U.S. Cotton and Rice PolicyCompatibility with WTO CommitmentsAnd Other Trade Liberalization Efforts

Mechel S. PaggiCenter for Agricultural Business,

California State University, Fresno

Silverado Symposium on Agricultural Policy Reform / Napa, California /January 20, 2004

Where Were We?Where Were We?Where are We?Where are We?

Where are we Going?Where are we Going? Existing Programs vs. 1996 ActExisting Programs vs. 1996 Act Expenditures Under 1996 ActExpenditures Under 1996 Act Potential Exposure in Low Price Scenario Potential Exposure in Low Price Scenario With New ProgramsWith New Programs Projections of Future ExpendituresProjections of Future Expenditures Under New ProgramsUnder New Programs Suggestions for Changes Resulting from Doha Suggestions for Changes Resulting from Doha

RoundRound Potential Exposure of Existing Programs under Potential Exposure of Existing Programs under

those changesthose changes Suggestions for alternative policiesSuggestions for alternative policies Suggestions regarding the potential for changeSuggestions regarding the potential for change

U.S. Cotton & Rice Program U.S. Cotton & Rice Program 1996 vs. 20021996 vs. 2002 Marketing Loans

Direct Payments

Counter Cyclical Payments

Step 2 for Cotton Step 2 for Cotton

U.S. Cotton & Rice Program U.S. Cotton & Rice Program 1996 vs. 20021996 vs. 2002

Marketing Loan1996

The loan rate for upland cotton was set at the lesser of 85% of the 5-year Olympic

average of spot market prices, or 90% of the Northern Europe-based average

price, subject to a maximum of $0.5192 per pound and a minimum of $0.50 per

pound.

Rice was fixed at $6.50 per

Spending caps for each crop, except rice, were adjusted for prior-year crop program payments to farmers made in

FY 1996 and any 1995 crop repayments owed to the government. The amount allocated for rice was increased by $8.5 million annually for FY 1997-2002. Oilseeds were not eligible for production flexibility contract payments.

1996 FAIR Act PFC Payments

1996 $5.5701997 $5.3851998 $5.8001999 $5.6032000 $5.1302001 $4.1302002 $4.008

PFC Payment Levels

Wheat 26.26%Corn 46.22%Sorghum 5.11%Barley 2.16 %Oats 0.15%Cotton 11.63%Rice 8.47%

Allocations

1998/99 51.92 8.173 16.4 604.00

1999/2000 51.92 7.880 16.4 604.00

2000/2001 51.92 7.330 16.3 604.80

2001/2002 51.92 5.990 16.2 605.30

2002/2003 52.00 74.206.67/13.7

318.9 604.3/638.9

2003/2004 52.00 74.20 6.67/-- 18.4 603.7/638.4

Current U.S. Cotton ProgramPrice and Income Support

Levels (Cents per Lb.)

MarketingLoan Rate

TargetPrice

Direct PaymentRate

(CC Rate)

ProgramAcres

ProgramYield

(CC Update)

______________$/cwt_______________ Cwt/acre

98/99 6.50 2.921 4.2 48.17

99/2000 6.50 2.820 4.2 48.15

2000/01 6.50 2.600 4.1 48.15

2001/02 6.50 2.100 4.1 48.15

2002/03 6.50 10.50 2.35/0.00 4.5 48.14/51.23

2003/04 6.50 10.50 2.35/-- 4.5 48.12/51.9

MarketingLoan Rate

TargetPrice

Direct PaymentRate

(CC Rate)

ProgramAcres

ProgramYield

(CC Update)

Current U.S. Rice ProgramPrice and Income Support

Levels

Cotton Step 2 PaymentsCotton Step 2 Payments

1997 $390 $0.65 $312.96 1246166

1998 $307 $0.60 $288.96 1062431

1999 $421 $0.45 $216.00 1949074

2000 $236 $0.50 $239.04 987282

2001 $196 $0.30 $143.04 1370246

MillionDollars

SeasonAvg. Price

Price PerBale

BaleEquivalents

Total expenditures for Step 2 payments were originally limited to $701 million over FY 1996-2002. The 2000 Appropriations Act removed the expenditure cap.

CC Payment Rate = to 0.0 or (TP – Effective Price)

Effective Price = The Higher of the National Loan Rate + Direct Payment or the Average Farm Price

Max Cotton CC Payment Rate Per LB.

$0.724 – ($0.52 + $0.0667) = $0.1373

$0.65.73

Max Rice CC Payment Rate Per Cwt.

$10.50 – ($6.50 + $2.35) = $1.65

$8.15/cwt

For Cotton In1999 LDP & PFCPayments = 47%Of Gross Revenue

Per Acre

U.S. Aggregate Measurement of Support

0

5

10

15

20

25

30

1986-88 1995 1996 1997 1998 1999 2000 2001

Bill

ion

do

llars

Dairy, sugar, peanuts Ldp/Mlgs Other

*

* 1999 – 2001 Unofficial Estimates from former CBO work

Limit of $19.6 Billion

U.S. Non-product Specific Amber SupportSubject to de minimis Trigger of 5% of Total Value of

Production

0

1

2

3

4

5

6

7

8

1986-88 1995 1996 1997 1998 1999 2000 2001

Bil

lio

n d

oll

ars

Crop insurance Irrigation, credit and grazing Market Loss Assistance

Limit of $9.6 Billion

0

5000

10000

15000

20000

25000

$ M

illio

nsAmber Box Estimate of AMS in Bad Price Year Like 2000/01

Existing Programs and WTO Limits

Dairy & Sugar

Product Specific Total

NPS Support

CC-Payments

Other NPS

De MinimisTrigger

Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(Million Dollars)

Corn 2,959 1,188 4,954 5,781 5,841 5,578 4,880 5,257 5,201 5,119 5,127

Sorghum 207 137 393 456 453 436 389 408 402 395 385

Barley 97 101 198 223 218 213 213 213 210 209 206

Oats 7 11 25 35 35 34 33 32 32 31 32

Wheat 1,190 1,308 2,290 2,382 2,323 2,227 2,117 2,077 1,981 1,881 1,838

Rice 1,084 1,241 1,305 1,228 1,193 1,183 1,158 1,123 1,078 1,029 985

Soybeans 3,447 1,273 2,163 2,394 2,124 1,972 1,771 1,886 1,991 2,033 2,066

Peanuts 129 1,399 394 259 252 259 227 277 290 297 302

Other Oilseeds 87 30 98 71 66 67 67 67 66 72 73

Upland Cotton 3,307 2,996 2,899 2,859 2,828 2,628 2,499 2,402 2,267 2,168 2,065

Sugar -130 -83 1 1 1 1 1 1 1 1 1

Dairy 614 2,678 1,638 1,640 703 391 400 400 378 357 341

12,998 12,279 16,358 17,329 16,037 14,989 13,755 14,143 13,897 13,592 13,421

FAPRI Baseline ProjectionsGovernment Payments

Note: For feed grains, food grains, oilseeds, cotton, and dairy, figures represent the means of the results of the stochastic analysis based on 500 random draws. Figures do not include effects of the FY 2003 omnibus appropriations bill.

Crop Year 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13

(Million Dollars)(Million Dollars)

Direct Payments 5,264 5,263 5,261 5,259 5,258 5,257 5,255 5,254 5,253 5,253 5,253

Marketing Loans 1,862 4,791 4,787 4,521 4,165 3,815 3,644 3,633 3,497 3,450 3,480

Counter-cyclical Payments 1,764 4,596 5,064 4,838 4,667 4,382 4,268 4,086 3,901 3,821 3,637

Total 8,890 14,650 15,112 14,619 14,090 13,454 13,167 12,973 12,651 12,524 12,370

Selected Direct Government PaymentsFAPRI Baseline, 2003

Note: Includes direct payments, marketing loans (loan deficiency payments and marketing loan gains) and counter-cyclical payments for feed grains, food grains, oilseeds, and upland cotton. Figures represent the means of the results of the stochastic analysis based on 500 random draws.

2,952

4,716

3,696

8,292

2,760

7,824

2,783

7,621

2,844

7,511

2,892

7,274

2,934

7,202

2,976

7,062

2,999

6,900

3,033

6,854

3,069

6,706

0

2,000

4,000

6,000

8,000

10,000

12,000

Million Dollars

02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13

AMS Estimates From FAPRI 2003 BaselineUnder Current Rules and Price Projections OK

Total AMS Amber NPS

Total AMS Amber PS

PS AMS = Dairy, Sugar & Aggregate LDP paymentsNPS AMS = CCP’s and Crop InsurancePFC Payments = Green Box

FAPRI 2003 Baseline Cotton Outlook

Suggested Changes in Doha Round

Decrease Amber Box AMS by 50%

Decrease de minimis NPS Amber Payment Limitby 50%

Effective limits fall to $9.8 Billion and $4.8 Billion

Could Be a Problem Particularly ForNPS that includes CCP’s

0

2,000

4,000

6,000

8,000

10,000

12,000

Million Dollars

02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13

AMS Estimates From FAPRI 2003 Baseline

Total AMS Amber NPS

Total AMS Amber PS

Apparent Program OptionsApparent Program Options Increase Direct Income Support and Increase Direct Income Support and Drop the CCPDrop the CCP Create Alternative Green Box IncomeCreate Alternative Green Box Income Transfer ProgramsTransfer Programs Utilize Circuit Breaker Option if Utilize Circuit Breaker Option if

Expenditures Exceed LimitsExpenditures Exceed Limits Create Some New Box (maybe Pink)Create Some New Box (maybe Pink) With a Justification for Product Specific With a Justification for Product Specific

Supports Tied to PricesSupports Tied to Prices Develop Program to Transition Out of Develop Program to Transition Out of

Income&Price SupportsIncome&Price Supports

USTR Ominous Warning for CottonUSTR Ominous Warning for Cotton

Political Reality MayPolitical Reality MayDampen Rush to ChangeDampen Rush to Change

Election Year 2004Election Year 2004 Rice and Cotton Production: Texas, Rice and Cotton Production: Texas,

California, Arkansas, Louisiana, Mississippi, California, Arkansas, Louisiana, Mississippi, Missouri, New Mexico, Arizona, Tennessee, Missouri, New Mexico, Arizona, Tennessee, Alabama, Georgia, North Carolina, South Alabama, Georgia, North Carolina, South Carolina, Florida, Virginia, Oklahoma and Carolina, Florida, Virginia, Oklahoma and even Kansas and Nebraskaeven Kansas and Nebraska

These Programs Date Back to 1933These Programs Date Back to 1933 Lack of Enthusiasm for Increased Trade Lack of Enthusiasm for Increased Trade

Liberalization Among Farm Organizations Liberalization Among Farm Organizations at the Expense of Domestic Price and at the Expense of Domestic Price and Income SupportIncome Support