Cotton Prices and Poverty in Benin

Motivation

When cotton prices drop in producing countries, rural poverty rates tend to increase. A 2005 IFPRI study, with support from the World Bank, focused on Benin found that a 40 percent drop in cotton prices resulted in an 8 percent increase in rural poverty in the short run and a 6 to 7 percent increase in the long run. This relationship between low cotton prices and high poverty rates could mean that if policies from developed countries negatively impact global cotton prices, such policies can then also affect the income of farmers in developing countries.

Outcomes

• As a result of this study, IFPRI researchers were invited to testify before the World Trade Organization in Geneva in late 2003. The study was part of the background information used by Brazil and other cotton exporters in their complaint alleging that US subsidies were pushing down world cotton prices, thus having a negative effect on cotton growers in developing countries. The WTO ruled in favor of Brazil.