SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOC
56–458 CC
1999
1999
REVIEW OF LIVESTOCK AND HORTICULTURE ISSUES AFFECTING CALIFORNIA
HEARING
BEFORE THE
SUBCOMMITTEE ON
LIVESTOCK AND HORTICULTURE
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
MARCH 29, 1999, STOCKTON, CA
Serial No. 106–12
Printed for the use of the Committee on Agriculture
Page 2 PREV PAGE TOP OF DOC
COMMITTEE ON AGRICULTURE
LARRY COMBEST, Texas, Chairman
BILL BARRETT, Nebraska,
Vice Chairman
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
HELEN CHENOWETH, Idaho
JOHN N. HOSTETTLER, Indiana
SAXBY CHAMBLISS, Georgia
RAY LaHOOD, Illinois
JERRY MORAN, Kansas
BOB SCHAFFER, Colorado
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana
KEN CALVERT, California
GIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
GREG WALDEN, Oregon
Page 3 PREV PAGE TOP OF DOC
MICHAEL K. SIMPSON, Idaho
DOUG OSE, California
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GEORGE E. BROWN, Jr., California
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLIARD, Alabama
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
VIRGIL H. GOODE, Jr., Virginia
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
CHRISTOPHER JOHN, Louisiana
Page 4 PREV PAGE TOP OF DOC
LEONARD L. BOSWELL, Iowa
DAVID D. PHELPS, Illinois
KEN LUCAS, Kentucky
MIKE THOMPSON, California
BARON P. HILL, Indiana
Professional Staff
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
Subcommittee on Livestock and Horticulture
RICHARD W. POMBO, California, Chairman
JOHN A. BOEHNER, Ohio,
Vice Chairman
BOB GOODLATTE, Virginia
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
HELEN CHENOWETH, Idaho
JOHN N. HOSTETTLER, Indiana
BOB SCHAFFER, Colorado
KEN CALVERT, California
GIL GUTKNECHT, Minnesota
Page 5 PREV PAGE TOP OF DOC
BOB RILEY, Alabama
COLLIN C. PETERSON, Minnesota,
Ranking Minority Member
TIM HOLDEN, California
GARY A. CONDIT, Pennsylvania
CALVIN M. DOOLEY, California
MARION BERRY, Arkansas
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
LEONARD L. BOSWELL, Iowa
KEN LUCAS, Kentucky
(ii)
C O N T E N T S
Peterson, Hon. Collin C., a Representative in Congress from the State of Minnesota, opening statement
Pombo, Hon. Richard W., a Representative in Congress from the State of California, opening statement
Witnesses
Arellano, Vanessa S., director of outreach and intergovernmental affairs, California Department of Food and Agriculture
Prepared statement
Cubiburu, Florence, California Wool Growers Association
Page 6 PREV PAGE TOP OF DOC
Prepared statement
Hemsted, Jerry, president, California Cattlemen's Association
Prepared statement
Jeter, John J., president and chief executive officer, Hilmar Cheese Company, Inc.
Prepared statement
Kidd, Kenton E., president, California Apple Commission
Prepared statement
Lopes, Loren, California Dairy Campaign
Prepared statement
Nelson, Brad, California Poultry Industry Federation
Prepared statement
Pauli, Bill, California Farm Bureau Federation
Prepared statement
Quick, Bryce, American Nursery and Landscape Association and National Council of Agricultural Employers
Prepared statement
Radtke, Rod, chairman, California Citrus Mutual, U.S. Citrus Science Council
Prepared statement
Rollin, Paul, chairman, Alliance of Western Milk Producers
Prepared statement
Smith, Stephen H., Western Growers Association
Prepared statement
Souza, Ray, president, Western United Dairymen
Page 7 PREV PAGE TOP OF DOC
Prepared statement
Vanden Heuvel, Geoffrey, director, Milk Producers Council
Prepared statement
Zech, William, trade committee chairman, California Asparagus Association
Prepared statement
Zoller, Broc, California Pear Advisory Board
Prepared statement
Submitted Material
Bausten, Gene, executive director, Farm Sanctuary, Inc., statement
Warner, Garen, Livestock Transportation, statement
REVIEW OF LIVESTOCK AND HORTICULTURE ISSUES AFFECTING CALIFORNIA
MONDAY, MARCH 29, 1999
House of Representatives,
Subcommittee on Livestock and Horticulture,
Committee on Agriculture,
Stockton, CA.
The subcommittee met, pursuant to call, at 10:13 a.m., in the Radisson Hotel, 2323 Grand Canal Boulevard, Stockton, CA, Hon. Richard W. Pombo (chairman of the subcommittee) presiding.
Present: Representative Peterson.
Staff present: Christopher D'Arcy, staff director, Subcommittee on Livestock and Horticulture; Brent W. Gattis, legislative assistant, and Andy Johnson, minority consultant.
Page 8 PREV PAGE TOP OF DOC
OPENING STATEMENT OF HON. RICHARD W. POMBO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. POMBO. The meeting of the Subcommittee on Livestock and Horticulture to receive testimony on the status of prospects of California agriculture will come to order.
It is my sincere pleasure to welcome all of our witnesses and guests to Stockton. Today's hearing is designed as a broad overview of agriculture in the State whose farmers and ranchers feed and clothe America and the world—California. We will hear from a very diverse group of witnesses today illustrating the breadth and depth of agriculture in this State, most of which now comes under the jurisdiction of this subcommittee.
From livestock and poultry to dairy and fruits and vegetables to water usage and the farm labor supply. I want to hear of the challenges, obstacles, and opportunities faced by the farmers and ranchers of the most productive and diverse agricultural region in the world. I want to continue the dialog which will enable the policy makers to better understand the needs and share the vision of those who produce the more than 250 agricultural commodities in California. This production has an average value of over $73 million a day, each and every day of the year.
California leads the Nation in the production of over 75 commodities, many of which are exclusive to our State. Nearly one-third of our State's total land area, about 30 million acres, are devoted to agriculture production. It is also a testament to our 84,000 farms that they can produce more than half of America's fruits and vegetables from only 3 percent of our Nation's farmland.
California produce, however, extends far beyond this country. Our farms and ranchers export about 20 percent of their production, worth nearly $7 billion. If California were a country, it would be the sixth leading agricultural exporter in the world.
Page 9 PREV PAGE TOP OF DOC
Although our State's production is huge with nationally recognized names and brands, the story of agriculture in California is most often the story of families. Families, individuals, or partnerships own more than 92 percent of California farms.
Our farmers also work hard to conserve its vital supply of reliable water using the latest irrigation management. California agriculture is using less water today than 30 years ago, while producing 67 percent more crops. Success stories like this are the rule in California, and I look forward to more of them.
Looking at the witness list and at our guests here today, I see longtime friends and neighbors. I'm glad to be here with you today, accompanied by the ranking member Collin Peterson, and I hope that we can learn from each other.
With that, I would like to yield to the distinguished ranking member, Collin Peterson of Minnesota, for an opening statement he would like to make. Collin has been my friend and my ally on this subcommittee since I took over chairmanship of it. And we agree a lot, more than we disagree, and he truly has been an ally in our efforts.
OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
Mr. PETERSON. Thank you Mr. Chairman. Thanks for those kind words, and I would echo them back. Richard and I have worked well, I think, on the issues. And I'm glad to be out here in California again and get a chance to find out what's on California agriculture's mind. And I'm going to get Richard back to Minnesota one of these days so he can find out what's going on back there. Because this is a big, diverse country, and we have a lot of different interests that don't always head in the same direction.
As many of you may know, in my State—we are having a terrible time in certain parts of my State. Especially up in my district where we have had diseases in the wheat, and we literally may lose 40 to 50 percent of our producers in some of our counties. One of my colleagues said 40 percent of the farmland had disease this last go-round. And so we have got a serious situation that's even gotten so bad that my colleagues up north are starting to put in dairies. And so we have got a real problem. In the southern part of the State, we have got hog prices going to collapse, which causes a lot of problems. And so we've got our hands full.
Page 10 PREV PAGE TOP OF DOC
Richard and I have been working on the dairy situation since we have been in the leadership of this subcommittee. And, as you know, having a difficult situation with all the different parts of the country heading in different directions. And I'm afraid we are going to have another go-round here shortly because the Secretary is going to come out this week with the order reform, which looks like it is going to make everybody unhappy. And I think what's going to come out of that is there is going to be an effort to legislate 1-A and also to create more compacts, which we in Minnesota don't think is a great idea.
And the one thing I would like to say to you, and some you may agree with me and some of you may not, but I think the best thing we can do in dairy is try to get to one policy for the whole country that levels the playing field. And I really believe that California should be part of the Federal order system. And you ought to be working with us to come up with a policy that's good for the long-term future of the country and the country's dairy industry.
We are a manufacturing area like you are. We have more in common than we have differences. And we ought to be allies and working together. I understand your situation here, but in the long-term, I think we would be better off if you were in the Federal order system, and we could get your help to help us fix it.
I am concerned about what's going to happen with this debate over the compacts and the legislating of the pricing system. I don't know exactly where that's going to go, but we could have—the last time we had a go-round on this, we didn't do so well.
The other thing that my folks want us to look at is to extend the support-price system to 2002. They're concerned about what could possibly happen, especially in light of what happened with hogs recently and so forth. There's concern that if we bring a lot more hogs on line that we could collapse these prices. And the trade situation is not what it ought to be in a lot of areas. So I think maybe some of you have similar interests in that regard.
Page 11 PREV PAGE TOP OF DOC
The other thing that I have been kind of working on is the whole issue of where we go in trading. As Richard said, you are interested in trade out here in California, but I still have problems with the way we negotiate these agreements.
One of the things I have been working on in Congress, and would appreciate any support they would give me in California, is to try to elevate the Agriculture Committee to a similar level to the Ways and Means Committee in this trade process. Right now, in that fast-track process, we have to give up our power to the USDA. Agriculture is a big part of the whole trade regime, and we ought to be at the table with Ways and Means. And I think if we all hang tough, I don't think they can get fast-track unless the Agriculture Committee comes along and supports it. And I think we have a possible opportunity to try to leverage some more influence in that trade process. And I would ask for any support you could give me to try to do that.
Lastly, I just want to tell a story. I apologize to the Farm Bureau, because you probably won't like this. But just to show you what can happen when people's backs get up against the wall. Two weeks ago I was at a farm Bureau meeting where there was about a hundred farmers. And they were up in the northern part of my district. And they had a vote. And over 90 percent of the Farm Bureau people voted for increased loan rates and—which is not where you would normally find those people—because they don't know what else to do. That's how serious things are. They don't know how they are going to survive. So you're going to be seeing pressure from some parts of the country to move in a different direction so that they can try to keep their heads above water.
So we have got a lot of challenges. We have got a lot of opportunities. I'm glad to be here in California and look forward to hearing from you and look forward to working with Richard as we proceed on these issues.
Thank you, very much.
Mr. POMBO. Thank you, Collin.
Page 12 PREV PAGE TOP OF DOC
I would like to welcome our first panel here this morning. I know that you're familiar with the timing system here. Your entire written statement will be included in the record. We do limit oral testimony to 5 minutes. The lights are in front of you.
I would like to welcome Ms. Arellano from the California State Department of Agriculture and Mr. Pauli from the California Farm Bureau.
Ms. Arellano, if you are ready, you may begin.
Ms. ARELLANO. I am. Thank you, Mr. Chairman.
STATEMENT OF VANESSA S. ARELLANO, DIRECTOR OF OUTREACH AND INTERGOVERNMENTAL AFFAIRS, CALIFORNIA DEPARTMENT OF FOOD AND AGRICULTURE
Ms. ARELLANO. Mr. Chairman and committee members, it is a pleasure to be here today and provide an overview of the California Department of Food and Agriculture.
California's abundant natural resources, fertile soils, and temperate climate allow it to claim to have one of the most sophisticated food and fiber production and distribution systems in the world.
California agriculture is a $26.8 billion industry that produces more than 350 different crop and livestock commodities. This generates more than $70 billion in related economic activity. This has been made possible through continuing advancements in technology and in the innovation of California agriculture.
This past year was a very difficult one for California's agricultural industry. We rang in 1998 with a series of El Nino storms that left over $531 million in agriculture damage, and we closed out the year suffering through a freeze that caused losses to date of over $700 million.
During a typical California December, we can all picture the types of crops that would be vulnerable to a freeze: artichokes, avocados, citrus, nursery stock, and fall and winter vegetables. By far, citrus was the crop that suffered the most damage.
Page 13 PREV PAGE TOP OF DOC
Through these challenging times, the Department of Food and Agriculture has worked very closely with a number of local and Federal agencies to bring the necessary relief programs to California. The actions of Governor Davis and our entire congressional delegation should be commended and have resulted in a swift response from the Federal Government.
The California Department of Food and Agriculture has over 1,700 employees. They are scientists, economists, marketing specialists, inspectors, administrators, and communicators who provide the highest level of service to California's food and fiber producers and consumers around the world.
CDFA inspectors examine meat, poultry, vegetables, fruits, dairy, and other foods, to ensure safety and quality. Pest prevention teams work to prevent infestations of unwanted pests and disease. International-trade representatives help growers to create new markets for their products overseas. And biological control researchers work to discover new, environmentally-friendly alternatives to pesticides. These are just a few of the vital functions CDFA employees perform. Some areas of interest to this committee would be our inspection services, animal health and food safety services, and plant health and pest-prevention services, as well as our trade and export programs.
Inspection services provide consumer protection, grading services, and regulation of a wide variety of agricultural commodities, fertilizing materials, commercial feed, and livestock drugs. One program is the Feed, Fertilizer and Livestock Drug Program which ensures that feed, fertilizer, and livestock drugs are safe, effective, and meet the quality guaranteed by the manufacturer. Our shipping-point inspection service operated under a Federal-State cooperative agreement with the USDA that authorizes CDFA inspectors to use Federal grade standards for fruits, vegetables, and nuts, and issue Federal-State inspection certificates.
Animal health and food safety service protects public health, the health of California's livestock and poultry, provides safety of food at its origin, and protects California livestock owners against losses due to animal theft and straying. One area of interest to this committee would be the animal health component that prevents, detects, contains and eradicates exotic animal diseases through surveillance and control of the movement of animals and animal products.
Page 14 PREV PAGE TOP OF DOC
Another area would be the California Veterinary Diagnostic Laboratory System, which operates under the UC Davis School of Veterinary Medicine. This system provides California with the highest quality livestock and poultry disease diagnostic support and enhancement of livestock and poultry and health management.
Plant health and pest inspection services protects California's agricultural and natural resources against damage by exotic plant pests and diseases. The pest-exclusion team keeps serious pests out of the State and stops or minimizes the spread of newly-arrived pests or diseases. Each year California's agricultural border stations intercept thousands of unwanted pests from cars, trucks, and buses entering the State. Plant quarantines are enforced within the State by investigators, inspectors, and biologists, with the help of county agriculture commissioners and other team players to keep out unauthorized agricultural commodities.
A program for nursery, cotton, and seed ensures the highest quality planting materials and fiber. The pest detection/emergency projects team is responsible for quickly detecting and eradicating serious exotic pests that may enter the State. Early detection has led to over 60 eradication programs against Medfly, gypsy moth, Japanese beetle, and other devastating pests. The tools for eradicating pests are constantly evolving each year.
An example of a non-native pest that entered the United States Many years ago is the red imported fire ant. Up until last fall, this pest was not known to occur in California. This pest, which is found throughout the southern United States, was discovered infesting areas of Los Angeles, Orange, and Riverside Counties.
The Department has recently released the plan to begin eradication and control treatments and will continue to work with local, State, and Federal Governmental agencies, the nursery industry, and environmental groups to develop a long-term strategy to deal with this non-native pest.
Page 15 PREV PAGE TOP OF DOC
In 1997 California exported agricultural commodities valued at nearly $7 billion, making California the leading agricultural exporting State in the United States. In fact, California currently accounts for nearly 20 percent of total U.S. agricultural exports.
Agriculture exports are important to the entire economy. Some economists believe that $1 billion of U.S. agricultural exports support 27,000 jobs in the U.S. economy.
CDFA's agricultural export program works to increase California's economic well-being by expanding a world-wide market and demand for California food and agricultural products and by assisting exporters of those same California products.
In partnership with Federal officials and county agriculture commissioners, along with other Government agencies, California Department of Food and Agriculture will continue to serve the citizens of California, this Nation, and the world by protecting and promoting agriculture domestically and abroad.
That concludes my presentation. If there are any questions, I would be more than happy to answer them. Thank you.
Mr. POMBO. Thank you.
Mr. Pauli.
STATEMENT OF BILL PAULI, PRESIDENT, CALIFORNIA FARM BUREAU FEDERATION
Mr. PAULI. Thank you. Good morning, and welcome to California.
I'm Bill Pauli, a winegrape and pear grower from Mendocino County. I am president of the California Farm Bureau, which represents more than 78,000 farming families.
California agriculture is often portrayed as representing large, corporate farms. The truth is, we are primarily family farmers.
Page 16 PREV PAGE TOP OF DOC
Each year it becomes more difficult for California farmers to compete in the world market. Our continued success depends on the availability of cost-effective and efficient crop-protection tools, an adequate labor supply, international trade practices that are fair to California producers, and a dependable supply of water. In the time I have this morning, I would like to highlight these issues.
Implementation of the Food Quality Production Act of 1996. The EPA implementation of the FQPA appears to be on a collision course with California and national agriculture. The EPA threatens to impose major regulatory actions based on questionable scientific methodologies and overly conservative default assumptions.
The Farm Bureau's first priority is implementation of FQPA in the spirit in which the law was passed. We are strongly committed to ensuring its implementation. That includes sound science, transparency, balance, and workability. However, we are convinced that the EPA's current implementation plan does not meet these criteria and will severely hamper California agriculture's ability to produce. Therefore, we support a bipartisan legislative effort to correct this issue.
Water. Agriculture requires water in order to be successful. No resource is more obvious or important or in peril than the water needed to grow crops and maintain agricultural production. The process known as CalFed has been broadly endorsed by a number of California stakeholders because it promised a balanced approach to ensure reliability for all water users who depend upon the San Francisco Bay/Sacramento-San Joaquin River Delta system. Congress will vote on important CalFed funding decisions in the months ahead. This Congressional oversight will help shape the future of the CalFed process, which is critical to all of us.
It is important in CalFed that we account for how the money is spent and what results are achieved for the money invested. Everyone would benefit from an audit of the various funds and activities involved in the Bay-Delta management, studies, and operations so that everyone can begin to assess what works and how much it costs to have a functioning system that everyone can rely on.
Page 17 PREV PAGE TOP OF DOC
Accountability is very important—dollars spent for programs accomplished. And it's not just more money for everything but storage, and less money for agricultural water.
Finally, we must not overlook the importance of California meeting its 4.4 Plan regarding the Colorado River water supply. To the extent that California cannot rely on water from the Colorado system, additional exports demand will be made on the Bay-Delta system. We cannot ignore how important the 4.4 Plan is to California.
Livestock issues. For many years livestock producers have been faced with below-cost-of-production prices and increased regulatory burden. To make matters worse, Congress has withheld support for country-of-origin labeling, which will allow consumers to make educated buying decisions and provide a clear choice at the retail counter. It is now time to act. We support H.R. 222, and we also announce our support for H.R. 1144.
Labeling is an issue that's important to consumers. It is a consumer issue, not a market-driven issue. The consumer has a right to know on country-of-origin labeling. For too long we have ignored the demands of the consumer to know where their meat products come from.
Price reporting. Farm Bureau also supports H.R. 693, which requires large packers to report the price, volume, and terms of sale on all domestic and imported livestock products. Price reporting and country-of-origin labeling are very important to us.
International trade. Several areas to mention. We support fast-track negotiating authority. This is absolutely essential to California agriculture. Provide permanent, normal relations with China and continue to insist that China abide by the World Trade Organization rules. Provide continued full-funding for international market development and promotion programs and eliminate unilateral sanctions. We believe all agriculture products should be exempt from embargoes, except in those cases of armed conflict.
Page 18 PREV PAGE TOP OF DOC
Labor. We all know the importance of H–2A reform and the need for a reliable, constant supply of agricultural labor in our State.
Crop insurance. We need a program that's dependable, affordable, and will provide for insurance on multiple crop-year losses. This is very important to our producers.
Pest exclusion, as Vanessa has already mentioned. It has an impact of about $123 million a year on agriculture. Twenty million dollars from the fire ant alone. Without good, effective pest-exclusion and eradication programs, agriculture, and ultimately the consumer, will pay much higher prices for food.
In conclusion, California agriculture has been the Nation's No. 1 farm State for 50 years. California can and will continue to be the world leader in agriculture production if we can have access to cost-effective and efficient crop production tools, an adequate labor supply, open markets practicing fair trade and free trade, and a dependable supply of water.
We need Congress's help to provide balance in regulatory decisions, whether it's the Endangered Species or the Clean Water Act. As landowners, we bear the full brunt of efforts to save species and to set aside more water for environmental purposes, for our land, and for the growth of our cities.
We appreciate you being here today, and we welcome you to answer questions. Thank you, very much.
Mr. POMBO. Thank you. Thank both of you for your testimony.
Mr. POMBO. Mr. Pauli, you mentioned that the Farm Bureau supports a bipartisan legislation to fix the current FQPA situations. What, in your mind, are some of the essential elements of that legislation?
Mr. PAULI. Thank you, Mr. Chairman. I think there's a number of areas that are really important to us as we try to move forward to deal with that. As I mentioned, when we supported very actively that legislation when it was passed. And we believe that, fundamentally, we have to go back to the understanding of the day when that was passed, which we seem to have gotten away from.
Page 19 PREV PAGE TOP OF DOC
But, let me give you some specifics. Section 18 exemptions. We simply need to have an effective interim tolerance system for section 18. Very fundamental. The mandate of real-world data. A real problem in terms of what data we're going to use or EPA is going to use to implement after you get it. Very fundamental that it be real-world, science-based data. A delay in the August 1999 deadline until such decisions can be made based on sound science, not bogus, made-up science.
Tolerance exemptions. You know, one of the things that really concerns us is we are going to have products eliminated here in this country that they can use in other countries. If the intent here is to provide a safer product for human consumption, then how do we deal with the fact that if you use a product, then all of a sudden the consumption continues the same but production from outside our country increases dramatically because we no longer can produce it, is the consumer benefited? No. Only the producer has been destroyed by the fact that he can no longer produce that. Then the consumer is still going to get the same product from somewhere else—use the same product.
The intent is to equal the playing field and protect good, safe products for all of us. That's all dimensions to the problem. Then the methodologies to incorporate cumulative exposure. Those are the areas that we're concerned about.
I think when you look at my written comments, you will see that we have outlined those areas. But we have to find a way to make it more workable and more beneficial, that protects the consumer and at the same time allows the producers to remain in business.
Mr. POMBO. I agree with you on that. Especially from California where the international market and international trade is a big part of the future of agriculture, and it's important.
But what I have concerns about is something you just mentioned. When we adopt a regulatory environment in this country which drives the cost of production up, whether it's through FQPA, PSA, wetland legislation, what have you, it drives up our cost of production. At the same time, if we are knocking down tariffs between us and other countries, what message does that send to our food manufacturers when the cost of production is lower in another country because of our regulatory environment, and we knock down those tariffs? I mean, their boats are coming into our country. Does that not concern you as well?
Page 20 PREV PAGE TOP OF DOC
Mr. PAULI. Well, I think it's a simple issue. Are we going to, as a public policy, drive our processors offshore to secure their source of raw agricultural products? Or are we going to try to find ways to keep our producers in business, not only to benefit the economy and the jobs locally, but ultimately to benefit the consumer? And we think we're going to reverse effects.
We are driving the processors offshore where the regulations are not as effective or stringent. And at the same time we are putting people out of business here in our own processing facilities and causing problems related to land use when we're trying to preserve and protect agricultural land. And you're driving us out of production.
Mr. POMBO. So it's a much bigger issue than any of the individual regulatory regimes that farmers have to face, whether it's crop-protection methods or protection of habitat or protection of wetlands. If you take those individually, you can debate those individually. But as you look at them as a whole, it's a much bigger issue than just those specifics. Because now we are talking about the viability of agriculture in California in the future.
Mr. PAULI. I think, Mr. Chairman, one of the things that if you look at the whole picture—whether it's FQPA, whether it's labor, or whether it's issues related to water and water supply—you know, on one hand we talk about the need for water in agriculture in order to be effective producers and at a low cost. And yet as you take away our water supply, it makes it pretty difficult for us to produce, while at the same time we're talking about how we can protect and preserve agricultural land and keep it in production. And it's pretty hard to have a Government program that on one hand wants to protect and preserve that land, while on the other hand, it is taking away our water.
So we need to take a look at some of these issues in the whole, not just in very narrow or focused issues. And it's easy to focus on FQPA and pesticide reduction without looking at the whole magnitude of these issues.
Page 21 PREV PAGE TOP OF DOC
Mr. POMBO. I have a specific question I wanted to ask you, Ms. Arellano.
I have heard that—or at least through the rumor mill—that California would not be granted a section 18 for Malathion and that restricted use will only be used upon notification to the EPA of a Medfly outbreak. Can you share with the committee any knowledge you have of that?
Ms. ARELLANO Unfortunately, I do not have knowledge on that particular topic. However, I can find out what I can and report back to your committee as soon as possible.
Mr. POMBO. If you could enter that into the record, I would appreciate it. Because that is obviously a major concern of a number of our producers right now.
Ms. ARELLANO. I will do that, Mr. Chairman.
Mr. PETERSON. Thank you, Mr. Chairman.
Mr. Pauli, I was looking at your testimony on crop insurance. And we have a lot of experience with that. And you obviously have some problems that are a little bit different than ours. The fact that you have got—I think it was written in your testimony. Gary Condit brought up the fact that you have 300 crops, and only 30 of them are covered. You are talking about using pilot programs to try to establish those crops.
I would just caution you in that regard. Because I have passed, I think, three or four pilot programs since I have been in Congress to try to address problems that I have in my district. And they have either been ignored, or if they have been implemented, they basically go back to the same old system that they have been working under. So they don't work.
I just want to use this forum to, maybe, point out some—or to, maybe, advocate my point of view.
I really think that we need to try to tinker with this program and try to make it as workable as we can for this growing season. But I have come to the conclusion that to try to fix this system is like trying to fix the IRS or the Internal Revenue Code. So we need to, in my opinion, get rid of the whole thing. Go back to square one and come up with a blank slate and move forward.
Page 22 PREV PAGE TOP OF DOC
In your testimony you are talking about that the people that actually need the insurance, they can't buy enough coverage. And if they can, it costs too much. We have the same problem. With this actuarial soundness requirement that's put on the Department, that's what gets us into this problem. So I think we need—my own view, after looking at this, we need less Government regulation in this program or—rather than more.
In your testimony you said you want to reimburse companies for development of new products. The more I look at this, I think the Government's in the way. And we need to figure out a way to put more competition into crop insurance. And rather than subsidizing the bottom end, rather than subsidizing the insurers and subsidizing certain products, we maybe need to look at opening this system up so people can develop the products and then bringing the Government's help in from the other direction through reinsurance or in some other way where we are not controlling what the company—or what the product is.
But we're recognizing that this is something that is probably not going to be able to be done in the private sector. And we in the Midwest would very much like to work with you in California in coming up with a consensus on how we can change this system so that it works for producers.
What we need—and I think it is probably similar to what you need—we need to be able to buy coverage for our risk. If you have got $200,000 in the ground, you need to be able to buy $200,000 worth of coverage. You need to be able to buy it at a price that makes sense within your operation. That's what we need. And I think we have got to get rid of this crop-by-crop mentality and get to a system where we can buy that coverage.
And maybe what we should do, I think, is insure within our operation. So that if you lose that one crop, but you made some money on the others, you still can make a profit. Maybe the Government shouldn't cover it at that point. It should only come in when you actually drop below the $200,000 that you have got into your operation.
Page 23 PREV PAGE TOP OF DOC
I just think we have to take a whole other look at the way we do crop insurance. And we need California in the system. We need all of your crops covered, all of your producers covered, as well as the other parts of the country if we are going to make this work.
So I guess my message to you is that we very much want to work with you on this, and that we need to come to some conclusion that we all agree on.
And I guess I would just like your thoughts on whether you think we ought to try to gerryrig this current system or whether we ought to take a look at a less-regulated, more market-oriented type of program.
Mr. PAULI. Thank you, Congressman.
You know, a couple of things occurred to me, and you commented in your opening statement about the fact that producers in your State who were much more inclined a couple of years ago to support free-market, open-market kind of farm programs, Freedom to Farm Act. And we were there too. But now it seems we sort of changed their mind. I think maybe as we have the discussion on insurance, we need to kind of go back and reflect on that a little bit.
One of the things that is clear to me is so many of our agricultural products—whether we're here in California, north or south, whether we're in oranges or hogs or beef or whether we are somewhere in the Southeast or somewhere up in your part of the country—agriculture as a whole has gone through a very difficult time in the last 3 to 5 years. That's reflected in some of our changing attitudes when you talk about price supports, loan support programs, or crop insurance. And, as you mentioned, when your back's against the wall, programs that, maybe, philosophically you are not very supportive of, look pretty darn good.
And that's what kind of complicates it today. We used to always think of a disaster abatement program as one kind of insurance program. Then we start looking at crop insurance because the length of the disaster tends to be longer because of markets, because of sanctions, because of Government interference, because of interest rates or oil prices or different things that we can no longer directly relate to. And so we started to mix those. And now we reflect on income insurance because the banks have sort of started to say we had better have insurance because we can't predict what the Government programs are going to be related to, all the sanctions or some of the things—or what the CalFed might be related to the water. So you had better have insurance.
Page 24 PREV PAGE TOP OF DOC
A lot of this is being driven by Government regulations and the uncertainties created by Government. That's a big part of the whole issue. And so then, ultimately, as producers with our back to the wall, you are faced with choices, which on one hand we prefer not to take but, on the other hand, are the only alternatives we have. And I know it's a real quagmire as we try to determine for all of our various commodities up and down the State—the 250- to 300-plus commodities—and what's fair and equitable to them.
How do they pay in a fair way their fair share, so that when their disaster comes, they can participate. I mean, you know—and you take a look. Who are the commodities who are least likely to want to participate? Those that are seemingly less impacted by regulations and are currently in an up-cycle in the marketplace, or those who have been in the down market for 3, 4, 5 years, and under tremendous Government regulations and pressure are much more inclined to try to find a way. Yet they don't have any money. And yet the bankers tell them, ''Look, if you want to go one more year, you had better find one of your congressmen to carry a piece of legislation to be dang sure you're going to be covered in the event there's a disaster.'' And it's a real quagmire for all of production agriculture all over the country, as well as California.
Mr. PETERSON. I wish we had a better solution.
Mr. PAULI. Less Government regulations would be the first place to start.
Mr. PETERSON. Including, I think, your group would go into and sit down and try to put a new one together to get less—more marketplace and less Government.
Mr. PAULI. Well, I think on a philosophical basis, absolutely. We recognize the inequities and the inefficiencies and how the insurance itself won't carry itself. I mean, from that standpoint, it's fine.
But I know you are going to hear from some other people this afternoon or later this morning related to the freeze damage with the citrus. You know, our members that are citrus producers and the members that are here today and the producers that are here today to talk about that, their backs' against the wall. And they look around the country and they see what's been done, disaster programs in other parts of the country that ought to be treated equitably and fairly as it relates to their disaster. This is a disaster kind of situation. When you start extending that to crop insurance—income-balancing, all-risk kind of insurance programs have been talked about, then it gets difficult. And we certainly don't have an answer.
Page 25 PREV PAGE TOP OF DOC
Thank you.
Mr. PETERSON. Thank you.
Mr. POMBO. Thank you. We thank the first panel for your testimony. If there are any other further questions, we will submit them to you in writing. And if you could answer those for the committee, it would be appreciated.
So I will excuse the first panel. Thank you very much.
Mr. POMBO. I would like to call up the second panel: Mr. Jerry Hemsted, Mrs. Florence Cubiburu, and Mr. Brad Nelson.
Thank you.
You have heard, your entire written statement will be included in the record. And any oral testimony, I request that you limit that to 5 minutes, if possible. I am going to start over here with Ms. Cubiburu.
STATEMENT OF FLORENCE CUBIBURU, CALIFORNIA WOOL GROWERS ASSOCIATION
Ms. CUBIBURU. Mr. Chairman and Congressman Peterson, I would like to thank you for holding these hearings in the district that the chairman and I both call home. I am Florence Cubiburu, the president of the California Wool Growers, active member of ASI, and long-time sheep and cattle producer. I have been involved in the producing, feeding, and marketing lamb and wool my entire life. Our family operation has survived the loss of the National Wool Act, adverse weather, poor markets, and other challenges that come with choosing a life in production agriculture.
However, there are several policy decisions that I would like to discuss with you today that we, as producers, are unable to control through better production practices or more effective marketing. These are issues that require your attention, help, and action. These factors have created volatility in our lamb market that is threatening the continued existence of the sheep industry in California and the rest of the Nation.
Page 26 PREV PAGE TOP OF DOC
Our efforts to attain profitability since 1993 have been drowned in a flood of imported lamb meat from Australia and New Zealand. In March 1997, feeder lamb prices were $1.22 per pound. By December 1998, prices had plummeted 41 percent to 72 cents per pound. Prices for slaughter lambs declined from $1.02 per pound in February 1997 to 61 cents per pound in December 1998. That is a 40.1 percent decrease.
During the Easter-Passover time period last year, we witnessed unprecedented market volatility with our lambs selling for 60 cents a pound. And this year is no better. Slaughter lambs this month have been trading for 65 cents a pound.
Imported lamb meat from New Zealand and Australia, fluctuation in foreign currency, uncertainty and instability in international markets, and protectionist policies of foreign governments have become realities that are adversely impacting our markets.
We need to go back to 1993, to the beginning of the Wool Act phaseout. At that time approximately 56 million pounds of imported lamb meat entered the domestic market. By 1997 the amount had risen by 49 percent to 85 million pounds. It's even risen higher since then. Imports have taken market share from domestic producers. In short, the United States has become the relief valve for excess lamb production from other countries.
The U.S. market is also attractive because we do not have absolute quotas on lamb meat like the European Union. They can sell an unlimited amount of lamb in the American market. Last September the industry united key members of all segments of the lamb industry—from producers to feeders to packers and processors—in addressing the flood of cheap import product. On September 30, 1998, we filed a section 201 trade action with the U.S. International Trade Commission. On February 9 the Commission voted unanimously that imports from Australia and New Zealand are causing a serious threat to the domestic lamb industry. Last Friday, March 26, the U.S. International Trade Commission announced their recommendation for trade remedy. Once again, their findings were unanimous. They will be recommending that trade restrictions be placed on imported lamb meat over the next four years.
Page 27 PREV PAGE TOP OF DOC
Mr. Chairman, we ask for your full support as the ITC recommendations are forwarded to the President. The President will have 60 days to decide on the implementation of trade remedies. Mr. Chairman, we need you to commit to seek implementation of the strongest relief possible and ask for the committee's active support in securing and implementing the most effective trade remedies available under the law.
The wool market continues in a deep depression, with only one half of last year's United States wool clip remaining unsold due to devastatingly low prices. Burlington Industries, the largest purchaser of U.S. wool, recently announced that the company is restructuring with the closure of seven plants and layoffs of nearly 3,000 American workers. They attribute their decision to restructure on foreign currency devaluation and the surge of Asian textile imports. The industry, last November, requested USDA make recourse loans available for wool under the disaster legislation authorizing recourse loans for fiber. The USDA has yet to respond.
Lamb pelts were another key element in determining the price of lamb meat for producers, feeders, and processors. Pelt prices are dependent on our ability to export pelts. However, that market collapsed this fall, due primarily to the Russian economic situation. Pelts that brought $14 in August 1998 are now being salted, dried, and stored, and even discarded to landfills. The pelt credit has simply disappeared. Pelts are included under the GSM credit program, but the industry has no response to this program.
We also urge the committee to press forward with reporting measures to bring equity between the United States and foreign interests for market-price discovery. It is clear that mandatory price reporting is the only avenue left to have imported lamb prices reported similar to the reports made available weekly on domestic lamb.
We also urge Congress to actively pursue country-of-origin labeling requirements. We also ask the committee and the USDA to seek recourse to the deceptive practices of USDA grading foreign lamb. The USDA practice of quality grading imported carcasses leads customers to easily arrive at the conclusion that graded lamb is synonymous with domestic lamb.
Page 28 PREV PAGE TOP OF DOC
We also ask that you support forthcoming legislation and administrative actions that will get the National Sheep Improvement Center monies working for the industry.
There are other important issues that I have addressed in my submitted written testimony that are also important to our industry.
Mr. Chairman and committee members, thank you again for visiting this, my home district. And your attentive interest in the challenges facing our industry is greatly appreciated.
Mr. POMBO. Thank you.
Mr. Nelson.
STATEMENT OF BRAD NELSON, BOARD MEMBER, CALIFORNIA POULTRY INDUSTRY FEDERATION
Mr. NELSON. Good morning. My name is Brad Nelson, and I am the live production manager for Foster Farms Turkey Division and a board member of the California Poultry Industry Federation. Foster Farms is the largest poultry company in the Western United States and the largest member in the California Poultry Industry Federation.
Today I would like to talk with you about four important issues and our concerns about them. The first one is antibiotic resistance. Questions have arisen again about whether using antibiotics in poultry and livestock production increases antimicrobial resistance among certain human pathogens. This is not an issue of antibiotic residue being in the meat. Critics claim over-reliance on antibiotics on the farm causes pathogens, such as salmonella and campylobacter to become resistant. A case for such a claim has not yet been proven. However, public debate and media reports have resulted in consumer activist groups calling for a complete farm ban on the use of antibiotics that are also used in human medicine. We urge you to consider five key points regarding this issue:
Page 29 PREV PAGE TOP OF DOC
(1) Antibiotics are important in poultry production. They are used to treat diseases that appear in the flocks and to prevent diseases from emerging.
(2) Poultry companies are committed to the safe, judicious use of antibiotics on the farm and would not take any deliberate action that would diminish the effectiveness of antibiotics in human medicine.
(3) Any effort at this time to change the approval process for antibiotics would be premature and might actually increase resistance.
(4) The poultry industry has serious concerns about any change in the approval process at this time because the CVM does not have any scientific data necessary to make such a change.
(5) The poultry industry strongly recommends that CVM first conduct a comprehensive, qualitative assessment of the real risks associated with on-farm antibiotic use. The results will determine what changes in the approval process are needed and ensure that regulatory action diminishes, rather than inadvertently increases resistance.
The second item is environmental regulation. The Federal Government has embarked on a major effort to regulate non-point-source pollution that may be attributable, in part, to poultry and livestock production. This is outlined in the EPA/USDA unified national strategy for animal feeding operations.
At the same time, our industry recently presented the poultry environment with a dialog report. This report, which involved EPA, USDA, all segments of the poultry industry, including the California Poultry Industry Federation, State regulators, and other stakeholders, makes way for a voluntary framework to improve water quality. It has the potential to be much more positive as it addresses each State's own important issues concerning nutrient management plans.
Please consider the following points about environmental regulations in poultry: The poultry industry is committed to sound environmental stewardship and is taking proactive steps to further enhance water quality in regions where we produce and process poultry.
Page 30 PREV PAGE TOP OF DOC
Second, the poultry industry is concerned that the unified strategy could prove more costly than anticipated while yielding relatively minor environmental gains.
And finally, the California poultry industry strongly recommends Congress approve no new environmental legislation until the results of implementing the Poultry Dialog and State guidelines, like California's own Nutrient Management Plan, and/or environmental guidelines from national poultry organizations have been evaluated.
The third issue is HACCP implementation. FSIS in January 1998 began implementing the new Hazard Analysis Critical Control Points inspection system, known as HACCP. Several problems arose that were examined by Representative Pombo and his committee in May of that year. We appreciate the improvements that resulted from the outcome of that meeting, but we still feel there are some unresolved issues.
By FSIS's own recent admission, the agency is falling behind in its effort to remove old layers of the old inspection system. The agency should be able to provide a timetable for removing the unnecessary layers by January of 2000.
No. 2, FSIS inspectors still are resisting HACCP.
No. 3, the agency still in not fast-tracking new inspection technologies. They are requiring extensive testing protocols for new technologies in the plants.
Again, I want to thank Congressman Pombo and his committee for the outstanding May 1998 hearing and for getting the agency to commit to HACCP implementation improvements. Many improvements in the second phase of implementation are attributed to those efforts.
The final thing I wanted to talk about was about user fees for meat and poultry and egg inspection. We know of no other consumer, producers, or labor industry organization or any other public policy group which supports imposing a food tax for meat, poultry, and egg inspection. We urge you to oppose the administration's request to assess user fees, either in whole or in part, for federally-mandated meat, poultry, or egg inspection.
Page 31 PREV PAGE TOP OF DOC
Thank you very much for allowing us to present this information to you today.
Mr. POMBO. Thank you.
Mr. Hemsted.
STATEMENT OF JERRY HEMSTED, PRESIDENT, CALIFORNIA CATTLEMEN'S ASSOCIATION
Mr. HEMSTED. Chairman Pombo, Mr. Peterson, we thank you for the chance to give testimony today.
California Cattlemen's Association has been in effect since 1917. I am a producer from Red Bluff, CA, and a fourth-generation Californian in the livestock beef cattle industry. Our comments today will focus on some of the most onerous problems that we in the livestock industry face.
I'm sure it will be no surprise our first one is the Endangered Species Act. We think that it needs to be remanaged to where we get sound science, basic science, and third-party peer review on listings. Currently, one individual with anecdotal information can start and complete the listing process for a new species. Additionally—additionally, delisting a species is almost impossible, even if the species was erroneously listed in the first place.
Second, Government actions after a species is listed most often diminishes the productive value of the land and leaves the landowner struggling to make a living.
The current act does not give protection to landowners who wish to enter into a safe-harbor agreement. If the landowner wishes to comply with such a voluntary agreement when a defendant—when a defendant in an Endangered Species Act legal wins a decision, court costs and attorney fees should be paid for by the plaintiff. Currently, if the plaintiff is successful, their costs are reimbursed by the Government, and they can initiate another lawsuit against a landowner, frivolous or not. If this is not feasible, then no reimbursement for either party should be the norm.
Page 32 PREV PAGE TOP OF DOC
Currently, we're working with the EPA in developing an animal feeding operation strategy. Our members have participated with the EPA in feedlot tours throughout the State and are committed to protecting the quality of water in California. However, conditions vary between facilities based upon species, climate, geography, geology, sources, and locations of the potential water rights. We encourage a simple, streamlined process that assists owners in developing and gaining approval for site-specific plans. We also request that funding for sound, responsive, and technical assistance. We would encourage the committee to work with the livestock industry and the EPA to arrive at a solution that is workable for all involved.
The third thing, death taxes. Death taxes are a terrible thing. Our members work for generations to build ranches, and they can be destroyed in one fell swoop by an individual passing away. Death taxes are to nobody's benefit. Even the environmental community are starting to realize that when a ranch has to pay its inheritance taxes for property, they have to be sold off in pieces to pay that inheritance tax. And we wind up with development taking over a lot of viable ranch and farming ground. The California Cattlemen's urges your support in eliminating this unfair and unnecessary tax.
Private property rights. Taking of private property continues to be of huge concern to our members. We would urge congressional action that would require Federal agencies to prepare takings impact analyses that are fair to the landowners and mandates alternatives be identified that would avoid or minimize the taking of private lands. We also support easier access to court for landowners disputing agency actions and on private—on the taking of private lands.
Foreign trade. The continuation of the USDA's Market Access Program is paramount to our industry. As the global market increases, U.S. producers need assistance in opening up markets overseas that might otherwise try and prevent our products from entering their country. The European Union ban on our beef products needs to be stopped. If the EU does not comply by the May 13, 1999, deadline, the California Cattlemen's Association requests Congress to take strong action, including retaliation. We have negotiated with the EU for a long time, and our producers' confidence in free and fair trade will erode quickly if this is not resolved.
Page 33 PREV PAGE TOP OF DOC
As mentioned earlier, there are many ideas on country-of-origin labeling for products entering our country. Our membership has voted to support the labeling of imported products. We believe our membership would like to see labeling at the retail level on imported whole muscle cuts and processed meat products. We are concerned, though, about the cost and the ability to identify and verify products that contain imported and domestic product. Research and evaluation of the process on mixed products should be conducted quickly so that the industry can assess the cost and the benefits associated with labeling mixed domestic and foreign products.
The farm policy. The California Cattlemen's believe that legislation is needed for QUALTO inspection of products where State processing facilities can ship interstate meat products so that they can—so that we can cut down and increase the competition for the concentration that has happened in the packing industry.
Right now New Zealand, Australia, and South America ships meat into the United States under QUALTO consideration. We in California cannot ship State-inspected products to another State in the United States. There is something a little wrong with that. Of the food-borne outbreaks in the United States, none have originated from a State facility. They have all been from the concentrated packing industry. So we feel this is a real necessity in increasing competition to the large packing considerations.
We would also like to see the Packers and Stockyards Administration create a dealers trust for the protection of the small cow and calf producers against a commission dealer going over the hill with his funds for—of the sale of his cattle to a third party. We have tried this before, and it has failed because of some other interest. But we still feel that it is viable.
Thank you very much for your time. We appreciate presenting our information to you.
Mr. POMBO. Thank you. Thank all of you for your testimony.
Page 34 PREV PAGE TOP OF DOC
Ms. Cubiburu, can you tell me what the projection is for the California sheep production in the next 7 years if effective trade relief is implemented?
Ms. CUBIBURU. We believe, Congressman, that if, in fact, trade relief is implemented, that we will be able to begin strengthening the infrastructure that has eroded so devastatingly since these imports started to flood the country and flood, particularly, California.
I believe that we could, with good conscience, encourage the young people that we are now not encouraging to come into the business. Just because the future looks so dim with the prices the way that they are, I think if we got effective trade relief, that we could encourage these young people to come on the family farm or even the people that—maybe their parents weren't involved in sheep production, but they're interested in it. So I think that the fact of trade relief is just critical for us, and I am optimistic that if we got it, we would see sheep numbers begin to increase. And it would be a snowball effect for the infrastructure would also become much stronger.
Mr. POMBO. Just to followup on that. If you lose the infrastructure for sheep production in California—quite frankly, throughout the country—how difficult is it going to be to rebuild all of that?
Ms. CUBIBURU. You know, I don't think it's going to be easy. But I'm encouraged—as you are well aware, we have the Sheep Improvement Center. There are dollars that will be available, if they ever come forthwith, that could be used.
Presently in California we're in a voting period. We are voting on a State Sheep Commission checkoff. And I feel confident that that will pass, and that will be a good tool for strengthening the infrastructure again.
Mr. POMBO. Recently, California passed an initiative that dealt with predator control. How pervasive a problem is predators within the sheep industry in California today?
Page 35 PREV PAGE TOP OF DOC
Ms. CUBIBURU. It's a terrible problem. And it's practically wiped out sheep numbers totally in counties like Humbolt; Mendocino. It's a little more manageable here in the San Joaquin Valley, but there are parts of California that virtually don't have sheep any longer because of the predator situation. And now with this new law the tools are totally taken away from us.
Mr. POMBO. What percentage of production is lost to predators, currently?
Ms. CUBIBURU. Congressman, I really don't have accurate numbers on that. I probably—I would venture to guess that it's probably about 10 to 15 percent.
Mr. POMBO. I am very interested in what the impact on the sheep industry currently is going to be once you have lost the ability to control predators. If you could answer for the record—give us an idea of what current losses are and what probable losses are going to be once you have lost the ability to control predators, I would be very interested in that. At future hearings that we will have, I am sure this issue will come up all over the State.
Ms. CUBIBURU. OK. I'll get that information to your committee.
Mr. POMBO. Thank you.
Mr. POMBO. Mr. Nelson, we hear concerns that the EPA-USDA unified strategy for animal feeding operations would prove more costly than beneficial. Do you share that concern?
Mr. NELSON. I certainly do. Right now with the poultry company under the Poultry Dialog and California's own Nutrient Management coming in, we are striving for the same goal, and that is clean water. And controlling of a Federal-regulated program is just going to be doubling up of the same goals.
Page 36 PREV PAGE TOP OF DOC
Mr. POMBO. There seems to be a lot of concern about permitting under the strategy, but the EPA estimates that only 5 percent of all animal feeding operations need to be permitted as concentrated animal feeding operations. Do you agree with that assessment?
Mr. NELSON. The numbers that they use are just looking at animal unit sizes and saying that they are just branches of this site will be no more pertinent. But also in the regulations it talks about—they said in certain water situations, and the majority of facilities do have water runoff. So it really does influence a much larger population—in bringing our operations and many more family farms.
Mr. POMBO. Recently, it's been proposed that States identify their specific watersheds for at-risk watersheds and that any confined animal feeding operations located within those watersheds would be required to get a permit if you just follow along with what they're proposing. One of the interesting things to me is that if you look at identifying watersheds within the State of California, you have everything between the coastal range and the Sierras identified as a watershed. Would that take in a considerable amount of animal feeding operations in your industry?
Mr. NELSON. Yes. That is the part of the regulations that involves so many more feedlot operations.
Mr. POMBO. So even a relatively small family-run operation would still fall within the regulations because of this new way of looking at the entire watershed?
Mr. NELSON. That is correct.
Mr. POMBO. Mr. Hemsted, one of the things that you bring out in your written and oral testimony is the regulatory environment the modern-day cattle operation operates under. Whether that is the environmental regulation under the auspices of Endangered Species, Clean Water Act, and now we're dealing with Clean Air Act, regulations of feedlots, all of this combined, how effective is that in pushing up your cost of production—in production of cattle operations today?
Page 37 PREV PAGE TOP OF DOC
Mr. HEMSTED. Well, as an example, today—our markets have been kind of in the tank for the last couple of years. But in today's market, we could be making money if it wasn't for the Government regulations that we're having to incorporate to operate our feedlot businesses.
Mr. POMBO. So you believe that the Government-mandated regulatory environment is putting the cattlemen, at least in California, in a position of losing money?
Mr. HEMSTED. Definitely.
Mr. POMBO. What happens if we have a sustained period of time where it is not profitable in rangeland—in cattle operations? What happens to the cattle operations?
Mr. HEMSTED. Well, you lose the family farmer. Today about 85 percent of our producers nationwide have been on their ranches for more than two generations. And you will lose the family farmer—the farm-rancher family. It will be corporate agriculture.
Mr. POMBO. We have already heard that the sheep growers—that you're obviously not going to switch over and raise lamb. What do you do with your ranch?
Mr. HEMSTED. You make it a real estate subdivision. The view line in California will change in the upland areas because they will be guest homes and dude ranches and that sort of thing. So these people can still maintain a certain amount of their land, but it will be used for the next 15 million people coming into California, as projected, by the year 2020.
Mr. POMBO. One of my major concerns with the viability of agriculture in California is that our regulatory environment makes it impossible for people to do business in California and throughout the United States. It's as a result of that we force more and more production and more and more food production offshore. And I don't know what the future of agriculture is if we make it so attractive for our food manufacturers to go offshore. And what happens to all of this open space in agriculture that people in the cities love so much if we regulate you out of business?
Page 38 PREV PAGE TOP OF DOC
Mr. HEMSTED. Well, two things are going to happen. Because South America is sitting there, as you probably know, with lots of cattle they have available to come into our market. That's why we have stressed that the North American Free Trade Agreement has still lots of loopholes in it and lots of problems. We need to fix those problems before we go into a lot of South American countries—into NAFTA, number one.
Number two is what the Farm Bureau said earlier. Let's get our grade stamp that says ''USDA,'' not ''Canada DA'' or ''New Zealand DA.'' It's the United States Department of Agriculture grade stamp. Sure, it has to be inspected for its wholesomeness and its health requirements. USDA inspected does not mean USDA choice steer.
Mr. POMBO. Well, thank you very much for your testimony.
Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman.
I am somewhat familiar with the Montana sheep industry, and we have got a little bit in my district. Is your industry similar to running on pasture and run the sheep up in the mountains in the summertime like they do in Montana?
Ms. CUBIBURU. Yes, more or less.
Mr. PETERSON. And the predators, let's talk about—were they coyotes, mostly?
Ms. CUBIBURU. Mostly coyotes.
Mr. PETERSON. And the animal damage people are not allowed to—like in Montana, they go out in planes—fly around and shoot them.
Ms. CUBIBURU. Welcome to California.
Mr. PETERSON. Although, I hear, ''I like that.''
Ms. CUBIBURU. We're not allowed to shoot them.
Mr. PETERSON. The State stopped this?
Page 39 PREV PAGE TOP OF DOC
Ms. CUBIBURU. Yes.
Mr. PETERSON. Well, we have something—we're learning a little bit about that. We finally got the timber wolf delisted. Finally, to the point where they are going to allow us to delist the wolf because we have got about three times as many as we need. And they are eating a lot of sheep, by the way, and calves and whatever else.
But now the legislature—this just shows you how political this stuff is. This Native Species Act is supposed to be based on science and all this. This guy named Ed Meece, has been the defender of the timber wolves and has been the researcher that has done all the work. At one time he was kind of on the other side of this issue. Now he says that all we need is 1,600 wolves. And if we get any more than that, they are going to come over into the farm country and start eating everything.
They set up this commission where they put the Sierra Club and all these people out there. They have now determined we need to have 5,000 wolves instead of 1,600 before we can start shooting them. We have a fight in the legislature right now about whether we are going to be able to hunt or trap the additional wolves. One house has said we can, and the other house said we can't. And we're kind of where the Governor will probably decide—maybe he'll go wrestle the wolves down.
Anyway, it's political, a lot of this stuff, and it really doesn't have anything to do with science. People live in the city. They don't have to deal with this stuff, and they like the idea of wolves running around and whatever. It's a big problem.
Lastly, I was not in favor of eliminating the Wool Act. I was one of those that thought it was going to be a big problem, and it has been. I have people come in and talk to me. New Zealand people, for example, say that we no longer can provide a consistent supply of fresh lamb meat year-round. And so one of their arguments is that we—that if we don't allow them to bring in their fresh lamb, we're going to lose customers because they won't be able to buy it on the shelves 12 months out of the year. I have had some grocery store people and marketing people tell me the same thing. I suppose this is kind of a Catch-22.
Page 40 PREV PAGE TOP OF DOC
And what happened was, when you lost the wool and mohair program, it forced a lot of people out of business. So, my question is: Is that true? The State that we are in right now, are there times of the year where there might be part of the country where they can't get fresh lamb on the shelves? Do you know?
Ms. CUBIBURU. Speaking for myself personally, not for the California Wool Growers, because that's a sensitive issue. And there are producers that absolutely do not want to see foreign lamb come in here.
Mr. PETERSON. I understand that.
Ms. CUBIBURU. However, I do agree with that statement. That because of the decline in sheep numbers since—particularly since the loss of the Wool Act—and thank you for your support, incidently. We need to have some imports come in here. Because we don't want to lose the people that have started to consume the product. However, there is a difference between allowing some and being inundated by it. Iin the corner where we are definitely inundated by it.
And we have our own processors that are also importers. So, it's getting to be a problem that is quite devastating to our industry.
Mr. PETERSON. Well, yes. The only good news is that New Zealand doesn't have any more grass. We were over there. They were switching some of the sheep land to dairies, which is causing quite a problem. So, the biggest problem is they have got all this grass, and they can produce stuff pretty darn cheap.
With the free trade agreements that we have entered into—which, by the way, I did not support. And NAFTA has got a lot more problems than just South America. But the only good news is, I think there's a limited amount of product that can come in from there because they don't have any more grassland that they can put any more sheep on. So, at some point or another, they're limited in the amount that they can export, which doesn't do us a lot of good right now, but maybe in the long term.
Page 41 PREV PAGE TOP OF DOC
I would like to see you do something to stabilize your industry. It's a real tragedy that—to basically make a decision that give our industry away to foreign countries, which is basically what we did when we got rid of the Wool and Mohair Act.
Thank you all for your testimony.
Mr. POMBO. Thank you for your testimony. We will excuse the panel. I don't want anybody to leave. We're going to take just a 2-minute break, and we will reconvene the hearing.
[Recess.]
Mr. POMBO. We are going to call the hearing back to order. We have our third panel up here.
We have Mr. Geoffrey Vanden Heuvel, Mr. Paul Rollin, Mr. Ray Souza, Mr. John Jeter, and Mr. Lopes. I want to thank you for joining us here for our third panel.
Let's start with Mr. Vanden Heuvel.
STATEMENT OF GEOFFREY VANDEN HEUVEL, DIRECTOR, MILK PRODUCERS COUNCIL
Mr. VANDEN HEUVEL. Thank you, Mr. Chairman. And Mr. Peterson, welcome to California. We are very happy that you are in California to talk about dairy policy.
The year 1999 is shaping up to be a critical year for dairy policy. And there are two fundamental programs that have supported the dairy industry for decades. And that's the Support Purchase Program and the Federal Milk Marketing Order Program. And both of them have served the industry very well. California has a State order, but we depend for our success on the success of the Federal order program. And we are very concerned about what we see as some real threats to the Federal order program that are coming up in 1999. And we want to highlight a few of those threats that we see to the order program.
Page 42 PREV PAGE TOP OF DOC
The order program actually exists to maintain a balance of power between producers as sellers and processors as buyers. And this balance of marketing power has allowed producers to be successful in marking our product.
When we look at what's ahead for the Federal Milk Marketing Order Program, we see the USDA coming out in the next week or two with Federal order reform. And we are concerned about all the talk about legislating differentials and what we see as a real desire to actually supersede the rush to judgment on orders before we really even know what USDA has come up with in these orders. And we are concerned about the long-term viability of the program. Because our history in the past has been that when we began to use either the support program or the order program for something different than what they were intended to do, that we have ended up in trouble.
And so we're concerned about this 1-A versus 1-B discussion that was taking place in Congress. And we want to urge your committee that when order reform comes out in the next week or two that you urge the industry to do thorough analysis. And we need to have some serious policy discussions about the implications of those orders before we rush into positions and politicizing that order. We are very concerned that if it gets overly politicized too early, we risk losing the whole program.
The second thing that concerns us is this compact fever that's sweeping Congress and sweeping the United States. It's very difficult for us. We support producers, and we don't want to make this thing get into regional battles. And we understand some of the concerns, particularly in the Southeast, of producers about income. But we see compacts as having some problems, and we think that if we're not careful, compacts could undermine the order program. And the order program, as we stated, is so fundamental to the long-term success of the dairy industry.
Another one of these very serious threats to the order program is this proposal by Kraft to suspend the minimum pricing provisions of orders to allow for forward contracting. The minimum price provisions of orders is how you maintain the confidence in the order program because it's that minimum price provision that assures processors of equal raw product costs. And it assures producers of getting the market value for their milk. And, so, we see the Kraft proposal as being undermining to orders. And we see that without the orders, the dairy industry starts looking like what poultry and like what hogs are looking at now where you have reduced marketing strength for producers and much more of, almost, a sharecropper relationship with the powerful buyers. So we're concerned about that forward contracting.
Page 43 PREV PAGE TOP OF DOC
We think that if you're really concerned about the dairy industry, you want this transition to be successful. We're going to do an awful lot to this industry in 1999, from big price movements to implementing new orders. And we think that terminating the support program at the end of the year doesn't give us a chance to get adjusted to the new order. So we think that there's a very good argument that the support program ought to be continued for a while to allow us to adjust to some of these other things.
The final point I would like to make is on water. And there's been a big concern in California about our ability to grow enough alfalfa to support our industry. And I provided the committee with a chart of the increase in alfalfa acreage over the past year or two. And what we have seen is the water situation is no more surer than it was 5 or 6 years ago. But we are seeing a shift in cropping patterns and an increase in alfalfa acreage. And I think that bodes well for the dairy industry, and I wanted to bring that to the committee's attention.
Mr. POMBO. Thank you.
Mr. Rollin.
STATEMENT OF PAUL ROLLIN, CHAIRMAN, ALLIANCE OF WESTERN MILK PRODUCERS
Mr. ROLLIN. Good afternoon, Congressman Pombo, Mr. Peterson. I appreciate the opportunity to present information before the panel today.
I am a dairy farmer and run what we consider a family farm of—with my two sons, one managing the cropping operation, and one manages the dairy facility. I am chairman of the Alliance of Western Milk Producers, and we appreciate the opportunity to be here today concerning the status and the prospects for the California dairy industry. With the limited time available, I would like to discuss what we call dairy's Y2K problem, the DEIP program and international trade.
Page 44 PREV PAGE TOP OF DOC
During the turbulent times surrounding the formulation of the 1996 farm bill, the producer side of the dairy industry agreed to phasing down of the dairy price support program from $10.35 to $9.90 per hundredweight. It was also determined that the support purchase program would be replaced on January 1, 2000 with a recourse loan program.
Whether correct or not, the dairy industry believed that we could see more progress made with expansion of export markets and further opening of world markets to U.S. dairy goods. In fact, due to the European Union maneuvering the allowable subsidized export levels of cheese and butter, and actually increasing the level of subsidy on nonfat milk powder, U.S. dairy export opportunities in any significant quantity are fewer today than they were in 1996.
Let me assure you, the California dairy farmer can compete with any commercial milk producer in the world if there are no subsidies of product sales and no competition from State trading companies. The problem is that this is not the world market today. The world price of dairy products is set by EU subsidies and competing State trading companies. Is that a free market? It is not. And is it a fair market? Not at all.
This is what we call dairy's Y2K problem, the end of the support program safety net with no real marketplace alternatives. Cooperative economists estimate that this will cost milk producers $2.7 million a year in revenue because of a $1.74 a hundredweight drop in the price of milk used to manufacturer cheese, butter, and nonfat dry milk. I might add, that those products then form the basis by which fluid milk prices are set. If those prices are lower, it means the fluid milk price gets lower. The whole market comes down to $1.74.
We understand that Congress is beginning to explore solutions to provide all of agriculture with better risk-management tools, including those involving producer revenues. The Alliance, along with the National Milk Producers Federation, has been actively investigating dairy program alternatives as well. It will be a tremendous challenge for Congress to develop agricultural program alternatives and thoroughly evaluate them this year, let alone enact legislation.
Page 45 PREV PAGE TOP OF DOC
All the other commodity programs are phased down over the full term of the 1996 farm bill through the year 2002. Unlike all others, our safety net will be taken away in 277 days. Without a viable alternative, dairy farmers generally, and California producers especially, are facing a financial disaster come January 1, 2000.
That is why the Alliance urges this subcommittee to champion treating dairy farmers like other producers of other commodities who will have their safety net continued through 2002 and do the same with the dairy's safety net. This will give Congress and the industry time to thoroughly explore policy alternatives for the 21st century.
Part of dairy's safety net and a market development tool since before the 1996 farm bill, has been the Dairy Export Incentive Program. The DEIP program has served the industry well. However, it could be of even more use to the industry and to controlling Federal spending if the unused DEIP allocations, totaling some 75,000 metric tons of nonfat dry milk, could be rolled over by the USDA to be reallocated. We need your help in convincing the U.S. trade representative of this. And have it carry forward in future DEIP years. For the past several weeks the Commodity Credit Corporation has been buying 4 to 6 million pounds of nonfat dry milk powder per week at the support price of $1.01 a pound. If that product were DEIPed instead, the Government's cost would be closer to 40 cents.
The Alliance has sent a letter to USDA Secretary Glickman with copies to the subcommittee's chairman, as well as the chairman of the Senate Agriculture Committee. And in the letter we said: Finally, we agree that a rollover of unused export subsidies is legally permissible under WTO. As a member of the Agriculture Trade Advisory Committee has said, and I fully concur, it is time that the United States operates on the same basis as other major agriculture powers, such as the European Union. For the well-being of our negotiating position in the next World Trade Organization round of talks, the United States and USDA need to take an aggressive posture and rollover unused DEIP allocations to the full extent permissible by the law. To do anything else would be detrimental to our position in future trade talks. The Alliance urges members of this subcommittee to urge the USDA to do what Congress directed USDA to do in the 1996 farm bill. Operate the dairy program in the most cost-efficient way possible. Rolling over unused DEIPs will accomplish that.
Page 46 PREV PAGE TOP OF DOC
Finally, we are deeply concerned about the prospects for future world trade negotiations. Recently EU announced that progress was made when its members agreed to reduce dairy supports a total of 15 percent, beginning at the rate of 5 percent a year, starting in the year 2003. That is ridiculous. Under GATT I thought we were going to start reducing subsidies 4 years ago, not 4 years from now.
When Congress takes up the issue of fast track, the Alliance urges this subcommittee to lead to—in an effort to tell our trade negotiators what Congress expects to see in the next World Trade Agreement brought to Congress to be ratified. To reduce import tariffs, and quotas without an end to dairy product export subsidies would be unilateral disarmament on the part of the United States. It would put the burden of balancing the world dairy marketplace on the backs of the American dairy farmers.
Chairman Pombo, members of the subcommittee, the Alliance appreciates your efforts on behalf of the California dairy industry, and we look forward to working with you on the challenges that lie ahead.
Mr. POMBO. Thank you.
Mr. Souza.
STATEMENT OF RAY SOUZA, PRESIDENT, WESTERN UNITED DAIRYMEN
Mr. SOUZA. Good morning, Mr. Pombo, Mr. Peterson.
Thank you for holding this hearing at such a critical time and giving us the opportunity to testify. My name is Ray Souza. I am a dairy producer in Turlock, CA, and am currently the president of Western United Dairymen.
As you know, the industry is going through an unprecedented transition—making milk market order reforms, co-op mergers and realignment, the positioning of the dairy industry in a fair global market, and, of course, environmental issues. Many of these challenges will take time and careful analysis.
Page 47 PREV PAGE TOP OF DOC
We feel a 2-year extension of the current support program is a reasonable and appropriate action. We believe they provide a helpful safety net so that the industry may carefully analyze the changes before us and develop reasonable, responsible solutions. We believe it will respond well to the EU's extension of the current dairy programs through the year 2005. And it would be consistent with the time frame provided to other commodities under the Fair Act of 1996.
Western United Dairymen also supports a continuation of marketing orders. Marketing orders have served the industry well. A responsible but orderly marketing of a constant supply, it has a stabilizing effect on producers. The revised orders are expected to be closely aligned with the California State order. And the Western United Federal Milk Marketing Order Committee has set an April 13 date to review the revised Federal milk marketing orders for recommendation to the Western United board. This committee is made up not only of Western United producers and members, but also of other organizations and/or allied groups.
We also wish to express our extreme concern and opposition to forward contracting. Contracting outside of the pool and minimum pricing poses a serious, if not fatal, threat to the pooling concept. It seriously undermined all the good work invested in Federal order reform. It potentially pits producer against producer and region against region.
Western would also support congressional assistance in fair application of new trade agreements. The EU has extended their current dairy program from 2005 to 2006 and will increase quotas beginning in the year 2000. We look to you for guidance and assistance in providing us, the U.S. dairy industry, with options so that we can meet this challenge. We believe that extending DEIP funding has the greatest potential at leveling the playing field with our competitors. And we, too, support rolling over the DEIP funding.
We would also ask you to strongly discourage—strongly discourage sound science-based technology from being used in the marketplace.
Page 48 PREV PAGE TOP OF DOC
This concludes my testimony. Thank you for this opportunity.
Mr. POMBO. Mr. Jeter.
STATEMENT OF JOHN J. JETER, PRESIDENT AND CEO, HILMAR CHEESE COMPANY, INC.
Mr. JETER. Mr. Chairman and Congressman Peterson, my name is John Jeter, and I am the chief executive officer and president of Hilmar Cheese Company. I'm also an officer and on the executive committee of the Dairy Trade Organization in California and Washington.
Hilmar Cheese Company is a 15-year-old, privately-held cheese and cheese byproducts manufacturer owned by 11 families, all jersey dairymen, who now produce more cheese on one site in a year than any other place in the world. In today's testimony I would like to highlight what I think are three important key questions.
The first one is: Where is the dairy industry today? First we are coming off the best economic year for dairy producers and dairy processors in a long, long time. We have had a good year.
Second, the dairy industry is in the midst of massive consolidation. The number of significant players is shrinking rapidly, and the size of those left is growing, conversely. And this is true for both co-ops and privates. With the decrease in the level of the support program and its elimination at the end of the year, competitive pressures have increased, fueling potential opportunities and challenges. It's a tougher environment ahead, and the trend of consolidation will continue.
We also continue to see milk production move to the West, and particularly California. The West, interestingly enough, is impacted much less by Federal orders, yet continues to grow, while the Midwest and East struggle to find their place in the changing dairy landscape ahead.
Page 49 PREV PAGE TOP OF DOC
The California State milk order has clearly proven to be more responsive, dynamic, and less intrusive than its Federal counterpart. And I think the results have been nothing short of phenomenal to California dairymen and processors.
And lastly, and probably most importantly, in regards to where the dairy industry is today, the dairy industry is at a crossroads. You might say that we have been moving forward toward an industry characterized by less Government intervention and regulation, while looking back over our shoulder wondering if we should go back the other way. We believe that the crossroads we are at is best characterized by the current Federal price regulatory environment and the Federal order reform situation. After, literally, years of work, we will very likely come out with a system that is very much like the current system. It really isn't reform. This result will be liked by those who are less efficient and disliked by the innovative and progressive. It will make those of us in California continue to be thankful that we have chosen not to be in a Federal system greatly impacted by those whose intent is to protect regional areas from valid efficiency and competitive pressures.
So we're at a crossroads regarding: Will we continue the support program or go to another means of income support or insurance like the Dairy Producer Income Support Program? Will we continue using regional compacts an a means of protecting local, regional dairy interests from competitive pressures? Will regulators set prices, or will the market?
I might add that the real issue here is an issue of focus. Will we focus on the customer and invest to meet the new and exciting needs of the next generation of consumers, or will we focus on Government as the answer and invest massive amounts of time and resources to argue about how we will divide up a pie that, in many cases, is getting smaller by the year because of neglect and backward thinking.
An example of this, I think, would be fluid, fresh milk. Typically, much of our energy goes into arguing about how high we can get class 1 prices via regional compacts or other means. And then next we argue about how producers will divide up these extra revenues. As we do this—and look to Government for the answer rather than the customer—per capita fluid milk sales continue to decline. Our efforts should be focused on increasing income through innovation, product development, and efficiency. So we're at a crossroads.
Page 50 PREV PAGE TOP OF DOC
The next question is: What are the potential opportunities for the dairy industry? And we feel that the opportunities are many and varied. Put simply, milk is the most complete food on Earth. And it was designed to be everything for somebody. Its diverse array of components give endless marketing opportunities for those who have the inclination and necessary skills. And I have listed in my testimony many of the opportunities that are ahead of us.
And one that I'll mention is just the export markets. Some export markets are currently available for those who are willing to invest, like whey and whey fractions. Hilmar Cheese currently exports over 75 percent of its production of whey products. Our export business has grown over 25 percent per year in each of the past 3 years, despite challenges from the Asian economies. There are great opportunities internationally for those with commitment and the ability to understand where they fit.
And finally, the last question is: What are the threats or obstacles that will stop us from taking advantage of the opportunities ahead of us? And I think it gets back to the issue of us being at a crossroads. And the crossroads is more Government price regulation and intervention or less. And the threat to all the potential opportunities ahead is a continuation of a dairy policy that had its origins in the 1930's and has encouraged many in the dairy industry to work at half speed, while other segments of the food industry have innovated at warp speed.
We need to continue to make progress towards moving toward the market and the customer as the answer. We would ask you to stay the course. Continue to demand that Government play a less intrusive role in the future dairy industry. Encourage us to go to the marketplace for answers.
Thank you, very much.
Mr. POMBO. Thank you.
Mr. Lopes.
Page 51 PREV PAGE TOP OF DOC
STATEMENT OF LOREN LOPES, CALIFORNIA DAIRY CAMPAIGN
Mr. LOPES. Yes. Thank you, Mr. Chairman and Congressman Peterson.
And I'm representing the California Dairy Campaign, about 350 family-operated dairy farmers in California. And our slogan is, ''Dairymen Working for Dairymen.'' All our members are also members of the National Farmers Union in Washington DC. And we sell our milk to cooperatives, as well as proprietary plants, and even some bargaining co-ops.
Dear committee members, our objective is to provide dairy farmers with some means of handling the extreme volatility in the marketplace. Traditional price programs have been ineffective because they work in opposition to the marketplace. They created an incentive for overproduction and required Government intervention to purchase surplus supplies. This is inefficient and does little more than keep dairy producers a step away from bankruptcy.
The fact remains that in the production of a perishable commodity, which is a vital nutritional component of most Americans' diets, the farmer is at the market disadvantage. He must sell his products every day, and he must sell it close to his dairy. And by force, his dairy is in a remote area. This means that most farmers have less than three buyers to choose from; and in some cases they only have one. Despite the fact that the buyers may be a cooperative of which the farmer is a member, the cooperative is often unable to offer the farmer a better price than what the national market will bear. Because dairy farmers throughout the United States face the same lack of market power, the national market price is not representative of a truly competitive market.
Recognizing the social value of dairy production, the people of the United States have voted to implement a variety of programs to enable dairy producers to remain in business, despite their lack of bargaining power in the marketplace. Some of these programs have worked; others have been less successful. The California Dairy Campaign has put together a comprehensive, market-driven safety net program, which assures farmers of a living wage, evens out the extreme fluctuations in the marketplace, and costs less than any previous programs.
Page 52 PREV PAGE TOP OF DOC
At the heart of the safety net program is a recognition that if consumers are to be assured of the steady availability of dairy products at a stable price, then our dairy farmers must produce enough milk to meet domestic needs at all times. Because cows produce every day and milk is perishable, the dairy farmer must have an accurate understanding of his part in total domestic consumption. In this modern information age where all production data is tabulated at the State and national level, it is sloppy business management or worse to have the near-constant state of overproduction, which the low prices to farmers would indicate.
The trick is to get our Government programs in line with the actual production data and create programs which help producers to meet America's supply needs without overproducing. The California Dairy Campaign proposal would do this through the implementation of a market-oriented safety net program which is tailored to ensuring stable supplies without overproduction.
The safety net program would be based on the national average cost of production. The cost of production would be used as a starting point because of the need of consumers to have a reliable supply of locally produced milk. It is only through having a reliable supply of locally produced milk that the consumer prices stay low and stable. This is illustrated by the areas of the country which have become milk deficient. In all of these areas, the price of milk has fluctuated and gone up despite the claims of the dairy industry that more efficient producers in geographically remote areas will result in lower prices.
By ensuring that producers will get approximately their cost of production, consumers are guaranteed a stable, reasonably priced, locally produced supply of a significant dietary staple. The partnership between the consumer and the producer represents a reasonable social undertaking, providing that the relationship between producer and consumer is market-oriented and fair.
The only way to ensure that a floor price based on cost of production is market-oriented is by linking the floor price directly to the consumer demand. Under the CDC proposal, producers will be assured of a floor price for the production of a volume of milk equal to the national domestic usage. Production above consumer demands will be forced to compete at world market prices. This is, producers will be assured of world price only, not cost of production. This would create a disincentive for producers to produce more than the domestic needs. Supply would be tailored to demand, and prices would remain at more stabile levels. Similarly, without overproduction, it is unlikely that prices would fall below cost of production, and the Government program would not be required.
Page 53 PREV PAGE TOP OF DOC
By making this support program work with the market signals, instead of against market signals, the CDC proposal will save taxpayers millions of dollars and will ensure a living wage to farmers and will preserve stable, local production and will ensure that consumers receive a high-quality, reasonably-priced dairy product.
Also, we do support one national price for manufactured milk. We also do support California entering the Federal milk marketing order. However, there has been some problems with the Federal marketing order this year. And the California system seemed to out-price the Federal order system. So it didn't give us a lot to sell this year.
We also want to expand DEIP as much as we can and roll it over. We also support an extension of the support program—something like 3 percent of the domestic usage. And we support country-of-origin labeling and also investigation of the path of concentration.
And that's my testimony, and I thank you.
Mr. POMBO. I thank you.
I thank all of the panel for your testimony. Obviously, there are a number of different views when it comes to California dairy and the right direction to go. Not having any desire to relive what we went through in the 1995 farm bill and the difficulty that that was to come up with some kind of dairy policy that would work nationally, but I would remind you, the panelists, that I believe we went through probably 35 or 40 different rewrites of national dairy policy.
And as we went through that process and came up with a new way of handling it, someone else would have a problem. And we would try to deal with that problem. And once we did that, it would cause someone else to have a problem. And we rewrote and rewrote and ran the numbers and tried to figure it all out.
We finally got to the floor with that legislation, and someone else came in with a different piece of legislation, one that some of you supported. And that passed. And now that it passed, we're a couple of years into this, and it's not working out so well. And now the threat is that we're going to bring more legislation to the floor to undo what many of you thought we should do before.
Page 54 PREV PAGE TOP OF DOC
Once we open up this door, there's no going back. And whether we end up back with a fully-regulated, Government-mandated dairy system, which some of you may want, or whether we end up with a totally deregulated dairy system, which some of you may want, I can't tell you. Because when this thing hits the floor and we open up that door, I can't tell you where the votes are going to fall down. And I can't tell you what which direction the momentum is going to carry us.
If there is legislation brought to the floor that mandates a 1-A proposal, there will be legislation on the floor that mandates a 1-B-type proposal, and there will be legislation on the floor that mandates total deregulation of dairy. And there are advocates for all those positions. And who ends up with the most votes at the end of the day, I wouldn't even venture to guess at this point. It all depends on what the latest spin is.
All of you are very well aware of the latest campaign in California that's going after the dairy industry. You are very well aware of the spin that's put on the average consumer that somehow the dairymen are getting rich off the current program, and it's a Government-mandated program that's driving up the cost to the consumer. I'm sure that you would all have something to say about that as to whether or not that's an accurate depiction of what is happening in the dairy industry. But I do think it can point out to you just how powerful a media-driven advertising campaign can be in dictating what the average consumer believes is happening in the dairy industry today. Very little of it is based on reality, but it's what's being proposed out there.
And if you take that to the national level and you allow this thing to come out on the floor, I don't think any of you are going to be happy with it where we end up on it. I know that it will take out of the control of this committee anything that we can do with dairy once that happens. We have had this happen to us before. Collin said something about this in his opening statement. But you take out of control of the Agriculture Committee which direction we're going to go by opening this thing up on the floor, and you are truly rolling the dice with the future, because you won't know where we end up with it.
Page 55 PREV PAGE TOP OF DOC
And we have had testimony here today that outlines some very different ideas on what the future of the dairy industry can be. And it may be on one end, or it may be on the other end. But we really don't know at this point where that's going to go.
I would like to ask you in regards to forward contracting and what some of the concerns are. And I know, Ray, you brought it up in your testimony. I would like to explore this a little bit more with you in terms of what your concerns are in terms of having forward contracting as an option.
Mr. SOUZA. Our main concern, of course, is the suspension of minimum pricing. And what you do in forward contracting is you support up a pricing system outside of the order. And I think that is a direct threat to the pooling concept. Someone spoke today about the consolidation of processors today. I think the producers are going to have to be empowered as well. And by setting up an outside system, I think it's really to the competitive advantage of the processors and those buyers of our milk.
Mr. POMBO. Why do you believe it's not an advantage to the producer to be able to lock down a price?
Mr. SOUZA. Well, we don't have a problem locking down the price, as long as it's above the minimum price set by the orders. That's when you pit the producer against producer and region against region. I think you go against the whole entire process of market orders.
Mr. POMBO. Do you think that there are producers, on a voluntary basis, who would lock in their price over a period of time that's below the market order?
Mr. SOUZA. If we're talking about locking in a supply, we can do that today. Yes. And I think that's always a—producers that would take advantage of that if it was afforded to them. But I think today, with the consolidation that we see going into the industry, it is more imperative that we have this pooling system today than it has ever been before.
Page 56 PREV PAGE TOP OF DOC
Mr. VANDEN HEUVEL. Congressmen, I echo Mr. Souza's concerns. The Federal order program—the existence of orders has caused the dairy industry to develop in such a way that producers are empowered. Producers in the dairy industry have some marketing power because of the order system. It is the minimum price provisions in the orders that give them meaning. And processors accept orders based on the premise that there is equal raw product lost in most processors. If you allow someone to come into an order and forward contract at a different price, it creates competitive pressure within processors. And soon the willingness of processors to live in an order system that allows their competitors to have a better price or a better advantage than them evaporates.
So you can have forward contracting or you can have orders, but I don't think you can have both.
Mr. ROLLIN. Mr. Chairman, in addition, there are vehicles out there presently available in terms of options and futures markets in the Chicago Mercantile Exchange and also in the Coffee, Sugar, and Cocoa Exchange that allow producers to protect themselves for prices, if they so choose.
Mr. POMBO. Mr. Jeter.
Mr. JETER. I guess one of the issues is the customer. And the customer wants stable prices. And to get stable prices is by forward contracting. And so, to me, it's a just a change the industry needs to implement and go through. We need to be innovative. We need to do this. And for us being private co-ops today, can forward contract. Their shippers are their owners. And we are at a competitive disadvantage in a day the producer goes to a co-op versus us because we have our hands tied behind our back. I guess that's a concern to us. We think we need to go down that road of forward contracting.
Mr. POMBO. Mr. Lopes.
Mr. LOPES. I think the market order system has to be protected at all cost. That's the only thing we have left that creates orderly marketing and guides the money between the processor and the producer. It doesn't really set the price where we would like it to be, but it has some fairness and accountability. But we can't have two orders working against one another. If we lose the Federal marketing order system, it won't be long until we'll lose the California marketing order system. I feel that I'm not being anti-California; I'm just being realistic that we need to be part of this whole national market.
Page 57 PREV PAGE TOP OF DOC
A lot of our production goes into the national market. It would make it a lot easier for us to get together and have a consensus to a solution. And I know that it seemed like there was a lot of differences in our testimony, but I think that most of us were saying here that we're not sure that we can step off the cliff to deregulation.
Mr. POMBO. Well, there are people here that would rather have dereg than the current system. But most people are opposed to stepping off the cliff into deregulation. But that's the risk we're taking right now. And once you open up the farm bill, you open it up. You don't just open it up to what you want. You open it up to the whim of Congress at that point.
There are very few Members of Congress that represent the dairy industry. There are very few that have a constituency of the dairy industry in their districts. Most people in Congress represent suburban or urban areas with no agriculture. So you open up this door, and you're taking a real risk as to where we're going to end up.
I'm not saying that we're not going to do it. I'm just saying that once this happens, I can't guarantee where we end.
Mr. LOPES. I can understand that. Do you have any ideas to make it more acceptable?
Mr. POMBO. We have tried over the past couple of years—both of us to try to come up with new tools and new ways of looking at this. That's one of the reasons why we started talking about the idea of forward contracting as another tool, as an option that you guys would have.
The response that I have gotten, for the most part from producers, is not really what I expected, in terms of having that option. And if it's totally voluntary and it's an option that's out there, I just think it's something that we need to look at as another tool.
Mr. LOPES. Who would manage the forward contract?
Page 58 PREV PAGE TOP OF DOC
Mr. POMBO. Hopefully, you.
Mr. LOPES. Individually, out there in the marketplace, we would make our own forward contracts?
Mr. VANDEN HEUVEL. Mr. Chairman?
Mr. POMBO. Yes. Go ahead.
Mr. VANDEN HEUVEL. I don't think that it's fair to characterize the dairy part of the 1995 farm bill one way or the other at the moment. We have had, probably, the most successful last 6 to 10 months than we have ever had in the dairy business and, certainly, in my lifetime. So if things are pretty good on the dairy ranch—and we're just now finding out what orders are going to look like. We haven't seen them yet. In all fairness, we need to give this thing a chance at success. And that's why I'm concerned about trying to legislate fluid differentials, which seems to be the 1-A, 1-B debate. I'm concerned about contracting. I'm concerned about compacts. You know, let's give this reform a chance to work and so let's hold the line.
The only thing that I can say is, if you look at 1999, what—the events that are going to happen in the dairy industry in 1999. You had high prices, a huge drop in milk prices in February, March. During April, May, or June we are going to be talking and arguing a