DEPUTY SEC. CHUCK CONNER: Well, Chris, thank you very much for that introduction. Good afternoon, everybody. And it is really a pleasure for me to be here and to participate in this important conference today. It's now been two days since I gave up my duties, folks, as the Acting Secretary of the USDA and resumed what has been noted as my former identity as Deputy Secretary. You know, Washington is a pretty tough town, so I was a little worried about transition backward as it would go, if you will, and fortunately in rich Washington tradition, Charlie, I'm still finding a few friends since I left that position a couple of days ago. One's named Indy and one is named Crecia. They are both retrievers, and they continue to like me a lot.

[Laughter]

So, you know, you survive in Washington, I guess, with your friends.

We now have a great new ag secretary, Ed Schafer. He brings a background in business and politics to the job, and really a proven track record as an advocate not only for agriculture but for rural development and conservation as well. And I will tell you, as the governor of North Dakota, he did work very, very extensively on trade issues in that state as their chief executive officer and, particularly with a focus on China, has done a great deal to promote that state's agricultural products.

And he's going to bring that enthusiasm to our agency as well. So I am looking forward to that partnership with Ed to advance the President's agenda, to put our farmers and ranchers in the strongest possible position that we've got, to compete vigorously and successfully in this global marketplace in the years ahead.

When you do take a step back and look at the entire U.S. economy, there is just no mistaking the overall trend, ladies and gentlemen, that we see in international trade. Exports do now account for 12 percent of our gross domestic product, and they are growing at an annualized rate of almost 20 percent per year.

That reflects the growing importance of international trade in goods and services, the emergence of new consumer and industrial markets in the developing countries, and to the success of our past efforts to lower trade barriers at various locations around the globe.

Although important progress has been made in these barriers, there's still a lot more of an issue to deal with there in terms of our agriculture and how that relates to other sectors of our economy.

And that is one of the reasons this administration has remained committed to a successful completion of our Doha Round in trade talks sponsored by the WTO. Some have even attempted to characterize Ambassador Sue Schwab as the sort of Don Quixote if you will of international trade. And I know Sue's commitment to this just continues to be tremendous.

In the State of the Union address on Monday, President Bush stressed again that he very much wants to see a Doha Agreement concluded this year, and he called on Congress to approve free trade agreements with Colombia, Panama and South Korea, that are now pending before the legislative body.

As you know, our president has made advancing free and fair trade one of the central goals that he wants to achieve before he leaves office this year. And we are going to be working hard to win approval of these free trade agreements and to open our new markets for our producers going forward.

And we also are going to continue to press for progress on the broader Doha talks as well. But even though tariff and nontariff trade barriers are still more of a factor than we would like them to be in international trade, the recent record of our agricultural exports has been one of remarkable success and has to be noted. With the dollar at a very competitive level and strong demand from our foreign buyers, our exports, simply put, continue to be record-breaking. For fiscal year 2007 our exports came in at $82 billion for the fourth year in a row, setting a record. And this year our projections currently are that they are going to reach $91 billion of U.S. agricultural exports.

Now I will tell you, ladies and gentlemen, these numbers are what people would have thought would have just simply been impossible to achieve a few short years ago, just simply impossible. These strong demands translated into record prices for some of our major commodity crops last year. Corn prices hit an 11-year high, soybean prices a 34-year high, and wheat prices have never been higher. All these gains have had a very direct impact on farm income. In 2007 we estimate net cash farm income to be coming in at around $85.7 billion. That's $18 billion increase over the course of just one year.

Now to put this in perspective, ladies and gentlemen, I remember the days not too long ago when we gauged our year in agriculture by whether or not we broke $50 billion of net cash farm income. Obviously we've not only broken that, but we've gone way beyond anything historically that we ever used as a benchmark to even measure net farm income.

The new Energy Bill, which Congress passed and President Bush signed last month, sets a goal of producing 36 billion gallons of renewable fuel by 2022. I'm reminded, that is just 15 years from now. That means that we will have an even stronger floor under our existing demand for those crops over the next several years to come. All these changes within the marketplace have affected our traditional support programs for our farmers as well. As prices have climbed, the funds committed to price support and marketing assistance programs for our growers of our major commodity crops have dropped, and dropped considerably. They fell last year, and we expect them to fall considerably again this year.

These programs of course and the level of funding that they receive are one of the more contentious issues under discussion in the Doha talks.

Now I know Joe Glauber filled you in this morning on some of the recent developments we have seen there. Obviously, no one is better informed to fill you in on this than Joe. He's been doing the work for us over there wearing two hats in that process as our chief economist as well as our chief negotiator. My understanding, he was in this morning lobbying for a pay increase.

[Laughter]

The answer is probably: Not going to happen.

[Laughter]

But I'll continue to talk to Joe, because he does a great job for us. And I will tell you, in the case of agricultural goods Joe noted that the growth that has occurred has come even though we have barriers of trade, and they are still in place. And I believe that trend does demonstrate, folks, that we have tremendous market powers, market forces at work, and that the widening ties that that represents between our trade relationships is really immeasurable.

We don't have to look very far for examples on how this works. The NAFTA agreement created a free trade zone obviously with the U.S., Canada, and Mexico, back now in 1994. And the years since, we have seen our own exports to Canada and Mexico grow from about $10 billion in value to over $25 billion a year, and they grow each and every year even larger.

The last trade barriers under the agreement were lifted-in fact, just lifted a couple of months ago, allowing the U.S. to export corn, dried beans and nonfat dry milk duty-free, completely, to Mexico; and of course allowing Mexico to export duty-free to the U.S., including products like sugar.

NAFTA has clearly created so many new opportunities for our agricultural producers on both sides of the border for the sale of beef, grain, oil, seeds by American producers and the sale of fresh vegetables raised in Mexico that meet the demands of our own consumers.

Mexico's positive experience with NAFTA also clearly made an impression on its neighbors and has boosted them to participate and help bring about the Central American/Dominican Republic Free Trade Agreement and bilateral free trade agreement we have concluded with Peru, Panama and now Colombia. These nations decided that access to the American market could strengthen and stabilize their own economies as well.

And the experience with CAFTA since it took effect less than two years ago has been very positive. Our exports in 2006 to that member nation grew by 19 percent and last year rose another 24 percent to more than $2.5 billion-remarkable growth occurring in these countries.

Just last month the Senate sent a very positive signal when it approved a free trade agreement with Peru by a strong 77 to 18 vote. It's hard to get 77 votes for anything in the Senate these days. It demonstrates just how important these trade agreements are going forward.

This agreement alone, according to the Farm Bureau, is going to add immediately $700 million of new sales to our market; again, even for a small country.

A great deal can be accomplished through these bilateral and regional free trade agreements, but of course the multilateral approach that Doha does offer holds the greatest potential for opening these new markets. If Doha can deliver a level playing field for all participants, then we will have taken a critical step forward on the road to a more market-oriented approach to agriculture that really began back at the inception of the Uruguay Round of talks in the early 1990s.

At USDA as we did put together our farm bill proposals that Congress is now considering, which will set out our agricultural policies at least for the next five years and perhaps beyond, we did seek to introduce a number of market-oriented reforms into our existing agricultural policies. As we did so, let me just say that we were mindful of the risks of failing to take the initiative in this area. Whether or not the Doha Round results in the new set of agreements on international trade, the United States does remain bound by the agreements we signed as part of the Uruguay Round.

Over the last few years we have faced a series of challenges to our existing, not new programs, but our existing support policies that have been brought under and before the WTO. Obviously we've contested these cases vigorously; we're going to continue to contest these cases. But we also must weigh the risk to not only agriculture but to other sectors of our economy and the risk they will face from trade sanctions if these WTO rulings ultimately do go against us.

And indeed, just last month while we were preoccupied and very busy on the Farm Bill and the Energy Bill in Washington, the WTO formally opened an investigation at the request of Canada and Brazil into all of our farm programs dating back to 1999. And the WTO Compliance Panel as well ruled that changes that we made in our cotton program in a case brought by Brazil were insufficient to bring us into compliance with the WTO rules.

I don't know how to say it than, simply put: being in compliance with our WTO rules is essential. If we don't, we jeopardize $91 billion of exports. Those exports will be threatened. We simply cannot allow this to happen.

We believe that along with bilateral, regional and multilateral agreements, one of the most important ways we set our agricultural trade policy is through this farm bill debate. The farm bill right now, as you know, is in the midst of a conference process as the House and Senate work to reconcile the different versions of the bills they have passed. And for the past few weeks I have been trying to say quite clearly, quite clearly that the Administration has serious concerns about these bills. And if changes are not made, I and the President's senior advisors will do what some think is unthinkable, but we will do that in terms of recommending a veto of a farm bill.

We object very strongly to the tax increases in both versions of the bill that they rely upon to fund new and expanded programs. We also don't believe that now is the time to be raising trade-distorting target prices and loan rates on our major crops as they do in both bills in nearly 80 percent of the cases.

This is a step away from reform that simply, in my opinion, makes absolutely no sense. I like to describe it as painting a bulls' eye on the American farmer's back. At a time when we have record exports, record farm income, tremendous prices, optimism that we have not seen in American agriculture probably in a generation-we do not need a bulls' eye on our back.

What we have been saying all along is that this farm bill must be a vehicle for reform, that we must set our own agricultural policies, not set agricultural policies that will ultimately be dismantled one piece at a time by the challenges of our trading partners. The reward for choosing reform lies beyond our borders where the rapid economic growth in developing countries is creating millions of new middle class consumers who are buying prepared foods, buying more dairy products, buying more beef, pork, poultry in record quantities.

With the support of a strong safety net at home and an open gate to level playing fields abroad, I know American farmers and ranchers can, they will thrive in finding this new marketplace not only open to them but open to the opportunity for tremendous economic returns for their generation as well as the next. That is our goal in the Bush Administration to give them that opportunity. It's going to require some difficult decisions to get there, but they are decisions that we are prepared to make, to advocate and to champion, not only here but before the Congress of the United States.

And I thank you for your interest in this topic today and look forward to working with you in behalf of reform of our agricultural policy. Thank you all very much.

[Applause]

Audience Discussion and Questions with Deputy Agriculture Secretary Chuck Conner following his remarks at the American Enterprise Institute

Washington, D.C. - January 30, 2008

MODERATOR: The Secretary has graciously agreed to take some questions from the audience. Please wait for the microphone to come, and give your name and your affiliation. Yes, sir.

QUESTION: Gary Blumenthal. Chuck, I think I speak on behalf of most of us in agriculture. Thank you, not just for all your years in public service but specifically for the months you served as Acting Secretary. You've clearly proven you can do the job, so you'll probably handle my question very easily.

[Laughter]

DEPUTY SEC. CONNER: You haven't found all the skeletons I left over at USDA yet, so those will come out later.

QUESTION: But just to keep the theme with this conference, the President mentioned the importance of trade and trade agreements in the State of the Union. But he didn't explicitly mention the Farm Bill, and it's obviously related. Can you give us a clue as to why that is?

DEPUTY SEC. CONNER: Well, it's a good question, Gary. You know, I've been in and around State of the Unions, you know, for many, many years, dating back a long time. And I know the thought is always, just need the President to mention the word "farmer" in the State of the Union-Charlie you've been around this track a few times as well too. And you know, in this particular case I think the President is obviously, while perhaps not addressing the question directly at farmers themselves, the message on energy, the message on trade, the message on food aid which were key components of the President's State of the Union is really what the future of farming and ranching is all about. They are the driver currently. We see them being the driver even more so in the future.

So I think the President is talking about these issues, although again these are broader than just each individual farmer that we'd all argue needs to be mentioned in these speeches. But the topic of importance is there. And I think the producers who listened to the speech recognized that it's really getting at the heart of their future in what he was talking about.

Other questions? Tom, how are you?

QUESTION: Tom Dusenberg with Manufacturers Alliance. I want to join Gary in thanking you, Chuck, for three decades of service at least to this country and the cause of reform. On the subject-

DEPUTY SEC. CONNER: I'm very young, Tom.

[Laughter]

QUESTION: On the topic of trade opening agreements, clearly Doha is in trouble, and it's not simply because of agriculture. A lot of factors at stake. I wonder if you all have given much thought to regional agreements. There's the ongoing APEC process which has a goal of trans-Pacific FTA, and I don't know what the timeline is anymore. A lot of the think tank types on both sides of the ocean have been pushing for an aggressive move, either trans-Pacific or possibly trans-Atlantic. But I think trans-Pacific is probably more likely.

Have you gained that very much, and is there much thought being given to how agriculture was going to do that sort of a process?

DEPUTY SEC. CONNER: Well, there has been a lot of thought given to that, Tom, even though I don't think there's specific discussions underway in terms of potential, that type of regional free trade agreement. I mean, obviously we have so many partnerships that are important in our future ag trade. Asia is a key one of those, and then China being a key one within Asia as well, and you know we've had a lot of dialogue with the Chinese on agricultural trade. I don't want to tell you those were easy negotiations; they are always difficult. But they continue to be tremendous buyers of late for so many of our agricultural goods. We have a lot of trade frustrations with them as well. I'd like to see them buying beef from the U.S. and in compliance with OIE standards, which they are not. But I also have to acknowledge the progress that we've made in terms of soybean exports, cotton, you know a whole variety of feed grains which are in tremendous short supply, soy meal, in that region of the world. And they are very, very important buyers to us in that way.

Let me just say, generally though on the trade agreement front, before trying to slice and dice this down to regions or even individual countries down to where we are, you know we do remain optimistic about Doha. And I say that again, not trying to be Don Quixote of trade here, but we are continuing to work this vigorously. We still believe there is a window of opportunity to strike an agreement here. Sue Schwab and we are trying to provide Sue absolutely as much backup help as we can in this process. She continues to tirelessly pursue this.

I'm not going to make a prediction or give odds or anything of that, other than I just simply say that we continue to believe there is a pathway by which we can get this Doha Agreement done. It's going to require a great deal of cooperation, but more and more countries I think recognize the adverse consequences of a failed Doha Round. And no one seems to want that.

So as long as that's the case, I think we can continue to make progress and hopefully someday perhaps be in a position of having a Doha Agreement that is going to be so vital to the future of American agriculture in terms of that market access and that level playing field.

MODERATOR: Any questions out here? Ann? The lady over here.

QUESTION: I'm Ann Tutweather, Hewlett Foundation. Chuck, those of us in the room who have been supporting reform have been making a series of arguments from different perspectives, and we've heard some of them this morning around economics, around moral issues; around political, foreign policy issues. So far none of those seem to resonate. And I guess my question is, when you're talking to members, talking to various groups around the country, which of these various arguments do you find is resonating in supporting reform? Can we be doing a better job making that case?

DEPUTY SEC. CONNER: Very good question, Ann. I've got to tell you in all candor, Ann, I think the strongest message out there for reform really is coming from the farmers themselves. We talk a great deal about our listening sessions that we held now a year and a half ago where we were in 48 states among producers out there.

I always remind folks that what I liked about those listening sessions was that we didn't provide a lot of favoritism there. Farmers came to the microphone, they had a few minutes to state their point of view, and it didn't matter whether they were president of the Farm Bureau or head of the City Council or whatever the case may be. Everyone was treated exactly the same.

We collected thousands of comments from people that for the most part I don't think had probably ever, ever participated in any kind of farm bill policy process prior to that point. And they literally came by the droves, stood in line, and gave us their thoughts. That's where we got the message for reform out there, reform taking different versions.

But I will tell you, that's where we had people stand up and just simply say, "I don't like the fact that our farm program payments are going to some of the wealthiest Americans." You know, this isn't something we dreamed up; this is something we heard about, and we heard about it from producers: "Hey look, when I have my best crop ever and I'm having a pretty darned good income year, guess what? Your farm bill just layers money on top of the good year that I've already had. But, guess what? The next year I have a total crop wipe-out and harvest nothing at all, your farm bill doesn't give me a dime."

And you know, we're sitting here thinking, how can this be? How is it that we have managed to evolve this farm policy into something where when you've had record-breaking, bin-busting crops that we're going to layer you with checks coming in the mail? And when you have a complete and total wipe-out and the bankers are beating your doors down, we're not giving you a thing? Something is very, very wrong.

You know, that's the kind of reform that makes sense out there. Farm bills should be about a safety net that is there when you need it, not one when you're trying to figure out how you're going to avoid paying taxes for that year.

And we heard it from the producers, Ann. And I think that continues to be the most effective message. I still believe this is what the farmers want, not taking anything away from any of the great work others are doing.

QUESTION: (unclear) Ward, University of New Hampshire. Mr. Secretary, a few moments ago you began to make references to the issue of bilateral, regional things in connection with the WTO. A few weeks back, Senator Mikulski at a meeting here in town, spoke about these things. The meeting was on economic integration in Asia. But she said, these problems are the result of our own doing, these FTAs, bilateral and regionals. I found that a surprising statement. Would you comment and reflect a bit upon that?

DEPUTY SEC. CONNER: I'm not sure in what context Senator Mikulski was making that statement. I will tell you that we don't see a problem with the bilateral arrangements that we have entered into, whether that is NAFTA or the Central American DR Free Trade Agreement. As I pointed out I think in my remarks, the growth that has resulted for U.S. agriculture in terms of markets as a result of those agreements is not only tremendous but it far exceeds expectations.

And these are just very, very important market opportunities for us. Our ag sector-our farmers are prospering in this country as a result of that. So this is something we continue to support. We feel we should not only support what we've got but believe that Panama, Colombia and South Korea represent we estimate $3 billion of new market potential for those countries alone. So our future depends upon continuing down this road, obviously always in the context of hopefully a broader multilateral Doha agreement at some point in that process as well.

MODERATOR: We've got time for a few questions. Gentleman here, gentleman there, and then final in the back. That should finish.

QUESTION: Charlie Stenholm, Olsson Frank. Chuck, I join with others who have commended you for your current and past service. You've done a good job.

DEPUTY SEC. CONNER: This will be my last Farm Bill, Charlie.

[Laughter]

QUESTION: My question is, I've been on the Hill a lot, you have too, and there seems to be a growing frustration that not much is happening, that there's an intransigence, that there's no negotiations. You and I have been through a few of them, and you know that compromise is not a four-letter word.

DEPUTY SEC. CONNER: No.

QUESTION: And ultimately you're going to have to start seeing the path on which you can, from the House and Senate perspective, they can't pass what you're advocating. You know, there are some things that can't. Can you give us an idea of some of the things in which you might see a path to get an agreement in your discussions? Or is that, you don't want to negotiate in public?

DEPUTY SEC. CONNER: Well, I've got a lot of staff here, Charlie, and they'd probably pull me out if I started laying down our farm bill recommendations here in public.

[Laughter]

But you know, you are exactly right in that we've got to work through these things. And you know, there's always got to be give and take as you work through this process. I hope, anyway I've been clear about the Administration's positions, where I need to be clear. I've also been quick to point out that 90 percent of this farm bill can be resolved pretty quickly by just sitting down and talking. You know that's a key part of the process that needs to be initiated, as well as there's so much in this bill that we can agree to and work out quickly.

You know, just in terms of how we proceed, I will tell you I've been working pretty hard to show Chairman Petersen that there is a pathway out of this. I think when you have a tendency to look at the farm bill in terms of being an 1800 page document where, you know, the statement of differences between the House and the Senate versions, let alone the Administration's statement of differences, is literally a stack of documents this high. And you know, you're just overwhelmed. It's like, "This is impossible; we will never work our way through all these differences."

I have been working pretty hard to show Chairman Petersen that, despite this, that there is a fairly narrow pathway where this stuff can all come together and come together in a way that recognizes the dynamics of his own committee, but as well the House/Senate Conference Committee. We're not there yet, Charlie. But we're talking. And as you know, that's probably the most important part of the process is that we continue to talk freely with each other and in a straightforward way. And I'm enjoying those conversations with Chairman Petersen and others as well. And as long as we're talking, I've got to have hope that we can work our way through this.

QUESTION: If I can follow up on that? You know, the stimulus package was negotiated, House and Administration and got an unprecedented agreement in a political year.

DEPUTY SEC. CONNER: Yeah.

QUESTION: The Senate has a different view.

DEPUTY SEC. CONNER: Yeah.

QUESTION: I'm curious. You have not mentioned Chairman Harkin.

[Laughter]

DEPUTY SEC. CONNER: You're warning me not to follow the course of the stimulus. Is that what you're doing, Charlie? It may be good advice. No, you know, I've talked to Senator Harkin as well, at some length, and Senator Harkin and I are-I really have great admiration for him. I think he's a great guy, and I've worked so many farm bills with him.

I continue to hope-you know, he's got a few issues that I know he's got to have as part of this. I know we've got to bring him into the fold as well, and there's certainly no excluding anybody from this process. But, you know, you're just trying to sort of figure out where you can make the most progress right at this moment to keep this debate alive, Charlie. We've got to keep it alive because we are running out of time. March 15th is coming upon us. Some horrible things happen in terms of U.S. farm policy on March 15th if we have not completed this bill. I'll just leave it at that.

MODERATOR: Speaking of running out of time, I think we have run out of time. I'd like to thank you very much. If this really is your last farm bill, I hope it's your best.

DEPUTY SEC. CONNER: Thank you very much.

[Applause]

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