Impact of global cotton markets on rural poverty in Benin

Abstract

World cotton prices fell by about 40% over 2001-2002, focusing attention on the effect of subsidies for cotton growers in depressing world prices. This paper combines farm survey data from Benin with assumptions about the decline in farm-level prices to estimate the direct and indirect effects of cotton price reductions on rural income and poverty in Benin. The results indicate that there is a strong link between cotton prices and rural welfare in Benin. A 40% reduction in farm-level prices of cotton results in an increase in rural poverty of 8% points in the short run and 6-7% points in the long run. Under the assumptions of the partial input-output model, we estimate the multiplier to be in the range of 2.96, meaning that 1 US$ of reduced income by cotton growers results in a contraction of 2.96 US$ in overall income. Finally, econometric analysis of the determinants of the demand for hired agricultural labor suggests that falling cotton prices will not greatly reduce labor demand since the labor intensity of cotton is similar to that of competing crops in Benin. Overall, the study demonstrates the impact of changes in world cotton prices on rural poverty in Benin, thus highlighting the likely negative effects of cotton subsidies in the United States and elsewhere on Benin farmers. Copyright 2005 International Association of Agricultural Economics.

Agricultural Commodity Price Shocks and Their Effect on Growth in Sub‐Saharan Africa

“…McKay and Arytee (2005) have documented that cocoa played an important role in Ghana's economic growth. The share of cocoa in the agricultural GDP of Ghana is approximately 19% and is predicted to play an important role to reach middle income status by providing the much needed foreign exchange earnings to help finance inputs for capital goods and the food processing sector (Minot and Daniels, 2005). Malawi is heavily dependent on tobacco in terms of export earnings.…”

“…In Benin, the agricultural sector accounts for 38% of GDP and employs 56% of the population who are economically active. Cotton in particular, is a significant crop, which accounts for 90% of the total agricultural exports and 60-70% of total exports (Minot and Daniels, 2005). This dependency on cotton makes Benin particularly vulnerable to cotton prices.…”

“…This dependency on cotton makes Benin particularly vulnerable to cotton prices. For example, when cotton prices plummeted by 40% between January 2001 and May 2002, rural per capita income dropped by 7% (Minot and Daniels, 2005) challenging the view that rural populations are unaffected by international cotton prices. Burkina Faso is also a case in point when it comes to dependency on cotton prices.…”

Enhancing Sustainability of Cotton Production Systems in West Africa: A Summary of Empirical Evidence from Burkina Faso

“…West Africa accounts for only a small portion of world cotton production, typically about 5%, but is an increasingly important player in the world market. Exporting nearly all of its cotton production, West Africa produces cotton fiber of relatively high quality, and retains low production costs through its reliance on manual production techniques and the low opportunity cost of household labor [15]. Higher transportation costs in reaching open-sea ports, however, diminish some of West Africa's cost advantages in the land locked C4 countries [14].…”

Globalization and restructuring of African commodity flows

“…On the output side, it is mandated to register sales of seed cotton from each farmer group to each ginning company. Although there are several thousand village groups to monitor, the problem remains manageable because the data required can be collected from a small number of financial institutions, input suppliers and cotton ginning companies (Minot and Daniels 2002;Goreux and Macrae 2003). The system is based on the ginneries' geographical monopolies, and cotton farmers are not allowed to sell seed cotton outside the specified zones or to purchase inputs from suppliers of their own choice.…”