Remarks by the Honorable Chuck Conner, Acting Secretary, U.S. Department of Agriculture, as Prepared for Delivery at the Minnesota Agri-Growth Council
St. Paul, MN, November 8, 2007
Thank you for that nice introduction. And thank you all for having me here with you today. I had the pleasure of joining you for your annual conference last year, and it's great to be back.
The timing of your invitation couldn't be better, because there are some very important issues at the forefront of agriculture today that I'd like to discuss with you.
If you don't mind, I'll get right down to business so that I have some time to take questions from you once I've finished.
As you know, the Senate is debating the Farm Bill this week. I'm following this debate closely in hopes that the Senate as a whole will put forth a better bill than the one that came out of the Senate Agriculture Committee last month.
I have a number of concerns with that bill, and I don't believe it would be in the best interests of the agricultural industry if it were to be enacted.
My first concern is that the Senate bill—as it stands—does very little to reform farm policy … at a time when our industry is modernizing and in need of new policies.
When I spoke to you last year, I emphasized the need for reform because it was a call I had been hearing across the country—in the forums USDA held to gather input for the farm bill.
In January, USDA offered a comprehensive set of farm bill proposals that contained real reform. They increased support for agriculture, while focusing on new priorities—priorities that aren't emphasized in current farm policy.
They called for greater support for specialty crop producers and more incentives for renewable energy. The goal of these proposals was not simply to increase our support for agriculture, but to enhance it.
That means spending our dollars more efficiently. It means looking at where we can do the most good. And it means trimming the fat from outdated or ineffective programs.
Today, I want to focus on three reforms that are crucial to making more efficient use of agricultural subsidies.
First, putting an end to beneficial interest, or "pick your price" phenomenon.
As the policy now stands, government payments can be locked in by producers when the market price is low. But they can hold off and wait to sell those crops until the market price is higher, because there is no requirement to link the loan and the sale. This can lead to outcomes that I am confident Congress never intended.
For instance, in 2005, in the aftermath of Hurricane Katrina and the price fluctuations that followed it, the option of locking in loan rates when prices were low but selling later when they had recovered generated $3 billion in payments to farmers that—while perfectly legal—weren't based on actual losses.
The Administration's proposal would require producers to give up their beneficial interest in a crop when they lock in a loan payment.
This will ensure that producers receive the price support provided by the loan rate, while eliminating the "pick-your-price" option that results in large pay-outs without corresponding losses.
Second, reducing the Adjusted Gross Income (AGI) cap to $200 thousand.
This provision would affect only about 38 thousand people who are among the wealthiest two percent of Americans, yet it would generate $1.5 billion in savings.
I have a map here that designates farm payment recipients with a red dot. For those of you in the front, you can see that there are quite a few red dots on the map.
That would be fine if this were a map of Martin County Minnesota, where there are a great many hardworking producers who farm the land. But this is a map of Manhattan, and most of those red dots represent millionaires living on Park Avenue.
Farm subsidies are paid for by taxpayer dollars. When we allow payments to go to people with an AGI of more than $200 thousand, we are asking 98 percent of Americans to subsidize people who are among the wealthiest two percent of our population.
I don't see how we can justify that. It is—quite simply—irresponsible. And we risk jeopardizing support for the agricultural community—and the safety net that is so important to farmers all over the country—if we keep spending taxpayer dollars on support for the wealthy.
The third and final reform that I want to discuss is setting loan rates at 85 percent of the market price—averaged over five years and capped at the maximum loan rates established in the House-passed version of the 2002 farm bill.
This will provide a strong safety net but reduce the likelihood that decisions on what crops to plant will be based on government subsidies.
It will also result in $2 billion in savings. This change would provide some of the real reform we need to strengthen our industry, make it more secure against challenges under international trade rules and promote future growth.
The second problem I have with the current version of the Senate farm bill is the way it is being financed. It relies on tax increases and budget gimmicks.
Our analysis shows that it contains nearly $22 billion in budget gimmicks, and another $15 billion in new taxes. This is simply unacceptable.
As you know, Congress has adopted a "pay as you go" policy, which requires that any new spending be offset with savings from other funding.
The current version of the Senate farm bill might appear to meet the pay-go rule on paper, but it certainly does not meet the spirit of this rule.
The Senate isn't being straight with the American people about what this bill will cost.
Instead, it makes a mockery of the process.
The bill claims $10 billion in illusory savings by delaying payments or speeding up collections under commodity and crop insurance programs.
The whole point of the exercise is to move revenues into the ten-year period that is counted for budget purposes—and move liabilities out. But none of these shifts actually reduce the taxpayer dollars being spent. To call that generating savings is simply and frankly dishonest.
I don't think accounting gimmicks are what farmers want to see. They are business people who understand the importance of fiscal responsibility. They're very prudent with their dollars. They don't like a lot of excess government spending. If something is going to cost, they want people to say what it is going to cost.
Some people may say, "Well, Chuck, you've been in Washington for a number of years now, and you should know that's just how business is done."
Well, I don't accept that. We have a responsibility to the American people. They are entrusting us with their tax dollars with the expectation that we will make wise use of that money for programs that benefit our nation.
That is a big trust that we are charged with, and our taxpayers deserve simple and honest accounting in return.
I also see a problem with raising taxes to pay for farm programs, as the Senate has proposed.
The Finance Committee bill which will be married with the farm bill raises nearly $15 billion in new taxes to pay for new programs.
I don't believe other sectors of our economy should be asked to pay additional taxes for farm programs, especially when the current bill continues providing farm subsidies to millionaires living on Park Avenue.
And $37 billion of new taxes and budget gimmicks do not constitute wise fiscal policy.
I believe farmers deserve a strong safety net, but Congress risks undermining it by refusing to focus government support where there is a true need and by asking other sectors to bear the cost.
The final issue I'll raise with the Senate farm bill is the fact that by raising loan rates and prices on many of our program crops it increases trade-distorting support and paints a bull's-eye on the back of the American farmer.
At a time when we are enjoying a $28.1 billion year-over-year increase in net farm income, this is a step in the wrong direction.
Ladies and gentlemen, we simply cannot afford to jeopardize agricultural trade. It is too important to our economy.
Every $1 billion in ag export sales generates another $2.6 billion in economic activity and supports almost 13,000 jobs. U.S. agricultural exports are on track to hit a record $79 billion this year. And we expect that number to reach $83 billion in 2008. In Minnesota alone, you export nearly $3 billion in agricultural products.
This is a significant part of the agricultural—and national—economy. Creating and maintaining foreign markets for our products is essential for the health of American agriculture.
We need policies that encourage trade and open markets for our goods—not policies that can be challenged by our trading partners.
This increase in trade-distorting support, together with the budget gimmicks and the lack of real reform in the Senate version makes for a farm bill that is—frankly—unacceptable.
As the Acting Secretary of Agriculture, I cannot in good conscience recommend it as wise policy for our industry.
And that is why the President's senior advisors on farm policy have recommended a veto of the version of the Farm Bill put out by the Senate Finance and Senate Agriculture Committees.
Our concerns are serious. But I am also optimistic that the full Senate can still put together a good farm bill this year that the President will be proud to sign.
I believe this bill can be changed to reflect good farm policy and wise fiscal practices. I hope that the Senate takes the necessary actions and works with us to create a bill that provides responsible and effective support for American agriculture.
Before I finish my remarks today, I'd like to talk with you a bit more about trade—specifically the free trade agreements that are pending with Peru, Panama, Colombia and Korea.
The agreement with Korea is the most commercially significant FTA that we have negotiated in nearly 20 years.
A full $1.6 billion worth of farm exports will become duty-free immediately. Korea has a $1 trillion economy, and we would gain access to a fast-growing market of nearly 50 million consumers.
Passage of the Panama, Peru, and Colombia FTAs will provide duty-free access to markets with around 75 million consumers and a GDP of nearly $575 billion. More than half our current farm exports would enjoy duty-free access immediately.
Minnesota in particular stands to benefit from these agreements. Under the Korean agreement, more than 90 percent of U.S. pork products will become duty free in 2014.
Panama would immediately eliminate its 30 percent duty on prime and choice cuts of beef, and their tariffs on other cuts of beef would be phased out over 15 years. And Peru would remove their tariffs on soybeans, soybean meal, and crude soybean oil. Colombia would eliminate its system of variable levies on corn exporters upon implementation … and phase out all other duties within 15 years.
Those are just the highlights. These agreements open the door to a much freer flow of American goods to these countries.
Last week I traveled to Colombia with U.S. Trade Representative Susan Schwab, and I was very pleased with what I saw.
Colombia has tremendous potential as an agricultural market for U.S. products. And it also has the ability to strengthen its economy through agricultural trade.
Much of its agricultural production is in products that we don't produce here—things like bananas, coffee and cut flowers. So our consumers stand to benefit as well from a greater availability of goods that we aren't producing.
I hope to see progress on these agreements as soon as possible.
I'm very pleased that the House passed the Peru agreement today, and I hope to see the Senate follow their lead. I'd like to see all four Free Trade Agreements approved quickly, so that American farmers and ranchers can start reaping the benefits soon.
I appreciate the opportunity to discuss these issues with you today, and I'm interested in hearing your thoughts on the farm bill and the free trade agreements.
The Minnesota Agri-Growth Council provides a great forum for discussion of the issues impacting the agricultural community in your state, and I'm glad that I could be a part of that discussion today.