Farm Bill Primer: Support for Cotton

Farm Bill Primer: Support for Cotton

August 17, 2022
Farm Bill Primer: Support for Cotton
Title I of the Agriculture Improvement Act of 2018 (2018
The statutory MAL rate for ELS cotton is $95/cwt. The
farm bill; P.L. 115-334) reauthorized commodity support
LDP program provides payments in lieu of executing a
for domestic producers of cotton for the 2019-2023 crop
MAL loan to farmers who are eligible to receive MAL price
years. Titles I and XII of the 2018 farm bill reauthorized
support. MAL and LDP support for cotton is in addition to
support for domestic users of cotton for various periods that
ARC and PLC (or STAX) support.
do not align with crop years. Although U.S. farm policy has
included support for cotton producers since the 1930s, the
MALs and LDPs are available for upland cotton as well as
2018 farm bill restored certain commodity support
other commodities. However, ELS cotton is eligible only
previously eliminated in the Agricultural Act of 2014 (2014
for MALs. Loans for upland cotton may be repaid at the
farm bill; P.L. 113-179). Since 2002, all enacted farm bills
lesser of the loan rate plus interest or the adjusted world
have included support payments for cotton users.
price for cotton. The U.S. Department of Agriculture
(USDA) determines adjusted world prices. Upland cotton
The United States is the world’s third-largest cotton
loans may also receive credits for storage costs incurred.
producer and the leading cotton exporter, accounting for
nearly one-third of global trade in raw cotton. Imports
Support for Cotton Users
constitute less than 1% of domestic textile mill usage.
The 2018 farm bill authorizes three programs that make
Between 2000 and 2020, U.S. cotton production decreased
payments to cotton users. The Economic Adjustment
by more than 15%, and U.S. textile mill usage decreased by
Assistance for Textile Mills (EAATM) program makes
more than 80%.
monthly payments to domestic cotton mills, as authorized
by the 2018 farm bill in Section 1203(b). The payment rate
Support for Cotton Producers
is $0.03 per pound of cotton used, including U.S.-grown
The 2018 farm bill authorizes support for seed cotton—the
and foreign-grown cotton. Payments must be used for
unginned bolls containing cotton lint and cottonseed—and
capital investments that contribute to domestic
two types of cotton lint used for fiber manufacturing:
manufacturing of upland cotton.
upland cotton and extra long staple (ELS) cotton. U.S.-
grown ELS cotton is also referred to as Pima cotton.
Section 1204 of the 2018 farm bill reauthorizes the ELS
Cotton Competitiveness Payment program, which makes
Producers of seed cotton—including upland and ELS
payments to mills that use ELS cotton and to exporters of
types—may be eligible to receive income support from the
ELS cotton. Payments are triggered when the adjusted
Price Loss Coverage (PLC) and Agriculture Risk Coverage
world price for ELS cotton is less than the domestic price
(ARC) programs. PLC provides payments to producers
for four consecutive weeks and the lowest priced
when annual average market prices decline below the
comparable foreign-grown cotton is less than 113% of the
statutory level of $36.70 per hundredweight (cwt.) for seed
MAL rate for ELS cotton of $107.35/cwt. The payment rate
cotton. ARC payments augment farm revenues during
is the difference between the domestic and adjusted world
periods of declining crop revenues. PLC cannot be
prices.
combined with ARC for the same commodity. Payments
are proportional to enrolled base acres (i.e., units of
Section 12602 of the 2018 farm bill reauthorizes the Pima
production allocated to eligible farms based on historical
Agriculture Cotton Trust Fund, which provides payments to
plantings). Farms with seed cotton base acres enrolled in
certain domestic manufacturers that use ELS cotton and to
either program are ineligible to purchase Stacked Income
associations that promote the use of ELS cotton. Trust fund
Protection Plan (STAX) coverage through the federal crop
payments are intended to compensate domestic ELS cotton
insurance program.
manufacturers from economic injuries caused by
differences in the tariff rates applied to imports of cotton
Producers of cotton lint are eligible to receive support from
fabrics and the tariff rates applied to imports of certain
the Marketing Assistance Loan (MAL) and Loan
apparel articles made from cotton fabrics.
Deficiency Payment (LDP) programs. The MAL program
provides loans to farmers when market prices are typically
Appropriations and Outlays
at harvest-time lows, allowing them to delay the sale of an
The PLC, ARC, MAL, LDP, EAATM, and ELS Cotton
eligible commodity until more favorable market conditions
Competitiveness Payment programs receive mandatory
emerge. The MAL program also provides price support to
authorizations in the farm bill of “such sums as necessary”
borrowers when market prices drop below levels specified
and are funded through the Commodity Credit Corporation
in statute. The statutory MAL rate for upland cotton is the
(CCC). The Pima Agriculture Cotton Trust Fund receives
average of the marketing year average price for the
annual transfers from the CCC of $16 million.
preceding two years, limited to a range of $45 and $52/cwt.
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Farm Bill Primer: Support for Cotton
Program outlays vary from year to year based on program
19) pandemic. These programs provided additional
enrollments and market conditions. From FY2015 to
commodity support to cotton producers and to domestic
FY2019, nominal outlays for cotton producer support
users of cotton. As of June 2022, USDA had made
averaged $292 million per year for the MAL and LDP
payments of approximately $810 million and nearly $4
programs, and cotton was not eligible for ARC or PLC
million to upland and ELS cotton producers, respectively.
payments. Beginning in FY2020, ARC and PLC payments
As of August 2022, USDA had announced funding of $80
were available for cotton in addition to MAL and LDP
million for domestic users of cotton and $50 million for
support. For FY2020-FY2021, nominal outlays for cotton
domestic users of cotton and/or wool.
support from these four programs averaged $1.271 billion
per year. Outlays for cotton user support tend to be less
Trade actions may have also provided indirect support to
variable than outlays for producer support. Between
U.S. cotton producers. In January 2021, the Trump
FY2015 and FY2021, nominal outlays for cotton user
Administration imposed sanctions prohibiting imports
support have ranged from $53 million to $68 million.
containing cotton grown in the Xinjiang Uyghur
Autonomous Region of China. The Uyghur Forced Labor
Changes to Cotton Producer Support in
Prevention Act (P.L. 117-78) prohibiting imports of goods
the 2014 and 2018 Farm Bills
manufactured using forced labor—including goods
Prior to 2014, upland cotton producers were eligible for
containing cotton—went into effect on June 21, 2022.
commodity support from Title I commodity programs,
These prohibitions may increase global demand for cotton
including the MAL and LDP programs. The 2014 farm bill
grown outside of China, including U.S.-grown cotton.
retained the MAL and LDP programs, repealed the other
programs, and created ARC and PLC. The 2014 farm bill
Issues for Congress
also created STAX coverage for cotton producers. When
U.S. cotton exports have increased by 130% since 2000.
Congress created ARC and PLC, it excluded upland cotton
Declining domestic use of cotton—driven by competition
as an eligible commodity for ARC and PLC in response to a
from foreign textile manufacturers and domestic use of
World Trade Organization (WTO) dispute settlement case
other fibers—contributed to the increase in exports.
with Brazil. Upland cotton producers were able to receive
Changes to U.S. trade policy that increase demand for U.S
ARC and PLC payments if they planted other eligible
cotton exports may also lead to higher domestic cotton
crops. Cotton producers received more than $1 billion in
prices, potentially reducing future ARC and PLC payments
ARC and PLC payments for eligible crops for the 2014-
relative to current USDA baseline projections.
2016 crop years. Upland cotton producers also received
$484 million in transition assistance payments for the 2014
The 2018 farm bill restored commodity support for cotton
and 2015 crop years.
that had been eliminated in the 2014 farm bill. Some
economists have argued that this decision exposed farm bill
The Bipartisan Budget Act of 2018 (P.L. 115-123)
programs to the risk of future challenges under WTO rules
authorized ARC and PLC support for seed cotton. The 2018
for domestic support programs, although to date no WTO
farm bill continued ARC and PLC support for seed cotton,
challenges have been lodged. Cotton producers argued that
MAL and LDP support for upland and ELS cotton, and
additional support was needed due to high production costs
repealed the upland cotton transition assistance payments.
and price declines after 2011. Since 2018, ad hoc assistance
programs have provided additional support to cotton
Non-Farm Bill Support for Cotton
producers—at times exceeding the support provided by
The Secretary of Agriculture has taken measures, outside of
farm bill programs. Starting in 2021, U.S. cotton prices
the farm bill programs, to support upland and ELS cotton
increased above their 10 year averages. In 2021, national
producers. In 2018, the Secretary of Agriculture used CCC
average cotton returns per planted acre—net of production
authorities to provide payments to upland and ELS cotton
costs and before government payments—were the highest
producers for the 2016 crop year under the Cotton Ginning
since the start of recordkeeping in 1997. In a future farm
Cost Share program. The Congressional Budget Office
bill, Congress may consider the appropriate level of support
estimated that program outlays would be approximately
for cotton producers and whether the mechanisms for
$227 million.
support are consistent with U.S. commitments to the WTO.
In 2018 and 2019, the Secretary of Agriculture used CCC
For additional background, see the following CRS reports:
authorities to provide payments through the Market
Facilitation Program (MFP) to offset damages to producers
 CRS Report R45730, Farm Commodity Provisions in
from certain retaliatory tariffs. The 2018 program provided
the 2018 Farm Bill (P.L. 115-334)
nearly $8.2 billion in payments for nonspecialty crops,
including $484 million for upland and ELS cotton
 CRS Report R45143, Seed Cotton as a Farm Program
production. The 2019 program provided more than $13.5
Crop: In Brief
billion in payments for nonspecialty crops. USDA has not
 CRS Report R43494, Crop Insurance Provisions in the
released data on the total payments made to cotton
2014 Farm Bill (P.L. 113-79)
producers in 2019.
 CRS Report R44606, The Commodity Credit
Since 2020, USDA has created additional farm support
Corporation (CCC)
programs using funds appropriated by Congress and the
CCC to respond to the Coronavirus Disease 2019 (COVID-
Stephanie Rosch, Analyst in Agricultural Policy
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Farm Bill Primer: Support for Cotton

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