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Subsidies at Home, Suffering Abroad

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In today’s NYT: “Oxfam Suggests Benefit in Africa if U.S. Cuts Cotton Subsidies.”

“Eliminating billions of dollars in federal subsidies to American cotton growers each year would reduce American cotton production and exports, raise world prices by about 10 percent and modestly improve the incomes of millions of poor cotton farmers in Africa, according to a new study by Oxfam, the aid group.”

About how many other industries could a similar thing be said? It’s also good to see that some of these multinational aid groups sometimes focus on liberalizing trade, rather than simply on direct government-to-government compensatory aid packages. Apparently Oxfam “has long campaigned for reductions in rich country agricultural subsides as a means to fight rural poverty in the developing world.”

One reason Oxfam is critical of bilateral free trade agreements is that they “do not address the adverse impacts of rich-country subsidies on poor countries through dumping, or the plethora of non-tariff barriers that continue to impede access to rich-country markets.” Their claim is that the bargaining power of individual developing nations is reduced under such agreements, so that the developing nation ends up giving up concessions to the wealthier nation, while the latter does no such thing. Reducing tariffs without addressing subsidies and other “non-tariff barriers” works to undermine the interests of developing nations.

The NYT piece ends on a bit of a pessimistic note, and no doubt the elimination of subsidies alone will not be enough to combat the grinding poverty that is so prevalent in the developing world. But it would do a lot to level the playing field and give resources and products from the developing world a fighting chance in the global market.

“Subsidy reform alone will not resolve all the challenges facing the cotton sector,” Oxfam said. “But it could significantly ease the burden on poor cotton farmers struggling to support their families.”

Jordan J. Ballor Jordan J. Ballor (Dr. theol., University of Zurich; Ph.D., Calvin Theological Seminary) is a senior research fellow and director of publishing at the Acton Institute for the Study of Religion & Liberty. He is also a postdoctoral researcher in theology and economics at the VU University Amsterdam as part of the "What Good Markets Are Good For" project. He is author of Get Your Hands Dirty: Essays on Christian Social Thought (and Action) (Wipf & Stock, 2013), Covenant, Causality, and Law: A Study in the Theology of Wolfgang Musculus (Vandenhoeck & Ruprecht, 2012) and Ecumenical Babel: Confusing Economic Ideology and the Church's Social Witness (Christian's Library Press, 2010), as well as editor of numerous works, including Abraham Kuyper Collected Works in Public Theology. Jordan is also associate director of the Junius Institute for Digital Reformation Research at Calvin Theological Seminary.


  • Sounds like fiction to me. If an African country can import cotton for less than the cost of production, then why not import all of the US Crop? Buy the whole thing. Easy investment, huge returns…unless of course, there are trade barriers within the cotton producing areas of Africa preventing a huge windfall from occurring.


  • John,

    I’m not sure I catch your drift. The solution to foreign subsidies is to simply curtail production of that commodity and import it yourself? Maybe they can import it for more than it would take to produce it but less than it would take to grow it and be sustainably profitable.

    It seems the argument is that subsidies artificially lower the market price of a commodity, and that without these subsidies the price would presumably return to a price determined by market forces, presumably one higher than one that is depressed due to government subsidy.

    I suppose Africa could then stop growing cotton and start growing some other unsubsidized commodity. I wonder just how many commodities there are that are not subsidized by one wealthy government or another.

    No doubt the transition from one crop to another is costly and potentially problematic. I have no idea how flexible some of these outfits growing cotton are.

    I agree, however, that if they can’t be profitable growing cotton, especially in a market that isn’t artificially depressed, they should seriously consider growing something else, or making their product more enticing if possible. But at least if the subsidies were removed, the farmers would be getting actual market signals about what is in demand and what is not.

  • John powers

    Jordan…the subsidy is harmful to the us taxpayer, and to competitive producers. But subsidies are a positive to african consumers and textile firms. If what oxfam claims is accurate, a commodity trades would certainly exploit and arbitrage.

  • So presumably the cotton growers in Africa are “competitive producers” who are harmed by domestic US subsidies.

    And you are probably right, it does make sense that the reduced commodities cost associated with a subsidized product should result in cheaper goods for purchase by African consumers. But that seems to me to be a pretty inefficient way of lowering retail costs (through foreign government subsidy).

    I don’t deny someone is made better off from subsidies, i.e. the direct recipients and those who can profit from the depressed market price. But others are harmed, including foreign producers.

    And, after all, cotton growers like these are the entrepreneurs who are the drivers of the African economies…if they are harmed, how much wealth will be created for the African consumer to spend?

  • Yes Jordan,

    But consumers outnumber producers 1000 to 1. The consumer gets the good out of this. The competitive growers can be miffed all they like, but the net benefit is certainly to Africa from subsidy to American farmers, which is why I have difficulty with Oxfams claims.

    I am 100% against subsidy, but the claim of harm is just not right for the vast majority of the population.