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Loan critics barking up wrong tree, NCC chairman says

Some have been trying to lay the cotton industry’s woes at the feet of the cotton marketing loan, blaming it for the staggering decline in U.S. exports in 2006-07. National Cotton Council Chairman John Pucheu isn’t so sure.

Pucheu was testifying at a Senate Agriculture Committee farm bill hearing when he laid out the Council’s analysis of what he termed “sluggish sales, high levels of cotton under loan and persistently low prices.”

Much of the latter – cotton prices have been hovering around the CCC loan rate of 52 cents for months – can be blamed on China, which had purchased 3 million bales for 2006-07 or nearly 5 million bales less than in 2005-06 at the time Pucheu spoke on April 25.

“Unfortunately, China appears to be rationing access in order to maintain prices for her domestic producers,” said Pucheu, describing China’s tariff and procurement policies. Although China denies it subsidizes its farmers, it has been requiring Chinese textile mills pay growers the equivalent of 70 to 75 cents a pound to reduce surplus stocks.

If the United States had such a subsidy, it would be brought up on charges before the World Trade Organization. China won’t spend a day before a dispute panel because it has declared itself a “developing” country, making it mostly exempt from WTO trade rules.

USDA has more cotton under loan than in the past. As of early April, 10.6 million bales of 2006 crop upland cotton were still under loan compared to an average April figure of about 4 million bales.

“However, it is important to note that 7.2 million bales of the 2006 crop have already been redeemed from the marketing loan,” he said. “This suggests that the loan is not the market of last resort and that cotton is not locked in the loan. More cotton is in the loan because of the lack of demand. When demand improves, cotton will move out of the loan to satisfy it.”

Pucheu agrees the loss of Step 2 has hurt U.S. cotton competitiveness. Secondly, subsidies, trade restrictions and other actions are impacting world cotton trade and prices – much more so than the remaining provisions of the U.S. cotton program.

That situation shows little sign of changing as significant increases in production for China, India, Brazil and Turkey will more than offset reduced production in the United States, Australia, Greece and Syria, according to USDA.

Agriculture Secretary Mike Johanns “frequently cites the Brazil cotton case as evidence the U.S. farm law must be changed to be unchallengeable,” Pucheu notes. “The truth is U.S. farm law can always be challenged under current WTO rules and there are no concrete signs a new farm bill or Doha agreement will change that.”

Instead of changing the farm bill and further damaging U.S. agriculture, perhaps the United States should declare itself a developing country and thumb its nose at the rest of the world like China.


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