The Impacts of Eliminating the Direct Payments on the U.S. Cotton Market

U.S. Rep. Collin Peterson, one of the most powerful figures in Congress, has proposed taking the $5 billion per year in direct payments that crop farmers get whether prices are high or low to improve crop insurance and other programs. He also proposes in the 2012 Farm Bill to end other farm programs that pay farmers on production rather than land ownership.

The purpose of this study is to compare the effects of direct payments removal on cotton production, export, and farmer’s income.  Specifically, we study the following several scenarios: (a) total remove the direct payments in cotton; (b) use the direct payments to reduce insurance premium, which means governments pay an extra 6 cents per pound for cotton insurance premium; (c) remove all commodity programs, i.e. direct payments, counter cyclical payments and loan deficiency payments.