Washington Insider -- Monday

Check-off Proposed for Organic Food

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

Trump Expects 'Big Results' from His Choice to Lead USDA

Donald Trump said that he expects former Georgia Governor Sonny Perdue, his choice to lead USDA, will "deliver big results for all Americans who earn their living off the land."

Perdue was the final Cabinet post to be announced by Trump, who is set to take office Friday. Perdue, 70, is a farmer's son who built businesses in grain trading and trucking before becoming the first Republican governor of Georgia since Reconstruction.

Trump said at a pre-inauguration dinner in Washington on Thursday night that Perdue's farming background had elevated him above more "politically correct" candidates, according to the Associated Press.

Trump's Cabinet picks do not include a single Latino — the first time that's happened in nearly 30 years. Trump said he had met with "10 people that everybody liked. Politically correct. And I kept thinking back to Sonny Perdue, a great, great farmer. He loves the farms. Knows everything about farming. Knows everything about agriculture."

As governor, Perdue worked to bring a Kia Motors Corp. manufacturing plant to Georgia and took several trade missions to China and South America. Perdue has made trade overtures to Cuba as well, something potentially at odds with Trump's hard line on the communist nation. Perdue led a 2010 trade mission to Cuba, a consumer of Georgia's poultry exports.

The Plum Book, a rundown of political jobs published as a new administration takes office, lists 384 positions to be filled at USDA, including administrators in each of the department's service groups, state-level directors and communications officers. Trump spokesman Sean Spicer said to expect more announcements of lower-tier appointments soon.


Will Pruitt Push RFS Compliance Change?

A change regarding who must comply with the Renewable Fuel Standard (RFS), from refiners and importers to downstream parties, may be possible ahead if it strengthens the biofuel mandate program, Scott Pruitt, President-elect Donald Trump's pick for the next EPA administrator, said at his nomination hearing January 18.

Some small retailers and refiners applauded the development, noting a volatile compliance credit market is threatening to shutter businesses.

But Pruitt got a lot of push back over the topic during his confirmation hearing before the Senate Environment and Public Works Committee. Sens. Joni Ernst, R-Iowa, and Tammy Duckworth, D-Ill., challenged Pruitt, the current Oklahoma attorney general, to pledge to maintain the current RFS point of obligation, but Pruitt said only he would use discretion to strengthen the biofuel program.

A change in the RFS point of obligation would mean more parties have to comply with the program by submitting the credits, known as Renewable Identification Numbers (RINs). Biofuel producers say that increase would make compliance and enforcement far more difficult for the Environmental Protection Agency. RINs are serial numbers attached to batches of renewable fuels that can be separated and traded.

Hedge funds, banks, large retailers and other companies trade the RINs. Of note, Carl Icahn, Trump's regulatory adviser, has criticized the credit market.

In November 2016, the EPA tentatively denied several petitions to change the point of obligation, arguing the current framework is functioning well and petitioners failed to demonstrate a change would increase biofuel use. EPA opened a public comment period on the proposal, which will now be completed February 22. Fuel importers and non-renewable fuel producers can comply by blending biofuels into their products or by purchasing the credits.

In the hearing, Pruitt said he would consider the comments as administrator. "If confirmed I would be dealing with that issue and need to respond to the comments made as part of the record," he said. "It would be unwise to prejudge that outcome. Any steps I would take as EPA administrator would be in furtherance of the RFS."

Washington Insider: Check-off Proposed for Organic Food

Amid the numerous concerns of the agricultural industry this year, Bloomberg is reporting an old, old one is being extended. USDA released proposed rules for an organic check-off program that would create research and promotion programs for the rapidly expanding organic sector.

There are already 22 such programs in operation whose purpose is to expand their individual markets and attract consumers—in this case, organic foods. They are funded by deductions from producer sales in different ways, ranging from a $1 per head fee per sale to one-tenth of 1% assessment on sales for producers with revenues of more than $250,000 per year. The programs are overseen by USDA and are best known to the public for their promotional tag lines like such as "Got Milk?" and "Beef, It's What's for Dinner."

"This organic check-off will provide research and key tools to encourage more farmers to go organic and help all organic farmers be more successful," Laura Batcha, CEO and executive director of the Organic Trade Association (OTA). "It will educate consumers in a positive way about what that organic seal really means.

A provision in the 2014 farm bill made it possible for the OTA -- a trade group for organic agriculture -- to submit a proposal for an organic checkoff program to USDA.

The organic program is different from other such check-offs in that it would cover a broad range of organic products from several commodities from produce to meat and dairy, as well as non-food items such as textiles and personal care products.

Critics note that the organics industry is already growing rapidly -- a report released by the OTA in May 2016 found that organic sales hit a record $43.3 billion in 2015, and an increase of 11 percent from the previous year. Those numbers outpaced growth in the broader food market, which had an increase of 3 percent over the same period, OTA said.

In 2015, organic fruits and vegetables led the market with $14.4 billion in sales and dairy took second place with $6 billion in sales.

USDA is responsible for overseeing the formation of checkoff organizations under the authority of the Commodity, Promotion, Research and Information Act of 1996.

Check-off programs have long been controversial because they require producer participation in commodity programs order to prevent "free riders" who may benefit from the programs but do not wish to fund them. Because individual producers of nearly homogeneous agricultural commodities cannot easily convince consumers to choose one egg or orange or a single cut of beef over another, they often have joined together in commodity promotion programs to use generic advertising in an effort to expand total demand for the commodity, with the objective of helping their own sales as well.

Activities are intended to expand both domestic and export demand; examples include advertising, nutrition education, research to improve product quality and appeal, market research studies, and technical assistance.

The mandatory aspect of the programs has been challenged repeatedly by producers for several years, and the Supreme Court in 2001 ruled that the mushroom check-off violated Constitutional free speech provisions, creating uncertainty about the future of all check-offs. However, in 2005, the Supreme Court ruled that the beef check-off does not violate the First Amendment since the programs are, in fact, "government speech" (an issue that was not considered in the mushroom decision).

"Compelled funding of government speech does not alone raise First Amendment concerns,"..."Citizens may challenge compelled support of private speech, but have no First Amendment right not to fund government speech," the Court said.

Still, there is opposition to the proposed organic program. The Cornucopia Institute, an industry group focusing on organic, local and other alternative agriculture, opposes a checkoff program, arguing that similar efforts suffer from a lack of accountability, bloated expenses and a failure to produce results, Bloomberg says.

Kate Mendenhall, coordinator of the No Organic Check-Off Coalition, said "the checkoff programs largely benefit big farm operations and tend to promote consolidation in an industry. She said the USDA's organic certification process is already difficult and small farmers don't want more paperwork." "They don't want to add another bureaucratic layer to the process for certified organic farmers," Mendenhall told Bloomberg.

So, there are a number of hurdles to be faced before the program is actually in operation, including exactly what it will be allowed by USDA to say and how the new program proposes to promote organic sales in competition with conventional products. Clearly, the new check-off impacts on producers in other markets should be watched closely by producers as the program is considered in the increasingly anti-regulatory environment across the sector, Washington Insider believes.

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