U.S. Cotton and Rice Policy

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U.S. Cotton and Rice Policy Compatibility with
WTO Commitments And Other Trade Liberalization
Efforts Mechel S. Paggi Center for Agricultural
Business, California State University,
Fresno Silverado Symposium on Agricultural
Policy Reform / Napa, California /January 20, 2004
2
Where Were We?Where are We?Where are we Going?

• Existing Programs vs. 1996 Act
• Expenditures Under 1996 Act
• Potential Exposure in Low Price Scenario
• With New Programs
• Projections of Future Expenditures
• Under New Programs
• Suggestions for Changes Resulting from Doha Round
• Potential Exposure of Existing Programs under
  those changes
• Suggestions for alternative policies
• Suggestions regarding the potential for change

3
U.S. Cotton Rice Program 1996 vs. 2002

• Marketing Loans
• Direct Payments
• Counter Cyclical Payments
• Step 2 for Cotton

4
U.S. Cotton Rice Program 1996 vs. 2002

• Marketing Loan
• 1996
• The loan rate for upland cotton was set at the
  lesser of 85 of the 5-year Olympic average of
  spot market prices, or 90 of the Northern
  Europe-based average price, subject to a maximum
  of 0.5192 per pound and a minimum of 0.50 per
  pound.
• Rice was fixed at 6.50 per

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1996 FAIR Act PFC Payments
Allocations
PFC Payment Levels
Wheat 26.26 Corn 46.22 Sorghum
5.11 Barley 2.16 Oats
0.15 Cotton 11.63 Rice 8.47

• 5.570
• 5.385
• 5.800
• 5.603
• 5.130
• 4.130
• 4.008

Spending caps for each crop, except rice, were
adjusted for prior-year crop program payments to
farmers made in FY 1996 and any 1995 crop
repayments owed to the government. The amount
allocated for rice was increased by 8.5 million
annually for FY 1997-2002. Oilseeds were not
eligible for production flexibility contract
payments.
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Current U.S. Cotton Program Price and Income
Support Levels (Cents per Lb.)
Program Yield (CC Update)
Direct Payment Rate (CC Rate)
Marketing Loan Rate
Target Price
Program Acres
7
Current U.S. Rice Program Price and Income
Support Levels
Program Yield (CC Update)
Direct Payment Rate (CC Rate)
Marketing Loan Rate
Target Price
Program Acres
8
Cotton Step 2 Payments
Bale Equivalents
Million Dollars
Season Avg. Price
Price Per Bale
Total expenditures for Step 2 payments were
originally limited to 701 million over FY
1996-2002. The 2000 Appropriations Act removed
the expenditure cap.
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CC Payment Rate to 0.0 or (TP Effective Price)
Effective Price The Higher of the National
Loan Rate Direct Payment
or the Average Farm Price
Max Cotton CC Payment Rate Per LB. 0.724
(0.52 0.0667) 0.1373 0.65.73
Max Rice CC Payment Rate Per Cwt. 10.50
(6.50 2.35) 1.65 8.15/cwt
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For Cotton In 1999 LDP PFC Payments 47 Of
Gross Revenue Per Acre
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Limit of 19.6 Billion
1999 2001 Unofficial Estimates from former
CBO work
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Limit of 9.6 Billion
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FAPRI Baseline Projections Government Payments
Note For feed grains, food grains, oilseeds,
cotton, and dairy, figures represent the means of
the results of the stochastic analysis based on
500 random draws. Figures do not include effects
of the FY 2003 omnibus appropriations bill.
17
Selected Direct Government Payments FAPRI
Baseline, 2003
Note Includes direct payments, marketing loans
(loan deficiency payments and marketing loan
gains) and counter-cyclical payments for feed
grains, food grains, oilseeds, and upland cotton.
Figures represent the means of the results of
the stochastic analysis based on 500 random
draws.
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PS AMS Dairy, Sugar Aggregate LDP
payments NPS AMS CCPs and Crop Insurance PFC
Payments Green Box
19
FAPRI 2003 Baseline Cotton Outlook
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Suggested Changes in Doha Round
Decrease Amber Box AMS by 50 Decrease de
minimis NPS Amber Payment Limit by 50 Effective
limits fall to 9.8 Billion and 4.8
Billion Could Be a Problem Particularly For NPS
that includes CCPs
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Apparent Program Options

• Increase Direct Income Support and
• Drop the CCP
• Create Alternative Green Box Income
• Transfer Programs
• Utilize Circuit Breaker Option if Expenditures
  Exceed Limits
• Create Some New Box (maybe Pink)
• With a Justification for Product Specific
  Supports Tied to Prices
• Develop Program to Transition Out of IncomePrice
  Supports

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USTR Ominous Warning for Cotton
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Political Reality MayDampen Rush to Change

• Election Year 2004
• Rice and Cotton Production Texas, California,
  Arkansas, Louisiana, Mississippi, Missouri, New
  Mexico, Arizona, Tennessee, Alabama, Georgia,
  North Carolina, South Carolina, Florida,
  Virginia, Oklahoma and even Kansas and Nebraska
• These Programs Date Back to 1933
• Lack of Enthusiasm for Increased Trade
  Liberalization Among Farm Organizations at the
  Expense of Domestic Price and Income Support