>> and as we know, nonreligious private schools often cost four, five times that amount. so as a consequence, over 80%, close to 80% of students in the program are attending religious private school. so florida is not alone in that

regard although it was one of the first off the mark. florida s.t.o.m.p. program has been implemented in a number of different states from indiana to louisiana to pennsylvania. so north and south, east and west. such that "the wall street journal" called 2011 the year of school choice. and 2012 had even more school choice programs being implemented around the country. so at this point we are serving a dramatically altered cascade. so that's kind of a preamble to the types of world in which we are living right now. you may want to ask yourself okay, why are we doing this? what -- why might we have moved from a choice environment where students had, families had very little choice. the choice was essentially limited to the residential location for all intents and

purposes, to a system in which in many states, many families have the opportunity to attend private school using public money. those who aren't going to private schools, many of them are going to start or schools, quasi-public schools. even within public schools, even within the traditional public school sector you are seeing dramatically increased rates of what we call open enrollment policies. that is, policies that allow people to live in one part of town to go to school in another part of town. why is that going on? moreover, i would like to link the same policies together with another, another change in policy that's been happening. which is the so called school accountability moving. the school accountability movement here in florida everybody is aware of the school grades, for example. but for people are watching who are not in florida, the are now

every, nearly every state has some way of evaluating schools based on student test scores in which schools are ranked. in the case of florida schools are rated a- f. they are based on a fraction of students who seem provision under states criterion referenced test for determining students proficiencies. they are also evaluating on the basis of student gains from one year to the next, our most test scores. and they are evaluated on a few other things. for example, high schools are evaluated according to things such as graduation rates and the like. but largely around the country and with here in florida, schools are evaluated primarily on either fraction of kids who

use some performance threshold, or the gains from one year to the next, or largely in case of florida, a combination of the two. okay, so why do we have these? i put these two things together, school choice and school accountability, together it's something i will call market-based performance. because really for better or for worse, you heard, i'm an economist, a lot of the impetus behind these reforms have really been driven off into many of the education reformers have been motivated off by some theoretical where that came out of economics over the last few decades. and so it's useful for people to think about what were some of the arguments, and that's a way for us to move into critically assessing those arguments. okay? so why might people, why might we want to have increased school

choice? economists like to think about evaluating various states of the world of policies according to two different criteria, equity and efficiency. and so i think it's useful to start a document efficiency question. now, i promise i'm not going to spend much time, so bear with me. equity and efficiency is about as daunting as i'm going to get tonight. so let me just define efficiency for the moment. so often people are thinking about what people think about the word efficiency they're thinking about how many widgets can be produced using certain types of technology, right? and a want to use a more expansive definition of efficiency, and that's what economists also like to think about. let's just think about efficiency for the sake of our discussion tonight as are the schools, think about the quality

dimension from better meaning more efficient, worse means less efficient. so we can defin find better anye want and that's okay from the point of the deal of this discussion. so keeping your mind what have you mean, what have you think means a better school. and that means more efficient. now, within the notion of efficiency there are two different types of -- this is the last jargon. we have productive efficiency and we have allocated efficiency. all right. so in the case of for not showing efficiency when we talk about a school been more productively efficient, what that means in english is that the school is doing a better job, so whatever you're thinking that means, using their available resources. when we think about allocated efficiency what that really means is more about the idea

that individual students are well matched to different schooling environment. okay? so why might school choice, again, we are just spending, describing the rationales and then we will talk about the other side. so now, why might school choice lead to increased productive efficiency? well, one argument made is coming this is an argument that was very popular amongst free market economists like milton friedman, for example, is the statement is to say okay, so if the school faces no competition, if a school knows that they're going to get the same amount of money from the government regardless of whether or not they're doing a good job or a bad job, if families don't really have an out or don't have an easy out from that school, they may be less likely to try

to innovate. of course, that's a very, that's a very pessimistic view of the world, basically suggesting that educators are only interested in revenue maximization and not interested in educating, per se. but you can tweak that however you want. the notion would be that educators care but two things. they care about making their job as easy as possible, and they care about, and they care about educating kids as well as possible. arguably, the part they care about making the job as easy as possible, you know, that could be stronger, that may win out more in cases of which they don't have to compete for students. so proponents of school choice may say if we now have more, if we make educators compete for students, educators going to try

harder to do a better job educating students. that's one argument. the allocative efficiency story maybe educators are not competing for students per se, but does every student, every student learns better in a different environment. so if we provide families with more choice, maybe families might select one school, they are presented with a wide range of school with options they may select some schools for some kids and different schools or other kids. and if we provide them those choices, maybe it's not that the school will get better per se, but kids will be better matched to different schooling environments. now, when we think about excellency -- equity for mama, people argue equity for school choice is this notion that in some regard, many of us in this

room have always had school choice. and that is, we can choose where to live. so for example, if 20, 30, 40 years ago if your neighborhood shows your school, if you weren't happy with the school that you were in for, you could move to another place. and so relatively affluent families have that opportunity. but relatively poor, so if we did like the public schools, therthat were private school ops we could pay for. we had all sorts of opportunities, but maybe poor families, or students of color who maybe were in neighborhoods that had been redlined over the years, such that they could live in certain neighborhoods, maybe those families had fewer choices. if you were poor or, maybe you couldn't afford it private school. maybe their work neighborhood you couldn't buy into, for example. so the equity argument was a major one.

and actually if we look back, if we look back to who were many of the and fellows at the dawn of the school choice movement, you know, the modern school choice movement in the '80s and early '90s, it was a combination of free market conservative, and often advocates for low-income and minority groups. so for example, the urban league of florida has been a long-standing supporter of free school choice option in florida. and it was often because what you had were allies, people may be focus on the efficiency side becoming allies with those maybe focus more on the equity side. so those are some of the arguments in favor of school choice, increased school choice option. well now, it's important to take a step back and think about why some of these things might not work so well. it might not work as well as we might thing.

so i think that i'm very much a moderate, politically when it comes to these types of things. i think that mighty is the are very cute silver bullets that are out there, if any silver bullets in education. and why might they be very few silver bullets out there? one possible reason behind this is that if we think about the underlying economic model behind this communal, i often, people who are -- advocates will say things like well, what we need is the reason we want vouchers is the private school market is already disciplined by the power of the market. so private schools don't need accountability goes private schools already are, they live or die based on equality. well, that assumes very big

assumption. so let's think about what the assumptions are that would make that true. one thing that would make that true would be if they were full information. so now, if i have a parent, nude soccer what went on at each and every school, perfectly, and could very clearly identify what was better and what was worse for my child, that could help to move us in that direction. but i don't think there's anybody in this world who was on a mission like that. and the underlying argument behind unimpeded marketplace choice of assumes that that is the case. another argument, another underlying assumption there is that schools are just, can open and close like factories can. and we know that that's not true

either. there's no place where somebody has some great idea, they open a school and became immediately produce in the type of thing. that doesn't happen. there's all sorts of hoops people have to go through, even in the private market, right? forget about charters, et cetera. so then as soon as we're moving more and more away from that, then we start to wonder a little bit. okay now, if parents have an idea that they don't really know necessarily, which is school might be better for the kids, and the more you move away from this notion that parents really have a very good idea, the more you have to wonder a little bit about are we actually going to see the gains in allocative efficiency that are going on? likewise, the more people might be moving based on noise as opposed to reality, i mean, change in schools for examples, the more we wonder whether

schools really face much of an incentive to compete for students, right? if you're an educator and gina that parents are going to basically randomly decide what to leave no matter what you, are you going to do, even if you were, even if you bought into this notion that if i were carter somehow our work differently, that might make my school better. why would you necessarily be responsive to that if sony was just flipping a coin to decide whether to stay or to go? now i'm a little overly dramatic on the other side, but the point of the matter is that there are these strong assumptions that people sometimes conveniently forget when they talk about market-based solutions to deal with education problems. let's think about accountability for a moment. in the case of school accountability, here the primary argument behind the school accountability movement is often okay, i like, one more bit of jargon. economists call it the principal agent problem.

there's no test on the no test on it is a but feel free to write it down. the principal agent problem works as follows, suppose that people, we in society are impressing educators to act on our behalf. but, of course, educators know more about what's really going on inside the classroom, inside of their schools than to other members of society. well so, the argument then would be that potentialpotential ly educators might not get as good of a job or might prioritize things that we as a society don't care as much about because they are not being as closely monitored. so the theory would go that we just monitor educators more, that that will induce them to do the things we want them to do. well, this is a good way of segueing a little bit into the part of the talk of which i talk about evidence. so here's one piece of evidence that is unimpeachable.

it's true in florida. it's been true throughout the country. it's been true everywhere in the world where things like school accountability has been instituted. and that is, educators are really good at doing the things that they get measured on. it's not just educators, right, it's all of us. if you were told in your job year two different types of things that you have to do, and your paycheck is going to be determined entirely on one type and not very much on, and not at all on the other type, you're probably going to focus more of your energy on that. so there's nothing special about educators in this. it's just that educators, educators on the topic of tonight's conversation. people are, so for a long time, there was a sign that said what's -- that says what gets measured gets done.

that could be viewed as everything good or everything bad about the schools accountability movement. a lot of good or a lot of that. so let's think about the bad first, right? as i started out on the good stuff, what's the bad stuff? so suppose that we as society care about two things, being really simplistic. let's imagine those two things just for simplicity our ability for kids to do algebra quickly, and ability to think critically and broad measures. and so suppose we have a test that's really good at measuring kids ability to do algebra quickly, but not at all good at those types of common you know, deep thinking skills. well, the downside of what gets measured gets done would be that educators might focus more of their attention on keeping the things that are on the test. you know, quick algebra skills

and them because they're so many hours in the day, attachment to these other skills we might really care about. the plus side of what gets done, suppose the things that are on the test are actually things that really represent the skills that we value in society for the passenger gets to the. to a degree to which that's true, then you could view this as a positive, right? there's been hundreds of studies that show this is what happens. but now there are other things that educators have done that you may wonder a little bit more about as to whether or not this is a positive or negative thing about school accountability exciting recent people can disagree about whether even speaking to test, which in many circles has a very pejorative connotation, i think reasonable people can say some people might say teaching the test is good, another people may say teaching the test is terrible, right?

and both could be true for different reasons. there are other things that people do that i think could be less positive. so i'll mention two examples of research that i've done in different places, one in florida, one virginia. so in florida, as the dawn of school accountability, i noticed that one thing i discovered was that, of course, who got tested, the kids who are in school on testing day. and so that made me wonder a little bit about whether or not schools might be interested, perhaps, in influencing who was there on testing day. so i looked at fights between high achieving kids in low achieving kids, and i found now that the test became high stage, that schools are really throwing the book at those low achieving kids, if it happened to be that they would be suspended over the testing period.

and the high achieving kids, they could do almost anything and they were going to go to class the next day. that was happening much more during the testing period than any other time of the year. dramatically more. and so it's hard to tell a positive educational story for that, right? i mean, i thought for years about it and i have a hard time imagining a positive story for that. in virginia, so virginia was, so i talk about florida being an industry leader in terms of come in terms of school choice programs. well, virginia was an industry leader in testing. anyone in florida think florida kids are tested a lot, just look north to virginia. virginia has tested more subjects for longer. in fact, in virginia a lot of the testing takes place in the afternoon. so that made me wonder, okay, well maybe schools might want to

try to -- very much like athletes cargo load before a priest and it turns out that actually they did. to a huge decrease. i'm not talking about the obesity epidemic here. still it's only a few test dates so it's not that virginia's testing -- i seem headlines that say testing is making us fat. no, i'm fat. has nothing to do with testing. right? i mean, what's one of the things that we saw? you could look at the tests that were administered in the afternoon versus tests that were administered in the morning, and what we saw where the kids are doing better on the tests administered in the afternoon when schools went and had the opportunity to, well, you know, directly influence their mind. by the way, if you're interested in knowing what works for short-term brain boost for whatever reason, so give yourself a dose of glucose or so for example, a glass of apple juice or something like that.

but you don't want very much fat because fat slows the absorption of glucose into the bloodstream. to which you don't want is like brownies, snack wells cookies or something like that. low, something low-fat but high carb. remember when that was good? that type of thing actually helps. schools were doing that like crazy. they weren't getting kids snack wells per se but they're doing a nearly equivalent of that. what does that mean, right? so a lot of people misinterpret those types of bikes. but one important thing for you to take away from that type of thinking it's possible to manipulate test scores. if schools can go and boost test scores like four, five, 6% by dosing them with sugar right for a test then that would suggest something about how much we pay attention to these scores.

so let's think now about one of the things we can learn about the design of school accountability system. i'll talk briefly about school choice and the design a choice, and then leave it open for 10, 50 minutes of questions. the one thing we can take away from this is that how do we want to maximize positive educational benefits and minimize the chance that schools are going to be, you know, suspending misbehaving will achieving kids for 10 days to keep them from taking a test, or to carpal load the kids lunches over to give him an artificial brain boost. one thing we can do is do what florida did in 2002. that is change the rules of the game so that schools are now judged not just on fraction of kids who get over and line, but

fraction of kids are improving from year to year. that's a little bit of simple vacation but i can spend on it if you'd like on questions. so now think about this. you are being rewarded or sanctions on the basis of fraction of kids who improve. now suppose you want to cargo load kids lunches. now, you're artificially boosting kids scores of this year. that means next year you have to do even more and the after that you have to do even more, kind of like, you know, our kids get caught in a lie, right? you get caught in a lie and i have to, you have to interrogate even more just to try to get out of that lie and it ends up getting deeper and deeper and deeper. so ultimately what happened in florida is i didn't do the meal study but i did a disciplined study. florida, as soon as florida changed its rules, that discipline thing went away. here's something interesting about florida. florida is one of only a handful of states do have rules that

make it less attractive to engage in that type of behavior. so say what you want about school accountability in florida, whether it's a positive or negative, and to think that both positives and negatives associated with it, but in florida, florida has more of the positives and fewer of the negatives than in louisiana, california, massachusetts. most other states in the country. because of those types of rule changes that have taken place in 2002, more in 2007 for example. with regard to school choice, what's the answer? we are still learning a lot about school choice, but i'll mention that school choice it seems very strongly that nowhere close to the super bowl at that a think advocates -- the silver bullet advocates were hoping for. i think it's nowhere close to the problem that opponents are

fearing. so let's think about -- i've done a lot of research on the florida tax credit scholarship program. that's a voucher program that was providing scholarships to go to private school for a relatively low income kids, kids under 185% of the poverty line. so what have we learned about this? the first thing we're learning is that the kids, who were the kids who used this your not just any low income kids. they tend to be the kids poor performing the worst in the traditional public school. so it looks like that's a little bit of an argument in favor of mismatch, that maybe some kids were doing very poorly and parents are trying to find some alternative option for the. whether or not they are succeeding, that's an open question. the second thing that we've learned about this in florida is that kids who are participating in the voucher program are doing no better, no worse on average than the kids who they would

have done had he stayed in the public school. to the extent to which we're able to do. the statistics involved in the, more tricky than i would really like, but to my professional budget says they are doing no better no worse on average than they would've done in the public schools. so people can interpret that being a positive or negative. people interpret it as negatively say, well, if they're not doing any better, why are we taking money away from public schools to give in to private schools with the kids are not doing any better? the positive side is, maybe they are doing better in some of the less easy to measure type of things. and that's of course, we can't measure it because it's a good i would be measuring it, right? i do know that families are happy with their choices, but that's something we know also, right? everyone of us is always happy with our choices but it's not just school, it's everything else that you were asked a, are

you happy with that car you paid $30,000 for, even if you can't think it sucks, right, gosh, i love that car, right? and so when. so that's something a kid be viewed either positively or negatively. the third thing, this is something i do as a positive and kind of surprised me a little bit is that it does turn out that the public schools seem to be doing a little bit better as a direct consequence of having this competition from the private schools. a little bit is the operative words. because this has been misinterpreted, too. some people say public schools are doing better, therefore it's a definite slam dunk. it's positive, it's consistent, but it's modest. so what does it mean? it means that maybe on the margin, especially certain types of schools, seem to be improving a bit as a consequence, at least along a certain set of observable lines.

so where do i come down on the florida tax credit scholarship program? at least as it currently stands at is a relatively small program, it's not that florida is blowing up the public schools to do this, my view, where i come down on this is, is moderately favorable. i mean, there are some issues but there are also some positive benefits. but one of the thing that we see here is that the range of outstanding private schools participating in the program, there are a lot of outstanding type of schools. their are a lot of really horrible private schools participating in this program as well, and what we really need and what i think is very important that we see happen is that any school, whether it's traditional public school, a charter school or private school, if you're accepting public money, there should be some high level of accountability for, or equal type of accountability. so i think what we still see in

florida and other states is a little bit of a double standard, like public schools need all this accountability and rules and measurements, but private schools don't need as much because after all, they are disciplined by the market. i don't think that's really true. because if they were that would help me explain, truly desperately terrible private schools exist. ..

>> because, ultimately, i think there are no easy answers. if somebody were to tell me what would you do as an educationing czar, boy, i would hate to have that job. because i think there are few easy answers. so i'll leave you with one thought, and then we'll ask questions. so the one thought is, you know, we should think a little bit about all the education reform that's been going on and ask ourselves is this really helping our student kids do better? i mean, there's some evidence that says it is helping along the lines of the things measured on test scores. our literacy skills, numeral skills, algebra, that type of thing's going on. but we have to think a little bit about what is special about american education, and there are certain things that are special about american education that actually are hard to measure on tests. i think -- now, i'm part of the higher education sector, so, but

it's true that american higher education is the best in the world. and american k-12 systems have actually done a pretty darn good job over the years, including recently, of preparing large fractions of our society to be successful in the best education system in the world. that's before accountability, before school choice and that type of thing. so one thing we need to think about is as thinking we're thint these policies, we need to think about not only the things that are easy to measure, but also the things that are intangible because we could end up cutting off our nose to spite our face. so now i've confused you even more. thank you. [applause] >> thank you. >> you have questions for me, huh? >> we have a few questions. >> oh, boy. >> only a few loaded ones. >> great. >> first one is, i think, a great question. how can we give a good teacher an incentive to teach at a low

performing school? >> how could we give a good teacher an incentive to teach at a low performing school? well, i think that, um, i think that there are a few different types of things that we can do. i mean, one thing, of course, would be by compensation. so if there are schools that we have a difficult time finding excellent teachers to teach at, well, i mean, i am a believer in certain markets. one market i definitely strongly believe in is the labor market. so if we're having difficulty staffing certain schools -- and it could be low performing schools, it could be schools in a certain neighborhood, whatever, right? i'm supportive of this notion of differentiated pay for people to teach in, to teach in schools

where it's hard to get teachers to teach. so i don't see any other reason because, i mean, i think any other way to do that because in some regards the other choice besides compensation is to force people against their will to do things they don't really want to do. now, some school systems do that, right in and other school systems do that only for rookie teachers. and then once you become experienced and you have status, then you can say now i want to go to that school, that's where i really want to teach at, or something like that. so really we have two choices, right? we can either force people to do things we don't want to do, or we can make them want to do it. and i'm in favor of giving people reasons to do things as opposed to demanding they do things they don't want to do. except when it comes to my kids. then they have to clean their rooms. >> right. okay, now, this one required you to be a lawyer. >> uh-oh, i'm not. >> opportunity scholarships in

florida were declared unconstitutional, and those were scholarships given to children who were in low performing, failing schools. now, what is different about the corporate tax scholarship and the mckay scholarship that makes them constitutional? >> um, i'm an economist -- >> i knew i'd catch you on that one. >> i'm not going to touch that one. >> okay. but that's a question our committee is asking, and we're hoping to get some legal opinions on that. the argument that we have heard is that the corporate tax rebates are charitable contributions. now, we'll see how that plays out. here's another one. you mentioned you were going to meet with tony bennett tomorrow.

he's the new commissioner of education. he is a supporter of school choice. however, he believes that it should not stand as is in that whatever school receives the money should still be held accountable like public schools. how do you think this will change school choice in florida? >> well, i guess i've already gone on record as saying that i think, um, schools that are, schools that are receiving public money should receive, should receive similar types of accountability. so i think that commissioner bennett is definitely speaking my language when it comes to that because we do see that there are -- i mean, i kind of view this a bit as a fairness

issue, right? if we're going to be saying we want you, public schools, to compete with private schools, then first of all parents should have a certain type of information so they can judge for themself at least along some different metrics what the differences are between them. so then the big question becomes how will it change. well, one possibility could be if private schools end up having to take the f cat. right now private schools do not have to take the fcat. if you are participating in the tax credit scholarship program as a private school, you are required to administer a nationally-referenced test of your choice. for those of you who are veterans of public schools, that for a while up until a few years ago was called the fcat-nrt, for example. now we don't offer that anymore.

but it doesn't have to be. it could be the iowa test of basic skills. some of these tests are okay -- well, it's a question now, so i'll have to go into jargon again. some of these tests are more sumtive, they're evaluating a set of skills that have already been attained. others like the iowa test of basic skills are more informative. that is, they're intending to tell people more about where to focus. the iowa test is add administered in the fall. it's hard to make those apples to apples comparisons. i've been forced to try my hardst to make those types of comparisons, but it's very difficult, and it's not uniform. so i would encourage them. now, i will say that commissioner bennett's ideas are not too dissimilar to what the

people in the department of and education the scholarship funding organization step up for students that administers the scholarship have been pushing towards. so i know people in the school choice office in the department of education have for years been thinking exactly in this direction. and the scholarship funding organization has as well. so my hope is that there could be the rule of law behind it that because i think many of the key players in private school choice in florida actually want to see that, which i would like to see as well, but we have to have the laws to back it up. >> one more question. >> okay. >> does more choice lowerrer the quality of -- lower the quality of the nonchoice school because of decreased funding due to lowerrer student population? >> well, that's really hard, right? so, of course, there are three different ways in which school choice can effect nonchoice

schools. i've talked about two of them already a little bit. one is the competition. so i've told you that the available evidence suggests that providing school choice leads to small but positive degree of competition. so that way school choice is helping the nonchoice school. the second involves compositioning, who are the kids there -- composition. who are the kids there. school choice can really go either way, right? because it all depends. some school choice programs might still lace the and the -- stimulate the best and the wrightest kids, and there it's often families that make a difference. and especially in schools that are serving relatively disadvantaged populations with less family participation. that could be potential hi devastating to a school. on the other hand, suppose that school choice is leading some of the most disaffected kids or kids performing poorly to leave

that school. that might end up helping improve that school. so the competition thing -- who stays, who goes -- can really work both ways. so then we get to the revenue, the resources. so the resources side is a mixed bag as well. so definitely at the level of the school system itself. if school systems are losing resources, we have to think about the resources as, okay, one more bit of jargon, the marginal versus the average. okay. so what happens is school systems are compensated by the state here in florida, for example, based on some measure of average costs. but it's still, you can't just hire 19-20s of a teacher, right? you have the hire a whole teacher. which means that school districts may, if they lose the

average costs, it may be the marginal cost of that last kid may have been only been pennies, but the average cost now is many thousand. multiply that by a lot, and you can get into real, potential problems. now, on the individual school level it's less clear what might be the case. in fact, it could even be a case that individual schools might do better because of losing kids. pause, for example, alatch what county public schools, suppose there's a given school that has class size of 16 as opposed to 19 because three kids have left. well, they're probably not going to combine those classes and have class sizes of 32, or maybe they will. i'm in a rich north shore illinois school. they wouldn't do that in mine, but maybe they would in florida, i'm not sure. but you can do whatever math you want. that individual school might be made better off by losing a few kids if they get to keep all of

the same teachers, because now the teachers -- the class sizes have gotten smaller. so in that regard it's a mixed bag. from a system level, i think it's unquestionable that it can hurt, it can hurt. not definitely hurt, but it can hurt. at the individual school it could either hurt or potentially help, fending. so, again, we can -- depending. so, again, we can close with some confusion. [laughter] >> david, thank you very much. [applause] >> definitely, you know, i like to, you know, i like to extemp rise more than -- >> you have to understand that all the founders' primary concern, number one, numero uno,

was with national security. so what would they say, for example, about a company such as lockheed? i'm of the opinion that based on how they acted in other instances they would have grudgingly favored bailout of lock heeled because it -- lockheed because it supplied the united states at the time with its top fighter jets and its top reconnaissance airplanes. i think you can make an argument that they would have supported, for example, the bailout of chrysler back in the 1980s but not the bailout of chrysler today. what's the difference? chrysler back then made tanks. they made the m1-a1 tank. in fact, they were our only tank manufacturer. and it's interesting, when chrysler comes out of debt and repays the government loan and kind of comes back to health, the main way they do so is by selling off the tank division and plowing that money pack --

back into the economy. >> larry schweikart on the founding fathers and other key events "in depth" live sunday at noon eastern on booktv on c-span2. >> the agriculture d. gave its annual agriculture outlook on thursday. agriculture secretary tom vilsack talked about the upcoming automatic budget cuts and climate change. we also hear from former senator tom dash l at this two-hour event. [inaudible conversations] >> good morning, everyone. good morning. good morning, everyone. ah, i hear some response. i'm asking everyone to settle in for a great morning now. hi there, everyone, i'm deputy secretary kathleen merrigan, and

i want to welcome you to the 89th agricultural outlook forum. so every time we have a conference like this the first person gets up yets the job of -- gets the job of asking you, please, silence those cell phones. thank you very much. on behalf of the secretary and usda, our committee economists -- our chief economists, i really want to welcome you to arlington, virginia. especially our international guests and all of those watching the forum by live webcast. we have several representatives here from foreign embassies, and we welcome you. thank you so much. we're honored to have you with us. organizing this conference means 2,000 people, 25 different sessions, it's really quite a lot of work. so i want to begin by thanking the organizers of the conference for all they've done. i work with a top flight team in the office of the chief

economist. i particularly want to thank our chief economist, joe, and, of course, the world board chairman, jerry, for all the great work that they've done. they've planned two very full days. i know we're going to learn a lot. along with the traditional commodity and food price outlooks, this year's program emphasizes the many ways agriculture must manage risk from finances to natural resources to transportation. finish -- and one of the things i'm really excited about in this particular program this year is more time spent on fruit and vegetables which i think are increasing importance in american agriculture, in diet, and we're seeing them more center stage in this year's outlook, and i think that's a terrific thing. i, um, also am really excited to be here because we have senator tom daschle as our great speaker this morning. i don't know how many of you

have survived many congressional hearings like i do, and sometimes, you know, i'm sitting there, and i'm looking very intense. i actually have my fingernails drilling into my thumb to keep myself awake. that's a truth. [laughter] but i had the glorious assignment when i worked on the senate agriculture committee of being the person who chaired the subcommittee on ag research that tom daschle chaired. i have never been to such exciting committee hearings as those. he would pull everyone up on the panel, and he would get them in a back and forth, engaged discussion with very pointed questions so that we pulled out really important information about what we needed to do in the research enterprise. and so i learned so much of from this man that it's just an honor to be here on stage with him. and, of course, we are at the beginning of the second term for president obama, and our great leader, tom vilsack, has an

opportunity today to share with us some of his visions for where we're going in the second term. it does seem like it's sequester, sequester, sequester these days, and that certainly does weigh heavily on our shoulders. but nevertheless, we're plowing through, and we are going to do some incredibly great things in this second term, and i'm sure he's very excited to share that with you. i also want to, as i did last year, recognize that we have a lot of young people in the audience from the outlook forum student diversity program now in its seventh year. twenty undergraduates and, for the first time, ten graduate students are here to gain insights into food and agriculture. so be sure to seek them out during the breaks if you see them in the sessions, congratulate them for being here, mentor them a little over the course of the couple days. that would be great. i know how important these young

people are because i have an alumnus of this program, johnny jones, who works in my office. and these are really the people who are going to lead american agriculture in the future. many thanks to our program partner, the university of maryland eastern shore, and the sponsors who make this program possible, chs farm credit and usda's's ers, natural conservatn resource service. students, could i ask you to stand, please? there we go. [applause] thank you, congratulations. so without further ado, i am going to ask our chief economist to kick off this conference with the traditional presentation on his economic and foreign trade outlook. joe glogger has been our chief economist for 15 years, and

before -- he was deputy chief economist for 15 years before becoming the current chief economist, and i know he's someone you rely upon his analysis for all the work that you do and is someone who has the trust of the secretary and i completely. so, joe, let us know what's going on. [applause] >> well, thanks very much, and thanks for enhancing that resuée and letting me be chief economist for 15 years, that was good. i, too, would like to welcome everyone, and i'm just delighted to see such a large crowd. we've had really great crowds the last few years, and i think it's a tribute to jerry and the program committee putting together such good programs. um, well, in my comments today i'm going talk a little about the historic drought that

affected the agriculture this year. despite the drought i think the ag economy is very strong. farm income as released by ers just two weeks ago, a near-record high. record high in nominal terms for 2012 and for 2013 projected net cash income very close to record highs. exports are a record as we're going to find out, and i think the financial situation is quite solid. low debt-to-asset ratio and assets at record highs. however, i think the aggregate measures belie some sharp differences between sectors despite the adverse weather. row crop producers, i think, have fared fairly well, both with high prices and then record crop insurance indemnities which have helped offset the losses that we saw this year. if you're an up insured farm or

an underinsured farmer, there i think the crop losses probably are hitting those producers a little more than, certainly, those that have insurance. and if you're a livestock, dairy and poultry producer, this is the third or year since 2007 where we've seen record high prices with the effects that has on higher feed cost, tight margins and we have seen some -- particularly on the cattle side -- some liquidation. the outlook for 201 in a nutshell, we're expecting a rebound in yields. we should see record production, i think, for corn and soybeans. that means lower prices and improved profitability, i think, in the long run for -- or towards the end of the year, certainly for livestock, dairy and poultry producers. if that sounds familiar and if you think i'm just taking the 2012 outlook speech and reading it, it does read very similar to

what we said last year. of we were expecting record crops, and we know what happened. and it's just to say there's a lot of uncertainty in these marketsment one of the reasons why we wanted the to focus on risk in this outlook conference, but i'm going to, would like to go through as i go through the charts i'll focus on some of these aspects. well, first let's go for the export picture. exports, as i said, are forecast at a record, 142 billion for fiscal year 2013. that's actually down a little bit from what we carried in november but still record high. the first three months of this year, $43 billion in exports. it's a staggering amount if you look and consider this, that's what we were exporting annually in the early 990s. -- 1990s. so just tremendous growth since 2005. imports are forecast up to

$112.5 billion. that's down a little bit, too, from our november estimates. but giving us a trade balance of almost $30 billion, 29.5. now, for the second year in a row china's our major export destination. remarkable growth there. since 2005 exports to china have been growing by about 20% annually, and so now that they are now our top export market. if you look at what we're sending to china, no surprise, it's dominated by soybeans and cotton. they account, have accounted in recent years as much as three-quarters of total trade to china. but if you look at some of the minor but still quite large other exports for things like coarse grains -- corn, for example -- if you look at feeds and fodders, distilled or dried

grains, for example, or red meats, you see that those are showing impressive growth figures as well. in terms of overall exports, values are up for most of the commodity categories. again, these are exports on a fiscal year basis. you can see that up for most of these categories with the one exception being corn, and we'll get into corn. but largely these are price-driven events. we do see volumes up for some categories, but for most of the individual commodity categories we're seeing lower volume. so the drought, obviously, having some effect. but for most of the commodities, those being offset by higher prices, so the values are up. now, the big difference, obviously, is corn here. and it's real striking that we're down 38%. again, on a fuss call year -- fiscal year basis in terms of the exports, and what that has

meant is we are currently, excuse me, currently forecasting our corn exports at the lowest level since the early 1970s, i think 1971. just a dramatic increase in corn exports such that if you look at where we are relative to our, the rest of the world, corn as many of you know for many years, the u.s. was the number one and historically we have been the number one exporter of corn. you don't have to go back too many years ago where we had about 70%, 80% of that market. that has declined in recent years, particularly since 2007 as we've seen the increase in corn use for ethanol production. but this year in particular because of the drought lowest since the early 1970s, and because of the increased growth of production in southern hemisphere and brazil in particular, we're likely to be the number two exporter at least on a fiscal year basis.

now, i expect this to be a very temporary situation as we see the crops rebound this year. but again, because of the unusual circumstances this year of, one, a record crop in brazil, but then also the poor crop here in the u.s. we'll actually likely see brazil being the number one exporter at least for fiscal 2013. um, okay, let's turn to the commodity balance sheets. now, i'm, i promised all my commodity analysts that i wouldn't give all the details out so they can have something to talk about tomorrow, but i will hit some of the highlights here, and i think there's no question much like last year, we're coming into this year with fairly low stocks globally for most commodities. if you look at wheat, we're -- because of problems in the back sea region, because of problems in southern europe wheat production was down this year,

and was of that and very -- and because of that and very strong demand for wheat these past few years, we've seen stocks get dawn down again. we're at our lowest levels since 2008-2009. not quite as low as what we saw in 2007-2008 but low and, again, hopefully with a good, strong production this year globally, a return to more normal weather. we should see those stocks rebuild some. corn, we know for the last few years very low stock levels this year are projected to carry out for the current crop year. if you look at it globally, we're about at the lowest stocks in use ratio since 1973-'74. this has been a very unusual year the last couple years for corn as it's been drawn down by poor weather in the states last year but particularly because of the drought this year. the only other thing to comment on, soybeans, too, has been low

stocks. we had a poor crop in south america last, this time last year followed by problems with the soybean crop, obviously, the u.s. soybean crop because of the drought. currently, a lot of concern over the size of the argentine and brazilian crop this year. brazil looks, still looks good, but drought in argentina has a lot of analysts certainly looking at those numbers. the one exception here is cotton. and you can see that cotton in terms of stocks here expressed as day thes of use has increased dramatically over the last couple years. what that's being driven by largely is china. china has payoff policies to support -- because of policies to support producers, they've been acquiring a lot of grain -- excuse me, a lot of cotton. you can see that cotton stocks have increased substantially in

china. they currently account for over 50% of total world inventories. if you look on a commodity basis, i think the stocks as a percent of use in china is some 120%. that has certainly caused a lot of analysts to look at that and wonder how sustainable that is over the longer run. it casts some uncertainty over the large arer markets. china's a large importer of cotton for its textile mills, and so certainly with this sort of stock levels overhanging the market, i think this will lead to some uncertainty in the, in the cotton market as we move forward into this year. well, let's turn to planning, and i think, obviously, with the high prices we're expecting continued strong plantings certainly for grains and oil seeds. some we'll get some new lands coming out crp. this just shows the amount of acres that came out of crp this

past fall, around 2.5 million acres. most of that in northern plains. you can see by the coloration of those charts where a lot of that area is coming out of, the dakotas, some of the areas, actually, where a lot of that area went in in the mid 980s. but this lammed, this has been historically wheat land, but as we've seen over the last five, ten years, a lot of corn and soybeans creeping up in those areas. now, turning to the plan, in acres -- last year i think the combined acreage for corn, wheat and soybeans was some 240 million acres -- excuse me, 230 million acres. that's the highest level for those three crops m combined since 1982. now, 1982 wheat was much larger back then. certainly, we've seen some of the largest corn plantings since the '30s over the last couple

years, and we expect this year for corn to be very strong again. we have it down a little bit from last year, and that's largely because of the weather. we're assuming more of a return to normal weather. last year if you remember the year started out great. we had ideal planting because of strong corn prices, a lot of people were able to get in corn. just perfect planting conditions. and then, of course, the world turned ugly in june as the rain stopped in a lot of key states. but this year we expect plantings again to be very, very strong, off a little bit. soybeans up a little bit. i think if you look at the soy peen/corn ratio these days, i think it favors soybeans a little more than a few months ago, and certainly as we move towards march when we put out our planting numbers at the end of march, this will be something to look at. the one crop that sticks out is certainly cotton. as i mentioned, cotton prices

are -- we have very, very strong grain prices. we should see some decline in cotton area. i think that's no surprise. and certainly the surveys that we've seen done by cotton council and others would suggest that. well, what about yield? this, of course, is where most analysts are directing their attention these days. if you look at the drought monitor and i dare say few of you haven't looked at a drought monitor if you follow these markets or very closely, we still have significant drought in the central plains. and the good news is if you were to look at this map six months ago, we would have seen significant drought in illinois, indiana, in western kentucky. that actually has improved a lot. the forecast that noaa's put out suggests some improvement, more improvement in iowa, creeping into the welcome back corn belt. but -- western corn belt.

but the plains, i think, till look like they have -- till look like they have a persistent dryness. now, that has some immediate implications for the winter crop. hard red winter crap in kansas, oklahoma and nebraska currently about 50% of that area just doing a weighted average of the area and looking at the state crop conditions reports, 50% of that is poor or very poor or condition. so, obviously, spring runs are going to be very critical -- spring rains are going to be very critical to see how that crop improves, otherwise i think we could be facing some serious abandonment issues. so rain's, obviously, very, very critical. what about the other, for the other crops? well, what we're looking at at least in our analysis is a return to trend yields. i think tomorrow's commodity sessions will have, certainly grains and oil seeds session

we'll have a paper there on our yield models and explaining how we incorporate weather in those yield models. but i think that both of these would result because we're expecting record crops for corn and soy peens this year, again -- soybeans this year, again, dramatic improvement for corn. remember last year between our may bro nexts and what we ended up with at the end of the year, we lost four billion bushels. we're expecting to rebound op that, up about that amount this year. so a very big improvement there. wheat is the one area, i think, where there is concern, and i think we are anticipating a little higher anticipating for the hard red winter area. luckily, the soft red winter crop, again, because of that being in the eastern corn belt, looks much better. and hopefully, we'll see some rebound there in terms of yields. but, again, a critical question

that i think a lot of people are asking is, well, why normal yields? why aren't we expecting sort of another year of poor yields? and i think will the answer is threefold. one is that we, as i mentioned, we have seen some improvement. we've seen the eastern corn belt look a lot better than what we saw just four or five months ago as a percent of total production and drought or total area and drought. we've seen some improvement, 5-10% improvement over the last couple of months. and the other thing is that if you look empirically, if you look at the data, very little correlation between rainfall one year and rainfall the next year. i think most studies have shown that. so at least going into this year there's no reason to think necessarily that we're going to be looking at a poorer crop.

and lastly i think there's some issue on so-called yield drag. well, what happens because of low subsoil moisture? again, the paper tomorrow will go through that in more detail, but i just show you a real wonkish, economist thing here. all i did is i took preseason moisture in iowa, i looked at that relative to what normally we see in iowa, and then i looked at projected yields in iowa, just trend yields relative to what we actually saw that, you know, later that year. and as you can see, very little direct correlation here, very low -- it's hard to put a line through any of that to say there's a direct relationship between subsoil moisture and result in yields. now, some of those yields that you see on bottom part of that graph are, certainly, years you

remember. 1988 which was, actually, a low subsoil year. last year, which was down a little bit, but then you also see years that we had low subsoil levels and we had, actually, record -- or far above trend things. it's not to say -- and the last thing i want is a quote saying glauber says no relationship between drought and yields. [laughter] obviously, there is. but it's just to say we'll be following this very carefully. treat -- at least at this point in time there's no republican we won't be thinking of yields, and again, the proof obviously as we look into spring. but as we all mow for corn that's, essentially, the critical month is july in terms of precipitation and temperature. okay. let's turn to another issue here, and i'll try to speed up a little bit. one is, and identify talked about ethanol almost every year just because ethanol has been such a large driver in the corn

market and factor, obviously, in acreage decisions, so it affects others as well. you know, from 2006 to 2010 we saw ethanol production increase, corn use for ethanol increase by almost 700 million bushels annually. it topped five billion bushels in terms of corn use in 2010, was at similar levels in 2011-2012. coming into this year with the brought we saw high prices, and as soon as we saw prices start spiking, we saw ethanol production start to drop. what this chart shows are the weekly ethanol production numbers from the energy information administration. i've annualized them so you get a feel for what they look like if they were to, you know, on a year -- for an entire year. and then those lines represent the caps, allowable caps under the renewable fuel standard. that is, how much conventional ethanol can be applied toward

meeting the caps under the renewable fuel standard. and you can see from about mid summer those weekly numbers annualized have been below the caps, and we reduce our ethanol, corn use for ethanol numbers by about 10% this last year. and while we expect with a record crop that that will rebound a bit, we're still calling for as we look forward to 2013-2014, we're still calling for not, for about 4.675 billion bushels of corn going into ethanol use. a third of that coming back, obviously, in the form of ddgs. but the fact is we're not expecting that to rebound to five billion bushels. and i think there are other reasons for that. certainly, the prices, the margins should be better. the problems are, actually, on the demand side. and we've seen gasoline consumption back at the time the energy act was passed in 2007.

our forecast or at least eia's forecast for ethanol, excuse me, gasoline consumption was close to 150 billion bushels for 2014-2015. just looking at a 10% penetration rate, that gives you about 15 billion bushels. instead, however, of that -- or, excuse me, 15 billion bushel -- gallons of ethanol. instead of that, however, we've seen because of high prices, gasoline prices, because of the recession and because of energy efficiencies in our fuel efficiencies, increased fuel efficiencies, gasoline consumption actually has declined. and if you look at the eia chart here, that between line was actually what was looked at, what the energy information administration was projecting for ethanol, for gasoline use in 2008. you can see now that their projections are for far lower

and, again, in the outyears because of improved fuel quite a bit efficients, some decline. but i think the more important thing is what's going on over the next three or four years, obviously. and, again, with some decreases there. so if you're looking at a penetration rate of ethanol, we've been at a little under 10%. unless we see adoption of further higher blends like e15 or e85, i think we're looking at some fairly low numbers hoar on terms of im-- here on terms of implied use. i think this is a very important piece of the puzzle, at least the outlook pudz l that we've seen. it's, again, particularly compared to where we were in 2007-2008 when we were talking about year-over-year increases and that. this is really at least for the next few years, i think, has been flattening out the corn use for ethanol and will be an important factor in that market.

okay. let me get to the prices and then move over to the incomes and start wrapping up. we should see some, i think, some significant fall on prices with these record crops. this is not too unlike what i was saying last year. but with these sorts of things we should see corn prices, we're projecting corp. prices, season average prices below $5. again, a big drop certainly from where we are. wheat prices to come down a lit as well. soybeans down. some improvement for rice and cotton, actually, and that's largely due to the domestic balance sheets that should tighten up a bit. okay m well, that's going to, obviously, improve feed margins for cattle producers. feed ratios have been very, very low. you can see the decline, long-term decline over the last seven, eight years. now, understand that there has been a lot of productivity in these years, and declining feed

ratios don't necessarily mean problems. but i think that there's no question that over the last, since 2007 with the three big price spikes, we know there have been problems at various times with the cattle, livestock, dairy and poultry sectors. and certainly we've seen tight margins. as we look out, i think we should see some improvement there. we're certainly expecting prices to increase. our current prices for, again, cattle and broilers we're forecasting record highs. these are all very, very high prices for, i think, for the meat and poultry and dairy markets. however, what i think will be the real benefit to this sector will be at the end of the year x hopefully i think the critical thing, obviously, with the problems the cattle sector had, we lost 3.4 million head over

the last two years in kansas, oklahoma and texas alone. now, the rest of the herd, the nation's herd was pretty much constant. we had losses and gains that were offsetting. but in the southern plains, no question the drought in texas two years ago and then this past year has really affected cattle there. and we know that 60 some odd percent of the pasture conditions, pass you -- pasturen this country over the summertime was in drought. so critical thing particularly for beef and lesser degree for dairy will be better rains early on in the spring so that we see some improvement in pasture, or i think we could, unfortunately, see further liquidation. okay. all this, what this means for food prices, we will see some transmission of these higher prices, higher livestock prices in particular into higher food prices. ers is currently projecting food inflation to increase by about

3-4%. i believe there's a session on that later today. but it's important to realize that at least at current levels if you look at the most recent month, i think it's december looking at that -- or, excuse me, in fact, report came out today which i don't have the numbers for. but our current levels of inflation very low, 1.3% year-over-year for the most recent month. but we will expect that to increase. and, again, as i say, ers is forecasting some 3-4% over the next, for 2013. high but not nearly as high as i think what we saw in 2008 or what we saw in 2011. all right. as i mentioned at the outset, ers put out numbers on february 11th on net cash income, net farm income. net cash income down a little bit this year or at, excuse me,

123.5 billion. that's down, but you can see still high at least in nominal terms relative to recent years. we have, we recorded a record in 2012. record receipts the last couple of years approaching some $400 billion. i mean, just phenomenal. i mean, you can see just how rapid that's been. back in the early 2000, 2002, 200 billion. so really a doubling of receipts over the last ten or so years. but also we've seen high expenses. now, some of that, of course, has been feed, and feed has been, is a critical component for the livestock markets. if i look at this just on some of the, looking at net cash income, ers looks at farm businesses, and these are just sort of average per-farm for farm business data that ers pulls out of their survey. and there -- these are just indicators, obviously, that

their forecasting cash income to decline a little bit most of the row crop producers this year. again, high relative to say four or five years ago but still down from last year. um, and then for livestock i think there again another year where we've seen some decline. and you can see, you know, dairy back not quite as low as what we saw in 2009, but i think this, again, the real story on the livestock issues, i think, is can we get through the next few months, particularly on the pasture issues and other thicks to get into where we're, get into the fall, late summer, early fall where we should start seeing feed prices come down that can help profitability return to the sector. all right. well, with that let me just wrap up, and i just would say, again, this sounds a lot like déjà vu

or one of those dejas that you've heard this before. and admittedly, very, very similar to our forecast last year. i think, obviously, the big issue, i think the most, the critical factor here that people will be following is weather. and certainly with drought and with the nation continuing, a lot of the country continuing to be in drought, there's going to be a lot of people concerned about the weather. we'll be. watching it very, very carefully. however, i do think that at least the empirical data suggests return to more normal yields as we move into spring. and with better rains and a return to more normal weather, we will hopefully get some higher yields and a return to -- which should help moderate prices and improve profitability for these other sectors. and with that, i will b conclude. thank you.

[applause] >> thank you, joe. so now i get the opportunity to introduce my boss. many of you know his story, but for those of you out there listening in case, here it is: he started as a lawyer in iowa, small town helping farmers struggle through the farm crisis back in the '70s. and then tragedy hit in his small town, and he became the mayor. fast forward, he became a two-term governor in the great state of iowa. candidate for the president of the united states, and then our secretary of agriculture. he's commencing his second term along with the president. he's been giving some tough love talks across the country, and i say tough love, tough in that he's really pointing out some

issues that we need to grapple with in american agriculture in terms of our political relevance and how we make sure that people inside the beltway and across our great country understand the importance of what goes on in rural america. and i say love in tough love because he does so with passion, he does so with finding ways to entoys young people to -- entice young people to careers in agriculture, and he does so as the hardest working secretary of agriculture we could ever have. so, ladies and gentlemen, welcome him to the stage. [applause] >> thanks very much. thank the deputy for that kind introduction and for her leadership on a number of issues including the local and regional food systems which has become an integral part of not just this conference, but of agriculture

and do economic opportunity -- the economic opportunity in rural america. her work with know your farmer has really made a difference in this direct to consumer sales opportunity which is now a multibillion dollar part of agriculture. and i also want to thank joe and jerry for putting on this conference. it's amazing, every year we come here, and every year you all come here and, joe, every year you give the same damn speech. [laughter] but it could be worse, right,? it could be worse. of. [laughter] and i particularly want to thank senator daschle for spending a few minutes with us today as the deputy indicated, folks in washington, d.c. and around the country have the highest level of respect for tom daschle, and i'll say a few words about him as i introduce him in a few minutes. but we're really pleased to have you, senator. thank you very much for taking your time. so here's what happens when joe

and jerry get together. they put together a program, and they decide to put a title on it, and then they broadcast the title and the program throughout the usda halls. so everywhere i walk i see these big posters, and on the posters there is this managing risk in the 21st century. and i thought to myself, well, this is an opportunity for us, obviously, to celebrate the fact that we do, indeed, have expanding exports at record levels, and we're seeing an expansion perhaps beyond biofuels, as joe indicated, into the bioeconomy where we're making more product, chemicals, fabrics and fibers, a variety of things from plant material and crop residue. we've got the local and regional food system expansion which has been great news, record expansions of farmers' markets and food hubs as a result of the deputy's work, and we've seen farmers embrace conservation with over a half a million producers now engaged in

conservation practices around the united states with record numbers of acres enrolled in conservation, record foreign income, even more excitement among young people about agriculture. in fact, the other day i was in iowa at the world food prize headquarters. a young lady came up to me and said she wanted to thank usda for the work it's been doing recently. and i said, well, i appreciate that, assuming she was going to talk about the record farm income or the record exports. but what she wanted to thank us for was in the 1980s when she went to school and she major inside agriculture and she got her advanced degree in agriculture, she said she was a bit humbled and sort of embarrassed when she would tell her friends and family what she was doing. but because of what's been happening in agriculture today, payoff the activities -- because of the activities of usda and of the folks in this room, she said agriculture is cool again. and i took that as a great sign, and we've got some great young people here today who no doubt

are passionate and excited about their future careers in agriculture. so i'm thinking to myself, what's joe worried about? why do we have to manage risk? things seem to be going in the right direction. and then i began to make the list. of all the things we actually should be concerned about. and what dawned on me was that normally when you talk about agriculture and risk, as joe just did, you talk about the weather, you talk about drought, things that you may not have a lot of control over. but the uncertainty and the risk in agriculture today in many cases are manmade. let me give you a few examples. there is risk in the up certainty -- uncertainty witness to budgets and the impending sequester to agriculture. you all know that march 1 will come, and if it comes before congress has acted, that the sequester will be triggered. and what that will mean for usda

is every line item, virtually every line item of our budget will have to be reduced by a certain percentage. and that percentage could be somewhere in the neighborhood of 5-6%, and that's an annual percentage which means we have to implement this reduction in the remaining portion of the fiscal year. which will be approximately six months. that means it's really the impact of a 10-12% reduction of our remaining resources. and unlike normal circumstances where the congress will direct you to reduce funding but give you the flexibility to choose where and how, this is a direct prescription from congress to reduce every line item by the same percentage. now, if you're fortunate to be in an agency or part of the department that has lots of lines, you have some degree of flexibility. but if you happen to be in an agency like food safety where you have very few lines and

where most of the lines involve people and labor, you have very little recourse. and that is a risk that we now face. because the only way we can absorb a cut of this magnitude is by impacting the people who work in the food safety area of usda. finish and we all know that when we do that, it momentum just impact those workers -- it doesn't just impact those workers, it impacts the plants and production facilities across the country. now, there's a way to resolve this. congress can give us flexibility and say we didn't really mean every line item across the board with no flexibility in six months. or they could come up with a larger deficit reduction package that would avoid sequester. but be they fail to act -- but be they fail to act, then we are required by law to invoke the sequester. and we will do what we have to do.

because if, as you all know, usda is guilty of spending money it doesn't have under the aunt-deficiency -- anti-deficiency law, there are sieve and possibly criminal -- civil and possibly criminal penalties associated with that. so we take our job very seriously at usda. it's something we don't want to do, but it may be something we have to do. and this is a risk that is manmade. the same thing is true on march 27th. march 27th comes, if congress has not continued the budget process and provided a continuation of the continuing resolution or passed a budget, theoretically all government activity stops. and that, of course, would impact our trade promotion efforts, it would impact food safety, it would impact the ability to provide credit to farmers right at the time when they have to finalize the credit opportunities to put their crop in the ground. this is another risk that's manmade and can be avoided.

then there's the uncertainty and the risk associated with not having a five-year farm bill. we know that the senate passed a farm bill last year, we know the house agricultural committee passed a farm bill last year, but it did not get done. and that now creates uncertainty as to what the safety net will be for farmers who are face with the the drought or the conditions that joe just talked about, who where through no fault of theirs, they're facing economic disaster. because we don't have a farm bilker those livestock producers that were hurt so badly in 2012, those dairy producers, those poultry producers were not afforded the opportunity to have the kind of disaster assistance that was in effect the year before. and so they now face a financial risk that's manmade. we need a farm bill, and i like to refer to it in our shop as a food, farm and jobs bill, because we need to have certainty about what the safety

net should be for our farm families. after all, they provide this country with some extraordinary security. we are a nation that can feed itself. and make no mistake about this, this is not something to be taken for granted. because many, many, many countries around the world cannot say that. it makes us a stronger and more secure nation. brought to us by american farmers and ranchers and producers. they need a safety net. if we're to build this rural economy and create economic opportunity for these young people that are excited about living and working and raising their families in a small community, then we have to complement production agriculture and its safety net with a strong commitment to bioenergy and bioeconomy. the future where virtually every aspect of what we grow and raise can be used to produce virtually everything we need in our economy. it's how you actually strengthen and build a middle class in rural america.

we get back in the business of making, creating and innovating. but you can't do that unless you have a food, farms and jobs bill that has an energy title. you can't continue to see the expapping of local and regional food system and the entrepreneurial opportunities that creates in rural areas unless you have a five-year program. and you certainly can't resolve trade disputes, including the one we've had with brazil over cotton, which could potentially jeopardize us in this country with the application of serious penalties without a five-year food, farm and jobs bill. so those are risks in today's agricultural world that can be resolved by congress doing its job and getting a bill passed. then there's the uncertainty of labor. another manmade issue. where agriculture relies to a

great extent on immigrant labor. and everybody in this room understands and appreciates that a good deal of that labor isn't necessarily in this country legally. and that has been the case for a long time. this is a risk to agriculture, and we're beginning to see the implications of that risk because we've had crops that were grown last year that could not be harvested because there simply weren't enough hands to pick them. it's important and necessary that we have immigration reform, that we create a system in this country that understands and appreciates the importance of imgrant labor -- immigrant labor and respects it, that creates a comprehensive set of reforms, that secures our border, that creates responsibilities on those who are here illegally to pay a fine, to the pay back taxes, to learn the language and then creates an opportunity for these folks to be here legitimately so that they can provide the labor and the work that's necessary for our

producers so we in this country can continue to enjoy the extraordinary diversity of agriculture that we have. and that we can continue to afford the luxury of having some of the least expensive food in the world. despite joe report about food inflation at 3 and 4%, that's actually more of a normal rate of inflation. we still in this country enjoy the fact that less than 10% of our paychecks are spent on food. you go to most other developed nations or developing nations, you're going obey 15, 20 -- you're going to pay 15, 20, 25, 40% of your paycheck for food. so not only do america's farmers and ranchers in the system here create this enormous diversity in this great food security we enjoy, but it also comes to us at an affordable price. but there's a risk if we don't have comprehensive immigration

reform. it's a manmade risk. itit can be resolved. then the uncertainty of trade pairiers. barriers. created by other nations. right now we're dealing with a decision made by russia to impose a ban as a result of the use here of rack taupe mean that is not scientifically based and is contrary to international law. our office has stated very clearly it's our expectation that russia will reverse that decision. that's another risk to the livestock industry that's manmade. now, fortunately, we got some good news yesterday as the scientific commission from oie has now indicated that the u.s. can now be considered a negligence jill risk nation for bse, and hopefully that will be confirmed this summer. and we further got good news

with additional opening of markets, particularly for our beef. last month we talked about the opportunity that japan is now affording for a wider market in japan which is good news, and we've had the korean free trade agreement and the opportunities that presents. we've also seen mexico relax some of its restrictions on beef purchases and today hong kong will join that list by indicating a willingness to take all deboned beef products of any age and boned-in beef less than 30 months. so an expanding opportunity where trade barriers are coming down. but these barriers still exist which is why it's mess and important for usda to continue to advocate for american farmers and ranchers all over the world as these barriers are constructed. we have of to tear them down. now, those are all risks that are faced, that we with face in

agriculture today that are all manmade. can be resolved with action by congress or by the international community following science and rules. there are, however, risks that we can't control, and joe talked about the drought. now, following the consequences of the drought last year, the president directed us to create a drought task force which was made up of all federal agencies to try to mitigate the impacts and effects of doubt. drought. that led us to begin thinking at usda about steps we could take to help producers during a very difficult time, and we took a series of steps. we opened up crp land and provided some relief on crop insurance premium payments and things of that nature. but it also got us thinking were there other steps, other things we should be doing in order to

provide help and assistance? and it occurred that perhaps we should be focused more acutely on the need to encourage mull i crop -- multicropping throughout the united states? in order for us to do a better job of conservation, in order for us to create additional biomass that could be a revenue source and potentially allow us to conserve precious water resources with the use of cover crops which in turn would allow us to get through these drought circumstances this a more favorable circumstance. and so we have begun a process of looking at ways in which we could provide assistance. now, you will be fortunate to hear from a fellow by the name of david brant who is here who will give a presentation during the course of this conference. dave's got a no-till nutrient management system that he's put in place since the 1970s that involves multicropping and double cropping. he tells us that this has increased the organic soil

matter in his soil. it saves about $100 an ache other than nitro-- an acrer on nitrogen, its increased his corn yield and his soybean yields 8%. that's something that ought to get everyone's attention, and at usda we ought to be looking at ways in which we can reduce the manmade barriers to multicropping so that that can be another strategy for managing risk. recognizing that there are different types of multicropping whether it's double cropping or cover crops or an integrated crop/livestock arrangement or even agri forest try. and so this year we're going to spend time better understanding the barriers that exist for market availability for a product that could be produced, for the lack of insurance or the difficulties that we can create through our crop insurance programs that discourage multicropping to looking at the effect on the yields of the primary crops that are being

planted and where our knowledge gaps exist in terms of the supply chain and the delivery system so that we can encourage of this activity. we'll use our conservation innovation grant money at nrcs to provide some financial assistance. we intend to develop an atlas that will provide producers a lot of information about what currently is working in multicropping arrangements around the country. there are great examples. and we'll provoid information on -- provide information on the steps that we'll be taking to reduce those barriers that we've created within usda. and we hope that we will do a better job of improving our communication about the conservation benefits that will come from multicropping and in turn give us yet another tool to deal with a changing agriculture and managing the risk. now, as we started thinking about multicropping, it to occur, it occurred to us that, indeed, we have a diverse agriculture in this country, and

there are different production systems that people want to use. some folks may want to use ge technology, and some people may want to to a conventional way, and some people may want to be organic producers. and it's important for us at usda to recognize and to respect all production processes. and troying to make sure -- trying to make sure that everybody has an opportunity to choose the type of operation that's best for their family and themselves. that's why we put together a group of folks, and we challenged them to think about how could we create a system and support in this country where different production processes could, in a sense, coexies in the same -- coexist in the same geographic area. recognizing that this is a tough question. and that there are passions on all sides of this issue. we put 22 people many a room for about a year and a half, and they had great leadership from russell reading, and these folks

looked really hard to come to a set of conclusions. they basically models what we ought to be doing in this town more frequently which is coming together and figuring out where the common ground is, where the moderate middle is. they came up with a series of recommendations to what we called the ac21 committee. and today we're posting on our web site the next steps in that process so that we can tell those 22 folks who worked hard that we're following through on their recommendations and, more importantly, we can tell producers of all types that there are ways in which we can provide help and retuesday the risks that -- reduce the risks that may be associated with different production processes trying to live in the same space. we're going to engage in research, and we're going to look at ways in which we can create measures to strengthen this notion of coexistence. part of that research will focus on creating an inventory of actual economic loss so that we know precisely how often there

may be circumstances where crops are compromised as a result of activities. in other areas. we're going to do case studies, and we'll better understand from those case studies exactly what the challenges and barriers are to this notion of coexistence. we hope to be able to develop best practices, to be able to provide information so as folks are looking at coexistence plans or stewardship efforts that they'll know precisely what works best. we're going to create a competitive grant, and that grant will basically fund a conference that will be held this year. we'll bring experts in to discuss information about gene flow so that we have a better understanding of precisely what happens. so in turn we can mitigate the risk of that occurring that could potentially be damaging to someone else's crop. we'll continue to look at ways in which we can indemnify or compensate those who may have

suffered a loss. we're going to have nas review its cay that to -- data to get a better handle on how to price organic crops, and they are, in a sense, sort of a different commodity, if you will. ask some of the normal practices, some of the normal surveying techniques may not work quite as well for organics as for conventional agriculture. and that will give us enough information to do a better job of understanding how to set up insurance policies and programs for these organ withic crops. and we'll focus on quality. this spring we'll launch for the first time the national genetic advisory council, and we will be tasking that council with looking at how we can evaluate the availability of non-ge seed for producers who might be working and producing in ge-sensitive markets. we'll review and evaluate best management practices for the testing and monitoring and

maintaining the purity of publicly-held germ mass m because there's a concern about that. and we'll, hopefully, continue our efforts outreach. all of this is designed to manage, eliminate, mitigate the risk that is associated when folks want to do things a little bit differently, but they want to do it in the same general space. it's part of managing risk. and then there is the large risk, the long-term risk that we face with the changing climate. and i'll conclude with this. there's no question that the climate is changing. we recently furnished two assessments from usda on the impact of changing climates on agriculture and forestry, and the conclusions were pretty obvious. higher temperatures lead to more intense weather patterns. more intense weather patterns lead to greater stress for crops and livestock and increase tree

mortality. and we at usda have a responsibility to figure out ways in which we can mitigate the risk of something that we really can't control, in a sense, when it happens. we can't control when a drought occurs, we can't control when a horrible tornado hits or when flooding occurs. but we can take steps to mitigate the impacts and effects of that. so here's what we've done and here's what we're going to do. we released this year the first usda climate change adaptation plan, and we're outlining practical steps that can be taken right now to reduce this risk. we're expanding pest forecasting so we have better models to give people a sense of what happens with intense weather patterns and its impact on expanding pests and diseases which are a risk that we need to control. we're going to incent and increase our efforts in soil

health management in creating systems for farmers and ranchers that they mic interested -- they might be interested in. we're going to have rma work with its partners to create a web portal that will provide information on climate and weather, so in turn we'll have enhanced ability to adjust losses more quickly and more accurately. we've channelinged the forest -- we've challenged the forest service to begin incorporating practical applications for mitigation and adaptation strategies for our forests and our planning and management system work. now, the next steps require developing a road map. we want to provide practical advice to our farmers and ranchers in ways in which they can reduce risks through the use of their property. we want to provide better support materials so that they can create techniques and technologies that will allow them to mitt gate the impact. -- mitigate the impact. we saw this with the drought.

it's amazing despite the drought, we still had a relatively large corn crop given the extent and severity of the drought last year. and the reason we did is because of the technology and the techniques that our farmers use. so we need to better support applied climate change research. we need to make sure that we have resources going into this research so we can provide you with the information that allows you to manage risk. we need to improve our outreach and our extension so the information we have and our opportunity to provide help and assistance is disseminated more widely. and we will be able to do this by organizing this effort perhaps around regional hubs where we will recognize the differences of climate and the differences that climate has on various or crops that are grown in different parts of the united states. we understand and appreciate that different regions have different needs. so we're going to be very

aggressive in this effort because we you said and appreciate -- we understand and appreciate after the foods of 2011 and the drought of 2012 that folks need this assistance and help. and by doing this, by taking these actions, we can hopefully mitigate and help you manage risk. why is this all important? it's pretty obvious. rural america as a result of most of the farming and ranching that takes praise in rural america -- place in rural america, is the number one place for food production in this country, the number one place for most of the water that is consumed everywhere, it's number one place for the production of energy of whatever source whether it's oil or natural gas or renew bls. the it's the source of, as i say in virtually every speech i give, of a disproportionate number of those who serve us

admirably and bravely in our military. it's an important place in america. and the people who are working hard in that important place require us to do everything welcome to allow them the to continue to help make us a more secure and strong ther nation. they will be able to deal with weather-related risks. ..

that's what they deserve, and we at usda are going to do everything we can to help make that happen, but we need you to be engaged in this process. we need you to encourage those in congress to help us help you. we want to continue to make agriculture cool. we want these young people to be inspired by the fact that agriculture is the answer to the moral dilemma of our time, how we feed an ever-increasing world population as resources become scarce. it is agriculture in rural parts of this country and around the world that will provide the adaptation and mitigation strategies to sequester carbon to control and to mitigate the impacts of climate change. it is agriculture and rural parts of this country that will provide a new energy future for

this country, and it is agriculture that will help spur a new american economy that is focused again on making and innovating and growing and manufacturing and exporting. that's why this is important, because the long-term security and safety of this nation is absolutely dependent on us managing these risks that we have identified today and that will be identified over the course of the next couple of days. it's that important to this country, and you all can help. now, one man who understands this, better probably than most, is tom daschle. i can say a lot of things about tom daschle. i can talk about his military career, having served our nation in the air force. i can talk about his service in the house of representatives, his extraordinary leadership in the senate, being, i believe, the only person ever to serve as a majority leader and a minority leader.

that says a lot about this man in terms of what his counterparts thought of him. but i prefer to talk about tom daschle, the father and grandfather. the reason i do is because i think you can tell the measure of a man or a woman by their children. tom has got three great kids. i've had the pleasure of knowing all three. his daughter kelly is a journalist, an award-winning journalist for ap. his son, nathan, is a social entrepreneur, and his daughter lindsay, my favorite, he can't

can't say that. lindsay basically led that effort, and she left the usda because she had a calling to help kids in trouble, and she's pursuing an advanced degree in social work. and her proud father told me just a few days ago that she's grandchildren, that says a lot about tom daschle. and what he's going to share with you today are his insights. i saw him the other day at a lunch in one of the restaurants in washington, d.c., and what impressed me the most about what i saw was that virtually no one entered that restaurant without stopping at tom daschle's table, and we are fortunate and privileged to have him here today. ladies and gentlemen, senator tom daschle. [applause] >> thank you, tom, for the very,

very generous introduction. it is so nice to be with all of you, give you this morning. and i do mean morning. only at a ag conference can you hear for speakers by 9:00. [laughter] >> tom vilsack just gave us an eloquent and powerful analysis of the risks we face in agriculture, man-made and natural, and it was a reminder yet again, his extraordinary leadership that we have and are secretary of agriculture today. i consider him a very, very dear friend, and unparalleled public servant, someone i admired and immensely for so many reasons, but in particular because of his mentorship of the young daughter of mine, lindsay. so i thank him for all that he does, not only for my family, but for all of us each and every

day. i also want to thank kathleen and joe for their thoughtful presentations today. i don't know about you, but i have learned a great deal just in the first hour of this conference. we have a lot more to go. but you talk about dedicated public service, leaders that serve with selfless determination. you've got three of them writer at this table. i'm honored and flattered to be part of the program this morning. [applause] >> being here, i'm reminded of an open door meeting that i had in the rule part of south dakota several years ago. as a lot of you know in our small town, we don't have a lot of choice when it comes to where we meet, and it's oftentimes in the local good-faith/bar, and i used to hold these public meetings as i know that tom has

done through iowa for many, many years. but in this particular open door meeting i was about to start and the farmer interrupted me just as i was about to begin. he said, daschle, i have a question that he had obviously been at the bar most of the day. i could tell that. [laughter] just by the way he started his question. he said tell me, daschle, what is the real difference between a democrat and a republican? i was a little impatient by the question, and adjusted sure, when you're sober i'll give you an answer to that question. he said, daschle, when i'm sober i don't give a damn. [laughter] >> well, the truth is that we shouldn't care. agriculture is in democratic, republican. it's not partisan at all. rather than divide us, it should unite us. as a look over this tremendous crowd, ic unity among all of you. i see unity among all of you. in south dakota we have a

special term, we just called them issues. i was very fortunate to spend 30 years on these issues in congress, attempting to put rural america's agenda on the national agenda. and almost every day i left the senate, since i left the senate i'm reminded that agricultural issues, food security issues don't stop, as tom said just now so powerfully, at the prairies edge. these are national issues. they are global issues. today, farming and food security are beginning to receive the attention they deserve. president obama has launched a new alliance for food security and nutrition with the goal of raising 50 million sub-saharan africans out of poverty over the next decade alone.

city kids are going back to work. their grand parents ranches, farmers are having their own -- their own online dating service. and the most talked about super bowl commercial, courtesy of the late paul harvey, was dodge rams heartwarming tribute to the american farmer. him what's that kenny chesney song? she thinks my tractor's sexy? you know, there's some truth to that. agricultural issues are, i would argue, sexy. if not sexy, increasingly critical and increasingly important. so i'm glad to be here and it's metaphorically appropriate that we are here today, because it turns out it was february 21, 1865, 148 years