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Remarks by Secretary of Agriculture Tom Vilsack at U.S. Chamber of Commerce Forum on Innovation in Agriculture

Rural America: New Markets, New Understandings and Unlimited Opportunity

Wednesday, December 19, 2012

SECRETARY THOMAS VILSACK: Well, I want to thank Tom Donahue and former secretary Margaret Spellings for giving us this opportunity. So you know, it's sometimes difficult in this town to get folk's attention on agriculture, but I really appreciate the chamber giving us this chance to talk to you about the importance of agriculture in the United States.

Tom, this has just been really a great partnership the last several months working with Margaret and her team, putting together this great report that Nick Shulz has authored, which would encourage you to all – to take a look at this because it goes into greater depth about what's happening out in rural America.

I want to also acknowledge in the audience today the Deputy Secretary Kathleen Merrigan and a number of USDA officials who are here. We also want to make sure that I acknowledge Chuck Conner who served at USDA and how is working with cooperatives, which an extraordinary partner in this agricultural innovation. And I understand that we look – all look forward to Greg Page's remarks at lunch – the CEO of Cargill.

You know, as I was preparing for these remarks, I couldn't help but think back to my legal career in the 1980s in a small town in southeast Iowa. In the 1980s, we went through a very traumatic and difficult period of time in agriculture where a lot of farms, particularly in the Midwest, faced some real financial and fiscal difficulties. And as a lawyer, I represented those farmers as they were trying to hang on to their land.

We had basically a two-dimensional agriculture. Particularly in the Midwest, it was crop production and livestock, and that was basically it. Unfortunately because of inflation and inflated land prices, our farmers got overextended, the faced serious foreclosures and they had extraordinary high debt to equity. Over the course of the last 30 years, there has been nothing short of a miracle occurring in rural American that I think, with the help of today and the session today, we might be able to put a spotlight on.

Agriculture decided to change, decided to transform, decided to embrace innovation, decided to become multidimensional instead of two dimensional, to extend beyond crop production and livestock and begin a process of focusing on specialty crops and niche market opportunities, developing fuel and energy crops and committing itself in a very significant way to conservation and the outdoor recreational opportunities that that creates.

There have been extraordinary, and I want to emphasize, extraordinary productivity gains in agriculture. In my lifetime, corn has increased in this country by 300 percent in terms of productivity – Soybeans and wheat, 200 percent. We're creating more milk and our livestock is being raised more efficiently. In fact, according to recent studies, agriculture has been the second most productive aspect of the American economy since 1980.

It's fueled in part by what Tom Donahue suggested, which is innovation and research and seed genetics. I appreciate Tom's comment about the World Food Prize. It is really a week in which the nation's attention turns to agriculture and agricultural innovation.

But one of the other founders of that World Food Prize was a fellow by the name of Norman Borlaug, the father of the green revolution. And Norm, an Iowan also by birth, believed very strongly in the capacity of science to enable us to figure out how to be far more productive. And with the seed genetics today that we're seeing, again, miracles are occurring every single growing season.

We just suffered through the most serious drought that this country has faced since the 1930s. Had we faced this drought without the seed genetics, we would have seen some serious crop losses. Indeed, it was a tough year for many producers. But notwithstanding the most difficult drought we've seen in the lifetime of everyone in this audience, we still had a corn crop that ranked in the top 10 in productivity in the United States' history. And it's a result of seed genetics and innovation. And it's a result of farmers embracing new planting technologies that allow us to preserve and conserve water resources and still maintain and provide a crop.

At the same time that seed genetics have allowed us to expand dramatically our productivity, our farm machinery industry has also kept pace, recognizing that you need different equipment as farms get larger and productivity increases. Just to give you a sense of this, when I started practicing law again in the '70s and '80s, our farmers were planting in Iowa somewhere between 15(,000) and maybe as many as 20,000 seeds per acre. Today, farmers in Iowa are routinely planting 30(,000) to 40,000 seeds per acre, and many seed companies are working on the possibility of planting 60,000 seeds per acre.

That requires different farm equipment to combine and harvest a crop of that nature. And companies like John Deere, that you'll hear from, will tell you that they have kept pace with agricultural innovation. I will tell you that it was a great opportunity to see Lisa Jackson, the EPA administrator, come to a farm in Iowa, have her climb into one of these large tractors, be amazed at the sophistication of the equipment in that tractor.

She pointed to a small box in the cab of the tractor and said, what is that? And the farmer said, well, that's a GPS system. And she scratched her head and said, well, what do you need GPS for? And he then explained that with GPS – if you were to simply get into a tractor and manually drive that tractor, you might start at one end of the field and by the time you got to the end of the field, you might be off maybe as much as 30 feet from where you started in terms of a straight line.

The result of that is, of course, you use a lot more chemicals, a lot more pesticide and a lot greater waste. With GPS that differential's about six inches. So you save seed, you save pesticides, you save herbicides, you save money and you obviously are protecting the environment. That's the kind of innovation which may be one of the reasons why the equipment today can require as many as 10 million lines of computer code in order to construct and make this extraordinary equipment.

And at the same time that we've kept pace with seed genetics and farm equipment, we've also seen our land grant universities, which are celebrating their 150th anniversary this year, increase the education and training of our farmers. It's a very sophisticated business. And I would argue that I think it's perhaps the most sophisticated and most complex business in America. Not only do you have to know how to farm, you have to also know how to market. And those are skills that are not easily obtained and if mistakes are made, it can cost significant income.

Tom mentioned the fact that we had a good year in 2011. To put this in proper perspective, the last four years of agriculture have probably been the best four years in terms of income and exports in the history of the country. We experienced record farm income last year. We'll be at or near record farm income this year. And we expect and anticipate another strong year in 2013, notwithstanding the weather challenges we face.

We have a record low debt to asset ratio. Net worth is increasing significantly, which is one of the reasons why we hope that in addition to the farm bill that we get some estate tax determinations because at a million dollars that exemption level is not going to be high enough to cover very many farms – at least not from the part of the world that I come from.

So what is the future? This great efficiency, this great productivity has allowed us, obviously, to do more farming with fewer farmers, which isn't necessarily a good-news story for rural America. So it was necessary for agriculture to begin the process of thinking about how we might be able to continue to support rural America, while at the same time maintaining the efficiencies of this new agriculture.

Well, today we're launching, at USDA, a new website – www.usda.gov/opportunity. We want the rest of the country to know what we know at USDA about the amazing transformation of the rural economy and what's taking place as a result of agriculture. We want folks to know that indeed we are committed to trade and committed to exports.

We have had record export activity. And there are many reasons for that. And as Tom suggested, it does indeed support not just agriculture but nearly a million good-paying jobs in this country. We adopted a strategic framework at USDA for agricultural exports. We took a look at the countries that we felt we had the greatest opportunity of moving it out quickly. We focused our time and attention and resources on making sure we maximized trade opportunities in those countries.

We're excited about the prospects of the free trade agreements that have been finalized and have now been implemented , particularly the South Korean agreement. We think that there is an opportunity between South Korea, Panama and Colombia to expand agricultural exports by several billion dollars. We also are looking forward to Russia's full integration into the WTO. The recent action by Congress to remove the Jackson-Vanik Amendment will give us the opportunity to fully utilize the WTO in our relationships with Russia, also at times somewhat of a difficult trading partner.

We do have an issue with Brazil, and I appreciate you mentioning our competitor. And it is a trade issue that we frankly have to address. As you may know, Brazil took the United States to the WTO on its support for cotton – one, in the WTO – and we have reached an agreement with Brazil in the interim to avoid retaliation while we encourage Congress to fix the problem. It is important that Congress resolve this issue with Brazil. It's important that we reform our cotton support and subsidy system, and that we reform our export credit programs so that they are in better compliance with the WTO. We have put in place a framework that will allow us to prevent the retaliatory efforts that Brazil would be entitled to pursue. Nearly $800 million of retaliation has been stopped for the time being. I will tell you that that $800 million isn't just in agriculture; the reality is that we don't do that much activity with Brazil, so they would be able to look at other aspects of our economy, and they have a particular interest in our intellectual property. And so it is very important for Congress to attend to this issue.

We think it's important enough that we've had frequent meetings with members of Congress and also the Brazilians, making sure that we are identifying to Congress the concerns the Brazilians have. And they've been very clear with us about the actions needed to change the program within the farm bill that's being discussed and debated. There is a program called the STAX program; they have conveyed concerns about the structure of that as it's currently crafted. We have conveyed those concerns to Congress and to the stakeholders. And frankly, the time to act is now – deeply concerned that further delay in addressing this issue could result in retaliation, not just in agriculture but in other areas.

Tom mentioned the importance of non-tariff trade barriers – boy, is he right about that. We knock down about 1,500 trade barriers in sanitary and phytosanitary rules each and every year. It is at times a frustrating process because it is not science-based and it's certainly not rules-based, but we have been very consistent with our trading partners of the need to address these issues consistent with science and consistent with international rules, and we will continue to do that.

We look forward now to the Trans-Pacific Partnership discussion and hope that those get culminated soon, because it will indeed open up extraordinary export opportunities for the United States in agriculture. We also look forward to the conversations about the EU – but I will tell you that when we talk about the EU and agriculture, you have to talk about those non-tariff trade barriers and they have to be addressed in any discussion of any potential free trade agreement with the EU.

We're excited about the organic opportunity that has been presented in our agriculture. It's an expanding aspect of agriculture, and the equivalency agreements with Canada and the EU in organic will create trade opportunities in organic as well as commodity production agriculture.

So exports is clearly one pillar of four pillars that this new rural economy will be based on and built on, and it needs to continue. And we need to obviously continue to be promoting production agriculture, and to do that we need to continue our commitment to research. The reality is, we've put a lot of research in health care, a lot of research in other aspects of our economy. But the production agriculture research from a government perspective has been for far too many years flatlined. And there is a direct correlation between the capacity of this country to continue to produce more and the amount of resources that we put into agricultural research. That's one of the reasons why we have proposed additional commitment – notwithstanding the budget challenges we face – in our budget for additional research, and why we're excited about the opportunity to create within the new farm bill the possibility of a foundation that would allow us to leverage our resources more effectively. So research and exports – critical component to a new economy.

In the same vein, as we try to create more economic activity and encourage population growth in rural areas, the local and regional food system opportunity is enormous. There are a lot of young people – young, entrepreneurial, innovative individuals who are very interested in starting agriculture in a smaller scale, in a niche area. And in order to do that, it may be difficult for them to compete in a commodity-based market. That's why it's important to create direct consumer-to-sales opportunities – direct-to-consumer sales opportunities. The expansion of farmer's markets, the opportunity for community-supported agriculture, the capacity to link local production with local consumers like schools and institutional purchasers is something that we are very committed to at USDA through our Know Your Farmer, Know Your Food effort.

There's been a 67 percent increase in farmer's markets since 2008. We now have over 200 food hubs that are supported across the country that allow an aggregation of these locally produced items, making it easier for an institutional purchaser like a school, a university, a prison, a hospital to be able to purchase locally.

This connection between the farmer and the consumer is important because far too few of us in this country today fully understand agriculture. When our department was founded 150 years ago by Abraham Lincoln, 90 percent of population was rural-based and most folks understood what agriculture was about. Today, even if you take the most liberal definition of what a "farmer" is – and we use a fairly liberal one at USDA; anyone who sells more than a thousand dollars' worth of product is considered a farmer at USDA – 2.3 million people fall within that definition. That's less than 1 percent of our population. If you look at where 75 (percent) to 80 percent of the production comes from, it's about 2(00,000) to 300,000 people. Less than one-tenth of 1 percent of our population produces 75 (percent) to 80 percent of what we consume, and it is responsible not just for what we consume but also for what we export.

This is an extraordinary story. And it is a story that oftentimes is underappreciated by people in other parts of the country because we are a food-secure nation; if you want to talk about agriculture's economic security, clearly you can make that case. But a case that's not often made: It's also part of our national security. A country that can feed itself is a stronger country. And the reality is that there are many countries in the world today – in fact, most countries – in fact almost all countries are somewhat dependent on another country for their food supply. We virtually produce just about everything we need in the United States to feed our people. So agriculture gives us a national security edge. So we want to continue that edge. So the second pillar, in addition to exports, is local and regional food systems. And we're investing resources in expanding these direct-to-consumer sales opportunities. It is a multi-billion dollar opportunity that is growing at a faster pace than virtually any other aspect of agriculture.

But we need to do more than that. We need to continue our commitment to conservation. Land stewardship, the quality of our soil and water – critically important to continue having the opportunities that we have enjoyed. That's why we have been focusing on a couple of ways in which we can encourage additional conservation, using innovation in government policy to encourage more private sector investment. After all, it's very difficult to ask a landowner to invest in conservation practices that may have some benefit to their farming operation but significant – a societal benefit; very difficult in tough years to ask them to put the capital behind, if they're not certain that what they're doing won't be changed as a result of a regulation changed or passed or modified.

So we have been working with sister agencies and with state departments of natural resources to create a program called Regulatory Certainty. The way it works is simple; let me give you an example. In the Western part of the United States, there is concern about the Endangered Species Act, particularly as it relates to sage grouse. And the reality is that if sage grouse is put on the endangered species, it creates additional regulatory responsibilities for landowners. What we have done at USDA in partnership with the Department of Interior is we've created an opportunity for landowners to have a degree of certainty that rules will not change and they will not be confronted with the impact of the sage grouse being placed on the endangered species list for a period of up to 30 years if they adopt certain conservation practices. So they're guaranteed that regardless of what happens they will be in compliance. This Regulatory Certainty opportunity I think will expand over time and I think will provide the kind of opportunities for us to see additional capital investment and conservation.

We're also creating new market opportunities. To the extent that you can quantify, verify and measure a conservation result, there may be a regulated industry that needs that result to satisfy some regulatory responsibility. So markets are being created in the Chesapeake Bay area, in the Ohio River basin, in the northwestern part of our – the United States.

The way it works is simple. A utility company is faced with the need – in the northwestern part of the United States – with having to cool water down of a stream that they take – they take water to assist them in the production of power. When they put the water back in the stream, it's not an issue of the quality of the water; it's the temperature of the water. It's warmer. The problem with that is that salmon don't function very well in that warmer water. Government comes along and basically suggests to the company that they'll have to build a cooling tower – millions of dollars of expense and long-term maintenance expense.

Someone was smart enough to realize that there were other ways to lower the temperature of the water. And one way would be to work with landing – landowners adjoining and abutting that stream to plant shade trees and to maintain those shade trees over time. A smaller expense, an environmental benefit, cooler water; salmon are happy; company saves money; adjoining landowners have a new income source. It's this kind of ecosystem market opportunity which we believe at USDA is unlimited.

Now, why is this important? Why is it important to expand conservation opportunities, beyond the obvious of soil and water quality? It's because it creates habitat. Why is that important? Because a lot of people like to hunt and fish. In fact, 38 percent of America either hunts or is involved in fishing or both. And each and every year, those individuals spend $145 billion in that enterprise – $145 billion. To the extent that we can expand habitat, expand fishing and hunting opportunities and outdoor recreational opportunities, we can create more tourism dollars in rural areas. And that tourism dollar revolves around in that economy very quickly.

So we at USDA are committed to the American (sic; America's) Great Outdoors Initiative that the president launched to expand conservation, to link it more closely to outdoor recreation and create more economic opportunity.

In the same way, our Forest Service is engaged as well in conservation. We're concerned about the wildfires that you all have seen and the devastation they can [create]. That's why the Forest Service is committed to increasing the amount of timber that's going to be treated, which will help the timber industry return in the United States. But we also have to find additional new markets for that timber. That's why it's important for us to invest in nanotechnology.

There is nothing short of amazing stuff that can be done with wood. What you saw in that video, when the board was crashed into the – into that wall, was research being done on tornado-proof structures. Right now, when folks are investing in tornado-proof structures, it's primarily metal construct. Well, that's a construct that basically takes wood, compressed wood, and provides the ability to withstand up to 140-mile-an-hour winds. So it's a green building opportunity. We're embracing that at the Forest Service, and we expect and anticipate that this research will create new opportunities as well.

We're also now looking beyond nanotechnology and the opportunities to create, through nanotechnology, fiberwood. Fiberwood is stronger, lighter than fiberglass. Car companies are interested in the possibility of using these new materials as they are dealing with fuel efficiency standards. Lighter, stronger material also could help the military in terms of the Kevlar that is worn. If you can lighten that load of that soldier or that police officer in a split second, it could be the difference between life and death.

This is important stuff, and we're involved in it, and innovation is driving it – as is the case with our wood-to-energy effort, where we have over 150 projects that are being invested in by USDA. So the third prong, the third pillar of this foundation is conservation, outdoor recreation and the capacity to use conservation as a driver of the economy in an innovative way.

Finally, there is the bio-based economy. We start with fuel. And great progress is being made in advanced biofuel production. Today the Advanced Ethanol Council report is being issued on the status of cellulosic ethanol and biofuels. Tremendous opportunities – a number of companies coming online, refineries starting to build and construct – this is a tremendous opportunity for us. The challenge for the industry this year that we've put forward is to produce up to 10 million gallons of this new fuel, which will allow us to continue to ramp up as we meet our responsibilities under the renewable fuel standard. I would encourage you to take a look at this report that's being issued today because it identifies the companies that are at the cutting edge of advanced biofuel.

And it's not just transportation fuel; it's also the opportunity to work with the Defense Department. The Navy, the Department of Energy and USDA have entered into a first-of-its-kind coalition and partnership between three federal agencies to create an aviation and marine fuel industry in this country. The three of us – three agencies have committed up to $510 million to assist in the development of biorefineries that can produce nonfood feedstock, marine and aviation drop-in fuel. The Navy – the Department of Defense wants to convert a good part of its fuel needs from reliance on imported oil to a reliance on what can be produced in the United States.

And so the research is important to create the feedstock that's most efficient in all parts of the country. USDA will provide assistance in lowering the costs of that feedstock. The Energy Department will provide assistance to help build the refinery. And the Department of Defense will guarantee purchase of the fuel that's produced.

An exciting new opportunity which will expand beyond the Defense Department into commercial aviation – United Airlines, Boeing, Honeywell and others are involved in an effort to promote this industry as well, because they're faced with environmental issues and requirements relative to emissions which this new biofuel will be able to respond to.

But it's not just fuel, and it's not just renewable energy. It's also the ability of 3,000 companies today and a growing number of companies tomorrow to produce bio-based products. We have a website at USDA that locates all 3,000 of these companies that are now producing nearly 25,000 products which are bio-based: chemicals, fabrics, fibers, replacements for polymers – oil-based polymers.

This is a tremendous revolution that can not only revolutionize opportunity in rural America but can re-create and restructure, in essence, the entire American economy. And we're going to do our part at USDA. As a purchaser of products, we buy solvents; we buy greases; we buy inks; we buy clothing. We want to encourage this bio-based industry with our BioPreferred program. At USDA we've identified, for us and for all federal agencies in 77 categories, nearly 9,000 products that can be purchased through federal agency procurement that will help encourage the expansion of this industry.

You saw an example of this – just to give you a sense of this, Coca-Cola needs 10 billion bottles a year – plastic bottles – a hundred percent renewable and reusable plant-based bottles – an extraordinary opportunity for them to meet not just their environmental responsibilities but to create new biorefinery and bioprocessing facilities in rural areas. These facilities, because of the nature of the biomass that's involved, can't just simply be a single refinery that services multiple states. Because of the nature and the bulk of this biomass, you're going to have biorefineries dotting the rural landscape. It's going to help create jobs. It's going to help create new activity and new involvement in rural areas. This is an exciting possibility.

I'll give you one example, which I guarantee you will laugh at as soon as I tell you about it. And that is what Ohio State's doing with hog manure. (Scattered laughter.) I recently visited there, and they were showing me all these wonderful products that they're making. And I came to a table with a large chunk – black chunk; looked like a rock. I said to the young lady – I said, what is that? She said, it's asphalt. I said, you know, you realize I'm the secretary of agriculture, not the secretary of transportation. She said, yes, sir, I understand. We thought you would be interested in this because the adhesive material for this asphalt product is hog manure.

Now, she said that it makes the tires squeal as you go down the road – (laughter) – see, I told you you'd laugh – (laughter) – but this is an amazing opportunity if you think about problems that we are confronting with environmental challenges relative to confinement facilities. If you create a new market for this material, it's an unlimited possibility. It's unlimited possibilities to create new opportunities.

So four pillars of a new economy in rural America: exports and production agriculture fueled by increased productivity and research; local and regional food systems creating an entrepreneurial and innovation attitude in rural America; conservation, meaning our stewardship responsibilities but also expanding outdoor recreational opportunities; and this extraordinary engine of the bio-based economy.

Now, what are the challenges? Well, first of all, we don't have a farm bill, Tom. I wish we did; we don't. And the reality is that there is a very serious risk that we might not get a farm bill done this year, which suggests to me that we need to do an even better job of explaining to folks in Congress the relevance and importance of rural America. This is not just simply a farm bill. This is a bill that will allow us to continue the momentum that's been building in rural America, allow us to advance and to invest in this new pathway to prosperity that we're building. But the uncertainty of not knowing if there's going to be additional research opportunities will create difficulty. We need a farm bill, and we need it now.

We also need to address changing climates. Now, we can have a discussion and an argument about what causes the climate changes, but we can't deny the fact that there are more intense weather patterns that we're seeing in the United States, and the impact that that will have on crop production – on livestock production is real. We see this not just as a challenge but as a tremendous opportunity for us to continue to invest in the genetics and in the science that will allow us to adapt and mitigate to whatever mother nature has for us.

There is an immigration challenge in rural America. We need immigration policy in this country, not just because it provides an extraordinary number of people who work in large agricultural production activities in California and across the United States, but because it brings diversity into rural America and it is diversity that helps to create an environment of innovation and creativity. If you think about it, every person in this room probably has an immigration story. I happen to have started out life in a Catholic orphanage, and I don't know what my nationality is or what my background is, but I'm fairly certain that at some point in time, someone from my background came to this country with a dream and a hope – sacrificed, saved, worked hard, did jobs that maybe no one else wanted to do and helped to create this great country of ours.

The fact that we don't have a comprehensive immigration policy could potentially put a stop to that continuation of the American story – something that's unique about this country, and it's certainly important for rural America. The lack of capital, the lack of capacity, the failure to invest adequately in infrastructure are all challenges that we have to face, but they also create opportunities. But the one that I'm biggest and most concerned about is the lack of appreciation in this country for what happens in rural America. It is the source of our food – an accessible, affordable food that gives us a more secure nation. It is the source of our water – 88 percent of our water that we consume is impacted and affected by what occurs in rural America. It is the source of an ever-increasing amount of our fuel and energy; it is a job creator and it is a place where our values are rooted. The future of this country is linked to its past and the values that were created when this country was founded – and they are rural values.

But because of a lack of appreciation for what happens in rural America, some have created a defensive and reactive response to a failure to recognize the important contributions of rural America. They've created a preservation mentality; let's hang on to what we have. The reality is, if you have that mentality, then you're not open to the growth potential and opportunity that exists.

And it's particularly discouraging to young people. How is it that we make the case to young people to want to live, work and raise their families in rural areas if we are constantly telling them how difficult things are? There is an unlimited opportunity in America, that – there is a rebirth that can take place in rural America. There is a proactive and optimistic and innovative and creative message that can be conveyed to those who are considering an opportunity in rural America. That's why this meeting is so important, because you have brought the importance and significance of the U.S. Chamber of Commerce and its foundation to give us a platform to talk about this, to begin to have a conversation in this country – in all parts of this country: urban, suburban and rural about the importance.

And I just want to let you all know that we at USDA are committed to innovation, committed to creativity, committed to constantly looking at ways in which we can improve our processes. We want to invest in research and new technologies; we want to create the solutions to adaptation and mitigation of climate change. We want to be the driver of the bio-based economy; we are excited about the opportunity for entrepreneurship in local and regional food systems. We respect the significant role that exports and production agriculture play, and we are ready to tackle the big challenges and make a big difference, but we need partners. So we appreciate this opportunity to be here today to share with you a compelling vision for the future of this country. Thank you very much. (Applause.)