White Gold or Fool's Gold: What Will a Rollback of U.S. Cotton Subsidies Mean for Farmers in Burkina Faso?

Ouagadougou, Burkina Faso — In its 2006 budget proposal released in February, the Bush Administration planned to phase out nearly $6 billion in farm subsidies over the next 10 years, and close costly program loopholes. A few weeks later, the World Trade Organization (WTO) upheld a ruling that deemed most U.S. cotton subsidies illegal and in violation of international trade laws. By July, the administration must cancel those subsidies, or Brazil, which brought the complaint, can impose retaliatory sanctions.

These two announcements were met with guarded optimism in Burkina Faso. Cotton farmers here have long argued that U.S. government subsidies promote cotton overproduction, which leads to depressed world prices that are greatly felt in a country where people struggle to earn $170 a year.

“Cotton occupies a large place in this country on account of its price, but today U.S. subsidies are the problem,” says Adolphe Kara, a regional director for Sofitex, Burkina Faso’s largest cotton company. “People don’t understand that these subsidies are killing small cotton farmers.”

Bush has since backtracked on his pledge to cut farm subsidies. Time is ticking on the WTO’s July deadline, and the government’s reaction is still pending. If U.S. cotton subsidies are rolled back, it is fair to say, cotton prices will increase, which would most likely lead to another period of growth in Burkina Faso’s cotton sector. In a country that already depends on cotton for more than half of its exports, that may not be an unambiguously good thing.

A Step Back in Time

Standing in a West African cotton farm, cotton experts are fond of pointing out, is much like taking a step back in time. Like the meager cotton holdings in the United States during the 1930s, West African farmers work on small plots, mostly between four and seven acres. As in the years before mechanized farming, West African farmers work by hand. This makes their cotton very popular on the world market, because hand-picked cotton holds up better while being ginned. Also similar to U.S. farmers during the Great Depression, cotton is the major — usually, only — source of income for West African cotton farmers.

Eight states — Benin, Burkina Faso, Cameroon, Chad, Cote d’Ivoire, Mali, Senegal and Togo — dominate cotton production in western Africa. This bloc of former French colonies grew and exported roughly 600,000 tons of cotton in 2004, making them the second largest exporter after the United States.

The United States, however, is one of the richest countries in the world, while these cotton countries rank near the bottom of most scales of human development. Burkina Faso and Mali stand as the third and fourth poorest countries in the world, according to the United Nations Development Program.

The Case for White Gold

As the region’s most drought-tolerant cash crop, cotton is one of the few plants able to prosper in the dry, dusty climate near the Sahara Desert. In Africa, however, cotton’s popularity is grounded in economics. Since the early 1990s, when it was selling well, cotton became a popular economic development tool because it appeared to be a reliable source of income, especially in rural areas where a majority of the population lives. Even with a 50 percent drop in value during the past decade, cotton still remains a major source of government revenues in West Africa, and the major economic activity in two million households across the region.

Dubbed “white gold” by its growers, cotton’s price remains higher than other cash crops. “I’d farm something else, but cotton is the only product that pays,” says Issa Zallé, who grows 12 hectares (28 acres) of cotton in Farandjani, a village near Burkina Faso’s border with Cote d’Ivoire.

Cotton production in Burkina Faso is divided into three zones, each controlled by a separate cotton company. These firms control all steps of the cotton harvest, from providing seeds and chemicals to collecting cotton and eventually transporting the bales to port. By law, they are obliged to sell farmers seeds, fertilizer and insecticide on a timely basis, and collect the cotton after it has been harvested. Having these guaranteed customers places cotton farmers at a competitive advantage to, say, corn growers, who speak of traveling as far as neighboring Mali to sell their harvest.

Most importantly, local cotton companies say, cotton farmers enjoy access to credit — a luxury in most parts of West Africa. Each year before planting, companies extend farmers credit to purchase seed, fertilizer, insecticide — and tools, if necessary. “For a producer who needs money, shop keepers don’t loan money, but when a cotton farmer needs money, they can get credit,” Sofitex’s Kara says.

Local cotton companies exploit this situation by extending credit to cotton farmers who also want materials to grow other crops, such as corn. The credit, of course, comes at a cost. Interest rates are roughly on par with loan sharks, and credit allows cotton companies to dictate rules surrounding the harvest: the companies choose who grows cotton. Sofitex, in which the state still holds a 30 percent stake, will only do business with cotton farmer associations, called Groupement de Producteurs de Coton (GPC). Each association must contain at least 15 growers with at least two years cotton experience, and members must harvest at least 40 tons of cotton, requiring about 40 hectares (just under 100 acres).

Farmers left out of cotton desperately try to get in. Cut off from credit, some farmers attempt to set aside money to purchase materials for even an acre’s worth of cotton. “If I could save for the implants, I would grow cotton,” says Ramata Ouedraogo, president of a local women’s group in Sideradougou that grows crops to finance development projects, such as a women’s literacy center. “When you grow cotton, you earn a nice profit.”

Follow the Money

This year, U.S. taxpayers are projected to fork over nearly $18 billion supporting farmers. One-quarter of the agriculture subsidy will benefit U.S. cotton producers.

Cotton subsidies weren’t always so generous. According to the subsidies watchdog Environmental Working Group, U.S. taxpayers paid out roughly $14 billion to cotton farmers between 1995 and 2003, which was small potatoes compared to the $131 billion doled out to all farm programs. Cotton subsidies, long tied to prices, have increased as world cotton prices stubbornly stay below certain thresholds.

Falling Prices

During the past 40 years, one theme has dominated the international cotton market: falling prices. When adjusted for inflation, the value of cotton has been declining since the 1950s, when it sold for $4 a pound. After a 40-year steady decline, prices began to freefall in the late-1990s and bottomed out during the 2001-2002 season, when cotton sold at a mere 43 cents a pound, leading the International Cotton Advisory Committee (ICAC) to note that its cotton price index was its “lowest since the invention of the cotton gin in 1793.”

The disastrous 2001-2002 cotton season is a good window into the relationship between subsidies and overproduction. That season, world cotton support totaled $5.8 billion, with four countries — the United States, China, Greece and Spain — accounting for roughly $5.6 billion. In 2001-2002, cotton farmers in the United States earned $3.3 billion in subsidies; China added another $1.2 billion, while Greece and Spain picked up the remaining $979 million.

1999 marked the beginning of a world economic slowdown, stagnating cotton consumption for the next few years. Between 1999 and 2001, world cotton production rose by 13 percent, mostly in heavily subsidized countries, where farmers were insulated from falling prices. Production in the United States increased by 40 percent and the country’s volume of exports doubled during this time.

The 2001-2002 season opened with three years of high production and low demand, building world stocks to their highest levels in 16 years. Cotton producers continued to plant, grow and harvest at record rates. That season, China produced 4.4 million tons, the United States grew 3.7 million tons and Greece grew 421,000 tons, which were all production records. With all that cotton and so little demand, the global market price had nowhere to go but down.

West African cotton countries, which export more than 90 percent of their stocks, lost $250 million during the 2001-2002 season, according to World Bank consultant and cotton expert Louis Goreux. Researchers at Oxfam say Burkina Faso alone lost 2 percent of its GDP and 12 percent of export earnings.

The Great Unknown

If the United States decides to roll back cotton subsidies, the exact effect on cotton prices is uncertain. Some estimates predict cotton prices would rise as much as 26 percent, while others see more modest increases of between 5 and 11 percent.

In the long term, however, the International Cotton Advisory Committee, a grouping of 41 cotton-trading countries, predicts that a cut in U.S. subsidies will move a portion of U.S. cotton production to places that can grow it cheaper.

For West Africa, though, there are no guarantees. Goreux predicts countries with more infrastructure — like Brazil, India and Pakistan — could pick up most of the slack from a shrinking U.S. market.

Higher world prices also may not mean greater profits for Burkina Faso’s cotton farmers, which are among the lowest paid in the world. (Last year they received 19 cents a pound as the world cotton price stood at 52 cents.) Because cotton companies are responsible for all aspects of the supply chain, including transporting bales 1,000 miles to ports in Ghana and Togo, these costs are taken into account before arriving at the guaranteed price farmers receive. World Bank analysts, however, have long complained that questionable accounting practices allow cotton companies to absorb extra profits when prices rise without passing a fair share back to farmers.

One benefit of the pricing structure, cotton companies say, is stability. As world prices fluctuate — or have the possibility to fluctuate — farmers here understand they’ll be making about the same price as last year. This protects farmers from price shocks and the falling dollar, cotton’s international currency.

If prices do increase, what will a “white gold” rush mean for Burkina Faso’s rural population? During the last period of growth in West Africa’s cotton sector, the World Health Organization found cotton expansion led to falling poverty levels throughout the region. The relationship between cotton sector growth and rising incomes is complicated, however. Between 1998 and 2003, Burkina Faso saw a 5 percent reduction in its poverty rate. The rise in prosperity would have been more significant, the World Bank reported, but too many farmers joined the cotton sector, forcing them to purchase foodstuffs at higher prices because they were no longer growing enough corn and millet to support their families.

White Gold's Balance Sheet

“Prices were good before, but today there’s not a lot of profit,” says Ali Koutou, who farms cotton in a village bearing his last name. “This work doesn’t bring any money. We are very discouraged.”

After looking at the balance sheets of local cotton farmers, Ali’s complaint rings true. Cotton may be Burkina Faso’s most profitable crop, but it keeps families tethered to the country’s poverty line of $170 per person per year. Taking into account payment for seeds, fertilizer, insecticide and labor for weeding fields, planting and harvesting, the average farmer begins each season with a $239 bill for every hectare of cotton planted.

After a decent rainy season and an average yield of 1.2 tons per hectare — an optimistic result — a farmer might earn $520 a hectare for top-quality cotton. After expenses, the farmer walks away with a $281 per hectare profit. For the average farmer planting three hectares, total income is $843 — which then must be divided up among an average of six children and a wife, leaving $140 per person. In Ali’s family, the division is more difficult, as he must account for two wives and 12 children.

Farmers often forgo hiring people to help in the fields, which adds another $77 profit per hectare. Cotton is very labor intensive, however, and somebody has to do the work. Farmers often recruit family members to help out with harvest or to perform other tasks during cotton season, such as taking care of animals. “If you grow cotton the traditional way, where you don’t have to pay your family, there is a profit. If you have to pay people, there is no profit,” says Baya Coulibaly, who plants four hectares of cotton, six hectares of millet and three of corn. “Me, I have to exploit my family.”

Oftentimes, children are recruited to work. Once pulled from schools, most kids never return. During the 2002-2003 school year, barely more than half of children attended primary school, according to government figures. The rate is slightly lower in the country’s 15 cotton-dominant regions.

For all the accolades about cotton’s credit systems, they often work at a strict disadvantage to farmers. First, farmers are forced to pay 20 percent above market value for fertilizer and insecticide. Each cotton farmer association (GPC) negotiates its own credit agreement, which forces newer, less experienced groups to pay higher interest rates, often between 10 and 20 percent. Many of these farmers wind up betting next year’s crop to pay off this year’s debt.

One of cotton’s unknown legacies is environmental degradation. Scientists worry that soil fertility is declining throughout West Africa, and they blame cotton farmers for reducing fallow periods and ignoring crop rotations. The largest problem may be cotton itself, which has long been thought to degrade soil and forces farmers to rely on increasing loads of fertilizer. Cotton farmer Yao Mamourou says that during the early 1990s, he could get by growing cotton with two sacks of fertilizer per hectare. Today, he uses twice that amount.

Insects are also a problem. Cotton farmers nearly met disaster in 1998 when the white fly feasted on cotton plants throughout the country. Today, most farmers find themselves in a losing battle against insect pests. “It seems there are more and more insects that attack cotton,” says Crepin Somé, who farms with his family in the southern part of the country.

Alternative Crops, Anyone?

For all its drawbacks, many farmers in Burkina Faso still see cotton as the only chance to make a decent living. Small inroads have been made with alternative crops, like organic cotton, which eventually will bring greater yields in the fields and higher prices in Europe. More pronounced is sesame, which also grows organically, is easier on the soil, and can be produced into oil, which brings high prices around the world.

But there seems little prospect for these crops displacing conventionally grown cotton anytime soon. In a country where a majority of people straddle the poverty line, cotton is too socially and economically entrenched to play second fiddle. Cotton provides farmers with equipment and customers, and compared to other crops, it pays well. If U.S. subsidies — and overproduction — decrease and world prices rise even incrementally, more of Burkina Faso’s farmers may find cotton too hard to pass up.

“We aren’t like Nigeria which has oil, an ocean and a large seaport,” says Bénéwindé Sawadogo, who runs a fair trade organization in Ouagadougou. “Cotton is our only resource.”

John Liebhardt is a freelance reporter living in Ouagadougou, Burkina Faso.