1. World Trade Organization Impacts on U.S. Farm Policy
The Impact of U.S. Cotton Policy in the Presence of Chinese Cotton Subsidies
Presented by:
Professors Andrew Schmitz & Stephen J. Powell University of Florida, Gainesville, Florida
World Trade Organization Impacts on U.S. Farm Policy
New Orleans, LA
June 1 - 3, 2005

2. I. The Basic Model/Target Price Response

3. Target Price Response
Source: Rossi, F., A. Schmitz, and T.G. Schmitz (Forthcoming). “The Multiplicative Effect of Water Subsidies and Price Support Payments: The Case of U.S. Cotton.” Journal of International Agricultural Trade & Development.

4. II. Empirical Results/ Target Price Response

5. Combined Multiplicative Effect
Estimated Welfare Impacts of U.S. Cotton Subsidies for 2002 (U.S.$ Million)
Welfare Component
Combined Multiplicative Effect
WS + SP
Additive Effect
Difference
Producer rents
$1,988*
$1,771*
$218
U.S. consumer rents
$236
$214
$22
Slippage
$482
$426
$56
Deadweight loss
$274
$171
$103
Government cost
$2,944*
$2,582*
$362
Cost of water subsidy
$433*
$356*
$77
Net U.S. welfare loss
$756
$598
$158
Source: Rossi, F., A. Schmitz, and T.G. Schmitz (Forthcoming). “The Multiplicative Effect of Water Subsidies and Price Support Payments: The Case of U.S. Cotton.” Journal of International Agricultural Trade & Development.

6. Price Support Payments
Price Effects Comparison for Each Cotton Policy Instrument and the ME Model for 2002 (U.S. $/bale)
Description
Water
Subsidy
Price Support Payments
Multiplicative
Effects
Free-trade price
p = $247.49
pf = $247.51
Pf = $247.49
World clearing price
p* = $240.00
pc = $212.69
Pw = $201.60
Difference
$7.49
$34.82
$45.89
Source: Rossi, F., A. Schmitz, and T.G. Schmitz (Forthcoming). “The Multiplicative Effect of Water Subsidies and Price Support Payments: The Case of U.S. Cotton.” Journal of International Agricultural Trade & Development.

7. III. The Basic Model/ Loan Rate Response

8. Decoupling
Source: Schmitz, A., F. Rossi, and T.G. Schmitz. (Submitted). “U.S. Cotton Subsidies under Decoupling.” Journal of International Agricultural Trade & Development.

9. Price Change Comparisons for 2002: Coupled vs. Decoupled Models (U. S
Price Change Comparisons for 2002: Coupled vs. Decoupled Models (U.S. $/bale)
2002 ME Models
2002 SP Models
Description
Coupled
Decoupled
Free-trade price
$247.49
$227.39
$247.51
$226.74
World-clearing price
$201.60
$212.69
$215.66
Price differential
$45.89
$25.79
$34.82
$11.08
Percent change
22.8%
12.8%
16.4%
5.1%
Source: Schmitz, A., F. Rossi, and T.G. Schmitz. (Submitted). “U.S. Cotton Subsidies under Decoupling.” Journal of International Agricultural Trade & Development.

10. Simulated Welfare Impacts of U. S
Simulated Welfare Impacts of U.S. Cotton Subsidies for 2002: Coupled vs. Decoupled Models (U.S.$ Million)
Welfare Component
Coupled
ME Model
Decoupled
Difference
Producer rents*
$1,988
$2,452a
– $464
U.S. consumer rents
$236
$135
$101
Slippage
$482
$286
$196
Deadweight loss
$274
$67
$207
Government cost*
$2,944
$2,940 $4
Cost of water subsidy*
$433
$429
Net U.S. welfare Loss
$756
$353
$403
Source: Schmitz, A., F. Rossi, and T.G. Schmitz. (Submitted). “U.S. Cotton Subsidies under Decoupling.” Journal of International Agricultural Trade & Development.

11. Modeling the Impact of U. S
Modeling the Impact of U.S. Cotton Policy in the Presence of Chinese Cotton Subsidies?