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The U.S. Cotton Economy: Marketing and Policy Issues

The U.S. Cotton Economy: Marketing and Policy Issues. Cotton Economics Research Institute www.ceri.ttu.edu/policy. I will cover the Following Topics. World Cotton and Textile Market Final WTO Ruling on U.S. Cotton Subsidies Post-MFA Era and Cotton Trade Next Farm Bill.

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The U.S. Cotton Economy: Marketing and Policy Issues

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  1. The U.S. Cotton Economy: Marketing and Policy Issues Cotton Economics Research Institute www.ceri.ttu.edu/policy

  2. I will cover the Following Topics • World Cotton and Textile Market • Final WTO Ruling on U.S. Cotton Subsidies • Post-MFA Era and Cotton Trade • Next Farm Bill

  3. Cotton Market This Year and Beyond Million Bales Cents/Pound Cents/Pound Million Bales

  4. U.S. Textile Imports vs Cotton Mill Use Million Pounds

  5. World Cotton Trade 000 Bales

  6. World Cotton Trade 000 Bales

  7. Dependence of Major U.S. Crops on Exports 64% 50% 36% 18%

  8. World Cotton Trade vs U.S. Exports 000 Bales

  9. World Cotton Trade vs U.S. Exports 000 Bales

  10. I will cover the Following Topics • World Cotton and Textile Market • Final WTO Ruling on U.S. Cotton Subsidies • Post-MFA Era and Cotton Trade • Next Farm Bill

  11. Brazil WTO Petition • Covers virtually all of the US cotton program • Claims of causing “serious prejudice” to Brazilian exporter • Third Country Participants • Australia, China, European Union, Japan, West Africa, India, Pakistan • Final ruling came out on March 3, 2005

  12. Regional Shift in Brazilian Cotton Production N&NE Expansion S&SE

  13. Brazil: Rising Competitor for U.S. Cotton 000 Bales 000 MT Cotton Exports Soybean Exports

  14. WTO Ruling on U.S. Cotton Subsidy • Major findings include: • Step 2 payments to domestic users • prohibited import substitution subsidy. • Step 2 payments to exporters • prohibited export subsidy. • Export credit guarantee program • prohibited export subsidy (applies to cotton and other eligible commodities)

  15. WTO Ruling on U.S. Cotton Subsidy • Production flexibility contract payments and direct payments are not green box measures • The effect of price contingent subsidies(1) is significant price suppression and serious prejudice to Brazil’s interest for marketing years 1999 to 2002 (1)marketing loan payments, Step 2 payments, marketing loss assistance payments and counter-cyclical payments

  16. What It Means • July 1 deadline to withdraw step 2 and export credit guarantee programs • U.S. will have to comply with the rulings within a reasonable time period • Negotiations on compensation • WTO authorized retaliations

  17. Broader Implications of Cotton Ruling • Other program crops are not immune to future WTO disputes. • Some changes are imminent before the expiration of the current farm bill: • Eliminations of step 2 payments • Elimination of export credit guarantee programs??? • Congress will authorize some policy changes to achieve their budgetary targets. • Will have some bearing in shaping the next farm bill.

  18. Total EEP Expenditures

  19. U.S. Wheat Exports Million Bushels EEP Subsidies

  20. I will cover the Following Topics • World Cotton and Textile Market • Final WTO Ruling on U.S. Cotton Subsidies • Post-MFA Era and Cotton Trade • Next Farm Bill

  21. Post MFA Era (Less than Four Months Old) • In the first quarter of 2005: • 1,258% increase in knit shirt imports • 1,521% increase in Trousers imports • 308% increase in underwear imports • China T-shirt price down 35% to 50% in U.S. and EU markets. • Our analysis on Chinese MFA quota eliminations: • 25% increase in textile exports • 50-60% increase in cotton imports • What it means for U.S. cotton exports?

  22. U.S. Imports of Cotton Products in 2002 17.7 Million Bales

  23. Mexican Cotton Imports 000 bales

  24. I will cover the Following Topics • World Cotton and Textile Market • Final WTO Ruling on U.S. Cotton Subsidies • Post-MFA Era and Cotton Trade • Next Farm Bill

  25. 2002 Farm Bill • President’s Budget Proposal for 2006-2010 • $9 billion over 5 years in agriculture • Lowering the payment limit cap for individuals from $360,000 to $250,000 • Elimination of the 3-entity rule • Basing marketing loans on historical production • 3% decline in cotton production • 5% increase in cotton price • Reduction of crop payments by 5% (e.g. marketing loans and direct and counter-cyclical payments)

  26. 2002 Farm Bill • The President’s specific budget proposals are fairly certain to be ignored by Congress. • Congress will use different policy changes to achieve their budgetary targets • Senate: $2.814 billion over FY 2006-2010 • House: $5.278 billion over the same period • SENSE OF THE SENATE: Savings should be primarily achieved through modifications to the payment limitation provisions. • House????

  27. Forces Shaping the Next Farm Bill • Budget deficit (CBO estimates: $4,757 for 2006-15) • Deficits from 1981 to 1995 have led to cuts in agricultural spending • Surpluses from 1998 to 2002 have provided supplemental funding • WTO Commitments • Previous U.S. proposal to reduce AMS to 5% of value of ag production implies Amber box limit of $9.5B, 50% less than $19.1B • Cotton Ruling

  28. What to Expect • More direct payment programs • Achieving savings through flex types of programs • Reductions also likely be in conservation payments and crop insurance premium subsidies • Radical change: A buyout of farm support program

  29. http://www.ceri.ttu.edu/policy/ http://www.ceri.ttu.edu/policy/

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