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Does the new US Farm Bill meet US cotton subsidy reduction commitments?

17 August 2014

Analysts from two academic news forums, IFPRI and ICTSD, argue that it is now time to end the long-standing cotton dispute, involving the C4 group of West African countries (Benin, Burkina Faso, Chad and Mali). Traditionally, US cotton farmers have received “twice as much crop insurance subsidy… three times as much direct aid payments, five times as much marketing loan deficiency subsidies and twelve times as much countercyclical subsidies” as US producers of other crops.

However, as a result of the provisions of the new US Farm Bill, subsidy rates for cotton will be brought into line with rates for other crops. The new Farm Bill eliminates two subsidy programmes for cotton and introduces a new revenue insurance programme and additional complementary insurance programmes, which allow the purchase of “additional crop insurance at highly subsidized rates”. ICTSD’s analysis notes that the “six principal subsidy programs for cotton that Brazil claimed were in violation of US domestic subsidy commitments in the WTO did not include crop insurance subsidies.”

The analysis maintains that through the new Farm Bill, the US has “made good its promise to reform cotton policies”. In addition the analysis highlights how the US share of world cotton markets has fallen, with current cotton sector policies in China having a greater impact on world cotton market prices than US cotton sector policies.

The ICTSD report argues that the challenge now is for the C4 and Brazil to get the US to lock in these changes, by offering to drop their respective cotton disputes. This would therefore require a US commitment to limiting cotton payments to “what they were in 2010 or 2008”, a move consistent with C4 group demands dating back to the 2011 WTO Ministerial Meeting (see Agritrade article ‘ C4 countries table “standstill principle” proposal in WTO’, 7 January 2012).

The IFPRI analysis, while acknowledging the reductions in US farm support and the importance of WTO dispute processes in bringing about the substantive changes to US cotton support programmes, highlights the essential safety net function of new support measures, designed to ensure that declining prices do not undermine domestic production. It argues that “the shift to insurance for cotton… is intended to circumvent the WTO dispute settlement ruling against previous cotton support programs and bring the US into compliance with WTO requirements under that case.”

IFPRI maintains that, from an international perspective beyond these substantive changes in the cotton sector, “there is little else to point to in the new law that moves in the policy direction implied by the idea of WTO disciplines on trade or production distorting support”. It continues, “the structure of the new support programs regresses sharply toward those distortions.”

Editorial comment

The fact that the US has “made good on its promise to reform cotton policies”, and that in future subsidy rates for cotton will be brought into line with subsidy rates for other crops, can be seen as a welcomed development.

However, from the perspective of ACP cotton producers, the key concern remains the impact of ongoing US support programmes on US cotton production, trade and global cotton prices. The subsidy reforms pushed for by the C4 were intended to ease downward price pressures on global cotton markets (see Agritrade article ‘ Potential impact of WTO agreement on cotton’, 5 May 2010). Given the safety net policies being put into place for US producers (in line with similar policy moves in the EU), situations may continue to occur where the production changes required to adjust to declining prices largely take place in non-OECD countries.

The fact that Chinese cotton sector policies now also have a major bearing on price developments in global cotton markets highlights the importance of broadening out the C4’s cotton campaign to include dialogue with China on what can be done to reduce the adverse effects of Chinese cotton sector policy reforms on ACP cotton producers.

ACP cotton producers may wish to focus on securing duty-free, quota-free access to the Chinese market, through quota expansion, reduction of out-of-quota tariffs, or the inclusion of cotton in China’s duty-free, quota-free programme (see Agritrade article ‘ Priority areas for cotton lobbying identified’, 29 July 2013) – particularly given the projections of declining overall levels of Chinese cotton imports (see Agritrade article ‘ Chinese subsidy reform begins to take effect while Tanzania sets up a cr...’, 14 July 2014).


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