Washington Insider -- Tuesday

The Farm Act Debate Continues

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

Canada Delivers Clear Message on Plans for Dealing with U.S. COOL Law

Canadian Agriculture Minister Gerry Ritz was a guest on the AgriTalk radio program last Friday where the conversation focused on country of origin labeling issues and the recent World Trade Organization decision against the U.S. COOL law.

Ritz said that "there's a window of opportunity for the U.S. administration to appeal. At the same time, we'll make use of that window to show every state that we intend to attach products to, from Kentucky bourbon to Minnesota mattresses, just exactly what it's going to cost them…. At the end of the day, no one wants to see retaliation. I mean, we rely on your raw materials for a lot of our processing. But I'll tell you what: The easiest way to avoid retaliation is to fix this damn thing now."

Ritz added that, "Nothing short of full repeal will actually make this thing go away. We're not going to spend the next years looking over our shoulder waiting for another shoe to drop."

The agriculture minister also said he fully expects the United States to appeal the decision, something that the administration has until Dec. 19 to decide. There also is a theory being floated by COOL supporters that the Obama administration could unilaterally (without involving Congress) tweak the labeling requirement in such a way as to make it WTO compliant. However, it is difficult to see how congressional Republicans would not react with anything but hostility to what they undoubtedly would label as another presidential overreach, should the administration take that course of action.

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Large Food Companies Boost Lobbying This Year

Through September, top U.S. food manufacturers have spent approximately $19.5 million lobbying on issues such as the labeling of genetically engineered foods, the 2014 farm bill and agriculture appropriations, according to disclosures from 10 businesses between January and the end of September. Bloomberg BNA reported that the 10 include Archer Daniels Midland, ConAgra, Coca-Cola, General Mills, Kellogg, Kraft Foods, Nestle, PepsiCo, Smithfield Foods and Tyson Foods.

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In addition, the two largest trade organizations representing this industry, the Grocery Manufacturers Association and the American Beverage Association, have spent $3.3 million and $890,000 on lobbying this year, respectively. Of the 10 companies, nearly all listed lobbying activities on the implementation of the 2014 farm bill and legislation to fund USDA and the Food and Drug Administration in fiscal 2015.

Large food companies clearly are worried about the possibility that one or more states will approve a referendum that would require food sold in the state to be labeled if it contains any genetically modified organisms. The fact that they are willing to invest so much in this lobbying campaign is a good indication of the amount they believe they could lose if GMO labeling becomes law.


Washington Insider: The Farm Act Debate Continues

The relatively new farm Act was controversial from the start, in part because it ended the direct payments that some producers relied on and substituted beefed-up crop insurance as the main safety net. The Act also was controversial because it was touted for its "savings" of $16.6 billion over ten years — estimated by the Congressional Budget Office — on the basis of cuts to the direct payments, nutrition and conservation programs.

Now, several things have happened to the Act's policies. As bumper crops this year weakened prices, there are growing worries that the programs may cost much more than advertised — perhaps twice as much. Second, producers hard-hit by drought want a change in their actual production histories so that their eligibility for crop insurance is improved. Congress provided such changes for some producers and is pressing USDA to move quickly to implement the shift.

In addition, criticism of the Act's trade provisions — or lack thereof — is intensifying especially following a $300 million settlement with Brazil on the long-standing cotton case and the adverse WTO decision on country of origin labeling for meats. How the United States responds to that decision remains to be seen, but likely will intensify the controversy.

In the meantime, the sugar industry –– which is already highly protected under current programs that were not challenged in the recent debate –– has brought a trade case against Mexico for taking advantage of market access it negotiated under the North American Free Trade Agreement. If the United States decides to assess sanctions on Mexican sugar, that nation is expected to apply constraints to U.S. high-fructose corn syrup exports to Mexico, and possibly to other commodities as well.

There's more. The Congressional Research Service recently reported that several aspects of the new crop insurance based safety nets could face challenges in the World Trade Organization that the United States cannot defend, as was the case with the earlier cotton program.

As a result, some experts say they are alarmed by future implications of these policies. For example, Dr. Colin Carter, Distinguished Professor of Agricultural and Resource Economics at the University of California-Davis, is publicly criticizing the new Act. He says, "both with respect to Country of Origin Labeling and the new dairy program, as appears generally to be the case with all of the new subsidy programs, the 2014 Farm Bill appears to pay little attention to current U.S. trade commitments and is likely to adversely affect the ability of the United States to negotiate new trade agreements (such as through the Trans Pacific Partnership initiative) that will create broad-based economic benefits for U.S. consumers, exporters, and the U.S. economy as a whole."

So, even the Act's strong new provisions are not sufficient to avoid controversy. CBO says the Act's crop insurance safety net will cost $89.8 billion over the coming decade, up $5.7 billion from the previous program. Nevertheless, producers say more support may be needed.

The new CEO of the National Corn Growers Association, Chris Novak, told the press last week that the group will push USDA for "boosted crop insurance," especially if corn growers face a second year of plummeting corn prices. "If we have another bountiful crop, the challenges will be even greater," Novak said. "We'll need these risk management tools."

Novak also said that change will be among the group's top priorities for the next year, along with pushing demand and favorable policies for ethanol, and working with regulators to create access for biotech traits in new markets.

So, this is a strange year. In August, USDA estimated that net cash farm income would be $123 billion for 2014, down from the last three years but the fourth highest on record. The new Act is still being implemented and includes estimated outlays of $956.4 billion over the decade, including $756.4 billion for nutrition programs which also strengthen commodity demand as well as provide benefits for poor families.

And yet, both Congress and the sector seem careless of trade policy and market expansion efforts that depend on access to growing overseas markets. As a result, the long fights that made the debate over the 2014 Act the most extended and bitter of recent memory do not appear to be past. This is especially true for the possibility that the new programs have increased U.S. vulnerability to WTO challenges that could have negative consequences for the future and should be watched carefully as they emerge, Washington Insider believes.


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(GH/CZ)

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