Contentious US Budget Debate Spurs Cotton Lobby to Act

7 September 2011

The US fiscal deficit is pushing legislators to consider cuts in areas previously held sacred, including agriculture subsidies. In recognition of changes in the amount of money available to agriculture, the National Cotton Council - the US lobbying group for the cotton industry - recently conceded that direct payments and counter cyclical payments may be cut and is now seeking a programme of revenue based crop insurance.

The summer debt limit debate that riled Washington ended with a compromise that a "Super Committee" of six US congressional Democrats and six Republicans would agree to budget cuts or face automatic cuts across the board, with some exceptions. In agricultural spending, food stamps and conservation are expected to exempted from automatic cuts. The congressional committee is set to have its first meeting tomorrow, 8 September.

The National Cotton Council statement comes at time of major debate within the farm policy community. Speaking to Bridges, Bruce Babcock, a professor at Iowa State University, observed that "direct payments are impossible to defend when we're cutting off aid for health care, education." Babcock expects a 30 percent reduction in direct payments, or a $1.5 billion cut.

Some US farmer organisations, such as the Iowa Farm Bureau, have already endorsed a move away from direct payments towards the more politically palatable crop insurance. Cotton is not a major crop in Iowa and the state's farm bureau position may reflect this.

Direct payments to cotton average US$53 an acre, versus US$22 an acre for corn, a popular crop in Iowa; the Cotton Council's position is therefore a notable change. According to Babcock and others, support for rice, the largest recipient of direct payments per acre, may also need to consider a move towards crop insurance.

Proposal language unclear, experts say

The National Cotton Council's statement makes reference to "revenue based crop insurance" or a "revenue based crop insurance safety net," language that has baffled some experts, considering that the good already benefits from crop insurance. Representatives of the Council had not responded to requests for clarification at press time.

Dan Sumner, an agricultural economist at the University of California-Davis, told Bridges that the proposal was "free revenue insurance" and called the resulting amalgam an "even more distorting programme."

In an interview with Agritalk, a US radio show, Mark Lange, CEO of the National Cotton Council, explained that the lobby was not looking to change existing crop insurance but to create a programme that would "ride on top" of existing support. According to Lange, the programme would make up for losses at the county rather than individual level, providing a safety net that the group was able to "generate for cotton from the direct and counter cyclical programs." He noted that area or county wide programmes were cheaper than ones that target individual farmers.

Sumner explained that cotton growers were unwilling to "to pay any significant share of the cost of insurance." Babcock surmised that the group wanted to receive support under Title I of the US Farm Bill, programmes where farmers contribute little money of their own. Lange's description included the possibility that a producer could choose not to "buy" the programme.

Pressing for compliance with the framework agreement reached between the US and Brazil in the US-Upland Cotton case, in which the global trade body deemed that various US cotton subsidy programmes were either prohibited or actionable, the Council said the industry "must work with Congress and the Administration." Experts and the Council are expecting reductions in direct and counter cyclical payments. This may leave the Marketing Loan Program as the main area of contention for dispute compliance; Sumner suggested that the programme might just "go away."

The US-Upland Cotton case was a long-running trade dispute that was recently settled between the US and Brazil. The US agreed to annual payments of $147.3 million, among other benefits, to the newly-established Brazilian Cotton Institute - a technical fund for Brazilian farmers - until US policy could be brought into compliance with the WTO's findings.

In defiance of the agreement between the two countries, the US House of Representatives passed a bill in June that prevented the US Department of Agriculture from making such payments (see Bridges Weekly, 22 June 2011). The bill would need to be passed by the both chambers of Congress and signed by the President to become law, an unlikely possibility according to experts such as Sumner.

A Geneva trade official well-versed in the issue noted the National Cotton Council was well "attuned to the political scenario" in Washington and observed that the manner in which the reforms affected specific commodities and the role that the US played in a given market mattered more than dollar figure changes.  He cautioned that changes could "generate serious prejudice," the threshold set for violation of the dispute settlement, if support exceeded "certain levels."

Farm policy reform, or least a debate on the subject, seems to be underway in Washington, according experts that spoke to Bridges. Still, some believe that Congress will be unable to enact broad changes for fiscal year 2012, mainly due to time constraints, and will instead continue the policies of the previous fiscal year.

ICTSD reporting.

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