Washington Insider -- Thursday

Trade Policy Complexities Ahead for Perdue

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Peterson Signals Possible Changes to Cotton, Dairy Language in Spending Bill

House Agriculture Committee ranking member Collin Peterson, D-Minn., said he is “somewhat optimistic” that an upcoming measure to fund the federal government will include aid for cotton and dairy farmers.

The language if implemented would help increase the baseline for cotton and dairy aid programs in the 2018 Farm Bill as well, Peterson said. Changing the budget baseline for the programs would make it easier to retain the programs over the long term. “Those are now being debated in the budget ‘cromnibus,’ or whatever they call it, and I'm somewhat optimistic that there's going to be a fix for both dairy and cotton in that bill,” Peterson said.

The current continuing resolution (CR) to fund the government expires April 28. Lawmakers are discussing a measure that would provide funding until September 30, the end of Fiscal 2017. That bill could include a combination of spending measures for individual departments and agencies, an omnibus, as well as a continuing resolution for other parts of the government. Combined, it is being called a “cromnibus.”

No details have been released, but both Peterson and House Agriculture Committee Chairman Mike Conaway, R-Texas, have said they are working with appropriators on including the language adjusting cotton and dairy policy. “Whether this bill passes or not, I don't know, but I think we have some chance of getting something in there which will give us a baseline in those areas moving forward,” Peterson said. The tentative language also includes changes to improve the dairy Margin Protection Program (MPP). Some farmers have criticized the program, saying that the payments are not calculated fairly.

Participation in the program's most comprehensive coverage options have declined since it was implemented. Peterson said he would like to see the bill switch MPP payouts to a monthly basis instead of bimonthly and shift to a five-year enrollment instead of the current one-year program. Peterson also said he would like changes that raise the “sweet spot” of MPP enrollment from about $6.50 profit per hundred pounds of dairy to about $8 profit per hundred pounds. The minimum level of coverage is $4 per hundred pounds. Peterson said he has advocated for the changes to Senate Appropriations Committee ranking member Patrick Leahy, D-Vt., who represents a dairy-producing state. “I'm hearing it sounds positive,” Peterson said. “It's only a couple hundred million dollars. It's not a huge price tag.”

Trump Remarks on Potential Trade War with Canada

President Donald Trump said he is “not going to put up with” Canadian dairy quotas harming U.S. farmers and said he is not afraid of a trade war with Canada because “they have a tremendous surplus.” He added that the US has massive trade deficits. So when we’re the country with the deficits, we have no fear.”

Meanwhile, Canadian Prime Minister Justin Trudeau said he will always defend his nation’s interests, when asked about Trump’s criticism of Canada’s dairy and lumber industries. “There have always been questions back and forth in the Canada-U.S. relationship on things like dairy, on lumber,” Trudeau told the 570 News radio station on Tuesday. “This is nothing new. We will deal firmly and reasonably with them on irritants,” Trudeau said.

Trump and Trudeau discussed the lumber and dairy issues in a call Tuesday evening. A White House readout said only that the leaders talked about the two issues in a "very amicable" call. Trudeau's office, however, offered a different take on the conversation. While the prime minister and president reaffirmed the importance of the trade relationship, Trudeau "refuted the baseless allegations by the U.S. Department of Commerce and the decision to impose unfair duties." Both leaders, though, agreed on the importance of reaching a negotiated agreement.

Senate Agriculture Chairman Pat Roberts, R., Kan., expressed concern that the lumber tariffs could backfire on the US. “I think that’s asking for trouble,” Roberts said.

Washington Insider: Trade Policy Complexities

Governor Perdue was confirmed as Ag Secretary this week, and immediately rushed to the Whitten building to plunge into some of the ongoing ag policy fights, including immigration and trade. In fact, Bloomberg is suggesting that the administration needs to be aware that it could unwittingly do some serious damage to at least one ag market if it is not careful.

Bloomberg sets the stage for its observations by discussing a tweet on Tuesday morning in which President Donald Trump told Wisconsin dairy farmers that America “will not stand for” the Canadian policies he says are hurting U.S. exports. The tweet argued that “Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this. Watch!” he said.

But his next tweet might actually be a threat that could damage dairy farmers seriously Bloomberg argues. In that tweet, the President said, “Don't let the fake media tell you that I have changed my position on the WALL. It will get built and help stop drugs, human trafficking etc.”

Bloomberg cautions that even as the Trump administration jousts with Canada, it might want to keep a closer eye on Mexico, America’s No. 1 one dairy market. This neighbor, which often figures prominently in U.S. government “crime and immigration rhetoric,” spent almost twice as much money on U.S. dairy products as Canada did in 2016. That’s $1.2 billion, Bloomberg said.

The point is that U.S. policies and its rhetoric risk pushing Mexico to turn to new trading partners which could mean important losses for U.S. producers. In the first two months of 2017, Mexico increased its imports of skim milk powder from the European Union by 122% over last year, according to the EU Milk Market Observatory (as first reported by the Irish Farm Journal), Bloomberg says.

Mexico has also been exploring talks with dairy powerhouse New Zealand. That country’s trade minister visited Mexico City in February to discuss a potential trade deal. “Why the moves by Mexico? In a word: Trump,” Bloomberg said.

“Mexico is looking to make sure they have market alternatives because of the rhetoric from the U.S. on renegotiating NAFTA,” said D. Scott Brown, who teaches agricultural and applied economics at the University of Missouri. “This may be an opportunity to find other places to buy skim milk powder.” Rabobank also reported that tensions between the U.S. and Mexico are the reason for Mexico’s changing dairy purchasing strategy.

The U.S. Dairy Export Council, currently led by Obama-era Secretary of Agriculture Tom Vilsack, also is stressing the importance of U.S. dairy to Mexico. “We all have an opportunity and a responsibility to maintain and strengthen relationships with those that we work with in Mexico, to reassure them that we’re going to continue to be open for business,” he said at the Dairy Forum in late January. “The relationships at the ground level, at the grass-roots level, can oftentimes overcome any stormy seas that might be created by comments coming from Washington.”

This is not a short-term threat, Bloomberg suggests, and for now, past trade relationships seem to be holding: Exports of skim milk powder and nonfat dry milk powder to Mexico were up 14% in January and February from the same period a year earlier, according to the DEC, which stresses that it ships significantly more of the products than the EU does. That 122% increase brought the EU to only about 4,000 tons. In that time, the U.S. sent about 45,000 tons to Mexico and more than 70% of Mexico’s dairy imports come from America.

But the surge in imports from the EU could signal a changing dairy landscape, Bloomberg says.

We’re still seeing strong export sales but the unsettled markets make people nervous, makes the markets nervous, even though there’s no policy changes yet.

And it’s not just the NAFTA talk, dairy market experts say. Demanding that Mexico pay for a border wall and taking a hard line on immigration likely have impacts, too. It’s probably some combination of things, DEC says. Likely some of the rhetoric early on shook up the markets initially. Now, concerns around NAFTA and trade are what’s keeping them worried.”

Well, concerns about agricultural trade likely were important in the choice of Governor Perdue, and likely will be a key part of his responsibilities. Certainly, if anyone can quiet the trade waters, it is the new Secretary given his experience. However, that won’t be easy—the anti-trade feeling is clearly deep and important to many administration officials. How the administration squares those views still lingering from the campaign with the needs of trade dependent sectors like agriculture and others will be extremely important—a struggle that should be watched carefully as it evolves, Washington Insider believes.

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