Washington Insider-- Thursday

U.S.-China Summit

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

Farm-State Lawmakers Blast House GOP Plan to Eliminate Interest Deduction

Rep. Bob Gibbs, R-Ohio, pounced on the House Republican proposal to eliminate the tax deduction for interest expenses, which is included in the conference's blueprint to overhaul the tax code, calling the concept "ludicrous." The House Agriculture Committee held a hearing Wednesday in which several members noted the need for an exception.

The House Republican plan could result in higher taxes for many family farmers and other small businesses. The potential change would allow small businesses to deduct net interest expense, a measure the House GOP tax plan would eliminate in exchange for the ability to immediately write off equipment purchases.

"I can’t understand why anyone would come up with that," Gibbs said during a House Agriculture Committee hearing on tax reform. "They've obviously never run a business." Rep. Steve King, R-Iowa, also blasted the proposal.

Agricultural operations are substantially debt-financed and incur a substantial amount of interest expenses each year, such as on equipment and land, said Patricia Wolff, senior director of congressional relations at the American Farm Bureau Federation. Losing the deduction would hurt farmers' and ranchers' cash flow and ability to make large purchases, and be "even worse for young and beginning farmers who have to buy land and equipment to get started," Wolff said.

The Farm Bureau is one of the loudest voices pushing for an exception in an overhaul of the tax code. About 95% of farm sector debt in 2015 was held by banks, life insurance companies and government agencies, meaning that losing the interest deduction would harm their liquidity and make it difficult to purchase land and production inputs, the group said.

As it stands, many small businesses do not need an overhaul of the tax code to be able to deduct the cost of machinery or software. Companies that buy less than $2 million worth of equipment in 2017 can fully deduct the first $500,000 under tax code Section 179.

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New Coalition Forms to Oppose Icahn-Backed RFS Changes

New coalition launched to fight efforts by Carl Icahn to make big changes to RFS. The effort is aimed at Icahn, a billionaire Trump advisor who has significant investments in the oil and gas sector, and Valero Energy, both pushing for major changes in the Renewable Fuel Standard (RFS).

The Main Street Energy Alliance will battle efforts that would broaden and alter the categories of companies facing compliance obligations under the RFS. Icahn and Valero, arguing that they face expensive compliance costs, want the EPA to alter the point of obligation to include companies that blend and retail gasoline. The new coalition wants to keep the current policy intact.

The coalition has over two dozen members of various sizes ranging from convenience stores and small energy companies to energy giants BP and Shell. They include 7-Eleven, the National Association for Convenience and Fuel Retailing, Sheetz, QuickTrip, the Society of Independent Gasoline Marketers of America, Coleman Oil, and others. Their spokesman is Michael Steel of Hamilton Place Strategies, who served as a top aide to former House Speaker John Boehner, R-Ohio.

The coalition will stress that if the EPA makes the change Icahn wants, it will place new burdens on small businesses, decrease the use of biofuels, and might raise consumer costs.

Meanwhile, Earthjustice is seeking a Freedom of Information Act request to EPA asking for all communications and records between billionaire Carl Icahn, staff at Icahn's refining company CVR Energy, and the president, the President's staff, and EPA officials at the assistant administrator level or above. “Given Mr. Icahn’s assertion that conflict of interest rules do not apply to him, the public deserves to understand the nature of his role and the role of other potential ‘advisors’ to the Administration in federal policy-making," Abigail Dillen, Earthjustice's vice president of Litigation for Climate & Energy, said in a statement.


Washington Insider: US-China Summit

While no one knows for sure what will come out of President Trump’s upcoming meeting in Florida with Chinese leader Xi Jinping this week, there are a lot of interests pushing for one sort of change or another, Bloomberg is reporting. It is likely that geopolitical issues will be foremost on the agenda—including ways and means of pushing North Korea to pull back on its nuclear threats.

At the same time, there are many other, smaller items that could be discussed, including reopening the Chinese market to U.S. livestock products, including beef.

For example, several ag groups have written to the White House to remind that long ago in 2003 China imposed a ban on U.S. beef after a U.S. case of mad cow disease was reported. China had promised to end that ban, but hasn’t followed through, according to a letter from three trade groups representing the beef industry. The China market is seen as the biggest overseas market for US agriculture, Bloomberg says.

“The foreign market with the greatest growth potential -- China -- remains closed to U.S. beef and beef products, even as China imports large and growing volumes from our competitors,” the National Cattlemen’s Beef Association, U.S. Meat Export Federation and North American Meat Institute said in the joint letter.

The issue is complicated, as they say. The ag sector gave the President strong support in last year’s election and was looking forward to a market boost of as much as $5 billion from the Trans-Pacific Partnership which would have opened more Asian markets for meat, grain and dairy products. However, the administration pulled out of that trade deal soon after taking office.

Industry groups subsequently asked Trump to press Xi on resuming beef imports, especially considering China’s growing market for meat. Per capita beef consumption increased 33% between 2012 and 2016, Bloomberg says, coinciding with a 38% increase in disposable income for urban Chinese households.

That is helping competing beef exporters but not the United States and U.S. producers are pushing hard for change. Opening China’s beef market is also a top priority for the administration’s nominee for U.S. ambassador, Iowa Gov. Terry Branstad. “I want to serve it at the embassy and I certainly want to do what I can to try to convince the Chinese leadership to do that sooner rather than later,” Branstad told a USDA forum in February.

The Chinese government said in September it would lift the old ban on imports of bone-in and boneless beef from U.S. livestock younger than 30 months of age. At the same time, it linked that action to US efforts to ensure the traceability of individual animals, said Thad Lively, senior vice president for trade access at the U.S. Meat Export Federation.

Recently, the federation had pushed a 2015 traceability program that follows the supply chain from ranch to meat packer to be offered exclusively for “China-eligible” cattle—and hopes to overcome U.S. beef producers’ lack of enthusiasm for traceability. That system was demonstrated in September to a Chinese delegation visiting feed lots and slaughter plants in the United States, Bloomberg said.

However, there’s been no clear progress in obtaining Chinese approval, Lively said.

The beef restriction is one of several policies that are limiting U.S. exports of animal protein to China. American poultry was excluded in 2015 after an outbreak of bird flu in the Midwest, cutting off a major market for chicken feet, a popular Chinese snack that accounted for large export sales in 2014, and the industry would certainly like to re-enter that market.

“We are very anxious to get that market restored,” said James Sumner, president of the USA Poultry & Egg Export Council. He noted that he believes that nearly every US broiler company was exporting to China before the ban was implemented.

China became the largest importer of U.S. agricultural products in 2011, driven by a growing middle class and perceptions that foreign-made foods are better quality than homegrown ones, Bloomberg said. So, as the industry looks forward to the coming summit between and U.S. and China, ag producers are watching expectantly for signs of even a little relief from the four year-long siege of weak ag prices, Washington Insider believes.


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