Dispelling Myths About U.S. Support to Cotton Farmers:
U.S. Programs Have Not Caused Low Cotton Prices and Hurt Foreign Growers
U.S. government farm programs benefiting America’s cotton farmers have attracted considerable attention and criticism in recent years. The myth presented by critics is simple: U.S. cotton production and exports went up when prices were going down so these must have been the effect of U.S. farm programs. Critics also argue that U.S. cotton support increased under the 2002 farm bill, further driving down cotton prices. But the facts do not support these myths. The facts are:
• World cotton prices generally increased over the life of the 2002 farm bill.
• The U.S. share of world cotton production has remained stable and even declined in recent years. At 16.2% in ’07, U.S. production tied 1998’s share as the lowest in almost 20 years.
• The U.S. share of world cotton consumption has declined in recent years because U.S. mill use decreased dramatically as a result of competition from Asia – leading to an increase in U.S. cotton fiber exports.
• The United States spins less cotton yarn today, but is the world’s largest consumer of cotton textiles and apparel. In 2007, the U.S. consumed 4 million bales of cotton products in excess of cotton fiber production. The strong demand for cotton products in the U.S. is largely the result of grower-financed promotion and advertising.
• U.S.farmers responded to expected market prices in recent years by planting more cotton when cotton prices looked more attractive than competing crops and less cotton when cotton looked less attractive.
U.S. farm programs have operated as designed, supporting farmers’ incomes in times of low prices while allowing them to react to market signals.
MYTH: U.S. Support to Cotton Farmers Results in Low Cotton Prices
REALITY: Cotton prices are not low. In fact, U.S. and world cotton prices have risen substantially since the inception of the 2002 farm bill.
Furthermore, recent independent studies by Texas Tech University, the Food and Agricultural Organization (FAO) of the United Nations, and the International Monetary Fund found very low price impacts from U.S. programs, between 1% and 3%.
MYTH: The U.S. Spends Billions of Dollars on Cotton Support
REALITY: Reported spending levels for U.S. cotton are outdated. Recent and projected levels of spending for the program components found objectionable by WTO dispute panels are as follows:
Estimated & Projected Spending (Million $)
MYTH: U.S. Support to Cotton Farmers Has Driven Up U.S. Production and Exports at the Expense of Foreign Competitors
REALITY: The U.S. share of world cotton production has remained relatively stable over the long term and even decreased in recent years, despite the alleged increase in U.S. support. The increase in U.S. cotton exports has been in response to a decline in U.S. mill use.
MYTH: U.S. Support to Cotton Farmers Has Insulated Them from Market Price Signals
REALITY: U.S. cotton farmers have reacted to market conditions. In fact, a further examination of the data suggests that U.S. farmers may be more sensitive to relative market signals than producers in other countries. U.S. farmers are responding to expected market prices at time of planting. Data clearly demonstrate that cotton farmers plant in the spring based on what they expect prices to be in the fall when they harvest the crop.
MYTH: Large Government Payments to U.S. Cotton Farmers Must Have Distorted Trade and Caused Low Prices
REALITY: Data do not show that U.S. farm programs insulate farmers from market forces. Critics of U.S. programs blindly point to declining cotton prices in the late 1990’s as being the result of the U.S. cotton program. However, those same critics fail to acknowledge the myriad of factors that affect world fiber markets. In recent years, the movement in cotton prices is not dissimilar to that of all agricultural markets.
MYTH: U.S. Cotton Programs Have Caused Economic Injury to West African Cotton Producers
REALITY: Economic difficulties faced by West African producers are the result of internal problems with production and marketing. West African producers receive only a small portion of the world price for their cotton. A CATO Institute bulletin found that West African producers have been denied the high cotton prices received by other growers.
Strength in the West Africa currency has negated all price improvement since 2002. In addition, West African yields are not keeping pace with those in other developing countries that produce cotton.
MYTH: U.S. Cotton Programs Will Not be Affected by the Current Doha Negotiations
REALITY: The United States has already reduced support to cotton and further reductions would be required in the current negotiations. The current program for U.S. cotton is not the same as approved by Congress in 2002. A series of changes has reduced the overall support to the U.S. cotton industry. The elimination of the Step 2 provision of the marketing loan represented about one-half billion dollars of expenditures in 2005. Changes in the administration of export credit guarantees eliminated the subsidy component of those programs, which were authorized at $400 million per year.
The recently-enacted 2008 farm bill further reduces support to cotton. The target price used to determine counter-cyclical program payments will decline from the level established in the 2002 farm bill.
The current Doha negotiating text would severely limit the allowed support that could be provided by the U.S. Congress. Relative to historical support level, the product-specific limits in the general formula of the Doha draft text represent a 20 to 40% reduction.