Washington Update
NECC
March 11, 2013
Today’s Update
• 2012 Elections
• Fiscal Cliff(s)
• Regulatory and Legislative Issues
Major Government Influences 2012 vs. 2013
White House Control
Senate Control
House Control
No Change
No Change
No Change
Senate Leadership
House Leadership
No Change
No Change
The end result doesn’t seem to change…
Electoral Votes 332-206 Obama
Counties Romney 2,421 vs. Obama 693
2012 Elections: What did
change?
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Perception = Power (for now)
Speaker Boehner’s job even more difficult
House GOP not in a position of strength
But Obama’s position of strength is clearly
limited
The Coming Cliffs….
An Ever Widening Budget Gap
40%
35%
30%
Historic/Projected Spending & Revenue as a Percentage of GDP
HISTORIC & PROJECTED SPENDING
PRESIDENT'S TAX INCREASES
HISTORIC & PROJECTED TAX REVENUE
25%
20%
15%
10%
2006
2011
2016
2021
2026
2031
2036
2041
Source: OMB/CBO/HBC
How Did We Get Here?
Where the Federal Budget Goes…
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Social Security
Defense
Medicare
Medicaid
Debt Interest
– Total:
• Total FY 2012 Budget
– Total FY 2012 Deficit
$770 billion
$680 billion
$560 billion
$262 billion
$224 billion
$2.5 trillion
$3.6 trillion
$1.1 trillion
The President’s Balanced Budget/Deficit Reduction Plan/
Deficit Reduction Plan
This page left
intentionally blank.
NCFC: Representing the Policy &
Business Interests of Farmer Co-ops
• Protecting the Capper-Volstead Act
• Working to ease the regulatory
burden on co-ops and their members
• Preserving risk management options
• Possible tax reform and its impacts
• Ensuring an adequate labor force
• Advocating for co-ops in the farm bill
Protecting the Capper-Volstead Act
• In 2010, DOJ/USDA workshops on competition in agriculture
– Potential antitrust enforcement, including Capper-Volstead
– NCFC and members: Farmer Co-ops: Providing for America Campaign
– Threat of government action has receded; however,
• Challenges continue in the courts with civil law suits largely based
on whether CV allows farmers and co-ops to engage in preproduction supply management
– Eggs: Alleges supply management due to increasing cage size
– Potatoes: Complaints challenging supply management practices
– Dairy: Challenge to Cooperatives Working Together program, a
voluntary program to stabilize milk prices
– Additional cases coming?
NCFC and its LTA Committee continue to engage on such anti-trust issues
Regulatory Issues
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USDA/DOJ antitrust workshops
GHG Regulatory Reporting Requirements
GHG Requirements for Stationary Sources
Biotech approval process
GIPSA rulemaking
Dietary Guidelines
Nutritional standards in school lunch and school breakfast
CAFO rules & stepped up enforcement
CERCLA/EPCRA
Spray Drift
Atrazine review
Clean Water Act expansion
Dust
VOCs
NOx
NPDES pesticide general permit
Spray drift labeling proposal
Spray drift petition
ESA Consultation
ESA NMFS BIOP extension
ESA County Bulletins on Pesticide Labels
Revised Worker Risk Policy
Lifecycle analysis of biofuels
Gulf hypoxia
Chesapeake Bay initiative
Nutrient management criteria changes
Spill Prevention, Control, and Countermeasure
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NSPS for grain elevators
Lifecycle analysis of biofuels
Interagency development of oceans policy
Mississippi River Basin Initative
Sustainability standards
EPA-IRIS review of urea as carcinogen
590 Standard revisions for phosphorus
BoilerMAC regulations
CFTC derivatives rulemakings
Value-Added Producer Grants
Co-op eligibility under Market Access Program
Pension relief
Labor requiring private sector employers to notify
employees of their right to unionize
No-Match
E-Verify
H-2A
DOT Hours of Service
Brazil WTO case and the GSM-102 program
Crop Insurance
Biomass Crop Assistance Program
Regulatory Issues
• Hours of Service Ag Exemption: DOT enforcement actions starting
in 2009. Solution: Clarification in 2012 highway bill that includes all
farm supplies (within 150 air mile radius).
• 2011: DOT contemplated new guidance on Interstate vs. intrastate
commerce/Crop Sharing and Commercial Driver's
License/Implements of Husbandry. 1700 comments resulted in DOT
issuing a statement it would not impose new rules on farmers.
• 2009 FDA crackdown on canola meal from Canada (increased dairy
feed cost $30/ton). FDA relaxes salmonella rule on animal feed in
2011.
• 2012 OSHA proposes new safety regulations for child farm workers.
Rule withdrawn and will not be pursued. But regional enforcement
issues persist (grain handling).
• EPA…dust and fly overs…..
The Dodd-Frank Wall Street Reform and
Consumer Protection Act
• Passed by Congress in response to the financial crisis
• Signed into law on July 21, 2010
• Sixteen Titles and 2,319 pages (compared to Sarbanes-Oxley’s 66
pages)
• Regulation of the Over-the Counter Derivatives Markets; a.k.a.
Swaps
Preserving Risk Management Tools for Farmer
Cooperatives and Their Members
Objective: Preserve co-op ability to hedge risk & offer customized risk
management tools to farmers
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Swaps are not “forward” physical delivery contracts: They are financially
settled transactions privately negotiated between a buyer and a seller
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Swaps are not “exchange traded,” and it’s estimated that less than 1% of
agricultural swaps are “cleared”
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The main advantage is swaps are more flexible -- the parties can set their
own time period, quantities, determine prices and margin requirements, etc.
Also becoming more important in illiquid markets like dairy and fertilizer
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Swaps also help co-ops offer forward contracts by freeing up working
capital otherwise needed to be posted as margin
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If farmer co-ops were to be regulated like Wall Street, offering these
products would become cost prohibitive
An example of Co-ops and Swaps: Grain
Swaps With Producers: Livestock
Dairy Co-op Swaps
Dairy Co-ops enter into
swaps to hedge the price
risk of guaranteeing their
farmers a minimum price
for milk to be delivered in
the future (forward
contracts) because:
1. Swaps sizes can be
tailored to fit the
need, and/or
2. Volume is too large
to hedge on CME
Dodd-Frank Implementation
NCFC’s greatest concern was the uncertainty surrounding
the “entity definitions” rule.
– Some activities of co-ops were captured under the “swap dealer”
definition contained in the proposed regulations
If farmer co-ops were to be classified as dealers, increased regulatory
costs would have made providing those risk management services
uneconomical – leaving co-ops, their farmers and customers fewer
risk management tools to weather highly volatile commodity
markets.
Dodd-Frank Implementation
Final “Entities” Definition Voted on by CFTC/SEC last April
– The determination of whether a person is a swap dealer
excludes swaps between a cooperative – including
agricultural cooperatives and cooperative financial institutions –
and its members
– Entering into a swap for the purpose of hedging a physical
position is not swap dealing
– De minimis Exception: the aggregate gross notional amount of
the swaps entered into over the prior 12 months in connection
with “dealing activities” must not exceed $8 billion/$3 billion
Dodd-Frank Implementation
Looking Ahead
– Most of the regulations have yet to go into effect – compliance issues
– The big question is whether or not costs will allow the OTC market to
remain viable
• Reporting and recordkeeping issues (April for end users)
• Capital and margin requirements for “dealers”
• Will liquidity dry up? Ultimate costs of regulations unknown
Other CFTC Issues
• Proposed Customer Protection Rule
– In response to MF Global/Peregrine
– Will margin/hedging costs increase?
• CFTC Reauthorization in 2013
– House/Senate Ag Committee hearings
– Attempts to address Dodd-Frank
• Will Chairman Gensler stay?
Immigration Reform
State-of-Play: Best Chance in Years
– Latino vote delivers for Obama
– Senate’s Bipartisan Gang of 8 working on
comprehensive reform package (includes place
marker for an ag piece)
– House working on legislation, including ag
provisions
Ag Workforce Coalition Proposal
The proposal includes:
• Opportunity for earned adjustment of status by current
agricultural employees who presently lack legal status
• Ensures that all types of producers—including both those
with seasonal labor needs and ones with year-round labor
needs—have access to the workforce they need
• Guest worker program to ensure an adequate farm
workforce in the future
AWC Website:
agworkforcecoalition.org
Tax Issues
• NCFC tax priorities as Congress turns to reforming the Code:
– Maintain Subchapter T of the Internal Revenue Code and related
regulations.
– Maintain Patronage Dividend Deduction.
– Oppose repeal of the Section 199 Deduction for Domestic Production
Activities Income.
– Oppose Repeal of the Deduction for Interest on Debt.
– Oppose Repeal of LIFO Accounting Method.
– Oppose Repeal of Lower of Cost or Market Accounting Method.
– Farmer Cooperatives Should Not Be Treated as “Passthrough” Entities.
Trade
• Trans-Pacific Partnership – will Japan join?
• U.S.-EU to begin Free Trade Agreement negotiations
• When will President Obama ask for Trade Promotion Authority?
Transportation
• Safe and Efficient Transportation Act (SETA) Reintroduced
– Would increases maximum truck weights from 80,000 lbs to 97,000 lbs
Three Failed Attempts to Pass a
Farm Bill in 112th Congress
Round 1:
Super Committee
Round 2:
Senate and House Ag
Committee Bills Passed
Round 3:
Lame Duck Session
Farm Bill: Round #4?
Simply repeating what we did last year is a recipe
to get the same result.
• Notable Obstacles to Success:
– Overshadowed by other, more pressing priorities
– Division among the ranks
– A quiet grassroots
New Ranking Member on Senate
Agriculture Committee
Thad Cochran, R-Miss.
Thank you!