SCHUMACHER ON GLOBAL FOOD AND AGRICULTURAL SYSTEM OF FUTURE

[USIA]

USIS Washington File

20 October 1997

TEXT: SCHUMACHER ON GLOBAL FOOD AND AGRICULTURAL SYSTEM OF FUTURE

(Agriculture under secretary's speech in The Hague) (4290)

The Hague -- Agriculture "continues to be the foundation from which
economic growth is built," and the international community must make
use of new opportunities and new technologies "and put them to work
for the world's consumers," according to Under Secretary of
Agriculture August Schumacher.

Speaking before the International Policy Council October 10 at The
Hague, Schumacher, under secretary for farm and foreign agricultural
services, said the U.S. Action Plan on Food Security calls for
strengthened support for food-related research and new technologies.

"We are also proposing to increase funding for International
Agricultural Research Centers," he said. "It was at one of these
centers -- the International Center for the Improvement of Corn and
Wheat (Centro Internacional de Mejoramiento de Maiz y Trigo, or
CIMMYT) -- that the Green Revolution was born. There, Nobel Prize
winner Norman Borlaug developed the high-yield, low-pesticide dwarf
wheat that much of the world's population now depends on."

Schumacher added that the Green Revolution "may have plateaued. We see
the use of biotechnology in agriculture as the next logical step.
Productivity gains from biotechnology may prove to be not only
welcome, but essential for feeding the world in the coming century."

He acknowledged that "biotechnology is an extremely sensitive issue
here in Europe." However, "Theoretical risks that lack scientific
foundation must be balanced against the real risks of not taking
advantage of the benefits that new technologies may offer. In the case
of biotech foods, these risks may fall disproportionately on the
world's poorest nations. People should not be asked to go hungry for
want of a higher yielding variety of grain, when all the evidence
tells us it is as safe to produce and consume as any traditional
hybrid."

The under secretary stressed that "We must work together to meet the
new challenges that are sure to emerge. We must get on the train
before it leaves the station without us."

Following is the text of his remarks.

(Note: In the following text, "billion" equals 1,000 million.)

(Begin text)

Remarks by August Schumacher
Under Secretary for Farm and Foreign Agricultural Services
U.S. Department of Agriculture
Before the International Policy Council
The Hague, Netherlands
October 10, 1997

THE GLOBAL FOOD AND AGRICULTURAL SYSTEM OF THE 21ST CENTURY

Good afternoon. Thank you Dale, and thank you Lord Plumb and your
excellent staff. It is a great pleasure to have the opportunity to
meet with this international group of agribusiness and farm leaders,
academics, and great agri-trade negotiators.

Today I will talk about where we have been, where we are, and where we
are going in the global food and agricultural system. In particular, I
want to review where we are on "Freedom to Farm," our new safety-net
effort on risk management, especially crop insurance, and trade
policy, food security, and biotech.

Where We Have Been

For us in the United States and for many of your nations as well,
agriculture is a vital element of our economy. For example, the United
States has 8 million people living on farms, or 3 percent of our
population, while 15 million people live on farms in the European
Union, or 4 percent of the population. In the rest of the world, one
out of every two people, or 2.6 billion people, live on a farm. While
we may have fewer people living on farms in the United States than
other countries do, the U.S. food system is our nation's largest
employer and U.S. agriculture is the leading positive contributor to
the U.S. balance of trade.

The importance of trade to agriculture cannot be downplayed --
consider the Marshall Plan. Recovery of Europe's agriculture was
critical to its post-war economic recovery. Soon after the Marshall
Plan began rebuilding European economies, GATT was born. The United
States' Food for Peace program followed close behind.

In the United States, this Marshall Plan-led, post-war,
outward-looking farm policy is beginning to pay significant dividends
for American farmers. In the mid-1980s, we hit a nadir of only $26
billion in exports and Europe was gaining significant market share in
grains. By the late 1980s, U.S. export levels worked up to roughly $40
billion annually. By the mid-1990s, our exports had jumped some 50
percent to $57-$60 billion, and the agri-trade surplus widened to $27
billion in 1996. Our Economic Research Service estimates that the
United States will export some $80 billion by 2005, with the
composition of trade further favoring value-added products such as
meats, wines, nuts, and soy oil.

Since Marshall, our global agri-environment has changed quite
dramatically. Outdated and regressive policies of self-sufficiency,
protectionism, and government control of markets are being challenged,
reformed, or dismantled.

Where We Are

All of us here today recognize these facts -- each of us has devised a
different approach to deal with our changing food and agricultural
system. As we go through this process, we can learn from each other
what works and what does not. For example, we know that there are a
number of agricultural cooperatives in Europe that have been
successful. Perhaps our resurging cooperatives can learn from their
experience and from the excellent work of Rabobank and Credit
Agricole.

Freedom to Farm

In the United States, we have been fundamentally revising our domestic
policies to drastically reduce the role of our government in farm
programs. In 1996, we underwent the most dramatic reshaping of U.S.
farm policy in 60 years. Our 1996 farm legislation radically changed
the relationship between American farmers and their government. Our
system of guaranteeing producers a certain price floor for their crops
through deficiency payments virtually ended. Farmers are receiving
formula-derived, decreasing transition payments through the year 2002.
But our government has not abandoned our farmers. Keeping producers
viable and productive remains USDA's number one goal.

As Tim Josling of Stanford has recently written, this new American
farm policy has several dimensions:

-- It changes the economic conditions for America's farmers in the
world's largest agricultural exporting country.

-- It will have a direct impact on farmers and consumers in other
countries through its impact on world prices.

-- It is likely to have as yet undetermined impact on the evolving
policy reforms outside the United States.

Basically, the innovations in this new U.S. policy are to decouple
farm payments for the principal crops (except peanuts, tobacco, and
sugar) from output and cropping decisions, to provide greater
flexibility of crop selection, to eliminate set asides as a condition
of receiving payments, and to de-link policy from specific acreage
commitments.

Fundamentally, the range of farmer decisions that are influenced by
market conditions rather than mandated policy will be greatly
expanded. America's family farmers are now free of government-mandated
controls on planting and are reacting to market opportunities. We have
already seen this in the record area planted to soybeans and the
resulting record crop now being harvested.

We are also seeing renewed interest by our young people in entering
the American agri-system. Our land-grant universities report a
37-percent increase in enrollment over the past five years.

Yesterday, EU Farm Commissioner Franz Fischler laid out the goals for
Agenda 2000. Agriculture Secretary Dan Glickman has a number of goals
as well. In the United States, we are working to:

-- Expand economic and trade opportunities for agricultural producers
and other rural residents.

-- Ensure food for the hungry, both domestically and overseas.

-- Ensure a safe food supply.

-- Ensure an affordable, nutritious, and accessible food supply.

-- Promote sensible management of our natural resources.

Risk Management

A key U.S. farm policy objective is to stabilize the economic safety
net for farmers and ranchers. Our work to feed the hungry cannot be
accomplished without maintaining an economically stable and productive
farm community. Nor can we assure foreign purchasers that America is
the most dependable and reliable supplier of high-quality, safe
commodities without the stability of this so-called risk management
"safety net."

The new risk environment under which American farmers operate today is
much different from that which existed just a few years ago. Today's
successful farmers must take pro-active steps to use financial and
marketing tools, such as crop insurance, to manage the inevitable
weather and price risks of farming. They cannot passively wait for
government disaster and price support programs to step in -- that is
the reality of farming in America in the 1990s. Instead of viewing
crop insurance as a passive safety net, American farmers are actively
using crop insurance as a pro-active financial management foundation.

USDA and private industry have worked together to offer a variety of
new and innovative risk management tools to help producers manage risk
to their yields, crop quality, price, revenue assurance, and
situations where farmers are prevented from planting crops (so-called
prevented planting policies).

The partnership is an innovative one -- to the best of my knowledge
one of the few government/private sector crop insurance arrangements
in the world. U.S. taxpayers, through USDA, underwrite the approved
insurance policies, pay certain administrative costs, help educate
producers about the availability of the insurance, and provide overall
regulatory oversight to policies and practices. Some 17 private sector
companies working through some 20,000 private agents in all states
sell the insurance, service the customer, and pay claims where
necessary.

What you may find interesting about our government's partnership with
the crop insurance industry is that many European finance houses are
involved -- by reinsuring some of the companies that offer policies to
our producers. Several European firms have visited with our country's
insurance industry seeking ideas on how to improve risk management to
their farmers. Looking into the future -- perhaps far into the future
-- I wonder if this European re-insurance will lead to a time when
production risks -- and the premium pool -- of all farmers are
universally shared. As Europe works on its Agenda 2000, we would be
pleased to share our experiences with these risk management tools. We
may find we have a common agri-risk management agenda.

Latin America

While the United States has been making major agricultural policy
reforms, Latin American countries have also undertaken tariff
reductions, greatly reduced state-trading operations, substantially
reduced domestic subsidies, removed export taxes, and eliminated much
of the monopoly purchasing and selling powers of export agencies. Tim
Josling writes that in Latin America "agriculture has been made a full
partner in the development of a competitive and open economy."

Brazil's recent experience also illustrates how worldwide economic
growth, along with market-oriented domestic and foreign policies, has
fostered trade --even between competitors in world commodity export
markets. Brazil and the United States have each exported record
amounts of soybeans this past season to meet growing demand in Asian
and Latin American markets. Meanwhile, local processors are striving
to meet growing domestic and export demand for soy products. Due to
opposite growing seasons, 195,000 tons of Brazilian soybeans entered
the U.S. market last summer when supplies were particularly tight in
our Southeast. Brazil, in turn, expects to import nearly 1.5 million
tons of U.S. soybeans prior to its harvest to keep its crushing
industry operating. Argentina -- another U.S. competitor in the
soybean and product export market -- may import U.S. soybeans to ease
its tight supply situation. Arturo, I've seen press reports of
investment proposals of some $9 billion in modernizing your
agricultural infrastructure, especially ports and railways.

This type of trade between competitors has provided for the most
profitable and efficient use of commodities as market forces, absent
tariffs and restrictions, move commodities from surplus to deficit
locations. This allows commodities to be processed and consumed rather
than stored, benefiting farmers, processors, and consumers. As demand
continues to grow and companies move away from carrying large
inventories of raw materials, this type of trade will likely become
more prevalent. This raises the whole question of stocks policies
(which I will defer to Dale and Henry to answer).

Other nations are also taking steps to reform their farm sectors as
well, albeit some more reluctantly than others. Yesterday, Farm
Commissioner Fischler told us about the wide-ranging Agenda 2000
package of EU reforms. These reforms call for cuts in support prices
for dairy products, cereals, and beef, and compensation to farmers
through direct payments. We know through the U.S. experience that
there will not be universal acceptance of this proposal initially. As
more details become available, we will conduct a more complete review
of the proposal to ensure that it coincides with the EU's WTO
commitments, but from what we know now it is a step in the right
direction.

China

As we look ahead to the year 2005, prospects are good for continued
economic growth across most developed, developing, and transition
economies. Economic growth rates in Asia are expected to continue to
lead the world. China and Southeast Asia are likely to remain the
fastest growing areas of the world. Certainly, their recent agri-trade
expansion in feedgrains, horticulture, and meats have influenced
agri-trade patterns.

However there are concerns. As Tim Josling comments, "Will the
agricultural sector of China develop along the lines of Japan or will
they bypass the stage of heavy protection and state control of basic
crops and head directly for a market-oriented agricultural system?
Some signs are that China is prepared to try the road of modest
protection and open markets." However, the telling sign will be the
final results of the ongoing WTO accession rounds. Some progress has
been made -- much more is needed. As Herman said, China is concerned
that exporting countries be reliable suppliers. China also needs to be
a reliable buyer.

Where We Are Going (WTO, Trade Policies, and the 1999 Round)

The Uruguay Round and the World Trade Organization (WTO) are just the
beginning of a new era in trade relations that will move the world
toward freer trade. All members of the WTO must continue to work
together to move along the path toward increased trade liberalization.
This multilateral process is the best way to ensure fair trade, to
open new markets, and to resolve subsidy or access problems. The
United States intends to meet its WTO commitments fully and we expect
other nations to do so as well.

We look forward to continuing the trade reform process when
negotiations begin on time in 1999. The United States is examining
very carefully what is and is not working. We haven't defined our
objectives for this round of negotiations yet, but we are going to
focus on a few points. First and foremost is to identify problems
related to implementation of the current Agreement. For example, the
establishment of a tariff-rate quota (TRQ) will not result in new
access opportunities if it is implemented in a restrictive manner.
Therefore, TRQ administration is one of the topics already identified
by the Committee on Agriculture as an area for further discussion.

The United States also believes that state trading enterprises should
not be allowed to circumvent export subsidy limits. Therefore we are
seeking greater transparency in the operation of these entities
through the WTO Working Party on State Trading Enterprises. We believe
this effort will help identify practices that may need to be
disciplined in future negotiations, both for export and import
monopolies.

High tariffs are equally damaging, and far more widespread. They
shield producers from the realities of the marketplace, and fuel the
need for expensive subsidies and price supports. We have made good
progress in reducing tariffs, but we can and should go even further.

From the U.S. perspective, export taxes are just as trade distorting
as subsidies. Although export taxes by other nations may benefit the
United States in the short run by raising our market share, in the
long run they hurt all of us because they convince developing
countries that the world market is not reliable and encourage
inefficient internal farm policies aimed at artificial
self-sufficiency.

With our new farm policy, the United States has made a commitment not
to restrict or tax grain exports when global supplies are tight. As
you know, we upheld that commitment last year. Foreign buyers are
guaranteed the same access to our supplies as domestic users,
especially livestock. In addition, we have shown extraordinary
restraint in the use of export subsidies on grains. The EU has not
shown the same restraint. The recent global supply situation simply
does not warrant the use of subsidies. World grain stock levels,
measured as a percent of total use, have remained at or near historic
lows.

In addition, we will continue to work to prevent unjustified technical
barriers to trade, especially sanitary and phytosanitary measures. Too
often these measures are merely a guise to protect domestic
agriculture from import competition and fail to adhere to the WTO
principle that such measures be grounded in sound science. We will
work through the WTO to encourage the adoption of international
standards that facilitate trade while giving full protection to
consumers' health and safety. Consumers have the right to insist on
such safeguards. As we know from the painful food scares of recent
years, agriculture is quick to feel the blow if consumers lose
confidence in the safety of what they eat.

While the United States and EU have had trade frictions, let us not
forget we also have a long history -- most recently illustrated by the
successful completion of the Uruguay Round -- of being able to
overcome difficulties, accommodate each others' concerns and, through
intense negotiation, arrive at solutions that are satisfactory to both
parties. As we begin to focus on the next round of multilateral trade
negotiations, we look forward to the same kind of determined approach
from both sides. But in the end, we believe we will, in fact, improve
the world trading environment for everyone.

U.S. Action Plan on Food Security

Since the World Food Summit last November, the United States has been
aggressively looking at how we can strengthen what we are already
doing to enhance food security both at home and abroad. We have been
hard at work developing a U.S. Action Plan on Food Security. That plan
will include specific actions that governmental and non-governmental
entities intend to take to alleviate hunger and malnutrition.

What is so exciting and challenging about what we have undertaken is
the many dimensions to the effort. It is both domestic and
international in scope and far-ranging in its reach -- from issues of
production agriculture to poverty alleviation, from biotechnological
advances to sustainable development, and from private investment to
population stabilization. It is not just a government effort, but an
effort of all sectors that contribute to food security building a
common agenda.

Since we made the decision last December to develop an Action Plan for
the United States, we have been consulting openly and actively with
the American public to ensure that the final product is something we
can all embrace -- something that mobilizes the energies and resources
of American society as a whole.

Biotechnology

One proposal in the U.S. Action Plan, which is also a commitment we
made at the World Food Summit, is to strengthen our support for
food-related research and new technologies. We are also proposing to
increase funding for International Agricultural Research Centers. It
was at one of these centers -- the International Center for the
Improvement of Corn and Wheat (Centro Internacional de Mejoramiento de
Maiz y Trigo, or CIMMYT) -- that the Green Revolution was born. There,
Nobel Prize winner Norman Borlaug developed the high-yield,
low-pesticide dwarf wheat that much of the world's population now
depends on. Scientists at these centers have continued Dr. Borlaug's
work. For example, scientists at the International Crops Research
Institute for the Semi-Arid Tropics (ICRISAT) in Andhra Pradesh,
India, have developed a pearl millet variety that is estimated to
annually return to India's farmers $50 million or more than 12 times
the cost of the research investment. Indian scientists, Mr. Prime
Minister, now play a major role in the International Agricultural
Research Centers.

While the Green Revolution, with its new high-yielding varieties,
succeeded in raising per capita food production in the developing
world, it may have plateaued. We see the use of biotechnology in
agriculture as the next logical step. Productivity gains from
biotechnology may prove to be not only welcome, but essential for
feeding the world in the coming century.

As the world's population approaches 6 billion, biotechnology offers
one of the most promising tools for meeting future demand for an
abundant, affordable, nutritious, and safe global food supply. It
holds the potential for reducing the use of crop chemicals and fossil
fuels, adapting plant varieties that can be grown in harsh conditions,
reducing losses to plant pests and diseases, increasing the shelf life
and the nutritional content of foods, and producing more food on a
finite land base.

As you know, last year the European Commission approved two
biotechnology products -- Bt corn and Roundup-Ready soybeans -- after
a long and cumbersome review process. We came down to the wire last
year on Bt corn and Roundup-Ready soybeans, and it looks like we're
facing a similar situation this year on maize. We expect our trading
partners to follow a clearly defined review and approval process based
on sound science, not on demonstrations or political pressures. We
expect the EU and others not to impose arbitrary delays, unnecessary
regulations, and unjustified import restrictions. We intend to keep
urging the EU to remain an open market to our products and to make
regulatory and import decisions based on sound science as required by
the Uruguay Round Agreement and its membership in the World Trade
Organization.

I know that biotechnology is an extremely sensitive issue here in
Europe. I have heard that some of your best scientists are considering
leaving to work in other countries because of the controversy in
Europe over biotechnology. I hope that is not true, but in the current
anti-science atmosphere in Europe, it wouldn't surprise me. It is
ironic that EU biotechnology companies are moving ahead to develop
biotechnology products with other countries, while EU leaders still
struggle to decide what regulatory system to have in place. It is also
surprising to see European environmental groups question the benefits
of biotechnology when it is an important tool to help keep fragile
lands out of production and avoid the overuse of pesticides and
chemicals.

Just for a moment, think about the promise of biotechnology -- past
and future. Think about this sign on one of the walls at CIMMYT
attributed to Norin 10 -- the dwarfing gene for wheat. "A single gene
... has saved 100 million lives." This sign stunned Agriculture
Secretary Glickman into silence when he visited CIMMYT this past
spring. We cannot allow these words to be forgotten. We must recognize
and help others understand the promise of agricultural biotechnology.
The best scientists in the world have shown it to be safe. It is our
best hope, perhaps our only hope, for feeding a hungry world.

Theoretical risks that lack scientific foundation must be balanced
against the real risks of not taking advantage of the benefits that
new technologies may offer. In the case of biotech foods, these risks
may fall disproportionately on the world's poorest nations. People
should not be asked to go hungry for want of a higher yielding variety
of grain, when all the evidence tells us it is as safe to produce and
consume as any traditional hybrid.

Conclusion

As we look to the 21st century, agriculture continues to be the
foundation from which economic growth is built. From trade to
technology and from reforms to research, our world food system is
changing rapidly. Not since the Green Revolution have we seen so much
promise and so much hope. We must grasp the opportunities within our
reach and put them to work for the world's consumers. We must work
together to meet the new challenges that are sure to emerge. We must
get on the train before it leaves the station without us.

Communication is the key. USDA is working to greatly expand its own
Internet Home Page to provide timely and deeper information to our
farmers, including satellite imagery and weather-related maps using
geographic information systems (GIS) that display county sections
where farmers can study their farms from space on a year-to-year
basis.

A great example of how hard all of us need to work to communicate is
the following transcript from a radio conversation between a U.S.
naval ship and the U.S. Coast Guard off the coast of Massachusetts.
The conversation starts like this:

U.S. Navy: Please divert your course 15 degrees to the North to avoid
a collision.

U.S. Coast Guard: Recommend you divert YOUR course 15 degrees to the
South to avoid collision.

U.S. Navy: This is the Captain of a U.S. Navy ship. I say again,
divert your course.

U.S. Coast Guard: No. I say again, you divert YOUR course.

U.S. Navy: THIS IS THE BATTLESHIP USS MISSOURI, WE ARE A LARGE WARSHIP
OF THE U.S. NAVY. DIVERT YOUR COURSE NOW!!!

U.S. Coast Guard: This is Lighthouse #2. Your call.

This exchange illustrates the pitfalls of poor communication. Lack of
communication between some can spell disaster for many. IPC, Henry and
Dale play a great role. You are a great beacon for all of our ships!
Thank you.

(End text)