Washington Insider -- Friday

Coffee, Industry Crises and Immigration

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

House Passes Two-Year Spending Agreement, Senate to Vote Next Week

The House passed a two-year spending package, which increases government spending by $320 billion and suspends the debt limit through the end of July 2021.

The legislation, which has the support of President Donald Trump, passed 284-149 – though a majority of Republicans opposed it amid concerns about growing deficits. “This is not the bill that we would write, we’re not in the majority,” said House Minority Leader Kevin McCarthy, R-Calif. “We are where we are. We put a plan together that had to have compromise.”

The legislation now heads to the Senate, where Majority Leader Mitch McConnell, R-Ky., plans to bring it to a vote next week before the chamber leaves for its August recess. The bill is expected to clear the GOP-controlled Senate easily.

Meanwhile, Trump tweeted he was "pleased the House has passed our budget deal," calling the legislation "Great for our Military and our Vets."

Multiple House Ag Leaders Critical of Second Trade Aid Package

The Democratic chairs of four House Agriculture Subcommittees voiced criticism of USDA's second trade aid package, after the department unveiled payment rates and other details about the effort Thursday (July 25).

The joint statement was issued Reps. Jim Costa, D-Calif., chair of the Subcommittee on Livestock and Foreign Agriculture, Marcia Fudge, D-Ohio, chair of the Subcommittee on Nutrition, Oversight, and Department Operations, Filemon Vela, D-Texas, chair of the Subcommittee on General Farm Commodities and Risk Management and Stacey Plaskett, D-V.I., chair of the Subcommittee on Biotechnology, Horticulture and Research.

"While these second Market Facilitation Program payments will undoubtedly help farmers in tough economic conditions, they continue to tell us loudly and clearly they want fair access to global markets, not one-off handouts from the Federal government," the lawmakers wrote.

Of particular concern, is the " fairness and the equity of payments across crops and commodities, including specialty crops, dairy, and livestock products," the lawmakers said. Also a worry, is how the aid package "will affect our World Trade Organization commitments, especially given concerns raised by our trading partners after the first round of trade aid," they noted.

The lawmakers reiterated calls for President Donald Trump to end the trade war, arguing it "isn’t accomplishing anything but added pain for our farmers."

Washington Insider: Coffee, Industry Crises and Immigration

There’s another side to the new fight between the administration and Guatemala, Bloomberg says this week—it thinks that the threats against Guatemala could “worsen the income outlook for 125,000 farm families.”

The main point is that the coffee producers in Central America are already facing a crisis from “rock-bottom commodity prices and depressed incomes,” which sanctions from the U.S. could make worse as the administration threatens tariffs against the country.

The President this week said his administration is examining tariffs, remittance fees, and other sanctions after he claimed that Guatemala backed out of an agreement to become a “safe third country” to slow the flow of undocumented migrants. U.S. companies, including Starbucks Corp., are the main buyers of coffee beans from the Latin American nation, according to data from Guatemala’s National Coffee Association, Anacafe. It’s the country’s second most important agricultural export after bananas.

And while the administration threat comes amid its battle to reduce immigration, taking the action against Guatemala could end up producing the opposite result, Bloomberg says.

It says that the “coffee crisis” has already forced many of the nation’s small growers to leave the country and take the risky trip through Mexico to cross the U.S. border. Tariffs would likely further beat down the commodity market in the Central American country and possibly exacerbate the flow of migrants.

While there’s no official information on the possible tariffs, “we are analyzing the possible scenarios,” Bernardo Solano, president of Anacafe, said. “As the United States is our main trading partner, if tariffs were increased, it would affect the competitiveness of our country.”

Coffee futures traded in New York have tumbled almost 25% in the past two years as supplies boomed in Brazil, the world’s top producer and exporter. Competition has gotten so fierce and prices so low that coffee farming has become untenable for many small growers--leading their adult children to shun the business in many cases.

Guatemala has one of the highest inequality rates in Latin America, with some of the worst poverty, malnutrition and maternal-child mortality rates in the region, especially in rural and indigenous areas, according to the World Bank.

If the President follows through on this threat, it would “aggravate the international price crisis that we are going through, further complicating the economy of the 125,000 Guatemalan coffee-producing families, who will be in need of finding other alternatives to generate income--among these, is migration," Solano said.

Overall, it seems that the U.S. border security problems are likely much more complex than is generally understood and will continue to be highly controversial. The United States has traditionally sponsored development programs across Central America in continuing efforts to reduce immigration pressures, extending back to the Reagan Administration’s Caribbean Basin Initiative that worked to expand U.S. imports and stimulate exports from the region, but which has fallen out of favor more recently.

So, we will see. It seems increasingly that the administration’s heavy reliance on tariffs as a main trade policy tool is being questioned by front line industries in a growing number of industrial sectors—-and opposed by major and minor trading partners. A key test appears to be coming soon as the Congress debates approval of the new NAFTA agreement, amid the resumption of tariff talks with China and administration threats of new European duties on automobiles. Each of these is yet another issue producers should watch closely as the debates intensify, Washington Insider believes.

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