Washington Insider -- Wednesday

Britain and the EU

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

Sen Grassley Wants DOJ Anti-Trust Look at Dow-DuPont Deal

The proposed merger or Dow Chemical and DuPont should be the subject of a "careful analysis" by the Department of Justice (DOJ) to make sure the plan will not harm competition for US agriculture, according to Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa.

"The proposed transaction, with a value estimated at $130 billion, would result in the largest biotechnology and seed firm in the United States," Grassley said. "I am concerned that this transaction will decrease the competition in an agriculture sector that has already been subject to a number of waves of consolidation in recent years."

While expressing concern over impacts to possible entries into the market by smaller companies, Grassley said, " I also am concerned that the proposed transaction could adversely impact choice and price of products for farmers and consumers."

Grassley cited several other concerns that he has heard relative to the proposed deal, including that it will alter input markets, vertically integrate traits, seed and chemicals as well as other issues. "I also have heard concerns that the merger will reduce cultivation, chemical and seed choices for farmers, as well as raise prices for them – which ultimately will impact consumers and the food system. Further, I have heard concerns that the proposed merger could curtail critical research and development initiatives which are a significant driver for innovation in the industry."

Given those issues, Grassley said, "I urge the Antitrust Division to conduct a careful analysis of this proposed transaction to ensure that a competitive market in the agricultural biotechnology and seed industry is not impacted in an adverse way, considering the current backdrop of proposed mergers (ChemChina and Syngenta AG) and merger discussions (Monsanto Co. and Bayer AG)."

Spain's Abengoa Seeks to Sell U.S. Ethanol Plants

Permission to sell four U.S. ethanol plants is being sought by Spanish renewable energy company Abengoa SA in the U.S. Bankruptcy Court in St. Louis, with the company saying it has lined up $350 million in bids for the plants located across the Midwest.

Plants in Mount Vernon, Indiana; Madison, Illinois; Ravenna and York, Nebraska, are ones Abengoa’s U.S. affiliates are seeking permission to auction. If granted, the auctions could occur as soon as August.

Abengoa, of Seville, Spain, is a clean energy company, and is currently in bankruptcy restructuring negotiations, in both the U.S. and Spain. The firm is looking to divest non-core assets, including the U.S. ethanol plants. Green Plains Inc. of Omaha, Neb., offered $200 million in cash for the Mount Vernon and Madison plants, according to court filings.

Green Plains Inc. is the fourth-biggest U.S. ethanol producer and is seeking the plants that have an annual capacity of about 180 million gallons of ethanol. The Green Plains accord is a so-called stalking horse bid, and if the company is not successful in acquiring the assets, Abengoa must pay it a breakup fee of $2.5 million per plant plus reimbursement of expenses of as much as to $500,000.

An affiliate of KAAPA Ethanol LLC of Minden, Neb., bid $115 million in cash for the Ravenna plant, and BioUrja Trading LLC of Houston offered $35 million in cash for the York plant. Both plants had been idled since late last year due to cash flow issues, but Abengoa's bankruptcy filing allowed the plants to obtain financing and restart operations. The cash purchase prices listed in court filings are subject to adjustments, and also include various liabilities.

If the sales are allowed proceed, they would be overseen by the bankruptcy court. In the court documents, Abenoga's affiliates proposed an Aug. 18 bid deadline, an Aug. 22 auction and an Aug. 25 hearing for the court to review the winning bids.

Washington Insider: Britain and the EU

Believe it or not, a geopolitical issue is attracting more attention than the U.S. budget in the global press just now, and that is the prospect that the UK will vote to leave the European Union (EU). This week, Bloomberg is reporting that the WTO estimates of the cost of such a move are high, but no one is really sure how high. Still, the political pressure for withdrawal seems intense and possibly growing.

United Kingdom voters are set to vote on June 23 whether to leave 28-country trading bloc, and that does not appear to be good news for trade, a WTO official told Bloomberg. He thinks that the UK's trade environment is “likely to suffer following an exit from the European Union, and British exporters may be subject to an additional $8.17 billion in annual export duties,” WTO Director-General Roberto Azevedo said of the June 23 referendum vote.

This implies that it would cost more for the UK to trade with its current markets, “therefore damaging the competitiveness of UK companies,” Bloomberg reported that Azevedo told the recent World Trade Symposium in London.

Azevedo's comments follow recent warnings from the heads of the International Monetary Fund and Organization for Economic Cooperation and Development, who all say that a British exit from the EU would have a negative economic impact on the UK. British advocates for leaving argue that they could negotiate more preferential trade agreements with countries such as the U.S., Canada and Japan if they are no longer held back by demands from the EU's other 27 member countries.

President Barack Obama recently countered that a successful exit vote would push any future US-UK trade deals to the “back of the queue.”

Bloomberg concludes that voting for the UK's exit from the EU could potentially jeopardize Britain's preferential trade relationships with the EU and with the 58 other countries that the EU has free trade agreements with, Azevedo said. "In the event of a British exit, all of these relationships would need to be re-established to maintain the same preferential access the UK now enjoys via the EU,” he said. “This would probably entail negotiations.”

In addition, Azevedo said the UK would forfeit many of its existing trade-related protections regarding the free movement of people or competitive protections for UK public utilities, for example. In fact, UK trade officials would have to renegotiate many of its WTO trade commitments with the organization's other members if the country leaves the EU, Azevedo said.

“There is no precedent” for such a move, and it could take many years of complex negotiations to normalize the UK's trading relationships with other countries, he said. “Negotiations merely to adjust members' existing terms have often taken several years to complete—in certain cases up to 10 years or more,” Azevedo said. “However, as far as the UK's case is concerned, it is impossible to tell how long it may take.”

Such deals are unlikely to be as beneficial as the UK's current trade terms with WTO members, Azevedo said. “If you need to complete a deal quickly when the other side can wait, you are negotiating from a very weak position.”

Even though the vote is coming up soon, most forecasters say the outcome is too close to call—and, that concerns about EU migration, at least, appear to be growing. Now, however, heavy duty EU and international trade experts are weighing in heavily on the cost of the exit policy, a development that may have a positive impact on the outcome. However, this is certainly an issue that producers should watch carefully as the vote nears, Washington Insider believes.

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