INTERACTION EFFECTS OF PROMOTION, RESEARCH, AND PRICE SUPPORT PROGRAMS FOR U.S. COTTON

Table 3. Effects of Interaction with Government Cotton Programs on Domestic Producer ROI,
1996-2000 (2000$)

Marginal Benefits, Costsa	Free Market	LDP	Step 2	LDP and Step 2	Weighted Average^b
Net Producer Benefits, Promotion	$1,339,915	$1,065,155	$2,081,637	$1,473,021	$1,611,416
Net Producer Benefits, Non Ag Research	$18,871,694	$15,365,473	$28,341,000	$20,570,558	$22,337,780
Net Producer Benefits, Combined	$20,166,529	$16,384,866	$30,380,092	$21,998,879	$23,905,031
Domestic Producer Costs, Promotion	$290,084	$290,084	$290,084	$290,084	$290,084
Domestic Producer Costs, Non Ag Research	$67,334	$67,334	$67,334	$67,334	$67,334
Domestic Producer Assessment, Combined	$453,447	$453,447	$453,447	$453,447	$453,447
Producer Benefits/Producer Costs, Promotion	4.6	3.7	7.2	5.1	5.6
Producer Benefits/Producer Costs, Non Ag Research	280.3	228.2	420.9	305.5	331.7
Producer Benefits/Producer Assessments, Combined	44.5	36.1	67.0	48.5	52.7

aThese values correspond to a 1 percent increase in expenditures and costs/assessments. For promotion and research the costs to
domestic producers of a marginal increase in CRPP expenditures are calculated as 1 percent of the expenditures on those
activities multiplied by the share of total assessments paid by domestic producers (about 67 percent). For the combined
measure, the costs are calculated as a 1 percent increase in the total assessments paid by domestic producers.

^bWeights for the four policy regimes are based on the number of months each was in effect during 1996-2000.

mills) does not increase as much as it would in a free market. When demand shifts out, the market price
will rise. However, this will trigger larger government subsidies per pound of cotton. The net price after
subsidy will rise much less than the price received by producers as a result of these payments. Thus, the
quantity purchased and the price received by producers both increase more than they would under free
market conditions. The LDP program, on the other hand, acts to reduce the ROI of promotion and
nonagricultural research activities when binding. This is because part of the increase in market price
isoffset by reductions in government LDP payments. A weighted average of the returns under different
government programs in existence from 1996 through 2000 yields a return that is about 18 percent higher
than the estimated return in the absence of government programs.

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