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Climate Legislation; Doha Update; Drought; Farm Bill; and CFTC Issues
Climate Legislation (China, Trade Issues)
Chris Clayton indicated yesterday at the DTN Ag Policy Blog that, “Last week, USDA made a semi-valiant effort to make an economic case that the House-passed cap and trade approach to controlling greenhouse gasses would be good for agriculture. It presented to the Senate Ag Committee an initial analysis that concluded the bill would raise ag production costs only modestly, especially in the near term, and that it would offer producers a number of new ways to create and sell ‘carbon offsets’ that would boost their incomes. Agency officials across the administration joined in the cheerleading effort — and promptly ran into a buzz saw of questions from both sides of the political aisle.”
Yesterday’s DTN update noted that, “Where [Sec. of Agriculture Tom Vilsack] came under the most intense fire was over his assertions about carbon offsets — what they might be, what they might mean for the sector, and how beneficial they might be in terms of offsetting the higher costs.
“Many of the questions were unfair — Vilsack really cannot know how many acres of new trees will be planted in each state 40 years from now — but, they were generated in large part by the administration’s assertions. And, they were amplified by conspiracy theories that suggested that analyses showing devastating crop shifts in major production areas in response to carbon offset programs were covered up. No doubt there were analyses run with some relatively extreme assumptions and scenarios. But, evaluation of a scenario is not an analysis of the likelihood of an actual event, and should not be said to be.
“So, now a flood of questions is emerging. What would be the effects on land use for crops and for carbon sequestration? What would be the effects on crop and livestock production, feed costs and on food prices? What would be the regional effects? In short, who likely would be the gainers and losers from the program?”
The DTN update indicated that, “Well, the secretary had to say he didn’t know, and the other officials at the Wednesday hearing didn’t know either. All in all, the administration’s performance probably hurt the chances for the program, rather than helped.”
A brief audio update (2:00) posted yesterday at Southeast Ag Net Online included perspective from Robbie Minnich, Senior Government Relations Representative for the National Cotton Council, who discussed some of the potential impacts that cap and trade legislation could have on the cotton sector.
Meanwhile, some farm policy observers have expressed concern regarding the competitiveness of U.S. agriculture if domestic producers are forced to operate under a greenhouse gas-mitigating scheme that international producers can avoid. In addition, some note that if India and China do not actively seek to reduce carbon emissions, costly unilateral American action may not have much positive impact on the environment.
With this in mind, Mark Landler reported in today’s New York Times that, “The United States and China inaugurated two days of high-level talks on Monday, exchanging promises of great-power cooperation on weighty issues like climate change while steering clear of potential conflicts over exchange rates and human rights.
“President Obama, saying that ties between the countries are as ‘important as any bilateral relationship in the world,’ welcomed senior Chinese leaders to the meetings here, which were jointly led by Secretary of State Hillary Rodham Clinton and Treasury Secretary Timothy F. Geithner.”
Mr. Landler noted that, “Ticking off a long list of priorities, the president said the two countries would seek ways to work together on economic recovery, climate change, clean-energy technology, nuclear nonproliferation, counterterrorism and humanitarian disasters like the one in Darfur, Sudan.”
More specifically with respect to climate change, President Obama stated yesterday that, “[W]e can cooperate to advance our mutual interest in a clean, secure, and prosperous energy future. The United States and China are the two largest consumers of energy in the world. We are also the two largest emitters of greenhouse gases in the world. Let’s be frank: Neither of us profits from a growing dependence on foreign oil, nor can we spare our people from the ravages of climate change unless we cooperate. Common sense calls upon us to act in concert.
“Both of our countries are taking steps to transform our energy economies. Together we can chart a low carbon recovery; we can expand joint efforts at research and development to promote the clean and efficient use of energy; and we can work together to forge a global response at the Climate Change Conference in Copenhagen and beyond. And the best way to foster the innovation that can increase our security and prosperity is to keep our markets open to new ideas, new exchanges, and new sources of energy.”
***
Keith Johnson focused on this last sentence in President Obama’s remarks in an update posted yesterday at the Environmental Capital Blog (The Wall Street Journal), where he reported that, “But one phrase in particular will probably lead to some between-the-lines readings: ‘And the best way to foster the innovation that can increase our security and prosperity is to keep our markets open to new ideas, new exchanges, and new sources of energy,’ Mr. Obama said.
“Is that a reference to the spat over ‘carbon tariffs’ the House included in the Waxman-Markey bill, and which President Obama, the Senate, China, and pretty much the rest of the world are so worked up about?
“Or is that a reference to the spat over how to share clean technology with developing nations without weakening intellectual-property provisions? Poor countries want lots of new technology, but the people that make that stuff worry they’ll be thrown under the bus in the name of the global climate fight.”
The Wall Street Journal editorial board flushed out more details and perspective on the “carbon tariff” issue in today’s paper, stating in part that, “One of the most dangerous but least reported undercurrents of the global-warming movement is trade protectionism. Now some politicians in Europe are beginning to push back, and we’re delighted to see it.
“A carbon tariff has been popular on the intellectual left for some time, as a way to sell heavy new energy taxes to Western voters worried that their jobs will get shipped to countries that don’t also punish carbon use. The U.S. House of Representatives wrote a tariff provision into its recent cap-and-tax bill, rolling over the muted objections of President Obama. Coming from the world’s largest economy and ostensible free-trade leader, the bill is an invitation to the world’s protectionists to camouflage their self-interest in claims of green virtue.”
The Journal indicated that, “A climate tariff would be damaging even on its own green terms. To the extent it reduced global trade, carbon protectionism would slow the rise in income that we know from the last half century has been crucial to antipollution progress. The richer people are, the more of their income they are willing to devote to cleaner air and water. Several hundred million people have risen from poverty in the last generation thanks to expanding trade, and the world doesn’t need a reversal thanks to old-fashioned protectionism dressed in green drag.”
Doha Update
In a separate trade issue with agricultural implications- the Doha Round of WTO international trade talks- the Associated Press reported on Friday that, “The G-8’s pledge to complete a new global trade pact by the end of next year has been met with caution and skepticism by negotiators who have seen a string of similar promises fail to deliver over the last eight years.
“‘Mismatch’ was the word used by ambassadors Friday at the 153-member World Trade Organization in comparing that promise to reality on the ground.
“They said the current talks were falling far short of the pace and intensity needed to wrap up a deal once promised as a recipe for lifting millions of people out of poverty and adding billions of dollars to the global economy.”
The AP article stated that, “Washington’s outgoing envoy Peter Allgeier said there was ‘no doubt’ that the slow progress of technical work was failing to match the ambition of politicians, while his Indian counterpart Ujal Singh Bhatia claimed there was a ‘striking lack of energy’ in WTO negotiations.”
Reuters writer Rajkumar Ray reported on Friday that, “India and the United States have initiated talks after elections in the two countries. Indian trade minister Anand Sharma and U.S. Trade Representative Ron Kirk have agreed to work together towards resolving ‘outstanding issues’.
“[Trade secretary Rahul Khullar] said New Delhi would host a mini-ministerial meeting on Sept. 3-4, to be attended by ministers from 35 countries, to discuss ways of taking the trade talks forward.”
“New Delhi had not changed its stance and would continue to demand cuts in tariffs and subsidies from the United States and the European Union, Khullar said.”
And Reuters writer Jonathan Lynn reported on Friday that, “Leaders have called at a series of international forums for a conclusion next year of the WTO’s Doha round to open up trade, but major economies such as the United States and India questioned whether the 2010 deadline could be met.
“Negotiators at the WTO in Geneva say they are still awaiting orders from their governments to move on the remaining sticking points, with no one ready to be the first to show their hand.”
And columnist Michael Gerson opined on Sunday that, “Completing the global trade negotiations begun in Doha in 2001 will require developing countries such as China and India to open their manufacturing and service sectors, and the United States and Europe to dramatically reduce agricultural subsidies and barriers. And it will require Obama not merely to acknowledge the need for trade, but to press the arguments for trade on Capitol Hill and within his party.”
Drought (India, Texas)
Abhrajit Gangopadhyay reported today at The Wall Street Journal Online that, “An unusually dry start to India’s monsoon season is threatening to hurt agricultural output in an economy still hugely dependent on rural areas for growth.
“After India’s driest June in 83 years, four of 28 provinces have declared drought, and many farmers don’t have enough water to grow a full crop. More than half of Uttar Pradesh, the most populous state and a key rice and sugar cane-growing area, is suffering from drought.
“A poor crop yield could push up food prices, straining the government’s budget and complicating the central bank’s efforts to revive the economy without letting inflation get out of hand.”
The Journal article added that, “Economists are starting to pencil in the impact of sustained drought on the economy. Amid the global crisis, growth slowed to 6.7% in the year ended March 31 from 9% a year earlier. The government forecasts an expansion between 6.25% and 7.75% for the current year, but a poor harvest could cast that projection into doubt.
“‘If overall rainfall deficiency falls to 20%-25%, India’s gross domestic product growth could be pared to sub-5% this fiscal year,’ said Mridul Saggar, chief economist at Kotak Securities.
“The government forecast a 4% expansion in farm production in its budget last month, but Morgan Stanley said low rainfall could limit growth to 1.5% to 2%.”
And in the U.S., Tom Benning reported in today’s Wall Street Journal that, “A combination of record-high heat and record-low rainfall has pushed south and central Texas into the region’s deepest drought in a half century, with $3.6 billion of crop and livestock losses piling up during the past nine months.”
Mr. Benning explained that, “Nearly 80 of Texas’ 254 counties are in ‘extreme’ or ‘exceptional’ drought, the worst possible levels on the U.S. Department of Agriculture’s index. Though other states are experiencing drought, no counties in the continental U.S. outside Texas currently register worse than ‘severe.’ In late April, the USDA designated 70 Texas counties as primary natural-disaster areas because of drought, above-normal temperatures and associated wildfires.
“Texas is the nation’s top producer of cattle and cotton and a leading provider of other crops. But many other areas of the U.S. have received normal or above-average rainfall this year, mitigating the potential for more widespread economic fallout as abundant crops elsewhere make up for losses in Texas.”
Farm Bill
A news release issued yesterday by USDA stated that, “Agriculture Secretary Tom Vilsack today announced that producers can begin signing up for the Farmable Wetlands Program on Aug. 3, 2009, at their local Farm Service Agency county office. The Farmable Wetlands Program is an important component of the Conservation Reserve Program authorized in the 2008 Farm Bill. Authorized incentives include a payment of $100 per acre, an incentive payment of 40 percent of the cost to establish the practice and a 120 percent rental rate.
“‘The Farmable Wetlands Program is a helpful tool for producers to help protect clean water, control soil erosion and enhance wildlife habitats to preserve these resources for future generations,’ said Vilsack.”
Also yesterday, Senate Agriculture Committee Chairman Tom Harkin stated that, “I am pleased that the Farmable Wetlands Program will soon be available to farmers. The program benefits producers and helps to conserve our natural resources. The FCEA [the Food, Conservation and Energy Act of 2008, the farm bill] expands Farmable Wetlands Program’s ability to construct new wetlands. These constructed wetlands offer benefits such as reducing nutrient levels in subsurface drainage water, reducing nutrients downstream and reducing the flow of floodwaters, slowing floodwaters and reducing downstream damages. I encourage all farmers and landowners with eligible land to consider signing up for this program.”
CFTC Issues
Reuters news reported yesterday (article posted at DTN, link requires subscription) that, “The Obama administration’s move to tame the volatile commodity and energy markets gets under way with hearings this week that promise to expose a wide fissure of disagreement over how it should be done.
“The Commodity Futures Trading Commission will hold the first of three hearings on Tuesday to consider whether to limit holdings of energy and agricultural contracts and whether some traders should be allowed to exceed so-called position limits.
“The agency, which will also hold meetings on Wednesday and on Aug. 5, will investigate whether players with deep pockets distort the market’s traditional role of price-setting when they amass huge market positions.”
The Reuters article pointed out that, “While some in industry balk at reforms, the CFTC has found broad support in Congress and among farm groups and companies who complain their traditional hedging practices were upset by big players tossing so much money into futures.”
Meanwhile, Reuters writers Rachelle Younglai and Charles Abbott reported yesterday that, “Congress will consider steps to curb speculation in the $39 trillion credit default swaps market and could prohibit investors from speculating on a borrower’s credit quality, according to a U.S. House of Representatives Committee document obtained by Reuters.
“Congress and the Obama administration have been pushing for oversight of the market since insurer American International Group Inc’s near-collapse because of its exposure to credit default swaps. The swaps are used to insure against debt defaults and speculate on a borrower’s credit quality.
“The House Agriculture and Financial Services committees will consider two options to curb speculation including a ban on so-called naked credit default swaps — swaps for which a trader or investor does not hold the underlying asset being insured, such as a bond.”
Yesterday’s article added that, “The derivatives bill is part of a broad overhaul of U.S. financial regulation sought by the White House and Democratic lawmakers in the House and Senate.”
And an update posted yesterday at C-SPAN indicated that, “At the Nat’l Press Club, House Financial Services Cmte. Chairman Barney Frank (D-MA) discussed his efforts to pass new financial regulations. His committee will soon begin a markup of a bill that will include a so-called ‘say-on-pay’ measure that would give shareholders of public companies more influence on executive compensation.”
The C-SPAN link includes a replay of Chairman Frank’s remarks, although two brief FarmPolicy.com audio clips from his speech yesterday can be heard here (MP3- 0:40) and here (MP3-1:39).
Keith Good
