Speaker Pelosi

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

Congresswoman Nancy Pelosi gave upher seat on the Appropriations Committee when she became Speaker of the House, but she took the panel’s legendary deal-making culture with her.

An extraordinary late-night bout of concessions to key lawmakers and groups, necessitated by an unexpected en masse defection of Republicans, rescued the farm bill.

But there could be a price to pay down the line.

Supporters of major reform of the agricultural subsidy system are the least of Pelosi’s worries.

Rep. Ron Kind’s reform proposal managed to garner only 117 votes after the bill had been loaded with funds for black farmers, the fruit and vegetable industry, food stamps, Chesapeake Bay restoration and conservation programs.

Pelosi, a closet reformer herself, voted against his amendment, but heaped praise on him after the decisive defeat. She said Kind had exercised “exceptional leadership”, and deserved credit for the fact that the bill “looks quite different than it would have without his brilliant advocacy.”

That was a subtle pitch to the reform faction to stick with the party on the final vote. Most (though not Kind) did.

The more serious threat to the handiwork of Pelosi and farm state lawmakers lies elsewhere.

For example, some on Chairman John Dingell’s Energy and Commerce Committee felt blindsided by air quality provisions in the final bill. Staffers pored through unfamiliar tomes on agriculturallaw after they learned late in the game that the measure contained a new provision allowing California farmers to use funds in the Environmental Quality Incentive Program to meet state and local clean air rules. EQIP has been mainly a clean water program. Air quality is firmly under the jurisdiction of Dingell, who didn’t earn his nickname “Big John” by demurring to turf raids by other committees.

The big losers in closed-door deal making that went on in Pelosi’s office until the wee hours last Thursday morning were the oil and gas industry and the crop insurance industry. Their lobbyists were caught short, but there is plenty of time for them to regroup as the bill goes to the Senate and then to a final House-Senate conference.

Both industries were hit with billions of dollars in new fees and slashed subsidies to pay for major concessions to urban liberals and the Black Caucus on nutrition programs, and settlement of discrimination claims filed by black farmers against USDA.

In the small hours, Pelosi, Congresswoman Rose DeLauro (chairwoman of the agriculture panel on House Appropriations) and Rep. James McGovern hammered out an agreement to provide $840 million for the McGovern-Dole law, which funds food for school children abroad. House Agriculture Committee Chairman Collin Peterson was not in the room, but on the phone.

To offset the costs, Pelosi agreed to further reduce the federalshare of administrative costs of private crop insurance companies from 22.5 percent to 21.6 percent –saving nearly $1 billion over a decade.

No one was more surprised in the morning than Mike McLeod, a former Senate Agriculture Committee hand who now is chief counsel of the American Association of Crop Insurers. McLeod thought he had a deal to cut the payments less severely.

“The industry reluctantly supported that but we cannot support this,” said McLeod.

The industry has a bad reputation on Capitol Hill right now because of runaway profits over the last several years even as federal payments and subsidies to the industry have risen. (One amendment, which was defeated, would have cut federal payments far deeper.) But there are thousands of crop insurance agents all over the country; they are well organized; many are themselves farmers, and they will make themselves heard in coming weeks.

Pelosi had real problems, to be sure. By closing a loophole (Republicans called it a tax increase) on taxation of U.S. subsidiaries of foreign companies, Democrat leaders saved $7.5 billion over 10 years. But that left them well short of the $10.8 billion needed to update the food stamp program.

By the end of Thursday night, new fees on the oil and gas industry had been set, freeing up $6.125 billion over 10 years.

Democratic leaders agreed on new “conservation fees” on deepwater oil andgas wells in the Gulf of Mexico, and repealed royalty relief for ultra deep-water wells on the Outer Continental Shelf and Alaska. The Interior Secretary would be authorized to modiy the terms of leases in Alaska.

The final budget rejiggering got so complicated that as things now stand, the Secretary of Interior will have jurisdiction over federal payments to crop insurance companies between 2012 and 2017.

How much of this budgetary maneuvering will stand in the Senate is anybody’s guess. The top Democrat and Republican on the Senate Finance Committee, Max Baucus and Charles Grassley, are strong advocates of farm programs, but it isn’t clear whether they (and other committees of jurisdiction) will spring for the offsets engineered by Pelosi.

Meanwhile, the business community is unhappy with the action taken against U.S. subsidiaries, arguing that it would deter foreign investment and cost jobs. And the final product does nothing to move forward the Doha Round of global trade negotiations in which business has a stake.

The Business Roundtable and the U.S. Chamber of Commerce won’t be convinced to support the farm bill by improvements in the food stamp program or more money to protect fragile grasslands. They want to see cotton subsidies cut, in order to get Doha moving again.

The farm bill has a ways to go.

By Dan Morgan

Dow Jones writer Tom Sellen reported on Friday that, “The National Cotton Council [NCC] said Friday that if press reports are true that the WorldTrade Organization has largely ruled against the U.S. in a claim by Brazil that Washington has failed to eliminate illegal subsidies to cotton growers, the finding would be ‘contrary to the facts in the world cotton market’ and ‘unsupportable.’” (Click here to view the entire NCC release).

Mr. Sellen added that, “The U.S. has already taken actions to scrap subsidies by eliminating the government’s Step 2 program, which has had a significant impact on U.S. cotton and cotton producers, the NCC said in a press release.

“As a result, U.S. cotton planted acreage is down 28% in 2007, U.S. exports have declined significantly and production is predicted to be only around 17 million bales, the lowest since 2002.

“‘It cannot be credibly argued that any payments under domestic support programs are causing any country serious prejudice in 2007 - the first year of their operation without the Step 2 program,’ the NCC said.”

Also on Friday, Senate Ag Committee Chairman Tom Harkin (D-Iowa) issued a statement on the WTO cotton development, which noted that, “We will have to see the full report and its reasoning to understand all of its implications. Undoubtedly, it is a matter of concern that our U.S. farm programsare continually being questioned in the WTO dispute settlement process. In this case, Brazil evidently will be allowed to retaliate against U.S. exports. That is a very serious outcome.

“It would be far preferable to settle these disputes through careful negotiation instead of WTO litigation. While, of course, the United States needs to defend our programs in the WTO, we also must recognize reality, solve the problems in our programs and move on. It is far more important to prepare for the future so American agriculture can succeed in this new century than to continue fighting losing cases before the WTO.”

U.S. Senator Saxby Chambliss (R-Ga.), Ranking Republican Member on the Senate Agriculture Committee also released a statement on this issue Friday, indicating that, “While the panel decision is confidential, based on published reports, it is troubling that the WTO ignored the changes Congress made last year to the cotton program and the current state of the cotton market. To say the U.S. cotton program is causing harm to Brazil or any other country, ignores the simple facts and will further enforce doubts farmers and ranchers have in the dispute settlement process in the WTO. With this in mind, the legal process is incomplete and I fully expect the United States to appeal this decision.

“Let me be very clear, changes tothe cotton program will be made consistent with our international obligations. But, we will not gut the safety net for cotton producers despite calls by Brazil and others to do so.”

Meanwhile, in news regarding the WTO round of Doha trade talks, British Prime Minister Gordon Brown stated in an item published in today’s Washington Post that, “And just as we are united in tackling global terrorism, so we are united in our belief that globalization should be seen as an opportunity and not simply a threat. This is why I know that by working together we can restart the Doha round of world trade talks to the benefit of the whole world economy.”

Reuters writers Caren Bohan and Adrian Croft reported today that, “British Prime Minister Gordon Brown was expected to walk a fine line in talks on Monday with President George W. Bush, keeping some distance on issues like Iraq while preserving the ‘special relationship’ with the United States.

“During their two-day meeting at the Camp David retreat in Maryland’s Catoctin Mountains, Brown was set to seek support for a package of measures to try to end the conflict in Sudan’s Darfur region.”

The article added that, “Aides to Brownsay he wants to focus on ending the Darfur conflict and breaking a deadlock in the global trade talks.”

In addition, on Friday, WTO Director General Pascal Lamy provided a report to the General Council; Mr. Lamy’s statement regarding the report can be found at this WTO webpage, which also included this summary of his remarks; “Director-General Pascal Lamy, in his report to the General Council on 27 July 2007, said recent meetings pointed to the negotiators’ ‘high level of commitment to concluding the Round’. He also noted ‘some significant differences’ but that ‘convergence is within our reach if you are all ready to show the necessary will and flexibility to close the gaps’”.

Also of interest with respect to WTO ag issues, Randy Schnepf & Jasper Womach, specialists in agricultural policy at the Congressional Research Service, put together a PowerPoint presentation on July 3, 2007 entitled, “Exposure of U.S. Farm Policy to Challenge under WTO Rules: A Powerpoint Summary.”

This presentation is a treasure trove of useful information; however, slide 36 is of particular interest. FarmPolicy highly recommends taking a look at this presentation.

In a broader look at Doha and trade, Ernesto Zedillo, writing recently at Forbes.com, stated that, “Just as when the talks collapsed at the Cancun WTO ministerial meeting in September 2003, U.S. officials blamed the Potsdam failure on India’s and Brazil’s intransigence. It’s true that throughout the negotiations those leading emerging countries held fast to their highly defensive positions and to the last minute were unwilling to offer meaningful cuts in industrial tariff ceilings. But the fundamental cause of the Doha Round’s failure lies in the rich countries’ refusal to seriously reform their agricultural protectionism. The debacle is rooted in the lack of political will in those countries to dismantle a system that costs their taxpayers and consumers huge amounts of money and channels most of that money to only a small proportion of rich producers and other rent seekers in the farm sector. This protectionist system severely distorts world agricultural markets to the detriment of poor farmers in developing countries and serves as an argument for this group of countries to stick to their own protectionist policies.

“The cost of the round’s failure is not only in the income opportunities lost to both developed and developing countries by not opening their markets further but also, and more important, in the enormous losses all will incur if the round’s collapse causes the multilateral trading system to deteriorate to the point that countries fall into a protectionist spiral. Because it would be so economically devastating, this scenario may appear unlikely even to those politicians who talk isolationism to enhance their popularity but, when it comes to the consequences of closed and distorted markets, know better. They may sincerely believe that riding the antiglobalization wave constitutes the best way to control and limit that force’s antitrade effects while at the same time earning them the political capital they need to pursue other important structural reforms. That would be the most benign interpretation of the latest populist rhetoric heard on both sides of the North Atlantic. The problem with this is that delusion and bad politics are coming together as usual, and sooner or later bad politics will lead to bad economics.”

***

Associated Press writer David Mercer reported today that, “Corn farmers aren’t the only ones who have been thankful for rain in the last few weeks.

“Ethanol producers are also happy that the rain helped the corn- their main ingredient-rebound from what was shaping up to be a mediocre growing season.

“Rain has fallen off and on through most of July in parts of the central and eastern Corn Belt, just as the crop started pollinating. The rain has improved the health of the crop and, to the delight of ethanol makers, driven down corn prices.”

The AP article added that, “Corn prices, which have been easing since hitting $4 a bushel in February, have responded. A DTN price index of cash-market corn - which accounts for most of the corn used to make ethanol, according to [Rick Kment, an ethanol analyst with DTN] - stood just under $3 on Friday.

“The price drop, Kment said, has pushed a lot of investment funds out of the corn market in the past few weeks, taking even more air out of prices.

“‘You can make very good returns at $3 corn,’ said Dave Nelson, chairman of Minneapolis-based Global Ethanol LLC, which has plants in Iowa and Michigan. ‘When it gets to $4, it gets pretty tight.’”

Bruce A. Babcock provided an interesting look at prices and ethanol, among other considerations, in a recent article entitled, “Farm Programs, Fuel Mandates, and Agricultural Prosperity,” which was published in the Iowa Ag Review Online.

Dr. Babcock noted that, “The future looks bright for corn, soybean, and wheat farmers. Corn farmers can lock in a price on the Chicago Board of Trade of $4.00 per bushel for their 2008, 2009, and 2010 crops. Soybean farmers can lock in $9.00 per bushel for 2008 and 2009, and wheat farmers can lock in $5.50 for the same two years. After adjusting for basis, this corn price is 65 percent greater than the average price received by corn growers for their 2002 to 2005 crops. The soybean price is up 42 percent and the wheat price is up 51 percent over the 2002 to 2005 levels. If futures contracts traded out even further, there is no doubt that these high prices could be locked in for an even longer period.

“Three factors help explain why traders in Chicago believe that crop prices seem poised to remain at such high levels. The dollar is down 15 percent on a trade-weighted basis relative to its level during the 2002 to 2005 crop marketing years. A weaker dollar increases demand for U.S. goods, thereby raising their prices. Continuing strong income growth in China, India, and other Asian countries combined with rapid urbanization has led to strong demand for meat and dairy products, which in turn has resulted in strong demand for feed grains and oilseeds. And finally, U.S. ethanol production from corn has doubled in the last three years and is poised to double again in the next two. This has led to sharply higher demand for corn, higher corn acreage, and relatively smaller soybean and wheat acreage. Wheat prices have also been strengthened by short crops in major producing areas.”

After an interesting discussion regarding budgetary issues, the article stated that, “Biofuels policy seems poised to keep program crop farmers prosperous for the foreseeable future. Given these circumstances, Congress and farm groups could focus their farm bill writing efforts on problems not previously addressed by farm bills (low yields) or on problems caused by high crop prices (possible environmental degradation and higher food prices). However, most efforts seem focused on either maintaining status quo programs or increasing commodity payments to farmers despite the promise of farm prosperity from high crop prices. Perhaps we should not expect anything else in our representative form of government. After all, if groups do not pursue their own self-interest, who will pursue it for them?

“Given tight public funds and knowledge that passage of a status quo farm bill will do little to address the future needs of farmers, consumers, and the environment, momentum could build for a reform bill. However, legislative inertia is a powerful weapon in the hands of those who benefit from the status quo. Given the short period of time that Congress has to work on farm legislation and the natural desire to do no harm through unintended effects caused by adoption of new programs, it is likely that much of what we currently have in the farm bill will be with us in the new farm bill.”

Keith Good

Carolyn Lochhead, writing in Saturday’s San Francisco Chronicle, reported that, “The five-year, $286 billion farm bill that passed the House on Friday angered Bay Area food and environmental advocates who hoped to make the farm bill into a food bill, but they now turn their aim to the Senate to try to shift billions of dollars in crop subsidies to conservation, organics and local farm markets.”

The article added that, “Back home, progressives lashed out at the speaker, saying her reforms would lavish $1 billion on 13,000 California rice growers over the next three years — 10 times more than the $100 million allocated for conservation in the state.”

As attention turns to the Senate, U.S. Senator Dick Durbin of Illinois and others will play a pivotal role (FarmPolicy Photo).

Later, Ms. Lochhead explained that, “At a time of near record prices, reformers argued that lowering crop payments to wealthy landowners and agribusinesses would curb these distortions and free up money for conservation and food programs that would benefit more farmers and improve the health of Americans.

“They are turning their effort to the Senate, where the Agriculture Committee, as in the House, is dominated by those who support the status quo that benefits subsidized crops. But its chairman, Iowa Democrat Tom Harkin, is friendlier to conservation and nutrition programs than his House counterpart, Democratic Rep. Collin Peterson of Minnesota, and supports tougher payment limits.

“Farm politics usually break along regional, rather than party lines. But that has begun to shift, with many farm-state politicians beginning to rebel against the decades-old crop support systems. Sen. Dick Durbin of Illinois, the second-ranking Democrat in the Senate, proposed a radical change in farm subsidies this week, dismissing the ‘old-time religion’ of crop price support.”

Brownfield’s Peter Shinn reported on Friday that, “Most ag and commodity groups, including the American Farm Bureau Federation (AFBF) and National Farmers Union (NFU), praised House passage of the farm bill. And NFU President Tom Buis told Brownfield lawmakers had little choice in the measure’s revenue-generating provision.

“‘You know, the money had to come from somewhere - everyone knew it,’ Buis said. ‘And just for it to appear by magic wasn’t going to happen.’

“Indeed, AFBF Director of Congressional Relations Mary Kay Thatcher told Brownfield Farm Bureau backed the House version of the farm bill regardless of its funding mechanism. And AFBF Chief Economist Bob Young echoed the assessment of Buis on the farm bill’s funding language.

“‘If you wanted to provide an extra $2.5 to $3 billion for energy, if you wanted to provide another $4 or $5 billion for nutrition programs, then, you know, you’ve got to go get the money some place,’ Young explained.”

DTN’s Chris Clayton provided a more detailed recap on differing perspectives and reactions to the House passed bill in an update posted yesterday at the DTN Ag Policy Blog.

There, Mr. Clayton noted that, “Ken Cook, president of the Environmental Working Group, stated this House farm bill will be remembered as a missed opportunity for reform of federal farm policies that are broken at their core. It also represents a failure of House leadership to serve the broader needs of the nation, instead of taking their cues at every turn from the farm subsidy lobby. This bill will not bear the scrutiny of passing time. We’re talking about mid-August, at the latest.

“National Corn Growers Association President Ken McCauley, while crediting the House for defending the safety net and moving the process forward, said the corn growers are looking ahead to the Senate debate - where NCGA is excited about the Farm Safety Net Improvement Act of 2007 introduced by Democrats Dick Durbin of Illinois and Sherrod Brown of Ohio.

“National Cattlemen’s Beef Association gave the bill a mixed review. There were improvements for cattlemen - such as increased funding for conservation programs and some modest fixes to the mandatory country-of-origin labeling law - but applying the adjusted gross income cap and tighter payment limitations for conservation makes many ranchers and feeders ineligible for conservation programs.”

And Congressional Quarterly writer David Clarke implicitly noted that the Farm Bill has become part of a larger issue between Democrats and the GOP in Congress; “When the Democrats took over the majority earlier this year, the House adopted its pay-as-you-go rule. The Senate followed suit in May with the adoption of the fiscal 2008 budget resolution.

“Democrats have been taking heat from the GOP over the ways in which they so far have tried to offset spending, particularly provisions intended to boost tax revenue from corporations.

“Republicans say Democrats are proving that they are a party of tax-and-spenders.

“‘The tax increases just keep on coming,’ House Minority Leader John A. Boehner, R-Ohio, said last week.”

However, the CQ article added that, “Democrats dismiss GOP criticism by noting that the nation’s debt grew by $3 trillion during the Bush presidency in part because GOP leaders did not offset expensive programs like the Medicare prescription drug plan.”

On Saturday, Sacramento Bee writer Michael Doyle provided an interesting look at the House Farm Bill in a Q & A format.

In part, Mr. Doyle stated that, “Q: Who are the big winners?

“A: Specialty crops, certainly. This means fruits, vegetables, wine grapes — everything not covered by traditional crop subsidies. The bill counts some $1.7 billion over five years for specialty crops.

“This is roughly quadruple the amount authorized in the last farm bill, in 2002. It would pay for research, school lunch purchases, promotion campaigns and more. It’s also a long-term victory for industry groups like the Western Growers Association, because this gets specialty crops into future farm bills as well.”

“Q: Who are the big losers?

“A: Self-styled reformers lost big. So did bipartisanship, at least temporarily. Late Thursday night, the House by a 309-117 vote soundly rejected a sweeping proposal to further cut subsidies and provide more for nutrition and conservation.

“Critics also couldn’t stop the House bill from boosting subsidy payments that individual farmers could receive.”

Philip Brasher, writing in Sunday’s Des Moines Register provided a closer look at potential Senate Farm Bill action.

Mr. Brasher reported that, “To fund the House bill, Peterson slashed $4.8 billion from Harkin’s personal priority, the Conservation Security Program, which rewards farmers for improved environmental practices. As a result, no farmer would be allowed to sign up for the program until 2012.

“So Harkin, the chairman of the Senate Agriculture Committee, will have to find money somewhere to fund the program or else undo the Peterson-crafted package that is popular with farm groups.

“‘For someone to put together a bill that can garner more support will be very difficult,’ said former Texas Rep. Charles Stenholm, a livestock industry lobbyist who was the ranking Democrat on the House Agriculture Committee when the current farm bill was written.”

Mr. Brasher added that, “Mary Kay Thatcher, a lobbyist for the American Farm Bureau Federation, said some version of the House bill is likely to be the key alternative to whatever Harkin proposes. There’s no chance, she said, that Harkin can get his committee to slash grain and cotton subsidies to fund the Conservation Security Program.”

As noted in the San Francisco Chronicle article cited at the top of today’s FarmPolicy update, with respect to Senate Farm Bill action, not all media attention is focused on Chairman Harkin.

In more local coverage, Bruce Rushton reported in Thursday’s State Journal Register (Springfield, IL), “The federal farm subsidy program needs fundamental reform, not just renewal, U.S. Sen. Dick Durbin [D-Illinois] said Wednesday in a conference call with reporters.

“Under a bill introduced Wednesday by the Springfield Democrat and Sen. Sherrod Brown, D-Ohio, price supports for commodities such as corn and soybeans would be replaced by a revenue-based program that takes yield into account. The idea is to create a safety net that protects farmers when prices are high but harvests are poor. Subsidies in the current farm bill are based on price targets alone.

“‘I think some of the answers of the past don’t apply today,’ Durbin said. ‘Our job today is to make sure farmers can survive a bad year. What Sen. Brown and I are talking about is a new approach.’”

The SJR article indicated that, “Besides eliminating subsidies based on price alone, the senators called for strict limits on subsidies for wealthy producers.

“‘I think the farm payments should be limited to those in real need,’ Durbin said. ‘We know that there are farming operations that have become large businesses that can weather storms. There are clearly some cases that just came out of the news that are embarrassing.’”

Back in January of this year, Sen. Durbin hosted a Farm Bill listening session here in Illinois at a farm operation just south of Niantic.

To view a recap of that session, and to listen to a very brief exchange I had with Sen. Durbin aboutdisaster aid and revenue insurance, just click here (pardon the background noise).

And in Ohio, Margie Trax Page reported in Saturday’s Star Beacon that, “Ohio U.S. Sen. Sherrod Brown, a Democrat, touted legislation aimed at improving the 2007 farm bill Wednesday in a news-conference call with Illinois Sen. Richard Durbin, also a Democrat

“Brown and Durbin hope to incorporate the proposed Farm Safety-Net Improvement Act of 2007 into the 2007 Farm bill, which would protect commodity farmers’ livelihoods better, Brown said.

“The Farm Security and Rural Investment Act, which initially was implemented during the Great Depression to give American farmers a safety net if the market bottomed out again, is up for a Senate vote in September. Each Farm act expires after five years. The last Farm bill was passed in 2002.
Brown said America’s changing agriculture industry has outgrown past legislation. He introduced the Farm Safety-Net Improvement Act to cover agricultural losses in crop yields, as well as in market prices.”

For more information on the Durbin-Brown proposal, just click here.

In international perspective on the House bill, Anne Davies and Jewel Topsfield reported on Saturday at The Age Online (Australia) that, “Australian wheat, cotton, beef and sugar farmers were dealt a blow last night with the US Congress preparing to increase its massive farm subsidies program for another five years, despite warnings that this was inconsistent with free trade principles.”

The article noted that, “Federal Agriculture Minister Peter McGauran said Australia had argued that the US should put greater emphasis on income payments to farmers rather than production subsidies.

“‘If they want to boost the income of farmers, that’s different to subsidising production, which gives the US an inherent advantage over countries like Australia which don’t have subsidies,’ he said.”

Keith Good