**[As Prepared for Delivery]{.underline}**

**2008: A Good Year Ahead**

*Bruce I. Knight, Under Secretary for*

*Marketing and Regulatory Programs*

*Iowa Pork Congress*

*Des Moines, IA*

*January 22, 2008*

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

Iowa is in the forefront of change these days. You're the leader in
launching this year's presidential campaign---and the Iowa caucuses
produced a few surprises earlier this month. Voting first gives you a
profound impact on Presidential politics, and it also makes a profound
impact on politics in your state.

I learned that firsthand some years ago, when I worked for Fred Grandy
when he was a freshman Member of Congress. I found out that in Iowa,
folks weren't too concerned about that new guy representing them in the
House of Representatives.

That's because everyone in Iowa knows the President personally!

And with all the campaigning here recently, I can believe that. Aren't
you glad the ads are over?

First in the voting gives you a strong voice in picking our next
President. But you also have a strong voice in agriculture, from Henry
Wallace's time forward.

Today, your junior Senator, Tom Harkin, chairs the Senate Agriculture
Committee, and he's also chairing the conference committee on the farm
bill. Plus, your senior Senator, Chuck Grassley, is the ranking
Republican on the Finance Committee (and always a voice on agriculture).

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

I want to talk with you today primarily about the next farm bill---and
the stake that pork producers and farmers and ranchers from Iowa 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. As the second-leading export state for
agricultural products, Iowa is a prime beneficiary of the record
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.
Even more importantly, 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 farmers.
Unfortunately, the farm bills that Congress has written don't take these
market changes into account.

In fact, the two bills the Conference Committee has before it are based
on the production practices of the 1970's.

Do you want to go back to the days of lime green pintos, mirrored disco
balls and polyester leisure suits?

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 November and December, I spoke 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---when Henry
Wallace was Secretary of Agriculture---and times were desperate.

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

I'm sure a month 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 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.

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 safety
net for farmers 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
(none of which are grown in Iowa), 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.

I'm sure each of you appreciates that old saying that pigs get fat, but
hogs get slaughtered. 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.

Pork producers understand very well the need to follow market signals.
And you have done that. Customers demanded loins and hams---and you
moved to leaner, more muscular animals. You adjusted production to meet
demand---and profited as a result. 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. 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.

We also strongly oppose efforts to change the Packers & Stockyards Act
to prohibit or restrict use of forward contracts for purchasing
livestock because this approach

-   Would outlaw most marketing tools available to help producer
    leverage superior products and

-   Doesn't reward farmers and ranchers for producing quality livestock
    or maintaining a track record of reliability.

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.

Justice 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.

**[Biofuels]{.underline}**

I want to talk about a couple of other issues also. You know, I was
told, whatever you do, when you speak to the pork producers, don't talk
about biofuels.

But, let's be honest, biofuels are a big part of the picture in
agriculture today. And we need to be upfront about their impact on
livestock production.

A month ago, President Bush signed a new Energy bill that will require
fuel producers to use at least 36 billion gallons of biofuel in
2022---that's nearly a five-fold increase over current levels. About 15
billion gallons are designated to come from grain-based ethanol.

USDA economists have been studying this issue---and in fact had
projected that grain-based ethanol production would be likely to
increase to 12 billion gallons by 2016 and biodiesel production would
rise to 700,000 gallons.

What does that mean to you? Well, according to our economists, the extra
3 billion gallons of ethanol would result in 2 million more acres
planted to corn---92 million instead of the 90 million we were
projecting. In addition, corn prices would rise 6.3 percent---that's 22
cents per bushel from 2007 to 2016 above baseline levels.

Our economists tell us this means that feed and residual use of corn
would decline by 5.9 percent---that's 346 million bushels---on average
from 2007 to 2016.

And exports would drop an average of 4.8 percent---that's 100 million
bushels---over the same period. Further, total corn ending stocks would
fall by an average of 27 percent---193 million bushels.

For those planting row crops, this would draw some acreage away from
competing crops---primarily soybeans, cotton and wheat. But higher
prices for minor feed grains would lead to modest increases in plantings
for those crops.

How will that affect pork producers? We expect production impacts to be
small.

Obviously, since cattle can best use ethanol feed co-products, they fare
better even when more corn goes to ethanol. Further, poultry will
benefit from lower-priced soybean meal. But hogs and dairy will face
higher feed cost increases.

We estimate higher-priced feed will reduce pork production a very small
amount---about one-third of 1 percent below baseline levels over the
next 10 years. Your higher feed costs will lead to an increase in farm
pork prices of about 1.7 percent.

At the same time, I hope we will have a strong energy component in the
next farm bill---one that will promote development of cellulosic ethanol
and encourage production of biodiesel from waste grease and fat.

We need to draw on these and other sources, such as methane digesters,
for renewable fuels to reach energy independence and reduce the strain
on the livestock sector.

**[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 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 is to get farmers and ranchers to register their
premises. Today, we have more than 442,000 premises registered
nationwide out of an estimated 1.4 million.

Nearly 21,000 of those premises are in Iowa---that's just over 44
percent of the estimated 47,000---plus premises here in the Hawkeye
state.

Pork producers are an important part of NAIS. The Pork Board was the
first producer organization to sign a cooperative agreement with APHIS
to help get producers registered. The Board's goal is to bring 100
percent of production farmers on board with NAIS.

So far, we estimate that about two-thirds of pork producers nationwide
have signed up. Iowa's about in line with the national number with 68
percent---or 6,059---registered.

If any of you have yet to take that first step---registering your
premises---I encourage you to do so right away. Some 2,840 of your
pork-producing neighbors still need to sign up, too. Please encourage
them to do it.

It's free, it's easy. It's about protecting your herd health. It's the
right thing to do.

I've done it---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.

Of course, things could change. 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.