- FarmPolicy - http://farmpolicy.com -

Climate Change; Ag Economy Issues; Trade; and Food Assistance

Climate Change

The “Washington Insider” section of DTN indicated on Friday (link requires subscription) that, “Throughout much of last year, Agriculture Secretary Tom Vilsack unequivocally stated and restated that cap and trade programs, such as those in the House climate change bill, would mean significant positive net benefits for agriculture. USDA staff worked under pressure to use its massive economic models, together with those from universities and elsewhere, to measure the effects of such a program — and, frankly, to build support for the legislation.

“However, when the details of these studies began to emerge and be examined critically by congressional staff and others, questions began to emerge. It appeared that the models used were based on a number of critical assumptions and focused narrowly. They appeared to say that cap and trade programs were indeed capable of raising agricultural prices and returns — but that in the cases examined, many of those benefits took place in a much reduced sector, with millions of acres diverted into ‘sequestration’ projects and planted to grasses or trees.”

The DTN item added that, “On Monday, Vilsack described this process and officially confirmed that USDA is revising its thinking on the matter. In particular, USDA analysts criticized the Forest and Agriculture Sector Optimization Model used by the Environmental Protection Agency in its estimates of the likely effects on land use of limiting carbon emissions. The secretary released a memo from USDA Chief Economist Joe Glauber noting that EPA is conducting an external peer review of the model, and that USDA is doing its own, parallel analysis of assumptions used in the model.

“In remarks to the National Farmers Union in South Dakota, Vilsack continued to tout the benefits of a cap and trade system, but added a new caveat: that the program be ‘properly structured.’ He said such legislation could offer significant benefits for farmers and farm workers who sequester carbon dioxide in farmland through tree planting and other conservation measures.”

Friday’s update noted that, “The Forest and Agriculture Sector Optimization Model originally used by EPA simulates how such carbon offset programs might affect producer net returns, and thus, stimulate the conversion of cropland to forestland. These shifts are seen as affecting resource availability and commodity prices.”

After additional analysis, the DTN item stated that, “The administration’s studies of the potential effects of climate change programs on agriculture were a major embarrassment last year, and certainly did little to further arguments for the legislation. At the same time, they made it very difficult to avoid the suggestion that the secretary was aggressively politicizing an area in which USDA has a strong reputation — its economic analyses, which are used daily by thousands of analysts worldwide.

“Not only were the secretary’s assertions of benefits entirely premature, but they turned out not to be substantiated in the sense that they reflected mainly a very narrow set of scenarios that came with such heavy baggage — the diversion of massive amounts of cropland — that they were politically unsupportable. Certainly, that performance will make further estimates of the effects of cap and trade highly suspect, as well.”

Meanwhile, Ron Smith noted on Friday at the Southeast Farm Press Online that, “Congressman Frank Lucas (R-Okla), ranking member of the U.S. House of Representatives Committee on Agriculture, says cap and trade legislation is ‘99 percent dead,’ but warns the Environmental Protection Agency could regulate greenhouse gas emissions without legislation.

“Lucas, speaking in a town hall setting during the recent Oklahoma Peanut Expo in Lone wolf, said agriculture does not want cap and trade and that ‘EPA regulation is not right.’

“Oklahoma’s Third District representative said at least two bills under consideration would limit or bar EPA from regulating greenhouse gases. One would disallow the regulation for two years; the other would permanently disallow EPA from regulating greenhouse gases. ‘If it passes over the leadership in both houses I think the administration will back off,’ he said.”

Nonetheless, Amy Harder reported on Friday at the National Journal Online that, “Twenty environmental groups are hailing the progress that a key trio of senators [Sens. John Kerry, D-Mass., Lindsey Graham, R-S.C., and Joe Lieberman, I/D-Conn] is making on bringing climate and energy legislation to the Senate floor this year.

“In a statement released this afternoon, the groups praised the senators’ goal of cutting greenhouse gas emissions 17 percent below 2005 levels by 2020, a pledge President Obama has committed to.

“Roughly half of the groups that signed on to the statement, including the League of Conservation Voters and Union of Concerned Scientists, met with Sen. John Kerry, D-Mass., yesterday evening.”

But Ben Geman reported late last week at The Hill’s Energy and Environment Blog that, “It’s possible, of course, that the Senate could take up energy legislation that doesn’t include greenhouse gas limits at all. If the Kerry-Graham-Lieberman effort can’t gain traction, Senate Democratic leaders might opt to bring energy legislation to the floor that was approved in June by the Senate Energy and Natural Resources Committee, Senate Democratic sources say.

That bill includes a host of energy efficiency measures, wider financial support for low-carbon energy projects, a national renewable electricity mandate, and allows wider oil-and-gas drilling in the eastern Gulf of Mexico, among other measures.”

With respect to details of the Kerry-Graham- Lieberman bill, Reuters writers Richard Cowan and Timothy Gardner reported on Friday that, “U.S. power generating companies would get free pollution permits, at least initially, as part of a compromise climate change bill being written in the Senate that also would give the coal industry $10 billion to develop ‘clean’ technology, sources said on Friday.

Democratic Senator John Kerry is trying to push a bill through a skeptical Senate this year that would address global warming by reducing the 6.4 billion tons of greenhouse gas emissions the U.S. puts into the atmosphere annually, mostly by burning fossil fuels.

“While the bill is not yet ready to be introduced in the Senate, Kerry has held a series of briefings for lawmakers, industry groups and environmentalists to preview the proposal.”

The Reuters authors explained that, “Power companies, which emit 40 percent of U.S. greenhouse gases, would be the first to face pollution limits. In return, the industry has demanded breaks claiming that otherwise it would have to shut down plants.

“Those breaks include some free permits to pollute and ‘offsets’ that give them the option to invest in clean energy projects that preserve lands and forests in the United States and abroad.”

And in a different variable on the climate legislative issue, Reuters writer Timothy Gardner reported on Friday that, “At least 15 U.S. states have sued the Environmental Protection Agency seeking to stop it from issuing rules controlling greenhouse gas emissions until it reexamines whether the pollution harms human health.

“Florida, Indiana, South Carolina and at least nine other states filed the petitions in the U.S. Circuit Court of Appeals in Washington, D.C. on Thursday, states said.

“They joined petitions filed last month by Virginia, Texas and Alabama.”

Ag Economy Issues

The Federal Reserve Bank of Kansas City recently released an economic review of the first quarter of 2010 that included a subset of papers that looked at specific economic issues and developments.

One paper, titled, “Will the Rural Economy Rebound in 2010?” which was written by Jason Henderson, stated that, “As the U.S. economy emerges from recession, prospects for a rural rebound in 2010 are also rising. After months of sharp contraction, the nation’s GDP rose solidly in the second half of 2009. Rural job losses also slowed as the year progressed, and commodity prices rebounded, spurring some optimism that farm profits could soon stabilize.”

Dr. Henderson indicated that, “This article reviews the state of the rural economy heading into 2010. The first section describes how falling demand brought an end to the farm boom in 2009. The second section examines the impacts of the recession and financial crisis on rural Main Street activity. The third section explores how the rural economy in 2010 may be shaped by the national recovery- and how stronger global economies and a weak dollar could offer new export opportunities in the year ahead.”

Leslie Reed reported on Saturday at the Omaha World-Herald Online that, “Today marks National Agriculture Day, the culmination of a week of activities recognizing farming’s economic impact. This year’s event comes as Nebraska and Iowa farmers have enjoyed record prosperity in recent years.

Farm products represented about 6.5 percent of the gross domestic product of both states in 2008, said Creighton University economist Ernie Goss. That’s not counting the output of other industries that depend on farming, from center-pivot manufacturers to meatpacking plants.

“According to the Economic Research Service of the U.S. Department of Agriculture, Nebraska farmers received $17.3 billion for all commodities in 2008, while Iowa farmers collected $24.7 billion.”

The article noted that, “The coming years won’t be quite so flush.

Preliminary figures from the Economic Research Service indicate that nationally, farm cash receipts dropped by nearly 40 percent in 2009.

“That sounds dismal, but the agriculture sector as a whole still would remain ahead of where it stood in 2006. The federal government forecasts a 5.5 percent increase for 2010.

“‘We’ve had a really good run in the last five or six years,’ said Brad Lubben, an agricultural economist at the University of Nebraska-Lincoln. ‘While 2009 was down substantially, it fell back only to an average net income level.’”

Angie Pointer reported today at Barron’s Online that, “Each year, grain markets wage a price war — the so-called ‘acreage battle’ — in an attempt to sway farmers to plant a particular crop. But this spring, excess supply is hanging over grain markets like a dark cloud.”

“The U.S. Department of Agriculture estimates that domestic-corn ending stocks — essentially the surplus — will total 1.799 billion bushels this year, a figure that’s ‘mind-numbingly’ large, says Spencer Patton, founder and chief investment officer of Steel Vine Investments. While U.S.-soybean ending stocks are tight at 190 million bushels, record-setting soy crops in South America are pushing global supplies higher.”

Along these lines, Shane Romig and Tony Danby reported in today’s Wall Street Journal that, “With the soybean harvest in full swing or kicking off across South American fields, fears of damage from too much rain are fading fast, and farmers are gearing up to deal with record crops.

Brazil, Argentina and Paraguay, the world’s top soybean exporters after the U.S., are all on track to harvest the largest amount ever, but the bumper crops are going to strain the countries’ harvest, transport and storage capacity.”

In news from a different sector of the agricultural economy, Ron Smith reported last week at the Southeast Farm Press Online that, “U.S. peanut farmers need to increase acreage slightly for 2010 to maintain an adequate carryover, but shellers so far have not offered contracts for runner-type peanuts high enough for Southwest producers to commit acreage.

Also, competition from cotton, especially in the Southwest but also across the peanut producing states, will push farmers toward cotton. Recent price jumps into the low $.80 cent range makes cotton a viable option to take in a few more acres.

“Industry marketing analysts speaking at the recent Oklahoma Peanut Expo in Lone Wolf said acreage should increase by 5 percent to 8 percent over 2009 production, which marked a 35 percent drop from 2008 as the industry worked out of a burdensome surplus.”

And a separate Southeast Farm Press article from last week noted that, “U.S. demand for peanut butter is surprisingly strong considering the double calamities that hit the market in 2008 and 2009.

“‘Peanut butter is the best buy in the super market,’ said Tyron Spearman, Tifton, Ga., editor of the Peanut Farm Market News and incoming president of the American Peanut Council.

“Spearman recently said the ‘salmonella scare is over with,’ and peanut demand has bounced back from what could have been a long-term catastrophe.”

And in news regarding sugar and corn, Philip Brasher reported yesterday at The Des Moines Register Online that, “High fructose corn syrup, an Iowa product that sweetens sodas, candy and many foods, is falling on hard times.

“Calorie-conscious Americans have been switching from corn-sweetened sodas to diet soft drinks to bottled water sodas for several years. Now, some consumers who aren’t necessarily looking to cut calories apparently are going for products that contain sugar rather than the corn syrup.

“Major food and soda companies, including such giants as Pepsico and ConAgra Foods, are switching from high fructose corn syrup to sugar, a more expensive ingredient, in response to consumer concerns about the corn sweetener.”

Mr. Brasher added that, “PepsiCo, meanwhile, is switching the sweetener in Gatorade sports drinks from high fructose corn syrup to sugar and is using sugar in some niche brands of Pepsi soda. Other brand names switching from the corn sweetener to sugar include Del Monte Light Fruit, Kraft Foods’ Wheat Thins, Oroweat breads, Pillsbury and Snapple, according to the Sugar Association, an industry trade group.”

Interestingly, The Washington Post editorial weighed in today with an opinion item regarding sugar policy.

In part, the opinion piece stated that, “For better or worse, sugar is one of the most pervasive ingredients in the American food supply. When its price spikes, as it has recently, costs go up for food processors and grocery bills go up for consumers. Recent fluctuations in the price of sugar somewhat reflect supply disruptions in countries such as India and Brazil. And if sugar were getting more expensive because of the free play of supply and demand, our advice would be to grin and bear it — or maybe cut down on snacks and sodas.

But the price of sugar does not only reflect market forces. In fact, wasteful government policies are deeply implicated in the latest surge.”

The Post item added that, “In 1982, U.S. sugar cane and sugar beet farmers successfully lobbied Congress for a government-guaranteed share of the market to stymie competition from producers in the developing world. Today, that share is up to 85 percent; the rest gets divided (unevenly) among some 40 lucky countries, plus Mexico, which recently started exporting here under the North American Free Trade Agreement. The government also guarantees minimum prices for both raw cane sugar and refined beet sugar. The combined effect of these measures has been to keep the U.S. price well above the world price. The differential recently hit an all-time high: about 35 cents per pound in the United States vs. about 20 cents everywhere else. It’s tantamount to a 15-cent tax on every pound — except the money doesn’t go into public coffers.”

“U.S. food processors want Agriculture Secretary Tom Vilsack to use his authority to increase imports by 180,000 tons. It tells you something about the irrationality of sugar policy that Mr. Vilsack could do this by reallocating quotas from countries, such as Haiti and Jamaica, which still have the right to export sugar to the United States, even though they haven’t exercised it for years. At best, though, this is a short-term fix. Sugar protectionism is a burden on consumers and a job-killer. It’s time to abolish it once and for all,” the Post said.

And in news regarding the dairy sector, an article posted yesterday at GantDaily.com (Pennsylvania) reported that, “Pennsylvania Agriculture Secretary Russell C. Redding is seeking further support from UDSA Secretary Tom Vilsack to help Pennsylvania dairy producers recover from sustained record low milk prices.

“Redding joined the state agriculture leaders of Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont in a letter to Vilsack seeking reinstatement of the federal support price for cheddar block and barrel cheese and non-fat dry milk to levels established in August 2009.

“‘Pennsylvania’s dairy sector accounts for more than 40 percent of our agriculture industry, and extended low prices only serve to compound an already struggling economy,’ Redding said. ‘Many of our dairy producers have gone months without a paycheck, and that negatively impacts our state as a whole.’”

Trade

In an opinion item published last week at The Hill Online, House Ag Committee Ranking Member Frank Lucas (R-Okla.) noted that, “President Barack Obama says he is eager to create new jobs, and time and again he has spoken to the importance of trade. We have heard on more than one occasion that exports are a critical component of our economy. Yet, the president refuses to act to open up market access for U.S. products worth billions of dollars.

“The Obama administration continues to pass up opportunities to lay out a clear path for expanding U.S. agricultural exports.”

Rep. Lucas indicated that, “For more than a year, we have watched the president allow our trade agreements to languish on the sidelines. We still only see rhetoric and not action on this important issue. This week the administration has embarked upon negotiations with some of our trading partners in the Pacific region. We hope that the negotiations will be successful and that the final deal will contain a positive outcome for agriculture. However, completion of that agreement is potentially years away. Meanwhile, we already have an agreement pending with one of our most important political and economic allies in the region.”

Reuters writer Daniel Bases reported on Saturday that, “Minister of commerce and industry Anand Sharma [India] said on Friday that progress in concluding global trade talks was behind schedule but that it was up to political leaders to decide if they can meet their own year-end deadline for a deal.

Sharma said the Doha round of global trade talks was ongoing but ‘painstakingly slow.

“‘It is also clear that the kind of progress which should have been made by March, which everyone was expecting, has not taken place,’ Sharma told reporters in response to a question from Reuters.”

Food Assistance

On Friday, USDA’s Economic Research Service (ERS) released, “The Food Assistance Landscape, FY 2009 Annual Report.” An ERS summary stated that, “This report examines trends in USDA’s food and nutrition assistance programs through fiscal 2009. It also discusses a recent ERS report that examines the prevalence, severity, and characteristics of food insecurity in households with children.”

And Alexandra Zavis and Emilie Mutert reported in yesterday’s Los Angeles Times that, “Despite persistent economic woes, California leaves billions of federal food stamp dollars on the table each year that could help ease hunger and boost the local economy, officials say.

Only 48% of eligible Californians are enrolled in the nutrition program, according to federal figures from 2007, the most recent year available. That is well below the national average of 66%. Only Wyoming has a slightly lower rate.”

Keith Good