Category Archives: Cotton and the WTO

Dead Aid

 

Dead Aid: Sub-Saharan Africa

With a Ph.D. in Agricultural and Resource Economics from Oregon State University in the USA, Dr. Terry Townsend is a consultant on commodity issues. He is currently working with the African Cotton and Textile Industries Federation (ACTIF). He served as executive director of the International Cotton Advisory Committee (ICAC) and has also worked at the United States Department of Agriculture for fve years, analyzing the U.S. cotton industry and editing a magazine devoted to across-section of agricultural issues.

Dambisa Moyo, is a Zambian-born international economist and author who analyzes the world economy and global affairs. She has worked at The World Bank and Goldman Sachs and currently serves on the boards of several international companies. She argues in her 2009 book, “Dead Aid,” that foreign aid undermines economic growth in Africa by distorting incentives.

Dead Aid

She argues that more than $1 trillion in development aid has been transferred from rich countries to Africa in the last 50 years, but Africans are worse off because of it. She says that overreliance on aid has trapped developing nations in a vicious circle of aid dependency, corruption, market distortion, and further poverty, leaving them with nothing but the “need” for more aid.

The international aid industry has studiously ignored her book and its implications. Maybe it’s time to pay attention to her.

India versus Sub-Saharan Africa

Consider the contrast in cotton industry performance between India and Sub-Saharan Africa. In the 1990s, yields in both were about equal. Agriculture in both is dominated by hundreds of millions of small-holders, many of whom are illiterate or poorly educated, speaking hundreds of different languages, divided ethnically and geographically, with limited access to technology and mechanization, and exhibiting a welter of traditional cultures.

India sought and received no foreign aid devoted to improvement of cotton production and yields during the 2000s, and instead launched a Technology Mission on Cotton (TMC) that sought to increase cotton production and improve quality through research, extension, regulation and incentives, all domestically inspired and implemented.

In contrast, Sub-Saharan Africa requested and received millions of dollars in direct cotton-specific development aid, relying on donor-funded projects rather than domestic and regional initiatives.

And, the result: the average yield across Sub-Saharan Africa of 331 kilograms of lint per hectare in 2015/16 was the same as it had been two decades earlier. In contrast, the Indian yield climbed from about 300 kilograms per hectare in the early 1990s to 480 by 2015/16, after rising to 570 kilograms in 2013/14.

chart_cottonyield_deadaid

Development Assistance

Nearly $900 million in donor aid has been spent since 2004 or is committed under current projects in support of the cotton sector of Sub-Saharan Africa.

Cotton has been called a “litmus test” of the commitment of developed countries to the Development Round, and a “poster” for the Doha Development Agenda. Cotton rose to prominence in the Doha Round because the President of Burkina Faso attended a WTO meeting in 2003 (it is unusual for a head of state to attend such a meeting) and demanded that cotton be addressed specifically. In response, member governments of the WTO formed a Subcommittee on Cotton in 2004, and the WTO Secretariat began tracking development assistance provided to Benin, Burkina Faso, Chad and Mali (the C4) and all Sub-Saharan African cotton producing countries.

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As of November 2016, the total value of cotton-specific development assistance provided for 47 African beneficiaries and others that had been completed was $581 million, of which $310 million had been targeted at the C4. 175 separate projects were enumerated, including projects supported by the European Commission, France, Germany, Netherlands, Sweden, Denmark, the UK, Japan, Switzerland, the U.S., Brazil, the Common Fund for Commodities (CFC) with the International Cotton Advisory Committee (ICAC), the Food and Agriculture Organization of the United Nations (FAO), the International Trade Center (ITC), the United Nations Commission on Trade and Development (UNCTAD), the Organisation of Islamic Cooperation (OIC) with the Islamic Development Bank, United Nations Industrial Development Organization (UNIDO), and The World Bank. Projects ranged from support for a conference on GMO cotton, improvements in rural roads serving cotton areas, support for HVI classing, miscellaneous studies, support to producer organizations, support for technical assistance to small holders, training and capacity building for small-scale farmers, value chain cotton sector support, and approximately 165 more.

In addition to projects already completed, another 29 projects are currently being implemented and 6 projects are in the formulation stage. These additional 35 projects are valued at $281 million, of which $151 million are targeted at the C4. Donor countries and organizations supporting ongoing projects include Australia, the European Commission, France, Germany, Netherlands, Sweden, Switzerland, the United States, The World Bank, CFC with the ICAC, FAO, ITC and UNCTAD. Some of the ongoing projects include ethical cotton production in Kenya, Support income increase of smallholder cotton producers through better quality and access to markets – Phase 2, Improvement of productivity and sustainability of farms in cotton areas, Fair trade and organic cotton in West Africa, Cotton made in Africa, Initiative Sustainable Trade (IDH): Cotton Value Chain Development, Programme for the development of the cotton sector in Africa, South-South cooperation for the promotion of decent work in cotton-producing countries in Africa and Latin America, Competitiveness and sustainable strengthening of the cotton sector through the reinforcement of cotton farmers’ capacities in the Integrated Production and Pest Management, Zambia: Empowering women in the cotton sector, and about 25 others.

Finally, in addition to cotton-specific projects, both those that have been completed and those that are ongoing, another $4.1 billion has been committed for agriculture and infrastructure-related development assistance for 31 African beneficiaries and others. These 67 projects are not cotton specific, but they are aimed at general support and improvement of the agricultural sectors of African countries, of which cotton is an important component. Of the $4.1 billion in general support to agriculture in Sub-Saharan Africa, $2.3 billion have been spent in the C4 alone. These projects have been supported by Australia, Canada, Japan, the U.S. and The World Bank. Projects under the category of general support to agriculture include Official Development Assistance for Agriculture, volunteer sending program to enhance economic and social conditions of poor and marginalized communities – support for sustainable agriculture, Farm Radio International: “Radio for Farmer Value Chain Development” – support for sustainable agriculture, Monitoring and evaluation in agricultural policy, Small-scale irrigation development Project, Project for the improvement of the living environment in the southern area of Lusaka, Millennium Challenge Corporation Board, Fostering Agricultural Productivity in Mali, and 60 more.

According to the ICAC, there are about 900,000 households producing cotton in the C4, meaning that $461 million in cotton-specific development assistance since 2004 amounted to about $500 per household, or two to three times annual average cash earnings among rural households. In the rest of Sub-Saharan Africa, there are about 2.6 million households producing cotton in any one year, and the $401 million in cotton specific development assistance averaged $154 per household, equal to about one year of annual average household cash income.

And yet, despite all that spending on all those projects, there was no gain in yields in Sub-Saharan Africa, and while yields in the C4 are higher than in other countries of Sub-Saharan Africa, there was again no gain in yields despite all the project spending.

Cotton Made in Africa and BCI

Among the development projects notified by governments in the WTO table, Germany supported the establishment of Cotton made in Africa, and Germany, the Netherlands and Switzerland supported the establishment and growth of BCI. Contributions through 2016 totaled more than $20 million, and the Netherlands is in the process of approving another tranche of $18 million through 2020.

fundingbci

Both CmiA and BCI work with farmers to identity best practices and encourage adoption. CmiA is operating in Benin, Burkina Faso, Cameroon, Cote d’Ivoire, Ethiopia, Ghana, Malawi, Mozambique, Tanzania, Uganda, Zambia and Zimbabwe. BCI is operating in Senegal, Mali and Mozambique. Between them, BCI and CmiA accounted for about 450,000 tons of cotton production in 2015/16, representing more than one-third of total production in Sub-Saharan Africa. Both initiatives report that yields rise by about 20% among participating farmers compared to control groups of non-participating farmers. And yet, despite all the spending and all the efforts, all well-conceived and executed, yields in Sub-Saharan Africa did not rise during the past decade.

Organic and Fair Trade Cotton

In a testimony to futility, the WTO table includes 9 projects sponsored by the European Commission, France, Germany, Switzerland, and the United States devoted to expansion of organic and/or Fair Trade cotton in Africa and other countries. The completed projects total $19.3 million, and there is a new project worth $2.4 million sponsored by France that is still in the project formulation stage. Certified organic cotton production worldwide was only 112,000 metric tons in 2014, of which about 80% was in India. Production of organic and Fair Trade cotton in Africa might have reached about 30,000 tons in 2016. In other words, development spending on organic and Fair Trade cotton since 2004 totaled about $600 per ton of organic or Fair Trade cotton produced in 2014.

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Implications

Agriculture is complex, and there are always many culprits associated with poor performance. The major factors that affect yields are technology, technology extension to growers, logistics covering the purchase, transportation and ginning of seed cotton, and input use. While the $900 million in cotton-specific development aid, and $4.1 billion in general agricultural improvement development aid, spent in Africa during the past decade was well intended, and it may have achieved many objectives such as women’s empowerment or improvements in food security, the aid did not achieve its central objective of cotton sector development. It is time to reflect on whether aid really is Dead Aid as Moyo asserts. The assertions that CmiA and BCI result in production improvements deserve rigorous scrutiny, and the philosophical infatuation by science deniers with organic cotton should end.

Evaluating the WTO Nairobi Outcome on Cotton

The Tenth WTO Ministerial mandates that all countries prohibit cotton export subsidies by 2017. Since the United States eliminated a program called “Step 2” in 2006, no country has provided subsidies for Upland cotton exports.

The Tenth WTO Ministerial mandates that developed countries, and those developing countries declaring that they are able to do so, provide duty-free and quota-free access for cotton from LDCs. As of 2016, no developed country imposes either duties or quotas on imports of cotton, and China is the only developing country of any market significance to impose quotas or duties.

All subsidies distort, and cotton farmers in the EU and the United States still benefit from subsidies. However, the subsidies received by farmers in the EU and the United States are now mostly decoupled from current production decisions, and depending on price patterns, are likely to be significantly less than subsidies received in earlier decades.

1b. Final Report Evaluating Nairobi – What Does the Outcome Mean for Trade in Food and Farm Goods