Washington Insider--Thursday

Food Execs on High Alert

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

Business Tax Breaks Mulled as Sweeteners for Highway/Tax Bill

House Republicans are looking to advance a package of permanent tax break extensions for businesses in a six-year surface transportation bill. Ways and Means Chairman Paul Ryan, R-Wis., wants to use the bill as a vehicle to rewrite international taxes, through the so-called repatriation of taxes on foreign sales, but that approach is not backed at this time by key Republicans in the Senate.

House Transportation and Infrastructure Chairman Bill Shuster, R-Pa., said he expected Ryan to complete his proposal this week and was holding off marking up the House version of the Senate-passed six-year surface transportation reauthorization (HR 22) until he gets a summary of Ryan's plan for helping offset the $15 billion annual shortfall in the Highway Trust Fund (HTF). Ryan "has got an array of things he's trying to do. It's all moving. He's dealing with House Democrats and Senate Democrats," Shuster noted.

GOP tax writers believe Ryan will try to use several permanent business tax break extensions as sweeteners for an international tax overhaul he has been trying to negotiate with members of both parties. The top candidates for inclusion include the House-passed proposal (HR 880) on the modified research tax credit, a House-passed proposal on higher small-business expensing levels under section 179 (HR 636) and a pending committee-approved proposal (HR 2510) on bonus depreciation.

Senate Finance Chairman Orrin Hatch, R-Utah, said Ryan's coming international tax plan was an "awful lot to chew on" before the expiration on Oct. 29 of the current highway funding patch.

House Majority Leader Kevin McCarthy, R-Calif., in remarks on the Fox Business Network, said he still hoped to build support for the highway/international tax package that he said would be "a big win" move towards a territorial system for taxing corporate profits and "bring the money back home" from overseas business operations. "We have an opportunity here to get territorial tax reform, for repatriation, to stop the inversions that are happening in America today," McCarthy said.

Democrats like Minority Whip Steny Hoyer, D-Md., said Democrats would continue to oppose permanent business tax breaks unless they include offsets to cover their cost. The White House has signaled that any permanent business tax break extensions should be accompanied by sweeteners for working families.

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China Sets 2016 Import Quotas at 2015 Levels

China has set low-duty import quotas for corn, wheat, rice and cotton in 2016 that are at the same levels as those established for 2015 and 2014, according to an announcement from the National Development and Reform Commission (NDRC).

The duties will be 9.636 million metric tons for wheat, 7.2 mmt for corn, 5.32 mmt for rice and 894,000 mmt for cotton.

For 2016, the announcement did not detail the allocations of the quotas, except Bloomberg reported 33% of the cotton quota would be allocated to state-owned firms.

In 2015, the allocations to state-owned companies were 90% on wheat, 60% on corn, 50% on rice and 33% on cotton.

In 2015, China held a series of auctions of state-owned supplies to determine the portion of the quotas that went to private firms. The auctions were an effort to whittle down mountainous supplies of state-owned grain and to thwart corruption in the system. It is not clear whether China will follow that pattern for 2016.

The import quotas won't likely have a significant impact, particularly on corn, as USDA currently forecasts Chinese 2015/16 corn imports at 3 mmt. With large domestic supplies and efforts by the Chinese government to pare those supplies, that should temper corn import interest.

It should be noted that there are no quotas on imports of sorghum and barley, two commodities Chinese importers have turned to given the corn situation in China where domestic supplies are pricier than imported corn.

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Washington Insider: Food Execs on High Alert

For years, food activists have said consumers are at risk because the Food and Drug Administration only inspects a small portion of food and rarely penalized companies that violate food laws.

Recent actions of heavy fines and jail time for food company executives when food laws are broken are a sign that might be changing.

Bloomberg News is reporting that company executives, faced with potential jail time for shipping contaminated food, are expected to invest in robust food safety systems.

"For a long time food cases didn't carry the penalties that have been handed out," Michael Moore, U.S. Attorney for the Middle District of Georgia which prosecuted the PCA case, told Bloomberg. "There's no better way to get an executive's attention than the possibility of going to jail. They'll certainly go if they're trying to enrich themselves at risk of public safety."

On Sept. 21, Stewart Parnell, who ran the now-defunct PCA as chief executive, was sentenced to 28 years in prison, the toughest punishment in history for a food poisoning case. His brother Michael Parnell, who was a food broker for the company, was sentenced to 20 years behind bars and a former quality control manager was sentenced to five years in prison.

PCA shipped salmonella-tainted peanuts that killed nine people in 2009 and sickened hundreds. Prosecutors during the trial said the Parnell brothers defrauded customers by covering up the presence of salmonella and fabricating documents accompanying peanut shipments that said the product was free of pathogens.

Unlike most of the cases, which have been prosecuted as misdemeanors, the PCA convictions were on felony charges because there was evidence of intent. In addition, there were several high-profile foodborne illness outbreaks between 2006 and 2010 that attracted national attention, including peanut butter from ConAgra Foods Inc., fresh spinach contaminated by E. coli and eggs with salmonella produced by a company in Iowa. In response, Congressional hearings were held with food company executives and officials from USDA and FDA. Stewart Parnell was among those subpoenaed, but he invoked his Fifth Amendment rights and refused to testify.

Bloomberg noted the Justice Department recently prosecuted four companies and in most of those cases, individual executives. These included a unit of ConAgra Foods Inc. that agreed to pay an $11.2 million fine, the most ever paid in a food safety case, although no individuals were prosecuted.

When the settlement was announced, ConAgra said after the 2007 recall it invested in leading-edge food safety technology.

In April, the owner and a top executive of what was one of the largest U.S. egg companies each were sentenced to three months in prison plus a year of probation and fined for their roles in the 2010 recall of more than half a billion eggs containing salmonella. The Iowa-based Quality Egg LLC also admitted to bribing a USDA inspector and unknowingly introducing adulterated food into interstate commerce. In 2014, two cantaloupe farmers in Colorado were sentenced to five years' probation each for a 2011 Listeria outbreak that killed 33 people.

Before these convictions, the Justice Department had indicted only three companies over contaminated food that caused deaths or serious injuries. "I didn't see any uptick in these cases until 2008-2009," Jim Neale, a partner at McGuireWoods LLP who has represented ConAgra in civil food safety cases, told Bloomberg. "Now, any time there's a recall there seems to be the threat of an investigation. It's as if the Department of Justice has taken the law off the shelf and dusted it off."

So, there appears to be a new attitude at FDA now, and perhaps new muscle. Still, how successful the agency's protections will be in deterring future violations will depend on several things, including Congressional willingness to fund FDA programs. The next food fight likely will be over the budget, a confrontation producers should watch carefully as it proceeds, Washington Insider believes.


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(GH/SK)