**2008: A Positive Outlook**

*Bruce I. Knight, Under Secretary for*

*Marketing and Regulatory Programs*

*Alabama Cattlemen's Association*

*Birmingham, AL*

*February 2, 2008*

I'm delighted to join you today to talk about the path ahead for U.S.
agriculture in 2008. It looks like a good year ahead, but we'll
certainly see some changes.

**[Next Farm Bill]{.underline}**

I want to focus today primarily on the next farm bill---and the stake
that cattlemen from Alabama have in it. I know we're all eager to see
this one completed and signed. But, as you know, farm bills are never
easy, and Congress will go down to the wire with the toughest decisions.

This is the fifth farm bill I've worked on. From my perspective, the
clear takeaway is that farm bills unfortunately tend to be written not
based on the future, but on the past. And the bills before us now hark
back to the dim, distant past, rather than focusing on a promising
future. That's a mistake!

We've experienced some incredible changes in the U.S. economy over the
past year---\$100 a barrel oil coupled with a historically weak dollar
and exploding farm exports. In 2007, ag exports spiked to \$82 billion
and are anticipated to increase another 11 percent to \$91 billion this
year.

We've got higher prices for both grains and meats, but a cheaper
dollar---and that's spurring greater sales on the international market.
U.S. beef and veal exports rose 25 percent last year, and we're
anticipating an increase of nearly 20 percent in 2008. We're continuing
to work to open and expand markets around the globe.

As we enter 2008, the bottom line for cattlemen, and almost all American
farmers and ranchers, is looking good. Net cash farm income is estimated
to be up more than \$18 billion---to \$85.7 billion next July. Any way
you look at it, these are good times for many in production agriculture.

Unfortunately, the farm bills that Congress has written don't take these
market changes into account. We need a farm bill that is forward
leaning---a farm bill that sets us on the right path for the
[next]{.underline} five years---not one suited for three decades ago.
And President Bush is eager to sign a farm bill---but it has to be a
good bill.

**[What's Wrong with the Current Bills]{.underline}**

Right now, what we have are two bills that fall far, far short of ideal.
In fact, we believe both the Senate and the House bills are
fundamentally flawed.

Neither takes a forward-looking view. Neither provides the kind of
reforms we need. Neither responds effectively to what more than 4,000
farmers across the country told us they wanted. The Administration will
NOT support a bill that fails to reform programs, makes a mockery of the
budget process and increases taxes.

During the past three months, I've spoken to between 5 and 7 thousand
farmers and ranchers. There's an underlying concern and nervousness they
share about the bills that are before us---particularly increasing taxes
to pay for a farm bill.

We haven't done that since 1933---during the Great Depression---when
times were desperate.

Historically, the farm bill uses offsets to fund new priorities, not
taxes on other industries. And with record farm incomes, and a declining
national economy, it doesn't make sense to do it today.

I'm sure not too long ago, many of you were making end-of-year purchase
decisions and considering how to manage your tax liability. You may be
thinking that a farm bill that puts taxes on others, but brings benefits
to farmers, is okay. But over time, this approach will erode broad
support for farm programs, and at the rate the Senate is going, your
turn will come. And ultimately we all lose.

Today we have high farm incomes and relatively low debt. If we can't
help agriculture become more market-driven and competitive
[now]{.underline}, we have to ask if there will ever be a time. For me
the answer is clear: Now is the right time to make these changes!

I'm also concerned---and you should be as well---that with virtually
every major piece of legislation the Congress sought to enact last year,
attempts were made to include new taxes. In every case, the President
successfully prevented enactment of those taxes. And in the State of the
Union address last Monday, he pledged to continue vetoing bills that
included new taxes.

We need a farm bill that doesn't raise new taxes, but goes to the core
of what farmers and ranchers want---a bill that strengthens the
agricultural safety net and funds priorities without increasing taxes or
relying on questionable bookkeeping.

Instead, the Senate bill, for example, would cost \$37 billion more than
the USDA proposal. Further, that cost is covered through \$22 billion in
savings gimmicks and \$15 billion in tax increases on other industries.
In fact, that \$22 billion would actually increase a couple billion
more, based on the conference report language.

The House bill calls for \$7 billion in tax increases and projects \$5
billion in savings that are unlikely to materialize.

We need to move away from illusions and gimmicks. We can't have the true
cost of the farm bill hidden by shifting payments forward or pretending
that commitments to food stamps or disaster aid will simply disappear in
the future.

I'm also very concerned that neither of these bills really improves the
safety net for producers. So, we would find ourselves continuing to pay
farmers the most when they need it the least.

The real help is needed when crops are lost due to disaster. And the
best way to provide the help farmers really need is with a revenue-based
counter-cyclical program.

Another problem is that neither bill establishes effective payment
limits. It's time to graduate from farm subsidies those who are among
the wealthiest 2 percent of Americans---those whose adjusted gross
income---after expenses and depreciation---is \$200,000 or more. This
provision proposed by the Administration would affect about 38,000
people---few of which I believe are farmers and ranchers---and save
\$1.5 billion.

In addition, this time of prosperity is NOT the time to raise loan rates
for 16 of 27 commodities and target prices for 18 of 22 commodities as
the Senate bill would do. That is trade distorting and will lead to
complaints from our WTO trading partners. We will pay a heavy price in
the international arena for this.

We're already under scrutiny for provisions in the current farm bill.
Those involved in production agriculture don't want to find themselves
in the position of benefiting today from a farm bill that leads to
reduced exports and lower incomes in the future. We need to increase
market orientation in the next farm bill, and farmers will profit
accordingly.

**[Livestock Title]{.underline}**

Let me touch briefly on a couple of issues in the Livestock Title of the
farm bill.

We are strongly opposed to prohibitions on packer ownership of livestock
because this wouldn't discourage unfair practices by the packing
industry.

Instead, it would

-   Hurt producers/consumers by destabilizing livestock markets

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-   Eliminate valuable risk management tools and marketing opportunities

-   Potentially depress market prices

-   Drive production to foreign countries

It would make a lot of lawyers rich, while the packers reorganize---or
worse yet, move to Canada or Mexico, Argentina or Brazil.

Let me shift to another livestock provision: the creation of a Special
Counsel for Agricultural Competition. This sets up a Washington, D.C.,
classic---a solution in search of a problem.

The Justice Department and the Federal Trade Commission are responsible
for taking action against anti-competitive activity in U.S. business,
and furthermore, GIPSA currently oversees livestock sales to take action
when needed.

Adding a Special Counsel would simply bill American taxpayers again for
work USDA already does every day. This provision in the farm bill would

-   Shift attention away from financial protection investigations and
    enforcement

-   Create an unnecessary new bureaucracy, duplicating functions and
    weakening the existing enforcement arms in USDA, and

-   Undermine GIPSA's ability to protect the livestock producer's
    financial interest.

Don't be lured by a competition title designed more to appeal to folks
in coffee shops than to actually meet your needs.

**[NAIS]{.underline}**

Let me turn now to the National Animal Identification System. NAIS has
been---and will continue to be---one of USDA's top priorities. I'm sure
that our new Secretary, Ed Schafer from North Dakota, understands very
well the value of animal ID.

I want to make clear that NAIS is not so much something new as it is an
updated, modernized and integrated approach to animal identification and
tracing. Our ultimate goal is to have data in our hands within 48 hours
of an incident.

The first step for NAIS is to get farmers and ranchers to register their
premises. Today, we have about 445,000 premises registered nationwide
out of an estimated 1.4 million.

Only 7,028 of those premises are in Alabama---that's not even 20 percent
of the estimated 35,000-plus premises here. Alabama has a long way to go
to catch up, and given the BSE scare of a few years ago...I'd like to
see those of you in this room today at the forefront of this effort.

Late last year APHIS signed an agreement with the National Cattlemen's
Foundation to increase premises registrations---primarily through
outreach and education efforts of NCBA's Producer Education Committee
and the Beef Quality Assurance program. The goal is to add just over
70,000 new premise registrations by the end of this year.

Registering your premises is free, and it's easy. It's about protecting
your herd health. It's about safeguarding your neighbors. It's the right
thing to do. I've done it for my herd---and so should you.

**[COOL]{.underline}**

Let me tell you briefly what's happening on Country of Origin Labeling.
The COOL requirements currently on the books call for implementation of
labeling for most commodities on September 30, 2008. Labeling
requirements for fish and shellfish have been in effect since April
2005.

The Administration is on record as being concerned about the burden
imposed by COOL, but we are also committed to implementing the
requirements in a fair and balanced manner with the least possible cost
and the lowest possible burden on everyone in the production chain.

COOL is a major challenge in our effort to maintain positive
relationships with our trading partners and avoid possible retaliation
from those who might view COOL as protectionist or discriminatory.

Now, both the House and Senate versions of the farm bill include a
modification that would label products as domestic, foreign or may be of
mixed or multiple origins---and other changes as well. In any case, we
need prompt completion of the farm bill to stay on schedule for COOL. An
extension would undermine our efforts.

**[Conclusion]{.underline}**

To wrap things up, I truly believe we're at a crossroads for American
agriculture. We're in the midst of bumper harvests, record-breaking
exports, the highest farm income ever, and the lowest debt-to-asset
ratio in 45 years.

What more could you want?

I'd say simply, more of the same. To get that, we need a good,
forward-looking farm bill that will continue that prosperity in the
years ahead---a bill that reforms our farm programs to promote market
orientation and expansion.

We need an effective safety net for farmers. And we need to cut down on
the goodies for those who've succeeded and, based on their adjusted
gross income, rank among the top 2 percent of Americans.

We need to support specialty crops. And we need to bolster conservation,
strengthen rural development and expand research on renewable energy.

Getting this farm bill completed won't be easy, but it will be worth
it---for all of us involved in American agriculture.