The U.S. dollar's record plunge is adding to the hardships of African cotton growers like Farba Boiro, separating them from home and threatening their ability to continue farming in a region where a third of the population subsists on less than $1 a day.
Boiro, a 30-year-old farmer from southern Senegal, couldn't afford to plant this year. With cotton selling for about 9 percent less than a decade ago, he already spent nine months a year working at odd jobs in Dakar, the capital, or in neighboring Gambia. This year's dollar slide made even three months at home with his son and other relatives impossible.
"The money we get isn't enough to support my family,'' Boiro says, leaning against the wall of a tin building on the outskirts of Dakar, about 340 kilometers (210 miles) northwest of his village, Sare Ndiaye. "Some people end up with nothing at the end of the year.''
Cotton from companies like Burkina Faso's Sofitex and Cameroon's Sodecoton is bought and sold on the world market in U.S. dollars. Farmers are paid in CFA francs, the euro-pegged local currency of 14 western and central African countries. Compared with a year ago, the dollars their crops fetch in world markets buy about 9 percent fewer CFA francs for food and shelter.
While cotton prices have risen about 13 percent this year, "the appreciation of the CFA franc has offset the benefits,'' according to Stephane Alby, an economist at BNP Paribas SA, France's biggest bank. Most of the region's "cotton producers are now on the verge of operating at a loss and sinking into debt,'' Alby wrote in October. "Meanwhile, the main ginning and marketing companies have chalked up heavy losses over the last two seasons, of which a large part has been supported by the government.''
Cotton accounts for 5 to 8 percent of gross domestic product across West Africa, according to the World Bank. Rural areas in the Sahel, the region that stretches across the continent from Senegal, Gambia and Guinea-Bissau, can be entirely dependent on it because few other crops grow there, says Terry Townsend, executive director of the International Cotton Advisory Committee, a Washington-based association of cotton-producing and consuming countries.
The countries that link themselves to the euro in what is known as the franc zone are mostly former French colonies, including Senegal, Ivory Coast and Burkina Faso, which were granted independence in 1960. Together, they are home to about 115 million people.
The fixed exchange rate has created stability, curbed inflation and bolstered confidence among foreign investors, says Jean-Paul Azam, an economist at the University of Toulouse in France who has published books on the region. "For 30 years, the result has been strong growth and expansion in industry,'' Azam says. "Stability for these countries is more important than trying to acquire a little more competitiveness.''The link can also slow growth when the euro rises. The region, Sub-Saharan Africa's fastest-growing area during the 1990s, has been its slowest since 2004, according to the World Bank. The CFA franc has followed the euro up about 57 percent against the dollar since U.S. President George W. Bush took office in January 2001 as investors seek better returns outside the U.S.
The dollar's decline has been a boon to U.S. exporters, including Nike Inc. and Colgate-Palmolive Co. and helped narrow the U.S. trade deficit 0.6 percent in September.
For people in the poorest countries, a shift in the exchange rate can eliminate a month's food, says Daniel Sumner, an economist at the University of California, Davis, who wrote a study on cotton subsidies for Oxfam America, a Boston-based aid group. Fifty dollars can be "enough to feed a child for a year,'' he said. "It's enough to pay the school fees for three to four children.''
Payments to farmers from cotton companies in western Africa have fallen an average 15 percent since 2004, International Cotton Advisory Committee data show. Production in western and central Africa may decline 21 percent this year, according to Dagris SA, a Paris-based company owned by the French government that holds stakes in African, Asian and Latin American cotton producers.
In western Africa, the decline of the cotton industry may trigger mass migration, says Amdiatou Diallo, the executive director of the National Federation of Cotton Producers in Tambacounda, Senegal. "It's certain the consequences on the younger generation will be seriously destabilizing,'' Diallo says. "People will turn to cultivating peanuts, or they will try to go overseas.''
Several of Boiro's friends from his Peul ethnic clan have already abandoned family farms to raise a decent income elsewhere. He says he never wants his son to be a farmer. "The life is too difficult,'' he says. "I prefer that he goes to Europe and becomes a footballer.''
Bloomberg
