Cotton growers are pushing for the second overhaul of USDA subsidies in four years and the results could be expensive to taxpayers and risk another trade complaint at the WTO, says the free-market American Enterprise Institute. Congress totally re-wrote the cotton program in the 2014 farm bill to resolve a WTO ruling, sought by Brazil, that over-generous U.S. subsidies distorted world trade.
The STAX program created by the 2014 farm law, a combination of a revenue insurance polilcy and a floor price for cotton, has been a flop, with low participation and complaints of scanty protection from low market prices. Growers say cotton should be eligible for the same type of subsidies that are offered to grains and soybeans. Under one plan, cottonseed would be eligible for subsidies. In another, seed cotton – unginned seed with the lint still attached – would be eligible for subsidies to offset low market prices, with the cost offset in part by a prohibition on enrolling in STAX at the same time.
The AEI paper says either approach “would potentially boost cotton support levels substantially and thus risk igniting another trade dispute at the WTO.” The seed cotton program could cost more than $1 billion a year, based on conditions over the past year 20, while the cottonseed support could hit $620 million a year. Under Congress’ scorekeeping rules, about $426 million a year is available for cotton in the 2018 farm bill. The “baseline” would become much larger if the Senate agrees to a disaster bill passed last month by the House, which includes language to create a seed cotton program this year.
“Now is not the time to unravel reforms,” said AEI. “Rather, reforms should include elimination of generic base acres, either through gradual phaseout or perhaps a one-time buy-out…Market orientation should be the driving focus of federal farm subsidy and other programs for all crops, cotton included.” Generic base acres are the replacement for land previously eligible for cotton payments.