The Wheat Sheet (August 2000)

A joint publication of the California Wheat Commission and California Association of Wheat Growers

Trade with Mexico—Still Waiting After All These Years

Following the outbreak of Karnal bunt in Southern California, Mexico banned all shipments of wheat from the state. This ban continues even though the outbreak was contained to less than 1% of the California’s production and the remainder was certified by USDA and allowed to be shipped as disease free.

In facing a similar situation in Mexico, shipments were allowed to resume once quarantine areas were certified as clean. In proposing their liberalization of imports of wheat from the Mexicali Valley, USDA stated:

There is no longer any biological justification for that area of Mexico to be listed with the countries and localities considered to be affected with Karnal bunt. Maintaining a prohibition on the importation of wheat and wheat products from the Mexicali Valley in light of the area’s demonstrated freedom from Karnal bunt would run counter to the United States’ obligations under international trade agreements and would likely be challenged through the World Trade Organization.

The California Wheat Industry strongly believes the same standard should be applied to California production, and under the leadership of the Wheat Commission, will be arranging several informational meetings with State officials over the coming months. The Commission and CAWG will be seeking to raise the awareness of the current Mexico ban as an unfair trade issue.

Earlier this year, the Commodity Credit Corporation revised the loan deficiency payment (LDP) calculations, with significant changes to the terminal locations used to determine the posted county prices. These revisions led to many areas of the country experiencing discrepancies between the posted county prices and the local cash price for wheat, but these differences have been particularly pronounced in California.

Under this program, the Commodity Credit Corporation determines posted county prices as the terminal price less the differential for bringing wheat to the designated terminal. Several factors may be at play that are not being adequately addressed in the posted county price calculations, but the differentials appear to be one of the key problems. When the terminal markets were revised this year, the concern is that the differentials for California were not revised or not revised correctly at the same time. While the Farm Service Agency under the US Department of Agriculture has been working with the Corporation to make some temporary adjustments, prices are still out of whack.

In July, CAWG contacted California’s Senators and the California members of the House Agricultural Committee, requesting that they urge the Commodity Credit Corporation to revise the LDP calculations further. In response to the request from CAWG, Congressman Ose’s office met with USDA staff, but received the basic response that USDA sees no problem that will not be worked out in the market over the long run. USDA offered no further assistance on the issue. Congressman Ose’s office offered to continue assistance on this issue, but saw no immediate avenues based on this meeting. CAWG will continue working with the California delegation to seek further adjustments in the LDP calculations.

A top priority of the wheat industry in 2000 is the opening of China’s markets through passage of China Permanent Normal Trade Relations (PNTR). Working through our sister organizations in Washington—Wheat Export Trade Education Committee (WETEC), US Wheat Association (USW), and National Association of Wheat Growers (NAWG)—the California Wheat industry has joined with others in agriculture to remove the trade barriers to this major new market for our products.

Earlier this year, WETEC, NAWG, and USW conducted an intensive outreach program with Congress, including Capitol Hill briefings, hosting visits from China trade officials, and joining with other agricultural organizations in press events and Congressional hearings. CAWG participated in this effort by reaching out to undecided members of the California Congressional delegation, and providing them with information on the benefits of access to the China wheat market.

This work led to the first success on May 24, when the House of Representatives voted to approve the China PNTR by a resounding vote of 237-197. The final tally included 164 Republicans and 73 Democrats to provide a comfortable margin of victory. This victory came one week after the U.S. wheat industry participated in an agricultural fly-in to press legislators to support PNTR for China. Wheat growers visited every House member’s office to highlight the benefits of the agreement for American farmers and ranchers. Thirty-four members of the House Committee on Agriculture voted in favor of the measure, while only seventeen voted against.

The bill now has moved to the Senate, where proponents are confident it will pass easily despite the potential for continued debate. On July 27, the Senate voted 86-12 to invoke cloture. This vote ensures no Senator can filibuster when the vote comes to the floor in September. CAWG will be contacting both California’s Senators, urging them to support the House language and avoid a second vote in the House on China trade issues during the heat of the election period.

In response to purported misuse of program funds, the Risk Management Agency of USDA had begun moves to drop dryland wheat crop insurance from their 2001/2 Crop Insurance Program. To head off this action, the California Wheat Commission and CAWG jointly sponsored a meeting July 19 in Hanford, bringing together RMA representatives and board members from the Commission and CAWG to review the importance of this program. After a day of productive discussions, RMA agreed to implement the program at this time. As they consider any changes to the program, RMA will continue to work with both CAWG and the Commission.

Some progress is being made in Congress this year on eliminating unilateral US sanctions on trade in food and medicine. Unilateral sanctions on food shipments to other markets have long increased the barriers California and American farmers must face in selling our products at a reasonable price, while abandoning these potential sales to our competitors in Canada, Europe, and other countries. NAWG has been working throughout the year with Congressman Nethercutt (R-WA) on his amendment to the FY2001 Agricultural Appropriations bill to lift the ban.

As originally drafted, the Nethercutt Amendment was a straight forward removal of unilateral sanctions forbidding sales of food and medicine to nations such as Cuba, Iran, Libya, Sudan, and North Korea. The Amendment survived attempts to strike it in the full committee, and similar language was approved in committee on the Senate version, by Senators Dorgan (D-ND) and Gorton (R-WA). CAWG contacted all California members of the committee, urging them to support the Nethercutt amendment.

Following House leadership efforts to strip the amendment language, a compromise was reached on revised language that would impose several restrictions: (1) no exports from Cuba or Iran to the US; (2) licensing is required for all sales; (3) the President can exercise a national security waiver on Libya, North Korea, and Sudan; (4) no private financing to Cuba, but third country financing is allowed (as is currently done for sales to Iran); (5) the current travel restriction regulations will be locked into statute, but there are some relaxations to facilitate commercial activities; and (6) the current sanctions are lifted in 120 days. The financing restrictions in particular would make new sales under this bill more difficult for US producers; the Senate version remains as a clean removal of sanctions.

The House leadership has committed to placing the revised language into a bill after the recess, now most likely the Agricultural Appropriations bill once it moves to conference committee. While the Senate version would provide a more level playing field in international markets for American wheat farmers, it is not expected to survive the conference committee process.

Repeal of the estate tax remains a high priority to ensure that family farms can be handed from one generation to the next without forcing families to sell land to pay the tax bills. While in recent years the federal government has raised the amount of an estate that can be bequeathed without incurring a tax bite, family farms and other small businesses often exceed this amount. Farmers seeking to pass their land on to their children often must engage in expensive estate planning, shifting the payments from the government to lawyers.

Congress has again taken this issue up in the current session. A previous repeal was passed by Congress in 1999 as part of the Taxpayer Refund and Relief Act that was vetoed by President Clinton. On June 9, the House of Representatives passed a similar version, with a different phase-in schedule that would begin immediately to reduce the tax and eliminate it completely by 2010. The vote was 279 to 136.

The House version was then approved by the Senate on July 14 by a vote of 59 to 39. CAWG worked with the wheat organizations in Washington to provide real life examples of farming families who got caught up in the death tax squeeze, and are facing pressures to sell to meet the tax bills. Senator Feinstein voted for the repeal; Senator Boxer voted against. The bill is now awaiting action by President Clinton, who has stated he will again veto this measure.

California Wheat Commission. Wheat growers voted to establish the California Wheat Commission in 1983, expressly to develop and maintain domestic and international markets for California Wheat and support research that improves California wheat quality and marketability. The Commission, operating under the California Food and Agriculture Code, is funded by wheat growers and is guided by a board of fifteen wheat farmers, two handlers - each with an alternate member and one public member.

California Association of Wheat Growers. CAWG is the voice of California wheat growers in Washington and Sacramento. We are a membership organization of wheat producers and support businesses selling goods and services to the wheat industry. CAWG tracks actions by state and federal agencies and others that can affect California producers’ ability to grow and market their products at an effective price, and we speak for the California wheat farmer in seeking to ensure those decisions are made with their best interests in mind. CAWG is a member-supported organization, with grower dues ranging from $100 for Foundation Level to $1000 for the California Gold level. Industry Supporter dues range from $125 for the Supporter category to $1000 for Gold Partner.

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