2012 Outlook for the feed industry
While there are a number of good things to look forward to this year, there is still work that needs to be done – all the more so because it’s an election year.
As we begin 2012, I wish everyone a happy and prosperous New Year. I hope you can capitalize on the opportunities a gradually improving economy, as well as the effects the recent free trade agreements will bring. However, we will also have to successfully deal with key issues in this upcoming year, including the increased and volatile price of corn and other feed commodities, and the continued implementation of the Food Safety Modernization Act. Of course, 2012 is an election year, which will have its own impact on the industry.
Free trade treaties
Significant opportunities for the industry are included in the ratification of the free trade treaties with Korea, Panama and Colombia, approved in late 2011, after being stalled on Capitol Hill for years. Increasing exports has been a top priority for our country. With global demand for meat, milk, eggs and fish continuing to rise, it is important for the U.S. to level the international playing field in order to better participate in these markets.
The U.S. lost a majority of market share in these countries to other nations while waiting on Congress to act. Now, these agreements will eliminate import barriers to U.S. products, such as a 25 percent tariff on pork products, immediately. In fact, all three agreements provide U.S. food and agriculture products the same import rights these countries enjoy when shipping their products to the U.S.
The simple heart of the matter is these agreements are overwhelmingly good for American agriculture and present little risk. They will create new and expanded markets for U.S. exports with no appreciable increase in agriculture imports. It is estimated the combined trade agreements will create 20,000 jobs and increase exports by $2.3 billion.
Before the trade agreements go into effect, there are still additional requirements our partner countries must meet before full implementation can occur. The enactment of the three treaties will give U.S. food and agriculture products a greater competitive advantage, critical to the growth of the commercial feed industry and the U.S. economy.
Over the past few years, everyone in the feed industry has experienced the rising price of corn, other feed grains and ingredients, brought on by increased global demand, reduced stocks-to-use ratios, weather effects on global production, increased speculation by financial markets in ag commodities, and the ever-increasing demands of the biofuels industry. The unfortunate truth – this is our new reality; these prices are here to stay at least for the next few years. This will directly affect the cost of food for consumers, at a time when the country is struggling to recover from a recession.
While several of these factors are not within our control, the American Feed Industry Association has been busy addressing two factors we can influence. AFIA established an Energy Policy Task Force in 2008 to address the issues of rising prices and their correlation to commodity shortages. We continue to take the message to Congress and the Administration that while energy security is important to the country, our leaders must not forget that feeding our nation with safe and affordable food is at least equally as important.
In this context, AFIA recommends the following:
- The biofuels industry should be driven by market demand rather than government mandates and supports. At a minimum, a trigger mechanism should be used to temporarily reduce the Renewable Fuel Standard when stocks-to-use rations fall below 10 percent. Working with the animal production associations, this has been included in proposed legislation supported by AFIA.
- USDA should release all non-environmentally sensitive acres from the Conservation Reserve Program without penalty to increase viable production acreage and help to rebuild much needed stocks.
- The U.S. must develop a comprehensive energy policy that reduces the U.S. dependence on foreign energy, which goes well beyond biofuels production, and supports all viable opportunities for increased domestic production, alternative energy sources and conservation.
Last fall, AFIA played a major role in the Commodity Futures Trading Commission’s establishment of two commodity trading rules. One rule created speculative position limits on futures and swaps, eliminating an exemption Wall Street banks have enjoyed since 2000. The other clarified rules for derivative clearing organizations. As part of the Dodd-Frank Wall Street Reform & Consumer Protection Act of 2010, these reforms will not only encourage transparency, but will help create a more stable, yet competitive, trading market that is based on true supply and demand. AFIA is also working to ensure bona fide end users are protected from additional recordkeeping or costs in using these markets as a risk management tool.
With every challenge, there is also opportunity. The feed industry is resourceful and is working diligently to bring new nutrition options to the market that will help address the cost effectiveness of animal diets.
It has been one year since the passage of the Food Safety Modernization Act, or FSMA. This is a monumental law for our industry and will affect almost everyone – from feed and ingredient manufacturers to companies involved in storage and transportation. The U.S. Food and Drug Administration has been busy working to complete the rulemakings and implement the new provisions and authorities, and several rules are due to go into effect this year.
One of the key rules expected to be published in 2012 is related to preventive control rules. AFIA continues to remind FDA to maintain a separation between food and feed safety requirements. AFIA has five work groups working closely with FDA, submitting comments and providing guidance which will result in well-rounded rules tailored for the specifications of our unique industry.
Minimizing regulation impact
One option for minimizing the impact of this new regulation is through participation in AFIA’s Safe Feed/Safe Food Certification program, or SF/SF. This program offers a practical and comprehensive way to prepare plants for FSMA. FDA has publically commented that SF/SF is a reliable tool for companies to use to comply with FSMA, and AFIA is working to obtain official FDA recognition of this third party certification program.
Finally, it must be mentioned that in an election year, the leaders of our country become more focused on retaining their own jobs rather than effectively tackling our national debt, jobs, taxes and other issues requiring immediate attention. We have worked through three years of an Administration focused on increased regulations and a Congress so hung up in partisan finger pointing it is virtually ineffective. In past eras, this has been a blessing.
However, our country must find a way to address national issues regardless of our political philosophy. The most recent example is the failure of the Joint Select Committee on Deficit Reduction to come to a consensus on how to cut federal spending over the next decade. Come January 2013, mandatory spending reductions are set to be implemented. The Farm Bill is another major program/policy issue to be resolved in 2012.
The 2012 election
This November, we will cast our ballots to elect our President, one third of the Senate and all of the House of Representatives in a very important election. It is too soon to predict how the U.S. citizens will grade this Administration and Congress, but I encourage you to use the next 11 months to become familiar with how your candidates address the issues most important to your business and our country.
We have very successfully dealt with many challenges in the past, and I am confident our industry will take full advantage of the opportunities ahead and successfully tackle the issues we continue to face. Our industry will continue to find answers and new opportunities for everyone to adjust to today’s “new normal.”