Washington Insider -- Wednesday

By DTN's Washington Insider

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

Global Climate Change Could Slash Grain Production in Asia, Boosting Prices Everywhere

Global climate change and its potential consequences for human life on earth is in the news again with an official with the with the International Food Policy Research Institute telling the press that climate change could slash Asia's grain production by up to a quarter over the next four decades, forcing major consumers like China to dramatically increase imports. This in turn could push food prices to double their current levels, said IFPRI director Mark Rosengrant.

China may need to import as much as 75 million tonnes of soybeans and 55 million tonnes of corn a year by 2050 as its domestic grain production gets cut due to the effects of climate change, Rosengrant, said. As a result, China's livestock industry might be forced to rely more on international markets. China's grain and oilseeds import demand already is a key driver of world food prices, and increased imports would add upward pressure to prices virtually everywhere, he said.

China and India are the world's first and second most populous countries, respectively, accounting for a combined population of approximately 2.5 billion, or slightly more than a third of the population of the earth. Keeping that many people fed already is a major chore that will only become more difficult if climate and weather patterns change as forecast and crop yields are cut as a result.

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Investors from China Continue to Pour Money Into the U.S.

Chinese investment in the United States rose significantly in 2012 despite the persistent perception of political barriers, according to Nicholas Borst, manager of the China Program at the Peterson Institute for International Economics.

Speaking at a recent meeting of the U.S.-China Economic and Security Review Commission, Borst said, "One of the most-repeated complaints we hear when we interact with Chinese colleagues is this idea of the politicization of foreign direct investment into the United States." He indicated that the perception frequently does not match the reality. The Commission reports annually to Congress on the national security implications of the bilateral trade and economic relationship between the United States and China.

The Chinese push to increase foreign direct investment began, he said, as a way to offset capital inflows but devolved into a way to access natural resources in short supply in China and to gain higher yields than foreign government debt.

There are those who worry about China continuing to acquire such large volumes of natural resources, and others in the United States who see a great economic benefit to increasing our sales to China. Congress can be expected to step up its oversight activities if China's investment in U.S. resources continues to grow at the current rate.

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Washington Insider: What is a Farm?

Almost everybody thinks they know what a farm is, and many, many urban college students and others believe that that corporate, "factory food farms" dominate and are a threat to health, environment and sustainability. Secretaries of Agriculture regularly take to the press to declaim trends that show losses in rural population, and other politicians equally regularly deplore rural declines.

In fact, almost all these concepts are wrong. Agriculture as a sector is healthy, debt is low and land prices and farm wealth are high.

Part of the confusion is that very few people know what the trends really are, or even what a farm is — a self-inflicted wound by USDA which insists that a farm is "any place from which $1,000 or more of agricultural products were produced and sold, or normally would have been sold, during the year." Using that definition, there are 2.1 million farms now, almost all family operations, but a number that would surprise many of those included.

In fact, USDA's concept has a built-in bias toward losses because most of the more than 2 million "definitional" farmers don't actually raise stuff for commercial sale. They are retired or simply like to live in a rural environment and depend on other sectors for their incomes. While these folks bulk-up farm numbers, they don't add much to the food supply, which comes predominantly from 10 percent of the farmers — about 210,000 — with sales of more than $250,000, who account for 80 percent of the country's food and fiber.

Still, the 60 percent the family farmers with gross sales of less than $10,000 dominate the statistics. And, they dominate the ag image in some people's minds because they actually had negative average farm incomes in 2011, according to the Economic Research Service.

The family farmers with sales a little larger — $10,000 to $249,999 made up 30 percent of the family farms in 2011 and did better, with positive returns from their farming operations. Still the economic engine of agriculture is the commercial farms that gross $250,000 or more. And, for some reason, USDA calls all farms with gross sales of more than $500,000 "very large," although, by comparison, they may be rather small businesses that generate relatively modest family incomes.

As Congress continues to struggle with an extension of the 2008 farm bill with its proposals to strengthen the farm safety net, the actual level of prosperity for the sector becomes increasingly important. For example, median total farm household income exceeded the median U.S. household income in every year since 1998, although the amount has varied — a fact critics have noted.

Sector debt is low and falling, and land prices are strong. In recent announcements, USDA says U.S. farm income will continue to climb this year as crop production rebounds from a deep drought and price pressures ease for livestock and poultry producers.

Net farm income will reach $128.2 billion in 2013, USDA says — the highest since 1973 when adjusted for inflation and the highest on record on a non-adjusted basis as producers grow more grains and oilseeds after last year's drought and increased output more than offsets price declines and cost increases.

Last year's drought — by some estimates the worst for more than five decades — cut yields and drove up prices. At the same time, widespread use of government-backed crop-insurance programs offset part of the production loss. USDA now says farm income last year was below the level in 2011, but still above historical averages.

In spite of assertions to the contrary, the main agricultural operators are seen by USDA as financially healthy, in contrast to the rest of the economy — and the crop insurance programs already in place boosted sector returns significantly during the drought. At the same time, these programs — and those proposed — offer little benefit to the smaller farms which participate very little in the commercial markets.

In spite of efforts to describe farm conditions as dire, the numbers generally say otherwise, a fact that is difficult to overcome in debates with those whose safety nets do face immediate pressure and who compete with farm programs for federal spending, Washington Insider believes.

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