MEMPHIS — The National Cotton Council is deeply disappointed and disturbed by statements to the press made by representatives of the Brazilian cotton industry. If reports are accurate, a Brazilian cotton delegation visiting Washington has misrepresented the carefully negotiated agreement between U.S. and Brazilian grower organizations and wrongly portrayed the reformed cotton provisions in the farm legislation now being considered by Congress.
The growers’ agreement was negotiated during a series of cordial meetings conducted in Brazil and the United States. During the meetings, the Brazilian growers received a detailed explanation of the insurance program, requested further modifications to cotton provisions (the insurance product had already been modified based on comments by Brazilian government officials), and spent considerable time discussing ways the U.S. and Brazilian grower organizations could cooperate. As a result of the discussions, U.S. growers asked Congress to make additional modifications to the cotton provisions and to broaden the scope of projects that could be conducted using the nearly $500 million in funds transferred to the Brazilian Cotton Institute (BCI) under the U.S.-Brazil Framework Agreement.
In comments to the press, the Brazilian growers imply the acceptability of program reforms was contingent on the continued transfer of funds to the BCI. Throughout the negotiations, U.S. growers cautioned the Brazilian growers that the transfer of funds was increasingly controversial and in jeopardy. Certainly, U. S. growers were disappointed that Administration officials announced in August that the transfers would be terminated October 1, essentially abrogating the Framework Agreement under which Brazil has agreed to postpone retaliation while the new farm bill is developed by Congress. U.S. growers appreciate the patience of the Brazilian government in delaying retaliation while work on the new farm bill is completed.
The comments by the Brazilian growers that they would support retaliation are deeply disappointing to U.S. growers who have delivered significant policy reform, supported further modifications to the cotton provisions, supported the request to expand authority to use the nearly $500 million already transferred to the BCI, and supported maintaining the Framework Agreement. Although their comments were couched in politically correct terms like “single undertaking,” it is clear the Brazilian growers simply want more money in addition to the policy reforms. It is also clear that they are willing to misrepresent the insurance program to achieve their objective.
Under the new insurance option, cotton growers could purchase supplemental insurance that includes a significant deductible that was actually increased in response to earlier criticisms. The insurance product covers a narrow band of lost income in the event that actual revenue does not meet a percentage of projected revenue. The product does not cover all losses and is not an incentive to over-produce. Acreage decisions will be determined by the market price of cotton relative to competing crops. This is not a program that will distort production or markets. Cotton growers would also be ineligible for other price and revenue programs available to grain and oilseed producers. The delegation singled out the premium subsidy under STAX, but it should be noted that the subsidy is set at the same level as several other existing policies available to U.S. growers.
The U.S. industry shares the concerns expressed regarding China’s massive stockpiles of cotton. Those stockpiles are creating tremendous uncertainty in the global cotton market. However, we strongly disagree with the characterization that STAX provides greater support in times of low prices. There is no price guarantee; the revenue coverage is based on prevailing market prices at planting time. If futures markets move lower, then support under insurance products also moves lower. Rather than criticize the United States for authorizing a modest insurance program that might provide some assistance to growers if China does dump their stocks, it would seem more appropriate for Brazilian growers to convey their concern directly to Chinese authorities, just as U.S. growers have already done.
Today’s agricultural markets, including cotton’s, are entirely different from the period evaluated by the WTO Panel, which was 1999 through 2005. Renewable fuels and the emergence of the Chinese and Indian economies have brought new influences and market drivers. A comparison of the 1999-2005 period with the most recent five years (2009 to 2013) shows that U.S. upland cotton planted area is down 21 percent, U.S. upland cotton production is down 23 percent, Brazilian cotton area is up 27 percent, and Brazilian production is up 62 percent. World cotton prices averaged 88 percent higher over the past five years than during the period of the WTO challenge.
In summary, the U.S. cotton industry is prepared to accept, and in fact, has promoted major policy reforms to settle the longstanding dispute. Further, the U.S. industry is willing, on final settlement, to make good its commitment to cooperate with the Brazilian industry. In addition, the U.S. industry supports the reinstatement of the Framework Agreement. But, it is time for the Brazilian industry to acknowledge that the new cotton insurance program is substantial reform. It is time to put this matter behind us, but the reported comments by the Brazilian delegation are not a step in the right direction.