CNBC "Power Lunch" - Transcript

Interview

CNBC "Power Lunch"

MR. GRIFFETH: Joining us, a couple of members of the Agriculture Committee in the House. In fact, Collin Peterson of Minnesota is the chairman of that committee. And also with us is Congressman Randy Neugebauer, who's a member of that committee out of Texas.

And I welcome you both. Thanks for joining us today.

MR. : Well, thanks for having me on.

MR. GRIFFETH: Congressman Neugebauer, do you agree with Governor Perry's assessment that ethanol and the move in that direction, and what it's doing to corn prices, is in part responsible for the food inflation we're seeing right now?

REP. NEUGEBAUER: Well, actually, when you look at the recent Texas A&M study that they did, they reflected that the renewable standards were not having that much impact on the process.

But I think underlying what the causes that we see for the high food prices and commodity prices really have more to do with energy. The cost of inputs that farmers now have, to produce these crops, have gone up substantially when you look at diesel, the fuel, the fertilizer, all of the input cost and on top of that, a very weak dollar that makes American commodities very competitive on a world basis, obviously increasing the demand.

So I think we're all looking for a culprit here. But I think the real culprit probably is the high energy cost and the declining dollar.

MS. HERERA: Representative Peterson, which raises a good point, I see you're going to reduce the blender credit on ethanol, from 54 to 45 cents, if this goes through and gets to the president's desk this way.

Why have any help for ethanol, when clearly the market has already pushed that price high? I mean, why does that industry need to be subsidized at all?

REP. PETERSON: Well, we are making a modest adjustment there. And we're also increasing cellulosic ethanol to a dollar-a-gallon credit, which move us in the direction that we think we need to go, you know, in a fairly significant way. So this will help us move off of corn and on to cellulose, as we develop that technology.

MR. GRIFFETH: Chairman Peterson, do you think there have been unintended consequences of the emphasis in this country, especially on corn-based ethanol, and the impact it's having on food prices right now?

REP. PETERSON: Well, first of all, you have to understand that corn is a very small part of the diet that Americans eat. Probably the bigger impact of corn is fed to livestock.

And I'm going to say something here that probably people going to like but, I think, is really what's going on here, is that we have underpriced agriculture, in the United States and around the world, for over 20 years. We have had our farmers producing and selling crops, and selling livestock, below the cost of production.

We have been subsidizing consumers, the exporters and the livestock industry. And we've done that by buying off the farmers basically by giving them a subsidy, to keep them in business, even though they're selling below the cost of production.

MS. HERERA: Representative Peterson, a lot of folks would argue that should have never been done at all; that if you had gotten rid of those subsidies, you would have had consolidation in farming, and then they eventually would have reached the point where they were getting paid what they should have been.

REP. PETERSON: Well, first of all, the United States doesn't control this just by themselves. So this has been one of the issues. But you've had people out there pushing this strategy. And you didn't let me finish the rest of the point.

So whenever you interfere in the marketplace like this, which is being done by all the countries around the world, where we have artificially lowered the price of food, eventually it's going to catch up with you. The impact that ethanol had, on this, is that it created a new market outside of this system that was set up. And it did result in helping to reprice this.

Now, there's other things like crop shortages. And I agree with Representative Neugebauer that the energy costs have had an impact. But the bottom line is that we sold food too cheap. And now you've had a shock go the other way.

Now, these folks that are having trouble -- I sympathize with them. And it's valid. And we need to do something about it and we are doing something about it in the farm bill.

MR. GRIFFETH: All right.

REP. PETERSON: But you know, the problem is that we've kept it down too long, and now the shock is too big to the system. If we would have let this work out on a more evolutionary basis, we wouldn't have this shock going on right now.

MR. GRIFFETH: Congressman Neugebauer, do you agree with the chairman?

REP. NEUGEBAUER: Well, what we know is that having a strong agricultural economy in this country is very important.

We are in a situation now where we are dependent on foreign countries to provide the energy for this country. What we don't want to do is cause a situation, in this country, where we depend on other countries to feed America.

So it's important that we have good policy, in this country, that promotes a strong agricultural industry, so that we can continue to be -- provide the American people with the safest, cheapest food in the world.

At the same time, we need to make sure also that our policy is not market-distorting. And I think sometimes that's a real fine balance.

MR. GRIFFETH: Very interesting coming from both of you in that regard.

And Chairman Peterson, I appreciate your time on this. I know you're very busy trying to get this shepherded through. And we wish you well on that.

Thanks for joining us today.

REP. PETERSON: Thank you.

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