Washington Insider-- Thursday

Progress on Government-Funding Deal

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

Grassley: Agriculture Consolidation Wave Has Become a ‘Tsunami’

Determining whether recent proposed agribusiness mergers or acquisitions are “the precipice of a transformation” in structure was the key focus of a hearing September 20 by the Senate Judiciary Committee, where its chairman, Sen. Chuck Grassley, R-Iowa, said the “consolidation wave may have become a tsunami.”

Grassley noted his concerns about the impact of seed and agrochemical developments. “When does the size of companies and concentration in the market reach the tipping point, so much that a market becomes anti-competitive?” Grassley asked.

Executives from Bayer, Dow Chemical, DuPont, Monsanto and Syngenta were among witnesses at the hearing.

Grassley said he was “very disappointed that ChemChina declined an invitation to testify,” adding that “ChemChina would have brought a unique perspective to the table because China’s government owns them. They’re called a state-owned enterprise.” The agrochemical industry provides basic inputs to farmers for growing crops and he says it appears the industry is on the precipice of a significant structural transformation.

Bayer announced September 14 that Monsanto had agreed to a $66 billion acquisition bid, making it the biggest deal in the sector this year. Falling crop prices and the search for efficiency have helped drive other deals, like the planned $59 billion merger between DuPont Co. and Dow Chemical Co., as well as the proposed $43 billion acquisition of Syngenta AG by China National Chemical Corp., also known as ChemChina.

Grassley said he is concerned vertical integration in traits, seeds and chemicals will make it more difficult for smaller, independent companies to survive. Questions were also raised about market concentration and potential loss of research and development (R&D) incentives

The three companies created through these mergers would own 80% of the market share of the U.S. corn seed sales and 70% of the global pesticide market. The proposed Bayer takeover of Monsanto would give the combined company 58% of U.S. cottonseed sales, according to the most recent U.S. government data, a matter they will have to address by offering to sell assets.

Seed and agrochemical Industry officials insist the mergers will create more, not fewer, product choices for farmers and will not hurt consumers. “With the Dow-DuPont merger, we will bring our capabilities together,” Tim Hassinger, the president and CEO of Dow Agrosciences, told the committee, “and we will be able to more effectively compete and provide more product choices for farmers.”

China Will Fight Allegations it is Exceeding WTO Commitments

China will fight U.S. allegations that it is exceeding its allotted domestic agricultural subsidy commitments at the World Trade Organization, according to a statement from China's Ministry of Commerce (MOFCOM). An official from China's Department of Treaty and Law “emphasized that China [regrets] the consultation requirement of the US,” a MOFCOM press release said. “China will handle it properly according to WTO dispute settlement procedures and actively safeguard China’s industrial benefits and trade benefits.”

The U.S. on September 13 launched a dispute with China, claiming that the agricultural domestic subsidies China provides to its wheat, rice and corn industries exceed its WTO commitments by nearly $100 billion.

China’s initial response. “It is an international common practice for the government to provide supports to the domestic agriculture, stimulate the activity of the agriculture producers and promote the domestic agricultural production capacity, and it is also allowed by WTO rules,” the release said. “China always respects the WTO rules, sticks to supporting China’s agricultural production and development through ways that accord with rules, and protects the international trade system of agricultural products.”

A key issue. China, according to the terms of its accession agreement, is limited to providing domestic agricultural support that does not exceed 8.5% the value of production of each commodity for both aggregate and product-specific support. An issue is how China calculates its amount of support as compared to how the U.S. believes it should be counted. China calculates its product-specific aggregate support by multiplying the difference between the world market price and applied support price by the quantity the government purchases at the support price, according to a November 2014 update to a study conducted by DTB Associates on behalf of US commodity groups. By using quantity purchased by the government instead of the total value of production as a part of its calculation, China arrives at a substantially lower subsidies number because it is multiplying by a smaller factor.

This is because the amount of commodities the government typically buys is a fraction of the total production, according to the DTB report. The report said the correct way to calculate the level of subsidies is by multiplying the difference between the world market price and applied support price by the total value of production of a given product. This is methodology that is set out by the Uruguay Round agriculture agreement.

Washington Insider: Progress on Government-Funding Deal

Bloomberg is reporting this week that the framework of a deal to fund the federal government through early December is emerging, and that now is expected to include $1.1 billion in funding to combat the Zika virus but probably will provide little special disaster assistance for Louisiana and Michigan.

The outline now appears to keep many contentious riders off the continuing resolution (CR).

Bloomberg also says that a sign that talks were finally close to yielding a deal came in the form of an 89-7 Senate vote Wednesday to begin debate on an appropriations bill that Senate Majority Leader Mitch McConnell, R-Ky., intends to use as the vehicle for the spending resolution. Senate passage of the CR sometime during the next few days would set the stage for the House to take it up next week.

It also could avoid another crisis when current funding expires Sept. 30. It is needed because none of the 12 regular appropriations bills to fund the government have been completed and sent to the President’s desk.

Despite the progress, some matters still appeared unresolved, including what offsets will be used to pay for the Zika funding the administration wants and whether some “poison pills” will still make their way into the measure. Among other things, Senate Minority Leader Harry Reid, D-Nev., said he is still fighting McConnell's effort to kill a Securities and Exchange Commission rule that requires firms to report their campaign contributions.

“We're not going to have a CR loaded with riders,” Reid said, summing up Democrats' negotiating position. “One is too many.”

“They're still negotiating,” Senate Banking, Housing, and Urban Affairs Committee Chairman Richard Shelby, R-Ala., said after a late afternoon meeting with McConnell and other Republicans on the status of the CR. “Democrats want some things, others do too. They haven't resolved it all yet.”

The vote on the motion to proceed to the appropriations bill showed some division within the Republican ranks for McConnell's plan. Seven Republicans voted against cloture, including Sens. Ted Cruz, R-Texas, and Mike Lee, R-Utah, as well other conservatives. Cruz and Lee are still pushing for the CR to carry language that would block the transfer of internet domain oversight to an international organization.

McConnell suggested that passing the CR will be no slam dunk and said the Senate will likely have to stay into session next week. Even if the CR is passed, he said senators will remain for two other votes in the days leading up to the Sept. 30 deadline.

House Majority Leader Kevin McCarthy, R-Calif., also told Bloomberg the House isn't planning to bring up a measure of its own. He said there is “a lot of communication” between House and Senate Republican leaders and suggested the House will be ready to take up a Senate-passed version the week of Sept. 26.

“It's always an option,” McCarthy said of a separate House plan. “I felt the Senate is probably further along right now in the process, so I don't know that if we went and crafted something right now that it would help the process.”

McCarthy declined to discuss House leaders' efforts to ensure votes for the measure, including among members of the House Freedom Caucus, who said they wanted a CR running into next spring. “We haven't whipped anything because we don't know what the final version looks like,” McCarthy said.

But late in the day Tuesday, Rep. Bill Flores R-Texas, chairman of the Republican Study Committee, said he was introducing a CR through early December that would eliminate the opportunities for Reid's “hostage-taking and ever-moving goalposts.” Among other things, he said it would not allow the “internet giveaway” or an effort to revive the Export-Import Bank.

Democrats earlier said House language to prevent Planned Parenthood from using some of the Zika funds was rejected. Also dropped, they said, was a provision to delay a Transportation Department rulemaking on the hours that truckers can drive. But Reid said McConnell is continuing to push for the SEC rule change to be included in the CR.

So, the “great game” over the budget is still underway, with the outcome still murky. At the same time, there are positive signs of serious intentions to strike a short-term deal soon. That would mean, of course, yet another no-holds barred budget battle down the road, as well as some continued exposure to last minute riders yet this month, which should be watched closely Washington Insider believes.

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