Transcript of Remarks by U.S. Department of Agriculture Secretary Schafer to the National Cotton Council Annual Meeting
Memphis, Tennessee

SECRETARY SCHAFER: Thank you, John. Thank you. Thank you very much. I appreciate that very kind introduction. And thank you all for the warm welcome. I'm pleased to be with you here today, and it's a great day in America.

I first would mention, if you have cell phones, please turn them on. I think it's a sign of the economy, of business, of technology. I appreciate it. Matter of fact, if you have to make a phone call or visit with your neighbor or drink your coffee, go ahead. I'm kind of used to visiting with the Legislature.

[Laughter]

But I do appreciate the opportunity to be here today. I was especially pleased to be invited because as I'm catching up with cotton, being from North Dakota of course cotton is not one of our major crops there, and I am catching up and finding that the number one cash crop in the United States is an important piece of our economy. But more importantly, the Cotton Council I think is the body that provides consensus for all the different segments of the cotton industry. It provides that consensus to move forward with public policy initiatives and efforts to improve and help your cotton industry. And so I'm very pleased to be here and visit with you today.

I have to tell you, I've been in office about two weeks now, not quite two weeks, and it's really been a thrill. It's an honor to serve the people of the United States in this position. I love agriculture. The agency is really great. The people, I have enjoyed so much the employees and the dedication to the commitment of the mission of USDA. And I'm very proud to be able to lead this great agency in a time of good economics in the agriculture industry.

But there are some adjustments that I've had to make. I'm kind of from North Dakota. I'm used to being in the wide open spaces and seeing the sky, and now I'm kind of dealing around in the Washington area. Of course there's a lot of security in Washington. I'm not real used to security, but I see security all over the place. And I get (let) into the back doors and the loading docks and through the kitchens, instead of being able to walk in the front door. And that always provides some interesting scenery on the way in. But, you know, in North Dakota we are the safest state in the nation, and so we don't have to worry too much about security.

Let me give you an example. In the governor's residence there are cameras that kind of watch over the residence, much to the chagrin of our daughter. My youngest daughter even tried to sneak out once in awhile.

[Laughter]

But there are cameras that watch over the residence. And one Sunday afternoon I was relaxing at the house, and had a phone call from the security center. And the person on the phone, the officer, said, "You know I'm looking at the cameras and I see a box that's sitting up kind of against the garage door, and I hadn't see it before, and now it's there, and it looks like it's got some things sticking out of it. It might be wires, kind of not sure what it is." But he said, "Maybe you want to run out and take a look at it and find out what it is."

[Laughter]

So anyway, that's security in North Dakota. But we deal with that. But it is interesting to be on the job, and I am adjusting to kind of all the activity and the issues and things.

And I think I was on the job a week when I had a briefing with the chief litigator, the head lawyer at USDA, who promptly informed me that after seven days on the job I had already been sued for over $100 billion. I thought that was kind of intriguing.

[Laughter]

But anyway, that's how they go. You know, the agency is really good. When President Lincoln founded USDA he called it the People's Department, and he called it the People's Department because he said it affects so many different people in so many ways. And certainly USDA does that. It touches our lives in almost everything we do. And so to be able to represent a broad-based agency like that is just really a thrill.

As an example, immediately upon hearing of the tornado issues in this region, USDA dispatched people from Ag Central in Washington as well as field officers to come into this area and start to help with the recovery, the rebuilding efforts. I wanted to say that our thoughts and prayers are with the folks who lost homes and loved ones in the tornados here and Arkansas and Mississippi and Tennessee and Kentucky and Alabama this week. It's been a very difficult time, and I was pleased that USDA could marshal some resources to be involved in that issue. The death toll here in Tennessee has now reached 31; over 1,000 homes have been destroyed. And certainly we mourn the loss of a USDA employee and her family that were tragically killed in this accident.

The President was here yesterday to offer support and to let folks know the American people are standing with them, and our government will be here to help people get back on their feet.

To get started this morning, I'm happy to announce that based on market figures released yesterday the USDA has decided to issue partial payments for the 2007 countercyclical program at the maximum level of 40 percent. With a payment rate of 3.09 cents a pound we expect approximately $300 million in payments to begin flowing as early as this coming week.

As I was looking through those economic reports, I have to tell you that overall I see an incredibly strong agriculture economy. American agriculture is enjoying at this time I believe unprecedented success. We're seeing good prices, strong demands, and record farm income. Last year net cash farm income reached almost $86 billion, and that was up $18 billion over last year.

Our exports are in high demand as well. We saw $82 billion in export sales last year, the fourth record year in a row. And we are projecting we'll hit another record of $91 billion this year, and the cotton industry is playing a large part in driving these numbers.

Approximately 75 percent of your cotton is exported, with $4.7 billion in export sales in 2006 and a nearly 25 percent increase in the number of bales exported into 2007. I don't think I need to tell you the importance of trade.

But let me assure you that one of my top priorities as Secretary will be to continue to open markets and help keep those numbers growing. When I was visiting with the President about taking on this job, and this challenge I must say, he said, "Ed, I need you to weigh in on trade; these are very important issues, it's something I'm committed to, and we want to provide a fair and balanced trade arena for our producers in the U.S., and I need you to get involved in this area." And I will.

Our President and his administration are strongly committed to free trade, and we believe that, given a level playing field and equal access, American producers are going to successfully compete with anybody in any market in the world. It's our mission to make sure that we give you the opportunity to do that, and that's why we've devoted so much time and energy in completing the free trade agreement with Peru and Panama and Colombia and Korea.

We took a great step forward when President Bush signed the Peru Free Trade Agreement in December after the Senate approved it with the strong bipartisan support of 77 to 18. This agreement alone can generate more than $700 million in new sales for American agriculture each year. It eliminated all cotton tariffs immediately, and that should be helpful to your producers.

The next chapter of the story should be passage of the free trade agreements with Columbia, Panama and Korea. And I can tell you that winning passage of the pending free trade agreements is one of President Bush's top priorities for the coming year. And again, I assure you that we will be working with Congress to make this happen.

I'm taking a group of members to Colombia next month to show them how opening these markets provides better opportunities and greater economic opportunities for your industry as well as agriculture in general.

Taken together, these four markets—Columbia, Panama, Korea and Peru—could open up more than $3 billion in new export sales for America's farmers and ranchers. And it could have a great impact on your industry. With a signed FTA in Colombia for instance, we could eliminate tariff bindings that range from 70 to 99 percent as well as a tariff rate of 10 percent. In Panama and Korea, we can lock in our duty-free treatment for cotton. This is important. We face increasingly stiff competition in these markets, and with guaranteed duty-free access, we can ensure that our producers will continue to compete effectively.

Of course as important as they are, bilateral and regional free trade agreements are not the only tools that we use to widen markets for American agriculture products. We also are continuing to work on the Doha Round in the free trade discussions held by the World Trade Organization. Multilateral talks such as these hold great potential for trade expansion because they can open up and expand access to many, many markets through a single agreement.

That's why we remain committed to the Doha Round of trade talks, and we will continue to push for a comprehensive agreement this year that is fair to all parties.

Now I firmly believe that free trade has to be fair trade, and you have my commitment that we will be fighting hard for you to make sure that we provide that level and fair trading field out there.

We're also working with the WTO on a case regarding cotton that was brought against us by Brazil. I'm sure you all know about that. But in December, WTO Compliance Panel partially upheld Brazil's claim that the U.S. didn't do enough to comply with earlier findings against the support programs. We believe that the changes we have made brought our programs into full compliance with the WTO rulings, and we will recommend that the original cotton case is just not appropriate.

[Applause]

We are very disappointed with the Compliance Panel's findings. And we continue to believe that support payments and export credit guarantees under our programs are fully consistent with our WTO obligations, and we are going to continue to work in that manner.

Given the opportunity presented in the Doha negotiations, we have emphasized the importance of delivering reform in agriculture trade through negotiations rather than litigation. We are hopeful that WTO members including developing countries like Brazil, and also India, will see the benefit of working with us to deliver real progress in the Doha Round. In the meantime, we will continue to vigorously support the programs that we have in place.

However, disputes like this I believe highlight the importance of ensuring that our farm policy is not vulnerable to international challenges.

You know, we go through quite a lengthy election process. I don't know about you but I'm kind of tired of the presidential election already. But we do go through this process in America to elect our representatives, and to stand forward to us and develop public policy that makes sense. And as we debate farm policy, I know that I may disagree with some of Congress's policies. They may disagree with some of the administration policies. But you know, I'd rather be in there working with and causing Congress to vote on our farm programs, and not a WTO panel.

And we have to make sure that our laws and rules and regulations are compliant with the WTO requirements. That's the way we open markets, that's the way we provide better opportunities for you, and we're going to be working on that as one of USDA's highest priorities in the trade negotiations.

Putting trade negotiations in the proper light is a proper farm bill that's compliant with WTO. As we negotiate that farm bill, we're in the midst of the conference process right now. As you know the new farm bill has been passed by the House, been passed by the Senate, and we are working through the conference process.

As many of you likely have heard by now, the administration has serious concerns about both the House version of the bill and the Senate version of the bill, and if changes are not made in the area of taxes or reform of farm programs, the President simply is going to veto that bill.

But I'm optimistic. I believe that over the last few days we've seen some movement. We have been heavily involved in negotiations with the House and the Senate. There are huge differences between the House and the Senate bills as you are aware. And those need to be resolved, as well as the differences with the administration. But I think that we will see an agreement here soon. The President has a desire to sign a new farm bill this year, and I do believe that we're going to get that done.

The House bill raises target prices and loan rates in a manner that increases market-distorting threats in the program, and we have to take that into consideration. We simply cannot step backward as we look at the World Trade Organization requirements in trying to open those markets. The Senate bill increases loan rates on 17 crops and increases target prices on 18.

You know, and that really puts a bulls eye right on our farmers' backs in this time of record trade, of record prices and strong farm income. And I just don't believe that's the right course.

I also don't believe that programs in the farm bill should be funded by tax increases that affect our entire economy. Nor do I believe that subsidy payments should continue to go to people who don't need them and who aren't involved in production agriculture. I think that taxpayers have earned the right to know that their dollars are being spent wisely and that they're going to people who need them, and they aren't going to the large corporations and the wealthiest of the wealthy; so that they know their tax dollars are being spent wisely by giving people a hand up of temporary help or a program that encourages investment. And that's what we are trying to move forward with.

And I don't mean to say that there aren't good things in the Farm Bill for sure, because there are. In fact, there is probably broad agreement in 90 percent of what is in those bills. One of the good things is increased funding for conservation programs, and both the House and the Senate would provide those issues. When the Administration put its farm bill proposals forward last year, we proposed a greater spending increase for conservation than any other program in the bill. The House and the Senate have taken different roads than the one that we proposed, but they both provide more money for conservation. And we believe that's important, it's appropriate.

The House and Senate have taken these programs that help farmers and ranchers. Importantly, we need to put it on the table in a non-trade-distorting way while opening environmental benefits to the broader community.

We are also pleased that both the House and Senate moved towards a revenue-based countercyclical program, which means farmers can be sure that they will get help in the times when they need it the most, the time when income is down. All of you have a lot at stake as to whether or not we have a successful conclusion to the farm bill process this year. And if you make your voices heard it will help us all in Washington find a common ground that we can all agree on. I for one am committed to giving you a government that people asked for.

I had an opportunity to meet with your Executive Council this morning. We had good conversations about income subsidy limits on the provisions of the farm bill, on the effort of negotiating for what you find important in your business. I do understand that the issue here of low margins and large operations and off-farm income and all of the things that need to be incorporated in these subsidy limit caps are important issues for you.

And while we learn to understand those issues and figure out how to mesh them in with proper public policy, I'm really convinced, and I'm increasingly optimistic, that we will find the common ground in these farm bills that will allow the President and the House and the Senate to come together with good farm policy. Then the President will be able to sign the bill this year.

I also want to thank the cotton industry for participating in our Stocks to Food Program. The demand for our products both domestically and abroad has been great news for farmers and ranchers, but it's also meant that we have been unable to buy as many surplus commodities for our Emergency Food Assistance program. Many nutrition programs and food banks rely on these supplies to help feed their communities.

To help deal with these changed circumstances, last summer we came up with the Stocks for Food Program. Under this program we've been bartering inventories of commodities like cotton for off-the-shelf items that we then can provide to food banks. We expect to provide approximately $80 million of domestic assistance under this program this year, and those shipments are starting to roll out all across the country right about now.

Importantly, approximately one-fourth of that program, or $21 million of assistance in this initiative, comes from the transfers of cotton stocks. We think this is a promising approach, and we hope to be able to do more along these lines in the future. But I applaud your participation in this program, and I know that the food banks across this country share that sentiment.

In closing, I want to recognize your leadership. Your presence here tells me that you are willing to step forward and become involved in the efforts to improve your operations, to improve your communities and your states and our nation. You have become involved in your industry; you've committed your time and your resources and your efforts to just help make things better. You know, that is so important as we move forward.

You know, we get into leadership situations and it really is a commitment, and as you know sometimes leadership brings with it contentious issues, disagreements, different ways. And you know, it's kind of the working together, the understanding of the issues, and the good public discourse of looking at different methods and ideas and ways that helps us develop good public policy. And your being involved really makes the difference. And I want to commend you for that.

We come together in the end and we agree. And I know in your organization the effort is to come up with 100 percent agreement before you issue your public policy initiatives. That means that you have to combine a lot of different ideas and ways and directions into one common good that sets forth for the benefit of all. I really appreciate that.

As governor I dealt with various issues a lot, very contentious areas a lot; and as governor we made decisions that affected people's lives and their incomes and their families and their neighborhoods. And I want you to know that I came here today to listen to what you had to say because it's important to hear your input is important as we get into the process.

I kept on my desk a saying from Thomas Aquinas all the years that I've been in public service, and what he said is: "We must love them both, those with whom we agree and those with whom we disagree; for both have labored in the search of the truth, and both have been helpful in the finding of it."

And that's what you are involved in, in your leadership roles, is defining of the truth and the presentation of what is important to you and your families and your communities and your industry. And I pledge to you that we will be here working with you to make sure that happens.

As I met this morning with the Executive Committee, I was struck by the common backgrounds and issues that I have with your industry. It's certainly not the same crops; but being from North Dakota I get the issues of rural migration, of trading our crops, of government interference and the opportunity for me to do my job. You know, those kinds of things were very important. But what also struck me is the farm lifestyle.

We talked a little bit in the meeting about the low margins in your industry and that return on investment isn't what you'd go out and put your money on the table for these days. And what it tells me is that you have chosen a lifestyle. You know, you're not in it for the money, for the headlines or whatever it is. You know, you're in it because it's the lifestyle that you have chosen to live.

And that becomes very important to me because being from a rural agriculture state and understanding the agrarian lifestyle makes me know that the efforts that come from the land from working the cotton, from being in that production agriculture, is really what helps develop the character and honesty and hard work ethics and the morals, the principles that are the cornerstones of the society of the United States of America.

And I am proud of you and your efforts to do so.

I just firmly believe that USDA has a mission of continuing and promoting and actually increasing the influence of the agrarian lifestyle on this country because I think it is the foundation on which our country was built.

Finally, as I looked at the front page of the newspaper this morning, I saw a picture of the President of the United States hugging some tornado victims. And I was struck by the humanity of that image. I was struck by the love and compassion that was in that photo. So I urge you really to use your leadership for the good of humanity. You know as I looked at that picture I thought, you know let's all go out and let's hug our spouses and hug our kids and hug our neighbors and our friends and really engage in the process of caring and providing a good and helpful country; that really is the cornerstone that has made America great.

So thank you all for being involved. I appreciate the invitation to be here. It was wonderful to be able to make a meat inspection late last night at Rendezvous Ribs.

[Laughter]

So there are outside benefits for being here as well. But it really is an honor for me to be here to have a chance, an opportunity to sit with your Executive Committee, to visit with you today.

And I believe if we have time we'll take a couple of questions, and I'll be glad to answer if I can. I'm new on the job, so you've got to give me a break. But I'll try to answer anything I can.

There's one down there. Yes.

QUESTION: Mr. Secretary, the Cotton Marketing Loan Program is very vital to our industry. The discovery of an accurate world price is a critical component in this. The world price currently is based on price flotations from Northern Europe. We've been informed by Cotton Group that these price flotations will disappear in the near future. As a response to this, we've asked FSA to announce their intention to calculate the new adjusted world price based on Far East quotes. We would appreciate your support in this endeavor so that the cotton industry, that that we could operate with the certainty of knowing what an accurate AWP price calculation is.

SECRETARY SCHAFER: Thank you. I honestly need to catch up with that issue. And I appreciate the input, and I will carry that message.

QUESTION: Mr. Secretary, we appreciate you coming here this morning and speaking to us. Mr. Secretary, you mentioned in your remarks the WTO ruling against us in Brazil that's extremely disappointing to us. We expected that our giving up of a vital part of our program step food would be sufficient to satisfy those agreements. But obviously they aren't. Mr. Secretary, as we saw yesterday in our (unclear) report, this current farm bill and the farm bill with the House and the Senate, we do have issues with some aspects of those farm bills, is very market oriented. Mr. Secretary I must stop at this point and mention the administration's efforts at reforms. I feel like my wife and I take issue with the statement that farm program payments are going, that your reforms would reduce payments to those who are rich and don't need the income off the farm programs benefit. I feel like my wife and I take issue with that because your reforms would greatly affect my small operation in the Panhandle of Texas. So it not only affects larger operations but it would greatly affect smaller operations as well, the reforms that the administration advocates.

But back to Brazil, Mr. Secretary, we hope that you would recognize and the WTO would recognize that our program is market oriented and would continue to support and not allow WTO to single out U.S. cotton in our trade and our program benefits, and that you would continue to protect not only all of agriculture but especially U.S. cotton.

SECRETARY SCHAFER: Thank you. And I appreciate your comment about the subsidy limitations that the administration has proposed. If I said it was your operation that was the wealthy one, I apologize for that. I didn't mean to say that. I was indicating that the people of the United States today are asking that their tax dollars be spent wisely, and you have seen the news as well as I. People that have said, our tax breaks are going to the wealthy, they're going to the rich, we're subsidizing people that don't need it. And our programs really should go to those who need a hand up, need to be helped, to be an incentive for a temporary investment, for things that move and should be forward.

And the administration is fully committed to doing that. We have some differences of opinion about where that line might be, and I assure you that we had a good conversation today with your Executive Committee about understanding that issue. And the administration is committed to giving the people what they're asking for, but also to take into consideration the specific issues that might be on your farm or that might be in your industry that aren't readily apparent in just a broad statement of saying let's give the subsidies to the people who need them.

You have low margins, which forces you into large operations. You have an industry that allows you to have corporate business features that sometimes are included in farm income, other things that we just need to take into consideration. And while right now we seem to be pretty far apart on where those numbers might be, I am convinced that we really have on the table the public policy matter that says we need to provide a safety net for farmers and ranchers in America today that take into consideration their operations and the conditions of the industry so that we can provide that proper help.

And, I believe, I am more than optimistic these days that we are going to see a coming together of what's appropriate that we can incorporate in your concerns and come up with a farm bill that is for the best benefit of all. So thank you for bringing that up, and I'm not black and blue on that issue yet but we're still working on it.

QUESTION: Mr. Secretary, many of us in this room feel like that the Doha Round that's taking place in Geneva currently is ambitious to say the least and some would say overly ambitious. We're concerned about the benefits for U.S. agriculture and especially cotton coming out of those agreements.

As you mentioned briefly in your remarks earlier, market access is going to be important for U.S. agriculture coming out of those agreements. One of the primary ways that this industry will measure the results of that increased access is going to be what you can achieve in China. Would you comment about opening up access to Chinese markets, a way to vacate if you will the way that they lifted that access, the sliding scale with tariffs that we face in dealing in that market, and other measures they use to maintain the high prices for their domestic producers.

SECRETARY SCHAFER: Yes. China as you know is an extremely important market for us, not only because of the huge numbers of people, but as the economy is increasing the middle class is finding the ability to purchase our goods and services. As John mentioned in my introduction, I've led trade groups to China. I also represented President Clinton with Secretary Dan Glickman in China on a presidential mission to open agriculture trade issues. So I've been involved in China for a long time in trade negotiations.

I am fully aware working with wheat and soybeans, not cotton – but I'm fully aware of the non-tariff costs that come to us in getting our products into the Chinese market. And so is Ambassador Susan Schwab who is fighting every day about trying to open up this market. My new best friend in Washington is Susan Schwab I must tell you. Every day I meet with her to speak with her on trade issues. And China of course is often in the forefront.

I think one of the things with China in dealing with the Chinese folks that I learned many years ago is—they don't do business right away. You first have to build a relationship. And they don't necessarily trust our government. They don't understand our representative form of government. When a president or a leader or somebody comes over there and says, this is what we'll do, they kind of say, gee, well that's what they'll do. They don't understand how things get derailed in Congress or there's never two opinions. You know, "what the president said" doesn't mean that it doesn't have to go through a process of being voted on by the people and supported by our country.

So they don't quite understand our system. I think they've come a long way as they've seen their economy and their move to a more business-oriented generation of dollars there versus the central control. Those things are moving well. They are starting to understand more the need for our products as their middle class emerges. They've got a billion people that are living in poverty, subsistence farming in the countryside, and as those people are starting to generate and move forward and become more of a part of the economy, they need our products. And what has moved from a protection of China in their efforts has now moved to an opening of the markets because they need it.

And I think we're making progress. They still have a lot of barriers that are in place beyond the tariffs, not the least of which are the sanitary and phytosanitary issues, labor issues, inspection issues and things that just add cost to our exports. But we are aware of them, we've got them on the list, and we're chipping away at them. And I believe that it's not going to happen overnight, but the long-term effort is we're going to provide more open and better markets for all of us. And China I think is a very huge opportunity for the United States.

Thank you all. Thank you. It's an honor for me to be here.