Washington Insider --Tuesday

Looking Toward the Ag Growth Markets

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

US Sugar Group: Mexican Export Subsidies Injuring US Producers

US sugar producers have filed new subsidy allegations in their countervailing duty case against Mexico’s sugar industry, including “evidence that export subsidies are fueling a flood of Mexican sugar shipments and injuring US sugar farmers and processors.”

The new allegations, filed on July 24 with the US Department of Commerce (DOC), detailed two components of a subsidy meant to support Mexican sugar mills and facilitate exports.

First, according to the American Sugar Alliance (ASA), Mexico’s government dictates the price that sugar mills must pay farmers for sugarcane. That government-set price incorporates a lower price for sugarcane destined for exports. Second, ASA said, the government requires mills to export large quantities of sugar to eliminate surplus production in Mexico. “This helps keep prices high for the sugar mills sell in Mexico while depressing the prices received by its US competitors.”

The benefit of the export subsidy scheme to Mexican mills is estimated to be 17% of the value of the sugar being exported to the United States, according to ASA.

Besides the export subsidy, ASA said Mexican producers also benefit from preferential government loans coupled with debt restructuring and forgiveness, government cash infusions to cover operating shortfalls, and government grant programs to finance inventory, exports, and inputs.

The DOC and US International Trade Commission (ITC) are currently investigating Mexico’s sugar industry to determine if corrective actions are needed to level the playing field. In May, the ITC issued a preliminary ruling -- by a 5 to 0 vote – that Mexico’s unfair trading practices were harming US sugar producers and taxpayers. The DOC is expected to issue its preliminary ruling about Mexican subsidies in August and will rule on dumping allegations this fall.

US producers filed antidumping and countervailing duty petitions against Mexico in March and estimate that dumped and subsidized Mexican sugar will cost them $1 billion this year alone. Mexico’s actions, ASA charges, also cost US taxpayers $278 million last year after the USDA took steps to keep the US market from collapsing under a surge of subsidized sugar.

A Dept. of Commerce (DOC) preliminary determination on the countervail case will come no later than August 25, sources advise. The DOC preliminary determination on the dumping base is scheduled for early September, but is expected to be delayed until late October.

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RFS Update from EPA to Come at ACE Confab

The upcoming 27th annual ACE Ethanol Conference, in Minneapolis August 4-6, 2014, will include an update on the Renewable Fuel Standard (RFS) and other ethanol priorities by EPA’s Director for Fuel Programs, Paul Machiele.

“As EPA and the White House close-in on a final decision about the 2014 RFS we’re pleased that Paul Machiele will be on hand to meet with our members,” said ACE Executive Vice President Brian Jennings.

Perhaps EPA by the August conference will have announced the final 2014 RFS volume requirements. EPA Administrator Gina McCarthy said after testifying on Capitol Hill June 25 that the final 2014 plan would come “soon.” Then on July 24, White House adviser John Podesta told Democratic senators that the details were “imminent.”

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Washington Insider: Looking Toward the Ag Growth Markets

It is often noted that since domestic US markets for food and agricultural products are largely saturated, so important opportunities for future growth will be mainly overseas. Still, this fact seems worth re-emphasizing in light of the declining US interest in trade policy. The Chief Economist of Deere and Co, Dr. J. B. Penn, recently noted key longer term trends for the industry and some “choke points” for the future that seem worthy of deeper examination.

In fact, efforts to open global markets will be critical to support any major improvement in global food security, Penn says, but also are likely will be equally critical to support continued investment and growth in US agriculture itself. However, there are major challenges in the form of providing more open markets, better marketing infrastructure and accelerated productivity--all fundamental to stimulate the necessary growth in agriculture and its value chain.

Penn calls for renewed efforts to expand and reinforce global trade, efforts he sees to be essential to build food and nutrition security as regional demand-supply imbalances become more acute with isolation and prices become more volatile.

Both the challenges and opportunities for growth in the global food system are reflections of several key factors. The first is global population with growth peaking likely around the middle of this century and stabilizing somewhere between 9.5 and 10 billion people.

In addition, the impact of the projected population growth will be sharply amplified by the growing affluence of large groups in developing countries. As population numbers exceed today’s 7 billion people, more and better food will be required as large groups continue to improve their diets. Shifts from staples to more animal products require even more commodity inputs--and, are expected to require agricultural production increases of 70 percent or more by 2050.

At the same time, agricultural resource availability is likely to shrink. To the surprise of some experts, the global agricultural plant has demonstrated that it can expand to meet demand growth but since the current ag resource base is almost fully in use, continued economic growth can only intensify the competition among urban, industrial and agricultural uses, especially for the available water. With few new resources to exploit, the solution clearly is innovation; finding new ways to enhance productivity of the existing resource base.

These challenges also are certain to increase global dependence on trade. Beyond accelerating productivity and increasing production, increasing amounts of food must move (affordably and sustainably) to consumers in large population centers. This means a few major food-surplus exporting areas in North America, South America and the Black Sea region will be called upon to play a central role in helping close food-deficit gaps.

Today, these three regions together supply 62 percent of the global grain exports and 73 percent of the total value of trade in food and agricultural product exports.

The great irony in this, Penn says, is that in spite of the increasing dependence on global trade, protectionism is on the rise and is levying increasing tolls on the availability and cost of food. Multilateral efforts to liberalize trade such as the Doha Round have failed in no small part due to the recalcitrance of both agricultural producers and food consumers to reduce subsidies and open markets.

Since 2008, in spite of G-20 pledges to avoid new protections, more than 1,500 new measures have been implemented. Many of these measures affect food and agriculture trade directly. These include export embargoes and taxes, tariffs and other duties and selected, arbitrary sanitary and phytosanitary measures that lack any basis in science. There are many others.

Still, Penn sees glimmers of hope. He points to major negotiations underway now on regional free trade agreements, including the twelve Pacific nations attempting to create a “partnership” to enhance trade and investment, and also to addresses food and agriculture issues. In addition, the EU and the United States are engaged in a serious effort to form a Trans-Atlantic Trade and Investment Partnership that also includes food and agriculture trade and extends well beyond economic hurdles to regulatory, standards, safety and others. Successful conclusion of these “21st Century” agreements would represent progress, but significant potential trade flows among many nations still would not be included.

These negotiations and the numerous others necessary to support the global trade potential face what often seems like a never ending task of rolling back the 1,500 new trade restrictions as well as the growing anti-trade politics that caused them, Penn says.

More robust and encompassing multilateral and other broad efforts that specifically address food trade will be essential not only to attain a meaningful level of global food and nutrition security but also to boost the level of investment the sector will require to achieve meaningful economic growth. Future food needs will strain our systems, but can be met if the global community recognizes the critical role of international trade in meeting growing demand, Penn says.

Penn’s statement is important because it identifies several challenges facing the sector but more broadly identifies an area of growing opportunities that will require financial investment and deeper political support than in the past. These are ideas that are important for the development of future policies for US agriculture and should be examined carefully by producers, Washington Insider believes.


Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products, on the News Menu on Farm Dayta, and on the News and Analysis Menu of DTN’s newest Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com.

If you have questions for DTN Washington Insider, please email edit@telventdtn.com

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