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. Last Updated: 07/27/2016

When One Person's Aid Is Another's Misery

WASHINGTON -- The White House and the U.S. Congress are trumpeting their determination to bring economic opportunity to the people of Africa. But first, a few million sub-Saharan farmers will have to suffer.

U.S. President George W. Bush's administration has been busy extending special trade status to African exporters, designing a $10 billion aid package for poor countries and dispatching Treasury Secretary Paul O'Neill and other top officials to confer with African leaders. There has even been talk of a "Marshall Plan" for Africa.

But all of those initiatives added together may not be enough to offset the damage inflicted on Africa's small farmers by the $190 billion agriculture bill that Bush just signed into law.

"This farm bill, I think it's fair to say, will put millions of small farmers out of business in Africa," said Mark Ritchie, president of the Institute for Agriculture and Trade Policy in Minneapolis. "They will have to move to cities and become part of unemployed labor pools."

Government officials and independent economists say the big subsidies doled out to U.S. farmers will contribute to global overproduction of wheat, corn, cotton and other basic crops. That will drive down world commodity prices, making it more difficult for unsubsidized Third World farmers to compete.

African nations will be particularly hard-hit because agriculture plays such a big role in their economies, accounting for more than 50 percent of the gross domestic products in some.

"Commodity prices will probably sink lower on a global basis. For countries that do not subsidize their farmers as well as we do, that will mean economic and financial trauma," said Neil Harl, director of the Center for International Agricultural Finance at Iowa State University.

Indeed, O'Neill has been pummeled with complaints about the farm bill since his arrival in Africa on a 10-day fact-finding tour with Bono, the Irish rock star and global debt-relief advocate. A government official in Ghana told O'Neill the U.S. subsidies will undermine the economies of many African nations. In South Africa, Finance Minister Trevor Manuel said the bill will jeopardize the continent's efforts to overcome poverty.

Even Bono chimed in. "We can't have people in Congress who agree with debt cancellation and want to do something on AIDS, and then sponsor the farm bill," he said.

Some analysts fear the farm bill will sabotage the sweeping world trade negotiations launched in November in Doha, Qatar. The United States persuaded many poor countries to support the trade talks by promising that wealthy nations would reduce their agricultural subsidies. Indeed, lavish farm subsidies employed by other industrialized nations, notably France and Japan, long have been a target of criticism by U.S. trade negotiators as inimical to the cause of free trade.

The agriculture bill Bush signed recently authorizes about $190 billion in farm spending over 10 years -- $83 billion more than lawmakers anticipated when they passed 1996's big farm bill.

In most cases, the subsidies are pegged to commodity prices. The less money a farmer gets for his crop in the market, the bigger the subsidy he gets from the government. No matter how far the market price falls, the farmer has no incentive to reduce production.

"It's a Catch-22," said Stuart Eizenstat, a former top government official who co-chairs the European-American Business Council.

"Because the bill is counter-cyclical, as prices decline you get more subsidies to try to make up for it, and you just keep the vicious circle going," he said.

The effect is greatest in the markets for grains, soybeans and cotton, where world production tends to exceed demand year after year. Some of those crops are among the major agricultural products of sub-Saharan Africa -- where farm production accounts for an average of 17 percent of the total economic activity in 48 nations -- and the effect of low prices on the continent's small farmers can be devastating.

Eizenstat said he expects the farm bill's negative impact on the developing world will eclipse the potential benefits of Bush's proposed Millennium Challenge Account, which would provide poor countries with $10 billion in additional development aid over three years.

According to World Bank economists, cotton exporters in West and Central Africa would take in an additional $250 million per year if the U.S. stopped subsidizing domestic production. Overproduction has caused cotton prices to fall to about a third of their peak levels in the mid-1990s.

Analysts at the International Monetary Fund reached a similar conclusion, noting that this year's U.S. cotton crop is expected to be the biggest since 1927. Farmers keep increasing production even though market prices have fallen sharply in recent years.

"This has contributed significantly to downward pressure on prices, hurting some of the world's poorest countries," IMF economists said in a recent analysis.

The resulting loss of cotton exports amounts to 3 percent of the total economic output of Mali and Benin, the IMF said, and 1 percent to 2 percent for Burkina Faso and Chad. The damage exceeds the total value of the relief provided to those countries under a global debt relief initiative financed by wealthy nations and administered by the World Bank.