Dambisa Moyo

Dead Aid

In the United States alone, the total annual amount of farm subsidies stands at around US$15 billion, and that number is rising. As a share of farmers' income, subsidies rose from around 14 per cent in the middle of the 1990s to around 17 percent today. The 2002 US Farm Security and Rural Investment Act gave US farmers nearly US$200 billion in subsidies for the subsequent ten years—US$70 billion more than previous programmes, and represented as much as an 8o per cent increase in certain subsidies.

The Europeans are just as protective. The Common Agricultural Policy (CAP) eats into around half the European Union's budget of €€127 billion (direct farm subsidies alone are worth nearly €€40 billion), and EU subsidies are approximately 35 per cent of farmers' total income. What this means is that each European union cow gets US$2.50 a day in subsidies, more than what a billion people, many of them Africans, each have to live on every day.

For the West, it would appear that everything is sacred: steel, cotton, sugar, rice, wheat, com, soybeans, honey, wool, dairy produce, peanuts, chickpeas, lentils and even mohair. These subsidies have a dual impact. Western farmers get to sell their produce to a captive consumer at home above world market prices, and they can also afford to dump their excess production at lower prices abroad, thus undercutting the struggling African farmer, upon whose meagre livelihood the export income crucially depends. With the millions of tons of subsidized exports flooding the marker so cheaply, African farmers cannot possibly compete.

Look at what has happened to two of Africa's chief exports: cotton and sugar, both of which have to contend with their Western counterpart producers.

In 2003, US cotton subsidies to its farmers were around US$4 billion. Oxfam has observed: 'America's cotton farmers receive more in subsidies than the entire GDP of Burkina Faso, three times more in subsidies than the entire US aid budget for Africa's 500 million people.'

Yet, the livelihoods of at least 10 million people in West and Central Africa alone depend on revenues from cotton, including some 6 million rural households in Nigeria, Benin, Togo, Mali and Zimbabwe.

In May 2003, trade ministers from Benin, Burkina Faso, Chad and Mali filed an official complaint against the US and the EU for violating WTO rules on cotton trade, claiming that their countries together lost some US$1 billion a year as a result of cotton subsidies.

In Mali, more than 3 million people—a third of its population—depend on cotton not just to live but to survive; in Benin and Burkina Faso, cotton forms almost half of the merchandise exports. Yet thanks to subsidies, Mali loses nearly 2 per cent of GDP and 8 per cent of export earnings; Benin loses almost 2 per cent of its GDP and 8 per cent of export earnings; and Burkina Faso loses 1 per cent of GDP and 12 per cent of export earnings. Moreover, a 40 per cent reduction in the world price (that is, equivalent to the price decline that took place from December 2000 to May 2002) could imply a 7 per cent reduction in rural income in a typical cotton-producing country in West Africa like Benin.

The case of sugar is a similarly sour tale.

The US sugar industry receives US$1.3 billion of support per year, European Union producers receive US$2.7 billion, and in the two years between 1999 and 2001 the OECD supported its sugar farmers to the tune of US$6.4 billion, an amount more than the total value of sugar exports from developing countries, and 55 per cent of the US$11.6 billion annual world sugar trade.

Like cotton, sugar subsidies hurt Africa. The charity Oxfam estimated the regime has deprived Ethiopia, Mozambique and Malawi of potential export earnings of US$238 million since 2001. The costs of Mozambique's sugar losses equalled one third of its development aid from the EU and its government's spending on agriculture and rural development. The EU also supports its producers by blocking the entry of developing-country imports into its markets with tariffs of more than 300 per cent. Oxfam estimated that Malawi could have significantly increased exports to the Union tn 2004 but that market restrictions deprived it of a potential US$32 million in foreign-exchange earnings, equivalent to around half the country's public-healthcare budget.

It's not just developed countries that are guilty of distorting trade markets. China is reported to support its cotton sector by an estimated US$1.5 billion annually. Turkey, Brazil, Mexico, Egypt and India put US$0.6 billion into their cotton sectors during 2001/2002.

But perhaps the most egregious examples come from Africa itself. African countries impose an average tariff of 34 per cent on agricultural products from other African nations, and 21 per cent on their own products. As a result, trade between African countries accounts for only 10 per cent of their total exports. By contrast, 40 per cent of North American trade is with other North American countries, and 63 per cent of trade by countries in Western Europe is with other Western European countries.