Issue 28
April 2000

Highlights from the 2000 Wheat Industry Conference and Expo in Las Vegas

China trade, safety net fix among top Glickman priorities

By Tracy Sayler

Better trade with China, a national initiative for cleaner wheat, and resolving thorny global grain trade matters in negotiations of the World Trade Organization will all go a long way to improving the profit picture for U.S. wheat producers.  However, better trade is only part of the profit equation.  Fixing the safety net holes in current domestic farm policy is the other, said U.S. Department of Agriculture Secretary Dan Glickman, in a keynote address that highlighted the recent Wheat Industry Conference and Exposition.

High tariffs, and a longstanding ban on U.S. wheat exported to China through Pacific Northwest ports because of concerns of a minor grain fungal disease called TCK, have kept a lid on U.S. wheat exports to China, both the biggest consumer and user of wheat in the world. 

Efforts of U.S. Wheat Associates and the National Association of Wheat Growers  to clear these trade barriers paid off last year, when the U.S. and China signed an historic agreement which Glickman said "opens the borders" to increased trade with China, including U.S. wheat.  Chinese wheat imports are expected to soar over the next decade, to an average of 5 million metric tons annually.  "And with the TCK issue behind us, I expect us to compete effectively for those sales," Glickman said.

However, Chinese membership in the World Trade Organization, along with congressional approval of permanent Normal Trade Relations status for China this year, is a key step in normalizing trade with China, a market that could boost annual U.S. farm exports by $2 billion.  "This may be the biggest test yet of our nation's commitment to the global economy.  It is critical that Congress pass PNTR," he said.

Glickman expressed support for a proposed initiative under which USDA would fund efforts to ship cleaner wheat for export.  "Most larger grain companies don't want USDA involved at all," he said of the initiative, which both the NAWG and USW support.  Nevertheless, he said that in a global wheat market where competition is tight, "we must sell the highest quality product we can in the world, and we need the means to ensure this.  I don't want to give buyers any excuses not to buy our grain."

For all the obstacles preventing the export of more American wheat, "the fact is that our sales in volume have held steady.  It's low prices that are keeping export values down," said Glickman. While the government is no longer in the business of managing supply, it can mitigate the effect of low prices, and indeed, has done so the last two years with $15 billion in ad hoc market and disaster assistance. 

"People ask, 'Are you going to amend Freedom To Farm?' I say they already have," he said, referring to the ad hoc assistance to shore up the 1996 Farm Bill's shortcomings.

Glickman discussed details of the Administration's $11 billion, two-year safety net proposal, which he said would "enhance and fortify the 1996 Farm Bill by rebuilding the safety net." 

The centerpiece of the proposal is $6.9 billion (over two years) in supplemental income assistance.  The assistance would be counter-cyclical, with payments increasing at times of greatest price distress and tapering off when the farm economy rebounds. The payments would be on top of, not in lieu of, existing AMTA payments which would continue.   The supplemental income assistance would also be targeted to those who actually work the land, not landlords.

A controversial feature of the supplemental income assistance plan: The combination of AMTA payments plus supplemental income payments could not exceed $30,000 per person.  Glickman was quick to point out that 92% of all farmers would not be affected by the cap, but acknowledged that could change when the plan reaches Congress.  "That is something we can talk about and work with Congress on, but it's important to have a plan that's a starting point."

The text of Glickman's prepared speech at the NAWG conference may be found online at the USDA's web page: www. usda.gov/news/releases/2000/02/004

Closing the "digital divide" in rural America

Closing the "digital divide," encouraging entrepreneurs, and leveraging change are three key challenges that should guide policies and decisions to help rural America, said Mark Drabenstott, vice president and director of the Center for the Study of Rural America, associated with the Federal Reserve Bank of Kansas City (www.kc.frb.org ).

Drabenstott, in his address at the recent Wheat Industry Conference and Expo, said that in the short-term, the agricultural economy is slowly climbing out of its slump.  Grain stocks continue to weigh on prices, but the global economy is rebounding and "iffy" weather this year could cut into production.

Farmland values are holding steady, he said, while net farm income hovered above the average in the 1990s, but only because of record government payments that totaled $23 billion in 1999.  Will government payments be part of the equation for net income in 2000? "With this year being divisible by four, my guess is that supplemental income will be coming," said Drabenstott, referring to this year's elections.

Still, he said that the longest economic boom in U.S. history "is not a tide that's lifting all boats."  Job creation in remote rural areas is more than a full percentage point off the pace. 

Better ways need to be found to tap into the engines of the "new economy," which includes the Internet and digital communications.  Ideas from public subsidization much the same as rural electrification to incentives for the private sector to invest in rural America must be considered.  Drabenstott noted that the Center has just hired a specialist from Sprint Communications to help evaluate these issues.

And like the programs that attracted homesteaders to develop the prairies a century ago, programs need to be adopted that attract entrepreneurs to rural areas.  "Entrepreneurs are the yeast in the mix," he said.  "Without it, the bread doesn't rise."

Leveraging change occurring in agriculture—which includes a greater focus on farm products, not commodities—requires a new perspective on how, who, and where agriculture does business, said Drabenstott.  "We need to find ways to keep farmers in the game in a supply-chained world," he said.

Sano Shimoda's big picture for ag: a carbohydrate economy

Sano Shimoda peers into the big picture for agriculture and sees huge potential: a new age of innovation, an era of exciting new markets, and a new world of growth and value creation, created by the merging of breakthroughs and advancements in science and technology.

Shimoda is president of BioScience Securities, Inc. a California-based brokerage, institutional research and investment banking firm that focuses on agricultural biotechnology.  He shared his insights into agricultural trends at the recent Wheat Industry Conference and Expo. 

There are uncertainties about biotech in the near-term, but bright long-term opportunities, Shimoda said.  The global controversy over genetically-modified organisms has created a market-induced moratorium on commercialization, but lead companies will continue to power ahead on technology advancement.  He predicts that the industry faces two to three years of negative market forces, before market sentiment turns positive.

"At the end of the day, better understanding of the science and recognition of the economic and social value of products derived from biotech will ultimately validate the value of this technology and drive its adoption," said Shimoda.  "The ability to calm the controversy, before it creates serious long-term commercial impacts, will require all stakeholders to work together to build public trust and confidence in the technology."

The power of biotechnology applied to agriculture has the potential to move our economic and industrial base towards a carbohydrate or plant-based economy, he said. Specialized traits will create broader market opportunities that will eventually link a broad spectrum of non-conventional industrial-based sectors to agriculture.  Health (pharmaceuticals) food and nutrition, construction and building materials (chemicals, plastics, wood) and energy are some of the sectors where agriculture will see new product and business opportunities, Shimoda said.

These advancements will create new linkages between markets, industries, and companies that do not exist now.  The changes will eventually redefine farmers' role in the agricultural production system.  He said farmers will focus more on marketing, made-to-order production and increasing net value per acre.

Shimoda said biotech development of wheat has lagged partly due to the greater complexity of wheat breeding, genetic transformation difficulties, and a saved seed market where there are fewer incentives to develop seed.  However, biotech development in agriculture has accelerated and is spreading across more crops, including rice, fruits, vegetables, and cereal grains, including wheat. 

A broad number of wheat traits will be brought to market around 2005 and beyond:

Input traits—Such as herbicide tolerance, disease resistance, insect resistance.
Plant performance traits—Yield, kernel uniformity, weather tolerance, salinity.
Output or quality traits—Improved milling and baking properties, modified lipids to enhance energy content, modified starch, nutrition and flavor.

"The future of agriculture is going to be extraordinary in terms of creating value growth," Shimoda said.  "But opportunities will be available only to those who meet the changing needs of the marketplace."

Roberts at NAWG Conference: "Ag trade policy in shambles"

U.S. Secretary of Agriculture Dan Glickman kicked off the recent Wheat Industry Conference and Expo with an outline of Administration plans to boost exports and shore up the financial safety net for producers.  At the conference finale, the other side of the political aisle weighed in.

Sen. Pat Roberts (R-KS) was the keynote speaker at the Conference banquet, where he accepted the National Association of Wheat Grower's Wheat Leader of the Year Award. In presenting the award, NAWG president Jim Stonebrink called Roberts "a consistent, understanding and effective friend of the U.S. wheat industry."

In his speech, Roberts didn't mince words about his thoughts on the Clinton Administration's handling of agricultural trade policy.

"Ag trade policy is in shambles.  No domestic farm program can work without an aggressive, consistent and effective trade policy.  Yet this Administration has failed to provide the leadership farmers need to open up world markets for agricultural products," Roberts said.  "Congress shares some of the blame for foreign policy trade failures," he conceded.  "But the Administration's leadership and budget commitment (on trade) continues to fall short of what agriculture needs to survive."

In a prepared statement released prior to his speech at the NAWG banquet, Roberts outlined a list of domestic farm policy and trade priorities, including "real" crop insurance reform, "real" sanctions reform, approval of Permanent Normal Trade Relations (PNTR) for China, and approval of an agricultural assistance package that would include a 100% bonus AMTA payment, similar to the market assistance approved by Congress the last two years to help farmers manage slumping commodity prices.

Roberts said he thinks the Senate has the votes to pass PNTR for China, and that he is pleased that USDA Secretary Dan Glickman has pledged his support for it.  "But the president has to weigh in. No more flip flops like in Seattle.  He has to weigh in on this, and I think he'll do that." 

Roberts criticized the Clinton Administration for its handling of the opening ministerial meeting of the World Trade Organization in Seattle, which set back the trade agenda like "shattered glass."  The Administration expresses itself to be pro-trade, yet "the Seattle trade talks failed because the administration pandered to political factions and anti-trade radicals."

He said that the Administration failed to bring Fast Track negotiating authority before Congress and blocked attempts to pass it.  And "while granting waivers for grain sales to Iran, Libya and the Sudan, the Administration failed to provide credit, thus preventing any grain sales."

The Administration's real test of trade support will be its support for China PNTR, Roberts repeated.