Farm bill proposals offer resolution

In his recent op-ed on the Congress blog, Dr. Langevin implies there needs to be further changes to the extensive reforms to the cotton program contained in the House and Senate passed bills now in conference. Through the National Cotton Council (NCC), U.S. cotton growers have had extensive discussions with ABRAPA and Brazilian cotton growers regarding the necessary changes to resolve the cotton portion of the long-standing trade dispute.  They have jointly informed the two governments that the current provisions in the Conference Committee are sufficient to resolve the dispute.  As a result of those discussions, the current provisions have eliminated any reference price component, reduced the coverage span and modified the marketing loan from provisions initially proposed by NCC. It now seems that the Brazilian government may be moving the goal posts. 

The changes in cotton policy, supported by the U.S. cotton industry, satisfy the findings of the WTO panel. That panel found fault with the combined effect of the target price, the marketing loan, and a provision known as Step 2. The panel found no fault with Direct Payments or insurance products. The Step 2 provision was eliminated in 2006; the new farm bill will eliminate the target price; and the marketing loan is changed in a manner that will eliminate any adverse market effects. In place of these programs will be a new insurance product that producers must purchase in order to have a safety net.

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The U.S. cotton industry supports the Stacked Income Protection Plan (STAX) currently under consideration by the Farm Bill Conference Committee. Looking back, the proposed policies for upland cotton represent a 52 percent reduction from the levels of spending observed during the years evaluated by the WTO panel. Looking forward, relative to a continuation of the DCP program, STAX will contribute $2.8 billion towards deficit reduction. CBO estimates STAX budget outlays represent a 38 percent reduction relative to the expected spending under a continuation of the Direct and Counter-cyclical Payment (DCP) program.

STAX is supplemental insurance and, as with all insurance products, there is a deductible.  Regardless of the level of prices, growers are not made “whole” if they receive an indemnity under STAX. Unlike the DCP program, support under STAX declines in times of low prices, rather than increases. STAX will not insulate growers from market signals, which addresses one of the core criticisms leveled against the target price CCP program by the WTO panel.

While the formal proceedings were concluded by the WTO dispute panel in 2009, the time period evaluated in the case brought by Brazil was 1999 to 2005.  Today’s agricultural markets, including cotton’s, are entirely different from the period of the challenge.  Renewable fuels and the emergence of the Chinese and Indian economies have brought new influences and market drivers.  Compare the 1999-2005 period with the most recent 5 years (2009 to 2013) and you will find that U.S. area planted to upland cotton is down 21 percent, U.S. upland cotton production is down 23 percent, Brazilian cotton area is up 27 percent and production is up 62 percent.   World cotton prices averaged 88 percent higher over the past 5 years than during the period of the challenge.

In the spring of 2010 the U.S. and Brazilian governments entered into an agreement that stipulated, among other things, monthly payments by the U.S. to the Brazil Cotton Institute totaling $147.3 million annually.  In return, Brazil agreed to suspend retaliation.  Surprisingly even though growers have reached agreement and Brazil has now received over $500 million from U.S. taxpayers, Brazil now seeks more payments in order to achieve a settlement. 

U.S. and Brazilian cotton growers have found a way forward for resolution of the cotton portion of the dispute.  Hopefully, the Brazilian government continues to realize retaliation adversely impacts Brazilian and U.S. interests and will affirm the proposed legislation as a conclusion to this dispute.

Lange is CEO of the National Cotton Council.