IDDBA Legis-Letter

September 2008

IN THIS ISSUE:

CRP Litigation Resolution; Wheat Report; Idaho WIC Requests Info on Whole Grain Products; ADA Amendments Act; EPA Turns Down Texas Request on Ethanol; CBO Projects $400B Deficit for FY 2008; Trial Run of New Cargo Security Rule; World Trade Likely to Grow Even with Talk Collapse; IDFA Disappointed over End of Doha Round; No Need for Consumers to Change Purchase Behavior; Whole Sale Prices: Highest Annual Rate in 27 Years

CRP LITIGATION RESOLUTION

United States District Court Judge John Coughenour ruled in July to allow livestock producers to utilize at least 2.5 million acres of non-critical CRP land for haying and grazing, rejecting the calls for a ban of USDA's Critical Feed Use (CFU) initiative. The judge ordered the USDA and the National Wildlife Federation to work out a compromise to allow limited haying and grazing while still protecting conservation. Clearly the decision has a significant impact on whether or not USDA will decide to allow for penalty-free early outs for current Conservation Reserve Program (CRP) contract holders advocated by IBA.

Since both sides failed to meet a noon, Tuesday, July 22, deadline to work out elements of the compromise, the judge modified the preliminary injunction implementing an adapted version of the critical feed use program. The plaintiffs demonstrated a "strong likelihood that they will succeed on their claim that the FSA violated the National Environmental Policy Act (NEPA), in that it acted arbitrarily and capriciously and not in accordance with law," the judge said.

In declining to extend the injunction, Coughenour stated, "There are substantial competing hardships, whose impact could be devastating to citizens who trusted that their government was acting legally in implementing the Critical Feed Use initiative, as well as to the nation and the world economy at large, if the Court issues the injunction that Plaintiffs urge." The judge criticized the government's environmental impact analysis and part of the compromise may include a provision that would forbid the Secretary from reviving this program without first conducting an Environmental Impact Statement (EIS) or a Programmatic EIS. Another potential compromise provision may forbid participation by land that has been hayed or grazed within a certain number of years. The ruling clearly impacted USDA's decision to not allow for penalty-free early out from CRP contracts. Ending weeks of speculation U.S. Secretary of Agriculture Ed Schafer issued a decision July 28th that there would be no early release of CRP lands.

WHEAT REPORT

The wheat market follows a recent choppy course generally lower than highs of the summer but presently in a rally. After making a new high for recent sessions in conjunction with a rally in crude oil, prices headed sharply lower, taking out the early lows in the process. Wheat lost to corn with spread traders actively buying corn and selling wheat. Japan is looking to buy 85,000 tons of wheat on its regular weekly tender. Pakistan announced that it is postponing its latest 250,000 ton wheat tender indefinitely.

Government officials said that local purchases along with the recent heavy pace of import buying may fulfill the nation's needs into 2009. However, one analyst said that the political implications of the resignation of President Musharraf yesterday may also be a factor. The Argentine wheat belt remains in serious need of rain. Australia is in somewhat better shape in its western growing areas with one crop forecasters raising its estimate of this year's crop.

Global wheat production is expected to hit a record 664 million tons with expectations of large crops in Australia, Europe and the United States, the USDA reported. The increase in those areas more than offset the smaller crop forecast for Iran. "Another thing that came out of this report that was almost hidden was the severe drought in the Middle East. They are not a major wheat producer, but their wheat crop is going to be severely impacted by the spreading drought. They are going to be buying a lot of wheat."

In its monthly World Agricultural Demand and Supply Estimate report, the Agriculture Department predicted the average farm price of wheat for the 2008-09 marketing year at between $6.75 and $8.25 per bushel. Wheat stocks are at a 60-year low in the United States, with global wheat stocks at a 30-year low.

In Kansas, the wheat production forecast was raised to 366.6 million bushels (Kansas Agricultural Statistics Service). That is 3% more than last month's forecast before the harvest got under way. It is also 29% higher than last year's freeze-plagued crop. The nation's winter wheat forecast also went up to 1.86 billion bushels, Kansas Agricultural Statistics Service said. That is up 3% from last month and up 23% above last year.

The Agriculture Department's report also provided the first corn production estimate since the agency adjusted its acreage numbers after widespread flooding in the nation's Corn Belt. U.S. corn production was pegged at 11.71 billion bushels, down 20 million bushels as the agency adjusted its projected average yields by a half bushel per acre.

IDAHO WIC REQUESTS INFO ON WHOLE GRAIN PRODUCTS

The state of Idaho is preparing to review its WIC Food Package. Information collected by Idaho will be shared among states in Mountain States region including Colorado, Utah, Wyoming and Montana. As part of this process, the state is asking food manufacturers to fill out a spread sheet application on their products. WIC is a Federal program that provides food for Women who are pregnant, recently given birth, and their children.

The recent inclusion of whole grain breads in the WIC program provides bakers with an opportunity to be involved in a successful federal program and are greatly encouraged to complete the application.

Whole grain breads that can qualify include whole wheat bread products and other whole grain bread products in 8-16 oz packages. Both categories include loaves, rolls and buns. Whole wheat bread must conform to the FDA standard of identity for a whole wheat product and whole wheat must be the primary ingredient by weight. Other whole grain bread products must have whole grain as the primary ingredient by weight, contain a minimum of 51% whole grains (using dietary fiber as the indicator) and meet labeling requirements for making a health claim as a "whole grain food with moderate fat content" as defined by the FDA.

The application must be submitted as instructed via e-mail to Cristi Litzsinger at litzsinc@dhw.idaho.gov no later than August 31st, 2008. Mailed applications will be accepted, however e-mailed applications are preferred. The Idaho Food Selection Committee plans to meet at the end of August 2008 to begin the selection for the new food list. They hope to have the selection process complete by December 31, 2008 in order to begin notifying manufacturers in preparation of supplying Idaho stores and providing Idaho with pictures for the food list. The new food package will be fully implemented by the federally mandated date of October 1, 2009. Further information on Federal regulations regarding the new food package can be found at http://www.fns.usda.gov/wic/.

ADA AMENDMENTS ACT

The "ADA Amendments Act" recently passed the House in July by an overwhelming bipartisan majority of 402-17. The language of this bill reflected the efforts of the food industry working with other employer representatives including the NAM and the disability community to reach a delicate compromise that significantly improved the legislation and continued detailed negotiations with key Senators and staff. As a result, before Congress adjourned for the August work period, a version of the ADA Amendments Act (S.3406) was introduced in the Senate by Senator Harkin (D-IA) with 55 original co-sponsors. Now there are over 60 Senators listed as co-sponsors on the bill. The Senate version maintains many of the principles as the House-passed bill; however the clearest distinction between the two bills is that the Senate version contains language that more closely reflects current law's definition of a disability. This bill also maintains the flexibility that employers need in administering the ADA as well as protection for employees with disabilities.

EPA TURNS DOWN TEXAS REQUEST TO WAIVE ETHANOL STANDARD

EPA Administrator Stephen Johnson denied a request by Texas to waive a congressionally-approved mandate for blending corn-based ethanol in gasoline. Johnson said Texas did not prove that the mandate would cause severe harm to the economy or environment. "Rather, it is strengthening energy security and America's farming communities," Adding the mandate will remain an important tool in reducing greenhouse gas emissions and dependence on foreign oil. Johnson argued that while increased biofuels production is lifting some feed prices and industry costs, it is not a result of the ethanol mandate and does not meet the threshold for a waiver to be granted.

The decision drew an immediate rebuke from Texas Republican Governor Rick Perry (R), who said the mandate, which was included in energy legislation signed into law in December by his gubernatorial predecessor, President George W. Bush, raises corn prices and hurts livestock producers. He said he was greatly disappointed with EPA's decision, arguing it went against common sense and "every American's grocery bill." Perry wanted EPA to slash in half a mandate requiring 9 billion gallons of ethanol to be blended into gasoline this year. Perry asked for that cut to occur from September through August 2009, which would have affected this year's mandate, next year's 11.1 billion gallon mandate, or both. His waiver request in April was the first issued for the ethanol mandate, and Johnson said today's denial will serve as a framework for future waiver requests. Johnson noted that EPA is preparing an analysis of the annual requirement of the mandate in future years and its effect on lifecycle greenhouse gas emissions.

Perry still hasn't indicated whether Texas will sue EPA over the decision, although a spokeswoman said his office is reviewing its options. His request was supported by livestock producers as well as environmentalists who criticized increased use of ethanol due to concerns over its effect on air and water quality. EPA said last year it would reduce emissions of carbon monoxide, benzene and carbon dioxide. But the agency said emissions of volatile organic compounds and nitrogen oxides would go up in some areas. "It is causing more smog, adding to global warming, and causing more water pollution," said Frank O'Donnell, president of Clean Air Watch. Others counter that Perry's request was flawed. "The empirical evidence on which it was based did not stand close scrutiny," said Mark Cooper, research director for the Consumer Federation of America.

CBO PROJECTS $400B DEFICIT FOR FY 2008

The Fiscal Year 2008 budget deficit will total roughly $400 billion, slightly more than the $389 billion predicted by OMB last month, according to a recently released CBO estimate. The numbers prompted fresh criticism from Democrats that President Bush's tax cuts left ballooning deficits in their wake. House Budget Chairman John Spratt (D-SC), in a statement issued shortly after CBO issued its projections, said the estimate "gives the Bush administration the dubious distinction of having run up the largest deficits in our nation's history. [It] can try to blame these results on factors beyond its control, but it cannot escape comparison with its predecessor." CBO said the deficit totaled approximately $371 billion for the first 10 months of FY08, $213 billion more than the shortfall in FY07.

It noted that its estimate of $400 billion is "close to the amount the agency projected last March after accounting for proposed supplemental appropriations." The estimate comes about two weeks after OMB projected that the FY08 budget deficit would be $389 billion, followed by $482 billion in FY09, well above the record $413 billion deficit set in FY04. Like OMB, CBO cited the tax rebates associated with the $150 billion economic stimulus package enacted in February as the reason for the increase, as well as the slowing economy.

A spokesman for OMB said today the CBO estimates were "in line with our estimates." During a news conference July 28, OMB Director Nussle said the near-term deficits are temporary and manageable if spending is kept in check, the tax burden is not increased and the economy continues to grow. He said that under those circumstances, the nation could see a budget surplus by 2012.

TRIAL RUN OF NEW CARGO SECURITY RULE

A bipartisan group of House lawmakers want the Homeland Security Department to delay a cargo security rule from taking effect, saying it would likely disrupt the balance between security and commerce. The department's Customs and Border Protection unit drafted the new rule in response to a major port security law enacted in 2006, when Republicans controlled the body.

The rule would require importers to submit 10 new categories of data on cargo containers before they are shipped to the United States by sea. Customs could put the rule into effect as early as November. But in a letter to Homeland Security Secretary Chertoff and CBP Commissioner Ralph Basham, the lawmakers say Customs should do a test program with a small group of importers to see what impact the rule will have before it goes into effect worldwide. They said the rule could create delays in the import supply chain. "These delays undermine the agency's trade facilitation objective," says the letter, spearheaded by Representative Earl Blumenauer (D-OR) and signed by 19 other lawmakers, several of whom serve on the Ways and Means Committee.

The letter comes after an intense lobbying effort to delay the rule by the nation's largest business and trade associations, including the National Association of Manufacturers and the Telecommunications Industry Association. The groups specifically targeted their lobbying effort at the Ways and Means Committee. They estimate the rule could cost industry $20 billion, which they say are costs that will likely be passed on to U.S. consumers. "Department of Homeland Security Secretary Michael Chertoff needs to step back and take a hard look at this rule," NAM President John Engler said in a statement. "It could have a serious impact on our economy and national security." He added: "A prototype program is the best method for evaluating the impact of the proposed rule on national security and trade facilitation and for identifying ways to improve the rule before the government and industry invest billions of dollars to comply."

The lawmakers said estimates vary on how much delay in commerce the proposed rule might create. "CBP estimates a 24-hour delay for the first year, dropped to a 12-hour delay thereafter," they wrote Chertoff. "The business community, however, has documented that applying the rule in real time to company supply chains will delay cargo by 2-5 days depending on the complexity of the supply chain."
They said they believe the rule would have a negative impact on importers' supply chains, many of which rely on just-in-time deliveries. Shipping delays would increase the possibility that cargo containers could be tampered with if forced to sit at foreign ports, the lawmakers said. "In light of these reasonable concerns, we suggest that Customs consider enacting a real time pilot program with a small but diverse group of volunteer importers before full scale implementation of the rule," they wrote. Customs did not respond to requests for comment.

WORLD TRADE LIKELY TO GROW EVEN WITH COLLAPSE OF GLOBAL TRADE TALKS

The collapse of global trade talks for the third time in as many years may be only a bump in the road for world commerce, which continued to expand while negotiations sputtered. The nine-day summit at the World Trade Organization ended in Geneva without an agreement on a plan to cut agriculture subsidies and open trade in industrial goods. The sticking point was a clash between the U.S. and India over how poor nations could raise tariffs when farm imports surge.

While negotiators depicted the breakdown as a setback for the global economy, the lowering of trade barriers and signing of bilateral deals suggest such predictions may be overstated. The value of an accord narrowed to as little as $50 billion annually from as much as $850 billion when the Doha Round of talks began in 2001, a rounding error in a world economy of $54 trillion.

The Doha talks tripped up over triggers for safeguards that would enable developing countries to increase tariffs to protect their farmers should agriculture imports surge and prices fall. The U.S. accused China and India of refusing to open their markets to foreign competition and snubbing a compromise on agriculture and industrial goods. The failure "will have a major impact on the fragile multilateral trading system," Chinese Commerce Minister Chen Deming said yesterday. It added to a "world economic downturn, serious inflation and imminent financial risks," he said.

IDFA EXPRESSES DISAPPOINTMENT WITH END OF DOHA ROUND NEGOTIATIONS

"U.S. dairy food manufacturers are deeply disappointed that promising efforts to improve international trade opportunities appear to have ended with the collapse of the World Trade Organization's Doha Round negotiations. The International Dairy Foods Association (IDFA) and our members strongly supported the U.S. trade proposal, which recommends reducing trade-distorting domestic farm subsidies, substantially reducing tariffs and eliminating export subsidies.

"The global marketplace provides tremendous opportunities for growth in our industry. For the past four years, U.S. dairy exports have exceeded $1 billion. Last year, U.S. dairy exports exploded to a record high of $3 billion, accounting for nearly 10% of all U.S. farm milk production. In fact, for 2007, U.S. dairy exports exceeded dairy imports by $179 million. Dairy trade now is increasingly driven by demands from consumers in developing countries who want to upgrade their diets, as well as consumers in developed countries seeking specialty products.

"IDFA appreciates the tremendous work of Ambassador Susan Schwab, U.S. trade representative, and her entire team during the negotiations. The team clearly understands that for us to compete in this marketplace, we need the best possible conditions — open and competitive markets where consumers, not governments, pick winners and losers — to pursue our objectives. We look forward to continued collaboration.

"The U.S. dairy industry saw the Doha round as the best opportunity in decades to eliminate trade-distorting and restrictive policies and open global markets, encouraging trade in all member nations to grow. IDFA will continue to champion efforts to build trade agreements that eliminate obstacles to free and open markets, and provide more opportunities for exports of U.S. dairy products."

NO NEED FOR CONSUMERS TO CHANGE PURCHASING OR EATING PATTERNS

In a recent statement as a response to the U.S. Food and Drug Administration's Bisphenol A (BPA) draft risk assessment, Dr. Robert Brackett, chief science and regulatory affairs officer for the Grocery Manufacturers Association reassured consumers about the safety of BPA. "We welcome the FDA's draft BPA risk assessment, as its findings - once again - support the overwhelming body of scientific evidence that confirms the safety of BPA in food packaging for all consumers.

"BPA has been safely used in food contact applications for 50 years and plays an essential role in keeping foods safe and fresh. Based on the entire body of scientific evidence, and the findings of the FDA and numerous health authorities and researchers, consumers can continue to safely enjoy foods and beverages in the many forms of packaging provided, including those that contain BPA, without changing their purchasing or eating patterns.

"The U.S. Food & Drug Administration (FDA), the European Food Safety Authority (EFSA) Authority, and Health Canada have all recently evaluated and affirmed the safety of BPA. "Several other prominent international bodies have also agreed with FDA regarding the safety of BPA. These include the World Health Organization, Health and Consumer Protection Directorate of the European Commission; the European Chemical Bureau of the European Union; the European Scientific Panel on Food Additives, Flavorings, Processing Aids, and Materials in Contact with Food; and the Japanese National Institute of Advanced Industrial Science and Technology."

WHOLESALE PRICES: HIGHEST ANNUAL RATE IN 27 YEARS

The Labor Department reports that it's Producer Price Index increased by 1.2% in July and by 9.8% in the past year. In another indication of growing inflation, wholesale prices increased in July to the highest annual rate in 27 years. The government reported last week that the Consumer Price Index jumped by 0.8% in July, which was twice the increase that economists had expected.

The annual Producer Price Index for finished goods rose 9.8% in the 12 months that ended in July. The jump in wholesale prices is the fastest rate of increase since a 10.4% bump-up in June 1981, according to Joseph Kowal, economist at the Bureau of Labor Statistics. The Labor Department also reported that PPI rose 1.2% in July, after increasing 1.8% in June. Analysts polled by Briefing.com had expected an increase of only 0.6%.

The indexes that measure producers' food and energy prices increased in July, but at a more moderate pace than in the previous two months. Food prices rose by only 0.3% in July, after increasing by 1.5% in June and 0.8% in May. In a year-over-year comparison, prices for finished consumer foods have increased by 8.7%, according to the report. The much more moderate increase in food prices in July compared with June is the one bright spot in the otherwise glum inflation report.

This newsletter was prepared for IDDBA by
Robert N. Pyle & Associates. Contact RNP at 202.333.8190.
Contact IDDBA at 608.310.5000.