Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.
EPA Now Supports 10th Circuit Court Small Refinery Exemption Decision
EPA on Monday announced they have taken a new position on small refinery exemptions (SREs), saying that after “careful consideration” that they support the 10th Circuit Court of Appeals ruling in the case of Renewable Fuels Association (RFA) vs. EPA.
“EPA supports that court's interpretation of the renewable fuel standard (RFS) small-refinery provisions,” the agency said in a release. “This conclusion, prompted by a detailed review following the Supreme Court's grant of certiorari in the case, represents a change from EPA's position before the 10th Circuit. The change reflects the Agency's considered assessment that the 10th Circuit's reasoning better reflects the statutory text and structure, as well as Congress's intent in establishing the RFS program.”
The 10th Circuit in January 2020 vacated and remanded three EPA decisions to grant SREs for the 2016 and 2017 compliance years, holding that a “small refinery's position can be granted only if the refinery satisfies two conditions,” EPA noted, those being that the refinery had to demonstrate an existing exemption and they have to demonstrate disproportionate economic hardship caused by RFS compliance.
On Jan. 8, 2021, the U.S. Supreme Court agreed to review the 10th Circuit court decision at the request of the small refineries affected by the decision.
“After further, careful review of the RFA Decision following the change of Administration, EPA has reevaluated the statutory text and now agrees with the 10th Circuit's reading” of the Clean Air Act section which said that “an exemption must exist for EPA to be able to 'extend' it,” the agency said. “EPA agrees with the court that the exemption was intended to operate as a temporary measure and, consistent with that congressional purpose, the plain meaning of the word 'extension' refers to continuing the status of an exemption that is already in existence.”
USDA Changes Definition of 'Agricultural Products' in Trade Data
USDA will shift its definition of “agricultural products” in terms of U.S. export data in the January 2021 trade data to be released March 5.
The change will adopt the WTO definition of “agricultural products” to include ethanol, distilled spirits, and tobacco products. Those products are not currently considered ag products under USDA's current definition.
The change will put the USDA numbers on agricultural products in line with the Office of the U.S. Trade Representative (USTR).
USDA's Foreign Agricultural Service is updating its historical datasets for the March 5 change and said it would “make data available under both definitions in its Global Agricultural Trade System (GATS) database.”
Washington Insider: Growing Snarl in Global Shipping
Bloomberg is reporting this week that an “ongoing surge” in the cost of shipping goods around the world is prompting manufacturers and their customers to search for new arrangements of many kinds. The report says that exporters, importers and their agents are considering buying their own shipping containers and chartering vessels to avoid the sky-high costs and delays of existing services.
Most of the 25 million containers in global use are owned or leased by about a dozen ocean carriers including Copenhagen-based AP Moller-Maersk A/S and China's Cosco Shipping Holdings Co. The steel boxes are still scarce on routes from China, Bloomberg says, and reports that exporters in Asia are complaining that rates to move freight to Europe or the U.S. jumped fivefold in the past year.
One large maker of toys, such as Sea-Monkeys, says some buyers are deferring shipments until prices cool down.
If it persists, the crunch threatens to dim hopes of a smooth recovery from the world economy's pandemic slump, Bloomberg asserts. While a boom in demand for work-from-home technology and medical equipment has fueled a sharp rebound in trade, pressures on the supply side are straining inventories and weighing on balance sheets.
“We still have a backlog that's the highest we've had in our history,” Clarence Smith, chairman of 135-year-old Haverty Furniture Cos. of Atlanta, said on a conference call last week. “We're paying a premium to get the product to make sure we can serve our customers” and “we are increasing prices.”
A 2016 paper by the Federal Reserve Bank of Kansas City said “a 15% increase in shipping costs leads to a 0.10 percentage point increase in core inflation after one year.” In the U.S., imported goods account for about 12% of gross domestic product and most arrive by sea.
Because U.S. import price indexes don't include information about cargo rates, “shipping cost pressures act as an additional, but often overlooked,” channel for price pressure the Fed paper said.
Germany's Schwarz Group – one of the world's biggest supermarket operators – recently considered hiring whole ships to transport goods, according to Hong Kong-based executive Bjoern Lindner. “All of my peers in the industry are scrambling for capacity” and “we have to be creative,” he said.
Brian Sondey, chief executive of container leasing firm Triton International Ltd. of Hamilton, Bermuda, said some shippers of cargo are looking to buy their own boxes and “finding that somehow it's a net lower price.”
“We've seen some interest in people like the Amazons of the world to start maybe owning some of their own containers because they get charged by the shipping lines when they hold on to containers longer than they are supposed to,” Sondey said on a conference call last week.
In the meantime, the container carriers are “pulling out all stops” to meet the sustained high demand, said John Butler, CEO of the World Shipping Council, a group representing the liner industry. “All vessels are sailing, all available container equipment is being used, carriers are setting up new inland depots to speed up trucking turn-time operations and doing their best to keep customers informed in an extremely unpredictable situation,” he said.
Some of supply pressure may ease in coming months, given container throughput at Shanghai Port increased by more than 20% during the Lunar New Year holiday compared with a year ago, and throughput at Ningbo Zhoushan Port rose about 29%, Xinhua reported, citing data from from the China Ports & Harbours Association.
Still, the longer shipping costs remain elevated, the more the question lingers of whether they'll start to show up in the price of consumer goods.
Toymaker Dave Cave, who runs Hong Kong-based Dragon-I Toys – one of the world's biggest manufacturers of toy dinosaurs and whose products include aquatic pets called Sea-Monkeys and Chatimal the Talking Hamster – said it's not worth shipping some toys given the tight margins already in the industry.
He warns that unless conditions improve, retailers may raise their prices. “If nothing changes between now and the end of May, everyone who is shipping will land products at a much higher price than the actual products already in the store,” he said in an interview.
Some of Cave's clients are deferring shipments until April on hopes that conditions improve. “Never, ever, ever has a container price ever been more than 20% or 30% up or down, never. To be 500% up, this is something new to everybody.”
At this stage, though, many economists remain sanguine about the inflation threat and don't expect shipping costs to materially dent shopping baskets in the U.S. and Europe. “Ultimately, whether such costs can be passed on to consumers depends on the strength of consumer demand, which is more related to fiscal and monetary policy in the U.S. and Europe,” said Helen Qiao, chief Greater China economist at Bank of America.
So, we will see. Rebuilding links between participants in the global trading system likely will be subject to many types of adjustments – trends producers should watch closely as the enormous global system readjusts, Washington Insider believes.
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