Cotton Subsidies in the United States totaled $35.8 billion from 1995-2014. 2Cotton Subsidies in California totaled $3.2 billion during the same period.2.. Cotton Subsidies in Merced County, California totaled $175 million from 1995-2014.3.
Evidently, this was far from enough to satisfy American cotton growers, so they are trying to raid the coming crop-insurance based Farm Bill.
We don't find ourselves often on the side of the American Enterprise Institute or the Heritage Foundation, powerful conservative think tanks, but in this case we think their criticism is just.
Nevertheless, between conservative virtue and cotton lobbyists, we think the new Farm Bill will probably side with Big Cotton interests, who are just looking for a hooo-ooo-ooom, -- blj
American Enterprise Institute
Big Cotton is planting the seeds for more subsidies
Vincent H. Smith
Agricultural special interests have decades of practice in raiding the public purse, and it is only getting worse. Here is a case in point: cotton producers are canvassing Capitol Hill to lobby for access to a highly lucrative new set of subsidy programs.
Those programs, called Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC), were first enacted in the 2014 farm bill as a replacement for the costly Direct Payments program. As part of a trade dispute settlement with Brazil, Congress agreed that cotton would not be covered by these two programs, which are available for major crops like corn and wheat, and minor crops like oil seeds (canola, mustard seed, etc.).
PLC and ARC pay substantial subsidies to growers when prices for their crops or overall revenues fall below a predetermined trigger level. Both the price and revenue levels that trigger payments are high relative to their long-run averages. And like many newly-minted government programs, taxpayers have been stuck with a much higher bill than was advertised when they were originally introduced.
For example, in 2017, payments under the new programs are expected to grow to over $8 billion. This is more than double the estimated average cost of $3 billion a year touted by both the House and Senate Agriculture Committees when PLC and ARC were authorized. Further, PLC and ARC payments have even exceeded the $5 billion annual cost of the old Direct Payments program that they were designed to replace.
Given that the costs of PLC and ARC have sky rocketed and that many growers who raise cotton benefit from these programs because they also raise crops like wheat and corn, does it make sense to expand these programs even further? After all, cotton was deliberately excluded from the new price and revenue support programs even though it was previously covered under the Direct Payments program as part of the resolution of the WTO dispute with Brazil over US cotton subsidies.
Moreover, as part of the dispute settlement the cotton lobby was allowed to design its own new subsidy program, an insurance program called the Stacked Income Protection program (STAX). Under the STAX program, cotton producers could sign up for federal insurance coverage that pays out for revenue losses below preset levels based on the county where the farm was located.
So why are cotton growers lobbying for even more taxpayer-backed insurance on top of the already-generous STAX program? The answer is surprisingly simple.
Growers now have to pay a small premium for the coverage, but the catch is that these premiums are set at 20 percent of the payments for losses those growers could expect to receive. The government pays all administrative costs and 80% of the expected indemnities. Effectively, therefore, for every $1 of premium a cotton grower pays, they can expect to get back about five times that amount. Offered those odds in Las Vegas, most of us would jump on the next redeye and head for the casinos.
So why are cotton growers lobbying for even more taxpayer-backed insurance on top of the already-generous STAX program? The answer is surprisingly simple. First, many cotton growers have complained that they have to pay premiums to participate in the STAX program while producers of corn, wheat and other commodities pay nothing to benefit from the new price and revenue subsidy programs. Second, and most importantly, cotton yields and prices have been sufficiently high over the past couple of years to prevent the STAX program from delivering any substantial subsidy payments to the growers.
The cotton industry has now come to Congress, not to mention the USDA administrators in North Texas where cotton is grown, with a simple message: STAX is not working and cotton needs help. Notably, their call to action comes at a time when cotton prices are close to ten-year highs and cotton growers are planning to expand production by about 20 percent.
In 2016, the cotton lobby tried to persuade then Secretary of Agriculture Tom Vilsack to declare cotton-seed eligible for the price and revenue support programs because it is a “minor oils seed”, like canola and mustard seed. Secretary Vilsack rejected the approach on the grounds that the 2014 farm bill had not provided him with the legislative authority to make such a determination. Nevertheless, cotton interests are still pushing to expand PLC and ARC coverage by attaching enabling legislation to other bills.
What is at stake for taxpayers, cotton growers, and other sectors of the US economy? Cotton growers stand to gain as much as one billion dollars a year from access to the new price and income support programs.
What is at stake for taxpayers, cotton growers, and other sectors of the US economy? Cotton growers stand to gain as much as one billion dollars a year from access to the new price and income support programs. That represents a 17% increase in US cotton grower revenues for a crop that provided them with revenues of about $5.9 billion a year from 2012-2015. Taxpayers will lose at least that much and quite possibly much more.
Another complicating factor is that subsidizing cottonseed is likely a direct violation of the WTO dispute resolution agreement with Brazil. This means that Brazil could seek redress through these agreements, which could include substantial tariffs on Brazil’s imports of other agricultural commodities and goods from US companies. Alternatively, as was the case prior to 2014, the US government could be required to pay compensation to Brazil on an annual basis, in amounts well over $100 million a year. Alternatively, Brazil could seek favorable access to the US market for its exports of other goods, which would adversely affect domestic companies producing similar or substitute products.
Given such complications and costs, and at a time when cotton production is booming, should cotton interests be allowed to access more money from the public purse? The answer is a resounding no — especially at a time when federal budgets have little room to spare and most Americans want to drain the swamp. Instead of providing even more corporate welfare to well-off farming interests, it’s time to sow the seeds of reform and curb these programs for the sake of the 300 million plus taxpayers and consumers who ultimately end up footing the bill.
(1) Environmental Working Group, https://farm.ewg.org/progdetail.php?fips=00000&progcode=cotton
(2) -- Environmental Working Group, https://farm.ewg.org/progdetail.php?fips=06000&progcode=cotton
(3) Environmental Working Group, https://farm.ewg.org/progdetail.php?fips=06047&progcode=cotton&yr=mtotal