**Rice: Challenges Today,**

**Opportunities Tomorrow**

*Bruce I. Knight, Under Secretary for*

*Marketing and Regulatory Programs*

*USA Rice Outlook Conference*

*Las Vegas, NV*

*December 4, 2006*

I appreciate the opportunity to join you today. This has been a
challenging year for the rice industry. That's something we can all
agree on.

I want to spend time with you this morning talking about some of those
challenges and where we stand in resolving them. Then I want to touch
briefly on what lies ahead, specifically the next farm bill.

**[Deregulation of LLRICE 601]{.underline}**

A week ago Friday, the Animal and Plant Health Inspection Service
announced the deregulation of LLRICE 601 because a thorough review of
the scientific evidence showed that this variety is as safe as its
traditionally bred counterparts. The final environmental analysis was
published today in the *Federal Register.*

As you all know, USDA learned this past summer from Bayer CropScience
that trace amounts of LLRICE 601 had been found in commercial long-grain
rice. Bayer had not sought deregulation for this genetically engineered
strain because the company did not intend to market it.

USDA and the U.S. Food and Drug Administration reviewed all the
scientific data submitted by Bayer and concluded that LLRICE 601 posed
no identifiable concerns related to human health, food safety or the
environment. On August 18, Secretary Johanns shared this information
publicly.

Subsequently, Bayer filed a petition to deregulate LLRICE 601, and USDA
requested public comment on the petition in September. We received
nearly 16,000 comments. Most of these were form letters against
deregulation from individuals affiliated with groups that generally
oppose approval of any genetically engineered food products.

However, since 1987, USDA has safely deregulated more than 70
genetically engineered crop lines, including two strains of rice closely
related to LLRICE 601.

Our review of the scientific evidence clearly indicates that this rice
strain is safe.

**[Regulatory Review Process]{.underline}**

I want to talk just a bit about the review process we followed for
LLRICE 601. There's been some misunderstanding about that.

We [did]{.underline} use an abbreviated process, but it is a
long-established process involving a thorough analysis that gave full
consideration to the weight of the scientific information available.
When a crop strain is very similar to other strains that have been
deregulated, APHIS procedures permit a company to seek an "extension of
deregulation." That means we consider the scientific evidence that
proved sufficient to support the earlier deregulation along with
additional information about the closely related strain. That's what we
did for LLRICE 601.

We did not create a special shortcut for LLRICE 601, and there was no
compromise in terms of the safety evaluation. Rather, the extension
option enables companies requesting deregulation to build upon the
scientific base that's already been established---adding to information
that the APHIS staff has already analyzed and evaluated. This same
process has been used about a dozen times over the past 20 years.

In this specific case, in 1999 APHIS had deregulated two similar Bayer
rice lines that also contain the same protein designed to render crops
tolerant to the herbicide Liberty. This protein has been approved for
use in many of the foods we eat. Bayer has commercialized strains of
corn, cotton and canola using the protein.

This protein has been repeatedly and thoroughly scientifically reviewed,
and foods including it are approved for use in the U.S. as well as
nearly a dozen other countries around the world. Our recent actions in
extending non-regulated status to LLRICE 601 were thorough and rigorous
and based on the earlier scientific evaluation.

**[Investigation]{.underline}**

There's another aspect to this matter that we also need to look at---and
that's APHIS' investigation to find out how this regulated strain wound
up in the commercial market. We announced we were beginning an
investigation at the same time we reported that trace amounts of LLRICE
601 had been found in samples of commercial long grain rice. We're still
investigating.

Normally, we don't discuss the details of an ongoing investigation. But
this case is a little different. As you know, growers need to make plans
now for the 2007 season, and our trading partners deserve full
transparency. So we chose to share information that will be helpful.

The good news is that the only foundation seed to test positive for
LLRICE 601 was of a single variety---2003 'Cheniere.' There is a side
note that I want to interject here and that is that trace levels of
LLRICE 62---one of the strains deregulated in 1999---were also found in
'Cheniere' 2003 foundation seed.

Since LLRICE62 was already deregulated and had undergone a food safety
evaluation by FDA, this rice line is not the focus of APHIS'
investigation.

But the main point that I want to reiterate is that all other tests of
foundation seed varieties have been negative for LLRICE 601. So the
scope of this unintentional release of regulated genetically engineered
rice is limited to the foundation seed of one variety of long-grain
rice. Medium and short-grain rice are not affected.

At this point, I cannot say how much longer the investigation will take.
But I can promise that as soon as it is complete, we will share the
outcome.

**[2007 Planting]{.underline}**

I understand that last week, USA Rice announced your action plan to
eliminate genetically engineered rice from the U.S. supply---a plan that
involves testing seed samples, not using Cheniere seed for 2007, and
having growers provide certification that the seed they planted was
tested and found free of genetically engineered rice at the time they
deliver their crop next year.

I want to comment particularly on one aspect of your plan---and that is
the testing.

I understand there has been some concern, raised by naysayers, about the
sensitivity of the GIPSA test for LLRICE 601.

Can we be sure that the test will verify---or disprove---the presence of
genetically-engineered rice at the 0.01% level? And the answer is Yes.

I've spoken with the scientists involved, and I am confident this test
can do the job---and the labs authorized to perform it can do their
jobs. Steve Tanner with GIPSA is here with me today to address those
concerns.

**[Rice Trade]{.underline}**

Now, I want to look briefly at the current outlook for the rice industry
in the U.S. The latest rice production forecasts increased by one
million hundredweight over last month's estimate---to 193.3 million
hundredweight for this year.

As you well know, just over half of your harvest---97 million
hundredweight---is slated for export. Average yields are expected to be
6,847 pounds per acre---that's 211 pounds above the 2005/06 mark. So
that's good news for many of you growers.

I don't have to tell you that trade is critical for rice producers. With
half your crop headed out of the country, the international market is
essential.

Although the U.S. is not one of the top rice-producing countries in the
world, we are a major exporter---fourth in the international
marketplace. U.S. rice growers supply about 13 percent of the world rice
trade, and 80 percent of those exports are long grain rice. In a world
where two-thirds of the people depend in some part on rice for their
daily food, that's a substantial contribution.

Toward that end, USDA staff across several agencies have been involved
in a broad-based effort to address international concerns raised about
LLRICE 601.

APHIS' Biotechnology Regulatory Services staff as well as folks from the
Foreign Agricultural Service and the Grain Inspection, Packers and
Stockyards Administration have been working hard to maintain and re-open
markets affected by the finding of LLRICE 601 in commercial markets.
They've hosted delegations from other countries as well as traveled
abroad to assure your customers that U.S. rice is safe and healthful.

The market in the European Union remains problematic. But the good news
is that Mexico and Canada are continuing to purchase U.S. rice, and more
Latin American countries are moving forward with U.S. rice
imports---including Cost Rica, Honduras and Nicaragua. Plus, Panama just
purchased more than 70,000 metric tons---seven times its imports from
the U.S. last year.

Haiti and Iraq are still strong customers for American rice. Asian
markets, including Japan, Korea and Taiwan, remain interested in U.S.
rice. We will continue to do all we can to encourage our trading
partners to buy rice produced by American growers.

**[Importance of Trade]{.underline}**

Trade is increasingly important for all farmers and ranchers in the U.S.
Overall, across the U.S., one-fourth of farm cash receipts now come from
exports. This year that will amount to about \$68 billion dollars worth
of agricultural products.

As we look ahead to the next farm bill, we must keep these markets in
mind. Keeping these markets open and accessible is critical to American
agriculture.

**[2007 Farm Bill]{.underline}**

I know Chairman Larry Combest will be discussing the next farm bill in
depth in a few minutes, but I want to just touch on it as well.

Secretary Johanns has said quite plainly that we need a farm policy that
supports today's agriculture, not a policy based on conditions that
existed five years ago. I know there are some, perhaps many here today,
who are quite comfortable with the current farm bill. However, the
expiration of a farm bill offers an excellent opportunity to consider
what American agriculture needs in the years ahead.

Quite honestly, our basic rural policy hasn't changed significantly
since the Depression---some 70 years ago. But American agriculture has
evolved dramatically.

Seven decades ago, we had 6 million farms. Today we have 2 million.
Further, in 2006, most of our food and fiber actually comes from about
150,000 farms and ranches.

An additional piece of the puzzle is the importance of market access.
One in three acres nationally is planted for export. And, of course, for
rice, exports are even higher---the harvest from every other acre goes
beyond our borders.

As you know, Secretary Johanns and other top USDA officials met with
farmers and ranchers in a series of listening forums in the summer and
fall of 2005. I'm sure some of you participated in those forums.

At that time, we learned that some producers are very happy with the
2002 farm bill, but others pointed out that the subsidy programs
produced a very uneven distribution of support. The reality is that
sixty percent of farmers today receive little cash support under the
current farm bill.

It's clear that times have changed---globalization is bringing new and
expanded opportunities, and we need a farm policy that reflects and
supports these changes.

Secretary Johanns has promised that we will develop a farm policy that
is equitable, predictable and beyond challenge by our trading partners.

While the next farm bill will be written on Capitol Hill, not in the
halls of the World Trade Organization in Geneva, we need to be conscious
of trade implications. Several years ago Brazil challenged our cotton
program before the WTO, saying it was trade distorting. And, despite our
best efforts, and our appeals, they won.

More recently, as you know, Uruguay has threatened our rice program.
They haven't filed a claim yet. But when half your crop goes overseas,
this is a matter of concern. So we need a farm policy that takes trade
into consideration.

**[Conclusion]{.underline}**

I know this has been a challenging year for rice producers, but we are
working hard to resolve issues and concerns related to LLRICE 601. We
are doing our best to re-open and expand export markets as well as find
new markets. And we are moving forward with plans for a farm policy that
will meet the needs of American agriculture in years ahead as well as
preserve and promote international trade.