Washington Insider -- Tuesday

Considering Organic Products from Cuba

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

House Energy Hearing to Focus on Need for 2017 RFS Changes

The House Energy and Commerce Committee will tackle the Renewable Fuel Standard (RFS) at a hearing on Wednesday, giving members a chance to stake their positions on an issue that splits the committee's Republican majority. The hearing gives lawmakers the chance to hear the views of both refiners and ethanol producers, as well as the EPA on legislation to cap the share of ethanol in the fuel supply at 9.7%.

With the American Petroleum Institute and refiners' groups pushing for an overhaul of the program, lawmakers say this hearing could set the stage for reworking the rules for ethanol and biofuels, but congressional contacts predict that is not going to gain any momentum until next year.

"Step one is to have this hearing and see the lay of the land," Rep. Joe Barton, R-Texas, said in an interview with Bloomberg.

EPA Acting Assistant Administrator Janet McCabe will discuss the agency's recent volume requirements announcement at the hearing, alongside Energy Information Administration Deputy Administrator Howard Gruenspecht. They will be followed by a panel of industry advocates.

The witnesses will be pressed on where they stand on a bipartisan RFS reform bill introduced by Reps. Bill Flores, R-Texas, and Peter Welch, D-Vermont. Oil industry lobbyists say the bill, HR 5180, could be the basis for RFS reform efforts in the next, 115th Congress. It proposes to cap the volume of ethanol blended into gasoline at 9.7%. It would also bar the EPA from modifying biofuels mandates if the agency fails to meet deadlines for doing so. Previous efforts to end the entire RFS, or the requirement for corn ethanol, have not garnered much interest.

"What Flores and Welch are doing is a pretty commonsense, middle-of-the-road approach," Barton said.

US and Canadian Officials Discussing Softwood Lumber Deal

Discussions between the U.S. and Canada have revealed that significant differences remain on a new softwood-lumber pact between the two nations, but trade officials said they will continue negotiating.

The two countries are "committed to continuing negotiations in an effort to achieve a durable and equitable solution," a joint statement released by U.S. Trade Rep Michael Froman and Canada's International Trade Minister Chrystia Freeland read.

U.S. and Canadian negotiators last met June 15 to discuss the softwood lumber pact. U.S. producers could ask the government to impose duties on Canadian softwood lumber imports if an agreement is not reached by Oct. The 2006 Canada-US Softwood Lumber Agreement expired on Oct. 12, 2015, but included a standstill provision preventing US producers from initiating complaints under trade remedy laws for a 12-month period.

President Barack Obama and Canadian Prime Minister Justin Trudeau had asked negotiators to report on an outline of an agreement by June 18, exactly 100 days after the two met on Mar. 10, during Trudeau's official visit to Washington.

Washington Insider: Considering Organic Products from Cuba

Growing U.S. links with Cuba have attracted something of a cottage industry to consider what investors and others should expect next in the way of new commerce. For example, Politico is reporting this week that there is already a U.S. Agriculture Coalition for Cuba and that the Chair of that group, Devry Boughner Vorwerk, is looking forward to opportunities for increased organic food exports to the U.S.

The interest is unsurprising, since it almost always surfaces when a Centrally Planned economy that was unable to afford fertilizer and other ag chemicals is opened to market opportunities. However, Politico cautions that U.S. food corporations salivating over Cuba's untapped organic potential "have more than the trade embargo to contend with: Even if the sanctions were lifted immediately, talks on establishing a mutual organic certification system could take years, if not a decade," Politico says, according to "sources watching the developments."

Havana would still have to ramp up certification agencies and decide with U.S. officials how to match Cuban regulations with American standards. This is a process that could drag out if the communist government, which is only just beginning a basic framework to deal with the issue, goes its own route rather than adopting the American system, observers say.

However, Politico says investor interest continues strong, since the U.S. appetite for organic food has tripled sales over the last decade and Cuba's proximity could help make the country an abundant new supply, it says.

However, establishing an organic certification program that would pass muster in the United States is a massive process that could take a long times and involve many bureaucratic considerations on both sides, according to Vorwerk. Former USDA Secretary Mike Espy also is cited by Politico in its report, and seems to be advising the process. He is a former U.S. agriculture secretary in the Clinton administration who has been largely out of public view since he left USDA.

Politico notes that Cuba has almost 400,000 farms, most of which now follow organic practices but lack formal certification. This leaves an opening, Politico says, for Cuba to help meet American demand as U.S. farms "are hesitant to spend the required three years of no chemical use to get certified." American organic producers make up less than 1% of domestic acreage, it says.

If "most of Cuba's farms were certified," Politico says, organic shipments to the U.S. would likely surge. It notes that coffee and bananas are both mainstays of Cuban agriculture and are the top two organic U.S. imports by value, with mangoes are not far behind, Politico says.

Alternatively, some Cuban farmers would likely begin to use pesticides and chemical fertilizers in a post-embargo trade relationship where US farming techniques would be a big part of the conversation.

To lay the groundwork for the renewal of the once-thriving trade relationship, Agriculture Secretary Tom Vilsack and Rodriguez Rollero signed an agreement in March to foster collaboration between both countries' agricultural sectors on such things as productivity, food security and sustainable resource management. The deal allows 22 U.S. industry-funded research and promotion programs and 18 marketing order groups to conduct research and information exchange activities with Cuba.

The USAAC and Cuban state-run Grupo Empresarial Agricola, which represents 54 Cuban agribusinesses and more than 650 farming cooperatives, also signed a memorandum of understanding late last month to discuss how US companies can assist Cuban farmers and businesses participating in the state-controlled coops.

"Things are moving quickly," Espy said. Rodriguez Rollero echoed Espy during a recent visit to the U.S. Chamber of Commerce in Washington, saying talks about how to get Cuban organic products certified are a top priority of his.

In addition to the current embargo, U.S. restrictions on credit and financing limit the communist nation's agricultural development, Rollero said. While the Obama administration has eased some of those conditions, including allowing payments to and from Cuba to pass through U.S. banks, financing for agricultural exports is prohibited and commodity shipments are still subject to cash-only requirements.

The U.S. certification process for organic products is both bureaucratic and political, observers note. Much of the current supply pressure comes from retailers and restaurants who want to advertise GMO free products. The program is administered by USDA, but driven by groups of organic advocates who can and often do agree to rules that allow non-organic products on the "approved" list—and, also include more than a few "social" considerations, such as the ban on GMOs.

How welcome these advocates will feel toward Cuban products from the old centrally planned operations remains to be seen, especially since current large US producers of organic products are frequently regarded with skepticism, Washington Insider notes.

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