Transcript of Remarks by Agriculture Secretary Mike Johanns World Agricultural Forum

TRANSCRIPT OF REMARKS BY AGRICULTURE SECRETARY MIKE JOHANNS WORLD AGRICULTURAL FORUM

Thank you very much for that kind introduction. Ladies and gentlemen it really is great to be here today. For me it's great to be back in the heartland.

Being here in Missouri, I can't help but think of a former President, a really great President by the name of Harry Truman, who had the advantage in life of having grown up on a farm and managed to keep some of his very plainspoken habits throughout his political career-those habits that he learned out here in the Mid West.

One day, as the story goes, President Truman made a speech at the Washington Garden Club and it was kind of a fancy event and he kept referring to that "good ole' manure" that needed to be used so flowers could grow. The society women were apparently aghast at this so they complained to the President's wife Bess about his constant reference to that "good ole' manure. And they said, couldn't you just get the President to avoid using that and call it 'fertilizer'? And apparently Bess Truman was reported to have replied, "heavens no, it took me twenty-five years to get him say 'manure.' "

[Laughter.]

Well, I grew up on a farm too, so maybe today I can follow that Truman tradition and offer some plain talk about our farm bill proposals and some thoughts about international trade and why I think we are at a moment of historic opportunity on both fronts.

Just by way of background, if I might, I would offer a few thoughts before I jump into those two topics.

You know if you think about our world today, the world we live in, if we have the chance to solve a political problem that's in front of us, I feel very strongly that we should take that chance.

The pace of change and the cross-border impacts of technology and globalization have made it harder than ever to judge the future course of events and they have made the risks of delay and simply letting problems simmer greater than ever.

When it comes to farm policy in the U.S., we have a great advantage. Our farm bills generally run about five years so we get to revisit the policy choices we have made fairly often and it gives us an opportunity periodically therefore to ask ourselves the question, "What's working and what has gone wrong."

In the years since we adopted the 2002 Farm Bill, we have seen some enormous changes in agriculture.

Just think about it. The demand for renewable fuels-ethanol, biodiesel-it's simply exploded, especially over the last twenty-four months. This new industrial demand for energy crops is not only going to get bigger but it is literally transforming many of our rural areas in the United States.

All of a sudden in rural areas where it wasn't that long ago that people were writing the final chapter, are now writing stories about those areas being discovered by Wall Street for investment in ethanol plants.

Sales of specialty crops, and when I speak of that, I am speaking about fruits and vegetables, have been growing steadily and now approach sales of the commodity crops in overall value. Our agricultural exports have been on a steady upward climb. And I would say all of the U.S. agricultural sector has benefited from that.

Meanwhile, just to be very candid about it our current support programs for commodity crops have come under attack.

Brazil continues to challenge our subsidies for cotton, despite a very strong defense we have made. We lost that case and now we are back before the WTO challenging what we have complied with.

Canada is now challenging our subsidies for corn and when they filed that case they were joined, almost overnight, by countries around the world. Just last week, Mexico talked about the likelihood of going to the World Trade Organization to challenge our rice program.

Ladies and gentlemen, I said many times, as I've traveled across this country, that we in the United States set our own agricultural policies and not have them dismantled one piece at a time by our trading partners in the WTO.

It just makes no sense, in my judgement, to stick with policies that paint a bull's-eye on the back of the American farmer. Why would we want to proceed in that kind of direction when it comes to our agricultural policies.

These were some of the things we had in mind as we put together our proposals for the 2007 Farm Bill.

In the two years before we rolled out our proposals in January, we engaged our farmers and ranchers across the United States far more extensively than had ever been done in previous farm bills.

The instructions I had from my boss, the President of the United States, President Bush as we started working on the Farm Bill back in 2005 when I joined his administration was to get outside the Beltway, to go out in the field and find out what was on the minds of the farmers and ranchers, to talk to the people who are most affected by the programs and policies. That's the direction he gave.

And that's exactly what we did. We went out and held 52 Farm Bill forums in 48 states and collected some 4,000 comments from farmers and ranchers.

Now I'll give you a brief overview of our proposals today in just a minute but first I want to say that the reaction we've received from Congress and the public has been an encouraging reaction.

Since the rollout, I testified three times before Congressional hearings and Chuck Conner, who is the USDA Deputy, and other senior officials at the Department have testified six times in formal hearings.

But that's only part of the story, the Deputy and myself and senior staff have delivered 24 informal briefings to members and their staff.

Well we are pleased by that response. It shows that our ideas are being taken seriously and given careful consideration. We look forward to that continued dialogue with members of Congress as the legislative process moves forward.

We believe that overall our proposals will create a more market-driven support system for agriculture-one that still provides a strong safety net while encouraging a productive and a very competitive industry.

We believe we will also distribute support more equitably across the many sectors of agriculture.

All of this represents change. It means we are doing things differently.

But to have a U.S. agriculture sector that is as competitive internationally as it is domestically, we must change, adjust to the changing economic and political realities that confront all of us. So we are going to put up on the board here, some charts about what our proposals are all about.

Let me, if I might talk about the first slide there entitled "Times Have Changed. I mentioned before that things are different than when the '02 bill was passed. Here are a few reasons why. We are experiencing strong commodity prices, corn close to $4 a bushel, soybeans at $7.50 or more. Well it means that the market is driving demand. That's why farmers are telling us at least in terms of their planting intentions, that they will be planting 15 percent more corn this year-90 million acres in all-the most, actually, since 1944. We simply don't need to rely on our traditional support programs for commodity crops as heavily as we did in the past.

The other point I would make is that agriculture from an economic standpoint in the United States is on sound footing. We have the lowest debt to asset ratio in recorded history. In all the time we've looked at this at USDA we have the lowest debt to asset ratio in recorded history at 11 percent. And as I mentioned earlier in my speech, renewable energy has just changed the landscape for U.S. agriculture.

Going now to the next slide. As we were doing our Farm Bill Forums and talking to farmers, we really came down to some guiding principles that we thought were very important as we crafted the next farm bill.

Our guiding principles were to make our farm program number 1, more predictable; number two, more equitable; and number three, better able to withstand challenge.

We do that by making them more market-oriented, more balanced across producers and commodities and by moving them away from ties to price or production that would be viewed as trade distorting.

So how do we go about doing that, the next side really illustrates that. We will base our marketing loan rates, which are kind of a central feature of our farm policy, on historic market prices. In other words, under our proposal it won't be a number that is just picked that can influence planting decisions, it will be a number based upon actual historic production. We will increase direct payments by $5.5 billion, however those direct payments are trade compliant because they are not tied to price or production.

We will tie our counter-cyclical payments program to revenues and yields instead of price to provide more support in those instances when its most needed, such as significant losses where a whole region of the country would face something like drought. We will also lower the Adjusted Gross Income cap to a three-year average of $200,000 instead of the current cap of $2.5 million. This will target our support to those producers who actually will benefit from that income support not to the highest income levels of our farm programs.

We will also enhance our conservation program. We will provide a new Conservation Enhanced Payment Option that will give producers who want to move out of our counter-cyclical or marketing loan programs a new way to go. They could qualify for a larger direct payment of 10 percent more in exchange for making conservation commitments during the life of this farm bill which we anticipate will be five years.

This will yield environmental benefits while taking that farmer away from participating in the marketing loan program or the countercyclical program. So here's how it would work. A farmer could literally look at the projections we make about the price of commodities over the next five years and say, well it's not likely I'll receive a loan deficiency payment under the marketing loan program. It's not likely I'll receive a countercyclical payment because I believe the prices will stay high. And yet, I am interested in doing some things that have a conservation impact, not only for my farm but for the world for that matter and, therefore, if they forgo payments under those two programs we will increase their direct payment by 10 percent for their participation in conservation.

Our proposals save $10 billion compared with what was spent on the 2002 Farm Bill over the last five years-but actually if that farm bill were extended for the next five years we actually spend about $5 billion more. And for us, most importantly, it fits within the President's plan to balance the U.S. budget within the next five years. Now if I might talk a little bit about conservation and renewable energy programs. Programs that under WTO rules are not regarded as trade distorting. We move significantly more money into our conservation programs, in fact, the largest increase in any area in our farm bill proposals would be in conservation, an increase of $7.8 billion dollars. We also provide $1.6 billion in new funding for renewable energy. But this is not for a trade distorting program it is for research and development, not targeted at corn based ethanol, not that we don't believe that that's not going to be a part of the ethanol future of the United States, we believe it will, but targeted at cellulosic ethanol. To move that agenda forward, to take some pressure off of corn, because all of the ethanol in the United States is produced from corn but to expand those products that can be used to produce ethanol. And again, into this area of cellulosic ethanol we provide a $2.1 billion loan guarantee program. So when research and development makes this a viable approach to producing energy, ethanol, we will have loan guarantees to build cellulosic ethanol projects. Again our loan guarantees are not focused on corn at all they are targeted at cellulosic ethanol.

And then the last slide here relates to specialty crops. Let me, if I might, offer a couple of statistics for those who maybe don't work as much with our farm programs as some in people in the room and as much as I do.

When you look at our overall cash subsidies that we pay farmers, I ask that you keep a couple of things in mind: 60 percent of farmers are not subsidized. They do not receive a cash subsidy, 60 percent. They are out there in the marketplace. Price is good, things are good. Price is bad, it's the opposite. We don't send them an annual payment or a monthly payment, they are just literally out there in the marketplace.

Now let me focus that a little tighter if I could: 93 percent of cash subsidies are paid to growers of just five crops: corn, wheat, rice, soybeans and cotton.

If you look at the value of what we call specialty crops, fruits, vegetables, etc. and compare that to the value of the program crops, the corn, wheat rice, cotton and soybeans, you would find that they are almost equivalent in value. In fact, last year before the run up in prices for corn and soybeans, they were basically equivalent. They've fallen a little bit behind this year. So this is a very, very large part of our farming enterprise here in the United States.

Now at our Farm Bill Forums these farmers came to talk to us. Let me share with you something interesting. They did not ask for cash subsidies. In fact they said, Mike, if you propose subsidies for our products, we would oppose you. We don't want that. We would be very concerned that that would distort the marketplace. We are satisfied to be in the marketplace.

What they did say though is that funding for research, market promotion, sanitary and phytosanitary issues, border protection from pests and diseases was very, very important for the future of their industry. It made a lot of sense.

All of those programs are not trade distorting. They do not impact trade rules. And so we identified a $5 billion program to support our farmers in specialty crops; $3.25 billion to buy fruits and vegetables for school breakfast and lunch programs, and $1 billion for specialty crop research. And in other parts we boost funding for market promotion, sanitary and phytosanitary issues.

And then the last slide you put up is just a quote. Over the five years of the 2002 farm bill, in the years that has been in place, export markets have only grown more important for U.S. producers.

Food and agricultural exports reached the record level of $68 billion last year, but get this, we project they will hit another record this year of $78 billion. The value of these exports now equals about one quarter, 25 percent, of total U.S. farm cash receipts.

That means we will have a one-year increase of $9.3 billion, one-year increase, which is the second highest on record. That will be led by strong sales of corn, soybeans and pork as well as gains in sales of processed products.

We are looking for 2007 to be our fourth record year in a row and our eighth straight year of growth in agricultural exports.

America's farmers and ranchers, well they know that foreign trade matters. They know the international marketplace is their best prospect for finding new market opportunities.

Think about these statistics, more than 70 percent of all the cotton grown here is sold abroad. Half of our rice crop is exported. And a third of our soybeans go into international markets.

Today, higher value products such as meats, fruits, vegetables, dairy products and processed foods account for about 60 percent of our exports while our grain products our bulk products make up the rest.

It's a very diverse line-up when it comes to our exports and it means U.S. producers need broad access in a wide array of export markets.

In coming years, as they continue to generate productivity gains, U.S. producers will certainly need wider access to markets in the developing world-where we expect 95 percent of the world's population growth will take place between now and 2020.

It is also where we will see the explosion of middle class consumers. Their numbers are expected to double to 1 billion worldwide by 2020 with more than 80 percent of that growth coming from China and India.

Access to these markets and these consumers is one reason, amongst a whole host of reasons, why the Doha Round of trade talks is so important. We are working very, very hard to make this round successful.

Lowering tariffs and removing non-tariff trade barriers will give American producers-whether in agriculture, services or manufacturing-the chance to compete on a more level playing field.

But another reason why it is so important that the Doha Round succeed is because of what liberalized trade can mean for the developing world.

President Bush believes strongly in the power of free trade to improve the economic life of the nations.

He has pursued the goal of opening markets to U.S. goods by completing a dozen bilateral free trade agreements and we believe strongly that trade is a two-way street. And we have just come to terms on a very big one with the Republic of Korea.

He has also pursued it by creating the regional free trade zone we now have in Central America and with the Dominican Republic.

Ladies and gentlemen, in the Doha talks, we have a once-in-a-generation opportunity to really have a profound impact on hunger and poverty in the developing world.

Two-thirds of the WTO member countries are developing countries; 32 of these are considered least developed countries, truly the poorest of the poor.

In these countries, over 70 percent of the poor live in rural areas where agriculture is the employer.

The World Bank has calculated that roughly half of the global economic benefit from free trade would be enjoyed by developing countries. And more than 90 percent of their gains would come from reducing tariffs.

The Peterson Institute of International Economics estimates global free trade could lift as many as 500 million people out of poverty and inject $200 billion annually into the economies of developing countries.

The simple fact is economic growth spurred by trade liberalization can have a profound impact, actually far more than voluntary aid donations although those are enormously important also.

When the day comes that the nations of the world agree on greater trade liberalization, the United States is ready to be a good trading partner.

We believe the proposals we have made for the 2007 Farm Bill put us in a stronger position when that day arrives.

In the meantime, we are doing all that we can to make this round successful. As you know, Ambassador Schwab has had extensive meetings both recently and in New Delhi with her counterparts from India, Brazil and the European Union.

They agreed on an overall goal of reaching an agreement by the end of this year, it if can be achieved.

I'm encouraged by that.

The pace of the talks has been picking up. And the seriousness has never been greater.

President Bush has made it clear, over and over again, that the U.S. is willing to make cuts in trade-distorting agricultural support programs if other nations are willing to step up on market access.

I believe there is a fundamental ingredient to moving these talks forward. With a good faith effort on all sides, I believe that the six years of effort that have gone into the Doha round can bring a successful conclusion.

I commit to you that I will do everything I can to reach an agreement that brings the benefits of free trade to all nations.

Thank you and now I'll be happy to take your questions.

[Applause.]

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