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.

Northern Tier Rail Shipments Continue to Lag

The Surface Transportation Board continues to hear from lawmakers from Upper Midwest states who are passing along complaints from farmers or other freight rail shippers about backed-up commodities needing railcars or the lack of inputs arriving by train.

Among the letter writers is Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., who pointed out that "Many farmers in Michigan have still been unable to secure transport for last year's harvest … with much of that harvest sitting in bins and record crops projected for later this year."

USDA estimates that one railroad serving the region, Canadian Pacific, would need to move 4,725 rail cars per week to clear the grain backlog by Oct. 3. But in July the railroad was moving an average of 1,969 cars per week, or fewer than half those needed, USDA said. And that's just the backlog from last year's harvest. This year's spring wheat harvest is about to get underway in the Upper Midwest, and the corn and soybean harvest will begin in earnest in about six or seven weeks.

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EU to Compensate Some Southern European Fruit Growers for Lost Sales to Russia

Some European Union peach and nectarine growers will receive payments from a special fund as partial compensation for lower prices caused by retaliatory trade sanctions that cut off agricultural exports to Russia, according to the European Commission.

A week after Russia adopted trade sanctions that will cut off about 10% of EU food exports, the EC has recommended immediate assistance for those growers — most of whom are located in southern Europe — and has established a task force to determine further support under the EU's Common Agriculture Policy (CAP).

There have been no announcements of compensation for other EU agricultural sectors, but that could change following a meeting tomorrow in Brussels. That meeting will bring together agricultural experts from the EU's 28 member states who have been tasked with developing a coordinated strategy to deal with the Russian import ban.

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Washington Insider: Sugar Pandering in High Places

In what seems like a discordant note, USDA's under secretary for Farm and Foreign Agricultural Services told the American Sugar Alliance last week that the North American Free Trade Agreement (NAFTA) is causing him trouble in terms of managing the sugar program. This is an important statement because Under Secretary Michael Scuse has very broad responsibilities at USDA, including management of the huge sugar program.

In that context, Scuse added a somewhat odd twist: he identified a U.S. obligation of broadly helping farmers manage risk (no mention of consumers or other sugar users) and, claimed that the administration considers the sugar program "rooted" in the "primary foundation" of USDA, going back to its founding by President Abraham Lincoln.

USDA is required to operate the program within the parameters designed by Congress, of course, so that supplies of raw and refined sugar are maintained in the domestic market, considering both domestic production and imports. And, the department needs to take care that sugar loan forfeitures by processors are avoided, even though, as Scuse put it, "As we learned last year, there can be costs," so that objective may no longer be so important.

Given all those protections for growers, Scuse nonetheless argued that "the greatest area of uncertainty this year is not the weather; it is the anti-dumping and countervailing duty investigation of sugar imports from Mexico." As a result of those allegations, sugar growers are pushing for greater protections, charging that the Mexican government is subsidizing sugar exports. The Commerce Department and the International Trade Commission are investigating those charges.

Under NAFTA, Mexico has full access to the U.S. market, but domestic sugar growers argue that Mexico is violating that deal. About 20% of Mexican sugar mills are government-owned, it says, and Mexico has dramatically increased its exports recently. Mexico and the U.S. Sweetener Users Association argue that the Mexican sugar industry has responded normally to volatile U.S. prices.

Scuse noted that USDA's official role in the investigation is limited to answering technical questions asked by Commerce and the ITC. He also pointed out that the countervailing duty case has been extended to Aug. 25, while the preliminary determination on the dumping case is due this fall. Trade experts argue that U.S. trade agreements are important and could be affected by this dispute and that the administration could play a rather more influential role in this dispute if it chose to do so.

Scuse noted the uncertainty of whether Mexico will continue to export sugar to the United States under current rules "makes managing the sugar supply more difficult," although that does not change the fact that the U.S. programs heavily protect U.S. producers.

When talking about the Trans-Atlantic Trade and Investment Partnership negotiations with the European Union, he used slightly different language. "I understand your sensitivities on further opening the U.S. market to sugar imports and we are taking your concerns into consideration," Scuse told his audience of sugar producers.

In an act of legislative wishful thinking back in the 1980s, Congress committed USDA to manage the sugar protections by limiting U.S. imports and depending on those tightened supplies to hold prices above domestic targets "at no cost to the Treasury." However, USDA has an increasingly hard time in providing the protections simply by squeezing the quotas.

At the same time, the United States is under political pressure to protect corn sweetener exports to Mexico, even at the expense of displacing Mexican sugar markets, and has other trade agreement obligations as well. Sugar users and other observers argue that this means that the price support objective should be reconsidered, but growers refuse to consider that approach.

As a result, growers are pushing new government protections against the imports Mexico negotiated earlier — many at the cost of a broad range of past concessions to the United States. So, trade observers are worried that the U.S. Department of Commerce will impose sanctions in response that may well lead to counter sanctions by Mexico on U.S. products — including big ticket items like pork.

This is a tense situation with high stakes — and, one Under Secretary Scuse seems to have sailed into without much of a political compass, especially considering his assurances to growers about future negotiations. As Scuse is likely to learn, sugar politics represents the big leagues of trade issues and his careful, but somewhat obscure nuances appeared to elevate sugar concerns over those of others with stakes in the Mexican market.

USDA, which has been critical of the sugar users' suit, needs to assess the potential consequences of the Scuse commitments — if any — and shore up its position while it still can, Washington Insider believes.

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