Remarks by Agriculture Secretary Mike Johanns
August 31, 2006
SECRETARY MIKE JOHANNS: Thank you, Sallie. That's very nice of you to say. I don't even know where to start after that introduction. Well, it's great to be here, and I do appreciate the warm welcome. It's a pleasure for me, it's actually an honor for me to be on the stage with Cal Dooley and Bob Thompson. You will hear from them also, and my thanks to the Cato Institute.
We always have at USDA an Outlook Forum on an annual basis that's right after the first of the year. Last year we had as our keynote for the evening event Cal Dooley, and he spoke about the farm program and he gave such a rousing speech on reform that he kind of, partway through it, he stopped and said, "You know, I have figured out why Mike Johanns invited me here tonight. He wanted to look like a moderate."
[Laughter.]
Well, I've been asked to address the prospects for reform of U.S. agricultural policy with or without Doha, so I'm going to jump right into it.
Let me, if I might, start with the first assumption: first, that a Doha Agreement is successfully reached, that somehow this process, which really is on life support, comes together and we have an agreement. And I'll add another assumption to that, and that is that it's within the parameters of the ambitious proposal that we tabled in October. Remember that this proposal was contingent upon significant gains in market access. With a Doha agreement along these lines, current U.S. farm programs quite simply could not exist as they exist now. Let me be clear about the fact that we'd still be able to support agriculture, but we would provide that support very much in less trade-distorting ways.
Why? Because our proposal calls for a 53 percent reduction in all trade-distorting domestic support in U.S. agriculture. Now bear with me for just a moment, if you would, as I delve a little deeper and drill down on our proposal. It will help to describe what I'm saying here.
The 53 percent reduction covers the aggregate measure of support known as the AMS, the blue box, product-specific de minimus and non product-specific de minimus. The U.S. proposal would have us make very substantial reductions in these categories.
Let me throw out some numbers for you. Our current base spending level would be reduced from the current level of $47.9 billion -- and incidentally we don't spend that much on our farm programs -- but it would be reduced from what we're allowed at $47.9 billion to $22 billion for the support. This breaks out as follows: Our allowable expenditure for the amber box is $19.1 billion, which we propose to cut by 60 percent. That would bring that level of support in that box down to $7.6 billion.
Our current requirements to run certain programs, such as dairy and sugar, perennially consume much of this amber box allowance, not even addressing the other farm programs. But the marketing loan program would fit into the remainder of what's left in the amber box. This then would require us to reconsider how those funds would be spent.
Our base for the blue box is $9.6 billion. We proposed in our October proposal a 50 percent cut. That would bring that down to $4.8 billion. Although we have not used this in the past, blue box is not an item that we've used, we have proposed that the blue box requirements be modified so our programs could utilize it.
For each of the product-specific and nonproduct-specific de minimus categories, our ceiling is $9.6 billion and our proposal would bring each of these to $4.8 billion -- again, a 50 percent reduction.
Our current Farm Bill programs cannot achieve their objectives with these substantial reductions, so these programs would have to be reformed if we reach an agreement that reduces trade-distorting support by 53 percent. This would cause us to rethink how we support agriculture. Viewed another way, we would have the opportunity to shift our resources to green box for example, such as Conservation. There is no current ceiling on the green box today.
I have said repeatedly as I've traveled around the world -- I've been extensively quoted -- I've said before Congress, the House and Senate, that the bold U.S. offer would very clearly require real reform in U.S. farm programs. I repeat that today.
Now we did not step out on a limb when we reignited the WTO negotiations in October with this offer. In fact President Bush himself established a vision for it, but it was carefully and thoroughly vetted with Congress and our producer groups. Let me just mention as an aside: to their credit Congress and farm groups not only authorized us to submit the proposal but they argued for the proposal. They recognize the importance of trade to American agriculture and to the world for that matter. They know that agricultural exports are expected to reach $68 billion this year, and that's equal to about one-quarter of farm cash receipts. It's a significant item for our farmers and ranchers.
Without open markets, the future is clouded for an industry that is so dependent upon trade. Without a Doha agreement, your support for significant reform would be lost. What do I mean by that? Well, although we don't have a final agreement, the Doha negotiations have led to a consensus on a lot of important issues. Before the talks broke up, for example, it was agreed upon that all export subsidies would be eliminated by 2013. This was a significant step, but one that won't be taking place without a final agreement.
It was agreed upon that the wide disparity between trade-distorting domestic support levels in the European Union and in Japan and the United States would be diminished. Again, that's significant when you consider that the EU is authorized to subsidize its farmers at a rate four times higher than the United States.
It was agreed that 39 least-developed countries would be provided significant duty-free, quota-free access to markets around the world. It was also agreed that substantial improvements in market access, tariff reductions in particular, would boost economic activity around the world. Better trade opportunities foster prosperity.
Developing countries are potentially large beneficiaries of an ambitious outcome from Doha. According to a World Bank study, roughly half of the global economic benefits from free trade would be enjoyed by those developing countries. Globally, 93 percent of the gains from agricultural policies would come from reducing trade-distorting import tariffs. A study by the International Institute of Economics estimates that 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.
Economic growth spurred by trade liberalization has tremendous potential for development -- I would suggest far more than our voluntary aid contributions. Two-thirds of the WTO member countries are developing countries; 32 are considered least-developed, and truly the poorest of the poor. In those countries, over 70 percent of the poor live in rural areas, and it's agriculture that is the employer.
They are the heart of the Doha Round. There is no question that progress achieved during several years of negotiations will have been in vain if other countries do not step up with ambition. Yes, without an agreement opportunities would be lost. But I will tell you, opportunity to reform U.S. farm policy would not be one of the opportunities lost. It would not.
The opportunity is as real without a Doha Agreement, I would suggest to you, as it is with an agreement. The 2002 Farm Bill expires next year regardless of what happens with these trade negotiations. If there is no Doha Agreement, I pose this question: Can a strong case be made for reform of U.S. farm policy?
Now, some say 'No'. We held more than 50 Farm Bill listening sessions across the country, and I will be very direct about the fact that some farmers encouraged us to simply reauthorize the 2002 Farm Bill and call it good. I heard that at Lubbock, Texas, for example, really no dissension there. They want the Farm Bill reauthorized.
Allow me to share with you a few quotes directly from farmers, however, who stepped up to the microphone and called for action. A gentleman by the name of Rusty from Georgia said, "We need to trade-proof our programs." That means expanding the kind of support allowed by WTO rules. From a gentleman called Joe in Illinois we heard, "We'd like to see a level playing field if at all possible." And from a gentleman by the name of Mike in Rhode Island, he said, "We need equitable distribution of federal funds to the areas that do not grow program crops."
So why are some saying, "Keep the status quo," while others believe so strongly that farm policy reform is truly in order? The answer can be found when we examine the effects of current farm policy, and I ask you to stick with me on this. These are very important numbers.
I want to peel back the layers of the complexities of farm programs and talk candidly about who gets what. Remember that old TV program, "Dragnet," I think it was, where the officer would say, "Just the facts, ma'am, just the facts." Well, I'm going to lay out the facts.
In the U.S., five crops account for 21 percent of our cash receipts in agriculture. Those five crops receive 93 percent of our subsidy payments. Meanwhile our specialty crop farmers which are now equal in value to the program crops -- let me repeat that our specialty crops are equal in value to our program crops -- receive virtually nothing from the subsidy program.
Ladies and gentlemen, these aren't insignificant amounts of money. We're talking about annual allocations of billions of dollars. And 60 percent of all farmers are all but left out of the farm program support because they don't raise a program crop. So we have one group that gets the lion's share of subsidies and another group equal in production value that receives virtually nothing.
You begin to understand why farmers spoke passionately about inequities in the current system. What I find especially interesting is that specialty crop farmers are not coming to me and saying they want to be treated just like a program crop. They are arguing instead that they would like us to do anything we can to address their needs by supporting research, addressing sanitary and phytosanitary issues, boosting market promotion dollars -- in short, making investments that help them succeed in the marketplace.
Apart from the inequities between the program and non-program crops, there's a wide disparity in the payments within the five program crops. I'll illustrate this point using an average of the 2002 to 2005 crop years. The subsidies, the cash payments were distributed like this. Soybeans received about 6 percent; rice, 8 percent; wheat, 10 percent; 23 percent for cotton; 46 percent for corn.
Here's another interesting statistic. Commercial farms accounted for about 17 percent of the farms receiving government payments in 2004. So some might say, well then they received 17 percent of the total payments? No. Actually commercial farms received 56 percent of total payments. And these are very, very sophisticated businesslike operations.
We must also consider the vulnerability of our programs to WTO challenges. Just yesterday you might have read in the news -- they certainly caught my attention -- about the declaration by Brazilian leaders that they are coming after our marketing loan program and our countercyclical payments programs that are common to all of these five crops. Make no mistake about it, ladies and gentlemen, Brazil is not alone in threatening to challenge our programs. We lost the Step 2 Cotton Case in the WTO, despite aggressively defending it. Uruguay has expressed concern about our rice program, and the C4 countries in Africa continue to raise concerns about the cotton program.
Without question, the U.S. will assign our best legal teams to defend our programs, but we have to recognize the vulnerabilities. As I've said many times, a true safety net for our producers is more than subsidies, but farm policy needs to be equitable, it needs to be predictable, and it needs to be beyond challenge.
Whether or not we achieve the ambition of the Doha Development Agreement, we have a great opportunity in front of us. But decision time is fast approaching. I really believe we have a couple of options.
The first would be to allow the future to be driven by WTO litigation that dismantles programs piece by piece.
The second option is to grab hold of these issues and craft farm policy in such a way that it leads us to the future with vision and foresight. It comes down to a choice between being the authors of future farm policy, or being in the audience as WTO challenges pull the safety net out from underneath our producers.
I believe this important decision must involve the very people that are directly impacted by farm policy: our farmers and ranchers. So we did our listening sessions. We also asked for our economist, Dr. Keith Collins, to put out analysis papers. And so our economists at USDA have been very dutifully doing that over the past months. Please go on-line; they are great papers filled with a lot of information. I encourage anyone who is interested in U.S. farm policy, its impact on producers, whatever, to go on-line and look at the papers.
Let me wrap up with just a few closing thoughts. At the risk of irritating some people in this room who might not support farm programs, let me tell you: I do. I have always argued, I will do so forever, that federal investment in agriculture is wise, it's worthwhile policy. But how we do it is enormously important. It should be done in a way that's pro-trade, pro-growth, and fiscally responsible. That's what's expected of us by our farmers and ranchers and our taxpayers.
I stand ready to take on the challenge of helping to craft those policies. But I also challenge you to engage in the discussion. I believe we owe it to our farmers and ranchers to do more than just rubber-stamp policies of the past. We owe it to them to thoughtfully consider how U.S. farm policy can help to set the future course of America's first industry.
Thank you very much.
[Applause.]
MODERATOR: The Secretary has agreed generously to take a few questions today before he must leave. But in the interest of time I must ask that you get right to the point of your question. State your name and affiliation first, please.
QUESTION: Gary Blumenthal, (unclear), Mr. Secretary. In 2002 the administration would say, or some in the administration would say, that their ability to influence the Farm Bill was undercut by a desire of one: to pass TPA and, two: to do well in the midterm elections that year.
Now in 2007 we may be trying to extend TPA again and there may not be as many in the Congress next year that will be willing to back the President.
So the question is: going into 2007, if we're looking at those trying to extend the Farm Bill would you recommend to the President a veto of a simple extension?
SEC. JOHANNS: Gary, it's a great question. I won't share that with you today. We haven't even put our proposals up. We intend to be very actively engaged in this Farm Bill debate. As you know I've been working on it, maybe not from the day I arrived but soon after. We announced our listening sessions that late winter, early spring, and we've been all over the country.
So I continue to be very, very focused on getting good farm policy in place, the kind that does provide a true safety net that we can protect from WTO challenge.
But we are so far away from that kind of consideration that to me to be honest with you it would be unnecessarily confrontational to suggest one way or another.
I have worked very, very well on both sides of the aisle in the House and the Senate, and that's my intention. Farm policy is much more than lining up D's and R's. Some of my big supporters out there have been Democrats who believe in some of the things that we have done in conservation in our green box programs. And the nice thing about it, I'm fairly new to this, I'm new to Washington. You know, a lot of experience at the state level, so I don't carry any baggage into this. I just want to do the right thing for U.S. farmers and ranchers.
Yes?
QUESTION: Ian Silonson (sp) with Inside U.S. Trade. Secretary Johanns, some people on the Hill have expressed the sentiment that it wouldn't be helpful for the administration to put forward a formal proposal for a Farm Bill or formal legislation. Do you still plan to do that? And if so, what do you think the timeline is for that?
SEC. JOHANNS: We haven't made a decision about whether it would be a stand-alone piece of legislation or an outline of our proposals, whether we do it title by title. But we definitely intend to put proposals out. That has always been our intent and to those who maybe are not as excited about that, we will very definitely work with them and argue the merits of our proposals.
Timeline, we don't even have our last paper out. That's going to come out here in the next few weeks. I think the quickest we would get proposals, timelines, would be in the timeframe of after the first of the year, sometime in the January timeframe.
Yes, sir?
QUESTION: Martin Hutchinson, The Bears Lair. The 1996 Freedom to Farm Act seemed to those of us who want that form of subsidies to provide a useful way forward to gradually reduce the farm subsidies, or perhaps some of the more egregious one. We then moved away from that in 2002. Is there any hope of us non-lovers of farm subsidies of going back towards the 1996 legislation?
SEC. JOHANNS: You know, I was running for governor at that point in time, and it wasn't 2002 where we started to move away from it. It actually was a couple of years prior to that when decisions were made to double-AMTA payments. And I think the largest infusion of cash in agriculture, I think in the vicinity of $30 billion, actually occurred in the year 2000 if I'm not mistaken. That might have been the record. I've not checked that but it certainly was a very large amount of money that was put in that year.
In terms of where we would move, I guess I would offer this. I hate to say this is going to be the base upon which our proposals will be made. The base upon which we will create our proposals is what we heard from farmers and ranchers across the country. What I heard is this: We heard strong support for our conservation programs. You know, a little bit of debate here and there, but not very much. Very strong support.
Rural Development was unanimous. In the over 20 forums I did, I did not have a single criticism of what we're doing in Rural Development. If anything, people would like to see us do some more.
The subsidy programs really get a lot of debate, and I appreciate that. You could certainly go to parts of the country and set up a listening session and Lubbock, Texas, was a perfect example. Let me summarize the testimony there: "Don't change a dotted I, don't change a crossed T, just reenact this Farm Bill and we're good." That was really what they were saying. People said that and they packed the auditorium. In fact, that was one of the few forums where I don't think we were able to get through everybody. But I got the gist of what they were saying.
[Laughter.]
They just want us to do that Farm Bill again.
Let me offer something that I said yesterday when I was in Iowa, and I was talking to a group at the Farm Progress Show, a group of farmers. I really, I appreciate the jurisdictions of committees here and who handles what and this and that. But I will tell you: good farm policy is so much more than a Farm Bill.
What do I mean by that? Good farm policy, in my judgment, is a Farm Bill that you pass every four or five years. Good farm policy is good energy policy these days. And 16 percent of our corn crop is being processed into ethanol, and that's likely to rise to 20 percent next year. Soy diesel processed from soybeans, biomass. So it's good energy policy.
I said to them, it's also good tax policy. It is tax policy that says, Look, we the government believe strongly that the more money we can keep in your hands working in that town and community in rural America is the best policy. You see, I fundamentally believe that a very key important issue here, let's repeal the estate tax. As we have seen land values go up and up and up, you become more and more concerned about families being affected by that.
And so good foreign policy is a whole list of policy choices that are made. Part of it is the Farm Bill but part of it is the rest of what you do with the economy. So less taxes, pro-growth, good farm policy, and all of a sudden you start to see some things happen that are very positive.
So instead of picking a Farm Bill and saying, I like this Farm Bill here and this and that, what I would suggest is: let's look at the policy but try to adopt those approaches that really are good for America but good for agriculture. And I think we can end up with a great farm policy.
Yes.
QUESTION: (unclear), until recently at the State Department.
I'd like to ask you about (unclear). Whenever we do a trade agreement there are three substances which are quite legal but the (unclear). And I want to (unclear) looking at potential transition of government in the country that caused that (unclear) the Sugar Program. (unclear) look ahead to what we do with sugar, the market that may be substantially transformed.
SEC. JOHANNS: We have given testimony on the Hill relative to the Sugar Program. In fact sitting in the front row here is our Under Secretary that works this area, a gentleman by the name of J.B. Penn. And I might add for those of you who know J.B., this is J.B.'s last day at the USDA. So. But he has worked the Sugar Program. And so what I'm going to share with you is not necessarily new or revealing especially, but again it is just the facts.
You know we have the NAFTA agreement out there, and in 2008 basically we have an open border with Mexico. Sugar included. We have been, according to the terms of that agreement, dropping those tariffs systematically through the years. Testimony of Under Secretary Penn to the Hill, the Senate, which I agree with basically, said we cannot continue to operate the current Sugar Program with all of the things that are happening out there, whether it's NAFTA or whatever.
There are too many things tugging and pulling at the policy there, and so we're going to have to think about how we deal with the Sugar Program.
I would just suggest to you what we suggested on the Hill, and that is: For us to adopt a position today or in our proposals that says "nothing changes," won't serve our sugar producers very well at all. It will sell them short. We have to think about where we're headed with sugar.
Today we have a farm policy that is very protective towards sugar. You know that, I know that. We have 100 percent tariff on sugar. It is very, very much a protected industry.
The other thing I will share with you is this: Policies adopted like that have a cost, you know? There truly is no free lunch. What do I mean by that? Well, sometimes the cost is to the federal government. We pay a subsidy, we do whatever. Sometimes the cost is to the consumers in the United States. One way or another that cost will work its way through our economic system, whether it's the consumers paying it because they have a higher price for a human commodity or not, in the end it's going to come out of somebody's pocket. It's either consumer in the forms of a higher price, or it's going to be the taxes that are necessary to support the program.
But we're already on record saying that program is going to have to change. We don't see how it can continue in its current form in the upcoming Farm Bill. It just doesn't seem from a policy standpoint that it will work.
With that, I think I'd better wrap up here. You have others who -- I wish I could stay and hear your comments. So, especially Cal. Next time I'm going to insist, Cal, that you go first so I look like a moderate.
All right. Thank you, everyone.
[Applause.]