bake - January 2013 - 18

legislation
Subsidies & the Farm Bill
US Treasury Secretary Timothy Geithner was proposing
incorporating into the Farm Bill a sizeable piece of legislation
to avoid the fi scal cliff , according to an early December
report from the Independent Bakers Association. Geithner
included cutting agriculture subsidies while maintaining crop
insurance in his proposal to President Barack Obama.
Senate Agriculture Chairwoman Debbie Stabenow (D-MI)
and House Agriculture Committee Chairman Frank Lucas
(R-OK) drafted a similar proposal last year, which greases
the wheels for support of Geithner’s proposal. In addition,
Senate Agriculture Committee ranking member Pat Roberts
(R-KS), an advocate for substantive crop insurance, is feeling
the pressure to support reductions in subsidies to save crop
insurance from the chopping block.
Reducing food stamps was the other hurdle to the 2012
Farm Bill. Although the Obama Administration vehemently
opposes cuts to food stamps, the Senate is willing to
downsize the program.
Evidenced by the Senate-passed Farm Bill that would cut
$4.5 billion from the food stamp program and coupled with
the growing pressure the Obama Administration feels to
reduce entitlements, it is likely that the meat of the 2012
Farm Bill will be included in a larger legislative package.
Republicans maintained control of the U.S. House of
Representatives following November’s election. The elections
will result in some changes to the membership of the
House Committee on Agriculture when the 113th Congress
convenes in January. There are 45 members of the current
House agriculture committee, 26 Republicans and 19
Democrats. Seven current members of the committee, for
certain, will not be seated in the 113th Congress – three
Republicans and four Democrats.
Infl ationary Pressures
Food infl ation in most categories signifi cantly outpaced the
overall Consumer Price Index of 2.2% reported in November,
the US Department of Agriculture said in its Nov. 23
Economic Research Service Food Price Outlook. It was not
clear how much of that infl ation — ranging from 4.5% to 6%
for most meats, poultry, fats and oils — was an after-eff ect of
the 2012 drought.
18 < JAN 2013 | bakemag.com
“For livestock producers,
branded food, bakeries and
restaurants, it is not such a
simple thing as ‘I’m raising
my prices.’”
Bill Lapp, President of Advanced Economic Solutions in Omaha
But Bill Lapp, president of Advanced Economic Solutions in
Omaha, says he believes the 2012 corn crop sustained a $25
billion toll from the drought — about 3% to 4% of the entire
food economy — that must ultimately be paid by producers
and retailers and is likely to aff ect food prices well into the
2013 crop year.
Lapp says the drought, in the form of much higher feed
costs, hit livestock and poultry producers hard in 2012 and
the solution was a delicate one. “For livestock producers,
branded food, bakeries and restaurants, it is not such a
simple thing as ‘I’m raising my prices,’” he says.
Corn is king, Lapp says, having an outsized impact on the
entire food sector, adding that “when corn sneezes, the other
crops catch a cold.” He noted that corn yields in 2012 were
in the lowest 2% of the historical range of the last 50 years.
Such a short crop inevitably translated into price increases
from about $5 a bu to about $8 a bu. Grains that compete
with corn such as wheat and soybeans also became more
expensive as a result of the drought.
Unfavorable weather during the 2012 growing season was
not the only reason for higher food prices, though, Lapp
says. He pointed out that beef has been in a secular price
rise dating from 2007 and that strong export demand for
chicken leg quarters also pushed prices higher.
Foods derived from corn, wheat and soybeans showed the
biggest jumps in price in 2012. Other edibles, such as fresh
fruits and vegetables and processed fruits and vegetables,
actually experienced price defl ation in 2012, with declines
from 1% to 5%, according to the USDA. But those prices,
too, are expected to rebound to 2% to 5% infl ation in 2013,
according to the USDA.
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