Tuesday, May 19, 2009

Farm groups divided over climate change legislation

Most farmers and ranchers are worried about all of the day-to-day tasks of getting a crop in the ground, taking care of livestock and making sure that lenders are getting paid on time, so climate change legislation is probably the furthest thing from their minds. But like it or not, terms like cap and trade, offsets and emission allowances need to be added to farmers' long list of concerns. Understanding these terms could have more to do with long-term farm profitability than decisions like picking the best variety to plant or whether or not to cull some of your cows.

That’s because, believe it or not or like it or not, climate change legislation is moving through the House of Representatives like a steamroller, driven by Speaker of the House Nancy Pelosi and Energy and Commerce Committee Chairman Henry Waxman. The two California Democrats want to demonstrate to the world that they can address global warming, even though they had to cut so many side deals with members from coal and oil producing states that the legislation is a far cry from the original package.

Although the far-reaching climate change bill is still a “work in progress,” Democrats on the House Energy and Commerce Committee told reporters that they expect to have enough votes to move their bill, the American Clean Energy and Security Act of 2009, out of committee by the Memorial Day recess. In what has become typical fashion this year, Waxman released the whopping 932-page bill, (H.R. 2454) on a Friday with a pledge to start marking it up on Monday----providing almost no time to read and comprehend the entire measure.

But thanks to modern technology, you can quickly search the legislation for words like “agriculture.” As expected, the word is barely mentioned.

So is that good news? Many think that agriculture should be a prominent player in any type of climate change legislation because so many agricultural and forestry practices can sequester carbon and be a big part of the solution. According to the USDA, agriculture and forestry have the potential to reduce 15-25 percent of U.S. greenhouse gas emissions and provide new revenue streams for farmers and foresters in the process.

In a letter to Waxman last week, National Farmers Union President Roger Johnson called for the Energy and Commerce Committee to establish a “robust and flexible” offset program and to make sure that agriculture is not subject to an emissions cap. In addition, NFU called for the inclusion of several key provisions, including:
The USDA is granted control and administration of the agriculture offset program;
Early actors are recognized;
No artificial cap is placed on domestic offsets;
Carbon sequestration rates are based on science; and
Producers are permitted to stack environmental benefit credits.

Earlier this year, NFU was one of 12 agricultural groups that signed off on a list of "principles” for greenhouse gas legislation - The American Farmland Trust, American Soybean Association, National Association of Wheat Growers, National Cattlemen's Beef Association, National Corn Growers Association, National Farmers Union and National Milk Producers Federation, National Association of Conservation Districts, National Council of Farmer Cooperatives, National Farmers Union, Public Lands Council, United Fresh Produce Association, and the Western Growers Association. An updated fact sheet on those principles is available here: http://www.wheatworld.org/userfiles/file/Climate%20Response_ALL_4%2021%2009.pdf

But after Waxman started pushing hard to move legislation without incorporating agriculture, some of those same groups came out opposed to the bill.

The National Corn Growers Association (NCGA) sent a letter to Congressman Waxman earlier this week, expressing its concern with the current version and outlining the potential for negative economic impacts to the agriculture sector if a cap-and-trade system is not structured properly.

“After reviewing the legislation, we can see the bill does not clearly provide for a mechanism by which corn growers can sell carbon credits on the market,” NCGA President Bob Dickey said. “We strongly believe the bill will increase input costs without specific opportunities to offset those additions. We cannot support the American Clean Energy and Security Act in absence of the provisions that we have explained in some length to the Committee.”

American Farm Bureau Federation President Bob Stallman struck an even harsher tone in releasing a statement on its opposition to the bill.

“The (bill) is laden with so many policy prescriptions that its impact on the U.S. is almost impossible to measure and evaluate,” Stallman said. “We can be certain of some things, however—it will increase our operating costs and reduce our competitiveness abroad.”

According to Stallman, the measure does not adequately provide for alternative sources of energy that will “plug the hole” created when fossil fuel costs escalate dramatically. Farm Bureau is also concerned about the potential impact on fertilizer prices, given their sensitivity to natural gas costs.

“The bill would effectively lock the United States into these changes regardless of what is done by other countries, such as China and India,” Stallman said. “Such an approach is little more than gambling with U.S. jobs and productivity. Taken as a whole, the bill falls far short of what is necessary for agriculture to survive and grow.”

So the battle lines are drawn. We know that some groups are working hard to have “a seat at the table” in order to influence whatever comes out of Waxman’s committee, while others are working feverishly to stop the legislation altogether. The measure could die a slow death “kill in the Senate, where . But the biggest wild card it that the Environmental Protection Agency (EPA) might attempt to lower greenhouse gas emissions through regulations if no legislation is adopted.

Agriculture News, Farm Policy, and Rural Policy


Thursday, May 14, 2009

Vilsack sends mixed messages on risk management

There have been numerous times in my career when I've asked a fairly innocent question of a Secretary of Agriculture, only to get a rather eye-opening response. My first media briefing with former Secretary of Agriculture Ed Schafer provides a good example. I asked about his position on U.S. sugar policy and he gave me an answer straight from his home state of North Dakota, where he had served as an extremely popular governor. There was a communications staffer in the room, but she failed to understand the implications and intervene.

Schafer was so intent on giving me his perspective, based on his former position as Governor, that he forgot that he was now playing in the big league. The President and U.S. Trade Representative were not amused when they read about his response, which ran basically counter to their international trade policies.

Should he have been given some slack? Perhaps, because it was only his first meeting with reporters. But after awhile, you expect government officials to get the terminology and the policies down, and to not make comments when they don't know the answer.

Now we've got another former Governor in the Secretary's seat and he is unfortunately, making some of the same mistakes---even after he's been serving for more than 100 days.

Secretary Vilsack is definitely trying to walk the line with President Obama's policies, but some of his comments make me wonder whether or not he is shooting comments before he has a chance to really aim. Wednesday’s agricultural appropriations subcommittee hearing on his 2010 budget provides a good example.

As we reported on http://www.agri-pulse.com/, Vilsack sought to reassure lawmakers that "the President’s budget maintains the three-legged stool of farm payments, crop insurance, and disaster assistance.” Problem is, the "three-legged stool" he referred to is “farm bill lingo” for farm program payments: direct payments, counter-cyclical payments and marketing loans---not crop insurance and disaster payments.

Vilsack also went after crop insurance companies for their excessive profits. Now, I understand that big business bashing is in vogue, but his comments represented a very mixed message to the record number of farmers who have been paying for crop insurance.

The Secretary said that, while in the past it was hard to get farmers to sign up for crop insurance, today farmers often have to sign up as a condition of qualifying for bank loans or disaster relief “so there’s now more of a mandate.” Vilsack said the result is that private companies “have seen a huge increase in their market. . . so they are making a tremendous amount of money, billions of dollars. . . There is a tremendous amount of profit. . . We just think that this needs to be a fairer deal for taxpayers.”

Hmmm...Why would lenders require crop insurance? Perhaps because farmers who pay for crop insurance policies, many of which are now based on expected revenue, have a valuable risk management tool that allows them to market a crop prior to harvest and actually repay their lenders. It also makes farmers less likely to go begging to Congress for annual disaster assistance or to rely on the new so-called “permanent” disaster program.

Yes, companies received a lot of money for farmers last year but it was because they were insuring crops that, because of last year’s run-up in commodity prices, were worth billions of dollars. And in places like Iowa, where my family farms, the crop insurance industry paid almost $1.1 billion to the farmers for their losses, according to the most recent summary of business data released by USDA’s Risk Management Agency (RMA).

So what type of situation would these companies be in if they charged less and then had to pay for losses on all of the crops they insured at those higher levels? Probably not too eager to stay in the crop insurance business. At present, there are only 16 firms approved by RMA under their Standard Reinsurance Agreement

And it’s not only the insurance companies that could be impacted. How would farm lenders be faring if they didn't get their loans repaid? How many farmers would be in bad financial straits if they had not purchased crop insurance to cover their crop losses?

It’s unclear to me whether or not Vilsack really wants to create a new three-legged stool. Maybe he wants taxpayers to pay more in subsidies for annual disaster payments and less in subsidies for crop insurance. Maybe he’s just running in so many different directions with so little staff, that he needs more time to get “up to speed” on these issues

Regardless, I hope that he takes a more comprehensive look at what’s working for farmers in terms of crop insurance and what’s not, before taking a stand on this issue. Surely there can be some ways to reduce government costs, while still maintaining a strong risk management system that farmers, lenders and even the crop insurance companies can depend on.

Agriculture News, Farm Policy, and Rural Policy