Washington Insider - Thursday

By DTN's Washington Insider

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

USDA's Perdue Positive on Trade, NAFTA

USDA Secretary Sonny Perdue predicted that NAFTA will be renegotiated, saying that President Donald Trump's threats to withdraw from the trade deal are part of the negotiating style of a strong leader. "I appreciate the fact that President Trump is a tough negotiator on behalf of America," Perdue told a National Press Club lunch audience on Tuesday.

"I am confident that President Trump wants an agreement between Canada and Mexico and NAFTA that benefits the American people and benefits American producers.” Perdue, who helped present Trump with arguments against a withdrawal from NAFTA earlier this year, said the president’s strength as a leader is a willingness to change his mind. “We have a great relationship. I don’t think he wants a sycophant as a secretary. He wants me to give him my best counsel and best advice,” Perdue said. Of note, Perdue said he believes NAFTA renegotiations will produce an updated trade agreement Trump can back.

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Sen. Roberts: NAFTA Withdrawal Threats Could Complicate New Farm Bill

Given the current price situation, there will be a push to expand programs in the 2014 Farm Bill in the process of writing a new farm bill, Senate Ag Committee Chairman Pat Roberts, R., Kan., told the Washington International Trade Association. "We can't do that. The best thing we can do is extend the farm bill and make some efficiencies, and make some changes and go from there," Roberts stated. "But if we have, as I say, all these shivers, that we've got of people wanting to terminate this [trade] agreement or have the threat out there, it's the wrong signal."

While some in the administration suggest some components the administration is pushing in the NAFTA 2.0 talks will be positive for ag trade, Roberts said the provision for terminating the deal after five years unless all three countries agree to keep it in place makes no sense. "The idea you're going to terminate every trade agreement you agree on in five years — what the heck is that all about?" Roberts asked, adding those who back the concept have told him, "'you won't believe how many ag products you're going to sell in that last year, because they won't know if a trade agreement will come the next year.'" Roberts, in his typical no-nonsense style, said he tells them, "'My God, man! We need to increase our exports now. We need to sell our products."

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Washington Insider: Food Farm Subsidies and Dietary Improvement

Critics often note that the Washington Post is not much of an expert on farm policy, but every few years it weighs in on some key ag features. Now, it is actually running a story that counters the oft-heard assertion by foodies that junk food is cheaper than fruits and vegetables because of the farm bill. It cites Michael Pollan.

Somewhat surprisingly, the Post concludes that the charge is false, and it describes an argument between a writer and “the most influential person in the sustainable-food movement, author Michael Pollan.” It quotes Pollan saying that “the cost differences between junk food and carrots “is not the result of the free market, it has more to do, in fact, with the farm bill.”

The idea that wholesome foods are expensive and junk foods are cheap because of the system of subsidies in the farm bill often pervades conversations about food policy. “But that idea has one very big problem, The Post says. It’s false.

Yes, “junky” food ingredients get more subsidy money than fruits and vegetables. And the system “has taxpayers subsidizing foods that are worse for us, rather than those that are more nutritious. However, the Post explains the difference between produce that is inherently much more expensive to grow than grains, “and that difference dwarfs the difference in subsidy levels,” it says.

That difference is evident from cost of production data, the Post says. A serving of raw broccoli (1 cup, chopped) costs 14 cents to grow. The same size serving of bell peppers costs 9 cents. A cup of strawberries costs 32 cents; blackberries come in at 74 cents. Keep in mind that this is the cost to grow and harvest them, The Post says, and notes that they also have to be shipped and stored (and kept cold all the while).

The commodity crops look very different in this analysis. The first ingredient in Twinkies is wheat, and a 1-ounce serving of it (enough to make a slice of bread) costs about half a cent. The fourth ingredient in Twinkies is corn syrup, and corn also rolls in at a half-cent per serving. So do lentils, although they don’t figure in Twinkies. If you go up to a whole cent, you can get an ounce of oats or a half-cup of potatoes. A penny and a half buys you an ounce of rice or peanuts. Because these crops don’t require refrigeration and have low water content storage and shipping are much less expensive.

The Post says fruits and vegetables are a “whole different animal from grains and legumes — a much more expensive animal.” Vegetables cost at least 10 times what grains cost to grow (and that’s on a per-serving basis.

So, the Post concludes that even if we redirect our subsidies away from commodities and toward fruits and vegetables, the Twinkies would cost a penny or two more and the carrots a few pennies less — assuming those subsidies get passed on to consumers and not simply absorbed along the food chain.

The Post says it “ran that math by Pollan,” and who pointed to context—the long history of subsidies that has encouraged not just the growing but also the improving of commodities. That adds up to huge supplies, which, as any Econ 101 student knows, drive prices down, he says.

The Post says it pursued its argument with experts, including economists such as Daniel Sumner and Julian Alston at the University of California at Davis. Sumner says subsidies have made corn and soy “slightly cheaper.” Alston estimates that we can attribute 8 to 14 extra calories per day to farm subsidies.

Pollan doubts that and argues that the magnitude is large, The Post says. He thinks that a cheap supply of commodities has driven food manufacturers to create calorie-dense, nutrient-challenged processed foods, given that cornmeal and whole-wheat flour aren’t bestsellers. He cites data that show the cost of fresh fruits and vegetables increasing nearly 40-percent from 1985 to 2000 (the beginning of the obesity epidemic), while soda decreased more than 20 percent.

The Post seems unimpressed since retail prices, for example, for corn-sweetened soda, account for only about a half-cent in each can (1.6 percent of the retail price). Even assuming no farm programs and corn that costs twice as much--higher than economist assert--the cost per can goes up only a half-cent. Would that have meant a significant consumption impact?

Overall, the Post says it is difficult to see that “subsidies even come close to bridging the inherent price gap between vegetables and commodities.”

Well, this is not a new argument and anyhow, fruit and vegetables have been gaining increasing support in recent farm bills. The fact is that food consumption is driven by taste and preferences, convenience and many other factors in addition to costs.

In general, the food program subsidies should be evaluated on the basis of their overall costs and benefits for producers and consumers, rather than the incomplete visions of food elitists Washington Insider believes

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(GH/BAS)

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