USDA punts cottonseed subsidy back to Congress

Agriculture Secretary Tom Vilsack handed the question of a $1-billion-a-year cottonseed subsidy program back to Congress, telling lawmakers they hold the power to expand the farm program but USDA does not. In a novel proposal, the cotton industry asked that cottonseed be declared an oilseed and thus become eligible for the crop subsidies offered to grain and soybean growers. U.S. cotton prices are the lowest in six years. The cotton program written into the 2014 farm law has not helped.

More than 120 senators and representatives, along with major U.S. farm groups, have expressed support for the cottonseed subsidy – a green light in many cases for USDA to act and which now could become a test of congressional willpower. The National Cotton Council, an umbrella group, said it “will continue working with Congress and USDA to find ways to help address the significant challenges facing the U.S. cotton industry.”

The request to designate cottonseed as an “other oilseed” covered by the traditional farm program raised a number of questions. Chief among them were how to pay for the subsidy, whether other crops would be put at a disadvantage, and if the subsidy would inspire a WTO challenge. Congress re-wrote the cotton program to resolve a WTO case won by Brazil. The program now offers revenue insurance coverage and a guarantee of a minimum prices. Only a minority of growers are buying the revenue insurance.

USDA “is prepared to assist where we can,” Vilsack said in a letter to House Agriculture chairman Michael Conaway, a leading proponent of the cottonseed subsidy. “After close examination of applicable law, we have determined that such a designation is not authorized … ” Congress gave cotton a separate support program in 2014 to resolve a WTO ruling against U.S. subsidies and severed cotton’s connections to the subsidies available to other field crops, wrote Vilsack. USDA studied the issue for two months before announcing its conclusion.

“It may not appear that way, but this is a major farm policy decision,” tweeted economist Scott Irwin of U-Illinois.

A cottonseed subsidy would make cotton the only crop with parts of the plant covered by different support programs. Cottonseed is harvested from the boll like cotton fiber and is used in livestock rations as well as crushed for use in food and industrial products. Cotton growers are offered higher coverage and larger premium subsidies on revenue insurance under the new cotton program called STAX than grain and soybean growers are offered under the similar Supplemental Coverage Option.

The decision was announced two days before the annual meeting of the National Cotton Council, which represents growers, ginners, warehousemen, marketers and processors. The meeting in Dallas will include release of an estimate of cotton plantings this year.

Conaway, from the No. 1 cotton state of Texas, expressed disbelief at the decision, saying USDA has “not only the legal authority … but the responsibility to act.” The farm law allows Vilsack to add commodities to the list of “other” oilseeds, he said. Cotton industry leaders and Cotton Belt lawmakers urged approval of the cottonseed subsidy at a Dec. 9 House Agriculture subcommittee hearing. A press aide for Senate Agriculture chairman Pat Roberts of Kansas was not immediately available for comment.

The largest U.S. farm group said it was ready to work with lawmakers to overcome the legal barriers identified by USDA lawyers. “Cottonseed should be granted that designation and, short of reopening the farm bill, we will work to ensure that all possibilities are fully explored,” said the American Farm Bureau Federation.

Farm groups and allies in Congress are wary of legislative activity that would expose the farm program to attack, hence the concern about “re-opening” the 2014 law. Critics want to curtail the federally subsidized crop insurance program, which is part of the farm law, and the White House may propose crop-insurance cuts in its fiscal 2017 budget proposal next week.

If lawmakers decide to move a cottonseed bill, they would have to find a way to pay for it, such as cutting other programs, or seek approval for a bill that increases the deficit, said economist Pat Westhoff of a University of Missouri think tank.

Cotton plantings shrank in 2015 but are likely to expand this year, says USDA, as competing crops such as corn, wheat and soybeans dim as profitable alternatives. A survey of growers by Delta Farm Press indicated a 7 percent increase in plantings, to 9.2 million acres, partly due to alleviation of drought in the Southwest. “Growers have planted as many as 15 million acres of cotton in the years prior to corn futures reaching $4 per bushel in 2008,” it said.

U.S. growers harvested 12.94 million bales of cotton last year from plantings of 8.58 million acres. A worldwide cotton glut has driven down market prices. U.S. growers accuse India and China of excessive subsidies that stimulated domestic cotton output.