|
The Farm Security and Rural Investment Act of 2002 (2002
Farm Act) provides cotton producers access to direct payments,
counter-cyclical payments, and marketing loan benefits.
In addition, many producers benefit from subsidized crop
and revenue insurance available under previous legislation.
Cotton producers also benefit indirectly from programs
that increase cotton use through promotion and trade liberalization.
Farmers are given almost complete flexibility in deciding
which crops to plant. Participating producers are permitted
to plant all cropland acreage on the farm to any crop,
with some limitations on planting fruits and vegetables.
The land must be kept in agricultural use (which includes
fallow), and farmers must comply with certain conservation
and wetland provisions.
Below is general information on government programs
affecting cotton producers' management decisions and
incomes. For
further information, visit the Program
Provisions section in the Farm and Commodity Policy
briefing room.
Direct and Counter-Cyclical Payments
Under the 2002 Farm Act, owners
of farms had a one-time opportunity to select a method—based on historic
production—for determining base acreage for both
direct and counter-cyclical payments. The 2002 Farm Act
set payment acreage at 85 percent of base acreage. Payment
yields for direct payments remained at the levels specified
by the 1996 Farm Act. For counter-cyclical payments,
farmers could update their payment yields at the same
time they initially enrolled. To receive payments, owners
have to enroll annually. Farmers will receive their direct
and counter-cyclical wheat payment each year regardless
of the crop planted on their cropland that year.
Direct decoupled payments are available
for eligible landowners and producers of upland cotton
who enter into an annual agreement. The amount of the
direct payment is equal to the product of the payment
rate, payment acres, and payment yield. The 2002 Farm
Act sets the payment rate for upland cotton at 6.67
cents per pound for crop years 2002-07.
Counter-cyclical payments are available
to contract holders whenever a program crop's target
price is greater than the effective price. Target prices
for crop years 2002-07 are specified in the 2002 Farm
Act. The upland cotton target price is 72.4 cents per
pound. The effective price is equal to the sum of 1)
the direct payment rate for the commodity, and 2) the
higher of the national average farm price for the marketing
year or the national loan rate for the commodity. The
minimum effective upland cotton price is 58.67 cents
per pound—the sum of the direct payment (6.67 cents)
and the loan rate (52.00 cents). The maximum payment
rate for upland cotton is 13.73 cents per pound—the
target price (72.40 cents) minus the minimum effective
price (58.67 cents). The payment amount equals the product
of the payment rate, payment acres, and the counter-cyclical
payment yield.
For further information on acreage base, payment acres,
and payment yield for calculating direct and counter-cyclical
payments, as well as conservation requirements, visit
the Program
Provisions section in the Farm and Commodity
Policy briefing room.
Marketing Assistance Loans and Loan Deficiency Payments
The marketing assistance loan program is designed to
assist producers when market prices are low. The program
allows producers to repay nonrecourse commodity loans
at a rate less than the original loan rate plus accrued
interest, when the adjusted world price (AWP) for upland
cotton (as calculated by USDA) is below the loan rate.
The payment rate under the program is the difference
between the AWP and the national average loan rate.
Loan rates are established in legislation, with the
upland cotton loan rate fixed at 52.0 cents per pound
for crop years 2002-07.
The 2002 Farm Act extends nonrecourse commodity loans
with marketing loan provisions, but eliminates the requirement
that producers enter into an agreement for direct payments
in order to be eligible for loan program benefits. All
current upland cotton production is eligible. Farmers
can receive government payments in two ways: marketing
loan gains (MLG) or loan deficiency payments (LDP). A
MLG occurs when producers repay their nonrecourse commodity
loans to USDA's Commodity Credit Corporation (CCC) at
a rate less than the loan rate. The difference between
the loan rate and the repayment rate is the MLG. Alternatively,
producers can opt to forego placing the commodity under
loan and receive an LDP when the AWP is below the national
loan rate. The difference between the AWP and the loan
rate is the LDP.
For details on marketing assistance loans, MLGs, and
LDPs, visit the Program
Provisions section in the Farm and Commodity
Policy briefing room.
The loan rate for extra-long staple (ELS) cotton is fixed
at 79.77 cents per pound for crop years 2002-07. Unlike
upland cotton, however, repayment rates for ELS marketing
assistance loans are equal to the established loan rate,
plus interest.
Special
Program Provisions for cotton are also included
in the farm legislation with the aim of keeping U.S.
cotton
competitive on the world market.
Payment Limits and Commodity Certificates
The 2002 Act sets the payment limit for direct payments
at $40,000 per person and for counter-cyclical payments
at $65,000. Marketing loan benefits (MLGs and LDPs) are
limited to $75,000 per person. Producers with an adjusted
gross income of more than $2.5 million (averaged over
3 years) are not eligible for payments unless more than
75 percent of the adjusted gross income is from agriculture.
The three-entity rule is maintained. Under this rule,
an individual farmer could receive up to twice the payment
limit per year applicable for direct payments, counter-cyclical
payments, and marketing loan gains on three separate
farming operations (a full payment on the first operation
and up to a half payment for each of the two additional
entities).
Authority for commodity certificates is retained. Commodity
certificates can be purchased at the prevailing AWP.
The certificates are available for producers to use
immediately in acquiring crop collateral pledged to
CCC for a commodity loan. For producers facing program
payment limits, this provides an opportunity to benefit
from the lower loan repayment rates.
Crop and Revenue Insurance
Adverse weather, as well as insect and weed infestations,
can reduce a farmer's yields and result in below-normal
revenue in any year. Low prices can also reduce revenue.
Cotton producers can purchase crop insurance to guard against
yield risk, and can buy revenue insurance for protection
against yield and revenue losses. USDA's Risk
Management Agency pays a portion of producers' premium costs for insurance
policies and also pays some of the delivery and administrative
costs of private insurance companies that handle policy
sales.
Export Programs and Policies
Export programs administered by USDA's Foreign
Agricultural Service (FAS) help promote U.S. cotton in foreign markets.
These programs include the Export Credit Guarantee Programs,
the Market Access Program, the Foreign Market Development
Program, and the Emerging Markets Program.
The
Export Credit Guarantee Programs (GSM-102 and GSM-103)
allow commercial financing of U.S. agricultural exports.
Export credit guarantees are designed to help foreign
importers facing foreign exchange constraints and needing
credit to purchase commodities. The CCC does not provide
financing, but guarantees payments due from foreign banks,
which allows U.S. financial institutions to offer competitive
credit terms to foreign banks. The GSM-102 program covers
private credit extended for up to 3 years, while GSM-103
covers private credit extended for 3-10 years. In essence,
the credit programs assure U.S. exporters that they will
be paid.
The
Market Access Program (MAP) aids in the creation,
expansion, and maintenance of foreign markets for U.S.
agricultural products. MAP forms partnerships between
USDA's CCC and nonprofit trade associations, cooperatives,
trade groups, or small businesses to share the cost of
overseas marketing and promotional activities. MAP partially
reimburses program participants for these activities,
which include consumer promotions, market research, trade
shows, and trade servicing.
The Foreign
Market Development Program, also known as the Cooperator
Program, aids in the creation, expansion, and maintenance
of long-term export markets for U.S. agricultural products.
The program enlists private sector involvement and resources
in coordinated efforts to promote U.S. products to foreign
importers and consumers around the world. CCC funds are
used to partially reimburse cooperators conducting approved
overseas promotion activities.
The Emerging
Markets Program uses various forms of technical assistance
to promote market development, to improve market access,
or to assist in the development of emerging market economies.
CCC funding is provided on a cost-share basis to U.S.
agricultural and agribusiness organizations for these
purposes. The program is not targeted at end-use consumers,
but rather complements other marketing programs administered
by USDA.
For more details on these and other export programs,
visit the Program
Provisions section in the Farm and Commodity Policy
briefing room. The FAS
website also provides Export
Program information.
Environment and Conservation Programs
The 2002 Farm Act expands funding for all conservation
programs and significantly increases support for conservation
practices on both cropped and fallowed land. Programs,
such as the Environmental Quality Incentives Program
and the new Conservation Security Program, provide assistance
on lands in production. Land retirement programs—including
the Conservation Reserve Program, the Conservation Reserve
Enhancement Program, the Wetlands Pilot Program, and
the Wetlands Reserve Program—remove
land from production.
For details on environmental and conservation programs,
visit the Conservation
Policy briefing room.
|
