Impact of the United States‘ and the European Unions‘ Agricultural Subsidies on African Countries

von Alice Schmidt

Masterarbeit (WiSe 2015/16)
Prof. Dr. Andreas Nölke (Department of Social Studies, FB 03)

Abstract

Industrialized countries have been subsidizing their agriculture for a long time. This has a huge impact on other countries, particularly on developing countries, as they are largely dependent on agriculture. Industrialized countries are distorting and artificially decreasing the world market prices of agricultural products. Furthermore, they flood markets of developing countries with their overproduction and undersell local producers. Thereby, numerous jobs in the agricultural sector in developing countries are destroyed. By means of two examples, cotton production in Benin and dairy production in Kenya, the consequences of this policy are investigated and illustrated.

Benin represents a Least Developed Country and approximately half of all households rely on cotton. The high production and export volumes of the US cause lower cotton prices on the world market. Studies showed that the welfare in Benin decreased along with the world cotton price from 1994-2002. A reduction of 40 percent caused a poverty rise of 8 percent, equivalent to 334,000 individuals below the poverty line in Benin. In 2001-2002 Benin suffered export losses due to US cotton subsidies of USD 33 million, although the Beninese cotton farmers had a significant advantage over cotton farmers in the US.

Kenya represents a middle low-income country. It is strongly affected by agricultural subsidies as well. With 2 million employees, dairy production is a very important sector for the Kenyan economy. Most of its production is sold on the domestic market. In 1992-1994 and in 1998-2000 Kenya had a much lower volume of dairy production. This was caused by high skimmed milk powder imports, as local producers had to decrease their prices in order to be competitive to skimmed milk powder. To protect itself against these exports, Kenya tariffed imports with 60 percent. However, it can be assumed that the problem of high overproduction will recur, since the European quotas for dairy expired in 2015. This might be the main reason for the EU to put pressure on Kenya to sign the EPA.

All in all, the agricultural subsidies and trade policies cause enormous economic losses for Benin and Kenya. Both countries experience decreases in GDP as well as development and a high percentage of inhabitants lives below the poverty line.