WTO Rulings...

For instance, two years ago, many developing countries cheered a WTO ruling declaring US agricultural subsidies illegal. Indigent farmers in India will never know the difference though. The WTO ruled that billions of dollars in US subsidies to cotton farmers were illegal. In the post WTO era, ever since agriculture was opened up to "free" global trade, world prices of cotton have witnessed a sharp and steady decline. Despite the avowal by developed nations, the post WTO era has not seen reductions in subsidies for farmers of rich developed countries like the U.S. or in the European Union. At the same time, the little protection that the farmers of developing nations have had are gone. Import duty on cotton in India, for instance, stands at a meager 10%. Even that import duty could be waived if the importer promises to export the yarn in return. Tens of textile mills are taking the advantage of this leeway. Also regulations on inputs and seeds have been long withdrawn.

Notes Devinder Sharma, a policy analyst: "A complicated and veiled system of tariffs allows western countries to protect their tiny farming populations while millions of farmers in developing countries are swamped under a tide of cheap imports." While cotton prices have declined by more than 60 percent since 1995, U.S. subsidies to its barely 25,000 cotton farmers reached 3.9 billion dollars in 2001-02, double the level of subsidies in 1992. Interestingly, the value of subsidies provided by American taxpayers to the cotton barons of Texas and elsewhere in 2001 exceeded the market value of cotton output by 30 per cent.

To put this figure into perspective, as an Oxfam report puts it, that subsidy was nearly twice the total U.S. foreign aid given to sub-Saharan Africa. It is also more than the combined GDP of Benin, Burkina Faso and Chad, the main cotton producing countries of the sub-Saharan Africa. India too is among the countries worst hit by the rising U.S. subsidies for its own farmers and lifting up of whatever little protection Indian farmers enjoyed. There is no study on the losses India suffered in terms of export earnings due to the depressed world cotton prices.

But in one sample, Oxfam estimates that sub-Saharan African countries lost $305 million due to US subsidies in crop year 2001. There is also dramatic fallout in that the subsidies deepen the poverty in the developing world. An International Food Policy Research Institute (IFPRI) report in 2005 focused on Benin indicates that a 40% reduction in farm-level cotton prices leads to a 21% reduction in income for cotton farmers and results in an increase in rural poverty of 6-7 per cent.

From a share of 18.16% in 1998-99, America's share in world exports jumped to 38.96% in 2002-03. Indian cotton imports rose sharply in the same period, crushing the local cultivators. In 2004-05, global prices were around 50 cents per pound, the seventh year in succession that they were below the long-term average of 72 cents per pound. Even the most efficient producers are now operating at a loss, unable to cover the costs of production. Marketing projections by the International Cotton Advisory Committee (ICAC) suggest that prices will remain "chronically depressed in the foreseeable future". Forecasts point to a modest recovery, but prices look likely to remain at 50-60 cents per pound until 2015 if present conditions continue. Estimates by the International Cotton Advisory Committee (ICAC), using its World Textile Demand Model, indicate that the withdrawal of American cotton subsidies would raise cotton prices by 11 cents per pound, or by 26 per cent.

But farmers in developing countries cannot get a realistic price for their cotton because the subsidies in U.S. help their farmers grow surplus cotton, and that surplus crushes the cultivators in a country like India.