Government Support To The Cotton Industry
Source: Textile World Date: 2008-06-10
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.
