A one-year snapshot of the profitability of U.S. cotton producers versus their counterparts in South America show that Brazilian producers are more competitive than even the most efficient U.S. farm. The study also indicated that in certain parts of Brazil, cotton can be produced for well under 50 cents per pound.
Economists at Texas A&M University compared 2004 cost of production between cotton producers in the United States and five South American countries: Argentina, Bolivia, Brazil, Colombia and Paraguay.
Eighteen U.S. cotton farms located in Alabama, Arkansas, California, Georgia, Louisiana, North Carolina, Tennessee and Texas were used for the study. The same farms are also part of an on-going, long-term study by the Agricultural and Food Policy Center (AFPC) in the Department of Agricultural Economics at Texas A&M University, to evaluate the impacts of alternative U.S. farm policies.
The data for each AFPC representative farm is developed and maintained by AFPC economists and local panel of producers. Information necessary to simulate the economic activity on the representative farm is developed from panels of producers.
Using the same methodology of the U.S. representative farms, 16 representative farms were created for South America by AFPC economists and local partners. Focus groups of four to eight farmers in each site of each country were used to collect data. The data collected involved variable and fixed cost of production, historical price and yield of lint cotton, seed cotton price and yield, type of machinery, and tillage operations.
All land was assumed to be rented and machinery depreciation was calculated using the same formula for all farms. The July 1, 2004, exchange rate was used for conversion to U.S. dollars.
Cost of production in the United States ranged from 60 cents per pound of lint cotton produced for a representative farm in Arkansas to 87 cents per pound of lint cotton produced for a representative farm in California.
Cost of production in South America ranged from 40 cents per pound of lint cotton produced for a representative farm in Argentina to 80 cents per pound of lint cotton produced for a representative farm in Colombia. Three of the South American cotton farms were irrigated, compared to eight for U.S. farms.
In 2004, a year in which the adjusted world price had declined from previous years, none of the 18 U.S. farms produced cotton for less than the price received.
The closest any U.S. farm got to break-even was an irrigated 6,000-acre operation in Arkansas which produced a pound of cotton for 60 cents a pound and sold for 55 cents a pound. The biggest losses were incurred on two large cotton operations in Texas. One produced cotton for 82 cents per pound and sold for 40 cents per pound, while another produced cotton for 79 cents a pound and sold for 37 cents a pound.
One reason for lower per pound production costs for the six Brazilian cotton farms were exceptional yields, which ranged from 1,100 pounds to 1,513 pounds, with per acre production costs ranging from $460 to $712.
For all of South America, production costs per acre ranged from $141 for a 5-acre farm in Paraguay to $712 for a 5,000-acre farm in Brazil. Both of the latter farms lost money.
The most efficient farm in South America was a 5,000-acre irrigated farm in Argentina which produced cotton for 40 cents a pound and sold for 62 cents a pound. The most inefficient operation in South America was a 250-acre dryland operation in Colombia that sold cotton for 57 cents a pound against costs of 80 cents per acre.
Per acre cost of production for U.S. farms ranged from $157 per acre for a 2,200-acre dryland farm in Texas to $1,134 for a 2,400-acre irrigated farm in California. On paper, these two farms lost 28 cents per pound and 22 cents per pound, respectively.