Cotton Subsidies, the WTO, and the ‘Cotton Problem’

23 Pages Posted: 28 Sep 2011

Date Written: September 2011

Abstract

Following an 8‐year‐long dispute over cotton subsidies, Brazil and the US signed a Memorandum of Understanding on 21 April 2010, effectively paving the way for settling the dispute. This paper argues that cotton subsidies are just the tip of the iceberg while a number of other, perhaps more important, issues require attention and, indeed, political will. Chief among them is the persistent divergence between cotton prices and the prices of other agricultural commodities which reflects, for the most part, the large supply response by China and India, a direct consequence of conversion to biotech cotton varieties in these (and other) countries. Such a response – which kept cotton prices low, compared to other commodities – imposes a competitive disadvantage to nonusers of biotech cotton. The paper also highlights two additional constraints faced by the cotton‐producing countries of West and Central Africa, namely the structural inefficiencies of their primary processing industries (also known as ginning) and the appreciation of the CFAf against the US dollar. Without downplaying the importance of subsidy elimination, this paper concludes that these impediments should receive high priority in the policy agenda.

Suggested Citation

Baffes, John, Cotton Subsidies, the WTO, and the ‘Cotton Problem’ (September 2011). The World Economy, Vol. 34, Issue 9, pp. 1534-1556, 2011. Available at SSRN: https://ssrn.com/abstract=1934628 or http://dx.doi.org/10.1111/j.1467-9701.2011.01396.x

John Baffes (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/jbaffes

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