Washington Insider -- Friday

By DTN's Washington Insider

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

Senators Try Again to Reform U.S. Food Aid Programs

Senators who earlier this year were unsuccessful in changing U.S. international food aid programs in the 2014 farm bill this week introduced stand-alone legislation aimed at accomplishing many of the same reforms.

Legislation introduced by Sens. Chris Coons, D-Del., and Bob Corker, R-Tenn., would change a number of regulations governing the PL 480 Food for Peace program, which for the past 60 years has been the main U.S. food aid tool. Their proposal would allow the U.S. Agency for International Development to use the most cost-effective option for delivering U.S. food aid to overseas recipients and also would drop the requirement that all U.S. food aid be shipped only on U.S.-flagged vessels.

Coons, who is chairman of the Senate Foreign Relations Subcommittee on African Affairs, and Corker, who is ranking member of the Senate Foreign Relations Committee, say in a joint statement that their proposal would free up as much as $440 million annually through greater efficiencies in delivering aid, allowing the United States to reach an estimated 7 to 9 million more people, and do so in a shorter time period.

The U.S.-only shipping requirement is part of a larger initiative imposed by the Merchant Marine Act of 1920, also known as the Jones Act. The goal of that law is to promote a healthy U.S. merchant marine fleet, U.S. shipbuilding capacity and a U.S. merchant marine labor force. By most metrics, the law is a failure. Today, the U.S. deep-sea fleet stands at just under 100 vessels, with another 100 serving to move freight from one U.S. port to another. Over the first 76 years of the Act, more than 60 U.S. shipyards went out of business.

Some question whether maintaining a less-than-vibrant U.S. shipping industry is worth the economic dislocations and inefficiencies that are the results of the Jones Act. They reason that that if the merchant marine industry needs continued federal subsidies, those subsidies should come in a more direct manner. It doesn't take an advanced degree in economics to conclude that money spent on shipping on U.S. vessels, one of the most expensive ocean transportation services in the world, is money than cannot be spent buying food for those in need overseas.

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Republicans Look to Collect Large Campaign Donations from Energy Companies

The U.S. energy industry is no fan of Environmental Protection Agency regulations and that fact is likely to lead to Republicans –– also no fans of EPA –– benefitting from increased campaign donations this year.

According to the nonpartisan Center for Responsive Politics, electric utility political action committees have donated 63% of their cash this election cycle to Republican candidates. That represents a flip from four years ago when they gave 55% to Democrats and just 43% to Republicans.

Meanwhile, contributions from political action committees representing the oil and gas industries are even more favorable to the GOP, with 83% of their cash so far this election cycle going to Republican House and Senate candidates. All this money aimed at GOP candidates virtually guarantees even stiffer opposition to EPA regulations in the 114th Congress that will seated next January.

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Washington Insider: Brazilian Review of U.S. Cotton Policy

It appears that a series of discussion between the United States and Brazil have been underway, with U.S. officials working to dissuade the Brazilians from pushing for another World Trade Organization panel on U.S. cotton policy. Or maybe not.

While there have been pretty solid hints and reports concerning Brazil, the WTO and the new farm Act, stakeholders remain nervous about what it all might mean. So much remains to be clarified about the situation.

The current focus is seemingly valid reports coming from Brazil concerning a number of measures, including direct "financial compensation" to the Brazilians, shorter time limits on U.S. cotton export subsidies and a broader listing of products in the Generalized System of Preferences.

Financial compensation — payments — seems especially unclear, with $400 million described in one part of the report and a "reported" $800 million in compensation discussed in another, along with the note that "the U.S. asked secrecy about the figure, to avoid problems with Congress."

The Brazilian cotton producers association apparently requested $400 million, according to documents, even though Brazil now argues that the financial effects on the Brazilian cotton sector from the 2014 farm Act will be $1.6 billion over five years.

The Brazilian report also notes that the United States is arguing that it is unable to change the 2014 Act at this stage but has strong interest in coming to an understanding, since a U.S. loss in a WTO implementation panel might well open the way for broader questioning of the trade consequences of other U.S. farm commodity programs.

U.S. observers suggest that the Brazilians are willing to consider compensation in return for abandoning new litigation but note that the Brazilians believe the new U.S. farm bill, at current prices, is more distorting and prejudicial to the interests of its cotton industry than the former programs.

These reports are receiving considerable attention, although the Brazilian Foreign Ministry is refusing to say even whether the documents being studied are authentic. All this is leading to a somewhat strange focus on "whether provisions in the 2014 U.S. Farm Bill will cause even more distortions to world cotton prices than prior U.S. policy."

For example, one report says that "seasoned observers dispute that one-sided prediction" and that U.S. trade and USDA officials should assert that U.S. cotton safety nets are not as effective as those for other program crops like corn, soybeans, wheat and rice. This is because if cotton prices decline significantly, growers will rush to other more attractively priced crops.

Of course, the comparison between the old and new policies is not the only fact in the case. While major aspects of the old policy were found illegal, the new policies could also be found damaging to Brazilian cotton producers ever if they are somewhat less damaging than the old ones. The fact is that the new U.S. cotton program continues to be controversial, and may well face litigation from Brazil and others.

In addition, the discussion over possible U.S.-Brazilian discussions appears to be re-opening questions over whether other portions of the 2014 farm bill will face WTO scrutiny, or possible WTO litigation.

The fact is, according to at least one "seasoned" policy analyst, some U.S. farm policy observers have "openly wondered" for some time whether the new U.S. farm bill will eventually be challenged, especially with regard to its safety net features (including so-called potential "shallow-loss" protections for a number of commodities), along with guarantees of specified amounts of "normal" revenues. Certainly, these issues which were raised throughout the farm bill debate but not examined deeply by congressional Agriculture committees can be expected to attract even broader attention if prices and revenues fall and government payments significantly exceed projected levels.

So, the 2014 farm bill debate certainly is not over yet, and may not even have moved off the front pages, even as advocates of issues other than trade wait in the wings for the "right" moment to re-engage. And, certainly the congressional ag leaders who felt that it was good strategy to allow the old-time farm-food-conservation coalition to fray may well regret such decisions, should they find themselves facing even more intense policy questions than they expected earlier, Washington Insider believes.

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