Effects of Price versus Non-Price Export Promotion: The Case of Cotton

Abstract

Commodity Credit Corporation (CCC) net expenditures for the cotton program exceeded $2 billion in fiscal 1986, decreased considerably over the 1987 to 1991 period, then climbed to $1.4 billion in fiscal 1992. Net expenditures for the cotton program are estimated at $2.2 billion in 1993 and at $1.7 billion for 1994 (1995 PresidentS Budget Summary). Concern about burgeoning U.S. budget deficits continues to place pressure on policy makers to reduce the cost of farm programs (Heflin). Thus, finding alternative, less-costly methods of providing support to cotton farmers is an important undertaking. Export subsidies have been shown to be a possible means of reducing government costs of domestic farm programs (Duffy and Wohlgenant), but little empirical effort has been expended in examining the potential economic effects of non-price export promotion. Accordingly, the purpose of this article is to provide an estimate of the effects of price versus non-price promotion on U.S. cotton price, domestic use of cotton, exports of cotton, and the cost of cotton programs. A comparative static framework will be used, similar to the model used by Duffy and Wohlgenant, to evaluate a price subsidy for exported cotton.