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Vilsack Worries About Future of RFS and USDA Morale

Former Iowa Governor Tom Vilsack, who was secretary of agriculture under President Barack Obama, is low-key in public and uses the word opportunity a lot. Those are characteristics that should serve him well in his new job as the CEO of the U.S. Dairy Export Council. Recently, Vilsack shared his vision of the opportunities and the challenges facing America’s farmers as his successor, a fellow governor from Georgia, Sonny Perdue, takes the helm at USDA. Here is a slightly condensed version of that conversation.

Q. What are your goals for the U.S. Dairy Export Council?

A. I want to work with the 120 members of USDEC to expand opportunities for dairy exports from U.S. producers. It’s an opportunity I think that we have been working on for the last 10 to 15 years, and we’ve seen a growth in exports from about 3% [of U.S. production] to about 15%. In fact, this February we had the second-best February in dairy exports since we began keeping records. But we need to do more because our producers continue to be the most efficient and most effective producers in the world. They produce more milk each and every year. So the result is that we need to figure out ways in which we can domestically consume more but also export more. We have a goal over the course of the next three to five years [of] reaching from 15% exports to perhaps as high as 20%. We want to set as a goal the ability to really look at ways in which we can expand and develop the relationships and the understanding of other markets so that we continue to grow while at the same time doing what we need to do to protect existing markets.

Q. Where are those markets and potential markets?

In terms of protecting markets, obviously it’s necessary that we continue to promote export opportunities in Mexico, which is our number one customer. We think there are opportunities to substantially expand our footprint in Asia, particularly Southeast Asia. There are growing middle classes in a number of countries in Southeast Asia that would be interested potentially in consuming more dairy products. And I think, frankly, we need to continue to focus on opening up markets that have been far too closed for far too long. In that space I think of Canada and specifically opportunities potentially in China. 

[In Canada] they have a new system in place where they are making it very difficult for us to continue to export products that we’ve exported in the past. We think that this new system is suspect in terms of WTO [World Trade Organization] compliance. We’ve asked for information from the Canadians. We have not yet received it. We are now getting a number of reports of dairies that have in the past been able to sell product across the border who are now being told they’re no longer going to supply Canada. It’s  something we think both state and federal governments should be addressing.

Q. Why have you supported the nomination of former Georgia Governor Sonny Perdue to be Secretary of Agriculture? 

A. Well, of all the people that were mentioned as possible candidates, I think Sonny Perdue was probably the most prepared to take on the responsibilities of being the secretary, in part because of his experience in agriculture and also the fact that he was the governor of a state that was very much an agricultural state. I think governors bring to that job a particular skill set of being able to balance and to deal with multiple issues at the same time. In a department that’s as broad in its portfolio and scope as the U.S. Department of Agriculture, it does require someone able to keep an eye on a multitude of things that aren’t necessarily related. You’ve got to be concerned about food safety issues at the same time that there’s a forest fire at the same time that you’re trying to deal with trade issues. At the same time, you’re dealing with rural development and making sure disaster payments are going out to farmers, just to give you a brief example of what a day might be like in a secretary’s life. I’m hopeful. I’ve been told that he’s going to get a vote April 24. I would imagine he will be confirmed. When he does get confirmed, he’ll be confronted with a series of issues immediately that will require his attention, and he’s still going to be somewhat hampered by the fact that his undersecretaries and administrators have not been appointed or confirmed.

Q. What issues are likely to hit him right away?

A. Reemergence of avian influenza in some isolated areas of the Southeast has created concerns on the part of some of our trading partners. He’s going to have to deal with the implementation of the GMO labeling law, which is under sort of a time constraint set by Congress. He’ll have to defend the president’s budget, which is going to be difficult to do given the size of the cuts that have been proposed to the department. And so he’s going to have to make sure that the morale at the department of agriculture is kept up, despite the proposed 21% cut to the budget. He’s going to have to deal with trade issues as NAFTA gets renegotiated. He’ll have to be a strong, persistent voice in the rooms where these conversations take place, making sure that people need to understand what’s working in NAFTA, i.e., the Mexican relationship in dairy, for example, and what’s not working needs to be addressed, i.e., the Canadian closed market situation for dairy, for example – one of many issues that will need to be addressed if there’s actually going to be a modernization of NAFTA, to preserve what’s good and to strengthen what isn’t. He’ll have to deal with the consequences of pulling out of TPP, the Trans-Pacific partnership, and its impact on potential trade opportunities in Asia. He’ll have to deal, no doubt relatively soon, with the reemergence of forest fires in the western part of the United States. And he’s obviously going to be concerned about job growth and infrastructure investment, which is part of the administration’s focus, and he’s going to obviously play an important role in making sure that the rural development programs are working the way they should. 

And then you’ve got Congress beginning to have conversations about the farm bill and what needs to be included in that. You’ve got the dairy industry in some parts of the country suffering, and the current margin protection program not providing the kind of support that some people need. You’ve got other issues with lower commodity prices. You’ve got threats to trade retaliation as a result of some of the concerns and anxieties that have been created from discussions of walls and of renegotiating NAFTA. You’ve got a number of agricultural interests that are expressing deepening concern about workforce as these raids take place from ICE, the immigration folks. He’s going to have his hands full. And the reality is he’s going to be understaffed when he first walks into that building. So I’m hopeful that he is able to encourage the administration to speed up the process of identifying people for appointments.

Q. What do you think potential directions of the administration will be in agricultural trade? Some farmers and farm group leaders are worried about that.

A. As well they should be. Here’s the reality: When you have language of building the wall, deporting undocumented workers, an import tax or assessment that could potentially complicate and make more expensive imports coming into the U.S., and you have a conversation about scrapping NAFTA or restructuring NAFTA, that has created in Mexico a very serious and significant anxiety and concern. The reaction of Mexican officials, and I was down there for four days basically trying to restore and preserve our relationship, it was a natural reaction to this anxiety and concern in looking at how much reliance Mexico has, in agriculture, on the U.S. [They are] asking the question whether or not they’re overreliant. And so, I think it is something that our producers need to be concerned about. I think it’s something our administration needs to be concerned about. Comments and the way they’re interpreted around the world do make a difference. We have a surplus in agricultural trade, and sometimes I’m not sure that’s fully appreciated by some folks. That’s at risk depending upon how these discussions and trade negotiations take place.

Q. Has damage been done? With Mexico buying 73% of their milk from the U.S., they might think it’s prudent to have a more diversified supply. Is that diversification happening?

A. I think that probably there have been a couple of contracts recently that would suggest that around the edges of this relationship there may be some efforts to reduce the reliance, but I think that the base of the relationship remains strong. When we went down to Mexico, we made a concerted effort to remind the Mexicans that we’re there and will continue to be there in good times but certainly we will also be there in bad times, that many of the people that they’re going to do business with as an effort to try to move away from the U.S. may be willing to sell during good times but aren’t necessarily willing to sell to them during difficult times. The reality is we’re a much more trusted, stable, secure supplier. But we need to spend more time and attention on the Mexican market. We need to remind folks that we were there at the beginning when they began to build demand for dairy products.

Q. You mentioned the economic situation for U.S. farmers — low commodity prices. What lies ahead in Washington to deal with that, through actions by Congress or the Trump administration?

A. It’s hard to say. The fact that the Trump administration proposed a 21% cut in the U.S. Department of Agriculture budget doesn’t necessarily bode well for a lot of additional spending. As soon as its trade agenda becomes clearer and they begin to work aggressively on new arrangements or improved arrangements, there may be some opportunity there, but right now there’s an uncertainty about what its trade agenda will be.

Q. Because they are part of the long-term farm bill, not annual appropriations, commodity programs would not be affected by the Trump administration’s proposed budget, right?

A. It wouldn’t affect the commodity programs but it does potentially indicate how they may approach the farm bill, whether they look at defining the overall need first and then figuring out how to basically meet as much of that need as possible, or whether they go to the appropriators and the ag committees and basically say we’re only going to spend X number of dollars. You’re going to have to figure out in that limited resource and reduced resource how to deal with whatever the needs are. In the past, the farm bill has started with people telling us we had to save billions of dollars. For the last farm bill, $23 billion was the target that they had to meet. And if that is the way this farm bill is approached, you can guarantee it’s going to be pretty tough to meet all the needs. So I’ve been encouraging folks to basically start the farm bill discussion by first defining the need, then figuring out are there creative ways to meet that need without necessarily breaking the bank. But I think it’s going to be important for the farm community to be as united as possible in the conversation about the farm bill because if you start just focusing on only your piece of it, if you’re just going to focus on the margin protection program and not worry about other aspects of it, or you’re going to worry about cottonseed and oilseed, whether that’s to be included with ARC and PLC, you’re going to basically divide agriculture, and that will make it harder for us to get anything done in that farm bill.

Q. Regarding ethanol, what do you think may happen to the Renewable Fuel Standard? The head of EPA, Scott Pruitt, was no friend of the RFS when he was Oklahoma’s attorney general.

A. I think people need to be very wary… and need to continue to advocate for it and to point out the benefits to consumers, to the environment, to jobs, to the economy of the upper Midwest. Fortunately, we’ve got a lot of champions in Congress, but there’s a real keen desire on the part of many people to curtail, to eliminate, or to fundamentally change that Renewable Fuel Standard. I dealt with that for eight years. We finally got it on track to meet the statutory requirements with corn-based ethanol. That was not an easy lift, but we got it done, and now I think it’s clearly under a microscope. I think people have to be very, very concerned about this. And it’s not just the EPA administrator, it’s some of the special advisers that the president has appointed who have as a specific reason for participating in the White House: significant changes to the Renewable Fuel Standard. And there are members of Congress who would prefer to get rid of it altogether. It’s a constant battle. There’s no question about it. 

Q. Who in the White House wants changes to the RFS?

A. Carl Icahn, who is interested in changing the system on the RINs. [Billionaire investor Icahn owns controlling interest in an oil refinery and wants to see trading of Renewable Identification Numbers shifted away from refiners to retailers.] That would be a pretty significant change that would make it very, very difficult for the industry to continue to grow.

Will this administration, for example, continue to promote infrastructure that allows for higher blends of ethanol? [Expanding installation of blender pumps was something Vilsack supported with USDA programs.] Will the EPA take a look at vapor pressure and things of that nature that could potentially make it easier to sell higher blends over a longer period of time during the year? There are other issues that could help the industry grow and expand in addition to basically preserving what you’ve got.

Q. If these things don’t happen, will ethanol be stuck at about 10% of the U.S. gasoline market?

A. Well, I think we’ve instructed the industry from the last determination by the Obama administration to get to 15 billion gallons of corn-based ethanol. That’s the statutory cap, so it is going to be important to determine what’s next, and I think it’s also important on the export side to think about export opportunities. There’s potential demand outside of the U.S. for ethanol.

Q. Are ethanol exports another area where Mexico plays a key role?

A. Right, or China. And certainly when [Iowa] Governor [Terry] Branstad becomes Ambassador Branstad [to China] there’s an opportunity there, as well.

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