U.S. cotton producers may be headed for a situation that industry leaders have been hoping to avoid almost since the day of the passage of the Farm Security and Rural Investment Act of 2002.
Last year's high commodity prices helped reduce the cost of the current farm bill to levels that its supporters could have only dreamed about in the spring of 2002. Those prices meant no counter-cyclical or loan deficiency payments for grains and soybeans and only miniscule amounts for cotton and rice.
But the steady decline in cotton futures since last October's peak of 82 cents per pound have pushed the national average selling price to levels that almost guarantee farmers will receive the maximum counter-cyclical payments in the fall of 2005.
That couldn't come at a worse time, says Hunt Shipman, staff director of the Senate Committee on Agricultural, Forestry and Nutrition, who spoke at a meeting of the Delta Council's Farm Policy Committee in Stoneville, Miss.
“The next budget reconciliation could very well fall at a time when we are faced with making reductions in farm programs; faced with potentially low prices among some commodities, cotton included; and faced with potentially having to bring some of our domestic programs in compliance with the WTO if our appeals in the Brazil case are not successful.”
Shipman was referring to as yet unofficial reports of the ruling by a WTO dispute panel in a complaint brought by Brazil against the U.S. cotton program. The ruling will not be officially released until it has been translated into all the WTO languages.
But that may not be all that could make the budget reconciliation process a dangerous time for U.S. cotton producers.
“And then you lay payment limits on top of that as the way that some may want to lower those program costs,” said Shipman. “Sen. Grassley of Iowa, who has been the leading proponent of lowering payment limits in the Senate, has gotten a score from the Congressional Budget Office of savings of a billion dollars from lowering payment limits.”
Grassley has said he wanted to transfer a portion of those savings into child nutrition programs. But the Senate Agriculture Committee, chaired by Sen. Thad Cochran, R-Miss., was able to find an additional $200 million for child nutrition in the Senate's fiscal 2005 budget resolution.
“That was another reason getting $200 million in new money for child nutrition programs was particularly beneficial — because we weren't faced with having to debate payment limits in order to spend those dollars on child nutrition programs.”
In the end, the Senate, which is almost evenly split between Republicans and Democrats (51-49), was unable to pass a budget resolution to send to conference with the House-passed budget resolution. Observers now expect the budget process to be wrapped up after the Nov. 2 election.
If Congress manages to pass a new agricultural appropriations bill without drastic cuts in the fall of 2005, it faces even bigger challenges when it begins consideration of a new farm bill in 2006.
“It's kind of scary to think about, but that leads us to thinking about the next farm bill,” said Shipman, who was USDA's liaison with the House and Senate agriculture committees during the deliberations of the 2002 legislation.
“How much money are we going to have to spend; how are policy decisions going to factor into our compliance with a potentially new trade agreement in the WTO; and are we going to be doing it under a scenario where we're back in high prices and the Congressional baseline is, therefore, lower for agriculture?” he said.
“The latter would make it more difficult for us to come up with programs which are attractive.”
Shipman said Sen. Cochran was heartened by the Doha Round negotiators decision not to single out food aid or target the U.S. cotton program for “special handling” in the framework agreement reached in Geneva, Switzerland on Aug. 1.
“We have very serious concerns about a number of the things that were being discussed in Geneva,” said Shipman. “We are hopeful we can see this round of talks conclude, but we're not willing to take just anything to get an agreement.”
He said cotton is a particularly sensitive subject because of the continued allegations by African countries that U.S. domestic programs are depressing world prices and because it happens to coincide with Brazil's WTO complaint against the U.S. cotton program.
The negotiators also rejected an attempt by the European Union to designate U.S. food aid programs as “surplus disposal,” which would have made them illegal under World Trade Organization rules and restricted the amount of food that could be supplied through humanitarian programs.