US announces US$300 million in payments for cotton producers

20 June 2016

US cotton producers will receive one-off payments totalling US$300 million, the US Department of Agriculture announced two weeks ago

The payments will be made under the Cotton Ginning Cost Share Program. Cotton “ginning” is the process by which cotton fiber is separated from the seed. 

Farmers will receive a one-time payment based on their 2015 cotton acreage, multiplied by 40 percent of the average ginning cost for each production region. The payments will be made to producers who meet certain requirements, including an adjusted gross income limit of US$900,000 and a requirement to be actively farming. The payments will be capped at US$40,000 per producer.

The support provided will also be 60 percent higher than the amount farmers received through the Cotton Transition Assistance Program, a scheme that was meant to provide limited support to producers while direct payments were being phased out under the 2014 US Farm Bill.

“The Cotton Ginning Cost Share program will offer meaningful, timely, and targeted assistance to cotton growers to help with their anticipated ginning costs and to facilitate marketing," said US Agriculture Secretary Tom Vilsack.

Cotton prices down from 2011 peak

US cotton farmers benefit from subsidised insurance under the Stacked Income Protection Plan (STAX), which has provided such insurance to producers of upland cotton from 2015 onwards. 

Cotton producers are also eligible for marketing assistance loans and crop insurance coverage under the 2014 Farm Bill, even though they were excluded from two new schemes that were introduced for other agricultural producers at that time, the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC).

Cotton producers have this year urged Vilsack to reclassify cottonseed as an oilseed under the Farm Bill in a bid to increase the level of support they receive – although the Agriculture Secretary has argued he does not have the authority to do so.

The industry nonetheless extended a cautious welcome to the announcement of the new one-off scheme.

Mike Tate, the chairman of the American Cotton Producers, said that producers “appreciate Secretary Vilsack’s efforts in providing marketing assistance to a commodity that is suffering a serious decline in market revenue.” Heavily-subsidised foreign competition was among the factors suppressing prices, Tate said.

Although cotton prices have fallen dramatically since peaking at US$2 per pound in 2011, they have returned to levels that are close to historical averages for the previous decade, with prices today back at around 63 cents per pound.

The decline in prices since 2011 has been linked to several factors, including global oversupply of cotton as a result of government stockpiling, increased market competition with polyester, and falling oil prices, which have decreased the price for oil-based raw materials used in making polyester.

Trade-distorting effects?

Since the announcement was made, some US trading partners have been more critical of the new payments.

Brazil questioned the impact of the payments on the cotton market during a meeting of the WTO’s Committee on Agriculture last week. Trade officials said that Brasilia’s first assessment of the new payment scheme “seems to indicate that this is a new trade distortive domestic support measure with potential impacts to international cotton prices.”

In 2014, the US and Brazil reached an agreement over a dispute filed by Brazil in 2002 over cotton subsidies in the US. (See Bridges Weekly, 2 October 2014) The WTO’s Appellate Body confirmed in 2005 that certain US cotton support payments, including direct payments and export credit programmes, were trade-distorting and prohibited under global trade rules.

Some experts also warned that the new programme could have implications for farmers’ planting decisions by altering their expectations of government support in years ahead.

“Every farmer will expect that this supposedly one-time payment will be continued,” said Terry Townsend, an international cotton industry consultant, in comments emailed to Bridges.

The US recently submitted a report to the WTO indicating that the country’s farm subsidies overall increased to US$14 billion in 2013, including US$573 million in support for cotton, which was reported as highly trade-distorting “amber box” support. (See Bridges Weekly, 2 June 2016)

Trade negotiations continue

At the global trade body’s tenth ministerial conference last December in Nairobi, Kenya, ministers adopted a decision on cotton which acknowledged efforts made by some countries to reform their policies, and restated the objective of reducing trade-distorting support, but without taking any concrete steps to do so.

The outcome fell short of long-standing demands from West African cotton exporting countries Benin, Burkina Faso, Chad, and Mali – collectively known as the Cotton Four (C-4) – for restrictions on permitted levels of trade-distorting domestic support.

Trade negotiators from the majority of WTO member countries see domestic agricultural support overall as a priority for the trade body’s next ministerial conference, in December 2017, while officials have noted that large data gaps in reporting their farm subsidies are hampering efforts to do so. (See Bridges Weekly, 10 March 2016)

ICTSD reporting; “Brief - USDA secretary denies Congress request for cottonseed subsidies,” REUTERS, 4 February 2016.

This article first appeared in Bridges Weekly, 16 June 2016.

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