By Jim Steadman
The National Cotton Council (NCC) says numerous invalid assumptions severely limit the credibility of The International Centre for Trade and Sustainable Development’s (ICTSD) recent paper entitled, “The 2014 Farm Bill and its Effects on the World Market.”
While the ICTSD described its paper – which includes a significant focus on crop insurance, including the Stacked Income Protection Plan (STAX) – as an “impartial, evidence-based assessment,” NCC President/CEO Dr. Gary Adams said the paper is very misleading and “does not capture the realities of today’s cotton market or global cotton policies. Cotton growers in the United States respond to market signals, not government programs, when making planting decisions.”
Adams said that the ICTSD report fails to accurately model current cotton policies, imposes crop insurance purchase decisions on the model that are not in line with historical experience, and inflates impacts by overestimating expected benefits from insurance.
The ICTSD report stands in contrast to a 2014 Congressional Research Service report that stated “… total indemnity payments under both STAX and any other cotton-specific crop insurance are prohibited from exceeding the value of the insured crop, thus further minimizing any potential production incentive.”
Another evaluation of the 2014 farm law’s cotton provisions conducted by the United Nations Conference on Trade and Development concluded that “… the incentives to produce cotton in the United States will be weaker than they were during previous decades.” The report also found that “… expenditures under STAX are estimated at about one eighth of the cotton subsidies paid under the 2002 Farm Bill and about one third of the subsidies paid under the 2008 Farm Bill.”
Adams said the ICTSD paper also misrepresented the marketing loan program by failing to incorporate the modifications of the upland cotton marketing loan included in the 2014 farm law.
“Under low price scenarios, the report does not allow the marketing loan rate to adjust lower as dictated in current legislation,” Adams said.
Adams said the ICTSD report exaggerates crop insurance usage and inflates crop insurance benefits. For example, for the 2015 crop year, approximately 25% of cotton acreage is covered with a STAX policy – far below the author’s 100 percent assumption. The authors also calculate expected net indemnities of $734 million for STAX (with a $0.70 per pound futures price) – which is 2.4 times larger than the Congressional Budget Office’s estimate of $300 million.
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