Adjustments in a Slowly Declining U. S. Cotton Production Industry

URING the last 20 years the U. S. cotton production industry has endured such sweeping changes in government policy that many observers of the scene may have failed to notice that it has been what the economist may reasonably classify as a declining industry. If the prime criteria for identifying a declining industry is that the aggregate demand for its product is shifting to the left, then Figure 1 leaves little doubt that U. S. cotton production is a declining industry. The leftward shift of the demand curve is even more obvious in Figure 2, which presents cotton consumption in per capita terms. Cotton is by no means unique in this respect as many other agricultural commodities have experienced declining per capita consumption. The downward trends in the total quantity of cotton consumed domestically and exported have occurred at very slow rates as indicated in Table 1. If prices had been trendless over this period of very slowly declining consumption, it would be reasonable to classify the U. S. cotton production industry as static rather than declining. However, dramatic downward trends in the real prices paid by users of cotton in both the U. S. and foreign countries occurred during the 1953-72 period as shown in Table 3. This paper will analyze the adjustment problems associated with U. S. government efforts to balance supply with demand while maintaining gross receipts to U. S. cotton growers during 1953-72. These adjustments were carried out in the context of a slowly declining demand with the government policy probably being a major contributor to the decline in demand. The cotton programs were successful in maintaining gross receipts, at least as measured in current dollars (Table 3). These programs undoubtedly contributed to substantial inefficiencies in production and major adjustments in the value of the rights to produce cotton, the number of farmers engaged in cotton production, and total acres planted to cotton. It will be argued in this paper that the U. S. government through its policies effectively set the price for both domestic and foreign grown cotton during most of this period. In this way profound adjustments have also been required of foreign producers of cotton. The twenty-year period will be divided into three parts in order to expose better the distinctively different policies in effect during these three subperiods. The dominant features of the first period, 1953-55, were high price supports with high prices to domestic and foreign producers and consumers of cotton. The second period, 1956-65, was a period of sharply reduced prices for foreign producers and consumers, high prices for U. S. producers, and high prices for U. S. users of cotton, except in the last two years of the period when subsidies were paid to U. S. cotton mills. In the third period, 1966-72, direct subsidy payments to U. S. producers and low support prices resulted in low market prices in both U. S. and foreign markets. Beginning with the 1969 cotton crop, U. S. cotton producers have had substantial freedom to plant acreages of cotton beyond that required for full participation in the benefits of government programs. The planting performance of this period will be analyzed because it provides considerable insight to the adjustments in size and location of the U. S. cotton production industry that * I am indebted to C. Curtis Cable Jr. for his review of an early draft of this article, which is in part a product of our continuing dialogue on the condition of the markets for cotton. Arizona Agricultural Experiment Station Journal paper 2156.