Why world poverty is a trade issue - and why the G8 must address it

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The full picture of how the multibillion-dollar American farm subsidy system - coupled with Britain's appetite for cut-price clothes - is destroying Africa's cotton farmers was revealed by aid agencies yesterday.

The full picture of how the multibillion-dollar American farm subsidy system - coupled with Britain's appetite for cut-price clothes - is destroying Africa's cotton farmers was revealed by aid agencies yesterday.

T-shirts available in UK supermarkets for less than £2 are made from American cotton and produced in Chinese sweatshops for the British market, undercutting small producers in some of the world's poorest countries.

American cotton farmers receive $3.9bn (£2bn) a year in Government subsidies - more than the entire GDP of Benin and three times the annual amount the US gives in aid to Africa, according to the charity Oxfam.

But more than 60,000 farmers in Benin have stopped growing cotton in the past five years because they cannot compete against such massive market distortions that keep the price of cotton artificially low.

In 2002 alone, the GDP of Benin fell by 1.4 per cent and export earnings by 9 per cent as a direct result of subsidies and the falling price of cotton.

The west African country - 161st out of the 177 poorest countries in the world - depends on cotton for 60 per cent of exports.

Once known as "white gold" in west Africa because of its earning potential, cotton is now leaving many farmers in debt because of the low prices - and there is nothing else they can grow on their barren land.

The World Trade Organisation ruled last year that America's cotton subsidy system was illegal and set a 2 July deadline for it to announce reforms.

But aid agencies believe that the Bush administration has little intent of scrapping the system and called for Britain to put pressure on the US president at next month's G8 summit.

The agencies believe that, while measures to increase aid and for debt relief are vital, African nations such as Benin cannot escape poverty until the trade issue is finally addressed.

That would mean a wholesale review of subsidies paid to farmers in the US and in Europe to give Africa the chance to begin to compete - and the agencies want the leaders at Gleneagles to work torwards a resolution.

Amy Barry, of Oxfam, said: "The whole system of American subsidies is not only morally unjust but illegal, and the WTO has backed that. Cotton is a graphic example of how these subsidies destroy the poorest farmers in the poorest countries, and we are calling for a scrapping of the system and compensation to African farmers for the losses they have incurred."

She added: "This is about political reform but consumers need to take responsibility.

"The reason why you can buy a T-shirt for £3 in the shops, days after something similar has been featured in Vogue is because of these artificially low cotton prices and labour costs which have a direct and destructive impact on farmers in Benin and other African countries.

"You may be able to get cheaper clothes, but at what price?"

American farmers have been subsidised for years but the impact has been particularly savage over the past five years.

Poor rainfall and low yields in countries such as Benin have affected production, while the price of cotton fell by 30 per cent in 2002, when the US Farm Bill raised subsidy levels to $250 a hectare.

The American government now, in effect, pays its farmers to produce cotton, spending $14.8bn between 1998 and 2002 on subsidies, compared with the $20bn dollar value of the crop.

Cotton is currently 48 cents per pound - 30 cents less than it costs American farmers to grow their crop. If subsidies were scrapped, it is estimated prices would rise by 26 per cent, hugely increasing the money earned by African farmers.

The US is the world's largest exporter of cotton - and most of it is bought by China.

At the beginning of this year, quotas designed to limit the flood of cheaply produced clothing into the West were scrapped, ostensibly to free up trade.

Instead, the end of the Multi-Fibre Agreement has meant production has switched from factories in Africa and the tsunami-hit countries to China because of cheaper production costs.

British companies such as Tesco and Arcadia, which owns Top Shop, have put tremendous pressure on suppliers to cut costs in order to allow them to sell clothing at cheap prices.

Even if consumers adopt a more ethical stance, it seems unlikely the US will bend to calls for it to reform the system, despite the billions of dollars it costs the federal Government each year.

Farm groups, especially large-scale producers with multi-million dollar profits, hold huge sway on Capitol Hill. The American Farm Bureau Foundation spends more than $3m a year on lobbying, while influential politicians such as the House Speaker in Congress, J Dennis Hastert and Senate majority leader Thomas Daschle, come from farm states.

Paid $25m in US subsidies

David Griffin, cotton farmer, Arkansas, USA

David Griffin and his family own 40,000 acres of land in Helena, Arkansas, 30,000 of which is used to grow cotton.

Between 1995 and 2003, Tyler Farms, the operation in charge of the land, received $24,297,994 in cotton subsidies, according to the Environmental Working Group in the US.

The farm group was the biggest recipient of cotton subsidies in America, yet Mr Griffin hardly needs the cash. He lives in a 13,000 square foot, million-dollar home, runs several tractor dealerships and sits on the board of the local bank.

He set up the farm group in 1993. It is organised into a complex web of 66 "corporations" to limit liability and get the largest amount of payments.

It is these farms, rather than smaller producers in the US, that gain the most from the subsidy payments - 60 per cent of growers receive nothing from the government.

Hit by a double whammy

Michael Ahnon, cotton farmer, Kotokpa, Benin

Michael Ahinon, from the village of Kotokpa in central Benin, has struggled to keep his small, 20-acre farm afloat this year.

Even with much lower production costs than his American counterparts, he cannot make a profit. He has fallen into debt and cannot afford to pay for health care, education or food for his family. He has now halved the number of hectares he devotes to cotton cultivation.

Five years ago, Mr Ahinon could make an annual profit of about 2.5 million FCFA (£2,500), but he is now lucky to make 200,000 FCFA.

Mr Ahinon still has to use traditional, short-handled tools, while ineffective pesticides have left his cotton ravaged by mice and insects.

"We would like to have subsidised credit and other support to encourage us," he said. "While we are farming cotton with our hoes, others are producing with huge machines. We are donkeys, who work without earning anything."