The U.S. cotton industry, for all intents and purposes, was relegated to the sidelines in the 2014 farm bill debate because of the adverse rulings in the WTO case Brazil brought against the U.S. cotton program in 2002.
The National Cotton Council doesn’t want that to happen again, Gary Adams, the president and CEO of the organization representing the seven segments of the U.S. cotton industry, testified at a House Agriculture Committee hearing on Oct. 21. (See https://en.wikipedia.org/wiki/Brazil%E2%80%93United_States_cotton_dispute.)
Dr. Adams appeared with three other witnesses including a member of academia (Dermot Hayes of Iowa State University) and representatives of the sugar and dairy sectors (Jack Roney, American Sugar Alliance, and Jaime Castaneda, American Milk Producers Federation) to discuss foreign subsidies.
The latter are changing the world cotton production order, which had been dominated by China and the U.S., and putting U.S. cotton producers, ginners, merchants and manufacturers at a disadvantage, Dr. Adams noted.
“For the 2015 crop year, India will be the largest cotton producer, surpassing China for the first time,” he said. “Prior to 2004, India generally produced between 10 million and 14 million bales. Starting in 2004, India significantly increased production to 19 million bales and has continued to increase each year since (to 29 million bales for 2015-16).”
It’s not a coincidence that the Cotton Corporation of India, the government-run procurement and distribution company, has increased the minimum support price for it cotton producers by 52 percent for medium staple cotton and 42 percent for long staple cotton since 2010.
Minimum Support Price growing in India
The MSP operated by the Cotton Corporation of India is based on seed cotton production. If you assume a gin turnout of 35 to 40 percent that is common for U.S. varieties, the MSP equates to a cash price of between 70 and 80 cents per pound or 20 to 30 cents per pound above the U.S. cotton loan rate.
India’s government also provides subsidies estimated at more than $9 billion a year for fertilizer for cotton and other crops. India’s MSP and urea subsidies pale in comparison, however, with the $1.40 per pound China was paying its producers for cotton two years ago. Those supports have declined in some areas, but growers in western China continue to receive subsidized prices.
China’s support system has resulted in the government’s state-owned agencies amassing more than 50 million bales of cotton in government reserves. Those bales are likely to have an impact on world cotton prices for years to come.
In late 2014, the Chinese government set a target price of the equivalent of $1.40 per pound for the western province of Xinjiang while no direct support was announced for the eastern cotton-producing provinces. As a result, cotton area in the latter has sharply declined.
Despite such developments in China, India, Pakistan and other cotton-producing nations, some of those same entities are expected to launch another attack on the U.S. cotton program when the World Trade Organization holds its 10th Ministerial Conference in Nairobi, Kenya, next month.
Although there have been repeated comments from numerous countries for there to be “something more” done on cotton policy at this upcoming Ministerial, Adams said, “We believe that the action already taken by the United States with respect to cotton policy should be more than sufficient to allow U.S. negotiators to resist any further calls for action.”
World support average four times U.S.
As evidence, Adams cited a recent International Cotton Advisory Committee report that estimated average direct assistance to cotton production across all countries at $0.26 per pound -- but only $0.07 per pound average support for U.S. cotton production.
“Direct assistance to U.S. cotton producers was well below levels provided in other countries,” he said. “It should be noted, the ICAC study was based on the 2013 crop year, which was the last year before the significant changes implemented by the new farm legislation.”
The WTO establishes a “rules-based trading system” that relies on timely and accurate notifications by each member and a transparent reporting process that includes being responsive to questions and information requests from other members and from the WTO leadership.
“Unfortunately, there continues to be a lack of timely notifications from several major cotton-producing and exporting countries,” Dr. Adams said. “Specifically, neither China nor India has notified the WTO of their domestic support for cotton or other commodities since 2010.”
Adams also reiterated U.S. Trade Representative Michael Froman’s comments before the Senate Finance Committee earlier this year that a defensive posture regarding U.S. cotton support is outdated and justifies a shift in focus to other countries’ status regarding their WTO obligations.
More transparency in WTO sought
The NCC will continue to urge U.S. negotiators to push other countries to be as current and as transparent as the United States is with their domestic support notifications, he said, while emphasizing that U.S. programs are not having a detrimental impact on world markets or producers in other countries.
“Under the current farm law, U.S. cotton farmers are even more attuned to market conditions,” Adams said. “For the U.S. cotton industry to sustain production and infrastructure, it is imperative that production and trade policies in other countries not put U.S. farmers at a disadvantage.
“I encourage the House Agriculture Committee and our negotiators to hold firmly to the position that agricultural markets have changed over the past decade, and that U.S. cotton policy has evolved in ways that far exceed the previous demands within the WTO. A cotton specific ‘solution’ focused on developed countries does not address the realities of today’s global fiber markets.”
To read Dr. Adams’ complete testimony before the House Agriculture Committee, visit http://agriculture.house.gov/uploadedfiles/10.21.15_adams_testimony.pdf