Traditional farm programs have served cotton– and other commodities – well over the decades. But the National Cotton Council says the new federal budget realities mean it may be time for a change.

In a series of meetings over the last month, Cotton Council leaders and staff have been working on a new direction for the cotton program that would incorporate “an affordable, revenue-based crop insurance program” in place of the current payment-based farm bill provisions.

In a statement released last week, the NCC said it believes the combination of the decades-old marketing loan, Direct Payments and Counter-cyclical Payments as structured in the 2008 farm bill has served the cotton industry well and, in recent years, has required minimal federal outlays.

“However, it is clear that future deficit reduction efforts will place unprecedented pressure on the existing structure,” the NCC said. “The Budget Control Act reinforces the severe funding constraints facing not only U.S. cotton, but all of agriculture.”

Funding slashed

The Budget Control Act is the legislation passed on Aug. 2 and signed by President Obama that sets a goal of reducing federal spending by $1.2 trillion over the next 10 years. The legislation creates a Joint Select Committee or “Super Committee” that is charged with submitting budget reduction recommendations by Dec. 2.

If the committee fails to reach all of the Budget Control Act’s goal, Congress must begin the process of sequestration or across-the-board budget cuts that reach the reduction targets beginning in January, 2012.

“Deficit reduction will lower the baseline funds available to upland cotton, and simply downsizing the current program structure would likely undermine the effectiveness of the programs to the extent that alternatives must be evaluated to ensure growers have access to the most effective safety net,” the Council statement said.

Besides dealing with the prospects for sharply reduced funding, it noted, the cotton industry faces another unique challenge in that it must continue to work with Congress and the administration to resolve the WTO case Brazil brought against the U.S. cotton program.

Board position

During its mid-year board meeting in Albuquerque, the NCC’s board of directors’ voted to recommend an adjustment to the current farm program to include a new revenue-based crop insurance program and a modified marketing loan that would be adjusted to satisfy the Brazil WTO case.

The new crop insurance program, which has been labeled STAX for Stacked Income Protection Plan, would address “shallow” revenue losses on a county-wide or area-wide basis with producer premiums offset to the maximum extent possible using available cotton program spending authority.

Under the Congressional Budget Office’s current projections, spending for the cotton program would drop from slightly more than $800 million in fiscal year 2011 to slightly more than $600 million if the deficit reduction target was implementing. (That’s compared to $1.2 billion for marketing loan/loan deficiency, ACRE, Counter-cyclical and direct payments in the March 2010 baseline.)

The NCC proposes that Congress would use the upland cotton, CCP, DP and ACRE baseline to fund a program that would integrate with the federal crop insurance and be delivered by the USDA Risk Management Agency.

Delta Council group

In a presentation to the Delta Council’s Farm Policy Committee in late August, NCC staffers noted that the current revenue-based crop insurance programs offer opportunities to cover deep losses but not those that occur when prices or crop yields fall below the long-term trend yields. With today’s high input costs, such shallow losses can put a grower out of business.

The STAX program would be designed to help bridge the gap between the deep losses that can ruin a farmer and the more shallow losses that can hamper his ability to repay his crop loan or build equity in his operation.

Following two-and-a-half hours of discussion, the Delta Council committee voted to endorse the STAX concept, according to Dan Branton, the Farm Policy Committee chairman.

“This new proposal is a significant departure from current policy, but it was the view of the vast majority of those in attendance that we should move to the STAX approach to gain support for a federal cotton policy which will meet the risk management challenges that accompany the rising input costs that are required in order to be a cotton farmer.”

For more information on the Delta Council discussion, go to www.deltacouncil.org.

Brazil WTO case

The revenue-based crop insurance safety net would be complemented by a modified marketing loan that would be adjusted to meet the requirements of the Brazil WTO case.

“In the opinion of the U.S. cotton industry, this structure will best utilize reduced budget resources, respond to public criticism by directing benefits to growers who suffer losses resulting from factors beyond their control and build on the existing crop insurance program,” the NCC said.

“The industry also believes the revisions will provide confidence to lenders and ensure market-oriented production decisions that ultimately serve the long-term financial health of merchandizers, processors, related businesses and rural economies.”

For more information on the National Cotton Council and its position on farm policy, go to http://www.cotton.org.