Remarks by Agriculture Secretary Ed Schafer to the National Farmers Union
Las Vegas, NV

SECRETARY SCHAFER: Thank you all. Thank you, Tom, for the great introduction. Thanks for the nice, warm welcome today. I'm really pleased to be here. It's always good to get out of Washington and get out to where real things are happening. I'm not sure they're happening downstairs.

[Laughter]

I appreciated the comment in Tom's introduction about my roots in agriculture. You know, people wouldn't ever expect a shipbuilder would eventually generate a Secretary of Agriculture. When my grandfather immigrated from Denmark in 1902 he eventually made his way to the prairies of North Dakota and homesteaded the land. He was a shipbuilder by trade, and he learned to be a farmer. But the shipbuilding became very interesting because after they built the sod hut the first thing was to build a barn. His barn looked an awful lot like an upside down boat.

[Laughter]

So it did come in handy. But I am glad to be here. I'm making the adjustment from North Dakota to Washington, D.C. And that provides some interesting situations. You know, North Dakota is the safest state in the nation. We live in the wide open spaces. All of a sudden I'm in Washington, D.C. with security all over the place and a lot of people and cramped quarters. And, you know, I'm learning how to deal with people all over doing things for you. We're kind of independent at home, and we like to do things for ourselves.

As an example, I'm not quite used to having people just kind of walk you along and do everything. You know, today we go into the back alleys and the loading docks and through the kitchens, and I don't even know what a front door looks like anymore. But I was on a trip to California last week, and you know I get off the airplane, somebody meets me at the airplane, we get to the hotel and he's got the room, and he'd already checked me in. He takes me up to the room, we get in the room.

I thought I'd go out for a little walk to shake loose the travel the next morning. It was dark. I got up; I went for a walk along the bay where we were. And I got to the turnaround point about a half hour in, and I turned around and I thought, "I really have no idea where I am."

[Laughter]

It was starting to get light. Of course nothing looked familiar. I started to walk back. I said, I'll turn around and if I walk back about the same amount of time I should arrive at something that looks familiar. I realized that I couldn't call somebody. I had my cell phone with me. I realized I couldn't call anybody because I didn't know the name of the hotel.

[Laughter]

I got to the hotel, and went up to the desk because I had the wrong key for the hotel from the day before. And I went up to the desk and they asked me a room number. I didn't know my room number.

So anyway, I'm glad to be here today.

[Laughter]

Someone let me in, and here I am.

[Applause]

It is fun to be in the destination here. In Las Vegas, you know, is where so many people come on their honeymoon. I thought that was kind of interesting, and like I said I appreciate a lot of you taking time away to be here today. But, you know, I'm just wrapping up my first month as secretary of Agriculture and certainly I'm finding the job both a challenge and a huge honor. But I think I'm at the end of my honeymoon period.

[Laughter]

Actually I think maybe my honeymoon lasted half a day. You know, my first full day on the job here I was presented with a videotape on how business is being done in a slaughterhouse in California, and that has now led to the largest beef recall in U.S. history.

And of course immediately upon taking office I was dropped into the middle of the farm bill negotiations. And veterans, like Deputy Secretary Chuck Conner, of many farm bills, tells me these are as tough negotiations as he's ever been involved with. So, you know, welcome to the job!

Things have been moving fast, but it's really not a bad thing. When you start out in a term-limited job, like I am, with just a year to go, there's no time for procrastination, and you know you can't put anything off because you might not get another crack at it in the short period of time. So certainly there is a lot to be done, and I'd like to assure you that I am bringing a sense of urgency to the job.

I understand that watching the farm bill negotiations from farm country you may not be detecting a lot of urgency in this effort, but I'm here to tell you that there actually has been significant movement in the talks. Specifically in the last couple of weeks I think we've seen some great progress.

Chairman Colin Petersen and Ranking Member Bob Goodlatte really have put together a framework of a proposal and stuck that on the table last month. And there are huge differences as we move forward. It broke the ice, really. It got things moving. "Here's a framework about how it can work at a certain funding level." Then it was, we were able to say, "Okay, how are we going to come together within a framework like this to make it happen?"

The pressure internally to get this done is understanding that you are making your plans for your farms and ranches right now, and we need to have a farm bill on the table to help guide along what is happening.

We have a deadline of March 15th as you know that's coming up fast, and if we're going to be able to come to an agreement by March 15th, we're going to have to fire up the old time machine and step back a little bit, take a trip back to the farm programs of 1938 to 1949 or 2002.

No one who has taken a serious look at the 1949 permanent provisions really wants to take it back there. It simply makes no sense. We would have commodity support programs that would be totally out of synch with the market conditions of today.

It's not going to happen.

But we do hear some talk about moving the 2002 farm bill forward for one or two years. I think if you look at the fast changing world we live in today, even this long would leave us operating under provisions that we believe are no longer suited to the marketplace that we have today.

Extending the 2002 farm bill legislation would leave behind a lot of things. It leaves behind conservation programs that are more and more important to our operation. It leaves behind specialty crop support that we need to move into. It leaves behind the increased funding for nutrition and nutrition assistance. It leaves behind trade-distorting subsidies that change our standing in the international marketplace and, importantly, the 2002 extension would leave behind strong investment in the energy industry as it merges into agriculture and agri-energy relations.

What we really need is a strong new farm bill today that gives America's farmers they platform they need to compete and succeed both at home and abroad.

The Administration's goal is the same one that we have had from the beginning, to deliver a farm bill that provides a strong safety net for our producers, continued real reforms in farm policy, and keeps the door open to future growth in trade. It does it all without imposing new taxes on the American people.

The good news is, there is broad agreement among the House and the Senate and the Administration on probably 95 percent of the bill that's on the table today. It's that other 5 percent that's keeping us apart.

But as I mentioned, over the last few weeks the efforts of leaders on both sides of the aisle, in the House and the Senate, have been focused on coming to an agreement on how much additional spending the bill should contain over the current baseline.

The House and the Senate have been moving closer to a spending number, and that represents real progress. But just as important as getting a number and agreeing upon it is, how it will be paid for, whether the bill will create a more forward-looking set of farm policy.

The President has said time and time again that he will not sign a farm bill that raises taxes and uses taxpayers' dollars to increase the size of government.

So we've been trying to find some funding sources for the majority party that they have supported and voted for in the past.

We've put a lot of things on the table, Congress has put a lot of things on the table, and we're trying to move around and find funding sources. I understand that Chairman Petersen has mentioned a couple of those funding sources, maybe one for a few laughs like the oxygen equipment thing.

But importantly, we're putting ideas on the table. And I will point out that oxygen equipment changes could save $6.8 billion, and it's a program that's been strongly supported by the majority. In fact, Congressman Petersen voted for a similar idea just last year, and of course no one's going to deprive seniors of oxygen. But the important thing to do is to move forward and find funding sources that are acceptable that people have voted on before, that we understand that have been proposed that can work.

And we're trying to develop the big buck and many more dollars that are needed so that we can find the least painful issues to put on the table for the $10 billion suggestions that have come forth through the work with the House and the Senate.

Overall I can tell you that we're much closer to reaching a resolution on the farm bill than we were just a few days ago. A lot of work went on over the weekend, but there's still work to do. I am optimistic, however, that we'll be able to agree on a strong farm bill this year that's acceptable to both houses of Congress and that the President will be proud to sign.

And I pledge to you that we're going to do everything at USDA—and myself as Secretary and our lead negotiator Deputy Secretary Chuck Conner—we are going to do everything we can to make sure that we will work to make this happen.

[Applause]

Really, having a new farm bill in place is an important part of keeping our farm policies and our competitive posture up to date. And we just need to do that.

You don't have to look far to see why it's vital in today's world. We're enjoying a good time in agriculture: the economy is good; we have record prices, record farm income, record exports, all seeing all-time highs here. It's a good part of what's driving this is expanding demand for our products in the markets around the world, and the boom in demand for energy crops that we have been seeing here at home.

Just a couple of weeks ago USDA came out with a new projection for this year's agriculture exports: $101 billion. That was up $19 billion over last year's record performance, and really it was up $10 billion over the projection that we had made three weeks before. It's a moving and dynamic marketplace out there, and really what I call markets in motion that are happening.

We now expect agriculture products to generate a trade surplus for this nation this year of more than $24 billion. So agriculture has certainly been doing its part for our economy. The growth we are seeing in exports this year is not only based on higher prices but also higher volumes as well. There's a growing demand for our high-value exports such as fresh and processed fruits and vegetables as well as pork and beef and poultry and many grocery products.

Many factors are driving this growth—global weather like the drought that we've seen in Australia and Europe. But consumer demand, particularly from growing ranks of the middle class in emerging countries such as China and Mexico, have been an important contributor to our exports.

Those one billion estimated new consumers that we've been expecting to arrive on the world's scene are showing up, and they're making their presence felt in our purchasing decisions.

Those emerging economies around the world like China and India and Mexico are creating new demands and new consumers for our products. But they also create complexities for us, like the rising demand for fertilizer in India has also helped to make it more expensive for all of you.

There's no question that living in a dynamic global marketplace brings uncertainties where there are opportunities. I have no doubt about the ability of America's farmers and ranchers to compete vigorously and successfully in a global arena. But I also believe that the bottom line that we are projecting this year tells the story.

We expect net cash farm income—you know what you have left after paying for everything else, paying for all your operating expenses—that that net cash farm income we expect to hit an all-time high of $96 billion this year. That's up $9 billion over just a year ago. That's an incredibly amazing number to me.

You know, I have a print of a character on a wall of a house. I've kept it in my office for many, many years. But it's a Chinese symbol. The Chinese use the same symbol for crisis as they do for opportunity, and that's been an interesting vision for me as I looked at that and gazed at that caricature over many, many years. But really what we have here today is in the midst of a price crisis and a lot of other markets we're providing availability and opportunity, and that price has just been fantastic for us as we see those opportunities come.

But the crisis really today is based on oil. You know, it's topped $100. We just heard the market price coming in is pushing $104 today on the market. We're seeing the price of gasoline head in the direction of $4.00 a gallon. And who would ever think that diesel was going to cost more than gasoline? But that's what we're faced with today.

Our nation's need for alternative and renewable energy sources have never been greater. And it opens the door for new sources of revenue and for new sources of agriculturally based energy methods that are going to be so important.

[Applause]

Some of the lift that we have been seeing in commodity prices this year is undoubtedly due to the Renewable Fuels Standard increases that was part of the Energy Bill that Congress passed and President Bush signed into law a few months ago, in December. The new mandates for ethanol and biodiesel production are good news for corn and soybean growers, but higher prices for corn are also putting pressure on livestock producers.

Fortunately, help is on the way. The same Energy Bill that will boost grain-based ethanol production this year also requires us to meet a rising portion of our renewable fuel needs from cellulosic and other non-grain sources, starting just one year from now in 2009.

By the time the full mandate of 36 billion gallons kicks in 15 years from now, 21 billion gallons of that, almost 60 percent, will come from cellulosic fuel and other advanced biofuels that don't distort the commodity prices and especially feed prices.

This means that we must give the highest priority to our research efforts to find ways to make cellulosic ethanol a practical and cost-effective alternative to corn-based feedstocks. And it means we have to continue working with farmers to develop new energy crops such as switch grass that can be efficiently converted into fuel.

There's I think $2.4 billion in the new farm bill for research on cellulosic and pilot programs to make sure that we start moving into these important areas and get away from the trade-distorting grain prices and into market-driven prices.

As you know, on top of that, President Bush is committed to free trade. And at USDA we believe one of the most important things that we can do is in that free trade arena to help make sure that we have a level playing field for U.S. producers who want to participate in our foreign markets.

We took a great step forward in that on the trade front in December when President Bush signed the Peru Free Trade Agreement after the Senate approved it by a strong bipartisan vote. The next chapter of this story should be the passage of free trade agreements with Korea, Panama and Colombia. They all promise big gains for U.S. agriculture. As a matter of fact, if you look at the Peru Free Trade Agreement and add to that the pending agreements with Korea and Panama and Colombia, that will open the door to $3 billion in new U.S. agriculture exports each year.

Later this month I'll be leading a delegation of members of Congress to Colombia so that we can see firsthand what is happening there both politically and economically and how stronger trade ties with that country will benefit both of our nations.

We are also continuing to participate in the Doha Round of trade talks because of the great potential that they offer us in expanding our exports to many nations and reducing our trade barriers and trade costs in many nations with one single agreement. We will be pressing hard along with the United States trade representative, Ambassador Schwab, to see an agreement this year that is fair to all parties.

As you well know, what happens in the international arena these days often has more bearing on the decisions that you make in running your farms and ranches than what happens in Washington, D.C. today. And what we do in agriculture is more connected than ever before to markets and trading partners all over the world. And that's why maintaining our consumer confidence with the quality of our agriculture products is vitally important to the future success of the agriculture industry.

We had that very much in mind as we responded over the last month to evidence about how cows were being mistreated and mishandled at the Hallmark/Westland Meat Packing Company in Chino, California. Our first step was to launch a full-scale investigation, and as our initial findings came in we recommended the largest meat recall ever taken in the United States history.

That was a Class II recall. That means the probability is remote that there is a risk to human health from the violations that occurred at this plant. It's simply not a health-based issue. But I believe that our actions to date show that we are seriously taking this situation into consideration. But I believe we sent strong, strong messages. For meat packers the message is clear: USDA regulations and rules are important, and we will enforce them.

The requirement that cows be up and walking means they must be walking without inhumane treatment to force them to their feet.

There is also another message here to livestock producers, I believe: Don't wait until the last minute to send an animal to slaughter. Make sure that your animals, before they are on their last legs, are shipped—while they can stand up to the rigors of transportation and the handling and the processing plant.

We recognize that our actions at USDA have and will continue to cause a lot of pain. The shut-down of Hallmark and Westland means—and they're talking about not being to reopen—it means that workers in that economically depressed area are going to lose their jobs. The recall means that processors around the country will suffer losses because they used Hallmark as the supplier.

But by taking these actions, we are also assuring children around the country who rely on us for their school lunches that rules do matter. And we are assuring mothers that the food that their kids eat, both at school and at home, is safe.

We're also sending a clear message to consumers, both our domestic consumers and in the international markets, that USDA will continue to uphold the highest standards to protect our food supply. And I believe that enforcing the standards that maintains customer confidence in the safety of our food supply is fundamental to the agriculture arena and it is one that I am proud to carry out.

I know we're going to have some time for questions so be thinking of good ones.

But in closing, let me congratulate you for stepping forward in a leadership role. By being here today you are showing that you have a willingness to get involved. You're getting involved in the agriculture community, a community I believe that has made this country great. But you're getting involved and you have to step forward to learn, to teach, to absorb agriculture as it is today. And those new things that we're learning and teaching and absorbing really are the things that create opportunities for you and for the industry as we go forward. I look forward to working with you to help continue that process.

And again I want to thank you for the invitation to be here today. It is an honor to be here at your convention and to be with you, and I look forward now to spending a few minutes interacting with you with your observations, comments and questions that you may have. Thank you.

[Applause]

SECRETARY. SCHAFER: I have one at the mike.

QUESTION: (unclear) Secretary Schafer, coming from the great state of North Dakota, I know that you understand how important disaster assistance has been to our farmers as well as farmers across the country. Will the President sign a farm bill that has a disaster provision in it?

SECRETARY SCHAFER: Well, the President has made clear that he wants to see a farm bill that includes a strong safety net for farmers. As we have gone through the negotiations, the issue that became apparent to me was the President's comments in resistance to a disaster title in the bill was an issue of spending because as you know he has spent $5 billion over $20 some billion over baseline already. So the disaster assistance isn't one about a safety net program; it's one of spending.

I believe that as we have now zeroed down to the spending arena and we're coming close together that we will see a strong safety net program, whether the dollars are going to be all in a permanent disaster assistance program or some of those dollars are going to be shifted into increasing the current safety net programs that are in place. But I don't know what all that balance is going to be, but I'm convinced that we are going to be able to funnel the monies into a safety net program title that the President will be able to sign.

Yes?

QUESTION: I got half a dozen. How many do you want?

SECRETARY SCHAFER: I want (unclear).

QUESTION: I'm Jerry Fagin, South Dakota.

SECRETARY SCHAFER: Hi, Jerry.

QUESTION: Secretary Schafer, I sure appreciate you coming.

SECRETARY SCHAFER: Thank you.

QUESTION: You talked about the meat recall, and I guess I would ask the question, where in the Hell were the inspectors for the last two years?

[Applause]

SECRETARY SCHAFER: Well, I think that's a good question. And as you are aware, a slaughterhouse cannot operate unless the USDA inspectors are on premise. So they were there. Now I believe that this is an industry issue, and that the industry is responsible for operating their facilities. In this case the USDA inspector was there and inspected these cattle, both on an ambulatory and at-rest situation, and approved those that were appropriate to go into the pens and down the chutes to move into the processing facility. A cow, one cow that we've been able to trace, and there are others, but one went down after that USDA veterinarian inspected it.

And the rules are that if that happens after inspection that the veterinarian must be called to make a judgment whether that cow would then go into the processing facility or goes out to the rendering plant.

The rule was broken. Our inspectors were not called. I would point out that we made 12 decisions last year to shut down facilities that were mistreating animals—not this one--others. We had 400 times that a veterinarian was called in this facility, and he gave made a judgment whether that cow can go in or not. So I don't think because the rules were broken that they are bad rules.

Now I think our inspectors were there. They cannot operate without them. And some deceitful practices were taking place. That's an industry issue, not a USDA issue. And I think we've shown that we are going to enforce the rules strongly. And I would guess there's probably not a slaughterhouse left on the earth that doesn't recognizes the fact that we are going to do this and they have the responsibility to follow the rules.

Yes?

QUESTION: Good morning, Mr. Secretary. Armando Valdez from Colorado. We appreciate you coming and joining us today, and we appreciate your listening to our perspectives and taking those back and implementing them into policy.

SECRETARY SCHAFER: Thank you.

QUESTION: My question has to deal with animal ID. And animal ID is a very controversial topic. We've had our own discussions here in our own organization. With animal ID, we're not opposed to it; we've had systems in many of our states that have existed for over 100 years. So we feel that animal ID is not a new process. Now how do we integrate our current systems and blend those together to develop a system that doesn't reinvent the wheel, uses our current resources, and hopefully builds upon what has been effective for quite a long period of time? And what existing resources are out there to do that blending?

SECRETARY SCHAFER: I appreciate the question on animal ID because it's one that we do get a lot. And it's something we discuss quite a bit internally as it unfolds. We have about one-third of the premises now signed up on a voluntary basis. And I believe—I'm not a big government mandate person—I believe that we should do things and develop good public policy that help people understand the reason (unclear) – I'm not interested in seeing a mandated responsibility.

The reason for the voluntary portion is to be able to incorporate the systems that are already in place. As we have looked at the one-third of the premises signed up, we have the goal of getting 70 percent signed up by the end of this year. And we have entered into cooperative agreements with industry organizations as well as some states to accelerate it to make that happen.

I think if we do it on a voluntary basis we are able to incorporate these infrastructures so, like you say, we don't have to reinvent the wheel. Hopefully that can happen.

But I think it's important to do so, as you mentioned, because it is the basis for a lot of our efforts (unclear) provide the good food supply out there.

Yes?

QUESTION: Good morning, Mr. Secretary. (unclear) from California. I'm a dairyman back in California with my family, second generation. And my question is in regard to the 65,000 or 70,000 dairymen we've got across the United States. We're going through a period right now where we're seeing these extremely accelerated feed costs, not to mention the other energy-related costs that we're experiencing on the farm. But on dairy alone, with the other livestock industries which compile about 50 percent of the agriculture production in the United States which is in the livestock industry, we're seeing these extreme high feed costs that a lot of it is part of what's going on with the energy crisis—which we have the ethanol production and so on drawing some of the demand out of the feed side of it which is why farmers have deserved that for a long time—higher prices.

How are you going to come up with a safety net that is lacking in the farm bill for dairy? We have a 990 old, based off the old production costs. We're not looking at anything currently today. Even the MILC program is basically set up for about a $13, $14 base program. How is USDA going to look at dairy? What happens to dairy if something happens to the prices when they come back down to that $12, $13 level? We've got the $15 to $18 cost.

SECRETARY SCHAFER: Well, I think there are several reasons we're looking. One is, our chief economist at the USDA is looking at the corn prices, specifically in the seed uses versus fuel base, of seeing the corn prices start to top out. Now it will tail down a little bit over here over the next few years. We're not going to see it go back in historic low prices, but they are going to start to tail off. I think we're starting to see the top of it. The answer long term of course is to non price-distorting issues as I mentioned in my comments, is the cellulosic efforts which will make some difference as well.

And I would also, just as an internal situation. point to the fact that (unclear). Last week I announced three marketing orders in the Southeast that will allow minimum prices to raise up that are being paid. And it drives me crazy. Now in California, the California state is not part of the marketing order system. They turn around orders in 90 days, and we've got a three-year backlog at USDA. So I've initiated internally the effort to respond faster to the marketing orders so that we can keep up with the pricing structure.

I've got time for one more and then I'm going to have to dash off. Not to the slots but to the editorial board and then back home.

[Laughter]

QUESTION: Thank you, Mr. Secretary, and thank you for coming today. We really appreciate your time and your efforts. I want to talk a little bit or ask you a bit about energy and address that. I refer back to a statement that Senator Saxby Chambliss made when he was chair of the Senate Ag Committee, talking about research on renewable fuels. He emphasized (unclear) territory. Today the research dollars are diminishing except for renewable fuels primarily. And it appears that the administration has (unclear). I realize that if we can begin to make ethanol from waste; for instance the Pacific Northwest where they have straw they have to burn to get another crop; it makes a lot of sense. But even Biogen, there's a front runner in cellulosic ethanol, it shows a map. And it's the Midwest from the northern borders to the southern border that has the least capability of providing cellulosic ethanol. Yet we need research dollars to help us continue to develop crops that are (unclear) more starch (unclear) extract more starch, crops that are more efficient on drought and fertilizer. All of that put together, how do we feed DDGs? Those are lacking in research dollars. What do you expect to promote to help get a balance back in our renewable energy?

SECRETARY SCHAFER: I think the balance of renewable energy is going to be aired. If I understand you right, you mentioned that the line up the Midwest does not have the opportunity for renewable energy as some other parts of the country?

QUESTION: Yes. Biogen has put on a map of that.

SECRETARY SCHAFER: Yes. And you know I know their efforts. I have not seen that map. But I would contend that while, I'm guessing that that map is based a lot on the wood cellulose and wood chips and new growth wood that could be put into cellulosic efforts, I would contend with you that switch grass is as an important crop long-term for cellulosic energy generation than any kind of wood chips or whatever.

I'd like to see all the CRP acres out there going switch grass so that we have those economic opportunities and those feedstocks go in. We can generate much more ethanol on an acre of switch grass than we can on other feedstocks today.

So I don't know that I'd agree with that map of that study, saying we don't have the opportunity in the Midwest because I believe that we do, and I believe that as we look at the pilot demonstration program money in the new farm bill as well as the dollars that are going to go into the research effort at universities across this country, we're going to make sure that it is balanced and that those feedstocks will have a broad-based national impact.

QUESTION: On the grass, we do have a lot of grass acres down through the Midwest. Most of that is in grass for a couple of reasons. One, (unclear) we cannot harvest it by machine. Another is (unclear), and we cannot get the yield from them as intently as they're going to get (unclear). We don't have the infrastructure for it. How are we going to develop the infrastructure?

SECRETARY SCHAFER: Yes, and I agree with you. But I would bet that on your farm you're putting seeds in the ground that are related better to the climate and soil conditions than ever before and have better yields and longer growing cycles and things than you ever had. And we have to make sure that our research efforts do the same thing with the cellulosic effort so that under the current soil conditions and (unclear) non-trade-distorting arena and let it be market-driven, is where we need to be. Thank you.

I thank you all. I appreciate you being here.