Pursuant to a congressional request, GAO reviewed the Department of Agriculture's (USDA) cotton program, focusing on the program's: (1) cost and complexity; (2) distribution of payments; (3) effects on producers' costs and returns; and (4) effectiveness in enhancing U.S. cotton exports.

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.

Status Legend:

Review Pending-GAO has not yet assessed implementation status.

Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.

Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.

Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.

• Review Pending
• Open
• Closed - implemented
• Closed - not implemented

Matters for Congressional Consideration

Matter: Congress may wish to consider whether benefits from the cotton program are worth its costs and whether the program should be continued.

Status: Closed - Implemented

Comments: Through the Federal Agriculture Improvement and Reform Act of 1996, the 104th Congress replaced deficiency payments to cotton producers with a 7-year declining market transition payment. Because the fixed payment is not linked to prices, cotton farmers are expected to produce for the market.

Matter: If the cotton program is eliminated, Congress may wish to consider options to give producers and other affected parties time to make adjustments in their investment decisions. Congress could, for example, reduce or phase out payments over a number of years, perhaps over the life of the next farm bill.

Status: Closed - Implemented

Comments: Through the Federal Agriculture Improvement and Reform Act of 1996, the 104th Congress replaced deficiency payments to cotton producers with a 7-year declining market transition payment. Because the fixed payment is not linked to prices, cotton farmers are expected to produce for the market.