Less Equal than Us - TribPapers

Less Equal than Us

Cotton subsidies support inefficient production in the United States at the expense of laborers living off $1.90 a day in some African countries.

Asheville – Alexander Jelloian, who serves as research and project manager for the Initiative for African Trade and Prosperity, took a global perspective with an equity lens, and found even more evidence of government oppression of the working poor. It’s not what any rational person wants. Rather, it is often a byproduct of populist leaders appeasing constituents with no regard to the supply side.

Jelloian recently wrote a short article, “Agricultural Subsidies in Wealthy Countries Hurt African Producers.” The emphasis on Africa wasn’t mere pandering to a special interest group. It applied to a continent with nine of the world’s 10 poorest countries, where, in 2021, 35% of the population lived on less than $1.90 a day.

Jelloian was not going to blame harsh climates for the destitution that defines daily life for 490 million Africans. Economists like Johan Norberg have long maintained that the earth has enough and to spare; the problem is getting governments to consent to the free flow of resources and products into, out of, and about their territories.

According to Jelloian, “Many factors cause Africa’s underdevelopment, but contrary to what some may think, the continent’s economic prospects are far from hopeless… If we in the West are to help those that we proclaim to care about, one of the first policies to go should be price-distorting agricultural subsidies.”

The plight of African farm laborers is not so much due to price-fixing by the evil Nigerian prince that sends you emails; rather, it is the domestic price support doled out to agriculturalists in other parts of the world. That is, if one farmer gets government money and another doesn’t, the first farmer can afford to sell his goods at a lower price and still cover his costs of doing business and profit margins. The second farmer, wanting to sell the same quality of goods and enjoy the same profit margin, will, ceteris paribus, have to charge more.

But, since goods don’t move at higher prices, whoever manages the farm will have to cut corners somewhere. If he doesn’t want to buy inferior seed or equipment that keeps breaking down and costs more to maintain, he will likely opt to pay his laborers less. Since Africa’s economy is highly dependent on exports, in the words of Jelloian, “subsidies distort the price mechanism and prevent African producers from earning the fair market price for their labor.”

To illustrate, Jelloian spoke of African cotton producers. Cotton sales account for about 60% of the agricultural output, in dollars, of the four countries: Benin, Burkina Faso, Chad, and Mali. These countries employ about 15 million people directly in the cotton industry, and all four are on the United Nations’ Least Developed Countries list. But this only accounts for about 3% of the world’s cotton sales. China and the United States account for 40% of cotton sales, but Jelloian says these two countries are far less efficient in their production processes, and they only remain competitive due to huge subsidies.

Kristen Hopewell of the University of British Columbia estimated that producing cotton in China costs about four times as much as it does in Africa. China also imposes tariffs of up to 40% on cotton imports.

Hopewell says the impact of farm subsidies on the world’s poorest has been no secret for some time. Oxfam has been lobbying for more equity and justice in the cotton trade because it is difficult for indigent farmers to compete in the halls of government with what could be called Big Cotton. The United States, long the most generous of cotton subsidizers, provided over $7 billion in cotton subsidies over the last decade, but it was recently overtaken by China, which provided $41 billion in subsidies, or 75% of the global total.

A somewhat dated policy analysis by Oxfam concluded that, if the United States alone eliminated cotton subsidies, the price of cotton would rise somewhere between 6% and 14%. Poor mothers in the United States buy clothes for their children every year, but in Africa, it could mean the end of poverty for thousands.

The fact that the prospect of eliminating cotton subsidies in the name of global justice might plausibly gain traction among United States legislators is moot. China is now driving cotton prices, and it is not likely to entertain the notion, as cotton production is believed to both fund work camps and provide labor for Uyghurs, who are likely the most well-known minority currently living in oppression.

Jelloian says one reason agricultural subsidies remain popular is the false belief that subsidies are charity for indigent farmers. To debunk the myth, he said in 2016, the median household income for farmers in the United States was $76,000, which was 29% higher than the overall national median income. Furthermore, over 69% of agricultural subsidies went to commercial family farms, where the median household income was $167,000.

Because economic theory is true in principle but subject to unintended consequences when applied to fickle and irrational people, it might help to, “Let the experiment be run!” – except New Zealand already did just that. In 1984, a budget crunch forced the elimination of agricultural subsidies. According to Chris Edwards and Tad DeHaven of the Cato Institute, the subsidies, at the time, were handed out through 30 different programs that, combined, accounted for 30% of the cost of production. The analysts also noted that the subsidies, as subsidies typically do, caused, among other things, “overproduction, environmental degradation, and inflated land prices.”

The decision to end the subsidies cold-turkey was not popular, but only 1% of farms went out of business, some with a one-time exit grant from the government. In addition, post-subsidy New Zealand agriculture enjoyed steady growth for decades and was considered a strong competitor among countries that continued to provide subsidies.

Jelloian concluded that in the real world, as on paper, “Subsidies distort prices, cause land to be allocated in ways that maximize an individual farmer’s ability to acquire government money – rather than in a way that makes land more productive – and hurt both domestic consumers and overseas producers.”