Thu May 6, 2010 05:32 AM CDT

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

U.S. Biodiesel Production Falling

The $1 per gallon tax credit for biodiesel blending expired Dec. 31, 2009 and has not yet been extended. Industry representatives predicted that absent the tax subsidy, U.S. biodiesel production would come to a screeching halt. That has not happened, but recent Census data show that 110,349 tonnes of biodiesel were produced in March 2010, the lowest output since February 2007 when 82,310 tonnes were produced. The March production level also was down from February's 116,205 tonnes.

Senate Majority Leader Harry Reid, D-Nev., has indicated that Congress may take up legislation to reinstate the tax credit before the end of May when members are scheduled to take a one-week Independence Day recess. However, the crowded floor schedule could push consideration of the measure later into the year.

Reid On Board to End Senate's Secret Holds

Senate Majority Leader Harry Reid, D-Nev., says he favors a proposal by Sen. Claire McCaskill, D-Mo., and other Democrats that would eliminate the use of so-called secret holds to bottle up legislation and keep judicial and executive branch nominations from advancing in the chamber. Reid also says he supports separate legislation sponsored by Sens. Ron Wyden, D-Ore., and Chuck Grassley, R-Iowa, that would change the rules governing how such holds are handled in the Senate.

According to Senate rules, senators who have placed a hold on a nominee are required after six days to either drop the hold or to make public their objections to the nominee in the Congressional Record. Republican senators are refusing to do either, thus stopping the process for no stated reason. The proposals to remedy this situation would be welcomed by the majority party now, and should be welcomed by Republicans in anticipation of the next time they are the Senate's majority party.

Washington Insider: Recent Rice Supply Contamination Case Verdict

A jury in Lonoke County, Ark., last month found against Bayer CropScience in the amount of nearly $50 million in a case brought by a dozen Arkansas rice farmers for damages that resulted from the escape of a genetically altered strain of rice into the commercial market. The award included $5.9 million in compensatory damages and $42 million in punitive damages.

In 2006, it was discovered that long-grain rice from the 2005 harvest had been contaminated by traces of an experimental rice strain, Liberty Link, developed by Bayer -- the first genetically engineered rice produced in the United States, but not the first to use a particular biotech protein to make plants herbicide-tolerant. That protein had been affirmed safe for various crops by regulators in a number of countries, including Canada, the European Union, Japan and the United States, and was not considered a threat to human health. However, Liberty Link rice was not approved for commercial use in the United States, or anywhere else.

After the contamination was announced by USDA, rice futures dropped sharply as European nations quit accepting any shipments of rice from the U.S. that had not been extensively tested to show they weren't contaminated. Japan banned all American rice. Growers in several states, including Arkansas, California, Louisiana, Mississippi, Missouri and Texas, sued Bayer.

Bayer argued that any damages farmers may have suffered were minimal, and didn't last long since most long-grain rice grown in the United States is consumed outside of Europe and thus unaffected by European regulatory decisions.

The recent case was the fourth to go to trial among dozens filed by rice-belt farmers against Bayer, and the company faces judgments of $4.5 million in the three cases it had lost earlier. However, this time the verdict was larger, based on the jury's conclusions that Bayer was both negligent in its handling of Liberty Link rice, and that it acted with malicious intent by not announcing the contamination of the commercial rice-seed pool as soon as the company learned about it.

The suit claimed Bayer knew of the contamination well before the 2006 crop was planted, but that farmers were not told until USDA did so shortly before harvest time. Bayer argued that as soon as it determined that Liberty Link had shown up in commercial rice, it was immediately reported to the government.

Representatives of Bayer CropScience called the verdict "incomprehensible," and not supported by the facts of the case. And, the company will use all legal means available to reverse the decision, Bruce Mackintosh, the company's general counsel told the press.

Bayer representatives said they felt the punitive award was especially unwarranted because the "... U.S. Department of Agriculture has completed a thorough and diligent investigation without concluding that Bayer CropScience violated any legal requirement with respect to low-level presence of genetically engineered rice in commercial rice," said Mackintosh.

Mackintosh added that, "Bayer CropScience is willing to work with those parties who approach discussions of economic loss in the genetically enhanced rice matter with an appropriate and reasonable frame of reference. Our recent settlement with Riviana Foods and four related companies for $5.8 million attests to our willingness to consider such opportunities to bring an end to litigation."

So, the threat of rogue genes generated by biotech products continues to haunt the crop genetics industry, and, possibly to threaten a major source of agricultural investment in future productivity. And, to an important degree, that threat is amplified by USDA's performance. Bayer cites USDA's lack of any conclusion about violations of legal requirement as a key basis for opposing the jury verdict. However, from the broader industry point of view, it is clear that the commercial long-grain rice supply was contaminated and many producers damaged. And, it appears that no one can say what happened with enough precision to insure that it won't happen again.

This was an important event with serious negative implications for the industry. It would be helpful if USDA would commission yet another review of who did what, with particular emphasis on the adequacy of the controls applied, and whether the testing protocols and their rules need to be changed.

USDA and others report that they have examined the available data, and appear to be at least pretty sure that no laws were broken. Still, the incident occurred, suggesting that at least someone took too much risk and that better guarantees are needed to reduce chances of that happening again, perhaps with a more dangerous product -- a threat that should be taken very seriously by USDA, Washington Insider believes.