The European Union (EU) produces only about 2% of world cotton production. However, EU cotton producers receive the highest subsidies per pound of cotton in the world, under the form of direct payments based on the difference between the world market price and a target price for unginned cotton. This income support is considered a form of economic assistance to Greece and Spain cotton-growing regions, which are amongst the lowest-income regions in the EU. Traditionally, EU subsidies were directly linked to the cotton area and were given to cotton producers through the ginners. A major change in the EU cotton program is expected to take effect on January 1st, 2006. Starting in the 2006/07 season, cotton producers will receive 65% of EU support as a single decoupled payment (income aid) and the remaining 35% as an area payment (production aid). This paper examines the likely impact of this policy change on future cotton production in Greece and Spain.