Washington Insider -- Wednesday

Dairy Industry Support Strengthened

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

US Threatens EU with Tariffs Via WTO Ruling On Airbus

The U.S. has threatened the European Union (EU) with $11.2 billion in tariffs on a broad list of products in retaliation for EU subsidies to Boeing rival Airbus.

The World Trade Organization (WTO) says European subsidies to Airbus have harmed the U.S. The new tariffs would come into effect when the WTO confirms the extent of the subsidies’ harm, with that ruling expected this summer.

"This case has been in litigation for 14 years, and the time has come for action,” said U.S. Trade Representative Robert Lighthizer. “Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft. When the EU ends these harmful subsidies, the additional U.S. duties imposed in response can be lifted.”

The preliminary list, which will be open to public consultation but expected to be finalized in the next few months, is largely split into two major categories. The first is new helicopters, new aircraft and aircraft parts exported by Airbus’s manufacturing facilities in France, Spain, Germany and the UK.

The second is agriculture products including a variety of cheeses such as Roquefort, pecorino, Gouda and Stilton, wine, fresh and dried fruit, fruit juices, jams and olive oil.

Mexico Offers Tomato Trade Plan for USMCA

Mexico's tomato industry on April 5 presented the U.S. Commerce Department with a proposal for a new tomato trade deal between the two countries, including a significantly higher floor price for selling Mexico tomatoes to the U.S.

The offer comes in the wake of the Commerce Department announcing earlier this year it was preparing to end the suspension agreement between the two countries on tomatoes as of May 7. That action would set the stage for the U.S. to resume an investigation of Mexican tomato shipments to the U.S. that could result in hefty antidumping duties being put in place.

Reports indicate that Mexico has proposed elimination of a pricing distinction between winter and summer tomatoes, with a discount applied to those shipped in the summer. That would result in the winter reference price applying for the full year on each of four tomato categories.

The final determination is up to the U.S. Department of Commerce, but the Florida Tomato Exchange said in a statement that they welcomed the Mexican offer as it "contains some useful suggestions on how to prevent circumvention of the suspension agreement by Mexican producers."

Getting the agreement in place could help boost support for the U.S.-Mexico-Canada Agreement (USMCA) in the U.S. Congress since safeguard provisions on shipments of fresh produce were not included in the plan.

Washington Insider: Dairy Industry Support Strengthened

Dairy industry problems have been among the toughest across agriculture for many years and continue to be so today. Even as USDA is preparing to roll out an enhanced program, the industry is suggesting that more help may be needed, POLITICO says this week.

Many bipartisan lawmakers have touted USDA’s new plan, including House Agriculture Chairman Collin Peterson, D-Minn., who led an effort to revamp the dairy safety net in recent months. He told POLITICO the new approach “will save many milk producers.”

The producers themselves are less convinced, POLITICO says. Although they are thankful for any help the government can give, they are worrying the “new aid won’t solve the more systemic problems at hand.” POLITICO canvassed a number of agricultural economists, bankers and cooperative officials, who highlighted the complexities of the dairy downturn.”

The report concluded that industry problems are “spurred by global oversupply and worsened by retaliatory tariffs by top trading partners.”

The report also notes that dairy operations are continuing to consolidate with larger and more efficient operations squeezing out smaller competitors, so even as some numerous producers quit, “supply continues to outstrip demand.”

In 2018, Congress set out to address the plight of dairy farmers by strengthening a federal insurance program that had been included in the 2014 Farm Bill. The change reduces sign-up costs for policies and changes the rules to increase payments when industry conditions worsen.

That revamped program, now called Dairy Margin Coverage, is expected to send about $600 million in payments to milk producers in 2019 alone, USDA says — "three times more than the old program paid out over three years.”

The 2014 program was criticized because producers paid more in premiums than they received in payments, even when milk prices dropped significantly, POLITICO says. A key feature of the new approach is to make the Margin Coverage program more affordable for small and medium-size farms — those producing under 5 million pounds of milk a year, a group that accounts for about a quarter of U.S. milk production.

The new benefits are available for larger dairy operations, as well, but can only be applied to a fraction of their milk production unless they want to pay higher premiums.

As before, the new program is designed to help farmers who are squeezed between the price of milk and the cost of buying feed. Payments are triggered when the difference between the two drops below a level each month that farmers choose to insure. Under the old program, farmers could insure up to $8 margins. Now, they can be insured for up to $9.50 margins.

Producers who opt for the highest levels of coverage can expect frequent payments if the market conditions of the past few years continue, according an analysis by the American Farm Bureau Federation. Since 2015, margins have fallen below $9.50 about 80 percent of the time and below $8.50 about half the time.

The 2018 Farm Bill includes other incentives — for example, for those who participated in the old program, they can either get 50% of their premiums refunded in cash or sign up for Margin Coverage and get a 75% credit to use toward future premiums.

Asked whether the new program could encourage farmers to increase milk production because it would be less risky, and therefore exacerbate the oversupply problem, Peterson said he wasn’t concerned because the smaller dairies that will benefit the most don’t produce a lot of the country’s milk. “We don’t think it will be a problem,” he said.

He and Senate Agriculture ranking member Debbie Stabenow, D-Mich., along with more than 100 other lawmakers, sent letters last week pressing USDA to fast-track updates to the dairy program. Agriculture Secretary Sonny Perdue has said that sign-ups will open mid-June.

Most of the farmers that POLITICO interviewed shared Peterson’s view and said they plan to participate in the new program. Owners of large California dairies, however, said it would likely be too costly for them to enroll.

POLITICO reported that many farmers think that a government insurance program isn’t the solution to the broader problems overwhelming the industry. Some called for supply management tools — a controversial approach formerly used in several ag programs.

Other farmers are pegging their hopes on an expansion of overseas markets and a resolution to the administration’s trade disputes to stimulate demand.

The dairy industry is important nationwide and produces a broad range of products with very different market profiles. Its rapid productivity growth over many years has meant frequent episodes of market saturation and strong, continuing pressures for government interventions, often in the form of costly “stabilization” efforts.

Producers should watch closely as the new program is tested and, especially, as calls for new forms of supply controls are heard once again, Washington Insider believes.

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