A landmark World Trade Organization ruling this week that U.S. cotton subsidies cause artificially low international prices is leading to predictions that cotton producers from Brazil to Western Africa may now have an incentive to increase production.

By Alan Clendenning / AP Business Writer
May 1, 2004, The Detroit News
http://www.detnews.com/2004/business/0405/02/business-139153.htm

LEME, Brazil - In an annual ritual that has barely changed since the 1930s, legions of farm workers pick cotton by hand while creaky old flatbed trucks stuffed with the harvest rumble to local processing plants operating round the clock.

Cotton was king in the fields surrounding this small southern Brazilian city, turning its lush plains and rolling hills white every April, until a decline in world cotton prices over the last decade hit farmers hard, prompting them to shift to sugarcane and corn. Although cotton is still important here, the landscape is now a patchwork quilt of different crops.

But a landmark World Trade Organization ruling this week that U.S. cotton subsidies cause artificially low international prices is leading to predictions that cotton producers from Brazil to West Africa may now have an incentive to increase production and get what they call a fair price.

'We've all been waiting for this,' said Sergio Simarelli, a third-generation cotton farmer as he worked on his broken cotton harvesting combine, one of the few in Leme. 'If prices rise, I could buy better machinery and improve my production.'

The WTO decision brought a firestorm of criticism in Washington, with U.S. Trade Representative Robert Zoellick telling members of Congress who approved the subsidies 'you can be 100 percent sure we are going to appeal' if the preliminary WTO decision sticks.

Brazilian President Luiz Inacio Lula da Silva and advocates for poor farmers around the world hailed the move as a first step toward the elimination of payouts for American farmers that give them a competitive edge not only in cotton - but also for grain and sugar produced more cheaply in developing countries.

'This means it's really the time now to have substantial reform on subsidies,' said Celine Charveriat, Oxfam's Head of Advocacy in Geneva.

Brazil, the world's fifth-largest cotton producer, filed the WTO complaint two years ago during the administration of former President Fernando Henrique Cardoso. It alleged the United States has kept its place as the planet's second- largest cotton grower and largest exporter because the government paid $12.47 billion in subsidies to American farmers between August 1999 and July 2003.

Cardoso's administration, keen on increasing Brazil's agricultural exports, chose cotton because prices had been declining and officials felt they could draw a direct link between falling prices and subsidies, said Marcus Pratini de Moraes, Brazil's agriculture minister under Cardoso. Another Brazilian WTO complaint against European sugar subsidies is pending.

'Export subsidies in particular are disastrous, especially for poor countries,' de Moraes explained in an interview. 'They are one of the main reasons for poverty and misery for millions of people.'

Getting rid of subsidies would allow South America's largest country to double its production within two years, to 2.4 million metric tons, according to the Brazilian Association of Cotton Producers.

Leme's cotton farmers estimate subsidies depress world cotton prices by 5 percent to 10 percent. The international price has dropped 21 percent over the last decade and has been so volatile that many growers reduced their cotton acreage and planted other crops for a more reliable source of income.

While Brazilian production has doubled since the mid-1990s, turning the country from a cotton importer into an exporter, most of the growth has occurred at huge plantations in the Amazon and in the arid northeast.

Leme, a city of 95,000 two hours from Sao Paulo, Brazil's largest city, is home to small farms with no more than 1,230 acres, and was one of the first places in the country where farmers planted cotton.

But a sign at the entrance to the town proclaiming it the Cotton Capital of Brazil disappeared years ago as the local crop of choice was overshadowed by sugarcane and corn.

'We would have a lot more land in cotton production if it wasn't for the subsidies,' said Ronaldo Oliveira, a cotton farmer and president of the Sao Paulo state cotton producers association.

The WTO decision could reverse the trend if international cotton prices rise and stay above what farmers get for sugarcane and corn, said Marcos de Almeida, Leme's top agricultural official.

'Farmers here are going to move to what's profitable,' he said. 'And they already know how to grow cotton.'

Many Leme farmers own less than 123 acres, giving them an annual income of less than 25,000 reals, the equivalent of $8,600. Farm families can support themselves and perhaps own a used car, but most of the town's small farmers struggle to pay bills and can't dream of sending their children to college.

'With more money, they would have more opportunities and income that would circulate in the community,' de Almeida said.

Simarelli has trouble understanding how individual American farmers and farms can get up to $360,000 in loans and subsidies under a $190 billion farm bill signed by President George W. Bush in 2002.

Brazil's government doesn't give him anything, he says, and interest rates of more than 20 percent annually are too high for him to take out a loan for a new combine to replace his 1998 model.

'Right now, I'll have to wait 10 years to buy another one,' he said. 'If they get rid of the subsidies, I can buy it in six years.'

Copyright (c) 2004 The Detroit News.