National Forum on U.S. Agricultural Policy and the 2007 Farm Bill

Remarks by the Honorable Mike Johanns, Secretary,
U.S. Department of Agriculture
Stanford-AFT-Yale Forum on U.S. Agricultural Policy and the 2007 Farm Bill
Washington, D.C.
September 26, 2006

Ambassador Yeutter, thank you very, very much for that introduction.

The Ambassador is a personal friend, a mentor and among our nation’s truly great advocates for American agriculture on the global stage.

Now I’m not deliberately trying to walk in his footsteps … because that would be impossible … but we run on some parallel tracks … lawyers, Ag Secretary.

Perhaps most important … he’s a fellow Nebraskan … in fact, we both put a little time into Nebraska state government.

But for all this man has done, I have the most admiration and respect for what he achieved for U.S. agriculture as USTR under President Ronald Reagan and as Secretary of Agriculture under President George H.W. Bush.

In many ways, we’re here today discussing these issues because of the foundation laid by Ambassador Yeutter in trade liberalization.

He was instrumental in launching the Uruguay Round negotiations in 1986. He guided those negotiations in the first years of the Round and kept pushing for agricultural trade liberalization as Secretary of Agriculture.

The Ambassador was a strong advocate for making agriculture a linchpin of the GATT negotiations. The U.S. didn’t get everything we wanted at that time, but we made important progress on limits on export subsidies, disciplines on domestic supports and reduced import barriers.

It’s that critical body of work two decades ago that we’re building on today through the Doha Round.

Ambassador Schwab and I have just returned from a meeting of the Cairns Group and I want to share the outcome of those discussions with you.

Before I do, though, I want to thank our hosts for holding these workshops on the 2007 Farm Bill.

You are adding to a spirited natural discussion about future farm policy. I am thrilled with the level of participation in this discussion.
It shifted into high gear as I traveled the country last year to conduct Farm Bill Forums. Thousands of farmers and ranchers took time to make their voices heard and I was inspired by their conviction and thoughtful reflections.

This is healthy and positive. What you’re doing here adds to that dialogue. I appreciate that and I am anticipating with interest your Policy Papers.

Today’s session follows up on the first two workshops … one on conservation and the other on the commodity programs … with the common overriding need to conform to WTO commitments.

When Ambassador Schwab and I left for Australia last week, we determined to strengthen the collective resolve to keep working for success in the Doha Development Round.

What we found is a group of leaders equally determined to uphold the ambition of the Doha Round. In fact, Australia put forth a proposal that suggests a new approach while maintaining high ambition.

Countries around the world expressed a willingness to examine this proposal with an open mind and firm resolve to find a way forward.

All except for the European Union. The EU simply said NO. Their instant rejection is disappointing because NO will never get us to YES.

The EU continues to beat the same drum saying the U.S. needs to reduce domestic support before they will consider any fresh ideas.

Quite frankly, I find their position puzzling. As the world’s leading provider of farm subsidies, how can the EU point a finger at us?

The EU is allowed to subsidize at a level four times higher than in the U.S.

The actual level at which the EU subsidizes agriculture is three times higher than in the U.S.

And, the U.S. proposal would allow the EU to continue subsidies at a level twice that of the U.S.

Now, you tell me … who needs to reduce subsidies?

EU Trade Commissioner Peter Mandelson is flying into Washington this week for further discussions. Ambassador Schwab and I will be meeting with him on Thursday to implore him to demonstrate flexibility – just as we have done – for the good of poor countries as well as developed countries.

The lack of progress in the negotiations is particularly troubling because an agreement holds so much potential for the world’s economy.

It’s important to reflect on the purpose of the round; it’s a development round. Developing countries would benefit from lowered trade barriers, which equates with greater market access. We simply disagree with those who suggest that WTO members should settle for a less ambitious outcome in this round.

We also need to consider all that would be lost if we fail to achieve significant reform.

Although we don't have a final agreement, the Doha negotiations have led to consensus on many important issues.

I don’t want to take the time here to go into great detail. But let me say that before the talks broke up, it was agreed that all export subsidies would be eliminated by 2013.

It was agreed that the wide disparity between trade-distorting domestic support levels in the European Union and in Japan and the United States would be diminished.

It was agreed that 39 least-developed countries would be provided significant duty-free, quota-free access to markets around the world.

Developing countries are potentially the largest beneficiaries of an ambitious outcome from Doha.

I’ll go one step further and tell you that the greatest benefits would come from reducing import tariffs. In other words … market access. A World Bank study indicates that 93 percent of the benefits to developing countries come from this kind of market access.

Another study estimates that global free trade could lift as many as 500 million people out of poverty.

I mention all of this because I feel deeply that these profound goals are the heart of the Doha Round. Trade liberalization offers tremendous potential for development and the opportunity to help the poorest of the poor.

Now, I’ve been asked: If we fail to reach an agreement and lose the opportunities of the Doha Round, do we also lose the opportunity to reform U.S. farm policy?

The answer is no. That opportunity is real, with or without a Doha agreement.

The 2002 Farm Bill expires next year regardless of the trade negotiations.

From all that we heard from farmers and ranchers across the country – and I conducted more than 20 Farm Bill sessions myself – I expect to respond to a call for change.

And as we continue through this process, I have three main objectives for the nation’s farm policy: It needs to be equitable. It needs to be predictable, and it needs to be beyond challenge.

I want to note here that these goals are closely aligned with those of Ambassador Yeutter. In recent Farm Bill testimony before a House Agriculture Subcommittee, Ambassador Yeutter stressed the need for equity and compliance with WTO rules, among other important points, in crafting a safety net for producers.

Equity requires greater support of the 60 percent of U.S. farmers who now receive no subsidy because they don't raise a program crop.

In the U.S., five crops account for 21 percent of our cash receipts in agriculture. Those five crops receive almost all of our subsidy payments.

Meanwhile, our specialty crops, which are now
equal in value to the program crops, receive virtually nothing. Those are the 60 percent of farmers I just referred to.

When these numbers were laid in front of me, I began 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 address their needs by supporting research, by addressing sanitary and phytosanitary issues, and boosting market promotion dollars -- in short, by making investments that help them succeed in the marketplace.

My second goal for farm policy – predictability –requires that we help producers mitigate the inherent uncertainties of the industry. I believe that we can do a better job of providing that predictability to our producers.

And, third, farm policy needs to be beyond challenge.

As you know, last year Brazil successfully challenged our cotton program in the WTO. We have implemented changes as a result but Brazil is saying we haven’t gone far enough.

And Brazil is not alone in threatening to challenge our programs.

Uruguay has expressed concern about our rice program, and the C4 countries in Africa continue to raise concerns about the cotton program.

The U.S. will assign our best legal teams to defend our programs, but we have to recognize the vulnerabilities.

Whether or not we achieve the ambition of the Doha Development Agenda, we have a great opportunity in front of us. But, we must make a choice.

The first option would be to allow the future to be driven by WTO litigation that dismantles our 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.
Now, as Ambassador Yeutter noted in his testimony, a true safety net must be responsive to the particular challenges and opportunities of our time.

Producers were very clear in the listening sessions that they’re concerned about sustaining the productivity of American agriculture and leaving a legacy as stewards of the land.

On this subject, I turned to our world-class economists, under the direction of Dr. Keith Collins. I asked them to look at questions relating to balance -- working lands versus land conservation uses and whether our financial support tips the scales one way or the other.

Is the balance right between incentive payments versus cost-share payments? Can our programs be more effective?

Can conservation programs be used to support farm income? How can we ensure they remain consistent with our WTO obligations? All of these issues came up in the forums.

Non-federal ag and forest lands occupy 1.4 billion acres, nearly 70 percent of the contiguous United States.
These lands are the basis for strong agriculture and forest economies. They are the habitat that support our wildlife and the lands that filter the groundwater we drink.

While farmers are great caretakers of our natural resources, farming and ranching can have unintended consequences. New issues emerge, and conservation continually evolves.

The current era of conservation programs began with the 1985 Farm Bill. It established the Conservation Reserve Program, which puts environmentally sensitive land into long-term retirement.

The 2002 Bill started a new chapter in our nation's conservation program by authorizing a historic increase in funding.

In 2006, USDA expenditures on conservation programs, including our technical assistance, were about $5 billion. That's 60 percent more than five years ago.

Our data indicates that 15 percent of all U.S. farms received conservation payments in 2004.

And what did our analysts think of the Department's performance in conservation? They concluded that we have made good progress toward achieving many environmental goals.

Soil erosion on U.S. cropland has dropped dramatically. Wetland losses have been stopped and we're now achieving some gain.

A growing challenge relates to the balance between water use for farming, urban needs, and environment. There is concern over greenhouse gases. And most recently there are questions over the implications of more farmland going into renewable energy production.

We found that the need for balance raises questions about which policies would encourage better performance. We must consider cost-share programs versus regulation, and programs focused on the working lands versus lands-in-retirement programs.

As we think about reauthorizing conservation in the next Farm Bill, we also have to consider the WTO.

Conservation or environmental programs must meet several criteria to be exempt under the WTO reduction commitments. In other words, they cannot be trade-distorting.

That means payments must be limited to the extra costs or loss of income involving compliance with conservation practice. Or, conservation payments must be dedicated to removing land or other resources from production.

Generally we do very well in our conservation programs in meeting this criteria.

Our economists presented four alternatives to the existing conservation programs.

The first builds on our existing portfolio with a few revisions.

The second allows for payments to provide income support to producers and enhance environmental benefits. This is the green payment approach.

Under the third alternative, new private sector environmental markets would complement, or in some cases replace, existing federally supported conservation efforts.

In other words, private companies would buy credits from producers to meet their environmental commitments. Some wetland, water quality and carbon credits are already created. But it's a very small market.

The fourth alternative would strengthen the links between income-support, risk management programs and environmental benefits by expanding conservation compliance requirements.

For example, to receive price and income support, producers could be required to meet higher soil and water-quality conservation requirements. An advantage of compliance programs is that they do not require additional program funding other than the technical assistance.
All of these options, and much more comprehensive information produced by our economists can be found in the five Farm Bill theme papers posted to our website.
This is must reading for anyone who wants a solid understanding of the issues as we determine the best course for future farm policy.

Let me say, in concluding, that I believe in federal investment in agriculture.

I also believe that the key point is how we do it. This is enormously important. It should be done in a way that's pro-trade, pro-growth, and fiscally responsible.

By holding these workshops you’re elevating the discussion and helping us to explore and debate the issues rather than rubber-stamping policies of the past.

We owe it to our farmers and ranchers to thoughtfully consider how the 2007 Farm Bill will best serve their needs. And now I’m pleased to take a few questions.