As implementation of the 2014 farm law continues, the National Cotton Council (NCC) reminds industry members of the obstacles that were overcome in order to maintain effective risk management tools in that law.
What was the initial obstacle?
Even before the Agricultural Act of 2014 was being developed, cotton was the only commodity facing the consequences of an adverse ruling by the World Trade Organization (WTO) – specifically a finding against the U.S. cotton program in a case brought by Brazil. Following a 2009 ruling by an arbitration panel authorizing Brazil to impose more than $800 million in trade retaliation, the U.S. and Brazilian governments signed a “Framework Agreement” under which Brazil agreed to delay retaliation against U.S. products during the development of the 2014 farm bill. Brazil also indicated that a mutually agreed outcome in that bill would provide a long-term settlement in the WTO case.
How was the 2014 farm bill debate affected?
The WTO panel’s findings created challenges for maintaining the countercyclical payment and marketing loan programs. In addition, the U.S. political/ budget environment made it very difficult to maintain the direct payment. The NCC proactively responded to those pressures by advocating a creative insurance product for U.S. cotton producers – the Stacked Income Protection Plan (STAX) – for the 2014 farm bill. STAX, as originally proposed, had a coverage band of 70-95 percent and a reference price of 65 cents. The NCC also proposed a formula-driven approach for the marketing loan, with the loan rate allowed to float between 47-52 cents.
As the farm bill debate progressed, Brazil registered a number of concerns with the initial cotton provisions, first and foremost being the reference price. The Brazilian government further advocated:
- eliminating the protection factor or requiring that it be less than 100 percent;
- introducing a maximum projected price;
- reducing the premium subsidy;
- increasing the insurance deductible beyond 10 percent; and
- setting the marketing loan at a level below 47 cents.
Because trade retaliation would have targeted a number of industrial products, the U.S. Chamber of Commerce also advocated Brazil’s demands. The NCC worked hard to preserve a safety net and avoid having cotton singled out for damaging amendments. Yielding to Brazil’s full list of demands would have taken support much lower.
After the Congress passed and the President signed the farm bill in early 2014, Brazil continued to express concerns and threatened to take the new farm bill back under WTO scrutiny. Fortunately, the U.S. and Brazilian governments resolved to have our government transfer $300 million to the Brazilian Cotton Institute in exchange for Brazil not bringing action against 2014 farm law cotton policies during the law’s life. Also, any future Brazil actions will have to involve an entirely new WTO case. The NCC, meanwhile, has been diligently communicating to its members the choices and options under the new farm law, and we continue working to ensure its programs are implemented effectively.
Gary Adams was elevated to president/chief executive officer of the National Cotton Council of America in March 2015. He and other NCC leaders contribute columns on this Cotton Farming page.