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Farm Bill; Ag Economy; Trade; and EPA

Farm Bill

Carl Hulse reported in Saturday’s New York Times that, “House Republicans sought to build momentum for their effort to cut spending and confront Democrats over fiscal issues as they gathered for a policy retreat in the aftermath of the Tucson shootings, which have overshadowed their debut as the new majority party.

“Transplanted for three days to a well-secured hotel overlooking the city’s [Baltimore] harbor, Republican leaders said they spent considerable time exploring the budget and spending initiatives that they intended to make the centerpiece of their legislative agenda.

“They said they do not have much time to waste since a stopgap law keeping the government operating expires in early March. Republicans want to be ready with a spending plan they can promote as an alternative to what the Democratic-led Senate and President Obama might favor. ‘You don’t wait to the final day to be able to move forward,’ Representative Kevin McCarthy of California, the new No. 3 House Republican, told reporters on Friday.”

The article stated that, “Republicans made it clear that any agreement to increase federal borrowing power must be tied to major spending cuts, a demand likely to encounter strong resistance from Democrats.”

An update posted CBS News Online late last week pointed to a recent poll titled, “Americans Split on What to Cut from Government.” A summary of the poll included 10 items of spending categories; third on the list was “Reduce farm subsidies,” which generated a 55% (willing to cut) to 38% (not willing to cut) return.

And Erik Wasson reported on Friday at The Hill’s On The Money Blog that, “The House Republican conference heard from three experts with distinct ideas on spending cuts during a Friday morning panel on the budget deficit at their annual retreat.

“The budget and debt event in Baltimore featured former Bush economic adviser Keith Hennessey, the American Enterprise Institute’s Kevin Hassett and Boston University economist Larry Kotlikoff.”

Mr. Wasson pointed out that, “In a Jan. 10 opinion piece, Hassert laid out specific spending cuts the GOP should pursue, arguing for a massive scaling back of farm subsidies in favor of an income-support system. Current farm subsidies topped $15.4 billion in 2009, and Hassert would target subsidies such as counter-cyclical payments to farmers that ensure they earn a set price for each commodity even when the price drops.

Hassert says Congress should drop energy subsidies such as for ethanol, saying that if Congress wants to foster energy innovation it should tax carbon.”

Recall that last year, USDA’s Economic Research Service (ERS) stated that, “Government payments paid directly to producers are expected to total $12.4 billion in 2010, a 1.5-percent increase from the $12.3 billion paid out in 2009. This level would be 19 percent below the 5-year average for 2005-09. Direct payments under the Direct and Countercyclical Program (DCP) and the Average Crop Revenue Election Program (ACRE) are forecast at $4.81 billion for 2010.”

ERS added that, “Countercyclical payments are forecast to decrease by 82 percent from $1.17 billion in 2009 to $210 million in 2010. Strong cotton prices are responsible for this projected decrease. Only upland cotton and peanuts are expected to receive countercyclical payments in 2010.

Marketing loan benefits—including loan deficiency payments, marketing loan gains, and certificate exchange gains—are projected at $120 million in 2010, down 89 percent from 2009 levels. Because of the high durum wheat loan rate, durum wheat producers are expected to receive 93 percent of these benefits—despite the recent run-up in global wheat prices. The other wheat classes do not qualify for marketing loan benefits. Prior to 2010, upland cotton producers realized almost 91 percent of the total marketing loan benefits. However, strong current year cotton prices are expected to remain too high for cotton producers to qualify for marketing loan benefits.”

Also, see this related ERS graph that depicts government payments from 2000 to 2010f.

With these ERS numbers in mind, The New York Times editorial board stated yesterday that, “Vows by Congressional Republicans to slash billions from the federal budget at a time when joblessness is high and the economy needs stimulus are reckless. But here is one big-ticket saving that all members of Congress should get behind: cutting the billions of dollars in farm subsidies that distort food prices, encourage overfarming and inflate the price of land.

The government spends $10 billion to $30 billion a year subsidizing mainly large-scale farmers. That includes: $5 billion in direct payments that are delivered regardless of what or even whether farmers plant; up to $7 billion in ‘marketing loans’ that effectively set a floor on crop prices; up to $4 billion to protect farmers in bad years; about $4 billion in subsidies to buy crop insurance — which lead to higher premiums; and more.”

The Times added that, “This should be an easy one. But the farm lobby is not worried. Last week, the Farm Bureau Federation voted to insist that the 2012 farm bill ‘maintain a strong ‘safety net’; for farmers — including direct payments, insurance subsidies and the countercyclical and marketing loan programs. It said all the special pleadings should, of course, fit ‘within the budget framework.’”

Agricultural Economy

As calls for reducing the deficit in general and farm subsidies in particular occur, Steven Mufson reported in Saturday’s Washington Post that, “Faced with rising international food prices, governments around the world are cooking up measures to protect domestic supplies and keep a lid on prices at home.

Russia has banned grain exports until the end of the 2011 harvest. South Korea and the Philippines have suspended some of their import duties on foodstuffs such as fish and powdered milk. In December, Sri Lanka released rice stocks and re-imposed a price ceiling that had been removed in October. And across the Mideast and North Africa, governments have kept food prices low by using big subsidies.

“The Food and Agriculture Organization of the United Nations recently warned that in December its food price index surpassed its previous peak of early summer 2008, fed by particularly sharp increases in sugar, cooking oils and fats. Corn and soy prices were also moving up quickly, with corn hitting a 29-month high Friday.”

The Post article noted that, “Rising food prices may have been an ingredient in the instability in Tunisia that drove that country’s president, Zine el-Abidine Ben Ali, from office Thursday.”

Reuters writer Suleiman al-Khalidi reported on Friday that, “Food price protests sweeping across North Africa and the Middle East reached Jordan on Friday, when hundreds of protesters chanted slogans against Prime Minister Samir al-Rifai in the southern city of Karak.

“The peaceful protest was held despite hastily announced government measures to curb commodity and fuel prices. Similar demonstrations were held in three other towns and cities across the country, witnesses said.”

An update posted on Saturday at CBS News Online reported that, “Don’t look now, but inflation is expected to hit food hard this year.

“‘Corn is a big one’ in the higher prices department, Bloomberg Businessweek Assistant Managing Editor Sheelah Kolhatkar told ‘Early Show on Saturday Morning’ co-anchor Betty Nguyen. ‘The Agriculture Department released a report a couple of days ago about crop forecasts for the year and predicted corn production is going to go down very significantly, which led to a spike in prices.’”

And in a related article, AP writer David R. Randall reported yesterday that, “Orange juice isn’t the only thing at your supermarket that’s been squeezed.

Rising food prices mean grocery store chains must absorb extra costs on items like meat, seafood, and produce, or they try to pass them along to customers. But many of those consumers are unemployed or have less money to spend, even on essentials. For now, the big chains are mostly choosing to absorb. As a result, profits are falling, and so are their stocks, making them one of the few dim lights in the market in 2011.

“On Tuesday, Supervalu was the first of the grocers to report quarterly results, and the numbers for its fiscal third quarter were ominous: A loss of $202 million, or 95 cents a share, compared with a profit of $109 million, or 51 cents, in the same period a year earlier. The company, which operates Albertsons, Jewel-Osco, Acme and other chains, also cut its forecast for the year.”

Dow Jones News writer Andrew Johnson Jr. reported on Friday that, “U.S. soybean futures climbed Friday, with bullish supply concerns buoying prices to new two-year high settlements.

“Chicago Board of Trade March soybeans, the most-active contract, settled 6 1/2 cents, or 0.5%, higher at $14.22 1/2 a bushel.”

Mr. Johnson added that, “U.S. soybean futures rallied to all-time highs above $16 a bushel in 2008, when ending stocks dwindled to 138 million bushels. The U.S. Department of Agriculture on Wednesday estimated soybean stocks would decline to 140 million bushels by the end of the marketing year, Aug. 31.”

Meanwhile, several news reports have pointed to weather related concerns regarding agricultural production.

San Antonio Express-News writer William Pack reported last week that, “The price is right for Texas farmers and ranchers to have another strong year in 2011 — but they may not get much of a break from their closest partner, Mother Nature.

“Nationally, 2011 is expected to see some of the highest prices in years for several crops if the U.S. economy and export markets continue to improve, said Jose Peña, an agricultural economist with the Texas AgriLife Extension Service in Uvalde. But Peña said South Texas will need more rainfall for producers to fully benefit from those prices.

“And so far, that’s not in the forecast.”

The article indicated that, “Peña said the National Oceanic and Atmospheric Administration has predicted that a La Niña weather pattern could affect South Texas through spring.

That would produce warmer temperatures and even less rainfall for the area. If it keeps spring rains from falling in South Texas, producers could be in big trouble, Peña said.”

From an international perspective, Enda Curran and Samantha Walker reported in today’s Wall Street Journal that, “Australia’s flood crisis continued to spread Sunday with parts of Victoria state in the country’s southeast suffering record flooding, forcing the evacuation of 3,000 residents just as a major cleanup operation in flood-ravaged Queensland begins.”

“Researchers IBISWorld predicted the state’s rebuilding would add 10 billion Australian dollars ($9.9 billion) in revenue to the construction industry over the next two years but expects sharp losses for industries such as agriculture, tourism, insurance, mining and transport and logistics,” the Journal article said.

The Journal writers added that, “IBISWorld said Queensland’s agricultural industry—particularly vegetable and fruit growers, cotton, sugar, grain and livestock farmers—will be hit hard, with total estimated losses of A$1.6 billion. With Queensland supplying 28% of Australia’s fruit and vegetables, food inflation would result, it added.”

Aubrey Belford reported in today’s New York Times that, “Farmers like [Steve Kluck] are among the worst hit in the multibillion-dollar economic toll of Australia’s continuing flood crisis, which has affected a combined region of more than a million hectares in five states; in the worst-hit state, Queensland, flooding in regions with a land area more than double that of California has killed at least 28 people.”

The Times article stated that, “Australian farming is a business of high expenditures and thin margins, and [Derek Schulz] said he expected many from the town would give up. Insurance will not cover many losses, and government assistance, including disaster grants of up to $25,000 and low-interest loans of up to $250,000, is a fraction of what is required to cover losses and start anew. But Mr. Schulz said he would probably take on fresh debt and return to the land.”

Today’s article noted that, “While some farmers may leave the land because of the floods, the bigger threat in the longer term is still likely to be a lack of water, said Chris Cocklin, an environmental scientist who is the deputy vice chancellor of James Cook University in Queensland. Prior to the start of heavy rains late last year, a drought had gone on for more than a decade across the Murray-Darling basin, a massive irrigated river system in eastern Australia that is the country’s most important agricultural area. In many areas, it would take years of significant rain to bring underground aquifers up to healthy levels, Mr. Cocklin said.”

In other food related news, AP writer Steve Karnowski reported today that, “The federal government has spent millions of dollars to help farmers nationwide buy greenhouse-like structures called high tunnels that can add valuable weeks and even months to their growing seasons by protecting produce from chilly temperatures.

“About $13 million has gone to more than 2,400 farmers in 43 states to help pay for the low-tech tunnels that look like a cross between Quonset huts and conventional greenhouses [see related picture here]. The structures, also known as hoop houses, have been particularly beneficial in the north, where they allow farmers to plant as much as four weeks early and keep growing later in the fall.

The U.S. Department of Agriculture touts the tunnels as environmentally friendly and a way to help meet the demand for local and sustainable produce. Experts say high tunnels employ efficient drip irrigation systems and reduce pest problems, diseases and fertilizer costs.”

And Stephanie Clifford reported in today’s New York Times that, “For dinner tonight, pick up some sushi and salad — at Walgreens. Or maybe some Target chicken.

Reflecting a major shift in the way Americans shop for food, retailers better known for selling clothes or aspirin, including Walgreens, CVS/Pharmacy and Target, are expanding in a big way into the grocery business, with fresh produce, frozen meats and, yes, even sushi.”

Trade

Mary Beth Sheridan reported in Saturday’s Washington Post that, “The Obama administration on Friday announced the broadest liberalization of travel to Cuba in a decade, making it easier for American students and religious and cultural groups to visit the Communist-ruled island.”

Abby Phillip and Carol E. Lee reported on Friday at Politico that, “President Barack Obama will further ease travel restrictions to Cuba, allowing religious organizations and certain educational institutions to travel to the country, increasing the amount that non-relatives can send to Cuba, and opening all U.S. airports to licensed chartered flights from the communist nation.

“The White House announced the new measures late Friday night, likely anticipating the mixed reaction among some Democrats and Republicans to any move seen as inching toward rapprochement with the communist regime. They had been in the works for months, but political concerns — such as November’s midterm elections — held up the announcement.”

On Saturday, the National Farmers Union commended the administrative actions with respect to Cuba.

Meanwhile, Reuters news reported on Friday that, “U.S. food sales to Cuba fell by 30 percent from January through November compared with the same period in 2009, meaning trade has halved in the last two years as Cuba bought more from allies, a U.S.-based group said on Friday.

“Cuba imports about 60 percent of its food, and the United States has been the country’s top provider for years despite political tensions and an almost five-decade-old U.S. trade embargo.”

Environmental Protection Agency (EPA)

Patrick Reis reported on Friday at Politico that, “The Environmental Protection Agency’s top water official is resigning.

Pete Silva, the agency’s assistant administrator for water, will leave his post in February to return to California with his family, EPA Administrator Lisa Jackson announced today in a staff email obtained by POLITICO.”

Keith Good