The U.S. Agricultural Act of 1965 and Its Effects on Cotton Prices and Receipts from Cotton Exports
Author:
Michael Kuczynski
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Publication Date:
01 Jan 1966
eISBN:
9781451956160
Language:
English
Keywords:
SP; price; call money market; rate; central bank; discount rate; world market price; price decline; cotton price; export receipt; price factor; Exports; Stocks; Agricultural prices; Consumption
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DEVELOPMENTS on the international cotton market are decisively affected by the cotton policy pursued by the United States, the largest single producer, consumer, and exporter of raw cotton. The world market price for cotton of the so-called American upland type, which is of medium-staple lengths and comprises about 85 per cent of output of all types of cotton outside the Sino-Soviet area, is closely related to the price at which U.S. cotton is sold for export; the prices of other types of cotton respond to some extent to changes in the price of American upland, though these price movements are by no means always closely correlated.

Abstract

DEVELOPMENTS on the international cotton market are decisively affected by the cotton policy pursued by the United States, the largest single producer, consumer, and exporter of raw cotton. The world market price for cotton of the so-called American upland type, which is of medium-staple lengths and comprises about 85 per cent of output of all types of cotton outside the Sino-Soviet area, is closely related to the price at which U.S. cotton is sold for export; the prices of other types of cotton respond to some extent to changes in the price of American upland, though these price movements are by no means always closely correlated.

DEVELOPMENTS on the international cotton market are decisively affected by the cotton policy pursued by the United States, the largest single producer, consumer, and exporter of raw cotton. The world market price for cotton of the so-called American upland type, which is of medium-staple lengths and comprises about 85 per cent of output of all types of cotton outside the Sino-Soviet area, is closely related to the price at which U.S. cotton is sold for export; the prices of other types of cotton respond to some extent to changes in the price of American upland, though these price movements are by no means always closely correlated.

Cotton prices in the United States depend largely on the internal price support provided by the Commodity Credit Corporation (CCC). Under the basic support mechanism, which has been in operation throughout the period here under review, the grower is given the option of either marketing his crop or keeping it under loan from the CCC (up to a stated term elapsing usually within the season). If he takes the second option, the CCC advances cash to him on his crop at the ruling loan rate; if thereafter the market price rises above the loan rate plus carrying charges (which are, in effect, the interest on the loan), the grower may pay off the loan and sell his cotton in the market; otherwise he surrenders the cotton to the CCC. The loan rate, which is thus the effective minimum of the U.S. domestic market price, is customarily announced before the start of the season and maintained unchanged throughout the season.

I. The International Cotton Market Since 1953

For several years preceding the significant change in U.S. policies announced during the 1955/56 season,1 U.S. cotton was sold for export at the domestic market price. Consequently, producers in other countries could count on marketing their cotton by slightly underbidding U.S. prices, while the United States assumed the role of residual supplier. The price level established by the U.S. support program was highly remunerative and stimulated the expansion of output, in particular outside the United States, so that other producing countries increased their share in the export market. World demand was adversely affected, as high cotton prices stimulated substitution of man-made fibers, primarily rayon, for cotton. As a result, the volume of U.S. exports declined and stocks of cotton held in the United States increased rapidly. At the beginning of the 1956/57 season, U.S. stocks amounted to 14.5 million bales2 (Appendix, Table 6), some 4 million bales in excess of the annual volume of world trade at that time.

Early in the 1955/56 season, the United States announced the first of a number of export programs under which cotton could be sold for export at prices well below the domestic price.3 The export programs have been of two kinds, both aimed at reducing CCC cotton stocks: (1) CCC direct sales for export on a competitive bid basis and (2) export subsidies in the form of a payment in kind from CCC stocks. The payment-in-kind subsidy program began with the 1958/59 season. Virtually all U.S. exports during the two preceding seasons were made through CCC direct sales (see Appendix, Table 7), and this continued in the first year of the subsidy program. Direct sales were suspended in 1959/60 but have been resumed since 1963/64, so that both types of export program are at present in effect. The rate of payment on the subsidy is announced before the beginning of the season and has not hitherto been changed in the course of the season. In the absence of direct sales by the CCC, the subsidy sets a lower limit on the price at which U.S. cotton is sold for export: since an exporter cannot obtain cotton on the domestic market at less than the loan rate plus carrying charges, he cannot profitably export if the export price is below the loan rate plus charges minus the cash equivalent of the subsidy. Producers in other countries can therefore still count on marketing their cotton by slightly underbidding this price, and the United States is still in the position of residual supplier in world trade, at any rate as long as direct sales by the CCC are excluded. Nor have the CCC direct sales, as they have been administered in particular since their reactivation in 1963/64, substantially altered this position. In making such sales, it has been the authorities’ intention not to affect market prices unduly. In practice, the CCC has ordinarily accepted only bids at or above a certain minimum price; this minimum, though unpublished, has not remained unknown to importers, who consequently have first looked elsewhere for supplies going at a lower price before bidding at or above the CCC minimum.4

Internal support arrangements and prices charged to U.S. consumers were not affected by these export programs. The announcement in 1955/56 that U.S. cotton would be offered for export in the next season at prices well below domestic market quotations was, however, reflected in a sharp steplike decline in the world market price for all cottons of the American upland type. U.S. cotton fell, at the beginning of the 1956/57 season, from about 39 cents to 30 cents per pound of Middling 1116 inches, c.i.f. Liverpool (see Chart 1). The prices of other American upland cottons, such as Mexican, Brazilian, and Pakistani, have followed this movement closely (Table 1).5

Chart 1.
Chart 1.

Cotton: Prices of American and Egyptian Cotton, c.i.f. Liverpool

(In U.S. cents per pound)

Citation: IMF Staff Papers 1966, 001; 10.5089/9781451956160.024.A003

Source: International Cotton Advisory Committee, Cotton—World Statistics (Washington).
Table 1.

Cotton: Prices of Various Types, c.i.f. Liverpool, Averages During Seasons Beginning August 1, 1953-64

(In U.S. cents per pound)

article image
Source: International Cotton Advisory Committee, Cotton—World Statistics (Washington).

Before 1959, S.M. 1132 inches.

Before 1962, Karnak F.G.

Averaged during less than 12 months.

It will be seen from Table 1 and Chart 1 that the movements in the price of extra-long staple cotton6 (as shown by quotations for Egyptian and Sudanese cotton in Table 1 and the price of Egyptian cotton in Chart 1) have been much more erratic than those of American upland cottons. They are ordinarily at a premium over the price of medium-staple length American upland, but there has been no close linkage between the two sets of prices. The price of extra-long staples did not decline with the price of American uplands in 1955/56, and instead rose sharply at the time of the Suez crisis, when Egypt and the Sudan experienced difficulty in moving their output into the market; its fluctuations since then have been largely due to fluctuations in available supplies. This suggests that, at any rate in the short run, the elasticity of substitution between extra-long staples and shorter-staple cottons has been quite low, so that the extra-long staple market has been less decisively affected by U.S. cotton policies. There is evidence, however, referred to later in this paper, which points to a closer connection between the markets for the two types in the future.7

In contrast to the period before the fall in American upland prices in mid-1956, consumption of all types of cotton exceeded production during the period from 1956/57 to 1961/62. The new export program in the United States was accompanied by a tightening of acreage restrictions in that country; this and perhaps also the Soil Bank program8 led to a considerable reduction in U.S. output over the following three years. The rate of expansion fell appreciably in other exporting areas, probably as a result of the considerable fall in prices, and world production outside the Sino-Soviet area remained from 1956/57 to 1958/59 well below the average of the three preceding years (Table 2). Consumption, on the other hand, with the notable exception of the United States, showed a distinct increase, and imports rose. This expansion in trade was entirely reflected in an upsurge of U.S. exports; exports from other sources, which had been greatly expanded at falling world market prices in 1955/56, when the U.S. program was announced but not yet effective, were in fact sharply reduced. U.S. stocks fell by nearly 6 million bales in the two seasons 1956/57 and 1957/58, while stocks elsewhere rose somewhat.9 After these two seasons, in which virtually all U.S. exports were made through direct CCC sales in a determined effort to reduce stocks, the United States resumed its role of residual supplier to the market; the high volume of exports achieved by the United States in 1959/60 and again in 1960/61 resulted from crop shortfalls in other producing areas at a time when consumption in Western Europe was buoyant because of the improvement in economic conditions, rather than from aggressiveness in the administration of U.S. export policies. However, the decline in U.S. stocks slowed down considerably, as U.S. output rose sharply after the 1958/59 season (with the virtual ending of the provisions of the Soil Bank program, and the introduction of a new program allowing special acreage expansion for exports).

Table 2.

Cotton: World Production, Consumption, and Trade, Three-Year Averages of Years Beginning August 1, 1953-64

(In millions of bales)

article image
Source: Appendix, Table 6.

Total “Consumption” and “Changes in stocks” do not add to “Production” because of cotton destruction and statistical discrepancies (see Appendix, Table 6).

Includes a staff estimate for 1964/65.

As mentioned earlier, prices paid for raw cotton by U.S. consumers were not affected by the programs intended to promote export sales. The domestic market price being well above the world market price as a result of these programs, U.S. mills were at a disadvantage vis-à-vis foreign competitors in their use of cotton, and consumption stagnated. Since the coming into effect, in August 1964, of the Agricultural Act of 1964, U.S. mills have been able to purchase U.S. cotton at the price at which it is offered by exporters to foreign mills. This was achieved through the extension of the payment-in-kind export subsidy to traders selling to domestic mills. The effect of the subsequent increase in domestic consumption on total U.S. cotton sales in the 1964/65 season was more than offset, however, by a sharp reduction in exports (see Appendix, Table 8).

Production in other exporting countries, after a temporary leveling off in the early years of U.S. export programs, resumed its upward trend. The growth of consumption, however, diminished, particularly in the main importing area of Western Europe and Japan. As a result, world cotton production has once more exceeded consumption in each of the last three seasons, by an average of over 2½ million bales a season.10 A similar excess of world production over consumption is forecast for the present, 1965/66, season.

The present surplus situation in the world cotton market is in many respects similar to that existing before the U.S. export programs were established: the excess of production over consumption is largely reflected in increases in stocks held in the United States, and U.S. exports tend to decline as export supplies from other net exporting areas increase faster than total imports. It is forecast that U.S. stocks will exceed 16 million bales at the end of the current season, a figure which is close to the current annual volume of world trade. Furthermore, the U.S. Department of Agriculture has estimated that, if present trends of production and consumption outside the United States continued, the U.S. residual supplies to the world market would virtually disappear within the next five seasons.11 These developments have prompted the U.S. authorities to make renewed efforts to achieve a reduction in output and an expansion of exports, in order to be able to reduce stocks. The provisions of the Agricultural Act of 1965 are summarized in Section II, and the effects which may be expected to result from this legislation are examined in the remainder of this paper.

II. Cotton Legislation Under the U.S. Agricultural Act of 1965

The Agricultural Act of 196512 was enacted on November 3, 1965, and its provisions with respect to cotton apply to the seasons 1966/67 to 1969/70. Participation in the price support program established under the Act is optional. Those growers who decide not to participate will receive no price support whatever and will be required to export the whole of their crop. They will not be subject to the additional acreage restrictions introduced in the Act for participating growers, but only to the general acreage restrictions for all cotton production which exist in the United States under previous legislation; furthermore, they will be allowed to devote somewhat more acreage to cotton than they have in the past.13

In order to qualify for price support on his output, a grower will have to divert from cotton production to approved uses a certain minimum percentage of the acreage which he would otherwise be allowed to plant to cotton, i.e., his farm acreage allotment.14 This mandatory cotton acreage reduction is to be 12.5 per cent in 1966/67, and not more than this in subsequent seasons. The grower will receive diversion payments, in cash or in kind, at a certain rate calculated on the projected yield of the acreage he diverts to fulfill this mandatory acreage reduction. He may divert additional acreage, up to a total of 35 per cent of the acreage he would be allowed to plant to cotton if not participating, and he will receive additional diversion payments for any such voluntary acreage reductions.15 Besides the acreage reductions specifically related to cotton, the Act contains provisions for voluntary acreage reductions of a more general character but also applicable to cotton.16

Cotton growers who participate in the program will receive price support of two kinds. First, as in previous seasons, growers will have the option of the CCC loan for the cotton they produce; the level of the loan rate, however, is being substantially lowered. Second, the grower is to receive additional support in the form of direct payments, either in cash or in kind, and these are designed to maintain the participating grower’s assured minimum income at roughly its present level.17 The Act will result in the elimination of subsidies paid on cotton marketed in the United States whether for domestic consumption or for export. The loan rate will be lowered to a level below the price at which cotton will be sold for export in the United States, i.e., to a level below the present world market price (Chart 2), and the participating grower’s income will be supplemented through direct payments such as were previously made to exporters and domestic users. For the current season, 1965/66, the loan rate was set at 29 cents per pound,18 while the current world market price is about 24 cents per pound. Under the Agricultural Act of 1965 the loan rate is to be 21 cents per pound for 1966/67, and thereafter it is to be set by the Secretary of Agriculture. The legislation allows the Secretary considerable latitude in his choice of the rate for seasons after 1966/67; it is to be set in conjunction with the administration of other U.S. cotton policies. (The legislation in fact directs the Secretary to set the loan rate for the season at a level which does not exceed 90 per cent of his estimate for the world market price in the season, and such an estimate depends on the anticipated administration of U.S. cotton policies, since such policies decisively affect the world market price.)

Chart 2.
Chart 2.

Cotton: U.S. Domestic and Export Prices and CCC Loan Rate for Middling One-Inch Cotton

(In U.S. cents per pound)

Citation: IMF Staff Papers 1966, 001; 10.5089/9781451956160.024.A003

Source: Data supplied by the U.S. Department of Agriculture, Agricultural Stabilization and Conservation Service.

A further provision of the Act requires the CCC to sell cotton on the domestic market at the same price at which it sells for export. Again, the CCC is allowed considerable latitude, as to both quantity and price, in the release of cotton from its stocks to the market. In principle, CCC cotton is not to be offered to the domestic and export markets at prices below 110 per cent of the loan rate. However, the CCC is allowed to release to the market from its stocks, at the market price (whether it is above or below 110 per cent of the loan rate), the amount by which the Secretary of Agriculture estimates U.S. production in the season to fall short of domestic consumption and exports. Moreover, the Secretary can regulate how much of the diversion payments and direct support payments to participating growers are to be made in kind, with cotton from CCC stocks; to the extent that such payments in kind are made, CCC cotton would move into the market at a price to which the lower limit of 110 per cent of the loan rate does not apply. It is estimated that if all such payments were to be made in kind, an annual volume of some 5-6 million bales of CCC cotton could move onto the market.19 The amount of CCC cotton released to the market in consequence of the authorities’ policies will crucially affect the market price. In conclusion, it may be said that the world market price which the U.S. authorities expect to result from the amount of CCC cotton to be released to the market in a season will determine the loan rate in the season, rather than the other way around, since the loan rate is to be set after 1966/67 at not more than 90 per cent of the estimated world market price.

III. Effects of the New Legislation on U.S. Cotton Output

In the legislation, primary emphasis is placed on the reduction of U.S. output through strong incentives to divert acreage from cotton production. It does not appear, however, to be expected by the U.S. authorities that the reduction in output resulting from these measures will, by itself, be sufficiently large to bring about significant reductions in stocks, though it is expected to prevent further additions to stocks when the program becomes effective.

The Act is likely to result in reduced acreage planted to cotton in the United States. It is thought that few growers will forego participation in the program, for those not participating will only receive the (lower) world market price for their cotton.20 However, the higher the world market price, the fewer growers actually participating in the program will find it attractive to make any further acreage reductions above the mandatory 12.5 per cent, so that one would expect total acreage reductions to be smaller.

A reduction in acreage results in a reduction in output only if it is not entirely offset by an increase in yields. From 1962/63 to 1963/64, for instance, acreage planted to cotton in the United States declined from 15.6 million to 14.2 million acres; the yield, however, rose from 457 to 517 pounds per acre over this period, so that output in fact showed some increase, from 14.9 million to 15.3 million bales. An important reason for such increased yields on reduced acreage is to be found in a method of planting known as “skip-row.” In skip-row plantings, strips of cotton rows are alternated with strips of idle land, and this can raise yields on planted acreage by as much as 30 per cent, depending on the ratio of cotton land to idle land. Under regulations at present in force, some of the idle land need not be counted as planted to cotton for the purpose of fulfilling acreage restrictions; thus, a grower allowed to plant, say, 10 acres of cotton may spread his plantings over 20-30 acres, depending on the pattern of rows skipped, and consequently increase his yield. In the regulations issued by the Secretary of Agriculture in conjunction with the Agricultural Act of 1965, the rules for measuring compliance with acreage restrictions when cotton is planted in skip-row patterns have been made somewhat more restrictive, so that there should be some fall in yields on farms already skipping rows, and the scope for increasing yields through the adoption of skip-row planting elsewhere should be somewhat reduced. The upward trend of yields is nevertheless expected to continue, if somewhat tempered by the more restrictive skip-row regulations.

All told, a reduction in U.S. output roughly commensurate with the mandatory acreage reductions of 12.5 per cent is forecast by the Department of Agriculture,21 i.e., increases in yields are expected to offset the effect on output of additional voluntary acreage reductions. As it happens, 12.5 per cent of the present annual level of U.S. output, which is at some 15 million bales, is about equal to the recent annual rate of increase of cotton stocks in the United States. At current rates of domestic and export sales, the expected decline in U.S. output is thus only sufficient to prevent further additions to stocks.

IV. Effects of the New Legislation on U.S. Cotton Prices

It emerges from the foregoing discussion that the effects of the Agricultural Act of 1965 on U.S. cotton prices will be largely determined by the way in which the policies provided for in the Act are administered. It is possible, however, to indicate the direction in which the administration of these policies is likely to be oriented. The principal objective of the new cotton legislation is twofold: to reduce U.S. cotton stocks and to increase the share of U.S. exports in world trade. It is expected that U.S. policies will be so administered that the United States will continue to be in the role of residual supplier to the world market.22 As indicated above, the Department of Agriculture does not seem to anticipate that the reduction in output resulting from the Act will, by itself, be sufficiently large to bring about the significant reductions in stocks. It appears to be the aim of the U.S. authorities to bring about stock reductions through a somewhat lower world market price than prevails at present; they expect that this would cause the rate of expansion of output in other exporting countries to be somewhat reduced, and perhaps that of world demand to be somewhat increased, and thus allow the United States to fill a larger gap between non-U.S. demand and supply.23 It is uncertain to what extent the expansion in U.S. exports is, in these estimates, to result from a lower rate of expansion in supplies from other exporters (so that their market share is reduced), and to what extent from an increase in demand for cotton induced by the lower market price. The lower market price, however, is expected to contribute to the maintenance of present levels of cotton consumption in the United States, in competition with man-made fibers.

The price which is to rule on the U.S. market (for both exports and domestic use) will depend on the price at which the CCC offers cotton from its stocks, whether through sales for shortfalls or through the release of cotton generated by payments made in kind to growers. The CCC is unlikely to cause the price to fall below the loan rate plus carrying charges, since this would cause all growers participating in the program to elect to put cotton under CCC loan rather than sell on the market. The legislators have made clear that it is intended that the program should be administered in such a way that substantially reduced use is made of CCC loans.24 Thus, the loan rate may be expected to be the lower limit to the U.S. market price. It will be 21 cents per pound in 1966/67, and thereafter as set by the Secretary of Agriculture. For these later seasons, the administration of the policy is likely to bring about the setting of a loan rate of not more than 90 per cent of a market price anticipated as a result of trends in non-U.S. production and world demand and of releases of CCC cotton.

The Department of Agriculture provided for Congress a number of projections related to the new cotton program.25 These are only working figures, which are not intended in any way to define the course of future policies and which cannot in any sense be considered as binding. They are, however, a useful starting point for a discussion of the likely course of the world market price under the new program. The level of the loan rate was given for each of the four seasons affected (for 1966/67 it was taken at 21 cents per pound, as set in the Act), together with the volume of exports expected in each season and the consequent reductions in CCC stocks. If the loan rate is not to exceed 90 per cent of the world market price aimed at, a minimum level for the world market price could be inferred, and this might provide an idea of the market price contemplated by the authorities. The figures referred to are shown in Table 3.

Table 3.

Cotton: Agricultural Act of 1965; U.S. Working Estimates and Some Staff Inferences

article image
Source: 1, 5, 6, and 7 are taken from U.S. Congress, Senate Report No. 687 (89th Cong., 1st Sess.), p. 62.

The projections provided by the Department of Agriculture would imply that the U.S. authorities do not contemplate a decline in the world market price, by the end of the period covered by the Act, of over 2½ cents per pound, or 10 per cent of its present level of 24 cents per pound. These projections are, however, quite tentative, and it can be argued that this price decline should be considered as the minimum which is likely to result from the new program. It is highly unlikely that a reduction in world cotton prices of the order suggested, that is, a gradual reduction of 10 per cent over four seasons, will appreciably affect supplies offered by other exporters. In many exporting countries, cotton accounts for a large proportion of total export receipts (Table 4); moreover, there are few good alternatives to cotton production. Governments are likely to readjust, if necessary, the structure of their taxes and subsidies in order to maintain incomes of cotton growers and thus output. In some, but probably few, cases where cotton acreage can profitably be diverted to other uses, governments may discourage production, or at any rate the expansion of cotton acreage. This, however, will probably be the exception rather than the rule, and incentives to increase yield, if not acreage, will continue to prevail. For these reasons, the U.S. authorities may well press for a greater price decline than that inferred, should it be required to ensure the intended reduction in stocks.26

Table 4.

Cotton: Share of Raw Cotton in Total Export Receipts, 1960-64, and Effect of 10-16 Per Cent Decline in Cotton Prices in Selected Countries

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Sources: International Monetary Fund, International Financial Statistics; Food and Agriculture Organization, Trade Yearbook.

Based on average annual value of raw cotton exports, 1960-64, as in column 1.

All figures for this country refer to 1960-63.

It has been argued that the loan rate is to be regarded as the lower limit to the U.S. market price. Table 3 shows that the percentage decline in the effective loan rate (i.e., the loan rate minus the export subsidy) from its current level given in the U.S. estimates is much greater than the inferred decline in the world market price—the reason being that for the current season the effective loan rate is above 90 per cent of the market price. If it is assumed that the administration of U.S. policies will be such in the seasons affected by the Act that the loan rate will bear the same relation to the actual world market price (as distinct from that estimated by the Secretary) as the present effective loan rate bears to the current market price, it can be inferred instead that the U.S. estimates indicate a price decline of the order of 16 per cent over the lifetime of the Act (most of this decline would come about in 1966/67). Thus a perhaps more realistic inference can be made from the U.S. figures referred to, if it is considered that the price decline likely to result from the administration of U.S. policies will range from 10 to 16 per cent. A larger price decline than 10 per cent need not invalidate the projection with respect to U.S. exports and the consequent reductions of CCC stocks given in Table 3: on the contrary, it may prove necessary if those are to be realized.27 It is worth noting again that it has been assumed in the program that some effect is to be expected on import demand from the lower market price (this assumption is discussed further below). To the extent that demand does increase in response to the lower price, the United States may be able to export more, and thus reduce stocks without having to bring about as great a reduction in the rate of growth of supplies from elsewhere; this could offset somewhat the factors which tend to increase the price decline necessary to achieve the objective of U.S. policy.

V. Effects of the New Legislation on the International Cotton Market

Although the new legislation will come into force only in August 1966, its enactment has already begun to affect the international cotton market. These immediate effects are of a somewhat different character from the longer-run consequences which are to be expected; they are, therefore, considered separately.

Short-term effects (1965/66 and 1966/67)

Supplies available in the current season are, of course, entirely independent of the new legislation; they are expected to be more than ample. Since yields have further increased, U.S. production is believed to be only slightly smaller than last year’s in spite of some reduction in acreage. Output is reported to be at record levels in Africa, parts of the Middle East, and Pakistan; some decline, however, is expected in India, the Syrian Arab Republic, and Central America.

Demand in net exporting countries, including the United States, is expected to remain high. The textile industry is buoyant in the United States, mill margins are particularly wide, and unfilled orders high; the industry is reported to have made substantial investments in new plant and equipment. The boom in cotton textile production, though partly attributable to the generally favorable trends in the economy, received a major impetus from the reduction in cotton prices, by some 8 cents per pound, under the 1964 Act mentioned above. The effect of this stimulus is still working itself out and it appears unlikely that prospects for a further, more modest, reduction in the next season will appreciably affect current demand.

Conditions on net importing markets are quite different. There the prospective price reduction for cotton marketed in the 1966/67 season provides an incentive to restrict purchases in the current season to the bare minimum unless supplies are forthcoming at reduced prices. Moreover, the textile industry in the major importing countries of Western Europe is still depressed, partly reflecting a cyclical recession and partly for structural reasons, particularly in France and Italy. In the Federal Republic of Germany and the United Kingdom the depressed condition of demand for cotton also reflects the recent conversion of a large number of spindles to manmade yarns. In Japan, where inventories of both cotton yarn and cloth are high, the Government has approved an agreement among textile manufacturers for a 10 per cent cutback in production, which will be in effect until April 1966; furthermore, stocks of raw cotton in the country are ample. Thus the level of Japan’s cotton imports in the current season is likely to be very low. In contrast, stocks of raw cotton in Western Europe have been drawn down in 1964/65, and scope for further reductions is limited. The stock situation in importing countries is on the whole less strong than it was in 1955/56, before the introduction of export price differentials in the United States, and the price reduction in prospect for 1966/67 is more modest; thus both the ability and the incentive to postpone imports are less strong.

Though in principle possible, it is not likely that the United States will reduce spot prices before August 1966. The CCC, however, has announced that, as in 1955/56, it will make forward sales of cotton during the current season for delivery after July 1966. These will presumably be made at lower prices than those prevailing at present, and may give a firmer indication than the evidence hitherto discussed of the prospective world market price for 1966/67. Other exporters, as in 1955/56 (see Appendix, Table 8), may temporarily gain by somewhat reducing their prices, and there is already evidence of such a development; but in view of the conditions just mentioned—sluggish world demand and a more modest incentive to shift to non-U.S. sources of supply—the gain will probably be smaller than it was in the 1955/56 season, when U.S. exports were reduced to the extraordinarily low level of 2 million bales. Some expansion in the volume of non-U.S. exports over last season’s 10.4 million bales is to be expected; owing to the price reduction, however, export proceeds are not likely to differ much from those in 1964/65.

The Department of Agriculture expects that U.S. exports in the 1965/66 season will be close to 4 million bales. Whether or not this volume is reached will depend, on the one hand, on the extent of sales under concessional terms (P.L. 480, etc.), for which, perhaps, a relatively minor price difference may not play a large role, and, on the other hand, on the price policy of other exporting countries.

Developments in 1966/67 will be decisively affected, as in the other three seasons to which the Act applies, by the amounts and conditions of CCC sales. These may well be affected by the rate of further stock accumulation during the current season. In the event that U.S. exports fall short of expectations and domestic consumption does not rise appreciably, stocks may increase by well over the amount of 2 million bales now projected by the U.S. authorities, and this might induce strong measures to raise exports, which could lower world prices close to the loan rate of 21 cents per pound. However, import demand may well rise, partly as a result of recovery in the textile industry and partly because of the need to replenish stocks. Since stocks of cotton of U.S. origin will be more depleted than those from elsewhere, a large share, if not all, of the additional demand will be directed toward U.S. cotton, and U.S. exports should show some gains even without an aggressive policy of CCC sales. The volume of exports of non-U.S. producers will not necessarily be affected, though the export receipts of these producers are likely to decline somewhat as a result of lower prices (see also below).

Longer-term effects

As was discussed in Section IV, the administration of the new U.S. legislation will result in a decline in the world market price of American upland cotton. It has been argued there that it may not be implausible to assume a decline, by 1969/70, ranging from 10 to 16 per cent of the present price. To the extent that the decline in prices results in a slowing down of the rate of expansion of output in countries other than the United States, their export receipts will be reduced below what they would otherwise have been not only as a consequence of lower prices but also as a result of a reduced volume. It is worth mentioning that cotton consumption in net importing areas is following a mild upward trend, aside from any changes due to price factors; any gains which occur as a result of such growth would, however, have occurred in the absence of a price decline.

A response of demand would be a factor tending to offset, at least in part, the deleterious effect of the decline in prices on export receipts. Total fiber consumption in the main importing areas, Western Europe and Japan, is, however, fairly price-inelastic, and a sizable price reduction for cotton would be required to produce an appreciable effect on demand.28 Nor can much gain be expected at the expense of other fibers, except perhaps rayon. Price is an important factor in cotton/rayon competition, and there is no doubt that the substantial reduction in the price of cotton after 1955/56 did much to reestablish cotton’s competitive position vis-à-vis rayon. It is interesting to mention in this connection that mill consumption of cotton in the United States, following the price reduction for domestic consumers in August 1964, rose in the season 1964/65 by 7 per cent over 1963/64, while consumption of rayon, the price of which was not lowered, showed no change in spite of the boom in textile production. Over the last decade other man-made fibers (noncellulosic, such as Dacron and nylon) have made spectacular gains at the expense of both cotton and rayon, particularly in industrial countries (Chart 3). Raw material prices cannot wholly explain these developments. Nevertheless, the price reductions for noncellulosic fibers in recent years (Table 5)—probably due to increasing competition within an industry which, in its beginning, was highly monopolistic—have contributed to their gain vis-à-vis cotton. Yet, while it is difficult to compare the prices of fibers whose properties in end-use are quite different (as to tensile strength, wash-and-wearability, dyeability, moisture absorption, weight, etc.), it has been judged29 that the noncellulosic fibers, even after allowance for differences in these properties, are still relatively more expensive than cotton and rayon. Their spectacular development has been assisted by intensive promotion. There is, however, no doubt that, in a number of end-uses, the noncellulosics are definitely preferable to cotton; moreover, the fact that, in contrast to cotton, their quality and price are not subject to short-run fluctuations makes their use attractive to the textile industry.

Chart 3.
Chart 3.

TEXTILE FIBER CONSUMPTION BY AREA1

(In millions of metric tons)

Citation: IMF Staff Papers 1966, 001; 10.5089/9781451956160.024.A003

Source: International Cotton Advisory Committee, Cotton—World Statistics (Washington).1 Mill consumption only.
Table 5.

Staple Fiber Prices in the United States, Years Beginning August 1, 1954-64

(Average prices in U.S. cents per pound; indices in parentheses based on 1954 = 100)

article image
Source: International Cotton Advisory Committee, Cotton—World Statistics (Washington).

Price to California mills of Middling 1 inch Memphis growths.

Price of U.S. Middling 1 inch c.i.f. Liverpool.

Viscose staple.

These considerations suggest that the response of demand for cotton to a moderate price reduction will not be substantial.30 Even if the price factor should become more important in cotton/noncellulosic competition—for instance, if cotton producers were to intensify their efforts at promotion—a gain at the expense of these fibers would probably be short lived. Producers of manmade fibers are highly diversified in their output and there is scope for absorbing a comparable price reduction. It should be noted that certain rayon producers have already announced a cut in prices. Of course, the greater the decline in cotton prices, the larger the response of demand that can be expected, since on the one hand the manmade fiber producer’s ability and willingness to lower prices will diminish, and on the other hand the effect on total fiber consumption will become more important.

It has been argued that the effects of a decline in the price of cotton on both the demand for cotton and supplies from exporters other than the United States would be greater, the larger the decline in price. It may be assumed that the United States would press its policies to the point at which the decline in price, through its combined effect on demand and other exporters’ supplies, would result in the achievement of the level of U.S. exports and the stock reductions projected by the U.S. authorities. In Table 3, it was indicated that the Department of Agriculture projected U.S. exports of 5.9 million bales a season by the end of the four seasons under the Act, which would represent an increase of almost 2 million bales over present levels. These projections, however, are quite tentative.

It has been suggested above that it could be inferred from certain U.S. estimates that a decline in the world market price ranging from 10 to 16 per cent is considered likely to achieve these objectives. It cannot be ascertained, however, with any precision how much of the anticipated increase in U.S. exports (and consequent stock reductions) is expected to be the result of an increase in demand, and how much the result of a decline in other exporters’ supplies from what they would otherwise have been. If it is assumed, for argument’s sake, that the rate of growth of supplies from other exporters is expected in the U.S. estimates to be insensitive to a 10-16 per cent price reduction, then it is clear that the whole of the gain in U.S. exports would come from the increase in demand. Under these circumstances, the receipts of other exporters would show a decline, from what they would otherwise have been, exactly to the extent of the price decline, ranging from 10-16 per cent. However, if the gain in U.S. exports anticipated from this price decline is also to be the result of a decline in the rate of growth of supplies from other exporters (and it has been pointed out that some such decline seems to be envisaged in the U.S. estimates of the effect of the price reduction), the receipts of these exporters will be depressed below what they would otherwise have been, not only to the full extent of the price decline but also further on account of reduced volume. Thus a decline of 10-16 per cent in export receipts, from what they would otherwise have been, may be considered as a not unlikely minimum to result from the administration of the new U.S. legislation.31

On this reasoning, the range of minimum losses in export earnings from cotton has been computed and is shown in Table 4 for selected exporting countries, to give an idea of magnitudes. The same range of percentage reduction in prices has been assumed for all cottons, including extra-long staple types, produced mainly in the United Arab Republic, the Sudan, and Peru; the United States produces only very small quantities of such cotton. It has been seen earlier in this article that until quite recently, prices for extra-long staple cotton, in view of certain specialized end-uses for which shorter staples could not be substituted, moved fairly independently from those of other varieties. In recent years, however, synthetic fibers have increasingly displaced extra-long staple cotton in specialized uses, and technical developments in spinning have facilitated substitution of shorter staples in other uses; it is now considered necessary for the prices of extra-long staple to follow much more closely movements in the prices of American upland cotton if the share of extra-long staple in total cotton consumption is not to decline.32 Thus, although a 10-16 per cent decline in the prices of American upland may not be reflected in an exactly proportionate fall in the prices of extra-long staples, the effects calculated in Table 4 for Peru, the Sudan, and the United Arab Republic may not be unrealistic. It should be stressed, however, that the range of declines in export receipts indicated, both for exporters of American upland and those of extra-long staples, cannot provide more than a very rough indication of the probable effects of the new legislation. Some countries may suffer reductions in volume as well as in price, and others may gain in consequence. The hypothetical declines shown in column 3 of Table 4 have been computed on the basis of average annual receipts from cotton exports during 1960-64 (rather than on projected exports for 1969/70); if the composition of these countries’ exports should change over the lifetime of the Act, the declines need not bear the relation to total export receipts shown in column 4 of Table 4. Moreover, to the extent that individual countries share in the rising trend of world import demand, the effect of the price reduction on their export receipts would be offset.

STATISTICAL APPENDIX

Table 6.

Cotton: Stocks Held by CCC and Others, United States, Years Beginning August 1,1950-65

(In thousands of bales)

article image
Source: Data supplied by the U.S. Department of Agriculture, Agricultural Stabilization and Conservation Service.
Table 7.

Cotton: U.S. Export Programs, Years Beginning August 1, 1955-64

article image
Source: Data supplied by the U.S. Department of Agriculture, Agricultural Stabilization and Conservation Service (ASCS).

Discrepancies between “Total Exports” shown and the total of “CCC Direct Sales for Export” and “Registrations for Export Payment in Kind” after 1955/56 are due in part to differences in the type of bale used in reporting different figures and in part to sales and registrations made in one year but only effective as exports in the next.

Differences between the CCC average export sales price for Middling 1 inch at average location and the average price for Middling 1 inch in 14 domestic markets (after 1963 in 15 markets), on the dates when the CCC export sales offers opened, converted to average location.

Includes 650,000 bales sold from stocks held by CCC on loan.

Through May 1965.

Registrations for which proof of export has been received by ASCS.

Table 8.

Cotton: World Production, Consumption, and Trade, Years Beginning August 1,1953-64

(In millions of bales)

article image
Source: International Cotton Advisory Council, Cotton—World Statistics (Washington).

Staff estimate.

La Loi agricole 1965 des Etats-Unis; ses répercussions sur les cours du coton et sur les recettes d’exportation du coton

Résumé

Le cours mondial du coton s’aligne sur le prix auquel les Etats-Unis vendent leurs exportations de ce produit. Les Etats-Unis ont joué sur le marché mondial le rôle de fournisseur résiduel: à mesure qu’augmentait l’offre des autres producteurs, les Etats-Unis ont vu diminuer leur part du commerce international. En outre, les excédents persistants que, sur le plan mondial, la production accuse par rapport à la consommation se sont traduits, dans une large mesure, par l’accumulation de stocks très considérables aux Etats-Unis. L’étude décrit la nouvelle loi promulguée dans ce pays pour redresser cette situation et examine certaines des répercussions possibles sur les recettes d’exportation d’autres producteurs dont le coton fait concurrence à celui des Etats-Unis. L’objectif visé par cette loi est double: diminuer la production aux Etats-Unis en encourageant fortement les producteurs à réduire la superficie cultivée en coton, et entraîner une réduction du taux de croissance de la production dans les autres pays en provoquant, comme les Etats-Unis sont en mesure de le faire, une baisse du cours mondial. S’ajoutant à un certain renforcement de la demande d’importation consécutif à la baisse des prix, cette réduction permettrait aux Etats-Unis de combler un plus grand écart entre l’offre et la demande des autres pays. La façon dont s’administrera la politique cotonnière des Etats-Unis exercera une influence décisive sur l’ampleur de cette baisse du cours du coton. L’étude présente, à titre provisoire, des conclusions quantitatives dans l’hypotnèse où, pour réaliser leurs objectifs, les Etats-Unis devraient faire baisser les cours de 10 à 16 pour cent. On prévoit que, en dehors des Etats-Unis, les pays producteurs de coton verront leurs recettes d’exportation diminuer d’une somme correspondant exactement à la baisse des prix, par rapport aux chiffres qu’ils auraient pu réaliser en l’absence de eu la nouvelle loi; il se peut aussi que certains d’entre eux voient diminuer le volume de leurs exportations par rapport à celui qu’ils auraient pu obtenir en d’autres circonstances mais non, peut-être, par rapport au volume des exportations effectuées pendant les dernières années.

La Ley Agrícola estadounidense de 1965 y sus efectos sobre los precios del algodón y los ingresos por exportaciones de algodón

Resumen

El precio mundial del algodón está vinculado al precio de exportación del algodón estadounidense. Estados Unidos ha sido el abastecedor residual del mercado mundial, y, a medida que el abastecimiento procedente de otros países productores ha aumentado, la participación de las exportaciones estadounidenses en el comercio mundial ha declinado. Además, los persistentes excedentes de la producción sobre el consumo mundial se han reflejado en gran parte en la acumulación de existencias muy considerables en Estados Unidos. El trabajo que aquí aparece describe la nueva legislación promulgada en Estados Unidos a fin de remediar dicha situación, y examina algunos de los efectos que pudiera surtir sobre los ingresos de exportación de países competidores que producen algodón. La Ley tiene por objeto tanto disminuir la producción estadounidense mediante importantes incentivos para que se reduzca la superficie de cultivo algodonero, como provocar, por medio de un descenso del precio en el mercado mundial que Estados Unidos se encuentra en condiciones de lograr, una minoración de la tasa de aumento de la producción en otros países productores. Esta minoración, junto con cierta reacción de la demanda de importación ante la declinación del precio, permitiría a Estados Unidos llenar una diferencia mayor entre la oferta y la demanda de fuera de Estados Unidos. La medida de la declinación del precio será determinada en forma definitiva por el modo como se administren las políticas algodoneras de Estados Unidos. Se derivan conclusiones cuantitativas de carácter tentativo basadas en el supuesto de que la declinación del precio que se necesitará para lograr los propósitos de Estados Unidos habrá de ser entre un 10 y un 16 por ciento. Se cuenta con que los ingresos de exportación de los demás países productores de algodón quedarán reducidos en toda la medida de la declinación del precio, en comparación con los ingresos que hubieran podido obtener si no se hubiera promulgado la nueva Ley, y es posible que algunos de esos países experimenten también una declinación en el volumen de sus exportaciones en comparación con el volumen que de otro modo pudiera haberse proyectado, aunque tal vez no en comparación con el volumen de las exportaciones durante los últimos años.

*

Mr. Kuczynski, an economist in the Special Studies Division, is a graduate of the University of Cambridge.

1

The cotton season runs from August 1 to July 31.

2

A cotton bale is 478 pounds net weight. U.S. statistics are often expressed in running bales which may vary slightly from this weight.

3

This first program permitted a special sale abroad of 1 million bales, which were offered in January and February 1956. The authorization for regular programs of this type was enacted in the Agricultural Act of 1956, P.L. 84-540, Sec. 203, and came into effect in August 1956.

4

The importance of special credit and payment terms (such as sales for local currency under Title I of P.L. 480, and shipments under the Mutual Security Act) in promoting the reduction of U.S. stocks is worth noting. Sales under such terms amounted to over 40 per cent of total U.S. cotton exports in the four seasons following the beginning of U.S. export programs in 1955/56. Their importance has declined somewhat in subsequent seasons, and since 1961 they have accounted for about one fourth of total U.S. cotton exports.

5

Table 1 indicates that the decline in the prices of Mexican, Brazilian, and Pakistani cotton preceded that of U.S. cotton; this is because the prices quoted are spot prices. The U.S. program was announced in 1955/56 before it became effective, and although some sales for future delivery were made at reduced prices, U.S. spot sales were not made at the lower price before 1956/57. The spot prices of other cotton declined in response to the announcement of the U.S. program and to the U.S. forward sales.

6

The usual definition of extra-long staples is 1⅜ inches or more.

7

Short-staple cottons (produced principally in India and Pakistan) are not important in international trade, and their price tends to depend on the circumstances within the producing countries, the size of the crop, the structure of government subsidies, and other regulations.

8

P.L. 84-540, Title I.

9

The rise in non-U.S. stocks may be in part ascribed to the difficulty experienced by Egypt and the Sudan in moving cotton into trade after the Suez crisis.

10

It is worth noting that this surplus existed although the Sino-Soviet area has become an increasingly important net importer; in the absence of the growth of net imports by this area, stock accumulation in the rest of the world would have been even larger.

11

See Statement of the Undersecretary of Agriculture to the Committee on Agriculture, U.S. Congress, House, Hearings … on H.R. 8149—Cotton (89th Cong., 1st Sess.), May 26, 1965, p. 49. The Department of Agriculture estimates that the average annual rate of increase of cotton consumption outside the United States (excluding the Sino-Soviet area) is 2.9 per cent under present conditions, and that of production 4.3 per cent.

12

P.L. 89-321.

13

Aside from any acreage restrictions or entitlements related to the type of price support a grower receives under any program, the total acreage which he is allowed to plant to cotton is limited to what is referred to as the farm acreage allotment. The national total for such acreage is set by the Secretary of Agriculture (under the Act it will continue at no less than its present amount, 16 million acres) and is prorated among farms allowed to grow cotton. Thus under the Agricultural Act of 1965, the grower, if he decides to forego price support, will be able to plant the whole of his farm acreage allotment, and also any additional export acreage allotted to him as a nonparticipating grower. The national total of such additional export acreage is not to exceed 250,000 acres in 1966/67, and this limit will be lowered in subsequent years unless there is a specified reduction in U.S. cotton stocks during the preceding season.

14

See footnote 13. Small farms (10 acres or less or farms on which the farm acreage allotment multiplied by the projected yield is equal to 3,600 pounds or less) do not need to divert any acreage from cotton production in order to qualify for price support under the program.

15

Growers on small farms will receive payments at the same rate as if they had diverted 35 per cent of their acreage, even if the acreage is not diverted, and they will receive additional payments if the acreage is in fact diverted. For the season 1966/67 the rate for diversion payments has been set at 10.5 cents per pound of the projected yield of the acreage diverted, whether under mandatory or under voluntary reductions. It is worth noting that under the cotton program for the current (1965/66) season the grower receives diversion payments only if he diverts 35 per cent of his acreage; moreover, the rate of payment, 4.35 cents per pound of Middling 1 inch, is much less than that announced for 1966/67.

16

A farmer who undertakes to put cropland into nonproductive uses for a period of five to ten years will receive payments amounting to a maximum of 40 per cent of the annual market value of the crop that would have been produced on the land, providing that for 1966/67 the farmer entirely ceases to grow at least one surplus crop, such as cotton, which he had previously grown.

17

These additional payments are required by the Act to be such that a grower’s total assured price support on cotton produced will not be less than 65 per cent of the “parity” price for cotton. This stipulation is the same as in previous Acts. The additional payments are made at a rate calculated on the projected yield of 65 per cent of the farm acreage allotment (see footnote 13, above). A rate of 9.42 cents per pound of Middling 1 inch has been announced for 1966/67, and all such payments are to be made in kind in that season: the grower will receive a certificate redeemable for cotton from CCC stocks at a value not less than the loan rate set for the season; the CCC, however, may purchase the certificate back from the grower, in which event the payment becomes in practice a payment in cash.

18

Unless otherwise specified, all prices and loan rates quoted for U.S. cotton refer to Middling 1 inch at average location in the United States.

19

It has been noted above (footnote 17) that payments were to be made in kind in 1966/67. This does not mean, however, that 5-6 million bales of CCC cotton will be released to the market in that season, since the Secretary may regulate the amount of payment-in-kind certificates which the CCC may repurchase for cash. The important feature of this arrangement is that any CCC cotton thus repurchased may be released by the CCC to the market at whatever price the Secretary determines. It need not, however, all be released.

20

Of course, the higher the world market price, the more growers will find it attractive to forego price support and plant their whole acreage allotment. However, a world market price well above the present 24 cents per pound would probably be required to produce a pronounced movement of growers out of the price support program.

21

The Department of Agriculture, in estimates prepared for the Congress, and published in U.S. Congress, Senate Report No. 687 (89th Cong., 1st Sess.), September 7, 1965, p. 62, projected that U.S. production would be as follows under the Act: 13.55 million bales in 1966/67, 13.2 million in 1967/68, and 13.3 million in each of the two remaining seasons. U.S. production for the current season is forecast at about 15 million bales, so that the projections enumerated amount to reductions of 10, 12, and 11 per cent, respectively, from present levels.

22

The version of the Agricultural Act of 1965 suggested by the Senate Committee on Agriculture and Forestry included the requirement that CCC export sales or export payments be put on a bid or offer-and-acceptance basis without advance announcement of prices or subsidy rates. This suggestion was rejected by the Senate and is not included in the Act. It is expected that CCC sales will be administered as in previous seasons.

23

See Statement of the Undersecretary of Agriculture to the Committee on Agriculture, op. cit., p. 55.

24

See U.S. Congress, Conference Report No. 1123 on the Agricultural Act of 1965 (89th Cong., 1st Sess.), October 6, 1965, pp. 33-34.

25

U.S. Congress, Senate Report No. 687 (89th Cong., 1st Sess.), pp. 61-64.

26

It should also be noted that the more the market price declines, the greater is the incentive for the U.S. grower to reduce acreage, and this may be an additional reason for the U.S. authorities to aim at a lower price. As the market price declines, the U.S. grower can maintain his income only by diverting acreage from cotton production. Crude estimates suggest that the U.S. market price would have to fall below 22.5 cents per pound to reduce the proceeds of U.S. growers below present levels unless they divert additional acreage from cotton production, above the mandatory reduction (12.5 per cent in 1966/67). Thus, if the projected schedule of prices inferred in Table 3 were to obtain, it is only in the third season of the program that a grower would actually find himself worse off than he is at present if he did not divert additional acreage.

27

It may be interesting to draw some crude quantitative conclusions, from the U.S. export estimates presented in Table 3, as to the decline in the rate of growth of supplies from other producers implied in those estimates. It has been noted above (footnote 11) that the Department of Agriculture estimates that, under present conditions, production outside the United States (excluding also the Sino-Soviet area) has been growing at 4.3 per cent per annum, and consumption at 2.9 per cent per annum. If it is assumed (a) that the rate of growth of consumption is not affected by the lower price, and (b) that net imports into the Sino-Soviet area continue to grow at recent rates (about 11 per cent per annum—in which case these imports should reach 3 million bales by 1969/70), then it can be deduced that for U.S. exports to reach 6 million bales by 1969/70, as shown in Table 3, the rate of growth of production outside the United States would have to decline from 4.3 per cent to 2.9 per cent per annum. This result is, however, crucially affected by the two assumptions made, and if world consumption or Sino-Soviet imports reacted to lower prices, the necessary decline in the rate of growth of supplies from other producers would be consequently smaller.

28

In other, nonindustrial, net importing areas, such as India, the elasticity of demand is probably higher, and a greater reaction could be expected to a fall in the price of cotton. Such areas account, however, for a relatively small part of world trade.

29

Kiyohiko Nagahama, “The Manufacture and Use of Synthetic Fibers in Integrated Textile Manufacturing Operations,” in International Cotton Advisory Committee, Symposium on Inter-Fibre Competition (Washington, May 1965).

30

In a report by a group of experts, quoted in International Cotton Advisory Committee, Prospective Trends in Consumption of Textile Fibers (Washington, March 1962), it was found that the price elasticity of demand for all fibers had been close to—0.2 in Western Europe; the elasticity of demand for cotton would certainly not have been any lower. If this is taken as the elasticity of import demand for all net importing areas, a 10-16 per cent decline in prices would stimulate an expansion of imports by some 300,000-500,000 bales over the levels which would have otherwise prevailed. These figures do not make any allowance for competitive strengthening of cotton vis-à-vis manmade fibers.

31

It is perhaps worth mentioning that if the price decline were to work entirely through a reduction in the rate of growth of supplies from non-U.S. sources, these countries’ actual export receipts (as opposed to their export receipts as they would have been in the absence of a price decline) would not show much change from their present level: it was noted above (footnote 27) that in the absence of any effect on demand, the rate of growth of their supplies would have to fall to 2.9 per cent per annum if the projected level of U.S. exports was to be achieved. Thus by the end of the fourth season under the Act the trend of growth in their supplies, which would have increased these supplies by 12 per cent, would have offset most of the 10-16 per cent price decline. Futhermore, if the price decline were to work through demand as well as supply, so that the rate of growth of supplies from non-U.S. sources did not decline as much, the trend increase might in fact rather more than offset the effect of the price decline on actual export receipts (see footnote 30).

32

International Bank for Reconstruction and Development, Extra-Long Staple Cotton: Demand and Price Prospects (Washington, April 1964).

Same Series

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Cover IMF Staff Papers
IMF Staff papers: Volume 13 No. 1
Author:
International Monetary Fund. Research Dept.
Volume/Issue:
Volume 1966: Issue 001
Publisher:
International Monetary Fund
ISBN:
9781451956160
ISSN:
1020-7635
Pages:
166
DOI:
https://doi.org/10.5089/9781451956160.024
  • Chart 1.
    View in gallery
    Chart 1.

    Cotton: Prices of American and Egyptian Cotton, c.i.f. Liverpool

    (In U.S. cents per pound)

  • Chart 2.
    View in gallery
    Chart 2.

    Cotton: U.S. Domestic and Export Prices and CCC Loan Rate for Middling One-Inch Cotton

    (In U.S. cents per pound)

  • Chart 3.
    View in gallery
    Chart 3.

    TEXTILE FIBER CONSUMPTION BY AREA1

    (In millions of metric tons)

Chart 1.

Cotton: Prices of American and Egyptian Cotton, c.i.f. Liverpool

(In U.S. cents per pound)
Chart 2.

Cotton: U.S. Domestic and Export Prices and CCC Loan Rate for Middling One-Inch Cotton

(In U.S. cents per pound)
Chart 3.

TEXTILE FIBER CONSUMPTION BY AREA1

(In millions of metric tons)