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Published October 12, 2010, 09:29 AM

High cotton prices complicate crop programs

WASHINGTON — High world cotton prices have led to a big drop in government payments to cotton farmers, but that decrease in subsidies will mean it will be difficult for Congress to make changes to resolve the World Trade Organization cotton case against U.S., which Brazil won, House Agriculture Committee Chairman Collin Peterson, D-Minn., said in a recent interview.

By: Jerry Hagstrom, Special to Agweek

WASHINGTON — High world cotton prices have led to a big drop in government payments to cotton farmers, but that decrease in subsidies will mean it will be difficult for Congress to make changes to resolve the World Trade Organization cotton case against U.S., which Brazil won, House Agriculture Committee Chairman Collin Peterson, D-Minn., said in a recent interview.

“There will be no baseline for cotton,” said Peterson, referring to the congressional calculation of how much has been spent on specific government programs.

Peterson has said that if he remains chairman, each farm sector will have to stick within its current budget if farmers are seeking changes in programs for specific crops.

Depending on how the Congressional Budget Office views future cotton prices and whether they would go low enough to trigger countercyclical and marketing loan payments, Peterson’s statement could be an exaggeration, but it likely is that the baseline will be much lower.

Cotton case

Peterson noted that Congress could leave the current program in place, which would mean that if prices go lower, cotton farmers again would receive payments.

But, the U.S. lost a World Trade Organization cotton case in which the Brazilian government charged that U.S. subsidies had encouraged high levels of production that caused low world prices and damaged Brazilian farmers’ interests.

Congress made some changes to the cotton program in the 2008 farm bill to try to comply with the case, but a WTO panel has not found those changes to be enough.

As part of the settlement of the case, the Obama administration has promised Brazil that the cotton program will be reformed in the 2012 farm bill.

Western Africa farmers also have been putting pressure on the U.S. to reduce cotton subsidies as part of the Doha round negotiations.

Peterson said the direct payments cotton growers get whether prices are high or low could be tapped to finance a new cotton program, but he also noted that cotton farmers are some of the strongest defenders of the direct payments.

When he traveled to South Carolina, Peterson said, “Every cotton farmer that came up said leave (the cotton program) exactly as it is.”

Cotton prices climbed to $1.14 per pound in September, compared with 65.9 cents per pound in 2009 and a range of 30 cents to 65 cents between 1997 and 2009, according to the Agriculture Department’s Economic Research Service.

Prices rise

When other commodity prices began rising several years ago, cotton prices remained relatively low, and cotton farmers were getting the bulk of the price-triggered subsidies.

In an August report, ERS forecast that countercyclical payments would decrease by 79 percent from $1.17 billion in 2009 to $243 million in 2010 because cotton prices were high. ERS also predicted that marketing loan benefits — including loan deficiency payments, marketing loan gains and certificate exchange gains — would be $163 million in 2010, down 97 percent from 2009 levels because upland cotton producers had gotten almost 91 percent of those benefits in previous years.

Government payments might even be lower than those August projections because cotton prices have continued to rise, an ERS analyst said Oct. 1.

The high prices are encouraging cotton plantings to increase around the world, raising the prospect of bigger supplies and lower prices in the future.

Brazilian Ambassador to the WTO Roberto Azevedo said that the U.S. still should reform its program, Agence France Presse reported Sept. 29.

“When prices drop, those subsidies will be in place again precisely at the moment when they will provoke the largest distortions and most damage to producers elsewhere,” Azevedo charged, according to the Agence France Presse report.

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