SEC. MIKE JOHANNS: Well, thanks. I appreciate that nice introduction. I appreciate that very, very warm welcome. It reminds me of a story I've shared a number of times since I became Secretary. I'd just been elected governor of Nebraska some years ago, but I hadn't been sworn in yet. And I was invited to go give a speech in Kearney, Nebraska. And so my wife Stephanie and I drove out to Kearney.

And same sort of thing, very nice introduction, and as I'm making my way to the podium, folks there in Kearney did just what you did – they stood up and applauded. And so I got to the podium and said, you know, that's really very nice of you, but I haven't done anything yet. And somebody in back yelled out, and when you do, we won't be standing! So.

[Laughter.]

It was referenced, the fact that I grew up on a dairy farm. I did, in a community in north central Iowa. Actually my father had three sons. I always tell people that my dad John had this idea to build character in his sons. He would give us a pitchfork or a scoop shovel and send us to the barn, the chicken house or the hog house, and we'd stand ankle-deep in you know what and pitch away. And that was Dad's idea of building character in his sons. Little did he know what he was really doing was preparing his son Mike for his life in politics. So.

[Laughter.]

Well, I've done a lot of interesting things in my life, and I always like to start my speeches with a story or two. So I was thinking about running for governor, and my wife Stephanie and I decided the best way to get better known across the state, since outside of Lincoln we weren't known at all – was to go out and do parades. And I don't know about your state, but back in Nebraska we love parades. We parade for just about anything. We don't have to have any real reason to parade and so we have a parade. We were out doing parades, and would do three or four on a Saturday, three or four on a Sunday. You just go from community to community, and the total investment was a well-used Chevy Corsica which somebody loaned to our campaign and a banner.

Well, we were headed to do this parade in a little community in South Central Nebraska called Sutton, Nebraska. And it was on a Saturday evening, an early evening parade. We'd already done three parades that day and this was going to be our fourth. And on the east side of Sutton a few miles out of town we came across this steel building and noticed on the side of the building there was a sign that said Sale on Tuesday, or Auction on Wednesday, something like that. So I said to Steph, That's an auction barn! And I noticed also that the parking lot was filled with cars, and I said, they must be having an auction tonight or a sale. So when we're done with the parade in Sutton, if those cars are still there, let's stop. And we'll go on in, shake hands, meet a lot of people, the auctioneer may recognize us, and we'll get introduced, and we'll campaign there.

So we go out and do this parade in Sutton, and we're heading back out of town, and sure enough we come across the sale barn, and the parking lot's still filled with cars. So I said to Steph, pull on in. So she pulls the Chevy into the parking lot, and we park. We're walking across. It's a very, very warm summer evening. They've got every door and window on the sale barn open. So about halfway across the parking lot, we look up and the folks inside are looking out at us. And I noticed immediately that something was wrong here because they were wearing suits and tuxedos. You see, folks, what we discovered was this wasn't a big sale at all. They had actually rented this building for the reception for their family wedding.

[Laughter.]

So I said to Steph, I said let's get out of here. And she said, it's too late, they're looking at us.

[Laughter.]

So we go on in and there's a line there, and I figured that the best way of looking inconspicuous was to just get in the line. Now I will also share with you that we were the only two people in that whole place that had "Johanns for Governor" on their T-shirts.

[Laughter.]

Well, that line was the line for the dollar dance.

[Laughter.]

I don't know if you have that tradition in your state, but you get to dance with the bride for a contribution. So I get in line and I finally get to the front of this line. Now all the money I had was a $20 bill, so I give them a $20 bill. I walk out to dance with this poor young bride, and she looks at me, you know, four parades on a hot summer Nebraska day –

[Laughter.]

Does nothing for personal hygiene. Well, I finally dance with her, and now I really want to get out of there because we are quite the spectacle. But they would have nothing of it. They concluded that just in the off chance that I might end up as governor of Nebraska they needed some pictures of this event.

[Laughter.]

So we took some pictures. Well, lo and behold, I did end up being governor of Nebraska. So we had a big inaugural, and Steph and I were in the reception line and about halfway through this line this young couple comes up, and the young lady says to me, Governor, fair is fair; you crashed my wedding and I'm crashing your inaugural!

[Laughter and applause]

Well, Mitch mentioned in the introduction about my love for agriculture and I sure do. I love agriculture. It's been part of my life as long as I can remember because I did grow up on that dairy farm in North Central Iowa. I love what I'm doing, I love working with the dedicated people at the USDA who are committed to constantly improving agriculture in America. The 2007 Farm Bill gives us a chance in my judgment to do just that. Once every five years or so we get an opportunity to look at agricultural policy.

I saw this as an opportunity to really examine which of our policies were working and getting the job done, and which needed improvement. So we began really the way the President wanted this to start. In fact, one of the things he said to me when I sat with him in the Oval Office the day before he nominated me – he said, Mike, I want you out in the country, I want you listening to people on agriculture, farmers and ranchers and other stakeholders."

So as we thought about the Farm Bill this year, we decided the best way of building an understanding of what was working and not working was to simply go to the country. And so a year or so ago we did those 52 forums in 48 states, and as was mentioned I did 21 forums myself personally. They were all the same really. We'd go out and ask our farm broadcasters to publicize where we'd be, at what time, what location, and oftentimes it was in conjunction with a state fair or farm show or some type of ag program. We'd hold a three or four-hour forum.

We'd just invite farmers and ranchers or other stakeholders to come in and talk to us. As we started to look at these comments, we saw some themes emerge. In general, people liked our Rural Development programs. In fact, in the 21 forums I did I didn't get a single negative comment about our Rural Development programs. In general people liked our conservation programs, and although not unanimous it was pretty close.

Quite a few people talked about energy and were excited about what we were doing with renewable energy, but wanted us to think about how we could do more to promote this industry. So farmers wanted to make sure we were doing all we could in many areas. Another area they mentioned was in the opening of export markets for their produce. Others questioned why USDA was not doing more to provide support for specialty crop producers.

We looked into all these issues, and we asked our economists to thoroughly analyze our current policies and possible alternatives. In fact we published a series of analysis papers that went online, and we asked people to review those. It was filled with great information led by Dr. Keith Collins, our chief economist at the USDA.

The result of all of this, nearly two years of work, is a set of Farm Bill proposals that provides a strong safety net for producers while moving us to a more market-based approach that encourages trade and modernization of agriculture. What I'd like to do is give you a general overview of our proposals, concentrate on the titles dealing with trade and renewable energy, and then if there's time I'd sure love to take a few questions at the end.

This year's Farm Bill is being developed under very different circumstances, ladies and gentleman, than the '02 bill. Over the last five years, in just a really short period of time, our farm economy has changed dramatically. When the 2002 Farm Bill was being put together, commodity prices were admittedly weak and exports had declined for several years in a row. So it made sense in my judgment to take steps like adding the countercyclical payment program. In fact, I have a history with the '02 bill because at that time I was the governor of Nebraska, a major ag state. I was known as the co-lead governor for the Midwest Governors, with Tom Vilsack of Iowa – and the lead governor for Western Governors. I supported that Farm Bill at the time. Times demanded that bill, but times have changed.

Let me if I might fast forward to five years later. Today we expect crop receipts to set a new record of more than $133 billion. Our exports meanwhile have grown every single year since 2002, and we now expect them to reach another record, $78 billion this year. We just raised that recently. As you know, the price for a bushel of corn is at a ten-year high and soybean prices are also very strong.

This is a dramatically different farm economy than what we saw in 2001 and 2002. The strong farm economy we are now enjoying gives us a chance to look to the future, in my judgment, and to seek policies that will strengthen the competitiveness of America's farmers and ranchers, not only for today but for years to come. What will make agriculture more competitive? More research for one thing. Our productivity has increased dramatically in the last 50 years, while imports have remained relatively static. The gains in productivity have largely come from advances in agricultural research. We proposed to expand our research capabilities by consolidating our Agricultural Research Service and our Cooperative State Research, Education and Extension Service into one single agency.

We would also provide in our proposals $100 million to establish a specialty crop research initiative that would focus on pests and disease management, food safety, increased yields. I'll tell you more about other research initiatives in a few minutes when I highlight our renewable energy proposals.

Meeting the demand of customers and foreign markets is another way we can assure that American agriculture stays competitive and productive. International trade is important to our industry. I don't see that diminishing in the years to come.

Nearly half of all the wheat growers produce is sold abroad. A third of our soybeans go into the international market. And just about 20 percent of our corn crop or one in every five rows is exported. Agricultural productivity is growing at about twice the rate of our population, which means that we need access to new consumers, and I'd say that's especially true in the developing world.

We need that access in order to sustain a market for our goods, but our support programs have consistently come under attack over the last few years. Brazil successfully challenged our export subsidies for cotton, notwithstanding what I would describe as a very aggressive defense.

Canada filed a case challenging our subsidies for corn and literally within about 72 hours many, many other countries joined. And there's a constant threat of challenge to our rice program. Now let me be very clear about something. We will continue to aggressively defend these programs. But ladies and gentlemen, it makes no sense to try to assure farmers that we have a safety net only by putting a bull's eye on their back. That really isn't a safety net at all.

We want to set our farm policies in a way that we do everything we can to make them less vulnerable from being dismantled piece by piece. So another of our major initiatives in our Farm Bill proposals is aimed at reforming our support programs for commodity crops. We want to make sure that these programs operate efficiently and are better able to function as they were designed to function. We believe these initiatives stand on their own merits, but they will also put U.S. producers in a more secure position against the challenges that are being deployed against these kind of programs. So we would reform our countercyclical payments program and base it on crop revenue and yield.

Interestingly enough, at our Farm Bill Forums farmers suggested that we look at this. So it won't be based just on price. This will not only be a more efficient use of tax dollars, but it will make the program function more effectively as a safety net for our farmers.

It was farmers who told us, and I'm quoting here, "In the years of the highest production, you are paying me the most. But in years when I need you the most, in years of low production such as drought, I'm receiving virtually nothing from the '02 Farm Bill."

I will tell you, that sounded counterintuitive to me when farmers told me that. And yet when we went back to USDA and studied their comments, they were absolutely right. What happens under the '02 bill? As production went up, price went down. The loan deficiency payment was paid out on that production, and as the price went down the countercyclical payment was triggered. So in years of highest production, they got both the loan deficiency payment and the countercyclical payment.

Now think about the reverse of that. In years of lowest production such as drought, what happens? Well, you can't LDP a crop you don't raise. And in years of low production, what tends to happen with countercyclical? The price goes up, and so it's not triggered. Is it any wonder that under those circumstances we go through an annual debate in Washington about a drought relief package or a disaster relief package? It's no wonder at all. Farmers, when they needed us most, we weren't there.

And we would shift to a market-based loan rate for commodity crops and avoid having loan rates exceed actual market prices. This way we won't be giving farmers an incentive to plant more acres of a crop than the market would justify.

As we are reducing some of our support programs, we are boosting others. We're expanding our grant payments program by $5.5 billion and adding $7.8 billion in new funding. This is funding in addition to what we're doing today in the area of conservation. These give farmers new ways to support their operations that are not tied to price or production, and so are not viewed as trade-distorting by our international partners.

Conservation programs also allow farmers to generate more environmental benefits for their land. They can do it by protecting wetlands, or wildlife or pursuing projects that enhance the soil and air quality relative to their farming operation. One proposal that came directly from farmers' suggestions is the conservation enhanced payment option, which allows them to replace commodity support payments with an enhanced direct payment, an enhanced direct payment for advanced conservation efforts. With this proposal, farmers can look out over the life of this Farm Bill and decide whether or not they are likely to benefit from the marketing loan program or the countercyclical program. Completely voluntary, if you choose to participate or not – if they don't think they'll get those payments then they can shift into this program and enhance their direct payment by 10 percent while doing the environmental things that maybe they wanted to do in years past while still farming their operation just like they have in years past.

These Farm Bill proposals, we believe, are just simply good farm policy. But I also believe they are good trade policy as well. To strengthen our ability to access foreign markets, we're also establishing a new grant program which would invest $20 billion over 10 years to address international sanitary and phytosanitary uses. We would also provide $15 million to enhance our participation in international standard-setting bodies such as Food and Agricultural Organization. We would also enhance our monitoring and analytical support for industries responding to trade disputes or bringing them forward.

Now if I might just mention briefly the Doha Round. This administration also remains committed to opening up markets with the Doha Development Round of the WTO's international trade talks. Over the past few years, these negotiations have moved forward, then stopped, and now they've started again. Reaching an agreement on agricultural subsidies and tariffs is the key to an overall trade agreement at Doha, but we've covered manufacturing and services as well. We are doing all that we can to bring this about and bring about a result that will be satisfactory to all partners.

Of course, I know this group is well aware of one of the biggest factors driving agricultural policy today, and that is renewable energy. This is one of the most exciting agricultural developments in recent times. If someone had told you just in the past 10 years that we'd be focused on growing corn and soybeans to fuel our cars and our trucks, would you have believed them? Certainly not at the level that we're at today. Clean, renewable energy like ethanol and biodiesel allows us to reduce our dependence on foreign oil, creates new jobs and economic opportunities in our rural communities. Of course, this industry creates new demand for corn and for feedstocks. That in turn creates concern. Will there be enough corn for produce corn and feed our livestock? Will there be enough to meet our export demand?

The answer to this question is very, very complex. We believe however that the answer can be yes. USDA economists calculate ethanol production could rise to 10 billion gallons by 2010 without forcing us to choose between corn for food or for fuel. The higher prices created by increased demand for corn will also increase corn production. Farmers typically favor high priced crops when making planting decisions. I guess that's obvious. And higher prices for corn will clearly factor into their choice. So we do expect corn supplies to increase from additional plantings. Better information on that will be available at the end of this month from the USDA.

I know there have been questions about early withdrawal of acreage from our Conservation Reserve Program for increased corn plantings. We're investigating this issue. We have now for many weeks, and we will make the final decision sometime in the spring. But added acreage isn't the only way to increase corn production. Technologies also can increase the amount of corn that we're able to produce even without committing new acres. Biotechnology has dramatically increased yields. In fact there's been a four-fold increase in corn yields in the last 50 years. This fall a seed company announced there's an experimental drought-tolerant corn seed and this may result in increased yields in dry periods, according to them, by as much as 40 percent in the next few years. That's enormous. And it's just one example.

Biotechnology has the potential to take us beyond what we dared to imagine just a few years ago. We're also encouraged by the use of Distillers Dried Grains, or DDG, in cattle and dairy feed, a byproduct from the production of ethanol. One bushel of corn used for ethanol creates about 17 pounds of that byproduct. What's more, private research is under way to develop a way to fracture the kernels before processing so that both high value feed and ethanol can be produced from the same corn.

In the long term however, the ethanol produced from corn will not be enough to meet the targets hat the President has set in producing 35 billion gallons of renewable fuels within 10 years while also cutting our national gasoline consumption by 20 billion gallons a year.

We believe the solution is to speed the development of cellulosic ethanol as an alternative fuel. With an enhanced cellulosic technology, new feedstocks like woodchips, grasses, and agricultural wastes will be able to produce more ethanol than corn.

To aid the developing cellulosic industry, we are proposing a very bold renewable energy plan in our Farm Bill proposals. A $500 million Bioenergy and Biobased Product Research Initiative, a $500 million grant program to encourage farmers and ranchers and rural businesses to invest in alternative energy and energy efficiency projects; a $100 million for a bioenergy program to share the cost of biomass feedstocks used by cellulosic ethanol plants; $150 million for a Forest Wood to Energy Research Program to accelerate the development of new technologies to better utilize low-value woody biomass; and $150 million for a biomass research and development act initiative to support competitive grants for biomass research; and a $2.1 billion loan guarantee program to support new cellulosic ethanol plant construction.

This investment will facilitate the development of technology that can produce energy from alternative feedstocks and other biomass. And I believe a thriving renewable energy industry will make agriculture more competitive and our nation more secure.

Ladies and gentlemen, I strongly believe in providing support for agriculture. I think it's an investment in America, and I think it's a wise federal policy. Our Farm Bill proposals were designed to provide that support, enhance our competitiveness, and to make responsible use of the taxpayers' dollars. Altogether, our proposals would save more than $10 billion from the '02 Farm Bill spending. They fit within the President's plans to eliminate the budget deficit by 2012, and yet you heard the discussion within the last year about just simply renewing the current Farm Bill. Yet our proposals would still deliver $5 billion more in support for users than they would have received had we simply reauthorized that bill.

They represent responsible, effective and efficient policy built on the testimony of farmers and ranchers and stakeholders who appeared at the Farm Bill Forums to support America's Farm Bill.

We will do everything we can to advance these policies. Thank you very much.

[Applause.]

HOST: Thank you, Mr. Secretary. We will take some questions. For those of the media, there's a media session at 11:30 in the Yorkshire Room.

QUESTION: The Doha negotiations, we always hear (unclear) that our subsidies are higher or these subsidies are higher. How do you get the facts on the table?

SEC. JOHANNS: We have to publish numbers. Our numbers are always public, and I think that's generally true around the world. So I can tell you today without any hesitation that the grain champion subsidizer for the world is the European Union. They subsidize their farmers more than anyplace in the world. Next in line would be Japan. Next in line would be the United States. A couple things I'd offer when it comes to subsidies, and this is very important. Under the trade rules, it isn't the absence of subsidies that's necessarily what carries the days. It's the absence of trade-distorting subsidies.

What do I mean by that, you can subsidize agriculture? You can even subsidize farmers directly. But as long as it's tied to price or production, you're going to put a bull's eye on the back of the farmer. So for example, the direct payments which we have boosted in our Farm Bill proposals by $5.5 billion, as long as it's not coupled to price or production, are trade-compliant. In addition, no matter what the result of the round is, I'm confident in telling you that everybody will be allowed to subsidize to a certain level even in the most trade-distorting areas. So you need to factor this in as you're thinking about farm policy; otherwise, you are caught in a situation where you're constantly defending claims against the subsidies.

Brazil cotton case is a good example. They filed the case many years ago. We aggressively defended, we lose. Brazil is now aback before the WTO, not to relitigate the case. Brazil claims that's absolutely unnecessary. They are back before the WTO saying, Look, the U.S. has not complied with the ruling, the original ruling. In what way? In terms of our countercyclical programs and our marketing loan program.

So they asked for the ability to retaliate. Canada is now in on the corn program, and we hear rumblings all the time that the rice program will be next. Again, you can subsidize agriculture. It's how you do it that is absolutely critical. And there is no safety net when you're telling farmers, you provided it only to subject them to a claim against the very subsidy that you put into law. So it's very important that this is done right.

QUESTION: So farmers are much happier with their farm prices, but is the administration concerned about ethanol driving prices to levels (unclear) America (unclear) with low income?

SEC. JOHANNS: We are very concerned about the grain crop that we have seen, and it's why I continue to say that this is something we've been looking at now for a long time in terms of how do we work our way through this? That's why our farm bill proposals are based on cellulosic ethanol, and that's why when we targeted the $1.6 billion in research and development, it wasn't targeted at corn-based ethanol; it was targeted at biomass, cellulosic ethanol. That's why the loan guarantee program is targeted at cellulosic ethanol; it's not targeted at corn-based ethanol.

I do think, and I've said this a number of times, I think we're in a period of adjustment here for a couple of years. But I do think the market will adjust. I think you'll start to see evidence of that this year. What is happening? We hear from anecdotal evidence at least that farmers are making the decision to plant more acres into corn than we have seen for awhile.

Now again, we won't have good numbers on this until the end of the month when we publish planting intentions, and then as the summer wears on we have a pretty good idea how many corn acres are in fact out there. But if you believe the anecdotal evidence, it appears to us that more acres are going to go into corn.

To give you an example how quickly things can change, on the day I came to USDA every ag journal I picked up talked about the unbelievable surplus of corn. Every single publication said, what the devil are we going to do with all this corn?

Look how dramatically that has changed in just the last couple of years. The important thing I think to remember is that the market does work. You know, every time you look at historical patterns, the one thing that is very clear in the United States is that our free market system does work, and it will adjust. The higher price is beckoning farmers to plant more acres into corn, and again if you believe the anecdotal evidence I think we'll have more corn acres than we've seen in awhile.

QUESTION: I have a specific question. I think you alluded to this a bit. What plans does USDA have to conduct research to make DDGs a better fuel source for all species?

SEC. JOHANNS: That research is going on, and there's not only public research but there's private research. And the thought is along the lines, if you can literally break that kernel down and send the part into the ethanol plant and send the part that can be fed to poultry and pork and cattle and dairy and on and on, you're going to have more a more manageable product and a product that can be used on a wider basis. So that research is being conducted. But we don't take all the credit for that at USDA. There's also private research being conducted.

QUESTION: We heard this morning from Iowa State, cellulose biofuels cannot economically compete with ethanol from corn; neither can biodiesel compete with ethanol per acre from corn. Then why pursue the cellulosic ethanol?

SEC. JOHANNS: I'll never forget: I wasn't in public life at the time, but a client of mine when I was practicing law came in and he said, A group of us are thinking about investing in an ethanol plant. This was 20, 25 years ago. I said to him, Marv, what is that? He said, It's a plant where you take corn and you actually produce a product that you can burn in your car, called ethanol. That was the first I'd ever heard, although the technology had been around for a long, long time.

We've heard many, many stories through the years about ethanol and it being a boondoggle and it's not going to work, and this, that and the next thing. In fact, most of the stories written about ethanol until about two or three years ago were probably along the lines of, Is this industry even going to survive?

Not only did it survive, it's thriving. It's been a remarkable story in the last couple of years. I personally believe the issue is much the same with cellulosic ethanol or wind energy or battery powered cars or any host of technologies that are out there that are being spurred on because the economics make more sense today than maybe they ever have.

I don't care what economist you look at, if you look at their testimony at a given point in time, and if they explain the window or door to the future, then of course you're going to reach one conclusion. We say in our Farm Bill proposals for example, not only do we not want to slam the door to the future, we want to kick that door wide open. We want to create that opportunity for cellulosic ethanol, for battery powered vehicles, for wind energy, for any other type of technology that will lessen our dependence on foreign oil. We think that's good policy for a whole host of reasons that's probably a separate speech in itself. I am optimistic about the future. I've seen enough change in agriculture.

I tell a story that I really believe kind of summarizes how I feel about this. When my father was growing up and they brought milking cows from Germany where my great grandfather emigrated from, his productivity was pretty well limited to the number of cows that he and my mother could milk in a given day, and that was going to be about a dozen cows. No matter how much money we sent him from a government subsidy or whatever, that's his productivity, and that's about as good as it was going to get. You know what? Some visionary out there said, We can do better. Whether you have the most remote farm in North Central Iowa, remote ranch in Arizona, we're going to get you electricity! All of a sudden, things changed dramatically. All of a sudden his productivity went from not a dozen cows but 30 or 35 cows. It was just an unbelievable change in the landscape of rural America.

I believe that we're on the edge of that kind of change. Again, I say it's an opportunity for us to be bold. Let's not close the door to that opportunity; let's kick that door open. Let's create opportunity across rural America like we have seen in the last couple of years in corn-based ethanol. Why can't it occur in other areas? And it will. I'm confident that it will occur. It's an exciting time for rural America. We should not shy away from it.

HOST: There's time for one or two more here.

QUESTION: There are press reports this morning that in response to Ducks Unlimited, the USDA staff is considering increasing CRP rental rates and possibly (unclear) into a general signup for CRP. Can you comment?

SEC. JOHANNS: We continuously look at our rental rates to try to figure out, are we competitive? Because one of the challenges that we face is that we are out there trying to make sure we have a stable CRP program. So last time we looked at this I think was a couple of years ago. It's something that, like I said, we need to continuously look at. I've directed that at the USDA to make sure we've got the right rental rates. So it is something we'll look at not only now but in the future.

I would also suggest to you that what we're really waiting for in so many areas of decision is what our planting intentions are going to be. If we see a ramp-up in corn acres, it could have an impact on how we look at our CRP acres. I've been asked many times a somewhat similar question, different approach: Are you going to let CRP acres out without penalty so they can go into corn production? My answer to that is, we will have better information here in the not-too-distant future in the next few weeks and we can assess that. And we will continually assess that whether it's CRP sign-up, whether it is looking at rental rates, whether it's letting acres out, we should have a better idea sometime here in the next few weeks as to how that all shapes up just simply because we'll have better information as to what farmers are intending.

So we should be able to make some decisions as I've indicated sometime this spring. We don't have to be in a huge hurry about this, and most importantly we should have all the facts we can get at our disposal before we make a decision on any one of those areas.

HOST: Thank you very much, Mr. Secretary. We look forward to working with you over this next year as you address important the important Farm Bill and all the trade challenges and other issues you brought up. Please join me again in thanking the Secretary.

[Applause.]