• Working Paper

Interaction Effects of Promotion, Research, and Price Support Programs for U.S. Cotton

Citation

Beach, R. H., Murray, B. C., Piggott, N. E., & Wohlgenant, M. K. (2002). Interaction Effects of Promotion, Research, and Price Support Programs for U.S. Cotton.

Abstract

Many agricultural commodities have industry-funded generic promotion and/or research ("checkoff") programs designed to improve the economic performance of producers. To determine the effectiveness of these programs, net benefits to producers attributable to activities funded by the checkoff must be separated from those due to other factors influencing commodity markets. One factor important in agricultural commodity markets is the impact of government programs. However, studies evaluating the returns to checkoff programs often do not explicitly discuss, or attempt to account for empirically, the impact of pre-existing distortions caused by federal farm programs. Because distortions caused by farm programs can be large, this omission can potentially lead to biased estimates of the returns to the checkoff programs. In this research, a model that captures the influence of two Federal programs (loan deficiency payments to farmers and subsidies to consuming mills) on the estimated returns to the Cotton Research and Promotion Program (CRPP) is developed. Using an econometrically estimated model of the U.S. cotton market, it is shown that the program interaction effects have a large impact on checkoff program returns. The returns to the CRPP are reduced by about 20 percent when the loan rate for the LDP is binding and increased by just over 50 percent when subsidies for consuming mills are in effect.