Lauren Etter and Greg Hitt reported in today’s Wall Street Journal that, “With grain prices soaring, farm income at record highs and the federal budget deficit widening, the subsidies and handouts given to American farmers would seem vulnerable to a serious pruning.
“But it appears that farmers, at least so far, have succeeded in stopping the strongest effort in years to shrink the government safety net that doles out billions of dollars to them each year.
“‘At some point, you have to step back and ask, ‘Does this make sense for the American taxpayer?’’ says Rep. Ron Kind. The Democrat from Wisconsin sponsored a measure that would have slashed about $10 billion over five years in subsidies — and saw it get crushed on the House floor.”
Etter and Hitt explained that, “A little more than a year ago, the stars appeared to be aligned for significant changes to the complex piece of legislation known as the farm bill, which allots billions of dollars to farmers and landowners to help stabilize grain prices, make products more competitive abroad and provide a plentiful food supply.
“President Bush wanted to cut subsidies. California Rep. Nancy Pelosi, who had backed a high-profile effort to reshape the system in 2002, had become House Speaker. And a broad coalition of advocacy groups was assembling to press lawmakers.
“But now serious reform is likely to be left behind like corn husks flung from a combine. As Congress tries to finish writing the new farm bill, the final tab is likely to be larger than the 2002 bill, which totaled more than $260 billion.”
The Journal article pointed out that, “Influential interest groups — which had toyed with supporting changes — cut deals to get their own piece of the action. Lawmakers who supported an overhaul peeled off as the debate moved into the election year. Historical alliances between rural and urban lawmakers proved difficult to untie.
“The agribusiness industry plowed more than $80 million into lobbying last year, according to the nonprofit Center for Responsive Politics, which tracks spending on lobbying. Much of that was focused on the farm bill.”
After noting the historically roots of U.S. farm policy, the article provided this context with respect to the U.S. agricultural economy, “Today, farmers make up less than 1% of the U.S. population, and agriculture production is dominated by large, industrial farms that have annual sales of $1 million or more. In 2006, average farm household income was $77,654, or about 17% more than average U.S. household income, according to the Department of Agriculture. Average farm household income is expected to be about $90,000 this year. Current law allows subsidies to farmers with annual adjusted gross income of as much as $2.5 million.”
Etter and Hitt also reminded readers that, “An effort was made to overhaul farm programs in 1996, when grain prices were high. That year, Congress enacted the Freedom to Farm Act, which was supposed to give farmers more control over production and planting decisions, while moving away from federal support.
“Those efforts were largely abandoned soon after the bill became law, when a downturn in the farm economy prompted lawmakers to pass emergency-relief bills. By 2002, when the next farm bill was being written, big changes were off the agenda.”
And, the Journal article noted that the Bush administration proposed some reform ideas with respect to U.S. farm policy back in January of 2007: “In January 2007, as Democrats took power on Capitol Hill, the administration proposed a sharp break with past farm bills. The plan emphasized the need for spending on ethanol and other biofuels, conservation and rural development. Most important, it proposed big cutbacks in farm subsidies.
“The goal was to target more benefits at farmers who work the land and need financial assistance, while weaning benefits away from the well-to-do. Recent recipients include 92-year-old David Rockefeller Sr., heir to oil-baron John D. Rockefeller.”
“Among other things, Mr. Bush proposed to end payments to producers with adjusted gross incomes greater than $200,000, instead of the $2.5 million under current law,” the Journal said.
(To listen to a FarmPolicy.com podcast from January of 2007 regarding the Bush administration’s agricultural proposals, click here (MP3-10:00). The audio segment includes comments from then Agriculture Secretary Mike Johanns, as well as comments made to FarmPolicy from Mary Kay Thatcher of the American Farm Bureau Federation and Scott Faber, who at the time worked for Environmental Defense).
While the administration was proposing changes in policy, the Journal article indicated that, “At the same time, disparate advocacy groups came together and began pressing for change. The loose-knit alliance included the National Black Farmers Association, which felt the subsidy system had ignored black farmers; the faith-based Bread for the World; and Taxpayers for Common Sense, a group advocating fiscal responsibility. ‘We decided to put on a game,’ says Washington lobbyist Rick Swartz, who organized the alliance.
“Some groups argued that farm subsidies hurt poor, unsubsidized farmers in the developing world. Others argued the programs can’t be justified with the federal budget deficit as large as it is. Still others blamed the commodities subsidized in the farm bill for contributing to obesity, diabetes and heart disease.”
Countervailing pressure ensued; Etter and Hitt explained that, “The farm lobby already was fighting back. Led by the American Farm Bureau Federation, with more than six million members nationwide, the pro-subsidy force includes trade associations representing farmers of corn, wheat, cotton, soybeans, sugar, rice and peanuts. Many of these groups have their own lobbyists and entire teams devoted to farm-bill strategy.”
And in the end, “The safety net was essentially left intact. Basic support for commodity programs remained,” the Journal said.
Near the article’s conclusion, Etter and Hitt stated that, “The House bill passed by a vote of 231-191 in July. The Senate bill, passed in December, would eventually ratchet down the income cap to $750,000. Like the House bill, it proposes to bar farmers from collecting multiple payments, among other changes. Key members of the House and Senate are hoping to negotiate a compromise package by mid-April.
“Mr. Bush has vowed to veto both bills, a threat that gives him leverage in negotiations to wring concessions on reform. At the same time, Mr. Bush is dangling the prospect of $10 billion in new spending, in return for congressional support for more aggressive changes. As an inducement, the White House has suggested it could raise its proposed income cap to $500,000 from $200,000.”
Meanwhile, as the Farm Bill negotiations move forward to final resolution, Jon Knutson reported yesterday at The Forum Online (North Dakota) that, “Congress is ‘very, very close’ to reaching an agreement on the next U.S. farm bill, Sen. Kent Conrad, D-N.D., said Tuesday.
“An agreement could be announced in several days, Conrad said at a Fargo news conference.
“Conrad, who’s played a key role in farm bill negotiations, said he’s not free to discuss details or specifics.”
However, Tom Steever reported yesterday at Brownfield that, “Iowa Senator Charles Grassley is not satisfied with conference proposals to fund the farm bill, nor does he think payment limits have been adequately addressed so far in conference committee action. Grassley told reporters Wednesday that among funding allocations proposed so far, none are acceptable to him.
“‘Continuing to put forward allocations that expand programs outside the House and Senate bills, or cutting programs further than either of the two bills already did give me much heartburn, as you can probably tell,’ Grassley said Wednesday from a stop on a series of meetings he’s holding in Iowa during the Easter Congressional recess.”
Chris Clayton noted yesterday at the DTN Ag Policy Blog that, “‘If we don’t get a farm bill by April 18, then there is no doubt we have got to continue the existing farm law,’ Sen. Charles Grassley, R-Iowa, said Wednesday.
“Grassley said his staff has briefed him on funding for proposed allocations that the House and Senate Agriculture Committees chairmen and ranking members crafted last week. He didn’t see much promise in that framework.
“‘Nothing I have heard would be acceptable,’ he said.”
Commodity Supply and Demand Issues
Brian Baskin reported in today’s Wall Street Journal that, “Crude futures ended sharply higher as large declines in oil-product inventories added to the market’s dollar-driven upward momentum.
“Light, sweet crude for May delivery settled $4.68, or 4.6%, higher at $105.90 a barrel on the New York Mercantile Exchange. The front-month contract last settled higher on March 18.”
And the Associated Press reported yesterday that, “Agriculture futures traded mostly higher on the Chicago Board of Trade.
“May corn added 7.5 cents to $5.5225 a bushel; Wheat for May delivery dropped 34.5 cents to $10.33 a bushel; May soybeans jumped 45 cents to $13.52 a bushel.”
In a related article, Associated Press writer Bill Cormier reported yesterday that, “President Cristina Fernandez [of Argentina] refused to ease tax hikes on agricultural exports Tuesday, facing down angry farmers embroiled in a nationwide strike that has all but halted production in one of the world’s biggest beef-exporting nations.”
“South America’s second-largest economy -a leading exporter of soybeans, beef and wheat- is in full farmbelt rebellion over a new sliding-scale increase in export taxes. Soybean taxes are being hiked from 35 percent to 45 percent, with smaller increases on corn and other farm products,” the AP article said.
Mr. Cormier also noted that, “Fernandez said farm producers have profited from a boom in commodity prices and it is only fair to tax them more to redistribute wealth to poorer parts of society. ‘This seems like … comedy,’ she said.”
Monte Reel, writing in today’s Washington Post, reported that, “The higher taxes are designed to keep more agricultural products in Argentina, protecting domestic supply and curbing inflation. The increased revenue would pay for infrastructure improvements, [Pres. Fernandez] said.”
Dow Jones writer Shane Romig reported yesterday that, “Argentina’s grain exporters are facing a wave of contract defaults due to a very high level of commitments and a nationwide farm strike that is preventing them from getting that grain to port, according to industry players.”
The article added that, “With the soybean harvest kicking off, exporters had expected to start processing and shipping the first beans from the 2007-08 crop.
“The problem is particularly serious with corn, which is in full harvest. Exporters already have declared commitments to ship 7.6 million metric tons of new crop corn, according to the Agriculture Secretariat. However, exporters have just 45 days from when they make an export declaration to when they actually ship the corn. The farm strike looks set to prevent the shipment of such a very high amount in such a short period.”
The Dow Jones item indicated that, “Farmers will continue to harvest the ripening soy, corn and sunflower seed crops and place the grain in local storage units, but only transport to local silos will be allowed, Argentine Agrarian Federation President Eduardo Buzzi said Tuesday.
“On March 11, the government announced a sweeping overhaul of the export tax structure on grains and derivative products. A sliding scale was implemented, with rates increasing as export values rise.
“The higher export taxes follow a series of measures designed to shield domestic consumers from the effects of sharp food inflation and to increase state revenue.”
Reuters news noted this morning that, “Argentina has been one of the world’s main beneficiaries of a global surge in commodities prices. But farmers abhor government measures like export bans and price controls, which are being put into effect to stem inflation and to increase revenue.”
In more specific news regarding rice, Carlos Conde reported in yesterday’s New York Times that, “President Gloria Macapagal Arroyo [of the Philippines] ordered a crackdown on rice hoarders on Tuesday, as her administration tried to blunt the impact of rice shortages that could fuel public unrest.
“Mrs. Arroyo also appealed to traders not to artificially raise the price of rice, the country’s staple food. The price had risen by nearly 50 percent since January, according to official statistics. Prices of oil and basic household commodities have also soared.”
The Times pointed out that, “The Philippines, once Asia’s leading rice producer, is now its leading rice importer, according to the Ibon Foundation, an economic research group. Last year, the Philippines imported 1.8 million tons of rice, or 16 percent of its requirement, mainly from Vietnam and Thailand.”
The Associated Press reported yesterday that, “Philippine farmers warned Wednesday that the country was facing a serious rice supply crisis, as the government signed a deal to import rice from Vietnam to boost local reserves at a time of rising prices and shrinking global stocks.”
“The Agriculture Department says rising demand in the Middle East and Africa has increased the price of rice in Vietnam and Thailand -the world’s top exporters- to around $500 per ton, a 25 percent jump in just the last month,” according to the AP.
And an AFP article from yesterday stated that, “It is the staple food of half of humanity but only a handful of countries have large rice surpluses, leaving even some of the biggest producers scrambling to grow enough to feed their own people.”
In a broader context, the “Washington Insider” section of DTN indicated yesterday that (“Tight Global Food Supplies, High Food Prices Will Pressure Policymakers”- link requires subscription), “The list of governments choosing to become involved in food and agricultural markets continues to grow. One of the latest is the government of South Korea, which plans to reduce or eliminate duties on a wide range of imported items, including corn and wheat. South Korea’s Ministry of Strategy and Finance also says it will monitor the prices of 52 consumer goods in an ongoing effort to keep food price inflation in check. The list includes rice, flour, bread, instant noodles, beef, pork, eggs and vegetables.
“With Northern Hemisphere spring-planted crops not yet in the ground in most areas, there is little that most governments can do in the short-term to deal with crop supplies and food prices. The crop supply is what it is. However, any significant shortfall in this summer’s production of major crops in an important growing area would bring intense pressure on governments around the world to find more creative ways to offset rising food prices.
“Those actions, whether taken by the U.S. government or that of our trading partners, could have a significant effect on what had become the more-or-less routine flow of farm products moving in international trade.”
An article from yesterday by Rosemary Desmond (“Food prices ‘likely to stay high’”), which was posted at the Herald Sun Online (Australia), reported that, “Kym Anderson, Professor of Economics at Adelaide University, said an increased demand for grains to make biofuels as a replacement for oil had pushed up food prices internationally by 75 per cent since 2005.
“Extreme weather events such as Australia’s droughts had also added to the impact.
“But it was the price of oil that was largely to blame and the situation was unlikely to change, said Prof Anderson, who has just spent three years working with the World Bank in Washington DC.”
The article added that, “‘It’s really petroleum prices that have gone up and that has encouraged both Europe and America to set targets to move towards biofuels and that is driving up the demand for corn in the United States and for rapeseed (canola) in the EU and also for sugar in Brazil because sugar is a source of ethanol.’
“More land devoted to biofuel production also meant less land for food crops such as wheat, he said.
“In Australia, the drought had been responsible for an increase in the available supply of red meat from producers who could not afford to keep feeding livestock. This had kept red meat prices down in the short term.”
Within this environment, hypothetical discussions regarding potential U.S. export policy have been noted in some recent radio news programs. This FarmPolicy.com audio summary from yesterday (MP3- 5:49) includes clips from Tuesday’s Agritalk Radio Program (“Should wheat exports be curtailed to ensure supply for domestic bakers?”- interview with Daren Coppock, the CEO of the National Wheat Growers Association); Monday’s WGN Radio AgriCast with Max Armstrong (interview with University of Illinois Agricultural Economist Darrel Good), and Saturday’s WILL-AM 580 Radio “Commodity Week” program (comments from Purdue University Agricultural Economist Chris Hurt on ethanol and corn).
The White House announced yesterday that, “The President intends to nominate A. Ellen Terpstra, of New York, to be Chief Agricultural Negotiator in the Office of the United States Trade Representative, with the Rank of Ambassador. Ms. Terpstra currently serves as Deputy Under Secretary of Farm and Foreign Agricultural Services at the Department of Agriculture. Prior to this, she served as Administrator of the Foreign Agricultural Service at the Department of Agriculture. Earlier in her career, she served as President and Chief Executive Officer for USA Rice Federation. Ms. Terpstra received her bachelor’s degree from Georgetown University.”