Washington Insider -- Tuesday

More Pressure Against Ag Checkoff Programs

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

Questions Remain on China's GMO Commitments

One of the components of the 100-day plan on trade between the US and China reached earlier this year between President Donald Trump and Chinese President Xi Jinping was a commitment China's National Biosafety Committee would hold a meeting by the end of May and evaluate eight pending US biotech crop products.

Some now signal there may have been different products referenced by the two sides. Dow AgroSciences said it previously understood that its "Enlist" variety of soybean was one of the eight pending biotechnology traits referenced under the 100-day plan. However, China's Ministry of Agriculture recently told the firm that variety was not one of the eight.

"We are seeking to clarify MOA's position related to Enlist soybeans," Dow said in a press release. "We will continue to work cooperatively with MOA to ensure this much-needed new technology will soon be available to farmers located in the US and throughout the Americas."

RIN Price Surge Seen Boosting US Gasoline Exports

U.S. gasoline exports are the highest they have ever been on a seasonal basis, with one reason being the surging cost for American refiners to comply with a federal biofuels mandate – the Renewable Fuel Standard (RFS).

Refiners must either blend ethanol into their gasoline or purchase credits – known as Renewable Identification Numbers (RINs). Prices for RINs have jumped 90% since May to 83.5 cents apiece, and may reach $1 in coming months, said Aakash Doshi, an analyst at Citigroup Inc. in New York.

The oil industry contends that even with record gasoline consumption forecast for this summer, refiners will not be able to absorb all of the ethanol the government forces them to blend. That is stoking demand for RINs so refiners can remain compliant with the law. However, the rising cost of RINs is incentivizing a second option for refiners, according to Mark Broadbent, an analyst at Wood Mackenzie in Houston: exporting their gasoline, which makes it exempt from the biofuels mandate.

The workaround has also become more popular because of refinery problems in Mexico and unrest in Venezuela that are supporting demand for gasoline imports in those two countries. "The export market’s been pretty strong," said John Auers, executive vice president at Turner Mason & Co., a Dallas-based energy consultancy. "You don’t have to buy" RINs.

RIN prices were volatile earlier this year on speculation the Trump administration would dramatically cut biofuel targets in response to lobbying from the refining industry. Earlier this month, the government proposed RFS volume mandate's for 2018 that temper overall biofuel use. But, the Environmental Protection Agency (EPA), which administers the biofuels mandate, also proposed leaving the quota for conventional renewable fuel – mostly corn-based ethanol – at statutory limits.

By law, U.S. refiners must use 15 billion gallons of conventional biofuel this year. Gasoline demand is projected to be 143.2 billion gallons, according to the Energy Information Administration (EIA). That means ethanol should account for more than 10% of U.S. gasoline supply. Exceeding the 10% threshold is a problem for petroleum advocates, who argue that high blends can damage vehicle engines.

Washington Insider: More Pressure Against Ag Checkoff Programs

USDA has long run programs to promote consumption of particular commodities basically on the theory that the government has a stake in maintaining strong markets for U.S, farm products. The programs are overseen by USDA, and are prohibited from lobbying Congress. Farmers grumble about the programs’ costs, but frequently vote to support them on the theory that they do what individual farmers cannot.

However, The Hill reminds that not everyone likes these programs, especially those who wish to promote their own brands. Others focus on a broad range of social issues such as small farmers, and animal rights activists. Groups of program opponents flew to Washington recently to meet with lawmakers and push for legislation they say will bring needed reforms.

At issue are the mandatory fees for the programs, The Hill says, even though the funds have been used for such popular campaigns as the "Got Milk" ads and the "Beef: It's What's for Dinner" campaign and many others.

Program critics argue that those programs promote policies for industrialized agriculture, not small farmers and ranchers and the recent fly-in this month was organized by the Humane Society of the United States and Humane Society Legislative Fund. Program opponents have many and various reasons for opposition. “The least we are asking for is transparency,” Eric Swafford, Tennessee HSUS state director and a former Republican state representative, told The Hill.

“No one can see how these checkoff dollars are being spent, and there is no accountability. The system is inherently broken,” Swafford, a fourth-generation cattleman, added.

One of the opposition bills, the Opportunities for Fairness in Farming Act, would enforce greater transparency on how the funds are used.

The bill has bipartisan support and was introduced by Sens. Mike Lee, R-Utah, and Cory Booker, D-N.J., Reps. Dave Brat, R-Va., and Dina Titus, D-Nev., are working on companion legislation in the House.

“Federal checkoff programs, which impose a mandatory tax on farmers and ranchers, are in desperate need of reform,” Booker told The Hill. “Checkoff programs need to do a better job of spending their dollars in ways that benefit small family farmers, and the legislation that Senator Lee and I have introduced will increase transparency and help restore trust in checkoff program practices.”

The OFF Act would require checkoff programs to publish all budgets and expenditures of funds and to submit periodic audits by the USDA inspector general.

In 2005, checkoff dollars were ruled as government taxes rather than producer fees, but there is insufficient attention to auditing those funds, the Hill asserts, although the programs are required to submit frequent reports to Congress.

The promotional ad campaigns have helped boost American agriculture, but they are opposed by both larger and smaller farmers and ranchers, who complain that their needs are not being met. They even accuse the programs of lobbying for legislation that promotes the interests of big producers and blame lax oversight at the Agriculture Department. “Young and alternative farmers are seeking a voice, but are being deprived of the opportunity,” Swafford said.

Another reform bill, the Voluntary Checkoff Program Participation Act, introduced by Lee and Brat in the House, would take the OFF Act a step further by prohibiting the compulsory checkoff programs altogether.

Many of the attendees were hopeful the Trump administration would back their push.

The programs have almost always been controversial, but the opponents seem a little better organized now—and, it would be surprising if the new administration will favor what is, after all, another government program with mandatory private funding.

There also has long been a low-level suspicion that the programs may not do much good, especially given the problems the US faces with obesity today—in spite of library shelves full of reports on positive cost-benefit ratios. So, this is another area of potential change that producers should watch closely as yet another “checkoff” debate proceeds, Washington Insider believes.

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