Having shown the financial situation under which Barnes Farms produce tobacco, let us compare this with Malawi.
Malawi has a population of 14 million people. They have a short life expectancy, high infant mortality and a high prevalence of HIV/AIDS which is a drain on the labor force and government expenditures, and is expected to have a significant impact on gross domestic product (GDP) by 2010.
African nations are perceived by the west to be rife with tribal conflict, etc. According to the post in Wikipedia Malawi did have tribal conflict, but this has reduced significantly since 2008.
The economy of Malawi is described by Wikipedia as:
“The economy of Malawi is predominantly agricultural, with about 90% of the population living in rural areas. The landlocked country in south central Africa ranks among the world’s least developed countries. Agriculture accounts for 37% of GDP and 85% of export revenues. The economy depends on substantial inflows of economic assistance from the IMF, the World Bank , and individual donor nations. The government faces strong challenges: to spur exports, to improve educational and health facilities, to face up to environmental problems of deforestation anderosion, and to deal with the rapidly growing problem of HIV/AIDS in Africa.
“The country’s heavy reliance on tobacco places a heavy burden on the economy as world prices decline and the international community increases pressure to limit tobacco production. Malawi‘s dependence on tobacco is growing, with the product jumping from 53% to 70% of export revenues between 2007 and 2008.”
“Traditionally Malawi has been self-sufficient in its staple food, maize (corn), and during the 1980s it exported substantial quantities to its drought-stricken neighbors. Nearly 90% of the population engages in subsistence farming. Smallholder farmers produce a variety of crops, including maize, beans, rice,cassava, tobacco, and groundnuts (peanuts).”
The exports of the Malawian economy is Exports: $560.3 million f.o.b. (2006 est.). Compare this with the subsidies that Barnes Farms received from the US Government to produce tobacco!
A major problem for progress in Malawi is that international aid and assistance has dramatically decreased since the 2008 global financial disasters of western countries.
I have often heard/read US citizens complain about the amount of aid that they give African countries – who they believe are not grateful enough.
Here is a comparison of the aid, as a percentage of their Gross National Income, that different countries give:
The US is even more stingy than Greece and Italy – even Ireland is way more open-handed than the US.
Here is the quirky economics contradiction: The US subsidize its tobacco growers to an even greater extent than the Malawian total income from the export of tobacco! This allows the international price of tobacco to be lower and hence the income Malawi gets from its tobacco exports are less. The decreased income Malawi gets affects 14 million people! It affects the health services and education that they can get. In the US this subsidy affects the wealth of the shareholders of FarmPak – which is Barnes Farming Corporation which is privately owned by Mr Barnes.
Does the US understand why Africa is not a grateful about US aid as the US thinks they should be?
Think back to the way that the flow of tobacco between countries. Where does Malawi’s tobacco crop go? Straight to the US!
So, when the world price of tobacco declines the US cigarette companies pay less for the tobacco it imports from Malawi – while the US tobacco farmer does not get penalised by the lower price because he is subsidized.
Of course the cigarette companies – Philip Morris – scores all the way to the bank because the tobacco it buys locally AND from Malawi cost less. Its export prices for Marlboro does not decrease because the raw price for the tobacco decreased: Have you heard of the price of cigarettes decrease ever?
The next question is: What happens when China imports tobacco from Malawi?
The fact that the US taxpayer has to contribute so much money to the inefficiencies of the US tobacco farmer and the Malawian farmer cannot get subsidies – in fact the whole economy of the country suffers when they cannot sell their tobacco to the US leads one to believe that there are big differences in the agricultural methods of these two countries. The two pictures below might give clue.
How can farmers using the US technology not be able to make a profit at world prices and why do they then need subsidies?
The picture on the right I got from the website below – you will be pleased to know that it is actually the contribution by the cigarette companies to the economy of Tanzania.
Economics is a discipline that studies the allocation of scarce resources – like agricultural land – to solve societies need.
Simple economics suggest that if the US stops subsidizing Barnes and his friends then they would produce less tobacco. This will then increase the price of tobacco. Imperial and the other cigarette companies will then pay more for their raw product. This will immediately finance more than 183 pairs of oxen! (I am sarcastic here!).
In fact, it is likely that the Malawian Government will become less dependent on Aid and will be more able to address their infant mortality rates, levels of educations, etc.
One would have thought that Carson Barnes, the founder of Barnes Farming Corporation is a very poor man in need of a subsidy. In fact, he must be very poor if he needs such a big subsidy.
Here is the PR blurb on the FarmPak website about him:
It is noteworthy that on all the sites about this faring operation there is very little mention of the tobacco operation that he gets billions of the taxpayers money. But then, he is only one of the US tobacco farmers that get this subsidy.
All of this largese from the US Government because he does not have the insight to change his 1,500 acres of tobacco to something that he can actually produce more profitably: sweet potatoes.
One is not left wondering why activist camped out on Wall Street because 1% of the world population owns 40% of its wealth. (Carson is not even listed on Wall Street – just helped by the US taxpayer, the IMF and the World Bank.