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Energy Issues: Food Costs

Reuters news reported yesterday that, “Canada will likely hold off until year’s end, at the earliest, if it is to file a World Trade Organization challenge to U.S. farm subsidies as it monitors the progress of world trade talks, Canada’s trade minister said on Wednesday…’We’re going to be looking at the corn subsidy issue in the context of the evolution, or likely evolution, of the Doha round,’ Trade Minister David Emerson told reporters after addressing a pan-American conference in Washington.”

I. Energy Issues: Food Costs
II. Doha
III. Farm Disaster Payments
IV. Food Safety

I. Energy Issues: Food Costs

Doug Cameron reported earlier this week in the Financial Times that, “US consumers face higher meat prices during the summer grilling season as the ethanol-driven rise in corn costs works through the food chain, according to Tyson, the world’s largest beef and chicken producer.

“The US group said it had passed on some of the rise in corn-derived animal feed costs to consumers, but expects the spike at the start of the year to emerge in the quarter to June.

Chinese wheat glutton imports continue to generate news with respect to food safety- “Shipments are stacked outside the Xuzhou Anying Biologic Technology Development Company in China.” (Picture and quote from The New York Times Online).

“Tyson has led calls within the industry for policymakers to recognise the competing claims on corn and other feedstocks from food and the fast-growing alternative energy sector, which is expected to claim a quarter of the US corn crop this year. Dick Bond, chief executive, said there could be a ripple effect on global food prices if a balance was not achieved.”

The FT article added that, “US farmers plan to boost corn planting by 15 per cent this year to take advantage of prices which reached a 10-year peak of more than $4.50 a bushel in February. While prices have dropped to around $3.50 on the prospect of additional supply, planting remains behind the historical schedule, and a shortage of seeds could also impact efforts to make up any weather-induced delays.”

Chris Flood added in Tuesday’s Financial Times that, “Jeffrey Currie, head of global commodities research at Goldman Sachs, says a combination of food, feed and fuel demand is driving a structural increase in agricultural commodity prices.

“‘Higher yields will not be able to accommodate the rise in demand growth,’ says Mr Currie: ‘Arable acreage will need to grow significantly faster than it has historically. This will be increasingly costly to cultivate, putting upward pressure on long-dated agricultural prices.’”

In other commodity price news, Tom Polansek and Shane Romig noted in yesterday’s Wall Street Journal that, “Sagging global wheat stocks appear on track to remain low as generally unfavorable weather conditions and plans for reduced plantings in major growing areas are dashing hopes that 2007 will be a rebuilding year, analysts said.

“The wheat industry had hoped to replenish its stocks this year after severe droughts slashed production last year in the U.S. and Australia, the world’s biggest wheat exporters. In Australia, output fell to 9.8 million tons in 2006-07, a drop of more than 60% from the previous year, according to Australian Bureau of Agricultural & Resource Economics.

“The threats to global production have been rallying wheat prices, analysts said.”

The Journal article added that, “Dryness in the U.S. also helped drag down ending stocks last year. The U.S. Department of Agriculture this month estimated carryover at 422 million bushels, the lowest level since 1995-96 and down from 571 million in 2005-06.

“This year, Australia is again suffering from a serious lack of rain, along with Europe, the Ukraine and Russia. The U.S. winter-wheat crop, meanwhile, was severely damaged in some areas by a hard freeze in early April, according to growers and agronomists.”

In a related article, Philip Brasher reported in today’s Des Moines Register that, “Congress is moving to jump-start the next generation of fuel ethanol, produced from switchgrass and other biomass, even as farmers worry about whether they can sell all the corn-based ethanol that will flood the market.

“The Senate Energy and Natural Resources Committee on Wednesday approved 20-3 a bill that would require the nation to use 36 billion gallons of biofuels by 2022, about six times what the nation will use this year. Motorists now use about 140 billion gallons of gasoline a year.

“The bill would guarantee a market for cellulosic ethanol, made from crop residue and grasses. All but 15 billion gallons of the ethanol produced each year would have to come from sources other than cornstarch.”

Mr. Brasher also provided this context regarding the Senate Committee action yesterday, “Congressional interest in new feedstocks for ethanol has taken off because soaring corn prices are pushing up the price of meat, dairy products and other foods.

“Requiring the increased use of ethanol also is politically popular, and Congress can always delay the usage deadlines when they prove unattainable, said Jerry Taylor, a senior fellow at the Cato Institute, a libertarian think tank.

“‘The fact is that Congress puts in crazy goals and timetables all the time,’ he said.

“Many types of plant cellulose, the fibrous material that makes up plants, can be used to make ethanol, including crop residue, forestry waste and perennial grasses. A planned addition to a corn ethanol plant in Emmetsburg would produce ethanol from cobs and the fiber from the corn kernels.

“But production costs for cellulosic ethanol exceed those of grain alcohol, and critics say there are other challenges, including the cost of harvesting, transporting and storing the biomass, that may be insurmountable.

“The ethanol industry is seeking new subsidies from Congress to offset those and other costs.”

II. Doha

Reuters news reported yesterday that, “The U.S. Congress should renew White House trade negotiating authority to give countries more time to conclude the Doha round of world trade talks, the head of the International Monetary Fund said on Wednesday.

In a speech at the U.S. State Department, IMF Managing Director Rodrigo Rato said world trade negotiators were on the brink of a ‘once-in-a-generation agreement,’ but faced the possibility of failure if Congress did not act.

“‘An extension of the U.S. administration’s fast track negotiating authority — at least with regard to the Doha round– will almost certainly be necessary,’ Rato told the Council of Americas, a Western Hemisphere business group.”

The Reuters article reported that, “The Bush administration has urged the new Democratic-led Congress to renew the fast track trade legislation.

“However, Democrats in the U.S. House of Representatives are taking a step-by-step approach to trade policy and have not introduced any bill yet to renew trade promotion authority…. [H]ouse Ways and Means Committee Chairman Charles Rangel, a New York Democrat, told reporters on Wednesday that those talks with the Bush administration were down to one issue, but gave no indication how soon that would be resolved.”

Meanwhile, a separate Reuters news article from yesterday reported that, “Canada will likely hold off until year’s end, at the earliest, if it is to file a World Trade Organization challenge to U.S. farm subsidies as it monitors the progress of world trade talks, Canada’s trade minister said on Wednesday.

“‘We’re going to be looking at the corn subsidy issue in the context of the evolution, or likely evolution, of the Doha round,’ Trade Minister David Emerson told reporters after addressing a pan-American conference in Washington.”

The article also reminded readers that, “In January, Canada requested consultations with the United States over what it calls trade-distorting subsidies for corn and other crops. The next step would be a formal case at the WTO’s Dispute Settlement Body.”

Reuters also noted yesterday that, “It would be ‘absolutely outrageous’ for world powers to miss out on a global trade deal this year as the different positions are so close, an aide to British Prime Minister Tony Blair said on Wednesday.

“Justin Forsyth, Blair’s special adviser on international development, said there was a glimmer of hope after trade meetings in India in April and leaders were now involved in ‘frantic diplomacy behind the scenes.’

“He said Blair had spoken to U.S. President George W. Bush and German Chancellor Angela Merkel about trade and that British representatives would meet an Indian team this week.”

And this brief audio report (MP3) from USDA radio indicated that U.S. Secretary of Johanns is planning on a more extensive travel schedule as work on the Doha round is “picking up.”

III. Farm Disaster Payments

Peter Shinn, writing yesterday at Brownfield, reported that, “Nebraska Senator Ben Nelson (D) said Wednesday he’s been invited to meet with White House officials in the wake of President Bush’s long-anticipated veto last night of an emergency war spending bill that included a timeline for withdrawing U.S. troops from Iraq. The measure also contained nearly $4 billion dollars in ag disaster aid.

“The bill has already gone back to Congress for consideration, where an override attempt failed as expected. That completed, the stage now appears to be set for negotiations between Congress and the White House on passing an emergency war spending bill that President Bush will sign.

“One of the point men for Congressional Democrats is Nelson, a member of the Senate Appropriations and Armed Services Committees. And Nelson told Brownfield Wednesday he believes ag disaster aid will have to be included in any final version of the emergency spending bill. One reason why, according to Nelson, is that ag disaster aid has made it through both chambers of Congress, something that didn’t happen in 2005 or 2006.

“‘It’s passed both the House and the Senate, whereas last year, when we sought it, it did not pass the House and we could not get it to move,’ Nelson explained. ‘This year it’s moving, and we believe the White House should accept it.’”

IV. Food Safety

David Barboza reported in today’s New York Times that, “A Chinese company accused of selling contaminated wheat gluten to American pet food suppliers avoided inspections partly because it did not correctly disclose its shipping contents to Chinese export authorities, according to American regulators.

“The Xuzhou Anying Biologic Technology Development Company, one of two Chinese companies at the center of the huge recall of pet food that has killed or sickened thousands of animals, shipped more than 700 tons of wheat gluten labeled as nonfood products this year through a third-party Chinese textile company.

“By listing the goods as nonfood items, the company’s shipments were not subject to mandatory inspection by the Chinese government. Though a possible violation of export policies, such mislabeling is thought to be widespread in China.”

-Keith Good