Cotton Industry Deal Frays As Brazilian Growers Push For Retaliation
An agreement struck last year between U.S. and Brazilian cotton producers that aimed to resolve a long-standing fight over subsidies appears to be unraveling, with Brazilian growers fearing the agreement’s terms will not be fulfilled as they anticipated and pushing Brasilia to impose trade retaliation against U.S. exports as a result.
The deal, which was reached between the Brazilian growers association ABRAPA and the National Cotton Council (NCC) in May 2013 and reported by Inside U.S. Trade, contains two critical elements. First, NCC agreed to support tweaks to a new revenue insurance program for U.S. cotton producers that is part of the pending farm bill; and second, both groups called for continuing payments by the U.S. government to the Brazil Cotton Institute (BCI).
At the time, neither side was willing to publicly discuss the terms of the monetary aspect of the deal (Inside U.S. Trade, June 7, 2013). But a May 2013 joint letter from NCC and ABRAPA made public this week shows that, under the industry proposal, the U.S. government would continue to make the $12.25-million monthly payments it has made to the BCI since 2010 under an interim settlement for another 18 months following enactment of the next farm bill.
The 2010 settlement foresees the payments terminating with enactment of the new farm legislation, which was initially expected to take place in fall 2012.
The industry proposal also calls on the U.S. to loosen the existing restrictions on how those funds are used, in order to allow the BCI to offer loans and financing to Brazilian cotton producers for their operations. Currently, the money may only be used for capacity-building and research purposes, not to help fund cotton production directly.
But as it grows increasingly clear that the U.S. government will not agree to make those payments, Brazilian cotton growers this week warned that they are no longer willing to live with the terms of the U.S. cotton industry revenue insurance program now envisioned in the pending farm bill proposals, which is called STAX.
In a briefing with reporters on Jan. 14, Brazilian industry representatives warned they have reached the point where they will push their government to impose the trade retaliation Brazil was entitled to after it won a World Trade Organization case challenging U.S. cotton and other agricultural subsidies.
Since 2010, the two sides have forestalled retaliation through the interim settlement, which included payments to the BCI and other U.S. policy changes. The U.S. in October of last year unilaterally cut off the payments in abrogation of the terms of the settlement, and Brazil has since then been inching toward retaliation as a result.
In meetings this week with Brazilian industry representatives, senior officials from the U.S. Department of Agriculture and the Office of the U.S. Trade Representative made clear that they do not believe they can legally continue to make the payments now, let alone after the farm bill is passed, according to sources involved in the discussions.
Welber Barral, chairman of the Brazilian Industries Coalition (BIC), of which ABRAPA is a member, stressed in the press briefing that the agreement with NCC to support the modified STAX program was contingent upon the other elements of the deal, which in addition to the continued funds transfer included cooperation efforts with NCC on issues like crop pest elimination that did not involve either government. Barral characterized the deal as a ‘single undertaking.’
In addition, he and other industry representatives stressed that another key component to the deal was reaching an agreement with NCC on monitoring the implementation of STAX to ensure that it did not, in fact, create more distortion in the world cotton market than existing U.S. programs.
That was not part of the May 2013 letter with the NCC, and Brazilian industry representatives said this week that talks toward such an agreement on monitoring broke off after spring of last year.
Also underlying the Brazilian industry’s renewed opposition to STAX as it is envisioned — which they conveyed to members and staff of the House and Senate Agriculture Committees this week in meetings — is a new economic assessment that predicts larger negative effects on Brazilian cotton growers than they had initially expected.
The study, which Brazilian industry officials declined to provide, purportedly shows that depending upon the world market price for cotton, Brazilian cotton growers would be deprived of $100 million to $600 million in income due to price suppression and depression caused by STAX, they said in the press briefing.
They also warned that it appears likely to cause more distortion in the world cotton market than existing U.S. programs, something that the Brazilian government has warned before (Inside U.S. Trade, July 20, 2012).
Certain provisions of the Senate and House farm bills – specifically, those relating to marketing loans for cotton and the so-called ‘reference price’ in STAX – were adjusted or removed in line with Brasilia’s recommendations following the NCC-ABRAPA deal last year. But many other of the aspects Brazil has found objectionable remain.
The characterization of STAX and the May 2013 agreement was disputed this week by representatives for the NCC, in a sign of how relations between the two industry associations have soured since last year. Brazilian industry representatives this week said it was their impression that the NCC had misrepresented the full scope of the deal and downplayed the importance of the continued transfer of funds.
Gary Adams, vice president of economics and policy analysis for the NCC, said in an e-mail to Inside U.S. Tradethat his organization ‘has effectively conveyed to U.S. lawmakers and government officials the extensive list of recommendations contained in the joint letter.’
‘There was never a condition that if lawmakers and officials did not accept all of the recommendations, that they should reject all of the recommendations,’ Adams added.
The NCC also said in a statement sent to reporters that it was ‘deeply disappointed and disturbed’ by remarks made by the Brazilian industry this week during the delegation’s Jan. 13-15 visit to Washington.
‘The comments by the Brazilian growers that they would support retaliation are deeply disappointing to U.S. growers who have delivered significant policy reform, supported further modifications to the cotton provisions, supported the request to expand authority to use the nearly $500 million already transferred to the BCI, and supported maintaining the Framework Agreement,’ NCC said, in reference to the 2010 interim settlement.
‘Although their comments were couched in politically correct terms like ‘single undertaking,’ it is clear the Brazilian growers simply want more money in addition to the policy reforms. It is also clear that they are willing to misrepresent the insurance program to achieve their objective,’ the group added.
Adams specifically took on the Brazilian industry’s contention that the STAX program would lead to further distortion compared with existing U.S. government subsidies.
‘We strongly disagree with the contention that STAX could be more distortive than current programs. In either the House or the Senate version of the farm bill, U.S. cotton producers will be responding to market signals when making their planting decisions,’ Adams said in the e-mail.
