Thank you, Jay, for that introduction, and let me add my words of welcome to this joint session of the American Cotton Producers and the Cotton Foundation. I appreciate the opportunity to address our industry’s producer leaders and to also express the industry’s appreciation to our agribusiness partners for their invaluable support through the Cotton Foundation. Both producer and agribusiness leaders are to be commended for meeting together to help meet our industry’s many challenges.
In noting your very full agenda and the range of speakers and topics that will cover many of the current issues, I will keep my remarks very brief.
First, though, I want to say I have appreciated the opportunity to serve as Council Chairman this year. It has been very busy, but rewarding. Even though the job has demanded a lot of travel, I have enjoyed meeting with cotton industry leaders from all areas of the cotton belt and all industry segments.
I would like to say a special word of thanks to Jay Hardwick, who continues to do an outstanding job representing the interests of all cotton producers across the Cotton Belt. I also want to recognize Council Vice Chairman Larry McClendon, who has helped convey the industry’s farm bill message in Washington and has represented our interests during a recent trip to China.
When Council leaders convened during our annual meeting last February in Austin, it was critically important that we had a policy consensus within the industry as we addressed our priorities for new farm legislation and trade.
The annual meeting in Austin was very productive. The Council was able to re-confirm our priorities for sound farm policy. We also prepared to undertake a number of internal initiatives in preparation for the farm bill debate.
Heading into the farm bill debate, it quickly became clear that cotton was targeted for change. The current farm bill and the current cotton program received unwarranted and yet significant criticism. Our situation was made worse by the attention the U.S. cotton program received in the WTO, with the ongoing case brought by Brazil and the unfounded claims by Oxfam and other international groups that the U.S. cotton program is the cause of the economic difficulties faced by West African cotton growers.
The current budget environment added another challenge. While the 2002 farm bill was developed during a time of budget surplus, the new farm bill is confronted with budget deficits. CBO’s baseline spending projections, which are based on an extension of current policies, have resulted in a budget environment that has made it very difficult to hold on to the necessary funding for maintaining existing programs.
In addition, the administration has maintained that the cotton program is not functioning properly and is need of radical change. In meetings with Secretary Johanns, he cited our industry’s lower exports, high carry-over and an anticipated increase in loan forfeitures as the basis for these changes.
The Council’s earlier testimony before the House and Senate afforded us with the opportunity to express our industry’s support for the basic structure and provisions of the 2002 farm law and acknowledge the need for adjustments in marketing loan administration and flexibility in loan redemptions.
Our meetings with Secretary Johanns allowed us to give our assessment of the current marketing conditions and review the Council’s policy for studying cotton flow and all facets of the marketing loan program.
That policy led to the establishment of the Marketing Loan Working Group. As you are aware, this Council working group developed a comprehensive set of recommendations which address the calculation and application of loan premiums and discounts, discovery of the world price, adjustments to the AWP, efficient movement of cotton, and loan redemption flexibility. Those recommendations, which were part of a package of marketing loan program adjustments adopted by the Council’s Executive Committee, came at a very important time --as the House Agriculture Committee was moving toward farm bill mark-up.
A majority of the Council’s recommendations -- regarding the structure and operation of the cotton program -- were included in the legislative language approved by the House Agriculture’s Subcommittee for General Farm Commodities and Risk Management.
A team of Council leaders traveled to Washington in the days leading up to the mark-up of all farm bill titles by the full House Agriculture Committee. Joining me were Vice Chairman Larry McClendon and former Chairman Woody Anderson. We met with Chairman Peterson immediately before the Committee convened for mark-up. We were joined by the leaders of wheat, rice and peanuts in a session where Chairman Peterson laid out his payment limitation package which had been agreed to by the House leadership. All of us were faced with a very difficult decision—whether to agree to a package containing significant payment limit reforms in return for a pledge from Chairman Peterson and House leadership to fully support cotton’s provisions in the Committee bill and to oppose damaging amendments to the cotton program and further payment limit restrictions. If we didn’t agree and decided to stay where we are on current payment limits, we would have done so without the House leadership’s support and would have had to fight every amendment on our own. So, our options were obviously very limited and we made the decision to support Chairman Peterson’s package.
Though it was a tough call, looking back at this point—I am convinced it was the right decision. The House leadership carried out their commitment during the floor debate of the bill, starting first with a rule limiting amendments to 31 and their support throughout the remainder of the process. There is no doubt that we would have faced much tighter payment limit restrictions, had we tried to do this on our own. If there is any doubt, all we have to do is look at the groups who are claiming that the current payment limit package doesn’t constitute real reform.
During the days leading up to the farm bill consideration on the House floor, in response to a number of Council action alerts, our members went to their phones to contact their House members in support of the Agriculture Committee’s farm bill and opposition to the Kind-Flake and other damaging amendments. A large team of Council leaders, representing virtually all industry segments, came to Washington on very short notice to participate in the successful effort to defeat the Kind-Flake amendment and pass the Committee’s bill. It was very gratifying that the Kind-Flake amendment was overwhelmingly defeated. In fact the amendment received some 80 votes less than in 2002. That is a valuable reminder of the strength agriculture has when we work together. I am also very pleased to report that an amendment offered by Rep. Udall, a Democrat from Colorado, to reduce cotton’s direct payment in order to increase funding for a conservation program was soundly defeated. While the funds involved were relatively small it is important for this industry to stand-up when challenged and it was an important signal that Chairman Peterson urged his colleagues to defeat the amendment. In summary, we are pleased that the Committee’s bill achieved passage. It is unfortunate that a last minute dispute over a tax provision used as a budget off-set caused all but 19 Republicans to vote against final passage even thought a significant majority indicated they supported the provisions that were unanimously reported by the Committee. I hope we can look forward to a return to bipartisanship as the process moves forward. I also hope the Administration will reconsider the veto threat issued following passage of the legislation by the House. Now the process moves to the Senate where we expect action to accelerate when Congress returns in September.
The Council also has continued active involvement in WTO issues, including the Brazil compliance case and Doha agricultural negotiations.
You are aware that Brazil’s case against the U.S. cotton program and export credit programs were heard by the compliance panel in late February. Council staff were in Geneva during these proceedings to assist the U.S. defense team throughout the entire process and have worked closely with the U.S. team with rebuttal submissions and answers to the panel’s questions.
Late last month, the dispute panel sent its preliminary ruling to both countries’ governments. While this decision is still confidential, the press reports indicate that the panel largely sided with Brazil.
I would note that the U.S. actions taken to comply with the WTO Panel ruling have had a significant impact on the U.S. cotton industry. The loss of Step 2 has reduced U.S. competitiveness in international markets and ultimately impacted the producer through lower equity offers. In addition, the current world market situation flies in the face of Brazil’s claims. During the 2006 marketing year, India was undercutting world prices by as much as 5 cents per pound; Brazil was selling government stocks to dampen domestic cotton prices; and China was using its variable levy system to increase internal prices and stimulate production. It cannot be credibly argued that the U.S. cotton program is causing any country serious prejudice in 2007 - the first year the cotton program has operated without Step 2.
As a timetable on the Brazil ruling, both parties in the case will submit comments on the report by September. The formal report is due on October 1, but will still be confidential until it is translated into the official languages, which will likely be no sooner than December 1. The ruling will become public after it is translated. We believe the U.S. will appeal the decision and it is expected that will occur in January or February. If it is an expedited appeal, it should be final by May 1.
Since the beginning of the year, the WTO has held two “high level” sessions on cotton in Geneva. In response to the first of these sessions, the Council organized a media briefing to express the industry’s concerns over the session’s timing and agenda. This was followed by Council contacts with WTO officials in Geneva, where we pointed out that while we do support a Doha agreement which will be beneficial to all parties, the consistent efforts to single out cotton are creating opposition to the negotiations within our industry. In June, a second cotton session was held in Geneva, where the West African cotton countries continued to promote their cotton proposal and seek developmental assistance from developed countries.
Crawford Falconer -- the chairman of the WTO agricultural negotiations — also issued two papers challenging Doha members to conclude an agricultural agreement and providing his opinion that the U.S. should allow more cuts in support and accept less market access than the U.S. initially offered. His first paper called for more ambitious reductions in cotton support.
More recently, Falconer issued a draft modalities text that would require the U.S. to reduce “amber box” spending on cotton by more than 90 percent, as compared to recent levels. Falconer’s text also contained higher reductions in overall trade distorting support and less market access than the U.S. had originally agreed to. Immediately after seeing this text, the Council urged the Administration to strongly oppose the cotton-specific language and not accept any agreement containing similar language. Without this assurance, the U.S. cotton industry undoubtedly will have to oppose any extension of trade promotion authority.
Throughout this year, the Council also has been delivering a consistent message to U.S. trade negotiators that “first and foremost, the U.S. should not improve its offer until other countries agree to meet the U.S. offer on market access.” We also have detailed our industry’s priorities on market access and pointed out that a successful Doha outcome must include significant increases in market access to China.
With China continuing to be the largest market for U.S. cotton exports, it is not only important that we expand our market access -- but also strengthen our relationship with our largest customer.
That was the primary objective in organizing last year’s China Cotton Leadership Exchange trip as well as this year’s quality team, which was led by Vice Chairman Larry McClendon.
That delegation traveled extensively throughout China and met with many of our mill customers and the regional representatives of China’s fiber inspection agency.
In keeping with our Memorandum of Understanding with China Cotton Association, we will be hosting a Chinese delegation in visits to all four regions of the Cotton Belt next month.
In concluding,there is still a long way to go in the farm bill process, and there are still big challenges in front of us as we turn now turn our attention to the Senate—which will not begin their farm bill mark-up until after the August recess. Our industry’s heavy agenda in Washington and overseas continue to underscore the need for the Council to have adequate resources to support the members of Congress who we rely to carry our message. In that regard, I extend my thanks to all of you who have contributed to our political action committee, CAC, and ask that you help us again this year with your support so that we can surpass last year’s fundraising record.
I have outlined some significant challenges facing our industry this year in several important areas. Council success in these areas is critical for the long-term viability of our industry. I ask that you continue to provide committed leadership and strong support in helping our industry successfully address the many challenges ahead. As the Council’s Chairman, I have enjoyed working with each of you this year and am looking forward to continuing those efforts in the coming months.
Thank you again for the invitation to join you.
