Policy Updates: Will Canada Supreme Court Alter Country's Dairy Policy?

Posted on 04/16/2018 4:26 AM

CBO releases estimates of proposed House farm bill

Can Canada's Supreme Court do something NAFTA 2.0 talks can't? Alter Canadian dairy, egg and poultry policy. The Canadian Supreme Court will release a decision Thursday, April 19, that could lead to dismantling of Canada's supply management system of tariffs, quotas, and price controls that protects Canada's dairy, egg, and poultry producers. On Friday, the Supreme Court of Canada announced it has reached a decision on the legal issue.

The decision, some say, has nothing to do with Canadian dairy, egg, or poultry policy. But Canadian supply managed producers fear it could be the beginning of the end of a system the 2018 U.S. Trade Representative's Foreign Trade Barrier Report says “limits the ability of U.S. producers to increase exports to Canada” and “inflates the prices Canadians pay for dairy and poultry products.”

Background on the 'Free the Beer' case. In October 2012, Gerard Comeau, a New Brunswick man, was charged with violating the province's liquor laws for returning from the province of Quebec with 354 bottles of beer and three bottles of liquor. He appealed that the New Brunswick liquor laws contravened Section 121 of the Canadian Constitution Act — which states that trade should be free between the provinces and territories — and was successful in a lower court. The New Brunswick government appealed that decision and the Canadian Supreme Court will now decide whether to uphold the lower court ruling.

The court heard a joint submission from dairy, egg, chicken and turkey farmers, the only non-government intervenors speaking against Comeau’s side. They said that allowing his victory to stand “could result in the destruction of supply management — a regulatory system in place for generations, on which the livelihood of thousands of farmers across Canada depends.”

The Dairy Farmers of Canada and other associations warned their supply management policy could effectively be destroyed if the Supreme Court decides to do that because a decision in favor of more unrestricted internal alcohol trade would also force their system to open up. “The theory of unfettered free trade articulated in the Trial Decision would proscribe not only interprovincial tariffs, but also “non-tariff barriers” (expansively defined as restrictions that make importation or exportation of products more difficult or more costly),” they argued in their court intervention.

Others say no additional impacts. While the decision could require changes to existing restrictions on the sale of butter, cheese, yogurt, chicken, eggs, and turkey from one province to another, others argued it will have no impact on import controls — such as the Canadian tariffs on those products targeted by the U.S. NAFTA negotiators.

CBO releases analysis of House farm bill proposals. The Congressional Budget Office (CBO) on Friday released an analysis of the House Ag Committee farm bill proposals. The estimates detail how the legislation relied on shifts in conservation and nutrition spending to fund priorities.

CBO estimates the House's 2018 farm bill (HR 2) would increase mandatory spending on programs by $500 million over 10 years and result in $7 million in deficit savings for the same period. However, overall mandatory spending would increase by $3.2 billion between fiscal 2019-2023, the life of the legislation. Costs would drop sharply over the next five years by $2.7 billion. Link to report.

Conservation. The bill would eliminate the Conservation Stewardship Program (CSP) to save $12.6 billion over 10 years, of which $7.7 billion would go toward expanding the Environmental Quality Incentives Program (EQIP). While most of the rest of the CSP savings would be kept in the conservation title for other programs, $795 million would be moved into other sections of the bill. The phase-out of CSP would save $12.6 billion over a decade, while spending in EQIP would rise to nearly $7.7 billion. In all, funding for working lands programs would be cut by about $5 billion over time. The farm bill would increase funding for the Agricultural Conservation Easement by $2.2 billion over a decade, and the Regional Conservation Partnership Program by $1.3 billion.

Other spending reductions. Rural infrastructure and economic development would decline by $517 million and crop insurance by $161 million.

Areas with increases over 10 years include horticulture by $10 million, farm programs by $193 million, research and extension programs by $250 million, trade promotion programs by $450 million, SNAP by $463 million and miscellaneous programs by $566 million. Tightened eligibility rules for SNAP helped garner $1.2 billion to match supermarket incentives for SNAP recipients to buy fruits, vegetables and dairy products. For nutrition: $463 million in direct spending is offset by $465 million in revenue. Net impact: the nutrition Title 4 saves $2 million over 10 years.

Despite the $7.7 billion on a workforce administration in the SNAP proposals, Democrats say they don’t believe the legislation would provide sufficient funding for states to create enough job-training slots or quality job-training programs to make people with limited skills or education competitive in the workforce.

Perspective: The House farm bill is budget neutral, including for nutrition. Overall, the farm bill proposals save $7 million over 10 years.

Regarding crop spending, the table in the CBO report shows a $438 million increase. However, recall a provision to convert any base that had not been planted to a covered commodity since 2009 to “unassigned crop base,” For cotton base, that offset was included in the Bipartisan Budget Act. The provision was included for the other crops in the House farm bill proposals. While there has been conjecture to the contrary, cotton did not get special treatment as the offset was just applied in two different bills. Also, the individual Agriculture Risk Coverage (ARC) program is repealed, saving $143 million over a decade — the county ARC program is still an option.

Trump declines to label China a currency manipulator. The Trump administration opted on Friday not to label the country a currency manipulator. The Treasury Department, in its biannual currency exchange report, chastised China for its lack of progress in reducing the bilateral trade deficit with the U.S., but did not find that it was improperly devaluing its currency, known as the renminbi. “Treasury is strongly concerned by the lack of progress by China in correcting the bilateral trade imbalance and urges China to create a more level and reciprocal playing field for American workers and firms,” the report said. Link to report.

Background. The Treasury Department determines if a country should be labeled a currency manipulator based on bilateral trade deficits and signs that another country is depressing the value of its currency. The U.S. has not officially called another country a manipulator since it slapped the label on China in 1994, and doing so is supposed to kick-start negotiations to resolve the problem. This year China, Germany, Japan, South Korea, Switzerland and India were placed on Treasury’s monitoring list for potential currency manipulation.

Year-round E15 is positive for ethanol if implemented, but waivers are here now, and increasing. While President Trump continues to support more ethanol sales via year-round E15, a change from current policy that restricts its sale during the summer in areas where smog is a problem. But others say moves by EPA Administrator Scott Pruitt would temper ethanol volumes ahead as the agency continues to issue hardship waivers to an increasing number of oil refineries.

Farm-state senators react. The "EPA’s practice of giving away secret hardship waivers to the country’s biggest oil refining companies needs to stop," five Republican senators from top corn-producing states including Chuck Grassley and Joni Ernst of Iowa said in a joint statement last Thursday. The waivers are "effectively gutting" national biofuel quotas and are "another backdoor attempt" to destroy ethanol regulation, they said.

Trump has attended several biofuel meetings over the past few months designed to garner a “win-win” initially requested by biofuel opponent Sen. Ted Cruz (R-Texas). In a meeting with farm-state lawmakers and governors, Trump signaled there would be a two-year transition for the change to E15, with "no guarantee" it would happen, but he stressed that he would be "helping the refineries" who have complained about the biofuel mandate. EPA has encouraged some 38 eligible oil refineries to apply for waivers and granted more than two dozen of them. A federal law allows exemptions for facilities that use no more than 75,000 barrels of crude per day, and a court ruling last year made winning waivers easier.

A court decision said that, under the statute, EPA is required to give small refinery exemptions more liberally, according to Jeff Holmstead, the former assistant EPA administrator. The law "does not make a distinction between small refineries owned by small parent companies and small refineries owned by a large ones."

Farm-state senators wrote that EPA should immediately cease issuing waivers and provide a list of companies that have received them, they said. EPA’s waiver decisions "are based on refinery-specific information" and Department of Energy analyses, EPA spokesperson Liz Bowman. "We continue to work through petitions received for 2017."

As for Sen. Cruz, he dismissed the celebrations by ethanol backers that President Trump was not placing a cap on RIN prices, saying instead that the Trump had promised to also help refineries. “I’ve long called for a win-win solution, to both expand the market for ethanol to help corn farmers AND rein in skyrocketing RINs prices to save blue-collar jobs,” Cruz said in a tweet.

— TPP 2.0 update.

  • Hurdles ahead for U.S. to get any new TPP 2.0 benefits. Yorizumi Watanabe, a former Japanese trade negotiator now at Keio University, said allowing the U.S. to put new issues on the table was “ridiculous... The U.S. had agreed with TPP-12 and then left, and says it wants more on its return. That is not acceptable—it is against negotiation rules,” Watanabe said, according to the Wall Street Journal. He said if the U.S. makes new demands, one might be to extend the exclusivity on biologic drugs to 12 years, as the Obama administration initially wanted before compromising with Australia on an eight-year period. The U.S. might also ask Japan to remove its tariffs on rice, which it didn’t push for in the original TPP in deference to Japanese sensitivities, Watanabe said.

  • Japan Prime Minister Shinzo Abe will meet President Trump in Florida Tuesday and Wednesday, with North Korea and trade issues on the agenda. Abe is due at Trump’s Mar-a-Lago resort. The Japanese leader wanted a meeting after Trump surprised many by agreeing to talks with North Korean leader Kim Jong Un, a summit now slated for May or June. On Friday, Japan’s main government spokesman said Abe would stress to Trump the importance of free trade following the president’s decision to ask his advisers to study the possibility of the U.S. re-entering talks on the Trans-Pacific Partnership (TPP) trade agreement.

  • Trump recently commented on Japan on Twitter, writing that Tokyo had “hit us hard on trade for years!” and emphasized bilateral trade talks, something that Japan has dragged its heels on because of its concerns about U.S. demands for major concessions. Unlike several other U.S. allies, Japan has failed to gain an exemption from Washington’s new tariffs on steel and aluminum imports. That, in turn, has led to reports that Japan is mulling a retaliatory list of U.S. products.

  • Malaysia comments. As for the U.S. returning to a now-revised TPP-11 called CPTPP, Malaysia Trade Minister Mustapa Mohamed said that renegotiating significant changes would be difficult. “We have achieved a balanced deal for all parties involved,” he said. “Renegotiation will not only take a long time but also alter the balance of benefits for parties.”

  • Mexican President Enrique Peña Nieto said Friday the U.S. was welcome to reconsider joining a Pacific Rim trade agreement. “The door is open for the United States to reconsider it...and take advantage of the TPP,” Peña Nieto said. “We do not believe in protectionism. We believe firmly in openness and competition.” Peña Nieto made the comments at a business conference in Peru’s capital, Lima, ahead of a summit of leaders from the Western Hemisphere.

  • Australian Trade Minister Steven Ciobo says there is “no appetite” for major changes to the Trans-Pacific Partnership to accommodate the U.S., the Jakarta Post reports. Link.

Other items of note:

  • China and Japan join forces on North Korea. The foreign ministers of China and Japan agreed to work closely to push North Korea to abandon its nuclear program. Japanese Foreign Minister Taro Kono spoke to reporters Sunday in Tokyo after a meeting with Chinese counterpart Wang Yi, who made the first trip of its kind to Japan in more than eight years. It comes ahead of a summit between the two Koreas and a potential meeting between U.S. President Donald Trump and Kim Jong Un in May or June.

  • More U.S. sanctions on Russia coming. New sanctions will be imposed on Russia related to Syria’s reported use of chemical weapons as the U.S. and U.K. assess the fallout and next steps after Friday night’s strike on the Middle Eastern country, the top U.S. diplomat to the United Nations said. UN Ambassador Nikki Haley, speaking Sunday on CBS’s Face the Nation, said U.S. Treasury Secretary Steven Mnuchin will announce new sanctions today that “go directly to any sort of companies that were dealing with equipment” related to Syrian leader Bashar al-Assad and his chemical weapons.

  • China is slowing reviews of multibillion-dollar takeover deals as U.S.-China trade tensions escalate, the Wall Street Journal reports. The delay could end up quashing Qualcomm's planned $44 billion purchase of NXP Semiconductors, or Toshiba's planned $19 billion sale of its chip unit to a consortium led by Bain Capital. Link.

  • Ryan endorses McCarthy as his successor. House Speaker Paul Ryan (R-Wis.) endorsed Majority Leader Kevin McCarthy (R-Calif.) to succeed him as leader of the House Republicans when he retires. “I think we all believe that Kevin is the right person,” Ryan said in an interview with NBC News. Ryan said Wednesday he was leaving Congress at the end of the term.

  • NAFTA 2.0 deal in sight? Vice President Mike Pence said Saturday that he believes the U.S., Mexico and Canada could complete negotiations to rewrite the North American Free Trade Agreement (NAFTA) “within the next several weeks.” Trump administration officials are discussing a compromise on auto-industry rules, boosting odds that the U.S., Mexico and Canada can reach a deal this spring to revise the pact. Last Thursday, President Trump expressed optimism over the progress of the negotiations. “We’re getting pretty close to a deal,” Trump said. “It could be three or four weeks. It could be two months; it could be five months.” A NAFTA deal this spring would allow U.S. lawmakers to vote on the agreement in 2018, before a new Congress arrives next year. Any overhaul of the agreement would need a majority vote in the House and Senate.

  • China has a faux comparative advantage in its trade relationship with the U.S. because of its state-directed investments, nonmarket economy, and disregard for the rule of law, White House trade adviser Peter Navarro writes in a Wall Street Journal op-ed. Link.

  • Battle grows over gene-edited food. Proponents say Crispr technology could transform agriculture and help feed a growing global population. Organic farmers and natural-food companies say it may pose health and environmental risks. Link to Wall Street Journal article.

  • Trump nominated Jim Hubbard to be USDA undersecretary for natural resources and the environment. Hubbard had previous stints as a deputy chief for state and private forestry at the USDA Forest Service and as director of the Office of Wildland Fire Coordination with the Interior Department. In a statement, USDA Secretary Sonny Perdue applauded the appointment and urged the Senate to confirm Hubbard, along with other USDA nominees awaiting approval.

  • Dairy woes in Wisconsin. Impacted by the dairy crisis, Wisconsin's small dairy farmers are increasingly closing up shop. Wisconsin lost 500 dairy farms last year, and the total number of herds is down 20 percent from five years ago, the Milwaukee Journal Sentinel writes. Link.

  • Impacts of soda tax. Residents of Philadelphia are about 40% less likely to drink soda after a 1.5-cent-per-ounce tax on sweetened beverages took effect, according to a study from Drexel University. Meanwhile, consumption of untaxed bottled water has increased, the American Journal of Preventative Medicine reports. But people are still drinking sugary fruit drinks like Snapple at the same rate despite the tax, NPR says. Link.

  • Vetter joins Edelman. Darci Vetter, former chief agricultural negotiator and deputy undersecretary of agriculture, is joining Edelman as general manager for public affairs in its D.C. office. “As the vice chair for Agriculture, Food and Trade, Vetter will work to spearhead the firm’s push to strengthen its support to clients in the commodities, supply chain, agribusiness and global trade arenas,” the group said.

  • Patrick Delaney is today joining the House Agriculture Committee Minority staff as Democratic Communications Director. Delaney joins House Ag after several years as director of policy communication at the American Soybean Association.

Markets. The Dow on Friday was down 122.91 points, 0.50%, at 24,360.14. The Nasdaq lost 33.60 points, 0.47%, at 7.106.65. The S&P 500 moved down 7.69 points, 0.29%, at 2,656.30.

For the week, the Dow was up 0.18%, the Nasdaq gained 2.8%, the S&P 500 was up 2%, U.S. crude moved up 8.6%, Brent crude rose 8.2%, gold gained 0.8% and the yield on the 10-year U.S. Treasury note was up 4.6 basis points.

Big earnings results ahead. Three-quarters of the companies in the Standard & Poor’s 500 index are reporting results over the next three weeks. Investors expected 2018 will be the biggest year for earnings growth since 2010. Unknown is how much of that forecast is already baked into prices.

Differing Fed views on rates. Markets continue to digest views on the Fed that offer different perspectives on whether the Fed could end up raising interest rates more than the total of three times they predicted in March. Boston Fed President Eric Ronsengren said he thinks the Fed may have to increase rates more than currently expected as the labor market could tighten more than the Fed thinks and inflation could run hotter than current Fed projections. But St. Louis Fed President James Bullard said he was puzzled by the statement in the minutes of the March meeting released last week that said "all" Fed members expected higher interest rates. Bullard argued the current interest levels are close to neutral and he thinks that additional rate hikes are unnecessary and could be counterproductive. Both are voters in 2019 on the Federal Open Market Committee (FOMC) so the debate among voters could get interesting ahead.

Is Mexico's currency signaling NAFTA 2.0 success? The peso is up 8% against the dollar, a rise some say predicts an eventual successful conclusion to renegotiating the North American Free Trade Agreement (NAFTA 2.0).


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