Washington Insider-- Friday

Peanut Problems for the Farm Bill

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

TPP On Agenda for Obama Confab With Mexico's President

Trade issues, including the controversial Trans-Pacific Partnership (TPP) trade agreement, are expected to be high on the agenda when President Barack Obama meets Mexico's Enrique Pena Nieto on Friday.

"I would anticipate that the two leaders will spend some time talking about the trade relationship between our two countries," White House spokesman Josh Earnest said, noting that both countries are signatories to TPP. Obama is "quite enthusiastic" about the TPP because it would represent an upgrade on the North American Free Trade Agreement, Earnest said.

Republican presidential nominee Donald Trump has said the US should exit NAFTA and should not ratify the TPP. Trump has also said that he would build a wall on the US-Mexico border to address illegal immigration.

Mexico's Senate has already begun its review of the TPP and a decision on its ratification is expected by the end of the year.

Companies Will Wait for GMO Labeling Rules

Rules for labeling foods made with genetically modified organisms (GMO) will be drafted by USDA and food companies are waiting to see what the rules will look like before modifying their existing labeling policies.

"We look forward to reviewing the USDA guidance as it develops," Bridget Christenson, spokeswoman for General Mills, Inc., told Bloomberg BNA in an email. "Regarding our plans on future labeling, we will need to review USDA's guidance once finalized, talk with our consumers on their preferences, and develop our long-term plan."

General Mills and several other major food makers opted to get ahead of a Vermont law requiring explicit on-package labeling of products containing GMO ingredients. The law went into effect July 1, but legislation (S 764) passed by Congress and awaiting a likely signature by the president would preempt the requirement, instead creating a less-strict, but still mandatory, nationwide labeling rule.

Companies with existing GMO labeling policies have two options: drop GMO labels until USDA creates labeling rules within the two-year time frame required under the new federal law, or continue on with their own disclosure policies, changing them once USDA releases final rules. Thus far, most companies are opting for the latter approach.

Congress' bill would require companies to disclose when food is made with genetically modified ingredients using on-package text, a USDA-created symbol or an internet link in the form of a QR code scanned by smartphones.

Tomas Hushen, a spokesman for Campbell Soup Co., said that the company would keep its GMO labels for the time being, and that the company had not made plans to begin using a USDA-created symbol or QR code to disclose GMO information. The company is working with regulators to create clear and informative labeling, Hushen told Bloomberg BNA in an email.

Mars, Inc. is also waiting before making changes to existing labeling policies.

Washington Insider: Peanut Problems for the Farm Bill

You might be forgiven for thinking it is way too early to begin thinking about the next farm bill and you would be partly right. However, Politico recently wrote about problems with peanuts and notes that for the third year in a row, farmers are expected to produce a surplus. The group suggests that costly peanut problems could affect the next debate.

The article focused on USDA's recent projection of another large harvest, perhaps 6.1 billion pounds, in spite of the fact that year end stocks also could be very large. The surplus is expected to keep prices low and drive and subsidy payments high through 2018, the Congressional Budget Office estimates.

Politico says the problem is tied to a combination of low prices for major commodities and changes made in the 2014 farm bill. The total cost of the commodity title programs for all crops is now estimated to average over $5 billion annually, high enough to attract the attention of "politically influential groups like Heritage Action," as well as critics on the left.

Politico's description of the "origins of the U.S. peanut glut are quite complicated." It says they can be traced to a trade dispute with Brazil over cotton which the U.S. settled in part by removing cotton from the list of crops that qualified for Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC). Those programs authorize payments when commodity prices or average revenues fall below specified levels.

The 2014 Farm Bill allowed other crops to be grown on cotton acreage, and be eligible for PLC and ARC payments -- and the PLC reference price for peanuts was set higher than historical averages, making peanut particularly attractive, while cotton's special STAX (Stacked Income Protection) program was not been as attractive as expected, Politico says.

So, last year's low cotton prices led some producers who normally grow peanuts, cotton and corn in three-to-four year rotations began to grow peanuts in shorter cycles, according to Scott Monfort, a peanut agronomist and associate professor at the University of Georgia.

Producers in states like Georgia, Texas, Alabama and Florida boosted plantings by more than half a million acres between 2013 and 2015, Politico says.

This year's crop will follow a 6.2 billion-pound harvest in 2015, the second largest on record, up from 5.2 billion the year before. "When it comes time to plant, farmers have to choose which crops will get them across the finish line, and right now they are betting on lame horses," said Bob Parker, president and CEO of the National Peanut Board, referring to the low commodity prices. "If we see a movement back up in cotton and corn prices, acres will shift."

Peanut growers received $321.6 million in payments as of May 20, about 6% of all subsidies paid under ARC and PLC, USDA says, but more than three times what the CBO projected in April 2014, two months after the farm bill was enacted. In addition, peanut growers also benefited from $16 million in marketing loan "gains" last year, CBO says.

Politico thinks that the peanut surplus and the program's rising costs, along with ARC and PLC overall, likely will be used by critics of the farm bill programs and lawmakers concerned about federal spending as reason for overhauling agriculture policy, contending the system should be more market driven.

"I'm not sure it's a game changer, but the overproduction may move policy in a different direction," said Ferd Hoefner, policy director at the National Sustainable Agriculture Coalition. Over time, farm programs have become more market oriented. In the future, peanuts may be targeted because it's seen as "slipping back to the programs of yesteryear."

And, programs like the ARC and PLC are already receiving attention from political groups, Politico says. These programs "are designed in ways that favor planting certain commodities over others," Daren Bakst, research fellow in agricultural policy at the Heritage Foundation told Politico.

"Even though there is a genuine desire not to try to play favorites, these subsidies create incentives and disincentives for planting certain crops," Bakst said. "But government policies shouldn't dictate what planting decisions are made. Farmers should respond to what consumers want," he added. The Heritage Foundation says it will release a report in September on how to reform the farm bill, including commodity support programs, crop insurance and renewable energy, Bakst said.

Well, this is not a new problem — in fact, it is a familiar replay of the difficulties supply management programs have suffered for more than seven decades. It turns out that the government has never been an effective supply manager, especially when it attempts to intervene through prices. In addition, the peanut program has become a special embarrassment for USDA, since it has found itself unable to even donate its surplus without negative publicity.

Certainly, it seems to be past time for USDA to carefully evaluate this program, and others like it, with a view to bringing them much more fully in line with those for other commodities, Washington Insider believes.

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