SPEAKERS CONTENTS INSERTS
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REVIEW OF OPTION 1–A, FEDERAL MILK MARKETING ORDERS
THURSDAY, JUNE 24, 1999
House of Representatives,
Subcommittee on Livestock and Horticulture,
Committee on Agriculture,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:08 a.m., in room 1300, Longworth House Office Building, Hon. Richard W. Pombo (chairman of the subcommittee) presiding.
Present: Representatives Boehner, Goodlatte, Lucas of Oklahoma, Schaffer, Calvert, Gutknetcht, Riley, Combest [ex officio], Peterson, Holden, Condit, Dooley, Berry, Stabenow, Etheridge, Boswell, Lucas of Kentucky, and Stenholm [ex officio].
Also present: Representatives Ewing, Smith, Minge, and Sherwood.
Staff present: Christopher D'Arcy, subcommittee staff director; John Goldberg, professional staff; Brent Gattis, Wanda Worsham, clerk, and Callista Bisek, Howard Conley, and John Riley.
OPENING STATEMENT OF HON. RICHARD W. POMBO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. POMBO. I would like to call this hearing to order.
Today, this subcommittee will receive testimony on H.R. 1402, introduced by our colleague and a former member of this subcommittee, Roy Blunt of Missouri. This bill would require the Secretary of Agriculture to implement the class I milk price structure, known as option 1–A, as part of the implementation of the reform of Federal milk marketing orders. This hearing is another step in the ongoing process of reforming America's dairy industry as outlined and mandated under the Federal Agriculture Improvement and Reform Act of 1996, more commonly known as the farm bill.
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On May 5, this subcommittee held a hearing on the administration's final decision for the reform of Federal Milk Marketing Orders. At that time, I noted that all too often a debate on dairy policy becomes a battle of economists, with each using their own economic model for analysis and each using different economic assumptions. The result was a maze of contradictory and conflicting information, making an already complicated issue all but impossible to understand. In light of all that, Ranking Member Collin Peterson and I asked all interested and involved parties to meet and agree on one single unified model to analyze the economics of dairy reform. I was cautiously hopeful that this could be accomplished.
I am glad to report that all but one of the participating organizations, including the FAPRI, the U.S. Department of Agriculture, Cornell, Texas A&M University, and the University of Wisconsin have endorsed the model of analysis that will be presented by FAPRI this morning as a reasonable and useful economic model. While these organizations may differ on some of the specific details, each accepts the overall model as credible and sound. The broad consensus that this model has achieved clearly makes it the standard by which this subcommittee will judge and scrutinize dairy policies and proposals.
I want to offer sincere thanks to the economists, many of whom are present today, for their hard work in this undertaking.
The regional and political support of H.R. 1402 has signaled that the Department of Agriculture's so-called ''final decision'' is, in fact, far from it. This bill would change the price formulation for class I milk from that Department's proposal. Support of this bill has, indeed, been broad, but today we will judge how deep that support is, how rational, how reasonable, and how farsighted.
Most importantly, I want to know what this legislation means for the long-term viability and competitiveness of American dairy. Does it move us from a government-directed to a market-oriented approach? And how could this pricing policy affect other agricultural commodities? Only when these questions are asked and answered can members make an informed decision on a proposal that is so vitally important to our Nation's dairy farmers and processors.
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Finally, we have an obligation to provide a framework and a road map for America's $50 billion dairy industry. One way or another, we need to move this process forward allowing adequate time for policy implementation with the minimal amount of disruption. The number and the stature of our witnesses here today speak to the importance of these matters and the seriousness of the decisions before us.
I welcome all of our witnesses and guests and look forward to today's testimony.
I would now like to yield to the ranking member, Collin Peterson, for any statement he would like to make.
OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
Mr. PETERSON. Thank you, Mr. Chairman. And thank you for calling this hearing.
As we examine the proposed legislation before us today, I think it is important that we review the amount of work that has gone into this by USDA and the final rule that they came up with on overhauling Federal milk marketing orders system.
As we all know, the 1996 farm bill directed the Secretary to consolidate and reform the Federal system by April of 1999. Through a very thorough process, USDA sought public input, held public meetings throughout the country and in time released a final rule. The Department followed the process Congress outlined, and they have put an enormous amount of time and energy into answering all of our questions at every step of the way. I also believe, Mr. Chairman, that through your leadership, the subcommittee has been very accommodating to all viewpoints.
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When the final rule was released, a barrage of wild economic forecasts followed. Where there was conflict in the economic models, you wisely sought common ground. As you said, Mr. Chairman, they have now come mostly together on this. At your request, USDA worked closely with the economists and producer groups to reach the consensus on what the true economic impacts of this rule are.
In sum, I believe USDA's final rule on the Federal Orders reform sits on very solid ground. It is unfortunate that political wrangling would attempt to change that. And I think it is also disappointing that we are once again attempting to circumvent the process that we set up.
Although today's debate will focus on class I differentials, and there is continued talk in the other body on regional dairy compacts, the most important reform issues are often ignored. In my judgment, the most important aspect of this rule is the replacement of the current basic formula price with a new manufacturing price system based on the components of milk that more accurately reflects the manufacturing marketplace on a timely basis. It is also significant that USDA plans to consolidate the current 31 Federal orders into 10 and that took a lot of work.
But, in short, consolidation will help eliminate some of the utilization distortions that have skewed the market and although the new system is not expected to correct all the future volatility, it should help prevent enormous price drops, like we recently experienced, that are based on old and inaccurate market information.
Multiple component pricing also adds to the greater market reality by pricing the value of milk in a more complete manner. The added benefit of this method is that it moves us closer to the California system and because of California's strong influence on the national manufacturing milk price, our dairy industry benefits by having the Federal system reflect elements of the California system. And we would benefit more if California would vote to join the Federal system, which is another issue that might come along someday.
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Mr. Chairman, in my opinion, the differences between 1–A and 1–B and the importance of this bill I think have really been overblown. The difference is not as dramatic as many would report. FAPRI will offer testimony later on the projected effects of the final rule versus option 1–A. And in the aggregate, the effect that they will show us is very small. And I think it has been somewhat of a disservice to our Nation's dairy farmers to spread all the misinformation about how big of an impact this all might have.
I believe it would be in the best interest of everyone if we simply delayed all these legislative proposals until after we have let USDA complete the process and we have had the referendum that is going to take place in August. In my opinion, the farmers and the dairy co-ops that are going to vote on this referendum are going to overwhelmingly approve it and put it into place. And I think that kind of answers the question as to whether there is support for this rule or not. And if I am wrong, then I think at that point it would be relevant to consider legislative proposals to address some of the concerns.
I would also challenge those who support 1–A and these dairy compacts while at the same time they sing the praises of the free market, of free trade, and of freedom to farm. I do not understand how these opposing viewpoints meet in the dairy barn. We passed Freedom to Farm, which pushed us further into the world market without, in my opinion, an adequate safety net. And I can tell you that this has not worked very well up in the northern part of my district where we have farmers in terrible trouble.
So we are here today saying, ''Well, that is all well and good, but dairy is different.'' Well, if the free market is healthy for American agriculture, why are we attempting to legislate market distortions? USDA has issued a final rule with class I differentials that are based on the cost of moving fluid milk to deficit areas. Legislating higher levels goes against that market.
Some push for free trade saying, ''American agriculture will succeed in the global market. We are the lowest cost producer, and we are not afraid to compete.'' Yet, somehow, those same people don't trust our own domestic dairy market to provide the right results. We push for national agriculture policy while demanding regional compacts that offer local benefits at the expense of others.
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Mr. Chairman, I can understand why many of the major cooperatives support this legislation, but I am still confused as to why free marketers support this proposal. The bill stops our movement forward. It pushes our dairy farmers and our industry backward. And while proponents of option 1–A complain that the current system means the demise of their farmers, what they are basically proposing to do here is to legislate the current system into law.
I believe it is critical that we move our dairy industry into a brighter future, one that is able to respond to the market forces and not hindered by government distortion. The final rule moves us in that direction, and I believe we must shy away from proposals that offer regional advantages while fracturing our national dairy industry.
I have traveled around the country talking to dairy producers and co-operatives. The one issue that unites producers and co-ops across the country is the extension of price supports, which are set to be eliminated January 1, 2000. In my opinion, it would be in the best interest of the national dairy industry if we enact a proposal that I have introduced that extend the price supports through 2002 like we have on the rest of agriculture, and that we put all of these bills, the bill on 1–A and compacts and all these other proposals on the table and let the final rule go into effect.
Mr. Chairman, again, I thank you for calling this hearing and look forward to hearing our witnesses. And we have the Governor here; I don't know if we are going to introduce this panel or how we are going to do this, but I appreciate your having this hearing.
Mr. POMBO. Thank you. I would like to ask unanimous consent that a copy of H.R. 1402 and all Members' opening statements be included in the record at this point.
[H.R. 1402 follows:]
"The Official Committee record contains additional material here."
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PREPARED STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Thank you, Mr. Chairman, for holding this hearing on H.R. 1402. I am a cosponsor of this legislation and am grateful for the commitment you and Chairman Combest have made to take early action on this bill. It is supported by dairy farmers from much of the United States as a necessary step towards accomplishment of the milk marketing order reform directed by the 1996 farm bill.
Mr. Chairman, by requiring USDA to use option 1–A price differentials in implementing order reform, H.R. 1402 will allow a reasonable fulfillment of the farm bill's mandate. It is clear that the final rule issued by the administration lacks the Congressional and public support it needs to be a sustainable choice. While this point was made clear by communications from Congress and public views filed during the comment period, USDA did not listen and, instead by its action, has challenged Congress to Act.
Some who testify today will make the point that it is not the business of Congress to legislate such details. I agree with them and attempted to avoid such a course by joining with my colleagues in helping USDA to interpret Congress' meaning. Since public sentiment in this area was ignored and USDA has exceeded its mandate, we are prepared to act on this legislation.
Mr. Chairman, many participants in our debate have adopted the stance that option 1–A represents the status quo. I hope that our hearing today will help to clarify whether or not that is in fact the case. For many years, it was a goal of upper Midwest organizations to encourage a consolidation of milk marketing orders—so much so that the farm bill's requirement for consolidation was that region's main accomplishment in the Dairy section of that bill. Option 1–A would accomplish that goal to the same degree as option 1B. Under the old rhetoric then, even with option 1–A, the final decision would be a significant accomplishment. But apparently the debate shifted and we are faced with a new measure of success.
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It was also a goal of the upper Midwest to bring an end to the accepted notion that each order's class I differential is related to its distance from Eau Claire, WI. Option 1–A recognizes three surplus zones as the basis for determining class I prices. In Texas, this result itself means a significant lowering of the differential for producers currently in the Texas order. For my producers, option 1–A hardly represents the status quo. So again, under the old rhetoric and the old standards of success for the upper Midwest, option 1–A represents a significant victory and apparent change from the status quo.
Mr. Chairman, producers who are supporting option 1–A were prepared to accept these changes in Federal Orders that would have made the system more equitable for the Upper Midwest. The final decision, however, will lead to a substantial negative impact on dairy producer income in Texas and in many other areas. In short, the final decision goes too far and unduly threatens the value of dairy farm investment in the United States.
Mr. Chairman, since our hearing last month, I have devoted considerable attention to another controversy relating to the final rule: the class III pricing formula. Several witnesses at the May hearing raised concern that this formula will have a significant negative impact on all producer prices. As we proceed forward on H.R. 1402, our committee will be asked to revise the bill to address Class III pricing. While a number of options on this issue are conceivable, I hope that dairy industry participants with differing views can find a way to come together and develop a mutually agreeable solution.
Mr. Chairman, USDA did a great deal of work in developing the rule on milk marketing order reform. The statute we passed required little more than a consolidation of orders—a reform which, by itself, was considered to be an important step at the time. In addition to consolidation, the Department has used this rulemaking as an opportunity to base manufacturing class prices on milk components rather than on grade B prices, and to establish several surplus production regions as basing points for determining minimum prices. H.R. 1402 is designed to preserve all of these reforms and to make reasonable adjustments to class I price differentials. It represents responsible progress towards an improved system and should be viewed as such against the background of our current program.
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Again, Mr. Chairman, I appreciate this hearing and look forward to working with you and members of the committee in the process that lies ahead.
PREPARED STATEMENT OF HON. TIM HOLDEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF PENNSYLVANIA
I would like to thank our subcommittee chairman, Mr. Pombo, for holding this hearing and for providing me with the opportunity to submit this testimony in support of H.R. 1402, legislation to mandate implementation of option 1–A of the Federal Milk Marketing Order System.
As a 6-year veteran of the House Agriculture Committee and this subcommittee, I serve as a representative of the dairy farmers in the Sixth Congressional District and across Pennsylvania. In Pennsylvania, dairy is the largest agricultural enterprise in the state-representing a $1.5 billion industry. Pennsylvania is the fourth largest dairy State in the country, with dairy products accounting for 40 percent of agricultural outputs in Pennsylvania. In the last 10 years, the number of dairy farms has declined by 3,200, to only 10,500, and the number of dairy cows has declined by 90,000, down to just 640,000. In Pennsylvania, it has been estimated that 17,000 jobs are tied directly to the dairy industry, and another 12,500 jobs—such as building, trucking, banking, et cetera—are indirectly tied to the dairy industry. It has been estimated that a 2 percent decline in Pennsylvania's dairy industry would translate into a loss of almost 600 jobs. Dairy is important to Pennsylvania, and the entire Northeast, because of the economic contributions it makes—both in dollars and jobs.
On March 31, 1999, Secretary of Agriculture Dan Glickman announced a major overhaul of the 60-year-old Federal Milk Marketing Order Program. In relation to many other markets, the dairy industry was a unique creature prior to any Federal Dairy Program: the chronic imbalance between supply and demand and its perishable nature place dairy producers in a difficult marketing position that has the potential to lead to instability in the supply and price of milk. In 1937, amendments to the Agricultural Marketing Agreement Act of 1937 created the current Federal milk marketing orders. Federal milk marketing orders ensure the fair marketing and pricing of milk by: (1) classifying milk by use; (2) setting minimum prices that handlers must pay for each class of milk; and (3) paying average prices to all dairy farmers who supply a particular region.
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During consideration of the 1996 farm bill, there was considerable debate regarding the need to reform the Federal Milk Marketing Order system. In response, Congress charged the Secretary of Agriculture to streamline and improve the Nation's wholesale milk pricing system. The Secretary was to reduce milk marketing orders and change them if necessary to respond to current market conditions.
In doing so, USDA proposed two separate options commonly known as option 1A and option 1 B. Under option 1–A, projected annual income of dairy farms would increase $32 million. This is less than one half of one percent of total dairy farm income. Under option 1–B, however, U.S. dairy farmers would lose $365 million per year or $1 million per day.
The pricing structure for class I (fluid) milk is extremely important to dairy farm income, rural community economic stability, and the regional supply of fresh fluid milk. The phase-down of farm income proposed by option 1–B would clearly hurt the financial condition of farmers, with small family farms bearing the greatest burden. In fact, the proposed rule stated that ''small businesses, particularly producers, would experience significant economic impacts.'' This ran counter to the USDA's National Commission on Small Farms Report, ''A Time to Act,'' which states, ''the small farm is the cornerstone of our agricultural rural economy.''
In an effort to encourage the Secretary to support option 1–A over option 1–B, 238 House Members and 61 Senators signed an April, 1998 letter to Secretary Glickman showing tremendous support in Congress for option 1–A in the pricing of class I milk.
Unfortunately, when USDA issued its proposed final rule, it came back with what is now being referred to as a ''modified'' option 1B that penalizes dairy producers again to the tune of $150 million in most every region of the country. Unfortunately, the Secretary chose an option that will only continue to increase the high prices Upper Midwest farmers already receive, and does not address the needs of the Northeast. Not only does it substantially reduce dairy farmers' income, it will create major fluid price discrepancies in a number of regions of the country. The proposed rule does not meet any of the tests necessary to effectively price fluid milk, including transportation and marketing costs and local supply and demand needs. It does, however, discriminate in providing fair and equitable prices to dairy farmers in most regions of the country. In both the short and long run, it will hurt consumers by reducing supplies of locally produced fluid milk and driving up prices at the supermarkets. Option 1–A has the support of the vast majority of dairy farmers and their cooperatives across the country.
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In the Northeast the effects will be devastating, especially in Pennsylvania, which is the most adversely impacted state in the Northeast region under the proposed final rule. In my district and across Pennsylvania, scores of dairy farmers close their farms and go out of business every year. Dairy farmers were just hit with the largest drop ever in USDA's basic formula prices—a 40 percent drop in farmgate prices translates into a loss of almost $300 million in monthly income for dairy farmers in the Northeast and South. Pennsylvania farmers will lose over $64 million a month over the next 2 to 3 months in milk receipts. Over the course of the year that amounts to well over $400 million.
Should the proposed modified 1–B go into effect October 1 of this year, dairy farmers in my state will lose over $35 million a year, based on the reduction in class I differentials. However, USDA claims that the reduction in the class I differentials will be recovered in part with proposed modifications to and increased pricing of class III (manufactured) products (i.e. cheese.) On paper this sounds great. In reality, it is not. We all know that the class I differential reduction is an actual loss of dairy income. In my district the class I reduction will mean, that come October 1 of this year, an 80 to 100 cow farm will lose between $6,000–$7,000 in farm income a year. This can be the difference between breaking even or losing the farm. While the proposal would make us believe that the changes in class III pricing will make up for this $6,000 to $7,000 loss, the class III modifications are based on assumptions—market based assumptions over which dairy farmers have no control. There is no guarantee that this loss will be made up by the proposed changes in manufactured dairy product pricing. The only guarantee is that dairy farmers in Pennsylvania will lose income, continue to go out of business, and the supply of local fresh fluid dairy products will diminish.
It is for these reasons that I am an original cosponsor of H.R. 1402, which will implement the widely supported option 1–A—providing equitable pricing for fluid milk, ensuring affordable dairy products to consumers and preventing the further erosion of many small communities' economic well being.
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I encourage my colleagues on this subcommittee to pursue further consideration of H. R. 1402 so that we can ensure our nation's dairy farmers receive a fair pricing system and consumers have an adequate supply of fresh dairy products.
PREPARED STATEMENT OF HON. DEBBIE STABENOW, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
I am pleased to have the opportunity to participate in today's hearing on legislation introduced by my colleague and friend, Congressman Roy Blunt. I am proud to be a cosponsor of his bill, H.R. 1402, that would require the Secretary of Agriculture to implement option 1–A as part of the implementation of the Final Rule to consolidate Federal milk marketing orders. I would like to take this opportunity to thank Chairman Pombo for recognizing the importance of this legislation and for holding today's hearing. I would also like to thank all of today's witnesses for their expert testimony. Let me also extend a warm welcome to a fellow Michigan, Mr. Elwood Kirkpatrick, first vice-president of the National Milk Producers Federation.
Last year, I was one of the 238 Members of Congress who expressed strong support for option 1–A in letter to Secretary Glickman. I know that during the comment period on the Proposed Final Rule, eight out of 10 of the over 4,000 comments received supported option 1–A. The groups that represent our nation's dairy farmers are unanimous in their support of option 1–A. Finally, Secretary Glickman's own Pricing Structure Committee recommended option 1–A. It is unclear to me, in light of the overwhelming support for option 1-A, why the U.S. Department of Agriculture has proposed a modified version of option 1–B.
I am very concerned about the impact of option 1–B on my dairy farmers in Michigan, and throughout the Nation. I know that there are conflicting economic analyses about the impact of option 1–B. Nonetheless, I am convinced that those farmers who are currently suffering, which includes dairy farmers in Michigan, are those who will be hardest hit by option 1–B. I believe it will drive entire regions of farmers of business and in the end hurt consumers with higher prices. That is why I am a cosponsor of H.R. 1402, I feel Congress must override the USDA's decision and mandate option 1–A.
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I welcome the comments from today's panels. Chairman Pombo, thank you again for convening this important hearing.
Mr. POMBO. I will introduce our first panel, two of our colleagues, Mr. Roy Blunt and Mr. Mark Green, and the Governor of Minnesota, Mr. Ventura.
Roy, we will start with you. I have to tell you I am very impressed with the number of people you have turned out at this hearing and the interest that you have generated for your legislation. [Laughter.]
You may begin.
STATEMENT OF HON. ROY BLUNT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MISSOURI
Mr. BLUNT. Thank you, Chairman Pombo. I have been telling you for months the American people care about milk policy and it is pretty obvious here today that that is the case. This panel may or may not be the battle of economists, that you suggest that these debates often are, but that may occur later in the day. I am certainly pleased to be on a panel with my good friend, Mark Green, who cares about these issues, and we have discussed them often.
And certainly it has helped draw attention to this debate that the Governor of Minnesota, Governor Ventura, is here today. Congressman Peterson suggested that maybe I could just challenge the Governor to some feat of physical strength and we would decide this issue based on the outcome of that. I remembered then that Congressman Peterson is not for my legislation. [Laughter.]
And it is pretty obvious to me. I asked our own wrestling coach, the Speaker, if he had any advice, and his advice was: Don't challenge the Governor to any feat of physical strength. But based on what I have seen of the Governor, I don't think I want to challenge him in a physical or mental way. So it is great to have him here today.
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I saw our former colleague, Gerry Solomon, this morning, who you know has cared about these issues for a long time. His advice, and he already knew that Governor Ventura was going to be here, was don't ask the Governor to step outside. So I definitely won't do that.
I am grateful for you having this hearing, for the attention that you have personally given this issue. I am honored to see the chairman of the full committee here, Chairman Combest here.
And, as both of you and every member of this committee, as I look around the room, knows so well, that in 1996, this committee was responsible for crafting, and I think carefully crafting legislation commonly referred to as Freedom to Farm. As a body, the Congress attempted to capture a set of guidelines that not only coincided with advances in technology and recent trends in agriculture but offered a clear foundation for the future viability of the family farmer.
With this in mind, Congress directed the Secretary of Agriculture to do two things with regard to Federal milk marketing orders. One, was to consolidate the current Federal milk marketing orders to not less than 10, nor more than 14 orders. Second was to designate the State of California as a Federal Milk Order if California dairy producers petitioned for, and were approved for, such an order. Contrary to some of the statements that have been made about what was required of the Secretary, those are the only two things in Freedom to Farm that the Secretary was required to do was to make those consolidations of orders.
In response to this directive, the Department ultimately proposed two separate options subject to public evaluation. In examination of the public comment, the Secretary's own Price Structure Committee, among numerous others, recommended differentials similar to option 1–A. Eight out of 10 of the more than 4,000 comments on the proposed rule recommended option 1–A. Most importantly, those groups representing the dairy farmers of America spoke in an almost unified fashion in favor of option 1–A. When the final tally was in, almost all of those groups said we want 1–A. Similarly, 238 Members of the House and 62 Senators wrote the Department unequivocally supporting option 1–A.
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Unfortunately, despite the prominent role of the industry and the Congress, the administration elected to go with a slightly modified version of the proposed option 1–B. It is important to understand that the product that dairy farmers provide sets them apart from other producers. Their product has to be sold in a fresh way. It has to be reasonably close to the point of consumption. It takes not just months, but years to have a cow ready to produce that fresh quality of raw milk. Dairy farmers, unlike other farmers, can't decide they are going to hold on to their product. They can't decide they are going to wait for a different market. They have to market their product the day that the American people expect that product to be available to them. And in the case of fluid milk, to be available to them in a very short period of time.
Aside from the perishable nature of raw milk, there are other more ominous forces at work against dairy farmers. Rapid consolidation of the dairy industry is putting market power in the hands of fewer and fewer each year. I would only direct you to the problems we now have with market concentration in poultry, in beef, and in the pork industries, and contend that dairy is headed down that same road if we don't do something to prevent that from happening.
Simply put, option 1–A reforms the Federal Order system through a variety of means that include reclassifying milk products, consolidating the current 31 orders into 11 and including several previously unregulated areas. Further, option 1–A reduces market volatility and continues to assure that there will be enough fresh milk in all markets of our Nation. It does so by keeping in place what are called price differentials, a system that has worked for many years, guaranteeing us an adequate supply of fresh milk. As the Government withdraws from the purchase of dairy products to balance the market, we have to leave in place these mechanisms that assure a continued local supply.
In spite of these concerns, opponents of this legislation, like my friends here on the panel and like the people who will testify later today, and I want to say about all those testifying today that more often than not we have a common interest in not only the production but the consumption of this great product, a product that the Federal Government has taken special interest in because of the uniqueness of the way it has to be produced, packaged, and offered to consumers. Everybody on all of these panels has that in common, and I appreciate their interest in these issues.
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But those who argue that the current system, or any reflection of the current system, result in really putting dairy farmers in the upper Midwest out of business, I think that the facts do not indicate that that is the case. In fact, there is quite a bit evidence below the surface rather that in 1997 and 1998, the total number of dairy farmers in existence in Minnesota, Wisconsin, Illinois, and Iowa did decline. In fact, they declined by 8.34 percent. The decline in the South, including West Virginia and Texas, however, was slightly higher, 8.39 percent. In spite of the fact that there is a decline in dairy farmers in the upper Midwest, a decline in dairy farmers in the South, the production in the upper Midwest increased by 474 million pounds or 2.1 percent, while production in the South decreased by 3.5 percent. There is something wrong with a system where that happens.
For those of us who are not economists, these numbers show that the farmers who are suffering the most under the status quo are the same farmers who will receive a further decrease in income under the proposed final rule.
To continue discussion of the arguments in opposition to H.R. 1402, I noticed that we are going to be joined here by some of our friends who represent consumer interests. And I would only say in response to that, to go through some of my testimony that is being included, that as you decrease competition, as you do things that discourage the production of this product around the country, I believe, and there is evidence to support the fact, that eventually what you do is drive up the price in a significant way.
On the next panel, Dr. Scott Brown, whose testimony will include the FAPRI material, Mr. Chairman, that you have already mentioned, points out that retail fluid milk prices are unchanged from the baseline, generating no change in either fluid milk consumption or any significant change in fluid milk costs.
In summary, the class I differentials in the final rule create more losers than winners. They threaten the economic viability of dairy production in the areas of the country where local milk supply is already the tightest and making sure that milk is either produced near or drawn to where there are consumers to buy it. Unfortunately, there is no getting around the fact that the class I differentials in the final rule could do just the opposite. It makes no sense that the Department of Agriculture still maintains that a system that will result in concentration of milk production to a small region of the country is the right system.
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And when witnesses argue that we should let the farmers decide by voting, as we have already heard here today, we have to remember that option 1–A is not on that ballot. The only option available to farmers in that ballot is option 1–B or no Federal program at all. The milk marketing areas make sense. The raw nature of this product has led to a system that has worked well over the years.
Finally, when evaluating the testimony you hear today, I urge you to note the extremely limited region of the country where the witnesses come from. Also, I would like to you to note that Land O' Lakes, which is a dairy processing giant in the upper Midwest, publicly supports 1–A. Knowing this, it logically follows that if the processor in the area supports option 1–A, a large number of farmers in the upper Midwest do as well, though their voices don't appear to be represented on the panel today.
I spent a lot of hours growing up in the dairy barn with my father and my grandfather; I can assure you that this legislation is about the future of family dairy farms in America. I can also assure you that the future of family dairy farms are the future of both raw supply of this product and competition and a price that is the right price for consumers.
Two hundred and twenty-five Members of Congress agree with that and have sponsored H.R. 1402. I am pleased to be here today to represent a bipartisan majority of our colleagues who are cosponsors of this bill, who look forward to committee action on this bill, and look forward to seeing this bill on the floor of the House in the near future.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Blunt appears at the conclusion of the hearing.]
Mr. POMBO. Thank you.
Mr. Green.
STATEMENT OF HON. MARK GREEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN
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Mr. GREEN. Thank you, Mr. Chairman. My colleague, Representative Blunt, referred to some advice he had received from the Speaker earlier today on how to handle the witness to my left. What he didn't tell you is that part of that advice was, ''Well, since you are going to disagree with Governor Ventura, why don't you place Green between you two.'' [Laughter.]
I appreciate the opportunity to testify before the subcommittee on H.R. 1402, which I would characterize, quite frankly, as an anti-dairy reform proposal. Now this issue is of critical importance, not just to the Midwest and our dairy producers, but consumers and dairy producers all across the Nation. It is important to the dairy farmers in the upper Midwest.
In the past 2 years, Wisconsin has been losing an average of five dairy farms each and every day. That tells you how important it is to us. In fact, between 1997 and 1998, Wisconsin lost more dairy operations than Alabama, Arkansas, California, Colorado, Idaho, Indiana, Iowa, Ohio, Michigan, North Carolina, Oklahoma, Pennsylvania, and Virginia combined. That covers every State represented by members of the subcommittee, with the exception of the Minnesota delegation, which because of this unfair policy is in the same situation that my own State is. I would just say with respect to, and in due respect to my colleague, if 1–B wouldn't help Wisconsin dairy farmers and Minnesota dairy producers, I doubt that you would see leaders like Governor Ventura traveling the distance that he has to be here. It is true that the panelists in opposition are from a concentrated area in the Nation, but it is also true that that is where most dairy farms are, located in the upper Midwest.
Defeating H.R. 1402 is also important, not, again, just to upper Midwest dairy farmers, but the Nation as a whole. The 1995 Congressional Budget Office report indicated that reforming the Milk Marketing Order Program could save taxpayers $149 million each year. In fact, that program, the Milk Marketing Program is the third program mentioned in the Citizens Against government Waste booklet, ''Prime Cuts: 44 Ways to Leaner Government.''
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The current system also hurts taxpayers by reducing the strength of programs like the WIC program and non-partisan groups, like the Citizens Against government Waste and Americans for Tax Reform agree that any effort, such as Representative Blunt's, to restore this system is an anti-taxpayer proposal.
Now as Representative Blunt, my friend and colleague, has mentioned, during the 1996 farm bill debate, Congress was unable to build a consensus on dairy reform and that impasse threatened to kill the underlying legislation. As a result, dairy interests from across the Nation and across the spectrum agreed to leave dairy reforms out of that bill, and they directed the Agriculture Secretary to develop a reform plan with the understanding that all sides would abide by that final rule. H.R. 1402 would directly contradict the Secretary's rule and violate the 1996 understanding. Furthermore, since the Secretary's reforms require approval by two-thirds of the dairy farmers within each new proposed order, this legislation would also deny the right of our dairy farmers to vote on this dairy reform.
Now let's be clear, from the perspective of the upper Midwest, Secretary Glickman's announced reforms are modest, very modest. However, they do represent the first step, baby step, in the right direction in over 62 years and that is why we support them. They are a move towards more of market-oriented dairy system, one that benefits taxpayers by lowering the price of milk and, quite frankly, moving government policy out of the Dark Ages.
The plan that is before us would restore the very policy that has driven so many family farmers out of their livelihoods and forced consumers to pay artificially inflated milk prices. It actually reaffirms the practice of pricing milk based upon its distance from Eau Claire, WI. Now I know Eau Clair, WI. I love Eau Claire, WI. I went to school in Eau Clair, WI. But for a government policy created in Washington or any other State to come in and tell us in Wisconsin that Eau Claire must be ground zero in the dairy reform war is wrong. I think it is fundamentally wrong.
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Now the milk pricing system is one of the most difficult issues that any of us is asked to understand. In fact, I have to rely on a little crutch that I have created or that I have copied to illustrate the true unfairness of the Milk Marketing Order program. Now my staff member here is putting up a cartoon for you that actually appeared in the St. Paul Pioneer Press, and it shows you a little bit about government policy. As it points out, which should be actual Federal dairy policy, that all computers are priced based upon their distance from Seattle or oranges based upon their distance from Florida or country music based upon its distance from Nashville, Tennessee or instead milk adjusted on its distance from Eau Clair. Well, unfortunately, obviously, we all know the answer and the proposal before us today would reinforce and restore what I think is an absurdity.
H.R. 1402 requires taxpayers to prop up dairy producers in one area at the expense of more efficient dairy operations in another. And I submit to you that that is not a pro-dairy farmer policy. Instead, it is just the opposite because what it does, unfortunately, is pit one group of farmers against another group.
I think it is also important to address some of the costs associated with the Secretary's reform proposal. And I have been personally approached by a number of colleagues who have indicated that they have been told that the Secretary's proposal could cost dairy farmers across this country from $200 million to $600 million, in fact, many of those who have signed on to this plan as a cosponsor. Unfortunately, those figures are inaccurate and misleading because they are only based upon guaranteed minimum prices. They fail to take into account the actual price that a dairy producer is paid for their milk.
As you are probably aware, all dairy producers are guaranteed a minimum price for the milk that they produce. This is referred to as the class I fluid price. It represents a payment floor for all producers within a given order. The actual price that dairy producers receive is called the mailbox price. And a mailbox price is subject to market influences and it is required by law to operate at or above the minimum class I fluid price. As a result, any economic analysis of the Secretary's proposal that fails to take into account the actual price, the mailbox price, I think is based upon a flawed methodology.
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In summary, in my own view and the view of the Wisconsin Department of Agriculture, and I think most dairy farmers in the upper Midwest, this proposal is a bad idea because: (a) it violates the understanding that we had back in 1996 during the farm bill; (b) it will cost each and every taxpayer and consumer in this Nation money; and, finally, because, quite frankly, it will drive more and more family farms out of business each and every day.
Thank you for the opportunity to testify.
[The prepared statement of Mr. Green appears at the conclusion of the hearing.]
Mr. PETERSON. Mr. Chairman and members of the committee, let's get ready to rumble. We have with us the Honorable Jesse Ventura, Governor of the State of Minnesota. And I have to tell you that, for those of you who don't know the Governor, he is a shy and quiet man, but he believes strongly in Minnesota and agriculture. And we really appreciate him coming out.
He has been here yesterday and today meeting with Secretary Glickman and other agriculture leaders pointing out the problems that we are having in agriculture in Minnesota, not only in dairy but in wheat and other commodities. And the Governor has been a big supporter of the dairy industry. He even has a ''Got Milk'' button. He told me earlier that he had agreed to help the dairy promotion people, but he was told by the Ethics Commission that he couldn't actually sanction it. So he didn't get to be photographed by Annie Leibowitz, but we are all going to miss that. That would have been a good photograph, I think.
But, anyway, we are glad to have the Governor here with us. I think he has—Roy, I hate to tell you this, but I think it maybe has something to do with him being here, rather than you, that we have all this attention. The chairman and I and others have spent a lot of time on dairy, and we haven't got a whole lot of attention up until today.
So, Governor, we appreciate your being here and helping us with this and look forward to your testimony.
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STATEMENT OF HON. JESSE VENTURA, GOVERNOR OF MINNESOTA
Governor VENTURA. Thank you. Mr. Chairman, Ranking Member Peterson, and members of the subcommittee, thank you for the opportunity to speak today on behalf of Minnesota dairy farmers, the people who process and bring their dairy products to market, and every single one of us who drinks and eats dairy products every day of our lives.
I have come to Washington, DC with one thing on my mind: It is imperative that Congress reform policies across the board so American farmers, including Minnesota farmers, can compete with each other here at home and with farmers in nations around the world on a fair, open, and level playing field.
As a new Governor, I have dedicated myself to learning as much as I can about agriculture as urgently as possible because our State is so dependent upon agri-business for our economic health.
In Minnesota, we are doing everything we can to provide short-term relief and long-term competitive advantages to our farmers. I believe that government should only do that which individuals cannot do for themselves. And far too often, government intrudes attempting to fix something only to make matters much, much worse. To that end, I have asked six departments to work together as a farm cabinet in Minnesota. I have brought together Agriculture, Trade and Economic Development, Revenue, Finance, Pollution Control Agency, and Commerce to identify what stands in the way of farmers being successful and self-sufficient. I want Minnesota farmers to be the most productive, the most innovative, and the fastest to adapt to change so they can compete worldwide.
Whatever we can do at the State level, I am pledged to do over the next 3 1/2 years. Yet, time and again, I hear that what really stands in the way are two things: Federal policy and partisan politics. I hear despair in the voices of every farmer I talk with, those who are still successfully surviving in this changing economy and those that are simply giving up. I hear exasperation in the voices of leaders of farm associations, multi-national corporations and cooperatives who are tired of waiting for leadership. And I hear anger in the voices of Minnesotans on Main Street, in rural schools, and everywhere else I go because they, too, want a new direction. With one out of four people in my State depending on agriculture for their living, that is a lot of angry voices. Minnesotans care deeply about farm issues, including me, and I grew up in the city.
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It is time to end two-party partisan deadlocks on farm bills and focus on results for the people. Washington needs to stop using the farmer as a political pawn. Every day, three dairy farms go out of business. Nearly one-third of all Minnesota dairy farms have disappeared since 1993. Across the Nation, half of all dairy farms lost in the last 7 years are from the upper Midwest.
And it is interesting, Mr. Green next to me comes from a State whose license plate says, ''America's Dairyland.'' I am interested to see what they will change it to if something is not done.
I don't mean to suggest that this is entirely due to Federal policies, but the outdated Federal Milk Marketing Order system has been very much a contributing factor. That is unacceptable and warrants action by this subcommittee to begin reform at the earliest possible time.
The issue before this subcommittee today is a significant issue, but still a detail of a much bigger picture for American agriculture that will be addressed in the Millennium Round of Trade Negotiations in Seattle.
Soon you will vote on whether to support option 1–A or option 1–B for a pricing structure. It goes without saying that option 1–B, which represents modest reform by the U.S. Department of Agriculture is the only of the two choices that Minnesota will accept.
The people are best served by getting rid of all this government intrusion into the free marketplace and channeling the energy now put into controlling prices into opening world markets. Nothing you can do in this room today will permanently improve the lives of farmers or the taste of milk except improving world trade conditions.
What we need, without question, is to end the nonsense that has the price of milk tied to how far away the cow is from Eau Claire, WI. Now that there are refrigerated trucks readily available, it makes sense to abandon a 50-year-old thinking and find a new way to look at the millennium dairy industry, one that reflects today's economic realities and most of all at least is fair.
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Last week, I began promoting Beaumont, TX as the new center of the dairy universe, and I offer it to you today to consider. It certainly beats Eau Claire for mileage from St. Paul. My staff did some checking, and I was advised, after a long pause on the other end of the phone, that there aren't any dairy cows in Beaumont. A little checking on the Internet showed that Minnesota dairy farmers would receive 1,100 miles' worth of benefit from this move. For the record, New Hampshire is 1,800 miles away from Beaumont and California beats us all with 2,000 miles.
This sounds borderline ridiculous doesn't it? It is no more so than the original law that designated proximity to Eau Claire, WI, which is only 83 miles from St. Paul, MN.
Congress is inexcusably inconsistent in pushing for deregulation of other parts of agriculture, but not dairy. If market forces are good enough for corn and wheat, why not cows? I truly believe that the people of this country are waiting for common sense to take hold here.
Regional political maneuvers, like compacts, are the worst approach to take. This serves to do nothing more than solidify caucus voting on policies, such as the one before you today, and place at a terrible disadvantage the elected representatives of States like Minnesota and Wisconsin, who will never have the votes to launch genuine reform.
Regional favoritism also erodes public trust in government and makes people cynical about government. If there is one reason why I am sitting before you today, as the first Reform [Party] Governor in the United States of America, it is because the great center of the voting public is weary of politics and business as usual. The farmers who I talk with are fed up. The public is fatigued with a farm crisis that never seems to end. Every year, it is a tweak here, another tweak there; take what you can get because it is better than nothing, option A or option B. Minnesotans, as I have said before, are best served by ''option C'' none of the above, and the beginning of a truly free market new day in agriculture.
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What reform principles will help not just Minnesotans but all farmers in America? Reform No. 1 starts at home. It is the responsibility of the Members of Congress and the President to deliver a new kind of level playing field across America, one that allows the free market to work through the absence of artificial price supports. Minnesota dairy farmers are losing money, plain and simple, and they will lose more under the status quo pricing system. I am here today in person to appeal to your better judgment.
Three years ago, Congress left dairy policy out of the 1996 farm bill and dumped it on the Secretary of Agriculture. Secretary Glickman has come up with a plan that tries to correct some of these 50-year-old problems and it deserves your support. I urge you today to support the recommendations of the administration and decide if you wish to be full participants in this discussion from this day forward.
We need to work as a unified Nation to fund land grant research that is available to any innovative farmer or entrepreneur through a federally-supported extension system.
We need to work as a unified Nation to abandon the cobweb of price subsidies and controls and let American ingenuity work on farms, in processing, and also in grocery stores.
Finally, we need to work as a unified Nation to give incentives for farmers to be flexible and adapt to changes. Your efforts to save small farmers are not working. Half of all the dairy farmers lost in the last 7 years were from the upper Midwest. Even with the Dairy Compact in the Northeast States, most of Vermont's losses are herds with fewer than 100 cows. So it is time, ladies and gentlemen, for a fresh approach.
Reform No. 2 is international. It is your responsibility to open the world markets by insisting that free market work instead of direct or indirect subsidies and then speak with one voice for the American farmer worldwide. This task is made all the easier and more powerful if you allow farmers to sit at the table at the upcoming Seattle trade talks and other places where their future is at stake.
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I believe that all people the world over respond best to policies that provide incentives, not punishments. We can no longer afford for the Federal Government to use food as a weapon. Instead of sanctions, our President should jump on a trade mission to sell and pack some dairy products in his suitcase before he leaves.
Mutual opening of markets is a win-win for America and the trade partners. Mutual protection is a lose-lose for everybody. It is the responsibility of each State to make the best of trade opportunities once they are open. That is why I am going to Japan in November and have my commissioners of agriculture and trade and economic development looking for other marketing opportunities. But our efforts and other States' efforts will fall short if Federal trade policies with Asia and Europe fail. American farmers need their American congressional members to be bold reformers in order to pressure an end to unfair subsidies in Europe and elsewhere.
Reform No. 3 is specific to dairy: vote to let the USDA to go forward with its reform plan. As with all Federal farm policy, a person needs a graduate degree in at least four subjects to understand the complexities of the issue and dairy is the most complicated of the complicated.
As Governor, it is my job to appoint the best people and then let them do their jobs. Commissioner Gene Hugoson advises that this is the better of the two, 1–B, for a dairy-producing State such as ours that is not protected by a compact. But I still prefer alternative C.
Our ultimate objective is to ensure a competitive marketplace for our farmers. A strong farm economy serves the public good of this Nation. Therefore, I appreciate your support for this testimony today, and I appreciate this time before the subcommittee.
And, as I like to say in Minnesota, I am here for results, not politics. Thank you.
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[The prepared statement of Governor Ventura appears at the conclusion of the hearing.]
Mr. POMBO. Thank you, Governor, and thank my colleagues for your testimony. I had a few questions to ask of the panel.
Mr. Blunt, a more of a technical question dealing with your bill, in section 1(a) of your bill, you refer to a modified version of option 1–A. And I am sure you are aware that as provisions of this reform package were amended, the assumptions built into option 1–A were also changed. Since the final version of option 1–A was never published in The Federal Register, was it your intent to refer the version cited in the Regulatory Impact Analysis prepared by the Secretary of Agriculture and released at the same time as the final decision was published?
Mr. BLUNT. Mr. Chairman, that was my intent. And I had assumed that the final regulation had been published in The Federal Register like I think it is required to have been. I have learned since, it was not. I have asked my staff and your committee staff to work together to be sure that we are talking about 1(a) as it has been modified by the Department, whether that was properly published in The Federal Register or not.
Mr. POMBO. Thank you. I know that if this legislation does move forward, that that will take a technical change in the legislation for that to happen.
Governor Ventura, I would like to correct one statement that you made in dealing with agriculture. If there is one committee in this whole place that operates on a bipartisan basis or a non-partisan basis, it would be the Agriculture Committee. And normally, when it comes to agricultural issues, it is usually us against everybody else over there. And that is usually the way it breaks down.
Governor VENTURA. Mr. Chairman, I will humbly stand corrected. It is my first time here. [Laughter.]
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Mr. POMBO. Sometimes I wish it was more partisan because maybe we would win once in a while, but it comes to agriculture issues, it is usually us against everybody else.
I would like to ask you a question. A lot of times agriculture policy that we deal with fiddles around the edges, and we do something that at the time sounds good and in the real world it doesn't actually work in the way that I think any of us intended. But in the regulatory environment that we have created in this country and the tax environment that we have created in this country, there are many of us that believe that the greatest thing we could do for American agriculture would be to offer tax relief and regulatory reform for our farmers. How would you respond to that as the Governor of an agricultural State?
Governor VENTURA. I would respond in the affirmative to that. I think that the key for us is to take down the obstacles, not put them up, not to make farming more difficult, but to make it far easier to allow our farmers to go out and compete. And more or less, I feel strongly to get government out of the way. Government should become a partner, not a dictator. And I am not a farmer, but I find it mind-boggling when government tells farmers how much they can plant, how much they are supposed to get for a crop, and all of this, when we supposedly live in a free society.
Mr. POMBO. Thank you. Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman.
And, again, Governor, thank you for that excellent testimony. You mentioned Commissioner Hugoson, but we do have Commissioner Gene Hugoson from the Minnesota Department of Agriculture, who does an outstanding job for us back home and has really been a leader on this dairy issue.
Mr. Blunt, I will be brief. In your testimony here, you state that ''The upper Midwest, which currently receives among the highest class I prices in the country,'' I don't know where you are coming from on that. Our differentials, as the Governor said, are among the lowest in class I milk. And in Minnesota I believe it is 14 percent or somewhere in that neighborhood that we have class I utilization. Eighty-five percent, or somewhere in that neighborhood, of our milk goes into manufacturing. So even if there were high class I prices, that is not the majority of what prices milk in the upper Midwest.
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And what I tried to make clear in my testimony, and I want to reiterate, is that from our perspective, the important part of this rule is not so much the fight over 1–A or 1–B, but the change to a new kind of manufacturing minimum, manufacturing price, which we think moves us much more in a market-oriented fashion, moves us closer to California. And, frankly, one of the biggest issues in dairy right now is harmonizing with California. We would like to see them come in. I think they are a ways from getting there, but eventually that would be the best for the country, if we had one Federal Order and everybody lived under the same rules. So I don't agree that we have the highest class I prices. I don't know where you are coming from.
Mr. BLUNT. I have some figures, Mr. Peterson, that indicate that the mailbox price, which has been claimed by our friend, Mr. Green.
Mr. PETERSON. Well, I would agree with that. But I just want to correct, if you said mailbox, we are right in the ballpark with everybody else.
Mr. BLUNT. That would have been clearer way to say it and the difference has been well-explained by Mark this morning. So that is what I intended to say.
Mr. PETERSON. Thank you very much also. Even though we don't always agree, I think that all of us have the best interest of the dairy producers at heart, and that is what we are all trying to do is get more money for our dairy farmers, trying to keep as many of them out there on the farm as possible and keep the industry strong. So, again, thank you. Thank you, Mr. Green. And, Governor, again, thank you for your excellent testimony.
Governor VENTURA. Thank you.
Mr. POMBO. Mr. Boehner.
Mr. BOEHNER. Mr. Chairman, thank you. And I appreciate the witnesses being here. And as I was listening to the testimony this morning, I was thinking and appreciating my father, who passed away right after I was elected, and probably the greatest gift that he gave me, genetically, and that is a large dose of patience. But I can tell you that having been on this committee now for 8 1/2 years and having fought to keep the dairy program from becoming more complicated and spending some time trying to actually reform the program, my patience is wearing very thin.
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Whether we pass 1–A or we pass 1–B, we all ought to admit to ourselves it is going to make a hill of beans of difference to dairy farmers around the country. It is going to make any difference. Look at all the numbers you see in the FAPRI studies that are out. It is going to make few cents here or a few cents there. But in the end, it really isn't going to make any difference.
And the fact is that we tried in 1996 to have Freedom to Milk. Why shouldn't dairy farmers around the country have the opportunity to milk their cows and to sell it in any form they want to whoever they want? But, no, we couldn't go that far. And the fact is the more we look at the dairy program, the more it looks even more bizarre than anything the Soviet Union ever created in their command economy. And we can continue to try to tinker with it, it isn't going to help. And the fact is that if we want to have a little fight over this little minute issue, we can do that. Or we as a committee and we as a Congress can stand up and say, ''Enough is enough.'' Let's just take this elaborate system that is in place and scrap it, just plain scrap. Why should we have a Northeast Dairy Compact for those farmers? Of course, now the Southeast farmers want a compact. California wants to have their own system. They don't want to get involved in all this high jinx that comes out of Washington.
And while all this is happening over the last 50 years, who has taken the brunt of the hit? Not consumers. Frankly, they have done pretty well. It has been American dairy farmers who have taken the hit of trying to figure out a way to operate within these rules that we have developed and made worse and worse over the last 50 years.
And so if we are going to mark up this bill, Mr. Chairman, I am here to announce that I will have an opportunity, I will have an amendment to just scrap the dairy program and allow American dairy farmers the opportunity that they have been looking for for a long time, to succeed or to fail. When we grow up and we are born in this country, we all have a shot at the American dream, every single one of us. There isn't a government program that allocates who gets a shot at the American dream and allocates who doesn't get a shot. We all get a shot.
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And the fact is I think that American dairy farmers will be a whole lot better off. I think American consumers will be a whole lot better off if we didn't have a dairy program. Our farmers for the first time would be able to compete in a world market. They would be able to have a chance at success, but we continue to stand in the way.
And so let's have a discussion about it. Let's have a real debate about whether we are going to continue to have this program. Mr. Blunt, I would like to ask you what objections would you have to eliminating the dairy program all together?
Mr. BLUNT. Mr. Boehner, I think I made some points in my testimony, and I don't want to reiterate them all. I think this is a different product than other farm products. I think the fresh supply of the product does matter. I do think there is reform in the market order changes that reflect some of the new abilities of transportation of that product. We have gone from 31 market orders to 11. I believe that is a reflection of that. I believe that consumer prices would rise substantially if you move away totally from a system that continues to encourage a local supply of this product.
The Governor mentioned refrigeration which is a powerful and important thing, but I have an almost new refrigerator at my apartment, just a couple of miles from here, I poured out a little milk last night because I am coming and going, I can't drink it quite as fast as it goes bad in that refrigerator. And the refrigerated truck is the same kind of problem.
Mr. BOEHNER. We can get lettuce from south Florida to Minnesota virtually overnight. We can get lettuce from the west coast to the east coast in several days, 3 days, we can move it from coast to coast. And there isn't any reason why we can't move milk from where it makes the most sense to produce it, where farmers want to produce it, where they want compete to any market in the country or, for that matter, any market in the world. I just don't understand the difference.
Mr. BLUNT. Well, I think there is a difference. And I think while I almost always try to agree with you, I think 225 of our colleagues, along with me, think there is a difference. I believe that this Congress reflects that difference. And I think this is a program that we need to continue.
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You mentioned a minute ago, a few cents here or there. I remember the milk check coming to the mailbox and the farmers who are going to testify later know what a few cents here or there means to whether they stay in business or not. The numbers are real in what is happening in farming. An elimination of some kind of marketing system will accelerate that move and the decline of those dairy farms I am convinced in a dramatic way.
Mr. BOEHNER. Thank you, Mr. Chairman.
Mr. POMBO. I have been informed that the Governor has another appointment. He is going to have to leave. I wanted to ask the full committee chairman, Mr. Combest, or Ranking Member Mr. Stenholm, if they had any questions of the Governor at this time?
[No response.]
Governor, we appreciate your being here. I understand you have a very busy schedule while you are here, so if you need to go, go.
Governor VENTURA. Thank you very much. I appreciate your allowing me to come here and testify on behalf of the Minnesota farmers. Thank you very much.
Mr. POMBO. Thank you.
I would like to recognize the ranking member, Mr. Stenholm, for questions that he may have at this time of our colleagues. Do you have any questions of our colleagues?
Mr. STENHOLM. No, Mr. Chairman.
Mr. POMBO. Mr. Combest, did you have any questions of our colleagues at this time?
The CHAIRMAN. No, thank you, Mr. Chairman.
Mr. POMBO. Mr. Calvert.
Mr. CALVERT. I just have a quick question for Mr. Blunt. The consensus economic analysis that I have looked at is that the final USDA decision could range from a much better to about the same as option 1–A. Then why do you support 1–A versus the alternative?
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Mr. BLUNT. I think that the FAPRI, Dr. Brown who is from FAPRI, who is going to testify next, will address that with the specifics of all those economic analyses with more capacity than I can. I think what those analyses do not appreciate what a dramatic difference a very small change in the price to farmers makes to whether those farmers continue to be able to produce milk or not. In my district, I believe your district is one of the very top dairy-producing districts in the country, Representative Calvert, my district used to be the eighth biggest dairy-producing district in the country. I don't know that we are in the top 20 today because people who had farms with fewer than 200 cows, just simply don't have those farms any more. They have the farms but they do something different than dairy on those farms because a minimal change in that price makes a dramatic change in whether they make money or lose money.
There are all kinds of analyses of this. I think the FAPRI analysis is the one that this committee has decided to look at. What it shows fundamentally is there is no consumer change. I don't think it establishes the fact that there wouldn't be either way. It doesn't establish the fact that there is not dramatic change in where dairy products are produced if we deviate from the current system.
Mr. CALVERT. But, realistically, don't you believe that there is a consolidation taking place in the industry that the small dairy of 100 or 200 cows just isn't economically viable in today's economic reality out there? Most of my dairymen, heck, it used to be a large dairy of 500, now we have dairymen that are milking several thousand cows. Isn't that where we are going? And by this type of legislation you have maybe just slows the process down a little bit?
Mr. BLUNT. I don't think that is inevitable. And I think that in most of the country, there are some parts of the country where those big dairy herds really can be accommodated without impact. In most of the country, particularly in most of the traditional dairy parts of the country, that large concentration of dairy herds creates all kinds of additional concerns and problems that don't have to be created if we continue to encourage family dairy farmers to operate their farms.
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Mr. CALVERT. Thank you, Mr. Chairman.
Mr. POMBO. Mr. Etheridge.
Mr. ETHERIDGE. Thank you, Mr. Chairman. I am sorry the Governor left because I had a number of questions I was going to ask him, but he is now gone. Let me thank you very much for holding this hearing. So that no one misunderstands where I am coming from, I am an original cosponsor on both bills. In my State of North Carolina, we have lost half of our dairy farmers in the last 10 years.
And so, Mr. Green, I am going to give you a couple of those questions I was going to ask the Governor. One of them is a little unfair, so I won't ask it of you because the Governor wanted to go to the total free market system, and I was going to ask the question if he didn't want the monies that we were sending to his farmers last year who were about to go broke not to go to them. I don't think he would have agreed with that.
But I am sick and tired of people telling me, ''Well, let the free market reign,'' when I look into the teary eyes of farmers and their families when they lose their farm. It is easy to sit here if you come from a city or somewhere else and make those statements. But I think we do have an obligation, Mr. Chairman, to make sure that people who live on the land have an opportunity to continue to live there. Now if we want to be a part of continually providing for consolidation in this country, count me out of that group because I don't think that that is what it is all about. I don't think that is what America is all about.
Mr. Blunt, let me thank you for your leadership and let me ask you the first question, if I may. As we look at the loss of dairy farmers in the Midwest, as we have, and we have also lost them in the Southeast, it seems to me there is a different dynamic working here. From what information I have in the Midwest, they are increasing production and going out of business. And in the Southeast, we have less production and they are going out of business.
Mr. BLUNT. That is exactly right, Congressman. The decline in percentage numbers is about the same but in the face of that, in the upper Midwest the production increases while in the Southeast, the production, the fluid milk production has decreased. So we are already seeing the impact of what happens when dairy farms go out of the country, go out of business in most parts of the country. For whatever reason, that does not appear to be the case in the upper Midwest but it is the case where you and I buy our milk. And in most of the States in the country it is the case. And that is probably why we have such a broad base of support for this legislation.
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Mr. ETHERIDGE. I would agree.
Mr. Green, you talked about the issues in the Midwest and I can appreciate that. And all of us represent our districts as we absolutely should. But with that same question, as you look, can you explain why we are losing as many farms as we are in the Midwest with production going up versus the Southeast where we are losing about the same and our production is going down?
Mr. GREEN. Your statement actually proves my point. Our farmers are among the most efficient anywhere in the world. The problem is the current system artificially puts them out of business. My friend, Congressman Boehner, who talked about moving away from a government-regulated system, why so many of the farmers in my State, in my district would support that is because they are efficient. They are productive. It is government-mandated pricing and its absurd pricing scheme that is forcing so many of them out of the business.
Now we lost in the last 10 years more farmers than nearly every other State in the Nation ever had. Now some of those farmers, years ago, went out of business because they weren't productive and they weren't efficient. And that is the market. That is the way it works. Now we are losing farmers, five, each and every day because of government-mandated pricing schemes, which punish them. When their price is based upon their proximity to Eau Claire, WI, an honor, I assure you, Eau Claire does not want to have; that is why they are going out.
I agree with you. I am against consolidation of the farms. It is unnecessary. The average farmer's in Wisconsin dairy herd is 60 to 70, very different than we have in many other parts of the country. Those farmers are very productive. We don't need, we don't want consolidations, but we do want fairness in the pricing scheme. I think Congressman Boehner's point about moving—and Governor Ventura's—about moving towards away from regulation, many of the farmers in my district believe the current system is neither fish nor fowl—either move to a fully government-regulated system or move away from it. The problem is——
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Mr. ETHERIDGE. Excuse me, Mr. Green. I only have so much time, and I just wanted a quick answer, not a long-winded one.
Mr. GREEN. It is my opportunity to respond to some of the points made.
Mr. ETHERIDGE. Thank you, and I appreciate that. But the point I want to get to and hope you will touch on this one because if you move to what Mr. Boehner and the Governor talks about, you are talking about no government involvement at all. And we are throwing the farmers to the wolves dealing on a total free market when there is no such thing. There is no such thing as a free market out there because we are dealing with a world market that the farmers, each individual farmer then becomes a—he has got to deal with other governments that run monopolies. Do you disagree with that?
Mr. GREEN. I would just point to the testimony that we have had at a previous hearing from the commissioner of agriculture in Minnesota and the secretary of agriculture in Wisconsin, both of whom are dairy farmers, and both disagree with your premise. They believe that they can compete.
Mr. ETHERIDGE. Thank you. Thank you, Mr. Chairman.
Mr. POMBO. Mr. Riley.
Mr. RILEY. Thank you, Mr. Chairman. Mr. Chairman, we have heard a lot today about how complicated this process is, how it takes an Einstein to understand it, how you have to have a Master's degree. This is probably one of the most simple things I have had to deal with since I have been here. This all boils down to whether or not we are going to allow fluid milk production to be a part of the Southeast.
Mr. Green said a moment ago that they could produce milk cheaper in Wisconsin than they could in any place in the country. That is true. It costs more to produce it in Alabama. And it makes absolutely no sense to me to say, ''Well, it costs more in Alabama, so we will reduce your price so we can give the people who produce it cheaper an increase in price.'' And that is essentially what we are doing.
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Mr. Boehner said a moment ago, ''Well, what we do is not going to matter any way.'' Well, if that is the case, leave it alone. What you are talking about is not a Milk Marketing Order or maybe it is, but it should be re-titled. It should be re-titled, ''The Southeastern Dairy Farmers Elimination Order'' because essentially that is what is going to happen. You are going to create a system where the cheapest production in the United States gets an increase in price, where it costs us more, we have got to take a reduction. Now it doesn't take a rocket scientist to figure out. And you said this is the first step, you are absolutely right, this is the first step toward a total elimination of a segment of our economy, a segment of our society.
I have heard everything about we shouldn't base this on Eau Claire, WI. I don't have a problem with that, but you tell me a product that doesn't have those same restraints? When I was in the egg business for 20 years, every time I bought corn, I bought it based on Evansville, IN. If you buy oranges, I promise you it costs more to get those oranges in Alaska or in Minnesota than it does in Orlando. So I don't understand why everyone is so uptight on where we base—transportation is a part of it.
We want a fluid milk supply in Alabama. We only produce about 20 or 30 percent of what we need. Your program, or what you are proposing, would eliminate even that 20 or 30 percent. There is absolutely no way that I think anyone in our State could agree with your proposals.
You talk about the number of people that have gone out of business in your State. Your asking me to go home to Alabama and say, ''Because it costs you more to produce, we are going to cut your price.'' Tell my next door neighbor that. ''So that a person that can produce milk cheaper can get an increase.'' Now there is something just basically irrational about that. If you want to go to the marketplace, that is fine.
I wanted to ask Governor Ventura this morning, I am sorry he left, if you truly believe in a free market economy, there was one other program that we really didn't deal with in the last farm bill and that is sugar subsidies. Minnesota is the largest sugar beet producer in the United States. Yet, we set quotas on the amount of sugar that comes into this country to protect those farmers, and I am not saying that is wrong. We set support prices to protect those farmers in Minnesota. Now if the Governor wants to do away with milk supports, then fine, let's talk about sugar beet production and see if we still talk about free market economies.
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I don't believe there is anyone—if Mr. Boehner, or anyone else on this committee, wants to do away with price supports, that's fine. But no one has the right to go and tell Alabama or any other State in the Union that they can't set up their own Milk Marketing Order. And I think that is the crux of it. Alabama wants the ability to produce its own fluid milk. You have transportation today. There is no doubt about that. You have refrigerated trucks. I have been Minnesota three times in my life. Every time I went, it snowed. [Laughter.]
And if there is ever a snowstorm that causes you to not to have the ability to ship milk out of Wisconsin or Minnesota into the South without a domestic production in our own State, we do without. You have got 2 days to ship this milk. I am not too sure that we want to depend on the weather for all of our production of fluid milk.
Thank you, Mr. Chairman.
Mr. POMBO. Mr. Dooley.
Mr. DOOLEY. Yes, it is kind of interesting when we have seen essentially planned economies all over the world collapse, when we come into the Agriculture Committee, we almost try to extend and re-create essentially planned approaches to how we are pricing a lot of our agriculture commodities, and I find it somewhat interesting and frustrating too.
I guess some of the recent comments is that, and Mr. Riley's comment about in his business where you pay more for oranges in Alaska than you might pay somewhere else or grain more based on where it is being shipped from, that is very accurate and very true. But you don't have the government mandated price differential. And you talk about the 225 people who are a cosponsor of your bill, Mr. Blunt, they are a cosponsor of it because they know by the government interference into the marketplace, it redistributes income and revenues that is not consistent with what would happen in the marketplace, and they have a benefit for doing that.
And what Mr. Green is saying and some other folks are saying is that is it the appropriate role of the Federal Government, when you have areas of the region, which have a relative advantage in the production of a particular commodity, that they should not realize that advantage? When we have down in the Southeast, when we have the average cost of production of milk that is $17.50 a hundredweight, and we have the average cost of production in the upper Midwest that is about $12.25, in California, it is a little bit lower than that, what we are trying to say is that we think it is the appropriate role of the Federal Government to interject themselves into the marketplace to ensure that we will have fluid milk production in the region, which wouldn't be justified by the marketplace.
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And I guess I find it somewhat remarkable that some of my more conservative Republican friends, who tend to be advocates of free market economies, are saying that, no, we need the government to come in and dictate that we are going to require the production or have government rules that ensure the production of a particular commodity in an area which otherwise wouldn't occur if the marketplace was allowing the allocation of resources.
And, Mr. Blunt, you talk about the reduction in the dairy production and the farmers in Missouri, I guess the policy you are in part advocating, if you go back to the turn of the century, we had 50 percent of Americans that were on the farm. And if you try to apply almost the same policy that you are advocating today is that we would still have 50 percent of the Americans on the farm.
And I guess I ask you is this going to ensure that this country is moving in a direction that is going to allow us to be competitive, providing consumers with a high-quality product at a price that is dictated by the marketplace? I have a hard time understanding why you think that it is the appropriate role of the Federal Government to step in and interfere with the marketplace?
Mr. BLUNT. Well, Mr. Dooley, let me say a couple of things. One is that I am sure as a friend of mine and a colleague of the 225 Members who cosponsored this legislation, you have absolutely no idea what their motivation is. And to suggest that their motivation is redistribution of wealth or some sinister purpose is just not right. Somebody mentioned earlier the shipping of lettuce across the country in a day. Well, the lettuce I bought last week in my refrigerator is still just fine. The milk I bought last week was not. A day makes a difference in this product.
The government has had a commitment to a fresh supply of this product——
Mr. DOOLEY. Mr. Blunt, if I may interrupt you for just a second, seeing that it is my time, is that why not allow the marketplace to dictate, if there is not an adequate supply of fluid milk, fresh fluid milk, why not allow the marketplace to dictate how high that price has to go in that region in order to ensure that that production is there? Why not allow the marketplace to determine how much of a local production is needed that cannot be met by the transportation of fluid milk from an area that has a lower cost of production? Why do we need the Federal Government to step in and mandate a plan which is going to almost result in a lower price in one area and a higher price another? Why not let the marketplace dictate what should happen there?
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Mr. BLUNT. Well, Mr. Dooley, you are on this committee and you know how long it takes for a dairy farmer to make the decision to get milk to the grocery store shelves. It is a different timeframe. It is a different decision. It is a fundamental difference of deciding what you are going to do than deciding what grain crop you are going to plant that year.
Mr. DOOLEY. Well, I am sorry, I have a little bit of trouble here——
Mr. BLUNT. Do you want to answer the question or do you want to ask the question?
Mr. DOOLEY. Yes, it is my time, and so I will take some liberties here. How much milk is controlled by co-ops in this country? Do you know what the percentage of it is?
Mr. BLUNT. I believe co-ops are controlled by dairy farmers.
Mr. DOOLEY. So to produce their own co-ops, they are not controlled by dairy farmers?
Mr. BLUNT. That is what I said. I believe they are controlled by dairy farmers.
Mr. DOOLEY. They are controlled by dairy farmers.
Mr. BLUNT. So all the milk in the country is controlled by dairy farmers.
Mr. DOOLEY. Right. So if they control in excess of 75 percent of the milk produced in the United States, dairy farmer-owned co-ops, why can't they collectively make decisions in terms of ensuring the product is going to reach a market, whether it is fluid or manufactured? And why don't they have such a strong market power when they control such a large percentage of the production that once again you don't need the Federal Government stepping in here?
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Mr. BLUNT. I think you understand dairy farmers, Mr. Dooley, and I do, too. And those dairy farmers who control 100 percent of the milk of the country are not in a situation where they can control where their milk goes. Dairy consumers are not in a situation where they can control where their milk comes from. I think, and many of our colleagues think, that that milk that is local and fresh is a better product and we have some interest in that.
Mr. DOOLEY. Let the marketplace decide.
Mr. BLUNT. Well, once the marketplace decides, dairy farmers are no longer going to be in a position to re-create their presence in that market.
Mr. DOOLEY. Consumers are the marketplace.
Mr. BLUNT. That is exactly right.
Mr. DOOLEY. So let them decide.
Mr. BLUNT. Once they decide, dairy farmers are no longer in a position to re-create the system and the distribution of production that we have right now.
Mr. POMBO. Mr. Goodlatte.
Mr. GOODLATTE. Thank you, Mr. Chairman. Mr. Chairman, I want to commend Mr. Boehner and Mr. Dooley for their free enterprise spirit and if such an amendment is offered by Mr. Boehner, I may well support it. I am not a big fan of these programs. What we are debating here today is whether we are going to have one government support program, 1–A, or whether we are going to have another one, 1–B. They both involve government interference in the marketplace. And when I am given that choice, I am going to choose the one that helps my dairy farmers the most. And I am sure that is what Mr. Blunt's objection is as well.
Now I am more concerned because I think both of these plans are a step in the right direction from where we have come, and I would hope everybody would agree with that in terms of moving away from more government interference towards less. But I am very concerned about our heading in a wrong direction that we haven't talked about very much today and that is that there are some other options out there that go along with these that can be considered by this Congress that I think go in the wrong direction.
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And on this, I would probably disagree with you, Mr. Blunt, and that is on these compacts that have been proposed. One slipped through a few years ago, the Northeast Dairy Compact. Now there is a strong proposal for another one, Southern Dairy Compact. My dairy farmers strongly support it, and I strongly oppose it, not because I don't want to help my dairy farmers out, but because I am very, very concerned about turning over the regulation of interstate commerce to the States. The Northeast Dairy Compact is, to my knowledge, the first time in American history that Congress has ever turned over to a group of States the ability to regulate interstate commerce.
We went through a great ordeal in this country, with the founding of this country with States imposing tariffs on goods going in and out of those States from other States. And we resolved that with a famous Supreme Case of Ogden v. New York, in which the State of New York was attempting to impose tariffs on goods shipped across the Hudson River from New Jersey. And the Supreme Court ruled that Congress had the power to regulate interstate commerce. And for 200 years that has been the law of the land. We have not allowed the same kind of balkanization of trade that has taken place worldwide to interfere with the growth of our economy in this country by allowing individual States or groups of States to impose those kinds of restrictions on goods flowing in and out of their States.
And now we have taken what I think is a terrible step in that direction. I am already hearing reports of a Midwestern Grain Compact, which, quite frankly, if that were formed, it would be quite contrary to the interests of my dairy farmers, who have to buy that midwestern grain at certain times of the year. And there is nothing to say that a part of the country that wanted to protect and shelter and allow to grow its software industry, its automobile industry, its mining industry, almost any product that you can think of that you manufacture, even services could be restricted by the States and why do we go down this road with dairy when we certainly I would hope wouldn't want to go down that road with a wide array of other types of products that are produced. And I think it is a horrendous trend that I see the same people supporting the 1–A version also signing on board to support compacts.
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Now if you are going to have government interference in the marketplace, let's at least have it controlled by the Federal Government and not go down the road of having individual States being able to set themselves up in groups or individually to regulate commerce flowing into other States.
Mr. Blunt, what do you have to say about that?
Mr. BLUNT. Well, let me say a couple of things about that, Mr. Goodlatte. I think the cosponsors of those two pieces of legislation, as you know, are not exactly the same, and I appreciate your support for 1–A. That is not what we are debating here today but I would say in that regard that I think if we go to a different system, if we give dairy farmers this fall the only option of 1–B or no Federal program, that what you really do is increase the level of demand for those compacts if you don't do something that works differently.
Not to debate the Ogden case, our friends in the Northeast, that land mass is smaller than the State of California that does control their entire price in their own way so that would be how they would defend that if they were here. We don't have a compact in Missouri. I don't know if that Southeast Compact is going to be developed or not. I do know that if we go to the 1–B option, that the demand for those compacts from dairy farmers, including yours, will be much greater than if we don't.
Mr. GOODLATTE. Well, I agree with that. But I would say to you that if we are going to continue to have meddling in the marketplace, and I am sure that we will in the end, as much as I like Mr. Boehner's approach, it does not only exist in dairy, it doesn't only exist in agriculture, we get involved in markets in all manner of ways here in the Congress. But let's not set up a balkanization of trade in the United States, which is a major impediment to our growth and our ability to deal products to other countries and have that same problem existing with the United States.
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Mr. Green, do you want to comment on that?
Mr. GREEN. Yes, I think it is important to point out here that this whole system was created back in 1937 when there was actually a need for the government to get back involved. That is because you had very few States that were surplus States.
With respect to your comments and Representative Riley's, the key difference is we now have 35 States that are surplus dairy producers. So if Wisconsin and Minnesota are shut down by a snowstorm, which hasn't happened in years in dairy production, there are more than enough States to pick it up. You will never have to worry about a dairy supply.
Mr. GOODLATTE. But what do you think about compacts?
Mr. GREEN. Compacts don't help the dairy farmers in Minnesota and Wisconsin one iota and that is because the vast majority of the milk that we produce goes into manufactured dairy products.
Mr. GOODLATTE. What do you think about the concept of regulating interstate commerce amongst States in and of itself? Leave aside the problem we have with dairy, I am concerned about the precedent that we have set by allowing the Northeast Dairy Compact to go forward. Let's assume that dairy farmers have a host of problems, and we want to help them address it in some way, shape, or form, but that is a separate point from the precedent that we have established by allowing to slip through the Congress a few years ago the establishment of the Northeast Dairy Compact.
Mr. GREEN. Mr. Goodlatte, I find it very hard to reconcile this growth of compacts with the Constitution. My own view is it is an unconstitutional restraint of trade between the States. I think it is clear from the text of the Constitution, as well as the Supreme Court decisions, that the whole movement of compacts is contrary to the very constitutional principles that we have all recognized for so many years. I agree with you.
Mr. GOODLATTE. Good, thank you. Thank you, Mr. Chairman.
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Mr. POMBO. Ms. Stabenow.
Ms. STABENOW. Thank you, Mr. Chairman. I have had laryngitis all week, so I apologize as I whisper along here. I, in fact, with all due deference to my good friends opposing the Blunt bill, I am one of the cosponsors and I am very pleased to be one of the cosponsors. And I do believe the issue is 1–A versus 1–B. But I would also say that we are not in a purely free market system. We have not been. We will not be. Even with Freedom to Farm, we have safety nets of crop insurance. We have other issues. We have sugar subsidies. And this is a blend, it is a partnership that has occurred.
Mr. EWING. Would the gentle lady yield? We don't have sugar subsidies.
Ms. STABENOW. Well, we, in fact, are supporting sugar, absolutely. I come down and vote on it every year. And so while we know that we have——
Mr. POMBO. We will save that debate for later. We will deal with dairy now.
Ms. STABENOW. As somebody who has been supporting sugar, I know that we have, in fact, made decisions, public policy decisions, to support family farms, to support agriculture, that have ended up in a blend. And I would say that what is before us today is an issue of 1–A versus 1–B. And for the life of me, I cannot understand when we have the group that represents the Nation's farmers unanimously in support of 1–A, when we have seen Secretary Glickman's own Pricing Structure Committee recommend 1–A, we have seen overwhelming support for the option 1–A, why, in fact, that has not been the recommendation from the USDA. Clearly, I speak as somebody who represents dairy farmers in Michigan. But throughout the Nation, we are hearing from dairy farmers that this is the option that best supports them in that industry. I don't think there is anything wrong with that. I think we are here in fact to be supporting that industry, as well as other farmers and other industries across this Nation. And I am very concerned that the dairy farmers in Michigan will be harder hit by option 1–B. And I at this point would strongly hope that we would in the end, after all the debate and the philosophy, be supporting Representative Blunt's bill.
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Thank you. I yield back.
Mr. POMBO. Mr. Ewing, it is your time.
Mr. EWING. Thank you, Mr. Chairman. And this is a very interesting hearing and a very interesting subject. To both the gentlemen, the question I have and you have already answered is about the compacts. And can you give me a yes or no whether you support the compacts?
Mr. BLUNT. Yes, I support the compact concept.
Mr. GREEN. I do not.
Mr. EWING. We have a division here. I yield back.
Mr. POMBO. Mr. Smith.
Mr. SMITH. Mr. Chairman, thank you very much and just a couple of comments as an old dairy farmer from Michigan. My family has been trying to make a living milking cows since 1836 on the same farm that I am on now. My impression, when we started these government programs in the 1930's was to try to develop, if you will, a level playing field for bargaining between the producer and the purchaser manufacturer. At that time, we had about 200 dairy farmers producing for every one dairy that was buying and manufacturing. A farmer could make a contract with a dairy on a price of milk, for $4, $5, whatever. That company could come back to that farmer 8 months later when they got more milk than they really needed and said, ''Look, sorry, we can't keep our end of the bargain.'' The farmer says, ''Well, I have talked to my attorney. We can sue you.'' The company says, ''Well, sue me. I don't care. But we are going to have stop picking up your milk, of course, if you sue us.''
So what happened is that farmer had a tremendous disadvantage as a producer. We started these farm programs to try to make a competition, to allow co-ops to have a little more leeway in developing a competition negotiating position with those dairy farmers. It seems to me that that still has to be our concentration. How do we make sure that the marketplace is working—Mr. Dooley is not here—by allowing those farmers to negotiate for price in a reasonable fashion to ensure that the supply and demand concept can continue to work.
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We still have about 200 dairy farmers for every one dairy manufacturer that is buying that milk. So those dairy farmers are still at a disadvantage if they are asked to try to price their milk independently. So we have asked government to do this. A substitute for government would be stronger co-ops. Our co-ops have gotten a little lazy, gentlemen, I think over the last 50 years. One option if we were to go to a free market would be to pass legislation to strengthen the ability of those co-ops to reasonably market and bargain in an effort to give the farmers a fair price to assure that our dairy farmers in this country stay in business.
I yield back the balance of my time, Mr. Chairman. Thank you.
Mr. POMBO. Mr. Gutknecht.
Mr. GUTKNECHT. Thank you, Mr. Chairman. We do have a vote. And so I will use my auctioneer skills to get through this in 3 minutes if I can.
I want to associate myself to the comments made by Governor Ventura, and I thought he represented the dairy farmers in our State and the upper Midwest very well. But, more importantly, I think the comments he made hopefully all the members of this panel will at least take to heart.
Mr. Blunt, you talked about the percentages and the numbers of dairy farmers that have been lost. I am told by reliable sources that just since 1997, we have lost 3,100 dairy farms in the upper Midwest, 2,000 from Wisconsin alone. Now you indicated that we have lost dairy farms in other parts of the region, perhaps at even a higher percentage. All of that has happened under the current dairy program. And for those who would defend the status quo, it seems to me we ought to at least take a fresh look because if the past is prologue, it seems to me that you are making a crying argument that we ought to do some real reform and we ought to allow some real changes.
I also wanted to indicate that where I come from, and I think in farm country all over the United States, there is a term that every farmer understands and that is that a deal is a deal and a bargain is a bargain. And we see in farm country $100,000 combines being sold with a handshake. Back in 1996, and I must say, Mr. Blunt, you were not part of that bargain, but there was a bargain struck that we would allow the Secretary to move forward with more marketed-oriented dairy policy. In fact, just last week, this full committee had a hearing on LDP's and on whether or not we would go to a national LDP, which many of us believe would create unfair regional differentials. And, as a result, the Secretary came under a good deal of scrutiny from members of this committee about creating that LDP calculation, which would basically set up LDPs based on how far you are from terminal markets.
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But, finally, I just want to respond to something Mr. Goodlatte said. And I think it is a very important point, I think all of us need to consider this and that is whether or not we are going to allow these compacts, not only to continue, which, again, was part of the bargain, that they would be phased out, in fact, they were extended last year beyond what they originally were supposed to be extended. The whole concept of allowing States to set up these regional barriers to trade, it seems to me is ridiculous because at the very time we are all saying what we have to do is open up markets for American farmers in Asia, in Europe, in Central America, and around the rest of the world, we are trying to do the opposite as it relates to dairy policy within the United States. It just strikes me that if we ever want to be serious about opening markets in other parts of the world, we ought to open up markets in the Northeast.
And, finally, I would just say that I think that if you look at it, at least the information that I have, they are allowing markets to set the price of milk in Moscow. It seems to me that maybe we ought to try it here in the United States. And the strong would survive and flourish and some would fall by the wayside. But the truth of the matter is we are losing farmers every single day under the current policy. And the program that the Secretary has proposed is a very modest in fact, I think we are going to hear from the economists later and we will look at the charts, at the end of the day, there isn't all that much difference. Representative Boehner is correct. But I would hope at least we would live by the bargain that we made 3 years ago, that we would allow the compacts to expire and that we would allow the Secretary to move ahead with very modest dairy reform which would move us a little bit towards more market-oriented agriculture as it relates to dairy.
And with that, I would yield back my time. It is not really a question, but we have to run in vote.
Mr. BLUNT. Mr. Chairman, could I comment on that, use a little bit more of Mr. Gutknecht's time?
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Mr. POMBO. Just a second and then I am going to let him respond if he wants to.
Mr. BLUNT. I hear that. I would just like to say in response—I know you have spent a lot of time on this issue, Congressman, I respect your commitment to agriculture. I do think a very small difference in price does make a tremendous difference to farmers. This is a decision about 1–A or 1–B, not about 1–A or some worldwide competition. Interestingly, I never hear anybody talk about letting American dairy farmers compete with New Zealand dairy farmers or assuming we can overcome the dairy barriers to the European Union in the likely life of whichever order is here.
The other thing I would like to say while I have some time is that I will even concede in spite of Land O' Lakes that 1–B may be better for Minnesota and Wisconsin. I think it is not better for the rest of the country. And if we were going to measure distance, I do want to get on the record that I wouldn't want to measure country music from Nashville, I would want to measure it from Branson.
Mr. GREEN. If you would like to, we can set up a Federal order to measure it from Branson, I am all for that.
Mr. BLUNT. We would be for that.
Mr. GUTKNECHT. But you would have to concede, Representative Blunt, there is not another product in the United States that the Federal Government artificially sets a price for based on where it comes from and what it goes into. I have searched and searched and searched, and I cannot find another product anywhere that is based on where it comes from and what it goes into where the Federal Government sets the price. It is an arcane system. It is a system in which even one of the Supreme Court justices has called Byzantine. And the reforms that the Secretary has called for by any measure are modest.
And all our dairy farmers are asking is to level the playing field. And, obviously, any time you level the playing field, it means if you level the playing field, some are going to go up a little relative to others and some are going to go down relative to others. And any argument about leveling the playing field is all about somebody getting a little less relative than the other person.
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What Representative Green and a lot of us have been saying is because of these regional differentials, we have been at the low end of that playing field for too long, 50 years. All we are asking for is a little bit of fairness. And I don't think it is too much to ask.
Mr. POMBO. I am going to have to cut you off there so the Members can go; we have a vote going on. But just so the other members of the audience understand, we have a series of votes that are going on on the floor right now. We are going to recess the hearing until the end of that series of votes and then we will reconvene the hearing. So it may be as much as a half hour that we will be out, but we will return as quickly as we possibly can. Thank you.
Mr. GUTKNECHT. Thank you, Mr. Chairman.
[Recess.]
Mr. POMBO. The SUBcommittee will come to order.
Mr. Brown.
STATEMENT OF SCOTT BROWN, FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE (FAPRI), COLUMBIA, MO
Mr. BROWN. Thank you, Mr. Chairman and members of the subcommittee, for the opportunity to brief you on the recent consensus analysis of reform of the Federal Milk Marketing Order system. At the May 5 hearing, the assembled dairy economists heard your message and started an effort to provide this committee with a consensus economic analysis of the impact of USDA's recent final rule. The culmination of this activity is the report that you have in front of you today.
The activity we conducted was an open forum where dairy economists from across the country were able to express their views regarding USDA's final rule. These ideas and views were drafted into assumptions that could be incorporated into the FAPRI economic model of the U.S. dairy industry. The results that were produced were then examined in detail before the finished product presented here today was assembled. I wish to thank all who participated in this process. Although the results had to pass many hurdles before being deemed acceptable, it made this analysis much more robust.
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As always, we wish time would have been available so that other individuals could have been a part of this work. Unfortunately, time was not available for that extended activity. For those of us who worked on this analysis, we hope it provides a common point from which the merits or demerits of the final rule can be discussed.
There were several assumptions debated by the assembled group of economists. Although a decision was reached on each of these assumptions, one should not assume that everyone agreed with the final assumption. The assumption that was the most difficult was with regard to the new minimum class III price or the minimum price of milk for cheese. The majority of economists felt the new minimum class III price would average less than the current basic formula price for a given set of dairy product prices, cheese prices, butter prices, non-fat dry prices.
The assumption used in this analysis today is for the minimum class III price to average 30 cents a hundredweight below the current basic formula price before any market adjustment occurs. This assumption is one of the factors that led to the National Milk Producers Federation not to sign on to this analysis. They remain with their original position of the new minimum class III price, yielding 50 cents per hundredweight less than the current BFP does.
The next assumption dealt with is where does the additional revenue end up by cheese processors only paying this new minimum class III price. That is, the 30 cents per hundredweight difference between the new minimum class III price and the current BFP must be distributed. The assumption made in this analysis is that 75 percent or 22 of the 30 cents would be returned to dairy farmers through additional premiums on that class III milk or increased cooperative dividends. It is assumed that the remaining 8 cents moves forward to processors, retailers, and consumers.
The next area of assumptions with the pricing of fluid milk. The final rule sets the class I mover to be the higher of the new minimum class III or class IV prices. That differs from the current system where the class I price mover is the basic formula price. This higher of concept can result in the annual average class I mover to be higher than the annual average of either the class IV or class III price. The closer the annual average class III and class IV prices are, the more likely the class I mover under the final rule will contain some price enhancements. This analysis adds 10 cents per hundredweight to the class I mover because of this enhancement feature. Some have suggested numbers even much higher than was come up with in this consensus analysis.
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The remaining assumption deals with fluid premiums. Our numerous conference calls that we had with the different dairy economists across the country, this was also one that there was a lot of uncertainty with how to deal with changes in fluid premiums. The consensus of the group was that class I premiums will adjust as class I differentials change under the final rule. However, the premium change that will occur under the final rule will depend upon the area of the country where the milk is produced.
So to try to bracket the potential change in class I premiums that could occur, we ran two scenarios for the final rule. One scenario is run where there is no change in class I premiums. The remaining scenario is one where 50 percent of the change in the class I differential is offset by changes in class I premiums. That is, if the differential is set to decline by $1 under the final rule in a particular region of the country, under this option, the class I premium will be increased by 50 cents.
We also made some adjustments to California fluid prices in order to keep them in reasonable alignment with neighboring States as their current State legislation suggests.
I migh