Washington Insider-- Friday

Social Trends and Food Markets

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

Key Farm-State Senators Prepared to Fix COOL Rules if WTO Appeal Fails

The two top lawmakers on the Senate Ag Committee said they are ready to modify country of origin labeling regulations if the World Trade Organization finds them inconsistent with international trade rules.

During an April 16 hearing, Senate Agriculture Committee Chairman Pat Roberts, R-Kan., and Ranking Member Debbie Stabenow, D-Mich., told USDA Secretary Tom Vilsack they would make the required changes to avoid retaliatory trade measures from Canada and Mexico.

"COOL isn't nearly as cool as some people thought it would be and the WTO stove is hot," Roberts told Vilsack at a Senate Finance panel hearing. "We stand ready to fix that with regards to a statutory change and we look forward to working with you."

"We are going to work through that and work that one out," Stabenow said.

A WTO dispute panel is currently reviewing the legality of the amended U.S. COOL regulations. The WTO compliance panel report is expected no later than May 18.

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Hatch, Wyden and Ryan Introduce TPA Bill

Senior Finance panel leaders and House Ways & Mean Chairman Paul Ryan reached a deal on a Trade Promotion Authority (TPA) bill. The so-called fast track bill would make it easier for the president to negotiate trade agreements, limiting Congress to only yes or no votes on each deal.

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The new legislation was announced by Senate Finance Committee Chairman Orrin Hatch, R-Utah, Ways and Means Committee Chairman Paul Ryan, R-Wis., and Sen. Ron Wyden, D-Ore., the ranking member on the Finance Committee who has been negotiating closely with Hatch.

To win Wyden over, Republicans are agreeing to also approve a new Trade Adjustment Assistance (TAA) program, a government effort designed to help workers who lose their jobs because of trade. The program has been paired in the past with votes on fast track. The new fast track bill will also have a human rights component, Wyden said.

Hatch said he intends to move the TPA bill in conjunction with TAA. Democrats like Ohio's Sherrod Brown said they want TAA included in the fast-track bill so the House wouldn't have the opportunity to vote down TAA separately.

Having Wyden as one of the cosponsors is a good sign for the Obama administration. Anti-trade activists had tried to pressure the Oregon Democrat, widely seen as one of the crucial swing votes on the issue, to oppose the legislation.

Included in the draft bill is a "fail-safe" mechanism whereby 60 votes in the Senate could turn off the fast-track process without killing the trade agreement explicitly. That provision had been sought by Wyden.

The Senate Finance Committee said it will mark up the legislation on April 23. The measure, if approved by both chambers, would enable the Obama administration to complete a major trade deal in the Asia-Pacific -- the Trans-Pacific Partnership (TPP).

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Washington Insider: Social Trends and Food Markets

You would think the organic world would be a pretty happy place just now. The Organic Trade Association reported at its recent Washington conference that sales of organic products increased 11% in 2014, reaching $39 billion. This was achieved despite production shortages, Laura Batcha, executive director of OTA told the group recently.

Most of the sales -- some $35.9 billion -- was food, where produce and dairy saw double-digit growth. Some $3.2 billion was in fiber, personal care products and other non-food products that grew 14%, according to study released last week. The report indicated organic products now account for about 5% of all food sales, Batcha said. And, she says organic purchases are particularly important in some regions -- an estimated 90% of households in New England and in the Pacific Northwest purchase organic products while the amount is closer to 68% in parts of the South.

One type of issues Batcha highlighted concerns supply. "Across the board people are scrambling on supply," she said. These shortfalls are especially important in dairy, where farmers are having problems getting adequate amounts of organic feed -- about a third of soybeans and corn imported into the United States are organic to make up for the domestic shortages, she said.

So, while the organics folks continue to emphasize their above-average industry growth, they frequently worry about the market impacts of their continued push to tighten producer rules; on the inroads in organic markets by large-scale retailers; and the general negative impacts on market growth from the higher costs.

In fact, the organics industry is only one part of the "social trends" food sector where a long list of products competes for huge markets with somewhat different concepts of quality. These include firms with products produced without "sow crates" or that come from "humanely raised" livestock and many others. In many cases, these are fast food outlets with quality standards of many hues. For example, Chipotle Mexican Grill Inc. is still struggling to keep popular menu items from disappearing because supplies of products that meet their specifications are inadequate -- or, too costly.

Chipotle says it stopped selling carnitas burritos at hundreds of its restaurants in January because it dropped one of its pork vendors, and it's still not fully stocked again. The company also has run low on its premium supplies of beef and chicken over the past year, forcing it to offer alternatives at some locations. And social media is rife with posts from customers complaining that their local Chipotle is missing one item or another.

The problem is much worse for fast growing firms. In these cases, the squeeze is not for organic products, but for largely undefined but increasingly crowded markets for "natural and humanely grown" livestock. As chains ranging from Dunkin' Donuts to Kroger Co. adopt similar standards, there is less to go around.

"We don't know for sure when we'll be fully supplied again," Chris Arnold, a spokesman for Chipotle, told the press. "For many years, we've been operating in a system where the primary food supply doesn't meet our standards." And, it hasn't been easy. The company hasn't stabilized its pork supply more than two months after removing the ingredient from about 600 U.S. restaurants, about a third of its total. Signs have appeared in Chipotles across America warning that there are no carnitas -- the shredded pork shoulder that goes into burritos, tacos and salad bowls. Before that, the Denver-based company warned it may have to stop selling guacamole or salsa because of ingredient costs.

While the organics sector has a somewhat different market than others who build customers at least partly by using social trends, these firms all appear to be encountering economic constraints not fully anticipated -- patterns that look to be even more turbulent for market players who want to capitalize on still emerging trends. The temptation to shade quality a little bit here and there seems enormous, but their socially conscious customers are brutal and unforgiving, experts say.

How this will all turn out is an important unknown -- if it means higher quality food at affordable prices, it could strengthen markets; but if it merely raises costs and prices it could have the opposite effect. Still, these are massive trends with potentially far-reaching impacts and should be watched carefully as they emerge, 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 and on the News and Analysis Menu of DTN's Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the U.S. Ag Policy, U.S. Farm Bill and DTN Ag News sections on their News Homepage.

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

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