NCPA - National Center for Policy Analysis

U.S. Cotton Subsidies Should be Unravelled

November 11, 2003

For U.S. cotton farmers, government subsidies guarantee prosperity. High levels of subsidy provide insulation from fluctuations in world prices. They also insulate U.S. producers from market signals, depress global prices, and - ultimately - reinforce poverty in the developing world, according to a 2002 report from Oxfam International.

U.S. cotton farmers receive irrigation water at prices far below the cost of supplying it. They also receive crop-specific payments that encourage them to grow more than they could sell if, like most business people, they had to recoup their production costs, says Oxfam.

  • These subsidies amount to nearly $4 billion year, or $230 an acre.
  • By comparison, the market value of America's cotton crop in 2001 was about $3 billion.
  • This arrangement, known as Step 2 of the "cotton competitiveness program," has cost taxpayers $1.7 billion during the last eight years.
  • The payments have included $107 million to the Allenberg Cotton Co. of Cordova, Tenn.; $102 million to Dunavent Enterprises of Fresno, Calif., and Memphis, Tenn.; and $87 million to Cargill Cotton of Cordova, Tenn.

With the help of subsidies, Tennessee gets back $1.26 in spending for every dollar it sends to Washington. And these textile companies already benefit from trade barriers that restrict foreign competition, at the expense of American consumers and producers in other countries who do not have the same clout on Capitol Hill.

Source: Jacob Sullum, "Frayed fabric of subsidies," Washington Times, November 11, 2003; based on "Cultivating poverty: U.S. cotton subsidies and Africa," Oxfam Briefing Paper 30, September 22, 2002, Oxfam International.

 

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