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U.S. Taxpayers Spent $264 Million in 2004 On Cotton Export Subsidies Ruled Illegal By WTO

U.S. Taxpayers Spent $264 Million in 2004 On Cotton Export Subsidies Ruled Illegal By WTO

Friday, October 26, 2007

Ken Cook and Chris Campbell [1]
June 9, 2005

U.S. taxpayers provided $264 million in 2004 to a handful of agribusiness firms through an obscure but controversial cotton subsidy program at the center of a fierce global debate over agricultural subsidies—a debate that has paralyzed international trade negotiations for the past three years. One company alone, Allenberg Cotton of Cordova, Tennessee, received almost $35 million through the program last year, and has collected more than $186 million since 1995.

The subsidy, known as the "Step 2" cotton program, was ruled illegal in March by the World Trade Organization under a largely successful legal challenge to an array of U.S. cotton subsidies that was brought by Brazil and supported by several African cotton-producing nations. Step 2 funnels taxpayer funds to U.S.-based cotton millers and exporters so they can afford to buy domestically grown cotton instead of cheaper foreign cotton. American cotton has been more expensive in recent years primarily as the result of a related, multi-billion dollar subsidy system that boosts crop prices and incomes for U.S. cotton producers.

Under the WTO's rules, Brazil's victory means the Step 2 should be terminated as early as next month. But no one expects American action by the July 1 deadline because the payments Step 2 provides to cotton millers and exporters are integral to the overall U.S. cotton subsidy system. Without "Step 2" payments, program proponents argue, cotton millers would not be able to afford cotton for domestic use and exporters would not be able to sell over-priced, subsidized American cotton overseas-a serious problem for U.S. growers, who rely on exports for 40 percent or more of their market in most years.

American officials have said that the U.S. will comply with the WTO decision on Step 2 and other cotton subsidies. But no one has said how it will do so, or when.

Terminating Step 2 won't be easy. The 2004 payments brought the 10-year cost of the subsidy to more than $2.4 billion. (Last year was the fourth most expensive for the program over that period.)

The 160 recipients of Step 2 subsidies in 2004 ranged from Allenberg Cotton Company, a Cordova, Tennessee firm that collected $34.5 million, to Payola Yarns, Inc., of Statesville, NC, which received $16.00 according to USDA records.

Table 1. The Step 2 Cotton program has paid $264 million in 2004

Rank Company City/State Total Step-2
Cotton Payments
2004
1Allenberg Cotton CoCordova, TN$ 34,574,377
2Dunavant Enterprises IncFresno, CA & Memphis, TN$ 23,885,836
3Cargill Cotton, Div of CargillCordova, TN$ 22,798,179
4Ecom USA IncDallas, TX$ 14,292,105
5Parkdale America, LLCGastonia, NC & Charlotte, NC$ 13,728,266
6Staple Cotton Coop AssociationGreenwood, MS$ 12,022,173
7Frontier Spinning Mills, Inc.Sanford, NC$ 10,234,621
8Calcot Ltd.Bakersfield, CA$ 9,896,372
9Paul Reinhart IncRichardson, TX$ 9,705,423
10National Textiles LLCWinston-salem, NC$ 9,375,518
 Top 10 Recipients in 2004$ 160,512,872
 Total Step 2 payments, 2004$ 263,922,737
 Percent Top 10 Recipients receive of total, 200461 %

Source: Environmental Working Group. Compiled from USDA data.

See Full Table for 2004

Allenberg Cotton also tops the list of subsidy recipients for cumulative payments over the past ten years, collecting more than $186 million from taxpayers over that period, followed by Dunavent Enterprises ($167 million), Cargill Cotton ($155 million), Parkdale America, LLC ($135 million) and Calcot Ltd ($113 million).

Table 2. The Step 2 Cotton program has paid $2.42 billion from 1995-2004

Rank Company City/State Total Step-2
Cotton Payments
1995-2004
1Allenberg Cotton CoCordova, TN$ 186,054,814
2Dunavant Enterprises IncFresno, CA & Memphis, TN$ 166,959,725
3Cargill Cotton, Div of CargillCordova, TN$ 154,915,538
4Parkdale America, LLCGastonia, NC & Charlotte, NC$ 135,421,863
5Calcot Ltd.Bakersfield, CA$ 113,591,332
6Avondale Mills IncSylacauga, AL$ 92,228,281
7National Textiles LLCWinston-salem, NC$ 90,259,530
8Ecom USA IncDallas, TX$ 73,394,029
9Union Underwear Company LLCBowling Green, KY$ 72,933,449
10Paul Reinhart IncRichardson, TX$ 70,985,393
 Top 10 Recipients in 1995-2004$ 1,156,743,953
 Total Step 2 payments, 1995-2004$ 2,423,864,261
 Percent Top 10 Recipients receive of total, 1995-200448 %

Source: Environmental Working Group. Compiled from USDA data.

See Full Table for 1995-2004

The vast majority of the payments go to a handful of such large recipients. For 2004, just ten of the 160 participating companies collected 61 percent of the $264 million, or about $161 million (Table 1). A total of 325 companies have participated since 1995, and the top ten among them collected 48 percent of the $2.4 billion in Step 2 subsidies paid over that period. Each of those companies received more than $70 million from taxpayers over ten years. Over 94 percent of the subsidies under the program in the past decade have been paid since 1998-some $2.3 billion (Table 2).

Brazil alleged that the Step 2 program was illegal under WTO rules because it allowed U.S. cotton producers to maintain, and even expand, their share of the world cotton market at the expense of Brazil and other cotton exporters. Brazil argued that Step 2 payments, combined with other subsidies, triggered an expansion of U.S. cotton acreage, exports and export share at a time when market signals alone would have signaled a contraction. International cotton prices had fallen below the U.S. cost of production, and the U.S. had become the world's high-cost producer.

The WTO agreed, and ruled that the Step 2 program was outright illegal under the organization's rules.


[1] Respectively, President and Vice President for Information Technology, Environmental Working Group. This analysis was made possible by a grant from the Global Development Program of The William and Flora Hewlett Foundation.

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