The Economic Effectiveness of the Cotton Checkoff Program

This report is an empirical analysis of the effectiveness of the marketing/promotion, nonagricultural research, and agricultural research activities associated with the cotton checkoff program over the period of 1986/87 through 2004/05. The analysis is based on a multi-equation, econometric, non-spatial, price equilibrium simulation model of U.S. and foreign fiber markets using annual data. The key average annual impacts of the cotton checkoff program on U.S. and foreign cotton and man-made fiber markets and their associated textile markets are reported. The results show that the returns to cotton producers as well as to cotton importers from the cotton checkoff program are positive. The average discounted benefit-cost ratios (BCR) for the cotton checkoff program were found to be 5.7 for domestic cotton producers and 14.4 for importers. The higher BCR for importers reflects revenue gains not only from additional sales of cotton fiber textiles but also from additional “spillover” sales of man-made fiber textiles prompted by the cotton checkoff program. The results also show that U.S. taxpayers are better off because the cotton checkoff program has tended to reduce government outlays directed to cotton farmers. The analysis also finds that neither U.S. producers nor importers pay the full cost of the checkoff assessments. Finally, cotton checkoff expenditures on agricultural research were found to have positively and significantly affected U.S. cotton yields with no discernible effects on cotton harvested acreage.