What Part of RFS Corn-Ethanol, Biodiesel Mandates Should Count Toward Farmer Support?

07:04AM Jun 15, 2013

via a special arrangement with Informa Economics, Inc.

Battle over who gets what surfaces with gusto, as corn and soybean lobbyists, and EWG target target prices'; Corn, soybean lobbyists charged with 'fracturing' the ag coalition

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Corn and soybean grower lobbyists have been out in force in the days before what is expected to be a House floor debate on the farm bill the week of June 17.

Those two groups released a letter recently (link) focusing on target price levels contained in the House farm bill, but their specific focus behind the scenes has been on higher target price levels for rice and peanuts.

And the groups' lobbyists have worked with strange bedfellows who usually are their antagonists – the Environmental Working Group (EWG), a group a Wall Street Journal article labeled as, "a liberal advocacy group that is tracking government spending on the agriculture industry."

WSJ enters the fray. On Friday evening, the Wall Street Journal Online posted an article titled, A Rice Gets a Price Premium; Farm-Bill Subsidy Sets High Floor for a Type Grown by Lawmaker Who Pushed It. Link to article. The article notes that "The federal subsidy in the House bill guarantees farmers of Japonica Rice that if market prices drop below 115 percent of the average price of all types of rice, they will get a government payment to make up the difference. Japonica is the formal name for medium- and short-grain rice strains commonly called sticky rice."

"What industry would have the temerity to demand that the government guarantee a price?" Scott Faber, a vice president at EWG, is quoted as saying. "Sushi rice costs more to produce, but it yields more per acre, and costs more to buy," he said. "This is like guaranteeing a price for the iPhone 5."

Faber and EWG have also been very vocal opponents of crop insurance subsidies, but the corn and soybean lobbyists have chosen to look the other way at this time in their effort to slash target price levels in the House farm bill – a movement that has led some observers to bring up other, significant acreage and demand incentives that corn and soybean growers get outside farm bill taxpayer subsides. These include a significant mandate for corn-based ethanol via the Renewable Fuel Standard (RFS), a mandate which has clearly led to the planting of far more corn acres than occurred before the mandate became law, and some from acres previously grown to other crops. Ditto for the biodiesel mandate's impact on soybeans and plantings.

One farm policy analyst said, "Faber is the same guy the Wall Street Journal quoted from EWG who previously led the effort at GMA (Grocery Manufacturers Association) to repeal the RFS. And he is now leading the effort to place all kinds of limits on crop insurance, such as gross income caps, etc. Those are two big if not biggest issues for the corn growers, and Faber is leading the charge against them, yet the corn grower lobbyists choose to deal with him/them on target prices/Price Loss Coverage. Unbelievable!"

The corn lobby effort comes at a time when the Renewable Fuel Standard (RFS), and in particular the corn-ethanol mandate, is under focus in Congress. Some congressional sources signal that if the festering farm bill issues continue, this could aid RFS opponents in picking up 60 votes in the Senate via lawmakers upset over corn and soybean politics on the farm bill.

The corn and soybean lobbyists, along with some Senate Ag Committee members and staff, have frequently cited papers by the Univ. of Illinois and Ohio State University in support of the Senate-favored revenue-assurance program called Ag Risk Coverage (ARC) or shallow loss payments. Opponents of that approach say it is a free crop insurance program designed in part to garner some of the lost direct payments that are eliminated via both the Senate-passed and pending House farm bills. This at a time, opponents say, when corn and soybean growers in recent years have had record to near record net cash income and the US national debt is approaching $17 trillion. From a farm policy standpoint, opponents of the ARC/shallow loss payments say it will not be an effective farmer safety net if the ag industry experiences multiple years of very low prices.

Comments: Some sources speculate that the corn and soybean lobbyist effort is likely tied to getting leverage for a forthcoming farm bill conference, perhaps fearing that revenue assurance program funding (ARC/shallow loss payments) may have to be shaved to accommodate more funding cuts relative to the Senate-passed farm bill.

A Politico article late Sunday evening notes that, "The House opens debate Tuesday on a new five-year farm bill with Republicans encouraged by their vote count but faced with continued infighting among commodity groups over the shape of future subsidies. To the surprise of many, the powerful corn and soybean lobbies are backing a Midwest floor challenge to the new price-loss program crafted by the House Agriculture Committee, which is already struggling to win what’s expected to be a close vote on final passage." The item notes the risky approach taken by corn and soybean grower lobbyists, saying "Left out of the corn and beans letter is any mention of the fact that the same two commodities stand to gain richly from a far more expensive 'shallow-loss' subsidy program in the Senate bill. With much of agriculture holding hands just to get across the House floor, the hardball tactics are risky." The article quoted Randy Russell, a former USDA official who now heads up a Washington-based consulting firm, as saying the corn and soybean groups "have every right to do this, but it is clearly not constructive. Many in the ag industry — including ourselves — are working very hard trying to get sufficient votes to pass the bill on the House floor. They are focused on an issue which fractures the coalition." The article (link) said Rep. Collin Peterson (D-Minn.), who will manage the bill with House Ag Chairman Frank Lucas (R-Okla.), sounded upbeat Saturday. "In the end, I think we will be fine," he told Politico. "But if the farm bill collapses, it’s very unlikely that Congress will again approve a broad extension of current law as it did last winter." 

So what about the headline of this column? Well, there is no answer to that yet because until now farm groups did not want to openly address it...some do now because of the corn/soybean attacks on other farm programs. And those outside the industry are just now mentioning the topic. So this debate is just starting, which is the point: corn and soybean lobbyists have opened up a topic they should have avoided – a topic fueled by taking potshots at a regional program designed to serve as a more effective safety net for some southern-based crops in hopes they can transition to an even better safety net in the years to come. And by corn and soybean grower lobbyists joining those from the EWG and elsewhere, those "partners" for change want to change other areas like crop insurance and pay cap changes via the banner of "reform." Bottom line: revenge is an emotion, not a policy. But some very important policies for corn and soybean growers may come under the microscope ahead – not just this bill but in years and other legislative initiatives to come. Count on it. For example, some observers have already noted that the recent rerating via crop insurance programs should be reevaluated to take into consideration the huge corn grower payouts in recent years – that the huge corn grower payments into the system over the past decade can be significantly tempered by just a few years of huge payments like in recent years.


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.