FarmPolicy

July 28, 2014

Climate Legislation; Ag Economy; Food Safety; and CFTC Issues

Climate Legislation-Farm Groups Lack Complete Unanimity

Lisa Lerer reported yesterday at Politico.com that, “Cracks are emerging within the powerful farm lobby, as the agriculture community fractures over the sweeping climate and energy bill expected to be taken up by the Senate this fall.”

The article explained that, “The climate and energy bill passed by the House in late June allows polluters to buy ‘offsets,’ essentially paying to implement carbon-reduction programs on farms or forests. The offsets reduce the total greenhouse gas emissions of the polluters, allowing them to stay under the emissions cap, and give farmers an additional revenue stream. Under a deal negotiated by Rep. Collin Peterson (D-Minn.), chairman of the House Agriculture Committee, the USDA, instead of the Environmental Protection Agency, would oversee the offset program.

The House legislation would cap the annual amount of domestic offsets, but, in the Senate, Peterson and farm lobbyists are pushing to include unlimited offsets. They’d like to increase opportunities for farmers to earn offset credits for programs they already have in place, a practice that supporters call ‘stacking credits’ and that opponents deride as double-dipping. Farm lobbyists are also pushing the Senate to provide a percentage of free allowances to the agricultural sector to help cushion the economic impact on farmers and to fund the development of new technologies to increase production efficiencies.

“‘It’s got a long ways to go,’ said Peterson, who has been meeting with other senators in a bid to strengthen the agricultural provisions in the Senate version of the legislation. ‘They’re going to take everything I did and try to build on it some.’”

Ms. Lerer indicated that, “Though most farm lobbyists see offsets as a lucrative revenue stream for at least some agriculture producers, not all back the legislation. The divide largely stems from whether farm groups believe global warming is a major threat to agriculture. One key group — the American Farm Bureau Federation — believes that higher fuel, fertilizer and other costs resulting from climate legislation could hurt farmers more than higher temperatures. ‘We just don’t think that the costs are going to outweigh any money that you get from offsets,’ said Rick Krause, senior director of congressional relations for the AFBF.

“But the National Farmers Union, which represents roughly 250,000 farm families, believes that changed weather patterns stemming from global warming could have a significant impact on farmers’ livelihoods.”

In a related article, Thom Gabrukiewicz reported yesterday at the Argus Leader Online (South Dakota) that, “Farmers and ranchers can be part of the solution to halt global warming – and they stand to benefit economically, says the president of the National Farmers Union.

“‘Agriculture accounts for 7 percent, but has the potential to take out 20 to 25 percent of greenhouse gasses in the atmosphere,’ said Roger Johnson, who was in Sioux Falls on Tuesday to discuss the American Clean Energy and Security Act of 2009. ‘It’s a huge opportunity if we do this right. We need to take action, and farmers and ranchers must be a central part of the ongoing debate about climate change.’”

The article noted that, “But Johnson said farmers and ranchers could benefit as well – by using no-till practices, adding methane digesters and setting aside marginal lands from crop production to conservation programs. They then could sell their credits to companies on the Chicago Climate Exchange.

“‘This is really a free-market way of regulating,’ Johnson said. ‘This is a way of sorting out the winners and losers in the marketplace.’”

On the other hand, the article pointed out that, “But Sen. John Thune, R-SD, said he questions the numbers – especially since fuel, fertilizer and electric costs are expected to rise immediately if the measure passes.

“‘Any form of cap and trade will have a significant impact on all sectors of our economy, but agriculture in particular would be affected due to high energy requirements,’ he said.”

Ken Anderson reported yesterday at Brownfield that, “The chair of the National Farmers Union’s legislative committee says regulation of greenhouse gases is inevitable. So, says John Hansen, it’s more a question of whether the rules will be determined by Congress or dictated by the EPA.

“‘We think that there’s going to be something done on greenhouse gases,’ Hansen says, ‘and so, if that’s the case, then from a pragmatic standpoint, how does ag get involved in the most constructive kind of way to minimize the downside and maximize the upside?’”

Since the EPA has authority to unilaterally regulate greenhouse gas emissions, the “inevitability argument” has been used in an attempt to persuade producers that Congressional action on the issue would be better than doing nothing and letting the EPA make the rules by default.

However, recall that GOP Senator Richard Lugar (IN) expressed a counterpoint to this assertion last week at the Senate Agriculture Committee hearing on climate legislation- to listen to Sen. Lugar’s point on this issue, just click here (MP3- 1:05).

Climate Change- Sen. Kerry on China

J. Taylor Rushing reported yesterday at The Hill Online that, “Senate Foreign Relations Committee Chairman John Kerry (D-Mass.) on Wednesday said this week’s talks between the U.S. and China fell short of U.S. goals to engage China in climate-change efforts.

“In 50-minute remarks delivered at the National Press Club [video replay available here], Kerry said while ‘real progress’ was made in the two-day economic summit that concluded Wednesday, more significant agreements weren’t reached between the two countries. Kerry said those are critical before U.S. officials can feel confident in success at the United Nations’ global emissions summit in Copenhagen, Denmark, in December.

“‘On climate change, perhaps the single greatest challenge we face, more could have and should have been achieved,’ Kerry said.”

Mr. Rushing indicated that, “Kerry’s comments represent a suggestion that the Obama administration needs to try harder in its efforts to engage China this fall as the U.N. conference approaches. Kerry has put the topic foremost on his committee’s agenda this year, describing it as a top priority. Momentum toward a climate-change bill has stalled in the Senate, however, with negotiations suspended until after the congressional recess ends after Labor Day.”

Climate Change- Measuring Carbon Offsets

On the general issue of measuring carbon offsets, Jeffrey Marlow reported yesterday at the Green Inc. Blog (The New York Times) that, “As policymakers prepare for the Copenhagen conference on climate change in December, the proposed program for reducing emissions from deforestation is considered among the more promising ways to reduce atmospheric carbon. The program would allow heavily polluting nations to offset their emissions by paying developing tropical countries to store carbon in forests, providing economic incentive to stop deforestation and regenerate damaged landscapes.”

Mr. Marlow explained that, “The program is well-defined in principle, but the actual numbers remain uncertain. ‘To the extent that you can manage something, you have to be able to measure it,’ said Achim Steiner, the executive director of the United Nations Environmental Program, in a recent interview in Nairobi, Kenya. ‘Our challenge right now is to determine how a different land use would have either a net benefit or a net cost in terms of carbon storage capacity.’

The United Nations group hopes to solve this problem by measuring carbon-storage capacities through a recently introduced program known as the Carbon Benefits Project.”

Yesterday’s update added that, “One test region is the northern Lake Victoria basin, which includes parts of Uganda and western Kenya. The rolling hills of the region are divided between old-growth forests, subsistence farms, tea fields and human settlements — each of which stores a different amount of carbon. Knowing exactly how much carbon each type of land use sequesters is crucial for the envisioned international program.

“According to Eleanor Milne, a Colorado State University scientist who is coordinating the first stage of the project, the Carbon Benefits Project will use the Lake Victoria basin to ‘create a standardized way to measure carbon storage in the same ways.’ After on-the-ground measurements and satellite images are taken into account, a model of carbon storage will be made available so that other land-management projects, like the broad initiative to combat deforestation, can use the system too.”

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Meanwhile, Kate Galbraith reported in today’s New York Times that, “The biggest opportunity to improve the nation’s energy situation is a major investment program to make homes and businesses more efficient, according to a study released Wednesday by the consulting firm McKinsey. An investment of $520 billion in improvements like sealing ducts and replacing inefficient appliances could produce $1.2 trillion in savings on energy bills through 2020, the study found.

“The report said such a program, if carried out over the next decade, could cut the country’s projected energy use in 2020 by about 23 percent, a savings that would be ‘greater than the total of energy consumption of Canada,’ Ken Ostrowski, a senior partner in McKinsey’s Atlanta office, said at a forum in Washington on Wednesday. It would also more than offset the growth in energy use that would be expected otherwise.”

Ag Economy

Yesterday, the Federal Reserve Board released its latest Summary of Commentary on Current Economic Conditions, commonly referred to as “The Biege Book.”

With respect to agriculture, yesterday’s Fed report included the following comments from three Federal Reserve Districts:

-Seventh District- Chicago- “Corn and soybean prices declined during the reporting period. Crop conditions remained better than last year, and markets were surprised by an increase in corn acres planted. Moreover, District farmers planted more acres of both corn and soybeans than a year ago. Although crop maturation was behind the typical pace due to planting delays, favorable weather in June and early July improved the outlook for both corn and soybeans. Lower demand for livestock feed also contributed to the decline in crop prices. Reduced costs for feed were not enough, however, to offset continued low prices for dairy, hogs, and cattle. One contact expressed the view that agriculture has lost the financial cushion that was built up in previous years. Many farmers forward contracted only a relatively small portion of their production and were not well prepared for the quick decline in crop prices. In addition, some livestock herds have been liquidated, as producers were unable to secure financing for operations.”

- Tenth District- Kansas City- “While growing conditions improved, profit opportunities softened for agricultural producers since the last survey period. Ample rainfall in June and early July aided growing conditions but declining commodity prices dampened farm income expectations. Though corn and soybean development was lagging due to cooler temperatures, crops were still reported in good condition. Due to weather damage, wheat producers in the southern portions of the District harvested fewer acres and reported below average yields; however, growers located further north anticipated above average wheat yields. Soft demand for meat continued to put downward pressure on livestock prices, and producers responded with further herd liquidations. Farmland values held firm, supported by the limited supply of farms for sale coupled with solid demand from farm operators and renewed interest from non-farm investors.”

-Eleventh District- Dallas- “Drought continues to stress crops and forage across much of the District. Dry conditions are most severe in south and central Texas where many fields of cotton, corn and other dryland crops are not worth harvesting—leading producers to collect insurance. Ranchers in the driest parts of the District continue to liquidate their cow and cattle herds at a loss. Contacts expressed concern about the cash flow position of producers because of drought and high feed and input costs.”

In other news, Miriam Jordan reported in today’s Wall Street Journal that, “Jesus Rodriguez, a Mexican who can’t read or write, sometimes mixes up the numbers that identify the cows that he milks. But he can easily tell one brawny black-and-white Holstein from another, and discern when they are sick, in heat or just plain moody.

Farmer Ray Souza credits immigrants like Mr. Rodriguez, an employee for nearly 20 years, for saving the U.S. dairy industry. ‘I haven’t had a non-Hispanic want to do this work in 10 years,’ says Mr. Souza, a descendent of Portuguese immigrants, a group that helped turn California into the nation’s largest dairy state.”

The Journal article stated that, “Dairy farmers from Vermont and New York to Wisconsin and beyond have become increasingly dependent on immigrants, many of them Latin Americans who are in the U.S. illegally. Unlike other agricultural work where laborers are hired for short, seasonal stints, dairy-farm laborers often stick around for years, forging close ties with their employers.

“But that has also left dairy farmers vulnerable, as rising unemployment in the U.S. heightens tensions over the hiring of illegal immigrants. Dairy farmers say that without immigrant workers, a labor shortage might force some to shutter their businesses, depriving rural communities in the U.S. of a key economic engine.”

Food Safety

Lyndsey Layton reported in today’s Washington Post that, “The House on Wednesday narrowly defeated a bill aimed at toughening food safety laws, but House leaders say they will try again to pass it before week’s end.

“Because it came to the floor under special rules that limited debate and blocked amendments, the bill required 286 votes, or a two-thirds majority, to pass. It fell six votes short of that, with 280 voting in favor and 150 opposed.”

Today’s Post article added that, “Hill sources said Democratic leaders were likely to reintroduce the bill Thursday under regular rules, which would open it to amendments but require a simple majority for passage.

“The bill is strongly supported by the White House and a raft of consumer groups, as well as some major industry trade groups such as the Grocery Manufacturers of America. But it has faced vocal opposition from some farm interests, and several Republican members of the House Agriculture Committee said it would burden farmers and ranchers and create new federal bureaucracy without improving food safety.”

Sally Schuff reported yesterday at Feedstuffs Online that, “Rep. Frank Lucas, the ranking Republican on the House Agriculture Committee, led opposition to passing the bill calling it ‘the result of a flawed process.’ [Note: a video replay of comments from Rep. Lucas made on the House floor is available here.] Lucas was joined by House Minority Leader John Boehner in criticizing last minute work on the bill, which delayed the publication of the final language until this morning. Noting the bill’s far-reaching impacts on farmers and ranchers, Lucas and Rep. Jerry Moran (R., Kans.) called for a referral of the bill to the House Agriculture Committee.

“But, Rep. Joe Barton (R., Tex.), the ranking Republican on the committee that advanced the bill, pointed out that the House Energy and Commerce committee had made numerous concessions to Lucas, and, in fact, those last minute GOP-sought, agricultural agreements were what delayed the final language.

House Agriculture Chairman Collin Peterson listed several agricultural organizations, which in light of those agreements, had either dropped their opposition to the bill or were supporting it. Those included: the United Fresh Fruit and Vegetable Association, the American Farm Bureau Federation, National Wheat Growers Association, the National Cattlemen’s Beef Association, the National Turkey Federation, the National Chicken Council, the National Pork Producers Council, the National Corn Growers Association, the American Soybean Association, the U.S. Rice Federation, the American Feed Industry Association, the United Egg Producers, and the American Sheep Industry.”

Jane Zhang reported in today’s Wall Street Journal that, “The Senate isn’t expected to act on a similar bill until the fall, after it finishes work on health-care legislation.”

The New York Times editorial board indicated today that, “Far too many Americans are falling ill after eating foods tainted with salmonella, E. coli and other pathogens. The Food and Drug Administration, which is charged with protecting much of the nation’s food supply, doesn’t have the authority or the tools to do its job. The House of Representatives can start to fix that problem if it votes this week to approve the Food Safety Enhancement Act.”

The Times editorial added that, “The bill does not solve all of the problems of food safety, of course. There will still be a patchwork of federal inspection programs done by a variety of different agencies. In the future, one food agency that works for consumers and food producers makes more sense. Right now, the F.D.A. has the responsibility for 80 percent of the nation’s food supply, and this bill would give it a lot more of the muscle it needs to do that job.”

CFTC Issues

Reuters writer Charles Abbott reported yesterday that, “Over-the-counter derivatives should move onto public exchanges and go through clearinghouses, in most cases, the leaders of two U.S. House of Representatives committees agree in a document outlining legislation still to be drafted.

“The chairmen of the Financial Services and Agriculture committees plan to unveil the outline on Thursday for a bill to be drafted after Congress takes its August recess. The two committees oversee the securities and futures markets.

“Agriculture Committee Chairman Collin Peterson said on Wednesday the document was a set of principles but did not give any details.”

Kara Scannell and Serena Ng reported in today’s Wall Street Journal that, “Two key House Democrats reached a broad agreement on regulating derivatives and are weighing a ban on speculators in certain types of trades, a proposal that is raising hackles on Wall Street.

“Further complicating the situation, differences remain over how to divide oversight responsibilities between the two relevant regulatory agencies, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The broad agreement, slated to be announced Thursday by Rep. Barney Frank, head of the House Financial Services Committee, and Rep. Collin Peterson, who heads the House Agriculture Committee, marks the first, unified effort by the two to move forward on steps to regulate derivatives.”

Meanwhile, Reuters writers Ayesha Rascoe and Christopher Doering reported yesterday that, “The top U.S. futures regulator on Wednesday expressed concern that exempting some investors from proposed position limits on futures contracts could undermine efforts to clamp down on excessive speculation in energy trading.

The Commodity Futures Trading Commission aims to rein in speculation in energy and commodity trading, especially in oil, which soared to $147 a barrel a year ago. Prices for oil and other commodities have largely fallen from last year’s highs.”

And the AP reported yesterday that, “Financial firms that play a dominant role in the energy futures market brought their case to federal regulators Wednesday against new limits on speculative trading that would apply to them in their role as market middlemen.”

The AP article added that, “Executives of JPMorgan Chase & Co. and Goldman Sachs Group Inc., among the biggest players in the energy futures markets, said that if new curbs on the size of speculative trading positions are imposed, they should apply to participants like pension funds — which invest in commodity indexes brokered by the big banks.”

Keith Good

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