U.S. cotton is no longer competitive in a new world market that accounts for 75 percent of total U.S. demand, the CEO of Allenberg Cotton Co. in Memphis told the House Agriculture Subcommittee on General Farm Commodities and Risk Management.
Joe Nicosia, who also serves as second vice president of the American Cotton Shippers Association, said that the repealed Step 2 Program masked the basic problems inherent in the U.S. cotton program. Referencing a study by Informa Economics and the sluggish movement in the market place experienced by the trade, Nicosia said that the Commodity Credit Corporation loan has become the market of first resort, rather than last resort.
Nicosia said that given excessive premiums inherent in the price support loan structure, 86 percent of this year's crop was placed in the loan and almost 50 percent remains in the loan.
ACSA supports the marketing loan and the use of certificates to facilitate moving cotton from the loan, but is opposed to means testing, Nicosia said. He urged Congress to determine the loan rate based on a percentage of the market price — as was the case from 1977 to 1996, a reform also supported by USDA. He also called for a reform in determining the loan premium system that draws cotton into the loan.
Nicosia said that in determining the structure of the next farm bill the subcommittee could maintain the status quo or could make cotton competitive in the world market place.
He suggested these reforms:
- Determining the price support loan rate on a percentage of a five-year Olympic average price;
- Allowing the market and not the CCC to establish premiums;
- Permitting producers and holders of loan options to ship loan cotton prior to redemption.
According to Nicosia, this will facilitate the movement of cotton throughout the year, reduce government storage expenses, and remove the incentive to hold cotton in hopes of favorable redemption later in the year.
Nicosia told the subcommittee that if Congress provides the industry with the ability to compete, U.S. cotton demand should increase given the reliability of the United States as a dependable supplier of quality cotton; USDA's superior cotton classification system; U.S. cotton's unique and efficient transportation infrastructure; and the U.S. industry's exceptional foreign promotion programs.