? How about the hefty subsidies the U.S. government is about to start lavishing on rich Brazilian cotton farmers?”

After reading Mr. Grunwald, I was left with the feeling that something was amiss in that the US was treating its cotton subsidy program in a manner that would really come back to haunt our industry.

Enter Brazil and the drawn out, well-publicized dispute over US cotton subsidies. For those of you unfamiliar with this dispute, Brazil challenged the US over its cotton subsidy program at the World Trade Organization (WTO) several years ago and won a ruling stating Brazil was entitled to compensation. That’s when the fun really started, as the US entered into negotiations with Brazil to try to find a resolution, only to have those negotiations break down, prompting Brazil to announce it would impose punitive tariffs on a wide range of US products exported to Brazil as retaliation. In order to thwart such retaliation and to head off a revolt by a number of US exporting industries, the US reopened negotiations with Brazil resulting in an agreement to postpone any retaliation on Brazil’s part as negotiators scramble to patch together some sort of long term agreement to address Brazil’s grievances with the US cotton program.

Needless to say, the US cotton program is a big deal for most growers (even those who grow organically, I should mention) and in many ways has helped to keep farmers on the farm and not exit the business. At the same time, though, the program has become a crutch for some growers in that the program by its very nature does little to help producers to learn how to best market their products and encourages production of only the most standard varieties of cotton. Producing lackluster cotton at time when customers – textile mills – are demanding better quality from raw material suppliers is baking a recipe for disaster over the long term, as much of the US cotton supply chain is guilty of this.

At any rate, so the US and Brazil announced this week they had agreed to put any further fighting over US cotton aside for the next 60 days – in effect a cooling off period /1/. But this cooling off period came with a cost to the US, namely the establishment of a $140 million technology fund to help Brazilian farmers produce better cotton.

I have to admit, something about this deal bothers me … and it sounds a lot like the US is simply buying off their competition in order to keep its subsidy program going. This may sound blasphemous to some in the US cotton industry – the industry in which I work – but I was puzzled to read a terse press release issued by the National Cotton Council (NCC) just this week that made me wonder what was going on. See what I mean:

“The Memorandum of Understanding between the United States and the Government of Brazil, which was announced yesterday, met the United States’ commitment to have the fund established by April 22.

The National Cotton Council is pleased to see progress continue along the previously agreed path and welcomes Brazil's announcement that retaliation has been suspended for 60 days. The U.S. cotton industry will continue to support engagement and consultation between the affected/interested parties.”

Does this mean that the NCC is complicit with this deal? It certainly sounds like the NCC is sensitive about any retaliation over the cotton program, but did the industry fall on its sword over this deal or was it simply an example of saving a popular subsidy program at any cost? Honestly, it looks to me like the US industry got rolled.

I’m left asking a sensitive question: What’s happened to the industry’s leadership? For example, I’ve never understood why the US cotton industry didn’t cut a deal over the US subsidy program in the Doha Round, something could have been accomplished several years ago when the WTO Ministerial Meeting in Cancun ended in disarray largely due to failure of participants to agree on a package over cotton subsidies. Since then, every cotton-producing country from Brazil to Ghana (not to mention groups like OXFAM) has dragged the US through the mud over how the cotton program provides an unfair competitive advantage to US growers. US industry recalcitrance helped to set the stage for Brazil’s eventual victory at the WTO and resulted in the US government in effect subsidizing US cotton’s own competitors!

In many ways, Brazil is simply carrying the banner for poor farmers around the world. Brazil’s farmers are not poor, certainly when compared to farmers in Africa. Brazil has the resources to battle the US at the WTO, unlike, say, a Mali or Tanzania. But Brazil’s success has also opened the door for other countries – poorer countries, particularly those in Africa – to challenge the US over its farm subsidy programs. Does US cotton really need to do its battles with the Third World? I think this is what really gets me: the whole cotton debate pits rich versus poor. And now we have a deal that buys off the poor in order to keep the rich, well, rich. Something doesn’t ring true to me.

Nevertheless, despite the problems with Brazil, I think the bigger issues over time for the US cotton industry will be what happens when the current Farm Bill expires? What happens when the US government looks to pull back on its expenditures and tries to lower the Federal budget deficit? Where will that leave US cotton? I think the whole US farm subsidy program will be walking around Washington with a big bulls eye on its back, so to speak.

What steps have been taken by the industry leadership to address the cotton business post-Farm Bill? I’d like to know. US growers have been reliant upon government subsidies for years and years and I fear they have become more proficient in tapping the subsidy program than learning how to market their cotton. To get beyond the subsidies – something that I think will end – will require a level industry leadership, not just deals made to postpone the inevitable.

/1/ Go HERE to read a copy of the USTR press release announcing the agreement.

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