|U.S. Cotton Growers face Political and Weather-Related Storms|
|Topic||Supply and Demand|
|Key Words||cotton, America, trade, subsidies, supply, price.|
|News Story||Drought does terrible things to a cotton crop. In fact, cotton doesn't like rain; it doesn't like dry weather; it doesn't like too much water; it doesn't like too little moisture. American farmers are used to dealing with all of those factors. And if other nations can convince the U.S. to cut its cotton subsidies, American farmers have to deal with lower income and additional weather risk, as they become more susceptible to changes in world market prices and in the weather.
Texas grows about 1/3 of the U.S. cotton crop--about 6 million bales out of 20 million annually. West Texas weather determines the outcome for much of the crop each year-a factor that cotton growers certainly cannot control. In an effort to encourage cotton growers, the U.S. has provided subsidies to cotton farmers to support their income for generations. Developing nations wanted to eliminate precisely those subsidies in the recent Doha Round of the WTO trade talks.
Developing nations in Africa, South America, and Asia argue that the $4 billion that the U.S. spends every year in subsidies amounts to an unfair advantage to U.S. farmers on the world market, because the federal government has essentially taken the risk out of planting decisions. As a result, U.S. farmers can sell their cotton for far lower prices than other nations can, which in turn pushes down world prices.
As with virtually every economic action, eliminating the subsidies would create both winners and losers. Developing nations would win because world prices will rise if the subsidies are withdrawn and American growers take on the full costs of growing cotton. Thus, U.S. farmers will lose, with some estimates suggesting that cotton income will fall by about 20% over six years. But when discussing "fair trade," developing nations argue, shouldn't those who talk about fair trade also walk the walk?
|Source||"A Tangle of Troubles." The Economist. July 20, 2006.|
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