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By Mike Barnett
Editor
With planting season just a month and a half distant, Southern High Plains cotton farmers like Lloyd Arthur of Ralls are speculating what the future might hold for their fibrous crop.
A World Trade Organization ruling that aid to cotton growers from the U.S. government violates global trade rules, following on the heels of recent public battles to cut current farm program spending, has put South Plains farmers in a siege mentality.
"Everybody's in kind of a standstill mode, wondering how those two issues are going to affect our industry," Arthur, vice president of the Texas Farm Bureau, said.
The uncertainty of the WTO ruling is bad enough. Add to that worries about congressmen opposed to farm subsidies seizing on the ruling to push their agenda, and the rumor mill runs wild.
"The WTO ruling went against us," Arthur said. "We don't fully understand it, and I think the people in the pipeline don't know exactly what it's going to mean. When that does get interpreted back to us, everyone is fearful that it may be more devastating to us than what we realize now.
"The farm bill was put in through 2007, and a lot of us have already made plans and made our predictions throughout that whole period on some long-term goals," he continued. "And, if any of that gets cut, then we're going to have to go back and adjust, and in some cases, we may be where we can't adjust."
Farmers 'disappointed'
Meanwhile, American Farm Bureau President Bob Stallman said the 300-page WTO ruling on Brazil's complaint against U.S. farm payments to cotton producers "looks like it's not good news for America's producers."
The ruling upholds a previous decision that the U.S. appealed. That ruling agreed with Brazil's claim that American farm programs distort world prices, preventing crops grown in developing countries from reaching world markets.
"We're disappointed in the ruling," Stallman said. "We still don't think the decision was correct. But the bottom line is, if we believe in a worldwide trading system and the rules of international trade—which we do support because it helps us in a lot of markets—we ultimately have to comply with whatever those rulings are."
Also expressing disappointment with the ruling was the National Cotton Council (NCC). That organization noted that several aspects of the ruling are inconsistent with the intent of the Agriculture Agreement and are inconsistent with long-standing interpretations of that agreement.
"The National Cotton Council will be closely reviewing the Appellate Body's analysis over the next few days and will consult with the Administration and Congress on this decision," a NCC statement said. "There will be no immediate changes to the U.S. cotton program. We will, however, work with Congress and the Administration to formulate an appropriate response to this decision."
Specifically, according to AFBF analysts, the Panel found that several U.S. cotton programs caused "serious prejudice" to Brazil as a result of "significant price suppression," and not under any other serious prejudice criteria, on the world market in the marketing years 1999-2002. The programs the Panel identified as causing price suppression included the marketing loan program, the Step 2 program, the market loss assistance payment program, and the counter-cyclical payment program.
The Panel found that production flexibility contract payments and direct payment programs had not caused serious prejudice, but ruled that those programs do not meet criteria for non-trade-distorting green box policies.
As far as export subsidies, the Panel found that payments to exporters under the Step 2 program represent a prohibited export subsidy, and that payments to domestic users under that program represent a prohibited substitution subsidy. The Panel also found that U.S. export credit programs operate as prohibited export subsidies because fees collected under programs were not adequate to cover long-run costs, and that, therefore, the U.S. had exceeded its export subsidy "base for cotton."
Current program defended
Plains Cotton Growers (PCG), too, expects no immediate changes to the cotton program. A statement released by that organization said it would be difficult to comment on the WTO's decision content or its ramifications until the lengthy report "has been carefully read and digested."
That organization did, however, defend the current U.S. program.
"We firmly believe the U.S. cotton program is a well-designed, well-crafted component of the agricultural policy of the United States," the statement said. "The National Cotton Council has argued on behalf of the American cotton producer that this program conforms to the WTO obligations of the United States."
PCG argues that although important to U.S. producers, the cotton program is not the driving force in the complex world cotton market and cotton textile trade.
"The program does not have significant impacts on world markets," the statement said. "A recent Texas Tech study and several other studies confirm these statements. It does, however, provide stability in the U.S. and this little corner of Texas by giving farmers a better chance of riding out low price and weather disasters."
With the WTO ruling on cotton, TFB Vice President Arthur said growers of other program crops should be on the lookout.
"The farm program is structured for all program crops pretty much the same. Cotton does have a few little extras that others don't. But with that being in line with the way the other proceeds are delivered, all of them could be under scrutiny from Brazil or even other countries," he said.
In fact, that's starting to happen. Brazil already has scored a victory in Europe concerning sugar payments and rumors suggest that U.S. soybeans might be the next target.
AFBF President Stallman said many producers and members of Congress are concerned when a program designed to comply with international trade rules doesn't make the WTO grade. "And that does create some anxiety and maybe to a certain degree, some backlash against the system. We believe strongly that the best way to resolve these issues is through negotiation and through a successful negotiation of the WTO round that is being negotiated right now. That's the way to address these agricultural trade issues in an international context," he said.
