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Government Subsidies for the Cotton Sector Swelled 33 Percent in 2017-18

Government subsidies to the global cotton sector, including direct support to production, border protection, crop insurance subsidies and minimum support price mechanisms, rose significantly in the 2017-18 season.

These supports are intended to create stability in prices, acting as a buffer against swings in supply and demand. They also act as a competitive agent in a sector that is subject to global trade swings and natural elements.

Ten countries’ governments provided a combined $5.9 billion in subsidies to their domestic cotton industries, an increase of 33 percent over the 2016-2017 total of $4.4 billion, according to the 2018 “Production and Trade Subsidies Affecting the Cotton Industry” report from the International Cotton Advisory Committee (ICAC).

Those subsidies averaged 18 cents per pound, up from 17 cents per pound the year before, ICAC said. The report noted that the 2017-2018 season broke the long-term trend of subsidies decreasing when prices are strong.

Since the ICAC began tracking government support in cotton in 1997-1998, trends have shown that subsidies decline when prices are high and increase when prices are low. When cotton prices increased from 70 cents per pound in 2015-2016 to 83 cents per pound in 2016-2017, for example, subsidies decreased. When prices jumped again to 88 cents per pound in 2017-2018, however, subsidies continued to increase.

The share of world cotton production receiving direct government assistance, including direct payments and border protection, increased from an average of 55 percent between 1997-98 and 2007-08 to an estimated peak of 83 percent in 2008-09. In between, it wavered. From 2009-2010 through 2013-2014, this share declined and averaged 48 percent. In 2014-2015 and 2015-2016, the average percentage of production receiving direct assistance increased to 75 percent. That number then declined to 47 percent in 2016-2017 and 2017-2018.

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In some countries, including major growers Brazil, Pakistan and India, minimum support price programs were not triggered last season because market prices were above the government intervention price levels during most of the season, the report noted.

The Chinese government supports cotton production by controlling cotton import volumes and values, and by applying border protection measures based on quotas and sliding scale duties, with an effective tariff of 40 percent on cotton imported without a quota, ICAC noted. China also maintains a strategic reserve of cotton, serving as a national buffer stock.

When there is a shortage of cotton, China releases some from the reserve, and replenishes the reserve in times of abundance, and this method supports prices. Since 2014-2015 there have been no purchases by the government into the reserve. Instead, China paid direct subsidies to cotton growers on top of the border protection benefits.

China also pays growers a subsidy of roughly $150 million a year for using high-quality seeds. During the past several seasons, China provided subsidies estimated at about $150 million per year for the transportation of cotton from Xinjiang to mills in eastern and southern China. The sum of all subsidies provided by the Chinese government are estimated at $4.3 billion, or 33 cents per pound, in 2017-2018, up from $3.3 billion, or 30 cents per pound, the prior year.

In the U.S., 2017-2018 was the last season of the five-year farm bill, under which Direct Payment, Countercyclical Payment and Average Crop Revenue Election programs were repealed. Upland cotton was eligible for the Stacked Income Protection Plan (STAX). A new farm bill is now being negotiated.

Total subsidies provided under STAX in 2016-2017 were estimated at $74 million, while 2017-2018 STAX subsidies were estimated at $105 million. In addition, the U.S. government provides support to cotton production through subsidized crop insurance to protect producers against crop yield and revenue losses caused by natural disasters. During the previous season, cotton insurance subsidies were estimated at $560 million, or 5.6 cents per pound, compared with $396 million, or 4.8 cents per pound the prior year.

Adding in other government assistance programs, the sum of all types of support provided to U.S. cotton producers was estimated at $890 million, or 9 cents per pound, this past season compared to $469 million, or 6 cents per pound, the prior year.

Among other countries, total payments to cotton producers in Turkey increased to $398 million, or 22 cents per pound in 2017-2018 from $349 million, or 23 cents per pound in 2016-2017, while several countries in West Africa provided subsidies for cotton inputs, especially for fertilizers and planting seeds. In 2017-2018, Mali provided an estimated $35 million, Burkina Faso $30 million, Côte d’Ivoire $15 million and Senegal $1 million.