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.

Rural Electric Co-Ops Warn of Higher Utility Rates Due to EPA Emissions Plan

The plans announced this week by the Environmental Protection Agency to reduce greenhouse gas emissions from power plants are likely to increase electricity rates for all rural residents, according to the National Rural Electric Cooperatives Association.

NRECA Chief Executive and former Rep. Jo Ann Emerson, R-Mo., told the press this week that, "America's electric cooperatives are naturally concerned that these regulations will increase electricity prices and force power plant shutdowns, thereby harming the economy and jobs of hard-working Americans. However, there are a lot of details to work through in this proposal — and additional details that will be outlined in yet-to-be-developed state plans."

Some critics of the EPA proposal also worry that if power plants shift their fuel of choice from coal to natural gas, the resulting increase in gas prices also would increase the price of nitrogen fertilizers, products that are manufactured from natural gas.

It should be remembered that dire predictions emerge each time a major energy change is announced and that those predictions rarely prove to be correct. Look no further than the requirements for more efficient light bulbs and household appliances as well as greater fuel efficiency standards for automobiles to see instances where changes that were fought soon after they were announced, but which have yet to drive the U.S. economy into a ditch.

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Senators Continue Protracted Discussions on Extending Tax Incentives

Tax extenders remain mired in the Senate over a continuing stalemate on the scope and number of amendments that will be allowed during floor debate on the measure. Senate Finance Committee Chairman Ron Wyden, D-Ore., and the panel's ranking member, Sen. Orrin Hatch, R-Utah, said this week that they were continuing to talk about how to advance the legislative package of more than 50 expired tax breaks on the Senate floor.

A previous attempt to get to a vote failed to clear a procedural hurdle before the recent break, and talks are expected to continue this week.

The main hurdle is efforts by Republicans efforts to repeal a tax on medical devices and to undo other parts of the Affordable Care Act, which Senate Majority Leader Harry Reid, D-Nev., wants no part of. Failure to reach a deal could push the issue into a likely post-election, lame-duck session.

The House has passed legislation to make a single extender permanent: the tax credit for research and development activities. The House Ways and Means Committee has marked up nearly a dozen additional extenders, mostly dealing with business tax benefits and charitable deductions, but none has yet been scheduled for votes on the House floor.

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Washington Insider: Pricing the Value of Farm to Market

USDA has a number of venerable data series that have been published for many decades, including livestock born and marketed, and crop and livestock prices at key locations, among others. In addition, for much of that time it has estimated the farmers' share of each dollar that consumers spend for food.

This series is useful because it is carefully constructed and can be used to show long-term trends in structural aspects of the sector. However, one thing it doesn't show is how equitable the sector is to the farmer, which is always surprising to farm groups and other users who insist that the main point of the calculations. What they want, it seems, is a way to measure how the system cheats farmers, since in the world of one Depression era song, the "middle man's the man who gets it all."

New calculations came out last week and, sure enough, they imply once again that "marketing costs" are basically deductions from consumer's dollars that, somehow, should be going to the farmer. That view, if true, would oblige consumers to buy corn, wheat and soybeans and other commodities and provide any wanted services themselves. Locavores think that way, I'm told, to some degree — and the implications of the series seem to be that the smaller the off-farm share, the better off the sector would be.

It is certainly time to update that view and add additional perspective, especially in terms of the sector's size and some of the key trends. Food sales, including value from many, many quarters amount to nearly $1.3 trillion, about evenly divided between food at home and food away from home — and cover an almost unimaginable array of goods and services.

At the same time, there is nothing haphazard about this system, especially as its increasingly sophisticated value chain that provides diversity and vast numbers of consumer services and products that make producer's corn, beef and soybeans increasingly more valuable than they were when they began the journey to consumers' shopping bags.

So, rather than think of the "marketing bill" as a drag on farmers' claims to consumers' dollars, USDA and the sector would do well to emphasize more the fact that much of that consumer value would not ever materialize without the closely linked system of processors, handlers, transporters, packagers and advertisers that add value beyond the farm. In addition, it is these "marketing" folks who take much of the risk of deciding what to build out of the raw commodities they buy and how to make it attractive to consumers, among many other things.

So, what does that consumer dollar actually cover these days? USDA says 17.4 cents goes to the farm, while 82.6 cents goes for "marketing." Once commodities leave the farm, processing handling and packaging adds 22% of consumer value; sales and services at wholesale, retail and food service adds 53% and miscellaneous inputs like finance and insurance and others add the balance. A sophisticated, far-flung system that provides food in the form it is wanted, where wanted and in the form wanted performs the necessary services.

USDA also calculates trends in share of consumer dollar provided at various levels, and in something of a side note on production side, it estimates that value added by farmer-producers has grown rapidly over the last decade, while that by agribusiness has declined slightly, a somewhat surprising development.

There are other key changes, as well. A few of these include the fact that value added by food processing is down sharply, along with value from packaging and transportation suggesting that U.S. foods are slightly less refined, packaged more simply and, perhaps consumed closer to home than they were two decades ago. At the same time, value added by retailers has first increased and then declined, while that provided by food services has continued to grow steadily but modestly over the period.

So, what is to be made of these trends? First, not only are retail food sales enormously large but they have been creeping up modestly in recent years to more than $1.3 trillion. Second, the trends in value added through the chain tend to show a changing sector, increasingly diverse but, at the same time, reflecting smaller investments in processing, handling and packaging — perhaps a simpler, more natural sector, as many would like to see.

As is usually the case, the basic USDA data present only a broad glimpse at the major trends that analysts will spend decades evaluating, and which can be expected to prove very interesting for producers and scholars alike in the future, Washington Insider believes.

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