Washington Insider-- Tuesday

Trade and Reality

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

RFA Head: Next President Will Be Fine For Biofuel Industry

The next president – whether Donald Trump, or Democratic front-runner Hillary Clinton would be fine for the biofuel industry, said Bob Dinneen, president of the Renewable Fuels Association (RFA).

The elections are major topic for the makers of corn-based ethanol, because in 2022 annual biofuel targets disappear from federal law – putting the future of the Renewable Fuel Standard (RFS) entirely in the hands of EPA.

Some congressional Republicans are moving to rewrite or repeal the RFS mandates, but the votes are not in place for major changes, if any. Both Trump and Clinton advocated for ethanol while campaigning in the Corn Belt. "Trump – he's all about America; he wants American energy," Dinneen said. "I don't suspect he's going to be negative toward fracking or deep-water drilling." And while "you don't have guarantees with any politician," that should be the same for homegrown ethanol, he said.

The RFS featured prominently in a Bloomberg interview with Rep. Joe Barton, R-Texas, chairman of the House Energy and Commerce Committee. Barton was asked whether or not he would take any action on the Renewable Fuel Standard (RFS). His response, according to Bloomberg: “I think we’d have to try. You can make an argument to repeal it, and you can certainly make an argument to reform it.”

Barton went on to say “It’s not enforceable in its current configuration. The mandates, the volumetric mandates, are too high. So at a minimum you ought to ratchet down the formula. You could repeal it, and you’d still have a huge ethanol volume in this country.

“The reasons for which the RFS was initially established are no longer there,” Barton asserted, but said that ultimately “whether it’s worth the political fight to try to repeal it. That would be a policy decision that the Speaker and the Majority Leader of the Senate would have to make. So I could either go to reform it or repeal it.”


ERS: Little Correlation Between Field Crop and Food Prices

U.S. ag commodity prices, particularly field crops, are far more volatile than restaurant and grocery store food prices, according to the Economic Research Service (ERS).

The prices for major field crops, corn, wheat and soybeans, fluctuated widely from year to year, between 1992 and 2015. Prices for those crops fell as much as 26.2% in 2013, and rose as much as 38% in 1995 and 2007.

Food price inflation averaged just 2.5% year over year during the 1992 to 2015 period. Food prices not only reflect the raw material costs involved in production, such as those for field crops, but also include processing, marketing and retailing costs. As a result, food prices are more stable over time than prices seen for the field crops themselves.

In 2014, the farmgate price of all food commodities, including crops and livestock, was 14.5 cents of each consumer dollar spent on food and beverages

Washington Insider: Trade and Reality

While criticism of trade and trade deals has become a prominent feature of the primary campaigns for both parties, there now seems to be an increasing pushback from a variety of economists and analysts of several persuasions. Overall, these seem to say that the job numbers concerning trade are very misleading and need reexamination.

Most of the anti-trade clamor has concerned manufacturing jobs, rather than agriculture where the importance of trade seems much clearer—and, quite dramatic. For example, USDA’s outlook estimates of value of ag production for 2016 is expected to be $417.3 billion. Ag exports are now expected to be $125 billion, with a trade surplus of $6.5 billion—a figure that will be updated in late May.

What those numbers don’t say is that while trade adds some 30% to the value of U.S. ag production value, this now takes place in markets with a variety of constraints, including many high tariffs, among other barriers. For agriculture, opening those markets wider means market growth and a potential boost in revenues.

Still, the bitter political argument that is often made against trade and trade negotiations in general often reflects declines in manufacturing jobs. Turns out that a growing and fact-based argument is being made in the urban daily press that such assertions do not, in fact, indict trade.

For example, the Minneapolis Star Tribune published an OpEd by Michael Hicis, Econ and Business Prof at Ball State in Muncie, Indiana, who says that the political theme that trade has wrecked the manufacturing sector is simply not true.

No matter how you measure it, Hicks says, last year was “the record year for manufacturing production in the U.S.”

He says there is no ambiguity about these figures. By any available metric, we are setting records for manufacturing production, but doing it with fewer workers. Today, the typical factory worker makes twice as much “stuff” in an hour as he or she did in 1977, Hicks says.

That means that productivity has boosted output fast enough to pull job numbers down, but that overall, we haven’t lost jobs but have changed their profile.

Manufacturing job numbers in the Great Lakes Census region are down about 7.5 million since the 1977 peak nationwide. “Without our trade deficit we might have some 1.5 million more jobs across the nation,” Hicks says. “But, all of the other 6 million or so lost manufacturing jobs are due to mechanization, better technology and better production practices.”

For every manufacturing job lost to trade, nearly nine have been lost to machines. But trade also creates jobs. For example, we have 7 million more transportation and logistics jobs alone, likely attributable to trade growth since the 1970s, he says.

He summarizes; for every manufacturing job lost since the 1970s, we have created 10 jobs elsewhere. And for every job lost to trade we have created 100 more jobs elsewhere. “It isn’t blue-collar workers in Juarez or Beijing who have stolen factory jobs. It is folks with master’s degrees in robotics working in Palo Alto, Calif., who have caused those employment shifts.

So, although the political anti-trade argument continues to be intense, bipartisan support for ratification of the Trans-Pacific Partnership this year seems to be growing “since it would mean strong economic benefits” House Ways and Means Committee Rep. Kevin Brady, R-Texas, told Bloomberg Government.

Trade groups also are suggesting these remaining pressure points can be fixed, Bloomberg reports. These could be addressed via side letters “clarifying parts of the agreement” and by the administration’s statement of administrative action that will accompany the TPP implementing legislation, Vice President for Regional Trade Initiatives at the National Foreign Trade Council, Charles Dittrich told the press.

Clearly, the final steps in the ratification process will to difficult, and could well be delayed given the intensity of the political fights underway. However, the negative characterizations that seemed for some time to overwhelm the process may have begun to turn as the factual basis of the issues are emphasized more and powerful economic stakeholders weigh in. This battle has a long ways to go, still. It is important to producers and should be watched carefully as it proceeds, Washington Insider believes.

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