Washington Insider-- Monday

Carbon Banks for Farmers

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

US, EU Suspend Tariffs in Civil Aircraft Dispute

The U.S. and European Union (EU) announced a suspension of retaliatory duties aimed at reaching a negotiated solution in the dual civil aircraft disputes, this following the same announcement from the U.S. and UK March 4.

“The European Union and the United States today agreed on the mutual suspension for four months of the tariffs related to the World Trade Organization (WTO) Aircraft disputes,” a joint statement from U.S. and EU trade officials read. “The suspension will cover all tariffs both on aircraft as well as on non-aircraft products and will become effective as soon as the internal procedures on both sides are completed.”

Under the suspension, the U.S. and EU are seeking to “to ease the burden on their industries and workers and focus efforts towards resolving these long running disputes at the WTO,” the statement said.

The move means $7.5 billion in U.S. tariffs on EU goods and $4 billion in tariffs levied by the EU on U.S. goods will be lifted for at least four months, including many ag products like spirits, cheeses, and pork.

However, USDA Secretary Tom Vilsack said Friday that if the U.S. and EU are to rekindle talks towards a trade deal they must include agricultural goods.

Stabenow Downplays Concern Over PAYGO Impacts on Farm Programs

The warning that U.S. farm programs could face sizable cuts due to PAYGO budget rules that was raised by Senate Ag Committee Ranking Member John Boozman, R-Ark., was tamped down by panel Chair Debbie Stabenow, D-Mich.

Congress will do what it has done before, Stabenow said, which is to waive the requirement to offset spending that would trigger major cuts to mandatory programs like farm programs.

Boozman warned that U.S. ag programs could see sizable cuts in the wake of the stimulus plan via sequestration.

Washington Insider: Carbon Banks for Farmers

Bloomberg is reporting this week that USDA is exploring making a carbon bank for farmers — and is beginning an intense examination of how to structure a carbon market that would encourage broad participation. Questions raised include whether to guarantee a minimum price for credits given for reducing emissions, Secretary Tom Vilsack said Friday.

“We will be exploring in depth how we could structure appropriately a carbon bank that would be designed for and benefit farmers,” Vilsack said. “Would it require a price guarantee on carbon? Would it require a program that invests and provides resources for the capital costs associated with capture of carbon?”

Vilsack also warned that despite the big Chinese purchases that recently have buoyed agricultural markets, the Asian nation remains a “fickle trade partner” that could shift directions if geopolitical tensions escalate. He also committed to a “deep dive” to examine competition in livestock markets now dominated by a few giant meat and poultry processors.

He laughed off a question about whether he will remain in his post for President Joe Biden's full first term, responding “What are you going to do four years from now?” Vilsack previously served as agriculture secretary the entire eight years of Barack Obama's presidency.

Vilsack, 70, was confirmed last week by the Senate and takes the top spot at USDA after some volatile years for farmers amid the Trump administration's trade war with China. While a deal with the Asian country was eventually reached, the USDA still continued its large aid program for growers amid the pandemic's economic blow. A focus on climate change, which Vilsack said is “the priority” in the coming 12 months, would be a big shift from his predecessor.

“Farmers will understand and appreciate we are quite serious about it,” he said.

The USDA chief said no decisions have yet been made on what specific actions the administration will take to reduce greenhouse emissions but that his department is examining “an array” of approaches including changes to existing conservation programs, a carbon bank and altering crop insurance premiums. Different premiums for farmers based on whether they adopt climate-friendly practices “is in the mix to take a look at,” he said.

He noted that private carbon banks have already been set up in some cases, but “clearly aren't yet attracting enough interest among farmers.”

Vilsack said he plans to devote “significant” resources to climate initiatives, though he said he doesn't “have a number in mind” for funding. He said climate initiatives will be more than a “pilot program or proof of concept,” though they will initially be “small scale” as the department builds experience and a record that will generate support in Congress.

Vilsack said his team believes the administration has authority to immediately fund climate initiatives by tapping the borrowing authority of the Commodity Credit Corp., the Depression era entity recently used to finance his $28 billion trade bailout. But he said his team is still figuring out whether the entity's congressionally authorized credit ceiling will allow “meaningful” climate funding without disrupting farm subsidy programs also financed through CCC.

The wave of Chinese grain purchases in recent months that have helped buoy U.S. farmers' financial outlook remain vulnerable to the vicissitudes of relations between Washington and Beijing, so it is crucial that farmers diversify trade partners, he said.

China has “great demand and great need” for U.S. farm purchases, he said. But, “anything at any point in time can disrupt the balance that exists,” and “all bets are off” if conflict arises.

Though China fell short of its purchase commitments during the first year of the phase one trade deal, Vilsack said he is “not aware of any” effort by Beijing to renegotiate commitments under the agreement.

He added that it isn't “going to be particularly helpful” to make use of any sanctions in the trade agreement for shortfalls in purchases during the first year, particularly since the deal allows adjustments based on market conditions.

“If you want to continue the trade, and you poke them in the eye on that issue, it doesn't make sense to me,” he said.

Vilsack this week appointed Andy Green as a senior adviser on competition. Green was previously a fellow at the liberal think tank Center for American Progress, which has issued reports critical of concentration in agribusiness. The agriculture secretary said the department will in particular focus on meat and poultry processors following disruptions in the industry during the pandemic and other events.

“There needs to be a focus on the processing capacity in the country and whether or not it's incredibly concentrated and does that not only create issues with competition but, as important, does it also create resiliency questions with the supply chain,” he said.

So, we will see. The carbon bank issue has considerable support in rural areas, observers say, and it likely can be crafted so that it fits the administration's efforts to support green policies. These are policies that producers should watch closely as they emerge, Washington Insider believes.

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