Inclusion in the TPP May Come at a Cost for Canada


Contributors: Ed Farrell, Jerry Chapin

As President Obama signed Trade Promotion Authority into law he removed a major stumbling block to completion of the Trans-Pacific Partnership (TPP) trade negotiation when chief negotiators, and then Ministers, meet in Maui July 24-31.  However, a sticking point for many of the countries in the negotiation may be Canada’s reluctance to nix their protectionist supply management system for dairy and poultry.

With respect to dairy, the system dates back seventy years to when Canada faced significant surpluses following World War II, as the strong profits realized by Canadian dairy farmers from their trade with the U.K during the war evaporated with the normalization of trade within Europe after the war. In an attempt to align production with demand, Canada adopted a system that established floor prices for certain dairy products, which in turn supported on-farm milk prices. In further pursuit of price stabilization, the government established a supply control system that targeted specific dairy products.  These policies eventually gave way to Canada’s current supply management system.  While this system has propped up Canada’s milk producers, it could now exclude Canada from the largest trade deal since NAFTA.

The Canadian system is best understood as comprised of three parts: Price setting, control of supply, and protection from foreign competition. Prices are set by the Canadian Dairy Commission and ultimately result in significant income for dairy farmers. To avoid overproduction, farmers are allotted a production quota, which is a transferable asset currently valued at about $28,000.00 per dairy cow. Thus, an average Canadian dairy farm of around 70 cows has about $2,000,000 worth of quota. The final component to Canada’s supply management system is protection from foreign competition, which brings us to the TPP.

Canada’s ability to regulate their market is dependent on keeping competitively priced imports out, and to this end Canada has very restrictive tariff rate quotas on dairy products, with over quota tariffs ranging from 246% for cheese to 300% for butter. The result of these supply management policies is that Canadians are currently paying just over C$7.87 for a gallon of milk, or nearly twice as much as the average U.S. consumer.

There is no question that as negotiators meet in Maui, all eyes will be on Canada, which is under pressure to open their dairy market to imports from TPP countries such as Japan, Australia and New Zealand, as well as the U.S. Some believe this pressure will be enough to bring the nation out of its protectionist mind set. However, Canada has long stood behind their supply management program and is not showing much indication that they plan on bending to foreign pressure, regardless of whether the pressure is coming from powerhouse neighbors such as the U.S. or allies half way around the world. As recently as last month, a spokesman for Canadian Trade Minister Ed Fast said Canada would defend dairy supply management in its negotiations.

Faced with elections in October, will the Harper administration de-regulate the dairy and poultry industry as they did their wheat industry in 2011, or will they hold firm in support of their unique and dated regulatory system? And if they hold firm on dairy and poultry, will the US and others take a hard line and exclude Canada altogether? Or will some middle ground be found? Whether preserving Canada’s regulatory system for dairy and poultry is worth losing inclusion in the TPP — a deal that will ultimately benefit Canada in a wide range of sectors — may ultimately be a decision the Harper administration has to make.

Trade is Critical to Rural America; Agriculture is Key to TPA

By Marshall L. Matz and former USDA Secretary John R. Block

Trade policy may present an opportunity for the Obama Administration and the Congress to work together in a bipartisan manner but it is sure not unanimous.   While Agriculture Secretary Vilsack and U.S. Trade Representative’s Chief Agriculture Negotiator Darci Vetter are making the case for Trade Promotion Authority (TPA), Senator Ron Wyden, the Senior Democrat on the Senate Finance Committee, is arguing for more negotiating transparency to be required by TPA before signing on.  In addition, while there is very strong support for TPA in the agriculture community, it is not unanimous.

TPA is a critical tool in the effort to complete the 12-country Trans-Pacific Partnership (TPP), and down the road the European Union Transatlantic Trade and Investment Partnership (TTIP) negotiations.  These trade agreements support U.S. jobs while helping American agriculture compete more successfully in the global marketplace. TPA will help ensure that America’s farmers, ranchers, and food processors receive the greatest benefit from the TPP, TTIP, and future trade negotiations.

These agreements could have an important economic impact on specific commodities and American agriculture more generally.  Secretary Tom Vilsack recently spoke out on the importance of trade to agriculture:

“It is no surprise that agricultural producers are joining the chorus of voices calling on Congress to renew Trade Promotion Authority. The past six years were the strongest period for agricultural exports in the history of our nation, despite the fact that many other countries’ markets are not as open to American products as our markets are to theirs. New trade agreements that help level the playing field for agriculture will build on the success we’ve seen in the agricultural economy since 2009 and help producers create more new jobs across the country. What makes the agricultural economy stronger makes our entire nation’s economy stronger. It is imperative that Congress act on Trade Promotion Authority early this year.”

Fiscal years 2009 to 2014 represented the strongest six years in history for U.S. agricultural trade, with U.S. agricultural product exports totaling $771.7 billion. Agricultural exports last fiscal year reached $152.5 billion, the highest level on record and supported nearly one million jobs here at home, a substantial part of the nearly 11.3 million jobs supported by exports all across our country.

USTR’s Office of Agricultural Affairs has overall responsibility for U.S. government trade negotiations and policy development and coordination regarding agriculture.  Darci Vetter and other USTR officials, works closely with relevant U.S. government agencies, particularly USDA, as appropriate.

In a recent letter to Congress a broad range of groups outlined the benefits of trade as follows:

“As a result of trade agreements implemented since 1989, when the U.S. began using bilateral and regional trade agreements to open foreign markets to our goods, U.S. agricultural exports have nearly quadrupled in value and now stand at a record $152.5 billion (fiscal 2014).  During that period, earnings from U.S. agricultural exports as a share of cash receipts to farmers have grown from 22 percent to over 35 percent.

“These farm and food exports have a positive multiplier effect throughout the U.S. economy.  Every $1 in U.S. farm exports is estimated to stimulate an additional $1.27 in business activity.  Off-farm activities and services include purchases by farmers of fuel, fertilizer, seed and other inputs as well as post-production processing, packaging, storing, transporting and marketing the products we ship overseas.  Exports of $152.5 billion in fiscal 2014 therefore generated another $194 billion in economic activity in the U.S., bringing the total benefit to the economy to $347 billion.”

The chart below shows the percentage of production that was exported, by commodity, in the most recent year for which there are numbers:

Commodity Percent
Wheat 50%
Corn 11%
Soybeans 62%
Beef 14%
Pork 26.5%
Diary 15.4%

In short:

1. Exports are critical to the agriculture economy; and

2. Agriculture’s political power may be the key to passage of TPA and the trade agreements being negotiated.

While only one percent (1%) of all Americans farm and the conventional wisdom is that agriculture has lost power, production agriculture still has an important role to play in making the case for expanded trade and TPA, as the farm economy has a major impact on all those who live in rural America.  From farm implement dealers to car dealers to rural bankers and the local coffee shops, what is good for farmers is good for rural America.

TPA gives us an opportunity to put economics before politics.  The farm groups who have signed the TPA letter to Congress are well positioned to make the case for expanded trade with both Democrats and Republicans bridging the urban-rural divide in America.

Marshall Matz specializes in agriculture policy at OFW Law.  He was formerly (Democratic) Counsel to the Senate Committee on Agriculture, Nutrition and Forestry.  John R. Block was Secretary of Agriculture under President Reagan.

114th Congress – What to Expect in Ag and Food

By Michael J. Marshall

As the 114th Congress begins in earnest, there is rough sledding ahead this winter over the gulf between the governing philosophies of the President and the new Congress.

Not to belabor the obvious, but early indications are that Republican victories have altered the President’s willingness to deal only very modestly, if at all.  With just two years to go in his final term, President Obama seems determined to push his agenda on a number of fronts. Nevertheless, Americans tend to be eternal optimists, so many are hoping the Administration and Congress will be able to compromise on at least some important issues.  Exactly what is open for negotiation remains to be seen.

In my post-election blog, I asked, “What now?” and answered my own question with, “quite a lot.”  We can’t entirely predict which cards the President will ultimately choose to play.   We’ve already seen him out of the gates early on immigration and Cuba policy, both of which are of great interest to agriculture.

There are a few fig leaves being exchanged.  At the other end of Pennsylvania Avenue, Senate Majority Leader Mitch McConnell (R-KY) doesn’t appear to be too bent out of shape yet.  He is keeping his composure, says he doesn’t take politics personally, and may be interested in sharing Kentucky Bourbon with the President.  Would Joe Biden be there for the Bourbon Summit like he was for the Beer Summit?

My colleagues and I were sitting around last week handicapping the year ahead with our esteemed colleague, former Secretary of Agriculture Jack Block, who served under President Reagan and has seen a few turnovers in this town.  With his own tone of optimism, he advised, in essence, “Pay attention, stay alert, do your work, because when things are moving, you never know when something might actually pass that the President will sign.  Strange things do happen.”

OFW is taking a close look at the prospects for action across a broad range of issues that affect agriculture and food, areas where there has traditionally been bipartisanship, but also ones that may be affected by other reforms. There are a number of issues that have the potential to move.  Here are a few:

Trade

Trade is at the top of the agenda on almost everyone’s list, and appears to be within the realm of the possible despite some significant obstacles.  The impact of a U.S.-Asia Trans-Pacific Partnership (TPP) trade deal, a U.S.-Europe Transatlantic Trade and Investment Partnership (TTIP) deal, and/or Fast Track Trade Promotion Authority, which would make it easier for the Executive Branch to negotiate trade agreements, would be enormous in terms of opening markets for the entire food and Ag value chain.

We can expect the Generalized System of Preferences, which cuts tariffs on goods from developing countries, maybe (hopefully) a Miscellaneous Tariff Bill which would cut duties on agricultural goods not made in the U.S., and almost certainly the reauthorization of the African Growth and Opportunity Act (AGOA) later this year.  Expect the Administration and Congressional Democrats to push for more Trade Adjustment Assistance for workers adversely affected by trade as a pre-condition to move these initiatives forward.  The World Trade Organization (WTO) will consider the U.S. appeal of an adverse country of origin labeling (COOL) ruling. That appeal will require the USDA to submit recommendations, and this could be met with Congressional action to bring the U.S. into international compliance.  If so, the Ag world will be at the table as it was during the omnibus process which resulted in favorable language for producers.

Nutrition/Dietary Guidelines

The “independent” Dietary Guidelines Advisory Committee (DGAC) is expected to release its report to the Secretaries of Agriculture and Health and Human Services this month.  The DGAC report is widely expected to contain some controversial nutritional recommendations and, for the first time, recommendations regarding the sustainability of the food supply.  As many OFW clients know, the DGAC guidance has enormous implications across a broad spectrum of federal programs, from our military to school lunch nutrition standards, to menu and nutrition labeling.

We expect robust debates surrounding added sugars, so-called “high-dose caffeine” beverages, meat, whole grain labeling, sodium, and the mandate for fruits, vegetables and whole grains in the school lunch program.

Environment

One of the elephants in the room inside the Ag community, and I am not talking Republicans, is the role of climate change, or put another way, the environmental impact and sustainability of foods. Notwithstanding language in the recent omnibus suggesting to the DGAC that sustainability is outside the scope of its mandate, no other issue looms larger in the policy sifter within this Administration than the environmental impact of any given policy.  What is the carbon footprint of your Chicken Caesar Salad?  You should know…and some believe it should be listed on the food label.

Expect sustainability to be one of the bases for the dietary recommendations in the DGAC report.  Even if USDA and HHS decide to dial back the Advisory Committee’s ambitions on sustainability, it’s no stretch to say that some in the Administration support the views of the DGAC.

Also, environmentally speaking, we can expect the EPA to continue to look for administrative ways to stretch the Clean Water Act and the Clean Air Act, putting agricultural production in the cross hairs.  If you find a policy that seems immune to the environmental agenda, you can be pretty sure they are working on it.

Food Safety Modernization Act

FDA will issue several of the key regulations implementing FSMA this year, including final rules on preventive controls, fresh produce safety, and foreign supplier verification.  As FDA begins rolling out final rules and enforcing them, Congressional oversight will assume greater importance.  In addition, if the FSMA final rules are promulgated as, or close to, currently written, several segments of the food industry are likely to seek Congressional action on technical amendments to FSMA.

Tax Reform

There is little doubt that tax reform will at least be attempted by Republicans.  While there are too many hurdles that will keep a comprehensive measure from satisfying the President, the Ag world will be looking to extend tax credits for farmers and, if some form of a reform bill does reach the President’s desk, we can expect many players to work to make some of those provisions more permanent.

GMO Labeling

Following Vermont’s passage of a GMO labeling requirement and several close votes on ballot initiatives, we expect the debate over the need for requiring manufacturers to disclose when their foods contain genetically modified ingredients to intensify in Congress this year. This is one of the biggest policy battles playing out for agricultural producers, food manufacturers and, of course, the biotech community.

Expect Republicans to support Rep. Mike Pompeo’s (R-KS) bipartisan Safe and Affordable Food Labeling Act, which would prevent states from setting their own standards and guarantee the authority to label GMOs remains squarely with FDA.  The competing bill, sponsored by Rep. Peter DeFazio (D-OR), would mandate the labeling of all foods containing genetically modified ingredients, a problematic and costly prospect that would have enormous implications for the agriculture supply chain even as the science has consistently shown no material difference between GMOs and their conventional counterparts.  Moreover, the DeFazio bill doesn’t have federal preemption, so GMO detractors would likely continue the push for a state-by-state patchwork of labeling laws that would severely hamper interstate commerce.  A number of Democrats joined Republicans in rallying around Pompeo’s bill at a Dec. 10 hearing of the House Energy and Commerce Health Subcommittee.  While both bills died at the end of the last Congress, they are widely expected to be reintroduced in the 114th.

The worldwide debate over GMOs also rages on.  Biotechnology is a vital tool that the world will need to meet the challenge of global food security, international development goals, the eradication of hunger and extreme poverty, and ironically the environmentalists’ interest in greener agriculture.  While there could be compromise in the area of food labeling, further progress seems unlikely until the scientific facts and public perceptions of GMOs are reconciled.

Feed the Future

The President’s Feed the Future initiative, looking to improve global food security in Africa by boosting agricultural productivity and alleviating extreme poverty and hunger, should be reauthorized with bipartisan support this year.    This will provide a moment of bipartisan comity.

Budget and Appropriations

On top of everything else, budget and appropriations likely completed “in regular order,” as they say around Washington will mean that for the first time in a long time, the President will propose and the Congress will pass spending bills.  Appropriations will follow authorizations of government operations.  The process will be open to amendment and that means everything is on the table, including agricultural entitlements. There will be a reconciliation process when the House and Senate meet to work out differences.

Right off the bat we expect that the numbers that will be given to the Ag Committee will suggest that cuts are coming.  We anticipate a lot of shuffling ahead of this to lessen the impact on one program or the other, but there will not be easy solutions.

Budget positioning will be crucial to our clients as cuts will be needed to conform to the top line.  We expect food stamps (SNAP) and crop insurance to be targeted along with several other programs that the committee will look at in order to fit under the caps.

Happy New Year.  2015 has strong potential to break the pattern of the past several years in many respects.  We’re off to an aggressive start and we can expect it to continue as both the President and Republicans forge ahead and try to demonstrate they can lead.

John Block: Cabinet Luncheon 2014

By John R. Block

Before Christmas, I hosted the annual Cabinet Secretaries lunch at the famous Blair House. The Blair House is right across the street from the White House. It provides overnight lodging for dignitaries visiting the President. In fact, the Blair House is where President Reagan held his first Cabinet meeting in January 1981 before he had been inaugurated. He couldn’t use the White House then because Jimmy Carter was still in there. At that first meeting, I asked President Reagan to lift the Soviet grain embargo and about had my head taken off by Secretary of State Alexander Haig. He wanted concessions from the Soviets first.

This year at the Cabinet luncheon, we had about 50 Cabinet members and their spouses. Looking back, I recall when we held our first Christmas Cabinet luncheon at the Madison Hotel. At that luncheon, we only had six members of the Reagan Cabinet and Vice President Bush. We’ve never missed a year since then, and now we invite Cabinet members from both parties.

This year, we had Secretaries from the Reagan, H.W. Bush, Clinton, George W. Bush, and Obama years. The Department of Agriculture was well represented with Dan Glickman, Ann Veneman, Mike Johanns, and Yours Truly in attendance. We had Secretaries of State, Defense – Secretaries of everything. There was a clear impression that the attendees were convinced that they could do a much better job of running the government than today’s White House crowd.

Every year, each Cabinet member is asked to make a prediction for the new year. Some are serious and some are just funny.

Barbara Franklin predicted that trade promotion authority legislation would pass and be signed by President Obama. I hope she is right.

Ray LaHood said that a Republican governor will win the nomination to run for President in 2016. We have a lot of governors wanting the nomination.

Mike Johanns said that if Hillary Clinton decides not to run, Governor Jerry Brown (CA) would win the Democratic nomination.

Craig Fuller, with tongue in cheek, said that in 2015, 45% of the attendees would arrive by Uber.

Ed Harper predicted that the President will sign legislation for the trans pacific trade bill. That would be great.

I was reminded that, last year, I predicted that we wouldn’t get a farm bill, but we did. I’m happy that I was wrong.

There was a very positive, up-beat attitude in the room. We all felt that if we were back in the chairs, we would be able to solve the nation’s problems.

John Block was Secretary of the U.S. Department of Agriculture from 1981-1985, where he played a key role in the development of the 1985 Farm Bill.

John Block: Mid-Term Elections

By John R. Block

At last – the mid-term election is behind us. President Obama had said that although he was not on the ballot, his policies were. The nation’s voters repudiated those policies. Republicans were voted in and Democrats voted out. Some races are still in dispute, but Republicans have already secured more than enough new Senate seats to replace Democrat Senator Harry Reid, Leader of the Senate, with Republican Senator Mitch McConnell. In his victory speech, Senator McConnell said, “It’s time to go in a new direction. Real change in Washington is what I intend to deliver.”

I know that a lot of people might ask, “What difference does an election make?” Well, we shall see. Hopefully, we will see an effort to reform our complicated, full-of-loopholes tax system. Maybe the Congress can pass “Trade Promotion Authority.” Then, we will be taken seriously by other countries as we negotiate trade agreements. How about passing legislation to authorize the Keystone Pipeline? President Obama has blocked every effort so far. Corporate taxes need to be reduced. Our rate is higher than any other developed country in the world.

Businesses in the U.S. have been intimidated by the Obama Administration regulatory overreach. If this can be stopped, maybe we can see new business investment and economic growth. The economy was the voters’ top concern in this election by a wide margin.

Next year, I would expect the Republican Congress will be sending a number of bills to the President for his signature. With some compromise, perhaps he will sign some of them. We desperately need to deal with our backlog of issues.

In years past, we have seen Presidents deal with the other party to get things done. President Reagan worked with a Democratic Congress and negotiated an historic agreement with the Soviet Union to eliminate intermediate-range nuclear missiles. President Clinton signed Republican welfare reform legislation after vetoing it a number of times. Then, he took credit for the legislation.

Here is where we are now. President Obama’s policies were on the ballot, and rejected. But, he still has a chance to reach across the aisle to get some things done which, up until now, he has been unwilling to do. We shall see.

John Block was Secretary of the U.S. Department of Agriculture from 1981-1985, where he played a key role in the development of the 1985 Farm Bill.