Washington Insider -- Monday

Trump Administration Report on Climate Change

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

China Keeps Opening Up to Grain Imports from More Countries

China's efforts to broaden their sources for grain imports continues, with Kazakhstan the latest to be approved to ship barley and corn to China.

The country has embarked on an effort to bring in more grains and oilseeds from other countries after the U.S.-China trade frictions have seen China hit a host of U.S. grains and oilseeds with import duties of at least 25%.

But the approval of Kazakhstan as a barley supplier is seen as more of an effort to replace or minimize the impacts of a potential limit on imports of Australian barley as China announced it was opening an antidumping probe into barley imports from Down Under.

Despite the allowance for Kazakhstan, most doubt there will be a huge rise in exports from the former Soviet country as logistics are likely to curb the level of imports, keeping the volume minimal, according to analysts quoted by Reuters.

The situation also comes as President Donald Trump and Chinese President Xi Jinping are poised to meet after the G20 meeting in Argentina later this week when the hope is the two officials will come to terms on a framework agreement that would set the stage for additional negotiations with an aim at reducing the trade tensions between the two.

US Food Price Inflation at Grocery Stores Still Tame

U.S. consumers are enjoying only slight food price inflation at the grocery store in 2018, with USDA maintaining its outlook that grocery store prices will rise 0.5% compared to 2017.

The 2018 level is where USDA has seen those prices for several months and comes after two years in a row when food prices actually declined at the grocery store – those costs were down 1.3% in 2016 and another 0.2% in 2017. The 2016 decline was the first registered at the grocery store since the late 1960s, according to USDA economists.

The 20-year average for prices at grocery stores is that they increase 2.1% compared to the prior year. Even in 2019, USDA expects consumers will only pay 1.5% more for as they shop compared to 2018.

Restaurant prices, however, are still seen rising 2.5% in 2018, just ahead of the 2017 increase (2.3%) but behind the 2016 rise (2.6%). Restaurant prices take several factors into account that do not show at the cash register in grocery stores. "Restaurant prices primarily comprise labor and rental costs with only a small portion going toward the food being served," USDA notes. "For this reason, decreasing farm-level and wholesale food prices, which have exerted downward pressure on food-at-home prices, have had less of an impact on restaurant menu prices."

Overall U.S. food price inflation is looked to be 1.25% in 2018 and 2% in 2019. However, the outlook for 2% overall food price inflation was where USDA started for its predictions for 2018. Plus, the 20-year average for overall food price inflation is 2.4%, a level that has not been seen since it rose that much in 2014.

Washington Insider: Trump Administration Report on Climate Change

In something of a surprise, the administration published a major report documenting the advance of climate change “weeks earlier than expected and on a day many Americans are occupied with family and holiday shopping,” Bloomberg says this week.

The news is predictably bad, but this time the tally comes with a price tag.

The report catalogs “observed damage and accelerating financial losses projected for a climate now unmoored from a 12,000-year period of relative stability.” The result is that much of what humans have built, and many of the things they are building now, are unsuited to the world as it exists. And as time goes on, “the added cost of living in that world could total hundreds of billions of dollars annually,” Bloomberg reports.

“The assumption that current and future climate conditions will resemble the recent past is no longer valid,” the authors write.

Bloomberg notes that President Trump has rejected “without evidence” the global scientific consensus that humans are doing grave damage to the planet. In addition, he has “sought to roll back Obama-era initiatives to slow greenhouse gas pollution in favor of fossil fuel interests.” In recent years, thousands of Americans have died during, or as a consequence of, extreme weather tied to climate change — from powerful hurricanes fueled by extremely warm seas to calamitous conflagrations stemming from drought.

Part of the fourth U.S. National Climate Assessment (NCA) since 2000 (the last one was in 2014), the report departs from predecessors in that it focuses on money, and how much of it America stands to lose to climate change. The costs assessed range from household expenses to the availability and pricing of food, energy and other goods people use in modern society.

And it’s not just the effects at home. “The impacts of climate change, variability, and extreme events outside the United States are affecting and are virtually certain to increasingly affect U.S. trade and economy, including import and export prices and businesses with overseas operations and supply chains,” the authors write.

“Now it’s seen much more as a societal or economic issue than a narrow environmental one.”

A chapter on how to avoid worst-case scenarios, called mitigation, looks at estimates of economic losses across the economy by sector, pinned to the end of the century. They suggest that policy, technological and behavioral changes that lead to significantly lower emissions can cut potential financial damage across many sectors roughly by half.

Nevertheless, such a scenario will still leave Americans in a country where they are paying tens of billions of dollars more annually to address the fallout of accelerating climate change. A scenario with dramatically less pollution could slash projected losses in 2090 by 48% ($75 billion) a year in labor costs, 58 percent ($80 billion) in heat-related deaths and 22% ($25 billion) in coastal real estate, according to the report.

The national assessment, which announces no specific policy or budget decisions, is a product of 13 federal agencies. It’s the second volume of this iteration of the NCA; the first, about physical changes to the climate, was published a year ago.

When the first NCA came out in 2000, researchers were still thinking through how different parts of the U.S. might be vulnerable to natural and human-driven changes. Almost two decades later, the assessment incorporates a grim accounting of actual damages, which in turn allows firmer projections of what’s coming.

For example, about 90% of the northeast is built on infrastructure poorly suited to adjust to rising seas. “Projected future costs are estimated to continue along a steep upward trend relative to what is being experienced today,” the report states.

More than 60% of big southeastern cities see heat-wave trends above the national average, and three of them, Birmingham, Ala., New Orleans and Raleigh, N.C., are exceeding the rest of the country across all major heat-wave measures.

Anchored by California’s clean-tech economy, the Southwest is seeing much of the nation’s new energy investment. Legacy power technologies, such as water-cooled power plants, will continue to work for decades, however, and will be less effective as temperatures make cooling sources too hot. Hot water could reduce efficiency of these power plants by 15% by 2050.

A new chapter of the assessment addresses U.S. interests abroad emerged from the previous report’s work on agriculture. The sector directly contributed $136.7 billion and 2.6 million jobs to the U.S. economy in 2015. It’s also a significant source of pollution—about 9 percent of the U.S. total in 2016—and vulnerable to its impacts both at home and from abroad, the report said.

Since the global nature of food-system risk drew interest during the 2014 report discussions, researchers conducted deeper analysis “on things like the vulnerability of U.S. supply chains.” While scientists are developing climate change resistant crops, the progress has been “modest,” according to the NCA. It calls for more public investment in these projects and notes that—against the claims of some environmental groups — “genetically engineered crops have shown economic benefits for producers, with no substantial evidence of animal or human health or environmental impacts.”

“Few studies exist that quantify the impact of climate change on U.S. corporations and the effectiveness of adaptation actions to reduce those impacts,” the report says. The goal of adaptation, they emphasize, is not to prepare lives and infrastructure for a new, static normal, but a continuous, forward-looking process.

So, we will see. The new report likely will be every bit as controversial as its predecessors have been, and the scenario it paints is just as scary. However, it holds out at least some hope for mitigating significant impacts of the shifts — efforts that will be important to producers and which should be watched closely as the climate debate intensifies, Washington Insider believes.

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