September 4, 2001
Dear Representative:
The National Cotton Council urges your support for H.R. 2646, The Farm Security Act of 2001, as reported by the House Agriculture Committee. It is a carefully balanced approach that provides critically needed support for commodities, conservation, nutrition, research, rural development and trade by – (1) retaining the best provisions of recent farm law and (2) drawing on a combination of fixed, decoupled payments and counter-cyclical payments to comply with spending ceilings imposed by the FY02 budget resolution and WTO commitments.
The cotton industry supports the allocation of funds between programs as well as the structure of the commodity program provisions. We urge you to actively oppose any amendments that reduce the funds available for commodity programs; that alter the structure of those programs; that appreciably shift benefits among commodities; or which target or limit eligibility for program benefits based on size, sales or organizational structure.
The FY02 budget resolution provides an additional $73.5 billion above the 10-year baseline for new farm legislation. The legislation reported by the Agriculture Committee adds $49.9 billion for commodity program spending to the existing 10-year baseline. It is critical for the survival of a viable production agriculture sector that these additional funds are made available for commodity programs. U.S. agriculture’s most recent 3 years’ experience clearly demonstrates the need to establish adequate resources for commodity programs when prices are low.
The commodity program structure in the legislation is an innovative blend of full planting flexibility and fixed, decoupled payments from the 1996 FAIR Act combined with the addition of counter-cyclical payments triggered when prices fall below realistic levels necessary to sustain a viable commercial agricultural base. The Committee has utilized mechanisms that are well understood, predictable and that cause minimal market distortions while providing essential support to U.S. commodity production and related activities.
Importantly, the fixed, decoupled component provides predictable financial assistance that is not in violation of our international trade obligations -- i.e., it is clearly WTO "green box." This important aspect of the program’s construction ensures compliance with existing trade agreements.
The National Cotton Council strongly supports a provision that permits producers to adjust their crop bases to reflect more recent planting history. However, we recommend a modification that will clarify that all farm operations, particularly those with oilseed production history, are able to utilize the provision. This provision, if properly implemented, should not penalize growers who wish to maintain their current base due to their utilization of planting flexibility under current law, yet it would allow other producers whose recent planting history differs substantially from the acres enrolled in the production flexibility contracts to revise their base acreage. The adjustment is all the more critical because payments under the proposed counter-cyclical component of the program would be made on the same acre/yield base as the fixed, decoupled payments. Using the same base for both payments facilitates prompt delivery of any counter-cyclical aid (no additional sign-up or other local FSA office actions are required). Additionally, the decoupled counter-cyclical payment base minimizes market distortions and program costs when compared to more coupled program designs. In fact, CBO scoring of coupling counter-cyclical payments to actual production or minimal planting requirements would likely add significantly to expected program cost and require substantial reductions in either loan rates, fixed payments or target prices to avoid over-spending.
Our industry supports a price-triggered counter-cyclical support program as included in the legislation. The deterioration in farm income the last 3 years ensures that any program designed to provide support based on historical farm income or revenue will fall far short of the kind of safety net that is needed by U.S. producers.
The National Cotton Council opposes any limitations on eligibility for government program benefits based on size, sales volume, organizational structure or other basis. However, if payment limits are imposed, it is important that legislation maintain the currently proposed formation of separate limits associated with each method of support. Limitations on marketing loan gains and loan deficiency payments are devastating during periods of low prices and underscore the importance of maintaining loan redemptions with generic certificates.
Our industry strongly supports other aspects of the legislation, particularly retention of a marketing loan keyed to world market prices, the retention of cotton’s 3-step competitiveness provisions, and continuance of the 3-entity rule.
While we strongly support the Committee’s work product, we will continue to seek ways to provide assistance to the U.S. cotton producers’ best customers – U.S. textile mills. The U.S. textile industry is one of the most innovative and productive manufacturing sectors in the U.S. economy. Unfortunately, in spite of technical innovation, increased efficiency and investment, imports of textile and apparel products are growing at a staggering rate – far outstripping growth in U.S. consumption. As a result, U.S. mill consumption has declined and 45 plants closed during the first half of 2001. Since 1997, over 150,000 textile jobs have been lost. We believe immediate assistance should be provided by eliminating the 1.25 cents threshold used in computing step 2 payments under cotton’s competitiveness provisions. This would be an important initial step in mitigating the negative impact of the strong U.S. dollar.
The Council supports the program provisions for extra-long staple (Pima) cotton, including the competitiveness provision. ELS cotton is produced in Far West Texas, New Mexico, Arizona and California. It is important that this high quality, high value cotton have access to a loan program to facilitate orderly marketing to domestic and international markets. We will urge Congress to include a provision establishing the ELS loan rate at a minimum of 79.65 cents per pound to ensure balance between the upland and ELS programs. It should be noted that ELS is not eligible for fixed or counter-cyclical program benefits.
The Council appreciates the emergency assistance provided for the 2000 and 2001 crops of cottonseed. Cottonseed accounts for about 17% of the value of the cotton crop at the farmgate and cottonseed products compete with other oilseed products. We will continue to support inclusion of a permanent cottonseed assistance provision in the final legislation.
As the House prepares to consider legislation which will affect U.S. commodity production for the next decade, the National Cotton Council commends the committee’s work and offers its support for programs that insure ample supplies of environmentally safe food and fiber will be delivered under provisions that are cost effective.
We look forward to working with Congress on this critical matter.
James E. Echols
Chairman of the Board