*EPF406 05/23/2002
Transcript: Agriculture Official Defends Farm Bill
(Says criticism is a result of misperception) (4240)

The United States remains as committed as ever to World Trade Organization (WTO) negotiations on agriculture despite doubts voiced in some countries after Congress passed a new farm bill, U.S. Under Secretary of Agriculture J.B. Penn says.

During a May 22 briefing, he said that the United States intends to demonstrate "vigorous" leadership in these negotiations and continue to advocate strongly free trade in agricultural products.

The Bush administration is determined to see that these negotiations reach a successful conclusion, Penn said, because as a major food exporter the United States has much to gain from expanded market access for its agricultural products.

The undersecretary of agriculture said that the farm bill might provide a necessary impetus to negotiations on direct and export subsidies and other trade-distorting practices. A successful completion of the WTO negotiations, he said, would make it easier to restructure domestic farm support programs.

Some governments, including that of Australia, have expressed concerns that the farm bill might affect the United States' ability to play a major role in these negotiations.

Reacting to concerns that the bill is not WTO-compliant, Penn said that safeguards included in the bill guarantee that the total cost of the bill would remain within the limits set by the WTO. He also pointed to the fact that the spending ceiling for the United States is much lower than those for Japan and the European Union (EU).

Penn rejected reports that the farm bill boosts subsidies to unprecedented levels. He said that the level of farm support would actually remain fairly constant over the life of two successive farm bills, one passed in 1996 and another approved in May 2002.

But some non-U.S. officials and media have argued that the new support for U.S. farmers would encourage overproduction in the United States that, in turn, would depress world food prices hurting mostly developing economies dependant on agricultural exports.

Penn said that these concerns are mostly unfounded. He said that initial estimates indicate that major changes in acreage and crops structure related to new programs are unlikely, and higher yields resulting from these programs would be only marginal.

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

Following is the transcript of Penn's briefing:

(begin transcript)

U.S. Department of Agriculture

Foreign Press Center Briefing with J.B. Penn, Under Secretary of Agriculture For Farm and Foreign Agricultural Services On the 2002 Farm Bill and the Implications for World Trade

Wednesday, May 22, 2002

J.B. PENN: Thank you, Peter [Kovach].

It's very nice to be here. I thank all of you for coming.

The Farm Security and Rural Investment Act of 2002 has been a long time in the making. This farm bill, as they are commonly called, has been under development for about 2 1/2 years. It's been the subject of numerous congressional hearings, exhaustive analysis and extensive debate, as you well know.

The bill was signed into law by President Bush on May 13, and since that time, there has been substantial commentary, especially in the foreign press. My purpose here today is to provide information and help increase understanding of the new law. Also, I hope to perhaps provide some additional perspectives on that law from my vantage point. As Peter indicated, I'd like to make a few overview comments, and then I would be pleased to try to respond to any questions that you might have.

First, a little overview on the legislation itself: The new farm law is very far-reaching in its scope, highly complex in its structure. Many changes were made to the existing program, and several new programs were added.

Now as it concerns domestic support for agricultural producers, the key features are that it continues direct payments that are based on historical plantings and yields. It creates a new system of countercyclical payments based on market prices in relation to pre- specified target prices. It revises and re-balances the so-called loan rate in the Marketing Loan Program for major grains and oil seeds. It adds new payment programs for dairy, honey, wool, mohair and pulses, which includes dry beans, lentils and chickpeas. It makes significant changes to the peanut program for the first time since the 1930s.

And most notably, I think, it expands conservation funding significantly and adds new programs to preserve wetlands and improve soil and water quality on working farms.

But these are the parts of the farm bill that are related to, as I indicated, domestic support and conservation. The new law has 10 titles in all and it affects virtually every program, virtually everything we do at the U.S. Department of Agriculture. All of our areas at the department now are very busily assessing the numerous other provisions in the bill and preparing to implement them in a most expeditious manner. It covers domestic food assistance, such as the food stamp program, school lunch. It covers research, rural development, all of the marketing and regulatory functions, and energy, among other areas.

The farm bill also made minor changes in the U.S. food aid programs, reflecting many of the proposals that the administration had made and submitted to the Congress in the president's budget for fiscal year 2003. The farm bill reauthorizes the three government programs involved in food aid: PL 480; Food for Progress; and 416(b). These are all reauthorized through 2007. It increases the minimum tonnage in the basic humanitarian program to 2.5 million tons, a pretty substantial increase over the previous 2.025 million tons. And this action, we think, solidifies the U.S. government position as the leading provider of food aid in the world. We routinely provide more than half of all the food aid provided in the world. And this bill mandates a $100 million next fiscal year for a global school feeding program.

The bill also increases funds for some of our market-promotion activities, the Market Access Program, as it's known, the Foreign Market Development Program, but importantly, the bill does not change any tariffs or any import quantity commitment.

Now, this new law, as I indicated, has attracted very considerable international attention. I say attention; some people might even say criticism. And much of the commentary has focused on the connection between the new law and our WTO obligation, and the connection between the new law and how it might affect the commitment of this administration in the current WTO negotiation. So I want to address both of these points directly.

First of all, let me address the funding levels in the new law. There is a perception that this new law represents a very considerable increase in spending for our farm sector and that it will violate our WTO obligation. The new law changes annual funding very little from what it's been over the past four years. Congress augmented the previous farm bill, the 1996 FAIR Act, by approving $30.5 billion in total over the past four years, or about $7.5 billion annually, and this new law increases spending $73.5 billion over the next 10 years.

So that's about $7.4 billion. So the new law has an increase in it that is almost identical to the increased funding that we've had over the past four years. So the bottom line is that the new law does not increase funding substantially over what the Congress has been spending on the farm sector over the past four years.

There's also a perception that the support level in the new law exceeds our WTO obligations. This, of course, simply is not true. The message of the new farm law is simply that we will support our farmers fully while maintaining our WTO obligations.

And I want to emphasize that the U.S. domestic support ceiling, the amount allowable under the WTO, is relatively low. Our ceiling is $19.1 billion -- $19.1 billion -- and that is compared to $31 billion for Japan and $62 billion for the European Union. So the European Union has a ceiling that is three times that of the United States. The Japanese ceiling is fully 50 percent higher than our ceiling. So our ceiling is relatively low. We have the funding levels for the new bill, but they will not violate the $19.1 billion ceiling.

Now the estimated cost of the new farm bill is $170 billion over the next 10 years. That's an average of $17 billion a year. A less conservative estimate would put the cost of the new bill at $190 billion over the next 10 years. That's an average of $19 billion a year.

So the point that I want to make is that $19 billion is the average amount. Our ceiling is $19.1 billion. And much of this $19 billion is unarguably green box. There's $5.2 billion each year that is in so-called decoupled direct payments. Those are green box. So it seems to me that just by simple arithmetic, you can see that there is virtually no way that we're going to exceed the $19.1 billion allowable ceiling.

And in addition, there is a lot of increased spending -- a lot of that annual average of $19 billion that is for conservation, for research, for rural development -- all of these are green-box programs.

Well, now if that is not convincing enough, there is an added failsafe mechanism in the law itself that ensures that the WTO limit will not be exceeded. The law mandates the Secretary of Agriculture to use so-called circuit breakers to ensure that we don't exceed the limit. And as we implement this bill, we're going to put in place a process so that we can have ongoing monitoring of the spending and also early-warning alerts that would allow us ample time to take appropriate action.

Now the other point I want to make -- I want to emphasize is related to the farm bill and our commitment to the Doha negotiations. There has been considerable speculation about how the administration views the Doha negotiations after passage of the farm bill. And let me emphasize that our resolve to obtain further trade liberalization has not weakened. We are as committed as ever to a successful conclusion to this round. You can fully expect the United States to exert vigorous leadership, to be actively involved in the negotiations and to be a strong advocate throughout the round for liberalized trade in food and agricultural products.

The administration, U.S. farm groups, the food industry, and key members of Congress involved in agricultural matters are strongly committed to continued significant reductions in global agricultural trade-distorting measures and policies.

Now, the reason that this industry is so keen on liberalized trade is that trade is so important to the economic future of the food and agricultural industry. We are a food surplus exporting country, and ever-greater market access is absolutely critical to the long-term economic health of our industry. We have a very abundant natural resource base. We have an accommodating climate. Our agricultural producers have made very substantial investment in the sector, and they've adopted a long stream of new technologies that have enabled us to produce far, far more than we can consume here at home. We export a very large proportion of our major crops -- some of those covered by this law, such as wheat, cotton, rice, corn and soybeans. And a high proportion of our exports are high-value products, are processed products. In fact, two-thirds now by value of all of our exports are high-value or processed products.

We export the output from one of every three acres; 25 percent of every dollar of gross income comes from exports. So you can see that this industry has to be committed to further liberalization of trade in food and agricultural products.

If anything, the farm bill provides even greater impetus for our negotiators to reach a successful conclusion, especially as it relates to market access. As you all know, there are three pillars to the Doha negotiation. The one is export subsidies. And the U.S. is not a big user of export subsidies. In fact, the European Union is responsible for 90 percent of all of the export subsidies that are used in the world today; they use 25 times the amount that the United States does. In the area of market access, that's where we're looking to have substantial progress, and a successful round in that area would greatly facilitate any required modifications in the third pillar, domestic supports.

Our markets are already relatively open. The global -- the average global tariff for food and agricultural products around the world are 62 percent -- all countries included. Japan, the average is 59 percent; the Cairns Group, 30 percent; the European Union, 30 percent; and in the United States, a very modest 12 percent. So I say again, our markets are already relatively open. So we have much to gain here for the benefit of our producers, and a positive outcome would make a very persuasive case to modify our domestic supports.

Finally, many observers have said that this bill will significantly stimulate production and further depress global commodity prices.

I would offer a couple of observations in that regard.

First, our total cropland acreage space is about 325 to 330 million acres. We have committed that much to the crops that are covered by the farm bill, and it hasn't changed very much for the past several years. Now in 1996, when we adopted the last farm bill, it enabled producers to have complete planting flexibility, and we saw very significant shifts among crops. We had over time, a very substantial decrease in wheat acreage, from 11 to 12 million acres. We had a very substantial increase in oilseed acreage -- especially soybeans, again, on the order of 12 or 13 million acres; and a little expansion in corn acreage. But there are no provisions in this law that would offer the incentive enough to evoke cropping-pattern shifts anywhere near the magnitude that we saw in 1996. So I would not expect to see any perceptible change in the aggregate land base that we now utilize -- the 325 million, 330 million acres.

There are sufficient incentives in this farm bill, as there are in every farm bill that we've had in the past, to lead the more aggressive, larger producers to continue to adopt new technologies that will increase yields. So we could expect to see yields continue to grow. But the impact of just expanded yields on total outputs would only be marginal.

Well, I think that summarizes the key points that I wanted to make, so I would be happy to try to respond to questions at this time.

PETER KOVACH: Sir?

QUESTION: My name is Adu-Asare, a reporter for africanewscast.com.

As you correctly noted, there's a lot of criticism about this bill -- especially from Africa. The present administration has made trade as a vehicle for assisting Africa's development. Africa is not a manufacturing continent. It is predominantly agricultural. And Africans think some of their products can be exported to the U.S. market, because U.S. imports some amount of food from other places. I can think of pineapples.

KOVACH: (Inaudible.)

QUESTION: Yeah, my question is: If the administration's position is as I have said, to use trade, then the bill here, as we see it, is slamming the market in the face of African products.

PENN: Well, I simply can't understand how you can come to that conclusion. As I said, the actions that are provided for in this bill are fully compliant with our WTO obligations. We're not violating any WTO obligations. We're going to stay well within the ceilings that were negotiated under the Uruguay round of agreements. That's one.

Secondly, this bill does nothing to change market access. It doesn't close any markets. There is a perception that seems to have gone around that this bill is somehow anti-trade. And it doesn't have that impact at all.

Q: I'm Ute Hennig, from Inside U.S. Trade.

I had two quick questions to clarify two points you made. One of them, the suggestion that the outcome of market access negotiations would influence the position on U.S. support: I'm a bit puzzled about that, since most of the countries that have money to buy are, indeed, the major agricultural exporters. So how likely is it that the EU would grant us additional market access, and therefore we would be willing to mitigate U.S. support? And the second one is your key point about how this is complying with the WTO. Do you foresee counting the domestic support in the amber box proper, or under the de minimus exemptions? I hope this is not too trade geeky for you.

A: Well, it's very trade geeky, but I'll give it a shot, okay?

On the first question, you're absolutely right in that our major markets are the European Union, or Europe proper, and Japan. And they are developed countries. We already enjoy substantial access to those markets. We would always like to have more. But the places where we would like to have additional market access are the growth markets around the world. And those growth markets are in the developing countries of Asia, the developing countries of Latin America. So market access in places where we now don't have a very significant market share is absolutely critical, we think, to a successful conclusion to this round.

In response to your second question, I have been talking about the amber box ceiling of $19.1 billion, and we would see some of the programs being in the amber box product-specific, and some being in the amber box non-product-specific. And so we would have to look at the countercyclical, the marketing loan program, parts of the conservation program, parts of the peanut program. We'd have to go program by program. But even so, the point that I'm making is that we're going to be nowhere near violating the ceilings that we have under the WTO regardless of how you classify the program.

Q: (Off mike) -- how do you -- how do you see the outcome of -- I'm wondering if you could elaborate on your point, the outcome of market access talks will influence the U.S. position on continuing domestic support, which is how I understood you to make two -- you know, twice -- (off mike).

A: Yes. The point I'm making is a very clear one, I think, is that if we can have a successful conclusion to the Doha round, and success to us being measured in considerable increases in market access, then I think it's much easier to restructure the domestic support programs to gain political support for restructuring domestic political support programs. So if anything, the point I was making in my remarks is that it gives us as negotiators added impetus to achieve a successful result in terms of market access.

KOVACH: Yes.

Q: Parasuram, Press Trust of India. Two questions.

Supposing you did not have the bill, what will be -- what would have been the impact on American agriculture? I mean, is it really devastating or it will be mild?

A second thing is, what will be the impact of this bill on the developing country exports?

A: I didn't understand fully the first part of your question. If we did not have the bill --

Q: If you did not have the bill, how much impact would it have had on American agriculture?

A: On the economic health of American agriculture? Well, I think that one has to look at American agriculture in its entirety now. We have evolved over time to the point that we have 2 million farms today. Our agriculture generates about $200 billion annually. So it's very diverse.

We have the producers that are largely affected by this farm bill, the ones that we focus most on, the traditional crop producers; they account for about $40 billion of the total $200 billion. We have the livestock sector that accounts for about a $100 billion. And then we have specialty fruit and vegetable crop producers. So it's very difficult to talk about agriculture as a homogenous entity. But I think we were seeing that costs have increased, that land prices have escalated around the country; that the margins for the major crop producers covered by this bill had been squeezed fairly considerably. So I think we would have seen a fairly considerable economic shakeout across farm country, had we not seen a continuation of something on the order of the 1996 Farm Bill, and something perhaps a little more, as occurred in this bill.

And the second question was how does this farm bill affect developing country exports? Well, as I said, this farm bill is focused largely on domestic support for our agricultural producers. And I said that I don't -- I can't think of any provisions in the bill that affect our market access. So I don't think that there should be any significant impact on developing country exports. Most of the criticism comes from the allegation that this bill will stimulate additional commodity production; that additional commodity production will depress world prices, and that producers of those commodities, including developing countries, would be disadvantaged.

But I tried to point out in my remarks that some initial analysis suggests that our crop land acreage base is not going to change very perceptively, that there will be some shift among crops. I mean, the soybean loan rate, for instance, is actually reduced in this bill. So that might have some impact on soybean acreage relative to corn acreage, for example, but it will be very marginal, very minor.

So the bottom line answer is I don't think there's very much impact on developing country exports.

Q: Jim Berger from Washington Trade Daily. I guess Australia has been the most vocal to this point on its objections to the bill, threatening even to -- already to take us to the WTO. Have any Australian officials been in touch with the United States, or you, informally or formally, to really spell out what their objections are?

A: Well, I was in Australia perhaps a month ago or so, I can't remember exactly, and I had a firsthand opportunity to learn of the Australians' concerns. And they've made their concerns known through their embassy personnel here. We have had direct communications from the trade minister, the minister of agriculture there.

I can't speak for the Australians, so I'm not going to try to enumerate what their particular concerns are, but it's my own impression that their major concern is that this bill in some way will affect the ability of the U.S. to be a strong leader, to be a major player in seeing the Doha round to conclusion. I think as everybody understands, there is a very short time horizon for Doha. We don't have much time to waste. And so if one of the major players should be on the sidelines for a while, that would be a big concern. But we have tried to reassure the officials personally -- I'm trying to do that here today -- that again, there is no reduction, no lessening of our resolve to be major players and to have a successful outcome.

And I say to the Australians and to the Cairns Group, there comes a point where we need to all focus on the common objective, and the common objective being to get a successful conclusion to this round. After a while, I think it becomes counterproductive to continue to fight among ourselves.

Q: Hi. (Chinese?) TV of Hong Kong. You said access to developing countries is one of the important tasks in the future, but this bill upset China and Mexico and other developing countries. Isn't this doing negative work in your effort? And secondly, I understand maybe the European Union has already filed complaints to the WTO. Is USDA prepared to work with the complaints? What kind of measures you are going to take?

A: Well, we are. But you said that this bill upsets China and upsets Mexico; but as I've tried to explain here, I don't know what the basis of that anxiety might be, because we do support our agricultural producers, but we do it in a way that is clearly legal, clearly within the bounds of the WTO. And as I tried to say, we can support our farmers fully and still stay within the obligations that we have under the WTO.

We want to try to explain that to people. We want to try to get all of our trading partners to understand that. If complaints are filed, we will address those. I mean, we will try to respond in as direct a way as we possibly can. Our objective, again, because we are a surplus-food producer, is to trade. And it would be counterproductive, as you suggest, for us to adopt domestic legislation that is going to prevent us from gaining greater market access and expanding trade.

KOVACH: I promised to have Dr. Penn out of here at 25 of 3:00, so I'm afraid we'll have to call it a day.

Thank you very much, Dr. Penn.

PENN: Thank you, Peter.

Thank you. Thank you, ladies and gentlemen.

(end transcript)

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

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