FarmPolicy

August 17, 2019

Backgrounder: Cotton oilseed and the 2014 Farm Bill

Categories: Farm Bill

In December of last year, House Agriculture Committee Chairman Mike Conaway (R., Tex.), along with 100 of his colleagues, made a formal request to Secretary of Agriculture Tom Vilsack to “use legal authority provided under the 2014 Farm Bill” to provide additional federal assistance to struggling cotton farmers.

The depression in cotton prices was highlighted at a House Agriculture Subcommittee hearing in December, while earlier this year, an economist from the University of Georgia noted that cotton producers “can expect prices to remain low for their crop until worldwide demand improves.”

Specifically, Chairman Conaway requested “that the Secretary use his authority under the Farm Bill to designate cottonseed an oilseed, allowing farmers who produce cottonseed to access the same risk management tools available under the Farm Bill to other oilseed farmers.”

Reporter Rick Kelly has explained that, “If cottonseed oil is designated an oilseed, cotton growers will be eligible for federal programs that could help farmers in the event of catastrophic weather, or provide protection from losses due to commodity price drops. Canola oil and flax seed oil producers already have that safety net.

Without those federal guarantees, and with cotton prices bottoming out below 60 cents a pound, some growers are worried they won’t be able to obtain financing to plant this spring.”

Media reports subsequently indicated that Secretary Vilsack had concluded that he did not have the authority to designate cottonseed as an oilseed.

In a statement released in early February, Chairman Conaway noted that, “The Department has not only the legal authority to designate cottonseed as an ‘other oilseed,’ but the responsibility to act…”

After receiving an official denial of the cottonseed request from Sec. Vilsack, Chairman Conaway sent a letter to USDA  that included a detailed rebuttal to the Secretary’s conclusion. Chairman Conaway also noted that, “Given the increasingly dire conditions farm families face in the cotton belt and the grave consequences of failing to act, I have little choice but to continue to press for the same kind of responsible, urgent, and meaningful response that has always been taken to address emergencies impacting producers of other commodities.”

An update posted on February 24 at AgWeb (“Vilsack Explains Why Cotton Can’t Qualify for ARC/PLC”)  included this explanation from Secretary Vilsack:

“Just before the holidays, I received a request from the cotton industry to designate cotton as an ‘other oilseed’ in order to qualify for Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) payments. We examined the laws closely—the 2014 Farm Bill, the 2016 Appropriations law, and other authorities—and after close scrutiny, we determined that such a designation is not authorized under the 2014 Farm Bill. The reason is very clear: The Farm Bill expressly removed eligibility of cotton for such payments, as cotton is no longer listed as a ‘covered commodity.’ In other words, the Farm Bill intended to exclude cotton from ARC and PLC payments and USDA was provided with clear direction that it would not be included nor covered. Instead, at the request of the cotton industry, the Farm Bill created two new programs for cotton as an alternative to ARC and PLC: STAX, or the Stacked Income Protection Plan, and the Cotton Transition Assistance Program (CTAP).”

University of Illinois Clinical Assistant Professor Jonathan W. Coppess explained to me that, “So the whole reason cotton is not a covered commodity under the 2014 Farm Bill is because of the World Trade Organization dispute with Brazil over cotton support policies that date back to 2002 until 2014, about 12 years this dispute had ran. In the end, Brazil won overwhelmingly before the WTO against American cotton support policies, programs, the old countercyclical program and those sort of things.”

Mr. Coppess added that, “And so Brazil won. They then won on appeal. They then won the right to retaliate. They won on appeal on the right to retaliate against American exports. And, that got a lot of attention in 2009, 2010. Somewhere around 2010, I believe it was, USDA settled kind of a temporary agreement with Brazil to hold off on retaliation.”

“But the Secretary made it clear that the administration couldn’t change farm programs, Congress had to do it, so they basically held Brazil in abeyance, they sort of held off retaliation pending Congress rewriting the farm bill in 2014,” Mr. Coppess said.

In addition, Mr. Coppess pointed out that, “Brazil was very adamant that cotton supports be changed in the farm bill, and so they were. So you can imagine that aside from the sort of legal arguments about whether the Secretary could do this, there’s another whole set of questions about how Brazil would look at and react to this, and what that would do in the WTO situation, so it raises a lot of questions.”

With respect to the situation cotton producers are in, Mr. Coppess observed that, “The challenge is they don’t have that ARC or PLC program. Cotton does continue to have the Marketing Assistance Loan program, so they can take out loans on cotton and get LDPs or marketing loan gains. The 2014 Farm Bill did create a new insurance program just for cotton, but there is not that sort of long-term price until you get into the marketing loan situation. And that’s where they’re concerned and have had issues, which is where this has come about.”

In his explanation at AgWeb, Sec. Vilsack added that, “In addition to this assistance provided through the Farm Bill, USDA began to explore other ways to provide support to struggling cotton producers as we’ve done in the past. This has been done in two ways, historically: first, provide temporary assistance to cotton producers facing low prices through a Congressional action or, second, administratively use either Section 32 (of the Act of August 24, 1935) or Section 5 of the Commodity Credit Corporation (CCC) Charter Act to provide some level of support. Unfortunately, these administrative options have been severely limited by the law that funds the government, also called the Appropriations Act.”

At a House Ag Committee hearing on February 24, Sec. Vilsack and Chairman Conaway discussed this issue in more detail. A transcript of this portion of the hearing is available here.

Sec. Vilsack stated that, “First of all, in putting together the ARC and PLC program, there was obviously a decision to remove cotton from those programs. I think everybody acknowledges that. Within the law, essentially there’s provisions that define the opportunity for the Secretary to include additional oil seeds as crops as they evolve. That listing of other oil seeds includes a variety of other oil seeds. It includes sunflower seeds, rape seeds, canola seeds. Clearly Congress could have also included cottonseed in that list. They did not. That’s an issue.

Secondly, the industry came to us, when we were crafting the risk management program under STAX, and requested oilseed to be included in that risk management program. So those two facts—Congress didn’t include it in the list, and the industry asked us to include it in the risk management program—indicate what the intent was at the time. Now, if Congress wants to reopen the farm bill, then obviously you’ll have to deal with the issue of the cost, which I think is one of the motivating reasons why all of this was established.”

With respect to the oilseed provision, Chairman Conaway asked, “Are you arguing that the list of oilseeds included is exclusive and that you have no discretion?”

Sec. Vilsack pointed out that, “What I’m arguing is that that list and that provision is set up for oilseeds that arise during the course and between farm bills… Not seeds that have existed, Mr. Chairman, but seeds that have come up in between farm bills to allow us the flexibility.”

Going forward, Mr. Coppess of the University of Illinois explained that:

“Then the question becomes without that authority, then the only thing left would be for Congress to somehow step in and basically grant the Secretary the authority. Like they’re going to have to do something that would say, you know, in this case, you’re allowed to do it, or we’ll write cottonseed in as a covered commodity. Whether Congress would open a farm bill at this point to do that is obviously another big question.

You know, we’re still dealing with budget scenarios, so that would mean figuring out how to pay for it, you know, in a standard baseline discussion. To add something in like that that’s going to cost, that’s going to have to be paid for somewhere, so that’s another challenge.

The Brazil response clearly is another challenge; getting retaliation against American exports did not go unnoticed by the American manufacturing industry, by the intellectual property right questions that came up with cross retaliation. I mean, it opens a whole lot of that. I think everybody is realistic about what Congress could do, even in a good year, and then you add onto it this is probably not a good year, we don’t expect to see Congress do much.”

Meanwhile, an update posted on February 25 at AgWeb (“Agriculture Secretary Can Relieve Crisis in Cotton Country”) Chairman Conway noted in part that, “The Secretary argues that Congress removed cotton from Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) in the 2014 Farm Bill and, thus, his hands are tied. Here’s what Congress actually did in the 2014 Farm Bill: As a result of a WTO settlement with Brazil, Congress effectively removed cotton lint from ARC and PLC. Cottonseed has not historically been a covered commodity, and Congress never discussed adding cottonseed to the list of covered commodities. Rather, Congress left intact the Secretary’s authority to designate any oilseed as an ‘other oilseed.'”

Chairman Conway added that, “The Secretary has also argued he cannot designate cottonseed as an oilseed because the provision is reserved for ‘emerging oilseeds.’ That is also not the case. The Farm Bill defines an oilseed as ‘a crop of sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe, sesame seed, or any other oilseed designated by the Secretary.’ The Farm Bill does not restrict this authority to ’emerging oilseeds.’ The Secretary imposes this limitation on himself.”

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