Free fall of prices exposes Achilles hell of current legislation The current government farm bill served U.S. cotton well during its first couple of years, says National Cotton Council President Robert McLendon, but the "subsequent free fall of prices has exposed its Achilles heel - a completely inadequate safety net."
In 1995, when the legislation was taking shape, the price of cotton at the farm level was 77 cents a pound and U.S. farmers were harvesting crops of more than 19 million bales per year.
"Since then, the price has fallen every year - to 75 cents, then 68 cents, then 65 cents, 53 cents, and for calendar 2000 it was 48 cents," McLendon told delegates to the council's annual meeting at San Diego, Calif.
"Adding insult to injury, this persistent price erosion has been accompanied by smaller crops and reduced quality, with the inevitable result that growers have become increasingly dependent on government assistance well beyond the levels authorized in the legislation."
While most cotton farmers also grow other crops, diversification has not provided the offsetting relief it often does when there is a steep drop in the price of one crop, McLendon says.
Rather, "over the past two years, crop diversification has done as much to compound our problems as to rectify them. Prices for virtually all crops have been unusually low, resulting in American farmers and ranchers getting almost half their income from the federal government."
Only a small amount of the federal assistance was authorized by the FAIR act, he notes, and "the very survival of many farmers has hinged on special emergency relief packages authorized by annual appropriation measures. This is a precarious way for farmers to stay afloat."
Farmers aren't the only industry segment to feel the pain, McLendon points out.
"Our manufacturer members can't produce and sell their textiles profitably - even with cotton prices almost 40 percent lower than they were in 1995. Relentless price pressure from imported textiles and apparel have kept a tight lid on yarn and fabric pricing, and almost every week we hear of yet another U.S. textile mill closing or in Chapter 11 bankruptcy reorganization.
"When profits disappear at both ends of the production and consumption chain, they also diminish for the processors and handlers in between."
This situation makes it all the more critical, McLendon says, that when farm policy deliberations get under way shortly by the House Agriculture Committee, that the council be in a position to make consensus recommendations.
"The current farm law, with its seven years of step-wise reductions in ag supports, was intended to wean America's farmers from dependence on the federal government. Given the strong demand and comparatively high prices for agricultural commodities in 1995, it seemed doable.
"But, council leaders were concerned about cyclical price troughs that would likely occur sometime during the seven-year period. Five years of experience under the FAIR act have shown that our concerns were justified."
The absence of a workable income safety net has exposed the act's shortcomings, McLendon says, and has been the stimulus for much of the council's agenda over the past year.
"A top priority has been finding some way to supplement the ATMA payments authorized in 1996 farm law - and we did that. A number of developments in 2000 constituted a lifeline for our industry." They included:
- Marketing certificates for loan redemptions.
- A budget resolution authorizing supplemental AMTA payments, as well as a special cottonseed payment.
- Passage of crop insurance reform that also included an amendment providing more than $7 billion for emergency economic assistance to farmers.
- Disaster assistance for this year's crop and "an unprecedented level" of federal cost-share funding for the boll weevil eradication program.
- Step 2 payments, authorized in the October 1999 Agricultural Appropriations bill, continued to be made every week during calendar 2000. "I shudder to think what U.S. mill consumption and exports would have been without these payments," McLendon says. The payments averaged more than 5 cents per pound during the year.
"Our industry has come to understand very well the value of Step 2 in boosting offtake of U.S. cotton and underpinning the U.S. price in relation to the world price. Step 2 payments were unusually important last year because they helped move some quality-impaired cotton to market that otherwise would have accumulated in carryover stocks, further depressing new crop prices."
The Step 2 program "will most likely" retain the same benefits this year, for the same reasons, McLendon says.
Despite its weaknesses - most notably the lack of an adequate income safety net - he says it has some positives.
"It has allowed us to keep acreage and production at pretty high levels, helping us retain a strong presence for agricultural products in the world market. So, as we focus on ways to amend the current law and, hopefully, restore profitability, at least we're not having to dig out of the kind of hole we were in when the 1985 legislation was enacted.
"Also, both the economic outlook and the congressional mindset are somewhat more promising than in 1996, when the FAIR act was debated under the cloud of a major budget deficit and by a Congress that believed it had been given a mandate to enact major farm policy reforms."
With current prospects pointing to a budget surplus and a congressional understanding that strong agricultural prices can't be sustained in the face of global recession and overproduction, McLendon says "our experience over the past several years has reminded us all that today's agricultural prices are no more immune to deep, devastating troughs than they ever were."
Getting new farm policy enacted that will address these concerns will be a challenge, he says.
"It's one thing for Congress to dig deep into the federal treasury to authorize `emergency' spending to avoid widespread agricultural bankruptcies; it's another for them to commit to a longer-term farm program safety net that could cost as much as they've been authorizing for emergency spending in annual appropriations bills."
To that end, McLendon says, the council will provide Washington leaders with "credible economic and policy analyses that will bear up under the closest scrutiny for soundness and effectiveness."
More than 1,000 leaders from the seven segments of the cotton industry participated in the annual meeting.