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Transcript of FY 2007 USDA Budget Proposal News Conference with Agriculture Secretary Mike Johanns

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Location: Washington, DC


TRANSCRIPT OF FY 2007 USDA BUDGET PROPOSAL NEWS CONFERENCE WITH AGRICULTURE SECRETARY MIKE JOHANNS

February 6, 2006 Washington, D.C.

SEC. MIKE JOHANNS: Well, good afternoon. Let me start out by saying to all of you, thank you for joining me. I would mention that I am joined today by members of my subcabinet. In front of me is my budget officer Scott Steele and his staff who will be available after the press conference to provide any additional information that you may need.

You should also have a copy of our budget summary and annual performance plan, which provides a comprehensive review.

Well it's been about a year since I became Secretary of Agriculture, what an incredible year it's been. USDA employees stepped up to provide hurricane disaster assistance, and our total financial assistance now tops $4 billion. I enjoyed every minute of my 66 hours of listening to producers across the country about future farm policy, and we reopened beef markets and expanded market access.

The President's budget for 2007 ensures that we can pursue our priorities while recognizing that fiscal discipline is absolutely necessary in times of deficit spending.

Let me I might take a moment to put a perspective on deficits. Deficits increase the national debt, and I would mention it truly is debt. If we don't deal with it, then our children will deal with it. Our Farm Bill Forums focused on supporting future generations of farmers and ranchers; producers across the country applauded that focus. We simply should not close our eyes to the deficit and claim to be setting a successful course for future generations of producers.

In my judgment the President chooses the right course. A more difficult course of discipline to reduce the deficit instead of passing it on to our children and to our grandchildren. And I would add, I admire the President for his courage and I admire the President for his leadership.

Reducing the deficit will strengthen the economy, and it will create jobs in much the same way that a tax cut would. Farmers and ranchers across America know the importance of a healthy economy. It increases demand for their products, and it raises income. The President is committed to keeping the economy strong.

Every federal agency shares the President's vision and is therefore making difficult but very important budget decisions, and the USDA is no exception. As I delve into the specifics of the budget, I'll remind you that all of the information that I present to you is based upon the fiscal year.

When you look at the USDA expenditures by major program activity, you can see the department manages a very, very diverse set of programs. Of the total well over one-half, 56 percent, support domestic food assistance programs including Food Stamps, School Lunch and Women, Infants and Children's programs. Spending for farm programs including commodity payments, farm loans and crop insurance accounts for about 22 percent. The remaining approximate 22 percent of the Department's spending covers a wide range of programs including conservation, rural development, research, and food safety activities.

Total USDA expenditures are estimated to decrease from about $96 billion in 2006 to nearly $93 billion in 2007. There are two main reasons for the reductions. One is that we assume we will not need the emergency disaster assistance funding and other emergency supplemental funds that were needed in 2006. The second reason relates to the budget reductions we are proposing, which include some legislative changes, and I'll review those more extensively in a moment.

The resulting savings allow us to fund the nation's priorities. For example, we've been closely monitoring the very alarming spread of highly pathogenic avian influenza overseas. USDA is a full partner in the government-wide effort to prepare the country for a potential pandemic and the worldwide effort to stop the spread of H5N1 virus at its source overseas. In response to the President's request, Congress provided over $91 million in 2006 emergency supplemental funding for USDA to start efforts to prepare for a potential influenza pandemic.

We are using those funds for international efforts, domestic surveillance of poultry and migratory birds, diagnostics, emergency preparedness and response, and for research. The 2007 budget includes $82 million for avian influenza.

Setting the one-time emergency supplemental aside for a moment, the $82 million represents an increase of $66 million over the 2006 ongoing funding level. The budget proposes $322 million in USDA funding for the multiagency food and Agriculture Defense Initiative, which is funded at nearly $540 million on a government-wide basis.

Now USDA's portion represents a $127 million increase to continue improving the safety and security of America's food supply and agriculture overall. That figure excludes last year's one-time funding for the construction of the National Centers for Animal Health in Ames, Iowa.

Funding increases include $23 million in increases to strengthen the Food Emergency Response Network and the Regional Diagnostic Network. This increase will help to ensure a quick response to food emergencies and plant and animal diseases.

$42 million in increases for research. This will help to protect food safety, quickly identify pathogens, develop improved animal vaccines and better understand the genes that provide disease resistance. And then $62 million in increases to enhance surveillance and monitoring activities.

These funds will help to quickly detect pest and disease threats and to improve response capabilities.

Now moving on to another USDA priority, which is energy. I recently announced a comprehensive energy strategy to help producers with high energy costs. I am pleased that this budget continues to provide tools that help producers manage the impact of high energy costs. This budget also funds the development of renewable energy resources and new energy efficient technology.

For 2007 we will have at least $345 million available in loans, grants and other support for energy projects. Within this total, USDA's core investment in energy-related projects increases to $85 million in 2007 and that's up from $67 million in 2006.

This includes resources available to support renewable energy research and demonstration projects as well as additional efforts to support energy development and transmission across public lands.

In addition, and not shown on the chart, we are targeting renewable energy and energy efficiency projects through Rural Development Loan and Grant Programs. We anticipate investment in excess of $250 million each year in Fiscal Years '06 and '07.

Throughout '07 USDA will continue its many successful energy partnerships with the Department of Energy, the Department of Interior, and the Environmental Protection Agency. USDA's efforts will be coordinated by the newly formed Energy Policy Council.

As I discuss priorities I think it is important to include one that is measured not by the dollars that are invested in the priority but rather as a result of the dollars generated. The President's aggressive trade agenda helped to bring ag exports to record levels in '04 and '05, and we expect that number to continue climbing projected to top $64 billion in '06.

Taking a look at our proposed farm program spending, I think it's important to put this part of the budget into perspective. As you can see in the chart, CCC expenditures are highly variable. This trend reflects the impact of weather and growing conditions on crop production and the resulting changes in commodity prices. Emergency disaster funding also impacts CCC expenditures in some years.

The chart displays the original estimate of CCC expenditures developed at the time that the Farm Bill was passed in 2002. That would be the blue line on the chart. The actual expenditures through '05 and our estimates under the current budget for '06 and '07 are represented by the yellow line on the chart.

The dotted yellow line reflects our new budget proposal.

As you can see, during the first few years after enactment expenditures were lower than what was originally projected. Beginning in 2005 the situation changed and expenditures increased to historically high levels, well above the 2002 Farm Bill estimates. Actual CCC expenditures were over $20 billion in 2005. They are projected to exceed $21 billion in 2006.

All of these levels are historically high levels of government farm support. Last year as we released the budget there was an expectation by some that the Farm Bill expenditures would end up below the 2002 projections. But I can tell you, that's not the case. In 2007 even with the proposed reductions we expect to spend nearly $7 billion more than what was projected when the 2002 Farm Bill was enacted.

And the Reconciliation Act that was passed last week delays but does not reduce funding for farm commodity programs. The one exception is the elimination of the cotton Step 2 payments, which is consistent, as you know with the WTO ruling.

There are real reductions in the Reconciliation Act, but they affect other programs such as Rural Development, research and conservation.

Getting back to the budget, as I mentioned a moment ago some reductions are a result of programs ending. Authority expires for the CCC bioenergy program in September 2006, so these dollars are no longer included. Having been an advocate for ethanol now for over 20 years, I can tell you that the strength of the industry today is really nothing short of remarkable. We are projecting that commodity prices for feed grains will increase in the '07 due to the need for more ethanol production.

Reductions in CCC expenditures also result from a reproposal of changes suggested in last year's budget. These changes will produce savings of about $1 billion in '07. Over a 10-year period the savings would climb to nearly $7.7 billion.

Again the savings compares closely with last year's proposal excluding the cost of extending the MILC Program for milk producers.

The elements of the proposed savings reductions are as follows.

Reducing all commodity payments by 5 percent.

Applying a 1.2 percent marketing assessment on sugar and a small assessment on milk and keeping the cost of operating the Dairy Price Support program to a minimum.

Net expenditures for crop insurance have grown nearly 50 percent from 2001 and 2007 with the implementation of the crop insurance reforms in the year 2000. At the same time, producers have continued to receive disaster payments through ad hoc disaster programs. From '01 to '07 when crop insurance pay-outs rose dramatically, we also delivered more than $9 billion to producers in crop and livestock ad hoc payments. The budget again includes proposals to enhance crop insurance coverage and reduce costs to deliver that program.

Proposals include a higher minimum coverage level tying the receipt of commodity payments to purchase of crop insurance. Also proposed are changes in fees, premium rates, and delivery expenses.

In total this change is designed to ensure that farmers of major commodity crops have crop insurance with a minimum coverage level that is sufficient to sustain most farmers in a time of loss.

The budget fully funds the expected requirements for the Department's three major Nutrition Assistance Programs -- WIC, Food Stamps and the School Lunch Program.

WIC participation is estimated at 8.2 million participants in '07. That's about the same level as we estimate for 06. Food Stamp participation is estimated to increase in '06 but is expected to drop back to around the '05 level in '07. School Lunch participation is estimated to reach a record level, 30.9 million children each day in 2007.

The budget proposes $5.4 billion in program level to support the estimated level of WIC participation. Also included is $125 million contingency fund should costs increase beyond the current estimates.

For the Food Stamp program, the budget includes resources to fully fund estimated participation. It also provides a $3 billion contingency fund should actual cost exceed the estimated level. The budget includes a $700 million increase to accommodate the projected increased level of School Lunch participation. There is also a new proposal for a $300 million contingency fund for this program.

To help meet the President's commitment to create, improve and protect at least 3 million wetland acres over a five-year period beginning in '04 the budget includes over $400 million for the Wetlands Reserve Program. This will allow for an additional 250,000 acres to be enrolled in the program in '07, 100,000 more acres than estimated for '06, and the largest one-year enrollment since the program was initiated in 1992.

The budget proposes over $4 billion to continue implementation of the conservation programs that were authorized in the '02 Farm Bill. The largest of the programs, the Conservation Reserve Program, is estimated at $2.8 billion in '07 representing more than one-half of the total funds for conservation programs.

Also within the conservation total, $83 million in additional resources are included to extend the Conservation Security Program into additional watersheds and to service prior year contracts.

The '06 CSP sign-ups will begin soon on February 13th, and they continue through March 31.

In the aggregate, funding in the budget to conservation programs will support enrollment of an additional 23 million acres of conservation programs, largely in EQIP. This constitutes the highest enrollment level in conservation programs in the history of our country.

The budget continues implementation of the President's Healthy Forests Initiative to mitigate the threat of catastrophic wildfires. Resources proposed in the budget will reduce hazardous fuels on an estimated 3.2 million acres of land, 150,000 acres more than '06.

The budget also maintains sufficient wildland fire resources to protect communities and natural resources and provides for sustainable forests and communities.

This is accomplished through full funding of the Northwest Forest Plan and extension of payments to states legislation.

In addition to the highlights I've given you, you will find that we are proposing funds to support other important initiatives and priorities including animal identification, Rural Development, research and the promotion of good nutrition.

Again I want to emphasize that the President is deeply committed to reducing the federal deficit so our children and grandchildren won't have to pay the price long into the future. This budget helps to accomplish his goal while continuing to meet key priorities.

USDA will be a team player in producing savings that will help reduce the deficit and strengthen the economy and reforms that will improve our programs.

So I thank you all for coming here today. I would be pleased to take some questions. As I indicated, the subcabinet and the budget staff are here to get down into the real detail of the budget, if that wasn't enough.

REPORTER: Mr. Secretary, I'm Bill Tomson with Dow Jones. The subsidy cut proposals didn't work very well last year. Congress didn't a pass a lot of them. What makes you think it will work this year?

SEC. JOHANNS: I'd offer a couple of thoughts, Bill, on the subsidy piece of this. If you'll remember when we released the budget last year, almost immediately there was the discussion that this Farm Bill had turned out to be a less expensive Farm Bill than what was projected. In fact as I made my way out across the country and talked about the budget proposals, almost invariably somebody would raise their hand and stand up and say, But we've already given to deficit reduction; this is a much less expensive Farm Bill than what was anticipated, and they would cite early years.

We know two things for certain now. The first thing is that that in fact is not going to be the case. We have seen those farm subsidy payments increase and our projections indicate that that's going to be here through the life of the Farm Bill.

The second thing that we know as a result of the reconciliation process is that there were USDA programs that did bear a cut when it came to the reconciliation. But if you'll remember the way the farm subsidy piece of this was handled, that literally was pushed out beyond the years that you look at here. And so I think in view of that fact, we are proposing these things recognizing that these programs have by and large been spared from deficit reduction. In fact, one could argue really in total.

The other thing I would mention is this and just kind of as an aside. I think the real headline here would have -- if these proposals had not been made that would have been the real headline this year. The administration is committed to these proposals as part of the deficit reduction.

REPORTER: Now for a moment for the vision thing. Back in October you spoke to food and agribusiness lobbyists and you said, 'I believe in providing a safety net for farmers and ranchers but it must be inclusive, predictable and beyond challenge.' Now we can ask today, where is the vision? I don't see where the administration is going with farm policy or conceivably only a few months away from when Congress begins to overhaul farm policy. You are not inclusive or predictable in that you haven't changed the rules to bring more people into the program, and you're planning to reduce the amount of money for people who already are in the program.

The largest farm organization would also say you decided to cave in on U.S. support of agriculture before you get anything out of Doha. So again, where's the vision?

SEC. JOHANNS: Okay. The proposals made today are not made as a proposal relative to the Farm Bill that we will deal with in '07. As I've said many times, we are months away from making specific proposals as to what the '07 Farm Bill will look like.

These proposals are made in the spirit that everybody has to contribute to deficit reduction. Now if I have one overriding vision, and I'd say this whether I was the Secretary of Agriculture or Interior or Commerce-- it's very, very clearly you can't leave a massive deficit behind. It truly is debt as I said in my comment. That's not good for agriculture.

And I don't think it will take a lot of effort to show that to American farmers and ranchers. They understand it. So the vision here is that we have to deal with the federal deficit. I'm not suggesting that that is necessarily easy work, but it is the right work that we must be doing.

And therein lies the key issue here. If we are really going to have sustainable agriculture over time, you need a strong economy. And to get a strong economy you've got to deal with the deficit.

Now there will be a day where we will make proposals about what the next Farm Bill should look like. That day has not arrived as I've said many times. That day is really many, many months away.

REPORTER: Mark Haller with the Watertown Daily Times in New York. Sort of along the same theme, if I could pick a little bit on the assessment on milk marketing, I assume that's an assessment on producers. Most of the farmers who I know don't complain so much about the size of these assessments when they come up but the concept of assessing them to pay for deficit reduction.

And I think there are some farmers, I know there some farmers who believe that the concept of doing that is contradictory to this Department's mission. That it's somehow a betrayal because I think if they look at the mission of what this Department is they don't see deficit reduction, but they do see supporting agriculture producers.

And I wonder if you could talk a little bit about it in those terms.

SEC. JOHANNS: It would be hugely short-sighted of me, as Secretary of Agriculture, to ever argue a plan that basically says my programs need to be protected. I can't imagine that there's a farmer or rancher in America that would argue that that is a thoughtful approach to how we deal with deficit issues.

Every federal department is going to be asked and has been asked to do their share. Again, if we don't get the deficit under control it's hard to imagine that there's a good future out there in agriculture. The two don't work together -- high deficits and the future of agriculture. It's not a fit. We've got to deal with the deficit.

And again, it is never an easy thing.

I will share with you in my years as governor I proposed some very, very difficult spending cuts. But it was necessary. It had to be done. And once we thought the problem was solved, the revenues got worse and we came back again in another special session and another special session. But I'm not saying anything new here because anybody who lives in any state in the United States except maybe one or two that had natural resources that they were taxing went through the same difficult circumstances.

I just fundamentally believe that you have to deal with the deficit if you're going to have a long-term future for not only this generation of producers in agriculture but for the next generation and the next generation.

REPORTER: Jake Thompson from the Omaha World Herald. You talked about all departments having to contribute, but you look at the administration's main budget it points out the discretionary spending for agriculture takes the third highest cut of departments, minus 6.5 percent, behind only Justice and Transportation. Why is so much coming out of agriculture at this time and not as you say shared among --

SEC. JOHANNS: Well, again Jake you point out that's the discretionary spending. In our mandatory spending because of the nature of those programs is that you have a mandate in place you're going to see your spending continue to be impacted by that specific legislation. Consequently it's almost a foregone conclusion that if you're going to have some reductions you're going to go to the discretionary side.

My experience here is not much different than what I experienced at the state level. No one wanted to cut the mandatory programs at the state level. So consequently what tended to happen is on the operational side the discretionary side, that's where you were typically seeing the cuts.

Now I would offer one last thing. All of these budgets are enormously complicated, and I'd really have to look at each individual area and see where they might have given in another area versus the discretionary area because it could be vastly different. They may be asked to give more in one area and therefore have less of a cut in the discretion area. I would not know that until I looked at those budgets, and I haven't seen those.

I'll go in back.

REPORTER: Thank you. Libby Quaid with AP. Mr. Secretary, could you talk about the reason for eliminating the commodity supplemental food program? And also, is that something that the department submitted to OMB?

SEC. JOHANNS: Let me address your first question. Libby, this is the program you're referring to is a program where commodities are delivered to homes. Is that the one you're referencing? Okay. The program there as you know is a program that operates -- I'm looking for the right person -- in how many states? In 32 states. It is not a nationwide program. It was put in place in 32 states.

The other thing I would mention about the program is that it is not a situation because of this reduction or change that's being proposed that all of a sudden these people are out in the cold. It is very clearly a situation where they could qualify for any number of other programs. They could qualify for Food Stamps; they could qualify for a WIC program. So it's a situation where there is a possibility that these folks will qualify for a food benefit program in another area. And that's a very important point to make.

The final issue in terms of what we propose and don't propose, here's what I can offer. It's a process where we work with OMB. We're part of the team. I'm not sure exactly what brought this up in terms of the discussion about whether that program should be continued, but it's not a situation at least that I regard of us versus them.

REPORTER: Mr. Secretary, Herb Weiner with TBS. What portion of the budget will go to BSE detection and prevention? And given some of the problems we've experienced recently will that be an increase or a decrease? And just to follow up on that if you don't mind, on Sunday the Agriculture Minister, Nakagawa, said that, and this question you've heard before, that he wanted to regain consumer confidence by sending his own officials to U.S. facilities. Is there an update on that?

SEC. JOHANNS: We'll flesh out the numbers for you on the BSE program, and, Scott, if you could do that? So you have an exact number there.

On the comments by Minister Nakagawa, I've indicated all along that we're willing to work with them in terms of what they feel they need in terms of inspectors coming over here and looking at the plant. And I'm not sure that I know exactly what he is seeking in terms of how extensive that would be, whether he wants to reinspect all the plants again, whether he wants to reinspect those that haven't been inspected. But my attitude has always been, we'll work with them on what their needs are and try to meet those needs.

Maybe one last question here.

SEC. JOHANNS: We'll continue to work with Congress. Again I would point out there's some new information here that I think will be very, very helpful as Congress deliberates. One is that when we released the budget a year ago there really was this discussion that we have already given. The farm programs have already made their contribution, deficit reduction contribution because the farm program simply turned out to be less expensive than what was anticipated.

Very clearly now we know that is not the case. We paid out very sizeable amounts of money in the farm program. And our projections through the end of this Farm Bill would indicate that those will continue to be historic numbers. So that's the first piece of information that I think will be very helpful to Congress as they evaluate how to work on the budget here.

The second thing that I would point out is that we now do have in place the Reconciliation Bill, and although there are reductions way out there in terms of farm programs the current contribution was not made in terms of the current farm programs. Currently they were pretty well left alone.

The only exception to that was Step 2, and that was really due because of the WTO ruling that we had to come into compliance with.

So I think there's a body of information today that wasn't available a year ago that will be very, very helpful when Congress takes a look at this.

In terms of the payment limits issue, you know that's been a point of debate. And there was a vote in the Senate awhile back, and one of the things that I think maybe surprised a lot of people is how much support there is for that approach. As you know it was defeated. But I would also point out there were a substantial number of United States senators who were very, very convinced this was the appropriate direction.

So we'll continue to work on that and again I think one of the real differences though this year is we've got information that we didn't have last year.

Okay. We have a subcabinet here, and we have Scott, and they'll take it from here and answer your questions about the detail in the budget.

Thank you all.

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