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.

Global Meteorologists Say 2014 Likely Hottest on Record

The year 2014 is on track to be one of the hottest, if not the hottest, on record, according to preliminary estimates released this week by the World Meteorological Organization. This is largely due to record high global sea surface temperatures, which will very likely remain above normal until the end of the year, the report says. High sea temperatures, together with other factors, contributed to exceptionally heavy rainfall and floods in many countries and extreme drought in others, WMO says.

There are signs that doubts about climate change are dissipating in the United States, according to a survey sponsored by the reinsurance company Munich Re America. The poll of 1,000 people shows 83% of Americans believe global warming is happening and 66% back taxes as a way to change the behavior of consumers and businesses.

However, the poll numbers pale in comparison to the 100% of incoming chairmen of the Senate Environment and Public Works (Sen. James Inhofe, R-Okla.) who are unconvinced about global warming and will be in a position to shape the country's response, or non-response to it, over at least the next two years.

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Bipartisanship Likely Needed to Avoid Government Shutdown

It appears that even with a majority in the House, Republicans may be unable to pass proposed legislation to fund the government past the current deadline of Dec. 11. Therefore, House Republican leaders reportedly are counting on a handful of Democrats to help pass legislation that would avoid a repeat of last year's 16-day partial shutdown.

House Speaker John Boehner, R-Ohio, needs Democratic votes because at least 20 members of his party are ready to reject a plan to keep most of the government operating through September 2015. Lawmakers from both parties say he's likely to get that support. "If the Democrats vote for it, and it appears they're likely to vote for it, it will pass," said Republican Rep. John Fleming of Louisiana.

A vote in the House on fiscal 2015 spending will not take place until next week. Many believe that Republicans in both chambers will want to avoid a shutdown of the government just before Christmas for the second year in a row. Others, however, question whether Boehner will be able to move an omnibus appropriations bill that can pass the Senate and also avoid a possible presidential veto.

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Washington Insider: New Natural Product Woes

Well, it is sort of a normal fall, it seems, even though U.S. producers are struggling to market bumper crops and the Federal Reserve's Beige Book worries about market impacts. At the same time, the Wall Street Journal is worrying that farmers may be holding back crops waiting for better prices. Imagine that!

Still, if you ever doubted the boom-bust nature of farming, the Journal also carried a recent story about new popularity for an old product, maca. It seems that natural-products companies based in the United States, Europe and elsewhere have steadily built a market for the crop, a small turnip-like root that grows in high mountain areas. Enthusiasts believe that it gives a burst of energy, "especially as a sort of natural Viagra," although scientists say they are skeptical. However, the story is that this year a flood of buyers from China swooped into the Junin region of central Peru to buy up as much of the root as possible and prices shot up tenfold, or more.

This seems to have pretty much wrecked the market. Peruvian distributors told the Journal that the frenzy to find maca has led to broken long-term supply contracts, and global natural-products companies say they are in danger of being pushed out of the market. Police say the aggressive demand has led to sometimes violent thefts of sacks of maca and created a market for semi-processed maca, dried and ground locally. The government of Peru is alarmed that raw maca is being smuggled out to "improve lesser-quality maca grown in China."

This violates Peruvian law and Peru's tax agency says it has seized tons of unprocessed maca being smuggled out this year. "They are not complying with export regulations," Jorge Tejada, a maca specialist with the regional government in Junin, said of many foreign buyers. He estimates that 4.4 million pounds of maca was smuggled out this year.

Through September, the value of legal maca exports to China rose to $6 million, compared with $540,000 for all of 2013, according to Peru's Ministry of Foreign Trade and Tourism. Exports to the United States were $5.5 million through September, versus $6.8 million for all of last year.

More than a decade ago, the price for maca was so low that farmers might not even bother to harvest it. However, the new competition is making it tough for established consumers, and many think there will be little or no maca available until next year's harvest begins around midyear. Even then, local growers say that some of next year's crop has already been bought by buyers from China.

Consumers are even feeling the pinch in the United States, where maca powder is often added to drinks or food. Now, however, the tight market is leading to worries about the next phase of this overheated market could be collapse, according to Chris Kilham, a consultant with Naturex, a French health and nutritional ingredients provider.

Mark Arment, owner of The Maca Team, a maca dealer in Maryville, Tenn., said consumers in the United States, Europe and Australia can expect to pay double for maca, compared with last year's prices. Arment says he sells up to 5,500 pounds of maca a month, but can no longer find any black maca. For red maca, he raised prices to $125 a pound in September, up from $84 a pound and expects them to rise further to about $159 a pound — a level some fear is unsustainable.

Peruvian maca exporters have been shocked by these market moves and some say they are wondering if they will be able to stay in business. "Of all the suppliers we had long-term contracts with, none of them complied this year. The contracts are dead," Carlo Paulet, managing director of Natural Peru, the largest exporter of maca from Peru told the Journal. He said the company expects to be able to buy about a third of the maca it wants this year.

So, what is the "maca lesson?" It seems unlikely that the demand for maca will be permanently damaged by the current shortages although they may stimulate some new competitors.

It seems rather to warn that the markets for both food and industrial products — including medicinals but also fuels and others –– can be enormously unstable and in need of basic market structures and regulations. And, these markets are still deeply subject to the basic cyclical nature of all agriculture, Washington Insider believes.

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(GH/CZ)

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