FarmPolicy

Food Security; Ag Spending Bill (Dairy, Nutrition); Climate Issues; Crop Insurance; and Soybeans

Food Security

Bloomberg writer Rudy Ruitenberg reported yesterday that, “Farming in developing countries needs $83 billion of investment a year if there is to be enough food to feed the world in 2050, the United Nations’ Food and Agriculture Organization said.

“Agricultural investment needs to rise by about 50 percent as the global population increases to 9.1 billion people from 6.8 billion now, according to a discussion paper for an FAO meeting in Rome on food security next week.

“About $20 billion a year would have to be invested in crop production and $13 billion in livestock operations, according to the UN agency. Mechanization would be the biggest single investment area, followed by expansion and irrigation.”

The article noted that, “Food production will have to rise 70 percent in the next four decades to feed the world in 2050, according to the FAO.”

In addition, Bloomberg writer Luzi Ann Javier reported yesterday that, “Protests over high food prices, which swept the world from Haiti to Bangladesh last year, may return to Asia in 2010 as drought in India and crop losses in the Philippines may cause price spikes, CWA Global Markets Pty said.

“‘We wouldn’t be surprised to see a return to the rice riots across Asia sometime in 2010,’ Peter McGuire, managing director at CWA Global Markets Pty., said today.

“Declining output in India ‘coupled with the recent weather issues in the Philippines will cause price spikes for the rice market toward the second quarter of 2010,’ he said.”

The article noted that, “Protests broke out last year after export curbs by major producers including India and Vietnam last year raised fears of a food crisis. Global rice prices soared to a record amid declining inventories, prompting governments around the world to secure domestic supplies as importers scrambled for shipments.”

Meanwhile, the AP reported yesterday that, “The USDA must sharpen the focus of its science and research efforts to emphasize areas where it can make an impact on society, Agriculture Secretary Tom Vilsack said Thursday.

“‘USDA science needs to change to respond to … pressures, to ensure the sustainability of the American food, fuel, and fiber system and to address some of America’s — and the world’s — most intractable problems,’ Vilsack said, delivering a speech to launch the National Institute of Food and Agriculture.

“Vilsack’s speech outlined his hopes for USDA’s science and research efforts, pursuits he said are strengthened by the formation of the new institute. It was created by Congress in last year’s farm bill, and is aimed at enhancing the USDA’s research aims by working with top scientists from around the world and taking on practical problems.”

Ag Spending Bill (Dairy, Nutrition)

The AP reported yesterday that, “Dairy farmers suffering from low milk prices would benefit from $350 million in emergency funding approved by the Senate on Thursday as it cleared a $121 billion agriculture spending bill for President Barack Obama’s signature.

“The bill also delivers a record $58.2 billion for the food stamp program, which when combined with benefit increases passed under Obama’s stimulus bill earlier in the year would mean a 19 percent increase in food stamp spending above current levels.

“The measure passed by 76-22 vote. Obama is expected to sign it into law soon.”

The article explained that, “Lawmakers from dairy-producing states succeeded in getting $350 million in aid for milk farmers struggling to cope with falling market prices. That includes $60 million to cover the federal purchase of surplus cheese and other dairy products. The purchased products would go to food banks and other nutrition programs. The remaining $290 million is expected to go out in direct payments to farmers.

“The dairy aid proposal was welcomed by lawmakers from the Midwest and Northeast where dairy operations are smaller, but was viewed skeptically by lawmakers from California, New Mexico and Idaho, home to much larger dairy farms.

“Lawmakers from those states were worried that $290 million in direct payments would be delivered along the lines of an existing program that caps payments in a way that disproportionately benefits farms of about 200 cows or less.”

In a related opinion item regarding this aspect of the agricultural spending measure, the Washington Post editorial board noted in today’s paper that, “At $2.87 a gallon, the average price of milk is down 27 percent from a year ago. That means cheaper groceries for recession-weary consumers and more bang for the taxpayer’s buck in food stamps and other federal nutrition programs. What’s not to like? Well, dairy farmers hate it: They are facing a $12 billion decline in sales this year, according to the National Milk Producers Federation. Many could shut down; some farmers are slaughtering their cows for beef. Rushing to their rescue, Congress has approved a $350 million dairy bailout — on top of more than $1 billion in regular price-support and direct-payment programs.

“If you find this hard to understand, we agree with you. Just two years ago, the price of milk was approaching $5 a gallon, thanks to strong U.S. and foreign demand; dairy farmers were making money hand over fist. But no one passed a law telling them to share the windfall with grocery shoppers. Yes, this recession has been unusually harsh, for the dairy industry and everyone else; but U.S. dairy farming has been shrinking for decades, with large-scale producers replacing smaller ones. Between 1970 and 2006, the number of farms fell from 648,000 to 75,000; the average herd size rose from 19 to 120, according to the Agriculture Department. Some farms threatened with bankruptcy today would have gone out of business within a few years anyway.”

The Post added that, “Congress has left it up to President Obama’s agriculture secretary, Tom Vilsack, to distribute most of the $350 million bailout. On a recent visit to South Dakota, Mr. Vilsack told an assembly of farmers that it was time for ‘a longer-term discussion about . . . structural changes in the way the dairy industry is currently operated so we no longer have these rather stark contrasts between boom and bust.’ Yes, it is. There are already relevant proposals on the table: Reps. Ron Kind (D-Wis.) and Jeff Flake (R-Ariz.) proposed a bill last year to encourage tax-free savings accounts that farmers could build up in good years and draw down in bad ones. It didn’t pass. If Mr. Vilsack is serious about avoiding a repeat of this year’s fiasco, he’ll encourage a truly radical policy rethinking. Dairy farmers should be able to compete in the marketplace — they have milked taxpayers and consumers long enough.”

In a related article, Nathan Phelps reported yesterday at the Green Bay Press Gazette Online that, “State and national farm union leaders say they agree with the U.S. Department of Agriculture’s decision to restructure the dairy industry to take some of the sting out of cyclical markets that have buffeted farmers over the last decade.

“‘The volatility has become so dramatic, and that’s really, really challenging for everyone engaged in the industry,’ said Doug Caruso, president of the Wisconsin Farmers Union. ‘Hopefully what Secretary (Tom) Vilsack is alluding to is finding some mechanism to narrow (those swings).’”

Mr. Phelps pointed out that, “‘We’re never going to have a perfect steady line where the price is exactly right to compensate farmers for their costs and give them a reasonable return every day,’ Caruso said. ‘But we’ve got to find a way to get rid of the volatility because it’s killing everybody in every part of the industry.’”

“Vilsack said Monday the dairy industry needs to be restructured to avoid the cyclical ups and downs that have accelerated in the last decade. His comments came less than a week after Congress announced a $350 million dairy bailout.”

Highlighting another aspect of the spending bill, in a news release from yesterday, Senate Agriculture Committee Chairman Blanche Lincoln (D-Ark.) noted that, “Senate Committee on Agriculture, Nutrition and Forestry Chairman Blanche Lincoln (D-Ark.) today announced that the pending Agriculture Appropriations final bill includes her package of child nutrition initiatives aimed at fighting hunger and promoting health among children in Arkansas and around the country.

“‘These investments are a down payment on a robust reauthorization of the Child Nutrition and WIC programs that serve tens of millions of children in Arkansas and across the country with healthy, nutritious meals,’ Lincoln said. ‘I am proud that my first legislative effort as Chairman of the Senate Agriculture, Nutrition and Forestry Committee would help to improve the health of our children and prevent needy children from going hungry. The Committee will work with USDA and the Administration on a reauthorization that improves access to healthy meals, reduces hunger, and improves school meals and the health of infants, school children, and pregnant and nursing mothers.’”

Climate Issues

Jim Snyder reported yesterday at The Hill Online that, “The president of the U.S. Chamber of Commerce said Thursday the powerful business group would not alter its opposition to climate legislation in Congress despite the recent defections of four companies.

“‘We’re not changing where we are,’ Tom Donohue, president and CEO of the Chamber, told reporters Thursday morning.”

And Lisa Lerer reported yesterday at Politico.com that, “The U.S. Chamber of Commerce fired back at critics on Thursday, after a series of defections by member companies angry over the business lobby’s opposition to climate change legislation.

“‘The only regrets we have is that we maybe have not always used the right language,’ Chamber CEO Tom Donohue told reporters. ‘We don’t have regrets about our position, and we don’t intend to change it.’”

However, Reuters writer Tom Doggett reported yesterday that, “U.S. Energy Secretary Steven Chu on Thursday applauded companies that have quit the U.S. Chamber of Commerce because they disagree with the business group’s climate change policy.

“‘I think it’s wonderful,’ Chu told reporters at a solar energy event on the National Mall. He said companies that left the Chamber object ‘to foot dragging, to denials’ and realize that efforts to reduce emissions of greenhouse gasses are ‘part of our economic future in the United States.’

“Chu said other companies should quit the group if the Chamber does not recognize the business opportunities presented by taking aggressive action against global warming.

“But he also urged the Chamber to change its position.”

With respect to a potential effort to garner GOP support for climate legislation, Jim Snyder reported yesterday at The Hill Online that, “Environmentalists are growing concerned that Congress may be willing to risk the coasts in order to save the planet.

“Some expressed fears this week that Democrats may give in on offshore drilling in order to increase the prospects for a contentious climate change bill designed to curb the threat of global warming.

“Climate negotiators said this week that they are open to discussing an expansion of domestic drilling opportunities and providing new support for nuclear power to get more Republican support for the cap-and-trade climate bill.”

And from an international perspective, Bloomberg writer Daniel Ten Kate reported yesterday that, “U.S. President Barack Obama faces ‘more than an embarrassment’ should his nation fail to lead international negotiations to complete a new climate-protection treaty by December, a senior European climate negotiator said.

“Obama’s scope is limited because the U.S. Congress may not approve a domestic law to control emissions before the December deadline for signing an international climate accord in Copenhagen, Karl Falkenberg, director-general for environment at the European Union’s executive body, said in an interview.

“‘Obama and his administration are very committed, and it will be more than an embarrassment for them if at Copenhagen they would have to admit they are not ready,’ Falkenberg said late last night in Bangkok, where more than 180 nations are meeting for talks. ‘We can just help, but helping them also means directly telling them that the world has an expectation.’”

Crop Insurance

Steve Johnson, an Iowa Sate University Extension specialist, noted earlier this week that, “Harvest is upon us and most producers look forward to finalizing their 2009 yields. However, good record keeping during harvest should be practiced. Each year a producer can provide the actual production guarantee from their farm fields to help determine the Actual Production History (APH) for crop insurance purposes. Proving the actual dry weight yields for each farm field or crop insurance unit should be the goal.

“In 2009, many producers switched to crop insurance enterprise units in order to reduce their premium. However, producers should continue to prove the actual yields for the smaller optional unit, likely reflecting the section of land and each land owner in that section. This should improve the producer’s chances of having a higher APH yield for this smaller unit in the future, especially if they choose to use optional units for crop insurance coverage.”

A news release issued yesterday by National Crop Insurance Services stated that, “A study released today by National Crop Insurance Services shows that over a 17 year period (1992-2008) the Federal Crop Insurance Program has been significantly less profitable than the Property and Casualty (P&C) insurance industry, is riskier than the Property and Casualty industry, and has consistently lower expense-to-premium ratios.

“The analysis is the 2009 update of a study originally prepared in 2007 to respond to a critical report released by the General Accountability Office (GAO). The Multiple Peril Crop Insurance (MPCI) program is a public-private partnership jointly managed by 15 designated private companies and the Risk Management Agency (RMA) of the United States Department of Agriculture (USDA).

“‘One of the key elements of the analysis was that crop insurance averaged 14.2 percent per year in pre-tax net income over the period 1992-2008 whereas the property and casualty industry saw an average annual profitability of 17.5 percent,’ said Robert Parkerson, President of National Crop Insurance Services, a trade association for the industry. Moreover, the report concludes that providing MPCI coverage entails greater risk than P&C.”

The news item added that, “At this time, the private insurance companies and the Risk Management Agency are in the initial stages of renegotiating the Standard Reinsurance Agreement, which provides the financial framework for the private industry’s participation in the program. RMA’s financial integrity provisions impose stringent surplus requirements on MPCI companies. These requirements ensure that adequate resources will be available in the event of extreme or catastrophic weather events. With the additional regulatory oversight at the state level, the Federal crop insurance program is one of the most regulated insurance programs in the world.

“‘The crop insurance industry is on strong financial footing, and we would like it to remain that way’ said NCIS President Bob Parkerson. ‘Crop insurance is at the center of the farm economy – a strong crop insurance program benefits a much broader community than just farmers and ranchers. If you appreciate the low cost of food in this country, you can thank the crop insurance industry for bringing some stability to America’s agricultural industry,’ added Parkerson.”

Soybeans

Elaine Mills reported in today’s Wall Street Journal that, “The costs faced by the European Union’s agriculture industry could skyrocket if it doesn’t lift a strict ban on genetically-modified soybean imports, traders and analysts say.

“The EU has traditionally imported most of the soy used in animal feed from South America. This year, however, South American harvests have been exceptionally small, with Argentina having a drought-related drop of 30% in soybean production, the European Commission said. In addition, demand from China is also rising, absorbing supply, the commission said.

“To compensate, the EU will have to import nearly double the usual amount of soy from North America over the next six months—7.5 million metric tons compared with just 3.6 million tons in the year-earlier period—until the next South American export season starts in March 2010, industry and trade groups say.”

The article added that, “But a prolonged freeze in U.S. soy imports will drive up the prices of all feed grains much more substantially, by as much as 30%, said Klaus Schumacher, chief economist for commodities trading firm Alfred C. Toepfer.

“The crunch time is the next six months, when the price impact will be felt if the import freeze continues. At this stage, industry players are still hopeful the trading disruption will be resolved in a timely manner. Expectations for a record U.S. soy harvest are also having a bullish impact. But traders say for the moment the market is mostly caught in limbo.”

Keith Good

Posted by Keith Good • October, 9, 2009 • 4:33 am