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House Appropriations Hearing; Crop Insurance; Climate Issues; Trade; and Biofuels

House Appropriations Subcommittee for Agriculture

DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “Congressmen questioned Agriculture Secretary Tom Vilsack on a broad array of budget proposals Wednesday as USDA officials appeared before the House Appropriations Subcommittee for Agriculture to make their case about budget priorities for the next fiscal year.

“Vilsack explained USDA’s proposed budget, which could boost spending on child nutrition programs by $1 billion a year while effectively freezing the department’s discretionary spending, which accounts for about $21 billion a year. With a boost in mandatory spending tied to nutrition programs, the Obama administration actually proposes increasing USDA’s overall budget by $10.3 billion in fiscal 2011 to $129.6 billion.”

Mr. Clayton explained that, “In his testimony, Vilsack said the 2011 budget request ‘supports the administration’s vision for a strong rural America through achievement of four strategic goals.’

“Those goals include improving and expanding child nutrition programs such as school lunches and breakfasts; improving the rural economy through expanded broadband and a continued push for green energy; strengthening agricultural production and profitability through the promotion of exports with a specific emphasis on biotechnology while responding to the challenge of global food security; and ensuring the nation’s forests and private lands are protected ‘and made more resilient to climate change’ while protecting water resources.”

More specifically, yesterday’s DTN article pointed out that, “Rep. Tom Latham, R-Iowa, wanted to know more about the proposed cuts to crop insurance, which are being negotiated now in a new five-year contract between the insurance industry and USDA. The latest draft of the contract would cut about $6.9 billion out of crop insurance over 10 years.

“Vilsack defended the proposal, saying ‘rebalancing’ was necessary in the industry, given the rise in profits since 2000.

“‘You are seeing dramatic increases in the amount of profits for the companies and the agents,’ Vilsack said.

“Vilsack added that crop insurers have had strong profits in 13 out of the last 15 years. USDA proposes to cut the industry’s average underwriting gains from 16 percent a year to 12 percent a year. ‘We think that is fair,’ Vilsack said.”

(Note: To listen to the exchange between Rep. Latham and Sec. Vilsack from yesterday’s hearing, just click here (MP3-6:40)).

The DTN article indicated that, “Rep. Sanford Bishop, D-Ga.] also said he was worried about a proposal to cut direct payments. Vilsack said the proposal to cut direct payments ‘is focused on a very small percentage of farmers’ and would affect about 30,000 out of 1.4 million farmers who collect direct payments.

“‘If we are going to be serious about deficits, we have to look someplace,’ Vilsack said.”

(Note: To listen to comments from yesterday’s hearing by Sec. Vilsack regarding direct payments, just click here (MP3-1:30)).

Philip Brasher reported yesterday at the Green Fields Blog (The Des Moines Register) that, “The Agriculture Department’s plan to let states run livestock identification systems won’t work, [says] a key lawmaker who oversees the USDA’s budget.

“Connecticut Democrat Rosa DeLauro, who chairs the House agricultural appropriations subcommittee, told Agriculture Secretary Tom Vilsack today that she doesn’t plan to agree to his request for $14 million to fund the ID plan for 2011.”

Mr. Brasher stated that, “She expressed frustration that the department has little to show for the $147 million that’s already been spent designing a national tracking program that the Bush administration initiated six years ago. The idea of the system is to speed the detection of diseased animals.

“‘I must be honest with you. I don’t understand how we’re going to have a system’ run by individual states, she said. ‘How it is going to work? I don’t believe it is going to work.’”

Crop Insurance

In more detailed reporting regarding crop insurance, Chris Clayton noted yesterday at DTN’s Ag Policy Blog that, “In a news release Wednesday, the National Crop Insurance Services rejected USDA’s second offer for a Standard Reinsurance Agreement.

“The news release came just hours after Secretary of Agriculture Tom Vilsack told a House Appropriations Subcommittee that the agreement was a fair deal. Vilsack said ‘rebalancing’ was necessary in the industry given the rise in profits since 2000.”

In part, the crop insurance industry stated that, “Although modestly less severe than initially proposed, the funding reductions for the crop insurance program offered yesterday by USDA/RMA in the latest round of negotiations to revise the Standard Reinsurance Agreement (SRA) remain excessive and unrealistic. In addition, the RMA’s latest proposal fails to reflect available reforms to the program’s business processes, oversight and quality control measures which would increase their effectiveness and reduce costs for both RMA and the industry.

“‘We are disappointed that RMA didn’t give much credence to our suggestions about ways to streamline and improve the important tasks that we must undertake to implement the program and protect its integrity in compliance with the provisions of the SRA. In fact, RMA went the other way, making these tasks more cumbersome and expensive, while simultaneously calling for huge funding cuts,’ said Bob Parkerson, President of National Crop Insurance Services.”

“‘It appears that RMA, while giving a little bit back on the financial side, has increased the requirements on the operational side of the business causing the companies’ expenses to continue to rise. They claim to be listening to us, but it’s apparent that they didn’t take the time to read the comments we submitted to their first draft. We still have a long way to go,’ said Parkerson.”

Meanwhile, Dan Looker reported yesterday at Agriculture Online that, “At least one input will cost less for farmers growing corn and soybeans in 2010 — the premiums you pay for crop insurance.

That may be one reason for considering higher levels of coverage this year, especially if you are switching your crop revenue coverage from smaller units to an enterprise unit, which insures all of your crop in a county. The odds of collecting insurance fall as you cover a larger area, so higher coverage levels partly offset that by increasing the percentage of revenue that you chose to insure. The maximum is 85% for CRC (crop revenue coverage).

“‘Last year there was a big increase in subsidies for enterprise units,’ University of Illinois ag economist Gary Schnitkey said in a webinar on crop insurance held Wednesday morning. (The webinar will be repeated Monday, March 1 at 11 a.m. Click here for more details.).”

Mr. Looker added that, “With less than three weeks to the March 15 deadline for insurance signup in the Midwest, Schnitkey urged farmers to consider several changes.”

Yesterday’s article noted that, “[C]rop insurance choices can affect two new 2008 farm bill programs, ACRE (average crop revenue election) and SURE (supplemental revenue assistance payments.)

“‘In my opinion, you shouldn’t be using the ACRE program or SURE as a substitute for crop insurance,’ Schnitkey said. They don’t offer the same level of protection. But your level of crop insurance does affect how the programs work.

“ACRE makes payments if state-level revenue drops and if your farm has a drop in revenue. Your crop insurance affects your revenue guarantee.”

DTN Executive Editor Marcia Zarley Taylor indicated on Monday at the Minding Ag’s Business Blog that, “You’ll get more for your money when buying revenue based crop insurance in 2010, if current corn and soybean price trends hold.

With only a week left in the spring pricing period, the Risk Management Agency (RMA) estimates that the spring guarantee for revenue-based plans will run $3.95 per bu. for corn and $9.19 for soybeans. Compare these prices to $4.04 for corn and $8.80 for soybeans last year, so you won’t notice much change in your protection levels. (At $5.43 per bu., spring wheat’s estimated price can’t make that same claim. It is off nearly $1 per bu. from 2009 levels.)

“‘However, RMA is presently indicating that because the market is less volatile now than it was last year at this time, the cost of crop insurance could be anywhere from 10 to 30 percent less than it was last year,’ notes Kurt Koester, a marketing and crop insurance consultant with AgriSource in West Des Moines, Iowa.”

Climate Issues

Bloomberg writer Simon Lomax reported yesterday that, “Legislation to set up a U.S. cap- and-trade market for carbon dioxide that scientists have linked to climate change may still pass Congress this year, Senator Tom Carper, a Delaware Democrat, said today.

“‘We actually have a shot at doing an economy-wide climate bill,’ Carper said in Washington at an event hosted by the International Emissions Trading Association.

“President Barack Obama’s ‘embrace’ of electricity produced by nuclear reactors, his support for technology that captures and stores carbon dioxide from coal-fired power plants and his ‘willingness to work with Republicans’ on expanding offshore oil and gas drilling has ‘changed the dynamic’ of the debate over climate change in Congress, Carper said.

‘I don’t think it’s likely but it’s possible now,’ Carper told reporters afterward.”

Darren Samuelsohn of Climatwire reported yesterday at The New York Times Online that, “Senate advocates of comprehensive global warming and energy legislation are stuck on a fundamental question: How should they structure the first-ever price on greenhouse gas emissions?

“‘What’s the mechanism for pricing carbon is the real key here,’ Sen. John Kerry (D-Mass.), a lead author of the nascent bill, said yesterday. ‘That’s what we’re trying to figure out, is how we do that in the most effective way.’”

The article noted that, “The search includes a cap-and-trade system like the one in the House-passed climate bill, which divided up valuable emission credits among constituents representing more than three-quarters of the U.S. economy. They are also looking at how to mesh other popular approaches, including a cap-and-dividend system that auctions off pollution permits with the revenue sent back to the public to compensate for higher costs on energy bills and consumer goods.

“Kerry and Sens. Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.) are also weighing a plan to phase in emission limits for different industrial sectors, beginning with power plants and large stationary sources, and placing the nation’s transportation fuels under a carbon tax that rises based on the compliance costs faced by the other major emitters.”

Yesterday’s article explained that, “One of the biggest questions facing the Senate trio involves whether to auction off most of the allowances or give them away to industry constituents.

“Sen. Maria Cantwell (D-Wash.) said this week she is not sure what Kerry and company have in mind when they describe their ‘hybrid’ approach. She would rather start with her ‘cap and dividend’ idea, written with Sen. Susan Collins (R-Maine), and build out from there.

“‘I don’t know what they’re talking about,’ Cantwell said. ‘I’m just saying, this is such a simple idea. There’s great simplicity in this.’

“Under the Cantwell-Collins bill, energy producers would bid in monthly auctions for ‘carbon shares.’ Consumers would get 75 percent of the resulting revenue as a refund to help compensate for increased energy costs; the remaining 25 percent would go toward clean energy research and development.”

Meanwhile, Margaret Kriz Hobson reported yesterday at the National Journal Online that, “President Obama today recommended imposing a price on carbon dioxide emissions to help U.S. companies transition to a clean-energy economy. Without specifying how the fee should be imposed, Obama vowed to work with ‘companies that face significant transition costs’ as the nation addresses climate change.

“‘I want to work with organizations like this to help with those costs and get our policies right,’ he said in a speech to the Business Roundtable. Warning that oil prices will remain volatile into the future, Obama argued that ‘if we decide now that we’re putting a price on this pollution in a few years, it will give businesses the certainty of knowing they have time to plan and transition.’

Left unsaid in the speech was what policies the White House will support to curb U.S. greenhouse gas emissions. In the past Obama has supported an economy-wide cap-and-trade program similar to the climate change legislation that was passed last year by the House. But in recent months, administration officials have backed away from the cap-and-trade approach and said only that they support a fee on carbon dioxide emissions.”

More specifically with respect to agriculture, Marcia Zarley Taylor reported yesterday at DTN that, “Irrigated grain farmer Don Anthony knows only one thing for certain about the climate bill pending in Congress: His energy costs would spike. The Lexington, Neb., farmer thinks input prices would erupt much like they did in 2008, when $140 crude oil pushed up the price of everything from fertilizer to rail surcharges.

Whether the Nebraskan could offset some of those expenses by selling carbon credits for environmentally friendly farming practices like no-till, cover crops or nitrogen stabilizers remains a major unknown. Climate legislation may stall in the Senate this year, but the EPA will implement regulatory measures reducing greenhouse gases if Congress can’t pass a bill.”

Yesterday’s article noted that, “At one time, cap and trade supporters had hoped farm landowners could capture enough revenue from carbon trading to displace alfalfa as the nation’s fourth largest crop. And some farmers and farm groups agree with USDA’s analysis that farmers could profit overall from cap and trade legislation.

“But as a national director of CHS Inc., the nation’s top farm supply and grain cooperative, Anthony worries that carbon ‘caps’ put on oil refiners would impose a whole new set of direct and indirect costs on agricultural producers.

“Three U.S. refineries owned by CHS and several other co-ops supply 60 percent of the fuel used by American farmers. CHS is the 16th largest convenience store retailer in the country, with 1,586 fueling stations scattered across the upper Midwest. But Anthony and other company officials believe refiners would bear an undue burden under cap and trade plans. Like their brothers in Big Oil, the co-op refineries would eventually pass higher costs on to their customers. Some of the smaller, independent operators concentrated west of the Mississippi would likely fold.”

And in international developments on the climate change debate, Jeffrey Ball reported yesterday at The Wall Street Journal Online that, “The world’s leading organization on climate change says it is working on a strategy to better police the experts who produce its high-profile reports, to try to ensure they adhere to rigorous scientific standards.

“The Intergovernmental Panel on Climate Change needs to ‘leave no stone unturned to come up with a set of measures so this can be ensured,’ Rajendra Pachauri, chairman of the United Nations-sponsored organization, said.”

Trade

Daniella Markheim and Scott Lincicome indicated in an update posted yesterday at the Heritage Foundation Online that, “On March 1, Brazil will announce a list of retaliatory tariffs against U.S. goods–a response to the American government’s unwillingness to eliminate subsidies to domestic cotton producers. The World Trade Organization (WTO), in 2004 and again in 2005, deemed facets of America’s cotton program inconsistent with multilateral trade rules and U.S. commitments. The 2005 decision authorized Brazil to retaliate against U.S. goods and services, but Brazil opted instead to allow America time to reform its cotton program in line with international trade rules.

“That reform has yet to occur. As a result, Brazil brought its case back to the WTO in 2009, and the trade body subsequently determined that Brazil could impose almost $300 million in trade sanctions against U.S. goods and services. The WTO also opened the door for other retaliatory measures against American patent and other intellectual property rights–a novel approach to raising the cost of noncompliance. Recognizing that by raising the price of U.S. imports such trade measures would impose a cost on its own consumers and business, the Brazilian government has been carefully crafting a list of targeted products that will mitigate the tariffs’ impact on the Brazilian economy while still penalizing its trade partner to the north.”

The authors went on to argue that, “With the Administration’s intent to bolster U.S. exports as a means for economic recovery, the trade-distorting programs and unfair trade practices that invite such retaliation must be eliminated–after all, tariffs against U.S. goods and services impugn their competitiveness in foreign markets. Moreover, America’s refusal to comply with adverse WTO rulings erodes U.S. credibility and influence in the debate shaping globalization and undermines the multilateral trading system. America can afford neither trade retaliation nor the loss of its leadership position in international economic issues, and the WTO is already weakened by nations’ inability to conclude Doha Round trade negotiations. The U.S. should not only change its cotton program this year, but it should also take a hard look at other needed reforms if its national export initiative is to be part of a legitimate trade policy.”

Biofuels

A news release issued yesterday by Growth Energy stated that, “In response to a paper published by two Cornell University professors – a paper that is critical of the Environmental Protection Agency’s calculations that grain ethanol emits far fewer greenhouse gas emissions than conventional gasoline – Growth Energy released the following statement:

“‘What it appears these two professors at Cornell would have us do is maintain the status quo – keep our addiction to oil, no matter what the cost to our economy in lost jobs and money we send overseas, no matter what the cost to our environment, no matter what the cost to our national security,’ said Tom Buis, Growth Energy CEO.

“‘The Cornell paper is pretzel logic at its worst. The truth is that when we fuel up with domestic ethanol in the U.S., we need less gasoline refined from carbon-heavy oil. And the science on this is clear: a peer-reviewed study published by Yale University found that grain ethanol is 59 percent cleaner than gasoline – with cellulosic ethanol 86 percent cleaner than gasoline. Academic studies, government agencies and independent papers have concluded that innovation and new technology in the ethanol industry is bringing us ever closer to a high-tech domestic fuel that can contribute significantly to cleaning our skies, while creating jobs and strengthening our national security.’”

Keith Good