Washington Insider -- Friday

Tough Year for Egg Producers

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

EPA Proposes CWA Discharge Permit for Pesticide Spraying

A new general Clean Water Act National Pollutant Discharge Elimination System (NPDES) permit for spraying pesticide on or near waters, once finalized, will replace the current five year-permit when it expires Oct. 31. The permit was proposed Jan. 26 by the Environmental Protection Agency, according to a notice published in the Federal Register.

The permit drafted by the EPA comes with the same conditions and requirements as the 2011 NPDES it will succeed. The permit requirement is effective in Idaho, Massachusetts, New Hampshire, New Mexico, Washington, D.C., U.S. territories except the Virgin Islands, all Indian lands except Maine, and at federal facilities in Delaware, Vermont, Colorado and Washington.

In the rest of the United States, states are free to adopt the general pesticide permit in final form from the EPA, or change it to meet their own needs. The EPA permit will apply to over 365,000 pesticide users across the country, and are intended to protect aquatic life which can be harmed by residual biological and chemical pesticides that make their way into waterways.

The EPA will seek comments on costs incurred by permit holders, but expects the burden to be minimal through March 11.

Legislation proposed in the House and Senate to ban this particular NPDES permit has the support of Republicans and some Democrats. In the Senate, the Senate Environment and Public Works Committee approved the Sensible Environmental Protection Act of 2015, which is awaiting full Senate consideration. A similar measure in the House, the Reducing Regulatory Burdens Act has been approved by the Agriculture Committee but is awaiting consideration by the Transportation and Infrastructure Committee which oversees EPA’s Clean Water Act programs.


US Ag Output Growth Driven By Productivity Gains

Rising U.S. agricultural total factor productivity (TFP) was seen between 1948 and 2013, as total agricultural output rose, while total agricultural inputs remained relatively flat, the Economic Research Service (ERS) reported.

TFP measures the difference between the aggregate total output of crop and livestock commodities relative to the total use of land, capital and material inputs. Growing TFP is indicative of efficiency gains due to new technology and improved management of farm resources.

U.S. farm sector output grew 170% between 1948 and 2013, while total farm inputs held steady during the same period, the gains resulted in a concurrent increase in TFP. Though inputs in the aggregate were mostly unchanged, but the composition of inputs has changed dramatically.

Labor use declined by 78% and land use dropped by 26% between 1948 and 2013, while the use of intermediate goods such as energy, chemicals and feed increased over the same period. Innovations in animal and crop genetics, chemicals, equipment and farm resource organization have been the primary driver of long-term agricultural productivity gains.


Washington Insider: Tough Year for Egg Producers

You might not have noticed, but 2015 was a difficult year for the U.S. egg industry. Food Safety News (FSN) reported this week and prospects for 2016 don’t seem much better. Attendees at the annual International Poultry Expo told FSN that typically sedate discussions about egg prices and a few other issues are being pushed aside by the avian influenza disaster and new production rules. “Before 2015 ended, 211 commercial flocks and 21 backyard flocks were infected with avian flu. Almost 50 million birds, including thousands upon thousands of laying hens, had to be destroyed,” FSN reported.

Already, earlier this month, a commercial turkey flock in Dubois County, Ind., was condemned for the presence of highly pathogenic H7N8 influenza. In responding to the new infections, state and federal officials said they were reviewing biosecurity practices for all flocks, including those in residential backyards.

The viruses involved in bird flu have not caused any human illnesses, but the rapid spread that occurs in poultry requires “an immediate depopulation.” What this means is the birds are killed as rapidly as possible, FSN says.

The depopulation policy caused a spike in national prices, but it was not the only cause of last year’s price instability, according the FSN. In California, consumers paid about $2.00 more per dozen than national prices, largely the result of California’s new cage-free requirement which largely cut the State off from the national supply of eggs even before the Bird Flu epidemic, which had minimum impacts there.

As a result, the United States shifted from being a net exporter to being a net importer of eggs as supplies declined, FSN said. So, this year the industry is watching closely the impacts of its new “social rules,” as well as disease threats and market imbalances—still a pressing concern since it appears that the demand for “cage-free” eggs is still far from satisfied. Only about 4.5% of the laying hens in the U.S. are kept in housing systems considered “cage-free,” USDA says, a share that has grown from 2.8% a year earlier but which is expected to grow much more in the future.

A clear indication of potential future shifts is the fact that many retail chains continue to promise to offer only “cage-free” eggs--but only at some future date.

Most eggs in the U.S. are produced in so-called battery cage systems that collect and remove eggs automatically. Animal activists claim such cages are inhumane because allow laying hens little opportunity for movement. However, many industry experts continue to argue that uncaged chickens tend to fight over the “pecking order” and cause increased stress in the flock.

“More chickens together, such as in a cage-free system, means more pecking and those chickens lower on the pecking order are being pecked the most,” explains Ken Klippen, president of the National Association of Egg Farmers. “That explains why cage-free systems often times have three times more chicken deaths than the modern conventional cages.” “An increase in deaths is hardly better welfare,” Klippen told FSN.

Promises to purchase cage-free eggs in the future are seen by some poultry producers as “simply a marketing device, often made in concert with the Humane Society of the United States in order to get covered as news,” FNS says. The practice is widespread by a large number of well-known firms. Some are promising to deliver a little sooner, like the year 2020 but for many, conversion is still in the future.

Increases in specialty egg demand are widely expected to stimulate new supply, but so far egg producers have been reluctant to toss their battery cages, FSN says. Replacing battery cages with another housing system – such as “enriched colony cages” to give the chickens more room to move around – is a capital investment that can run into millions of dollars for a mid-sized operation.

It appears that the expected shift to cage free eggs has a long ways to go yet, and that the conversion is being clouded by both disease problems and high market volatility. Distant promises by large retailers to go to “cage free only” systems, “but not just yet” and the high short run volatility likely will continue to make new investment difficult – a trend producers should watch carefully as it emerges, Washington Insider believes.

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