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For more information on this area, please contact:

Harry Ayer
Extension Specialist

Phone: (520) 621-6257
Email: ayer@ag.arizona.edu

Federal Policy and Arizona Cotton

The following information was presented at Arizona's Cotton Field Day, October 6, 1999. Click on any image to view it at full size.

Harry Ayer
Extension Specialist

George Frisvold
Associate Extension Specialist

10-Year Low Cotton Prices Spur Interest in Agricultural Policy

Returns Per Acre, Upland Cotton, Maricopa County

For Pinal County, the situation is even worse.

Government Payments Help

1998 Government Payments to Arizona Cotton Farms Huge

$65 million in total payments:

$38.1 million in PFC payments
$18.9 million in MLA payments
$8.5 million in LDP payments

$262 per acre average payment on Arizona's 248,000 acres of harvested upland in 1998.

$100,000 average per cotton producing farm (643 farms, by Census).

Trade and Trade Policy Important for Arizona Cotton

Arizona exports over 80 percent of production.

NAFTA increased U.S. cotton exports:

NAFTA caused Mexico to begin tariff reductions in 1994.

By 1998, Mexico had eliminated all import tariffs on our cotton.

Mexico now, by far, the largest export market for US cotton.

US Cotton Exports to Mexico

Almost steady rise in US cotton exports to Mexico since NAFTA agreement of 1994.

Part of increased exports attributed to Asian financial crisis and other factors, but...

USDA attributes NAFTA with 6-15 percent of export gain to Mexico.

Current Policy Update

Supplemental PFC (AMTA) payments

Doubles the 1999 AMTA payment to Arizona Farmers.

Funds Step 2

WTO and competitor-country view of Step 2 payments unclear.

Increases the loan gain/loan deficiency payment limitation from $75,000 to $150,000 per person (more under 3--Entity Rule)

Big bonus for many Arizona cotton farms.

At current LDP rate and 1200 pound yield, eligible for $203 per acre LDP.

At $75,000 payment limit, a 370 acre cotton farm would hit the limit.

Increases crop insurance premium subsidies

Tronstad and Ker show that since 1985 crop insurance provided good returns to Arizona cotton farms.

Arizona cotton producers received, in general, $1.78 - $3.37 return for each premium dollar.

New legislation makes crop insurance even more attractive.

Long-Term Policy Options: Farm Legislation in 2002

1. Status quo--extend the '96 bill.

2. Recouple to production and/or prices.

3. Marketing loan program.

4. Traditional non-recourse loan program.

5. Insurance--crop and/or revenue.

6. Farm savings accounts.

7. Counter-cyclical income payments.

8. Revert back to the permanent legislation--the 1949 Act.

9. No Program--repeal permanent legislation.

10. A combination of the above.

Long-Term Options: Trade Policy and China's Accession to the WTO

The Uruguay Round of GATT reduced barriers to ag trade, but...

Agriculture worldwide still places considerable restraints on trade.

Average ag tariff over 40 percent and tariffs on some products exceed 300 percent.

Non-tariff barriers remain thorny issues.

Trade Policy Toward China Important for Cotton

China largest consumer of cotton, a leading producer.

China varies from major exporter, to major cotton importer.

Domestic policy partly responsible for large swings in imports and exports.

State Trading Enterprises (STEs) control Chinese cotton exports.

China's Accession into WTO

Add discipline to domestic policy and STE activities.

USDA estimates that WTO membership would...

cause China to focus more production on labor-intensive textile and apparel industries.

reduce China's cotton production.

increase US cotton exports to China.

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