*EPF320 09/26/01
Text: Veneman Says Agriculture Policies Should Support Trade
(In Senate she urges quick passage of farm bill) (3880)

New U.S. agriculture policies should assist U.S. trade negotiators in pursuing "ambitious goals" for lowering tariffs and eliminating trade-distorting subsidies globally, Agriculture Secretary Ann Veneman says.

In September 26 testimony to the Senate Agriculture Committee, Veneman urged quick passage of new farm legislation that would give increased attention to food safety and agriculture research. She said the September 11 terrorist attacks on the World Trade Center and Pentagon reminded the public of the importance of the food and agriculture system.

Calling trade "critically important" to the long-term economic health of the U.S. farm sector, Veneman said new farm policies should help U.S. farmers expand into new markets abroad.

She said the Bush administration needs other legislation as well, especially trade promotion authority, or fast track, for the president "to open new markets and reduce tariffs" in trade negotiations.

Veneman said a new round of trade talks in the World Trade Organization (WTO) would lead to a global lowering of tariffs.

"Failure to provide strong leadership in global trade liberalization will result in our producers and exporters being left behind," she said.

She said export and domestic farm policies should be "mutually reinforcing" and support U.S. international trade obligations.

Veneman said that while agriculture policy has become more market-orientated, a "severe misalignment" has emerged between current policy goals and outcome.

"New approaches could support and help sustain prosperity for farmers, agriculture and rural communities without engendering long-term dependence on direct government support," she said. She said history has shown that "supporting prices is self-defeating" by "pushing surpluses higher and prices [to producers] lower."

"New science" is needed to ensure sound food safety, Veneman said. "Enhancing our pest and disease prevention for plants and animals from whatever source is a growing priority," she added.

Veneman said biotechnology holds "significant promise" in agriculture and there should be a "coordinated and rigorous science-based approach to this emerging technology."

The Senate and House of Representatives must pass a final farm bill before it is sent to the president for signature or veto. The full House is expected to vote on a $73,500 million multi-year farm bill during the week of October 1. Many of the current bill's provisions expire in September 2002.

Following are excerpts of Veneman's prepared testimony as submitted for the committee's records:

(begin excerpts)

Statement of Ann M. Veneman, Secretary of Agriculture
Before the Senate Committee on Agriculture, Nutrition and Forestry
September 26, 2001

The events of the past two weeks clearly have reminded us of the need to re-examine many of the things we long have taken for granted. The vital role of our food and agriculture system should be near the top of the list. Thus, I suggest that this current review of our farm policy -- the passage of new farm legislation -- now should be viewed more broadly and in a different context than we would have just a short time ago.

Since the beginning of the year, the occurrence of several major events has thoroughly convinced me of the urgency of a comprehensive review of today's agriculture -- all of the policies, programs, and other supporting public infrastructure. The Foot and Mouth Disease (or FMD) outbreak in the United Kingdom and on the European continent was a major threat to our livestock and grain industries. We immediately stepped up our border control. We reviewed and strengthened the already tight protections that USDA had in place. And, we sent dozens of veterinarians to Europe to help contain the disease and also to learn as much as we can about it. Fortunately, we have maintained our 72-year record of keeping the United States free of FMD.

The spread of BSE in Europe and the recent find in Japan has enormous implications for beef and feed markets. Our policies to regulate feeding practices and actively test for BSE have protected our consumers, farmers, and ranchers.

The emergence of agricultural biotechnology and its rapid and widespread adoption in this country is posing significant new challenges throughout our food system and the global trading complex. Agricultural biotechnology holds tremendous promise. However, the StarLink incident clearly illustrated the importance of continuing to assure a coordinated and rigorous science-based approach to this emerging technology.

To date, our food system has stood the test of significant challenges. And, they serve to reemphasize just how valuable our public infrastructure of specialists, institutions, and facilities are to our agricultural economy. Our policies, regulations, and supporting institutions must keep pace with new technology, the shifting business environment, and our industry structure.

TRANSFORMATION TO A CONSUMER DRIVEN AGRICULTURE

Agriculture is being influenced by many of the same forces that are shaping the American economy of the twenty-first century: globalization of markets and culture; advances in information, biological, and other technologies; and fundamental changes in our family structure and workforce. The combination of these forces has now produced a decided shift from the commodity-based, surplus-oriented production focus of the last century to one now defined by products, services, markets, and consumers. Increasingly, our consumers insist on defining what is produced, how food production takes place, and with what effects. The food system now is clearly consumer-driven. . . .

-- Changing lifestyles and greater demands for convenience mean that forty-five percent of total food spending is now away from home. . . .

-- With more than 96 percent of the world's population living outside the United States, exports already account for some 25 percent of total farm sales and represent the largest potential growth market for the future. Access to these markets not only requires overcoming barriers created by high tariffs but also different cultures, languages, and preferences for food.

-- Changes in exports mirror the fundamental importance of consumer demand with growth in trade of high-value products. Both U.S. and global exports of commodities continue to grow, but exports of high-value products (meats, poultry, fruits and vegetables, and processed products) are growing even more rapidly and now account for two-thirds of total export sales, compared with only half in 1990. . . .

Agricultural Diversity

At the same time the market environment is changing, we are increasingly aware of the enormous changes that are occurring in our farm sector. A concentration of resources into fewer and larger farms occurred throughout the twentieth century. While production doubled over the last 50 years, farm numbers dropped by more than two-thirds. Today, about 150,000 American farmers produce most of our food and fiber. While among the world's most competitive farms, these commercial operations make up just one segment of U.S. agriculture. USDA [U.S. Department of Agriculture] counts another two million plus farmers who meet the criterion of potential sales of at least $1,000 of agricultural products annually, including many people with non-farm occupations but who enjoy rural lifestyles. . . .

Farmers produce scores of different commodities every year and countless varieties of products, even though bulk commodities -- such as cotton, corn, wheat, and other food and feed grains that are the focus of government programs -- symbolize agriculture for many. These program crops, grown on almost every farm in the 1930s, are produced today on only 30 percent of all farms and account for just 20 percent of the total value of agricultural sales.

In the 1930s, when price and income support programs first were developed, there was little need to distinguish among farms, farmers, or farm households. In fact, farms and households (and farming communities, in many cases) were closely intertwined as a way of life and were considered inseparable. Today, fewer farmers are full time, choosing to merge farm and nonfarm employment opportunities. While income from farming, as measured by net cash farm income, was $55,700 million in 1999, off-farm sources contributed $124,000 million.

The widespread importance of off-farm income illustrates that for the majority of farm households, the vitality of the general economy is far more important to their well being than the level of commodity prices. . . .

Forces Driving Change

Today, a number of very powerful forces are propelling the fast-paced changes occurring in every single component of the food system. Globalization -- the growing competitive pressure from closer integration of business all around the world -- along with a broad range of new technologies, from information advances to biotechnology, are converging to further alter the farm and food system as we know it. Understanding the nature of these "drivers" helps define the needs for the agriculture and food system of the future.

Global Markets. Political boundaries no longer constrain the conduct of good business, and this includes agribusiness. Better, faster, more reliable communications and transportation systems facilitate businesses' abilities to produce, source, and sell in the locations that give them best advantage, even if that means operating in multiple locations around the world. This globalization of markets pressures firms to be more competitive and to "shorten the supply chain" (reducing the number of business transactions and their associated costs) in order to meet rapidly changing consumer demand.

Businesses in the food system around the world compete against each other to provide high-quality products at the best price. Globalization makes it imperative for companies to diversify their sources of raw materials and buy from the farmer, wholesaler, or food processing company that provides the best product for the lowest price at any given time. We can no longer think of our agriculture as being confined to what takes place within our borders. It is part of a larger, worldwide interconnected system.

Technological Innovation. New technology not only has facilitated the growth of global markets by reducing the constraint of geography, but also spurred remarkable adaptation of the U.S. food and agricultural system to new global conditions and demands. Agricultural technology traditionally focused on tools and techniques to lower farm costs and increase yields. Today, new biological and information technologies actually expand markets for farmers and assure better communication between producers and consumers, further increasing market opportunities.

The extent that technology already has transformed most aspects of the food and agriculture system shows the enormous promise for developing new markets, increasing our competitiveness, ensuring the safety of our food, and solving environmental problems. A few examples show why we see agriculture is future-filled with exciting new opportunities for our farmers and food system.

-- "Precision agriculture" promises both greater production efficiency and coordination of input application with environmental considerations. A growing number of farms currently use sensors, automated responses to monitored variables, robotic machinery, and other high-tech means to optimize both production efficiency and environmental quality.

-- Production and processing technologies are opening entirely new markets for the farm sector. In addition to the traditional nutrition market, farmers soon will have opportunities in energy, industrial, and pharmacological markets around the globe. Biologically based technologies are particularly promising as the source of new products for farmers.

-- Moreover, agriculture already is the source of clean-burning fuel and industrial ethanol, a variety of specialty chemicals derived from plants, soy-based inks and diesel fuel, industrial adhesives, biopolymers, and films. Scientists now say that soybean oil could replace a significant share of petroleum-based resin used in manufacturing auto parts.

-- Research can provide solutions to food safety by reducing the threat of foodborne disease before an animal even becomes food. Scientists are working on feed additives to eliminate pathogens like Salmonella and E. coli 0157: H7 from hogs' and cows' intestinal tracts before slaughter.

-- Packaging technology is revolutionizing ways in which foods can be marketed. An example is the development of "breathable" bags that preserve washed and mixed, ready to-eat salad greens, baby carrots and sliced apples that gave rise to an entirely new value added-segment of the food industry with over a billion dollars in sales.

NEW REALITIES FOR THE FOOD SYSTEM

All of the things I have just described clearly characterize a far different farm and food system operating in a far more complex business environment than in the past. The situation today also is far different than when many of our policies, programs, regulations, and other aspects of the public infrastructure were put in place.

Thus an opportune time to consider whether the public policies, institutions, and investments that have served the sector so well in the past century are still the most relevant and effective. Reflection on our experiences and the profound changes in the farm and food system can suggest the basis for principles to guide review and development of new policy approaches, revamped institutions, and redirected investments.

Mr. Chairman, how we approach these issues will set the course for American agriculture for the next decade and beyond, and I would like to discuss our assessment of several important areas. Trade leads the list, given the enormous importance of global markets to all parts of our food system.

TRADE EXPANSION IS CRITICAL

Trade is critically important to the long-term economic health and prosperity of our food and agricultural sector. We have far more capacity than needed to meet domestic food market requirements. To avoid excess capacity throughout our system -- including farmland, transportation, processing, financing, and other ancillary services -- we must aggressively expand our sales to customers abroad. Clearly, without the salutary effects of an expanding export market, farm prices and net cash incomes would be significantly lower today.

More than 96 percent of the world's population lives outside the United States. Most growth in food demand will be in developing and middle income countries, where both population and income are growing relatively rapidly. The International Food Policy Research Institute (IFPRI) suggests that by 2020, 85 percent of the increase in global demand for cereals and meat will occur in developing countries and that the demand for meat in the developing world could double.

Greater access to foreign markets requires aggressive trade policy to lower tariffs and eliminate trade-distorting subsidies. Failure to provide strong leadership in global trade liberalization will result in our producers and exporters being left behind. Other nations are aggressively pursuing preferential agreements, many right in this hemisphere that could preclude us from markets where we have important cost advantages.

Let me be very clear. We must help our farmers expand into new markets if they are going to succeed in this ever-changing environment. Otherwise, they will be left behind. We need the tools like TPA [trade promotion authority] -- to open new markets and reduce tariffs.

We must also ensure that domestic farm support and international trade policies are consistent and mutually reinforcing. It makes no sense to have trade policies and programs promoting farm exports at the same time domestic support programs inadvertently reduce competitiveness. Our domestic and export policy not only must support our existing international obligations but at the same time give us ample latitude in pursuing ambitious goals in ongoing and future negotiations.

FARM SECTOR POLICY

With regard to farm sector policy, it is useful at the outset to reaffirm that this Administration continues to view the farm sector as both critically important and unique. We believe our society agrees and embraces the concept of an economic safety net for our producers, to help cushion occasional adverse financial circumstances that are clearly beyond their control. The task then becomes one of defining such a safety net that is both appropriate for our diverse producers and suitable for the times.

More than seven decades of farm policy have provided a rich, full experience upon which to draw as we contemplate appropriate twenty-first century policies for our industry. . . . Some major, and still highly relevant, lessons learned include:

-- History has shown that supporting prices is self-defeating. Government attempts to hold prices above those determined by commercial markets have made matters worse time after time. Artificially higher prices encouraged even more unneeded output from the most efficient producers at the same time they discouraged utilization, consequently pushing surpluses higher and prices lower. Costs to taxpayers grew until the point was reached where something more had to be done. All too often, that turned out to be finding ways to restrict output.

-- Supply controls proved costly to taxpayers and consumers and the unused resources were a drag on overall economic performance. But, perhaps most important, limiting our acreage was a signal to our competitors in other countries to expand theirs, and we lost market share that is always difficult to recapture.

-- Government Stockholding and reserve plans distort markets. While isolating stocks from the market when supplies are abundant is attractive for its short-term stimulus, such stocks eventually must be returned to the market, and they limit the recovery of prices. Moreover, time after time, stocks have proved costly to maintain, distorted normal marketing patterns, ceded advantage to competitors, and proved tempting targets for political tampering. . . .

The clarity of these lessons provided several emphatic turning points in national policy. The 1985 farm law proved to be one such point when, after long debate on fundamental philosophy, a more market-oriented approach was adopted. That market orientation was extended in the 1990 farm law, reducing government intrusion and expense in farmer decision-making and in the operation of the markets.

The Federal Agriculture Improvement and Reform (FAIR) Act of 1996 proved to be historic by removing most of the decades-old program structure, provided unparalleled farmer decision-making flexibility through "decoupled" benefits, and set a new example throughout the world for providing domestic farm sector support. . . .

The 1996 FAIR Act also continued the marketing loan program, another evolution of the old price support idea, but importantly modified to avoid government stockholding which proved so burdensome in times past. Marketing loan payments effectively provide a large counter cyclical component to farm income, but distort markets by limiting the production response to falling market prices. The program guarantees a price for traditional program commodities (food grains, feed grains, and cotton) and oilseeds. As market prices have fallen below this guaranteed price, total marketing loan benefits have risen from less than $200 million for the 1997 crop year to $8,000 million for the 1999 and $7,300 million to date for the 2000 crops. . . .

While the current policy made large strides towards greater market orientation, a careful evaluation in the context of today's diverse farm structure and increasingly consumer-driven marketplace still reveals severe misalignment among policy goals, policy mechanisms, and outcome. New approaches could support and help sustain prosperity for farmers, agriculture and rural communities without engendering long-term dependence on direct government support. . . .

Our policies should provide a market-oriented economic safety net for farmers. The national recognition that the farm sector is both unique and essential is long standing and widely held. The result is a parallel commitment to policies that support open markets and those that prevent excessive downturns in the farm sector. Thus, these programs must conform to basic public policy principles including effectiveness, transparency, equity, consistency, comprehensiveness and trade competitiveness. Current policies now take several forms including counter cyclical loans, crop and revenue insurance and direct payments, but could be constructed with other programs (such as tax-deferred income accounts) that fully comply with such principles.

ENHANCING THE INFRASTRUCTURE

Mr. Chairman, the next topic that I will discuss has received little attention thus far in the ongoing policy discussions, but is one that I will argue is of enormous and growing importance. And, that topic is what we are calling our "agriculture infrastructure," the fundamental public sector underpinning for our industry.

U.S. agriculture successfully delivers abundant, affordable, safe and nutritious food to markets worldwide. Nothing has been more important to this success than an extensive physical and institutional infrastructure -- in effect, the backbone of the food and agricultural system. The agricultural infrastructure includes research, information, inspection, monitoring, testing, promotion -- all of the basic services, facilities, equipment, and institutions needed for the economic growth and efficient functioning of the food and fiber markets. It means services to protect farmers and ranchers from the threats of crop and animal pests and consumers from foodborne diseases, the research and cooperative extension system that undergirds production, marketing and regulatory functions, food product inspection, nutrition information, and natural resource conservation. It means all other functions of USDA agencies, as well as farm service centers, data, information technologies and intellectual property management.

We need to evaluate this broad infrastructure with a long term view as to what is required for a healthy and prosperous farm and food sector and trading system and, very importantly, to ensure that it continues to engender widespread consumer confidence and support. This may entail refocusing institutions and their missions, modernizing and better coordinating infrastructure and perhaps expanding investment in parts of the system.

It is difficult to overstate the importance of science as the basis for our decisions. Regardless of good intentions, no program, no mandate, no request, or emergency action can be carried out unless the appropriate research base, scientists, laboratories, methods, data and information, institutions, and technologies are available. New science is needed to ensure that required regulations in food safety, animal and plant health, environment and other areas, are sound and cost-effective.

Enhancing our pest and disease prevention for plants and animals from whatever source is a growing priority. Science, technology, and intergovernmental cooperation are key to keeping crop and animal pests and diseases out of the United States, and to managing the pest and disease challenges we face inside our borders. For, example, we worked with the EPA [Environmental Protection Agency] to develop a new protocol for environmental inspectors visiting farms for any reason.

Similarly we must build on current success in providing safe food for all Americans. Emerging pathogens mean that our food safety systems must be continually assessed and updated in order to maintain consumer confidence in our food supply. Improved animal production systems, better pathogen control during processing and distribution, and increased education on food safety issues and on food handling and preparation practices for consumers and food retailers all help to strengthen the food safety system. . . .

Coordination extends beyond the Department and we will pursue partnership opportunities. Continued and increased cooperation and partnership opportunities need to be sought with program beneficiaries; Congress; consumers; industry; NGOs [nongovernmental organizations]; state and local governments; universities; and others.

CONCLUDING REMARKS

Mr. Chairman, our entry into a new century presents leaders in agriculture a unique opportunity to discharge our responsibility. We now have an opportunity to take the long view-to step back and determine as best as we can the future requirements of our food system and to put in place the plans and investments that will be necessary to enable it to serve us as well in the decades ahead as it has in the past.

Thank you for the opportunity to discuss our vision and to share the guiding principles we have developed. Our report, Food and Agriculture Policy: Taking Stock for the New Century is available on the USDA website (www.usda.gov). We look forward to the opportunity to work with you in the future, and I will be pleased to respond to any questions.

(end excerpts)

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