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.

NERA: RFS Mandates Will Cause Economic Harm

The US government’s proposal for biofuels will hit consumers at the pump, according to a study prepared for an oil group, just months after EPA refuted similar claims and as pressure mounts ahead of a deadline to finalize the plan. The targeted volumes of ethanol use for 2015 and 2016 are impossible to achieve and will cause “severe economic harm,” said National Economic Research Associates (NERA) in a study commissioned by the American Petroleum Institute on the potential costs of the Environmental Protection Agency proposal due to be finalized by November 30.

“We urge EPA to reduce the total renewable fuels volume requirement and waive the cellulosic ethanol requirement for 2014, 2015 and 2016,” Bob Greco, API downstream group director, said in a conference call. The oil and gas industry group wants Congress to repeal or make significant changes to the RFS, but “we understand that will take time,” he said. Congressional sources give very low odds the RFS will be repealed, and low odds for any changes.

The report said that the blending mandates set by law in 2007 would require 30% more compliance credits or RINs (renewable identification numbers) than were generated last year. This would force refiners to cut production as one way to comply with the law, the study by NERA Economic Consulting said, adding that a 30% reduction in gasoline and diesel production would result in additional costs of $90 and $100 per gallon of fuel, respective as a result of ripple effects in economy caused by higher transportation costs.

The biofuels industry said the study was flawed. Bob Dinneen, president and chief executive officer of the Renewable Fuels Association (RFA), said in a statement that the study was “virtually identical” to one that NERA put out for API in 2012. “The 2012 study claimed the fuel market would be pushed into a death spiral by the RFS, and that the program would cause 2015 GDP to fall by a whopping $770 billion. The 2012 study also ridiculously suggested that, in response to implementation of the RFS, diesel fuel supplies would fall by 15%, resulting in a 300% increase in diesel fuel prices and a 30% increase in gasoline prices. API was wrong in 2012, and it’s wrong in 2015,” he said. The report reaches its conclusions by assuming that the EPA would never use its cellulosic waiver authority to reduce the advanced and total RFS volume requirements and that there would be no infrastructure investments to expand renewable fuel distribution, Dinneen said.

Tom Buis, chief executive officer of Growth Energy, also responded. In a statement, Buis said: “While API and its allies attempt to keep America hooked on dirty and dangerous foreign oil, consumers are paying the price. Americans deserve market access to renewable fuel, and a cleaner, less expensive choice at the pump.” Buis said that ethanol blends reduce greenhouse gas emissions and other air pollutants, and that 84% of cars today are approved to use E15.

***

NFGA: Congress Should Pass Safe Trucking Act

Allowing states to increase truck weight limits on federal highways is one of the benefits that would come from approval of the Safe, Flexible, and Efficient Trucking Act introduced today by Rep. Reid Ribble, R-Wis., according to the National Grain and Feed Association (NGFA) which backs the measure.

States could increase truck weight limits on Interstate System highways within their borders to 91,000 pounds as long as those trucks are equipped with an additional sixth axle. The federal weight limit for Interstate highways has been set at 80,000 pounds since 1982.

“Federal highway truck weight limits currently are lower than most state road weight limits, and this inconsistency presents obstacles to efficient movement of US grains,” said NGFA Director of Economics and Government Relations Max Fisher. “Congressman Ribble’s bill would improve this situation, taking better advantage of our Interstate highway system infrastructure while still protecting highway safety.”

The Safe, Flexible, and Efficient Trucking Act would allow trucks to carry an additional 11,000 pounds of weight on federal highways while adhering to US Department of Transportation safety guidelines.

NGFA said it would welcome the inclusion of Ribble’s legislation in multi-year surface transportation legislation. Funding for surface transportation projects expires at the end of October.

***

Washington Insider: McDonalds to Phase Out Caged-Layer Egg Use

McDonalds is attracting significant coverage in the urban press this week for its move to begin phasing out use of eggs from caged layers. For example, the New York Times said on Thursday that the decision “has significant implications for American and Canadian egg producers,” and went to some lengths to describe potential impacts.

As everyone knows, the company is huge and buys more than two billion shell and liquid eggs annually--a little more than 4% of the 43.56 billion eggs produced in the United States last year. That amount likely is growing, the Times said, because it plans to sell some breakfast items all day long.

At the same time, the change may be implemented fairly slowly so as not to overwhelm the supply. Less than 10% of the nation’s laying hens are now “cage free,” McDonalds says, so it will be several years before it will rely completely on cage free systems.

In fact, the supply chain is already under price pressure from a combination growing demand for cage free eggs at the same time a deadly avian flu has killed millions of laying hens. According to the United Egg Producers, shell egg production was down 9% in June compared with year-earlier.

The Times notes that McDonald’s rival Burger King was one of the first major fast-food chains to pledge to use cage-free eggs, with a conversion target of 2017. Companies like Unilever, General Mills and Sara Lee say they are working to use such eggs exclusively and that trend is testing the flexibility of suppliers across the country. The Compass Group, Sodexo and Aramark, three large food service suppliers that the Humane Society of the United States estimates buys roughly one billion eggs a year in total, also have said they will use only cage-free eggs. And this year, Walmart established new guidelines for suppliers that, among other things, indicated it would show preference to those using cage-free hen housing.

The egg supply chain also has been rattled by new production rules for eggs in California that required more space per hen by the beginning of this year. Analysts thought that would boost egg prices significantly, but producers say those impacts have been disguised by retailer “gouging” with “big markups” on cage-free eggs that distort the actual increase in production costs.

Marion Gross, senior vice president for supply chain management at McDonald’s, did not indicate concerns industry performance and says she expects that industry responses will help bring down the price of cage-free eggs. USDA notes that some of the facilities closed by the avian flu epidemic are being converted to cage-free operations.

Now, activists are eagerly suggesting that McDonald’s announcement “effectively ends any debate that there may have been over whether cages have a future in the industry,” said Paul Shapiro, vice president for farm animal protection at the Humane Society of the United States. He said the move would affect about eight million laying hens.

The Times says that Herbruck’s Poultry Ranch, a large egg producer in Michigan, will be the first major egg producer to convert its barns to supply McDonald’s. The firm was already in the process of changing the housing for its hens to comply with an animal welfare law passed in Michigan in 2009.

The Times also notes that cage-free does not mean hens have outdoor access. Rather, they are free to move around barns outfitted with platforms, tiers and nesting spaces instead of being confined to cages. It cites Ms. Goss as saying that “this is truly a move from conventional housing to more enriched housing systems. There are no cages in these systems — it will be a significant change.” That seems certainly to be the case, and it remains to be seen what the cost impacts will turn out to be.

The image of hens in small cages has been a problem for the industry for some time but the cost of large scale, little-tested changes has been a severe impediment to change. Now that very large users are demanding changes, they are likely to appear—possibly more rapidly than the industry might prefer—a trend producers should watch carefully as it emerges, Washington Insider believes.

---

Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN’s Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the U.S. Ag Policy, U.S. Farm Bill and DTN Ag News sections on their News Homepage.

If you have questions for DTN Washington Insider, please email edit@telventdtn.com

(GH/CZ)

Copyright 2015 DTN/The Progressive Farmer. All rights reserved.