Washington Insider -- Tuesday

Ag Policy Headaches in China

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

U.S. Considering Changes in Energy Export, Strategic Petroleum Reserve Policies

The United States is "actively looking" at issues that would provide the background for possible changes in the country's oil export policy as well as the rules governing releases from the government's Strategic Petroleum Reserve, Energy Secretary Ernest Moniz said last week. "The international energy markets clearly look very, very different from what they looked like in 1975," Moniz said at the Council on Foreign Relations in New York. "It's worth a re-examination."

U.S. crude exports surged to a near-record after the Commerce Department in June this year expanded its definition of oil that can qualify for foreign sale. Such sales have been limited under a 1975 law enacted in the wake of the oil embargo of the 1970s.

"There has been no policy change in terms of crude oil exports," Moniz said. "We are actively looking at the issues of the changed production profile, the changed nature of the oil being produced, the refinery situation, etc. There is consideration of that going on. If there are new policies called for, those will be considered."

This is classic "treading water" language from Washington: there rarely is a time when new policies are called for but not considered. Moniz' presentation in New York allows all sides in ongoing energy discussions to feel that their position has not yet been rejected, something that no administration would want to do just three weeks from mid-term elections.

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McConnell Would Push to Roll Back EPA Rules if Re-Elected

Senate Minority Leader Mitch McConnell, R-Ky., locked in a closer-than-expected re-election battle, vowed to hold votes to roll back Environmental Protection Agency regulations if he becomes majority leader next year. But on the subject of climate change, the minority leader managed a classic issue-straddle, saying the existence of climate change is "not a yes or no question."

McConnell said there isn't conclusive evidence showing human activities contribute to climate change and maintained he couldn't weigh in on the issue because he isn't a scientist himself. "I know there are scientists who think it's a problem and scientists who think it isn't a problem," McConnell said. "There are differences of opinion among scientists. My job is to try to protect jobs in Kentucky now. Not speculate about science in the future."

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McConnell could pursue Senate votes to stop EPA regulations should Republicans win back control of the Senate in the midterm elections and his caucus selects him as majority leader. First, though, McConnell must survive a challenge from Democratic Kentucky Secretary of State Alison Lundergan Grimes in the November elections.

Recent polling has shown a close contest between McConnell and Grimes, but McConnell is slightly favored.

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Washington Insider: Ag Policy Headaches in China

The U.S. farm belt was awash with press reports this weekend about the still-growing U.S. crop and about agricultural policy headaches in China — an unusual combination. One story in the Des Moines Register focused on China's pork production and ISU professor Dermot Hayes' belief that the system is unsustainable. He sees "unbelievable potential" for U.S. pork producers if China opens its doors.

The Register notes that China is now the fifth-largest U.S. export market for pork, behind Japan, Mexico, Canada and South Korea. However Chinese trade barriers — such as a ban on a feed additive –– have limited sales.

"If China completely opened up," Hayes said, "more efficient producers around the globe would step in, and China's domestic production would fall to 50 percent or below." If the U.S. got only one-third of this new market, that would be 18 million tons of pork, twice the size of current U.S. production.

Hayes doesn't expect that, "mainly because Chinese leaders don't want to depend on another country for the nation's most popular meat." He does expect more pork sales in China and says "it is only a matter of time" before the Chinese government must consider a more open market because of high food costs, pollution, disease fears and other problems associated with pork production.

In an interesting complement with a different approach, the New York Times also reported on Chinese agriculture and highlighted the effects of a basic economic policy there: state ownership of land.

China's farm output remains high, the article said, but rural living standards are discouraging the rural population from remaining. "The most recent figures show a threefold gap between urban and rural incomes, fueling discontent and helping to make China one of the most unequal societies in the world."

This puts the nation's Communist leaders in something of a box, the Times says, since "fixing the countryside is crucial to maintaining social stability," but much of the problem is linked to government ownership of land, and that is still non-negotiable.

Chinese farms average about 1.6 acres and are very difficult to consolidate because they belong to government. Now the government is trying to boost investment in productivity through programs that let farmers sell or rent land-use rights. The goal is to simulate a "private" land market that would allow China's family-run, labor-intensive farms to be amalgamated into large-scale, industrialized operations while preserving ties between rural families and the land.

The government is presenting the new policy as critical to China's next phase of economic reform. Skeptics say, however, that it also reveals the government's unwillingness to consider land privatization which is "completely taboo," according to Tao Ran, an agricultural expert at Renmin University in Beijing. The party leadership, he said, "cannot countenance it."

The Times also notes that government ownership of land is more than just a socialist credential. The collectivized farmland is a major source of government revenue since it can be rezoned and then developed.

In addition, there is a question of how to maintain rural political control without land ownership. "If this unravels, then the bureaucrats would be at a loss as to how to manage the countryside," one observer told the Times.

In recent months, banks like the China International Trust and Investment Corporation have been buying rural land-use rights at high prices and agricultural experts at Landesa, a nongovernmental organization focused on rural issues, say they believe the purchases have been made with an eye toward rezoning land for housing or industrial use.

The Times suggests that government planners hope that more farmers will be moved to the cities so that ever-larger-scale farming can take over but notes that this implies an enormous change, especially for rural residents who frequently have little or capital at all and depend on the government for access to land.

Clearly, changes in such bed-rock policies imply huge political risks — possibly greater than the increasing living costs associated with slow and modest increases in food productivity, Washington Insider believes.


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(GH/CZ)

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