Wednesday, November 23, 2016
The Future of Ag Policy Under Trump
What is the impact on the future of agricultural policy in a Trump Administration? My guess is that it will be significant. I also suspect that this time the Secretary of Agriculture will have some background in and a significant tie to agriculture and that the USDA will serve a greater purpose than simply doling out food stamps. USDA policies will likely shift significantly. Rural America voted overwhelmingly for President-elect Trump, and he will be the President largely because of the sea of red all across the country in the non-urban areas. That leads me to believe that the USDA will better represent a broad array of agricultural interests across the country.
So, what can farmers, ranchers and agribusinesses anticipate the big issues to be in the coming months and next few years and the policy responses? That’s the focus of today’s blog post.
Agriculture is one of the most highly regulated industries in the country. From water to genetically modified organisms to cropping and fertilization practices to federal range land policies to drones, farmers, ranchers and rural landowners have to deal with federal (and state) regulations on a daily basis. Many of those regulations are developed without being put through any realistic cost-benefit analysis. Expect that to change. The President-elect is a businessman, not a politician. In that realm, the bottom-line controls. So, it’s probably reasonable to expect that same approach will be applied to regulations impacting agriculture. Those with minimal benefit and high cost could be eliminated or retooled such that they are cost effective. Overall, the pace of the generation of additional regulation will be slowed. Indeed, the President-elect has stated that for every new regulation, two existing regulations have to be eliminated.
Agriculture depends on and benefits from trade. U.S. agriculture has a natural advantage when it comes to producing food products. Because of that, U.S. agriculture views trade with other countries as a positive. That’s just the way economics works with respect to agriculture. That doesn’t mean that trade deals are always good for the country, though. It just means that agriculture benefits from trade. The Trans-Pacific Partnership, while on the whole good for ag, has some really questionable elements to it that the President-elect opposes. The same thing can be said for NAFTA. So, I think it is reasonable to expect the President-elect to attempt to renegotiate those agreements to get a better overall deal for the United States and make sure they comport with U.S. constitutional values. It’s also more likely that trade agreements will be negotiated on a much more bi-lateral basis – the U.S. negotiating with one other country at a time rather than numerous countries. Importantly, the day after the election some foreign leaders said they were willing to renegotiate NAFTA. They obviously believe that the President-elect is serious about renegotiating NAFTA to make it a better deal for the U.S.
China is a big customer of U.S. agricultural products. However, the President-elect has pointed out the Chinese manipulation of currency, and we are all too familiar with the Chinese using GMOs to harm U.S. grain markets. So, we will have to see how strong the President-elect is on dealing with the Chinese and other countries that attempt to interfere with U.S. grain and livestock markets. Canada and Mexico are also huge trading partners. The U.S. doesn’t have too many bones to pick with Canada at the present time, but there are a few with Mexico.
“Renewable” Energy Sources
The President-elect is largely against government hand-outs and is big on economic efficiency. That bodes well for the oil and gas industry (and perhaps nuclear energy). But, what about less efficient forms of energy that are heavily reliant on taxpayer support? Numerous agricultural states are heavily into subsidized forms of energy with their state budgets littered with numerous tax “goodies” for “renewable” energy.” However, the President-elect won those states. So, does that mean that the federal subsidies for ethanol and biodiesel will continue. Probably. The Renewable Fuels Standard will be debated in 2017, but will anything significant happen? Doubtful. It will continue to be supported, but I expect it to be reviewed to make sure that it fits the market. Indeed, one of the reasons that bio-mass ethanol was reduced so dramatically in the EPA rules was that it couldn’t be produced in adequate supplies.
What about the wind energy production tax credit? What about the various energy credits in the tax code? My guess is that there won’t be much change when it comes to the energy credits. In addition, if the domestic production deduction remains in the code, I suspect that the level of the credit for the domestic production of oil and gas will be increased to the same level that applies for other domestic production activities.
The head of the Senate Ag Committee will be Sen. Roberts from Kansas. As chair, he will influence the tone of the debate of the next farm bill. So, can we glean anything from Sen. Roberts past that would indicate how the farm bill might be shaped and what its focus might be? I suspect it means that the farm bill will have provisions dealing with livestock disease and biosecurity issues. Also, I suspect that it will contain significant provisions crop insurance programs and reforms of existing programs.
The House Ag Committee head will be Rep. Conaway from Texas. I don’t know as much about Rep. Conaway, but given that he is from Texas I think it is safe to say that he would push for cottonseed to be an eligible commodity for Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC). I think it is also probably safe to assume that for the significant Midwest crops (and maybe some additional crops) their reference prices will go up.
It also might be possible that food-stamps will get separated from the farm bill. Is that likely? No, but reform is needed with respect to food-stamps. With somewhere between 40 and 50 million Americans on food-stamps it is easy to suspect that the President-elect will work to get that number reduced. Of course, an improving economy should result in that number coming down. But, other measures to tighten the rules to minimize fraud could also bring it down. It just may not be possible at this time to get a farm bill passed if food-stamps are parceled out of it.
New food safety measures are set to go into effect in 2017, and those can be expected to be implemented. But, expect them to get reviewed for their effectiveness and necessity. Also, maybe, just maybe, it will be possible to get the I.R.C. §179 issue involving the income limitation for qualification for farm program payments (i.e., the discrepancy of the treatment between S corporations and C corporations) straightened out.
Look for the incoming ag secretary to have an ag background. I think that is a given. With the Vice President-elect heading up the agriculture aspects of the transition team, that could mean that the next ag secretary will come from Indiana or some other Midwestern state.
Other Related Appointments
The Secretary of Agriculture is not the only agency appointment that the President-elects makes that will have an impact on agriculture. As I noted earlier in today’s post, agriculture is a heavily-regulated industry. There are at least five other federal agencies that have a significant regulatory impact on agriculture and agricultural activities. It is important that the type of leadership provided to these agencies in the Trump Administration be carefully evaluated for the potential impact on ag. For example, the Environmental Protection Agency (EPA) also impacts farmers, ranchers and rural landowners in significant (and often negative) ways from a regulatory standpoint. The President-elect has stated that he would like someone with a farm background to head the EPA. That would be a huge step in the right direction if it happens. The Interior Department has a significant regulatory impact in the western part of the U.S. concerning its regulation and management of federal grazing lands. The Energy Department also impacts ag, as does the Food and Drug Administrations with respect to food produce rules (among other things) and the Occupational Safety and Health Administration with respect to certain types of ag employers and laborers. So, it’s not just the USDA head that’s important. Leadership of all of these other agencies is important too.
These are just my thoughts. This is what it looks like to me at the present time as to where ag policy might be headed in the next few years. What do you think?