COTTON GROWERS IN LIMBO

World will be watching as U.S. tackles farm subsidies

Seasonal workers cover a stack of freshly picked cotton last fall outside of Dumas in Desha County.
Seasonal workers cover a stack of freshly picked cotton last fall outside of Dumas in Desha County.

— As Congress prepares to craft a new farm bill in the coming weeks, Arkansas cotton growers are bracing for tens of billions of dollars in cuts in the cash payments and taxpayer backed loans that they have received for years.

“The era of direct payments is over,” said U.S. Sen. Debbie Stabenow, a Michigan Democrat and chairman of the Senate Agriculture Committee.

Stabenow’s announcement, at a March hearing on commodity programs, reflected a view shared by the Obama administration and members of Congress from both parties - that the new farm bill must result in a trimmed-down agriculture budget. With many crop prices historically high and a wide budget deficit, crop-support payments are on the chopping block.

“The country simply can’t afford to pay subsidies to farmers who are already doing well,” Stabenow said.

The cuts are drawing protests from cotton farmers in Arkansas, but overseas cotton growers say the cuts are long overdue.

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Samuel Amehou, who holds the title of ambassador in Benin’s foreign ministry, said U.S. subsidies help flood the international market with cheap cotton, causing harm to his West African nation that relies on cotton for about 80 percent of its export income.

The subsidies, he said, are causing cotton-exporting Afri-can nations “to become more and more poor.”

Federal support for farmers must also be tailored to avoid criticism from foreign trading partners such as Brazil, a cotton powerhouse.

After eight years of challenges and appeals at the World Trade Organization, the Brazilians got the United States to pay $147.3 million in damages when the international organization found that three types of farm support distorted the international price for cotton.

The offending U.S. programs are counter cyclical payments made to farmers when the price of cotton drops below a pre-established mark, marketing loan payments that provide farmers cash and a minimum price on crops they have offered as collateral, and loan guarantees to foreign cotton buyers.

“It is important and relevant for us as we put together the farm bill that we are cognizant that there are a number of countries watching what we do,” said U.S. Secretary of Agriculture Tom Vilsack.

“If we don’t structure it right, they can have recourse to the WTO. It can end up resulting in retaliatory steps, which can hurt American agriculture.”

As the House and Senate agriculture committees start working on a new bill, they will use as their starting point the deliberations last fall by a budget-cutting Joint Select Committee on Deficit Reduction, the supercommittee, which failed to agree on a broad plan to reduce federal deficits.

The House and Senate agriculture committees produced a plan for the supercommittee that would have cut $23 billion from the Department of Agriculture budget over 10 years.

The plan shifted from direct payments and the federal programs that were targeted in the Brazil case toward an insurance-based roster of federal programs.

The National Cotton Council, an industry trade group, is pushing for introduction of what it calls a Stacked Income Protection Plan, which would provide insurance for farmers’ “shallow losses.”

Instead of receiving insurance payments related to large crop losses, the shallow-loss insurance would cover drops of as little as 5 percent of expected revenue.

The program would be voluntary and a large share of premiums would be paid for by the public by shifting money from current programs to the insurance plan.

“Farmers understand that agriculture is an extremely risky endeavor, but they also understand that effective risk management is the key to long-term viability,” said Chuck Coley, the cotton council’s chairman, in Senate testimony during March. “While the goal of farm programs is not to completely remove the risk associated with farming, farm programs should strive to provide opportunities for effective risk management.”

Some critics say the program would still run afoul of international trade rules, which limit the availability of insurance programs to when yields are less than 70 percent of normal.

“I wouldn’t be surprised if Brazil challenged it,” said Bill Young, chief economist for the American Farm Bureau Federation, which criticized the proposal.

Others, including the Environmental Working Group, a Washington organization that is critical of farm subsidies, said the taxpayer-backed insurance would encourage over planting or planting on land that isn’t suitable for growing cotton.

“The potential for market distortions is enormous,” said Craig Cox, the group’s senior vice president for agriculture and natural resources.

Arkansas’ U.S. Rep. Rick Crawford, a freshman Republican from Jonesboro who serves on the House Agriculture Committee, said the plan might work for cotton but wouldn’t necessarily translate to other crops.

The $23 billion in agriculture cuts proposed last fall by the House and Senate agriculture committees might be preferable to prolonged floor fights in the House and Senate that Crawford predicted could result in double the amount of cuts.

Using the WTO’s jargon that calls some subsidies “green box,” or permissible, and some “amber box,” or noncompliant, Crawford defended direct payments to U.S. farmers.

“The only thing we do that’s green-box compliant is the direct payment, and that’s in the cross hairs,” Crawford said. “It’s ironic that we’re dismantling a program that meets world trade standards to create something that maybe doesn’t.”

ARKANSAS FARMERS

Tuffy Hill, a farmer from Dumas, said that without the crop assistance his farm would go out of business.

During the peak of October’s picking season, 50-year old Hill pulled his pickup alongside one of his fields and grimaced.

Every cotton farmer in eastern Arkansas dreams of 3-foot-high drifts of snow-white plants in October. Hill’s field was showing a lot of green. Late-season rains had caused many of Hill’s cotton bolls to “hard-lock,” trapping the white fiber inside the plant.

Making matters worse, Hill was having equipment trouble. Stepping out of the pickup, he walked along the outside edge of the field - a 30-acre plot that he grew to test PhytoGen, a type of genetically modified cotton - and looked over Shane Botsian’s shoulder.

Botsian, an $85-an-hour mechanic with John Deere, was inspecting Hill’s picker, a massive contraption that strips the cotton bolls off the plant six rows at a time and deposits the fuzzy seeds into a yellow cage the size of a garbage Dumpster.

Like many other farmers in Arkansas’ Delta counties, Hill had seen cotton prices rise over the past two years and rushed to cash in.

Instead of splitting his 1,650 acres evenly between cotton and corn last year, Hill went heavily into cotton, planting it on 1,100 acres.

State farmers harvested an estimated 1,290,000 bales of cotton on 660,000 acres, according to the USDA. That’s an increase of 114,000 bales and 120,000 acres over the previous year.

But the high-price contracts didn’t guard against the early droughts, midseason flooding and late rains that Hill and the other farmers experienced.

Like most of the 15 seasons he has planted cotton, last year was a battle for Hill. He irrigated his fields once a week and defoliated the rows of cotton three times over the course of the season.

With cotton, he said, it’s difficult to break even. The expenses add up. In addition to the diesel used for the picker and irrigation system, he pays his crew of 14 workers $8 per hour. With corn, he said, he’d only need a crew of three.

Though he has paid off the $300,000 picker, he has a 30 percent interest in the nearby Winchester gin. He’s five years away from making that investment break even, he said - if his yields are strong enough.

Last year, he produced 1,200 pounds of cotton per acre.

“You never know where you’re at until it’s over, and when it’s over, it’s too late,” he said, scanning the test plot. “I’m going to be ... lucky to get 900.

“As long as prices stay at the current level, we’ll be fine,” he said. “But history always repeats itself. If they pull the plug on the government program and the price falls, we’re in deep [trouble].”

It appears that cotton’s two year highs have bottomed out. In March of last year, cotton was $2.30 a pound. Reflecting soft demand and stagnating economies in Europe, prices in December dropped to their lowest point in more than a year, to 95 cents a pound and hovered around $1 a pound in March.

J.B. Penn, chief economist at John Deere and a former USDA official, said the break even point for most U.S. cotton farmers is 40 cents a pound.

“The farm economy is as robust as it has been for the past 10 years,” said Penn, a native of Lynn in Lawrence County. “It’s never been stronger.”

But Hill’s banker, J. Michael Jones, said that despite the good times, farmers are taking longer to pay off their debts. He cited the high price of fuel, variable crop yields and the cost of a new piece of equipment, which can run up to $675,000.

Jones, president of Merchants & Farmers Bank in Dumas, said the bank historically has given farmers three years to work out their debt. But that period is now being drawn out, as producers struggle to pay off their loans.

“I don’t see anyone coming out in three years anymore,” Jones said. “It’s more like five years.”

Since 1995, Hill’s operation has received more than $5 million in taxpayer assistance, according to the Environmental Working Group, a Washington organization that would like to end subsidies.

The Environmental Working Group indicates that Arkansas cotton farmers received more than $2 billion between 1995 and 2010, making Arkansas the fifth-largest recipient of cotton support, behind Texas, Mississippi, California and Georgia.

As Congress attempts to write a new farm bill, one of those watching will be Amehou.

As Benin’s ambassador to the WTO when the negotiations were reaching a boiling point in 2005, Amehou unsuccessfully tried to get a change in U.S. subsidies that he argued were hurting farmers in Benin and the other “Cotton 4” nations - Burkina Faso, Chad and Mali.

“When the price is high, there is no trigger for the subsidies, but when the price drops again, the [U.S.] system is still there,” Amehou said. “If, in the new farm bill the U.S. complies, that means the C-4 [Cotton 4] finally will have won.”

ABOUT THE STORIES

These stories were made possible with the support of the International Reporting Project. More information is available at www.internationalreportingproject.org.

While in Benin, reporter Alex Daniels was helped enormously by Guillaume Kpako, who served as a translator and “fixer.” Andre Wanamon served as a skilled driver.

During Daniels’ preparation for the trip, he was briefed extensively by Erica Bleeg, a professor at James Madison University, who served in the Peace Corps in Benin. Bleeg put Daniels in touch with her Beninese “Mama,” Celestine Sotindjo, who made Daniels feel right at home and fixed him an enormous home cooked meal.

Front Section, Pages 1 on 04/16/2012

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