Washington Insider-- Monday

By DTN's Washington Insider

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

USDA Now Sees 2016 Supermarket Prices Flat vs 2015

U.S. supermarket prices are now forecast to be down 0.5% to up 0.5%, or essentially steady with year-ago levels. The is yet another downward adjustment for this category of food prices as they were forecast in August to be unchanged to up 1%, according to the monthly food price forecast update from USDA's Economic Research Service (ERS).

ERS now predicts the Consumer Price Index (CPI) for food-at-home prices to change between 0.5% and 0.5%, which they note is a "rate of inflation (or possibly deflation) that would again fall below the 20-year historical average of 2.5%."

Recent declines in prices for beef and veal, poultry, and eggs factored into the downward adjustment, ERS said. "Lower transportation costs due to deflated oil prices as well as the strength of the U.S. dollar have placed additional downward pressure on food prices in the first half of 2016. A strong U.S. dollar makes U.S. goods less desirable, leaving more potential exports on the domestic market." Compared to the 2015 average price level, the 2016 level for CPI for food-at-home is down 1%.

Supermarket prices in 2017 are still forecast to rise between 1% and 2%, ERS noted, despite some downward revisions to components within the CPI for food at home. "Despite the expectation for declining prices in 2016, beef and veal, poultry, and dairy prices are expected to rise in 2017." ERS included their standard caveats on the outlook for 2017, noting it assumes normal weather and could be impacted by things such as the drought in California and the value of the US dollar could impact the outlook.

In adjusting price forecasts for pork and beef, the U.S. dollar is a common impact cited by USDA economists. However, they note that the "somewhat" weaker dollar will help improve both beef and pork exports, prompting increases in grocery store prices in 2017.

Recovery from the 2015 highly pathogenic avian influenza (HPAI) outbreak in the U.S. continues, heavily weighing on egg prices – a normally volatile food-price component. With the recovery continuing, ERS now sees egg prices down 19% to 18% in 2016 and to rise zero to 1% in 2017.

USDA adjusted forecasts downward for fats and oils prices in 2016 and 2017, noting while prices for peanut butter, butter, and margarine rose in August, prices for salad dressings decreased 1.2%. ERS predicts fats and oils prices to change between 0.5% and 0.5% in 2016 and to decrease 1% to zero percent in 2017.

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Froman Reiterates Post-Brexit Trade Talks with UK on Back Burner

Negotiating a trade deal with the United Kingdom (UK) is not a top priority, U.S. Trade Representative Michael Froman said in an interview, echoing President Barack Obama’s pre-Brexit vote warning that a decision to leave the European Union (EU) would push the UK to the "back of the queue" in trade negotiations.

Froman also challenged the idea put forward by pro-Brexit politicians that the UK can immediately start discussing deals with other parts of the world. "The UK first and foremost needs to focus on how to define its future relationship with the EU and that will be its overwhelming preoccupation and it’s really impossible for anybody else to negotiate a free trade agreement with the UK until you know what is its competence," Froman argued.

During the referendum campaign, Brexit supporters including now-Foreign Secretary Boris Johnson said the UK outside the EU would be free to quickly negotiate its own trade deals with the rest of the world. Proponents of Brexit decried Obama’s comments as an attempt to intervene in the matter, using scare tactics to pressure voters into choosing to remain in the EU.

Now, Obama’s warning is "in reality the case," Froman said, adding that the UK government needs to concentrate on shaping its future trade relationship with the EU.

"Is it in a customs union with the European Union? Does it have control over its tariffs? Does it have control over its regulations?" Froman asked, adding that "those are still issues that are to be worked out between London and the other European capitals."

The priority for U.S. trade negotiators is the U.S.-EU Transatlantic Trade and Investment Partnership (TTIP) pact, Froman said. The UK would have been part of TTIP had it not voted to leave the EU.

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Washington Insider: Realistic View of US Ag Structure

Well, a lot of things that have become a sort of a “new normal” in Washington now. For example, Congress is still struggling to pass legislation to keep the government open in the new fiscal year that begins next week.

There was a recent burst of optimism several days ago, and a dancing vision of cooperation--and then what some analysts saw as a “stumble” when a subsequent draft showed up including several “poison pill” riders.

Still, there is a determined effort in the press to take Congressional leaders at their word as they predict agreement “just around one corner or another.” It might be considered rude to point out that time is seeping away, once again.

Then, in a very different note, the New York Times has carried a thoughtful letter from the Oklahoma hinterlands. Oklahoma State University (OSU) economics Professor, Jayson Lusk wrote to describe the benefits of our current ag structure and newer technologies and these turn out to be considerable.

In a comment that likely will strike sparks among the Times foodie base, Prof. Lusk asserts that while small, local farms have an appeal, “if we are to sustainably deal with problems presented by population growth and climate change, we need to look to the farmers who grow a majority of the country’s food and fiber.

These, he thinks, are few and large since some 8% of the U.S. farms provide 80% of our food and fiber. Not only that, they do that while protecting the environment and are among the most progressive, technologically savvy growers on the planet. Believe it or not, they are far gentler on the environment than at any time in history, he says. And a new wave of innovation is making them more sustainable still.

Rather than creatures of large corporations, as critics often claim, these are almost always family-owned. There are some 160,000 of them, and, while they don’t get highlighted much in the menus of farm-to-table restaurants, they do fill the shelves at your local grocery store Lusk says.

Most important, they are on virtually the same page as conservationists about soil erosion and resource protection and are taking steps to control these problems using new technologies in the process. He says these high-tech solutions measure almost every step in farming operations and match applications to specific nerds, and so better target use. The new machines can put fertilizer only on those areas of the field that need it and effectively reduce potential nutrient runoff.

Lusk waxes on about just how large some family operations are and the management techniques used. He says the industry has invested decades to make tasks both easier and more efficient and better for the land: soil sensors to measure water content, drones, satellite images, alternative management techniques like low- and no-till farming, efficient irrigation and mechanical harvesters. There are many more.

Then, he basically makes the argument that the sector is already committed to high-tech agriculture and lacks the resources for any other approach. To return to 1950s technology would take so much land and cost so much as to be prohibitive.

These newer technologies reduce the use of water and fertilizer and harm to the environment. Modern seed varieties, some of which were brought about by biotechnology, have allowed farmers to convert to low- and no-till cropping systems, and can encourage the adoption of nitrogen-fixing cover crops such as clover or alfalfa to promote soil health.

Herbicide-resistant crops let farmers control weeds without plowing, so allow no-till farming methods, which help prevent soil erosion. Some use more pesticides, but often these are less toxic.

He points to current benefits: soil erosion has declined more than 40% since the 1980s, a huge decrease. At the same time, U.S. crop production now is twice what it was in 1970, using half the labor and 16% less land than it did in 1970.

As a result, pastoral images of farming from yesteryear are not even close to today’s realities. And, they have little prospect of helping meet the huge challenges from climate change, food waste, growing world population, drought and water quality; and only innovation, entrepreneurship and technology can help—along with the real life experience of modern farmers who already grow the bulk of our food.

So, one must wonder if the publication of this article means new questions for the Times usual parade of farm critics with their emotional bias against larger scale operations and a willingness to ignore economic benefits from production efficiency. Lusk says these are important and should be emphasized, concepts that seem to have fallen out of favor even at USDA and many universities but deserve both attention and emphasis as future farm and food debates get under way, Washington Insider believes.

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(GH/CZ)

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