Remarks by Acting Secretary Chuck Conner to the South Dakota Corn Growers Association
January 5, 2008
SEC. CHUCK CONNER: Jim, thank you for that introduction tonight. It is, ladies and gentlemen, truly an honor for me to be with you this evening, and it's certainly a pleasure to share the stage tonight with Senator Johnson as well Representative Herseth Sandlin. I'm really honored to have been on this podium with you. I know you represent the state so very well and love the people in this room so much.
I do want to thank you all for arranging a little better weather for my group to arrive here today. I understand they've had some mighty cold weather here in South Dakota, and I appreciate what I guess somebody described earlier as the "balmy" weather outside. I'm not sure it's quite balmy, but it's better, I guess.
But I want to tell you, folks, it may be warming up a little bit in South Dakota, but things are also heating up a great deal back in Washington, DC. January, and certainly the latter part of January, is going to be the month that we need to get very serious about getting the shape of the agricultural policy that we want, to guide this country over the next five years and beyond.
Our Congress will be coming back into town in a couple of weeks with a very important piece of business to finish: one that will have, I believe, a huge impact upon your lives over the next five years and beyond and perhaps even that in the next generation. Of course, I'm referring to the 2007 Farm Bill.
We have already traveled a long road, ladies and gentlemen, to get to where we are today. For those of us at USDA, that long road started back in July of 2005 when we held our very first farm bill forum. It was actually held in Nashville, Tennessee, and it started a journey that took us all over this country, to 48 different states.
We eventually held [forums in] all 48 states, collected over 4,000 comments from farmers and ranchers on how we could make our farm bill and our farm programs more effective. And those comments became the foundation for the comprehensive set of farm bill proposals that we unveiled, seems like a short time ago, but it was actually now just about one year ago, January of 2007.
Deliberations over the farm bill did take center stage in Congress, first in the House and of course then the Senate, for much of last year. Members of Congress put a great deal of work into the versions of the bill that each chamber ultimately passed. And of course the Department of Agriculture and I as Secretary appreciate those efforts very, very much. I know they are very sincere efforts.
Now the difference between those versions of course has to be reconciled by the House/ Senate Conference Committee before a final bill can be sent on to the President for final enactment.
With all that has gone into this process, it would be great to stand up here and be able to tell you that we were just a few short steps away from wrapping up a final package that we can deliver to the President for his signature. Unfortunately, ladies and gentlemen, that is not where we are at right now.
I've been around this track a few times. Matter of fact, this is my sixth farm bill that I've worked on in my career. And I do know that farm bills are just never very easy pieces of legislation to pass. But at the moment, we do have some fundamental differences over the two versions of the farm bill that Congress has put together. And the bills passed by the House and the Senate, as they stand today, are not on the road to a successful conclusion of this farm bill. Not yet.
Our concerns are with what is in the farm bill and, just as importantly, with what is missing from it. We are concerned about the fact that the farm bills have tax increases in both versions of the bill, and they rely heavily upon these tax increases to fund programs. They rely heavily upon budget gimmicks used to increase the size of certain programs. And we are concerned, of course, about the trade-distorting effects of increasing target prices and loan rates that both farm bills contain.
We are also concerned about what is missing from these bills. And that is, real reform of our farm programs in the areas, frankly, where we heard it directly from the producers themselves in the reform that they described as being needed the most. Neither the House nor the Senate has gone far enough, I believe, toward imposing a meaningful income cap on participation in farm programs or toward reforming the way that beneficial interest is applied in the marketing loan transactions.
Ladies and gentlemen, a farm bill that fails to address this issue, we believe, puts our agricultural policy on shaky ground for the future, and it is one that I and the president's other senior advisors on agriculture will recommend that he veto if it is presented to him. I do not say this lightly. Again, I've been involved in six successful farm bill debates. They are tough. And so to say this causes me great pain. But at the same time too, those of you who know me, know that I shoot straight, and I wouldn't stand before you and tell you something that wasn't the case.
Let me just take a moment, if I could, and talk about where we are in our agricultural economy, if I could, right now, just to put this into perspective. By any measure, ladies and gentlemen, 2007 was a very good year. Corn prices hit an 11-year high, soybean prices hit a 34-year high, and of course wheat prices are at all-time record highs. With the price of corn and a strong and growing demand for ethanol and other renewable fuels, I suspect this has been an outstanding year for many of you, probably one of your best years ever.
I know from my brother in that farm in Benton County, Indiana, it has indeed been one of his best years ever, and frankly it is good to see him making some money on that farm. When he introduces me, he's quick to remind everybody that he's the brother that does the work for a living.
And you know, I don't disagree him with very often because he works very, very hard. And it's good to see corn farmers and soybean farmers making some money.
We've seen great success in other agricultural markets as well. With the dollar in a very competitive level and strong demand from foreign buyers for our agricultural exports, they continue to break records. Fiscal year 2007, our exports came in at $82 billion, and this year we expect U.S. agricultural trade to reach $91 billion. These are numbers, ladies and gentlemen, that people thought would be impossible to achieve in our lifetime, and they are upon us.
Your state has traditionally ranked in the top 10 of our nation in terms of your agricultural exports, led by soybeans and wheat. That gives producers here in this state, we believe, a real stake in continued access to foreign markets.
All these gains have had a very direct impact on farm income. In 2007, we estimate net cash farm income at $85.7 billion next July. That's up over $18 billion, ladies and gentlemen.
As I told one group earlier in the day, I remember the days not too long ago when we gauged our year in agriculture by whether or not we broke $50 billion of net cash farm income. We have not only broken that, we are way beyond anything historically ever used as a benchmark of measurement.
And even more exciting things are ahead. Last month, as has been noted, Congress passed, and the President signed into law, an exciting new Energy Bill that sets ambitious new renewable fuel standards for the nation.
It calls for renewable fuels production of 36 billion gallons in 2022, just 15 years from now. But its effect, again as it's been noted, will be much quicker than that, reaching 9 billion gallons of grain-based ethanol in just this calendar year. And that standard rises to 15 billion gallons four years from now. Tremendous challenge, tremendous opportunity lies ahead of us in this area.
I understand South Dakota is on track to reach an ethanol production capacity of 1 billion gallons this year. And I can assure you, the nation is going to need every single one of those gallons.
Renewable fuels, I will note, have taken a lot of criticism in the press in recent months, but I will tell you that as I travel the support from all Americans for the U.S. producing more of its energy here at home has never been stronger, ladies and gentlemen. It has never been stronger than what it is today.
If we needed confirmation that we are headed in the right direction on renewable fuels, I think we only have to look at where we are with the price of oil, which of course again it's been noted topped $100 a barrel this week.
Our growing appetite for renewable fuels and the standards the government has set to accelerate the growth of this industry are both having a positive impact on the markets that you produce for all your commodities. As these markets have emerged over the last few years, producers like yourself, have been able to make your planting decisions based on the signal that the market is sending of you instead historically where you might have turned to government support programs for that signal. That's how we ended, ladies and gentlemen, with 13 billion bushels of corn this year and the largest acreage of corn that we have had since 1944. Farmers took their signal from the marketplace.
We will use that production not only to meet all of our energy needs. But I would note, that for the livestock sector, that we will feed more corn for livestock this past year than what we did the previous year.
I have sympathy for the livestock industry because they are paying more, but, in terms of available supplies, more is available as a result of farmers responding to those market signals.
Starting as far back as the 1985 farm bill, there has been a consistent effort to make our farm policies more flexible and, of course, more market-oriented. Imagine if you would, the impact on the corn market in 2007 if we had not had the foresight to allow producers the opportunity to switch from one crop to another without being penalized in terms of their government farm program. In a time of prosperity, a time of success like the ones we are enjoying now, we have a chance-I believe-to take a long view and to work together to put American agricultural on the strongest possible footing to be deal with competitive challenges we face in the future. And those challenges ultimately are driven towards higher farm income, better quality of life for our farmers.
That is the best way to assure future growth, that is the best way to assure opportunities for the next generation and prosperity for our industry. We do, ladies and gentlemen, face competitive challenges and issues that must be addressed.
Just last month while we were working on the farm bill and the energy bill in Washington, the World Trade Organization opened an investigation at the request of Canada and Brazil into all of our farm programs dating back to 1999. And a WTO Compliance Panel has ruled the changes that we made in our cotton program, in the case brought by Brazil. were insufficient to bring us into compliance with the World Trade Organization rules.
We have to be in compliance with those rules, ladies and gentlemen, or $91 billion of agricultural exports will be threatened, and we simply cannot allow that to happen. We will continue to vigorously defend our programs against challenges brought by our trading partners, but we also have to recognize the risk that these programs can come under in terms of trade sanctions and disruption of our programs if these adverse rulings keep coming forward.
Our goal should be to make our programs more secure, less subject to challenge by our trading partners. And that is why we do believe that providing higher levels of trade-distorting support to 80 percent of crops grown in America today, as has been done in both the House and the Senate bill, is moving in the wrong direction. We've described it as painting as bull's eye on our back. At a time that we have record exports, record farm income, good prices, we don't need a bull's eye on our back.
Raising taxes, ladies and gentlemen, to pay for farm programs as well is something that we have not done since 1933. It is another step that is, in our opinion, moving in the wrong direction and must be corrected by the Conference Committee.
The Senate version of the farm bill increases overall spending by $37 billion through a series of budget gimmicks, tax increases and unfunded future obligations to spend money. In our opinion, this is not acceptable farm policy. The administration's farm bill proposals delivered $5 billion of additional help, and we did so without raising any new taxes, and we certainly did so with an honest budget accounting system.
The Senate version of the farm bill, however, calls for new taxes to pay for these programs. I simply, ladies and gentlemen, do not believe other sectors of our economy should be asked to pay additional taxes to pay for farm programs. They don't ask for ours, and we shouldn't ask for theirs in my opinion, especially when the current versions of the bill keep sending farm subsidies to what we have described as millionaires living on Park Avenue.
Our analysis of the Senate version of the farm bill shows that it relies on nearly $22 billion of budget gimmicks to obscure its true cost. It claims nearly $10 billion of illusionary savings from delayed payments and speeding up collection of commodity and crop insurance programs. The analogy that I use for this process is to simply say that this is the equivalent of you coming to me and saying, Chuck, my corn production costs are going to be down in 2008. And I would look at you and say, "That's interesting!" But what I would realize is that you prepaid all your '08 crop expenses in 2007.
That's the type of movement of dollars the Congress is using to fund this farm bill.
This is not something I believe farmers, I don't think it's something any of you want. I want to go out there and I want to be able say, "This is what the farm bill spends exactly, and it's a darned good investment!" And I want to be able to deliver that message all over the country.
I can't do that if I'm trying to hide dollars in the farm bill. You can't do that. I want to be able to do that. I don't think accounting gimmicks are what farmers want to see. If something is going to cost, the farmers I grew up with said, "Be forthright, and tell exactly what the true cost is going to be."
I also believe we recognize that we jeopardize risking support within the agricultural community and the safety net that is so important to farmers all over the country if we continue to spend tax dollars supporting the very wealthy. I mentioned Park Avenue earlier, and you've noted the map that has gone up on this chart. This is something we've used extensively. Those dots represent farm program payments. The big dots represent a lot of farm program payments. Now, this is a map of Manhattan, ladies and gentlemen, and I remind folks that is not Manhattan, Kansas.
This is Manhattan, New York. New York City. And these are farm program payments going to people in New York City. And ladies and gentlemen, I'm sorry that this is not worthy of our farm bill. This is not worthy of farm bill support. Why in the world would you take people living on Park Avenue up and down that center swath on Park Avenue where those payments are concentrated-this is some of the highest-priced real estate in the entire world. To live there simply involves money that is beyond anything any of us would even recognize. And yet these are people that are getting farm program payments, a lot of farm program payments. We need to stop this. You can save money. We can invest that money in energy and other important investments going forward. But this has to stop.
This is the type of reform that we are calling for in our farm bill proposals. And frankly it's the type of reform that has been thus far rejected by the House and by the Senate. This provision that we call for are AGI limits that addresses this kind of situation, affects only about 38,000 people. They represent 2 percent, the top 2 percent of the tax-filers, the richest tax-filers in this country. And ladies and gentlemen, we do have a very wealthy nation. If you were in that 2 percent of the upper echelon of the United States of America, you are doing very, very well for yourself. And again, why are we giving farm program tax income support dollars to these people? It just simply makes no sense.
Save the money, invest it in energy; invest it in a better safety net. Let's talk about where to invest it: the point being save the money, take them off the farm programs.
Taxes that affect broad sections of our economy also to support farm programs we don't believe are a step forward. Fairness to taxpayers also means that we do make sure that their program dollars are being spent efficiently. We have raised the beneficial interest issue, which has been debated at some length in South Dakota. The beneficial interest issue simply says that you collect your farm program payments based upon the time you actually market your grain, not when you simply go into the office and establish the price on that particular day.
We believe this situation would prevent abuse of the programs that occurred in the situation after Hurricane Katrina when prices dropped, dramatically but temporarily, and producers were able to go in at that point and collect $3 billion of unearned loan deficiency payments as a result of that particular phenomenon. Again, money can be saved; money can be reinvested in other priorities that I think are critical to the future of American agriculture. We would like to see that go forward at this point.
Finally, let me just close by referring to our desire to have a strong, revenue-based reform of our countercyclical program. As we traveled around the countryside, one of the things everyone noted and that we encountered was that they liked the current bill, but they acknowledged it provided the most amount of help really at a time when the producer harvested the large bumper corps.
You know, as I look back to 2007, ladies and gentlemen, I've noted that it was a very good year. But at the same time too, and perhaps some of you who are in this room, we'd have to look around and acknowledge that not everyone in American agriculture had a good year. There was a lot of dry weather scattered around this region of the country, around the southern, southeastern region of the country, places like that, in the west.
You know, is $10 wheat going to do you any good if you harvested no wheat? It's not going to do one thing for you. But again, the way our current farm programs operate, because the prices are so high even if you had a total loss, no income for 2007, you virtually get nothing from our farm programs.
The purpose of going to a revenue-based countercyclical is to simply say: We want to give you more generous supports when you've had a crop loss. We want to give you less, if you've had a bumper crop. But the safety net should be stronger when you really suffer some tough times like some producers did in 2007-fortunately not a lot-but the ones who did are really suffering because they had no crop, and they're seeing a lot of people in this country sell at record prices that they are not able to enjoy.
So those are the types of things, ladies and gentlemen, that we'd like to see done in the farm bill. They're not in the House or the Senate version for the most part, and that's why I describe it that we have a long way to go. I remain confident that we can get the job done.
Every farm bill is tough; every farm bill looks bleak until the last minute. This one looks bleak from my vantage point; I will tell you that. But I know that on the other side of that is an opportunity for us to sit down and work together as we have done so many times in the past, come up with the right plan, a reform-minded plan, one that's fair to the taxpayers, one that talks about the true cost of the bill. And I believe one that will actually provide a better safety net for our producers going forward and take care of our situations in Manhattan, New York City. And we'll have a better farm bill for it.
I thank you all. Before I lose my voice, I better again just say how much I appreciate being here in South Dakota with all of you tonight and God bless you all.