February 7, 2005

SEC. MIKE JOHANNS: "Well, thank you very much. And let me start by saying, good afternoon. I do want to express my appreciation for everyone who is in attendance today. It is the first Monday of February, and by law that means that it is time for us to present the President's USDA budget proposal for the fiscal year 2006.

"I am joined today by members of my subcabinet and by Steve Dewhurst who I think the veterans here know is the USDA's budget officer. And Steve will be available during the course of the press conference but also after the press conference to address specific questions.

"You should have a paper copy of some charts that show the major changes in the budget, which I will walk through in just a couple of moments here. You should also have a copy of our Annual Budget Summary Booklet, which provides a comprehensive review of the proposals in the budget.

"I do want to use a speakers privilege here and start out with a comment or two commending the President of the United States for proposing a budget for USDA that meets our most important priorities while exercising the kind of fiscal discipline that is absolutely necessary.

"As you will see, many proposals in this budget produce savings wherever possible. As you all know, the federal government is in a deficit situation. Reducing that deficit is a critical part of the President's economic plan for the future of this country. It will help keep interest rates low, it will strengthen the economy, and it creates jobs in much the same manner as the tax cut.

"The long-term stability of our economy depends on whether we have the will to act now, and I admire the President for having the courage and the leadership to get the job done.

"Farmers and ranchers obviously know the importance of a healthy economy. It raises incomes, and it increases the demand for the products that they produce. Like every agency, USDA will share the government-wide burden of controlling federal spending. At the same time, we must work hard to leverage other tools to maintain the strong farm economy-- such as an aggressive trade agenda.

"I've had the experience as governor of Nebraska to present budgets during times of restraint. I will assure you, it is never easy, but it is necessary; and I fully support these proposals.

"There's no smoke and mirrors in these proposals because in my judgment budgets aren't magic; they are math. Let me talk a bit about the specifics of the budget using the charts that we will display on the monitor to my right here, and all of the years that I give you are fiscal years.

"With that, we'll begin with our Chart 1, which is Total Outlays. Total USDA outlays increased from about $72 billion in 2004 to nearly $95 billion in 2005, and are projected to remain at roughly that level in 2006. The increase from 2004 to 2005 is largely due to higher CCC outlays for commodity programs, $13 billion as a matter of fact -- and domestic nutrition assistance that would be $7 billion.

"The higher 2005 CCC outlays reflect higher loan deficiency and other crop payments due to lower crop prices and disaster payments.

"There had been a lot of speculation about that number in recent weeks, and now we've put that out for you.

"The higher domestic nutrition assistance outlays were primarily a result of a 10 percent increase in Food Stamp participation between 2004 and 2005. As I said, total outlays remain roughly constant between 2005 and 2006.

"However, within the total outlays for CCC are estimated to decline about $5 billion between 2005, which included, I might add, outlays from disaster supplemental funds, and 2006. This decline is largely offset however by a projected $4.1 billion increase in outlays for domestic food assistance programs, primarily from a projected 10 percent increase in Food Stamp participation.

"We'll go to Chart 2 which is Discretionary Budget Authority.

"Budget authority for USDA discretionary programs has been roughly $22 billion in recent years. In 2005 this included nearly $1 billion in emergency supplemental funds for forest fire suppression and in response to the hurricanes and other disasters. The 2006 budget proposes $19.4 billion in budget authority for discretionary programs, down about $2.6 billion from 2005.

"As I noted though, about $1 billion of this saving is achieved from one-time disaster funding in 2005 which is not continued in the 2006 budget.

"In addition, the budget proposes a number of program reforms and savings including elimination of congressional earmarks and proposed restraints on Farm Bill programs.

"We'll go to Chart 3. As shown in this chart, CCC outlays are variable, reflecting the impact of weather and growing conditions on crop production and the resulting changes that consequently occur in commodity prices.

"The 2005 CCC outlay estimate included about $2.8 billion in disaster funding and projected increases in countercyclical, loan deficiency, and other payments due to the sharp decline in prices resulting from abundant production of major program crops.

"In 2006 nearly $5 billion in CCC savings are achieved because of projected commodity price recovery. Further, as shown in the chart, the proposal to reform farm support programs accounts for savings of about $587 million in CCC outlays.

"Now over a 10-year period these reforms are expected to save about $5.7 billion.

"If I might just mention some of the elements of the proposed reforms. They include lowering the payment limit cap for individuals to $250,000 for commodity payments including all types of marketing loan gains as well as eliminating the three-entity rule; basing marketing loans on historical production; reducing crop and dairy payments to farmers by 5 percent; requiring the dairy price support program to minimize expenditures; and extending the MILC income loss contract program for two years; and imposing a sugar marketing assessment to be paid by sugar processors on all processed sugar.

"Next chart. Net outlays for crop insurance have grown nearly 50 percent between 2001 and 2006 with the implementation of the crop insurance reforms of the year 2000. At the same time, producers have continued to receive disaster payments through ad hoc disaster programs that have been passed along the way. The budget includes proposals to enhance crop insurance coverage and reduced cost to deliver the program so that crop insurance will provide coverage that is sufficient to sustain most farmers in times of loss.

"Proposals include a higher minimum coverage level; time the receipt of direct payments to purchase of crop insurance; and changes in fees, premium rates, and delivery expenses.

"The combination of changes being proposed is expected to save about $140 million per year beginning in the year 2007. These changes, because we are so far along in 2006, would actually begin in 2007.

"In total, this change should ensure that farmers of major commodity crops have crop insurance with a minimum coverage level that is sufficient to sustain most farmers in times of loss.

"We'll go to Charts 5 and 6: Participation levels in the Department's three major Nutrition Assistance Programs, and that would be WIC, Food Stamps, and School Lunch, show continued increases from 2004 to 2006. The budget fully funds the expected requirements of these programs.

"WIC participation continues to grow to new record levels with an increase of more than 3 percent above the 2005 estimate to a projected 8.5 million participants. The budget proposes $5.6 billion to support this level, and the budget also includes a $125 million contingency fund should costs increase beyond the current estimates.

"Food Stamp participation increases about 10 percent each year on top of a 12 percent increase in 2004 over the actual 2003 level. The estimated 2006 participation level is the highest ever. The budget includes resources to fully fund estimated Food Stamp participation and also provides a $3 billion contingency fund should actual costs exceed the estimated level.

"School Lunch participation is estimated to reach 29.8 million children each day which is also a record level. USDA programs also continue to help feed those in need around the world. For example, the President's Budget proposes $100 million for the McGovern-Dole International Food for Education and Child Nutrition Program, which is an increase of 15 percent over 2005.

"This funding level will support nutrition assistance for 2.6 million women and children which is up from 2.2 million in 2005.

"Next chart.

"The Budget proposes $3.8 billion to continue implementation of the conservation programs that are authorized in the 2002 Farm Bill. In dollar terms, the largest of these programs is the Conservation Reserve Program, the CRP, estimated at $2 billion in 2006, more than one-half of the total. Also within that total, $72 million in additional resources are provided to extend the Conservation Security Program into 200 additional watersheds in 2006.

"Funding in the Budget will support enrollment of an additional 25 million acres in conservation programs, largely in EQIP.

"The next chart is BSE. After the discovery December 23, 2003, of a single cow with BSE in the United States, a one-time enhanced BSE surveillance program was implemented beginning in June of 2004. As of the end of January about 210,000 animals have been tested, all of which have been negative. Funds were also provided in 2004 to begin to implement a national animal identification system. And the Animal and Plant Health Inspection Service is making progress in that regard -- which we've talked about.

"As of today, 27 states have operational premises registration abilities in the system. The goal is to have all states operational for premises registration by mid-year 2005. The 2006 budget proposes continued funding of an ongoing testing program of about 40,000 animals per year and continued implementation of the National Animal Identification System.

"In addition, the budget provides an increase of $7.5 million for an enhanced BSE research program. The additional research funding is directed to increasing our scientific understanding of the disease and developing the technology needed by regulatory agencies to establish science-based policies and control programs.

"Next chart. The budget proposes $376 million in USDA funding for the multi-agency Food and Ag Defense Initiative, which is funded at nearly $600 million government-wide. The initiative dates back to 2004. Under USDA's contribution the budget proposes $317 million for programs and $59 million to complete construction of the National Centers for Animal Health in Ames, Iowa.

"Funding for programs reflects $140 million increase above 2005 including $37 million in increases to strengthen the Food Emergency Response Network and the Regional Diagnostic Network to ensure the capacity to respond quickly to food emergencies in plant and animal diseases.

"$35 million in increases for research to develop the means to quickly identify pathogens, develop improved vaccines, and better understand the genes that provide disease resistance. And $51 million in funds to enhance the surveillance and monitoring activities to quickly detect pest and disease threats.

"Let me offer a few concluding comments, and then we'll be happy to take some questions. As I've mentioned, Steve is here to stay and answer even more detailed questions.

"Again, I want to close today by emphasizing, the President is serious about reducing the deficit. The positive effects of the President's decision to attack the deficits are obvious when you think of the long-term implications, the future of our nation. The budget does that while continuing to meet key priorities.

"No department or agency is singled out. USDA will be a team player in producing savings that will strengthen the economy and reforms that will improve our programs. I will work tirelessly to assist the President to pass the budget.

"I do want to say again, thank you for coming today. I would be pleased to take your questions at this time. As I indicated, the subcabinet and the staff will remain afterwards to provide you with any additional details.

"Jake?"

REPORTER: "Jake Thompson from the Omaha World Herald. Your proposals on trimming and curtailing budget subsidies for crop farmers are likely to met with a lot of resistance, particularly the $250,000 cap. There's already been some opposition announced on the Hill. How do you think you'll be successful in implementing this this year when it's been resisted in the past?"

SEC. JOHANNS: "If you think about the last year, of course, we had a presidential campaign and a lot of debate about this, that and the next thing. But there was really an absolute consensus that the deficit had to be dealt with. And it didn't matter who was talking; the importance of the deficit just kept coming out over and over again.

"This President some time ago embraced this issue and has said over and over again that this is part of the economic plan for the future of this country.

"What I believe can happen here is that all of us come to recognize that attacking the deficit must be a key priority for future economic growth, future opportunity for our country. I believe that people are going to be willing to look at proposals seriously, thoughtfully. We'll do everything we can to argue our case and get them the information that they desire.

"But I really believe that there is a consensus, a bipartisan consensus that the deficit just simply has to be dealt with. And it does. There just isn't any question about it.

"Yes, sir."

REPORTER: "Mr. Secretary, according to economic and trade theory if you reduce the subsidies for American farmers, American agricultural production should go down because they contend that the subsidies do lead to additional production.

"Have you analyzed what the impact of reducing these subsidies would be on U.S. agricultural production? And if it goes down, are you comfortable with that?"

SEC. JOHANNS: "Dr. Collins?"

DR. KEITH COLLINS: "We're in the process of doing that now, specifically to look at the effects on markets. Our focus so far at this point has been to focus on the budget savings that these individual proposals will realize. But over time as we continue to develop the implementation plan for these specific proposals, we're going to look more closely at the supply, demand and price effects."

REPORTER: "Can you answer the second part of it, about your comfort level?"

SEC. JOHANNS: "I am absolutely supportive of the President's Budget, every piece and part and detail, because I just believe very, very strongly that deficit reduction must be a priority for this government. So without hesitation I tell you, I support the President's efforts here.

"Wayne. Yes."

REPORTER: "To sort of relay a question I guess-- the budget predicts that agricultural exports continue to fall. Can you explain was that because of the low value of the dollar? Why is that happening?"

SEC. JOHANNS: "Boy, when you get into dollar issues I'm going to call on Dr. Collins again. So."

DR. COLLINS: "Could you repeat that one more time?"

REPORTER: "Well, as I understand the budget projects a continued fall in agricultural exports, and given the low value of the dollar it seems like it would increase foreign purchases."

DR. COLLINS: "Well, our budget does not in fact affect-- over the long term project a decline in exports. It projects an increase. The budget goes out through the 2006 through 2015 period. And we have exports generally trending up over that period. There is in fact a decline in the 2005 fiscal year compared to 2004, and that's not due to volume. Volume in fact is expected to go up. The decline reflects the lower market prices that we're seeing as a result of the record harvests in 2004. And it's those lower market prices that are triggering the outlay increase the Secretary mentioned.

So it's primarily a price effect that you're seeing in exports, not a volume effect."

SEC. JOHANNS: "I'm going to call on this gentleman."

REPORTER: "Philip Brasher with the Des Moines Register. Could you tell us why -- there's a lot of ways you could have cut the budget. You're cutting direct payments and so forth. But why take on payment limits, an issue obviously that there's a lot of strong feelings on either side of agriculture in different, disparate impact. Can you tell us why the Administration chose to tackle this particular issue and propose it and put your weight behind it?"

SEC. JOHANNS: "What I would offer, if this budget sends a signal about anything it's that everybody is going to be a part of this initiative. And again, let me just speak to the President's passion about dealing with the deficit. As I studied this budget -- and as you know, I came to the process fairly late in the game -- but as I studied the budget what impressed me about it was just simply the effort to make choices that were maybe difficult choices but they were the right choice in terms of that message that we all have to be a part of the deficit reduction process.

"And then I will tell you as a former governor I definitely admired the very thoughtful way that they looked at this budget and decided priorities. There are priorities funded in this budget. Look at the nutrition programs. A very, very strong statement is there, and you can look at the chart, you can look at the specific numbers, you can analyze it any way you want; but again a very, very thoughtful approach.

"So again, from the standpoint of looking at this budget, the whole picture, we're a part of an entire federal budget process. I feel strongly that what the Administration is proposing here, what I am proud to propose today, is an effort to deal with the long-term economic stability of our country in a way that I believe people all understand.

"If I might just offer a thought too on the agricultural piece of this. There isn't any doubt that farmers and ranchers understand that their future depends on a stable national economy, an economy that provides opportunity, an economy that raises the standard of living for people-- because that's how we buy the products that they raise.

"And again, I just believe that the thought behind this budget is really designed to do exactly that, to look at the big picture, to look at the long-term issues that are impacted by these individual decisions.

"Yes, ma'am."

REPORTER: "Mary Curtis with the Los Angeles Times. Farmers say that this is changing the rules on them in the middle of the game. What would you say to that?"

SEC. JOHANNS: "You know, here's what I would say. Farmers are going to understand that our country cannot run a deficit at this level and expect anything good to come out of that over the long term. They are very, very practical people. And so my belief is that farmers and ranchers will look at this, they will understand that we have to deal with the deficit if they are going to have a long-term future in agriculture -- not only for their generation but for the next generation and the next generation.

"A lot of things have happened in the last couple of years, and I could detail them. But you know what those things are in terms of budget impact and a tough economy when this President came to office, and 9/11 and on and on.

"And again, I just think this message that we have to focus on deficit reduction is right on track. It is what will provide for our future."

REPORTER: (off-mike)

SEC. JOHANNS: "I haven't focused on the commodities, but it's very clearly a payment limit, and it drops the three-entity rule, and we have staff here that can walk you through the details of it. But very, very clearly this does those things. And that will impact I guess the most direct way I can say is those large payments that maybe you're referring to. I have not studied, you know, whether it's corn or soybeans or rice or cotton, or whatever. But I will tell you that it will impact that overall top level because it sets a limit.

"Yes, sir."

REPORTER: "Ian (sp) Swanson with Inside U.S. Trade.

"In the last few weeks a number of agriculture organizations including the American Farm Bureau Federation have asked you to resist cuts in farm payments because they're worried this would have a negative effect on the Doha negotiations. They thought that it would decrease U.S. leverage in those WTO negotiations.

"Do you think this will have an impact on the U.S. ability to negotiate that agreement? And if you don't think it will have a negative impact, why not?"

SEC. JOHANNS: "No, I really don't believe it will have a negative impact, and probably the person that is most equipped is Ambassador Zoellick because he's involved in that on a day-to-day basis. But I really don't see this having a negative impact on the negotiations of the Doha Round. My belief is that strengthening our economy is always a good thing, and that's exactly how I see this budget.

"I think that was the last question. As I said, we have subcabinet people here that can help you.

"And with that, thank you very much for being here."