Government Support To The Cotton Industry

The World Trade Organization (WTO) treaty was originally implemented to ensure open borders around
the world, though, as usual, not everybody is applying the same yardstick. However, the influence
of the WTO seems to affect the cotton business. Direct government subsidies currently provided by
seven countries through production programs are estimated to have decreased from $3.7 billion in
2006-07, to less than $1.7 billion in 2007-08.

United States

Over the past two seasons, only the US Pima competitiveness program has remained in effect.
Total direct US support to cotton production has declined from $2.9 billion in 2006-07 to an
estimated $1 billion in 2007-08. Over the past 10 years, the highest US direct support to cotton
production, $3.9 billion, was provided in 2004-05, an equivalent of 35 cents per pound. Average
direct assistance to production declined to 28 cents per pound in 2006-07 and to 11 cents per pound
in 2007-08. Total premium and indemnity subsidies averaged $234 million per year between 1997 and
2007, with the highest cost of $482 million paid in 2001. The government received $9 million in
2005 when the unsubsidized part of premiums exceeded premium subsidies and indemnities. Total crop
subsidies fluctuated from 0.5 cents per pound of total production to 5 cents per pound over the
past 10 years. In 2007-08, total crop insurance subsidies are estimated at $40 million or 0.4 cents
per pound of total production.

European Union

Up until 2005-06, payments under the European Union (EU) Common Agricultural Policy (CAP)
were based on estimated seed cotton production, for a maximum of 782,000 tons in Greece and 249,000
tons in Spain. Payments had a combined CAP floor payment of 770 million euros. Changes in EU CAP
policies were made effective Jan. 1, 2006, and are applicable to the 2006-07 and 2007-08 crop
years. Under this new program, EU cotton producers receive 65 percent of EU support as a single
decoupled payment — income aid — and the remaining 35 percent as an area payment —coupled or
production aid. The amount of coupled support that resulted in actual cotton production in 2007-08
is estimated at $354 million — up by $35 million — and most of the increase is caused by the
depreciation of the US dollar. The amount of direct subsidy per pound of cotton in 2007-08
increased from 33 to 40 cents per pound for Greek cotton and from 85 to 102 cents per pound for
Spanish cotton. The higher direct subsidy per pound of cotton in Spain is due to significantly
lower-than-average yields.


As a result of increased international prices, the estimate of benefits resulting from border
policies in China decreased from $1.5 billion in 2006-07 to $660 million in 2007-08. In addition,
500 million yuan, an equivalent of about $70 million, was paid in 2007-08 by the central government
of China to growers as a subsidy for using high-quality planting seeds.

Mexico And Colombia

In Mexico, a support price mechanism with a target price of 64 cents per pound resulted in
payments of $38 million in 2006-07, but declined to an estimated $8 million in 2007-08, as a result
of higher market prices. In Colombia, direct government payments to producers in 2007-08 are
estimated at $10 million, averaging 10 cents per pound — half of what was paid in 2006-07.


The government of India announced its intention to write off debts in the amount of $15
billion owed by farmers to banks and cooperative banks. As of the end of March 2008, the loans will
be waived fully for farmers who have less than 2 acres of land. Farmers who have more than 2 acres
will be offered a 25-percent subsidy to settle their debts. Most cotton farmers in India cultivate
between 3 and 20 acres. The number of cotton farmers who could receive a complete waiver is
expected to be negligible.

Source: Bremen Cotton Report

June 3, 2008