**Exports: Growing for the Future**

*Remarks for Bruce I. Knight, Under Secretary for*

*Marketing and Regulatory Programs*

*2007 International Livestock Congress\
Global Beef: Thinking Beyond the Fence*

*Denver, CO*

*January 9, 2007*

Thank you, Bo (Reagan). I've been looking forward to getting together
with you to discuss export issues related to the beef industry.

Let's get right down to business. I have good news, and I have bad news.

The good news is U.S. beef and veal exports were up significantly in
2006---by an estimated 71 percent in dollars over 2005, based on figures
from the first 10 months of the year. The bad news, of course, is the
value of total beef exports is also about 70 percent of the high water
mark set in 2003, and for beef and veal plus variety meats, about 55
percent.

But perhaps the most important news, the best news, is that we are
making good progress in restoring our markets. One of Secretary Johanns'
top priorities is normalizing beef trade. He's committed to establishing
a scientific foundation for trade standards throughout the international
market.

We've been using a two-pronged strategy to re-open beef markets. The
first part of this strategy is negotiating individual agreements with
our trading partners---getting our foot back in the door with expert
verification programs. The EV programs have restored significant access
to a number of key foreign beef markets, without sacrificing the
integrity of U.S. food safety programs and internationally-accepted
standards.

The second part of our strategy is seeking harmony among the varied
requirements---by emphasizing the value of universally-accepted,
internationally-recognized, science-based standards for animal health
and food safety. Over the long term, this approach will minimize costs
and decrease confusion for packers.

It will improve market access and reduce the need for USDA involvement
and oversight of the beef trade.

**[Value of Exports]{.underline}**

Let me take just a few minutes to talk about the importance of exports
to American agriculture, and the beef industry in particular. Your
presence at this conference suggests I'm probably preaching to the
choir. But bear with me.

As you know, beef exports began accelerating in the mid-1980s for three
primary reasons: demand for U.S. beef increased abroad, new technology
lowered the cost of shipping, and trade barriers dropped in key markets
such as Japan, Canada and Mexico. By 2003, beef exports represented
nearly 10 percent of the total agricultural export value and more than 9
percent of U.S. production. And then with the December BSE case, the
beef export market crashed.

I think it's important to understand that the value of our export trade
is far greater than simply providing an outlet for increased production.
It also increases the value of our beef.

Most of the beef we export is in cuts and parts, offering opportunities
for premium prices for the short plate, the short rib and the chuck
roll. These cuts that are exported would otherwise end up as
lower-valued ground beef if they remained in the domestic market.

In addition, tongues, livers and tripe are more highly prized in other
parts of the world than here. There's also a strong international market
for hides, embryos and semen, as well as breeding cattle.

Further, the benefits of trade extend beyond beef producers. USDA's
Economic Research Service estimates that every dollar of exports creates
another \$1.48 in supporting activities to process, package, finance and
ship agricultural products.

Thus, beef trade alone in 2006 contributed an estimated \$1.6 billion
directly and an estimated \$2.4 billion in total benefits to the
economy. If we add in cattle, variety meats, hides, semen and tallow,
the estimated total for 2006 goes to \$4 billion of direct returns and
nearly \$6 billion in total benefits to the economy.

As you know, strong domestic demand and reduced inventories have kept
prices strong. As producers rebuild herds and weight gains continue,
U.S. beef production is forecast to increase over the next several
years. That means cattle prices will likely remain below recent high
levels.

We need to rebuild our export markets to maintain returns for producers.
The demand for U.S. beef is there---we just need to work through the
barriers---and we will.

**[Where We Stand]{.underline}**

Dr. Chuck Lambert, one of my deputies, is spending most of his time on
the road---or perhaps I should say in the air---seeking to increase
market access for U.S. products, particularly beef. Along with others
working on trade issues, he is getting results.

In November, Colombia and Peru lifted their BSE-related bans on U.S.
beef imports. That restores two-thirds of the market access for U.S.
beef and beef products in South America.

Also in late November, President Bush and Russian President Vladimir
Putin signed a bi-lateral trade agreement that re-opens the Russian
market to U.S. beef imports for boneless beef, bone-in beef and beef
variety meats from cattle under 30 months of age. Shipments can begin
once Russian officials audit U.S. slaughter facilities that want to send
beef to Russia.

Bringing the Russians back into the U.S. market is particularly
important. Because in 2003, Russia was the fifth largest customer for
U.S. beef. (It's all about liver!)

We're moving forward in Asia as well. As you know, Japan currently
permits imports only of beef from cattle under 20 months. A month ago,
Secretary Johanns announced that talks with Japan on expanding imports
of U.S. beef will resume in late February. The focus will be on
applicable international standards on beef safety. So, we'll probably
have our staff at APHIS begin technical discussions before moving the
meetings up to the ministerial level.

In addition, we are continuing to tussle with South Korea on reducing
beef trade barriers. We still have further to go to get tolerance levels
established for bone chips and cartilage.

This has been a frustrating situation, as Secretary Johanns has pointed
out. We thought we had a breakthrough. Then we come up against
impossible standards that essentially shut the door in our
face---crushing our toes in the process. However, we haven't given up,
and we won't give up. We will continue pressing until we find a
resolution for these issues.

**[Where We Want to Go]{.underline}**

What we'd like to see, of course, is free and unfettered access to
markets across the globe. Clearly we have some work to do. But we are
making progress in opening and expanding markets around the world.

We are moving forward and taking a leadership role by encouraging all
countries to accept science-based international standards and adopt them
as national trading policies. Getting everyone to agree on international
standards is the key to a transparent and fair trading system that
establishes a level playing field and benefits all nations.

**[OIE's Role]{.underline}**

Speaking of international standards, let me talk a little bit about the
OIE---that's the World Organization for Animal Health---the initials
come from the French name for the group. It's the international
counterpart of our Animal and Plant Health Inspection Service---and our
representatives to it are APHIS Administrator Dr. Ron DeHaven and Dr.
John Clifford, who heads APHIS Veterinary Services.

Among many other animal health issues, OIE has developed guidelines for
trade in live cattle and cattle products based on the level of risk for
BSE in countries of origin. The initial guidelines contained five risk
levels. In May 2005, OIE updated and streamlined the guidelines,
establishing three risk levels for countries exporting beef: negligible,
controlled or undetermined.

To get a risk determination, countries must submit a package of
information to OIE. The information is then evaluated by an ad hoc group
of experts against standards set forth in OIE's guidelines.

Next, the experts recommend a designation to the OIE Scientific
Commission for Animal Diseases, which passes the recommendation back to
the Director General for OIE. The recommendation is then shared with
member country delegates, and country status resolutions are voted on
each year in the May general session.

OIE then generates a list of countries designated either "negligible" or
"controlled risk" for BSE. The list appears in a final report in May.

First, let me say that either of these designations would create an open
door for U.S. beef exports---provided, of course, that a country relies
upon the OIE designation as the final word in animal safety. That's why
getting everyone on board with international standards is so important.

I want to run down the criteria for applying for the two
designations---so you can see that we meet---or exceed---the
requirements. Here's a brief list.

To qualify, countries must:

-   Submit a risk assessment that identifies all potential risk factors
    for BSE occurrence, including exposure and history

-   Maintain an ongoing awareness program to encourage reporting of all
    neurological diseases in cattle

-   Mandate compulsory notification and investigation of all cattle
    showing clinical signs of BSE

-   Establish a BSE surveillance and monitoring system

-   Require laboratory examination of brain tissue collected under the
    surveillance program

-   Share the BSE history of the country

For "negligible risk," a country must show that it meets all the
surveillance, education and outreach criteria for the past seven years
AND demonstrate that its cattle have not been fed meat-and-bone meal nor
greaves derived from ruminants for the past eight years. A country must
also be able to demonstrate that any cattle that came into contact with
BSE cases are identified, their movements controlled and when they are
slaughtered or die, they are completely destroyed.

(And I can't help inserting here a pitch for the National Animal
Identification System---you can see why animal identification and
tracing are so important!

More about that later.)

Now to be designated "controlled risk," a country must have the feeding
prohibitions in place and meet the criteria for surveillance, education
and outreach; however, it need not meet the seven and eight year time
criteria for both of these requirements. The tracking requirements for
cattle exposed to BSE cases are the same as for negligible risk.

**[BSE Surveillance]{.underline}**

Let me take a brief detour here. Before I talk about exactly where we
stand in the OIE process, I want to say a word about the U.S. experience
with BSE.

As you know, there have only been three BSE cases confirmed in the U.S.

And for two years, we maintained an enhanced BSE surveillance program.
That program confirmed what we already knew: that the incidence of BSE
among our herds is extremely low---less than 1 per million adult cattle.
Our new program continues to exceed OIE's guidelines---by testing 10
times more cattle than recommended in the international protocol.

**[U.S. Progress at OIE]{.underline}**

Now, let's turn back to the OIE designation process. I want you to know
we're on target, on schedule to get an acceptable designation next May.

In mid-October, we submitted our full package of information. Since that
time, the ad hoc group of experts has been reviewing our application.

We anticipate the group will make its recommendation to the OIE
Scientific Commission in February and then recommendations for a
designation will go out to the general membership in March---along with
recommendations for other countries at the same point in the process.
Then in May, the designation will be voted on at the general session,
and the final report issued.

**[What We Need to Do]{.underline}**

Having the OIE designation is a critical step in boosting beef exports.
But it also has implications for imports.

Even as we're seeking to have other countries follow the OIE guidance
for safety of beef imports, we need to do the same. That means we need
to make changes in our own import regulations to bring them into line
with OIE guidance also. It will take time, but we are moving forward.

Just last week we proposed to expand the list of allowable imports from
countries with minimal risk of BSE---specifically Canada. This is part
of our effort to make U.S. standards consistent with science-based
international guidelines.

Since 2005, we've permitted importation of live cattle and ruminant
products from cattle under 30 months of age. APHIS is proposing to allow
imports of live cattle and meat products from cattle born on or after
March 1, 1999---the date when Canada began enforcing the
ruminant-to-ruminant feed ban.

APHIS proposed expansion of imports after conducting a risk assessment
following the OIE guidelines that the U.S. will have to meet for the
negligible or controlled risk designations. Comments on the proposal are
due by March 12.

**[NAIS]{.underline}**

I want to turn now to steps you can take to increase beef exports. The
most important step is to participate in the National Animal
Identification System---and to get your neighbors to sign up as well.

Secretary Johanns has made it clear that NAIS is, and will remain, one
of his top priorities. I think everyone here today understands the value
of a modern animal identification system that will enable us to respond
timely to animal disease events---and the critical importance of being
able to trace out and trace back if a problem should arise.

We all know that the threat of a foreign animal disease outbreak in the
United States is real, and we need to be prepared since we can't predict
when an outbreak might occur, where it will hit or how severe it will
be.

Many people have worked hard and long to lay the foundation for the
National Animal Identification System---including a number of you here
today. We've made some changes in the system in response to feedback
we've received from producers.

That includes making clear that at the federal level, NAIS is a
voluntary system.

It's designed pure and simple to protect animal health, to protect
consumer confidence, to protect domestic and world markets, and most of
all---to protect producer economic investment and income.

Producers can choose the extent of their participation. They can choose
to simply register their premises and stop there.

Voluntarily registering your premises today does not commit you to
participating in the tagging or tracing phases of NAIS down the road.
That will be a separate decision on your part.

Of course, commercial producers, especially those in the beef industry
who've watched international markets dry up over BSE concerns, know that
animal identification and tracing will be essential for beef headed
across the border or across the ocean.

We've also modified NAIS to increase confidentiality. We have
specifically built safeguards into the system to ensure that private
business information is safeguarded.

Animal identification and tracing information will be kept in state and
private databases, not with USDA. It will only be accessed when there's
a need to trace animals in a disease outbreak situation.

Producers also told us they're concerned about costs. Of course, the
first step---premises registration---is free. But animal identification
and tracing will have costs involved.

Our goal is to keep those as low as possible by encouraging a wide
variety of options for tags and multiple databases for tracking. We want
as much competition in the marketplace as possible.

If you'd like more details on any aspect of NAIS---premises
registration, animal identification or tracing, please visit our new
improved website: [www.usda.gov/nais](http://www.usda.gov/nais). You'll
find all our new outreach materials as well as a draft comprehensive
user guide on NAIS.

So, where do we stand? Right now, and for the next year or so, our
primary focus for NAIS is going to be on getting premises registered.
The big push is on commercial operations, but we're encouraging everyone
who has livestock---even just a backyard flock or a couple of riding
horses---to register their premises.

Secretary Johanns has set some challenging goals for NAIS---including
getting 25 percent of premises registered by the end of [this
month]{.underline}. Today, we have more than 343,000 registered---out of
about 1.4 million premises. That takes us close to the first goal.

But the ultimate goal---having a critical mass of producers on board by
the end of January 2009---will be much more challenging. We welcome your
help to meet these goals. This system is designed to protect animal
health---but it is also key to expanding export markets.

**[COOL]{.underline}**

Let me turn now just briefly to another related issue for livestock
producers in the U.S.---Country of Origin Labeling. As you know, COOL
was mandated by the 2002 farm bill and became effective for fish and
shellfish in April 2005. Congress has delayed it for other commodities
until September 30, 2008.

At this point, we're reviewing the experience we've had thus far with
fish and shellfish to see what will also apply to beef. On November
27th, the Agricultural Marketing Service published a notice in the
*Federal Register* seeking comments on the implementation of COOL for
fish and shellfish. We're especially interested in actual versus
expected cost-benefit ratios.

We'll use that information as we prepare to implement COOL for other
commodities and livestock as directed by the statute. Comments are due
February 27, so I hope if this is an issue you're interested in, you
will let us know what you think.

I know there are mixed views about COOL. It's been controversial. The
focus is not really on exports, but on imports. And it cuts both ways.

The Administration has been clear in its concern about the unnecessary
burden imposed by COOL, but regardless of where you stand, I want you to
know that our goal is to implement these requirements in a fair and
balanced manner with least possible cost and lowest possible burden to
everyone in production chain.

**[Conclusion]{.underline}**

As most of you know, I grew up on a farm near Gann Valley in South
Dakota.

I still own farm and ranchland in my home state and have a cow/calf
operation.

So I confess to perhaps just a little bias when it comes to the beef
industry.

And like everyone who's involved in agriculture, I'm an optimist.

With that in mind, I have to tell you I've been looking forward to 2007.
It's going to be a good year. This year, NAIS will be fully operational.
This year, the U.S. will meet OIE standards and get our beef export
market back on track. This year will provide an opportunity to work on a
farm bill. We'll work to produce a new agricultural policy that meets
the needs of farmers, ranchers and rural communities today.

That's a lot of good things to look forward to. I hope it's a good year
for each and every one of you as well.