Washington Insider -- Friday

Wall Street Journal on Subsidized Peanuts

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

USDA Cuts FY 16 Export, Import Forecasts

U.S. ag exports are now forecast for Fiscal 2016 at $124.5 billion with imports slashed to a still-record $114.8 billion to boost the forecast U.S. ag trade surplus to $9.7 billion, USDA said in its updated Outlook for US Ag Exports.

In February, USDA had forecast ag exports at $125 billion against imports of $118.5 billion for a surplus of $6.5 billion.

On the export side, USDA raised their outlook for grain and feed exports to $27.7 billion, up $500 million from February on "larger wheat and corn volumes and higher unit values for corn and sorghum."

USDA also increased oilseed and product exports to $26.1 billion, a $700 million increase. But those increases were more than offset by a $100 million reduction for cotton exports; livestock, poultry and dairy also are projected down $300 million; and the biggest decline is a $1.2 billion reduction in horticultural product exports.

On the horticultural products, USDA noted, "This is the second consecutive quarter-to-quarter downward revision and the total would be the first year-over-year decline since Fiscal 2009. This reduction is mainly due to sharply lower unit prices of pistachios and walnuts, as well as reduced almond shipments to the EU and China."

As for imports, USDA cut the outlook $3.7 billion, to $114.8 billion, "mostly from a decline in tropical products."

US-Cuba Ag Group MOU Hailed by ASA

The signing of a memorandum of understanding May 26 between the US Agriculture Coalition for Cuba and Cuba’s Grupo Empresarial Agricola formalized an effort between the two nation’s farm and food industries to re-establish the Cuban marketplace for US food and agricultural products.

The agreement calls for regular meetings between the U.S. coalition and the Cuban ag group to ensure that the relationship between both countries' industries is mutually productive and beneficial.

"Our Cuban partners represent a great deal of promise for the American soybean industry," said American Soybean Association (ASA) Vice President and Roseville, Ill., farmer Ron Moore, currently with the coalition in Havana interacting with Cuban farmers. The agreement "will help to ensure both American producers and Cuban buyers have what they need as our relationship continues to grow together."

ASA supports policies to normalize relations with Cuba, including lifting the current embargo. "So much has changed since the era in which the Cuban embargo was put in place. Since 1961, our countries have evolved," Moore said.

Washington Insider: Wall Street Journal on Subsidized Peanuts

It is fairly interesting that some major urban dailies have gone to such great lengths as they have to criticize the U.S. peanut program and especially the USDA donations to Haiti. Earlier, the Washington Post weighed in and now the Wall Street Journal has taken aim at the program. For example, WSJ carried an OpEd by James Bovard, who has a long history of criticism of farm programs. Bovard says the program is as “shameful as they come.” He has some details.

Bovard says the United States has paid for a million pounds of peanuts it can’t use and wants to give them to Haiti, “causing a disaster for its farmers.” He points to a letter to USDA and USAID from a large number of donor organizations warning that this donation “could potentially set off a series of devastating consequences.”

Haiti has about 150,000 peanut farmers. The industry is “a huge source of livelihood” for up to 500,000 people, Claire Gilbert of Grassroots International told NPR, “especially women, if you include the supply chains that process the peanuts.” One of the leaders of Haiti’s largest rural organization, the Peasant Movement of Papaye, denounced the peanut donation as “a plan of death” for the country’s farmers.

That may sound histrionic, Bovard opines, but "American aid has a sordid record." He has 1979 testimony from "a development consultant" as proof, and asks rhetorically, why couldn’t these peanuts have a similar effect? "USDA has not done any market analysis in Haiti," Raymond Offenheiser, the president of Oxfam America, recently wrote in the Hill newspaper. USDA disputes that statement and claims that local peanut supplies could not meet local needs.

The real culprits here, Bovard says, are federal peanut programs with an almost 80-year record as one of Washington's most flagrant boondoggles. Subsidies have encouraged farmers to overproduce and then dump surplus peanuts on the USDA, which winds up stuck with hundreds of millions of pounds.

“That food has to go somewhere,” he thinks, and the department sees Haiti as the ticket. Food-aid policies have long been driven not by altruism, but by bureaucratic desperation to dispose of the evidence of failed farm policies.

When the U.S. peanut program was launched in the 1930s, the federal government gave licenses to grow the legumes and outlawed others from planting them. Investors wound up purchasing many of the licenses and renting them back to growers. Congress ended the peanut licensing scheme in 2002 with a $4 billion buyout that provided a windfall to license-holders.

Then, Congress created a new peanut program and effectively permitted a grower to collect twice as much in federal subsidies as other farmers ($125,000 for peanuts and another $125,000 for other crops), Bovard says. The 2014 Farm Bill guaranteed peanut farmers high prices, which is why they boosted production by more than 20% last year, even as the value per pound has plunged.

He asserts that the cost of peanut subsidies is predicted to rise 10-fold between 2015 and next year, reaching $870 million—which approaches the total farm value of the whole US peanut crop itself. The USDA expects to spend up to $50 million a year to store and handle surplus peanuts, and industry experts are warning that federally-licensed warehouses might not have enough space to hold the next crop.

The Haiti hubbub is simply the latest episode in a long history of peanut insanity in Washington, Bovard says. As long as congressmen can reap votes and campaign contributions from wrecking markets here and abroad, American goober policy will continue to be totally nuts.

Well, it is clear that Bovard enjoys his criticism, and that the programs have provided incentives for surpluses. And, it is clear that USDA and the Congress have a problem explaining this program to the public, especially given its history. A government stocks surplus is always expensive; always difficult for both the industry and the government; and a clumsy aid program tends to make it worse. USDA and the Congress need to pay attention quickly to this out of control program that gives every evidence of being both wasteful and embarrassing, Washington Insider believes.

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