On Thursday, June 16th, the U.S. House of Representatives passed the Lower Food and Fuel Cost Act (PRICISE) by a vote of 221 to 204. This bill includes the Meat and Poultry Special Investigator Act that is intended to create a mechanism to review and possibly manipulate prices paid to farmers for cattle. The creation of an office headed by a political appointee obviously duplicates provisions of the Stockyards and Packers Act. The PRECISE Act is intended to enhance precision agriculture and support row crop farmers facing high prices for fertilizer. The Year-Round Fuel Choice Act will expand sales of E-15 gasoline blend through funding required infrastructure including storage tanks and mixer-dispensers at gas stations.
The Legislation as passed by the House has limited support in the Senate and is intended primarily as a showpiece to create the illusion that the House is addressing problems of inflation. Recent increases in the price of crude oil and natural gas are mainly responsible for inflation in food and all items that have a large cost component of energy. This reality is affecting all nations of the world and is not restricted to the U.S.
Inflation is endemic in many nations in Latin America due to fiscal mismanagement. The advent of COVID introduced disruptions in supply chains adding to the cost of imports to industrialized nations. The situation is now exacerbated following the invasion of Ukraine by the Russian Federation causing sharp increases in the cost of energy and grains.
There are no "quick-fixes" to a problem that is not the responsibility of any specific political party or their legislative agenda. The question that faces the U.S. is whether the action by the Federal Reserve Board can reduce inflation without precipitating a recession, as predicted by some economists.
The House voted on the package of measures based on party affiliation in addition to narrow parochial issues. These included the environment and the need to support production and uptake of biofuels at the expense of all those using either fuel or food. Both ethanol and biodiesel are inherently inflationary without direct benefits to the economy or the environment.
The biofuels program has long since exceeded the reason for its existence as the U.S. is no longer reliant on unfriendly nations for either gas or crude oil. The biofuels program now supports row crop farmers, the ethanol industry, soybean crushers and corn-state legislators to the detriment of consumers. “Feel-good” legislation such as the PRECISE Act will do little to alleviate inflation in fuel, food and other goods and in the doubtful event of passage in the Senate will have unintended consequences. Prices will decline as the current high cost of energy results in lower demand and increased output restoring equilibrium.