*EPF408 06/28/01
Text: Agriculture Department Official on Proposed Farm Bill
(Penn seeks support for administration trade policy) (2370)

A U.S. Department of Agriculture (USDA) official says the multi-year farm bill Congress is considering should support Bush administration policies promoting trade.

J.B. Penn, new under secretary of agriculture for trade-related issues, said in June 28 testimony before a House of Representatives subcommittee that a good way to promote U.S. agriculture is to open markets through Free Trade Area of the Americas (FTAA) and World Trade Organization (WTO) negotiations.

President Bush is seeking trade promotion authority, or fast track, to conduct such negotiations.

Penn testified to the House Agriculture subcommittee on foreign agricultural programs that Congress should support U.S. efforts to negotiate limits on export credit subsidies in the Organization for Economic Cooperation and Development (OECD).

The U.S. should "move forward aggressively on trade reform to enlarge the world trade pie," Penn said, noting that the U.S. share of world agricultural trade had dropped from 24 percent 20 years ago to 18 percent. He said that growing populations and middle classes in developing countries in Asia, Latin America, Africa and the Middle East hold potential for expanding market share.

While some people in the U.S. farm community "question" trade agreements, Penn said, the United States has been "quite successful" in the WTO defending U.S. producers from unfair trade practices -- out of 32 cases, the United States won 15 and settled 14 others without litigation.

Congress is expected to pass a farm bill this year. Many provisions of the 1996 farm bill will expire in 2002. To become law a final bill will have to be passed by both the House and Senate and then signed by the president.

Following is the text of Penn's prepared remarks:

(In the text, "billion" equals 1,000 million.)

(begin text)

Statement of JB Penn
Under Secretary for Farm and Foreign Agricultural Services
U.S. Department of Agriculture
Before the House Subcommittee on
Specialty Crops and Foreign Agriculture Programs
Washington, D.C.

June 28, 2001

Mr. Chairman, members of the Committee, I am pleased to be here today to discuss the Department's export, trade and promotion programs.

Introduction

Trade continues to be vitally important to the long-term economic health and prosperity of the U.S. food and agricultural sector. Last year, U.S. agricultural exports were valued at $50.9 billion. This year, sales are expected to reach $53.5 billion, producing an agricultural trade surplus of $14.5 billion. Dollar for dollar, we export more meat than steel, more corn than cosmetics, more wheat than coal, more bakery products than motorboats, and more fruits and vegetables than household appliances. Agriculture generally ranks among the top six U.S. industry groups in export sales, accounting for about 5 percent of the Nation's total exports. U.S. agriculture is one of the few sectors of our economy that consistently enjoys a trade surplus.

Providing our exporters with the tools to expand their foreign sales and to take advantage of new market opportunities is the goal of the trade title of Federal Agriculture Improvement and Reform Act of 1996. Most of the world's consumers -- 96 percent -- live outside the United States. And, many of them are in developing countries where much of the income growth is spent on food. A significant portion perhaps as much as one third of our farm and food system already is geared to serving these export markets.

The 1996 legislation continued the basic agricultural export programs set forth in the Food Security Act of 1985. The 1985 legislation, which was designed to shift agriculture to a much more market-oriented direction, recognized trade as a major contributor to the economic health of the farm sector. It also recognized that our exporters sometimes were forced to compete against the treasuries of other countries in terms of export subsidies and other unfair trade practices. As a result, that law specifically authorized the Export Enhancement Program, the Dairy Export Incentive Program, and the Targeted Export Assistance Program (which evolved into the Market Access Program), and modified several other trade tools, such as the CCC Export Credit Guarantee Program.

The export programs have been adjusted only slightly over the years, but the basic philosophy behind trade legislation has changed very little since 1985. In contrast, the U.S. food and agriculture system has changed markedly.

Today, U.S. agriculture operates in a global, high-tech, consumer-driven environment. Capital, technology, and information flow instantly between buyer and seller. Changing consumer demands are challenging marketing institutions and traditional ways of doing business. Today, multinational companies are processing and sourcing products from all over the world, which they in turn sell throughout the world, in a marketplace that is driven by consumers who demand quality, safety, health, and convenience while continuing to be price conscious.

Technology is constantly transforming world markets. Improvements in transportation, storage and food technology mean more food can be moved further and faster at lower cost. Information technology is vastly improving efficiency in all links of the food chain. In 1985, few of us knew about the Internet; now, it is a necessary business tool that we use every day. Biotechnology was still on the distant horizon. Today, it is generating many new products that make farmers more productive and promise to provide consumers enormous benefits.

Trade Performance

When the 1985 legislation was developed, we had not yet begun to negotiate the U.S.-Canada Free Trade Agreement, and the North American Free Trade Agreement (NAFTA) was 10 years away. The Uruguay Round of multilateral trade negotiations establishing the World Trade Organization (WTO) was not launched until September 1986, with negotiations completed in 1994. These historic agreements have brought about significant changes in U.S. agricultural trade.

A close look at what we export now and who and where our major customers are reveals significant differences from 1985. Export sales were $31 billion in 1985, and bulk products were 64 percent of the total while consumer-oriented high-value products were only 15 percent. Last year (2000, the last full year of data), consumer-oriented products had grown to 42 percent of the nearly $51 billion in agricultural exports, but bulk product exports had declined to 37 percent. The share for semi-processed intermediate products remained the same at 21 percent.

U.S. meat sales illustrate the rapid growth in consumer-oriented product exports and demonstrate how our trade policy initiatives and market development programs have worked together to benefit U.S. producers. Since 1985, meat and meat product sales have multiplied sevenfold -- from $900 million to $7 billion in 2000.

Japan continues to be the top market for U.S. food and agricultural products. But, other markets have been growing in importance over the years. For example, Canada and Mexico accounted for 11 percent of our exports in 1985 -- today, they account for over a quarter of our exports. We also have seen significant growth in Asian markets, notably China, the Philippines and Indonesia.

The business of food and agriculture -- from producer to processor to the food service sector -- generates 16 percent of the gross domestic product and employs 17 percent of the workforce. And, the benefits of trade in this sector extend to the entire U.S. economy.

USDA data indicate that each dollar in agricultural exports multiplies throughout the economy, generating $1.39 additional economic activity in manufacturing and other sectors. The total contribution to economic activity from agricultural exports is some $130 billion. This activity generates over 800,000 jobs -- 60 percent of them off the farm in processing, transportation, and marketing. These jobs pay higher than average wages, and many of them are in rural areas where good-paying jobs are sorely needed.

The global marketplace is highly dynamic, and we must be proactive if we are to recapture market share. Twenty years ago, the United States was the world agricultural export leader, accounting for 24 percent of world trade. Today, that share has eroded to 18 percent. Even though our exports have risen substantially since then -- and are projected to continue to rise -- they are rising at a slower rate than exports of other countries. In fact, the European Union, our major competitor, is on the verge of overtaking us as the world's largest agricultural exporter.

Trade Strategy

At the Department of Agriculture, we are mobilizing resources to conduct a comprehensive and thoughtful analysis of what American agriculture needs in a new farm bill, including the trade title. As we begin the process, I am convinced of two things. First, we need to move forward aggressively on trade reform to enlarge the world trade pie. Then, we need to make sure our exporters have the tools they need to capture a greater share of the benefits flowing from trade reform. I know that some in the agricultural community question the benefits of trade reform -- some feel that the United States has given up too much for too little benefit. But we can point to an impressive array of export growth statistics as a result of trade reforms.

I must also note that, contrary to widespread reports, the United States has been quite successful in defending our producers from unfair foreign trade practices. The United States has brought 32 complaints to the WTO that have been concluded. We prevailed in 15 cases that went to litigation, -14 were resolved to our satisfaction without litigation -- and we lost only three cases.

Second, we must sharpen our strategic focus to include those fast-growing, emerging markets that have the most potential for market share expansion. Our analysis shows that these include many of the developing countries in Asia, Latin America, and some selected opportunities in Africa and the Middle East. Over the next decade, food consumption in these markets will surge, benefiting from very favorable demographics -- a growing "middle class" that has rapidly rising disposable incomes, which they are eager to spend on more and better food. Gaining share in these fast-growing markets, without sacrificing hard won gains in large mature markets like Japan and the European Union, is the most effective way of increasing our overall share of world agricultural trade.

Trade Policy Initiatives

Development of the trade title of the upcoming farm bill must be closely linked to a number of other critical trade policy initiatives.

-- The enactment of trade promotion authority is first and foremost among these. This is at the top of the President's trade legislation agenda and essential if we are to achieve our trade reform goals.

-- We are also negotiating the Free Trade Area of the Americas that will provide U.S. producers and exporters with much greater access to 450 million consumers (outside the NAFTA countries) who will have $2 trillion in income in 2005.

-- WTO negotiations now underway will bring much needed reforms to correct and prevent restrictions and distortions in world agricultural markets.

-- We continue to work on an agreement on export credit guarantees in the Organization for Economic Cooperation and Development.

-- The Administration is committed to a comprehensive review of the U.S. foreign aid programs, including the Title I of the Agricultural Trade Development and Assistance Act of 1954, (Public Law 480), Title I program, to evaluate their effectiveness and to develop options for possible program reforms.

Challenges Ahead

The programs in the trade title have served the U.S. food and agriculture sector well. But, the upcoming farm bill presents us an opportunity to review those programs to see if they can be improved to meet today's challenges. We look forward to working with the Committee throughout the farm bill process to address the important issues facing our food and agricultural industry.

-- For example, given our WTO commitments and negotiating proposals, are there new approaches to export market development and assistance that clearly would not be subject to disciplines under the Uruguay Round Agreement on Agriculture?

-- Should the new trade title provide more flexibility to the Secretary of Agriculture to shift priorities and funds depending on the dynamic world trade situation?

-- What funding levels are adequate to meet today's global competition?

-- Are our aid and development programs still appropriate for today, or have they become obsolete or cumbersome?

-- Are there better ways to use our programs to help speed countries along the development time line?

And, of course, our trade and domestic programs must be complementary. Programs that may have worked against one another in the past must be reassessed. It makes no sense to have trade policies and programs promoting farm exports while our domestic support programs only serve to reduce our competitiveness. It is crucial that our domestic and export policy be consistent with our existing international obligations, and at the same time gives us latitude in pursuing our ambitious goals in the new negotiations.

Conclusion

These are just some of the questions that will need to be addressed as a new farm bill is being developed. USDA's Farm Bill Working Group is developing the Department's 2001 Farm Policy Proposals that will cover a broad set of issues vital to agriculture such as farm programs, conservation and environment, rural development, consumer needs for a safe and affordable food supply, and research, as well as global trade.

Trade is the single most critical element to the long-term financial future of our food and agricultural industry. The Administration has major trade initiatives underway that will benefit our industry, and we look forward to continued strong bipartisan support from this Committee.

Mr. Chairman, the U.S. farm policy process provides us with a great opportunity. Every five or so years, whether we want to or not, we get to take a top-to-bottom look at our farm policy. Today, our agricultural industry faces many challenges at home and around the world that need to be reviewed and addressed. I look forward to working with the Congress, this Committee, and our entire food and agricultural industry as we begin work on the trade title of the farm bill.

That completes my statement, Mr. Chairman. I would be pleased to answer any questions you may have.

(end text)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)
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