Cotton Program

GAO was asked to conduct a comprehensive evaluation of the cotton program, including its cost and complexity, distribution of payments, effects on producers' costs and returns, and effectiveness in enhancing U.S. cotton exports. GAO found that the cotton program has evolved over the past 60 years into a costly, complex maze of domestic and international price supports that benefit producers at great cost to the government and society. From 1986 through 1993, the cotton program's costs totaled $12 billion, an average of $1.5 billion a year. The program is very complex, with dozens of key factors that interact and counteract to determine price, acreage, and payments and to restrict imports. The severe economic conditions and many of the motivations that led to the cotton program in the 1930s no longer exist. Cotton farming has become a concentrated business, with only 20 percent of the producers growing most of the cotton. Consequently, most of the program's payments go to those producers. For most producers, domestic prices together with government payments provide revenues above the amount needed to cover their total production costs, including a return on assets. Congress may wish to consider whether benefits from the cotton program are worth its costs and whether the program should be continued. However, any reductions or changes should be made cautiously. If significant changes are made to the program, Congress may want to consider options to give producers and other affected parties time to make adjustments in their investment decisions.

GAO found that: (1) over the past 60 years, the cotton program has evolved into a costly, complex maze of domestic and international price supports that benefit cotton producers at the cost of the government and society; (2) from 1986 through 1993, the cotton program's costs totalled $12 billion and averaged $1.5 billion a year; (3) in 1993, 295 producers received payments of more than $250,000, which is the legislated amount that a producer can receive under certain farm programs; (4) revenues from domestic markets were more than sufficient to cover the producers' short-run production costs, and most of the average producers' long-run costs from 1986 through 1993; (5) USDA efforts to enhance cotton exports have not been effective despite federal efforts to assist exporters and producers through marketing loans and step 2 payments; (6) U.S. cotton exports are not beneficial because production costs and government payments, taken together, are consistently higher than the adjusted world price; and (7) it may be more difficult in the long-run for the United States to subsidize cotton exports while also supporting cotton prices under the loan program.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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