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Farm Bill; Biofuels; Crop Progress / Prices; Doha

Farm Bill

Dan Morgan reported in today’s Washington Post that, “House and Senate negotiators bargaining over a new farm bill have reduced funding for a key school lunch program for poor children abroad and agreed to sharply expand nutrition programs for low-income families and children in the United States.

“The move came as conferees from the two chambers neared completion of the nearly $300 billion, five-year bill, which finances food stamps, farm subsidies, rural soil and water conservation programs and bio-energy initiatives. About two-thirds of the money goes to nutrition programs.

“Under a deal worked out in the last few days, required spending on the Dole-McGovern International Food for Education program was set at $60 million. That is $780 million less than proposed by the House, and $40 million less than was allocated in the expiring farm bill.”

Mr. Morgan indicated that, “‘I can’t figure why [the international school feeding program] was tossed aside,’ said Rep. Jim McGovern (D-Mass.), a leading advocate for the program. He is not related to George McGovern.

“House lawmakers blamed the Senate. ‘There was no support for it there. We ran into a brick wall,’ said Rep. Rosa DeLauro (D-Conn.), one of those representing the House in the talks.

“Agriculture Committee Chairman Tom Harkin (D-Iowa), leader of the Senate team, responded that because nutrition dollars were limited, ‘we applied most of the funds to assistance for U.S. families and children, with the expectation that foreign food assistance would continue to be funded primarily through annual appropriations bills, as has long been done.’

“Nutrition programs generally have fared well in the farm bill negotiations. House Speaker Nancy Pelosi (D-Calif.) made increasing food aid to low-income families at home a top priority in the farm bill, which she strongly supports despite a veto threat by Bush.”

Interestingly, George McGovern and Bob Dole penned an opinion item that was published in today’s Washington Post (“A Slap at Schoolchildren”), which stated that, “How can the world’s hungriest schoolchildren be denied meals while the farm bill being debated in a House-Senate conference provides millions in subsidies for wealthy farmers? That’s what Congress proposes. In all fairness, it should not become law.

“We are puzzled that Congress wants to increase overall farm bill spending by billions of dollars yet reduce by more than 90 percent the mandatory funding to feed hungry children. The program at issue saves lives and has a proven ability to break the cycle of poverty and hopelessness in poor countries.

“We are not expressing disagreement because the program, supported by Presidents Bill Clinton and George W. Bush, bears our names. We believe, simply put, that a costly humanitarian mistake would be made. Funding for the program would go from $840 million over five years to $60 million this coming year. After that, there would be no guarantee of funding at all. The $840 million in funding represents less than 1 percent of the proposed total spending in the farm bill. At a time when increasingly high food prices are pushing millions of families around the globe deeper into poverty, we must step up, not reduce, our efforts to feed hungry schoolchildren.”

Meanwhile, DTN Political Correspondent Jerry Hagstrom reported yesterday morning that, “Farm bill conferees are expected to assemble Tuesday to vote on nine remaining items in the titles of the bill they have already passed, the trade title and a tax package.

“Among the most important items they will have to settle will be how strict to make the payment limits on farm subsidies and whether farmers will have to give up ownership of grain when they receive their loan deficiency payments. The conferees have already made proposals on each, but the Bush administration does not seem satisfied with them.”

Mr. Hagstrom added that, “The conferees left the trade title of the bill open over several unresolved issues. The Bush administration has made its proposal to allow the government to buy 25 percent of food aid purchases in developing countries, but U.S. farm interests have bitterly opposed that. Farm and development groups also want a ‘safebox’ for food aid tied to development so that USAID (U.S. Agency for International Development) cannot use the development food aid money for emergencies. But the administration has opposed that proposal. House Agriculture Chairman Collin Peterson, D-Minn., also said the softwood lumber provision has not been resolved.”

And the DTN article noted that, “The Senate Finance Committee and the House Ways and Means Committee also said the conferees are expected to act on a tax package that is to be attached to the bill.

“The most controversial item is a plan to extend the tariff on imported ethanol through 2012. Senate sources said Thursday that President Bush has expressed opposition to that provision.”

A related editorial on the issue of purchasing food aid was published in today’s New York Times (“Food Emergency”). The Times stated that, “As soaring food prices threaten to unleash widespread hunger across Africa and other poor countries, President Bush is right to press Congress for more food assistance. He is also right to insist that some of that aid be given in cash to purchase food from local farmers. Unfortunately, the American farm lobby, which supports food aid as long as it gets the profit, is fighting any change to the system.”

The Times editorial added that, “President Bush is asking Congress for an additional $770 million, which would boost American food aid to roughly $5 billion over the next two years. Congress should approve that assistance. Mr. Bush has said that up to a quarter of that aid should be given in cash. That is a start, but the percentages will need to grow.

“The developing world needs to develop its own ability to feed itself. For that to happen, American farmers will have to be weaned from American food aid. There is more that Washington must do. Especially with corn and oil prices as high as they are, the time has come to put an end to subsidies to transform corn into ethanol.”

In a separate DTN article from yesterday evening (“Groups Differ on Income Limits for Conservation Payment Participants”), Jerry Hagstrom reported (link requires subscription) that, “House and Senate Agriculture Committee staffs are working to finalize farm-bill payment limitation levels and adjusted gross income limits for farm-subsidy recipients, a spokeswoman for Senate Agriculture Chairman Tom Harkin, the chairman of the House-Senate conference on the bill, said Monday.

“Harkin, D-Iowa, has not decided whether it will be necessary to call another formal conference or whether he will ask conferees to sign a conference report, the spokeswoman added.”

Mr. Hagstrom explained that, “The House and Senate farm bills differed in how they would handle income limits for recipients of conservation program payments. The House-passed farm bill would apply the same income limitations that have been decided for commodity programs to conservation programs. The Senate-passed bill would stick with the 2002 income limit, which is $2.5 million per year for a single person and $5 million for a married couple.

“Adjusted gross income limits on commodity programs in the conference report, which will be a merger of the two bills, have not been finalized, but principal negotiators have discussed $500,000 for an individual nonfarmer and $950,000 for a farmer.”

In other focus on the Farm Bill legislative process, The Washington Post editorial board indicated today that, “Among the least defensible provisions under discussion is a plan by those lawmakers to prop up U.S. sugar cane and sugar beet farmers. The background to this is long-standing federal protection for sugar, which takes the form not of direct subsidy payments but of interlocking price supports and import quotas. For decades, U.S. sugar policy has hurt sugar farmers and cane-cutters in poor countries and raised prices of candy and soda for U.S. consumers (admittedly not altogether a bad thing, given the obesity epidemic). It has also driven some U.S. candy producers either out of business or overseas.

“The 2005 Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), as well as newly effective provisions of the North American Free Trade Agreement, threatened to upset this cozy arrangement by opening a sliver of the U.S. market to sugar from Mexico and the DR-CAFTA countries. A sugar-lobby effort to restore the old status quo failed earlier this year, so the lobby and its Capitol Hill supporters have come up with an ingenious new way to protect the industry: raising the support price for U.S. sugar, already above the world price, for the first time in 23 years, while requiring the federal government to set aside a certain quantity of imported sugar for conversion to ethanol. Never mind the untested economics of sugar-based ethanol production in the United States. The Sweetener Users Association, an organization of sugar-using industries, estimates that the farm bill will add $2 billion to grocery bills over five years. Commodity prices and farm incomes are exploding, imposing higher food costs on American consumers and threatening poor people around the world with outright hunger. Perhaps only in the U.S. Congress could it seem like a good time to compound the problem with a dose of sugar shock.”

With respect to Farm Bill progress, a press release issued yesterday by the Senate Ag Committee stated that, “Senator Tom Harkin (D-IA), Chairman of the Senate Committee on Agriculture, Nutrition and Forestry and of the Senate-House conference committee on the new farm bill, today announced that the conference committee had agreed upon and approved all major elements of the new farm bill. Staff for the Senate and House agriculture committees and for conferees will continue to work through finalizing a few remaining issues and obtaining official budget scoring from the Congressional Budget Office. The completed legislation will have to be approved by both the Senate and House before being sent to the White House.

“‘Today’s adoption of all major elements of the new farm bill brings us within a few steps of the finish line,’ said Harkin. ‘The Senate-House conference committee on the farm bill is now in the final stages of a strong, bipartisan bill that that will bring new funding and better policy in core farm bill initiatives – conservation, energy, nutrition and rural development – while continuing and strengthening farm income protection.’”

The press release included highlights of the Farm Bill by title; with respect to the commodities title, the news release noted that, “The bill includes a newly named Producer Income Protection title that continues basic features of the 2002 bill, which farmers have thought worked well, and it gives producers a new option, beginning with the 2010 crop year, to choose to participate in a state-level revenue protection system. The Average Crop Revenue program, modeled after legislation proposed by farmers and introduced by Senators Durbin and Brown, offers producers better options for managing risk of both yield and price declines on their farms in today’s uncertain, rapidly changing farm environment.”

With respect to biofuels, the summary explained that, “The farm bill will accelerate commercialization of advanced biofuels, like cellulosic ethanol, by helping farmers produce biomass crops, by providing grants and loan guarantees to support these new biorefineries, and by increasing bioenergy research to guarantee that we have a continuing flow of more productive and resource-conservative technologies in the decades to come.”


Associated Press writer Matthew Perrone reported yesterday that, “Senate Republicans have asked environmental regulators to use their power to halt the country’s plans to expand ethanol production amid rising food prices.

“Twenty-four Republican senators, including presidential candidate Sen. John McCain of Arizona, sent a letter Friday to the Environmental Protection Agency suggesting it waive, or restructure, rules that require a fivefold increase in ethanol production over the next 15 years.”

However, a press release posted yesterday at the Senate Ag Committee Online, stated that, “Senator Tom Harkin (D-IA), the Chairman of the Senate Committee on Agriculture, Nutrition and Forestry, today said the Environmental Protection Agency (EPA) should uphold the ethanol standards passed by the energy bill with an expansion of the Renewable Fuels Standard (RFS) to 36 billion gallons by 2022. Earlier today, 23 Senate Republicans urged the agency to halt ethanol production expansion.

“‘To single out increased biofuels production and use in the United States, European Union and other countries as the chief cause of higher world food prices is an over-simplification of the problem.’”

Nonetheless, Associated Press writer Aoife White reported yesterday that, “The U.S. and European Union should reconsider a shift to biofuels that has helped increase food prices worldwide by turning agricultural land over to energy crops, American economist Jeffrey Sachs said Monday.”

A related AP article from yesterday reported that, “The European Union’s agriculture chief said Monday she expects world food prices to stabilize below peak levels, but warned that speculation has been a leading cause of increases and could fuel further instability.

“‘We saw some huge peaks (in prices) from late August, September and October,’ E.U. Agriculture Commissioner Mariann Fischer told reporters in Warsaw. ‘They might come back to a certain extent, but we expect that prices will stabilize at a level that is a bit below the peaks that we have seen.’

“However, Fischer warned of the threat from speculation on prices, saying it ‘has had a huge consequence on the increase in cereal prices that we have seen.’”

Crop Progress / Prices

Alan Beattie reported yesterday at The Financial Times Online that, “Bad weather is threatening a big shortfall in this year’s US maize harvest, according to US officials, risking a further upward push to food and energy prices.

“Maize is the main feedstock for US ethanol. A further rapid rise in its price is likely to add to growing concern on Capitol Hill that federal biofuel subsidies are worsening the food crisis.”

The FT article added that, “Joseph Glauber, chief economist for the US agriculture department, told Congress last week that maize prices were likely to rise again in 2008-9. ‘Cool, wet weather has slowed planting progress, which could also contribute to lower maize plantings in 2008,’ he said. ‘With higher use and lower production, ending stocks are expected to decline, keeping upward pressure on prices.’ Mr Glauber said that ethanol was likely to consume 24 per cent of the maize harvest.”

DTN Wire Editor Anthony Greder reported yesterday that, “The percentage of the U.S. corn crop that got in the ground increased by 17 percentage points in the last week — the biggest chunk of planting accomplished in one week so far this year, according to USDA’s Weekly Crop Progress Report. But the total of 27 percent planted as of May 4 remains woefully behind the year-ago total of 45 percent and the five-year average of 59 percent.”

University of Illinois Agricultural Economist Darrel Good noted yesterday (“Corn Production Prospects Remain Uncertain”) that, “The USDA’s Prospective Plantings report released on March 31 provided much of the fuel for the spring rally in corn prices. Corn producers reported intentions to plant only 86.014 million acres of corn, nearly 7.6 million fewer acres than planted in 2007. Intentions were well below expectations and well below the magnitude of acreage needed to allow corn consumption to continue at the current rate of 13.11 billion bushels per year.

“It may be that the size of the market for U.S. corn will not grow during the 2008-09 marketing year even without further price increases. There is some evidence, for example, that hog producers are reducing the size of the breeding herd, pointing to a decline in the number of hogs to be fed in 2009. Exports of U.S. corn may decline modestly from the record level being experienced this year if world wheat production rebounds and if the U.S. dollar strengthens. The size of the Chinese corn crop and subsequent trade policies, however, will also be important for U.S. corn export demand.

“Ethanol demand for corn is also a little more uncertain as policy makers debate proposals to reduce the level of biofuels production mandates and the magnitude of the blender’s tax credit. Changing the level of mandates, however, would likely have very little short term impact on the demand for corn to produce ethanol if the economics of production remains favorable. The level of the tax credit has a more direct impact on the returns to ethanol production. At current prices for corn and ethanol, however, corn based ethanol production would remain profitable even with a modestly lower blender’s tax credit.”

After more detailed analysis, Dr. Good explained that, “Even with a slower rate of planting than expected, corn prices stabilized last week. There is a general perception that, given a window of opportunity, producers can now plant the crop more rapidly than in the past. While modern planting systems clearly allow individual producers to plant more acres per day, there is no clear evidence that in aggregate the corn crop actually gets planted more rapidly in recent years than three or four decades ago.

“Assuming that the majority of the corn crop gets planted before the middle of May, prospects for a 2008 average U.S. yield at or above trend will be maintained. The question is whether trend yield will be sufficient. An estimate of actual planted acres will not be available until June 30. In addition, even with timely planting, yields are still mostly dependent on summer weather conditions.”


The Associated Press reported yesterday that, “Growing concerns about food security could spur renewed efforts to liberalize global trade, Australia’s trade minister says.

“If the global community wants to help solve the food crisis, it must liberalize markets so that people can trade available surpluses more freely, Minister Simon Crean said on the sidelines of a meeting of Southeast Asian trade officials.”

Reuters news reported on Sunday that, “The European Union must be firm in World Trade Organisation trade talks despite the global rise in food prices, a German official was quoted as saying on Sunday.

“‘Due to the food crisis, we could face new demands,’ Bernd Pfaffenbach, Germany’s Deputy Economy Minister, was quoted as saying by Financial Times Deutschland daily.

“‘Many developing countries believe we’re conducting protectionist agricultural policies despite our widereaching offers. But we will not let ourselves be pushed into a corner on agricultural policy,’ he said.”

Bloomberg writer Naila Firdausi reported on Sunday that, “A successful global agreement among members of the World Trade Organization would ‘send positive signals’ that might help stem increases in food prices, U.S. Trade Representative Susan Schwab said.

“WTO negotiators are in the seventh year of talks on an accord to trim farm aid, cut tariffs and lower industrial trade barriers to buoy the global economy and ease poverty. Efforts to reach an agreement this year come as prices of food, including rice and wheat, soar to records.

“‘Only by letting comparative advantage operate do you have the opportunity to really bring supply and demand back to a better balance,’ Schwab said in an interview today in Nusa Dua, Indonesia.”

Keith Good