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A new European Union (EU) policy regime has been announced for cotton for introduction in 2005. The orientation is towards a scheme which includes a mix of coupled and decoupled measures, i.e., a mix of non trade-distorting (green box) and less trade-distorting (blue box) forms of farm support. These measures include a fully decoupled single farm payment (income aid) and an area payment (production aid).

The aim of the present study is to evaluate the proposed EU cotton policy regime in welfare terms. A partial equilibrium model was used to simulate results of the new policy over the period 2000 to 2003, with various assumptions of supply and demand elasticities for Spain and Greece. Two main conclusions are drawn from the simulation results: first, if the proposed policy regime had been in effect during this period, cotton producers would, on average, have been better-off than under the existing policy regime. The magnitude of change, i.e., the additional farm income, depends on the value of the supply elasticity. Second, the proposed policy regime would have resulted in savings to taxpayers in supporting cotton farmers.

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