Washington Insider -- Monday

By DTN's Washington Insider

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

Mexican Government Confirms Purchase of Corn from Brazil

Brazilian livestock producers inked deals directly with sellers in Brazil for two 30,000-tonne shipments of corn, part of what could be 300,000 tonnes they plan to import over the August-October period, according to Alejandro Vazquez, a Mexican government official part of a delegation that was in Brazil and Argentina.

“If prices become even more attractive, they could import even more," Vasquez said. Bigger deals could lead to even better margins, he noted, adding that "in some regions of Brazil, yellow corn is even cheaper than in the U.S." for Mexico.

Vazquez heads up the Agriculture Ministry agency Aserca and said the firms opted to pay more for Brazilian corn as an investment in case something happens to disrupt the flow of U.S. corn to Mexico.

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Ryan: Tax Reform is Happening in 2017

House Speaker Paul Ryan, R-Wis., last week doubled down on a vow to reform the tax code this year, an optimistic timeline that could face headwinds amid the ongoing Russia investigations.

Ryan chafed at a question of whether tax reform would slip beyond 2017. “I don’t think this is the case,” Ryan said. “Our goal, and I believe we can meet this goal, is calendared 2017 for tax reform. And I think we’re making good progress.”

Republicans in January initially thought they would get an ObamaCare repeal bill to the president’s desk by mid-April. It is now mid-May and the bill has yet to get far in the Senate.

Ryan continued to support a border adjustment tax. “I obviously think border adjustment is the smart way to go,” Ryan said. “I think it makes the tax code the most internationally competitive of any other version we’re looking at. And I think it removes all tax incentives for a firm to move … their production overseas.” Ryan argued that “if you’re not going to do border adjustment, you have to look at the alternatives to that.” Those “alternatives” that would be axed to reduce tax rates are breaks for various business industries — which would rev up lobbyists fighting to maintain their clients' tax credits or deductions.

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Washington Insider: Consumer Spending on Food

One of the proudest reports in USDA’s annual portfolio focuses on the calculation of the share of U.S. consumers’ disposable income spent for food. To a large extent, these figures reflect agriculture’s response to its “social contract” — the nation’s return on its expenditure to promote agricultural efficiency through both public and private spending.

Somewhat strangely, this estimate and its implications have become controversial for many who claim to wish for a simpler life—an instinct that is rare in nations where food costs are relatively much higher, or on farms where production is actually more basic. The main reason the comparison is important is, of course, that food expenditures preempt other spending. Thus, in countries like the United States, agricultural efficiency means that consumers have much greater amounts available for spending on other things, including health, education and recreation and much, much more.

While households tend to spend more on food as their incomes rise, U.S. food expenditures represent a smaller portion of income, USDA’s Economic Research Service notes. In 2015, U.S. households in the highest income quintile spent an average of $12,350 on food — both from grocery stores and eating out. This spending accounted for 8.7% of their incomes, the lowest average in the world.

Still, an important “other side” of that story is that lower income households spent much greater shares for food. For example, middle income households spent an average of $5,799 on food, or 12.4% of their incomes.

For those with still lower incomes, the situation was worse. Households in the lowest income quintile spent less, $3,767 in 2015, but their situation was worse because food expenditures required so much of their income, about one-third.

Still, USDA notes that the low-income group had a worse situation two years earlier when they were required to spend more than 36.2% of their incomes on food.

The “share of income” statistic depends on several factors, including food prices and incomes and ERS notes that while retail food price inflation was relatively low in 2013, income levels were also lower than in 2015, pushing the percent of income spent on food in 2013 by the lowest income households still higher. That ratio also could change in the future depending on retail food prices and commodity prices in the future.

In addition, U.S. agricultural sector’s efficiency can be seen in U.S.DA’s comparisons of available calories per capita, as well as the share of income spent for food. The United States is estimated to have 3,639 calories available per consumer per day, far more than other nations, including China, the UK, Brazil, Russia and others. For example, food availability in Kenya is quite low, just over 2,200 calories per person per day—in spite of the fact that Kenyans spend nearly 50% of their disposable household income for food.

Not only is the U.S. social compact important, but similar arrangements will be crucial for the world in the future. There are several reasons—a more vulnerable environment, increasingly affected by global warming as well as the need to feed many more people, and to do so without significantly increasing the physical cost of production. Experts say that agriculture can no longer rely on the addition of production area to feed the growing population, but will need much greater efficiency than was developed in the past.

Perhaps the strangest aspect of USDA’s current report is that there is so little excitement over the really important result — just another ho-hum development in an already amazing world. Still, it is worth thinking a little about what you might need to do if food costs were two or three times as high as they are, a not unreasonable concept given the reality of much of the world, Washington Insider believes.

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