Ag Policy Update-7 May 03       

 

1.     Update us on the meeting of the Federal Reserve this week.  

- The Fed, as expected, decided to make no changes with interest rates.

- They did, however, renew their concern about the weak economy.

- They are beginning to express concerns about deflation, or falling prices.

- That raises the interesting proposition that they could consider raising interest rates this summer.

 

 

2.     Why would the Fed be concerned about falling prices?  Don’t we all want things to be cheaper?  

- There are usually at least 2 concerns with deflation:  erosion of wealth base and expectations.

- For example, if land prices fall, it may reduce land value over time.

- In markets with significant up-front costs, businesses may worry that they can’t cover their costs with lower prices.

- If consumers think that prices will continue to fall, they may delay purchase of big ticket items such as autos and homes.

- If that occurs, inventories build up and businesses back off on expansion and rehiring plans.

 

 

3.     Trade always affects the economy and agriculture.  There seems to be many problems cropping up with trade.  Give us an update.  

- Where do we start?

- Africa , Europe , Canada , Mexico , Australia , Brazil , Cuba and the WTO itself all have issues with the US or us with them.  

- Let’s focus first on those countries that have issues with the US .

- Australia and Brazil are challenging the US thru the WTO over cotton subsidies, saying the Step 2 program the US uses to pay producers to export cotton violates agreements.

- African nations are calling on all nations, including the US to eliminate all cotton subsidies, saying it puts cotton-producing countries in Africa at an unfair disadvantage for market-oriented trade.

- Mexico has agreed with Mexican farm groups to ask the US to review NAFTA, especially with respect to grain trade such as corn.

- The EU is again seeking to challenge beef hormones, a battle they lost a few years ago.

 

 

4.     You also indicated that the WTO has issues with the US in ag trade.  

- Viewers may recall the US lost a dispute brought by the EU challenging US tax laws that were favorable to US exporting companies.

- The WTO will soon list the US items eligible for over $4 billion in trade sanctions.

- There remain some hopes this can be resolved prior to the implementation of sanctions.

- Also, USTR Zoellick is voicing concerns that the entire WTO trade talks might be derailed unless various ag-related issues can be resolved.

 

 

5.     Are there cases where the US is challenging other countries?  

- Yes, the most recent case is with Canada .

- The US Commerce Dept has ruled that the Canadian Wheat Board has been illegally dumping wheat on US markets.

- In effect, the US is claiming that Canada is selling their wheat at below market prices in the US .  

- Another older case of the US challenging the EU over biotechnology is getting headlines.

- The EU a few years ago implemented a biotech moratorium, and were challenged to review and show cause, since it does serve as a trade barrier.

- This week, Sen. Grassley (R-IA) has sought an explanation as to why it taking so long for the Europeans to respond.  

- And, another ongoing issue is trade with Cuba .

- While no specific policy action has occurred, there are several in Congress attempting to relax the rules to visit Cuba for trade business.

- However, Castro’s recent crackdown on human rights reduces the likelihood of any change in such policy.

 

6.     A reminder that USDA began a new CRP signup this week.  What can you tell us?  

- That’s right.  Signup will be 5-30 May 03.

- Viewers may recall the 2002 farm act expanded the CRP from 36.4 million acres to 39.2 million.

- Other changes include:

- cropping history will be required

- managed haying & grazing will ben allowed

- there’s a new Farmable Wetlands Program (FWP)

- there will be cost-share for performance of contract management activities

- there’s a new marginal pastureland criteria

- FSA will have a new automated process with new software that should make things easier for both FSA staff and participants.

- For those who want more information, check with FSA, USDA’s website or their local extension office.

 

7.      A USDA agency recently studied how consumers respond to GM products.  What did they conclude?  

- A very interesting study; ERS set a hypothetical market to see if consumers care whether their food has biotech inputs.

- The studied consumers put a premium on non-biotech food.

- The average discount for biotech food was 14%.

- They did find that favorable information about biotechnology did reduce this trend.

 

8.      The Senate began debating the omnibus energy bill.  Is this a done deal?  

- Not by a long shot.

- It is interesting to note that energy policy, or the lack thereof, was one of the key campaign issues of the Bush team.

- Now, two and a half years after taking office, the President has yet to make progress in this area.

- There may be over 100 amendments during the next few weeks.

- A few of interest to ag:

(1)     a proposal to grant subsidy payments for carbon sequestration;

(2)     a proposal to require power companies to get 10% of their power from renewable sources.

(3)     a proposal to set new limits on greenhouse emissions.

- The leadership hopes to have a vote by Memorial Day.

- However, the budget and tax cut debate may pre-empt the energy debate.

- If that occurs, energy legislation this year is in doubt.

 

9.      Congress:

a.       Recent activity:

- Congress continues work on the FY04 budget  

b.       Current/upcoming:

- Senate debates omnibus energy bill.

- Senate Ag Committee reviews implementation of 2002 farm bill (14 May)

- House Ag Committee recognizes FAS; also markup for Healthy Forests Restoration Act (8 May).

c.       2003 schedule:

- to be announced  

d.       Key issues not completed

- work on the fy04 budget

- Healthcare reform

- Prescription drug benefits

- Merger activities, especially in agriculture

- Response to economic slump

- Comprehensive energy legislation (& status of renewable fuel standards)

- Restoration of full CSP funding

       

| Wrap-Up Home |