2008: A Good Year Ahead
Bruce I. Knight, Under Secretary for
Marketing and Regulatory Programs
Iowa Pork Congress
Des Moines, IA
January 22, 2008
I’m delighted to join you today to talk about the path ahead for U.S. agriculture as we begin 2008. It looks like a good year ahead, but we’ll certainly see some changes.
Iowa is in the forefront of change these days. You’re the leader in launching this year’s presidential campaign—and the Iowa caucuses produced a few surprises earlier this month. Voting first gives you a profound impact on Presidential politics, and it also makes a profound impact on politics in your state.
I learned that firsthand some years ago, when I worked for Fred Grandy when he was a freshman Member of Congress. I found out that in Iowa, folks weren’t too concerned about that new guy representing them in the House of Representatives.
That’s because everyone in Iowa knows the President personally!
And with all the campaigning here recently, I can believe that. Aren’t you glad the ads are over?
First in the voting gives you a strong voice in picking our next President. But you also have a strong voice in agriculture, from Henry Wallace’s time forward.
Today, your junior Senator, Tom Harkin, chairs the Senate Agriculture Committee, and he’s also chairing the conference committee on the farm bill. Plus, your senior Senator, Chuck Grassley, is the ranking Republican on the Finance Committee (and always a voice on agriculture).
Next Farm Bill
I want to talk with you today primarily about the next farm bill—and the stake that pork producers and farmers and ranchers from Iowa have in it. I know we’re all eager to see this one completed and signed. But, as you know, farm bills are never easy, and Congress will go down to the wire with the toughest decisions.
This is the fifth farm bill I’ve worked on. From my perspective, the clear takeaway is that farm bills unfortunately tend to be written not based on the future, but on the past. And the bills before us now hark back to the dim, distant past, rather than focusing on a promising future. That’s a mistake!
We’ve experienced some incredible changes in the U.S. economy over the past year—$100 a barrel oil coupled with a historically weak dollar and exploding farm exports. As the second-leading export state for agricultural products, Iowa is a prime beneficiary of the record exports. In 2007, ag exports spiked to $82 billion and are anticipated to increase another 11 percent to $91 billion this year.
We’ve got higher prices for both grains and meats, but a cheaper dollar—and that’s spurring greater sales on the international market. Even more importantly, net cash farm income is estimated to be up more than $18 billion—to $85.7 billion next July.
Any way you look at it, these are good times for many farmers. Unfortunately, the farm bills that Congress has written don’t take these market changes into account.
In fact, the two bills the Conference Committee has before it are based on the production practices of the 1970’s.
Do you want to go back to the days of lime green pintos, mirrored disco balls and polyester leisure suits?
We need a farm bill that is forward leaning—a farm bill that sets us on the right path for the next five years—not one suited for three decades ago. And President Bush is eager to sign a farm bill—but it has to be a good bill.
What’s Wrong with the Current Bills
Right now, what we have are two bills that fall far, far short of ideal. In fact, we believe both the Senate and the House bills are fundamentally flawed.
Neither takes a forward-looking view. Neither provides the kind of reforms we need. Neither responds effectively to what more than 4,000 farmers across the country told us they wanted.
The Administration will NOT support a bill that fails to reform programs, makes a mockery of the budget process and increases taxes.
During November and December, I spoke to between 5 and 7 thousand farmers and ranchers. There’s an underlying concern and nervousness they share about the bills that are before us—particularly increasing taxes to pay for a farm bill. We haven’t done that since 1933—when Henry Wallace was Secretary of Agriculture—and times were desperate.
Historically the farm bill uses offsets to fund new priorities, not taxes on other industries. And with record farm incomes, it doesn’t make sense to do it today.
I’m sure a month ago, many of you were making end-of-year purchase decisions and considering how to manage your tax liability. You may be thinking that a farm bill that puts taxes on others, but brings benefits to farmers, is okay.
But over time, this approach will erode broad support for farm programs. And ultimately we all lose.
Today we have high farm incomes and relatively low debt. If we can’t help agriculture become more market-driven and competitive now, we have to ask if there will ever be a time. For me the answer is clear: Now is the right time to make these changes!
I’m also concerned—and you should be as well—that with virtually every major piece of legislation the Congress sought to enact last year, attempts were made to include new taxes. In every case, the President successfully prevented enactment of those taxes.
We need a farm bill that doesn’t raise new taxes, but goes to the core of what farmers and ranchers want—a bill that strengthens the safety net for farmers and funds priorities without increasing taxes or relying on questionable bookkeeping.
Instead, the Senate bill, for example, would cost $37 billion more than the USDA proposal. Further, that cost is covered through $22 billion in savings gimmicks and $15 billion in tax increases on other industries. In fact, that $22 billion would actually increase a couple billion more, based on the conference report language.
The House bill calls for $7 billion in tax increases and projects $5 billion in savings that are unlikely to materialize.
We need to move away from illusions and gimmicks. We can’t have the true cost of the farm bill hidden by shifting payments forward or pretending that commitments to food stamps or disaster aid will simply disappear in the future.
I’m also very concerned that neither of these bills really improves the safety net for producers. So, we would find ourselves continuing to pay farmers the most when they need it the least.
The real help is needed when crops are lost due to disaster. And the best way to provide the help farmers really need is with a revenue-based counter-cyclical program.
Another problem is that neither bill establishes effective payment limits. It’s time to graduate from farm subsidies those who are among the wealthiest 2 percent of Americans—those whose adjusted gross income—after expenses and depreciation—is $200,000 or more. This provision proposed by the Administration would affect about 38,000 people—few of which I believe are farmers and ranchers—and save $1.5 billion.
In addition, this time of prosperity is NOT the time to raise loan rates for 16 of 27 commodities and target prices for 18 of 22 commodities (none of which are grown in Iowa), as the Senate bill would do. That is trade distorting and will lead to complaints from our WTO trading partners.
We will pay a heavy price in the international arena for this. We’re already under scrutiny for provisions in the current farm bill.
I’m sure each of you appreciates that old saying that pigs get fat, but hogs get slaughtered. Those involved in production agriculture don’t want to find themselves in the position of benefiting today from a farm bill that leads to reduced exports and lower incomes in the future.
Pork producers understand very well the need to follow market signals. And you have done that. Customers demanded loins and hams—and you moved to leaner, more muscular animals. You adjusted production to meet demand—and profited as a result. We need to increase market orientation in the next farm bill, and farmers will profit accordingly.
Livestock Title
Let me touch briefly on a couple of issues in the Livestock Title. We are strongly opposed to prohibitions on packer ownership of livestock because this wouldn’t discourage unfair practices by the packing industry.
Instead, it would
- Hurt producers/consumers by destabilizing livestock markets
- Eliminate valuable risk management tools and marketing opportunities
- Potentially depress market prices
- Drive production to foreign countries
It would make a lot of lawyers rich, while the packers reorganize—or worse yet, move to Canada or Mexico, Argentina or Brazil.
We also strongly oppose efforts to change the Packers & Stockyards Act to prohibit or restrict use of forward contracts for purchasing livestock because this approach
- Would outlaw most marketing tools available to help producer leverage superior products and
- Doesn’t reward farmers and ranchers for producing quality livestock or maintaining a track record of reliability.
Let me shift to another livestock provision: the creation of a Special Counsel for Agricultural Competition. This sets up a Washington, D.C., classic—a solution in search of a problem.
Justice and the Federal Trade Commission are responsible for taking action against anti-competitive activity in U.S. business, and furthermore, GIPSA currently oversees livestock sales to take action when needed. Adding a Special Counsel would simply bill American taxpayers again for work USDA already does every day.
This provision in the farm bill would
- Shift attention away from financial protection investigations and enforcement
- Create an unnecessary new bureaucracy, duplicating functions and weakening the existing enforcement arms in USDA, and
- Undermine GIPSA’s ability to protect the livestock producer’s financial interest.
Don’t be lured by a competition title designed more to appeal to folks in coffee shops than to actually meet your needs.
Biofuels
I want to talk about a couple of other issues also. You know, I was told, whatever you do, when you speak to the pork producers, don’t talk about biofuels.
But, let’s be honest, biofuels are a big part of the picture in agriculture today. And we need to be upfront about their impact on livestock production.
A month ago, President Bush signed a new Energy bill that will require fuel producers to use at least 36 billion gallons of biofuel in 2022—that’s nearly a five-fold increase over current levels. About 15 billion gallons are designated to come from grain-based ethanol.
USDA economists have been studying this issue—and in fact had projected that grain-based ethanol production would be likely to increase to 12 billion gallons by 2016 and biodiesel production would rise to 700,000 gallons.
What does that mean to you? Well, according to our economists, the extra 3 billion gallons of ethanol would result in 2 million more acres planted to corn—92 million instead of the 90 million we were projecting. In addition, corn prices would rise 6.3 percent—that’s 22 cents per bushel from 2007 to 2016 above baseline levels.
Our economists tell us this means that feed and residual use of corn would decline by 5.9 percent—that’s 346 million bushels—on average from 2007 to 2016.
And exports would drop an average of 4.8 percent—that’s 100 million bushels—over the same period. Further, total corn ending stocks would fall by an average of 27 percent—193 million bushels.
For those planting row crops, this would draw some acreage away from competing crops—primarily soybeans, cotton and wheat. But higher prices for minor feed grains would lead to modest increases in plantings for those crops.
How will that affect pork producers? We expect production impacts to be small.
Obviously, since cattle can best use ethanol feed co-products, they fare better even when more corn goes to ethanol. Further, poultry will benefit from lower-priced soybean meal. But hogs and dairy will face higher feed cost increases.
We estimate higher-priced feed will reduce pork production a very small amount—about one-third of 1 percent below baseline levels over the next 10 years. Your higher feed costs will lead to an increase in farm pork prices of about 1.7 percent.
At the same time, I hope we will have a strong energy component in the next farm bill—one that will promote development of cellulosic ethanol and encourage production of biodiesel from waste grease and fat.
We need to draw on these and other sources, such as methane digesters, for renewable fuels to reach energy independence and reduce the strain on the livestock sector.
NAIS
Let me turn now to the National Animal Identification System. NAIS has been—and will continue to be—one of USDA’s top priorities.
I want to make clear that NAIS is not so much something new as it is an updated, modernized and integrated approach to animal identification and tracing. Our ultimate goal is to have data in our hands within 48 hours of an incident.
The first step is to get farmers and ranchers to register their premises. Today, we have more than 442,000 premises registered nationwide out of an estimated 1.4 million.
Nearly 21,000 of those premises are in Iowa—that’s just over 44 percent of the estimated 47,000—plus premises here in the Hawkeye state.
Pork producers are an important part of NAIS. The Pork Board was the first producer organization to sign a cooperative agreement with APHIS to help get producers registered. The Board’s goal is to bring 100 percent of production farmers on board with NAIS.
So far, we estimate that about two-thirds of pork producers nationwide have signed up. Iowa’s about in line with the national number with 68 percent—or 6,059—registered.
If any of you have yet to take that first step—registering your premises—I encourage you to do so right away. Some 2,840 of your pork-producing neighbors still need to sign up, too. Please encourage them to do it.
It’s free, it’s easy. It’s about protecting your herd health. It’s the right thing to do.
I’ve done it—and so should you.
COOL
Let me tell you briefly what’s happening on Country of Origin Labeling. The COOL requirements currently on the books call for implementation of labeling for most commodities on September 30, 2008.
Labeling requirements for fish and shellfish have been in effect since April 2005.
The Administration is on record as being concerned about the burden imposed by COOL, but we are also committed to implementing the requirements in a fair and balanced manner with the least possible cost and the lowest possible burden on everyone in the production chain.
COOL is a major challenge in our effort to maintain positive relationships with our trading partners and avoid possible retaliation from those who might view COOL as protectionist or discriminatory.
Of course, things could change. Both the House and Senate versions of the farm bill include a modification that would label products as domestic, foreign or may be of mixed or multiple origins—and other changes as well.
In any case, we need prompt completion of the farm bill to stay on schedule for COOL. An extension would undermine our efforts.
Conclusion
To wrap things up, I truly believe we’re at a crossroads for American agriculture. We’re in the midst of bumper harvests, record-breaking exports, the highest farm income ever, and the lowest debt-to-asset ratio in 45 years.
What more could you want?
I’d say simply, more of the same. To get that, we need a good, forward-looking farm bill that will continue that prosperity in the years ahead—a bill that reforms our farm programs to promote market orientation and expansion.
We need an effective safety net for farmers. And we need to cut down on the goodies for those who’ve succeeded and, based on their adjusted gross income, rank among the top 2 percent of Americans.
We need to support specialty crops. And we need to bolster conservation, strengthen rural development and expand research on renewable energy.
Getting this farm bill completed won’t be easy, but it will be worth it—for all of us involved in American agriculture.