NCC Urges No Changes in Payment Limit Provisions, Eligibility Rules

The NCC reiterated here today that payment limits are sufficiently restrictive and further restrictions would be tremendously destabilizing to U.S. cotton – a sector only in its second year of recovery from the lowest prices in 40 years.

June 17, 2003
Contact: Marjory Walker
(901) 274-9030

WASHINGTON, DC – The National Cotton Council reiterated here today that payment limits are sufficiently restrictive and further restrictions would be tremendously destabilizing to U.S. cotton – a sector only in its second year of recovery from the lowest prices in 40 years.

In a statement to The Commission on the Application of Payment Limits to Agriculture, NCC President and Chief Executive Officer Dr. Mark Lange said, "We think it is advisable not to make changes to legislation governing size of the limits or eligibility rules as provided in the Farm Security and Rural Investment Act of 2002, and we would also advise against any changes in the accompanying regulations."

Lange, who reminded the panel that the new farm legislation added an adjusted gross income test, said the NCC always has opposed payment limits and worked in the recent farm bill debate to keep any restrictions on benefit eligibility as reasonable as possible.

The economist said that "payment limits, within the context of prior and current farm programs, reduce efficiencies, are counter-intuitive and can work against U.S. cotton’s international competitiveness. Further restrictions in payment limitations will upset the current structure of U.S. agriculture, likely reduce land values, possibly cause shifts in production of cotton into wheat and feed grains and seriously undermine the Sun Belt agricultural economy."

Lange also commented on several misconceptions regarding payment limits. These included:

- A belief that larger farms receive more payments per acre and stricter payment limits will help small family farms. He noted a USDA study that revealed that payments per acre rise until about 700 acres, then decline as farm size continues to grow.

- Southern agriculture, in particular, cotton, rice and peanuts, has a "better deal" in terms of program support than applies to other program commodities. He said if program measures are expressed as a percent of USDA’s estimated production costs for the respective commodities, then support levels across commodities do not appear to differ, and cotton is not "better off."

"If limits are applied to outright dollars received, cotton and rice producers will generally reach any limit on considerably fewer acres than those devoted to other commodities," he said. "A cotton producer with the national average program yield reaches the payment limit at 1,000 acres while a corn producer with the national average corn yield hits the same limit at 1,700 acres and a wheat producer at 3,500 acres."

Lange said payment limits are confounding to the very principles of the latest farm legislation.

"When growers need the most protection in times of low prices, the limits deny them the very benefits aimed at precluding damage to the sector," he noted.

Among other preconceptions Lange addressed were that: 1) farm size in terms of acres has no corresponding relationship to average cash cost of production, 2) payment limits on larger acre operations are not as damaging because such enterprises have lower costs and 3) stricter payment limits can be used to boost loan rates and target prices.

"Payment limitations, though, work against the fundamental premise of the nonrecourse loan program, and hurt producers more when prices are low," Lange noted.

Lange cited benefits’ reduction effects in different regions, including the inducement of substantial shifts in expected plantings. For example, western irrigated agriculture has extremely high yields compared to other parts of the Cotton Belt, and the higher the yield the lower the acres necessary to eventually reach the payment limit.

"Very high yielding cotton can reach reduced limits at acre levels that cannot sustain equipment configurations," he said. "The shift in cotton acres in the West could be much larger than previously estimated. The sudden availability of 600,000 acres of highly productive land in the San Joaquin Valley could bring a disruption of unparalleled magnitude to the planting of high value fruits, vegetables and permanent crops."

He said the devastation to infrastructure values in the San Joaquin Valley also would be absolutely incredible as cotton gins have no known alternative use. Another result could be shifts of two to three million cotton acres in the Southeast and Mid-South to other crops.

Lange also noted that effective reductions in the eligibility for farm program benefits should be expected to impact farmland values, for all holders of farmland.

"Smaller farmers hold a much larger portion of the enterprise’s total assets in land than do larger operations," he said. "Thus, any reduction in farmland values will fall disproportionately on smaller operations as collateral for financing disappears."