Washington Insider -- Wednesday

The Push for Special Treatment in Crop Insurance

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Treasury Expected to Give a Pass Once Again to China Regarding Currency Manipulation

The Treasury Department later today will issue its latest semi-annual report on other countries' currency exchange rate policies with almost no one expecting that the administration will officially designate China as a "currency manipulator." However, U.S. exporters have in recent weeks been urging Treasury Secretary Jacob Lew to make such a designation.

The Alliance for American Manufacturing, among others, urged Treasury Secretary Jacob Lew to crack down on China. "The situation has, if anything, grown worse over the last six months," said AAM President Scott Paul in a letter to Lew. "The dollar/yuan exchange rate is essentially the same this week as it was 17 months ago and China's aggressive intervention has caused the yuan to fall 1.63% below its high-water mark in January 2014."

If China is holding down the value of its currency, as many in the United States allege, the effect is to give China's exporters a competitive advantage over U.S. manufacturers.

No U.S. administration has leveled the "manipulation" charge against any country since 1994 and the Obama administration is unlikely to be the first in 20 years to do so. Officials fear that tagging China as a currency manipulator would damage relations with our No. 2 trading partner. However routine this lack of action has become, count on some members of Congress to be highly critical of the White House after today's announcement is made.

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Supermarket Chain Drops Meat Grades from Labels, Surprises USDA

The Washington Post this week broke a story about an unannounced change in meat labels that one large supermarket chain recently began, but quickly dropped.

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The chain is Giant, which is owned by Ahold USA and operates stores in Mid-Atlantic states and West Virginia. The chain recently decided that it would remove grade designations (i.e., select or choice) from its meat labels and simply note that the cut was "USDA graded," a description that the Post points out applies to almost all meat approved for sale in the United States. For those accustomed to looking for the grade of the cut they planned to buy, the change was both disconcerting and confusing.

The change caught USDA officials off-guard. They said they had never seen anything like the "USDA graded" label before. And while admitting that the new label was truthful, "it's also misleading," they said. USDA promptly informed Giant that the new labels were impermissible, and the company agreed to go back to the old labels.

What this episode indicates is that for at least some food manufacturers and retailers, labels are more about selling and less about informing. As several experts told the Post, labels are supposed to allow customers to make more informed decisions, but they instead have turned into advertising vehicles.

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Washington Insider: The Push for Special Treatment in Crop Insurance

One of the aspects of the new farm safety nets that are often mentioned by policy wonks is their basis, sort of, on actuarial realities. USDA has a Risk Management Agency that keeps track of many, many characteristics of crop and livestock production — and typically uses these to calculate the risk of certain levels of production in the future.

However, there's more. Disaster programs are out of favor just now, but Congress is putting a "disaster clause" in the insurance safety net. It has directed USDA to calculate actual production histories for all commodities by producer, county and state, but in some cases these are to be adjusted. Thus, producers' actual yields that fall below 50% of the ten year county average can be dropped, with county numbers used to establish a new, adjusted 10-year production average. This lets farmers insure at a level that reflects what they hoped to produce rather than what they did produce.

This adjustment, modest as it may seem given today's computers will take time and effort to complete and USDA says it can't meet the congressional wish with regard to insuring the 2015 crop. For some producers, this means they will be able to buy less insurance than they want since their actual APH is too small — especially those in areas that have suffered long droughts. In those areas, producers are clamoring for the adjusted yield programs to begin operation.

However, USDA says its Risk Management Agency cannot make those calculations until the 2016 crop year and that those who want the adjustment in place for 2015 are out of luck. Cotton growers likely will be hardest hit by the delay, press reports indicate.

However, crop producers in sections of the farm belt where weather patterns have been more reliable have less interest in the adjustment rule, and often argue that this special program undercuts the credibility of the "actuarial basis" for crop and revenue insurance nationwide. They also say the practice could lead to higher premiums for producers in all regions, including those who are not able to adjust yields. So, they are more skeptical of special efforts to mobilize the program.

In the meantime, some members of Congress are increasingly critical of Agriculture Secretary Tom Vilsack for not getting the necessary calculations done to meet the congressional schedule. Vilsack says the problem is a "staffing challenge," and noted that the 2014 farm bill provided resources to allow some of the work to be done by outside contracts — a practice that has been receiving criticism recently.

Secretary Vilsack likely will get the calculations he needs done in the near future, perhaps in time to dampen at least some of the criticism of his administration of the program. Nevertheless, the program itself with its special disaster feature can be expected to continue to be controversial — especially if the new insurance based safety nets continue show signs of unexpectedly high costs and uneven benefits for various crops and regions, Washington Insider believes.


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(GH/CZ)

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