Lugar Speech at American Enterprise Institute

Senator Lugar gave the following speech on July 2, 2008, at a conference at the American Enterprise Institute:

SEN. RICHARD G. LUGAR:  Chris, I'm honored to be with so many distinguished guests you have brought together today for this very important topic. And I would say as a point of full disclosure that I come from a farm family.  My grandfather, Riley Webster Lugar, farmed in Morgan and Marion Counties of Indiana.

My dad purchased land in 1932, in the depths of Depression, probably with help from his father, and this was the farm that I used to work on throughout the summers, sometimes pulling corn out of the soybeans -- so-called volunteer corn, so the combine would not stick, and likewise investing in hogs that produced pigs.  And this was to help produce money for our college education.

I mention all of this because my dad at that time discussed some of the subjects that we will touch upon today.  He was an opponent of the New Deal and a vigorous opponent to Franklin Roosevelt's agricultural policies, which he characterized as plowing under crops and burning up little pigs, in essence.

The purpose of all of that exercise, however dastardly it now sounds, was the thought that somehow farmers would continually, if they were not restrained, produce too much.  Therefore, given supply and demand, the prices would go down and that the way that you remedied this was by limiting the amount of food that could be produced by productive farmers.

This seems totally foreign to our objectives today -- so be it -- but agricultural policies that Chris DeMuth might have outlined that preceded well beyond his lifetime and mine were designed in that way, until the so-called Freedom to Farm Act in the late 1990s.

And this produced, really, on our farm, as well as on others, the ability to produce as much corn or soybeans, for example, as we wanted to, without penalties that were extracted in the farm legislation, the supply control business that lasted that long.

So as we criticize others around the world, it is well to think through some of our own policies, some of them still persisting.  If there is food inflation in our country, we have produced a part of it, even in the current farm bill, perpetuating certain subsidies and programs which are hardly designed to bring about lower prices and costs for the American people.

But with that preface of all of my prejudices, let me begin by just simply saying that the Food and Agricultural Organization estimates now that people in nearly 40 countries are facing food shortages that require international intervention, and more than a dozen countries have experienced food-related riots to date, and many more are anticipating them.

Many more countries are suffering from chronic food insecurity, and that is a year in and year out.  These countries have both food availability and access problems.

In 15 countries, 35 percent or more of the population is considered undernourished by the FAO.  Another 23 countries have undernourished populations between 20 percent and 34 percent of their total populations.  The undernourished comprise about 850 million people globally, 170 million of which are children.

The current food crisis was produced by a complex web of factors, clearly, increased demand for food from the growing populations in emerging economies that are doing much better; soaring energy prices that drive up costs all along the farm-to-market chain, whether it be fertilizer or transportation of the crops or the farm machinery; and increased demand for biofuels.

Droughts in some key food-exporting areas have contributed to the problem, cutoffs in grain exports by major suppliers, market-distorting subsidies, a tumbling U.S. dollar, and a profound misunderstanding, in my judgment, of the importance of genetically modified seeds and fertilizer.  This we will touch upon some more in the course of our conversation today, but it makes a huge difference, clearly in Africa and in some other parts of the world.

A comprehensive approach to all of this needs to address, at least, I think, the five following questions.

First, how does the international community improve its ability to anticipate and to respond in a coordinated and timely way to future emerging food supply problems?

Secondly, how do we achieve open trade in support of food security, when the United States and Europe, for example, insist on maintaining farm subsidies and when developing countries are resistant to dropping trade barriers in addition?

And, third, how do we achieve greater farm productivity through improved farming methods and the use of drought- and disease-resistant seed, when agricultural assistance worldwide has declined and some parts of the world have an irrational aversion to genetically modified seed and crops?

And, fourth, how do we decouple energy and agriculture issues so that both sectors can benefit from scientific advances and the debate progresses from one of fuel versus food to fuel and food security, or both?

And, fifth, how do we make investments in human capital so that information is disseminated, technology is improved, and incomes are raised?

With these questions in mind, I have offered, as perhaps some of you have, a set of initial recommendations to President Bush prior to the G-8 summit, which will be happening in a few days.

First of all, improve the international response to crises.  Both the World Bank and the Food and Agricultural Organization recognized that the global supply of food was tightening at least as early as two years ago.  This was a situation vulnerable to subsequent spikes in energy prices and weather-related crop disruptions.  A number of steps should be considered to improve the ability of national governments to anticipate and avert crises.

Secondly, reconstitute the food aid convention.  While the FAC has been the framework for coordinating food aid and food aid commitments, it should be strengthened to oversee and manage effective communication between existing early-warning systems and the international community, and to do advanced planning when there are indications a crisis is looming.

A renewed convention should include an agreement among states to take preventive steps, such as designing a menu of responses linked to the severity of indicators, such as the global food price index.

Create a system of regionally placed supplies of food stocks.  Such food reserves could be managed by the FAC using as its model the international coordination of strategic petroleum stocks at the International Energy Agency, for an example.

Such a system would need member nations to agree to its use in times of shortages to avert crises rather than distort market pricing and to commit to maintain adequate supplies.

Commit to invest in rural development and agricultural productivity.  Eighty percent of the world's malnourished live in rural areas, about half of which are small landholders.  Recent U.N. studies have confirmed that funds spent on agriculture are more beneficial than spending in other sectors, yet official development assistance has fallen precipitously since the green revolution, currently representing now just 4 percent of all donor assistance.

G-8 nations should commit to re-invest in agriculture and urge nations suffering from chronic food insecurity to do the same.

Increase official development assistance for agricultural production and rural development.  G-8 nations should commit to double such assistance in 2009 and to steadily increase assistance on a sustained basis.

Assistance should be comprehensively designed to encompass increasing farm yield, the dispersion of appropriate technology, the availability of credit, the development of rural enterprises and infrastructure, and access to markets.  G-8 nations should strongly encourage all traditional donors to increase rural funding, as well as other wealthy nations who depend on food imports.

Increase funding for research and technology.  The G-8 should endorse the work of the Consultative Group on International Agricultural Research and other research institutions, such as the International Fund for Agricultural Development.  Developing a more advanced and locally appropriate farming technology is essential to increasing farm yield.

Establish a global network of land-grant colleges.  G-8 nations should commit to making investments in human capital in the areas of agricultural education and extension services.  A global network of agricultural schools similar to the United States land-grant college system would help advance scientific research, educate a new class of agricultural scientists, faculty, and entrepreneurs, and provide extension services to small farmers.

Facilitate a trade system that is efficient, fair and transparent.  The current food crisis should serve notice that globalization requires clear and fair rules so that all nations may compete effectively in the marketplace.  The G-8 summit should unequivocally endorse a trading system from which developing nations believe they will benefit.  Fair trade facilities, global price signals, and the rest will follow.

Encourage a conclusion of the Doha Development Round.  Concluding the stalled Doha Round from which developing countries were to benefit would restore a stabilizing confidence to agricultural commerce and development issues.  A commitment to phasing out subsidies and other trade barriers is essential to spurring the progress of negotiations.

Advocate increased research on genetically modified seeds appropriate to local needs.  An irrational opposition to G.M. crops and to food among many European nations is literally starving people in Africa and other parts of the world.

G.M. seeds have been demonstrated to dramatically increase yields and hold great promise to reduce poverty.  Yet some nations with chronic food insecurity have turned away emergency food assistance because it might contain G.M. foodstuffs.  Others have refused to cultivate G.M. crops for fear of not being able to export to Europe.

The G-8 summit must address the myriad of regulations and labeling requirements on G.M. crops and food and let the consumers and the international marketplace decide the issue.

Endorse greater transparency and information-sharing in the futures markets.  The recent memorandum of understanding between the Commodity Futures Trading Commission and the British counterpart, the Financial Service Authority, regarding oil contracts is a good example of mutually beneficial cooperation.

Endorse policies that stabilize energy markets and promote alternative fuel sources.  The link between oil prices and global food inflation is clear:  Rising energy prices affect food prices all along the food-to-market chain.

Mediating the effect of energy on food will require aggressive energy policies to boost alternative supplies and increase efficiency. In the near term, major progress can be made in accelerating advanced biofuel derived from agriculture, forest, and municipal waste, and especially energy crops like jatropha and switchgrass.  Energy security and food security need not be a zero-sum game. Finally, encourage the opening of global energy markets.  

World trade in energy is rapidly increasing, and many players are straying from market-oriented free trade and investment policies.  There are striking examples in oil and natural gas where increased political interference puts upward pressure on price and could eventually cause shortages in countries least able to cope.

The intelligence agencies of our country, I would say parenthetically, have estimated 90 percent, as a matter of fact, of the control of oil and national gas prices are controlled not by markets, but by governments.  And it's a very, very large political influence.

To demonstrate leadership, the United States should lift its tariff on Brazilian ethanol that now shelters the United States industry.  G-8 nations should encourage greater investment in research and large-scale commercial deployment of the next generation of biofuels made from non-feed stocks.

We should commit to increase assistance for renewable energy.

The G-8 and other nations should commit to increases official development assistance and deployment of renewable energy alternatives, especially in Africa.

Renewable power can help to electrify rural areas, reduce the effects of high energy costs on agriculture, and diversify markets through domestic energy industries.

The economic impact of high oil prices is far more burdensome in developing countries than in the developed world.  And, generally, developing countries are far more dependent on imported oil, their industries are more energy intensive, and they use energy less effectively.

Climate change threatens to further disrupt agricultural productivity.  Encouraging the deployment of commercially available clean energy technologies to developing countries will improve the environment, promote sustainability in farm yields, and advance economic growth.

Now, let me offer these additional suggestions just anecdotally. Each one of you, I suspect, are regular file-clipping types who find good ideas, put them aside for opportunities to share them.

Let me just say that, for sake of reference at this conference, the New York Times of June 30, 2008, had a chart and a map in which it points out that many countries inexplicably, given the difficulties we're talking about here, make a very large effort to stop imports from coming into their countries in the same way that many more, as we've already suggested, are taking steps to make sure that nothing escapes, that all of the last bit of rice or wheat is kept within the country.

Now, this leads many economists to point out that the world trade system when it comes to agriculture is the most bollixed up of all situations, namely, if there are emergencies in which there could be flows, the stoppers are apparent.

Without singling out anymore countries for censure -- I've already mentioned the United States and Europe and the subsidies that we have, and currently that has been a major failing of the Doha Round to date, not the only one, but one that negotiators point out again and again, has just been very difficult to get beyond.

But looking at the other side, India, as a growing, prosperous country, makes life difficult because it negotiates frequently in these rounds that the United States and Europe should drop all of their situations, but India should retain the ability to protect Indian farmers.  And so it goes.

India is not unique in this respect, but we're not going to be able to have it all ways.  And the ability to discuss this very frankly in the midst of a world food crisis is probably important and timely.  We will have to have opportunities.

I was delighted and surprised with the visit of the premier of Vietnam recently, who came to the White House and then visited with a few senators the next day.  And he made the point that, whereas the other countries surrounding Vietnam have stopped any export of rice or any flow coming out of their countries, Vietnam has had a banner year of rice production.

It is exporting rice to all of its neighbors, albeit at a price roughly twice what it would have been at the beginning of the year, supply and demand working out there likewise.

But the thought -- and I've seen other figures which many of you have seen, that consumption of rice on a per-capita basis is highest in Vietnam, second to Indonesia, for example.

I mention this because, as we examine the whole prospect, sometimes we wave our arms around the world and think of generalities of how to solve problems.  But I've come to conclusion, with these individual visits country by country, that each has a significantly different set of situations.

The problem is getting an information collection situation so that we have early-warning signals, even good data on what is happening, even if it's bad news, that there's transparency of what's occurring here.

Secondly, I just simply am tremendously impressed -- and each one of the following speakers probably have written books that I should recommend -- but this one, written by Robert Paarlberg, who will be on the program today I understand, is called "Starved for Science:  How Biotechnology is Being Kept Out Of Africa."  It's new, and it's terrific.

Bob Paarlberg -- I have some prejudice -- he grew up on an Indiana farm and had distinguished family in agriculture, as a matter of fact.  He is now at Harvard, but that has not disturbed his thoughts about the agricultural setting.

And I would just say that he has written specifically about Africa in a number of articles which I think are tremendously important.  I just stress the need for transparency for the flow of world trade and all this, but he points out, in parts of Asia, where there are 400 million people hungry, according to his figures, grain prices, whatever they are around the world, are not a significant factor, because only 4 percent of the food that gets to those areas is in world trade to begin with.  It's either there on the farm and in the area or is not.

Likewise in sub-Saharan Africa, often a focus for our attention, only about 16 percent of the food that is a part of that general composite is imported.  And most of that is consumed by the wealthier cities, not the people who are living on farms.

As Paarlberg describes, a typical farm in sub-Saharan Africa, it's a situation maybe of one or two acres.  It is farmed by a woman. If there is a man in the family, he is off doing something that makes a living for the family, essentially, as opposed to what's occurring on that particular farm.

That farm has no nitrogen fertilizers, no irrigation, no veterinary medicine, if there is an animal or two around, no improved seeds.  Amazingly enough, it does not do particularly well, and income for this lady who is farming -- and these are 60 percent of the farms that are involved in this -- is about $1 a day.

Now, this is a situation, folks, that there will have to be significant breakthroughs.  The world trade situation doesn't really touch it.  You come down to the organizational political factors within specific countries, as well as, unfortunately, some influences.

Once again, there were many conferences of this variety, but one that is often cited is a 2002 conference in which the president of Zambia came to Great Britain, and he also visited with other European countries.

Now, the question he was asking them and sort of friends of the family is, should he allow emergency grain from the United States -- which was to be donated to Zambia, as they were having a terrible crisis of starvation -- should he allow this food to come in if it had come from genetically modified seeds.

The answer given by the Europeans is, "Of course not."  After going through all of the instances in which people could be  poisoned, they also made the economic point that organic food or food without all these American influences and so forth was what the European market wanted, that Europeans had come to a conclusion that genetically modified food was a bad idea and, therefore, the imports ought to come from the organic principles and certainly something that did not have these influences.

As a result, the president of Zambia did not accept the food, and the people starved.  Now, it is just that stark, and this is why, folks, we've sort of got to get beyond that.

Now, in fairness, in European circles even as I speak, there are persons suggesting regulations that they feel would not lead to changes in parliamentary language or in various regulations the countries have adopted.  And I will not try to get into the weeds, but they're suggesting, as opposed to a zero tolerance of genetically modified food, there might be a 0.1 percent tolerance, which, in fact, would cover about all the instances of complaints that have occurred in Europe.

The United States is calling for a 5 percent situation that shows, I suppose, the variation in negotiating positions.  But the fact that things may have moved from zero to 0.1 percent is real progress.

Now, as Paarlberg and others have pointed out, in Africa, many African farmers have never heard of the dispute to begin with, are not aware the president of Zambia ever consulted with Europeans, so that, as a matter of fact, in terms of our diplomacy, we ought to play the ball where it lies, and there will be people, as a matter of fact, who are receptive to these changes.

Now, I want to mention something else that's occurring in another part of the world, and that is Ukraine.  As many articles are fond of pointing out, Ukraine has agricultural production now roughly half of what it had at the end of the Stalinist era.

And this is too bad, because Ukraine was often known as the breadbasket of Europe or other very, very fine names attached to the productive lands that were there.  The soils are terrific.  But the breakdown in terms of all of the institutional aspects and one of the basic ones is, how will the land be owned?  Or will it be owned?

Now, there are several companies, large agricultural companies throughout the world, European, as well as the United States, who have made recent investments in Ukraine.  Covering hundreds of thousands of acres, this land is being leased currently.

And even though the fate of this situation is uncertain, the thought is that probably the parliament of Ukraine in due course will move toward land ownership regulations, and these companies want to be the first in line for consideration of this.

It's a problem that's faced not by just Ukraine, but Ukraine, some agronomists believe, could supply roughly one-seventh of all the food on Earth.  The possibilities are that great, and this is why the depletion of those resources is so severe, if you're looking at a world food crisis problem.

Likewise, the geographic location of Ukraine, with regard to Europe, the Middle East, and so forth, is much more ideal for exporting, as would clearly be the case.

The questions -- I will come back again and again, however, as the Soviets solved with a certain degree of collectivization, to say the least, put together pretty large parcels so that even agricultural means of the time might farm them.

And that comes back to problems in situations that are less promising in Ukraine:  How do you aggregate properties so that combines, and the planters, harvesting equipment, and so forth that we have can be used?

Or to take a case that I raised with a group of Indian leaders not long ago, a group of six people, including the president of the largest bank of India and some of their largest combines, came not to talk about agriculture, but I tried to draw their attention to that in a small conference.

And they pointed out -- and they had pretty good data – 30 percent, they claimed, of the food in India never reaches the mouth of a human being.  It is lost in the fields, lost in the process, spoiled.  That's a big figure for all of a country the size of India.

So I go, "Well, what's the problem?"  Well, the problem, they said, you should well know is getting it to market, getting it to anybody.  It is physically moving it.

As in the case of the African lady who is on her land, if she ever had got fertilizer, which she doesn't have, but if she had maybe 5 or 10 acres, she would be carrying the sack of fertilizer on her back.  The fact are there are no vehicles to move any of this.

So I said, what's your solution?  A creative solution by one of the Indian industrialists was, "Get Wal-Mart in here."  I said, "What would they have to do with it?"  And they said, "Well, they're already setting up stores all over the world, and they sort of know how to get the product to their stores."

First of all, they know what they want.  They know the specifics. Wal-Mart can very well define what kind of seeds, what kind of procedures.  It could bring about education of people who could get the job done.  It might even begin providing some roads and mode of transportation to move the stuff to get it to their stores so that it gets to human beings at a reasonably decent price.

Well, it was a fascinating suggestion coming from an Indian magnate, but it is emblematic of the difficulty, and it is one, of transportation and movements.

For a long time, as an American farmer, I watched the prices in Argentina and Brazil very closely, and still do.  But one reason that I was never all that worried was that the great production of those countries could not get to the ports and, therefore, out of the ports and into world commerce.  So in terms of affecting the United States' price, it was going to be de minimis.

A question, however, now in Argentina, as you've all observed, is not the price this year, but this fact that soybean farmers can't get it out at all or if they are at a strike, with the Argentine government demanding more and more export fees to let them get it out of the country.

And that happens again and again in other countries in a less dramatic way, in which, essentially, governments have a difficult balancing act.  If you are one of the tens of governments I suggested that are on the threshold of food riots, very frequently you've already been subsidizing food for people who are very poor, thus hoping that they will not go into the streets and demand that your government be dissolved or overthrown, as the case may be.

But the problem of this is that you then often have a policy of paying the farmer the less price that you can get by with because you're already subsidizing the consumer for political purposes to keep your whole situation alive.  And as a part of that, therefore, you do not want to give the farmer an incentive to export.  You want to make sure that it all is kept close.

It's, in other words, folks, a political problem quite apart from an economic problem.  And even though I've suggested for the G-8, that they think through much greater changes in emphasis, in terms of agricultural expenditures, the fact will remain among skeptics that they will say, "Well, what about Mugabe?  What was he doing at the World Food Conference, deliberately starving portions of the people that are not politically acceptable?"

This is that kind of a world, in which we have to deal with the politics of this situation quite apart from supply and demand and breakthroughs.

At the end of the day, I have a happy note, although somewhat (inaudible) commercially unacceptable. Monsanto was at the food conference.  And Monsanto people happily announced that they're going to produce seeds and other procedures and that will double or triple the yields of crops that we produce in the United States and are produced elsewhere by 2030.

I make the point not to say that Monsanto will meet that goal or not, although I suspect they have a pretty good shot at doing so.  My own experience in life has been that my dad, who was complaining about supply controls in the 1930s, was producing about 40 to 50 bushels to the acre, from all the records that I can find on the Lugar farm of corn each year, 40 or 50 bushels.

Now, sometimes we do not have banner years, and central Indiana is perhaps not the most productive, but we routinely get 150 to 160 bushels right now.  That's three times, maybe more, just in my lifetime.

Monsanto is suggesting that this might even be truncated for me and for others who want to buy their seed or that of others who are competitors to replicate that process almost in a generation with my sons and grandchildren, in America, or in Europe, or Africa, or Asia, or what have you.

If the situation is set up right, we have the educational facilities, the transportation, the machinery, the gear, and a world system that at least prices the situation so that economically you make the best out of it.

And this is why -- in answer to the question about Malthus, the question that is raised today by AEI -- I would say that Malthus was clearly wrong, in terms of being inevitable that the world would starve.  I think many predict the population in the world by 2015 is supposed to go from 6 trillion-plus to 8 or thereabouts, and so we'll need to produce more.

But, in fact, we do have the intellectual ability, I believe, scientific ability to produce a whole lot more.  And the question will be:  Do we have the political skills to manage at least a world that is maybe more cognizant of transparent data, but still (inaudible) political factors of control?

So on that optimistic note, I rest my case and would like to respond to questions, if there is time to do so.

(APPLAUSE)

MODERATOR:  I think we maybe have time for perhaps one question from the audience, because we have a very full day, but the senator has graciously agreed.

QUESTION:  I'm president of Asia America Initiative.  And we're working in the field in Southeast Asia in agriculture, in aquaculture areas.  In areas like southern Philippines, where there is the potential of turning very, very substantial areas of right now land that's only at 15 percent capacity into making up for the shortages that are going to happen in Burma, in China following the natural disasters, the problems, as you said, are transport.

There's problems of politics, in making sure that people who might not be in the political mainstream are able to get the seed, the fertilizer, at the prices they need.  Its problems of the banks being able to get loans to the farmers so they don't go broke borrowing from middlemen.

What can be done, when you have large groups of cooperative farmers that want to get to work, that cannot get the right kind of political and financial support?  Who do they go to?  After this World Food Conference, it doesn't seem there's been any real answers or any real systematic process.

Senator, what do you see as a solution?

LUGAR:  Well, there is no solution precisely if their governments are authoritarian and they're really prevented from seeing the outside world.  But let's say those situations are not quite that extreme. I'm heartened by the fact that Kofi Annan has now joined a group that's being sponsored by Bill and Melinda Gates Foundation, by the Rockefeller Foundation, as I understand, that are busy on the ground in Africa.  They're talking to people.

I attended a luncheon not long ago that the United Nations Foundation put together, which Kofi Annan attended, but likewise Bob Zoellick, who you will hear from later on today, was there.

Bob Zoellick has turned around all together the policy of the World Bank, which had gone down from 30 percent of its loans in 1970 for agriculture down to 8 percent.  And Bob is back in a big way, because he sees the crisis, and he's persuaded other nations sitting around that table of the World Bank.

So I'm encouraged, at least, that communication is occurring, some of it through the private sector, through the foundations, of generous Americans and maybe others in the world.  But, likewise, the basic institutions, the World Bank taking an interest again.  And I hope that will spur others to do that.

Now, whether those folks will be able to make contact in the field -- this is the question of the infrastructure of agriculture -- can the extension services in our country go out in the same way that we've seen doctors go out from our hospitals and treat HIV-AIDS in many countries?

And I think the answer has to be yes, that that there still is, thank goodness, enough transportation of people and ideas in the world that these humanitarian people from many institutions, our educational people, as well as our financial people, are able to get in touch.

MODERATOR:  Well, thank you very much, Senator.