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For Landlocked States, an Uphill Battle Made Worse by American Subsidies

By Adam Scholl

Mali does not produce as much cotton as Mississippi for two main reasons: Mali is landlocked, and American subsidies artificially suppress global prices. The world can’t do much about the former, but measures restoring normal profitability to the African cotton market are urgently needed. This month, the U.S. has an opportunity to help some of the poorest states on the planet—the landlocked countries of Africa—by eliminating cotton subsidies.

Being landlocked is not easy. For hundreds of years, states without access to the sea have been largely dependent on their maritime neighbors for access to the outside world. Negotiating the transport of trade goods through another state’s territory can be expensive and risky. Landlocked states must rely not only on their own infrastructure and stability for successful commerce, but also on the road, rail, and political conditions of other states. If all goes well, the intervening state’s customs folks are helpful and friendly, and their roads are well-maintained and safe.

In Africa, though, this is rarely the case. One of the most important exports for landlocked states in Africa is cotton, a cash crop that deteriorates, even rots, if there’s a transportation delay. The price landlocked African states pay for having to trade long distances through foreign territory is plainly revealed by the changes in their citizens’ life expectancy and income over the last 200 years relative to the rest of the world (see video below):

(Note: South Sudan is not included because it only recently became landlocked).

This phenomenon is not limited to Africa. According to the UN Human Development Report (UNHDR), 9 of the 12 least developed countries on Earth are landlocked, and no landlocked countries except Botswana and Swaziland have a higher level of development than the maritime average in their region. Botswana is an exceptional case, because it has a relatively small population and lots of diamonds (which it exports by plane, avoiding border hassle). Swaziland is a very short distance from ports in Mozambique and South Africa.

This disparity is still apparent in the current UNHDR map (below) showing Africa’s human development. The scores on the index reflect a composite measurement of life expectancy, education, and income. Low scores are marked by lighter colors, while high scores are marked by darker colors. Though states can obviously score low on the index without being landlocked, those states that are landlocked seem to almost never score highly:

In 2003, a UN conference was held in Kazakhstan to discuss the unique issues facing landlocked states. The delays and unpredictability involved in sending goods across borders, they reported, was far more economically ruinous than the cost of long-distance shipping. As a result, they estimated that each border crossing decreases trade volume as much as 621 miles of land.

These border crossings can have particularly dire consequences for cotton producers, because delays at customs, like delays in transit, can damage or ruin the crop. Despite these difficulties, UNCTAD has called the cotton industry “key to rural poverty reduction” since it employs such huge numbers of people.

With the passage of each farm bill—massive, regular legislation which funds subsidies for agricultural products like cotton, food stamp programs, and more—the United States helps drive these African farmers further into poverty. Giving American farmers subsidies inevitably means they will produce more than would be ordinarily warranted by global demand. Consequently, millions of bales of cotton get dumped on the market below production cost each year, artificially driving down prices and depriving African growers of hundreds of millions of dollars in revenue.

Naturally, these growers aren’t thrilled about the situation. Along with Brazil, the four African states that rely most on cotton—Burkina Faso, Benin, Chad, and Mali—brought action against the U.S. over these subsidies at the World Trade Organization (WTO) in 2002. Several years later, the WTO ruled that the subsidies were in fact illegal, and granted Brazil the right to seek compensation and retaliate. As a result, Brazil has been receiving $17 million per month from the United States as a temporary settlement. If the 2012 Farm Bill does not substantially reduce the subsidies, Brazil will have legal right to retaliate by ignoring intellectual property restrictions on American pharmaceuticals, biotechnology, music, films, and books. 

The four African countries involved in the dispute received an increase in cotton sector aid from the U.S. But despite this aid, and despite the fact that they produce cotton far more cheaply than the U.S., they continue to make far less profit because global prices remain so depressed by U.S. subsidies.

Farm bills are usually passed in the fall, but the 2012 bill has been delayed because of congressional gridlock. Congress should ensure that cotton subsidies are dramatically reduced or eliminated in the new bill. But while it looks like this year’s farm bill will be smaller than the last, most of the cuts will probably come from food stamps, not subsidies.

Ambassador Roberto Azevedo, Brazil’s permanent representative to the WTO and chief negotiator, has said the new bill is no better than the last, and warned that Brazil could begin to retaliate within the next few months. Though it seems to profoundly frighten many on Capitol Hill, the fact that Brazil may soon be able to legally use Pirate Bay is a trivial consequence of these subsidies compared to their impoverishment of millions of the world’s poorest people.

For landlocked states, economic growth is hard enough already. There are some ways to make it easier—directing aid projects toward infrastructure, for example, will help ensure goods produced by landlocked workers actually get to the border. If landlocked states negotiate regional infrastructure integration and customs agreements with their neighbors, they can reduce shipping times and ensure that transportation networks connect efficiently between states. And if they can build industries that rely less on trading primary commodities and more on goods with a higher value to weight ratio (like manufactured products), their economies would not be so burdened by high shipping costs.

Still, there is only so much that poor, landlocked states can do to overcome their geographical disadvantage. Most will ultimately remain at the mercy of their neighbors and will continue to pay for expensive shipping. At the very least, the United States should not compound these woes by enacting more devastating, market-distorting cotton subsidies. America sends billions of dollars of development aid to Africa every year. If it really wants to help Africa’s worst-off, it should stop undermining one of the industries with the most potential to improve quality of life in landlocked states.

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Adam Scholl is an Editorial Associate at World Policy Journal.

[Photo courtesy of Carsten ten Brink]

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