MEMPHIS, Tenn. — Some detractors of U.S. cotton subsidies are suggesting that U.S. cotton producers want to have it both ways — that farmers want subsidies eliminated in other countries, but complain loudly when their own subsidies are threatened.
For example, Edward Gresser, a trade expert at the Progressive Policy Institute, said in an article in the Washington Post, “In 2000, American cotton farmers earned $46 million from selling cotton to China (prior to joining the WTO). In 2003, (after joining) they earned $733 million from selling to China, and in just the first two months of 2004, they earned $428 million.
“This is because the Chinese agreed to join the WTO, and made a series of promises to open their markets to the world’s cotton. So (even for) cotton farmers, there’s a pretty big payoff in our being a member of this organization.”
Someone should tell Gresser that the aforementioned “pretty big payoff” was more like a tradeoff.
The real story is that the WTO drove up China’s demand for cotton imports by giving China more access to U.S. textile markets. This resulted in most of our domestic textile mill industry being driven out of business by Chinese textile mill expansion.
Today, it’s more the demand created by the loss of our textile industry than a WTO requirement, that opened China’s doors to imports.
History bears this out. In 1999-2000, Chinese cotton growers produced a little over 24 million bales of cotton, while its textile mills consumed 26.25 million bales. This created a shortfall of 1.85 million bales. The shortfall didn’t result in significant imports because China simply used some of the 14.35 million bales of cotton it had in stock from previous years.
Incidentally, most experts in the world acknowledge that this glut of cotton sitting in China, not U.S. farm subsidies, had driven world prices to the lowest levels seen in years.
Anyway, Chinese ending stocks dropped to 12.61 bales as a result of this, and the following year China joined the WTO. Part of the agreement was for China to import around 3.5 million bales of cotton annually.
That turned out to be no problem. In 2002-03, China produced only 22.6 million bales of cotton. Meanwhile, China’s textile industry was booming and used nearly 30 million bales, creating a shortfall of 7.4 million bales. To fill the need, China imported 3.13 million bales of cotton and chewed up nearly 5 million bales from their stocks, which dropped to 7.68 million bales.
In 2003-04, China produced 22.4 million bales of cotton, as growers were hurt by poor weather. Domestic use exploded to 31.5 million bales, creating a shortfall of 9.1 million bales. China imported 8.5 million bales and ending stocks dropped to 6.88 million bales. As the Chinese cotton glut was reduced, U.S. prices rose to over 80 cents for a short period of time.
From this it’s clear that a market force — strong demand — was responsible for much of the increase in China’s imports over the last three to four years, not the WTO import requirement. Why else would China import 8.5 million bales of cotton in the 2003-04 marketing year when it was only required to import 3 million bales?
U.S. cotton producers have simply traded a reliable customer — its domestic textile industry — for one they’re not so sure about. That’s not exactly a payoff. And no doubt China is thinking seriously about bumping up its domestic cotton production in an effort to take away our raw cotton export market as well. That’s the real story.