- FarmPolicy - http://farmpolicy.com -

Doha and Trade

I. Doha and Trade
II. Farm Bill
III. Ethanol

I. Doha and Trade

Reuters writer Doug Palmer reported yesterday that, “Trade promotion authority, also known as fast track, allows [U.S. Trade Representative Susan] Schwab’s office to negotiate trade deals that Congress must approve or reject without making any changes. It’s considered vital to the success of the Doha round of world trade talks.

“[At a House Ways and Means hearing yesterday,] Schwab said she was ‘cautiously optimistic’ of a breakthrough in the Doha round in the coming months. If that occurs, the United States will need trade promotion authority to implement any eventual deal, she said.”

“Trucks waiting to unload their cargo of corn line up at an ethanol plant in Marcus, Iowa.” (Picture and quote from U.S. News & World Report Online).

Washington Post writer Peter S. Goodman, who also reported on yesterday’s Ways and Means Committee hearing, added in today’s paper that, “Democrats, eager not to be painted as protectionists, have in recent weeks toned down their rhetoric, with leaders saying repeatedly that they want to see a new round of trade pacts approved. The Bush administration, keen to win congressional approval for recently negotiated pacts with Peru, Colombia and Panama and intent on securing deals with Korea and Malaysia, has been speaking of compromise on labor protections, the most contentious issue of the debate.

“But beneath that amiable talk, substantial disagreement remains over details, according to sources in the administration and on Capitol Hill and as evidenced by the sometimes sharp exchanges during yesterday’s hearing.”

To view a summary of Ambassador Schwab’s presentation before the committee, just click here.

As debate over trade promotion authority persists in the U.S, Doha negotiating issues continue to be discussed.

P.R. Venkat, reported in today’s Wall Street Journal that, “The U.S. is willing to cut farm subsidies further if other countries reciprocate by improving access to their markets and reducing tariffs, the U.S. commerce secretary said.

“‘We would be willing to take the lead on subsidies, but we can’t do it unilaterally,’ Carlos Gutierrez said in an interview yesterday.

“He said India holds the key to the successful conclusion of the long-running World Trade Organization talks under the Doha round of negotiations. Mr. Gutierrez is on a two-day visit to India aimed at boosting bilateral trade. The U.S. is India’s largest trading partner. Last year, two-way trade hit $32 billion, Mr. Gutierrez said.

“He said the U.S. would like to see ‘movement’ in terms of India cutting tariffs on agricultural products and providing greater market access for industrial goods from other countries. ‘India is a leader among developing nations, and developing nations look to India to see how India makes its decisions’ on WTO issues, he said.”

Also in today’s Journal, a commentary piece by Richard Holbrooke and Stuart Eizenstat regarding the Doha talks and Africa was published in the paper’s editorial section. The opinion item noted that, “For the Doha round launched in 2001, however, there is a development agenda. At its heart is agriculture — a politically sensitive sector in the EU and the U.S. but the largest employer in low-income countries, accounting for about 60% of their labor force and 25% of their GDP. The World Bank estimates that these agricultural products face what former U.S. Trade Representative Robert Portman observed is a practically insurmountable global average tariff rate of 62%, and that 93% of the benefits from a successful Doha round would come from improved market access for developing nations’ agricultural products.

“Farmers represent less than 5% of the labor force in industrial countries, but they have very substantial political power in the U.S., EU and Japan. These political forces, especially in the EU, led to the eventual derailment of the Doha round last summer. But as the Doha talks take on new life, Congress and the Bush administration need to stay true to the commitments of the Doha Development Agenda, especially in agriculture.

“Two weeks ago the administration proposed ending subsidies for 80,000 wealthy farmers, substituting trade-distorting subsidies with cash payments to farmers, and trimming traditional agriculture programs by $4.5 billion over the next decade. These proposals, if approved, would directly benefit some of the poorest people on earth, save lives and ultimately reduce American foreign aid, while helping Susan Schwab, the U.S trade representative, put wind in the sails of the ministers’ pledge in Davos to restart serious talks.”

The authors explained that, “Developing nations also must make serious commitments to complete the Doha round. A growing percentage of trade is between developing nations, with more than 70% of the duties paid by developing countries to other developing countries. This makes no sense.”

And in conclusion, the commentary stated that, “As trade ministers make an effort to reach a Doha deal, they should recognize that it is the poorest nations, particularly those in Africa, that would be the biggest losers if Doha collapses. We hope this will be understood by everyone, on a bipartisan basis, as this crucial negotiation heads into its final phase. For Africa, this may be the last best chance.”

However, as a reminder, ABC Rural (Australia) pointed out today that, “The US Congress has been told that the Bush administration’s new farm Bill proposal is not a new offer of concessions for the Doha world trade talks.”

In a related item, the U.S. Trade Representative’s Office issued a news release yesterday which indicated that, “U.S. trade and development officials held in-depth discussions today with a delegation from the Common Market for Eastern and Southern Africa (COMESA). The half-day meeting was the latest high-level consultation between the two parties under the terms of the United States-COMESA Trade and Investment Framework Agreement (TIFA).

“U.S. Trade Representative Susan C. Schwab opened the meeting, which included discussions on U.S.-COMESA trade, implementation of the African Growth and Opportunity Act (AGOA), the WTO Doha negotiations, trade capacity building activities, infrastructure issues, and investment. Deputy U.S. Trade Representative Karan Bhatia and Assistant U.S. Trade Representative Florizelle Liser led the discussions for the U.S. side during different parts of the half-day meeting. The COMESA delegation was led by Secretary-General Erastus J. O. Mwencha and included leaders of several Eastern and Southern African farmers’ organizations.”

II. Farm Bill

A news release issued yesterday by the House Ag Committee stated that, “Today, the House Agriculture Committee reviewed the U.S. Department of Agriculture’s Farm Bill recommendations with Agriculture Secretary Mike Johanns.

“Agriculture Committee Chairman Collin C. Peterson of Minnesota convened the Agriculture Committee’s first hearing of the 110th Congress and thanked the Secretary for the time and consideration that went into his Farm Bill proposal.

“‘The Committee is receiving Farm Bill input from many sources, including USDA, and I was pleased to see that Secretary Johanns included some good ideas in his proposals, even though there are some areas where we disagree,’ Chairman Peterson said.”

To view Sec. Johanns’ opening statement to the Committee, just click here.

A separate news release, also issued yesterday by the House Ag Committee, stated that, “House Agriculture Committee Chairman Collin C. Peterson (D-MN) and Ranking Member Bob Goodlatte (R-VA) testified before the House Budget Committee this afternoon to outline the funding needs for the upcoming Farm Bill reauthorization.

“The Agriculture Committee leaders urged the Budget Committee to increase the financial resources available for this year’s Farm Bill proposals over the amount provided in the most recent CBO baseline.

“The Farm Bill authorizes commodity support, agricultural trade, marketing, federal Food Stamp, foreign food assistance, and rural development policies over several years. The current farm bill was written in 2002, and many of the provisions in that bill will expire in September of 2007.”

The release added that, “This year’s Farm Bill debate will include new proposals that will require additional resources from the Budget Committee. A strong energy title is essential to facilitate investments in the expanding agriculturally-based renewable energy market, including ethanol and biodiesel.

“‘The bottom line is that additional resources are needed to produce a policy that facilitates a strong farm sector and helps our nation move toward energy independence in a fiscally responsible way,’ Peterson said. ‘I look forward to working with the Budget Committee to achieve these goals and I appreciate their willingness to hear our testimony today.’”

Meanwhile, DTN continued their Farm Bill profile series yesterday with a segment that highlighted Ken Cook of the Environmental Working Group (EWG).

In part, the DTN article stated that, “Though the EWG was shunned by some farm groups, others, such as the fruit and vegetable growers who have long been on the short end of USDA funding, are working with EWG and other conservation groups to find some common ground.

“‘We’re hoping this will be a very robust coalition that makes the case for getting money out of the commodity programs, which is the only place to find it,’ Cook said.

“Like years past, Cook said he wants more conservation spending to stem the volume of farmers who are turned away every year because of lack of funds.”

The DTN article explained that, “Cook’s credentials to challenge farm programs are often questioned. His entire career, though, has focused on farm policy. Cook received his masters’ degree in agriculture from the University of Missouri in 1975 with the idea of working on environmental issues in agriculture.

“He then became an analyst at the Library of Congress, working on natural resources and agriculture. As the agriculture economy slipped in the late 1970s, Cook became an in-house expert on price supports.

“‘Prices were down, foreclosures were up, incomes were down, land values were going down,’ Cook said. ‘There was not much good news out there.’

“As the debate began on the 1985 farm bill, he started consulting for conservation groups.

“Groups such as EWG helped prevent a major fight over the 1990 farm bill with the promise of a strong Conservation Title. Agriculture groups, however, didn’t do enough afterward to protect the conservation budget, in Cook’s eyes. Farm programs needed stronger outside scrutiny, Cook said, so he decided to follow the money.

“‘Someone had to do it, or do something, to shake up the debate,’ Cook said.”

III. Ethanol

The U.S. Department of Agriculture’s Economic Research Service (ERS) released their 10-year baseline projections yesterday. According to ERS, “This report provides longrun (10-year) projections for the agricultural sector through 2016. Projections cover agricultural commodities, agricultural trade, and aggregate indicators of the sector, such as farm income and food prices.” The report is available by clicking here.

News reports discussing the baseline estimates tended to focus on renewable energy and ethanol projections.

A Bloomberg news summary from today noted that, “Ethanol will consume more than 30% of the U.S. corn crop annually over the next decade, compared with current usage of about 20%, according to a 10-year government estimate of farm production and prices.

“The area planted with corn will rise to 90 million acres by 2010, compared with 81.8 million acres last year, as U.S. farmers become suppliers of fuel as well as food, the Department of Agriculture said. Most ethanol made in the U.S. is made from corn.

“The increased corn acreage will come at the expense of soybeans, as plantings of the oilseed will fall 9% to 69 million acres by 2009. Wheat acreage is expected to increase to 60 million acres next year from 57.3 million this year before falling to 58.5 million acres in 2010.”

The DTN Ethanol Center provided a thorough analysis of the ERS report yesterday. Chris Clayton reported that, “The projections show a steady increase in corn’s per-acre yield with the corn crop topping 14 billion bushels a year by the end of the 10-year projections. Ethanol use will consume 3.2 billion bushels by the end of 2007-08 crop year and 4 billion bushels by 2010. The projections show ethanol reaching 30 percent of all corn consumption by 2008-09, but projections then level off, with usage remaining at 30 percent and increased production keeping pace with ethanol demand.”

Mr. Clayton also noted that, “Overall, USDA projects national farm income will average $66.7 billion annually over the next decade, or $6.7 billion higher than 2006 farm income. Higher commodity prices will lower government payments an average of $12 billion annually, or about $4 billion less than last year, as well.

“Demand for crops will combine with a stronger dollar overseas and competition from Brazil, Argentina and the Black Sea area to ‘temper exports for some crops,’ according to USDA.

“While corn planting will increase nearly 12 million acres, those acres will largely come from other crops. USDA projects total crop acres in the eight major commodities will increase nearly 4 million acres in 2007 then level off to average 247 million total acres annually.

“Exports of corn, which are expected to be affected by ethanol demand, are projected to dip over the next three crop years by 400 million bushels to about 1.85 billion bushels by 2010. Corn exports are projected to then rebound again and return to current levels by 2016.”

Gary Truitt of Hoosier Ag Today reported yesterday that, “A slight drop in crude prices appears to help cool the explosion in ethanol plant construction, which the USDA projects will slow after 2010. However, corn acreage is expected to rise significantly in the initial years of the projections due to ethanol demand. The result will be higher corn prices and net returns. In the longer run, increasing corn exports will also underlie higher corn acreage. The increase in corn plantings is facilitated, in part, by a reduction in soybean acreage, the report said.”

Mr. Truitt also stated that, “Brazil’s rapidly expanding soybean acreage is expected to increase its share of world exports of soybeans plus the soybean equivalent of soymeal exports from about 32 percent in recent years to 45 percent by 2015. World soybean trade is expected to grow at an average annual rate of 3.6 percent. Countries with limited opportunity to expand oilseed production are expected to invest in oilseed crushing capacity, resulting in import demand for soybeans growing faster than soy meal or oil, the USDA said.”

Meanwhile, a Dow Jones article posted yesterday at The DTN Ethanol Center reported that, “Cellulose-based ethanol – the next generation of biofuel needed to take production beyond the limits of corn – will likely be a financially viable feedstock for refineries in less than five years, U.S. Department of Agriculture Secretary Mike Johanns said Wednesday.

“Johanns told Dow Jones Newswires that it seemed like just about every day he learns of imminent breakthroughs in cellulosic ethanol technology.

“‘I really do think its fair to say that somewhere near the end of this decade…you’ll see it as viable,’ Johanns had told a gathering of state energy officials Tuesday. ‘Personally, I think we’re right on the edge. On the edge can mean in a couple more years, but I am very, very encouraged by what I am hearing and seeing.’”

Marianne Lavelle and Bret Schulte, in an article posted last week at U.S. News & World Report Online, that was datelined from Galva, Iowa, reported that, “Washington loves a ‘win-win,’ but there are plenty of doubts as to whether the love affair with ethanol qualifies. Even though the ethanol industry profited handsomely last year, it continued to benefit from billions of dollars in taxpayer subsidies. And as ethanol becomes a larger part of the energy mix, it is not clear that Washington is prepared for the fallout. Ethanol already consumes so much corn that signs of strain on the food supply and prices are rippling across the marketplace. Environmental impacts will multiply as more land and water are devoted to the prized yellow grain. And, even if these problems were overcome, ethanol’s potential growth could be stunted by an energy system currently tailored to gasoline. Ethanol undoubtedly plays a role in the quest for energy independence and the desire to curb global warming. But some observers worry that ethanol development may take the place of more effective initiatives: forcing automakers to increase gas mileage, for instance, or mandating cuts in carbon dioxide emissions. ‘Some members of Congress are looking for quick fixes,’ says one economist who has studied the issue. ‘It’s an easy bandwagon to jump on. But there’s a lot of exaggeration about what ethanol is capable of doing.’”

The authors went on to note that, “A new ethanol surge could cause more problems than it solves. Last year’s astounding growth in ethanol gobbled up 20 percent of the U.S. corn crop. That surpasses all the corn Americans consumed last year-whether in cereal, corn-syrup-sweetened soda, or on the cob. And the strain has become severe on the nation’s primary use of corn-as feed for dairy and beef cattle, pigs, and chickens. Meat, dairy, and egg producers are reeling from corn prices that have doubled in one year-now trading above $4 a bushel for the first time in more than a decade.”

On the other hand, the article stated that, “Ethanol’s boosters are confident farmers will plant more acres and increase the yield of corn per acre, with the help of new seed and genetic engineering technology-easing the price pressure. But for now, the futures market shows corn prices climbing further. That’s despite the fact that farmers are on track to plant 88 million acres of corn this year-up 10 million over 2006 and more than has been planted in the United States at any time since the 1940s, when crop yields were a fraction of today’s.”

And with respect to cellulosic ethanol, the U.S. News article pointed out that, “In the laboratory, so-called cellulosic ethanol can be wrung from fibrous materials like cornhusks and rice hulls, as well as fast-growing reedy crops that require little fertilizer or tending, like switch grass, and timber industry excess. This would ease reliance on edible grain and spread the economic benefits beyond corn communities. Another bonus: Biotech enzymes rather than heat energy would break down the cellulose to fuel, reducing greenhouse gases to a fraction of those produced by corn.

“But it has never been tried commercially, and it’s unlikely that the fuel will go from zero to 20 billion gallons in 10 years. Just to get to 1 billion gallons of ethanol production, the corn industry took 13 years. The government estimates the capital cost of cellulosic is very likely five times that of corn. The expense surely would be driven down if production scales up, but a ‘chicken and egg problem’ exists, says [U.S. Senator Tom Harkin (D-Iowa)]. ‘Investors are not investing in cellulosic plants because there’s no supply,’ he says. ‘And farmers are not planting switch grass or other energy crops because there’s no market.’ He has pledged to ‘jump-start’ both demand and supply with research money and loan guarantees in a new farm bill.”

-Keith Good