In a new report entitled "Pricing Farmers out of Cotton: The Costs of World Bank Reforms in Mali," Oxfam analyzed how efforts to privatize the Malian cotton sector, including the adoption of a new price-setting mechanism, could leave struggling farmers worse off. The situation in Mali is an example of how the burden of low cotton prices is borne by farmers in Africa while farmers in rich countries are insulated, according to Oxfam.
"Mali's three million cotton farmers have been squeezed by American cotton subsidies and now they have to worry about World Bank. "Instead of improving the livelihoods of cotton farmers, a new price-setting mechanism could destabilize cotton as a source of income for millions of farmers and increase poverty rates by five percent."
Mali is one of the world's poorest countries, with over two-thirds of the population, mostly in rural areas. Mali is also the second largest cotton producer in sub-Saharan Africa after Burkina Faso. Whereas the impacts of low and volatile prices are now shared to some degree by many stakeholders in the Malian cotton sector, the new pricing mechanism will actually push the burden of price risk on to the farmers, according to the agency.
"Transferring the risks of a highly volatile world market down to the bottom of the chain exacerbates poverty," continued Charveriat. "A new mechanism, like a price stabilization fund could help farmers and other stakeholders manage the price risks inherent in producing raw commodities for the export market, positively affecting food security, rural development, health and education."
Oxfam called on the wider donor community, especially the World Bank and IMF, to kick-start a support fund to insulate farmers better and ensure that the risk is shared amongst the various stakeholders. A support fund which functions as a price stabilization mechanism can be very successful in helping farmers to manage risk as long as it is well designed and producer-managed, as evidenced in Burkina Faso. In the event of several years of low prices, the producer price and the fund will adjust accordingly, compelling cotton farmers to plant their crop based on signals from the market.
Cotton farmers in Africa have yet to benefit from international trade negotiations at the WTO and are still bearing the brunt of American subsidies and dumping. New analysis by University of California economist Daniel Sumner highlighted in the Brazilian submission to the WTO Compliance Panel shows the link between American commodity subsidies and overproduction of cotton. Between 2000 and 2005, according to Sumner, American cotton producers would have lost $663 per planted acre, or almost $10 billion in aggregate, if they would not have had payments from marketing, loan and counter-cyclical payments. Instead of losses, subsidies provided American cotton farmers with profits of $127 per acre on average, or $1.44 billion in aggregate.
"If US cotton farmers had to farm for the market, they would have reduced cotton production rather than racking up collective losses of more than $12 billion over market revenue," continued Charveriat. "Reforming the US Farm Bill offers the possibility of reducing export dumping which is so damaging to farmers in developing countries, but it is up to the US Congress to deliver."
Against this backdrop, it is also crucial that core development issues, such as cotton, are not sidelined in the current WTO negotiations. A deal that will rush into rules that do not allow for development, and that instead consolidate and exacerbate inequalities both between and within countries would be a missed opportunity, considering the grand promises made 5 years ago.
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