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.

Ryan Remains Eager to Reform U.S. Tax Code

Efforts to revise the U.S. tax code could advance at a "pretty aggressive" pace this year, according to new House Ways and Means Committee Chairman Paul Ryan, R-Wis. However, Ryan told reporters he is not certain that the White House shares his enthusiasm for tackling what will be a massive and complex undertaking, both economically and politically.

Earlier this week, President Obama told congressional leaders who met with him at the White House that they have a mutual opportunity to work together on simplifying the tax system and make sure everybody pays his or her fair share. But Ryan said that he knew of no meetings scheduled between congressional staff and administration officials on any tax proposals Obama might outline in his upcoming State of the Union address next Tuesday.

House Ways and Means panel members are expected to focus on tax reform issues when they go on a retreat next week. At least the GOP members are expected to do so. Committee Democrats were not invited to the retreat, but their input may be sought at some future point.

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U.S. Needs to Export Oil in Order to Boost Energy Industry

Congress should repeal the ban on crude oil exports as a way of preventing the growing volume of shale oil from creating a domestic crude surplus that will discourage oil production, ConocoPhillips CEO Ryan Lance said this week at a Washington symposium sponsored by the bipartisan nonprofit Center for Strategic and International Studies. Republicans in Congress have advocated an end to the crude export ban, but it remains to be seen whether the Obama administration can be persuaded to go along with the proposal.

Relatively low prices for crude oil and natural gas are reducing the amount of money available for investment in production, Lance acknowledged. But he also noted that volumes of U.S. crude and gas nevertheless can be expected to grow through this year and next because of investments made over the last several years.

Lance said any crude oil exports would involve surplus volumes, not the amounts needed by domestic refineries. If the administration approves the Keystone XL Pipeline that will carry tar sands oil from Canada to U.S. refineries, some believe the current glut of surplus oil could become significantly larger.

Others question whether exporting surplus oil to raise oil prices to attract more investment in oil production to produce more oil is the best possible national energy policy.

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Washington Insider: The Chipotle Decision on Sustainable Meat

The Chipotle restaurant chain bought itself a lot of publicity this week with its decision to stop serving pork at a third of its restaurants, some 600 establishments countrywide. The reason, the firm told the press, was that an audit found that one of its suppliers was violating its animal welfare standards. The firm's focus on animal welfare and the environment attracted the attention of the Washington Post this week, which commented on the firm and its strategies.

The non-answer to the question of what caused the pullback of Chipotle's pork products generated even more publicity as the week went on and reporters speculated widely that it must have been a big operation because the effect was so large. Chris Arnold, the company's communications director, told the press, "this is fundamentally an animal welfare decision and it's rooted in our unwillingness to compromise our standards where animal welfare is concerned."

Chipotle says it only learned of the standards breach while auditing the supplier's operations during a routine check. It's not clear how long Chipotle was serving meat from a supplier whose practices it doesn't condone, nor how long it will be before Chipotle is able to replace that supply.

Chipotle's core mission, it told the Post, is selling "food with integrity" which centers on what the company calls respect for all participants in the supply chain, including animals, farmers and the environment. As a result, the company works to cut its carbon footprint, carefully choose its farmers, source its ingredients locally where it can, and works with farmers like Niman Ranch Pork Company, which has long focused on humane animal practices.

The company also has a somewhat unusual pricing policy, it told the Post. Rather than focus on competitive prices Chipotle has thrived by putting "sustainability" first. It claims unparalleled success from following the belief that "people are willing to pay a bit more for that promise." Chipotle's growth speaks for itself, the Post says, but it also wonders whether the company will be able to scale up an operation based on a promise of selling "food with integrity."

In 2013, the company was forced to turn to "conventionally raised beef," after it became clear that there was no longer enough antibiotic and hormone free beef to go around. "We just need more (and it isn't there)," Arnold lamented to Businessweek at the time. The reason Chipotle is willing to serve conventionally raised beef and not conventionally raised pork is that the latter, according to Arnold, "compromises animal welfare in a way the former doesn't." Critics suggest that perhaps the gestation crate standard is easier to apply.

Given these stark differences, Arnold claims, "serving pork from conventionally raised pigs is not an option to us," he said. "We would rather not serve pork at all, than serve pork from animals that are raised in this way."

However, the Post suggests that pulling pork from almost 600 restaurants indefinitely "is almost certain to cost Chipotle a lot of money. And it may not be a decision Chipotle can keep making, especially if "it wants to serve more burritos to more people, and still include pork as an ingredient," the Post argues.

The Post then turns to Paul Shapiro, vice president of farm animal protection for The Humane Society of the United States, who told the Associated Press last week that farms that raise pigs outside of gestation crates still represent a "very small portion of the pork industry." To the Post, this suggests that the supply of the kind of pork Chipotle wants is quite limited — and, could undercut the company's objective of capturing a very large portion of the American fast food industry. "Those two realities could eventually prove untenable, because at the moment, they simply don't add up," the Post says.

However, it probably is a waste of time for the Post to worry about Chipotle's future. The firm says it offers some special services and selections that appeal to its upscale consumers and that they are willing to pay for, in addition to the animal welfare image. And, to the extent that is true, the offer of somewhat higher prices to suppliers may well serve as a kind of magical fertilizer that will help increase supplies.

Probably the most significant concern about Chipotle's brand management is whether they challenge the patience of their customers with prices above those of competitors with equal or almost equal quality. That is their business specialty and so far they have gauged this market very well, so well that it is a surprise that the Post is expressing concerns for their future.

And, who knows, it may be that Chipotle knows how to find more pork that meets their standards than the Humane Society knows about, Washington Insider suspects.

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(GH/CZ)

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