America's Cotton Problem

A little heralded congressional vote last week shows just how hard it will be to reform America's bloated, trade-distorting farm subsidy programs and, more generally, get the US government's insanely profligate spending problem in check.  On Friday, the US House of Representatives overwhelmingly rejected a bi-partisan amendment to the 2010 continuing budget resolution that would have ended $140 million in annual bribespayments to Brazilian - yes, Brazilian - cotton farmers.  The payoffs, which I've repeatedly blogged on, resulted from a ludicrous deal between the Obama administration and the Brazilian government to stave off Brazil's imposition of retaliatory tariffs on US exports due to the United States' refusal to amend its cotton subsidy programs so that they complied with WTO rules (the cotton subsidies had been repeatedly ruled WTO-inconsistent in dispute settlement proceedings).

Cato's Sallie James provides some good analysis (and much-needed hostility) on the amendment's failure:

Republicans -- those stalwart fiscal conservatives! -- voted 75 in favor and 164 against. The Democrats showed more courage and voted in favor of the amendment 108 to 82. (These numbers are according to C-SPAN; I will post an update if they prove to be incorrect)....

The Hill article (linked to in the first paragraph of this post) points out that some members (presumably the Republicans who voted against the amendment) were concerned that "the move [to cease the payments to Brazil] could create a trade war if Brazil decided to retaliate."  It doesn't seem to occur to those concerned members that one way to avoid a trade war would be to abide by international obligations and cease subsidizing U.S. cotton farmers. It would also shave a few million from that huge deficit about which they profess to be concerned.

Sallie's point is exactly right.  If House members are truly concerned about a trade war with Brazil, then the sane, fiscally-conservative approach is not to continue paying $140 million in Brazilian hush money but instead to eliminate the offending cotton programs (and other US farm programs that are either unnecessary or WTO-inconsistent).  That this very sensible thought didn't even register in the US Congress is a testament to just how entrenched agriculture interests are on Capitol Hill.

And unfortunately, it gets worse.

Congress' latest vote on, and apparent support for, cotton subsidies is particularly egregious given the fact that the current environment for reform is pretty much perfect.  First and most obviously, the US government is flat broke, and the new Congress has a massive new contingent of Tea Party-driven budget cutters who - one would think! - would be open to ending the Brazilian bribes and embracing significant and immediate cuts to WTO-illegal US farm subsidy programs.  Second, those bribes and the US cotton program are taking place during a period of record cotton prices and unprecedented investment in American cotton production:

[Cotton] prices hit a 150-year-high last week, more than double what it was a year ago. (What happened 150 years ago? The Civil War began, and cotton jumped to $1.89 a pound. What do you think Rhett Butler was trying to smuggle past those Union gunships?)

Also having an effect: droughts and flooding in China, Pakistan and Australia, plus restrictions on exports from India. Plus, the world’s economy looks a little better than it has in the recent past. People can afford clothes.

At the same time, the Virginia Department of Agriculture and Consumer Services announced today that cotton acreage in the state is expected to increase by nearly 27 percent, from 82,250 acres in 2010 to an estimated 105,000 acres this year. In 2007, Virginia farmers planted only 58,000 acres. The last time the state topped 100,000 acres was 2006. Part of this is smarter agriculture and innovative research. Part of it is supply and demand.

Third, the WTO's Doha Round negotiations will probably die if not completed by the end of 2011, and as Phil Levy and I wrote in December, a bold US commitment on farm subsidy cuts and cotton reforms will be essential to completing a final deal.

Given these facts, there might never be a better time than right now for cotton subsidy cuts, and yet the House - and all those new fiscal conservatives - have once again refused to address the broader cotton issue and instead prefer to continue embarrassingly paying off Brazilian cotton farmers.  Awful.

Moreover, the House's latest cotton episode reveals a far more serious problem with the future of America's inefficient, outdated farm policies and US budget-cutting efforts more generally.  If the US House of Representatives can't make some basic cuts to American cotton subsidies amidst serious budget shortfalls, a wave of new budget-conscious GOP freshmen, record high cotton prices, unprecedented private investment in American cotton, and a Doha Round on life support, then what hope is there for a serious US farm subsidy reform proposal as part of Doha or otherwise?  And if (allegedly) fiscally conservative House Republicans can't defund the WTO-illegal US cotton programs or, at the very least, stop the insanity of sending 140 million in taxpayer dollars to Brazil's farmers every year, then why should we think that they'll have the courage to tackle the much more politically-sensitive and important budget reforms that will be absolutely essential to getting our crippling budget deficit in check?

After last Friday's vote on the cotton bribes, the answers to these bigger questions don't look too promising.