A tax law boon to farm co-ops Presented by Boehringer Ingelheim Animal Health

With Helena Bottemiller Evich, Catherine Boudreau, John Lauinger and Maya Parthasarathy

PROGRAMMING NOTE: Morning Agriculture will not publish on Monday Jan. 15. Our next newsletter will publish on Tuesday Jan. 16.


TAX LAW BOOSTS CO-OPS, HURTS PRIVATE BUYERS: A provision in the new tax law gives growers a better deal at tax time if they sell their agricultural products to co-ops rather than other types of companies, The Wall Street Journal reported on Tuesday. The new deduction, inserted by Senate Ag member John Hoeven (R-N.D.) and other lawmakers after the tax bill was revamped shortly before passage, could have far-reaching consequences for the industry, especially in the grains sector.

How it works: Farmers are now permitted to deduct up to 20 percent of total sales made to co-ops. For some farmers, the result could be every taxpayer’s wish: zero taxable income. If farmers sell to privately held or investor-owned companies, the deduction isn’t quite so yuge — roughly 20 percent of income. The provision does have a time limit: It will expire at the end of 2025.

The Journal piece has a good summary of how this will play out once accountants get involved: “Consider a simplified example of a wheat farmer with $500,000 in annual grain sales and $80,000 in profit. A farmer selling grain to a cooperative could deduct 20% of sales, wiping out the entire income-tax liability. By contrast, if the farmer sells grain to an independent grain operator, the farmer’s deduction would be limited to 20% of the profit, or $16,000, leaving that farmer with up to $64,000 in taxable income.”

How the provision arose: As Pros may recall, the provision was inserted into the bill as House and Senate leaders negotiated in December, in a final frenzy to get the legislation to President Donald Trump’s desk before Christmas. The revision of the bill did away with the Section 199 deduction on domestic U.S. production that was also available to manufacturers as well as farm co-ops. But Hoeven and others, including Senate Ag’s John Thune (R-S.D.), succeeded in adding a new offset.

Kami Capener, communications director for Hoeven, said the provision was not made to put private firms at a disadvantage. "We are looking into any unintentional impacts to non-cooperative elevators and will work with them to address it," Capener said.

Where farmers will go: The deduction has the potential to drive business away from firms that are not structured as co-ops. That means big buyers like Cargill could be hurt, but businesses like family-owned grain elevator operators would stand to lose, too.

As farmers (or farmers’ tax advisers) learn of the measure, they will look to make the new law work for them by selling to cooperatives. “It gives a very real incentive, under the right circumstances, for farmers to sell to co-ops over independents,” Todd Lafferty, co-chief executive of Wheeler Brothers Grain Co., a 100-year-old privately owned company operated out of Watonga, Okla., told The Journal.

Tough luck for some, but a tougher fix: The potential hit to independent operators is an example of the type of unforeseen consequences that many tax experts worried about prior to the law’s passage, because of the speed with which the GOP moved the bill and the limited time that members were given to dissect the text after the revision.

An aide to Thune said the senator “is aware of the potential unintended effects” and is working with colleagues and those affected to find “a reasonable solution.” But GOP lawmakers are going to have trouble making fixes, because any changes will likely need 60 votes in the Senate — and not a single Democrat supported the Republican-driven bill.

Hoeven will also work to remedy the issue. "We're working on this adjustment, but there will undoubtedly be others," Capener said."That's why you usually have a technical corrections bill after a tax relief bill."

The National Council of Farmer Cooperatives, in a statement to POLITICO, noted that the elimination of the Section 199 deduction without an offset “would have resulted in a tax increase on farmers across the country.” The group’s president, Chuck Conner, added: “Policy makers ultimately decided that they preferred to replace it with a deduction that fit under the new structures they created in the tax bill.”

HAPPY WEDNESDAY, JAN. 10! Welcome to Morning Ag, where your host has been contemplating a Donald Trump versus Oprah Winfrey campaign — and as the day progresses, thinking this 1999 New York Daily News cover is less likely to become reality. Got any news tips? Please send them to [email protected] and @chaughney. Follow the team at @Morning_Ag.

TRUMP WOOS FARMERS DESPITE TRADE, IMMIGRATION ANXIETY: President Donald Trump may be a born-and-bred New Yorker who is more comfortable in business suits than in blue jeans. But he’s managed to maintain a bastion of support among farmers and ranchers as he nears one year in office, reports Pro Ag’s Catherine Boudreau.

During interviews with more than a dozen members of the American Farm Bureau Federation who attended the group’s annual convention in Nashville, producers said Trump was the first president in decades who seemed to listen to their concerns. His frequent mentions of patriotic symbols like the flag also appeared to please the crowd.

“I’ve been back on our family farm since 1992, and this is the first time we’ve had a president pay so much attention to agriculture,” said Renea Jones Rogers, who grows 600 acres of fresh market tomatoes in eastern Tennessee, and was recently appointed to the USDA Farm Service Agency’s committee in the state. “He really wants to hear what farmers have to say and make things better.”

Sticking with Trump while holding out for clarity: Missing from the president’s remarks, however, were any assurances that the U.S. would remain in NAFTA — a move that would be disastrous for many farm sectors that have been facing an economic downturn due to low commodity prices. Nor did he promise to improve a visa system for migrant agricultural workers to ease long-term labor shortages as he pursues a crackdown on illegal immigration. Read more about what Catherine heard from farmers here.

DEMANDING INFO ON E.COLI OUTBREAK: As news reports circulate about a deadly E. coli outbreak that has killed at least two people and appears to trace back to romaine lettuce, FSMA champion Rep. Rosa DeLauro (D-Conn.) wants to hear from federal agencies about how they are tackling the issue.

How the U.S. matches up to Canada: In a letter sent to CDC Director Brenda Fitzgerald, DeLauro pointed out that it took the agency nearly a month and a half to call attention to the outbreak, on Dec. 28, after the first infection was identified. By comparison Canada, which had a similar outbreak with a strain of E. coli that is a "virtual genetic match" to the one in the U.S. cases, issued the first public health notice Dec. 11, followed by three updates that month.

While the Canadian government has posted "full epidemiological information" on its website, DeLauro said the CDC has posted only one news release. The most comprehensive news in the U.S. appears to be coming from Consumer Reports, which published an article on Friday encouraging consumers to avoid eating all romaine lettuce until there is more definitive information about the U.S.'s investigation.

What industry groups are doing: Produce industry groups have banded together to ensure that romaine lettuce continues to be sold, citing the lack of information from the CDC. Groups like the Produce Marketing Association released a statement Thursday saying: "No public agency has contacted any romaine lettuce grower, shipper or processor and requested that they either stop shipping or recall product already in the marketplace."

Bob Whitaker, chief science and technology officer at the Produce Marketing Association, wrote to industry members in an email shared with POLITICO, saying that various groups including the United Fresh Produce Association and Western Growers have been working together "to encourage government agencies to declare this outbreak over."

Bill Marler’s take: Food safety lawyer Bill Marler told your host that based on the length of the outbreak, it would be reasonable for CDC to issue some warnings to vulnerable populations like “children, pregnant women, people on immunosuppressant drugs or the elderly.” He added: “It appears to be more than a one-off spike event. It appears to have gone on for a longer time.”

SENATORS PUNT ON RFS STANDOFF: The long-simmering tiff between corn- and oil-state senators over the Renewable Fuel Standard has been kicked to industry representatives to resolve, reports Pro Energy’s Eric Wolff.

RFS powwow: Chuck Grassley told reporters Tuesday that he and his fellow Iowa Republican Joni Ernst met in December with Ted Cruz (R-Texas). But they were unable to sort through their differences on the issue.

So what about Northey? The impasse may further delay the confirmation of Iowa Agriculture Secretary Bill Northey to a senior post in the Trump administration. Grassley's grandson is in line to take over Northey's job in Iowa once he is confirmed to USDA. But Cruz has placed a hold on Northey's nomination as he tries to secure changes to the RFS that would lower costs for oil refiners.

The path forward: Grassley said Cruz's hold on Northey would have to be dealt with separately from the RFS, but he did not specify how. "We’re going to proceed separately from anything on the RFS with Northey, because Northey is entitled to an answer from the U.S. Senate,” he said. “We’re going to make that sort of an approach." Cruz’s office didn’t respond to questions from POLITICO about whether the Texas Republican still has a hold on Northey.

ROW CROPS:

— New Senate Ag members: Sens. Tina Smith (D-Minn.) and Deb Fischer (R-Neb.) have joined the Senate Agriculture Committee, and Sen. Chris Van Hollen (D-Md.) will join the Energy and Public Works Committee, Senate leaders announced on Tuesday. Smith, who was appointed to fill former Sen. Al Franken's seat, will be the second Minnesota senator on the panel, joining fellow Democrat Amy Klobuchar. Fischer, a cattle rancher and former state legislator, said she was looking forward to engaging in the farm bill. More from Pro Ag's Helena Bottemiller Evich here.

— Not-so-cooperative co-ops: Locally owned dairy co-ops have become so rare that dairy farmers are suing the large milk processor Dairy Farmers of America, claiming that the corporate-run co-op works with other agribusinesses to drive down the prices farmers get for their milk. More from Washington Monthly here.

— Bad news for grass-feeders: Crude protein levels, which cattle need for growth, have dropped by almost 20 percent since the mid-1990s. Researchers from Texas A&M University say this trend might be caused by cattle being moved to feedlots (so that their manure no longer fertilizes the soil) and rising carbon dioxide levels. This trend could be problematic with the rising popularity of grass-fed beef, NPR reports.

— Potential shrimp disaster: Importers of shrimp, the country’s most popular seafood, are worried that a rider in the Senate’s budget bill would give the U.S. shrimp industry just a month to meet new requirements of the seafood import monitoring program (shrimp is currently exempted from it. With 90 percent of shrimp being imported, such a move could be very difficult for the restaurant and retail industry, Seafood News reports.

— China’s whiskey boom: Imports of whiskey to China are almost as high as before President Xi Jinping cracked down on corruption, reports the Financial Times.

Revolving door:

— The American Farm Bureau Federation President Zippy Duvall will serve a second, two-year term leading the organization. He was re-elected on Tuesday by the group’s voting delegates.

— JBS USA has hired Thomas Lopez, formerly of Kraft-Heinz, as the new president of Plumrose USA, the company’s bacon, ham and deli-meat business.

THAT'S ALL FOR MA! See you again soon! In the meantime, drop your host and the rest of the team a line: [email protected] and @ceboudreau; [email protected] and @hbottemiller; [email protected] and @chaughney; [email protected] and @jmlauinger; and [email protected] and @pjoshiny. You can also follow @POLITICOPro and @Morning_Ag on Twitter.

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