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
Where Were We?
Where are We?
Where are we Going?
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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
U.S. Cotton & Rice Program
1996 vs. 2002


Marketing Loans

Direct Payments
Counter Cyclical Payments

Step 2 for Cotton
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
1996 FAIR Act PFC Payments
PFC Payment Levels
1996
1997
1998
1999
2000
2001
2002
$5.570
$5.385
$5.800
$5.603
$5.130
$4.130
$4.008
Allocations
Wheat
26.26%
Corn
46.22%
Sorghum 5.11%
Barley
2.16 %
Oats
0.15%
Cotton
11.63%
Rice
8.47%
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 $8.5 million annually for FY 1997-2002. Oilseeds were
not eligible for production flexibility contract payments.
Current U.S. Cotton Program
Price and Income Support
Levels (Cents per Lb.)
Marketing
Loan Rate
Target
Price
Direct Payment
Rate
(CC Rate)
Program
Acres
Program
Yield
(CC Update)
1998/99
51.92
8.173
16.4
604.00
1999/2000
51.92
7.880
16.4
604.00
2000/2001
51.92
7.330
16.3
604.80
2001/2002
51.92
5.990
16.2
605.30
2002/2003
52.00
74.20
6.67/13.73
18.9
604.3/638.9
2003/2004
52.00
74.20
6.67/--
18.4
603.7/638.4
Current U.S. Rice Program
Price and Income Support
Levels
Direct Payment
Marketing
Target
Rate
Loan Rate
Price
(CC Rate)
______________$/cwt_______________
Program
Acres
Program
Yield
(CC Update)
Cwt/acre
98/99
6.50
2.921
4.2
48.17
99/2000
6.50
2.820
4.2
48.15
2000/01
6.50
2.600
4.1
48.15
2001/02
6.50
2.100
4.1
48.15
2002/03
6.50
10.50
2.35/0.00
4.5
48.14/51.23
2003/04
6.50
10.50
2.35/--
4.5
48.12/51.9
Cotton Step 2 Payments
Million
Dollars
Season
Avg. Price
Price Per
Bale
Bale
Equivalents
1997
$390
$0.65
$312.96
1246166
1998
$307
$0.60
$288.96
1062431
1999
$421
$0.45
$216.00
1949074
2000
$236
$0.50
$239.04
987282
2001
$196
$0.30
$143.04
1370246
Total expenditures for Step 2 payments were originally limited to $701 million over FY 1996-2002.
The 2000 Appropriations Act removed the expenditure cap.
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
For Cotton In
1999 LDP & PFC
Payments = 47%
Of Gross Revenue
Per Acre
U.S. Aggregate Measurement of Support *
30
25
Billion dollars
Limit of $19.6 Billion
20
15
10
5
0
1986-88
1995
1996
1997
Dairy, sugar, peanuts
* 1999 – 2001 Unofficial Estimates from former CBO work
1998
Ldp/Mlgs
1999
Other
2000
2001
U.S. Non-product Specific Amber Support
Subject to de minimis Trigger of 5% of Total Value of
Production
8
7
Limit of $9.6 Billion
Billion dollars
6
5
4
3
2
1
0
1986-88
1995
1996
Crop insurance
1997
1998
Irrigation, credit and grazing
1999
2000
Market Loss Assistance
2001
Amber Box Estimate of AMS in Bad Price Year Like 2000/01
Existing Programs and WTO Limits
Dairy & Sugar
25000
Product Specific Total
$ Millions
20000
15000
10000
NPS
Support
CC-Payments
5000
Other NPS
0
De Minimis
Trigger
FAPRI Baseline Projections
Government Payments
Fiscal Year
Corn
2002
2003
2004
2005
2006
2007
(Million
Dollars)
2008
2009
2010
2011
2012
2,959
1,188
4,954
5,781
5,841
5,578
4,880
5,257
5,201
5,119
5,127
207
137
393
456
453
436
389
408
402
395
385
97
101
198
223
218
213
213
213
210
209
206
7
11
25
35
35
34
33
32
32
31
32
Wheat
1,190
1,308
2,290
2,382
2,323
2,227
2,117
2,077
1,981
1,881
1,838
Rice
1,084
1,241
1,305
1,228
1,193
1,183
1,158
1,123
1,078
1,029
985
Soybeans
3,447
1,273
2,163
2,394
2,124
1,972
1,771
1,886
1,991
2,033
2,066
129
1,399
394
259
252
259
227
277
290
297
302
Other Oilseeds
87
30
98
71
66
67
67
67
66
72
73
Upland Cotton
3,307
2,996
2,899
2,859
2,828
2,628
2,499
2,402
2,267
2,168
2,065
Sugar
-130
-83
1
1
1
1
1
1
1
1
1
Dairy
614
2,678
1,638
1,640
703
391
400
400
378
357
341
12,998
12,279
16,358
17,329
16,037
14,989
13,755
14,143
13,897
13,592
13,421
Sorghum
Barley
Oats
Peanuts
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.
Selected Direct Government Payments
FAPRI Baseline, 2003
Crop Year
02/03
03/04
04/05
05/06
06/07
07/08
08/09
09/10
10/11
11/12
12/13
(Million Dollars)
Direct Payments
5,264
5,263
5,261
5,259
5,258
5,257
5,255
5,254
5,253
5,253
5,253
Marketing Loans
1,862
4,791
4,787
4,521
4,165
3,815
3,644
3,633
3,497
3,450
3,480
Counter-cyclical
Payments
1,764
4,596
5,064
4,838
4,667
4,382
4,268
4,086
3,901
3,821
3,637
Total
8,890
14,650
15,112
14,619
14,090
13,454
13,167
12,973
12,651
12,524
12,370
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.
AMS Estimates From FAPRI 2003 Baseline
Under Current Rules and Price Projections OK
12,000
Total AMS Amber NPS
Total AMS Amber PS
10,000
8,000
Million Dollars
8,292
7,824 7,621
7,511
7,274
7,202
7,062
6,900
6,854
6,706
2,760 2,783
2,844
2,892
2,934
2,976
2,999
3,033
3,069
11/12
12/13
6,000
4,716
4,000
2,000
2,952
3,696
0
02/03
03/04
04/05
05/06
06/07
07/08
08/09
09/10
10/11
PS AMS = Dairy, Sugar & Aggregate LDP payments
NPS AMS = CCP’s and Crop Insurance
PFC Payments = Green Box
FAPRI 2003 Baseline Cotton Outlook
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 CCP’s
AMS Estimates From FAPRI 2003 Baseline
12,000
Total AMS Amber NPS
Total AMS Amber PS
10,000
8,000
M illion Dollars
6,000
4,000
2,000
0
02/03
03/04
04/05
05/06
06/07
07/08
08/09
09/10
10/11
11/12
12/13
Apparent Program Options
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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
Income&Price Supports
USTR Ominous Warning for Cotton
Political Reality May
Dampen Rush to Change
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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