The recent agreement by the US to cut cotton subsidies is a victory for farmers in Brazil. But the deal won’t prevent more job losses and plantation closures in poorer countries.
Twenty years ago João Luiz Ribas Pessa used to farm soya beans, but low global prices forced him to switch to cotton. Now the 59-year-old worries that low global cotton prices and high tariffs will once again cause him to lose everything.
"I left my family in the south and went with other men to search for new land. I chose the city of Primavera do Leste in Mato Grosso state. In this place there was no infrastructure, nor electricity. Therefore the land was cheap," says Pessa.
He decided to farm cotton because the crop adapted perfectly to the climate and the soil of the region. Within five years, Brazilian cotton production had jumped from 8 thousand tons to 800 thousand tons a year, making it lucrative for small farmers like Pessa. During the following years, the farmers started to produce cotton for export.
The small economy of Primavera do Leste is now entirely dependent on cotton farming. The city has 16,000 inhabitants and has developed into a thriving community because of the cotton plantations. "It is a place that did not have anything but today has hospitals, businesses, schools and three universities," explains Pessa.
But Pessa says the cotton price dropped rapidly about five years ago when strong domestic support given by United States to its own cotton farmers fuelled overproduction and distorted global cotton trade.
According to Oxfam, cotton has become one of the most controversial commodities in World Trade Organisation (WTO) negotiations.
"Cotton symbolises the unfairness of current subsidy practices of the United States, as does sugar for the European Union. In West Africa alone, 10 million people depend on cotton for their livelihoods. US cotton dumping, causing a sharp decline in world cotton prices, has impoverished all of these farmers," says an Oxfam report.
According to Pessa, the price of cotton fell from 60 cents per pound to 52 cents in 2005, a reduction that makes it very difficult for him to compete.
"It is possible that in 2006 cotton plantations will be reduced by 50 per cent in Primavera do Leste, as well as in another 30 Brazilian cities that depend directly on cotton," says Luiz Cláudio Carmona, secretary of the Brazilian Ministry of Agriculture.
Pessa is worried about this possibility. He explains that about three farmers are responsible for ten hectares of cotton. "When 200,000 hectares are not planted this means 60,000 jobs are lost – which means 60,000 families are without an income."
He is satisfied that the Brazilian government has been at the forefront of putting pressure on the US to stop its multi-billion dollar support to cotton farmers. In March 2005, following a complaint by Brazil to the WTO, a dispute settlement panel found that US cotton subsidies break WTO rules and must be phased out. The settlement is a giant step forward in the fight against dumping.
However, Carmona says that subsidies are just one part of the problem – the other is tariffs. He thinks that the EU's practice of imposing high import tariffs to protect its own goods, while forcing developing countries to drop their own import tariffs, is not fair trading practice. It means Brazilian products – especially major exports such as coffee, soy and sugar – cannot compete.
One coffee farmer in Brazil, Luiz Suplicy Hafers, says the trade barriers have generated great difficulties for coffee producers. "We need the external market to grow, but this is not possible with the hypocritical and unfair barriers imposed by the rich countries on Brazilian agricultural products. The Brazilians can compete with producers of other countries, but not with the treasuries of the developed countries," he says.
Secretary of the Ministry of Foreign Affairs, Braz da Costa Baracuhy Neto, says that Brazil and other developing countries gained a small victory when the United States committed to slowing down internal subsidies to cotton farmers. But the battle ahead is about the issue of reducing tariffs. This debate is not clear-cut because reduced or eliminated tariffs will harm some developing countries that depend on tariffs for revenue, as well as protecting fledgling local markets.
Just weeks before the sixth WTO ministerial meeting, Brazil together with India, South Africa, Argentina and Indonesia complained about the failure of the EU and US to make real cuts or reforms. The tension threatens to undermine talks in Hong Kong.
According to media reports, Peter Mandelson, EU Commissioner for Trade, proposed a six-point package of help for poor countries. A key part of the proposal was a deal on cotton. But critics warn that the US is unlikely to budge on making more concessions, and that the EU needs to make a much more substantial offer to cut tariffs. "For the meeting of the WTO in Hong Kong, Brazil waits a new European Union position," says Neto.
For Pessa the battle is simple – it is about how each government fights for its own farmers at the WTO. He says there are winners and losers in these trade talks but it is the farmers who are most affected.
For Carmona it is about negotiations. "All the countries lose without the agreements. The developed countries will keep on maintaining an economic policy which leads to social exclusion, generating unemployment and incentivising migration," he explains. "The developing countries will suffer serious economic and social consequences."