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Correction to This Article
Earlier versions of this story had an incorrect date for the international trade agreement limiting cotton subsidies. The correct date is 1994. This version has been corrected. The original version of this story is available here.
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An End to Days of High Cotton?

Efforts to pare back agricultural subsidies generally have gone nowhere because of the farm lobby's immense grass-roots influence.

But this year, strong pressure for change is coming from fiscal conservatives at the White House and in Congress, who insist that the farm sector contribute to deficit reduction.

Scott Rogers, shown at a farm show in Tulare, Calif., is among cotton growers who defend subsidies as needed to make up for depressed world prices. (Gary Kazanjian -- AP)

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An even bigger factor may be free traders in the business community and the administration who view farm subsidies as an impediment to new trade deals benefiting U.S. companies abroad. Developing countries contend that bloated U.S. farm subsidies encourage agricultural surpluses and depress prices for farmers, such as struggling cotton producers in poor West African nations. They are demanding changes in U.S. farm policy as a condition for a new round of trade agreements.

Oxfam, a global antipoverty organization, has endorsed Grassley's push for subsidy cuts. "We speak for folks who live on less than a dollar a day," said Charles Moore, an Oxfam official.

Although the Bush administration defended U.S. cotton subsidies before the WTO appeal board in Geneva, Thursday's decision could strengthen the administration's hand in Congress. But trade officials say that even if Congress adopted the Bush recommendations, subsidies would not be cut to the level needed to meet the WTO's ruling.

Another force behind reducing farm subsidies is the Republican Party's small but potent populist wing in Congress that has been fighting for revisions to channel more of the subsidy money to smaller farms and conservation programs.

"I think the measure of the seriousness is this: The president is willing to take it on. This is real stuff," said Grassley, who has introduced payment-limit legislation with Sen. Chuck Hagel (R-Neb.).

Agriculture Secretary Mike Johanns, former governor of the major farm state of Nebraska, said one reason the administration came to believe that subsidies should be limited is that "very large sums of money were going to a very few."

Two-thirds of the nation's 2.1 million farmers receive no subsidies, either because the crops they grow are not eligible or because they are too small and marginal to qualify. In the case of cotton, the proportion of federal aid going to large operators is unusually lopsided. One percent of those receiving subsidies collected 28 percent of the money paid out between 1995 and 2003, according to the Environmental Working Group. In Mississippi, seven farms out of 10 receive no subsidies.

Nevertheless, large cotton farmers say they need the aid to cover high costs and compensate for depressed world prices.

About $16 billion of the $103 billion in farm subsidies paid out between 1995 and 2004 went to cotton growers, according to the Environmental Working Group. But in the past several years, the cotton industry has become the largest recipient, according to USDA figures, because the aid increases as world prices drop.

"It would put us out of business not to have these subsidies because the price is so low the farmer can't get a fair return," said Ellington F. Massey, a third-generation Mississippi farmer who grows cotton on 7.3 square miles of rich Delta soil east of the Mississippi River. "We're always one year away from going broke," he said of his 4,500-acre spread.

The decline of the U.S. textile industry has forced cotton farmers and merchants to find buyers abroad for two-thirds of their annual production. That puts them in direct competition with lower-cost growers in developing nations, including some of the poorest in Africa.

It costs an average 65 cents for a farmer in the United States to produce a pound of cotton; the adjusted world price in late February ran less than 40 cents. This has made U.S. cotton growers unusually dependent on the government. A program called "Step 2" essentially subsidizes cotton exports and protects home producers from foreign competition.

Step 2, which has cost taxpayers more than $2 billion since 1990, pays a rebate to textile mills that buy U.S. cotton when foreign cotton is cheaper. Brokers who sell U.S. cotton abroad for less than what they paid at home can get the government to reimburse them for the difference.

By taking advantage of a raft of federal subsidies and legal loopholes, cotton farmers can boost their income to more than 70 cents a pound -- double the recent world price. Given this dependence, the stakes for the cotton industry in the coming battle are high. Without the safety net, some analysts contend, many of the 25,000 U.S. cotton growers would switch to crops such as soybeans or vegetables or quit farming.

Cotton's benefits, however, are actively defended in Washington. The political fund of the National Cotton Council distributed $332,000 to a mix of 124 Democratic and Republican congressional candidates in the recent election.

The council, which says it represents a "dirt to shirt" coalition of 443,000 farmers, gins, merchants, textile mills and warehouse operators, has a long history of prevailing on Capitol Hill. Cotton interests helped block a tough payment limitation in 2002. They were led by A. John Maguire, the top Washington lobbyist for the National Cotton Council, who Combest said "has been a key player in every farm bill I've been associated with over the last 20 years."

But Grassley has made clear that cotton lobbyists have a tough fight this year.

"We have a farm program for two reasons, and cotton doesn't fall into either. One is food security for the American people and the other is national defense," Grassley said. "Napoleon said an army moves on its stomach. I can't eat cotton."

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