34. Memorandum From the Secretary of the Council on Foreign Economic Policy (Cullen) to the Members of the Council 1

SUBJECT

  • CFEP 529—U.S. Policy With Respect to the Disposal of CCC Owned Cotton

Your attention is invited to the attached paper by the Department of Agriculture concerning the sales policies for CCC owned cotton. This paper is distributed in connection with the briefing that Mr. James A. McConnell, Assistant Secretary of Agriculture, made to the Council on subject matter on May 31, 1955.

Paul H. Cullen
Lt. Col. USA
[Page 121]

[Enclosure]

SUBJECT

  • Review of alternative sales policies for CCC owned cotton

Facts bearing on the problem

1. Cotton is in serious surplus in the U.S. and 1955 production is limited to the minimum acreage permitted by law. Marketing quotas and acreage allotments, approximately 15 percent less than in 1954, are in effect for the 1955 crop. It now appears that the August 1, 1955, carryover will be about 10.7 million bales, the highest since 1946. Of that total about 6.5 million bales will be owned by CCC and 1.7 million bales will be under loan. The 1955 acreage is expected to be the lowest in 70 years. The objective of the Department of Agriculture in its over-all cotton production and distribution program is to reduce carryover stocks so that on August 1, 1956, they will be reduced to about 7 million bales. This would require the export of about 5 million bales. Failure to export 5 million bales would necessitate a further reduction of acreage below the extremely low 1955 acreage and would create a considerable degree of additional hardship among cotton producers.

2. Export of 5 million bales of cotton would be approximately equal to the 1948–51 average and would be substantially less than our pre-war share of world trade in cotton.

Cotton Exports Million Bales
1948 4.7
1949 5.8
1950 4.1
1951 5.5
1952 3.0
1953 3.8
1954 4.0

3. The President has enunciated the following as export sales policy: “The United States cannot be satisfied with the position of holding its own supplies off the market and accumulating surpluses while other countries dispose of their entire production. Accordingly, the United States will offer its products at competitive prices. At the same time the United States will not use its agricultural surpluses to impair the traditional competitive position of friendly countries by disrupting world prices of agricultural commodities.”

[Page 122]

Discussion

1. It is essential that there be established an export sales policy for cotton for the 1955–56 marketing year. Current uncertainties are resulting in virtual world wide stoppage in the export movement in cotton. The Department of Agriculture has been subjected to pressures from all sides (producer, Congressional, trade, and foreign governments) for a policy announcement.

2. The 90% support price program of the United States has largely fixed the price level of world cotton. It has guaranteed that there will be no drastic declines in world cotton prices. Behind this price umbrella cotton production expanded greatly in the old cotton-producing countries and in many new producing areas of the world. While foreign acreage expanded, the acreage allotted to the United States producers was cut from 1953 plantings by 21 percent for 1954, and an additional 15 percent for 1955. In fact the United States producer has virtually borne the entire acreage reduction for the world. His sacrifice has maintained the world price at a high level, and encouraged foreign producers to expand acreage, and capture historical American markets in which he has been denied full participation because of his curtailed acreage.

(a)
The result is that markets we have been generations in creating have been surrendered to foreign producers who have priced their cotton just under ours, with a resultant loss in grave proportions of the markets for American-grown cotton.
(b)
A further incentive to expanded foreign production has been our technical and financial assistance programs to provide know-how, equipment, and irrigation projects to remove the production risks and create new production areas.
(c)
The following table shows how the present U.S. policy is resulting in decreased production and increased stocks in the U.S.:
[Page 123]
Free World Supply Statistics
1951–52 1952–53 1953–54 1954–55 1955–562
Million Bales
Beginning carryover, August 1
United States 2.3 2.8 5.6 9.7 10.7
Other net exporting countries 2.7 4.4 4.8 3.5 3.5
Net importing countries 5.7 6.0 5.1 5.2 5.0
Total 10.7 13.2 15.5 18.4 19.2
Production
United States 15.2 15.2 16.4 13.6
Other 13.4 13.7 13.9 15.1
Total 28.6 28.9 30.3 28.7
Supply, free world total 39.5 42.1 45.8 47.1

3. The 90 percent support price program, and our withholding policy, have not only protected the domestic and foreign cotton prices, but the system has also protected the American and foreign synthetic industries, particularly the rayon industry, which by pricing their commodity just under the price of cotton, have made great inroads into cotton consumption both in the United States and abroad. 1954 world consumption of synthetics in cotton equivalents amounted to about 10 million bales. (U.S. portion of this was about 3.5 million bales.) The result has been to further decrease the consumption of American cotton, which has made additional contributions to the present low cotton-acreage allotments. Unless it is changed the present program will in the future cause further decreases in the consumption of American cotton. Under existing law, with continued increases in production per acre in the United States, this would necessitate additional cuts in acreage allotments that would be still more disastrous to individual producers and areas of the Cotton Belt.

4. Even under the Agricultural Act of 1954, there is not much chance to obtain a significant cut in the price support level. Various provisions of legislation serve to maintain the support price level at 90 percent of parity.

5. World trade in cotton has been running about 12.5 million bales per year. Pre-World War II we exported from 5 to 7 million bales per year. If we export 5.0 million bales this would be only about 40 percent of the world trade in cotton. This is less than our [Page 124] average during any representative pre-war period and could be well defended against any criticism from other exporting countries.

6. If U.S. cotton stocks were to be withheld from the market to satisfy foreign policy objectives, the burden should be borne, not by the U.S. cotton producers, but as a foreign policy expenditure of the U.S. To withhold these supplies would enable all other exporting countries to dispose of their entire output at maximized selling prices, while the U.S. producers would be required to cut production further and sacrifice additional costly investments. We do not believe that the U.S. could be satisfied to be a residual supplier.

Alternative disposal programs

1.
Continuation of present policy of selling cotton at no less than the higher of (1) 105 percent of current support price plus reasonable carrying charges, or (2) the market price as determined by CCC.
2.
Subsidizing exports of cotton or some other form of two-price system.

Legislative changes in support program deemed essential

1.
Changes the standard quality of Upland cotton for purposes of parity and price support from Middling 7/8’s inch to Middling 1 inch.
2.
Eliminate Section 101(b) of the Agricultural Adjustment Act of 1949, as amended, and add the words “cotton and peanuts” to Section 101(a) of this Act. This would permit adjustments in the support level as a percentage of parity below 90 percent when the supply percentage is above 102 percent rather than 108 percent as is now permitted.
  1. Source: Department of State, ECFEP Files: Lot 61 D 282A, Disposal of CCC-Owned Cotton–CFEP 529. Confidential. President Eisenhower established the Council on Foreign Economic Policy (CFEP) on December 11, 1954, to develop foreign economic programs and coordinate economic policy among the departments and agencies of the executive branch. He appointed Joseph M. Dodge the first chairman of the Council, composed of senior representatives of the Departments of State, the Treasury, Commerce, and Agriculture, and the Foreign Operations Administration (subsequently the International Cooperation Administration). The text of the President’s letter appointing Dodge as CFEP chairman is printed in Department of State Bulletin, December 27, 1954, p. 987.
  2. Estimated. [Footnote in the source text.]