Interview With House Ag Chairman Collin Peterson (D-Minn.)

February 25, 2009 06:00 PM
 

via a special arrangement with Informa Economics, Inc.

A candid congressman on market-sensitive issues

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


House Ag Committee Chairman Collin Peterson (D-Minn.) rushed into a late-Wednesday interview session that I and Pro Farmer News Editor Roger Bernard had with him a few minutes late, apologizing for his tardiness and also for a messy desk. But he quickly settled in and handled our questions with his usual ease and directness that marked his demeanor during the trying debate on the 2008 Farm Bill. The following are details from our conversation with Peterson:



What is the committee's agenda for the calendar year?
Peterson: “To keep track of the implementation of the farm bill. To finish off the process on the bill we passed a week ago on derivatives. I'm not sure exactly how that's going to go.”

With the other committees that could be involved, do you think a final derivatives bill is going to be done this year?
Peterson: “I think it's gonna be.”

Is this the bill that President Obama wants done by the April G20 Summit?
Peterson: “That's the question. I don't know exactly what's going on. There was some meeting this afternoon and I don't know what came out of it, but it was with the heads of the banking committees and it was to decide about a systemic risk regulator. And Sen. Chris Dodd (D-Ct.) took the position before the meeting that I have, that the Federal Reserve should not do this. So I don't know where that's at, but it's part of the whole deal. My concern is there's a lot of different things going on here. You've got some people who want the jurisdiction of the CFTC (Commodity Futures Trading Commission) over in the other committees -- we've got some of that. Given what I'm doing now, the Wall St. people don't want to deal with me. So that's part of it.

“My whole point in this is we know how to regulate the futures markets. That's what we do, that's what we've done…we've not had a penny loss, and whatever comes out of it, I want to make sure we have a good regulatory regime in the futures area. That's what I'm looking for. I'm not looking to get into all this other stuff. I mean there's ideas out there like getting the FERC (Federal Energy Regulatory Commission) into regulating the futures market… getting SEC (Securities and Exchange Commission) to take over the CFTC. It's just beyond me why they would take an agency that works and put it in one that doesn't work. Some of the ideas I've heard is that maybe if they put the CFTC in the SEC, they would change the culture over there. That's a pretty long stretch. So the reason I wanted to move fast is to get this on the radar screen so when this train comes down the track, people have some understanding of what the issues are, because I felt if I didn't get it elevated, we'd come to a decision and no one would know what anybody is talking about.

“The problem is it doesn't seem to me that people are paying a lot of attention to this because there's all this other stuff going on.”

But when you go into the countryside, the ag bankers know this…
Peterson: “They like what we're doing. I'm not worried about that and I don't know how much anyone is listening to them because this is all about trying to save the Wall St. guys with all the stuff we're doing. So I was hoping there would have been more debate… we're sending some of our allies over to lobby the Financial Services Committee on a one-by-one basis to try and get them to understand what this is about, with the idea that at the end of the day, we'll get the right outcome which I think is going to be that the CFTC will survive (as a separate entity) and the SEC is going to be reformed. I don't quite know how you do that but from what I can tell they ought take a page from the CFTC and become a principle-based regulator rather than a rules-based regulator which is what they are today.

“If they would have been in that mode, I think that more than likely they would have caught Madoff when it was actually laid out for them what he was doing. But their mentality is they've got these rules, so when they go in and audit someone, they check the boxes on whether they are following the rules -- they don't actually look at what's going on.”

Is April too quick to get this done?
Peterson: “Overly optimistic. You're going to have the G20 deal and it’s a question mark as to what the Europeans are actually up to. I do agree with these people that look at this big picture who say that in order for this to work, it can't be just a U.S. solution. It has to be a global solution. That's another problem. We went to Europe, we talked to all those guys and we think we got some of the right answers. If we bring some of this derivative stuff into clearing, that's a big step in the right direction. Once these derivatives, these swaps, are cleared, essentially they become a futures contract when they are cleared. That's why I believe they should be in the CFTC because it's something they are familiar with and they know how to deal with them.

“I don’t think the Banking Committee has gotten to the point of understanding that. When people hear about this credit default swap stuff, their eyes glaze over and they say, 'I don't understand what this stuff is.' Really all it is is a guarantee of a principal value of a bond -- that's all it really is. It's not that complicated. When it's a contract that has some future date in it, it becomes a futures contract when it is cleared. What we have tried to do is require mandatory clearing. We think probably 90 percent of these contracts can be cleared. There are probably 10 percent that can't. We set a process where if they can't be cleared, the CFTC would put some kind of collateral, margin requirements on the parties involved in the swap, not on the actual swap itself, to try and bring the risk out to the surface. So we think we've got close to the right solution.”

Do you have a good working relationship with Barney Frank (D-Mass.), chairman of the House Financial Services panel?
Peterson: “Well, I've talked to him about this and he said 'Let's see if we can work this out.' We got a hold of his staff and basically we still haven't been able to meet with him -- it's been over a month….because they're so swamped with everything else. I get along with him, but it's hard to talk about our little piece of this when he's got all of this going on.
“I think in the end, we'll work this out. What goes on now is we've filed the report and leadership has to decide how long they're going to give him (Frank)… typically it's a month but I think they're going to give him longer than that to dispose of his part of this. We'll see how that all plays out. So however long that plays out, however long it takes, it's going to be a big part of what we're doing.”

Is food safety part of your calendar 2009 agenda?
Peterson: “Yes, we are going to start doing some hearings.”

When and how many food safety hearings?
Peterson: “I don't know. We're in the process of nailing that down. When I was at home last week, I was in Marshall (Minnesota) and I sat down with Schwan's. They're regulated by both the FDA and USDA. I had all their top people in to explain to me how it works for them, and what their take is on what's going on and what could be improved.

“It was very helpful. Out of that, we're going to try to organize something in Minnesota, have all of our delegation there and not only have Schwan's there, but Hormel, Land O'Lakes and a bunch of others in Minnesota to have a discussion, to try and get our people in Minnesota up to speed on what is really going on.”

Do you still believe there should be a single food safety agency and that it should be in USDA?
Peterson: “I've said that. I doubt if we'll get there. There clearly should not be a single food agency at HHS (laughs)… that much I know. Part of what we're going to try to do is to get people to understand how the system works now and what the differences are between USDA and FDA in how they approach things. We're in that process of trying to show people that USDA does a better job of this than FDA does.”

Will you have a combination of food safety hearings in Washington, D.C. and field hearings?
Peterson: What we will do in Minnesota... if that works I may do something similar here where I would bring in some groups and have a session like that probably not a hearing but let people hear what people have to deal with this. And we'll also bring in the consumer groups because they have their agenda. In the end, we're going to have to get them somewhat on board with whatever we're doing."

Have you talked to Secretary Vilsack on this?
Peterson: “Not this specific idea, but I intend to. So we will be working on that.”

The food safety timeline: This year or does it carry over?
Peterson: “It depends on what else happens. It's probably optimistic to think it will be this year.. to get closure. I just would be surprised. It will also depend on the (USDA) secretary and how much he wants to push this and I guess whatever else happens.”

Food-related issues seem to be an emotional issue with USDA Secretary Tom Vilsack…..
Peterson: “Yes, so he might want to move faster and we'll work with him.”

What about personnel at USDA in the food safety area? It has been rather slow.
Peterson: “Yeah, and they've also been very good about not leaking anything (laughs).”

Other big issues on the Ag Committee's agenda this year?
Peterson: “Another one is modernization or whatever you want to call it. I just came from a meeting with computer people here, because I've come to the conclusion that getting this computer and software thing worked out is the most important task. I've talked to Vilsack about this. He seems interested. He's made comments that indicate he is interested in modernizing… or whatever you want to call it.

“So this is another issue where we all have to be on the same page. Vilsack has to want to do it… (Senate Ag Committee Chairman Tom) Harkin (D-Iowa) has to want to do this, the Republicans have to want to do it, (Budget Chairman Sen. Kent) Conrad (D-N.D.) and (Sen. Saxby) Chambliss (R-Ga.)… we have to get the players engaged.”

So is this computerization or reorganization?
Peterson: “In my opinion, until we get the computer thing fixed, we're spinning our wheels.”

We remember filing stories about this topic 20 years ago….
Peterson: “This is what we've been talking about. I've had these people in two or three times. The folks have the right solution. And they need $300 million to do this.

“It's software and hardware and strategy. One of my real disappointments in the (economic) stimulus, which I am not a big fan of, is that it (computer funding) was (largely) taken out.”

Didn't USDA get $50 million for computers?
Peterson: “Folks I know were worried it (economic stimulus package spending) would all be wasted. It appears that only 60 percent of it will be wasted in trying to maintain what they've got out there. I don't know what happened between Sens. Ben Nelson (D-Neb.) and Susan Collins (R-Maine) but they were not up to speed on what was happening (regarding USDA's computer, etc., issues). This is what discourages me sometimes…How we could spend and make a mistake like that… and not spend $300 million on something that would really pay out. I was very discouraged.

“We're looking around to see if there is some other way we can fund this and get everybody on board behind this. At this point, if we don't get this part of it fixed, then I'm not sure it makes any sense to go any further to get the Department where they need to be.”

If you can't get the computers to talk to each other, how can you get the people to?
Peterson: “Yes. It's just a tool they need to get USDA into the 21st Century. So, that is a priority for this year. If we can get a strategy on how to find the money… we need $66 million this year -- we got $20 million, so now we're $45 million behind. Next year we need $93 million and in 2011 we need $146 million. And Rep. Rosa DeLauro (D-Ct.) is very focused on this… she's on board. She was very upset this wasn't put in the Bush administration's budget. She reamed them out because it wasn't in there.

“I think there are possibly ways internally we can generate some money here.”

Has House Speaker Nancy Pelosi (D-Calif.) asked all the chairmen to come up with budget cuts?
Peterson: “No…” but then Peterson held up a letter he and others got “to conduct vigorous oversight on all aspects of federal spending and operations to achieve deficit reduction and fiscal responsibility.”

Is this a forerunner to budget reconciliation?
Peterson: “No... but it is a way to find money.”

When will you respond to Pelosi; is there a deadline?
Peterson: “March 13.”

You got the letter today?
Peterson: “No, I got it last week. It says she appreciates the hard work of staff, etc., to reduce waste, and we are instructed to hold hearings without delay. So we met with my staff on Monday, I've talked to a few of my subcommittee chairmen, and we will have hearings on food stamps and nutrition which is where most of the money is; crop insurance; conservation -- we've already uncovered some stuff in conservation via our auditing functions that we'll bring out in this. So we're going to look at all kinds of things and we're going to hold hearings.

“I told (Rep. John) Spratt (D-S.C.) and leadership that my position is that we have already made our cuts and that we did the (farm) bill in regular order and we paid for it, and we went through hell and cut crop insurance and cut other things and I feel like we've done our part.”

What about what President Obama said Tuesday night on farm program payments. Is he really separating that from the pay cap issue?
Peterson: “What pay-cap issue?”

Obama in the past supported a $250,000 income cap for farm program payments, and his budget proposes to cut payments to farms making over $500,000 for a 10-year savings of $9.8 billion. Or, is Obama going in another direction?
Peterson: “I have no idea and I don't care because we're not doing it, whatever he wants to do!”

Everything really isn't even up and running yet from the changes you made via the 2008 Farm Bill….
Peterson: “I've had a discussion with Vilsack about this. You know, (former Deputy Secretary Chuck) Conner, after not doing anything on actively engaged for seven years, suddenly they dump this on us, now they’re in this mode that they're going to have one set of rules this year and another set of rules next year. Well that's the worst of all worlds. You're going to have farmers running around trying to get all these entities reorganized and then do it all again next year. Apparently, he (Vilsack) can't do anything about it. I asked him, 'Don’t do this twice. If you're going to change it, do it all at once.' But they claim they can't change it so I don't know what is going to happen. That's their doing. We made some changes in triple entity and so forth. But the actively engaged thing has been there since the 2002 Farm Bill. When you get into that quagmire, it's very hard to figure out what to do. It sounds easy on the surface, but when you get down to implementing it, it is a big problem.”

It had to be vetted pretty high to have Obama mention direct farm payments in his Tuesday address?
Peterson: “Well, we are not going to open the Farm Bill. We are not going to go back into payment limits.. We're not going back into COOL (country-of-origin labeling)… I think that's settled… I think we got that resolved.”

On COOL, you suggested to Vilsack not to change the rule. And then he came out with no official change in the rule, but then he wants voluntary changes -- some say we're in sort of COOL purgatory….
Peterson: “No….I don't think so because what’s going to happen in my opinion, and this is something I've been working on for months with the meat companies and others, is we're going to see 90 percent of this meat in category A. I think that will satisfy people. What got this whole thing started was some letter got sent out by someone saying they were going to put everything in category B. That's what got everything all stirred up. So I called these guys in, Cargill, Tysons and so forth, and said, 'Look, you better not do this. Because if you do, we're going to open this thing up and take all your flexibility away and then you'll be worse off.' So then they got with the program and they're getting with it more and more. I've got letters from Cargill that they're going to have 90 percent of their meat in Category A. So I think we're going to be okay.

“He (Vilsack) was getting pressure from people that were saying these companies are not going to do what they say and they don't trust them. That's where this pressure was coming from -- that he (Vilsack) do something to hold their hand. Some of the folks on the other side do not trust them.”

Some say the final MCOOL rule was a little different regarding flexibility to Canada and perhaps Mexico.
Peterson: “Well, a little bit. We're talking 5 percent.”

So you do not see a problem….
Peterson: “I told the secretary, 'Let it go and let's see what happens.' I think we'll know in six months, maybe sooner. If it doesn't work, we may have to look at something. But I think it's going to be fine and that's what I told Tom. I know he's under a lot of pressure. R-CALF basically wants to repeal NAFTA. So we're not going to do that.”

USDA had R-CALF in their briefing but did have the pork producers or the mainstream beef producer group (NCBA) on the conference call to brief them. Isn't that a little disconcerting from the producer perspective?
Peterson: “I assume they knew what the cattle and hog people would say.”

Wouldn’t they also have known what R-CALF would say?
Peterson: “I don't know… maybe it was political.”

Some are saying in production agriculture that the signals they’re getting from Vilsack is that he's going out of his way to be not anti-production agriculture, but he is not speaking up for production agriculture. Is that a fair assessment?
Peterson: “I think so.”

You’re concerned?
Peterson: “Oh yeah!”

Will we get some USDA subcabinet people that you’re comfortable with that know production agriculture?
Peterson: “I don't know. It makes me nervous.”
On COOL, does it bother you that there is a letter urging meatpackers to follow what is in the letter instead of the rule?
Peterson: “He (Vilsack) handled it the way he handled it. I wouldn't have done it that way, but I don't think it's the end of the world.”

You would have waited?
Peterson: “I would have just called them in and read them the riot act like I did! I didn't even send them a letter! Some of the things Vilsack has done have been disconcerting.” Wincing, Peterson added, “I mean, to go to the wheat growers and to go after their number-one issue (direct payments). When you're the new Secretary, I don't think you’d go out and antagonize your constituents. Like the speech he made to cotton people.”

Where do you see climate change going... you've said before that debate would take place this year and end next year?
Peterson: “I just called my staff in recently and we have decided to put a bill together to delineate how farmers could be compensated if we end up with some kind of carbon… cap and trade. I have come to the conclusion that if we don't become proactive on this, we could be in a bad situation if something actually happens. This is something I've drug my feet on, but I came to some conclusions. We had the climate change board in … the guys that are selling this stuff… and they talked to us. I think there are things we can put out that farmers can live with. Maybe we can get some good out of this if it ends up happening.

“My staff is working on a draft and talking to a bunch of farm groups and different people.”

So you'll report a bill out of your committee?
Peterson: “Yes. That's what I intend to do…. Introduce a bill and try to move it out before (Rep. Henry) Waxman (D-Calif.) or anyone does what they’re doing. We can lay our marker down to say this is what we'll do -- if this is what is going to happen, then these are the areas we think agriculture can helpful in. We can sequester carbon by no-till… whatever.”

On crop insurance, the program has paid out around $6.7 billion on 2008 crops, with $2 billion each for corn and soybeans. Of that, $1.4 billion for corn and $1.7 billion for beans were via Revenue Assurance. That's a pretty impressive batch of coverage that has gone out there without waiting on the government or anything!
Peterson: “It's working the way it's supposed to. For these critics who said they were hoarding all this money, that will answer that to some extent. But we're going to have hearings on this, and it's part of the deal that Nancy (Pelosi) wanted, because if we don't, you'll have the critics out there. We'll look into this. We've got the SRA (standard reinsurance agreement) in the Farm Bill, asking them to look at these disparities in agent commissions as part of the SRA. And I don't know, we may get into that.”

Revenue Assurance is literally saving a lot of producer cash flows in farm country...
Peterson: “That's the way it's supposed to work!”

Minnesota corn and soybean farmers were helped by the Revenue Assurance programs...
Peterson: “Well, those who got the biggest help were sugarbeet producers! If you look at the map, the counties with the highest payouts were the sugar counties because it's a high-value crop. This is good. This is the way we wanted to go.”

Peterson then turned to a new program option in the 2008 Farm Bill -- the Average Crop Revenue Election (ACRE) program...
Peterson: “I think the ACRE program is going to work and be utilized a lot more when people finally figure out how it works. It has the same kind of elements in it that crop insurance has.”

You think farmers will go into ACRE?
Peterson: “I think so. We're getting people comfortable. We had the guy in Indiana at Purdue took a look at it and he told people that if they’re growing corn and soybeans in Indiana, I think he told them, he said they should look strongly at it.
“From what I can see, ACRE is a much better safety net than loan rates and target prices.”

Do you see any changes relative to direct payments? The National Farmers Union (NFU) says a reason why ACRE looks better is that target prices and loan rates are still too low. They say adjust the direct payment and raise target prices and loan rates.
Peterson: “Well that was my position but I don't think you can politically get there. We had a hard enough time keeping what we had. I don't think it's politically realistic to raise them. The way I looked at it is that we should put this option out there (ACRE), see how many people use it, see what happens and this will give us the info we need, along with how crop insurance operates with new coverages… how the new disaster law operates and that will inform us as to the way we move with the next farm bill.

“Give it a chance. It's too early. If we ever get to that level where we reach target price and loan rates, we're out of business. That much I know.”

Regarding ACRE, some farmers say they are faced with making decisions without a lot of information…
Peterson: “I've heard that. I don't know when they’re going to put the deadline for ending signup... June 1… so they'll have time to work this out. Conner came in here and claimed if they used 2007 and 2008 prices, which they ended up doing, the nationwide price protection for corn was going to be $3.88. If that's what it is, then I think it seems like almost a 'no-brainer' to me. You've got this 10 percent thing in there where it could be reduced, but you would have had to have two years of a 10 percent reduction to get down to where the current program is. So you're not taking much of a risk.”
“Everybody asks me what they should do and I just say I would take a strong look at it. Last weekend, when I was home, people we're asking me if they should buy gold!”

Regarding ethanol, the current issue is the 10 percent maximum blend for non-flex fuel vehicles. Have you talked to anybody in the administration on this? Where do you think they’re going to go on this?
Peterson: “The signs we're getting from the administration is they seem to be trying to address this from I can tell. There's some kind of group that has been formed, with Secretary Vilsack in charge of it. The one thing about Vilsack, he doesn't have the experience of the farm bill, but he knows ethanol. I'm impressed with his knowledge of the ethanol business and what's going on in the industry.

“There's some kind of effort within the administration… they're working on this Renewable Fuel Standard (RFS) and the blend wall and all that stuff. They've got the Dept. of Energy, EPA and Agriculture and I don’t know who else meeting on this. I think Vilsack is in charge of the group, which is a good thing. The UL issue has been resolved. We have an EPA ruling that was somewhat positive. I think the ethanol groups themselves are concerned and I think they’re not on the same page but the RFA and ACE and the new Growth Energy group will come out on the same page all at the same priorities.”

Are there still some ethanol studies needed?
Peterson: “On what?”

On going beyond 10 percent on non-flex fuel vehicles?
Peterson: “We don't need studies. I shouldn't say this, but we've been doing this for years and there's not been a problem.”

Is the 10 percent a random number?
Peterson: “That was because places like Minnesota passed a 10 percent law. That's kind of where it started. We made a mistake by putting so much emphasis on E85. The way we're going to get where we need to get is with the blend. Because in Brazil, they think about a 26 percent blend is the right blend. You get the best mileage at 30 percent. We've got studies now by universities that at 30 percent, you get an increase in mileage over gasoline, but with E85 you get 15 percent less mileage. So if you look at the numbers, we would have one hell of a time ever producing 25 percent of the motor fuel in this country… including cellulosic and all that.

“So why go through all of this commotion to get the auto companies to build E85 cars, to get the gas stations to put in E85 pumps, to educate consumers about what this is. We're never going to get there. We've got to make this simple. I think we're on the right track to get this blend up to 12 percent to 13 percent, that would solve the problem. This problem going on in ethanol will be resolved no matter what happens by probably the first of next year. I think you’re going to see things get back in balance and the ethanol industry become profitable about that time because we have bankruptcies and plant shuttering and so forth. It's going to happen.

“If we get the blend wall fixed in a hurry, then maybe less plants will go broke. But I've been telling my guys at home to hang in there until next year when the next RFS kicks in, we'll be back in balance.”

We hear the proposed rule will come out in the next few weeks….
Peterson: “I hope so.”

We're also told the rule may not have the increase in the blend, but that would be proposed and considered via the public comments so that will be in there when they issue the final rule...
Peterson: “They haven't talked to me about specifics, but that would be good. I think Obama supports us. I think Vilsack supports us.”

What about Energy Secretary Steven Chu?
Peterson: “I don't know him. But if he has good sense, he would understand that if he wants cellulosic ethanol, he better support corn ethanol. We built this market. If we aren't there, they will never get cellulosic. That's my message to Nancy (Pelosi) and everybody else: you may not like corn, you may not like what we're doing, you may hear all this stuff from the grocery manufacturers, but the reality is if you want to build a second generation (of biofuels), it's going to be built on ethanol -- because the first cellulosic ethanol is going to be at those corn ethanol plants out of corn plants. That's what going to happen first. Switchgrass will come, but who knows when. Corn farmers aren't going to quit growing corn and grow switchgrass if there's no market for it.”

That must be good news to ethanol producers to hear you say what you are saying...
Peterson: “This is what I think. I could be wrong, but it looks to me with the plants that are shuttered, that this thing is going to come back. I could be wrong. “


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


 

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