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Transcript of Tele-News Conference with Agriculture Secretary Mike Johanns USDA Chief Economist Dr. Keith Collins, Under Secretary for Natural...

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Transcript of Tele-News Conference with Agriculture Secretary Mike Johanns USDA Chief Economist Dr. Keith Collins, Under Secretary for Natural Resources and the Environment Mark Rey, Under Secretary for Rural Development Tom Dorr and Bruce Knight, Chief, Natural Resources Conservation Service Washington, D.C. - December 7, 2005

MODERATOR: Good afternoon from Washington. I'm Larry Quinn speaking to you from the Broadcast Center at the U.S. Department of Agriculture. Welcome to today's news conference on energy issues with Secretary of Agriculture Mike Johanns.

Joining the Secretary in the studio today are Under Secretary for Natural Resources and Environment Mark Rey, Chief Economist Keith Collins, and Natural Resources Conservation Service Chief Bruce Knight. Under Secretary for Rural Development Tom Dorr is joining the discussion through a live audio connection.

A reminder for reporters, if you have questions for the Secretary please press #1 on your telephone touch pad to alert us.

And now it's my pleasure to introduce Agriculture Secretary Mike Johanns.

SEC. MIKE JOHANNS: Larry, thank you very much.

Two days ago President Bush told an audience in North Carolina that one way to keep our economy strong and vibrant is to become less dependent on foreign sources of energy. He reaffirmed his commitment to renewable energy and said high energy costs are a tax on working people and on small businesses.

Without question, high energy costs are impacting the business of agriculture. As I traveled the country this year hosting Farm Bill Forums, farmers and ranchers voiced their concerns about energy costs to me very loud and clear.

And so today I am announcing the release of a USDA Energy Strategy to address the difficulties high energy prices pose for producers who are trying put food on our tables.

Our energy strategy offers both short and long-term approaches to cope with high energy costs. They include developing new risk management tools to address costs of energy in energy-related production inputs; maximizing the use of our guaranteed and direct loan authorities to help eligible producers needing credit due to high energy costs; offering a user-friendly, newly designed web-based program to help farmers and ranchers conserve energy and make more efficient fuel decisions and actually calculate potential savings; promoting renewable energy projects including wind and solar power units through aggressive marketing of available guaranteed loan and grant programs; hosting a national energy conference to help increase energy production from agriculture; and forming a USDA Energy Council to ensure the nation's agricultural producers have a seat at the table for national energy discussions.

Now as Secretary of Agriculture I do not have the authority to deliver a $40-a-barrel of oil to ease the financial burden on farmers and ranchers. But there is much we can do under the authorities provided in the 2005 Energy Act and other programs to conserve energy and be more energy efficient.

USDA will work closely with the Department of Energy to implement the comprehensive strategy outlined in the Energy Act. However, it doesn't happen overnight. The problems that contribute to high energy prices took decades to develop, and they will take time to correct. Yet there are actions we can take right now to help mitigate energy expenses producers are forced to bear in order to feed us. They are a part of the USDA energy strategy I am announcing today.

Producers are looking ahead to make tax planning and spring planting decisions for 2006, and now's the time they need some strategies both short and long-term to help them cope with today's high energy prices and withstand future energy price spikes.

There are steps producers can take to reduce energy costs without signing up for programs or filling out paperwork. I'm talking about conservation practices that can make substantial energy savings differences. To that end, I'm pleased to announce the arrival of The Energy Estimator available now at USDA.GOV. This program allows producers to make better input purchasing decisions, save energy, and even help with operating loan applications.

The Energy Estimator was developed by our Natural Resources Conservation Service. It can be used to calculate and estimate an individual producer's energy use and cost under alternative tillage practices.

For example, switching from conventional tillage to no-till on a 1,000-acre farm can save up to 3500 gallons of diesel fuel per year valued at $7,700. We expect to expand our on-line energy estimator in early 2006 to include potential savings related to irrigation and fertilizer application.

I mention that the Energy Estimator can assist with operating loan applications. We realize that producers may face the need for increased credit this year due to the higher energy costs. These costs currently account for up to 50 percent of the operating expenses associated with major field crops.

During our Farm Bill Forums I heard from growers who have had to pledge the cash value of their life insurance in order to obtain an operating line of credit. A woman came to me and said she and her husband have been farming for 50 years, and if they don't see some relief they might be forced to put their property into the Conservation Reserve Program. She left me with the question, "Is there hope?"

My answer to her and to the producers is, yes. There most certainly are reasons for hope. Those reasons range from the President's commitment to renewable fuels to the very strategy I'm announcing today.

Another element of that strategy will help to alleviate the credit issues arising for some producers. Therefore I am directing our Farm Service Agency to maximize the use of our guaranteed and direct farm loan program to help eligible producers who face credit challenges due to higher energy costs. If necessary, we will seek approval to redirect resources for a transfer of funds from areas of lesser need to this area of greater need.

One issue I heard often during the Farm Bill Forums was of the necessity for agriculture to expand beyond food and fiber by adding fuel as a third arm of its portfolio. I'm talking of course about the development, production and use of renewable fuels.

Ethanol production in 2005 is estimated at a record high of nearly 4 billion gallons, which translates into 14 percent of corn use, up from negligible levels just a few years ago, and the economics are improving literally every day. The renewable fuel standard in the Energy Act requires that 7.5 billion gallons of biodiesel and ethanol be used in the nation's fuel supply by 2012. Right now there are 93 ethanol plants in operation in the United States, with a production capacity of 4.2 billion gallons. Another 1.7 billion gallons of capacity is under construction. We need to do everything we can to build on this momentum.

With that in mind, I have directed our Rural Development staff to maximize the use of approximately $1.4 billion available this year in various business and electric loan and loan guarantee authorities.

Specifically, I've directed these funds to be used to the greatest extent possible to help America's farmers, ranchers and rural businesses create renewable energy systems and businesses. Since the beginning of the Bush Administration nearly $290 million in loans and grants have been approved to increase our renewable energy supply and improve efficiency.

By combining this funding with the existing momentum behind renewable energy development we have the potential to reach the Energy Act standard even before 2012. Doing so would be a significant accomplishment and put us closer to realizing the President's vision of becoming less dependent on foreign sources of oil.

Now to help improve the coordination and effectiveness of USDA energy programs I am announcing today the creation of an Energy Council under the leadership of Under Secretary for Rural Development Tom Dorr. In addition Under Secretary for Natural Resources and Environment Mark Rey and Chief Economist Keith Collins will serve as vice chairs. I mention again that they are with me today.

I am directing this newly formed council to review USDA's existing energy-related activities, authorities, and resources and recommend how with other government and private sector entities we can maximize the effectiveness of our current programs and resources.

I will also ask the council to ensure that USDA's many energy-related research development and usage programs are coordinated within our department and with the Department of Energy so that we have a comprehensive, integrated and intensified effort to meet and to exceed the President's energy goals.

In short, the council will identify what additional steps USDA needs to take to be a difference-maker when it comes to U.S. energy independence and the stability of America's rural communities.

As we intensify our support of individual producers, USDA's Forest Service is making substantial progress quickening the pace of energy development on federal lands. We are working with other agencies to expedite geothermal leasing and permitting on federal lands, establishing oil and gas pilot offices, and designating new energy right-of-way corridors.

In addition the Forest Service is proposing a new categorical exclusion under the National Environmental Policy Act for limited oil and gas activities that have insignificant environmental impacts. They are also providing biomass utilization grants to foster innovation in producing energy from biomass.

Today I am instructing the Forest Service to move as expeditiously as possible on every one of these fronts. And I would also invite the public to comment on the proposed new categorical oil and gas exclusion, which will soon be published in the Federal Register.

For the long term, we are interested in helping producers to better manage risk associated with energy and energy-related input costs. Our Risk Management Agency will host a workshop by early spring with risk management experts and of course industry representatives. This workshop will open a dialog and seek ideas on the development of risk management tools. USDA will also cosponsor an Energy Agriculture Forum in St. Louis, Missouri, next week. The conference will focus on new technology programs and initiatives to increase energy production from agriculture.

While the St. Louis conference will focus on how U.S. agriculture can be a part of the national energy solution, the risk management workshop will help individual producers better manage high-energy costs at the farm level.

Despite lower prices for a number of crops this fall, 2005 has seen yet another strong year for farm income and value added production. Agricultural exports are also expected to reach a record high in 2006. That is significant, because over the next 20 years the world will gain another 1.4 billion people, 95 percent of whom will live beyond our borders, and we will need to feed that population.

With agricultural productivity outpacing consumption in the U.S. it is critical that we force open global markets. So we are working hard within the World Trade Organization to level the playing field for American ag products and to gain substantial market access in other countries.

But if we are going to be successful in growing our role as a major international food and fiber provider we also need to address energy costs and the extent to which they will affect our ability to produce.

President Bush is right when he says that someday a future U.S. president may ask his advisers for the crop report to assess our energy supply instead of asking how many barrels of crude oil we are importing. USDA is committed to working with the Department of Energy to achieve the President's goals and to clear a future path for American agriculture. The energy strategy I've outlined will help our agricultural producers in ways that benefit them now but also in ways that benefit producers in years to come.

With that, that's the end of my prepared comments. I'd be pleased to field questions here. All of us would be pleased to answer any questions.

MODERATOR: Thank you, Mr. Secretary. And reporters, before we take the first question I remind you if you'd like to ask a question please push #1 on your telephone touch pad to indicate that you'd like to do so. And our first question today comes from Peter Schinn of the National Association of Farm Broadcasters.

Peter, go ahead, please.

REPORTER: Thank you, Larry. And thank you, Mr. Secretary, for taking this question and hosting this call. Sir, some commodity groups have suggested Congress should pass an Ag Energy Emergency Bill to help offset the sharply higher costs for energy and fertilizer that producers are struggling with. Can you imagine any scenario in which the Bush Administration would support such a measure? And if not, are you truly convinced the measures you announced today will in the immediate term provide sufficient relief to producers suffering from those high energy costs?

SEC. JOHANNS: Thanks for the question, Peter. As I said in my opening comments, I think all of us wish we had the power here at the USDA to drop the price for a barrel of oil down to $40. We recognize that we don't. As I said it took decades for us to get here, and it's going to take some time for us to get this problem dealt with and bring long-term, permanent solutions.

Having said that, I will address your question. There has been some talk about whether there's the potential for an additional amount of money to be allocated to producers because of high energy costs. I'll just be very candid with you, I haven't seen that gain much steam. I see a House and a Senate that is very anxious to try to deal with this energy problem. And I think the strategies I announced today -- in fact I would suggest the strategies I announced today will be very helpful to producers out there. But at least today I haven't seen much steam.

In fact as you know, the issue these days has been more along the lines of how to deal with reconciliation.

I would also offer another thought because it's important to mention in the vein of your question if I might just offer this. There just isn't any doubt that high federal deficits are not good for this nation's economy. They are not good for the agriculture economy. Every farmer and rancher in America can tell you what happens when deficits drive up interest rates. They've experienced it; many have lived through it. I just feel very strongly that we have to do everything we can to harness that federal deficit and reach the President's goal of cutting it in half in the next five years.

It's the right goal. but it's never easy. Strategies we announced today though will help, and that's what they're designed to do is help the producer.

MODERATOR: Our next question will come from Matt Kaye of the Burns Bureau. And standing by should be Chuck Abbott.

Matt, go ahead, please?

REPORTER: Yes. Thank you so much for taking my question. Now one of the programs that could help agriculture is already on the books. It was part of the 2002 Farm Bill, and that is a biobased product program to encourage federal agencies to purchase biobased products, things that are made from corn, made from soybeans, things we use every day, plastic forks, spoons, tablecloths, these kinds of things. That's a program that's already on the books, and it took at least two years to even put a rule out for that. Well, why did it take so long to do that? What is happening on this front? And what hope do we have for additional programs when this one took so long to implement?

SEC. JOHANNS: Let me offer a thought, and then I'm going to ask Dr. Collins to jump in here. I wasn't here for a pretty good part of that, but I will tell you it's a program I believe in. I've talked to a number on the Hill, a number of senators and House members about the program. And they're enthusiastic about the program. I share that enthusiasm.

Part of the challenge here is that the rule is very expansive, it's very broad. It literally asks us to look across the breadth and the depth of the federal government and establish basically a purchasing process to bring bioproducts into the federal government.

And that was a very, very large undertaking. So I can offer to you, even though I wasn't here for the first part of that, that was a substantial effort. And that's the reason why this has rolled out over a period of time here.

We do have things in place now that I believe really can get us a jumpstart in terms of this effort. We're excited about what we see. We think this can be one of those difference-makers. It is certainly not a silver bullet; I don't believe there is a silver bullet. But it is something that I think can be very helpful to producers out there, and it's something the federal government should do.

Dr. Collins, you can offer a thought.

DR. KEITH COLLINS: Thank you, Mr. Secretary. I think you made some very good points, one being the complexity of this program. When this program was first enacted I'm not sure supporters of this program realized it was going to have to be done through rulemaking which was a determination that was made by the Office of General Counsel here at USDA. And it had to start with a set of guidelines-- essentially a rule that laid out how the program was going to work in years to come. That rule was proposed, that rule was made final. Since that time there has been a rule put out to designate the first six categories of biobased products. That rule is now in preparation to be issued as a final rule.

We also have two more proposed rules coming. Each of those proposed rules are going to designate 10 more generic classifications of biobased products.

One of the reasons this rule has taken so long, or the set of rules has taken so long to come out is because you have to remember that these rules require specific standards to be set for what is a biobased product. How do you measure the biobased content of a biobased product?

The Secretary under the law has to evaluate the public health and environmental effects of these biobased products. We also have to consider the life cycle costs of these biobased products. Turns out, there was no ASTM standard for what a biobased product is or how to calculate life cycle costs. We had to work with the American Society of Testing and Materials to establish new standards for biobased products. And that took a long time.

To give you some sense of the complexity of this, there are something like 550 firms producing over 3,500 biobased products in the United States right now. So I know some people perhaps heroically thought we could turn a switch and have this program up and running in a few months. But given all the statutory requirements that had to be met and the complexity of this industry and the fact that this industry is embryonic, simply it has taken a long time to get done.

But I think we're doing it right. And by doing it right I think we're building the foundation for a biobased product industry that will be able to defend itself against challenges from the nonbiobased product industry and will be able to demonstrate its performance and therefore capture market share over time.

MODERATOR: Our next question comes from Chuck Abbott of Reuters. And standing by is Jim Phillips.

Chuck?

REPORTER: Thank you. Good afternoon. I was hoping for a little more explanation, a little more detail on this categorical exemption that you're proposing on Forest Service land for oil and gas exploration. How soon could that take effect? How many, will it be available throughout the entire national forest system? And is there an estimate of how much acreage might be utilized under this exemption in the near term?

SEC. MARK REY: First a point of clarification. This is not an exemption from the National Environmental Policy Act. It's a categorical exclusion from more detailed environmental analysis. The way you develop a categorical exclusion is, you look across the universe of similar projects all of which have been analyzed and deemed to have insignificant environmental effects.

You develop a category to describe those kinds of projects, and thereafter then you don't do the more detailed environmental analysis, thereby saving time and money. But you come to that conclusion after looking at several examples of similar kinds of activities that have had minimal effects.

In this case, what we looked at are oil and gas exploration and drilling activities of a modest size less than a couple acres in total, and concluded as we reviewed several hundred of those kinds of projects around the country that their environmental effects are insignificant.

We thereafter developed a description of this kind of activity with sideboards, and that's what we'll be sending to the Federal Register for public comment.

Once the public comments are received and we evaluate them, if we go forward with this categorical exclusion it will reduce the processing time for permits for oil and gas activities a couple acres in size, under 10 acres in total -- to from about six months to right around 60 days. So there will be a several-month time-savings. It would be available nationwide -- we're guessing we'll probably have a couple hundred of those kinds of projects each year, then proceed under the categorical exclusion.

MODERATOR: Our next question comes from Jim Phillips of Progressive Farmer Magazine. And standing by is Jackie Fatka of Farm Futures.

John?

REPORTER: Yeah. Actually this is Jim Phillips with Progressive Farmer. Thank you for taking my question.

Mr. Secretary, a year ago oil per barrel was just about $40, and today it's about $60. Have your USDA economists run any figures as to how much that extra $20 per barrel is going to cost American agriculture this year?

SEC. JOHANNS: We have. And I've got the lead economist here. So Dr. Collins, go ahead and take a shot at that.

DR. COLLINS: Sure. Yes, we do calculate that. And what we have estimated for the 2005 calendar year is that farmers' production expenses will go up by about $5.3 billion compared with calendar year 2004. That $5.3 billion is principally fuel, but it's also lubrication, oils, fertilizers, and electricity. So about $5.3 billion.

That's a significant amount when you consider that net cash farm income has been in the range of $85 billion, and we're still forecasting that for 2005 we will have a net cash farm income close to last year's record-- this year about $83 billion. And that takes into account this $5 billion increase in farm production expenses due to higher energy and energy-based input costs.

MODERATOR: And our final question today comes from Jackie Fatka of Farm Futures.

Jackie?

REPORTER: Hi. Thank you for taking my call. I know that I think that I heard you say that you were hoping to have a calculator also for fertilizer and some other things. There's quite a bit of a debate going on around the country with some universities on fertilizer rates. Can you talk a little bit more about this calculator on how the estimates are figured, and what information you pulled together, and also what you're looking at doing for those other calculators that might be coming on in 2006?

CHIEF KNIGHT: This is Chief Knight for the Natural Resources Conservation Service. This first calculator simply does fuel costs for comparisons of conventional tillage, ridge tillage, no till and mulch tillage to look at those operations. And it's a first very simplified manner. We tied it back to our revised universal soil loss equations, and we're able to localize it by a producer simply putting their zip code in.

So all the producer has to do is type in their zipcode; they'll get a couple of boxes to fill in which will be the acres for the crops from that area to put in. That will calculate what the diesel fuel use would be for the different types of tillage practices. A producer can then plug in their own anticipated fuel costs, and that will give them the calculator or the estimator for their fuel savings.

We are in the development of doing that right now for the savings associated with irrigation and on fertilizer use. And as you've correctly asked, fertilizer use is much more complicated. As you know we have a large number of folks that are currently looking at the recommended rates that have been used historically on some crops and analyzing whether those recommended rates could perhaps be more finely tuned and be able to make progress on that. And that is a debate that's going on very rapidly in the land grant system, and we're working closely with them on that and we'll try to plug that into this future calculator as well.

MODERATOR: Mr. Secretary, do you have any closing remarks today?

SEC. JOHANNS: I just want to express my appreciation for everyone joining us today. The strategies that we have put out we are very, very excited now to go to work to roll up our sleeves and put these strategies in place. And we're going to do everything we can as aggressively as we can to make that happen now.

With that, let me just wrap up and wish Merry Christmas to everyone out there.

MODERATOR: Secretary of Agriculture, Mike Johanns. I'm Larry Quinn bidding you a good afternoon from Washington.

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