FarmPolicy

January 20, 2018

Ethanol & Energy Policy- Impact on Farm Bill?

Dan Morgan, writing in today’s Washington Post, reported that, “Corn farmer Jim Handsaker has found a slew of ways to ride the heartland boom in biofuels that is reshaping the economy of rural Iowa.

“He sold some of his 2006 crop this year for more than $4 a bushel, the highest price in a decade. His stake in two nearby ethanol plants brought in several thousand dollars more in dividends. Meanwhile, soaring farmland prices have pushed the value of the 400 acres he owns to around $2 million.

“Even so, come October he will get a subsidy check from the government, part of a $1.6 billion installment that the U.S. Department of Agriculture will send to corn farmers.”

Yesterday, USDA indicated that corn prices, although on a slight downward trend, remain relatively high by historic standards. Meanwhile, the graph below, from The Wall Street Journal Online, demonstrates that ethanol prices are heading in the opposite direction.

The Post article indicated that, “Those annual automatic payments to Handsaker and thousands of other prospering corn growers have long been controversial. But coming at a time when taxpayers are already subsidizing the ethanol industry to the tune of $3 billion a year, the double-barreled support system for those who grow corn and those who turn it into fuel has begun to draw fire in Congress.”

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Doha & Domestic Support

Categories: Doha / Trade /Farm Bill

Reuters writers Walter Brandimarte and Missy Ryan reported earlier this week that, “World leaders signaled on Tuesday that a long-awaited global trade deal could soon be within reach, reviving some hopes that the Doha trade talks may finally move beyond years of deadlock and discord.”

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“Analysis from Washington”- By Dan Morgan- Senate Debate

Senate Debate

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

Senate Agriculture Committee Tom Harkin (D-Iowa) is a nice guy. A liberal populist, he fights for good causes and often wins battles on behalf of the disabled, women, workers and the hungry.

But is he too nice to get what he wants from the bruising struggle taking place behind the scenes in the Senate over the next farm bill?

In 2001 and 2002, when Harkin also chaired the committee, Majority Leader Tom Daschle (D-S.D.) and Kent Conrad (D-N.D.) grabbed control of the legislation and put their stamp on it.

Conrad often acted as if he was chairman, meeting with House Agriculture Committee chief Larry Combest (R-Texas) and cutting deals.

This time around, Conrad is once again a blur of activity, working with the committee’s ranking Republican, Saxby Chambliss (Ga.), and with Senate Finance Committee Chairman Max Baucus (D-Mont.) to line up support for a farm bill title setting aside big money for farmers hit with crop failures or weather-related disasters.

Harkin doesn’t like Conrad’s proposal, which is aimed especially (though not exclusively) at North Dakota farmers who get an average of less than 20 inches of rainfall annually and—predictably enough—repeatedly lose crops and pastureland due to drought.

Harkin wants a broader safety net that would help farmers when farm income in a state falls below the norm for whatever reason—bad weather, weak markets, a collapse in the ethanol boom. His plan, he argues, would help more farmers than Conrad’s, even in the parched northern plains.

But Conrad is a relentless political operator who never quits. And that’s the pity. Harkin is an idea man with a progressive vision of where U.S. agriculture is going and what the farm bill should look like. But as the weeks drag on and Senate work on the farm bill is delayed, he seems increasingly hemmed in by Conrad’s aggressive tactics and the real politik of Senate dealing making.

He acknowledged as much Tuesday in one of his regular teleconferences with reporters. While he still held out hopes for what he said would be “very modest” reforms of the basic subsidy programs, he twice noted that he was limited by “the art of the possible,” i.e., he can’t move a bill out of his committee without votes from hardline advocates of traditional subsidies.

Harkin’s subdued tone contrasts with his excitement and energy as he embarked on the farm bill process earlier this year. Then he suggested it was “an ideal time to do some reform and reorganize our priorities.” The farm bill passed in July by the House continued existing subsidies for another five years. “A very narrow view of agricultural policy,” was Harkin’s description of it.

That was then. This is now, after many closed-door sessions on Capitol Hill with lobbyists for commodity groups and farm organizations. Rough drafts of Harkin’s legislation don’t look that different from the House bill.

Harkin has often said that the money budgeted for the farm bill is insufficient to finance the innovative conservation, nutrition, energy and research programs that are his top priority.

But that is only because one very large pot, the $25 billion set aside for “direct payments” to growers of program crops over the next five years, is politically untouchable.

Direct payments are an entitlement that goes to farmers regardless of prices, yields, weather or incomes. They were a key piece of the 1996 “Freedom to Farm” law, billed as a “transition” to a more market-oriented agriculture.

It’s been a long transition. The House bill would keep direct payments at the same level for another five years. Corn growers, prospering in the corn ethanol boom, would receive $10.5 billion. (Government budget analysts predict that strong corn prices will continue; ethanol plants are currently offering more than $3 a bushel for the 2008 corn crop.)

Harkin has never been a fan of direct payments and would like to steer the money to conservation programs or a redesigned safety net that would be deployed in low-income years. Direct payments, he recognizes, are not a safety net (farmers get them when their returns are high or low). And since the payments are predictable from year to year, landlords “capture” them in the rents they charge for farmland.

When I reached Harkin in Iowa last week, the day after his annual “steak fry,” he told me: “How in heck can you justify direct payments when they’re making so much money? You can’t. With all the demands to plant corn for ethanol year after year, the need for conservation is greater than ever. There’s a greater need for bumper strips and soil conserving practices and crop rotation. That’s a better use of the money. I think the support for direct payments is dwindling–but you can’t just pull the rug out.”

Key Midwest senators in both parties, including Dick Durbin (D-Ill.) and Richard Lugar (R-Ind.), favor phasing out or scrapping direct payments. Durbin said in an interview he would support shifting some of the funds to a revamped safety net plan. Lugar would terminate traditional farm programs altogether. The proposals might find considerable Senate support, but first the bill has to get to the floor.

But in the committee, Harkin faces the political power of southern crops benefiting substantially from the direct payment system. Rice “base” pays about $100 an acre, peanuts $45 and cotton $35. That compares to $25 for corn, $15 for wheat and $7 for canola.

So Harkin finds himself wedged between Conrad, who wants the disaster provision, and Chambliss, advocate for southern agriculture. Unable to tap into direct payments to finance his priorities, he can only hope that the Finance Committee—where Conrad is the number three Democrat—can steer some cash toward him.

Harkin won’t criticize Conrad for his single-minded push for the disaster provision. “The Conrad staff has consistently met with mine,” he said. “The problem is how to squeeze a size 12 foot into a size 10 shoe. Kent’s as frustrated as I am.”

That’s what makes the Iowa senator such a nice guy.

By Dan Morgan

Financial Times- Schwab: “This farm bill is not our Doha round offer.”

A Reuters news article, which was posted yesterday at DTN (link requires subscription), reported that, “Brazil regards the United States’ latest offer to cut agricultural subsides as a positive move, Brazilian Foreign Minister Celso Amorim said on Monday ahead of a meeting of the BRIC group of countries.

“‘We have this feeling that there is a positive move by the U.S. regarding agricultural subsidies. (Brazil’s) President Lula will confirm that and will show his willingness to negotiate,’ Amorim told reporters in New York.

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Doha Talks: Twists & Turns

Reuters writer Jonathan Lynn reported on Friday that, “Trade diplomats gave a guarded response on Friday to a U.S. offer to slash its maximum farm subsidies but the mediator of the World Trade Organization (WTO) agriculture talks said he saw significant progress.

“‘There are real negotiations going on,’ said New Zealand’s WTO ambassador Crawford Falconer, who chairs the agricultural negotiations.

The Associated Press reported on Friday that, “U.S. President George W. Bush is likely to meet Brazilian President Luiz Inacio Lula da Silva in New York next week in what could be an important encounter for the WTO’s six-year drive to conclude a new global trade pact.” The two leaders met at Camp David back in March, where Doha was also discussed. (White House Photo).

Mr. Lynn indicated that, “Falconer told reporters he was ‘reasonably confident’ other trading powers would conform to the ranges of subsidy and tariff cuts he proposed in a July negotiating text, following Washington’s indication that it would do so this week.

“‘They are arguing about what might work,’ he said.”

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Trade Negotiations & U.S. Farm Subsidies

Reuters writer Missy Ryan reported this morning that, “A bipartisan group of U.S. senators urged the Bush administration to reject deep cuts to U.S. cotton subsidies in world trade talks, promising to oppose any agreement with major subsidy reforms that some poor countries insist they need to compete on world markets.

“‘We cannot abandon a group of farmers who have operated within the parameters of a program written to comply’ with existing trade rules, Sen. Saxby Chambliss of Georgia and nine other southern lawmakers said on Thursday in a letter to U.S. Trade Representative Susan Schwab.

“‘Treating cotton differently than all other agriculture products in the Doha Negotiations will further erode support in the U.S. Congress for the WTO and the Administration’s trade agenda,’ wrote Chambliss, the top Republican on the Senate Agriculture Committee, and his fellow senators.”

The Reuters article indicated that, “The U.S. cotton industry, which produces 40 percent of the cotton on world markets, wields major political clout in Congress, but it has suffered setbacks since Brazil triumphed several years ago in a WTO case against its subsidies.

Despite the recent dip in corn prices, USDA’s National Agricultural Statistics Service reminded readers in their August 31 Agricultural Prices report that corn prices are still high from an historic perspective.

Some reforms were made, but the two countries are still battling over whether more needs to be done.

“The senators’ letter is another sign of U.S. lawmakers’ ambivalence about international trade. The Bush administration is hoping to push a spate of free trade deals through Congress this year, but the road now appears unfettered for just one.”

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Canada & Brazil- WTO Activity on U.S. Farm Subsidies

Lee Berthiaume, in an article posted yesterday at The Embassy Online (Canada), reported that, “Canada and Brazil are working to get a World Trade Organization dispute panel to hear their respective complaints about American agricultural subsidies at the same time.

“‘Canada’s focus is on advancing the potential alignment of the Canadian and Brazilian cases given that both countries share the same concerns and same objectives of disciplining and reducing U.S. trade distorting subsidies,’ said International Trade spokeswoman Renée David.

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Harkin: Ideas Formulating on Farm Bill

Categories: Conservation /EU /Farm Bill

Philip Brasher reported in today’s Des Moines Register that, “Under pressure from fellow lawmakers, Sen. Tom Harkin, D-Ia., is coming around to the idea of setting up a permanent fund to provide disaster relief to farmers.

“The chairman of the Senate Agriculture Committee said Tuesday that he’s looking at proposing both a ‘modest’ disaster fund as well as some form of a revenue-protection program sought by corn growers.

“Word from a supporter is that Ag Secretary Mike Johanns plans a ‘major announcement’ next week. (via The Omaha World Herald Online).

“‘I think we can accommodate both, and I plan to do so,’ Harkin told reporters in a conference call.”

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Johanns on Farm Bill Direction

The Associated Press reported yesterday that, “The Doha round of global trade talks has made more progress than people realize and a deal could be close on key issues, a senior EU official said Monday…’While everybody has said that the talks are failing they have in fact been moving forward and we nearly have a deal on the key issues,’ EU Trade Commissioner Peter Mandelson told the Council on Foreign Relations in New York.”

I. Farm Bill Issues
II. Doha
III. Biofuels- Commodities

I. Farm Bill Issues

Reuters writer Charles Abbott reported yesterday that, “The best way to strengthen the farm safety net is to add a provision that protects farmer income, Agriculture Secretary Mike Johanns said on Monday, rejecting the idea of an ever-ready disaster relief program.


“‘The more you study it, the more sense it makes for farmers,’ said Johanns, referring to so-called revenue-based counter-cyclical payments. They take yields and prices into account. Counter-cyclicals now are based on price alone.

“Johanns lauded revenue-based counter-cyclical payments while meeting 250 members of the National Farmers Union, which wants the new farm subsidy law to authorize disaster relief to farmers and ranchers whenever severe losses occur.”

Mr. Abbott pointed out that, “Disaster-relief authority is a priority for the NFU and its allies in Congress for inclusion in the farm law being written this year. Two senior members of the Senate Agriculture Committee, Democrats Max Baucus of Montana and Kent Conrad of North Dakota, support it. The committee chairman, Democrat Tom Harkin of Iowa, prefers revenue-based counter-cyclicals.”

Chris Clayton, writing yesterday at the DTN Ag Policy Blog, reported that, “Johanns, Senate Agriculture Committee Chairman Tom Harkin, D-Iowa, and groups such as the National Corn Growers Association and American Farmland Trust want to reform counter-cyclical programs to pay farmers on a per-acre revenue trigger instead of a national price trigger. The issue with these programs comes down to the best — and most affordable — way the new trigger would be defined on a county, state or national revenue.

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Gutierrez: Other countries need to do more in response to U.S. offers in Doha talks

Chris Clayton, writing yesterday at the DTN Ag Policy Blog, reported that, “There is a lot of talk in Washington about the stalemate on the Senate Agriculture Committee and the chances that the Senate could just take the House farm bill directly to the Senate floor for debate…Sen. Kent Conrad, D-N.D., raised the possibility in late August at a forum in his home state. The Senate would take the House bill straight to the floor then hammer out certain issues either on the floor or in conference later.”

I. Doha- WTO
II. Farm Bill
III. Biofuels- Commodity Prices

I. Doha- WTO

Reuters writer Missy Ryan reported on Saturday that, “Negotiators are making slow progress in Doha round trade talks this month, but it’s too soon to know if they can cobble together an agreement, the top U.S. trade official said on Friday, putting much of the onus on emerging market nations to push the talks toward a conclusion.

“‘It really is too early to tell how it’s going to play out,’ U.S. Trade Representative Susan Schwab told Reuters in an interview. The central question, Schwab said, is whether ‘the handful of naysayers’ will be ‘determined to kill the Doha round’ by rejecting proposals on industrial trade.”

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Senate Farm Bill: Funding Ideas Continue

Reuters writers Maria Luisa Palomino and Teresa Cespedes reported this morning that, “World Trade Organization chief Pascal Lamy said on Thursday he believed the framework of a global trade deal was achievable before the end of the year, with agreement possible even on the thorniest issues…Many analysts think the next few weeks are critical for the fate of the Doha round of trade talks, which began in late 2001. Without a breakthrough soon, the talks could be shelved until 2009, or possibly longer.”

I. Farm Bill
II. Biofuels

I. Farm Bill

DTN Political Correspondent Jerry Hagstrom reported yesterday (link requires subscription) that, “Senate Finance Committee Chairman Max Baucus, D-Mont., is planning to pay for the trust fund for a permanent agriculture disaster program in his farm-bill-related agricultural tax package by allocating part of the tariff income that the Agriculture Department gets each year, lobbyists said Wednesday. The lobbyists had been briefed by Baucus’ staff.

“Under Section 32 of Agricultural Adjustment Act Amendment of 1935, the Agriculture Department already gets an appropriation equal to 30 percent of the import duties collected on all items entering the United States under the customs laws, plus any unused balances up to $300 million. Section 32 was enacted to widen market outlets for surplus agricultural commodities as one way of strengthening farm prices, but the measure is used mostly today by appropriators to pay for child nutrition programs. The rest of the tariff income goes to the Treasury Department. It is unclear whether Baucus will increase the amount of total tariff income that the Agriculture Department gets or redesignate part of the Section 32 money for disaster aid.”

“Durum wheat is harvested in Balma, near Toulouse, France. (Caroline Blumberg/Bloomberg News)” (Via The International Herald Tribune Online)

For a more detailed look at Section 32, see this Congressional Research Service Report by Geoffrey S. Becker, “Farm and Food Support Under USDA’s Section 32 Program” (February 23, 2007).

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CAP Health Check

Categories: EU

Ben Hall, writing on Wednesday at The Financial Times Online, reported that, “President Nicolas Sarkozy of France on Tuesday opened the way to a more radical reform of Europe’s Common Agricultural Policy after he promised to initiate a fundamental debate about its purpose next year.

“In his first big speech on agriculture, Mr Sarkozy said the CAP needed to be overhauled after 2013 and that France would begin to discuss the issue when it takes over the EU’s rotating presidency next year.

“The speech marked a change of approach by France, which had reluctantly agreed to a ‘health check’ of the CAP next year but had little intention of discussing, let alone implementing, far-reaching reform for the next five years.”

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Brazil Eyes U.S. Ethanol Subsidies at WTO

Yesterday, the U.S. Department of Agriculture’s National Agricultural Statistics Service (NASS) released their latest Crop Production report.

In part, the NASS report stated that, “Corn production is forecast at 13.3 billion bushels, up 2 percent from last month and 26 percent above 2006. Based on conditions as of September 1, yields are expected to average 155.8 bushels per acre, up 3.0 bushels from August and 6.7 bushels above last year. If realized, this would be the second highest yield on record, behind the 160.4 bushel yield in 2004. Production would be the largest on record as growers expect to harvest the most corn acres for grain since 1933.”

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Details Emerge in Senate Farm Bill Debate

A Reuters news article from yesterday noted that President Sarkozy also called for reforms in the EU’s Common Agricultural Policy; “Speaking at the opening of a breeding show in the western town of Rennes, Sarkozy said he would propose new aims for the bloc’s farm policy when France takes on the rotating EU presidency in the second half of 2008. ‘I want a new CAP … because I do not intend to abandon the farmers who do not want help, who do not want to live off subsidies,’ Sarkozy said.”

I. Farm Bill
II. Doha

I. Farm Bill

Reuters writer Charles Abbott reported yesterday that, “The chairman of the Senate Finance Committee unveiled a plan on Tuesday to pay for two major elements in the new U.S. farm law — disaster relief and land preservation work, which together cost as much as $10 billion.

“Chairman Max Baucus outlined a tax package that ‘will offer real support to hard-working producers’ and effectively free up money for the Agriculture Committee to use in its farm bill. The 2002 farm law expires at the end of this month.

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Trade Issues

Philip Brasher, writing in Sunday’s Des Moines Register, reported that, “A battle could be brewing between the House and Senate on an issue that seldom gets much attention in Congress – rural development…The chairman of the Senate Agriculture Committee, Sen. Tom Harkin, is preparing a series of rural development proposals, including funding for water and sewer improvements, venture capital and even child-care centers, that would increase federal spending by $2 billion over the next five years.”

I. Trade
II. Biofuels
III. Rural Development

I. Trade

Reuters writer Richard Pullin reported earlier this week that, “Asia-Pacific leaders said on Sunday they saw ‘real progress’ in world trade talks now underway in Geneva and pledged flexibility and the political will to forge a deal by the end of 2007.”

The article pointed out that, “U.S. President George W. Bush, who left the summit a day earlier to prepare for a key report on Iraq, said Washington was ready to be flexible and called the troubled Doha talks a ‘once-in-a-generation opportunity.’

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Biofuels: Higher Prices & Trade Angles, However, Exports and Doha Still Important Considerations for U.S. Farmers

The September 2007 issue of Amber Waves, a publication from USDA’s Economic Research Service, contained two particularly interesting articles; one discussed ethanol and biofuels, while the other provided a detailed look at agricultural exports and imports.

The ethanol article, “U.S. Ethanol Expansion Driving Changes Throughout the Agricultural Sector”, which was written by Paul C. Westcott, stated that, “The explosive growth of U.S. ethanol production is being felt by nearly every aspect of the field crops sector—domestic demand, exports, prices, and the allocation of acreage among crops—as well as the livestock sector, farm income, government payments, and food prices. Additionally, issues have been raised regarding possible effects on natural resources resulting from the ethanol expansion and changes in farmers’ cropping choices. Adjustments in the agricultural sector to this strong demand are underway and will continue as interest builds in renewable sources of energy to lessen dependence on foreign oil.”

With respect to ethanol production, the article explained that, “With completion of the plants currently under construction, production capacity in the industry will exceed 12 billion gallons within a few years. Ethanol production is expected to be well above the renewable fuel standard mandated in the 2005 Energy Policy Act. Although the ethanol expansion is then expected to slow somewhat, even with the industry operating at less than full capacity, USDA’s 2007 long-term projections show ethanol production growing to more than 12 billion gallons by the middle of the next decade, assuming no changes in policy or technology.” (See this chart from the article, “U.S. ethanol capacity growing rapidly.”)

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