Washington Insider-- Monday

By DTN's Washington Insider

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

Talks Continue on Omnibus Spending and Tax Extenders

The need for another stopgap spending measure is not being ruled out as lawmakers from both political parties and White House officials offer various bundles of ideas to complete an omnibus spending package that may include tax incentive extenders. Democratic leaders have reportedly offered some language they want in a final package, some with a big price tag.

Some sources say the current push is on repealing the oil export ban, but Democratic members have insisted on several things before they agree. No final decisions have been made and thus there is no solid timeline on when text of a likely coming agreement will be made official.

House Minority Leader Nancy Pelosi, D-Calif., warned that Republicans should not attach a package of permanent and temporary tax breaks to the a government funding bill unless they can pass it without Democratic support. “I wouldn’t vote for it, and I wouldn’t recommend that anyone else vote for it,” she said of a potential combined measure. “So that’s not a way to keep government open, unless they have all the Republican votes to do it.”

The cost of the package, reportedly about $750 billion, has been a major concern among House Democrats who have argued permanent extensions of the tax breaks should be offset.

“Evidently the Republican deficit hawks are an endangered species now,” Pelosi said. “We’re adding hundreds of billions of dollars to the deficit permanently, and have you heard any of the deficit hawks speaking out against this action?”

Pelosi also said she believes Republicans can reach a deal on extenders that includes making some permanent, but that she won’t be involved in that agreement. “I’ve never been for it. I wasn’t for it before it had Big Oil in it. I think it’s far too expensive,” Pelosi said. The extenders package is still being negotiated.

House Democratic leaders say they are unlikely to go along with a broad deal making several of the tax breaks permanent. Pelosi wants to include language indexing the Child Tax Credit to inflation as part of the deal. With Republicans not going along, Pelosi says the extenders package disproportionately benefits business and she does not see much buy-in from House Democrats.

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Vilsack Urges More Earnest TTIP Negotiations

Disagreements over genetically modified organisms, geographical indications (GI) and other major issues must be addressed with the European Union under the Transatlantic Trade and Investment Partnership (TTIP) agreement if those negotiations have a chance of coming to agreement before the end of 2016, USDA Secretary Tom Vilsack said.

“I don’t think you’re going to have a TTIP agreement without agriculture being addressed and dealt with in a serious, comprehensive and substantive way,” Vilsack said after his visit to Brussels, noting that agriculture remains one of the major roadblocks in the negotiations. EU decisions, including allowing individual member states to independently regulate biotech products, make negotiating a bilateral agreement with the entire trade bloc more difficult.

Recent proposals from the EU to reduce tariffs on a number of products such as wild boar meat and goose wings, while welcomed, are seen as inconsequential to the overall deal as American’s typically aren’t interested in such products, Vilsack said. “There’s not a great demand for that in the U.S. – I’m sure it’s a delicacy somewhere,” he observed.

With regard to the EU’s patchwork of biotech regulations, Vilsack said “On the one hand, the EU basically says to us, ‘we would prefer to be treated as a single entity.’ If that’s truly what you want to do, then how do you jibe that with the member states now being able to make decisions about GMOs? That’s a problem for us.”

Vilsack highlighted recent agreements on beef sales as a potential model for how to approach the talks. The agreements are allowing Ireland to increase beef exports to the U.S., with the Netherlands and possibly Lithuania to soon follow suit.

Non-agricultural issues that are also outstanding include investor-state dispute settlement and procurement, which are likely to be resolved ahead of agricultural issues. Still, Vilsack is hopeful a deal can be reached, noting “We’re committed to a trade agreement that works for both sides – we understand that if a trade agreement only works for one side it’s not a successful agreement.”

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Washington Insider: DuPont-Dow Merger

Dow Chemical Co. and DuPont Co. plan to merge to form a $120 billion firm in terms of market capitalization that would reshape the US chemical and agricultural industries.

The new, combined company is estimated to have about $81 billion in total revenue, based on 2014 numbers, and a wide range of products. It also expects a number of efficiencies that would reduce overall costs by some $3-$4 billion. The new firm is planned to be split into three separate businesses 18 to 24 months after the merger closes, with each of the three companies publicly traded. One would focus on agriculture, another on material sciences and a third on specialty products in nutrition and electronics.

The announcement sent shock-waves through U.S. industry since it ends the independence of two of the oldest U.S. corporations: DuPont, founded in 1802, and Dow, started in 1897. Both have been hammered recently by sinking commodity prices and a strengthening U.S. dollar that weakened revenues. And each has sought separately in recent years to reinvent itself by entering more-profitable product markets in response to investor agitations for faster, bolder moves.

Executives are trying to sell the deal as a merger of equals, the Wall Street Journal says, and that the resulting trio of companies would be bigger and more focused, and therefore better able to navigate current challenges. They also emphasized that the combination and restructuring would avoid taxes, adding to the benefit for shareholders.

The company will be called DowDuPont and will have dual headquarters in Midland, Mich., and Wilmington, Del. The leadership and location of the three eventual companies hasn’t been decided.

A key question is what impact the merger will have on agriculture. Some farm groups have already expressed their concerns that consolidation among the current six global companies that sell crop seeds and pesticides would leave the industry far too powerful. For example, the new company would sell about 41% of U.S. corn seeds and related genetics. U.S. producers have always been suspicious of the motives of large agribusiness firms, and this merger can be expected to inflame those concerns.

So, it was no surprise that the National Farmers Union has already complained that having just five major players “would almost certainly increase the pressure for remaining companies to merge, resulting in even less competition, reduced innovation and likely higher costs for farmers.”

“It’s time for federal regulators to remember that bigger isn’t always better and that the economic power of our nation was built on the concept of having many players in the marketplace competing for customers and driving innovation,” said the NFU’s president, Roger Johnson.

The National Corn Growers Association took a more measured approach. It told the Journal that it will study the merger’s likely impact on agricultural research, grain pricing, and the cost of seeds and pesticides, and “will do all we can to protect farmer interests and preserve an open and competitive marketplace.”

Senate Judiciary Committee Chairman Chuck Grassley, a Republican from the Farm Belt state of Iowa said the merger “deserves serious scrutiny. Antitrust specialists also expect the deal to face close examination, the Journal notes. But Dow and DuPont executives say they didn’t anticipate big hurdles. Company officials told the press that the companies plan to divest only minor pieces of their businesses “but nothing that would move the needle,” and that planned cost reductions wouldn’t “hobble” the companies’ research capabilities.

The announcements, however, are expected to include major job cuts. DuPont said on Dec. 11 that even before the merger, it plans to cut about 10% of its global workforce. Further reductions are likely as the combined company streamlines ahead of its planned breakup.

The merger, if it passes legal muster, would be one of the largest in a year marked by big deals. So far, companies have struck some $4.4 trillion of takeovers in 2015, eclipsing 2007 as the top year on record for deals, the Journal said.

The merger is interesting because it is so large, and because it affects the agri-business technology sector which already is extremely controversial in many quarters. It also is interesting because the companies justify their plans in part because of the need to cope with recent market and revenue weakness, arguments that many of their farmer customers dispute.

The combination of the politicization of the Congress and the approaching elections can be expected to intensify the coming reviews of the proposed merger and its potential impacts. Additionally, USDA should put its large staff of economists to work evaluating the new organization in the hopes of cutting through some of the fog of this coming debate, Washington Insider believes.

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(GH/CZ)

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