An analysis of alternative farm policies for cotton

Abstract

Over the last twenty years, Texas cotton acreage has ranged from 4 million to 7.8 million acres. In many years, Texas acreage represents almost half the total U.S. acreage planted to cotton. Because Texas accounts for a high percentage of U.S. acreage, production, and dollar value of cotton, U.S. farm programs that affect cotton are important to the producers in this state. The primary purpose of this study was to evaluate the effects of alternative farm programs for cotton on cotton acreage, production, and price both for the United States as a whole and for the state of Texas. To accomplish this objective, supply and demand relationships for cotton in both the domestic and international markets were estimated. The analysis of the international market was performed because the export market for cotton is extremely important in domestic cotton price determination. The estimated supply and demand equations for the international and domestic cotton market were incorporated in a fortran simulation model which was used to evaluate the effects of alternative farm programs for cotton including an extension of the current plan, the Reagan Administration's proposed farm bill, and export subsidy program. The analysis showed that the target price provision of the current farm bill is an important factor in determination of producer's cash receipts, both in Texas and in the U.S. as a whole. This program effectively buffers domestic producers from shocks to the international market system. Changes in the loan rate were found to affect domestic use, exports, CCC stocks, and government costs. Producers' incomes, however, were largely unaffected by changes in the loan rate because the target price program provided a sort of "income insurance." It was also found that, in general, programs that decrease government cost also result in lower cash receipts for producers. Compared with current policy, the Reagan administrations' proposal for the farm program would appear to substantially reduce government costs, but cash receipts to producers also decline markedly. Similiarly, a reduction in the target price, with the other provisions of current policy remaining unchanged, results in lower producer receipts as well as lower government costs.