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Grassley Floats Farm Bill Funding Idea
Doug Cameron, writing today at the Financial Times Online, reported that, “Cargill, the agribusiness group, has called for any new US renewable fuel mandate to have an ‘escape mechanism’ to prevent soaring demand for crops from distorting food supplies…The US group has been the most outspoken industry advocate of the need for policymakers to intervene in the emerging food-versus-fuel debate when heavily tax-incentivised investment in biofuels has pushed up global food prices.”
I. Farm Bill
II. Commodity Prices – Biofuels
I. Farm Bill
Reuters writer Christopher Doering reported yesterday that, “The Senate should establish a trust fund for conservation in order to allow the farm bill to devote more funding to other programs, Iowa Sen. Charles Grassley said on Tuesday.
“‘If we can help out by some philosophically sound idea of taking money and setting up a trust fund for conservation purposes, it might accomplish some of the same goals that we would in the farm bill,’ Grassley, the top Republican on the Senate Finance Committee, told reporters.
“‘Then money that would otherwise been spent on conservation in the farm bill could be spent on some other programs,’ he said.”
Mr. Doering added that, “Grassley told reporters he has been in contact with Max Baucus, chairman of the Senate Finance committee, about raising money for conservation in such a way that would allow it to stay within the jurisdiction of that committee.
“‘We don’t feel very comfortable with what the House Ways and Means committee did, raising a lot of money, just to hand it to the agriculture committee,’ said Grassley.
“The House bill would pay for a $4 billion expansion of food stamps through 2012 through a controversial measure that would tax U.S. subsidiaries of foreign companies. The prospect of new taxes angered lawmakers and the Bush administration.
“Grassley also wants to prioritize a lower farm subsidy limit when the Senate Agriculture committee drafts its farm bill in September,” the Reuters article said.
Writing yesterday at The Des Moines Register’s Cash Crops Blog, Philip Brasher indicated that, “To catch up on the farm bill, the Senate Agriculture Committee is circulating discussion drafts during the August recess. The committee’s chairman, Tom Harkin, plans to release a proposed bill after lawmakers return to work in September.
“Still to be determined is how to pay for everything that the committee is going to want to do in the areas of conservation, bioenergy and so on.
“Harkin has been pointing to the Senate Finance Committee, where fellow Iowan Charles Grassley is the senior Republican, as a source of money.
“Today, Grassley outlined one idea that is being looked at: A trust fund, using duties on agricultural imports, that would be dedicated to conservation programs. That would allow the Finance Committee to retain control over the money, while freeing up money in the farm bill to be used on programs other than conservation, Grassley says.
“Grassley won’t say how much money might be available for this trust fund.
“Harkin spokeswoman Kate Cyrul declined to comment on the details of what the Finance Committee is considering, saying that negotiations are ongoing.”
With respect to Senate timing on the 2007 Farm Bill, a CongresssNow article from Friday stated that, “The Senate Agriculture Committee is aiming to mark up the 2007 farm bill during the third week of September, an Agriculture staffer said today. Agriculture Chairman Tom Harkin (D-Iowa) is set to release a complete proposal shortly after the Senate returns from August recess, spokeswoman Kate Cyrul said.”
The item stated that, “Aides have circulated private ‘discussion drafts’ of every title except for the commodities element of the bill, which contains income support programs for grain, corn, cotton and other crops. That title – which Agriculture ranking member Saxby Chambliss (R-Ga.) has called ‘the heart of the farm bill’ – has not yet been circulated, and staff don’t expect a draft next week.”
The article added that, “Aides are also working to secure additional funding for the bill, with staff members consulting with aides on the Senate Finance Committee to explore options.”
II. Commodity Prices – Biofuels
Associated Press writer Lauren Villagran reported yesterday that, “Agriculture futures rallied Tuesday after reports of strong export demand for wheat and corn spotlighted the extreme tightness of global grain supplies.”
The AP article stated that, “The corn market also got a jolt Wednesday after the USDA reported that Iran– not a usual purchaser of U.S. grain — bought 120,000 metric tons of corn. December corn picked up 6.25 cents to close at $3.55 a bushel.
“Soybean prices rose in sympathy, gaining 3.75 cents to $8.31 a bushel.”
Meanwhile, Bloomberg News writers Tom Cahill and Feiwen Rong reported yesterday that, “Rising incomes in China and India will also sustain demand for meat, increasing consumption of corn and soybeans for animal feed.
“Net income of farmers in the United States will rise by $6 billion, or 9.9 percent, to $66.6 billion this year, the U.S. Department of Agriculture forecast in February.
“McDonald’s plans to have at least 1,000 restaurants in China next year, up from 800 now. Yum Brands, which owns Pizza Hut, KFC and Taco Bell, plans to add 400 Chinese locations, among at least 1,000 stores opened outside the United States annually for seven straight years.
“‘There are three billion people in Asia who were not involved the last time we had a commodities rally and aren’t going to lose their appetite because of problems in the U.S.,’ [Jim Rogers, a former hedge fund manager] said. ‘Even if America goes bankrupt, those three billion people are going to continue to do well and eat more.’”
As the potential demand for some program crops, particularly corn, increases from both domestic-based biofuel production, as well as the export market, some have expressed caution with respect to future U.S. energy policy and its potential impact on food prices.
Doug Cameron, writing today at the Financial Times Online, reported that, “Cargill, the agribusiness group, has called for any new US renewable fuel mandate to have an ‘escape mechanism’ to prevent soaring demand for crops from distorting food supplies.
“The US group has been the most outspoken industry advocate of the need for policymakers to intervene in the emerging food-versus-fuel debate when heavily tax-incentivised investment in biofuels has pushed up global food prices.
“The US is reviewing its federal Renewable Fuel Standard, which calls for the production of 7.5bn gallons a year of alternative fuels by 2012. This is expected to be reached well ahead of target, and the Bush administration has called for a benchmark of 35bn gallons by 2017, about half of it from ethanol.”
The FT article stated that, “Bill Veazey, Cargill’s chief financial officer, said there needed to be ‘some kind of waiver’ in any state-backed mandate. ‘There needs to be escape mechanisms so that you don’t distort the food markets,’ he told the Financial Times.
“The energy legislation being reviewed by Congress is expected to push for a standard well below the 35bn gallons pursued by the White House.”
And an update posted yesterday evening at The Informed Reader Blog (The Wall Street Journal), stated that, “Will the push to use corn-based ethanol as fuel lift food prices out of reach of the poor, or are higher grain prices the key to helping struggling farmers in developing countries? Using corn as a source of fuel rather than food will drive up prices of corn and other food staples, University of Minnesota economics professors C. Ford Runge and Benjamin Senauer write in Foreign Affairs, which hosts a debate on ethanol in two recent issues.
“Corn-based ethanol is being promoted as a way for the U.S. to develop a cleaner-burning source of fuel, while at the same time reducing the country’s reliance on oil imports. Both of those goals, the pair say, would be better accomplished by shifting federal subsidies toward agricultural products that can be converted into ethanol using less energy than corn requires. In addition, the intense interest in corn-based ethanol has overshadowed the need for the U.S. to emphasize energy conservation.
“Former U.S. Sen. Tom Daschle, a longtime supporter of ethanol development, responds in the bimonthly policy journal that rising prices of yellow corn over the past year haven’t been passed on to U.S. consumers in the U.S. What’s more, farmers in developing countries stand to benefit by reaping bigger profits from their harvests. Prices of foods that are derived from animals fed on corn, including milk, cheese, chicken and pork, have risen more slowly than inflation, says Mr. Daschle.”
The update stated that, “Consumers will soon feel the pinch of higher prices, reply Messrs. Runge and Senauer. And higher corn prices won’t help developing countries because most poorer countries are net food importers, not exporters.”
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Reuters writer Mark Weinraub reported on Monday that, “The tightening credit market will likely crimp the expansion plans of small players in the U.S. ethanol industry, but it will not curtail the growth of larger companies, a VeraSun Energy Corp. executive said on Monday.
“‘I think that there will be less capital that will flow to greenfield projects, new companies,’ Verasun Chairman and Chief Executive Don Endres said in a telephone interview. ‘I think private investors are looking to invest capital in the public companies because they have liquidity.’”
Keith Good
