Washington Insider-- Thursday

By DTN's Washington Insider

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

Senators Reach Deal on Key TPA Issue -- Grassley

The Senate Finance panel chairman reached agreement on a Democratic request to let Congress slow action on certain trade pacts, boosting the prospects of a fast-track/Trade Promotion Authority (TPA) bill President Barack Obama supports to enact major trade deals.

Senators Orrin Hatch of Utah, the Republican chairman of the Finance Committee that deals with trade policy, and Ron Wyden, the top Democrat on the panel, drafted legislation with a provision giving lawmakers more power over some deals, said Sen. Chuck Grassley, R-Iowa.

The language would let the White House send trade pacts to Congress for an up-or-down vote with no amendments allowed. Wyden obtained language in the measure that lets Congress jettison the fast-track process if 60 senators concluded the president ignored congressionally mandated negotiating objectives, Grassley said. “If we are going to get any trade promotion authority, we’re going to have to move with this,” Grassley said in an interview Wednesday. “I don’t think what you’d call the circuit-breaker would be a problem.”

Hatch has declined to confirm any agreement with Wyden. He said he will hold a hearing Thursday to consider the legislation and possibly schedule a committee meeting on the matter next week.

One of the last hurdles to introducing legislation on fast track in the Senate is working out a separate bill to reauthorize Trade Adjustment Assistance (TAA), Senator Rob Portman, R-Ohio, said. That bill would provide aid to workers whose jobs were lost due to trade agreements. Portman and other senators are seeking to move the bill alongside trade promotion authority, something Hatch said would be needed for Democratic support, even though Republicans generally oppose the adjustment assistance.

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Report Signals Other Countries Responding to US Demand for Non-GMO Crops

Imports of corn from Romania and soybeans from India to meet demand for non-GMO feeds in the United States are two examples of areas where US producers could shift their production away from GMO crops to meet a domestic need, according to a report from the Organic Trade Association and Penn State University.

The report is “a help-wanted sign” for US farmers, according to Laura Batcha, chief executive officer of the association. “There are market distortions that are pretty striking.”

The shift has resulted in the United States importing $11.6 million in Romanian corn in 2014 compared to $545,000 in 2013, while imports of soybeans from India hit $73.8 million.

This demand rise has come as organic food sales reached $32.3 billion in 2013, about 4.5% of what Americans spend for groceries annually. According to USDA data that began being collected in 2011 on organic crops, US organic exports were $553 million in 2014, nearly quadruple the 2011 level. Also, imports reached $1.28 billion in 2014.

The United States imported $184 million in organic soybeans in 2014, with India the leading seller followed by China. Corn imports totaled $35.7 million in 2014.

There are opportunities for US growers to shift to organic production but that does require them to not use conventional chemicals, etc., for three years before they can be certified as organic. As US farm income is forecast to decline sharply in 2015, which may temper grower interest in making such a switch.

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Washington Insider: California Water Woes and Prices

Holman Jenkins, Jr. is a business columnist, editorial writer and member of the Wall Street Journal Editorial Board. He published a recent column in the Journal that expanded on an increasingly common theme regarding the drought—that most of California’s water problems now are the result of bad, wasteful public policies.

The solution, he says, is simple: “develop realistic pricing policies.” If homeowners paid two pennies a gallon instead of 0.5, they might take shorter showers and be more parsimonious with their lawns, “but their lives wouldn’t change materially.” If farmers found it remunerative to reduce by one gallon the 3.5 it takes to grow a lettuce, “who doubts they’d make it work,” he argues.

He sets the stage for these arguments by asserting that, “…for all the agonizing of the TV news and Gov. Jerry Brown, the appetite for a price solution is not only nil, it is undiscussed except by bloggers and op-ed writers. Realistic pricing policies, he thinks, are “practically beyond the power of democratic politics to unravel.” He explains some of the issues.

For example, the original market for water was the market for land and land with water was worth more. In California, two large state and federal projects, the State Water Project and the Central Valley Project, have long been in charge of aggregating water in the north and allocating it to various users in southern California, which made water political. A third system, the Colorado River system also is important and involves California and six other states and so is super political.

The government also becomes an interest group in its own right as it decides how much water will continue to flow in natural channels.

Jenkins focuses on farmers, who receive their public water through combinations of hereditary rights, political lobbying, and an emerging market of transferable water rights. In this process, Jenkins says that California politicians are “unusually attentive to Central Valley farming interests.” He concludes that the current unrealistic water prices allow producers to export water-hungry crops that would not be profitable if water prices were realistic, and he is equally critical of a “forthcoming San Diego plant that would incur large energy costs to convert seawater into drinking water.”

Still, there’s hope, he says, that “California’s golden dream” will not die of thirst since California’s problems are far from insoluble. He points to the 2000 blackout crisis, with its “illusion that California was running out of electric power,” when all it was running out of was money to pay for absurdly overpriced power “the state inflicted on itself through a harebrained reliance on spot markets.” When politicians “belatedly” let utilities return to long-term contracting, prices fell and the power came back on.

Jenkins has particular scorn for Gov. Brown--whose emergency plan “doubles down on political allocation of water, imposing mandatory cuts on population centers. He asserts that the purpose is to agitate voters to agitate Washington to do something, meaning free up water from elsewhere and give it to California.

This, he thinks is unreasonable since “it is exceedingly doubtful that voters, and even farmers, would reject a policy of water pricing that would mean in the future they could get all the water they are willing to pay for.” Well, you might say, that might depend on how much users would be expected to pay and how those prices were determined.

Then, he drifts off into a scornful commentary on global warming, to argue that “even if we had a meaningful climate policy (which we don’t), it would necessarily operate on a time-scale irrelevant to California’s troubles.” So, no hope there—but still, the “real” problem is a non-price allocation system that guarantees waste, shortages and political fights over water.

So, it seems, Jenkins and the WSJ have their script about the drought—which is really about non-price allocation. But, you don’t have to agree with all Jenkin’s arguments to recognize that it is not non-price allocation that leads to waste, it is underpriced allocation. That was a key policy that led to the collapse of Central Planning, and it does not serve drought-starved areas in the United States well, either.

It seems unlikely that Jenkins will ever be a fan of Governor Brown’s, but Brown likely is aware of the growing arguments that Jenkins and other market oriented observers are making about the politics of underpriced water. How any state can get to realistic pricing is quite another problem and one that Jenkins doesn’t help with very much. Still, this is an issue that can be expected to become increasingly important in the future and which producers should watch carefully as it emerges, Washington Insider believes.

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(GH/CZ)

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