Washington Insider-- Friday

Livestock Contracting Rules Create New Controversy

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

US Adds China Corn, Wheat & Rice Import TRQs to Trade-Complaint List

Chinese import quotas on rice, wheat and corn are the subject of the latest U.S. challenge at the WTO, adding yet another friction point to the Sino-U.S. relationship that is becoming increasingly testy.

The U.S. case charges there is a lack of detail and openness from China on how they determine and administer their tariff-rate quotas (TRQs) for imports of medium- or short-grain rice, long-grain rice, wheat and corn that allow those products to enter the country at lower duty rates.

USDA estimates the Chines TRQs for corn, wheat and rice were worth more than $7 billion in 2015. Had those TRQs been fully used, USDA said that Chinese imports would have been $3.5 billion higher.

"China's TRQ policies breach their WTO commitments and limit opportunities for US farmers to export competitively priced, high-quality grains to customers in China," US Trade Representative Michael Froman said in a statement.

"Although China has become a significant market for our grain exports, we could be doing much better than we are today," USDA Secretary Tom Vilsack said. "China has frustrated exporters through generous price support and unjustified market restrictions."

U.S. trade data forecast China to be the top destination for US agricultural products in Fiscal 2017 after the country slipped to the number two spot in Fiscal 2016.

"While the U.S. government's action today is long in coming and only a first small step, I welcome the action and urge much, much more to come in order to one day deliver to America's farm and ranch families -- and all Americans -- a fair shake at what has been to date a decades old unfulfilled promise of free markets and a level playing field," said House Ag Committee Chairman Michael Conaway, R-Texas.

USDA Updates Guidance on Food Date Labeling

Updated information on food product labeling, including new guidance aimed at reducing food waste by encouraging food manufacturers and retailers that apply product dating to use a "Best if Used By" date label, have been issued by USDA's Food Safety and Inspection Service (FSIS).

"In an effort to reduce food loss and waste, these changes will give consumers clear and consistent information when it comes to date labeling on the food they buy," said Al Almanza, USDA Deputy Under Secretary for Food Safety. "This new guidance can help consumers save money and curb the amount of wholesome food going in the trash."

Except for infant formula, product dating is not required by federal regulations. Food manufacturers frequently use a variety of phrases, such as "Sell-by" and "Use-by" on product labels to describe quality dates on a voluntary basis.

The use of different phrases to describe quality dates has caused consumer confusion and results in the disposal of food that is otherwise wholesome and safe because it is past the date printed on the package.

FSIS is changing its guidance to recommend the use of "Best if Used By" because research shows that this phrase is easily understood by consumers as an indicator of quality, rather than safety.

USDA estimates that 30 percent of food is lost or wasted at the retail and consumer level. This new guidance builds on other recent changes FSIS has made to facilitate food donation and reduce food waste.

Washington Insider: Contracting Rules Create New Controversy

While USDA is mostly known for its farm and food programs, it also is a regulatory agency that manages the Grain Inspection, Packers and Stockyards Administration that traces its roots back to the fight against the grain and meat trusts of the early 20th Century. Earlier this week, GIPSA announced changes in contracting rules that are attracting a storm of controversy. For example, The Hill wrote that USDA "is playing a game of chicken with food manufacturers."

The Hill says the fight "pits small chicken farmers against much larger food processing companies," and quotes USDA as saying that its new regulations will "level the playing field."

Secretary of Agriculture Tom Vilsack told the press that for years American farmers have been calling for protections against "the most damaging, unfair and deceptive practices confronting family farms across the country." And, he added, "All too often, processors and packers wield the power, and farmers carry the risk."

The Hill cited an example of a chicken grower who displeases the contractor and "attempts to organize other chicken growers to bargain for better pay or publicly expresses unhappiness with the way they are treated…processors could require growers to make investments that are not economically justifiable for the grower, or can terminate contracts with little notice."

So, the USDA's new "Farmer Fair Practice Rules" and the criticisms they are attracting are generating considerable press attention. For example, Bloomberg quoted "livestock groups and lawmakers" who are critical of USDA's timing, calling the rules "midnight regulations"' that totaled over 200 pages.

There new releases included three rules, one "interim final" rule and two proposed. The "interim final" rule covers the "scope" of the P&S Act and removes the need to find "harm to competition or likelihood of harm to competition in order to find violations. Now, USDA says to the extent that courts failed to defer to USDA's interpretation of the statute "because that interpretation had not previously been enshrined in a regulation," this new regulation may constitute a material change in circumstances that warrants judicial reexamination of the issue."

The second and third rules propose to establish criteria for determining which practices are illegal and whether food processors have engaged in those activities. These address the contracts between poultry and livestock producers and the processors that buy their products and would regulate "undue preference and the tournament-style system" in which poultry processors pay producers.

USDA notes in the rules and in other documents that Congress had prevented USDA from finalizing these rules since Fiscal 2012 via the annual appropriations process. But that prevention was not included in the Fiscal 2016 appropriations measure. Bloomberg notes that USDA then "swung into action to move forward on the rules."

Vilsack was asked if he expected "frivolous lawsuits" resulting from the rules, a possibility he insisted is "absurd," but which others consider likely. While the National Farmers Union welcomed the rules, others in the U.S. livestock and food industry do not agree. "This rule making will drastically limit the way our producers can market cattle," said National Cattlemen's Beef Association President Tracy Brunner.

The National Chicken Council indicated they would keep "all options" open on the rules and predicted "frivolous lawsuits" that will translate into higher costs for consumers. The National Pork Producers Council said it would work to repeal the rules. NPPC CEO Neil Dierks said that the rules "creates legal uncertainty" and will destroy opportunities for many in the US pork industry, with no positive effect on competition, the regulation's supposed goal."

Several Republican agriculture policy leaders also criticized the USDA action. For example, Senate Agriculture Committee Chairman Pat Roberts R, Kan., said the rules would limit economic freedom for livestock and poultry producers and has been controversial since it was originally proposed in 2010.

House Agriculture Committee Chairman Mike Conaway R-Texas, said he was "disappointed" with the midnight regulations and vowed to roll them back. "I plan to closely review the rules, but stand committed to working with industry, the incoming Secretary of Agriculture, and my colleagues in the House and Senate to ensure that the livestock and poultry industries remain able to do business without the constraint of unnecessarily burdensome regulations," Conaway said in a statement.

USDA's effort to strengthen its contracting rules has been controversial since the beginning of the current administration and now faces broad opposition from livestock groups and food processors. It certainly will face strong skepticism from the incoming Secretary of Agriculture, as well as from the Congress, Washington Insider believes.

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