FOCUS ON AG
December 27, 2021
KEY AG POLICY ISSUES AHEAD IN 2022
Congress continues to be highly divided on many key topics and will likely remain in that mode until after the 2022 mid-term elections, and possibly longer. Most likely, we will continue to have Congressional discussions on infrastructure legislation and funding, climate change and carbon sequestration, renewable energy, and dealing with new strains of COVID in the coming months; however, we are also likely to have initial hearings on the next Farm Bill. There are many important issues and decisions with the potential to affect farmers and the agriculture industry that could possibly be addressed by Congress and the White House in 2022 and beyond.
Following is perspective on some key ag policy issues that may be under consideration by Congress or through executive action in the coming year:
- Climate Change and Carbon Sequestration — It seems that everyone from members of Congress, business leaders, the national media, and local friends and neighbors are discussing carbon sequestration, carbon credits, and potential legislation to address climate change. Obviously, there is a wide range of opinions regarding the impacts of climate change and how to address the situation. Some would like to see a strong-handed approach by the Federal government relative to types of vehicles we drive, energy policy, and farming practices, while others would like to see a more voluntary and incentivized economic approach that is developed by business and industry. The so-called “Build Back Better” (BBB) legislation that was passed by the U.S. House in November included funding renewable energy development, renewable diesel tax credits, and to pay farmers for planting cover crops, as well as funding increases for the Environmental Quality Incentives Program (EQIP), the Conservation Security Program (CSP), and other conservation programs. However, as 2021 ended, the BBB Bill has stalled in the U.S. Senate, due to the large cost of the legislation and the potential future tax impacts on farmers and other businesses. Several companies have already introduced carbon programs that will pay farmers for introducing practices that sequester carbon, so that those carbon credits can be in turn used by those companies or sold on the open market. Before farmers enter into long-term agreements related to carbon credits, it is important for them to know what practices will qualify for carbon credits, what will the compensation be for the carbon credits, and are there potential future impacts on their farming operation.
- Ethanol and Biodiesel Policy and Development — Many States in the Upper Midwest, including Minnesota, have a well-established corn-based ethanol industry, which utilizes over 35 percent of the corn produced each year in the United States. The renewable fuel standards (RFS) that are set by the U.S. Environmental Protection Agency (EPA) are targeting corn-based ethanol blending rates to return to the statutory level of 15 billion gallons per year in 2022, after being temporarily reduced in 2020 and 2021 due to impacts from the COVID pandemic. The EPA has also been far less lenient with granting the “small refinery exemptions” (SRE’s) to gasoline refiners this past year than occurred in some previous years; however, many farmers and investors remain highly concerned about where ethanol production and utilization will fit into future U.S. energy policy. Proposed Federal legislation such as the BBB bill, as well as statewide initiatives such as the “California Fuel Standards”, have put future research and development of renewable biofuels in the forefront of the climate change battle. Most of the emphasis is on new types of biofuels such as renewable diesel that is refined from soybeans and other crops, utilizing a different process than traditional biodiesel. Another initiative is for “sustainable aviation fuel” (SAF), which might be developed by alterations to the current ethanol production practices. These initiatives have some support from private companies, as well as the Federal government, and may offer some future opportunities for U.S. crop producers.
- Trade Policy — During the 2020-21 USDA marketing year for corn and soybeans, which ended on September 30, 2021, grain export levels returned to very solid levels compared to recent years. From 2017 to 2019, efforts to reset previous trade agreements with China resulted in serious trade disputes between the U.S. and China. The new Phase 1 trade agreement between the U.S. and China was close to being fully implemented during 2020-21 marketing year, which resulted in a rebound of U.S. soybean exports to China to near “pre-trade war” levels, as well as a surprising increase in U.S. corn exports to China. There is concern that the recent increased political tensions between the U.S. and China may lead to renewed trade disruptions between the two countries going forward. There also continues to be discussions surrounding the possibility of the U.S. attempting to enter the Trans-Pacific Partnership (TPP) trade agreement with many Asian Countries, including Japan, as well as potential future trade agreements with other countries. In addition, modifications continue in trade relations with Canada and Mexico, which together with China comprise the three largest trade partners for U.S. ag products.
- Livestock Related Issues — After January 1, 2022, the pork industry will be challenged by the implementation of “Proposition 12”, the California law that will restrict a significant amount of the pork that is produced in the Midwest and other areas of the U.S. from being sold in California. Pork producers are also very concerned with outbreak of African swine fever (AFS) disease in the Dominican Republic and Haiti during the past year, and the potential production and market disruptions that would be caused by an AFS outbreak in the U.S. Many beef producers are concerned with the continuing impacts of the 2021 drought that affected many cow/calf production areas of the country. Beef producers are also quite interested in the Congressional hearings and Department of Justice investigations related to pricing practices within the beef processing industry. Dairy farmers have seen some improvement in profit levels during the past year; however, the long-term trend in the dairy industry is for continued tight profit margins, which emphasizes the importance of future federal dairy support programs.
- Looking Ahead to the Next Farm Bill — The current Farm Bill expires on September 30, 2023, so Congressional discussions on the next Farm Bill will likely begin early in 2022. Current issues such as providing an adequate “safety net” for crop and livestock producers, response to climate change, and links to social issues are likely to affect the discussions surrounding the next Farm Bill. Some key issues relative to development of the next Farm Bill include the future status of the current PLC and ARC-CO farm program model, the continuation of Federal support for crop insurance as the “corner-stone” risk management tool for crop producers, continuation of crop disaster programs such as “WHIP+”. and enhancing risk management tools for livestock producers. A big question with the next Farm Bill will be how climate change, carbon credits, and other carbon sequestration efforts be linked into the legislation, either on a mandatory or voluntary approach. Some policy experts feel that it is highly likely that the current Farm Bill could be extended beyond 2023, given the current political divide in Congress.
There are numerous other issues and policy efforts that could impact farm operators and rural communities in 2022 and beyond, including the COVID pandemic, inflation and rapidly rising farm input costs, labor shortages and immigration policy, and rural health care access and costs, as well as expansion of broadband coverage, and infrastructure needs. Federal legislation and policy related to any of these issues can certainly affect the future of the agriculture industry. Even though farmers and rural communities make up a small percentage of the total U.S. population, the policies that are passed by Congress and implemented by the Federal government targeting the ag industry can have a big impact on the future food supply, energy security and other aspects of life for the entire U.S. population.
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Note — For additional information contact Kent Thiesse, Farm Management Analyst and Sr. Vice President, MinnStar Bank, Lake Crystal, MN. (Phone — (507) 381-7960) E-mail — kent.thiesse@minnstarbank.com) Web Site — http://www.minnstarbank.com/