Posted June 20, 2013 by Dale Wiehoff
As the U.S. Farm Bill debate drags on like a bad dream you can’t wake up from, Europe is entering the final stretch of multi-year negotiations on the 2014–2020 Common Agricultural Policy (CAP). As with the Farm Bill, agreement on the CAP is far from a sure thing.
In the U.S., we have the House of Representatives working overtime to eliminate funding for almost everything in the Farm Bill. The President is threatening to veto it if Congress takes too much from the Supplemental Nutrition Assistance Program (SNAP, or food stamp) program, which accounts for close to 70 percent of the Farm Bill’s cost.
In Europe, the CAP debates have a familiar ring over direct payments and capping and coupling aid. Unlike the U.S., high on the list are proposals designed to “Green the CAP,” which includes addressing environmental and economic challenges. The CAP debate is simplified by not including a massive food aid program like SNAP, but complicated by a process that in the current phase is called “triolgues.”
Triolgues bring together the European Parliament, the European Commission and the European Council to hammer out the final agreement. In the European Parliament, civil society organizations like ARC 2020 have led in the debates on greening the CAP. Starting in 2010, ARC 2020 issued an outline for comprehensive reform of European agriculture and rural policy. Their proposals have been met with widespread popular support but serious foot dragging from the EU ministers. A live debate between Agriculture Commissioner Dacian Cioloş and the European ParliamentAgriculture Committee Chair, Paolo De Castro on June 20 will highlight what is at stake.
The CAP and Farm Bill debates share a common history and challenges. Both grew out of a desire to create a stable and fair agricultural market place following World War ll and both initially succeeded in building strong rural communities. Today, in Europe and the U.S., the number of farmers has been greatly reduced and is still declining. They have been replaced by capital and technology intensive farming that produces raw materials for staggeringly concentrated markets. Greening the CAP and projects like IATP’s Beyond the Farm Bill are key to reversing the unsustainable model of agricultural production of the last 50 years.
Posted June 10, 2013 by Erin McKee VanSlooten
As I dream of real summer weather, one of the things I look forward to most is picking strawberries with my little cousins at a pick-your-own farm near our family cabin up in Aitkin County. The first time we tried it, the kids were so excited we had to go back two times in one day and filled five ice cream gallon buckets with ruby red fruit, sweet and sun-warmed as we relished in harvesting that evening’s dessert.
Not every child gets to experience the wonder of connecting with our local food system in such a direct way, but this year’s issue of the Minnesota Grown Directory is here to help families make that connection.
Minnesota Grown is a partnership between the Minnesota Department of Agriculture and producers of specialty crops and livestock. Their annual directory of local producers is always a huge hit with our vibrant local foods community. This year’s issue, just published last week, lists nearly 1,000—a record number!—local farmers, markets and businesses where consumers can buy directly from the producer. It also boasts a strong family-friendly focus. IATP worked with Minnesota Grown to include information on Farm to Childcare programs, fun farm facts, kid-friendly activities like farm tours, and other techniques families with young children can use to engage with locally grown foods. The family-centered content is a great supplement to the detailed information on local producers the Minnesota Grown Directory always provides, and makes this year’s issue a wonderful resource for parents, teachers, childcare facilities and anyone interested in engaging with kids on local agriculture.
The partnership with Minnesota Grown was a natural fit for IATP. We have been working hard to connect young children with local foods by developing a model Farm to Childcare program in partnership with childcare provider New Horizon Academy. Reaching kids early to build a relationship with local agriculture sets the stage for healthy food choices that support our local food system down the road. Our pilot run of the program showed encouraging results, with parents reporting that children participating in program were more willing to try new foods and eager to talk about where those foods came from. IATP will be publishing our Farm to Childcare curriculum package later this summer. To get on the distribution list, please email me.
The weather may still be chillier than usual, but delicious spring greens, asparagus, morel mushrooms, green onions and more are reminders of the bounty of local produce soon to be available to Minnesota families. I am looking forward to summer strawberry days, and with help from the Minnesota Grown Directory, this summer more families and children than ever can get their hands dirty and support our local farmers.
Order free printed copies of the Minnesota Grown Directory on the Minnesota Department of Agriculture’s website.
Posted June 6, 2013 by Shefali Sharma
Two Converging Rivers—That’s what Shuanghui means in Chinese, apparently. It seems appropriate when we look at the scale at which both Shuanghui and Smithfield operate in their respective countries. Shuanghui is said to be China’s largest meat manufacturer and Smithfield is the largest pork processor in the United States. It’s a convergence of two very big and very dirty rivers. Contrary to the common theme in media reports on the acquisition, food safety problems and environmental pollution are not just the domain of the Chinese livestock industry. One doesn’t have to look very far to see Smithfield’s own record in this regard. Unmanageable non-point source pollution from concentrated animal farms, antibiotic resistance, disease and chemical-related deaths related to poultry factories are very much associated with and originate from the American model of industrial livestock production. Smithfield was embarrassed after an undercover video of animal cruelty was taken from one of its plants and released by the Humane Society. The video won the 2012 Webby Award for “Public Service and Activism.” The irony is that China is wholeheartedly adopting the American model precisely to deal with food safety and environmental pollution concerns.
The Smithfield acquisition acutely brings home one—albeit overlooked—fact: it’s a globalized industry. Just look at Shuanghui’s shareholders: CDH Investment, Goldman Sachs, New Horizon Capital, Kerry Group, Temasek and its own management and employees. As Peter Fuhrman from China First Capital puts it, “A Chinese company isn’t buying Smithfield. A shell company based in the Cayman Islands is.” Morgan Stanley plans to help finance Shuanghui’s acquisition. While everyone analyzes all the angles of this “takeover,” capital markets on both sides of the Pacific are responding with rising shares for both Smithfield and Shuanghui. Clearly, if investors have anything to say about it (and they will), the deal will sail through without any problems from U.S. regulators. After all, the deal has been in the making since 2009.
IATP’s President Jim Harkness and I spent the last two weeks in China talking to various people about the changing face of meat production there (see photos from the trip on IATP's Flickr). Our aim: to understand the structure of the meat industry in China (particularly pork and poultry), to what extent it’s similar or different from the U.S. model of factory farming, and what China’s plans are in meeting its domestic demand for meat and dairy. Why? Large-scale industrial livestock production and its consumption are leading to a host of problems, in China and in our own backyard. Elsewhere around the globe, the explosion in industrial meat production in the past few decades has linkages to massive changes in patterns of global land use, as huge areas of South America, for example, have been converted to soy production for animal feed. The factory farms themselves are a major source of land, air and especially water pollution. The production process and the meat itself pose new worker safety and public health challenges. As the world’s second largest economy, with the fastest growing demand for meat, China is ground zero.
The Smithfield story broke while we were still in Beijing (See Jim’s blog). Many Chinese policymakers are still digesting the news and making sense of it. Shuanghui is a private company so the Chinese State doesn’t dictate its actions, but Shuanghui’s acquisition definitely plays into the larger narrative of where Chinese livestock production is going and the choices that Chinese policymakers and consumers will make in the coming decade.
The media figures on backyard farming in China have varied widely, but a trustworthy source is Rabobank, a Dutch Agriculture Bank that is interested in investments in the Chinese livestock industry. According to Rabobank research, 51 percent of China’s pig farms ranged from raising 50–3000 pigs in 2010. These are referred to as “specialized farms” and often seen as the culprits of food safety and pollution problems associated with the Chinese livestock industry. The number of specialized farms is expected to increase to 57 percent by 2015. The number of commercial farms (raising over 3000 pigs per year) is estimated to increase from 12 to 15 percent between 2010 and 2015. According to the various sources we spoke with, Chinese policymakers favor the commercial farms because they see them as the solution for food safety and pollution, but they also recognize that specialized farms will continue to produce most of China’s pigs. Hence, they are trying to modernize these farms with more mechanization, standardized feed and ensuring that the farmer has workers that can tend to the confined animal facility. To what extent local, provincial and the central government can ensure this happens remains unclear, but what became clearer in our many discussions with a range of academics, industry and farmers was that the food safety and pollution problem was not just related to these farms or farmers, but to the value chain in general—the feed mills, the pharmaceutical industry, the American breeds chosen for mass production which are much weaker than the Chinese breeds (and thus more sensitive to environmental changes), the middlemen that take these pigs to the slaughterhouses and the processors themselves.
The lack of arable land, pig-breeding technology and know-how, rising costs of production, farm management, food safety and environmental pollution were often cited as reasons why China might be better off importing meat than producing it at home. One source said that almost every ministry agreed with that line of thinking, except for the Ministry of Agriculture. However, China has invested a great deal in its livestock production—pork in particular—and given China’s demand, it isn’t likely that the government or its many private players will confine themselves to any one strategy to meet this demand. Diversification is a key part of China’s overseas investment policy—not to be overly dependent on any one country or company for any particular resource.
A real grey area—and a neglected one in the merger discussion—is Chinese demand. Just how much more meat will Chinese consumers eat and at what cost including costs to their personal health and the environment? We witnessed a small food revolution happening in Beijing and heard about growing organic farmers markets in over 200 places in China. We also met pig producers growing domestic pork and selling it in the organic market. Urban consumers are very concerned about food safety. Media reports suggest that this may be one more reason why the Smithfield acquisition will be a success: U.S. imported pork may be seen as safer than Chinese grown, but perhaps growing concerns about health may also lead Chinese urban consumers in a different direction: eating less meat over time. Chinese urban consumption has been rising steadily, along with obesity. Recently, UK members of Parliament issued a report recommending that the UK government spend more effort on raising awareness about reducing meat consumption given its global impacts on food security and hunger. Perhaps it’s not too naïve then to dream that this might just become a real debate throughout the world in the coming decade as we approach our ecological boundaries from a health, environment and food security perspective.
Posted June 4, 2013 by Dr. David Wallinga
Today, 795 health professionals from across the country sent a joint letter to President Obama urging his leadership in getting the Food and Drug Administration (FDA) to jumpstart its now-stalled policies to help protect the future effectiveness of antibiotics by reducing their overuse in food animal production. The letter was delivered by IATP's Healthy Food Action, Health Care Without Harm and the Pew Charitable Trusts.
Close to 30 million pounds of the antibiotics are sold for use in U.S. food animals each year. Many of them are identical, or nearly so, to antibiotics used in human medicine. Most are used for non-sick animals, to promote their faster growth and compensate for the risks created by raising such animals in overcrowded and often unhygienic conditions.
“In our hospitals, and in our communities, antibiotics increasingly are failing to treat drug resistant superbugs,” says David Wallinga, MD of the Institute for Agriculture and Trade Policy and Healthy Food Action. “The huge overuse of these antibiotics on our farms, in meat production, is an important—and unaddressed—contributor to the problem.”
What this letter shows is this superbug epidemic is too important for FDA and the White House to sit on the sidelines. We need President Obama to make sure his administration leads in the fight to protect antibiotis.”
The letter asks President Obama to urge FDA to act on mandatory withdrawals of unsafe uses of antibiotics in animal agriculture, such as growth promotion. FDA must also report to the public the data on livestock antibiotic sales it already collects but fails to disclose. This fuller reporting of data is critical to keep the public health and infectious disease experts informed about emerging disease threats.
Posted June 3, 2013 by Jim Harkness
The announcement last week of a bid by China’s Shuanghui International to acquire Smithfield Foods Incorporated came midway through my research trip to Beijing for IATP’s initiative on the globalization of industrial meat production. The responses to the news from back home have been all over the map, albeit fairly predictable. But what are they saying in China? Below I share some initial views from the press, blogosphere, academia and government. I’ll have more later this week.
The government seems positive about the deal. The first thing I noticed was the use of the word “merger” in the official Xinhua News Service’s initial piece on the acquisition. (The U.S. press prefers “sale” or “takeover.”) Xinhua’s second article actually uses “Win-Win” in the title, and describes how the merger will relieve the U.S. of the burden of our excess pork while easing trade deficits and improving Shuanghui’s food safety standards. “We can learn a lot from the industry leader,” Shuanghui CEO Wan Long is quoted as saying. Clearly he has never Googled “Smithfield recall.”
The business press and blogosphere have been more circumspect. Several web sites note the $2.4 billion in Smithfield debt that Shuanghui will have to swallow. In addition, Bi Xiaozhe (China Economics Net) points out that Shuanghui is taking on additional costs, including its commitment not to cut Smithfield’s U.S. (read: expensive) work force. Bi also observes that “grafting” a strong domestic company onto an international one does not guarantee transnational success, and that tactics that have secured markets and smoothed over regulatory issues within China may not work abroad.
Others are exploring the financing behind Shuanghui. Whereas U.S. pundits talk as if Shuanghui is a subsidiary of the Chinese Ministry of Agriculture, Chinese observers recognize that this is a fully private company, listing its various investment bank shareholders from inside and outside of China, including Goldman Sachs, which also holds Smithfield shares. Noting that the deal would not have gone through without Goldman’s role, Sun Ruili (New Financial Observer) wonders aloud who will call the shots in the new company. Sohu Finance’s international desk echoed this, and cited a source who claims that the $7 billion in financing will come from Morgan Stanley and the Bank of China. For columnist Deng Yuwen, the deal is “not an overseas acquisition by a Chinese corporation, but a consolidation of industry control and profits by international finance.”
Blogger Wang Ran provides the cheekiest take on the deal. In response to those in China who might express indignation at American official scrutiny of the merger, he asks whether China would let such a deal go through if positions were reversed and a foreign company wanted to acquire Shuanghui. He then points out how unusual it is that this deal is about selling American pork to China and not the other way around. “In ‘respectable’ countries, you acquire a business abroad to expand exports, but in ‘disreputable’ countries you acquire a foreign business in order to put a respectable face on your sales of rat meat in domestic markets.”
Later this week, I’ll report back on conversations about Smithfield/Shuanghui with two of China’s leading analysts of agriculture and trade issues. Stay tuned.
Posted May 31, 2013 by Dr. Steve Suppan
On Saturday, May 25, IATP participated in the March Against Monsanto (MAM) in St. Paul, Minnesota. The MAM took place in 436 cities in 52 countries, with an estimated two million participants. Monsanto was the focus not only because of the scale and reach of its products, but because of its undue influence on the global food system. A recent Food and Water Watch report, summarizing 936 Wikileaks documents, gives an idea of what the U.S. State Department has done to change laws and enable sales of Monsanto products around the world. Indeed, multiple U.S. federal agencies have advanced the company’s commercial interests, in the face of the rejection of Monsanto products by many farmers, consumers, academics and governments. Nevertheless, in the name of free trade and food security, the U.S. promotes GMOs to “feed the world.”
I asked MAM participants to urge Minnesota Senators Al Franken and Amy Klobuchar to support Senator Jeff Merkley’s amendment to the Farm Bill that would repeal a rider that had been attached to the March federal budget resolution. The rider was added anonymously and passed by the Senate as the clock moved toward a budgetary shutdown of the government. That rider, dubbed the “Monsanto Protection Act” requires the U.S. Department of Agriculture to allow planting of genetically modified seed varieties even when the USDA’s decision to approve planting is being challenged in court, e.g., for failing to have provided an environmental impact assessment (EIS), as required by the National Environmental Protection Act (NEPA). In effect, a continuation of the Monsanto Protection Act in the Farm Bill would nullify the legal effect of NEPA and other laws relevant to biotech crops.
One reason to protect NEPA: 61 million acres of Super Weeds in United States that have developed resistance to glyphosate, chiefly due to Monsanto’s RoundUp Ready seed varieties. About half of 3,000 farmers surveyed by the Stratus consulting group in 2012 reported having Super Weeds on their farms. The resistance to RoundUp cannot be controlled without a huge loss of Monsanto’s sales so Monsanto has applied for immediate deregulation of seeds engineered to withstand even more toxic pesticides, like 2,4-D and dicamba.
In mid-May the USDA’s Animal and Plant Health Inspection Service announced that it would require an EIS of the 2,4-D and dicamba resistant seeds. The USDA decision was welcomed by the Center for Food Safety (CFS), which had successfully sued the USDA for having failed to perform EIS’s on genetically engineered sugar beets and alfalfa. CFS challenged the USDA’s EIS evaluators to reach out to other federal agencies with public and environmental health expertise, pointing out that 2,4-D and dicamba drift from where they are applied to other fields and nearby homes. Epidemiological studies have associated both pesticides with increased risk of cancers among farmers and their families.
The Merkley amendment to repeal the Monsanto Protection Act and the USDA decision to require an EIS for 2,4-D and dicamba could be important steps in the struggle for sustainable agriculture. However, as the United States Trade Representative and its corporate advisors prepare an assault on European health, environment, safety and even privacy regulations in the Transatlantic Trade and Investment Partnership (TTIP) negotiations, attention will turn to U.S. deregulatory practices. If the Farm Bill allows Monsanto and other biotech companies to circumvent NEPA and other laws relevant to genetically engineered foods, the USTR’s claim that U.S. GMO approvals are “based on science” will be exposed as a 20-year charade.
The Biotechnology Industry Organization (BIO) proposed to the USTR that the TTIP create a Sanitary and Phytosanitary Committee “which commits the EU and the U.S. to the application of sound science and to promptly resolve issues should they occur.” BIO also proposed that its members be allowed to provide “technical expertise” privately to governments but that data concerning regulatory approvals be maintained as Confidential Business Information, as it is in the U.S. deregulatory approval system. (See IATP’s comments to USTR here.)
As I pointed out to the MAM rally participants in St. Paul, “sound science” is a term coined by a public relations firms working for cigarette manufacturers to argue that cigarette smoke posed no health risks for non-smokers. It will be a brutal irony, and a framework for increasing public health risk, if the USTR convinces European TTIP negotiators to abandon European Union member state public and environmental health protections in order to increase trade by a transatlantic commitment to “sound science.”
Posted May 30, 2013 by Dale Wiehoff
The spring campaign season against frac sand mining has started to take off. It’s not that we’ve been sitting quietly all winter biding our time. As many town boards and county supervisors can tell you, opposition to frac sand mining in the Driftless region of Minnesota, Wisconsin and Iowa has been churning away for months, but something happened when the ice finally melted and the first Spring Beauties bloomed in the woods. In Minnesota, Representative Matt Schmit from Redwing introduced legislation to limit sand mining near trout streams. On April 29th, 35 Catholic Workers were arrested in Winona protesting with over 100 supporters and friends at two frac sand operations. On May 15th, IATP, Wisconsin Farmers Union and the Wisconsin Towns Association released a report raising concerns about the economic impact of frac sand mining in West Central Wisconsin. And coming up on June 1 in Black River Falls, a regional conference called Standing Against the Sand Storm will bring together community leaders and activists from across region to address the growing threat from industrial sand mining and find ways that we can work together.
In the midst of this explosion of activity and organizing, it is possible that one of the most significant developments might be over looked. On May 28, more than 160 citizens from Minnesota, Wisconsin and Iowa sent a letter to the Illinois General Assembly pleading with them to enact a moratorium on frack oil and gas drilling. The signers of the letter are all involved in frac sand mining opposition, for a wide range of reasons, including health, environment, economic impacts, control of natural resources and democracy. What makes this letter noteworthy is that the subject of fracking, the horizontally drilling through shale rock using a slurry of water, chemicals (and frac sand) to release deposits of gas and oil, rarely comes up in frac sand opposition circles. Because drilling for gas happens in different geographic locations than mining for sand, the two movements have operated independently of each other. The May 28 letter is a clear signal that a new bridge is being built that will unite all rural communities opposed to reckless and extreme energy extraction--those at the oil and gas well heads and those of us living with frac sand mines. With a spring like this, we can only look forward to a hot summer.
Posted May 28, 2013 by Jim Kleinschmit
In all of the discussions and proposals associated with the current Farm Bill debate, climate change has gotten little official recognition (although we have pointed out that from IATP’s perspective, the singular focus on crop insurance is clear evidence that climate change is the primary concern of farmers and agriculture state politicians). As the Farm Bill debate goes to the Senate floor, we apploaud two amendments that are trying to bring greater recognition of climate change to the farm policy discussion.
The first, Senator Whitehouse’s Sense of the Senate Resolution #1029, is a largely symbolic, yet ultimately very important resolution about the authenticity of climate change science and determined causes. This resolution expresses that it is the sense of the Senate that climate change research is in fact based on sound practices, that a scientific consensus exists that humans are contributing to climate change, and that climate change poses a risk to agriculture and related industries. While “Sense of the Senate” resolutions do not result in any direct legislative actions or laws, passage of this resolution would be an important, if quite belated indicator that the U.S. Congress is finally getting serious about climate change and its impacts, especially as they relate to agriculture and our food system.
The second could be more directly meaningful for farmers and landowners. Senator Whitehouse (D-RI) and Senator Udall (D-NM) are introducing the Whitehouse-Udall Regional Conservation Partnership Program Amendment #1058. This amendment expands the list of eligible activities within the Regional Conservation Partnership Program (RCPP) to include projects with climate change benefits. Including this as an area of focus will allow farmers and other landowners to receive support for projects that reduce greenhouse gas emissions, sequester carbon and help them adapt to changing climate.
While these admittedly modest proposals do not in any way make up for the fact that most of our farm policy deliberately ignores the real threats we as farmers and eaters alike face in a changing climate (and in most cases actually continues to support the kind of production systems that are most vulnerable), they do serve to help open the door to increased and needed recognition of the realities of the crisis and the types of farming systems and practices that can help our farmers and ranchers adapt and help to slow climate change. For that, they deserve recognition and strong support in the current Farm Bill debate.
Posted May 23, 2013 by
The Minnesota Green Chemistry Forum hosted a happy hour event on May 15, entitled The Business Case for Chemical Policy Reform. The group of fifty, over half from the business community, heard presentations about how sound chemical policies can benefit businesses and why business voices are needed in chemical policy debates.
We heard from David Levine, co-founder & CEO of the American Sustainable Business Council (ASBC), a growing coalition of over 165,000 businesses and social enterprises and more than 300,000 entrepreneurs, owners, executive, investors and business professionals. David cited the results of an ASBC polling showing that 87 percent of small businesses think there should be government regulations to ensure that chemicals used in growing food are safe and 73 percent support government regulation to assure that consumer products are free of toxins. Nine out of 10 small businesses surveyed believe that chemical manufacturers should be held responsible for ensuring that chemicals they use are safe and 94 percent support disclosure of chemicals of concern in products.
We also heard from Ally LaTourelle, VP for Government Affairs at BioAmber, a renewable chemistry company that transforms agricultural crops into green chemicals that directly substitute for petrochemicals. Ally described the disjointed and weak chemical regulatory system as ineffective in assuring chemical safety. She emphasized that stricter chemical regulation, as well as incentives for adoption of green chemistry, can spur innovation to produce safer alternatives, such as those being developed by BioAmber. She cited real world examples, such as the spike in patents for phthalate-free chemicals following a cluster of phthalate bans in several countries between 2006 and 2009. This is just one example of regulation providing impetus for innovation.
Both David and Ally urged businesses to engage with policymakers to have their voices heard and their interests served in policy debates. Ben Kyriagis, co-founder of Small Business Minnesota (SBM), an event co-sponsor, noted that large businesses and business organizations have significant resources to engage in policy debates so they have the most influence. SBM strives to advocate for the real interests and values of small business owners and self-employed people.
The voice of “industry” at our state capitols and in Congress is usually the voice of big businesses and the organizations representing big business, like the Chamber of Commerce, who generally say chemical regulation is bad for business. Policymakers rarely hear from the thousands of diverse businesses who could benefit from stronger chemical regulation. Those benefits include better supply chain management to assure that chemicals used in products are free of toxic chemicals, reduced costs and liabilities, better worker protections, a more level playing field for companies making and using greener chemicals and increased consumer and investor confidence. In short, effective chemical regulation creates a more competitive, innovative and economically viable chemical industry in the U.S.
Who is speaking for “industry?” The truth is, there is no monolithic “industry.” Policymakers need to do a better job of listening to new business voices, including manufacturers and retailers dedicated to making and selling safer products, green chemistry businesses, and the thousands of small businesses across Minnesota. The American Sustainable Business Council and Small Business Minnesota are working to activate and magnify these alternative business voices.
Posted May 20, 2013 by Dr. Steve Suppan
If you want to reduce crime, you have to make sure there are enough cops on the beat. Something similar can be said for market regulation. We can’t expect markets to work if we don’t invest resources into making sure government agencies have the right regulatory tools at their disposal and have adequate resources to effectively implement and enforce the rules. A Better Markets study estimates the quantifiable cost of the financial services industry triggered Great Recession at $12.8 trillion. Now the publicly bailed out industry and its Congressional allies want to take cops off the market beat. Tomorrow, the House Committee on Agriculture is holding a public hearing entitled The Future of the CFTC: Market Perspectives, featuring a panel of CEOs who have opposed most attempts to regulate the unregulated parts of the markets and supported CFTC budgets that are inadequate for enforcing the rules.
The U.S. Congress last authorized the work of the Commodity Futures Trading Commission (CFTC) as part of the 2008 Farm Bill. Senators Debbie Stabenow and Thad Cochrane, Chairwoman and Ranking Member of the U.S. Senate Committee on Agriculture, requested comment for the 2013 reauthorization of the CFTC. We responded in a May 1 letter, outlining seven ways in which the CFTC should be reauthorized to improve regulation of the $300 trillion of derivatives contracts over which the CFTC has authority.
Most of the commodity and financial derivatives market reform since the 2008 CFTC reauthorization is the result of the partial implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA). Already during this session of Congress, the House of Representatives has introduced several bills to annul parts of the DFA and/or to impede the ability of the CFTC to implement the bill. We advised the Senators of our opposition to these bills in the form of sign-on letters submitted by Americans for Financial Reform and the Commodity Markets Oversight Coalition. Senators should not emulate the House’s path to “improving” the DFA by undermining it and underfunding the CFTC with a budget appropriate for the much smaller markets of the late 1990s. Instead, we present seven ways in which the Senate should reauthorize the CFTC and improve market regulation:
1. Enable the CFTC to work with the Federal Reserve Bank to determine whether the warehousing and trading of physical commodities by banks distorts price formation in the commodity derivatives contracts of those physically traded commodities. Banks such as Goldman Sachs, Morgan Stanley and JP Morgan have vastly more financial resources with which to influence derivatives prices than do commodity producers and users. However, this influence is difficult to demonstrate statistically because banks are not required to report their trades of physical commodities and commodity derivatives contracts separately, impeding comparison of price movements. Banks should be required to disaggregate their physical commodity and commodity derivatives trade data, so that the CFTC and the Fed could produce a major study that could serve as the basis for regulating or ending the trading of physical commodities by banks.
2. The DFA requires unregulated Over the Counter (OTC) derivatives contracts to be traded on regulated exchanges, which report trade data daily to the CFTC. However, OTC dealers and their major corporate clients claim that OTC contracts are so “customized” that they cannot be coded uniformly to enable the CFTC to do the data surveillance to enforce the DFA. The CFTC should be empowered to require uniform and comprehensive reporting of OTC contracts, as a condition for the trading of the contract, to enable data surveillance and enforcement.
3. High Frequency Trading has become notorious for causing sudden and drastic price declines, known as “flash crashes” in commodity and financial markets, in a matter of minutes or even seconds. For example, a hijacked Associate Press Twitter account falsely reported on April 23 that President Obama had been injured in a bombing of the White House. The false report, fueled by HFT, temporarily erased $136 billion of market value. The DFA provides the CFTC with no authority to regulate HFT. Draft European legislation would provide such authority. The CFTC should be authorized to do a major study of HFT and recommend to the Senate whether and how HFT could be regulated.
4. The DFA does not directly discipline commodity index funds (CIFs), which combine up to 24 commodity contracts in a single fund formula. CIFs are invested to increase agricultural and non-agricultural prices over the long term of the investment objectives of pension funds, endowments and other institutional investors. Therefore, CIFs do not respond to the supply and demand factors that guide the price risk management investments of both commodity producers and users (commercial hedgers) and traditional speculators. The CFTC should be authorized to undertake a major study of CIFs, both Over the Counter and exchange traded, and advise the Congress on whether the CIFs violate the objectives of the DFA and the Commodity Exchange Act.
5. The CFTC’s penalties for regulatory violations are fines that are too small to dissuade some market participants from regarding them as a normal cost of doing business to be paid by shareholders. The CFTC should be authorized to study to determine how to make fines more dissuasive for repeat and egregious offenders, and to evaluate whether trading bans and loss of license to trade could be effective penalties.
6. The CFTC is the only financial regulatory agency that is not self-funded to some extent, on the basis of registration and other fees levied on market participants. The Senate should authorize the CFTC to become a self-funded agency, to enable continuity and consistency of its work in overseeing futures exchanges that have grown five-fold in the past decade and OTC markets that are forty times larger in value than in 2000. Otherwise, the agency will be vulnerable to the budget cuts that will curtail DFA implementation and their enforcement activities, according to testimony by CFTC Chairman Gary Gensler.
7. The DFA requires that foreign firms, including foreign affiliates of U.S. firms, which trade on U.S. markets, have “comparable, comprehensive oversight” to that of the DFA in their home jurisdictions. The CFTC proposed guidance for the cross-border application of the DFA has been met with furious resistance by the U.S. firms. These are many of the same firms (such as AIG, Goldman Sachs, JP Morgan, MF Global) whose trades triggered the financial catastrophes that have resulted in at least $10 trillion, and perhaps as much as $22 trillion in damage to the U.S. economy, according to the General Accountability Office. Wall Street lobbyists, their Congressional allies and foreign regulators are advocating to U.S. officials mere “recognition” of high level principles of regulation instead of the CFTC’s cross-border requirements. However, to prevent U.S. firms from evading U.S. rules by trading through their foreign affiliates in weak regulatory jurisdictions, IATP told the Senate that it should support the CFTC’s proposal to negotiate the terms of regulators’ access to data on foreign affiliate trades of U.S. registered firms. Without access to that data, the CFTC will not be able to prevent trading fiascos, such as the JP Morgan “London Whale” trades investigated by Senator Carl Levin, from once again bankrupting U.S. taxpayer bailed out firms. Firms registered in regulatory jurisdictions that refuse the CFTC access to foreign affiliate trade data should be temporarily barred from trading in the U.S. unless and until arrangements could be made to ensure such data access. Data access negotiations must ensure reciprocal access for foreign regulators to the U.S. affiliate trades of foreign firms. Otherwise, the United States could become a haven from regulation, like the Cook Islands.
The Senate should seek the reauthorization of the CFTC independent from the Farm Bill negotiations, which may not be concluded before the Congressional elections in the fall. Regardless of the timing of the reauthorization, as the trillions of dollars scale of price-fixing and other financial malfeasance become apparent, the Senate should repudiate the attempts of the House of Representatives to weaken the CFTC and to cut its budget for enforcement. Furthermore, insofar as the trading of price fixed contracts and instruments occurs through the foreign affiliates of U.S. firms, we urge the Senate to support the CFTC’s implementation of cross-border rules to regulate the trading of global firms.
The Congress, rather than supporting U.S. companies that trade in weak foreign regulatory jurisdictions to circumvent U.S. law, should support the CFTC and other financial regulatory agencies as they fight to implement the DFA against fierce Wall Street resistance.