Washington Insider-- Wednesday

Ag Trade Reality

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

OMB Details Specific Fiscal 2017 Spending Cuts

The Office of Management and Budget has proposed $17.9 billion in specific spending cuts to offset higher proposed defense and border security spending in the current fiscal year, which ends September 30, according to a document.

In a spreadsheet outlining the Fiscal 2017 reductions shared with some Republican lawmakers, the White House budget office suggests cutting Pell Grant funding by $1.3 billion; National Institutes of Health funding by $1.2 billion; and the Community Development Block Grant program by $1.5 billion, among billions of dollars in other reductions across federal agencies, including USDA. The document shows spending reductions spread across nine Appropriations subcommittees that allocate nondefense discretionary dollars.

The department-by-department breakdown shows Trump is targeting domestic programs including education, health care and housing, as well as international food aid -- cuts that are in line with the administration's 'skinny budget' for next year.

None of the spending reductions would go into effect without Congress' approval, and appropriators already were balking at such dramatic changes in current year funding. Negotiations are concluded on some spending bills.

The proposal calls for about $1 billion in cuts to USDA's FY 2017 spending, including:

$363 million from Food for Peace.

$136 million cut to essentially eliminate funding for the McGovern-Dole international food program, a bipartisan initiative that feeds millions of schoolchildren throughout the world. "This program lacks evidence that it is being effectively implemented to reduce food insecurity," OMB said.

A call for Congress to eliminate the funds USDA has left over from its last major fight against avian flu. USDA has $80 million to $90 million remaining from the $1 billion Congress gave it to fight avian flu in 2015, Jack Shere, the department's chief veterinary officer, said last Thursday, Reuters reported. The budget document said that the administration is proposing to strike $50 million in funds from USDA's Animal and Plant Health Inspection Service that represents "a proposed rescission for APHIS' unobligated balances from the transfer of no-year CCC funds in FY15 to respond to the Highly Pathogenic Avian Influenza (HPAI) outbreak. The response to the FY15 outbreak is complete, and USDA should still have enough balances to respond to the two recent HPAI outbreaks in TN this year."


Mexico Given US Sugar Trade Proposal Last Friday

This Wednesday, the U.S. expects to see Mexico's reaction to its latest proposal on how to manage sugar imports, a Commerce Department official said. The Commerce Department submitted its formal position on Friday and expects to resume face-to-face talks in Washington soon, the official said.

The two countries agreed earlier this month to continue efforts to salvage the trade suspension agreements, which hold off antidumping and countervailing duties on Mexican sugar imports in favor of an arrangement that manages trade by setting minimum prices and quantitative restrictions. Commerce was set to issue a final determination in an administrative review of the deals by April 4 but the deadline was extended to May 1, Commerce Secretary Wilbur Ross said after a March 10 meeting with Mexican Economy Secretary Ildefonso Guajardo Villarreal.

U.S. sugar producers want the agreements to be modified to avoid alleged circumvention of restrictions on how much refined sugar Mexico can export under the deal. Mexican producers have been accused of shipping semi-refined sugar that needs minimal processing yet avoids quantitative restrictions on refined sugar exports. U.S. refiners said they have been impacted by a shortage of raw sugar supplies.

Washington Insider: Ag Trade Reality

Because trade was firmly linked rhetorically to U.S. job losses during the campaign, there has been a lot of angst among ag interests regarding what new administration policies might turn out to be. It was widely noticed that Ag Sec nominee Sonny Purdue went to great pains in his confirmation hearing las week to commit to strong support for trade.

Earlier, Ray Starling, special assistant to the president on agriculture, agricultural trade and food assistance, told the press that the White House has been meeting with representatives of the industry to discuss concerns over the U.S. withdrawal from the Trans-Pacific Partnership trade deal and the proposed renegotiation of NAFTA.

"I think a lot of people on the ag front feel like what we got out of our NAFTA was generally good and that we certainly don't want to regress on any of the gains that we made there for ag," Starling had been speaking to a "National Ag Day" event organized by the Agriculture Council of America.

However, this week there was bad news from Mexico in spite of Starling's upbeat assessment. The Financial Times is reporting that Mexico, the largest buyer of U.S. corn is considering offering duty-free access to attract Brazilian and Argentine corn as an alternative to imports from the United States. Such a move could have "big consequences for U.S. farmers" already worried about the administration's trade and tax agenda, FT reported.

Mexico at present imports 98% of its corn from the U.S., and total U.S. farm sales to Mexico were $17.7 billion last year — five times greater than when the NAFTA came into force in 1994, FT says. Mexican corn imports from the U.S. were worth $2.3 billion in 2015, according to USDA. Nevertheless, the administration has said NAFTA is unfair to the U.S. and has vowed to renegotiate the deal or walk away. This threat is impelling Mexico to speed up a search for alternative suppliers in South America, FT says.

"I am pretty optimistic about the possibility of having a deal with these countries soon," Juan Carlos Baker, Mexico's deputy economy minister, told the FT. "We're pretty far advanced with Brazil... Argentina is a few steps behind," he said, adding that he expected to visit Argentina in April or May and soon after to meet Brazilian officials in his sixth such bilateral meeting since 2015. Baker said Mexico could give South American producers the same terms U.S. farmers now enjoyed. "It's going to be the result of negotiations but... if we want to give zero [tariffs], we have the possibility, if it suits us," he said.

The Times also says U.S. rice industry concerns may be growing about Mexico's efforts to source commodities from countries other than the U.S. It reports that U.S. rice saw a 31.4% jump in shipments over the first two months of 2017 compared to the same period in 2016, and that milled rice exports to Mexico nearly tripled to 22,478 metric tons, "nearly half of total milled exports in all of 2016." "Two months do not a trend make, but it's very good news," said Hugh Maginnis, USA Rice's vice president international. The FT suggests that producers worry that recent trade increases could be at risk from Mexico's search for alternative suppliers.

Also this week, White House strategy advisor Steve Bannon, who is no fan of trade, told Politico that the White House would be more active on policy issues in the future and mentioned a new Executive order on trade.

Thus, while ag advocates have been comforted some by growing administration outreach efforts on trade, especially from Governor Perdue, they also are worried by evidence that existing market ties are being weakened by lingering campaign rhetoric and by fights over immigration and other social issues. While the Perdue hearing showed strong political support for the sector, it also indicated that the new secretary faces severe challenges as the new administration works to put its political stamp on national economic and trade policy, Washington Insider believes.

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