United States
In the past two years, the United States has implemented the 2018 Farm Bill. Under the bill, cottonseed is included among the commodities covered by Price Loss Allowance (PLC) and Agricultural Risk Allowance (ARC).
The 2018 Farm Bill cancels the link between the basic area subsidy and yield in the 2014 Farm Bill. U.S. cotton producers continue to receive policy support through the marketing loan program and crop premium subsidies. .
The Agricultural Risk Subsidy (ARC-CO) provides income subsidies based on the difference between actual income and benchmark income at the county level. Farmers with basic area can choose ARC subsidy or PLC subsidy. The premise for the issuance of ARC-CO subsidies is that county-level seed cotton income is lower than the county-level seed cotton benchmark price of ARC-C0, which is calculated using the moving average of county-level yields and national prices in the past five years. ARC-CO subsidy is calculated based on 85% of the farm’s benchmark area when the actual county-level income is lower than 86% of the county-level target income, and the total amount does not exceed 10% of the target income.
Price loss subsidies (PLC) are similar to the countercyclical subsidies in the 2008 Farm Bill and have been implemented since the 2014 Farm Bill. When the annual average price of seed cotton is lower than the fixed price, owners with basic area can receive this subsidy. The annual average seed cotton price is the weighted average of upland cotton spot and cotton seed prices. The PLC price loss subsidy for seed cotton took effect in the 2018 Farm Bill. The subsidy’s reference price is 36.7 cents/pound and the base price is 25 cents/pound. To calculate the seed cotton subsidy, a subsidy coefficient is developed: the historical lint cotton yield per unit area of the base area is multiplied by 2.4, and the subsidy is paid when the reference price exceeds the annual average price and the floor price.
In 2018/19 and 2019/20, most of the basic seed cotton area in the United States was subsidized by PLC. PLC/ARC subsidies for seed cotton cannot exceed the subsidy limit of US$125,000 for all products (except peanuts), and the adjusted total income is still US$900,000. The total PLC/ARC subsidy in 2018/19 was US$371 million, which increased to US$1.13 billion in 2019/20 due to falling cotton prices.
The Marketing Assistance Loan Program (MALP) provides marketing loan subsidies for upland cotton based on international cotton prices, which are the simple arithmetic average of the adjusted world prices (AWP) of the previous two years. (announced on October 1 every year), but the MALP of the benchmark grade cotton cannot be lower than 98% of the previous year’s loan subsidy. In addition, loan subsidies cannot be lower than 45 cents/pound or higher than 52 cents/pound. Under the MALP program, upland cotton farmers can receive loan top-up subsidies (LDP), certificate exchange proceeds or sales loan subsidies (MLG). Proceeds from the commodity’s certificate exchange and sales loan subsidies provide growers with benefits that allow them to repay short-term loans at the AWP price when the market price is lower than the loan price. If farmers choose not to redeem their commodities, they can receive the same benefits as LDP, which is a direct subsidy for the difference between the market price (AWP) and the loan price. There was no LDP subsidy for upland cotton in 2018/19, and the MLG subsidy was approximately US$1 million. In 2019/20, LDP subsidies totaled US$14.6 million, and MLG subsidies reached US$200.4 million.
The U.S. government also provides support to cotton farmers through crop insurance to compensate for losses in yields and income. This type of compound crop insurance covers yield declines caused by certain causes, such as weather, insect damage, and fire, but does not include human management neglect. The insurance is sold to cotton farmers through private insurance agencies, with the USDA Risk Management Agency subsidizing a percentage of the premium. Overall, crop insurance policies cover more than 90% of the cotton-growing area.
Crop insurance subsidies are statutory, require reasonable actuarial calculations, and insurance rates are fixed so that the total premium can cover all compensation. Underwriting profits and losses are shared between private insurance companies and the government in accordance with reinsurance agreements between them. In 2019/20, cotton crop insurance subsidies totaled $634 million, down from $669 million in 2018/19.
The STAX insurance plan is also managed by the Risk Management Bureau of the United States Department of Agriculture. There are subsidies in 2018/19 and 2019/20. It has seed cotton registered under the ARC/PLC plan in that year. Except for farms with basic area. STAX provides premium subsidies to upland cotton farmers when they purchase insurance that covers a small loss of income (below standard crop insurance levels). Cotton farmers can use this subsidy alone or in conjunction with existing crop insurance. Under the STAX program, counties will receive this subsidy if actual county revenue is less than 90% of expected revenue. The subsidy range provided by STAX is 10-30% of expected income, and cotton farmers can choose an incremental subsidy of 5%. The federal government subsidizes approximately 80% of premiums.
In 2018/19, the total amount of STAX subsidies was US$141 million, and in 2019/20 it was US$35 million. Most STAX subsidies are used in conjunction with other standard crop insurance.
In addition, the federal government provides administrative and operational subsidies to private insurance companies participating in crop insurance. In the second week of February 2020, U.S. long-staple cotton subsidies took effect for the first time in ten years, equivalent to 6 cents/pound. The long-staple cotton subsidy provides subsidies to exporters and domestic Pima cotton users, provided that the average foreign quoted price is lower than that of U.S. Pima cotton for four consecutive weeks, and the adjusted foreign price is lower than 113% of the current year’s U.S. long-staple cotton loan subsidy. In 2019/20, US long-staple cotton subsidies were US$7.9 million.
Total of crop insurance subsidies, LDP, MLG, STAX, long-staple cotton and PLC/ARC subsidies, the total amount of various subsidies in the United States in 2019/20 was US$2.02 billion, higher than in 2018 /$1.2 billion in 2019.
India
The premise for the implementation of India’s minimum support price policy is that the market price is lower than the MSP, which is achieved through direct acquisition by CCI. CCI will sell the purchased cotton to textile mills or exporters, sometimes at a loss, with the government footing the bill.
In 2018/19, the MSP (seed cotton price) of India’s S-6 increased significantly from 4,270 rupees/quintal to 5,400 rupees/quintal. In 2018/19, CCI purchased 181,900 tons of seed cotton. Sales in 2018/19 resulted in CCI losing $46 million, all of which was borne by the Indian government.
In 2019/20, India’s MSP continued to increase to 5,500 rupees/quintal. CCI purchased a total of 1.79 million tons, the highest in the past five years, accounting for more than one-third of the total output that year. In 2019/20, the Maharashtra Cotton Growers Marketing Association of India (a branch of CCI) purchased approximately 340,000 tons at MSP prices. Based on MSP and market prices, the entire loss of CCI acquisitions in 2019/20, approximately US$590 million, will be fully borne by the Indian government, equivalent to an output of 4.4 cents/lb.
In addition, Indian cotton farmers also enjoy debt forgiveness and fertilizer subsidies. The government also provides crop insurance subsidies, but the exact figure is unknown. The Indian government also provides support to cotton production through other projects and programs, such as infrastructure reduction for cotton seed production and marketing. In recent years, the Indian government has also provided support for upgrading ginners and processing companies and promoting cotton sales. These plans and projects have not been publicly released. It is reported that the Indian government has established direct support and soft loan projects for the textile industry.
Turkey
The government pays insurance premiums for seed cotton. In the past, the government paid higher premiums for seed cotton produced from certified cottonseed than for uncertified cottonseed. The government has not provided insurance premiums for uncertified cottonseed since 2012/13. In 2018/19 and 2019/20, the eight-year premium for certified cottonseed was 0.8 lira/kg.
If 90% of Turkey’s cotton production is produced from certified cotton seeds and all cotton farmers apply for insurance premiums, ICAC estimates that the total subsidies provided by Turkey to cotton farmers will increase from 2018/ The decline from $310 million (14 cents/lb) in 2019 to $232 million (13 cents/lb) in 2019/20 was due to the depreciation of the Turkish lira and lower cotton production.
European Union
Starting from 2009/10, the European Union has revised its agricultural policy. Previously, cotton farmers received 65% of EU support in the form of a single decoupled subsidy (income subsidy), and the remaining 35% in the form of area subsidies (linked or production subsidies). Greece and Spain are the main cotton producers in the EU. The maximum area bases for production subsidies are 250,000 hectares (Greece) and 48,000 hectares (Spain). To receive this subsidy, the area must meet the following three conditions:
lAgricultural land for cotton production located within the management scope of an EU member state
lGrow authorized cotton varieties
lHarvest under normal conditions
Good quality is what can receive government subsidies and marketable cotton, the subsidy amount per hectare is calculated by multiplying the fixed reference coefficient by the fixed reference area value of each country. The specific calculation method is: the yield of seed cotton per hectare in Greece is 3.2 tons and that in Spain is 3.5 tons. The subsidy amount per hectare is 234.18 euros (Greece) and 362.15 euros (Spain).
If the area that meets the requirements exceeds the maximum benchmark area, the subsidy amount per hectare will be reduced accordingly. In 2019/20, Greece’s direct subsidies for cotton production were US$207 million, or approximately 27 cents/lb, down from US$213 million (32 US cents/lb) in 2018/19. In the 2019/20 season, Spanish cotton production subsidies were US$67 million (43.6 cents/lb), down from US$69 million (44 cents/lb) in the 2018/19 season. The reduction in subsidies was due to the appreciation of the dollar against the euro.
Colombia
In the past few years, direct government support to cotton farmers has decreased, and cotton production has declined. and the depreciation of the Colombian peso led to a decrease in total subsidies to cotton farmers. In 2019/20, Colombia’s direct subsidies for cotton production were US$890,000 (2 cents/lb).
West Africa
In 2018/19 and 2019/20, some countries in West Africa produced cotton Inputs, especially fertilizers and seeds, are subsidized. In 2019/20, the amount of cotton subsidies in West African countries is as follows: Burkina Faso US$24 million (6 cents/lb), Mali US$82 million (12 cents/lb), and Cote d’Ivoire US$38 million (8 cents/lb) ), Senegal US$2 million (14 cents/lb).
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