Transcript of Secretary Mike Johanns' Remarks to the United Fresh Fruit and Vegetable Association

Transcript of Secretary Mike Johanns' remarks to the United Fresh Fruit and Vegetable Association Chicago, Illinois
May 8, 2006

Well thank you very much. That was a really nice introduction. I appreciate that immensely. You've probably heard me tell this story before but your warm welcome reminds me of a story I have repeated many times.

I'd just been elected the Governor of the state of Nebraska a few years back. My wife, Stephanie, and I had been invited to Kearney, Nebraska where I was to be a speaker like to day. So Stephanie and I drive out to Kearney, and very nice introduction just like today, and as I am making my way to the podium, again like today, everybody stood up and applauded. And this was in that period of time where I had been elected but I hadn't been sworn in yet. So when I got to the podium I said, that's really very nice of you, but I haven't done anything yet. And somebody in back yelled out, and when you do we won't be standing.

[Laughter.]

I appreciate the nice warm welcome. It is good to be here. Nick, congratulations on a very successful year. It has been a pleasure working with you. Maureen thank you for having me here today. Thanks for that nice introduction today. I really appreciate it and I really look forward to working with you in the coming year and the industry.

Now I heard the introduction and I think if I were a smart politician I'd just say, folks let's double our consumption of fruits and vegetables and then I'd say, are there any questions and then I'd slip out. But I have a lot more I want to say to you today.

I'm looking forward to walking through the exhibit hall after the breakfast today and seeing everything that is on display. American agriculture has had quite a run here in the last five years. Events like this demonstrate the tremendous support we have for agriculture in this country.

We are very fortunate to have a healthy agricultural industry - with some of the most innovative and determined producers really anywhere in the world.

We are able to produce enough for our nation and others, as we export across the globe.

American agricultural productivity is expanding at a rate of about two percent per year. Think about that. We expand our productivity two percent a year pretty consistently, while our population is increasing by only about one percent.

When you look at those numbers, it is clear why opening new markets to American products is so important to our farmers and ranchers across this great nation.

Speaking of exports and trade, I must admit, that I am disappointed that the April 30th deadline set forth for progress on the Doha Round was missed.

Let me assure you though that reaching a successful agreement remains a high priority for the United States. But a successful agreement must include market access. It must, along with reductions in trade-distorting subsidies.

We put forward, as you know, a very generous proposal to reduce subsidies, but our ambition has not been matched. We don't intend to sign-on to an agreement unless other countries come forward with market access for U.S. producers, for you.

While our farmers and ranchers are producing in enough abundance for both domestic and international markets, I know that doing so is not always easy.

Farming is really a noble profession. It's where my heart is. I did grow up on a dairy farm. Your hard work and your innovation provides the sustenance that nurtures our country. But you, ofcourse, face many challenges in doing so. We can name them: drought, flooding, hurricanes, pests, market instability, and the availability of labor, other issues.

Our impressive production and export statistics are only as good as the tomatoes harvested on time - and not abandoned in the field.

From the groves and fields of the southern states, to the orchards across our northern states, to ranches and farms all across America, there is high demand for seasonal workers. This is especially true during critical planting, growing and harvest times -- a demand that is most often met by large numbers of immigrant workers that are willing to do that hand labor that is required.

Here in Washington, there has been a lot of debate on immigration policy. The debate continues. President Bush has laid out a proposal for Securing America through Comprehensive Immigration Reform. There are a number of components to this program, including securing the border, ending the practice of "catch and release", and improving worksite enforcement.

The President has also noted that a Temporary Worker Program would allow immigrant workers to register for temporary legal status for a fixed period of time - a critical component of immigration reform.

A Temporary Worker Program allows producers to fill crucial jobs with willing laborers, and is also a compassionate approach to protecting all workers in America with labor laws, the right to change jobs, fair wages, and healthy work environments.

Now this is a really important issue for agriculture, and it is my hope that Congress will work through its procedural hurdles and pass comprehensive immigration reform. We need it in this country.

However, labor availability is only one of many challenges that you face. And more so than in many other professions, farmers remain vulnerable to forces that really, very truly are beyond their control. Managing risk is therefore critical if farmers are going to be successful in mitigating potential challenges.

As you know, last year USDA conducted 52 Farm Bill Forums across this great nation. I want you to know I hosted over 20 myself. What a great experience. It was enormously beneficial to me to spend more than 60 hours. I listened closely and I listened to what farmers were saying were their concerns. .

Recently, we released 41 papers that summarized the comments we heard at these forums. A few topics were raised more frequently than others during these listening sessions.

Instead of asking for an internal briefing on these subjects, which, of course, I could have done, I wanted to make sure that the information and analysis that I requested was made available to the public, to you. Creating the next Farm Bill should be a transparent process, I believe, and I hope that everyone affected by farm policy can be actively engaged in shaping that policy.

And so I asked our economists, and let me tell you ladies and gentlemen they do outstanding work, to perform an in-depth analysis of some of the themes from the sessions and to present those findings in analytical papers for public release.

Risk Management was one such topic. We heard a great deal about it in our listening sessions, but I can't say we heard consensus. Our current policy was widely supported by some producers, and yet it was very soundly criticized by others.

For instance, a gentleman in Kansas wants us to increase our safety net by creating a target revenue program instead of counter-cyclical payments.

He said, and I'm using his direct quote: "We didn't raise anything because of a drought. The prices went up and we didn't get any payment; we didn't have anything to sell. A target revenue program would fix that. We think it would be more WTO-compliant than what we have currently if we base it off historic prices and historic yields."

Now as you know managing risk is a complex subject that can be approached in many ways from many, many different angles. That's why we chose Risk Management as our first topic for analysis.

Our purpose with this paper is not to suggest policy - it is really to early for that at this juncture - but rather to inform and educate the public about this very important issue to agriculture.

The first step to having a productive debate is to ensure that we have all the facts on the table, and that is the intention of this paper.

Dr. Keith Collins - USDA's Chief Economist - along with a team of USDA economists and researchers - have been working very hard to present a factual, unbiased analysis of current risk management strategies and then to layout possible alternatives.

I'm happy to announce today that our economists have completed the Risk Management analysis paper, and so I get the opportunity to discuss its findings with you.

The first component of this paper provides a thorough definition of the risks farmers and ranchers are facing. Generally, agricultural risk is divided into five categories: price risk, production risk, income risk, financial risk, and institutional risk.

The Federal government does not try to eliminate risk for most types of businesses, because doing so could promote risky business choices that are in opposition to market incentives. However, the government does strive to reduce the risk inherent to farming to ensure a stable agricultural economy. We do this through a number of risk management policies.

Now as you know the term "risk management" is frequently associated with crop insurance. That is accurate to a point. Crop insurance is a key component of managing risk, but I would suggest to you, it is just one component.

Risk management should be thought of as a toolbox, within which are a number of risk management tools. Joining crop insurance in that toolbox are price and income support programs, there would be conservation programs, and there would be rural development initiatives, just to name a few.

There are also many private sector tools available, and it is important that we aren't discouraging the use of private sector resources.

As you know, government support consists of commodity program payments. That includes direct payments, counter-cyclical payments, and marketing assistance loan benefits, as well as conservation program payments. Also, crop insurance is an option for an increasing number of commodities, including specialty crops.

Ad hoc disaster assistance has also been made available on a case by case basis in the past. I will share with you, and this was not a finding in the analysis paper, that my feeling is that producers dislike uncertainty, like everybody else.

There is clear uncertainty associated with ad hoc aid, not knowing whether or not it will be provided makes it difficult for producers to plan.

I submit to you that farmers and ranchers really do deserve better. You deserve an open discussion about options that ensure your safety net programs provide something that is predictable and its reliable.

The analysis also found that USDA's multi-program strategy has been helpful to some producers, but not to all. We do not have an equitable distribution of risk management tools.

What I find interesting is that when I talk to fruit and vegetable growers, specialty crop farmers, livestock producers - who do not receive as much support as others - I don't hear requests for commodity program support. In all of my Farm Bill Forums, there was not a single instance where that part of the ag industry came to me and said, Mike, I want what I grow to be a program crop. That wasn't the case.

Instead, I hear about the importance of increased research money, rural development, conservation, sanitary and phytosanitary enforcement, global market access, the fruit and vegetable program in our schools and expanding it.

Expanding these components of the safety net benefit a larger percentage of the agricultural community, and I believe we owe it to you to have an open national discussion with you about these programs.

Our current risk management strategy is also vulnerable to challenges from our trading partners. For example, the WTO recently decided against our Step Two cotton program and ruled that the cotton marketing loan and counter-cyclical payment programs caused price suppression in world markets. Additionally, at times Uruguay has considered pursuing similar action against our rice program.

Our programs are coming under fire, and I would suggest we have a choice to make. We can sit back and watch as our farm policy is literally picked apart piece by piece or we can discuss how to craft a farm policy that provides a low-risk, meaningful safety net for farmers and ranchers.

Ladies and gentlemen, exports are equal to about 25 percent of farm cash receipts, so it's important that we have programs that do not weaken our trading capabilities. Remember 95% of the world's population lives outside our borders. We should encourage the selling of our farm products to that population. I would suggest, we need support programs that are beyond challenge.

The WTO negotiations are not the driving force behind our domestic policy. Let me repeat that, the WTO is not driving our farm policy discussions.

It is important, however, to be mindful of how our policy affects our ability to export. If we want to open more markets to American agriculture, we need to ensure that we are in compliance with international trade policies.

Our current risk management strategy was developed 70 years ago, and has been evolving ever since.

While some of those evolutions have led to more modern, beneficial programs, others have made risk management programs less efficient and counter-intuitive to their original purpose.

For instance, marketing loan benefits are not paid on lost production. That means that in a period of low yields, producers receive less assistance, not more. So we have risk management payments that aren't always successful at reducing risk.

And to the extent that wealthy farms have more capital to invest in their operations and tend to be more productive per acre, they may be eligible for more program payments, which could help finance further expansion.

While we certainly want to encourage productivity, this is not the most efficient way of mitigating risk for smaller and mid-sized farms.

So those are some of the drawbacks that this paper explores in our current risk management program - it is not evenly available across commodities and geographic areas, it is susceptible to challenges on the world stage, and it doesn't always do the job of actually managing risk.

The next thing that the economists did in their analysis was to explore some other alternatives, just as you asked us to do as we traveled the country last year.

Three broad approaches are included in the paper. I would suggest they are not exhaustive, rather, they represent a range of potential options to better inform the 2007 Farm Bill discussion.

I do want to be clear that I am not advocating today specific policy. These are simply a few alternatives that the economists and researchers drafted based on the feedback we received during the Farm Bill Forum tour. We believe this analysis will contribute to the public debate.

I believe we owe it to you to continue the national discussion about farm policy, and to contribute to it with factual information that, my hope would be, will help inform the discussion.

The first alternative is to continue the existing structure of farm programs, some are suggesting that, in fact, in some parts of the country suggesting that very strongly. But then make them more consistent with WTO practices, and better target them to producers with the greatest need of assistance.

Under this option, counter-cyclical payments and marketing assistance loans, which are subject to discipline in the WTO, might be altered and that would result in greater direct payments. Additionally, payments would be targeted towards smaller and mid-sized farms so that the current problem of payments encouraging farm consolidation would not be supported by federal farm policy.

Program crop producers that benefit under the current program would still be the primary beneficiaries of this option. A larger share of payments would go to small and mid-size farms, but, as under current programs, the majority of producers would still not receive assistance under the programs.

Our vulnerability to WTO challenges would be reduced but not eliminated. And this program would not have a significant effect on supply, demand, or prices.

The second alternative is to replace marketing assistance loans and counter-cyclical payments with a program that pays producers based upon revenue shortfalls.

One goal of risk management is to stabilize revenue, and this was a theme that I did hear in Farm Bill Forums.

Our current programs are focused on stabilizing price, rather than reimbursing producers based on income shortfalls.

For example, under our current system a producer whose crop is affected by drought has less production and therefore receives less. If that producer's payments were determined by a target revenue level, he would be guaranteed some support in this situation.

There are a number of specific issues that arise when considering this second alternative. Do we base the target revenue on the revenue of individual commodities or on total farm revenue? Should the revenue be measured at the farm level, the regional level or the national level? What should be the target revenue level? Would this option replace or compliment the current crop insurance program?

These are questions that are open to debate as we determine whether this would be an effective approach.

This second alternative also reduces but does not eliminate that vulnerability to WTO challenges. If we determine reimbursements based on total farm revenue rather than crop-specific revenue, the benefits can be spread across all of agriculture.

This has the benefit of increasing the equitability of the payments, the paper acknowledges it would also increase total cost depending on how the program is configured.

Additionally, this option could be more effective at stabilizing farm income than our current programs, but could affect supply, demand and prices depending on how the program is structured.

The third alternative detailed in this paper calls for us to phase out marketing assistance loans, direct payments, and counter-cyclical payments.

We could then use the savings to address many of the ideas we heard in the forums: expanding crop insurance coverage, funding farm savings accounts or expanding conservation programs, rural development initiatives, or other very worthwhile programs.

We heard repeatedly from producers at the Farm Bill Forums that conservation and rural development programs benefit farmers across the country, regardless of the location or the type of crop being produced.

Farm savings accounts can be an effective means of stabilizing farm income levels. However, the level of risk protection afforded by savings accounts varies depending on each producer's deposits into the account.

So those are a few of the alternatives to our current system. Each of these options has its benefits, and none is without challenge.

Let me just offer a few thoughts as I wrap up. Agriculture is the backbone of America. It keeps our nation strong, literally and figuratively. It is a very unique and demanding industry.

For that reason, the Federal government is committed to helping farmers and ranchers reduce the risks they face while feeding our nation.

We are committed to mitigating risks and reducing damages from unforeseen events. And we are committed to income stabilization for farm households.

The paper does point out that there is a difference between mitigating risks and eliminating risks. It suggests a line be drawn between stabilizing income and actually enhancing income.

And so it is up to us - each one of us - to acknowledge the new realities of agriculture and to embrace those realities in our agricultural policies.

I want all of you to have a voice in this process. I would like participation across every agricultural sector. If the Farm Bill affects your livelihood, then you should have a say in its development.

That's why we held those listening sessions last year. We wanted to be sure that producers from coast to coast could voice their concerns.

Now, again, I'm not suggesting policy at this point, that will come in the months ahead. I'm questioning the status quo. Our goal is to provide the most effective, efficient support possible to American agriculture.

We're asking this: How can we improve upon our current strategy so that we can better serve America's farmers and ranchers?

And we're investigating the alternatives to our current program so that we are aware of all of the options. We're looking at all of the choices. We are doing that carefully, objectively, and thoroughly.

A true safety net for agriculture is much more than subsidies. It is good farm policy that opens and expands market access.

A true safety net is also good tax policy, trade policy, sanitary and phytosanitary policy, and investment in new markets. I believe in providing a safety net for farmers and ranchers, and it must be equitable, predictable, and beyond challenge.

I encourage everyone in this room to read this paper. It will be on USDA's website today, and it contains careful analysis and thought-provoking insights.

I said earlier that our purpose with this paper was to start a conversation and to ensure an informed debate. My hope is it does just that.

I look forward to engaging in a thoughtful discussion as we begin working with Congress to craft the upcoming Farm Bill. And I look forward to your continued input during this process - it is my hope that the producers of America will help decide the future of agriculture for our nation.

Ladies and gentlemen, I thank you for your time today. God Bless you all.

[Applause].

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