The November elections could be a watershed for the U.S. beef industry. Many issues, including a record federal budget deficit, a worldwide rise in protectionist trade sentiment and soaring energy prices, threaten the cattle business. Plus, they come at a time when the industry is already coping with a drought in the West and fallout from a single case of BSE.
To help beef producers sort through the election, leading ag economists were asked to explain the possible impacts of such issues. Then, BEEF pulled together the candidates' positions on those issues from their campaign organizations and other sources such as the National Cattlemen's Beef Association.
Here is a summary of the issues and the candidates' positions:
- THE DEFICIT
The federal deficit, which had disappeared just a few years ago, has roared back to record levels. The next president and Congress will likely have to deal with it; the result may not be pleasant for agriculture.
“There are only a couple of levers you can pull to deal with the deficit,” says Bob Young, chief economist for the American Farm Bureau Federation. “You can increase federal revenues, or you can cut spending.”
The first option usually means higher fees and taxes. The second could mean cuts to farm/ranch programs. If it comes to program cuts, “I don't think anything will necessarily be off limits,” Young says.
President George W. Bush says he wants to cut the deficit in half by limiting growth in discretionary federal spending. “This will require that Congress focus on priorities, cut wasteful spending and be wise with the people's money,” Bush said in his 2004 State of the Union address.
John Kerry says he'd cut the deficit in half by rescinding recent tax cuts for the wealthiest Americans. He'd also slice tax breaks for corporations.
Rising oil and natural gas prices can rip through the beef industry like a Kansas tornado. Such price inflation raises the cost of everything from corn production to barbed wire to new pickups.
Nor do economists expect quick relief. “It won't surprise me if we stay at $35/barrel oil or better for a long time,” Young says.
Bush wants new energy conservation measures, increased domestic oil and gas production, and more use of alternative fuels such as ethanol and hydrogen.
Kerry is pushing energy conservation. He wants to slash U.S. reliance on imported fuel by investing in ethanol, biomass, biodiesel and other alternative energy sources.
Four years ago, the cattle industry worried about ecoterroism. Today, a big fear is international terrorism targeting U.S. ag with bioweapons like foot-and-mouth disease.
“The worst potential problem for ag is bioterrorism,” says Luther Tweeten, an Ohio State University ag economist. “If anybody wanted to do it, you couldn't stop it. The challenge would be to contain it.”
Both Kerry and Bush have made counter-terrorism a campaign centerpiece. Each insists he can best protect the nation from such strikes. Bush cites his efforts after the 9/11/01 attacks; Kerry highlights his military and Senate experience.
U.S. producers need foreign markets. Without them, domestic prices suffer, says Barry Flinchbaugh, Kansas State University professor of ag economics. He says the most telling example is the loss of Japanese markets to U.S. exports, but there are other signs of strain in international trade.
Protectionist sentiments are rising worldwide, Tweeten says. In the U.S., the loss of millions of industrial jobs and the growth of outsourcing in white collar and service jobs is adding fuel to that fire.
The problem, Tweeten says, is if the U.S. moves to protect those jobs, foreign nations could respond with barriers against U.S. ag products, one of the few bright spots in U.S. trade. The U.S. now sells $60 billion in farm and ranch products on the foreign market.
“There's a real danger of protectionism. Once it gets going, it just escalates,” Tweeten says.
The Bush administration says it's created the strongest free and fair trade program in U.S. history. Bush “understands that economic prosperity for agriculture is tied to expansion of trade opportunities abroad,” his campaign says.
Kerry wants to open new foreign markets for ag and repair damaged relationships. “Trade relationships must be repaired,” he says. “America must assure that the global economy works for America's farm families.”
- HEALTH INSURANCE
If ranchers want health insurance, they often must pay for it out of pocket. But skyrocketing premiums may now be forcing a growing number of them to drop their coverage, which puts the ranch at risk.
“You buy health insurance to protect the rest of your assets,” says Ross Korves, a Chicago private economic policy analyst. “If you have heart surgery or one of those other fancy things that costs a quarter of a million dollars, that can cost you the ranch if you don't have insurance.”
Bush says malpractice liability reform will help hold down health care costs. He also wants to help the self-employed pay for health insurance via a federal tax credit.
Kerry wants to hold down medical costs by cutting waste and inefficiency among health care providers. To cut drug costs, he wants to re-import drugs from Canada. He also favors targeted tax cuts to help more Americans pay insurance premiums. To help pay for all this, Kerry wants to roll back tax breaks for “the rich.”
Doug McInnis is a Casper, WY, journalist specializing in business management and policy topics.
Some other issues
Here's a brief summary of the candidates' stances on other issues.
- The Kyoto Treaty on Global Warming
The Bush administration declined to sign the treaty, citing the high cost to the economy and the exemption of some of the world's most polluting economies. John Kerry favors U.S. participation.
- Country-of-origin labeling
President George W. Bush supports a voluntary program driven by producers. Kerry favors a mandatory government labeling program.
- The Endangered Species Act
Bush wants the act revised. Kerry supports it as is.
- Restrictions on beef imports from Canada
Bush wants a resumption of trade based on scientific findings. Kerry supports a ban of imports from Canada.
Source: National Cattlemen's Beef Association
The cost of ignoring the deficit
The last thing any politician wants to do to rein in a budget deficit is raise taxes or cut popular programs. But the cost of doing nothing could be worse.
Big federal deficits can produce a side effect no one wants — higher interest rates. It hasn't happened yet, and it might not. But higher rates and other economic damage from the deficit might strike unexpectedly, much like the collapse of technology and Internet stocks a couple of years ago.
“It's like the dot.com bubble. It came out of the blue,” says Ohio State economist Luther Tweeten.
Currently, the deficit is partly financed by foreign buyers of U.S. Treasury Bonds. But if the dollar were to fall further in value, current rates on those bonds wouldn't seem as attractive. Foreigners then would demand higher rates on Treasury Bonds, Tweeten says. That would cause rates to rise elsewhere in the economy, pushing up the cost of ag borrowing, he says.
Social Security and Medicare
The average age of ranchers is rising, and many soon will be eligible for Social Security and Medicare payments, even as they continue to run their ranches.
America may no longer be able to afford these programs when Baby Boomers begin to retire in a few years. It's likely to be an issue for the next president.
Federal Reserve Board Chairman Alan Greenspan recently put the issue front and center when he urged federal policy makers to recalibrate benefits. “If we delay, the adjustments could be abrupt and painful,” Greenspan said.
If these programs are cut or the age of eligibility raised, ranchers who hoped to continue working while drawing benefits would be affected. For instance, some ranchers may hope to drop costly private health insurance at age 65 to rely on Medicare and supplemental health insurance.
“Because we've put off dealing with the cost issue of (Social Security and Medicare), diminished benefits for the Baby Boomers are likely,” says Ross Korves, a private economic policy analyst in Chicago.
Both presidential candidates admit something needs to be done. President George W. Bush wants to allow workers to invest part of their Social Security payroll taxes in private investment accounts in hopes of boosting retirement nest eggs. Bush says his recently passed prescription drug package for seniors has strengthened Medicare and is saving senior citizens money.
John Kerry wants further changes in the prescription drug program, such as requiring the government to negotiate better prices for drugs. He also favors a bipartisan effort to address Social Security's problems.