World cotton prices have been on a downward trend since the 1950s.

According to Oxfam, the prices have fallen by half since the 1990s and are now lower than at any time since the Great Depression of the 1930s.

There are a number of factors that impact on cotton prices and subsidies have often been named as the most important.
 

Who gets subsidies and why?

Research has found that at least eight countries - the United States, Brazil, China, Egypt, Greece, Mexico, Spain and Turkey – have consistently supported their cotton production industry with the level of assistance between 1998 and 2002 averaging a total of US$5.3 billion.

Production costs in the United States are three times as high as those in West Africa, yet the subsidies paid to cotton farmers in the EU and the US provide them with a price two to three times higher than the world market price.

This means that cotton enters the market with an inbuilt loss, which brings the world market price down. It has been estimated that in 1999 rich country export subsidies and domestic support to cotton depressed prices by 20 percent. This adds up to a total loss of US$300 million for African cotton exporters in that year alone.
 

What's the impact for developing country producers?

The livelihoods impacts of these losses are substantial. In West and Central Africa, more than 10 million people depend on cotton production for their livelihoods, with many more indirectly affected. In addition, cotton is a major source of foreign exchange and government revenue in countries such as Burkina Faso, Mali and Benin.

Given its size and significance, the US subsidies have been labelled as the main cause of the decline in cotton prices and a withdrawal of US cotton subsidies could have a huge impact on livelihoods in developing countries with a high reliance on cotton production.

In 2003, the issue of subsidies was brought to the centre stage of the World Trade Organization’s (WTO) negotiations, when Benin, Burkina Faso, Chad and Mali presented a proposal to reduce agricultural exports subsidies and trade distorting domestic support.

This is considered one of the key reasons why the latest WTO trade round broke down, and in particular the US has refused to support the proposal arguing that their domestic support programs have neither depressed prices nor hurt foreign competitors.