Segment 1 Of 2 Next Hearing Segment(2)
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THE FARM FINANCIAL CRISES
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SEPTEMBER 14, 15, 1999
Serial No. 10634
Printed for the use of the Committee on Agriculture
COMMITTEE ON AGRICULTURE
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LARRY COMBEST, Texas, Chairman
BILL BARRETT, Nebraska,
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
HELEN CHENOWETH, Idaho
JOHN N. HOSTETTLER, Indiana
SAXBY CHAMBLISS, Georgia
RAY LaHOOD, Illinois
JERRY MORAN, Kansas
BOB SCHAFFER, Colorado
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana
KEN CALVERT, California
GIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
GREG WALDEN, Oregon
Page 3 PREV PAGE TOP OF DOC Segment 1 Of 2 MICHAEL K. SIMPSON, Idaho
DOUG OSE, California
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GEORGE E. BROWN, Jr., California 1
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLIARD, Alabama
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
VIRGIL H. GOODE, Jr., Virginia
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
CHRISTOPHER JOHN, Louisiana
Page 4 PREV PAGE TOP OF DOC Segment 1 Of 2 LEONARD L. BOSWELL, Iowa
DAVID D. PHELPS, Illinois
KEN LUCAS, Kentucky
MIKE THOMPSON, California
BARON P. HILL, Indiana
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
1\ Deceased July 16, 1999.
C O N T E N T S
September 14, 1999
Barrett, Hon. Bill, a Representative in Congress from the State of Nebraska, prepared statement
Boswell, Hon. Leonard L., a Representative in Congress from the State of Iowa, prepared statement
Chenoweth, Hon. Helen, a Representative in Congress from the State of Idaho, prepared statement
Page 5 PREV PAGE TOP OF DOC Segment 1 Of 2 Combest, Hon. Larry, a Representative in Congress from the State of Texas, opening statement
Hayes, Hon. Robin, a Representative in Congress from the State of North Carolina, prepared statement
Minge, Hon. David, a Representative in Congress from the State of Minnesota, letter of September 9, 1999 to Jacob Lew
Smith, Hon. Nick, a Representative in Congress from the State of Michigan, prepared statement
Stabenow, Hon. Debbie, a Representative in Congress from the State of Michigan, prepared statement
Stenholm, Hon. Charles W., a Representative in Congress from the State of Texas, opening statement
De Briyn, Paul, president and chief executive officer, AgStar Farm Credit Services
Denison, John, chairman, U.S.A. Rice Federation
Detrick, Terry, vice-president, National Association of Wheat Growers
Ford, Dwain, executive committee, board of directors, American Soybean Association
McNutt, John, president, National Pork Producers Council
Page 6 PREV PAGE TOP OF DOC Segment 1 Of 2 Prepared statement
Pearson, Harry L., president, Indiana Farm Bureau Federation, on behalf of the American Farm Bureau Federation
Rayner, Ronald, president, National Cotton Council
Swenson, Leland, president, National Farmers Union
Utlaut, Ryland, chairman, National Corn Growers Association
Willingham, Clark, past president, National Cattlemen's Beef Association
American Bankers Association, statement
Bereuter, Hon. Doug, a Representative in Congress from the State of Nebraska, prepared statement
Caspary, Jim, Independent Bankers Association, statement
Davis, T. James, president, Central Washington Grain Growers, Inc. statement
Gold, Mark A., First Capitol Ag, Inc.
Schafer, Hon. Edward T., Governor, State of North Dakota, statement
United Fresh Fruit and Vegetable Association, statement
September 15, 1999
Page 7 PREV PAGE TOP OF DOC Segment 1 Of 2 Barrett, Hon. Bill, a Representative in Congress from the State of Nebraska, prepared statement
Combest, Hon. Larry, a Representative in Congress from the State of Texas, opening statement
Glickman, Hon. Dan, Secretary, U.S. Department of Agriculture
Minge, Hon. David, a Representative in Congress from the State of Minnesota
National Association of Conservation Districts, statement
THE FARM FINANCIAL CRISIS
TUESDAY, SEPTEMBER 14, 1999
House of Representatives,
Committee on Agriculture,
The committee met, pursuant to call, at 10:00 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives Barrett, Boehner, Ewing, Smith, Everett, Lucas of Oklahoma, Chenoweth, Hostettler, Chambliss, LaHood, Moran, Thune, Jenkins, Cooksey, Gutknecht, Riley, Walden, Ose, Hayes, Fletcher, Stenholm, Peterson, Dooley, Clayton, Minge, Pomeroy, Holden, Bishop, Baldacci, Berry, Goode, Stabenow, Ethridge, John, Boswell, Phelps, Lucas of Kentucky, Thompson of California, and Hill.
Page 8 PREV PAGE TOP OF DOC Segment 1 Of 2 Staff present: William E. O'Conner, Jr., staff director; Tom Sell, Alan Mackey, Callista Bisek, Wanda Worsham, clerk; R. Bryan Daniel, Vernie Hubert, Howard Conley, Anne Simmons, and Russell Middleton.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
The CHAIRMAN. The hearing will come to order. I would like to welcome our witnesses and colleagues to today's hearing on the Farm financial crisis.
As we all know, farmers are now suffering a second year of seriously depressed prices for most commodities. This, in addition to the inherent risk involved in farming, has made making a living on the farm extremely difficult. This committee, throughout the course of this year, has sought to be a very open forum and actively advocate on behalf of America's farmers and ranchers. We have held a number of hearings and considered several pieces of legislation of importance to agriculture. Recently, we reported out a bill to strengthen crop insurance and provide better risk management tools for farmers and ranchers. However, all these things are meaningless unless we do something now to help get farmers into next year. That is why we are here today.
We have heard a lot of discussion lately on what should be done to help America's farmers and ranchers. In order for this committee and Congress to provide assistance that really does what it needs to do, we must fully understand the scope of the problem facing producers and what measures can best provide a solution. In addition, we need to know the best way to deliver any assistance to the people who need it the most.
I have been very disappointed by the lack of response from the Secretary of Agriculture regarding this matter. I invited the Secretary to appear before this committee to discuss this issue, and after more than a week's delay in answering, he finally decided to appear tomorrow. I hope to learn at that time what has been more than 5 months since we first began discussing this matter and still haven't seen any kind of proposal from the administration to provide much-needed assistance to farmers and ranchers. I look forward to the testimony of our witnesses and the questions of my colleagues to those witnesses, and I would again thank everyone for being here and would recognize Mr. Stenholm if he has an opening statement.
Page 9 PREV PAGE TOP OF DOC Segment 1 Of 2 OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman. I would like to thank you for holding hearings today and tomorrow to assess the depth of the current agriculture crisis.
Let me state for the record that this crisis is real and that we as policymakers are going to have to at some time in some meaningful way begin to address the shortcomings of the policy that we are following regarding our Nation's agriculture. I am concerned, however, that we are speedily moving in a direction that again will provide temporary relief only, and are missing an opportunity to provide truly meaningful relief.
When we passed the 1996 farm bill, even the most ardent supporters of Freedom to Farm recognized that the true test of this program would come in future years when prices declined and Agriculture Market Transition Act, or AMTA, payments would phase down. Well, the future is now and we are failing the test. Just as we did last year, we are once again considering how to provide additional assistance to farmers. This is not to say that the 1996 farm bill is totally flawed. This legislation was designed to phase down farm programs, reduce Government involvement in agriculture, and turn farmers loose to face the world market. It has done these things very well. In so doing, Congress promised U.S. producers that we would open markets for expanded trade opportunities, increase research dollars, and reduce regulatory burdens, which we have failed to do.
So in its design Freedom to Farm was only a partial farm policy. It removed the agriculture safety net without providing the promised markets. Without casting blame or pointing fingers we need to recognize this fact.
For the record, I would note I did vote for the bill with the belief that it was a better alternative than nothing. We must now all take this opportunity to find a way to improve and build upon the positive aspects of Freedom to Farm. I realize that in saying this, I am somewhat at odds with some of my colleagues from some rural districts. They say we don't have time for a serious debate about farm policy and that we need to get the relief out quickly and at a meaningful level. I am also concerned about delaying assistance, that I also have to wonder when we will have that meaningful debate.
Page 10 PREV PAGE TOP OF DOC Segment 1 Of 2 Congress provided almost $6 billion in assistance to farmers in 1998, assistance that I might say was well appreciated and did provide some considerable help to many who otherwise would no longer be farming. And this year we are considering a package of over $7 billion. But we are still no further along in providing a comprehensive risk management safety net this year than we were last year.
To make matters worse, no one expects an improved farm economy next year. Given that next year is an election year, it is likely Congress will once again provide emergency AMTA payments from the Social Security trust fund surplus, claiming there is no time to do anything else.
Let us consider this year's aid package in the overall context of the budget situation. It is no secret that Congress has broken the spending caps, circumventing them through so-called emergency spending. Additional spending now comes out of the Social Security trust fund; there is no finessing this. It is a simple fact and we should stop finessing it.
The best thing for budget discipline to those that concern themselves about spending is to acknowledge it and figure out a realistic budget agreement that everyone can live with and do that which we need to do for agriculture, which is the subject of today's hearing. Absent that, we are going to nickel and dime the budget process by spending billions of dollars until we spend more of the Social Security surplus than we would have with a realistic budget plan in place.
As things now stand, we will spend Social Security trust funds without any clear plan of where we want to go with farm policy. We will make disaster payments based on the AMTA program we created in 1996 that was designed to get the Government out of agriculture by decoupling payments. This is a program based on yields and bases frozen in 1985 and 1990, and in 1996, a CBO projection of future payments based on the 1990 farm bill.
We will be paying market loss payments to producers who are no longer planting the crop for which the AMTA payments were calculated. We will be making payments to individuals who are no longer farming. Does this really make sense?
Page 11 PREV PAGE TOP OF DOC Segment 1 Of 2 I believe there is an economic crisis in farm country. I know there is. I have been home. I was home with producers this weekend. I had three young farmers come to me and say, Charlie, what are you going to do to change the current farm bill? If you are not going to do anything, tell me nowand their wives were standing thereso we can make the adjustments necessary. I understand that.
We have reached an emergency level, and it must be addressed. We must provide the assistance, though, in a cost-effective and targeted manner, especially given the fact of the monies that we are spending. We must ensure that the assistance is going to those producers who are actually producing the crop and who truly need it because they have not made a crop, or the price which they are receiving is too low. We cannot continue to indiscriminately provide assistance to producers for disaster and economic loss through a mechanism that is not designed for such a purpose.
In terms of the big picture, agriculture producers comprise less than 2 percent of the population. Agriculture programs can only withstand scrutiny to the extent they are reasonably and nationally related for the purpose of which they are designed. Our urban colleagues and the Nation's news media will be watching to see that this is so. If we are going to make payments for the loss of markets, then we need to make them to the producers who are actually suffering from low prices due to lost markets. If we are going to provide disaster assistance for lost crops, then we need to make payments to producers that actually lost a crop.
These are not difficult concepts. These goals are rationally related to easing the current farm crisis.
I have introduced a bill, H.R. 2792, that I believe meets this simple criterion. I am hoping it will receive fair and impartial consideration sometime during this process. I am optimistic that it is a proposal that we can build upon in the future. If there is a better proposal out there, I am certainly willing to consider, sponsor, cosponsor, support and work for its passage. What I am reluctant to do is to go down the same path and end up in the same place from where we started.
Page 12 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. Chairman, there are a number of agriculture organizations in town this week. Again, I commend you for holding this hearing. I believe it is the first step in going down the path that I know you and I both share in trying to come up with some rational answers to this; and I hope that those organizations who were unable to appear, that you will leave the hearing record open in order to give their members an opportunity to submit comments for the record also in light of the loss of time that we have available for purposes of an open hearing.
I thank you, Mr. Chairman.
The CHAIRMAN. I thank the gentleman. There are a number of groups that have indicated they would like to submit testimony and the Chair will propose a unanimous consent to keep the record open for 10 days at the conclusion of the hearing.
I would like to invite our first panel to the table. Mr. Harry Pearson, who is president of the Indiana Farm Bureau Federation, on behalf of the American Farm Bureau, from Indianapolis, IN; Mr. Leland Swenson, president of the National Farmers Union of Evergreen, CO. Mr. Paul De Briyn, president and CEO of AgStar Farm Credit Services from Mankato, MN.
Without objection, all members' statements will be included as a part of the record if they wish to make those available.
[The prepared statements of Members follow:]
"The Official Committee record contains additional material here."
The CHAIRMAN. I would remind our witnesses that their statements in their entirety will be made a part of the record and would ask Mr. Pearson to proceed and if at all possible, summarize the main text of what it is that you wish to say. I would like to make sure that there is ample time for questions and thank you very much for appearing.
Page 13 PREV PAGE TOP OF DOC Segment 1 Of 2 STATEMENT OF HARRY L. PEARSON, PRESIDENT, INDIANA FARM BUREAU FEDERATION ON BEHALF OF THE AMERICAN FARM BUREAU FEDERATION
Mr. PEARSON. Thank you, Mr. Chairman. I am Harry Pearson, president of Indiana Farm Bureau and also a fifth generation farmer from Indiana. We appreciate your efforts and those of the distinguished committee members to consider the current financial crisis plaguing much of U.S. agriculture.
On the farm, we have had a very difficult time during the 1990's. While there are sectors of the U.S. economy that have soared, net farm income has been stagnant at best. Net cash income has increased by only 2 percent and is projected to be lower this year than 1996, 1997, and 1998. Net farm income is also down for the third year in a row; and if farmers and ranchers had not received Government assistance in the form of direct payments, farm income measures would be nearly $10 billion lower on average in each year of this decade.
The commodities that I produce, including corn, soybeans and wheat, have experienced significant price decreases to historic low levels. In fact, a sector-by-sector breakdown reveals that other major commodities like cotton, rice and livestock have also declined to levels below average annual prices received over the previous 4 years from 1995 to 1998.
From all indications, our immediate future doesn't look any better. Farm cash receipts for 1999 are forecast to be at $12.1 billion below the 1995 to 1998 average. USDA projects direct payments to farmers in 1999 of $16.6 billion, a $4.4 billion increase over 1998. And even if a major portion of that $4 billion increase goes to additional farm program crops, only two-thirds of farmers' cash income will be replenished to help pay production expenses and, more importantly, pay debt down.
On July 8, the American Farm Bureau announced its AgRecovery Plan, which prescribes $9 billion of spending on agriculture programs and $5 billion to decrease the cost of Government regulations. Farm Bureau's AgRecovery Plan is a four-pronged approach to alleviate some of the financial stress being placed on producers during this period of low income. We call for at least $4 billion in additional AMTA payments for 1999. Given the price and weather developments over the past few months, we believe that this is absolutely necessary.
Page 14 PREV PAGE TOP OF DOC Segment 1 Of 2 We, along with you, Mr. Chairman, call for advancing the 2000 crop AMTA payments to October 1, 1999 for those producers who need earlier funds than current law permits. Furthermore, we believe that AMTA payments should not be subject to current payment limitations and that the payment limits for loan deficiency payments and market loan gains should be abolished.
The second part of our plan is to move more products out of the country into world markets. We urge Congress to allocate an additional $2 billion in funding for concessional sales and food assistance, adequate funding for the cotton Step Two Program and competitive funding for other USDA export programs. Trade sanctions should be removed and export regulations should be streamlined. We were pleased to see that the administration has recently taken steps to reduce sanctions and that the Senate included language in the fiscal year 2000 agriculture appropriations bill to make much-needed sanctions reform.
Third, we commend this committee for taking action to revamp the crop insurance program. To complement this action, our plan recommends an additional $2 billion to allow crop insurance program reform to begin in the crop year 2000, rather than waiting for the 2001 crop year. As this committee has done in H.R. 2559, current programs need to be made workable for more crop producers, and new programs need to be developed for fruits, vegetables and livestock.
Fourth, we seek a reduction in costs associated with increased Government regulations. Farmers and ranchers have been promised reduced regulatory costs for years, only to see those costs continue to go up; and it is time for the President, Congress, and the Federal Government bureaucracy to recognize the ever higher costs that Federal agencies impose on farmers and ranchers. The one thing we do not want the Federal Government to do is to use the current farm economic difficulties as an excuse to reduce planting flexibility with supply controls and give our markets to foreign producers by providing higher loan rates and storage programs.
Page 15 PREV PAGE TOP OF DOC Segment 1 Of 2 Again, we applaud the recognition of our financial crisis by this committee and previous legislative action taken by the Senate, including the $7.4 billion in emergency spending in the agriculture appropriations bill. We were very supportive of H.R. 2743 that was introduced by Congresswoman Emerson to provide the $8 billion in assistance to partially offset poor farm prices. We encourage you to support emergency economic assistance measures similar to these two bills.
And finally we feel we must provide an additional $1 1/2 billion in financial assistance to those producers in weather disaster areas across the country.
Mr. Chairman, I appreciate the opportunity to appear before you this morning.
[The prepared statement of Mr. Pearson appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much, Mr. Pearson, and for your very thoughtful brief comments.
Mr. Swenson, please proceed.
STATEMENT OF LELAND SWENSON, PRESIDENT, NATIONAL FARMERS UNION
Mr. SWENSON. Thank you, Mr. Chairman.
In the testimony presented as part of the record I am not going to refer to, but share with you and members of the committee, Mr. Chairman, just some thoughts as to what is unfolding in the crisis in rural America and how it is not only an economic crisis, it is a human crisis.
People are being impacted, and we have 300 farmers, ranchers, throughout the United States from Alaska to Alabama, from California to Pennsylvania, in town this week. Many of them have visited your office to visit with you about how they individually are being impacted, how their neighbors and how their communities are being impacted. And this is usually an exciting time, but we have dedicated our fly-in to a gentleman, Vern Magnuson from Nebraska, a gentleman that has made many trips to Washington, who on Sunday evening, right following the Farm Aid concert, as we were getting ready to come back to the hotel, suffered a massive heart attack and passed away.
Page 16 PREV PAGE TOP OF DOC Segment 1 Of 2 And so we have dedicated our fly-in to his energy, his commitment to fighting for what he felt was right for American agriculture.
Mr. Chairman, as you mentioned, members of the committee, I think we have got to take a look at the economic crisis facing agriculture in a short-term and a long-term vision. We have got to look at the issues that are interlinked, that are impacting this crisis.
First of all, I think you cannot separate what is happening in trade policy and trade activities. You cannot separate out what is happening in the consolidation of the concentration issue in agriculture and you cannot delink that at all from what has failed in the safety net of farm policy and how they have all linked together to drive down commodity prices and create the economic hardship, the loss of markets, and other impacts that are facing American agriculture today.
In the short term, we believe that an economic assistance package is going to be necessary, but I want to emphasize it has got to be in the short term, just as we did last year; and that will bridge us over to next year, some people, and some will fall through the cracks because we will not replace 100 percent of the lost income.
In the area of then, long term, I want to emphasize that I think this committee has to look at the concentration issue. I would hope that this committee might speak loud and very clearly in calling for a moratorium on mergers and acquisitions and until you have an opportunity to review antitrust laws. We are seeing what has happened not only with the Cargill-Continental merger, but now Smithfield-Murphy Farms, the impact that that is going to have on the production of hogs and the market opportunity for independent producers. And this is going across a spectrum in the area of seed, what is happening in the concentration and control of genetics, seed, and the availability of that on an independent basis to independent producers, because we are like a puppet at the end of the string and we are just being jerked around.
You can relate it to what is happening in the GMOs today and the fact that farmers were encouraged to plant GMOs because of the new technology. And who made the decision at the very end now how the market system is going to work? The same companies that sold all the farmers the GMO seeds are saying now, you have got to segregate it.
Page 17 PREV PAGE TOP OF DOC Segment 1 Of 2 Who is going to pay that cost? The farmers are. How are we going to put a structure in place so farmers will be able to handle that? We haven't done it. Those are some of the long-term issues I would like you to talk about and that is, we need to reinstate the on-farm-facility loan program to enable producers to build some storage facilities to handle the segregation of those crops that are going to be out there to meet the unfolding market structure that lies before us. That is one issue that I think you need to look at.
We also need to deal with mandatory price reporting. We are going to see now more prices out there that farmers are going to have to try to monitor and see not only in the livestock area, but the grain areas as well. How is price information on a timely basis going to be made available to producers? So I really urge you to pass mandatory price legislation, but broaden it to all commodities on a timely basis. We have to take a look at how we are going to change that safety net.
I want to urge you to equalize the loan rates between the soybeans, wheat and corn so we don't see in 2000 the nature of planting soybeans to the level that we saw this year, where in western Montana, we saw soybeans raised because of the loan relation to where wheat was. We have got to equalize, but level up; don't level down because of the economic condition of agriculture.
We need to take a look at what we are going to deal with in providing the Secretary some flexibility to deal with the surpluses that we have, short-term conservation diversion programs, so that we can deal with the situation and yet meet nutrient elements, conservation practices that are good for the soil. And they can be short-term so when the markets come back, global economy recovers, producers can meet the demand that may arise; but don't penalize them in the short term.
I have talked long enough. I want to share with you a survey done at Farm Fest in Redwood Falls, MN, just in a general survey of farmers because the stock farmers don't want to open the farm bill. They said there are changes needed in the farm bill. I want to share with you the response was 97.3 percent of the farmers surveyed; and over 300 general farmers at large that were surveyed at that Farm Fest said there are changes needed in the farm bill. I think that is an effort and a call for you to act, to provide the leadership, because producers need it today.
Page 18 PREV PAGE TOP OF DOC Segment 1 Of 2 Thank you, Mr. Chairman.
[The prepared statement of Mr. Swenson appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you.
Mr. De Briyn.
STATEMENT OF PAUL DE BRIYN, PRESIDENT/CEO, AgSTAR FARM CREDIT SERVICES
Mr. DE BRIYN. Good morning, Mr. Chairman and members of the committee. Thank you for this opportunity to appear before you today. I am Paul De Briyn, president and CEO of AgStar Farm Credit Services.
AgStar Farm Credit Services is a farmer owned financial service cooperative, providing loans, leases, and financial services to producers, agribusinesses and rural residents covering 60 percent of the State of Minnesota. We currently serve nearly 13,000 clients with a credit portfolio of $1.5 billion. As defined by Primary Client Enterprise, our portfolio consists of 35 percent corn and beans, 22 percent swine, 16 percent dairy and 27 percent of a variety of other enterprises.
I appear before you today on behalf of the Farm Credit System because of the existing severe conditions impacting farmers nationwide. We in Farm Credit are doing whatever we can to work with borrowers in these difficult times and we pledge to continue; however, we urge that appropriate actions be taken to avoid the inevitable negative consequences of a prolonged downturn in the agriculture economy.
It is critical that commodity prices be returned to profitable levels. Adequate funding levels must be provided for the Farm Service Agency guaranteed loan programs to help lenders stay with stress borrowers, and farmers must have substantially improved risk management tools.
Page 19 PREV PAGE TOP OF DOC Segment 1 Of 2 The severe price drop across a broad swath of commodities has resulted in even highly diversified producers facing a significant drop in the value of their total production. Exports lag due to ongoing economic difficulties in Asia and South America. We also face substantial competition due to worldwide bumper crops. In some areas, producers face severe weather ranging from drought to excessive rainfall. The net result is significant, growing challenges for farmers and ranchers across the country.
With low prices well into their second consecutive year, U.S. producers are increasingly at risk of financial difficulty. To date, however, low commodity prices have been somewhat mitigated by various types of Federal assistance. Farm Credit is closely monitoring accounts payable and land values. In some areas, land values appear to be softening, but in most areas they are holding quite well. However, we recognize that a sustained period of low commodity prices almost certainly will cause land values to decline. Also, there is evidence that farmers are increasing credit card debt in order to finance their operations.
As a general rule, producers are more efficient and are coming off several years of record or near-record income levels. Many are positioned to withstand a temporary downturn. And while the impact of the current economic climate varies from region to region within the United States, there can be no question that a prolonged period of low commodity prices without Federal intervention will inevitably lead to a major restructuring in the agriculture economy.
Mr. Chairman, the Farm Credit System is well positioned today to work with farmers and ranchers. Specifically, Farm Credit has had several years of strong earnings with which to build capital and reserves. In addition, lending and portfolio management, credit administration practices, and asset liability management are sound. Cash flow and repayment capacity analysis largely has replaced lending based on appraised values. Mergers among system institutions have spread risk over larger portfolio bases.
Page 20 PREV PAGE TOP OF DOC Segment 1 Of 2 Capital in the Farm Credit System institutions is the first line of defense against any economic difficulties. Today Farm Credit collectively has accumulated more than $12.8 billion in capital or 15 percent of systemwide assets.
Congress and the systems independent regulator, the Farm Credit administration, have put in place a number of mechanisms which will allow Farm Credit to manage through a downturn. System institutions are actively engaging their client members to help individuals deal with deteriorating economic conditions. Farm Credit is proactively working with stressed farmers, in some cases repackaging loans to defer payments, restructure loan terms and lengthen repayment schedules. Always, however, Farm Credit undertakes these actions with a firm eye on maintaining financial safety and soundness within the institutions.
Mr. Chairman, it is critical that profitability be returned to agriculture. We pledge to work with you and your colleagues in whatever way we can to bring this about. Additional resources and funding for the FSA-guaranteed loan programs is critical. We ask for the committee's support for this recommendation. We also urge favorable action on efforts to reduce inheritance taxes and capital gains taxes for farmers. We support the establishment of farm accounts. Farm Credit supports efforts to shore up the crop, Federal crop insurance program and provide farmers with affordable risk management tools; and we are actively promoting a variety of trade initiatives designed to help push U.S. farm products overseas.
Again, thank you for the opportunity to submit this testimony. We look forward to working with you and members of the committee to improve economic conditions for our Nation's farmers. I would be happy to answer any questions the committee might have.
[The prepared statement of Mr. De Briyn appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. De Briyn.
Let me say just initially, and some comments that were generally touched on, I think, by all of you, we recognize there are critical, long-term policies that need to be continually addressed, and we think are failing.
Page 21 PREV PAGE TOP OF DOC Segment 1 Of 2 One of the reasons that I think they are failing is I believe we have a crisis continuing now for a second year in agriculture, trade and those issues. Those are critical. They have got to be in place, and those are things I think we have got to continually work on that; however, the reason obviously we are meeting here today is looking at the current crisis that is ongoing and trying to hope that when times do get better for farmers, there is still some around.
I would just say, Mr. Swenson, reminding some of our colleagues and myself, the first hearing that this committee had was on consolidation issues. The second was on livestock pricing. There has been massive progress made and mandatory price reporting in order to try to facilitate that effort going forward in, hopefully, a smooth fashion and one which is less tenuous than might be the case otherwise. A good deal of time has been put in to try to come to some agreement. We think we are almost there, and we are very hopeful that mandatory price reporting is an issue that can move forward in a sort fashion.
I would ask, so that I am clear Mr. Pearson, I believe I understand what you are saying in your testimony, but I do want to double-check and make sure that I understand. On page 2 of your testimony, you call for at least $4 billion in additional payments. Do you mean $4 billion above what is called for in the farm bill?
Mr. PEARSON. That would be in addition to the AMTA payments, yes.
The CHAIRMAN. That would normally occur?
Mr. PEARSON. Yes.
The CHAIRMAN. There has been a lot of discussion over the past several weeks based upon the action that was taken in the other body regarding their proposal. It is about $5.5 billion. I suppose there would not be an objection if it ended up being that high, would there, from you?
Page 22 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. PEARSON. Well, Mr. Chairman, these are still short-term fixes. I don't think anybody, at least not very many people like to come to Congress and ask for additional money for farmers like we are at this point. But recognizing the situation, we feel that this is necessary short term and has been mentioned by those on the panel. There are a lot of farmers struggling, and this is a short-term fix for just cash flow through this year.
The CHAIRMAN. We recognize that is the case. One of the interesting dilemmas that we have had and you sacrifice expeditious action if, in fact, you wait to determine what the total losses are, which generally you don't know till harvest time. We all have been estimating.
I wouldn't necessarily ask this of everyone because in your discussions, Mr. De Briyn, I don't think you mentioned a specific figure, but what goes into the thinking of Farmers Union or of the Farm Bureau when you begin to make recommendations about specific dollar amounts for either LDPs or AMTA payments, or whatever, in order to try to come to those figures? Because we have the same problem; it is hard to know what they should be.
Mr. SWENSON. I thank you, Mr. Chairman.
We base our calculation on a couple of factors. One is, we take a look at projections on harvest, projections on prices, what the shortfall is going to be, and how that economic impact transfers over to those producers that are being impacted.
Second, we visit with our people in the countryside to see how they see the disaster unfolding in the case of the disaster, to begin the calculation with their thoughts, with, also, information available from public sources as to where the disaster losses will occur, to begin to calculate in figures.
In the judgment of distribution, we are very concerned with the fact that the AMTA payment in its structure in 1996 was applied to historic productions and plantings that were occurring in the 1980's, and we feel that that doesn't fit even the structure of Freedom to Farm, which gave us planting flexibility and doesn't relate then to the losses and what is being planted today with the economic impact. And so we believe that that has to be changed. The distribution system for economic assistance and disaster assistance has to relate to what has been produced and where the losses have occurred economically.
Page 23 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. PEARSON. Mr. Chairman, there were several representatives from all across the country that came together and looked at the economic situation and discussed with farmers in all States and, based on that, tried to come up with a figure they felt would be at least helpful in moving through this this fall. And I think, as Mr. Swenson mentioned, the challenge is always there, what kind of delivery vehicle do you have to fairly get that assistance out. Of course, the farm program, the AMTA payments, is the easiest way to do that, but you also have a disaster to deal with which is much more difficult to really target for the people who need it most.
The CHAIRMAN. I thank you both. My time has about expired.
I would just say, Mr. Swenson, if you had about 300 farmers in and about 3 percent of them said that the farm bill didn't need to change, I would like to meet them. I haven't met a farmer yet that has said there doesn't need to be some change. I would be anxious to meet them. It would be about nine of those people out of the 300 because I haven't run across them yet.
Mr. MINGE. Thank you, Mr. Chairman.
The situation that we face today in agriculture I think is fairly clear to most of us in this room, and it is becoming increasingly apparent to people around the country. We have had a near collapse of prices with respect to most crops and livestock; dairy prices have plummeted and the toll it has taken on the American farming units is just overwhelming. I see it every time I go home, and I know that is true of other members of this committee.
And yet I hear a real reluctance here in Washington to look at the problems that we have at the farm level and translate that into what must be done in terms of Federal policy. There are some short-term things that certainly are important, and you touched on those in your testimony this morning.
Page 24 PREV PAGE TOP OF DOC Segment 1 Of 2 I would like to begin by asking you, Mr. De Briyn, or Paul, what amount of additional credit do you feel is necessary to ensure that the Farm Credit services, commercial banks, and others are going to be able to maintain the level of lending that farmers need for the coming year?
Mr. DE BRIYN. Are you speaking, as it relates to FSA?
Mr. MINGE. Yes, the FSA-guaranteed loan program, interest buydown or even direct loan programs.
Mr. DE BRIYN. I know in our case, our association in Minnesota, we have targeted about $40 million of additional needs for FSA guarantees for this year. If you were to translate that across to the banks in the State of Minnesota alone, you probably are talking about a need of somewhere in the neighborhood of an extra $100 million in FSA guarantees. So it gives you a rough idea in the State of Minnesota gives you a rough idea. Obviously, those are fairly large amounts, but that is our target at this point in time.
Mr. MINGE. Would this be a 20 percent or 30 percent or 50 percent increase in the amount of guaranteed authority compared to what you have had in previous years?
Mr. DE BRIYN. It would be substantially higher. I don't know the exact percentage of what that increase would be, but it would be substantially higherI would say two times probably higher, two to three times probably higher.
Mr. MINGE. Two to 300 percent increase?
Mr. DE BRIYN. Yes, for an annual basis, yes.
Mr. MINGE. Could you provide to this committee the recommendations that you would have from AgStar, and if you have recommendations that come from the regional banks or from Farm Credit System more generally, so that this committee has the benefit of the recommendations from Farm Credit services?
Page 25 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. DE BRIYN. As far as recommendations in FSA?
Mr. MINGE. Yes.
Mr. DE BRIYN. I don't have a good number probably overall on the total amount. We could get that for you.
Mr. MINGE. Right, if you could supply that subsequently. Mr. Chairman, if we could include that in the record so that we have an indication of what the Farm Credit System feels must be done with the FSA program.
Mr. DE BRIYN. We could do that, and we will get that information to you. Beyond that, though, I believe that it is important to take a look at the interest assist program, obviously of FSA, which is the subsidy that is needed. The reduction in the 1 percent fee is important because that is a big obstacle for farmers wanting to use FSA programs.
Third is, the human resource side is a big one in FSA, is their ability to process FSA guarantees and probably not just for now, but probably down the road too as it relates to they need to do a fair amount of servicing and so forth to make sure that they are being handled properly. And then also, as far as potential flexibility as it relates to being able to combine loans for farmers and increasing the peak.
I know some movement was done last year, but I think you should be proud of the FSA people in the country as it relates to how diligent they are in working with the taxpayers' monies and it seems to me they should be provided some flexibility in how they can best utilize programs for farmers.
Mr. MINGE. Thank you.
One other side of this that I found very troubling is that the loan deficiency payments are subject to a payment limitation which is calculated based upon an expected fairly low level of utilization; and I would like to ask Mr. Swenson, Mr. Pearson, do you have any recommendation as to the extent to which the payment limitation has to be adjusted in order to account for the far more substantial level of loss that we are experiencing now with farmers and utilization of the LDP program?
Page 26 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. PEARSON. Congressman, we would like to see no limit on the LDP if that is what you are asking.
Mr. MINGE. I am not sure that no limit is going to be swallowed by the rest of the country because we have some enormous farm operations that might simply run away with the Federal budget, but if we are looking at a moderate size farming operation and if we say that they are apt to bump up against that limit unexpectedly, how much would we have to adjust the limit so that a moderate size farming operation would still be able to participate in this program and utilize this program in a way that provides substantial assistance in years like 1999, when we are really in a terrible farm economic situation?
Mr. PEARSON. Our recommendation on payment limits is to be doubled from the 75,000 to 150,000. If you look at the LDPs and I am going back now a month and a half ago, that has changed quite a bit in the last few weeks, but a little over month and a half ago on our farm, which is a little over 1,000 acres, we would have been in excess of that payment limit just on LDPs alone. It has come down since then.
Mr. SWENSON. The Farmers Union has strongly supported payment limitations so that dollars that are spent by taxpayers are targeted to those who need it, but have supported, of course, the need for economic assistance, the need to increase the total payment limitation.
I don't think you can look at it, Congressman Minge, in one picture. I think we have got to look at the whole structure. We have got to take a look at the loan levels within the LDPs and what has driven up the cost of the soybean LDPs because of the inequities between corn, wheat and soybeans in 2000 has driven up the cost. We have to take a look at the other tools that are not being made available to producers, on-farm storage and others, to try to get the price to react to the situation that is affecting producers globally. But we do believe in caps so that the taxpayer dollars are directed to producers.
Page 27 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. MINGE. Thank you.
Mr. BARRETT [presiding]. Mr. Swenson, I would like to thank you for your opening comments regarding Mr. Magnuson, the gentleman from Nebraska, who has meant so much to production agriculture, one of the best friends that agriculture has had over the years. I came to know him when I served in the State legislature. I admired him then, and he has continued to come back here hundreds of times in the interest of agriculture.
Thank you for dedicating your fly-in to the memory of Vern Magnuson. I appreciate it.
Mr. SWENSON. Thank you.
Mr. BARRETT. Mr. Pearson, in your testimony, you indicated that you don't want the Federal Government to use current farm economic difficulties as an excuse to reduce planting flexibility with supply controls, give our markets to foreign producers by providing higher loan rates and storage programs. With reference to storage programs, there has been some discussion on the Hill about low interest loans from the Government to provide immediate storage. Would your position remain constant with regard to low interest Government loans?
Mr. PEARSON. Congressman, it would. Mr. Swenson touched on that. I think the fact that he mentioned the identity preserve products coming in and need for additional storage to finance that storage low interest loans would be very acceptable, yes.
Mr. BARRETT. In view of the fact we have a large carryover and perhaps in many cases bumper crops again this year and inadequate storage, the Governor of my State has set up an emergency storage work group to provide or to find additional storage. Would you have any suggestions, any options, any thoughts on the subject of additional storage? We are limited.
Mr. PEARSON. That is right. If we can keep that grain on the farm, we would prefer to do that. Other than that, other than temporary storage, that is about the only option. We already see some farmers going for temporary storage with piles on the ground, with plastic covers and so forth. But we would prefer that grain be kept in the hands of producers as long as it can be.
Page 28 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. BARRETT. Mr. Swenson, would you have any thoughts on that subject?
Mr. SWENSON. Well, Congressman, you have hit the nail on the head of what is unfolding in the countryside. Because when crop has to be dumped on the ground, you can lose identity preserve. You lose quality, and the farmers pay the price for that. And as we see in the consolidation unfolding in our transportation system, we have trouble getting it from the local elevator to even the market that is out there.
So I think we have to act in a couple of ways. One is we continue to urge quick action by this committee as well as the Congress as a whole on providing a low interest loan facility program. We think the bins can be built.
Second, we have got to work with elevators in trying to maintain facilities available for storage for those farmers that can't put it on their farms so we can have facilities in cooperation with local elevators to meet that need.
So we just need to provide all the assistance and the direction we can. I hope that the States that can will help also with that within their respective States.
Mr. BARRETT. Thank you.
Mr. De Briyn, you indicated in your testimony that the farm credit system is in a very strong position. I believe you said that you have had several years of strong earnings with which to build capital and reserves. Your lending and portfolio management is solid. Credit administration practices is good, et cetera, et cetera.
In light of what the Congress is about to do with regard to an emergency cash infusion as we did a year ago with nearly $6 billion and probably the floor of 7 this year and maybe more and with the advancement of the 2000 AMTA payment with a bill which increases the caps on the loan LDPs and marketing gain loans from 75 to 150, other things that are happening with crop insurance reform, et cetera, is the farm credit system in a position to handle the farm situation as we know it today, the financial crisis which is in rural America? Is the farm credit system in a good position to handle the problems in farm country?
Page 29 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. DE BRIYN. As I mentioned in the testimony, we have built a strong capital position and strong reserves in the farm credit system. I think we are in a good position. However, farm income and what is happening is sort of a leading indicator. In other words, it is the beginning that shows that further stress will occur.
With the scenario that you described and indicated, I still think we are going to see deterioration in our credit quality. We have already seen our delinquencies increase about twofold since the beginning of the year. I think that will continue to grow. So although we have I think a substantial amount of resources in our present position and I think we can handle it as a farm credit system, I am more concerned about the impact that it is going to have on rural America and the number of farmers that are going to be impacted.
Mr. BARRETT. This is not the situation we faced in the 1980's which was so terrible as well. Interest rates are not high. Inflation is not high. Land values are continuing to hold. In my State they are holding pretty well. Would you not agree?
Mr. DE BRIYN. I would agree with that. This is not the 1980's. It is a whole different set of dynamics that occur today. I think the combination of the global economy, the whole GMO issue, the consolidation of agriculture is creating a lot of confusion and frustration with many farmers out there. It is probably an issue of a lot of loss of control, and it is going to have a great impact on a number of lives.
Mr. BARRETT. My time has expired. Thank you, sir.
Mr. HOLDEN. Thank you, Mr. Chairman. I appreciate the panel's remarks and testimony about the long-term problems we are facing in agriculture and what they think we ought to do.
I am from Pennsylvania and, as I am sure the panel is very much aware, we are in a middle of a hundred year drought that goes from Kentucky to Maine; and one thing that I heard loud and clear through August is the last thing our farmers need is more low interest loans. I am just wondering if the panelI know the dollar amounts are difficult to arrive at. Pennsylvania estimates there are over a half billion already. That is only going to get worse in the coming months. I just wonder if there are any comments from the panel about what could be done to get our farmers through this terrible, terrible drought we are now facing.
Page 30 PREV PAGE TOP OF DOC Segment 1 Of 2 One comment I would like to make. I think it was mentioned that the other body did some things looking at the disaster relief and mostly looking at price supports and price fixing. I don't think the other body's legislation goes nearly far enough to help us in our neck of the woods.
Mr. SWENSON. Thank you, Congressman. We would strongly support the fact that in the economic emergency systems package we have to provide dollars for the drought, and that is not currently in the $7.4 billion package in the Senate. We think that needs to be enhanced significantly, not decreased or not stolen from those impacted by economics. We have to add to.
Second thing is that we think we can assist with some transportation assistance in the nature of moving hay, for example, to Pennsylvania so that producers continue to maintain herds. The worse thing that can happen for their future is to have to liquidate foundation herds.
How do you refinance to rebuild? We need to maintain what is there. What kind of assistance can we provide in that? And it has to be grants or assistance. It should not be low interest loans, especially when we have got a failing dairy policy that continues to be in chaos. If you look at our testimony, we think that the long term needs to be addressed as well.
Mr. PEARSON. Congressman, we would support additional assistance for the disaster areas, and our recommendation is calling for an additional billion and a half for this disaster alone.
Mr. HOLDEN. A billion and a half. That might be a little bit short. Pennsylvania has a half billion already. Again, it goes from Kentucky to Maine, so we are looking at serious damage here.
Thank you, Mr. Chairman. I am going to yield back my time. I didn't vote yet.
Page 31 PREV PAGE TOP OF DOC Segment 1 Of 2 The CHAIRMAN [PRESIDING]. Thank you, Mr. Holden.
Mr. THUNE. Thank you. I have to vote, too.
I would like to hear from this panel about whether or notand this is in terms of structural changes we would make to current foreign policywhether you think it would make sense. There is a proposal advanced by a couple of gentlemen in my State called the Cyre-Blindert proposal which farmers voluntarily would set aside acreage in exchange for a higher loan rate basically, and if there would be some proportion change in the dollars that they would get under the marketing loan relative to how much acreage they would set aside, It would be a voluntary thing they could make, that decision. It wouldn't be Government imposed. But do you see an advantage getting acreage out of production?
Mr. PEARSON. Congressman, we want to really target the farm bill in saying that has created a lot of the problems we have today. I think we have to recognize we have had it 3 years in a row, worldwide record food production. That is part of the problem. The Asian crisis certainly started that. The strong dollar contributed to that. So I think we have to look at those things in addition to.
I would have to give some thought as to whether you raise the loan rate to get production out. You still have the foreign competition around the world that you are competing with in many products, can produce those at a lower price than what we are even doing it today here in this country. You see beans being produced in South America for $5 or less, dairy for less than $9. I think we can't lose sight of that as well as we look at our price and how we compete.
Mr. SWENSON. I think the concept brought forward by producersand I'm very familiar with the proposalis reflective of farmers' commitment of which to reduce production in order to get a decent price in the market. I think that is what it is reflective of, and I think it is sound policy of the commitment.
Page 32 PREV PAGE TOP OF DOC Segment 1 Of 2 I want to address if I can, very briefly, the concept that, if we do it, the world will produce what we don't produce. Let me just say that I think this gives us a challenge, and I would hope Congress would send the message loud and clear to the administration just as in the last round of the World Trade Organization we negotiate an international commitment to reduce internal supports by 36 percent. Let's send a message to the administration that in the international basis when stocks globally reach a point of 110 percent of use, 120 percent, whatever the trigger level might be, that begins a depressed commodity prices not only here in this country but globally, then every producing country participate in a conservation diversion program. Let's have trade agreements so they elevate and raise commodity prices, not depress commodity prices. And that should be the message that this Congress should send. Then these types of programs would work and work for the best interest of producers.
Mr. THUNE. I thank you.
I would like to continue this discussion, but I better run and vote. Thanks.
The CHAIRMAN. Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman. I appreciate your calling this hearing, and I will be brief.
My farmers are having the same problems as everybody else because of these low commodity prices, but if you want to understand how this program is inadequate, you just have to come up to my area where we have had losses 7 years in a row and we are being told maybe we are going to lose 50 to 70 percent of our farmers in one of our counties. So we need help on the prices like everybody else, but in addition to that we need some kind of help again to weather the disaster that we have just experienced.
I just got this this morning in the mail from one of my constituents from Westthis is West Polk and Marshall counties. You maybe can't see this, but this is every crop we growpotatoes, sugar beans, sunflowers, wheat, Pinto beans. Every single field is under water. You can water ski in each one of these fields, and there are not any lakes in this part of the country.
Page 33 PREV PAGE TOP OF DOC Segment 1 Of 2 They say one of the richest farming areas of the USA has experienced extreme weather conditions for the past 7 years which has brought sadness, anxiety, depression with little hope for the future. That is an understatement. So these are all taken on August 24 and 25. A lot of people up there never even got into the field. Actually, the ones that didn't get into the field were actually the ones that are best off because they didn't put their inputs in, and they didn't get that much farther behind.
I have got a report here that I have acquired from my area, Roseau County, which is probably the hardest hit. It is 80 to 100 percent loss of all crops; Pennington County, 60 to 70 percent loss of all crops. We had preventive plantings in those areas, 50, 60, 70 percent. So we have a serious situation.
I think there is a similar situation with water in North Dakota. Some counties I was out in central North Dakota, and there are a lot of places out there under water in the same way. I would implore all of you to help us and my other members of the committee help us when we put this together that we do it in a way that we can help these people.
I concur with the ranking member. The AMTA payments are not the way to distribute this money. It really does not go out in the way that it should, and I hope that we can find some other way to distribute this in addition to the disaster money. And the suggestion from most of the people up in my part of the country is that we use the mechanism we used in the last disaster payment with the crop insurance that has already been set up now. That apparently worked pretty well, and that might be a suggestion on how we do it.
So again with that, you all have heard my story many times over, and all I say is that we need a lot of help, and we appreciate everybody's support to try to figure out a way to get through this.
Thank you, Mr. Chairman.
The CHAIRMAN. Thank you, Mr. Peterson.
Page 34 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. Pomeroy
Mr. POMEROY. Thank you, Mr. Chairman.
First of all, I want to commend you, Mr. Chairman, for holding this hearing. I believe sometimes when we have got an act out there that is not working all that well but there is still some significant investment in the position we don't even want to take input about anything going wrong. We just kind of want to close our eyes and operate in our own false reality within the Beltway that the world is operating as we always believed it would.
Clearly, we have got a crisis in agriculture. We have got a farm bill that is not working and needs to be fixed. And I think that having this hearing, Mr. Chairman, shows the integrity of your leadership for agriculture. I very much appreciate it.
I would observe that we were supposed to have a farm bill. This new farm bill was supposed to make farmers independent of Government. Get Washington out of Government. It has made them more dependent than ever, although the distinct difference is now they never know what Washington is going to do. Imagine the cruelty, really, of a position that has people at their kitchen table this morning not knowing whether they will be on the farm next spring. It depends on what Washington does in the next several weeks. It is cruel to put people in that kind of total unknown in terms of their own future.
A second feature of the new farm bill is that it was supposed to free planting from Government programs. The market was going to drive all of this, and then we put in place a happenstance loan support program that itself is now driving planting decisions. Once again, we have got Government programs driving what is occurring out there in terms of what a farmer is putting in the ground, rather than national or global markets, and that has to be attended to.
I think the starting point is a disaster bill. And I have considerable sympathy for the ranking member's observations. This is an opportune time to try and straighten all this out. The last thing that we can afford is to get bogged down in trying to fix everything forever and not get this response out that farmers need to have now so they know what their immediate future is.
Page 35 PREV PAGE TOP OF DOC Segment 1 Of 2 An example. As we look at the deficiencies of AMTA, I always think there is a better way to do it than pumping up AMTA to get more money out there. But, on the other hand, last year's program worked.
I think Mr. De Briyn, you might be able to verify that that disaster response passed by Congress last October proved to be extremely important. North Dakota had a $745 million net farm income, pretty miserable year, but, of that $745 million, $602 million of it was related to Government payments, mostly the disaster response. Without that disaster response, we would have had a total catastrophe last year. And from the information I have gotten from the farm credit folks, it was that bounteous yields, even though miserable prices, coupled with the disaster response did give people in the game another year.
Mr. DE BRIYN. Absolutely. You are right on with that, Congressman. That was the case. The combination of bountiful crops along with the program that was put together last year kept a lot of people continuing to operate this year. No question about that.
Mr. POMEROY. I don't think we should feel bad about the disaster response last year. By my own view, the view of the people I represent, it was extraordinarily important.
In terms of this year's package, Mr. Swenson, do I hear you saying that some kind of financial support for the vast construction of unfarmed storage ought to be part of the package for the disaster response?
Mr. SWENSON. Congressman, absolutely. If we are only going to put money out there and we are starting to already put the 2000 crop in the ground, we are going to be back here next year. I don't know if we are going to be asking for $15 billion next year or $20 billion next year, but if we don't begin to deal in the short term with next year's needs, we are going to be back here again. Because all projections show that the world's stocks are going to increase. World demand is going to continue to be stagnant, and that means we are going to have continued price depressant in relation to the raw price of commodities. We have got to begin to deal with some of these, even in the short term, for long-term needs.
Page 36 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. MINGE. My dad sold grain bins. I built grain bins as part of my way of paying my college education. I know personally from the lessons learned in the late 1960's, early 1970's you can get an awful lot of storage constructed in a hurry. It might be what the circumstances are requiring.
A question I would ask across the panel, trying to find areas where there is agreement, and I appreciate the leadership of both organizations today and your comments, do you believe that, in addition to the disaster response, we need to move into place a permanent price protection as part of the farm program. Mr. Pearson.
Mr. PEARSON. Congressman, I am not quite sure what you mean by permanent price protection or where you put that floor at when you touched on the LDPs. We never thought we would have markets below the loan rate, and the loan rate was supposed to be market clearing so we wouldn't get to that level. I am thankful at this point I believe in 1994 that somebody thought about that and put that in there. Otherwise, we would be much below the loan rate. I am not sure where you put that price floor and howI think we need to be very careful how you construct that in the world market and how that fits into the trade agreements that are coming up so there is the market distortion is not fair and it is legal as well.
Mr. POMEROY. I agree it is difficult to do, but it's doable, I think.
Mr. Swenson? And then my time has expired.
Mr. SWENSON. Congressman, yes. We need that because of the fact that when producers are impacted by fluctuations in currency, the rate is 50 percent arbitrarily decided by a president of another country which now currently exports soybeans to the United States or soy meal to the United States, Smithfield to feed pigs. We need some type of a permanent safety net, absolutely.
Mr. POMEROY. Something having some reflection with cost of production and hopefully not market distorting.
Page 37 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. SWENSON. That is correct.
Mr. POMEROY. Thank you, Mr. Chairman.
The CHAIRMAN. Thank you.
Mr. LAHOOD. Thank you, Mr. Chairman. Thank you for your leadership in holding this hearing and being such a good advocate for agriculture.
I, too, traveled around my district for the last 5 weeks. I think I went to about every county in my district.
And David Phelps and I share a part of central Illinois, and we were together one evening in Macon County, which is the home of ADM and a lot of good farmland, and we heard a very, very serious concern in agriculture country about prices. We are not really facing a drought. We are facing lousy prices.
But I will tell you this. I had very few people come up to me and say Freedom to Farm is the problem. I did have many people come up and say, we think we ought to continue Freedom to Farm. We ought to continue with the program we have. And many said that in the first 3 years of Freedom to Farm we had very few complaints. It worked pretty well. And one of the reasons for that is because of the markets. We had good markets.
We know the markets are lousy in China, in Asia. We should have passed fast track. Every time I have had a chance to talk to Secretary Glickman or Secretary of Commerce Bill Daley about fast track, where's the administration, I think that would be helpful.
We have sanctions against at least 38 countries right now. That does not help agriculture. That hurts us a lot worse than it helps. It is not very good policy to be using agriculture to bring about diplomacy or bring about better relationships with countries. It doesn't work. Sanctions don't work.
And so my question to the panel that is before us is, what about fair trade and free trade? What about markets? What I have been hearing is that we need better markets. We have a huge surplus right now in the elevators, and we are going to have a huge harvest in central Illinois of corn and beans, more than we can use in Illinois, more than we can use in this country, and we need markets. That is the feeling that I got from people.
Page 38 PREV PAGE TOP OF DOC Segment 1 Of 2 Now, I have talked about the fact that we need to pass a bill that gets us through the recession. If you are a pork producer in central Illinois, many of them have gone out of business. The pork market is lousy. We have lost a lot of pork producers. I am very concerned about the Smithfield buyout of Murphy Farms. I think that in the long term is going to be very bad for agriculture.
And I have written to the Attorney General and asked her to look into this to see if any antitrust laws have been violated. I think we as a committee ought to look at it.
But I am wondering what all of you think aboutI know from reading your statements and listening to you that perhaps you want to go back to the old ways. Well, the people in my district, the 14 counties I represent don't want to go back to the old ways of having the Government tell them what they can and cannot do. And I wonder what you think about markets and how we improve markets, and if that is the answer if you want to go back to the old price support system. I would be interested in any comments any of you have about that.
Mr. PEARSON. Congressman, I appreciate your question. In reference to Macon County, in fact at one time I lived there so I am familiar with central Illinois and was there a few weeks ago. And you have some excellent crops in Illinois.
I don't think we want to go back to the old price war system, but access to world markets is critical. If you look at the subsidies that come into the world market, I believe 80 percent of those come out of the European Union, so that is what we are competing with.
It is going to take a long time to level that playing field. I think once that happens and those economies around the world start to strengthen, then we will see the marketplace start to change from where it is at now.
Farmers have dealt with low prices and disasters for years. But the structural changes coming are the ones that really are most frightening to them at this point. If you look at the pork industry, you mentionedand there is a lot of pork in Indiana as well, being the most efficient producer, the best today as a family farmer doesn't mean you will have market access in this country, let alone world markets. That is what we expect to see, the vertical integrated structures and the consolidation coming. I have had many people tell me if you look at the cost of production for the large operations, 200,000 and 300,000 and 400,000 operations, they are maybe not as efficient as small family farms, but yet that market access is very concerning to them.
Page 39 PREV PAGE TOP OF DOC Segment 1 Of 2 I see the same thing coming in the dairy industry with processing decreasing. A dairy processor made the comment in a seminar this spring that said we have too much capacity in the dairy industry. We need to be more efficient. I couldn't help but think, that is where pork is at this point. I find out later that he is one of the processors buying out the other processing companies, closing them down. It will soon be at the same place in dairy.
I had a school board member tell me this just a couple weeks ago that last year they had four dairy processors doing the school lunch program. This year they had one. Price went up 4 cents. That is $30,000 more to that one school lunch program. So the consolidation is not only impacting production agriculture, but I think in time it will affect the consumer as well.
Mr. SWENSON. Thank you, Congressman. I think you raise an excellent point. It would be inappropriate to those that represent the agricultural community or those that represent us as Members of Congress to say it is one way or the other.
Is it the policies of the past or the policies of present? I think what we have got to deal with are the policies of the future. From what we did in 1996the world has changed radically since 1996, even the passage of Freedom to Farm. We have got greater consolidation, as just mentioned by Mr. Pearson, and that is impacting farmers' market access. Farmers don't have market access when you have a few producers dominating the market. When you have got multinationals that would just as soon buy soybean meal in Brazil and export it to the United States than buy it within the United States, that is a lack of market access for U.S. producers.
So I think what we have to look at is what is going to be the policy for the future, not the policies of the past or the policies of the present, but whether we are going to have marketing flexibility in the future via the tools provided by the structure of the farm program. What tools are going to be flexible enough to meet what volatility will occur?
Page 40 PREV PAGE TOP OF DOC Segment 1 Of 2 It is just because what you pass today, we may not need that tool next year or the year after. But in the case of what we have now, we may need some tools today that we didn't need in 1996. That is what I think we are trying to emphasize, that we not only provided planting flexibilityand I think all producers want to retain thatbut we restricted marketing flexibility and empowerment procedures.
And we have failed now to address the antitrust situation that is occurring, that is reducing market access not only domestically but globally. Producers are more impacted by a lack of market access domestically than what sanctions have affected our market to the world; and we are here today to represent those individual producers, but we are being impacted and strangled, and that is really difficult. We have got to address that in future farm policy.
Mr. DE BRIYN. I wholeheartedly support your comments about market access. I don't think there is any one thing that is going to be the saving force for what is happening today in agriculture, but I think both access to international markets and domestic markets is absolutely critical.
I was listening to some farmers last week I was talking to, two big things when they talk about Freedom to Farm. One is they do not believe that the Government has provided the access to the markets as they should have been; and number two is the area of insurance. And those are the two big things I think they are most concerned about on Freedom to Farm.
The CHAIRMAN. Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Chairman. I too want to join with the others who appreciate your leadership and that you and Mr. Stenholm have these meetings. I think we have to be talking about this.
I am interested in the discussion here; I hear some differences in what we were hearing 3 or 4 months ago, and I appreciate just hearing what Mr. LaHood had to say. I am not too far west of you. We do have some dry areas and that always creates more problems with people's thinking, but we have, overall, some pretty good crop and are basically not meeting cost production. I have had the normal flow of farm leaders coming to my office, as the rest have had, saying stick with Freedom to Farm.
Page 41 PREV PAGE TOP OF DOC Segment 1 Of 2 And then I go back to the district and, different than you, Ray, I have had a host of farmers say you have got to do something or I can't be hereyou have got to do something and it is not working. But yet, their organizations are not saying that or haven't been saying that until I think I am hearing some here today. And I appreciate that.
But let's just go straight at it. Do you want to raise the loan rate?
Question two, do we want farmer-owned reserve along with assistance to build storage?
And question three, do we want to have set-aside and add to CRP? Well, I will let you think about that for a second.
We have heard our Secretary come here at different times to tell us about the unprecedented 4 years of overproduction around the world. And then we kind of thump on them for not selling more. Then I have heard too, of course, where you haven't got the markets. But how can we, with fairness or common sense, say we are going to go find markets when where they go to sell they want to sell to us? And that is really what they are confronted with.
And I don't like sanctions and I am against it. I have said it over and over and over. But I also somewheresomebody correct me if I am wrongbut that accounts for about 4 percent, if I am remembering it right. And if that is the case, that is an important percent, but that is probably not going to solve the problem if that is right.
The antitrust thing, I thank you for saying what you have said. I think that we have got to take that head on.
So, anyway, back to my three questions, what about the loan rate? Do we want to raise the loan rate or do we not? What is your position?
Mr. PEARSON. Congressman, we would be opposed to raising loan rates. Farmers' reserve, if there is going to be one, it should be in farmers' hands, but right now we are opposed to a farm loan reserve.
Page 42 PREV PAGE TOP OF DOC Segment 1 Of 2 Sanctions, we are very opposed to and very pleased that Senator Lugar is moving that legislation forward. It has been mentioned that two areas, three areas along the farm bill have really not been addressed. One is the risk management products, the second is regulations that are more horrendous on the farm, and the third is market access. And some of that can be done from the concessional and some, the PL40 and Peace for Food projects, and those type of projects.
CRP, if we could just fund it at what is already approved. We have acreage for CRP that is currently not funded. So that still needs to be done.
Mr. SWENSON. Thank you, Congressman. Yes, we would strongly support increasing the loan rates, as I said earlier, at least at a minimum, creating an equity between where soybeans are and corn and wheat; but raise up, don't lower down.
Yes, we would support a farmer-owned reserve as long as it is limited. We think if it was at 10 percent it would at least put that empowerment in the hands of producers and it would take away the concern, the argument that we are going to have this large surplus hanging over the market. So I think we could have a limited farmer-owned reserve that is really beneficial to producers. And, yes, we would support a set-aside program with adequate compensation for those producers that participate.
Mr. DE BRIYN. Farm Credit generally does not take specific positions on those futures of the farm program.
What we are doing right now, Congressman, back in our association in Minnesota, is that we are working with the producer groups and the farm organizations to try to come to some consistent view on those issues. And so at this point we do not have a position specifically on those, but are trying to work in support with the farm groups and the producer organizations on them.
Mr. BOSWELL. Well, Mr. Chairman, I would guess that since you are from a farm community, too, I go across the district, I talk to members of the farm organizations, commodity groups, and they tell me that they want some action taken along this line; and I said, but the organization doesn't say that, and so why don't you go talk to them.
Page 43 PREV PAGE TOP OF DOC Segment 1 Of 2 It makes it tough where folks like us try to represent the people here and try to do what is best for agriculture.
I don't believe for a minute there is anybody here that doesn't want to do their best for agriculture. I think everybody, both sides, every member of this committee wants to do what is best for agriculture. So we have got kind of a tough thing to sort out. But you are a tough chairman, so you are going to lead us down the right path here. But we have heard right here at this table, it is perplexing. I hope that we continue to take it head on every chance we get until we can come up with something to do the best of our ability for the American farmer. With that, I thank you for the time.
The CHAIRMAN. I think if the gentleman is willing to lead, hopefully everyone will just follow right along.
Mr. Lucas from Oklahoma.
Mr. LUCAS of Oklahoma. Thank you, Mr. Chairman. And like a number of my colleagues over the August work period I had many, many, many town meetings and other interactions with my colleagues in the Oklahoma delegation and my producer groups out there. And, of course, in all of my town meetings, time and time again, correctly, circumstances that our fellow producers out there face came to the surface; and not only in those town meetings, but in a hearing of sorts in western Oklahoma I conducted with Senator Inhofe we went over the potential solutions.
Most of the items that my fellow Oklahomans would agree on are things that we discussed here, pumping up the AMTA payment, persuading the Secretary of Agriculture to use EEP, persuading him to open up some more CRP insurance reform, sanctions relief, all of those kinds of issues. But at one of those gatherings, one of the agricultural economists, I believe from Oklahoma State, made some fascinating comments both at the microphone and in private referring to how dramatically productivity had increased in agricultural production in the last 40 years and observing that with 30-some million acres, give or take a few, in CRP and long-term layout that we still basically raised somewhere in the range of a third more than we could possibly consume in this country.
Page 44 PREV PAGE TOP OF DOC Segment 1 Of 2 I think for a moment, if I could, I would like to throw the question to my colleagues out there on the panel about that situation, about how dramatically productivity has increased in the last 4, 5, 6 decades in this country and how that has impacted our agricultural price situation or agriculture policy, for that matter; since it has been our goal since the founding of this country literally to sell our extra agriculture goods around the world, and we have always produced extra agriculture goods with this increasing productivity.
How do we address that, gentlemen, if we continue to work like good farmers and ranchers to acquire the latest seed and use the best new chemical practices and do everything we can to maximize the yield off our acres? How do we address those productivity increases and how that affects the supply on the market and, consequently, price?
Mr. PEARSON. Congressman, that is a debate that continues, as you are fully aware, and where world production is in relationship to population growth and whether the world is going to starve or whether it is not.
And, very true, we raise approximately a third more than we can consume. Indiana, I think 38 percent of our goods are exported. So maybe we are a little above the average. At the same time, the ability to do that, the ability to be self-sufficient in food, the ability to feed other countries in the worldand part of that has been through Public Law 480 and some othershas certainly been helpful and has developed markets around the world. If you go back historically, those countries we have helped traditionally have become good customers of ours.
I think the other thing philosophically that you look at, if we look at the balance of payments with our country and around the world, that sometimes people aren't concerned about, we historically have been able to export almost twice as much as we import in the way of food products, which from that standpoint alone has been a positive from a net exporting of dollars or receiving dollars for those.
Page 45 PREV PAGE TOP OF DOC Segment 1 Of 2 So I think you have to look at that.
The other part of that is the research and the technology that goes with it. That has made us the exporter, but it has also made us the world leader, the ability to be ahead of our competition. You talk about technology in military, for example, that we are the best, we are also the same in food production. And that research and technology and the dollars for it to me is it imperative that it continue to come if we are going to be the leader in food production and be able to compete in world market where our costs may be somewhat higher, but the technology still gives us the advantage over competition.
Mr. SWENSON. Thank you, Congressman. I think your question ties right into this statement made by Congressman LaHood, and that is that we see this change in productivity, but not only domestically; we now see it unfolding globally. Because it is all transferable, and the companies that are developing the technology are global companies. They are not U.S. companies. And so it is going to change. I mean, the future that lies ahead of us is significantly different than what we had in 1996 and what we have in 1999, and it will be different by 2001.
I go back to the fact that I think we then have to deal with a farm program of the future that has tremendous flexibility in it. It is going to have to deal with changes that occur just about each and every year or every other year, deal with currency values and currency changes. How do they come back to impact our market access? How do we deal with that? I am not sure it is in export enhancement programs. I think it may be a method by which we match currency values on a global basis so that we level that playing field, if you want to call it a level playing field.
How do we deal with labor standards on a global basis? How do we deal with environmental standards? We have heard a lot of talk today about regulation and environmental standards our farmers have to meet. What if those standards are different in another country which we compete with in a global market? Yet we fail to address those in our international trade negotiations, we fail to deal with that flexibility in the structure of our farm program. So I think we have to deal with it by the tools we give the farmers to work with, the supports we give them to work with, that we have to face in this changing situation.
Page 46 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. LUCAS of Oklahoma. Wouldn't you agree, Lee, that probably the greatest single beneficiary of all the agricultural research we have done since the 1860's in this country and all the things that we have implemented through the Extension Service have been the American consumer? And perhaps sometimes our friends out there, the other 98 percent of the American public, tend to forget that is why they have the highest quality food and fiber, the most stable supply in the history of the world, that this research tends to benefit them more than anyone else?
Mr. SWENSON. Congressman, I agree. I think from the establishment of the land grants we did a great service, not only to producers but to consumers. My concern is, for the last number of years the research has not gone to benefit producers, because it has driven up our production costs, because most of the benefit has gone to many of the major corporations, not to the general public. And that is one issue that I think this committee has to deal with, Congress has to deal with, is when taxpayer dollars go to research, does it benefit the public as a whole, the consumers and/or the producers?
But right now, with the latest technologyand it being controlled by many of the multinationalswe have seen an increase in production costs, even with productivity, a decrease in the price we receive for our commodities; and consumers see an increase in cereal prices, bread prices. While we have a cheaper commodity policy in this country, I am not sure we have a cheap food policy.
The CHAIRMAN. Mr. Berry.
Mr. BERRY. Thank you, Mr. Chairman.
I think that we have covered nearly all of the possibilities here, but I was pleased to hear Mr. Swenson say, or mention, the value of the dollar and what it does. I think it has tremendous impact on our ability to sell what we produce in this country. I think it has not received nearly enough attention as part of the problem.
Page 47 PREV PAGE TOP OF DOC Segment 1 Of 2 Now, what we do about it I don't know. I would be interested in hearing if you all have any ideas about how to deal with that, other than a counter-cyclical farm program, safety net program.
Mr. SWENSON. Trying to be very brief, I think it could be handled in two ways. One is, if products are going to come into the country, a tariff is adjusted with the value of the currency so you level the value the currency. So if a company is going to bring product into this country, a tariff goes into place that equalizes the value. It would discourage them from taking advantage of the currency exchanges.
I use the sample of Canada with a 40 percent variance. It is economically very beneficial for companies to go up to Canada and acquire pork and bring it into the United States, to go up to Canada and purchase wheat and bring it into the United States. It plugs up our transportation system, our marketing system, especially in the border States, creating an economic hardship on many of those producers, even though the product is dispersed throughout the country. I think that is one of the steps we can take.
And you have to put a trigger level in there. You don't want to deal with it when currency may be off 3 or 5 percent. But when it is a significant level, where does the trigger kick in?
When we deal on a global basisI will use soybeans as an example. If Brazil undercuts us in a market and some other country is taking advantage of their devaluation of the real by 50 percent, could we establish, instead of an export enhancement program, a monetary assistance program where we then level the playing field so it is not rate distorting. But we go in and we equalize the level of the playing field based on currency value.
It will vary per country, because if you traveland many of you have traveled throughout the worldwhen you exchange the dollar, you have to exchange it on a basis that some treasury or somebody has evaluated the value of the dollar versus the value of the other currency. We can use that same mechanism in leveling the playing field on currency. I.
Page 48 PREV PAGE TOP OF DOC Segment 1 Of 2 Just think we have to be innovative in meeting today's needs in our global market and domestic market.
Mr. BARRETT [presiding]. Mr. Moran.
Mr. MORAN. Mr. Chairman, thank you very much. Just a couple of questions about disaster assistance and its delivery.
Discussions among Kansas farmers about the disaster package that we are attempting to put together and get passed through Congress and off to the President just as quickly as possible, the issue between its delivery through the LDP program versus its delivery through Freedom to Farm or the AMTA payment: Any thoughts, directions to Congress as to how we need to focus the, whatever the number is, $4 to $7 billion in delivery as far as the disaster assistance related to low commodity prices?
Mr. SWENSON. The Farmers Union believes we need to look at a different mechanism, and that may be the LDP, could be an income supplemental payment. It needs to be a new structure that ties to what is produced today, both in the area of economic assistance as well as disaster assistance.
We know what our actual production has been in the past. We can relate to if you have a lost a crop, such as in Pennsylvania, northern Minnesota, that areas have been impacted by loss of production. But I think we could tie to it what has been produced in 1999 and what the loss has been.
Mr. MORAN. I assume that you would do that in a way that does not penalize those farmers with the lowest yields or that were hailed out or flooded out?
Mr. SWENSON. No. In fact it would benefit them if it was tied to their proven yields in the past, their history and what they suffered, the loss this year; and relate it not only to the commodity they produced but the loss they incurred.
Mr. MORAN. Thank you.
Page 49 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. PEARSON. I would pretty much agree with Lee on that. The LDP, certainly with low yields, does not reflect in any way at all to provide additional assistancethe AMTA payments, still an easy way to get dollars out there, but going back to proven yields or county average if you have to and be able to prove what your loss was.
Mr. MORAN. In your opinion, would USDA have the necessary information, the ability to deliver that aid quickly it was based upon that mechanism?
Mr. PEARSON. Well, they didn't last year.
Mr. MORAN. Correct.
Mr. PEARSON. So I am not sure whether it has improved this year or not.
Mr. MORAN. I have been concerned that the administration seems to talk about delivering disaster assistance through the LDP, which seems to me to, in my experience, benefit those who need the most help the least, with low yields, with hailed out crops, flooded acres. I suppose that the benefit of delivery through the AMTA payment is ease, quickness, the mechanism is there.
The other part, I held 66 town hall meetings, one in each county through the month of August. I agree with the comments about concentration. It is a growing concern among producers. It has really become one of the three or four things that I think we need to consider, to look at, and certainly one of the three or four things that farmers are talking the most about.
The other part of that is trying to reduce supply. And there is growing interest in set-asides, in increasing CRP acres. You all have an opinion of how that works. I mean, how would you structure where we reduce our production that doesn't simply replace U.S. production with foreign production? Or is the answer, you can't do it?
Mr. PEARSON. I wouldn't say you can't do it, but if we go back to the early 1980's, we saw what happened with that program we had, and our competition came in 5 cents under the market.
Page 50 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. MORAN. I think in the 1980's we had about 30 million acres in set-aside and the number of acres planted in the world increased by 40 million acres.
Mr. PEARSON. CRP could still be increased. We are looking at the north clean water, which is certainly a concern around the country, take some acreage out to help do that. But I think we need to at least look at that and that is being, I believe, targeted at that point. But the CRP acreage, the acreage permitted is there, but the funding hasn't been utilized at this point.
Mr. SWENSON. I think the Conservation Reserve Program has proved to be beneficial. I know there are calls to expand it. We believe that a well-structured set-aside program can be beneficial and beneficial in two ways.
Does it make economic sense to produce corn for $1.50 a bushel and export it into the global market? What are you exporting? Our natural resources at a loss. We are exporting our top soil, we are exporting our water at a tremendous cost to society for the future; it doesn't make sense. If Brazil wants to produce corn for a buck a bushel and sell it on the global market and destroy their environment, we may want to let them do that. We can last for the long term because they won't be around.
As I mentioned earlier, Congressman; you may not have been hereI think just as in the last round of the WTO, internationally there was an agreement to reduce internal supports by 36 percent globally. I think we should push our trade negotiators to say if we have surpluses that reach a certain trigger level, be it 115 percent of global use, all producing countries participate in a conservation reserve program. Then we would make good sense for our soil, our natural resources, and getting a decent price in the marketplace. Trade agreements should help producers, not look at just how cheap we can send raw commodities around the world.
Page 51 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. MORAN. Thank you.
Thank you, Mr. Chairman.
Mr. BARRETT. The gentleman from Louisiana, Mr. John.
Mr. JOHN. Thank you, Mr. Chairman. I too appreciate the opportunity to discuss what I believe is, as many of you, a disaster in America of really monumental proportions. What I would like to do is to comment about Mr. Swenson's opening comments.
I think he was very close to at least identifying the problems. He talked about the linkage and the nonlinkage and how you are not going to be able to separate the two as far as price and disaster. And I think it is crystal clear, being from southwest Louisianaa small town, Crowley, LA, which is dubbed the rice capital of the world, I think that situation that is happening today, crystal clearidentifies the problem that we have with our farm policy nationwide.
Let me explain. Last year we had a weather disaster. We had a drought, hot weather, other weather-related problems with the rice crop in Louisiana, and the yields were way down. Price was OK, but yields were way down. So we needed crop insurance, a safety net to try to help our farmers at the time. It is not there. We know that. We have had hearings about that.
We had to, in this Congress, appropriate a disaster supplemental of 5, or whatever it was, a bunch of money. It was billions of dollars. So that was the first problem that America fought, America's farmers have, clearly identified in the situation in Louisiana last year.
This year, same amount of disaster, same problem, totally different scenario. Rice yields are in the high 30's, one of the best crops of rice that we have had in many, many years in southwest Louisiana. The price is half of what it was last year. Second disaster, a price disaster. I think that situation, if you look at the rice problems that we have had in southwest Lousiana, you can paint that problem across all of America with the situations. I think we clearly have two distinct problems, but they are linked very, very closely together.
Page 52 PREV PAGE TOP OF DOC Segment 1 Of 2 My question to the panel is, we have had discussions about risk management tools with crop insurance here in this committee, and we are trying to work on that and that would obviously be the safety net for weather-related problems.
Also, the price problems, I have always been an ardent opponent of unilateral sanctionsbeen on letters, been on legislation. We were able to get the President and the administration to back off of Iran, which frankly is one of the largest, or used to be one of the largest, importers of American rice, and we have lost that market. Now we are trying to get back into that market.
Generally or specifically, what can Congress do today? How would you write a crop insurance bill to help? I know it is a broad brush that you have to paint because I know it is not only rice farmers in Crowley; it is wheat farmers and it is corn farmers in the Midwest. How would you structure that? Or could you be very detailed or very specific?
And second of all, with the price, what can Congress do today? We talk about how we need to do this, that and the other. But what can we do today to try to work on it. Is it opening the farm bill? Well, I am not sure we want to do that. Some people say yes, some people say no. Could we address those two specific?
Mr. SWENSON. Thank you, Congressman.
I think, first of all, the steps that the chairman of this committee has taken to begin to address reforms of crop insurance is a very positive step, and I commend you for that. We support that. But if you are going to look at it, we have to make sure all crops are inclusiveespecially with planting flexibility out there, how does a farmer make sure that the crops that they make are covered adequatelybut yet not to distort so that we start planting crops in some area of the country just for economic crop insurance coverage when probably the crops should never be planted there in the first place. But we have to look at total crop inclusion.
Page 53 PREV PAGE TOP OF DOC Segment 1 Of 2 We have to take a look at the yield levels that should be fitting the farm or the ranch and coverage, and I think we have got to look at how we encompass and include livestock within the future risk management programs. And then affordability. So we have that level of participation.
Mr. JOHN. That is the problem we have today.
Mr. SWENSON. That is right. How many dollars are we going to allocate for affordability?
In the second area of the sanction issue, I think there was total unanimity among all the farm groups of opposition to using food in the area of sanctions. We all applied pressure not only here in Congress, but with the administration to get that issue addressed. And we continue to work on that issue in cooperation with you.
I don't think we can look at risk management to displace the need for a strong safety net that is flexible within the structure of the farm program to meet the very volatility that you are talking about that exists.
Mr. JOHN. Do you believe that we could devise or implement one safety net to cover both of the problems?
Mr. SWENSON. No.
Mr. JOHN. I don't think so either. I think they need to be linked together, as you said, but very distinct, focused areas on two different problems.
Mr. SWENSON. You want a good crop risk management program that is there in time of loss of your ability to produce.
Mr. JOHN. Natural disaster relief.
Mr. SWENSON. Then you need a safety net issue that is flexible. At a time when you have got relatively good prices, you don't need a safety net. When the market provides you that price, you don't need the safety net assistance from the Government. But when you are hit with yields as we are hit now, with the global situation we are hit now, where does that safety net kick in?
Page 54 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. JOHN. I encourage you and everyone on the committee, if you are interested, to really research and take a look at what has happened in south Lousiana in the rice industry. It clearly identifies what the real problems are in our farm policy from A to Z, all the way across the spectrum.
Mr. BARRETT. Mr. Walden.
Mr. WALDEN. Thank you, Mr. Chairman.
Mr. Swenson I was interested in your comments earlier about the global change going on. And I think you made the comment that Congress needs to be able to react almost annually to these changes. And as I have been here both as a staffer in the early 1980's and now back as a Member, the question I have for the panel is, do you really believe the Federal Government can respond as quickly as the marketplace to these changes? Can we keep pace when currency swings are so rapid and the change in the Asian economy and here and there, before we really have an opportunity to act realistically?
Mr. SWENSON. I think realistically the process that Congress takes to respond is very time-consuming so I am not sure it could react on an annual basis. But I think it needs to monitor on an annual basis, put in place some programs that have flexibility.
I think the failure we have is that we put a program in place that has minimal flexibility, and so we are unable to react to changes that may occur within some percentage of variance to deal with the change. But we should constantly monitor on an ongoing basis. I mean, that, I think, is your role and responsibility.
Mr. WALDEN. I understand that.
Mr. SWENSON. But don't put in such stringent programs or lack of programs that deal with the volatility that is going to be out there. And it is going to be greater in the future.
Page 55 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. WALDEN. Mr. Pearson, would you comment on that?
Mr. PEARSON. Congressman, the Government can't react as quick as the marketplace does. I am not one that really foresaw the Asian situation coming like it did, or the impact it was going to have or how long it would last. So that is difficult. There are some tools out there that farmers can use to forward price nets, that sort of thing, to help protect themselves. Of course, you are talking about the crop insurance and revenue insurance. And some of those products we continue to need to look at those and see what is available. It is going to be a package of things. It is going to fit one commodity, one producer better than others. Not just one type of protection will fit all.
Mr. WALDEN. That is part of what I struggle with, how you respond as each commodity is affected and you have got these concentration issues and price reporting issues and how can you ever expect government to react that quickly in agriculture when it certainly can't in other industries. That is what I am trying to figure out, long term how you address that. So I will look forward to your further comments about some of that flexibility.
The thing I hear a lot about in my district in the last nearly a year is how our competitors out there in the market are subsidized first, especially the EU; and second, how our policies frequently have shot our own farmers in the foot through sanctions and other trade restrictions.
The question is, are you comfortable with the level of activity from this trade office, this administration in trying to bring down those barriers? Are you comfortable as we head into the next round of WTO? Because it seems to me that is the long-term answer, trying to open those markets, give our farmers a fair shake out there to go compete.
I would be interested in your comments, all three.
Mr. PEARSON. Mr. Chairman, I can't say that I am totally comfortable. I don't think we have seen things move as quickly as we hoped they would. We are pleased to see that at least we are going to have some discussions on our soil for a change as we move into the WTO round, but particularly when you look at the level of substance coming out of the European Union compared to where we are.
Page 56 PREV PAGE TOP OF DOC Segment 1 Of 2 I don't think we could expect those things to change overnight. But if it is not going to change overnight, then we need some way to be able to come back and compete with subsidies until that playing field is more level than what it is. It is going to be a long-term process and we see all types of barriers being thrown up. They are going to continue to be there. But we need to continue to work and work very diligently to continue to bring those down, to make sure we have access for a product.
Mr. SWENSON. Thank you, Congressman. I think the confidence of farmers in the existing trade agreements is at an all-time low. It is a number of factors. One is the dispute resolution process they have no faith in. And they see the impact of imports coming to this country, be it livestock, fruits, vegetables, wheat, soybean meal. They have lost faith and trust that the trade rules at all try to level the playing field.
And so from a farmer's perspective right now, they would like to see corrections made in the existing trade agreement before we think we are going to venture into new initiatives in which we feel we may be undersold even worse. And so, I just think farmers want to see improvements made in existing trade agreements before we venture too far beyond where we are today.
Mr. WALDEN. Do you think we are seeing adequate process in the current administration in the effort to do that? Are you comfortable as we go into the next round?
Mr. SWENSON. I wasn't comfortable in the last round, I am sure not comfortable going into this round:
Mr. DE BRIYN. I think when you listen to a lot of producers there are a number of things that cause them concern about losing control. One huge thing they feel they have lost control on is the whole trade situation. And I think there is a great deal of concern that our producers have as to whether we are going to get there and whether we are going to get there fast enough to really make a difference in agriculture.
Page 57 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. WALDEN. Thank you, gentlemen.
Thank you, Mr. Chairman.
Mr. BARRETT. Mr. Bishop.
Mr. BISHOP. Thank you very much. Let me thank you for coming and sharing with us today. I want to follow up on the questions that have centered around expanding our markets and trade. I notice Mr. Pearson that you did indicate that a second part of your plan with the Farm Bureau Federation was to move more products into world markets, and you indicated that trade sanctions should be removed and export regulations should be streamlined. I wanted to get your reaction and find out whether or not the American Farm Bureau and your membership and the other gentlemen at the table, who represent a large sector of the farm community, whether or not you have been involved and you support the Ashcroft amendment, which was adopted in the Senate right before we went off for recess, lifting embargoes on food and medicines which would, it would appear to me, create some significant opportunities for American farmers and American agriculture to expand markets in the short term.
Do you have reaction to that? Are you pushing the House conferees to recede from that position and to adopt that Senate language on the Ashcroft amendment? Do you think that would be a positive help for American farmers and would in some way help us to respond positively to the farm crisis that we are now experiencing?
Mr. SWENSON. As I stated earlier, Congressman, the Farmers Union has supported removing sanctions. Food used in the area of sanctions or embargoes, whatever term you want to use, we do not think it serves well the country that is impacted nor American producers.
Mr. PEARSON. Congressman, we are long past the time when food should be used as a weapon or lever against other countries, so we very definitely support the removal of the sanctions as it relates to food and Food for Peace, P.L. 480, those types of programs. We still have a lot of starving people in the world. We know sometimes social and political obstacles are there that make it difficult for that food to get there, but we still need to continue to do that. And where there is unfair competition with subsidies, we need to counter that as well.
Page 58 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. DE BRIYN. We, of course, support exports as they relate to farmers and so forth internationally. We support the farm organizations and producer groups in their efforts in that area. We have not taken a formal position on that issue.
Mr. BISHOP. Well, it is going to be something that is imminent. I think if you feel that it will have an impact and it would help to create additional markets for the farm community, perhaps it might be a good idea to escalate your lobbying in favor of the Ashcroft amendment. Because it seems almost obvious that it could benefit us a great deal in farm country to be able to have some additional markets for our exports, where we are now limited and blocked from doing it, particularly if those markets are nearby. And the cost of freight and transportation would be limited; for example, we have got Cuba right down below us.
Mr. SWENSON. Congressman, if I could, I would also say that I would encourage Congress in future consideration of legislation not to require or impose, or any administration in the future to use food as a sanction, because some of the sanctions that are in place have been mandated by legislation passed by this body. So I just hope that we keep that in mind as we move to the future.
Mr. BISHOP. Thank you, Mr. Chairman.
Mr. BARRETT. Mr. Gutknecht.
Mr. GUTKNECHT. Thank you, Mr. Chairman. Before we left on the break I wrote a columnunfortunately, Paul, it didn't run in the Mankato paper, but the title of it was A Tale of Two Economies. I took off on Charles Dickens' idea of A Tale of Two Cities, it was the best of times, it was the worst of times.
It many respects it is interesting because right now in the cities and the towns, this is the best economy we have seen in 30 years. The unemployment rate in my district and some of my counties is below 2 percent. It is interesting how we in politics all want to take credit for the general economy, but a lot of finger pointing starts when we talk about the farm economy.
Page 59 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. Swenson, I just want to say that from my perspective, the issues that you raisedand I did take notesI agree with virtually everything you have said. And on the issue of concentration, I think a moratorium of some kind on future mergersI think we need to press the Justice Department to aggressively enforce the antitrust laws. I absolutely agree with that.
I also believe, and I want to come back to this point, that we need some kind of an on-farm storage programyou mentioned thatmandatory price reporting, equalizing the loan rates. In fact, I would go so far as to say we have to extend the loan periods.
I want to come back to that point of on-farm storage, because the point that came up in so many of my meetings with farmers, particularly in the upper Midwest is, it is almost as if they are sitting down at a casino to play cards with the big grain companies. Because USDA does such a great job of telling them exactly how much grain is out there that is going to have to come to market, it is almost as if they are playing cards with these guys; and yet the grain buyers know what cards they are holding, and worse than that, they know when they have to play them. It seems to me we have to come up with a way to level that somewhat. I think that involves some kind of on-farm storage program, and I think it involves extending the loan periods. I think there is a consensus about that.
Now, I don't think there is a consensus right now in terms of what we should do with the loan caps. I will tell you that there are as many people that feel one way as do the other.
But I want to thank all of you for your testimony today. And many of the things that I was going to ask have already been asked.
I want to come back to Paul for a minute. One of the points that has come up to me recentlyand I don't know if it is true yet or not; I haven't had a chance to get staff to review this, but you go through an awful lot of cash flow statements, I suspect, with the farmers in our area. And it does vary from region to region. I must tell you, the dairy guys right nowit is not $20, but they are in a lot better shape than they have been in some previous periods.
Page 60 PREV PAGE TOP OF DOC Segment 1 Of 2 But one of the stories that I was told, and I don't know if it is true, I wonder if you could confirm it, that about 30 percent of the people who will get an AMTA payment this year will have a net farm income of over $80,000. Can that be true?
Mr. DE BRIYN. That would be rather hard to believe, in my estimation. Based on the information that we have seen and information put together by USDA and WEFA and so forth on a per acre basis in our area and so forth, that would not be the case.
Mr. GUTKNECHT. How about last year?
Mr. DE BRIYN. I would say that is even high last year. I believe that is quite high, in fact.
Mr. GUTKNECHT. Let me come back to one other question for you, Paul.
The other thing that I have learnedand in fact I was surprised; I was at a sale barn last week and interestingly enough, replacement heifers and even cows were selling very briskly. So the dairy business is still fairly strong out there. But one of the things that some people would tell me at the sale barn that dayyou mentioned thisthat cash rents are still going up. Do you get that sense?
Now, this is on the eastern part of the State. Do you get that sense, that cash rents are going to go up even next year and land values are, if anything, certainly holding their own but perhaps even going up. Do you hear that?
Mr. DE BRIYN. I have not heard about rents really rising much. I have heard more of a stabilization, even in some cases a slight declinenot big, but just slight decline. Land values we do a benchmark. We have a number of benchmarks across our territory that we serve, and that is a mixed bag. I would say, on average, they are holding even. There are few that showed a slight decline, there are some that showed some increase, but overall, they have been very stable.
Page 61 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. GUTKNECHT. The reason I raise that point, both of the points, because I think we need to get as good an answer as we can before we come up with a new plan, is that there was also a report that some 6,500 farmers may exit farming from the State of Minnesota this year.
Is that number accurate, do you think? And if it is, how do you view that?
Mr. DE BRIYN. I think right now in the State of Minnesota there are about 64,000 farmers. To suggest 6,500 would go out of business would suggest possibly 10 percent. I think that is possible, given the economic situation, not so much obviously in dairy, but with the other commodities that are grown in the State of Minnesota; and when you factor in northwestern Minnesota and so forth, I think that number is potentially realistic. If not going out of business, at least having to significantly alter their operations or to do something in addition to what they are doing today.
Mr. GUTKNECHT. Of that percentage, Paul, what percent do you say would be at the request of the bank or farm creditor, their lender?
Mr. DE BRIYN. I would say probably over half will be on a voluntary basis. And just because more and more people have gone through the 1980's and so forth, basically tired. And it isn't an issue of the lender pushing them, it is more they are just tired of farming. They are tired of the loss of control.
Mr. GUTKNECHT. Thank you.
Mr. BARRETT. For what purpose does the gentleman from Illinois seek recognition?
Mr. LAHOOD. Mr. Chairman, I have three questions for the next panel, and I have to go to a lunch. I wonder if I could ask unanimous consent to leave these questions with the clerk and ask the next panel if they could, for the record, answer these?
Page 62 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. BARRETT. Is there an objection?
Mr. LAHOOD. Thank you.
Mr. BARRETT. Hearing none, so ordered.
Mr. GOODE. Thank you, Mr. Chairman. I would want to express appreciation for the holding of these hearings, as previous members have done. I think that they are very helpful. I have just one question for Mr. Swenson and Mr. Pearson.
In answering Congressman Gutknecht's questions, you referred to it, the growing concentration of farm ownership, in other words, fewer and fewer actual producers and larger and larger farms. Each of you, if you could, just give me your thoughts on what, if anything, Congress should do in that area?
Mr. Pearson, do you want to go first?
Mr. PEARSON. Congressman, we do see a continued consolidation in farms. Some of that is by ownership, part of it is by rented land. At least in our State it is not unusual that those owners will probably own a third of the property, the rest is rented. But the concern is, as Mr. Swenson has mentioned, as you seek corporations controlling the input side and also the exit side of the product from the farm, with that preserve, where does that put the producer long term, whether he will continue to have control of that land or not, or will that eventually be controlled by somebody else? That is a concern that I think is downwell, it is not too far down the road, but that is a concern we have as we see this consolidation where you control the input and then control what leaves the farm and then it becomes a contractual relationship. In the long term most of the contracts do not benefit the producer over a long period of time.
Mr. SWENSON. I would agree with everything Harry said and add to it.
Page 63 PREV PAGE TOP OF DOC Segment 1 Of 2 What can the Congress do? First of all, pass a piece of legislation that prohibits packers from direct ownership of livestock. Second is to aggressively review current antitrust laws and bring them up to the year 2000.
We thought the farm bill was antiquated; antitrust laws are antiquated and need to be reviewed and brought up. We need to look at a trigger level. If a corporation achieves control over 27, 30 percent of the market, is it anticompetitive? Does it provide such a control that there is no longer a free market system?
We need to take a look at contractor-producers' rights. We don't have due process availability to those farmers or producers that enter into contracts, as well as how we are going to review and have openness, not necessarily in the price that the producer is going to receive, but the nature and the structure of the contract. If a contract prohibits a producer from talking to another producer, I think they have gone a little too far by the nature of the contract. So I think we need to look at almost a contractors' bill of rights, if you want to, as we look at this future.
But those are some steps that I think in addition to what Mr. Pearson has already brought forward that we think could be taken.
Mr. GOODE. I yield back.
The CHAIRMAN. Thank you.
Mrs. CHENOWETH. Thank you, Mr. Chairman.
I have learned a lot from the witnesses, and I want to thank you for the clear thinking that I have seen demonstrated today as always from those of you who are at the witness table. It is so interesting for a roleover this last 30 years this Nation has pushed for us to be able to export our agricultural technology into other countries so thatand believing if, and rightly so, that a country whose people are well fed are less likely to commit war and be aggressive. And I believe that that works to some degree, and in fact in large part.
Page 64 PREV PAGE TOP OF DOC Segment 1 Of 2 But the fact is now, as the Secretary has said, we have seen record levels of production worldwide and, in fact, with regard to the hog production that has gone down in your State, Mr. Swenson, and your State, Mr. Pearson, this committee has learned that there are huge hog producing farms in Southeast Asia and the Pacific Rim that we have helped startwho, by the way, don't live under the same food safety environmental restrictions that our hog producers here in America do. And, gee whiz, we have increased their standard of living, the farmers over there on these hog-producing farms. We have increased their standard of living. We have increased their income from 50 cents a day to $1 a day.
One of my big concerns is that in Idaho we have a lot of fruit orchards, and this year, in spite of the fact that one of the Nation's largest grocery chains is headquartered right there in Boise, ID, the apple trees went unharvested this year. Almost next door to these big markets, apples were left on the trees, so many that even the gleaners didn't go out and get them because foreign producers are able to bring into this country fresh produce, because they are not under the same restrictions in terms of labeling and product restrictions that our American producers are under. It is a very sad situation.
I really appreciate the comments that have been made about that, because I think we need, this body needs to get past the point of commiserating with each other and get to the point of remedial legislation or working tough with the administration to have remedial regulations.
Just recently we saw [EPA Administrator] Carol [Browner] restrict use of other products that our farmers and fruit producers have relied on, and that is just the beginning. So we are driving the cost of production up for our American farmers while we still don't require the same level of sanitary restrictions and equal inspections on products coming into this country.
Mr. Lucas had just stated that in his State, in many cases, crops are producing one-third more than what we can consume here in America, yet we are bringing in other crops from foreign countries that have actually used some of these chemicals, some of these insecticides, fungicides, pesticides on their products. And the consumer doesn't know when they are purchasing those products that they are purchasing products with these chemicals that have been restricted here in America, to our American producers.
Page 65 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. Pearson, I want to direct my first question to you. And it is with regard to specific Farm Bureau policy found on page 53 of your Farm Bureau policy book, and it reads, ''We, the Farm Bureau, recommend that all imported agricultural products at point of entry be subject to the same equal inspection, sanitary, quality, labeling and residue standards as domestic products from the United States and Puerto Rico. We, the Farm Bureau, should increase efforts to ensure that imported foods meet standards equivalent to those set for domestic products.''
I just have to ask you, Mr. Pearson, and anyone else who would please address this, do you see any possible adverse trade implications regarding this Farm Bureau policy? And why aren't we pushing this harder?
Mr. PEARSON. Congresswoman, I appreciate your reading that. That is very definitely our policy. I am sure that there would be some trade implications from their standpoint that the European Union, for example, is already using trade barriers to restrict products. But at the same time we feel very strongly that needs to be done. We know that Lorsban is not used on potatoes here, but yet we have potatoes coming in from Canada that have Lorsban on them.
We talked about the apples and what is happening here. We know there are products coming in from other countries with those chemicals that we can't use. The State of Washington has, I think, about a billion acres, China alone is planting out many acres a year in apples. So we see those countries taking our market.
One of the snap-back provisions that we have under the current trade language is not being utilized the way it should, if you look at what took place in Florida in the last 2 or 3 years to the tomato growers. So we need to strengthen what we have there.
I would be concerned if that would affect trade negotiations, but I think it needs to be part of our discussion.
Page 66 PREV PAGE TOP OF DOC Segment 1 Of 2 Mrs. CHENOWETH. I want to thank you very much for your answer.
I also want Mr. Swenson to address this and also giving the consumer the ability to make wise choices in the marketplace with regard to like country-of-origin meat labelling.
Mr. SWENSON. Congresswoman, I appreciate that question.
First of all, we urge this Congress to support your effort on country-of-origin labeling on all products, especially meat products. I mean, it is sad when we know where our shirt comes from, our suit comes from, but we don't know where our T-bone comes from. It is sad. They say, well, we can't label hamburger, and that is where most of the imported meat is.
If you pick up a jar of apple juice, take a look at the back of that label. It will tell you this includes contents from a variety of different countries. It will list all those countries. If we want to deal with hamburg labeling and worry where the meat comes from, let them list all the countries of which that company has imported meat from. They can easily take care of that labeling concern that they may have. So we are a strong advocate of meat labeling, all labeling of products.
Let me just say that we are extremely concerned and we have pushed and pushed and pushed this Congress and administration to deal with strengthening the inspections at our border. We inspect less than 1 percent of the food product that comes across the border, less than 1 percent. We have greater inspection at all of the meat processing plants and all the processing plants in our own country than we do of food now in commerce coming across the border.
What this Congress needs to do is not only enhance the enforcement but provide the dollars and personnel necessary to strengthen our border inspection process, deal with the research of how we can more adequately and quickly test the product, not just inspect the paperwork but inspect the product coming across the border.
Page 67 PREV PAGE TOP OF DOC Segment 1 Of 2 And I would add to that the concern I not only have is what we are doing to our consumers but what we are doing to the moral life of the people in this country when you see such things as the increase in drugs that come in just through American airlines. I am concerned how we deal with our inspection if we are going to lower the percentage and yet increase the volume of trade traffic in the world. We have got to deal with enforcement so we not only address the quality of food but we are going to deal with the other aspects of the quality of life in this country.
Mrs. CHENOWETH. I thank you very much for dealing with us on those specifics. Thank you very much.
The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. Thank you, Mr. Chairman.
I, too, thank the panel for some excellent testimony and for some of your responses to the questions today.
As I have listened, all of us, particularly those of us in the political side of life, we like to have our cake and eat it, too. We like to be for one thing and for another thing. We don't like to make tough choices. But as I have listened today, it wasn't too many years ago I never dreamed I would have the American Farm Bureau Federation coming before this committee asking that the budget be busted. Never dreamed we would ever see that. But you are here today and you are asking for things that are very reasonable because there is a crisis out at the farm.
And the question, though, is, and I raised it in my opening statement, as to whether or not another 1-year bailout afterand second year, first year bailout with another one coming is the way we ought to go, why there is such an adverse opposition to the concept of opening up the farm bill when we have already done it. We have already done it time and time again, but we haven't done it and admitted to it.
Page 68 PREV PAGE TOP OF DOC Segment 1 Of 2 We hear a lot about exports, and I was critical, as others have been critical, of not getting additional trade legislation. Somebody put together a very interesting chart. It was just fascinating to me. And I am going to be interested in getting, as Paul Harvey says, the rest of the story. Because while exports are important, when you look at corn, if you take a 25-year period and take 5-year segments and take an average of the exports of corn, it is interesting, in 1975 to 1979 we exported 1.9 billion bushels and in 1996 to 1999 we are going toexcuse me, in 1999 we are going to export 1.9 billion bushels.
Now, that is not what most of us would like to believe, based on the numbers we have been looking at, but when you put it in historical context, that is the fact. Domestic consumption has gone up from 6.4 billion bushels to 9.4. Average yield has gone up 95 to 136. Wheat, you can take the same numbers for wheat.
Export volume, it is just fascinating that it is exactly the same 1.2 billion bushels in 1999 that it was in an average of 1975 to 1979. Pure coincidence? I think not. But, as I said, I want to look into those numbers a little bit more to see if they are telling us what the writers of this chart wanted it to tell us, because I am giving what I believe is their version of it today.
But then you look at net farm income or gross income per acre and you see that, for corn, it has gone from $290 this year. It would have been $562 per acre in 1975, 1979 dollars. So has yield has gone up. And this is what I think our farmers are telling us, is that increased yields, increased efficiencies are not cutting it.
But then we get into another inconsistency, and that is we are told by farm credit that farmland prices are going up. How can it be as bad down on the farm as it is when we are bidding up land?
I know the answer. I am a farmer. But how do we answer that question to non-farmers?
Page 69 PREV PAGE TOP OF DOC Segment 1 Of 2 And then we get into the issue that is going to occupy a lot of our time this week. Before I get into that one, Freedom to Farma little inconsistent when we say we don't want to open up the farm bill and we don't want to look at concentration and labeling and which this committee is doing but we have got folks opposed to that.
Freedom to Farm indicates basically we were going to get Government out of agriculture and that means concentration, folks. You can't have it both ways. If in fact we are not going to have government's involvement in agriculture, then you are going to see concentration and how do we say, except by government, that packers shouldn't feed cattle? I kind of know which side I am going to come down on that, but it causes us to think just a little bit.
And here I want to use a little chart and I will put this into the record, Mr. Chairman. Because as we get into some of these discussions on goats, we eliminated wool and mohair production in our program not too many years ago; and according to the latest charts and the latest predictions is our angora goat business is out of business in 2003 because there is no Government assistance unless we can find some way to include goats, sheep, in the same rhetoric that we talk about corn and soybeans, wheat, cotton because the end result is going to be the same for all of our industries if we don't recognize that.
And here's another choice that we have got to make, and I know this perhaps will make some of my colleagues disagree with me, as they will publicly the rest of this week, but when you come here and ask for the budget to be busted, at the same time you say that you want to support a tax cut using all of the available money that we have to deal with the problems before this committee, it is not being consistent on us as our colleagues or on those of my friends on the other side that are saying we can do both. Because if we are going to do both, if we are going to meet this, we are going to have to spend temporarily Social Security trust funds, which I am perfectly willing to do if we have got a plan, perfectly willing to do if we have a plan that fixes Social Security.
Page 70 PREV PAGE TOP OF DOC Segment 1 Of 2 But to those who say we can have a tax cut, which you are going to say and you are going to say this and this is a political differenceit doesn't hurt us to get a little bit political on this bipartisan committee from time to time. I just don't see how we can have it both ways. And I don't see how farm groups can ask our colleagues on both sides to have it both ways and expect our urban colleagues to continue to agree with us as they have. Something to think about. Something that I have thought about.
Mr. De Briyn, when you pointed out, rightfully so, the farm credit system is in pretty good shape today. Why? Because we have had to tighten our belt. And there is a lot of folks that you are not able to finance anymore. But equities have gone up, and thank goodness it has, because it allows usat least we have the financing both through farm credit and through our agrabanks that we have got the ability to lend to people that can pay it back. And I am thankful for that, and I commend you, and I commend our agrabanks who have survived. But the best tax cut we can give our farmers right now is to keep interest rates down. That is the best tax cut we can give.
So after the President vetoes the bill, I hope we don't spend too long being mad at each other about it, but I hope we roll up our sleeves and work on the problem that is before this committee today.
There are many, many inconsistencies that we have. I mentioned land. We have got a lot of folks talking about it is not quite as bad out on the farm as you are telling us.
The Heritage Foundation just came out with a study that is real puzzling to me. Let me just refer to that. Using 1997 census of agriculture data concludedthe Heritage Foundation now, a very respected and respectable conservative think tank, and I say this quite sincerelyconcluded that the $300 million decline in net farm income from 1998 to 1999 amounted to a $438 decline for each of the 685,000 farms, production farms.
Page 71 PREV PAGE TOP OF DOC Segment 1 Of 2 Now, $438 per farm is not nearly as severe as what you have testified here today. Who is right and who is wrong? I happen to believe you are right, that we have got a crisis out there. But the Heritage Foundation, taking the same information, is saying, not that big a deal. Even using projected cash receipts, a $6 billion reduction from 1998, adjusting for soybeans and loan deficiency payments and using the Farm Service Agency, 1.7 million farms receiving AMTA payments, the per farm decline is $1,293.
Now, when folks read that in the Washington Post, they are saying, what is the big deal? Somehow, some way we have got to answer that question, because that's what folks on the other side are going to be using.
Mr. Chairman, I have used my time and have a lot of other individual questions that I would want to ask of you, but you said it. You have answered a lot of my colleagues' questions. And, again, I want to end where I started today in saying that I appreciate it very much, the manner in which the chairman of this committee is proceeding on all of the questions. And in spite of the fact that we will have some serious differences of opinion regarding economic policy later this week, once we get those debated and discussed and the House works its will, I hope then that we can look.
And Mr. Pomeroy is not here. I understand that we don't have time for long term. Unfortunately, that is the way it comes up, quite often. The short term is the immediate problem for most of my constituents that are in trouble today and, therefore, you deal with short term.
But I think we can find an action taken by this committee already this year in hearings if we can haveand here again I want to commend the chairman for asking that the leadership of the House and the appropriators reach out to the authorizers as some of these decisions are perhaps going to be made regarding disaster payments, regarding income supplements, regarding livestock feed assistance, et cetera, that this committee be consulted. And if we are consulted, I know the chairman and I will be happy to ride shotgun with him to see that we get the proper end cut from this committee to those on appropriations that are perhaps going to be making many of these decisions, and we will be reaching out to you and the panel that follows as far as getting the kind of information that we need in order that those decisions that we do make will be the most helpful to those that we are here to talk about today, farmers and ranchers of America.
Page 72 PREV PAGE TOP OF DOC Segment 1 Of 2 Thank you.
The CHAIRMAN. Mr. Cooksey.
Mr. COOKSEY. Thank you, Mr. Chairman.
I have several questions I want to ask. I am just going to ask them all and let you try to sort them out and get them in my time limit.
They are economics questions. I have my MBA from a Texas university, but when I am in this committee, I think I would probably have been better off had I gone to the alma mater of one of the two ranking members who also are from Texas.
Quick question. What is the single best or top two solutions to discourage other governments from putting their farmers at a competitive advantage and ours at a competitive disadvantage?
Incidentally, I have read the testimony of the three of you and the Cotton Council people are coming up, but give me one or two top recommendations.
Number two, look at the overall picture. In 1899, 33 percent of the population was involved in agriculture, either in production or distribution of agricultural products, and now it is 2 percent. What can we do to stop this trend? We don't want it to go to zero, but if the trend continues, what can we do to help farmers transition to other areas? Or are their children already doing it?
Third question, in this era of globalization information age, it appears that the cost of goods is diminishing because, as things are produced in greater amounts, numbers, they become commodities and commodity prices go up and down but generally trim down. What can we do, what should we do to address this economic principal that as an item becomes a commodity, looking at the overall picture, the commodity prices go down and how much of a safety net do we have to provide?
For example, clothing, computers, corn have all gone down in price. Do we need a safety net for that?
Page 73 PREV PAGE TOP OF DOC Segment 1 Of 2 My fourth question, is there a need to have domestic farm commodity sources in the event of war? This was a very valid argument in the 18th and 19th century and I think even into the 20th century. Is it a valid argument in the 21st century?
And my last question, it has been my observation that middlemen are making all the profits in agriculture and in a lot of other areas. They are doing it in health care. They are called HMOs. And I am a physician and there was a time when we had a relationship, just patient and physician, but the HMOs are there now. But in the agriculture industry, you have got commodity traders, you have got cotton buyers and traders, and I know. I buy oats and I have raised corn and I still raise my own hay but I have to buy oats. If I go over to the grain elevator on the Mississippi River, I can get it for $1.15, but when I go buy it from this guy that is near my farm and he has gone through the trouble of putting it in a sack, I pay $5 or so for a bag of oats. That is the middleman. Can farmers market direct?
And that's really my last question. And is it possible?
Because when I have mentioned this for my farmers, I tell them we are in an era of e-commerce, an era of increasing Internet sales. Internet sales, e-commerce is increasing at a rate almost faster than the speed of light, but can farmers ever market direct and cut out the middleman?
Five quick questions. Maybe you can get my answers in. I am seeking answers. I don't have any solutions.
The first question was, what is the best solution to discourage other governments from putting our farmers at a competitive disadvantage against their farmers? One best answer or two.
Mr. PEARSON. Level playing field.
Mr. COOKSEY. How? I have heard that a lot.
Mr. PEARSON. Subsidies and as we have talked about the productscan or can't be used on products coming into this country from a food safety standpoint.
Page 74 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. COOKSEY. Forcing them to get rid of their subsidies and
Mr. PEARSON. Trying to keep the playing field as level as we can between those countries that are subsidized, and the other is the food safety of products.
Mr. COOKSEY. Make them meet our same standards in terms of food product.
Mr. PEARSON. I think that is important.
Can farmers market direct? Some can. We have watermelon produced in Indiana that go direct, but not everybody can do that. The cost of goods is going down. The middleman gets more of that cost. The farmers' share of the food dollar continues to shrink. The food checkout day is February 9 when the average worker has paid for all their food for the year. The farmers' share of that is January 9. So in 9 days the consumers pay for the farmers' share, that food dollar.
I am not sure where you get below the 2 percent as to who is going to be left in production. You certainly don't want to get to zero. We are going to continue to see some shrinkage, and our goal is to try to keep that as level as we can so that number doesn't continue to decrease.
I will stop it there.
Mr. COOKSEY. You answered a couple of these questions in one of your other answers already.
Mr. SWENSON. I will be real quick.
In the international area, I believe it is currency, labor, and environment. Food safety issues all tie into that.
In the area of the future, I think what we have got to deal with is some programs. When we take a look at today that about 60 percent of the land being farmed is owned by absentee land owners, we have got a major problem that is facing us in the future, and I don't know how soon that crisis will be here for you to deal with if we don't deal with it quick.
Page 75 PREV PAGE TOP OF DOC Segment 1 Of 2 How do we assist young farmers in acquiring some ownership and having a future in the production of agriculture other than just contract production? That is one of the areas that the current AMTA program has kept land values up, rental values up. It has translated over into there and not dealt with the real reality of the commodity, the value of the commodity.
We need to look at how we bring young people in. Will we stop people from going out of agriculture? Absolutely not. People at an average age today is 58. Are they going to retire? Absolutely they are going to retire. What will we do to transition young people in, not just people out of agriculture?
Mr. COOKSEY. I have a comment. As I go to my agriculture town meetings, more and more of them are looking my age instead of the age of some of these younger people.
Mr. SWENSON. Absolutely. Food is different, Congressman, than computers. You can't eat a computer. You have to have food. You have to have water. It is uniqueness.
We almost went to war for access to oil because we didn't have what we felt was adequate oil supplies for the energy needs of our country. What are we going to do if we don't deal with a solid program to sustain food production in this country?
Congressman Stenholm talked about what we had done with goats and sheep, and they could go from there. We have U.S. companies producing pork in Brazil and Mexico, to take advantage of some of those things in question number one to export back into this country.
And then when you talk about market direct, yes, producers can market direct. The technology is available. Congressman, what is shutting them down is the access to the retail market. We are seeing consolidation in the retail market structure for food, consolidation of who owns which grocery stores. And then companies go in and buy the shelf space, pay huge amounts of money and buy the access to that shelf space, in the contract require that company to not allow anybody else to come in.
Page 76 PREV PAGE TOP OF DOC Segment 1 Of 2 We saw in North Dakota the establishment of a Durum pasta plant that has almost the inability to put their label on a shelf because the grocery companies have agreed not to accept any other product on that shelf.
Mr. COOKSEY. Is this part of the explanation that my colleague, Mrs. Chenoweth, was alluding to with her apples?
Mr. SWENSON. Absolutely.
Mr. COOKSEY. Because that seems ridiculous that that would even exist.
Mr. SWENSON. Even though you can apply the technology and you have the expertise, if you can't get to the retail market outside of the farmers market, which are growing, by the way, because people want to buy local, but you have got to make sure you have access to that retail market not only in the grocery stores but access to farmers markets as well. But it is a growing share of the market opportunity for producers.
Mr. COOKSEY. That is a very good point.
The CHAIRMAN. The Chair would like for the gentleman's questions to be answered, not giving the panel a great deal of time, but would prefer that the gentleman didn't continue to ask as we move forward. We are trying to hold this to everyone for about the same amount of time.
Mr. COOKSEY. Thank you, Mr. Chairman.
The CHAIRMAN. Mrs. Clayton.
Mrs. CLAYTON. I don't have a lot of questions that I want to pose because of the time, but there are questions I just want to say that we need to consider in the long run. There are short-term issues and there are long-term issues, and immediately considering what is going to happen to our farmers, it is very, very bleak, as the testimony has revealed.
Page 77 PREV PAGE TOP OF DOC Segment 1 Of 2 The Rural Agriculture Outlook just recently did a report, and they took all the commodities and looked at all the production worldwide, began to make some projection. Obviously, the projection they make for 1999 is about what 1998 was, that we will continue with a modest growth. But when you look at it long term, projections are just that.
I serve on the Budget Committee, so I know what projections are, but projection long term seems always if ourbecause of the economy globally and a lot of other things, we will do better in the agriculture community; and, therefore, the tendency is to say if we can just keep our farmers to hang on, then everything would be all right.
My fear is that we have come to this emergency crisis cycle and the way we keep our farmers to hang on for this future is to approve the emergency funding. And if we examine that emergency funding, it is exceeding now more than our so-called safety net that we dissipated some time ago. So if we are trying to find a way to have a safety net when we need it so we can hold our farmers on to good times, we need to really examineand I want to associate my remarks with Representative Stenholm. I want to say we need to examine what is the appropriate role for the Government with our agriculture.
Is agriculture in our national security and, if it is, should we not have a permanent safety net there that doesn't take away from the market but it is only there when the market fails to address those issues? Otherwise, we are going to be every 6 months, every year with a $6 billionand we need it. I will vote for it. I will be advocating my urban friends to vote for it. But I know that Hurricane Floyd is coming down. Here it comes. All things that haven't been destroyed, we are going to have another one. So we have got to find a way where we structurally look at what the conditions are of our farm community, rather than responding to our short-term immediacy.
And I know it is easier said. I don't condemn anyone other than in collectively saying that we are challenged to look at that.
Page 78 PREV PAGE TOP OF DOC Segment 1 Of 2 You talked about contract growers. I spoke to contract growers on the weekend. They are worried about a number of issues, the consolidation of Murphy and Smithfield now in my area. Now the pork people are worried about that. That is going to have some implication. So the corporate structure is moving so fast, there are going to be very few entities not only owning the land, the people who process itmean produce it but also the processing. I heard someone say they may own their own shelf in the grocery store.
All of that should say to us we have a problem of tremendous proportion, and we cannot address the agriculture problem thinking only about doing emergency funding as we have done for the last 3 years.
Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Smith.
Mr. SMITH. Mr. Chairman, thank you. I will try to be brief.
I suspect almost every member of this committee has held a lot of meetings with farmers. Under Secretary Gus Schumacher came out for three of my regional meetings in my district. I have held another 14 meetings with farmers.
What we hear from Michigan, by the way, Mr. Chairman, is a concern with crop insurance that, in effect, they can't afford the crop insurance because they don't have that kind of a disaster only once every 19 years and therefore there is a feeling that they, in effect, subsidize other parts of the country with premiums along with that area.
I want to ask each of you a question. And, by the way, Mr. Swenson, I have been a member of Farm Bureau since 1957, but I really respect a lot of your comments and answers today. I think I will take out a dual membership when I get back to my farm.
Do each of your organizationsare you looking at specific language of how to improve our trade agreements in both WTO and NAFTA? Are you looking at specific recommendations how we might change that?
Page 79 PREV PAGE TOP OF DOC Segment 1 Of 2 I have been sort of looking at some of the things of how other countries are subsidizing their farmers, how they are putting our farmers at a disadvantage. Would you, could you, are you, will you start a more aggressive effort as we start the rewrite starting now and over the next couple of years on how specifically you would suggest we make changes in our trade agreements?
Mr. PEARSON. Congressman, I know we are. I don't have all the specifics. I know the meeting in Indianapolis about 2 months ago, we had a lot of specific testimony from producers there as to how to level up the playing field with other countries and the subsidies coming out of the country. So I know we are, but I don't have all the specifics on it at this point.
Mr. SMITH. Mr. Swenson.
Mr. SWENSON. Congressman, I appreciate your joining the Farmers Union. We look forward to your participation.
In addition to that, we work on the APEC committee and I know the vice-president of the American Farm Bureau is on the APEC committee in trying to advise the administration. We try to come to a consensus on those points we can agree with. I know that the staffs of our two organizations communicate on a regular basis and try to find those issues we can agree on to continue to advance before this administration. We will continue that effort, but we will also continue on those points we can't come to an agreement on to each advance what we think is in the best interest of producers. So we make that commitment to try to work together.
Mr. SMITH. Please share them with this committee as you develop those specific recommendations.
And following up on an earlier discussion, what do we do in terms of breaking the budget in terms of spending the Social Security surplus money next year and the year 2000? It looks like it is possible to at least get out some AMTA payments that would come out as an emergency spending this fiscal year, but the tough question is, are the agriculture organizations in favor of spending the Social Security trust fund surpluses for farm program payments to compensate for low commodity prices?
Page 80 PREV PAGE TOP OF DOC Segment 1 Of 2 That is about as tough a question you probably can get.
Mr. PEARSON. That is a tough question.
As we look at the net income of agriculture at this point and if you look at the average income of the worker in this country since 1996, it has gone up almost 17 percent while net farm income has dropped 15.5 percent. Over a 33 percent spread has taken place with the average workers income compared to agriculture. With commodity price, we are saying those payments now need to be there.
Mr. SWENSON. Congressman, we feel as this Congress has acted in the past and when an emergency situation arises to provide the funds that are necessary, the situation facing agriculture provides the same type of leadership, providing that emergency assistance. I think it brings it to a critical point and that is, yes, we need to shore up Social Security. We need to shore it up for the long term. We make that commitment to support that initiative.
But I would rather deal with that and the emergencies that are before us than deal with the tax cut that lies before us and see interest rates begin to decline. We have already seen that. Boy, are producers impacted instantaneously when we see interest rates rise, not only on ownership but operating costs.
Mr. SMITH. I don't think most of us would disagree with you. The real challenge, as I see it in Washington, is do we expand the size of Government. If the money is left in Washington, who believes that a lot of that money isn't going to be spent on an expanded Federal Government program? And so there is a challenge there. And I think most of us agree that it is reasonable to start paying down this huge debt that we have accumulated that we are passing down to our kids and grandkids.
So the debate here in Washington is not paying down the debt versus a tax cut, because they are equal in terms of their consequences to the economy and their help to the people, but I think the real challenge is are we going to give in to the easy road of expanding the size of Government.
Page 81 PREV PAGE TOP OF DOC Segment 1 Of 2 Let me ask you the concern and interest specifically on taxes. With this tax bill, do you support the phasing out of the death tax, the 100 percent deductibility for health care, and the other provision was the FAARM provision where you can set aside a special IRA in good years and not include it as income until you have a poor year.
Mr. PEARSON. In a short answer, we support all of those.
Mr. SWENSON. We support those initiatives, but we would give a greater priority to shoring up the ability to farmers to have some profitability to set aside before we are too worried about the farm program.
Mr. DE BRIYN. Yes, we would support those efforts also.
Mr. SMITH. Somehow we had a farm bailout of $11 billion last year. It could approach that amount this year. Next year I suspect during election year there is also a good possibility, looking at prospects for demand, that we will have another bailout next year. It is a shame we don't come together with all of agriculture within the different agricultural organizations, within both Republicans and Democrats, and develop a more long-term approach to helping make sure that we continue to have a viable agriculture.
Thank you very much, Mr. Chairman. Thank you.
The CHAIRMAN. Thank you to this panel very much for your patience and consideration. This panel will be excused.
We will convene the next panel after a recess for about 15 minutes while we cast two votes.
The CHAIRMAN. The committee will resume its sitting.
I would like to invite our second panel to the witness table, please: Mr. Ronald Rayner, president of the National Cotton Council from Goodyear, Az; Mr. John Denison, chairman of the USA Rice Federation from Iowa, LA Mr. Dwain Ford, executive committee, board of directors, on behalf of the American Soybean Association from Kinmundy, IL; Mr. Terry Detrick, vice-president of the National Association of Wheat Growers from Ringwood, OK; Mr. Ryland Utlaut, chairman of the National Corn Growers Association from Grand Pass, MO; Mr. John McNutt, president of the National Pork Producers Council from Iowa City, IA; and Mr. Clark Willingham, past president of the National Cattlemen's Beef Association from Dallas.
Page 82 PREV PAGE TOP OF DOC Segment 1 Of 2 Thank you all very much for coming.
Mr. Rayner, please begin when you are ready.
STATEMENT OF RONALD RAYNER, PRESIDENT, NATIONAL COTTON COUNCIL
Mr. RAYNER. Thank you, Mr. Chairman and members of the committee. Again, thank you for the opportunity to discuss the economic crisis in the U.S. cotton industry, its causes, and our recommendations for congressional action.
Mr. Chairman, cotton prices are at a 14-year low, well below the cost of production; and international prices are just as depressed. There has been a dramatic decline in the worldwide demand for cotton, spurred primarily by the Asian economic crisis. U.S. raw cotton exports declined by 45 percent in 1998 to the lowest level since 1985. Demand for U.S. raw cotton by U.S. textile mills has declined even though American consumers are buying more cotton products at retail. In 1998, for example, U.S. imports of cotton textile and apparel products surged to 65 percent of total consumption as Asian textile producers faced with depressed markets at home dumped their surplus production into the U.S. market.
Projections for farm income generated by the major commodities including cotton in 1999 anticipate a 12 percent decline from 1998. Meanwhile, costs of production have stayed relatively constant for 1998 and 1999 after escalating in 1996 and 1997.
A dramatic increase in commodity stocks since the 1995 season is another measure of the seriousness of the situation. For example, rural stocks are up 28 percent, which puts further pressure on prices.
With prices at levels well below the cost of production, with dramatic increases in imported cotton textile and apparel products displacing U.S. milk consumption, with continued subsidization of Chinese cotton production and export sales and with an overcapacity of State-controlled synthetic fiber production, the short-term situation is critical. We believe it is imperative that Congress provide immediate assistance to the U.S. cotton industry and to U.S. agriculture.
Page 83 PREV PAGE TOP OF DOC Segment 1 Of 2 We believe the essential components of an effective relief package are reinstatement of the cotton step 2 competitiveness program, substantial direct economic and disastrous assistance payments to farmers, and elimination of limits on the marketing loan program to allow cotton and other commodities to move to market rather than to Government inventory.
From 1990 to 1996, cotton's competitiveness provisions worked well when conditions warranted. The funds available for step 2 were capped at an arbitrary level in a 1996 farm bill and were exhausted in December of 1998. Since then, prices have fallen substantially, and U.S. exporters are unable to compete in a world market featuring State trading, subsidized competition and oversupply.
Reinstating step 2 will help U.S. exporters compete for markets and ensure U.S. domestic textile mills have access to competitively priced cotton. Increased consumption will boost prices for U.S. farmers and help alleviate the severe economic stress.
The cotton industry and agriculture in general will also benefit from elimination of the limitation on marketing loan gains. If the cumulative limit on loan gains is not increased, we will see U.S. agricultural competitiveness decline and the Federal Government accumulate significant commodity stocks for the first time in 14 years. Loan forfeitures and the resulting large Federal stock accumulation will cause crop prices to fall even further, will increase Federal Government costs, will further exacerbate the economic strain being faced by farmers and ranchers and will disrupt the marketing and pricing potential of next year's crops.
If Congress is unable to eliminate the limitation under these very severe and unique circumstances, I hope you will consider authorizing the Secretary to issue marketing certificates to alleviate the situation.
The Senate considered various delivered mechanisms for the direct assistance provided in the emergency package. After careful review, cotton producers prefer an approach that utilizes the existing AMTA structure to deliver this assistance. The portion of the 1998 emergency assistance package that provided supplemental AMTA payments was implemented very quickly and efficiently by the Department of Agriculture. Even though cotton farmers were critical of the concept of decoupled payments in 1996 and recognize the various inequities, they have reluctantly concluded that timeliness and consistency of rules within the current crop year are imperative.
Page 84 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. Chairman, we believe that the question whether farm policy should return to a production linkage, such as the deficiency payment program or other similar system, is a matter for future debate and consideration. We are anxious to participate in a discussion about future farm policy, but sound, lasting policy is rarely developed under such dire circumstances as we face today. U.S. agriculture needs emergency assistance now, and it should not be delayed by extensive debate over fundamental farm policy.
In summary, the cotton industry believes the Senate package provides the essential components of effective, timely assistance. If additional funds become available, we certainly urge the Conference Committee to consider providing assistance for weather-related crop losses for the Farm Service Agency so that it can deliver programs in a timely manner and for international market development programs administered by the Foreign Agricultural Service.
Thank you for the opportunity to present these comments on behalf of the U.S. cotton industry. We look forward to working with Congress and the administration to complete what the Senate has started.
[The prepared statement of Mr. Rayner appears at the conclusion of the hearing.]
Mr. RAYNER. Also, Mr. Chairman, I have a letter that we have submitted for the record with the clerk. This is signed by several commodity groups concerning the issuance of certificates.
The CHAIRMAN. Without objection, that certainly will be made part of the record.
Mr. Denison, we will go with you and right down the table.
STATEMENT OF JOHN DENISON, CHAIRMAN, USA RICE FEDERATION
Page 85 PREV PAGE TOP OF DOC Segment 1 Of 2
Mr. DENISON. Thank you Mr. Chairman. I want to commend you for holding this hearing in a very timely manner.
I am John Denison. I am a third generation rice producer from southwest Louisiana and currently serving as chairman of the USA Rice Federation. I am appearing here on behalf of the Federation, which welcomes the opportunity to testify on the impact of this farm crisis as it affects the rice industry.
As most of you may already know, the USA Rice Federation is the Nation's largest rice association, representing producers, processors and millers; and we have members in all of the seven major StatesArkansas, California, Florida, Louisiana, Mississippi, Missouri, and Texas; and we represent a number of the allied businesses as well.
Mr. Chairman, the rice industry is hurting and hurting badly. We need help. Our problem is much the same as the other segments of American agriculture, and we have been impacted just as devastatingly as other crops with low prices that have occurred here in the last year.
The September Agriculture Supply and Demand Estimates came out here last week, and it projected, as we all knew, the largest rice crop on record. This report showed that prices would be substantially down for the year. It showed, even though domestic consumption has slightly increased, our export demand will shrink. The net result is there will be an increasing buildup of carryover stock to near record which we know will continue to depress prices in the long run.
I would like to talk to you, Congressman Chris John and my Congressman stated that the rice prices have been cut approximately in half, and he is correct. Last year and the year previous to that we were seeing prices in the neighborhood of $10 to $11 a hundredweight. When I left home this week, we were having a hard time getting bids at $5 per hundredweight. Had it not been for the Indonesian Russian sale that USDA consummated here last month, I believe we would still have a major part of the crop still in the field.
Page 86 PREV PAGE TOP OF DOC Segment 1 Of 2 This has been one of the most significant declines in prices in my lifetime. At a minimum, many rice farmers are going to face substantial problems obtaining credit for next year's crop if the current situation is permitted to continue without Government assistance. We will find more and more producers are abandoning farming, an occupation in which their families engaged in for generations. This is our number one priority, that we recommend to you that we double the AMTA payments as provided in the Senate and as I believe have been supported by Congresswoman Emerson in her emergency farm assistance package.
This approach has the virtue of providing immediate aid to farmers using the structure of existing law, the AMTA approach, and it does not require the complicated rule-making process that often has delayed implementation of your work here in this Congress, similar to what happened last year where we had to wait 8 months to get the money that you appropriated for us.
Next step, besides the AMTA payment approach, is exports. About 40 percent of the U.S. rice industry is exported, and one of the most important tools in exporting of our crop is the marketing loan. Had we not had the concept of marketing loan, I don't know where agriculture would be today. The rice industrywe have had problems with USDA keeping the accurate world market price and only in August were we able to convince them to restructure their formula, and thank goodness they did so timely enough where we once again are competitive, and we thank the USDA Under Secretary Gus Schumacher for making that recommendation.
As part of our recommendation, we would like to have the current loan deficiency payment limitation of $75,000 be eliminated or significantly increased. I don't have to explain to you how the mechanism works, but it does not make much sense, in our opinion, to let rice be turned over to CCC, put in Government storage and incur additional expenses to the taxpayer. We grow crops to move them. We don't grow crops to store them. And with the use of the marketing loan, if it is done effectively and funded properly and sufficiently, this will move the crop. And we commend you for doing that.
Page 87 PREV PAGE TOP OF DOC Segment 1 Of 2 Next we would encourage you to support the Senate provision on lifting the sanctions, particularly in Cuba. Cuba was at one time our number one export market back in the fifties and sixties The current market allows about 400,000 tons of rice to be imported in that country, and we would like very much to supply that rice. We have major ports on the Gulf starting from Houston, Lake Charles, New Orleans, even in Mobile. We have rice going in out of those ports and could very well and very easily service that market.
Public Law 480 and food aid continues to be a major part of relieving our problems in the industry. In the final analysis the rice industry can prosper only if we have improved access to world markets, as has been said here. The WTO trade agreements coming up, very, very important. We are very much engaged with USDA and the trade representatives on that.
Finally, we wish to thank you, Mr. Chairman, along with Mr. Stenholm and other members of the committee, for your support of legislation that would put limits on administration and impose future sanctions. We urge you to move immediately because a lot of farmers won't be here next year if we don't get this relief to them immediately. And I know there is some differences of opinion on the delivery process, but the AMTA structure is in place. It will get it there. Bankers are meeting weekly in the South about how farmers are going to meet the crop loss.
Thank you, gentlemen. I will answer any questions later on.
[The prepared statement of Mr. Denison appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. Mr. Ford.
STATEMENT OF DWAIN FORD, EXECUTIVE COMMITTEE, BOARD OF DIRECTORS, AMERICAN SOYBEAN ASSOCIATION
Page 88 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. FORD. Thank you, Mr. Chairman and members of the committee.
I am Dwain Ford, a soybean and corn producer from Kinmundy, Illinois. I currently serve on the Executive Committee and am chairman of the Trade Policy and International Marketing Committee of the American Soybean Association. ASA does appreciate the opportunity to comment on the crisis in the farm economy and the need for additional short-term assistance to address it.
In assessing the magnitude of the income shortfall facing U.S. soybean producers, one needs to only look at the sharp decline in the past 3 years. Soybean prices received by farmers in 1996 average $7.35 per bushel. In 1997, they were $6.48 per bushel, and in 1998 they are down to $5.30 per bushel. USDA's projected season average for the 1999 crop for soybean is $4.70 per bushel. This is a drop of $2.65 per bushel or 36 percent, which has been devastating to the U.S. soybean farmers' income.
To date, the only farm income safety net that has been available to producers of soybeans and other oilseeds has been the marketing loan program. As prices fell below the marketing loan levels last fall and again this spring, soybean farmers were able to offset some of their losses on 1998 crops through the marketing loan gains and Loan Deficiency Payments. The importance of the marketing loan program in protecting soybean producer income will only be more evident this coming year.
The magnitude of the anticipated marketing loan gains and LDPs for all 1999 crops makes it essential to raise or waive the cap imposed by the FAIR Act on these outlays. If prices at harvest fall to $4.30 per bushel for soybeans and $1.60 per bushel for corn, a farm in Illinois with 750 acres of each crop and a good yield will exceed the $75,000 limitation. If prices remain below the loan levels, producers in this situation would be forced to take out loans on part of their crops, hold it in storage, and forfeit it upon loan maturity in order to receive full income support for the loan program. Raising or waiving the loan caps on the marketing loan gains and LDPs would avoid this unwanted complication.
Page 89 PREV PAGE TOP OF DOC Segment 1 Of 2 With regard to direct income assistance to producers, doubling the AMTA payment for 1999 will help soybean producers to the extent that they are eligible for these payments. As in 1998, producers should be allowed to elect whether they receive these payments in either 1999 or 2000.
ASA, the National Sunflower Association, and U.S. Canola Association also strongly support the provisions in the Senate fiscal year 2000 agriculture appropriations bill that would distribute $475 million among oilseed producers. A similar provision is included in H.R. 2743, the Farm and Ranch Emergency Assistance Act of 1999, introduced last month by Representative Emerson. Based on production estimates, payments under the program would supplement producer income by about 15 cents a bushel or $6 per acre for soybean farmers.
Another area that needs to be addressed in this year's farm relief package is crop losses and preventive planning. Disaster assistance was included in last year's plan, reflecting the ineffectiveness of the current crop insurance program insuring producers against major crop losses. In the absence of a meaningful crop insurance program, producers are expecting disaster aid to be provided again this year in 1999.
ASA supports adequate funding to cover disaster losses for 1999 crops, including preventive planning as well as low yields. Specific coverage should be provided for producers affected by this summer's drought in the eastern soybean belt and for producers in north central States who could not plant due to spring flooding.
In addition to assistance provided in the fiscal year 2000 agriculture appropriations legislation, Congress needs to complete crop insurance reform and provide further tax relief to producers this year. Specific provisions that would benefit farmers include enactment of Farm, Fisheries and Ranch Risk Management Accounts and the elimination of the death tax.
Finally, Mr. Chairman, ASA appreciates the support of the committee members and others for its $1 billion export assistance initiative. The first phase of this proposal is awaiting a determination by Secretary Glickman in the next few weeks that soybean production and stocks warrant extraordinary action using the CCC Charter Act and Section 416 authorities. In addition, ASA has been working closely with private voluntary organizations to ensure that all possible market opportunities are identified for concessional sales and donations of soybeans and soybean products.
Page 90 PREV PAGE TOP OF DOC Segment 1 Of 2 That concludes my comments today, Mr. Chairman; and I will be glad to respond to any questions that you may have later.
[The prepared statement of Mr. Ford appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much. Mr. Detrick.
STATEMENT OF TERRY DETRICK, VICE-PRESIDENT, NATIONAL ASSOCIATION OF WHEAT GROWERS
Mr. DETRICK. Thank you, Mr. Chairman.
I will begin by thanking you, sir, and the committee for the opportunity to appear here today. It is very timely and very important.
My name is Terry Detrick. I am a wheat farmer from Oklahoma. I operate a family farm, part of which has been in the family for at least three generations. I currently serve as the national vice-president of the National Association of Wheat Growers.
Like all wheat farmers across the Nation, my family farm has been hit hard by the continued decline in wheat prices which, according to USDA, have fallen over 60 percent since 1996 and are at an almost all-time record low. Even more troubling is the fact that wheat prices have failed to match production costs for 3 years running.
The bottom line is simple. Wheat farmers across the Nation are in serious trouble. After years of struggling to get by, many have accumulated large debt and without significant financial assistance thousands will lose their operations this year.
If America's wheat farmers are to survive another year of record low prices, Congress must take swift action to address the ongoing agricultural crisis.
The National Association of Wheat Growers, NAWG, supports the adoption of the following common-sense legislative efforts during the remainder of this session:
Page 91 PREV PAGE TOP OF DOC Segment 1 Of 2 Number 1, direct financial assistance. Congress should, as part of the fiscal year 2000 agricultural appropriations act, appropriate emergency funds to provide for an assistance payment at least equal to the 1999 AMTA level. The Senate version of the bill passed in July contains these funds. Congress should also consider incorporating such payments as an ongoing element of the safety net. Long term, we must look at the safety net which allows for a price fair product.
Number 2, adjust the payment limitations. Congress should adjust limitations on Federal assistance, including those on AMTA and LDP payments. The Senate version of fiscal year 2000 agricultural appropriations contains a 1-year LDP limit increase. This is a good first step.
Number 3, advancement of AMTA payments. Congress should adopt H.R. 2395 offered by Chairman Combest which would make AMTA payments available on the first day of each year; and if there is no provision in the Senate version which addresses emergency funding that would allow the option of accepting the 2000 AMTA payments in advance, as they were last year with the 1999 payments, then those who need it the most and opted to take the 1999 in advance will actually receive less this year with more need by only getting the extra AMTA payments. So I am not sure if that was in there, but if it isn't we certainly need to advance that.
Number 4, disaster relief. Congress should, as part of fiscal year 2000 agricultural appropriations, appropriate emergency funds to provide disaster relief this fall for farmers in areas affected by weather-related crop failures in 1999. Neither the House nor the Senate versions of the bill contain these funds.
Number 5, crop insurance reform. Congress should enact meaningful reforms and long-term improvements to the Federal crop insurance program this year. NAWG supports the forward-looking reforms included in legislation offered by Chairman Combest and Congressman Ewing in the House of Representatives and Senators Roberts and Kerrey in the Senate.
Page 92 PREV PAGE TOP OF DOC Segment 1 Of 2 Number 6, sanction reform. Congress should adopt the Ashcroft amendment which would reform U.S. sanction policy in open foreign markets to U.S. commodities and food products. We would support that.
Number 7, trade with China. Building on the success of the House vote for normal trade relations with China, Congress should make normal trade relations permanent and work with the administration to ensure that China becomes a member of WTO on a commercially viable basis.
Dealing with tax reform, the last one, Congress should approve meaningful tax reform that eliminates the inheritance tax. In addition, Congress should adopt the farm legislation authored by Senator Charles Grassley.
I would like to clarify something from comments this morning around this committee. I think Freedom to Farm can have two different meanings. In Washington, DC, Freedom to Farm usually refers to the 1996 FAIR Act. But when a producer says I like freedom to farm, he is really saying he likes the flexibility to diversify his crops.
Properly administered, this is a sensible policy. I think that is something that we kind of play on those words, Freedom to Farm. We heard an argument this morning about some saying my farmers all say they like Freedom to Farm others saying mine are saying we need to improve the bill. They are both right. We need to put those in context.
Mr. Chairman, the problems we are facing are desperate and real. Many wheat farmers will go out of business this year. You have the opportunity to soften the blow. I encourage to you act on it, to act on it now.
[The prepared statement of Mr. Detrick appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you.
Page 93 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. Utlaut.
STATEMENT OF RYLAND UTLAUT, CHAIRMAN, NATIONAL CORN GROWERS ASSOCIATION
Mr. UTLAUT. I am Ryland Utlaut, and I am a corn and soybean farmer from Missouri, one of Ike Skelton's constituents. I represent the National Corn Growers Association, an organization of 30,000 people.
We are not much different than anybody else. It is no secret here we are talking about prices. In 1995, we had a price of $3.24 average price for corn. We have seen it decline since then. This year, USDA is estimating $1.95 or a range $1.75 to $2.15. Yesterday, the bid at my local elevator was $1.69 for corn.
Why do we have this problem? We are searching for that. To me, it is created by a complex web of factors, not the least of which is a weak worldwide demand, compounded by ever-increasing U.S. stocks. I know in some circles it is popular to blame the Freedom to Farm Act. But we, the Corn Growers, do not believe that the Freedom to Farm Act caused our current economic crisis; and abandoning it is not the answer. The Nation's corn growers continue to support a market-oriented approach to farm policy.
But if Freedom to Farm is going to work, there are factors that need to fall in place. We need a commitment to research, to keep us competitive in the future by unlocking new uses. I know that is a slow way of building demand, developing these new uses, but we need to do that. We need to do research so we can maximize production levels so we are not out there putting on too much fertilizer. We need to know what we should be using, and research will help us in that.
We need effective crop insurance tools to help us manage the risk inherent in our industry. We need a strong global economy and access to markets around the world. We need a tax system that will help us to keep a reasonable portion of what we own. We need a viable and efficient transportation system to best serve our customers at home and abroad, and because those things are not fully in place, we find ourselves in a very difficult position.
Page 94 PREV PAGE TOP OF DOC Segment 1 Of 2 Despite the fundamental success of Freedom to Farm or its soundness, we have a current price situation that we have all testified to the problems that we are having. In those cases, we need the Federal Government's help to address these problems that are beyond the farmer's control. Clearly, there is a need. We have all talked about the short-term assistance, but we need to keep in mind long-term assistance, too; and I know that is something that the committee is vitally interested in.
To address the economic crisis facing U.S. agriculture, the National Corn Growers urges Congress to take immediate action in these areas:
On market loss payments, support emergency market loss payments assistance to provide immediateand I stress immediateshort-term relief for struggling farmers, 100 percent of the AMTA payment that we received earlier.
On payment limitations, we support changes to the marketing assistance loan program to assure that a producer's full production is eligible for loan deficiency payments. Current payment limitation rules will severely restrict marketing options, increasing loan forfeitures and storage and interest costs.
Storage. National Corn Growers says the restoration of a storage facility loan program and enactment of an orderly marketing program to provide short-term storage assistance without encouraging the stockpiling of grain. We suggest that all corn would be eligible for a 6-month program. Participating farmers would receive a sliding-scale payment of 3 cents for each bushel for the first 2 months they store it, 2 cents per bushel for the third and fourth month, and 1 cent per bushel for the fifth and sixth months, or a maximum of 12 cents per bushel over that 6-month period.
In risk management, we have all testified in fact we want better risk management proposals. The best way we see that is maximizing the subsidies that the Government provides to those who purchase the insurance, to maximize that subsidy to a higher level of coverage than what we are currently using.
Page 95 PREV PAGE TOP OF DOC Segment 1 Of 2 I have used crop insurance for 19 years, too, as someone else asked this morning. In that period of time I have had one claim, and it was for a replant. I refunded that 65 percent. But we need to improve that program to make people want to take it.
Trade. The loss of export sales due to the Asian economic crisis, unwise U.S. sanction policies, and trade protectionism against corn and corn products is a contributor to today's price problems. How do we do this? Reform our sanctions policies, support China's admission into WTO, get more funding for the use and support of international market development, resolve trade disputes with Mexico regarding high-fructose corn syrup, and responsive and aggressive implementation of food aid and donation programs in countries where we can build long-term demand.
Long term, we say use the CRP. We are not in favor of short-term acreage idling efforts but use the CRP as a tool to its maximum advantage.
Transportation. Authorize funding for needed improvements to the aging lock and dam system.
The corn grower is going to tell you to expand the ethanol market or development program, make sure that we can participate in that market, can be 20 to 50 cents.
And, for taxes, we want a more fair and equitable tax structure, including further capital gains tax relief.
We commend the committee for the actions that they have done, especially regarding the Agriculture Risk Management Act 1999, and I know if asked this morning we would support the amendment by Senators Ashcroft and Hagel regarding sanctions.
Thank you, Mr. Chairman, for allowing the National Corn Growers to submit this testimony.
[The prepared statement of Mr. Utlaut appears at the conclusion of the hearing.]
Page 96 PREV PAGE TOP OF DOC Segment 1 Of 2 The CHAIRMAN. Mr. McNutt.
STATEMENT OF JOHN MCNUTT, PRESIDENT, NATIONAL PORK PRODUCERS COUNCIL
Mr. MCNUTT. Thank you. Good afternoon Chairman Combest, Congressman Stenholm and other members of the committee.
My name is John McNutt. I was elected president of the National Pork Producers Council in March of this year. I am a fourth generation of pork producer from Iowa City, IA.
There is not a pork producer that was bright enough or talented enough to avoid the financial disaster that the U.S. pork industry is experiencing. Four billion dollars have been lost. That is equal to half of all producers' net worth. This has created a huge financial hole, one that most producers are finding very hard to crawl out of.
U.S. pork producers are faced with a very uncertain future, some perhaps with no future at all. The economic disaster we have experienced was fostered by a number of events outside of producers' control, for example, the Asian flu, and Canada exporting its labor problems to us by shipping a huge number of live hogs to the United States and the Canadian currency at historically low levels, in addition to the disastrous decline that we had in domestic slaughter capacity.
Our industry is finding it very hard to listen to the market signals. Massive liquidation should be occurring, but it is not. In fact, the corn/hog ratio is so low that it is actually expansionary. Many of our core producers are under severe economic stress, producers that raise pigs as a large part of their income, producers who have made huge investments in facilities, producers that have no other choice than either be in business or be out of business. And my own family farm is one of those.
Page 97 PREV PAGE TOP OF DOC Segment 1 Of 2 While live hogs went to historically low prices this last winter, pork retail values hit record high levels. We have two distinct elements in our industry now, and we call them the haves and the have-nots. The haves are people that have pork systems that are vertically coordinated, vertically aligned, vertically integrated, however you want to call them, where they are able to capture the value of the pork at the retail level. Many of those firms are actually continuing to grow during this time.
What we know is the world we have operated in is gone. We know that the actions and the business plans of the past will not work today. Doing nothing is not an option because at stake is a loss of tens of thousands of independent pork producers across America, farms that are in places literally the heart and soul of rural America.
What is needed are solutions and a plan to address the problems of today and a way to shape a new future. We had developed a plan and that we are asking you and the American public to support. It is not a perfect plan, but it does address many key points. Three key areas are support and stabilization of our producers economically, shock the market and reestablish equilibrium in the marketplace and create a new future for our industry so we are not back here again.
To support our producers we are asking for a one-time cash infusion, a cash infusion that is real, that is based on the same rules as crop program assistance. The SHOP payments have helped us smallest producers a little, but by the very nature of modern agriculture, many family farm producers have not even qualified for any level of assistance, and where there has been assistance, it has not been sufficient to be meaningful.
The assistance we are requesting will be used by farmers to pay some of their bills and, frankly, will assist in providing a bridge to the future for many of our producers. The $322 million earmarked for livestock and dairy producers in the Senate and emergency farm package to be spent at the Secretary's discretion is fairly inadequate compared to the $4 billion in equity lost in the last 2 years in the U.S. pork industry.
Page 98 PREV PAGE TOP OF DOC Segment 1 Of 2 Humanitarian aid to Russia or to others is not only a great help to those recipients but it will help us to manage cold storage stocks that, when they are allowed to build too large, have a very depressing effect on the market. We are asking at least 50,000 additional tons be made available for humanitarian aid and those purchases start in October, with shipments moving out this fall and winter. This humanitarian assistance would help reduce cold storage stocks and boost hog prices during a time of expected high supplies.
The next proposal is controversial for some. But, as I said, we have very limited options. We know if we can affect hog inventories we can get the market to work better in our favor. The humanitarian inventory reduction assistance program could do that. We are asking your help to support CCC authority to voluntarily bid in pigs that would be slaughtered and the meat would be sent into humanitarian distribution outside of the United States. The only way this will work is for the meat to leave the United States. And that the largest producers in our industry will have to participate, that whole farms will be bid out, and those farms will not be allowed to repopulate for a period of time and those producers will not will able to just move down the road and start over.
We do not need a huge program. A 2 to 5 percent reduction in inventory would help re-establish rapidly equilibrium in the market.
None of these programs are long term. It is obvious that production will be reestablished at some time down the road. The cash in hand today will be spent, and where does the cash come from the next time the market fails? As a long-term solution these programs fail, but long term is not their purpose. Their purpose is to provide a bridge for as many pork producer family farmers to cross as possible. And the bridge they are crossing is a bridge to the future. To create that future is a huge undertaking and could well be a foundation for a new beginning for American agriculture.
Farmers, pork producers across America are struggling to create a new type of business structure, one in which they, the person who produces the food, will have a vehicle in which to partner with others to retain ownership in that food until it reaches the end consumer, a system that will allow them to capture a greater share of the value they have created, a system that will let them be accountable for the food they provide their fellow Americans and other people around the globe.
Page 99 PREV PAGE TOP OF DOC Segment 1 Of 2 We need Federal dollars to conduct an in-depth feasibility study and economic analysis in forming a new generation national-pork-producer-owned cooperative. Additionally, we are seeking $150 million to identify, secure and distribute sufficient grants to build or expand new slaughter capacity once the feasibility study is complete. Pork producers working together in this new co-op structure are trying to create something that has never been attempted before on this scale. Co-op structures cannot access capital in a capital markets, and thus public support could well be crucial to a success. The future structure, control and ownership of this Nation's pork producer industry is being determined now. We are asking for your support and support of the American people to help us sustain our producers and create a new future for them.
[The prepared statement of Mr. McNutt appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. Mr. Willingham.
STATEMENT OF CLARK WILLINGHAM, PAST PRESIDENT, NATIONAL CATTLEMEN'S BEEF ASSOCIATION
Mr. WILLINGHAM. Chairman Combest, Mr. Stenholm, members of the committee, thank you for holding this hearing on the financial crisis all of us in agriculture feel. I am Clark Willingham, immediate past president of the National Cattlemen's Beef Association. I am a cattleman from Dallas, TX.
I would like to state at the outset that the issues affecting livestock prices are complex and controversial. There is a wide range of opinions among individual producers and organizations throughout the beef industry about the effects of international trade agreements, packer concentration, improvements in price discovery on the beef industry.
Page 100 PREV PAGE TOP OF DOC Segment 1 Of 2 The structural changes taking place in the beef industry have coincided with international economic crisis, increased regulatory burdens, the weather and the normal cyclical nature of agricultural economics. How these factors are inter-related is a basis of heated debates, emotional arguments and general consternation by many within the beef industry. Some producers have embraced new marketing techniques for their own advantage while others believe these structural changes are, at least in part, the cause of the recent price declines.
NCBA is constantly monitoring the economics of the beef industry. Over the past few years, cattlemen have lost in excess of $4 billion in equity. During the past 3 years, we have been appreciative of the use of existing programs and authorities such as the domestic feeding program purchases, foreign aid, GSM, et cetera, to prevent the losses to beef producers from being even worse than they would have been had we not had those programs.
The current outlook is for some price improvement over the course of the year, but then again that was the outlook we had in 1988. In this business you need to learn to not hold your breath.
The better prices should cause a hint of a smile for beef producers, but we have battling this price situation for, as I say, almost 4 years. Another 10 months is a long time to hope, particularly if you are sitting across from your banker. And better prices are in large measure due to the depressed grain prices.
Mr. Chairman, the bottom-line challenge for beef producers is, how do we improve demand? A close second is, what can we do to address those critical margin issues? How do we keep the nickels, dimes and quarters in our pockets instead of the pockets of the processors, the retailers, or, as Mr. Lucas pointed out, in the pockets of the consumer?
There are some long-term solutions currently being debated in Congress. An easy one is tax reform.
Mr. Stenholm, I understand the problems with the $792 billion, but one of the reasons land prices are up is because the rest of the economy is good. And the land prices are being bid up by non-farm groups. And we really don't need I think income tax relief. We need income. But even if we are losing money, when the senior generation dies, we have got to buy the ranch, the farm again. We cannot keep people in agriculture as long as we have a death tax that causes us to continually buy the family farm.
Page 101 PREV PAGE TOP OF DOC Segment 1 Of 2 On another issue, NCBA took to heart the challenge issued by Chairman Combest and Mr. Stenholm to try to get together with the producers and the packers to try to work out a compromise on livestock market reporting. We certainly have appreciated the committee's leadership on this issue. We look forward to working with all Members to ensure that mandatory price reporting becomes a reality before Congress adjourns this fall. We need it now.
We strongly believe in trade, but, gentlemen, trade today is not fair. Aggressive pursuit of solutions to trade disputes, unfair trade restrictions and barriers to U.S. agriculture products is a key area. The WTO Ministerial meeting is a little over a month away. The frustration with the European Union and Canada in particular beg for some hard-nosed discussions with our trading partners on what America not only expects but will demandyour continued support for international trade agreements by U.S. producers.
Regarding direct pavements, NCBA has consistently supported assistance to producers to alleviate the impact of weather-related disasters. However, we have long opposed direct cash payments to any livestock sector to alleviate market conditions. Direct payments to address economic conditions affecting all livestock producers do nothing to alleviate the supply and demand situation that typically is the root cause for low prices.
Additionally, when one livestock sector receives such payment, it creates inequities relative to other livestock commodities. Virtually all sectors of agriculture are facing tough times. NCBA has, and will, continue to support common-sense efforts to restore vital market prices for beef, pork and other agriculture commodities through existing authorities and programs such as domestic feeding program purchases, foreign aid, GSM, Market Access Program, et cetera.
Mr. Chairman, silver bullets are hard to find. We seek long-term solutions. Thank you for the opportunity to express my views. I look forward to answering the committee's questions. I think all of us liked all the questions the first panel got and wish we could have answered those ourselves.
Page 102 PREV PAGE TOP OF DOC Segment 1 Of 2 Thank you for the time.
[The prepared statement of Mr. Willingham appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you.
Some of you may not particularlycattle and hogs may not have necessarily an opinion on this, and then you may, so I would encourage you if you wish to, but to all of you at the table, do all of you support the concept of allowing marketing certificates under the current disaster, emergency, whatever we are calling it, bill?
Mr. DENISON. Congressman, I apologize. That is a very strong position of the rice industry. We are working with the Cotton Council and the Wheat Association as well as the Corn Growers to allow marketing certificates if you do not get the payment limits lifted completely.
The CHAIRMAN. Let me ask one other question, then go to a bigger one here. It may not be bigger to you, but it is bigger to me.
One of the things that came up recently to me, and we began to look into this, and I found that this is a problem bigger than I had initially thought that it was. I would like to get your opinion on it.
Under the current farm program, farmers who enter after the date of enactment, begin farming, are not eligible for and don't get any AMTA payments or transition pavements. They haven't, and they still don't. And they don't get any LDPs. What would be the position of the commodity groups that you represent in regard to allowing them under this, again, emergency or whatever we are dealing with to be able to receive assistance to the LDP program?
Mr. DETRICK. Mr. Chairman, I would respond.
We desperately need to search for anything we can to help encourage young people to get back to the farm. We have already lost a generation of farmers now. We can look in our communities, and we can find we have got hardly anyone under 40 years of age. And anything that we can do to encourage them to come back.
Page 103 PREV PAGE TOP OF DOC Segment 1 Of 2 The programs that we have now, we look at the Freedom to Farm, and I don't want to blame that. There are a lot of things that caused situations to be as they are today. But the big underlying fact is this program did not allow a sufficient safety net, to allow for the hiccups that can happen anywhere around the world, that no one can predict or foresee, and the farmers suffer from it. So, whether it be an economy that goes to pieces somewhere that is a major importer of our product or whether it be bountiful crops, all these things have always happened, and they always will happen.
We have to have a program that allows for us to be able to get through the valleys in order to survive. I am tired of hearing these payments referred to as farm subsidies. They are food subsidies. They are food subsidies for the consumers of this country. They are here for the grandchildren of tomorrow, yours and mine.
Mr. UTLAUT. Corn growers don't have an official position, but I, too, would say, as the gentleman before me says, anything we can do to encourage young people to come back to the farm, why we would encourage.
But there are some issuesand I am trying to think back. Say that you had to be enrolled in the program to participate in it or if you didn't get in at the start you weren't allowed to be in it at any other time. There are some people who made that conscientious decision then, said I don't want to have to take anything from the Government, and I don't want to go to the FSA office to report acreages. Even though it wasn't said that it had to be done, they didn't want to be bothered with it. They didn't want to keep up conservation measures upon their farm, which they thought they might have to do if they had to enroll in the Freedom to Farm. So to say blanketly that everyone should be able to come back in, I don't know, might have a little bit of a problem there. But most cases, yeah, I think we
The CHAIRMAN. Not the ones that elected not to participate or have keptthe people who have entered farming subsequent to the dateI don't remember exactly what it was, but if you entered farming after a certain date then that is who I am referring to.
Page 104 PREV PAGE TOP OF DOC Segment 1 Of 2 Any other comments?
Mr. RAYNER. Mr. Chairman, the Cotton Council supported back when this legislation was drafted the idea that land had been not historically cropped, especially in cotton and then was cropped outside the program later, then we encouraged that those acres be considered for the base building process, essentially, to give that acreage the history for the credit for having had that crop on it during that time. So, the acreage history essentially follows the land and not necessarily the grower.
So if you are talking about a grower, then that would be growing crop on a piece of land that had no history. Then I think that is already going on today, that there are certain parcels of land in any community, for whatever reason, since we have no history possibly and would not be eligible for AMTA payment.
If there was some new delineation that occurred and you needed to track the current usage of the land, maybe there would be a time for readjusting those acreages.
The CHAIRMAN. I am primarily talking about LDP.
Mr. RAYNER. Oh, for LDP certainly.
Mr. DENISON. Congressman, I believe the rice industry, even though we don't have a formal position, we would certainly support anyone that could grow rice on a farm that was accepted by FSA office to be eligible for LDP.
There are a number of situations where growers miss out on LDP. In fact, we have one in Texas and Louisiana now in which we are working with your office on with Randy Russell. But I think we would certainly support that and anything you could do to assist growers in this tough times to get it through LDP.
The CHAIRMAN. Okay.
Mr. FORD. Mr. Chairman, I would like to concur with my friend sitting here at the table. We need to do whatever we can to help those individuals, those young people get into farming. I have two sons of my own, and I want to do whatever I can to provide them the incentive to be able to continue to farm.
Page 105 PREV PAGE TOP OF DOC Segment 1 Of 2 The CHAIRMAN. I will come back and ask this followup. My time has expired.
Mr. STENHOLM. Thank you, Mr. Chairman.
Thank all of you for your testimony today. Let me see if I can kind of summarize which I have heard you say. There is, for some reason, each of your organizations have a difficult time finding anything negative to say about the Freedom to Farm Act. Mr. Utlaut, you came the closest. You at least mentioned it.
Mr. Detrick, you did talk about it in different terms, but there seems to be a reluctance among our farm groups to want to reopen it. But then, on the other hand, when you responded to the chairman's question a moment ago there seemed to be a recognition of the problem that he suggested that might cause us to want to reopen it.
So I am having a difficult time following some of what I believe is your logic in testimony or am I missing something?
Mr. DENISON. Congressman, I would like to respond to that.
I did not think that we are supposed to be responding to that, but our official position, the Federation, is certainly we think that the safety net of Freedom to Farm needs to be strengthened as we move into next year's crop to get financed.
We recently had a governmental affairs policy meeting, and our first prioritywe have two or three main priorities. One is immediate assistance to keep as many farmers in the business of being structured where they can go to the bank; second, our trade issues to make sure we have better access; and, thirdly, we believe that Congressand we would urge you to seriously look at strengthening the safety net.
There are many different concepts out there. But in our opinion time does not permit in the short term in this session to solve that issue. We don't want to get it intertwined with the urgency of putting the assistance out there immediately. But the Federation is strongly in favor of strengthening the economic safety net under Freedom to Farm under the new scenario that we are operating in worldwide low commodity prices, and you will be hearing from us shortly on that.
Page 106 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. UTLAUT. The issue of whether you are opening up the farm bill or not is something maybe weI am going to say as the National Corn Growersare not sure what is happening. We said we want to preserve the aspects of it being market oriented, we don't want acreage idling programs. And I have heard the Secretary say many times, well, you are opening up the farm bill when you are changing the amount of payments that you are going to give to the AMTA. If that is opening up the farm billand that is a question I can't answer, it is how it is perceived here with Congress.
Mr. STENHOLM. That prompts another question. Let me pursue that one about market orientation. About 6 or 8 months ago we had a major crisis in the oil patch. We had oil down $6, $8 a barrel. And at least in the oil patch we had the same things happening there that we have had in the pork industry, we had in the cattle industry. In many cases it was happening to both simultaneously. What happened to cause the price of oil to go from $6, $8 a barrel to $22 a barrel? Clark, what happened?
Mr. WILLINGHAM. Supply management, to a great deal.
Mr. STENHOLM. That is that four letter word you are not supposed to say that in front of this committee, Clark, because the rest of the witnesses at the other end don't like it.
Mr. WILLINGHAM. We don't like it, but I think that is the answer to the question.
Mr. UTLAUT. I think one of the comments that came up here this morning and I think it is important that you tie on there is when we say globallymaybe that is different, but we have had that discussion this morning. If we cut acreage back here, that is the green flag for our competitors to speed up. We talked about the loan rates, whether they are in a proper balance or not.
Dwain Ford here is raising soybeans; and people said, well, the soybean loan rate is high enough that all the acreage is going to go to soybeans. As soon as I perceive that happening, I am not going to plant soybeans, I am going to plant corn. Because nobody else is doing it. That is the kind of the same thing that is happening here. If we cut acreage back, others step up.
Page 107 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. STENHOLM. But let me help you a little bit along to stimulate your thinking. Because no business can stay in business without inventory management, no matter what the excuse is, what we lack or what have you. It is the law of economics. You cannot produce more than there is a market for, no matter who is producing it. And, therefore, as your organizations begin to look at the next WTO round and trade negotiations, it is time for us to start looking at what exactly do we mean and how can we create for our commodities in agriculture that which the oil producers in the United States have benefitted by because foreigners cut back their production. And somehow it is working, but everybody is nervous, because the moment that somebody starts cheating, i.e. Not respecting the wish of whatever agreement was made, the price will go down again. And I think that some time we have got to start thinking along these lines.
Mr. Willingham, you got something to say.
Mr. WILLINGHAM. That is exactly right. The U.S. cattle producer has been cutting back the herd. Our numbers are down again this year. But the cattle, the beef produced is not. Part of that is because, from a worldwide point of view, we are getting more imports. The more we cut down, somebody else brings it in. So the beef for the consumer hasn't gone down in supply.
Last year, we had record supplies of beef, pork, poultry, but it wasn't just U.S. production. And while we can manage our production possibly, we look at the signals and we reacted, but at the same time foreign governments, either through subsidized product or not, more product came to the United States. That is what ruined our market I think.
Mr. STENHOLM. A couple of quick points I want to make. Then my time is expired. But what I am getting at is our own rhetoric coming from our producing side, and I include myself in that in the past, has been along the lines of what I have heard it said again today: We always use as an excuse others will ship. And they do.
Page 108 PREV PAGE TOP OF DOC Segment 1 Of 2 The best example that I used today is the sheep industry. What I have told our Australian and New Zealand friends, if you had just used some restraint when our industry was on its knees collapsing and needed to have some way to get back on their feet. What did you do? Every time the price went down in the United States you increased the shipments of imports of your product in. And that won't work. And, therefore, the ITC was totally correct in the ruling that they made because it was, in fact, a dumping action at a time that some perceived rightfully that there was an attempt to take over the market.
Having said all of that, I think it is important that we look realistically at the world market and reexamine our individual commodities, how we approach these negotiations rather than just restating the old facts. You start looking how can we bring about what is happening in the oil industry. Because you and I both know, anyone from the oil patch knows we are just living day to day, worried about when the Saudis are going to open the spigot up again; and, when they do, they will drive it below the cost of production. Any of the world governments can do the same thing to any commodity at this table at any time they are ready to, so long as the United States is not willing to stay with our producers in that.
Mr. McNutt, as you were talking about, it just takes 2 to 4 percent of removing that product. Well, that is 2 to 4 percent right now, but we know if the Europeans keep what they are doing, if the Chinese do whatever they are going to do, that this is an ongoing thing.
So as we look at the long term, this is one area that we really need to give some attention to and look at seeing what Mr. Willingham said a moment ago, what all of usthat you look around here most of us around here have direct farm interest, direct. All of us have got to figure out a way to get more of the consumer dollar in the producer's pocket or we are sunk ducks. That is the bottom line.
Now, how we do it is going to take some government, it is going to take some ingenuity in doing things we have never done. It is going to take cooperation like we have never seen it before. It is going to take producers reaching out to our corporate friends and vice versa and say we have to do things differently, think outside the box.
Page 109 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. Willingham, I appreciate you using that forbidden word on here because I swore off of it years ago because it was so unpopular. But we have got to get inventory management back into our thinking, because it is absolutely foolish to believe that we can have fence row to fence row planning no matter how much you and I would love to produce that which we would want to produce. It is foolish to believe that we can survive in the world and do that unless you see something I don't in what the world is going to look like for the next few years if we don't change some of that.
The CHAIRMAN. Mr. Smith.
Mr. SMITH. Thank you, Mr. Chairman.
Maybe starting with the soybean and corn organizations, do you see any responsibility or lack of responsibility on the part of the Federal Government, mostly the university system, the extension service in terms of a more cautious push for genetically modified seeds and commodities without a more proper investigation of the potential consequences on the market demand?
Mr. UTLAUT. A lot of debate, of course, about the ownership about the genetics and where they come from and who has the power to use them one way or the other. I think probably over the last several years we have seen slower involvement I think from the public universities or the ability to develop these genetics and have access to them to keep them in public domain rather than, as we are witnessing now, so much more going into private industry. I think as the farmers to ensure that we have proper competition we would like to see a greater involvement from public or land grant universities.
Mr. SMITH. Maybe let me rephrase a little bit of my question. I am concerned about the loss of market using what I see as a political excuse but, nevertheless, the loss of a market for the GM modified commodities, especially in soybean and corn. And I am wondering if the Extension Service, which in my area in Michigan was very aggressive in pushing these because they were more efficient in production, but is there a responsibility of government as we push this kind of innovation, research innovation to at least more carefully examine the consequences of what the market demand might be? Mr. Ford.
Page 110 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. FORD. Yes. Thank you. Yes, I believe that, specifically in Illinois I am speaking of, the universities have been cautious somewhat, but they also are working with us on biotech products. And I think it is important that the universities and the Government stand behind us and continue to support biotechnology.
There is a lot of information being put out that is based on not scientific evidence; and the people in the European Union, for instance, they are very concerned, but ever since the problem with the mad cow disease they have no faith in their government. We are over there. We spent several dollars of our farmer dollars, check-off dollars, supporting biotechnology in the European Union and throughout the world.
I think it is imperative that the universities and the Government does support us in continued use of biotechnology. We also have to understand they are customers over there, and we have to be able to give them what they want. And what we have done is indicated to them that if they want an identity preserved product, we can provide that. But it is going to cost them more and it will be in a smaller volume than they are used to be in segregation. But we do need your support for continued support of the biotechnology issue.
Mr. SMITH. Changing subjects, do any of the commodity organizations feel that it would be appropriate to change Federal law in order to encourage more vertical integration on the part of the co-ops in terms of adding additional competition to the concentration that is developed in the grain industry, in the livestock industry, changing laws to give greater flexibility in developing vertical integration with tax-free status with the ability to talk and evaluate markets without the consequences of any Taft-Hartley problems? Is that a possibility? Has any of the commodity groups been talking about this as an additional safety, if you will, to assure that competition stays in as concentration of those that are purchasing our products continue?
Mr. MCNUTT. If I could answer that.
Page 111 PREV PAGE TOP OF DOC Segment 1 Of 2 The pork industry is looking at that extremely closely. I mean, we are in the process of creation of a national cooperative structure which would link a lot of local, State, regional co-ops together just for that function. Under current antitrust they are allowed to communicate back and forth together within the co-op structure.
One thing, one issue that we are finding and part of the reason we are here requesting help is it is difficult to raise capital in the co-op structure. You have producer capital and you have debt capital. I have heard Secretary Glickman talk about the fact that in Europe co-ops are allowed to capital markets to get some of the capital they need. That might be a law I haven't looked at well enough to know if that has been
Mr. SMITH. We certainly could pass a law, as we do in so many other instances, to underwrite 80 percent of the loan or something to help assure that interest rates are going to be minimal.
Mr. MCNUTT. I think it is going to be very important. That is why we are asking for what we are asking for, to have a partnership with the Government as we create this new structure in the industry. And I do, quite frankly, think it might serve as a model for the rest of agriculture.
Mr. DETRICK. Congressman Smith, the wheat growers have done a lot of work with value added and have promoted that. The co-op structure, there is no need in reinventing the wheel. The co-op structure is there. It has worked. It is working.
One of the biggest problems, as Mr. McNutt mentioned, is the raising of capital. A lot of these new generation co-ops you have to buy into them. And those who really need the advantage of being able to take their crop further and to vertically integrate through a cooperative system don't have the cash to buy into it because there has not been a profit for them up till now for quite a while. So that is the disadvantage.
Mr. SMITH. Do we have the management to grow into it?
Page 112 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. DETRICK. I think so. I think any farmer that is in business today is certainly capable to be on a board and hire a good manager.
Mr. SMITH. So the hog industry could compete with Smithfield, do you think, Mr. McNutt ?
Mr. MCNUTT. The largest exporting nation in the world are the Danes in the pork industry, and that is totally owned by the producers in Denmark.
Mr. SMITH. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Minge.
Mr. MINGE. Thank you.
I would like to thank the panel for the information that they have provided us.
First, I would like to express my support for what you have discussed, Mr. McNutt, in terms of the producer-owned cooperative. We have a cooperative that is attempting to get under way in Minnesota. It has been organized by several dozen hog producers. We are hopeful that that will be built and it will be successful.
I would like to direct a question to Mr. Utlaut. With respect to ethanol are there any steps that the National Corn Growers would like to see us take to encourage ethanol production? I am particularly interested in the fact that MTBE is now in difficulty and there is a tremendous opportunity for ethanol in the markets that were formerly served by that particular additive.
Mr. UTLAUT. Definitely. We have been working very hard along with a number of other groups, especially in California, to make sure that we can have ethanol production going into California, alleviating some of the concerns they are having with MTBE.
The reformulated gasoline program has been under attack in some areas, and we are thinking particularly of the city of Chicago where ethanol, its use is highly accepted now. But whether the EPA has some regulations that they mayI am not saying put upon the industry orit is so technical that I can't explain it all, but some of the credits that they can count, if those are applied to industry, if States can use them, also.
Page 113 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. MINGE. Here is really the question I have. We have an opportunity now, with MTBE falling into disfavor, to move into those markets. We have a surplus of grain now, or at least we have low prices, which would imply a surplus. And is there something that we can do now in the summer of 1999 to move into the MTBE market with ethanol produced from grain that is low priced in the commodity markets? And if there is something we can do now, I think that is great. If it takes 2 or 3 years, well, then it is not going to have the same immediate impact with today's low prices. So it is a fairly narrow question.
Mr. UTLAUT. Yes. To do something right now, all that we can do is keep stressing the attributes of ethanol compared to MTBE. I think as soon as the general public becomes more and more concerned about groundwater contamination and for the use of MTBE, why the attributes of ethanol will come forward. But it is a slow, slow process. We have been involved in it for a long, long time.
I wish I could give you some specific that wouldn't be a mandate that says you could do it, but it is tough.
Mr. MINGE. What I would urge, that the Corn Growers and the Fuel Association and others that have really been advocates of ethanol take a look at what we can do nowit is now the fall of 1999to up production at the ethanol plants and supply this product for reformulated gasoline to take some of the product out of the market. If we could increase production in all of our plants by 20 percent or 25 percent by operating around the clock 7 days a week, that would I think help raise grain prices and it is just an opportunity that is out there. And I hope that there is some way that we can take advantage of it.
I would like to ask about another matter and that is the use of the AMTA payments which has been endorsed by almost every person up there. I find interesting because the AMTA payments, as has been analyzed by the U.S. Department of Agriculture, are not very carefully calibrated to assist production agriculture as opposed to land ownership. And I appreciate the simplicity of distributing payments through that system and the lack of a need of any additional regulations or, we don't have to even think, just put in a dollar figure, and the computers go to work and checks are cut.
Page 114 PREV PAGE TOP OF DOC Segment 1 Of 2 But the crisis, as I understand it in my area, is not with land ownership. The crisis is production agriculture. And by the testimony of a couple of people here today about a half to two-thirds of the land that farmers are operating is land that is owned by somebody else. And how do we make sure that these billions of dollars that we are investing in trying to improve the farm economy are going to the producers as opposed to the land owners?
And, second, if you are looking at younger farmers, especially people trying to get into farming, these AMTA payments, as I understand it, are not of nearly the value because they have already been built into the land costs, and the beginning farmers are not going to see the benefit as significantly, if at all.
I see that the yellow light is on, so perhaps if I were to ask all of you to respond to this we would all be in trouble with the chairman. So I will just leave that as an observation.
Then I would like to make a final comment and that is international trade is wonderful. We have to move a lot of our product into foreign markets. But I also note that international trade is a fairly small percentage of a lot of our commodities. It is not of all of them but of many of them. And our domestic market is by far our most important market. And our domestic market, we have got a tremendous amount of money out there to buy our product, and there is a fairly high level of stability.
And I am troubled by the fact that the international market is more volatile, that it drives down the domestic price, which I think we could maintain at substantially higher levels if we could segregate those markets, and we are now facing competition from Brazil, from Canada and other countries with low value currencies against our dollar that is threatening to eat us up.
One of the big concerns I heard at home over the August break was feed grains, especially soybean products, coming into the United States from Brazil and the concern that the Brazilian bean is going to undercut the American soybean; and they want to know how can we keep Brazilian soybeans out of the U.S. market. Trying to explain how we have to export soybeans and we have free trade gets one into a very difficult, awkward situation in explaining this to our farmers at home.
Page 115 PREV PAGE TOP OF DOC Segment 1 Of 2 And I would simply urge that, as we advance the discussion on international trade, that we also have as a key negotiating point stability and some way to avoid the types of dumping and other volatile actions by other countries that can destabilize our markets.
Thank you, Mr. Chairman for giving me the extra minute.
I would like to also request that a letter that I have written to the OMB regarding the FSA loan guarantee program and staffing be considered a part of the record of the hearing.
The CHAIRMAN. Without objection.
Mr. LUCAS of Oklahoma. Thank you, Mr. Chairman.
I would like for a moment to return to a comment made by Ranking Member Stenholm which I found to be fascinating. He observed that OPEC, by the nature of their control and dominance of crude oil production, are able, when they come to an agreement with each other and production, to raise the world price of oil. He is exactly right.
And in some ways, if perhaps not many ways, we in the United States when it comes to food and fiber production sit in a similar position. We are such a dominant force in the export of corn, we produce so much of the world's wheat, that we have a similar capacity to determine world prices. He also used the phrase inventory management.
When I went through my series of town meetings in Augustand the same comments could be made for months and months before thattime and time again my producers made the point very clear, they wanted a price for their product, but they wanted it to be determined in the market, and they wanted the production flexibility to do what was appropriate for their property under the circumstances as they found it.
Now, that market orientation, that production flexibility I think I have heard all of you all say here today. So the question in my mind is, how do you achieve the dual goal of allowing us to do as individual farmers what we think is best and still yet do something that helps determine that we have a real price?
Page 116 PREV PAGE TOP OF DOC Segment 1 Of 2 I think Mr. Utlaut made some comment earlier about the corn producers potentially were supportive of the concept of a long-term CRP or more additional acres. It doesn't go without notice on me that the way we have handled CRP in this country since 1985 in effect has made us the OPEC of food and fiber. By withdrawing that 31 million acres from productionI think perhaps we are the only people on the globe right now doing that in that kind of an amountwe are already providing an underlying lift to world prices.
My question to the panel is something to this effect: Using Mr. Stenholm's phrase ''inventory management,'' there are two ways to get there. We have tried many times in the past to set a floor price for our commodities, whether through a loan-rated target or whatever. We end up having to then use in some form in the last 60 years production controls to maintain some equilibrium of supply and demand. Because that is one rule of marketing we can't overcome, supply and demand. The other option is what we have done with CRP and in some degree the soil bank in the 1950's and 1960's, is to set aside land to basically take those resources out of production in an effort to reduce supply.
Tell me from the perspective of the panel there how aggressive would you be in supporting the consent of additional acres, whether it is in a CRP program or some equivalent way of over a long-term period of time removing potential land from production as a way of trying to address the supply problem?
Mr. FORD. We have been surveying our producers to find out if they have had a change in their position since we had our policy development meeting, and they have not had a change in policy. They still concur that they want to utilize the present program that we have, but they do feel that adding additional CRP acres will do, as you say, eventually in the long term bringing those back into production. And also we have had numerous meetings with Brazil and Argentina indicating for every acre we take out of production they would be glad for us to do that because they will put at least 1 to 2 acres back into production.
Page 117 PREV PAGE TOP OF DOC Segment 1 Of 2 Recently, I just had a meeting with some Argentines. They said they had taken about 10 percent of their acreage out of production this year, and that was new land that had just been brought into production, but the infrastructure costs were so high that they probably wouldn't put it back in this year unless we had a set-aside or some type of CRP program that would warrant them to bring that back into production. So at this time we are maintaining our current policy.
Mr. UTLAUT. Just a month ago we had a Corn Congress and 200 farmers here in town. We visited with that issue and discussed it thoroughly. We are still are not supportive of acreage idling programs. Conservationary programsI think we are 32 million acres or something like that right now. Take it up to 36 million acres. That is a good program. Certainly in the 1980's there was land that went into production that shouldn't be there. So CRP is a good program.
We still feel like we can grow for the markets. And I appreciate what Congressman Stenholm was saying this morning. He looked back in 1975 through the 1980's and we were exporting I think 1.7, 1.8, 1.9, whatever it was, of bushels of corn, and we are going to export 1.9 billion bushels of corn this year. But 3 years ago, we exported 1.4. We lost the market because of Asia. The next year, we got up to 1.6 or 1.7. Before that, we were exporting 2.2 billion bushels.
That loss of market is what is added to our carryover. When that carryover jumped up as big as it is right now, our price has fallen. If those markets had not disappeared, we would have kept trending 1.9, 2.1, 2.2. As I said, several years ago we were exporting 2.2 billion bushels of corn. We wouldn't have this problem right now.
Mr. Ford is entirely correct. There is a huge amount of landyou have probably seen it on the front page of the Wall Street Journal. The soybean growers down therehe is not running his bulldozers right now, but if he sees a cutback in production here he will crank them up.
Page 118 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. LUCAS of Oklahoma. Mr. Detrick, if the chairman will indulge me.
Mr. DETRICK. Congressman Lucas, I appreciate that. Thank you.
When we look at the perspective of the wheat growers, first of all, we are 7 months since we had our policy meeting last, our annual meeting. And there is no doubt in my mind that, if things don't change very rapidly, 5 months from now, when we have another annual meeting, there is going to be a lot of different policy put on our books.
Wheat growers love to produce, and it is very difficult to tell them that they cannot when they know that our market is there and we don't have a concerted effort on the part of our government to access those markets.
When we went into this farm bill it was predicated on trade, global trade. Now we can't even handle NAFTA, much less global trade. Farm commodities in NAFTA, the deficit is 174 percent on farm commodities of what it was pre-NAFTA. How are we going to manage global trade?
I challenged Secretary Glickman at a hearing a year or so ago. He said that the use of export enhancement funds would be counterproductive and would be price depressing. I said, yes, sir, if we would use the example of two gas stations on the corner, one goes down a penny, and the other one goes down a penny, and they seesaw back and forth, that is price depressing. But if one goes down a penny and the other one goes down a nickel and says now go another penny and see what I do, then we are going to take care of some problems. We are going to establish ourselves in the marketplace.
We heard a comment a while ago about the export markets being static. Yes, there is static when world population is increasing and our competitors are gaining those markets. So I had a meeting about 6 weeks ago with a Bangladesh trading group; and the chief procurement officer, the first question out of his mouth was, what has happened to EEP? We want to buy U.S. wheat. Our people would rather buy it. They like it. But I cannot justify to my government to spend a dollar a bushel more for U.S. wheat than I can buy European wheat.
Page 119 PREV PAGE TOP OF DOC Segment 1 Of 2 I asked him, I said, who are you buying if from? And the context of my question was what country, but the way he took it was what vendor. He said Cargill. Therein lies some of the problem, Congressman.
Mr. LUCAS of Oklahoma. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Chairman. I thank each of the panel members for being forthright. This is a discussion we have been needing to have.
One of you mentioned that you would like to have answered questions that we asked the first panel this morning. I will give you that opportunity, and I look forward to your reply.
I would like to make a comment. We will probably have to have another round. But I want you to understand I totally agree with the emergency in the field. We have to do right now. It has to be kept separate from the other. I don't think any of us argue about that. We have got to do the other. But it is the people out there in the field, the producers, they got to have some hope and they got to have some relief. So do their financiers and so on. So I hope we can keep that separate.
I agree that the livestock and this current suggestion coming across from the Senate is short, and we need to address that. I hope we can. So we will see how that shapes up. I am certainly interested in that.
I was just recently making the observation around here, we talk about ethanol. I am a big ethanol supporter. I have connived and done everything I know how to do to support ethanol. I will probably continue to do that.
But, we are coming to a crossroad. Globalization, go to these Seattle talks, opportunity. And I hope all of you as well as all of us will be putting the pressure, as I try to do on Barshefsky and Glickman and Gore and anybody else going to be involved in that, that we put agriculture up first. Because everybody knows around this world we are great consumers. That is just a fact. And thanks to the industry and electronics and so on, there is hardly any tariff on that. But on agriculture products, the products going out there is 40 and more. It is not right.
Page 120 PREV PAGE TOP OF DOC Segment 1 Of 2 So let's use some leverage. Back to my point.
My friends here on this Agriculture Committee, this Agriculture Committee from Texas, Louisiana, Oklahoma, Kansas, and whoever else that has independent oil producers. I don't. I am not worried too much about the big guys. I have a crisis too and a lot of those, it is on farmland. And I had the occasion to walk out just recently on a piece of farmland, independent; and when I think back, us almost going to war where energy and how much we consume. And if the independents were all operating under profit and we were able to infuse all the ethanol that we were able to infuse into the system, we would still be importing energy, a lot.
It depends which experts you talk to, we are importing 50, 60 percent now. If we get all the independent production going in oil, the oil and gas people, and we infuse all the ethanol that we could come up with, we would still be importing some energy.
Why don't we sit down and figure this out and not put this committee and others we know into situations where we are going head to head over oil and gas and ethanol? We don't have to do that. We have been doing it, but we don't have to do that if we just sit down as intelligent people and work this out.
So that is a new thought, Mr. Chairman, I am going to throw it on the table. I know you are busy, but we need to do something, and I think we can. This is America, and we know how to solve things. We have proven our history. Let's prove it again. But let's start down that track. It may take us a while, but let's start.
Now, back to the reality of the moment. That is reality too. I am sorry I said it that way. What about do you want to increase the loan rate? Question one.
Question two, do you want farmer-owned reserve, set-aside, increase the CRP? Tell us. What do you think? I would like to hear from all of you. Make it easy. Keep it in order. Start with Mr. Rayner and go across the table.
Mr. RAYNER. I would like to respond, Congressman.
Page 121 PREV PAGE TOP OF DOC Segment 1 Of 2 As far as increasing loan rates, we have had a discussion, among the producer sector especially of the council, and there is a lot of concern. Believe me, there are a lot of growers that thought that the answer to the problem was to increase loan rates; and when they understand there is a fine line between getting them too high and that you wind up creating stocks, then they kind of come back down and decide that, wellto this day, the council is not in favor of increasing loan rates and there isn't a reserve-type program.
In cotton, in the past, we have always been opposed to systems that create any kind of inventories of cotton. We feel like the industry is better served by having the product gone, consumed by somebody, and have it out of the inventory, so at least prices have an opportunity to move. And then the CRPs, certainly because of the conservation effort, there is some support for CRP, but as far as land-idling programs, there is not a lot of support for large-scale land-idling.
Mr. DENISON. Congressman, thank you for those tough questions. In the rice industry, we are just in the process of addressing the loan issue. I think that so long as we could keep a minimum loan rate of 650 per hundredweight and so long as there is enough budget leeway to raise those loan levels to allow the increased LDP to be made, and so long as the cap could be taken off of LDP payments, there probably would be a lot of support for that. But we read the tea leaves just like you do, and there is a lot of controversy here on this committee, as well as in the entire industry. What can we afford?
I think that is what Congressman Stenholm has kind of been pushing us on. What can we afford in agriculture in the way of government subsidies? And, yes, loan rates probably would help to get more financing next year if we could bump them up a little bit. You would have a greater portion of the rice industry that could get financed. Reserves, we are right with cotton; we just cannot see where accumulating reserves does anything but postpone price discovery. We believe that with the marketing loan properly administered, you can move the product.
Page 122 PREV PAGE TOP OF DOC Segment 1 Of 2 Surely during harvest, there will be some gluts and some disruptions, but that is management on the part of the producer to have a place to go with that product before he plants it or to sell enough of it before he harvests it.
Mr. BOSWELL. Excuse me, Mr. Denison. My time is up, but I could wait till a second round if that would be better, Mr. Chairman. Whatever you want to do. I have got those three questions floating all the way down the table.
The CHAIRMAN. We will have another round.
Mr. BOSWELL. So we will continue, Mr. Denison.
Mr. DENISON. Sorry I took up your time.
Mr. BOSWELL. No, no.
The CHAIRMAN. Generally what we do if a gentleman is asked a question, is allow you to go with the continuity. Go ahead and answer the questions.
Mr. DENISON. I was through. Loan rates and reserves. Was there another issue that you wanted?
CRP, that rewards the landowner. That does nothing for the young farmer or the person that is renting land. And I do both.
Mr. FORD. As I indicated in my opening statement, we would also like the loan caps removed. We feel that the marketing loan program will work.
I know I might be criticized since we have right now the highest loan rate, but I might remind you that next year this is on a 5-year olympic average previous to 1996 farm bill. Soybeans were frozen at $4.92. We asked that we be put on the same playing field as the other commodities, the 85 percent of the 5-year olympic average, which was done, and that is the reason we have the $5.26 loan rate this year. Next year it will be down to $5.22. The following year it will be down to $4.92.
We have had some poor years in the last couple of years, so we are going to be down there also. But we do believe the marketing loan will work and that is the reason we are asking for the LDP caps to be removed.
Page 123 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. DETRICK. Congressman, the National Association of Wheat Growers and its members have been champions of producing. We have not been champions of foresight. We endorsed the 1996 farm bill, knowing very well what the loan rate was on wheat, and it was at a time when the price of wheat was anywhere from probably $4.75 to $7 a bushel, depending on where you were; and we thought we would never see another dry day, and we had no idea that $2.58 or 60 cents would ever come into play. And now we are clear down closer to $2 than to the loan rate.
At the same time, yes, we are in favor of lifting the loan caps, and our policy now statesand this is another example of not much foresight, I thinkour policy now states we want a loan rate of a 5-year simple average, and we have averaged, last year, this year and probably next year in, and we will probably be below where we are now. And I think, come February, that is going to change; I am sure going to try to get it changed.
So far as storage, we have been in favor of lengthening the term of the storage for one primary reason. The whole world knows when a lot of these loans are going to be coming out and maturing. And they sit and wait like vultures, waiting for that to happen, knowing we have got to do something. And to extend that long period can throw that out of balance enough that to satisfy their needs, they have got to bid it high enough to pull it out of loan. And the downside to that is, yes, it throws production over into another year.
So there is an upside and a downside, but the primary thing that we certainly need to do is, we have got to get our safety net up to help us survive through the peaks and the valleys.
Mr. UTLAUT. National Corn Growers, I rememberwhether it was 1995 or the 1996 farm bill we have now, but we were debating the 1995 onewe spent quite a bit of time discussing the issue of the loan rates and looking at a higher rate than the $1.89 cap. I remember going to Stenholm's office and visiting about the fact: But our policy is we don't want to change the loan rate; it is $1.89.
Page 124 PREV PAGE TOP OF DOC Segment 1 Of 2 We had the same policy for the farmer-owned reserve. We have been opposed to it, but we did say this year, in our last meeting a month ago, that we would have a 6-month storage program; whereas I outlined we would pay 3 cents a bushel for 2 months and then 2 cents a bushel for 2 months and then a penny a bushel, we would ask that, 12 cents. But that is for a 6-month storage program, and that was it. We are still opposed to set-aside programs.
Mr. MCNUTT. Since we are the largest or among the largest consumers of both corn and soybeans, all this does have an effect upon us upon us. Sometimes I think we feel a little bit that that point is a little taken for granted, but I think it behooves us to realize, though, we need all the political friends we can get and we have very difficult issues in front of us, and I leave a lot of these types of things to our colleagues.
I think the primary thing, though, is if we can do programs that allow the market, the market value to be out there and be willing to pay whatever that market value is.
Mr. WILLINGHAM. The cattle industry is obviously in the same situation. We really don't have a dog in that hunt. We would like, though, CRP acres not to be used for hay and grazing except for emergencies.
Mr. BOSWELL. Thank you, Mr. Chairman. I will wait till the next round to continue.
The CHAIRMAN. Now everybody wonders why it is hard for us to make long-term farm policy. We have been listening to you. That's the problem, and then you change your mind 5 months after we implement it.
Mr. MORAN. Mr. Chairman, thank you very much. This is my first opportunity to publicly thank you for holding a field hearing this Saturday at the Kansas State Fair in Hutchinson, KS. I appreciate your cooperation, and I appreciate Mr. Stenholm, Mr. Boswell, and Mr. Lucas for their participation in a couple of days.
Page 125 PREV PAGE TOP OF DOC Segment 1 Of 2 Let let me direct a question to every commodity group there with the exception of rice. I am sorry, from your perspective, that is probably a good thing, but I don't think we grow rice yet in Kansas.
Particularly the Wheat Growers Association, any thoughts about what we do on getting this administration to utilize EEP, any thoughts about this issue? Boy, this hit home in August, but the story about finally lifting sanctions against Iraq, about our unwillingness to utilize agriculture credits, GSM to consummate a sale. What a different at least psychology we all would have if it was 2 to 6 million metric tons of U.S. wheat we were selling to Iraq, rather than Canadian or European.
Have you all sorted out where we can focus the attention on these particulartrying to combat this unlevel playing field?
Mr. DETRICK. Congressman, we have been very encouraged with the open door policy that we have had with the Secretary's office. Ever since this administration began, we have hammered and hammered and hammered about EEP, and a lot of our problems are currency values. Why can we not use EEP to level the playing field? Why can we not use EEP to get that Bangladesh sale that they want to give to us and cannot justify to their government to do it because of European subsidies? And the answer we get time and time again is that it is not a bad enough situation for us to do anything about it yet.
Yes, the question that you ask is a good one, and it is a question we have. What can we do to get the administration to do that, to use it? We almost are to the point where we wonder, was that $500 million set out there with some other use in mind, that they never intended to use it for export enhancement at all. I don't know. But they certainly haven't used much of it, and we are very disappointed. We have tried and tried, and we have gone in that open door and we are in the same situation we were a year ago.
Mr. MORAN. I don't know if anybody else has a response to that question. I do have this additional thought: That any suggestions, is there a program out there, such as a SHOP II in cotton, that we could model our export assistance in wheat or corn after, so that it is more automatic and less discretionary? Maybe there is no answer to that question, but I would be glad to if that piques anybody's interest, I would be glad to have a response at a later time.
Page 126 PREV PAGE TOP OF DOC Segment 1 Of 2 I think it was you, Mr. Detrick, your analogy of the gas station is an awfully good one. I wish I had thought of that one earlier and the 2 cents. I get tired of hearing about how we don't want to rock the boat.
Any thoughts by any of you in how we could get producers to obtain more of the profits from agriculture by reducing the role of middlemen or women in the processing of our agriculture products? How do we get farmer-produced products to the ultimate consumer with less folks in the middle?
Mr. MCNUTT. That is what we are trying to do with the creation of the national co-op, absolutely what we are trying to do. We are trying to address a lot of the issues, this whole issue in management. If you set up these co-ops and they are poll driven, meaning the market tells you what to produce, you produce what the market asks you for. You don't go out there and raise the pigs and then figure out what the hell you are going to do with them. That is the approach we are taking.
Mr. DENISON. That is correct. Co-op is the only way. In my lifetime, my experience has been farmers are so independent that they don't want to remain loyal in the ditch when it is tough for a cooperative to be paid the top, top price and they have fixed costs. It is a business like anything else, but the only way we can do it is to be integrated.
Mr. MCNUTT. Let the value of your commodity go to zero and producers get a lot more interested.
Mr. MORAN. Is there something that Congress, a matter of policy, that we can do to encourage the cooperative movement, the elimination of folks in the middle?
Mr. RAYNER. Congressman, it is not an area of cotton, but just recently a new cooperative was being organized in Arizona. The equity requirement, just the equity requirement per grower was about $281 an acre and that was their contribution so that they could then raise the debt side of the contribution. So that was absolutely the biggest stumbling block for those producers to get that co-op going.
Page 127 PREV PAGE TOP OF DOC Segment 1 Of 2 If there is anything that can be done in that area to make it easier to raise capital, I am sure that that would be beneficial.
Mr. MORAN. Thank you.
Mr. WILLINGHAM. The beef industry has been trying to do the same. U.S. premium beef in your State is a great example, though there are other people in your State that think that is the worst thing that has happened. I really still think that the way we need to operate is to get more of the consumer's dollar.
Mr. MORAN. My time has expired, but Mr. Detrick has been trying to answer my question.
Mr. DETRICK. I want to address that from a little different perspective.
We talk about how do we get our farmers to be able to participate, how do we cut out the middleman, et cetera. We talk about value added and becoming a part of that. But let's look at it from the other direction.
Would it not be advantageous for us to take a good look at laws that are already in place on trusts, the antitrust laws that allow it to be easier to participate by doing something with some of those that are causing some of the problems through the monopolistic-type dealings that we have, and to address something that Congressman Stenholm said a while ago about getting more of the consumer's dollar in the farmer's pocket.
It may be time in this country that we begin to sell our product to the consumer, what we have in the way of security and safety, and maybe we need to pull a few more bucks from the consumers to put in our pockets.
Mr. MORAN. Had I had more time, my next question would have been about your belief about the impact of consolidation, concentration, upon the profitability of your industries.
Page 128 PREV PAGE TOP OF DOC Segment 1 Of 2 Thank you, Mr. Chairman.
The CHAIRMAN. Thank you. We will be appearing to have another round, so the gentleman will be welcome to ask those then.
Let me just make a general observation and ask a question. For some time now the activity that has occurred in the Senate in regard to this overall package has been fairly well known to people. In fact, I have commented that probably this has already been spent. People know pretty much what they are going to get, the way the Senate plan is outlined.
As a general rule, there has been wide support of it. I certainly think this is a starting point. In fact, I have submitted some suggestions that would run it above even where it currently is; but I would be very opposed to its being any less than it is and would hope that is not the case.
But let me just ask you this, a little bit more on clarification, recognizing that there has been a lot of general support for what has occurred there. Assuming that as it is, that was adopted, could any of you give us suggestions about changes you would like to see in the bill as it currently stands, as was passed by the Senate?
Mr. UTLAUT. I would make one comment. The National Corn Growers was part of that testimony that we gave to Chairman Lugar and we endorsed those procedures, but as you said, Chairman Combest, this is a starting point. And I have heard the Secretary say many times this proposal can't be complete unless there is some disaster aid out there for the drought that has affected the Nation and not the entire Nation but the east coast, and it has affected different parts of my State of Missouri.
There are two separate things therebut saying we do need some drought assistance, a disaster aid package, but that needs to come on top of what the Senate has proposed here.
The CHAIRMAN. Do any others wish to make any comments?
Page 129 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. FORD. I would just like to reiterate what I said in my opening statement about the National Sunflower Association, the U.S. Canola Association, and ourselves strongly supporting the provision that would distribute $475 million among oilseed producers.
Mr. DETRICK. Mr. Chairman, the Wheat Growers strongly support the additional AMTA payment and the Senate bill as it was passed.
I do have a question and I brought that up in my original testimony. As we are aware, last year the farmers were allowed the option of taking 1999 AMTA in advance. If they did that and if there is no provision for them to now take the 2000 in advance, then they are basically going to have less money this year than they had last year. Can you tell me, is there a provision for that in the Senate bill? I am not aware of it, if there is; if not, we need to put that in here.
The CHAIRMAN. Maybe I need to be sworn-in here. I am not certain whether there is or not. There is a great deal of discussion about that and adding a number of different things, looking at payment limitations and whether or not they are totally removed or whether or not they are doubled, and timing and some tax issues in regard to AMTA payments and some other things that need to be clarified. I think that there is strong support obviously for making thatit is not an advanced payment, but it is an earlier, timely payment.
Mr. SMITH. Would the gentleman yield?
The CHAIRMAN. Yes.
Mr. SMITH. The Senate language says the AMTA payment would be made within 45 days.
The CHAIRMAN. That is a supplemental payment. That is notwhat he is saying is the 2000 normalit wasn't a question. I do know that is under regular discussion and will be discussed further.
Page 130 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. MCNUTT. Mr. Chairman, as per my testimony, we find the current Senate language really totally unacceptable for the points that I laid out there. The livestock industry in this country is 50 percent of gross cash receipts in American agriculture. We are asking for fairness; we are asking for equity. We are asking for realization of the devastating losses that our industry has had, and we need desperately some support there.
Mr. WILLINGHAM. I think the cattle industry's position on this bill, the livestock section, is just a number with unlimited discretion upon the Secretary. We would like to see a little more direction given to the Secretary to make sure he is using existing programs and all species in livestock.
Mr. RAYNER. Mr. Chairman, as I indicated in my testimony, the cotton industry would like to see, if there are additional funds available, provide for weather-related crop losses. We think that FSA also needs some additional funding because of their ability to, or inability to meet some of the workload that they now have; and also possibly for international market development programs, if there is additional funding available.
Mr. DENISON. Mr. Chairman, the rice industry would concur with the equity and fairness for all commodities, as well as the inclusion of a market development fund if that is possible. We certainly utilize that to considerable advantage, to the rice advantage, and would commend you for the way you are going about this package.
The CHAIRMAN. Thank you very much.
Mr. STENHOLM. I am going to go back to the oil and gas example in just a moment. I just caught the end of Mr. Boswell's questioning, and we spent the weekend together, and I totally concur with what I think he was saying a moment ago, that the time of us quitting fussing and fighting between the oil industry and ethanol should be over yesterday because it does not make sense for us to do that.
Page 131 PREV PAGE TOP OF DOC Segment 1 Of 2 And the good news is, the independent oil and gas industry is coming around to that way of thinking for the same reason, because the same thing that applies to finding a way to get more of the consumer dollar in the producer's pocket on agriculture applies to the independent oil and gas producer.
Here's something I want to throw back out at you, because if memory serves me correctly, those of you that concern yourselves with this part of agriculture policy were not too supportive of a suggestion that was made about 4 years ago regarding whether or not all production should be eligible for a nonrecourse loan or whether a limited amount should be eligible for a nonrecourse loan, and if you want, how big you want to get, you can participate in Freedom to Farm in the international marketplace for whatever the price will be on the other, but you should not expect to be subsidized for it.
Well, it didn't meet with acceptance. In fact, most of you utterly opposed that when it was proposed before. But hindsight being 20/20, none of us thought we were going to get into LDPs on every bushel. Then it comes down to, what sense does it make for us to race to the bottom, with the producers all over the world and the Treasury and the Treasury support that we are doing, which is what we now are doing.
In the case of the oil patch, what we have got are proposals that have not yet met with political support around here, but to say that we will support stripper oil, small wells, 10 barrels a day and smaller, we will support them because that is where the United States interest lies in domestic production. We have never been able to get that because big oil opposes it, and a lot of other folks oppose it becauseanything to do with oil.
But this is one area in which I hope we can look a little bit more long term to see whether or not we can get some agreement there, because that is one area that I know, from my standpoint, would be very helpful. Because I happen to support both the ethanol and the independent oil patch, and that's been very difficult to do around here.
Page 132 PREV PAGE TOP OF DOC Segment 1 Of 2 Also, I hear what everybody is saying. We need to have another short-term fix and we really can't get into long term. I hear you, and so be it. We have tried on the supplemental income plan to generate support, but I have heard all the good arguments why this is not the time and the place, just like last year when we were here, this was not the time and the place. And we will be back here next year; this is not the time and place, but it will come.
Y2K will come soon, Y2K2, and when that comes, we are going to be into some long-term policy; and that is why some of the things I say to you are to get you to at least start talking about that out there. It is like when I make the statements about the tax cut, I am for it.
Mr. Willingham, I could not agree more on the death tax. Perhaps not total repeal, but getting it to where family farmers and ranchers do not have to sell the farm in order to stay in. It just makes common sense. And there are some proposals now, I think, in which we can come up withyou always have hesitancy of using numbers, $2 to $5 million, but one interesting concept now is taxing estates again up to a higher level, at the capital gains rate instead of the confiscatory 55 percent rate.
All of these things make sense. We could come around to including those when and if we do get around to making changes in the tax code.
I am not going to ask you all this question because I think I know the answer already. I think everybody here supports the tax cut; you want the tax cut, but you also want the spending that most of you today have asked for. Folks, you can't have it both ways. You can't, we can't in spite of my colleaguesI wasn't here to hear it but, if Nick
Mr. SMITH. I didn't say anything but good things.
Mr. STENHOLM. I will only say good things about Nick because he and I agree on most things, but you were chastising me for my tax statement, but so be it.
I know there are those on this committee that differ with me on this, and most every one of you, your policy statements that you take to get your members to keep paying dues to you, favor the tax cuts straight across the board. But you also come here unabashedly asking for the kind of support that you are asking today, because ''we need it.'' I understand that.
Page 133 PREV PAGE TOP OF DOC Segment 1 Of 2 But there will come a time down the line when this ain't going to work like it has been working, and that is where long-term policy and how we do compete in this international marketplaceand this hasn't been said today, and I am just going to mention it. We have got a major problem with GMOs and there are big things that have happened in which our friends in corporate America and producers alike, we have not been as diligent.
And the Secretary, to his credit, did raise that to a level of higher understanding a few weeks ago. I think that was good, but this is one area that could end up hurting producers more than anything that we have been talking about today, in the collapse of Southeast Asia and whatever it is that happened could.
If we, all of us collectivelyand this is where the livestock industry and the cropwe have all got the same vested interest in how we deal with this in the international marketplace, but it is about to come home to us. The chickens are coming home to roost here in this country, and this is one area that we had better take a look at long term; and at the same time, short term, we are going to have to deal with it in some way, and it is very bothersome.
But I hear what all of you have said. My heart is with you; my head is getting a headache trying to figure out how we are getting to do all of this but we will figure out a way to do it.
Again, I just can't say enough, Mr. Willingham, of my appreciation for you for using that four-letter word earlier today, because maybe that will get this committee back to where we can talk about this without its being such a negative sound that it has been in the past. And a little tongue in cheek on that, but I think everybody is smiling. You know what I am saying.
Inventory management is good business, and we have just got to find a way both domestically and internationally for us to get more of the world consumer's dollar in our producer's pocket. And if we are not willing to do that, we can talk about the pride and independence of our farmers till the cows come home, but if that is getting to be the future for agriculture, we are sunk ducks because all the antitrust laws in the world will not save us at this time because the world is changing, and it is already changed, and that is where we have got to spend more time.
Page 134 PREV PAGE TOP OF DOC Segment 1 Of 2 And it is just so nice to see pork producers and cattlemen sitting side by side, disagreeing, but not being disagreeable; and seeing all the commodity groups there. I commend the chairman for this panel and maybe it is a sign of good things to come. If we can deal with ethanol and keep me and Mr. Combest from getting in trouble back home in the oil patch, we might have done one good thing.
The CHAIRMAN. Mr. Smith.
Mr. SMITH. Mr. Stenholm, the sheep producers and the cattlemen, they are best friends now because there aren't many sheep left, I suspect.
Mr. STENHOLM. We will meet with them in the other room.
Mr. SMITH. A couple of comments just maybe expanding on what Charlie said.
I was in favor of Freedom to Farm. I think it ultimately is the direction that we have got to go. It is interesting that the hog industry is talking about coming full cycle from where we started farm programs back in 193334 of the hog slaughter programs to try to get hog prices up. I mean, that is where this whole control program started. So we have gone through almost 70 years of controlling production with the result that we reduce supply; and ultimately the demand stayed the same, or went up, so prices went up and that was somewhat successful.
With the evolution WTO Agreement, now we are faced with a situation with even wheat, which is our largest export I think. It only represents something like 14 percent, our export of wheat only represents 14 percent of the world's production of wheat. Is that a close figure? So putting on acreage controls without some kind of a maybe a peanut-type program that also limits imports just isn't going to work anymore along with the current Freedom to Trade proposals that we have now implemented through both NAFTA and -WTO.
It seems that as we face the challenge of other countries, who have gone through hunger, doing everything they can to make sure they maintain a strong agriculture production industry in their countries to the extent of using artificial means to restrict our imports into their countries to subsidize their farmers; and often with several commodities almost a loss leader, putting their excess production into what would otherwise be our markets, the decision this country has to make is one of two possibly. One is to develop the kind of trade agreements with enough teeth in them that are going to assure that we can compete on a level playing field with other countries, or we decide that we are goingit is important enough that we maintain our agriculture industry in this country that we subsidize consumer prices through the public sector and through taxation. And we are almost, I think, at that point now as we in the next 2 years revisit the Freedom to Farm Act trying to decide what our future agriculture policy is going to be.
Page 135 PREV PAGE TOP OF DOC Segment 1 Of 2 And my earlier question, though, when I said, is there anything government can do, following on the same proposition: How do we add value to our products? How do we assure that there is going to be competition there in not only the people that buy our agricultural products, but also the concentration that is developing in the sector that is selling products to the farmera serious negotiating problem as far as individual farmers trying to negotiate a deal with the consolidation and concentration of power in both the products they buy and the products they sell.
So it seems to me that it is going to behoove us to be very creative in the next several months.
We have the advantage today of having a Congress that is somewhat sympathetic with the plight of American agriculture and maybe unfortunate for the east coast, maybe fortunate for the rest of agriculture, that the eastern news media which would never travel to Michigan or Minnesota or the Midwest to see the drought and disaster now can drive 30 miles out of town. So we are seeing that more of America is seeing the predicament on the evening news.
We have a window of opportunity, it seems to me, if we are smart enough to help implement some changes that are long range, rather than shooting from the hip the way we did last year, the way we are going to do this year and the way we will do next year, that uses up significant resources without any long-term advantage.
So that is my speech. And if there are any further closing comments from any of the witnesses on behalf of the chairman and the committee, thank you all very much.
Excuse me, Mr. Boswell.
Mr. BOSWELL. Just because you are the chairman, you don't ignore me.
Mr. SMITH [presiding]. He handed me the gavel. Boy, I react quick.
Page 136 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. Boswell.
Mr. BOSWELL. Very quick. I wanted to share with you, a farmer in my district took a 300-pound hog and had him cut up just like he would if he was going right to the retail store. All said and done, he had about $95. Took that list, went right down to the supermarket and compared it and it came out to about $460. That tells you a whole lot of stuff right there. Back to the value added.
John, you probably know more about it than I do. I was there when we started the process to encourage the co-op law that farmers can have access to value added and join in. I think there are some successes started. I think we have got to look into that, and maybe there is something to come down from here to help with those younger farmers who don't have equity to help them get into it. I think there is potential there to look at.
I do believe we are at a crossroads, and we have got to generate some new thinking. I can't tell you how much I appreciate the nods that I think I saw from all of you as I talked about the independent oil and gas people and us and ethanol. There is room for all of us, and just get your list out and look at this committee. I think that will tell you right there that we have got to do that as we think about the different States that are doing both, and it is a big part of it. So I appreciate that very much.
I hope that you will some energy into that as well as the co-op thing, and I am concerned about the consolidation. Mr. Moran had to leave and his situation, what it is, I don't know, but as I see these bigger consolidations on those that supply us our inputs and do our buying, it is so different from what it was just a short time ago, and I think we have all got to pull together on that one too. I really appreciate your coming.
Mr. Smith, close her down. I want to give these guys a hand.
Mr. SMITH. The Chair would seek unanimous consent to allow the record of today's hearing to remain open for 10 days to receive additional material and supplementary written responses from witnesses to any questions posed by a member of the panel and without objection, it is so ordered.
Page 137 PREV PAGE TOP OF DOC Segment 1 Of 2 This hearing of the Committee on Agriculture is adjourned.
[Whereupon, at 3:05 p.m., the committee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Paul De Briyn
Good morning Mr. Chairman and members of the committee. Thank you for the opportunity to appear before your committee. I am Paul De Briyn, president and CEO of AgStar Farm Credit Services. AgStar Farm Credit Services is a farmer-owned financial services cooperative providing loans, leases and financial services to producers, agribusinesses and rural residents covering 60 percent of the State of Minnesota. We currently serve nearly 13,000 clients with a credit portfolio of $1.5 billion. As defined by primary client enterprise, our portfolio consists of:
35 percent Corn and Soybeans
22 percent Swine
16 percent Dairy
27 percent Other varied enterprises
The existing severe conditions impacting farmers nationwide are why I appear before you today on behalf of the Farm Credit System. We are pleased to present testimony regarding the current economic conditions in agriculture, the Farm Credit System's ability to serve farmers in these times, and the need for additional financial assistance for our Nation's farmers.
Farm Credit is doing whatever it can to work with borrowers in these difficult times, and we pledge to continue to do so. However, we urge that appropriate actions be taken to avoid the inevitable negative consequences of a prolonged downturn in the agricultural economy. It is critical that commodity prices be returned to profitable levels. Adequate funding levels must be provided for the Farm Service Agency (FSA) guaranteed loan programs to help lenders stay with stressed borrowers, and farmers must have substantially improved risk management tools so they can manage the combined risks of weather, commodity prices and crop disease.
Page 138 PREV PAGE TOP OF DOC Segment 1 Of 2 The economic circumstances that have resulted in the current downturn in the farm economy are well documentedthe severe price drop across a broad swath of commodities have resulted in even highly diversified producers facing a significant drop in the value of their total production. Exports have lagged due to the ongoing economic difficulties in Asian and South American countries and the substantial competition due to world wide bumper crops. In some parts of our Nation, producers are facing severe weather that ranges from drought conditions to excessive rainfall. The net result is significant, growing challenges for farmers and ranchers across the country.
Mr. Chairman, it is notable that the macro-economic conditions today are favorable. Specifically, the inflation and interest rate environments are low and generally stable. However there is some increasing movement in interest rates. Fuel costsa major input cost for farmersare low although increasing in recent months, and many rural areas are enjoying low unemployment and positive economic growth, which is often the source of supplemental off-farm income.
However, with low prices well into their second consecutive year, U.S. producers are increasingly at risk of financial difficulty. To date, low commodity prices have been somewhat mitigated by various types of Federal assistance. In 1998, nearly $13 billion in Federal payments contributed significantly to total net cash farm income of $57.4 billion, compared to a record level of $60.8 billion in income in 1997.
While farm debt has been increasing, total debt of $170 billion is well below the levels reached during the 1980's when total farm debt in some years exceeded $200 billion. In addition, the value of farm assets at year-end 1998 reached $1.13 trillion compared to $954 billion in 1987.
While farm debt relative to assets remains favorable, the Farm Credit System is closely monitoring accounts payable and land values. In some areas, land values appear to be softening but in most areas they are holding. The value of farmland is driven by a number of factors including its proximity to urban areas, interest rates, as well as cash receipts to farmers. Nevertheless, we recognize that a sustained period of low commodity prices almost certainly will cause land values to decline. Also, there is evidence that farmers are increasing credit card debt in order to finance their operations.
Page 139 PREV PAGE TOP OF DOC Segment 1 Of 2 As a general rule, producers are more efficient and are coming off several years of record or near record income levels. This situation has better positioned most of them to withstand a temporary downturn. And while the impact of the current economic climate varies from region to region within the U.S., there can be no question that a prolonged period of low commodity prices without Federal intervention will inevitably result in a major restructuring of the agricultural economy.
Mr. Chairman, the Farm Credit System is well positioned today to work with farmers and ranchers. Specifically, Farm Credit has had several years of strong earnings with which to build capital and reserves. In addition, lending and portfolio management, credit administration practices, and asset and liability management are sound. Cash flow and repayment capacity analysis largely has replaced lending based on appraised values. Mergers among System institutions have spread risk over larger portfolio bases.
Capital in Farm Credit System institutions is the first line of defense against any economic difficulties. Today, Farm Credit collectively has accumulated more than $12.8 billion in capital or over 15 percent of Systemwide assets.
In addition, Congress and the System's independent Federal regulator, the Farm Credit Administration, have put in place a number of mechanisms, which will allow Farm Credit to manage through a downturn. For example, System banks have entered into a Contractual Inter-bank Performance Agreement (CIPA) that provides an early warning mechanism if problems arise. The Farm Credit System Insurance Corporation (FCSIC) with about $1.4 billion in assets funded by System institutions is in place to ensure that the System can meet its obligations to investors even under the most severe conditions.
System institutions are actively engaging their client/members to help individuals deal with deteriorating economic conditions. Farm Credit is proactively working with stressed producers. In some cases repackaging loans to defer payments, restructure loan terms and lengthen repayment schedules. Always, however, Farm Credit undertakes these actions with a firm eye on maintaining financial safety and soundness within the institutions.
Page 140 PREV PAGE TOP OF DOC Segment 1 Of 2 Some clients, caught short by low prices and disastrous weather conditions, are deciding to get out of farming while they still have some equity. Others have decided to try one more year. Farm Credit is working with these individuals, no matter which path they choose. For those who choose to stay, Farm Credit is working with them to develop a financing package that will offer them the best chance to survive long term. For those who choose to leave agriculture, Farm Credit is working with them to finance the sale of their assets.
Mr. Chairman, it is critical that profitability be returned to agriculture. We pledge to work with you and your colleagues in whatever way we can to bring this about. Additional resources and funding for the FSA guaranteed loan programs is critical. We hope that you can support this recommendation. We urge favorable action on efforts to reduce inheritance taxes and capital gains taxes for farmers. We support the establishment of tax-advantaged savings accounts (Farm and Ranch Risk Management Accounts) that provide incentives for farmers to put money away for use during future economic down cycles.
The Farm Credit System supports efforts to shore-up the Federal Crop Insurance program and provide farmers with affordable risk management tools, and we are actively promoting a variety of trade initiatives designed to help push U.S. farm products overseas.
Again, thank you for the opportunity to submit this testimony. We look forward to working with you and members of the committee to improve economic conditions for our Nation's farmers.
Statement of Leland Swenson
Chairman Combest, Ranking Member Stenholm, members of the House Agriculture Committee, I am Leland Swenson, president of the National Farmers Union, an organization that represents the interests of 300,000 farm and ranch families. It is a pleasure to appear before the committee today to share our concern about the declining state of the agricultural economy and offer our recommendations to provide both hope and assistance to America's farmers and ranchers.
Page 141 PREV PAGE TOP OF DOC Segment 1 Of 2 The financial distress in production agriculture is becoming more widespread and acute, brought on by income levels from farm production and marketing that are inadequate to provide economic sustainability at the individual farm or ranch level. While many different macro-economic and global explanations have been provided as the cause of this depression, the impact is local and personal, effecting not only farm and ranch families, but also main-street businesses and rural communities.
The U.S. economy is providing a historic level of general prosperity as evidenced by the stock market indices, declining unemployment, productivity gains and nearly all other measures of economic performance. However, as noted several times in recent weeks by Federal Reserve Chairman Greenspan, production agriculture has failed to participate in, and benefit from this period of growth.
In 1999 net farm income, including direct Government payments, is forecast to decline for the fourth straight year. If direct government payments are deducted, net income from farming operations will have declined by more than 40 percent since 1996, a production based income level over $8 billion less than achieved in 1990. The result is an increase in loan repayment problems as evidenced by recent reports from several Federal Reserve districts, significant expansion of participation in USDA's direct and loan guarantee programs and a build-up of supplier credit in farm communities. Most analysts now project a slow economic recovery for producers. Not only are commodity prices for many primary crops at the lowest point in years if not decades, but ending stock levels since 199596 are projected to more than double for wheat, increase two and one-half times for soybeans and expand over four-fold for corn. Until the growth in surplus stocks is contained and volumes reduced, the prospect for price improvement is marginal at best.
We would also suggest that the potential benefit of these low prices to independent livestock producers and retail consumers have not been realized. Increased integration and reduced competition among processors and merchandisers has provided this sector with a level of market power that allows them to increase margins and earnings at the expense of farmers, ranchers and their food consuming customers.
Page 142 PREV PAGE TOP OF DOC Segment 1 Of 2 Many have suggested that controlled inflation, reduced interest rates and productivity gains in agriculture have offset depression-era commodity prices. However, the index of prices paid by farmers for 1999 is forecast to be14 percent higher than the 199092 base period, down only slightly from 1997. Concerning the cost of production for wheat, soybeans and corn, the average 199799 per unit economic cost of production is higher than the average for 199092 by 2.2 percent for soybeans, 4.2 percent for wheat and 10.5 percent for corn. While yield trends are up, over this decade the gains in productivity among grain producers has been eroded by increased costs including both variable and fixed expenses.
We believe both long-term policy considerations and immediate emergency financial assistance are necessary to address the economic crisis in agriculture.
Future agricultural policy should establish an equitable, commodity specific economic safety net that ensures U.S. market competitiveness while providing producers an improved level of financial security during periods of market disruption and commodity price instability. Such a safety net should include both improved production risk management opportunities as well as counter-cyclical price and income assistance programs that are directed to commodity producers. In addition, long-term policy must be developed to enhance competitiveness and transparency throughout agriculture domestically and globally, while seeking increased cooperation to address chronic agricultural production, trade and market problems. By implementing such policies, the U.S. can provide greater economic stability to production agriculture and improve its negotiating position in international trade discussions to achieve free and fair trade that benefits producers, enhances global food security, and achieves comparability in the areas of food safety, environmental protection and labor standards.
In the near term, the economic crisis confronting agriculture requires immediate attention. The NFU supports legislation to provide assistance in five critical areas: producer economic equity, inventory management, agriculture regulatory transition, conservation and credit, and trade and humanitarian assistance. A more complete outline of our Farm Crisis Relief Plan is attached.
Page 143 PREV PAGE TOP OF DOC Segment 1 Of 2 The key component of this emergency package is providing economic assistance to those who produce this country's food and fiber. Producer economic equity is based on providing market loss payments to program crop, livestock and specialty crop producers based on prior program safety net levels and/or historical market price relationships. We also encourage adoption of a $12.50 per hundredweight dairy price support program.
To mitigate production losses due to natural disasters, we support funding of improved crop insurance coverage opportunities as well as emergency authority and funding to provide supplemental direct production loss assistance to producers, including those who were inadequately compensated by the 199899 disaster relief program. Contract payments under the Agricultural Market Transition Act (AMTA) should be advanced again this year, and the cotton Step2 program should be fully funded. Additionally, the Secretary of Agriculture should be provided discretionary authority to assist producers who have been effected by import surges, similar to the Trade Adjustment Assistance program.
The significant build-up of carryover stocks and surplus production potential must be addressed. We believe a short to medium-term emergency conservation reserve program that provides annual rental payments and a percentage of the annual average loan deficiency payment based on recent crop production levels should be established. Participation eligibility should limit the acceptable number of acres per producer that would be available for entry into the emergency conservation reserve program.
In addition, existing stock levels should be addressed by implementing a low interest on-farm facility loan program, providing incentives for the purchase and storage of commodities for energy production and re-establishing a limited Farmer Owned Reserve.
Regulatory transition needs to address tax, environment and competition issues that directly effect producers. Tax reform should provide a Federal income tax credit for State and local property taxes to farms and rural businesses and immediately allow full tax deductibility of health insurance premiums.
Page 144 PREV PAGE TOP OF DOC Segment 1 Of 2 Environmental regulations such as the Food Quality Protection Act (FQPA) should ensure that production efficiency is not reduced through its application by providing expedited registration procedures for alternative products.
U.S. competition policy would be significantly improved by the passage of mandatory price reporting for all livestock sales and the implementation of country-of-origin labeling requirements for food products.
Adequate funding for USDA's direct and guaranteed credit programs and the Environmental Quality Incentive Program should be included in any emergency assistance package. In addition, we support full utilization of the Conservation Reserve Program authority.
Trade negotiations need to advance international cooperation to enhance independent farmer and rancher economic stability. We support cooperative efforts to establish an international conservation diversion program when the stocks-to-use ratio becomes excessive and coordinate and expand humanitarian assistance to reduce global nutritional deficits and enhance economic development.
Our goal in trade negotiations should not encourage a race to the lowest common denominator in commodity prices or labor and environmental standards. In addition, we should aggressively seek the ability to protect agricultural producers from the negative impacts of currency valuations and fluctuations.
The components of this emergency package are designed to provide stability to the production agriculture sector until more equitable long-term farm policy can be developed and implemented.
Mr. Chairman, the National Farmers Union looks forward to working with you, your House and Senate colleagues, and the Administration to mitigate the economic crisis that is rapidly overtaking rural America and to the development of improved policies to avoid similar economic emergencies in the future.
Page 145 PREV PAGE TOP OF DOC Segment 1 Of 2
National Farmers Union
FARM CRISIS RELIEF PLAN
JULY 20, 1999
Producer Economic Equity $11.775 billion
Commodity Equity ProgramSupplemental loan deficiency payment (LDP) based on historical program safety net levels.
Specialty Crop Equity ProgramDirect market loss payments based on percentage of five-year Olympic average of market prices, or other mechanism where historical price data is unavailable.
Livestock Equity ProgramDirect payment based on percentage of five-year Olympic average of market prices for beef, pork, lamb and wool.
Dairy Equity Program
(1) Establish a $12.50/cwt. support price program.
(2) Amend Federal market order reform to improve producer income.
(3) Allow dairy compacts if support price is increased to $12.50/cwt. or higher.
Discretionary Disaster Equity Program
(1) Emergency authority and funding to provide equitable, supplemental direct production loss assistance to producers who suffer prevented planting, reduced yields, or forage and livestock losses due to natural disaster until crop insurance is adequately reformed.
(2) Authority to advance contract payments (AMTA).
(3) Full funding of 1998/99 disaster relief programs.
Page 146 PREV PAGE TOP OF DOC Segment 1 Of 2 (4) Fund the cotton Step2 program.
(5) Give the secretary the discretionary authority to make payments to producers affected by import surges, similar to the Trade Adjustment Assistance program.
Inventory Management $1.25 billion
Three-year Emergency Conservation Reserve
Annual rental payment plus 90 percent of average annual LDP based on current crop production.
Limit acreage eligibility per producer.
Low interest on-farm facility loan program.
Renewable Resource Energy Reserve programIncentives for purchase and storage of commodities for energy production and energy product during periods of low commodity prices and excessive commodity inventories. Farmer Owned Reserve limited to 10 percent of each eligible crop.
Agriculture Regulatory Transition $1 billion
Rural farm and business Federal income tax credit for State and local property taxes. Full deductibility of health insurance premiums.
Implement mandatory price reporting for all livestock sales.
Implement country-of-origin labeling for food products. Food Quality Protection Act registration and alternative product approval for products removed from the market.
Conservation and Credit $700 million
Full funding of USDA agricultural direct and guaranteed credit programs. Full funding of Environmental Quality Incentive Program. Full utilization of Conservation Reserve Program authority.
Trade and Humanitarian Assistance $2 billion
Page 147 PREV PAGE TOP OF DOC Segment 1 Of 2 Trade negotiations should establish international cooperation to enhance independent farmer and rancher economic stability.
(1) International agreement to establish a conservation diversion program by exporting nations when world stocks-to-use exceed a specified level.
(2) Implementation of supplemental import tariffs and export programs when competitor currencies relative to the U.S. dollar are devalued by a specified percentage.
Fair trade objectives should provide credit for societal, labor and environmental accomplishments.
Humanitarian assistance should be coordinated among all nations and expanded to reduce global nutritional deficits and enhance economic development.
Estimated Total: $16.725 billion
Statement of G. Chandler Keys/Clark Willingham
Thank you Chairman Combest, Congressman Stenholm and members of the committee for holding this hearing to discuss the crisis facing American agriculture. Once again, NCBA commends your leadership and continuing efforts to examine the issues and concerns of interest to cattlemen and women, and for working with us to find ways to improve the profitability of U.S. beef production. I want to thank you and your staff for providing me the opportunity to testify today on behalf of our members.
I am Chandler Keys, vice-president for public policy of the National Cattlemen's Beef Association.
You have heard this before from some of our members who have had the privilege to testify before this committee, but I would state at the outset that the issues and factors affecting livestock prices are complex and controversial. There is a wide range of opinions among individual producers throughout the beef industry about the effects of international trade agreements, packer concentration and improvements in price discovery on the beef industry.
Page 148 PREV PAGE TOP OF DOC Segment 1 Of 2 This is not just true at the producer level. You will likely hear comments from other segments of the beef industry that fall on either side of NCBA's testimony in terms of defining the problems and developing workable, permanent solutions. Short-term issues in the quest for long-term stability should not sidetrack us. NCBA believes that an open and frank discussionsuch as is provided by this hearingof all issues facing the cattle industry and the rest of agriculture is vital to this effort.
The structural changes taking place in the beef industry have coincided with international economic crises, increased regulatory burdens, the weather and the normal cyclical nature of agriculture economics. How these factors are inter-related is the basis of heated debates, emotional arguments and general consternation by many within the beef industry. Some producers have embraced new marketing techniques for their own advantage while others believe structural changes are, at least in part, the cause of recent price declines.
Outlook: NCBA is constantly monitoring the economics of the beef industry. Our economists work with their counterparts at USDA, the universities and other segments of our industry to ensure our members have access to reliable and objective forecasts. The current outlook is for some price improvement over the course of the yearbut then, that was our outlook for 1998. In this business, you quickly learn not to hold your breath.
Over the past few years, cattlemen have lost over $4 billion in equity. During the past three years, we have been appreciative of the use of existing programs and authorities such as domestic feeding program purchases, foreign aid, GSM, etc., to prevent the losses to beef producers from being worse than what has been experienced.
Drought hit the Eastern Seaboard hard this past Summer and last year's weather pressure and price situation contributed to high total beef supplies as cattlemen culled more cows and sent more heifers to the feeders (rather than retain them for herd replacements).
USDA's recently released mid-year (July 1) cattle inventory report indicated that all cattle and calves in the U.S. totaled 106.8 million, a decline of 1 percent from a year earlier and the smallest July 1 inventory since 1991. The number of cows and heifers that have calved was 1 percent less than a year earlier. The number of heifers held for beef cow herd replacement purposes (500 lbs. and over) declined 4.8 million head4 percent less than a year ago and about the same as the very low levels of the late 1980's. The U.S. beef cowherd is continuing to shrink.
Page 149 PREV PAGE TOP OF DOC Segment 1 Of 2 However, there were two categories that posted an increase or no change from year earlier levelsheifers held as dairy cow replacements were up nearly 3 percent and other heifers (feeder heifers) over 500 pounds were unchanged.
The 1999 calf crop was estimated to be 38.3 million head, a decline of 200,000 to 300,000 head from 1998 levels. The year-to-year decline in the calf crop was likely moderated by favorable conditions for calves born this past winter and spring. The size of the calf crop suggests that fed cattle slaughter in the second half of 2000 may be slightly larger than many analysts had previously forecast. Based on current inventories, cattle slaughter in 2000 will post year-to-year declines. Aggressive placements of cattle into feedlots and the smaller calf crop reduced the estimated July 1, 1999 feeder cattle supply outside of feedlots by nearly 700,000 head (1.6 percent) from a year earlier.
Cattle on feed in the U.S. increased 4 percent from a year earlier as of July 1, 1999. USDA reported that the July 1 feedlot inventory included 5 percent more steers and 3 percent more heifers than at the same time a year earlier. Placements of cattle into feedlots continued to surge in June as placements for the month increased 14 percent and 15 percent respectively for the United States and for the historically reported 7-States feedlots with a capacity of 1,000 head or more.
Most of the year-to-year increase in placements during June was feeder cattle weighing more than 700 pounds. Fed cattle marketed during June increased 5 to 6 percent above year-earlier and 1997 levels. Aggressive marketing kept the calculated number of cattle that have been on-feed for 120 days or more below a year ago. Still, fed cattle slaughter weights increased seasonally during recent weeks and are now essentially the same as weights a year ago.
Fed cattle prices are expected to moderate slightly in the coming weeks before increasing into year-end. Fed cattle prices in the Southern Plains averaged $59.12 and $61.33 during the third and fourth quarters of 1998, respectively. During the second half of 1999, slaughter steer and heifer prices are expected to increase about 5 percent compared to 1998 prices ($62 and $64.40 during the third and fourth quarters). During 2000, fed cattle prices should continue to increase above year-earlier levels as they continue to be supported by low feed grain prices, smaller feeder cattle supplies, and higher fed cattle prices.
Page 150 PREV PAGE TOP OF DOC Segment 1 Of 2 While this should cause a hint of a smile, beef producers have been battling this price situation for going on four years. Another ten months is a long time to hope, particularly if you are sitting across from your banker.
Mr. Chairman, the bottom line challenge beef producers face is, ''How do we improve demand?'' A close second is, ''What can we do to address those critical 'margin' issue that keep the nickels, dimes and quarters in our pockets while we continue our search for dollars of profit?''
By focusing on long-term solutions that keep that ray of hope shining at the end of the tunnel, there are policy areas that are currently being debated in Congress that if enacted, will keep agriculture profitability moving in the right direction.
An easy one is tax reform. I know there is a lot of debate regarding what is the right level of tax cuts and that the President will reportedly veto the package approved by Congress just prior to August recess. However, the tax measure approved includes provisions that are strongly supported by beef producers and their families, namely:
Death tax repeal
Capital gains reductionFarm and Ranch Risk Management Accounts
100 percent deductibility of health insurance premiums for the self-employed
Alternative Minimum Tax relief.
NCBA took to heart the challenge issued by House Agriculture Committee Chairman Combest and Ranking Minority Member Stenholm in their joint statement of March 8, 1999, which called on producers and the big packers to sit down together and work out a compromise on livestock market reporting. This directive helped break an ongoing stalemate between producers and packers that has restricted information flow throughout the beef marketing system and prevented price reporting from evolving to reflect changes in the way cattle are marketed.
Page 151 PREV PAGE TOP OF DOC Segment 1 Of 2 We certainly have appreciated the committee's leadership on this issue and look forward to working with all Members to ensure that mandatory price reporting becomes a reality before Congress adjourns this Fall.
Aggressive pursuit of solutions to trade disputes, unfair trade restrictions and barriers to U.S. agricultural products is another key area. The WTO Ministerial meeting is a little over a month away. The frustrations with the European Union in particular begs for some hard-nosed discussions with some of our trading partners on what America not only expects, but will demand, to ensure continued support for international trade agreements by U.S. producers.
Regarding direct payments, NCBA has consistently supported assistance to producers to alleviate the impact of weather-related disasters. However, we have long opposed direct cash payments to any livestock sector to alleviate adverse market conditions. Direct payments to address economic conditions affecting all livestock producers do nothing to alleviate the supply/demand situation that typically is the root cause for low prices.
Additionally, when one livestock sector receives such payments, it creates inequities relative to other livestock commodities. Virtually all sectors of agriculture are facing tough times. NCBA has, and will, continue to support common sense efforts to restore viable market prices for beef, pork and other agricultural commodities through existing authorities and programs such as domestic feeding program purchases, foreign aid, GSM, Market Access Program (MAP) et cetera.
Mr. Chairman, silver bullets are hard to find. The impacts of unintended consequences that can result from government intervention are usually difficult to recover from. We strongly urge that careful and thorough economic, market and trade analyses of the impacts of any solutions that Congress might consider be completed before consideration begins.
Page 152 PREV PAGE TOP OF DOC Segment 1 Of 2 Testimony of John McNutt
Chairman Combest, Congressman Stenholm and members of the committee, my name is John McNutt and I am the president of the National Pork Producers Council (NPPC) and a pork producer from Iowa City, Iowa. I represent the NPPC, its 44 member State organizations and America's 85,000 pork producers.
Mr. Chairman, I would love to be able to tell this committee that America's pork producers had recovered from the nightmare of 1998, when live hog prices dropped to $8 per hundredweight, compared to a five-year average of $46.77.
Unfortunately, just the opposite is true. Thousands of independent pork producers like myself are still struggling to overcome an extended period of economic hardship few segments of U.S. agriculture have ever experienced. Pork producers have lost $4 billion since January 1998. This amounts to half of all producers' net worth and all of the profits made since 1991.
In August congressional testimony, Secretary Glickman vividly summarized our industry's problems, when he said: ''Looking ahead, prices for hogs, cattle, and field crops likely will remain low for the rest of 1999 and much of 2000, placing additional financial pressures on producers who specialize in the production of these commodities and are already highly leveraged.''
He went on to say that ''the hog market continues to be the most troubling area in the livestock and poultry complex,'' and that ''hog producers are suffering unusual financial difficulty and merit assistance.''
Few commodities have ever experienced the price swings that have pork producers so desperately worried about the future.
Between 1987 and 1997, pork exports increased 700 percent by volume and it seemed like exports were on a permanent upward track.
Page 153 PREV PAGE TOP OF DOC Segment 1 Of 2 Domestic consumption in 1998 exceeded 1997 totals on a per person basis by 8.4 percent. Based on USDA data, this consumption occurred at retail prices that were only slightly lower than in 1997. That's the largest increase on record.
The average American consumed 5 pounds more of pork in 1998, the only meat protein registering any significant increase in consumption.
An expanding export market sent average wholesale prices for hogs above $50 per hundredweight in both 1996 and 1997. High prices in turn sent a signal to U.S. producers to increase production, which they did by 10.1 percent in 1998. Hog slaughter in 1998 exceeded 100 million head and pork production exceeded 19 billion pounds, both records.
Pork producers of all sizes were responsible for the increase in production. A study by researchers at the University of Missouri and Iowa State University found that, as of April, 1998, producers selling fewer than 50,000 head per year and those selling more than 50,000 head per year planned to increase production by 7.99 and 5.44 million head, respectively. The actual total increase was not as much as the planned 13.43 million. Which group carried out their plans more completely is unknown, but it is probable that the two groups were equally responsible for the increased production in 1998.
Since June, 1997 37,000 head of daily slaughter capacity has been lost due to the closure of three packing plants (IBPCouncil Bluffs, IA; Dakota PorkHuron, SD; and Thorn Apple ValleyDetroit, MI) along with the permanent loss of one shift at the SmithfieldBladen County, NC plant. Coupled with a large number of Canadian hogs (65,000100,000a 37 percent increase from 1997) trucked to the U.S. for slaughter each week, the number of live hogs exceeded the 383,000 daily slaughter capacity of U.S. plants from September through December, 1998. The slaughter capacity utilization rate was the highest on record in 1998, exceeding even that of 1994.
On December 14, hog prices dropped below $10 for the first time since 1955. Adjusted for inflation, prices were lower in December than they were during the Great Depression. The average for the entire month of December was $15 per hundredweight. Compared to the five-year average price for hogs, $46.77, farmers were losing almost $80 per pig they took to market.
Page 154 PREV PAGE TOP OF DOC Segment 1 Of 2 The producers who had the economic means to survive that catastrophe have been slowly bleeding ever since without even a brief respite. While prices have quadrupled since they hit bottom, prices paid today at the slaughter plant door do not cover the cost of production for most. The accumulated suffering is quietly being played out in communities in every hog producing State, as good, efficient hog producers are forced to throw in the towel.
The outlook for the next 612 months is bleak. The anemic reduction in the breeding herd and the growth in productivity of the remaining herds means there will be ample supplies of hogs through the first half of 2000. Right now, the prediction is that hog prices will not reach profitable levels until the second half of 2000. Given the tremendous loses they have already absorbed, most producers simply cannot hang on that long.
I have read recently the opinions of some critics of our industry who callously maintain that pork producers brought suffering on themselves by overproducing, and only the market should provide the solution.
My answer is simple. Who among them predicted the collapse of the economy of U.S. pork's third largest customer: Russia? Our exports have dropped 97 percent to Russia from their peak. Should it be on the shoulders of a pork producer in Iowa or Texas to predict a cataclysm that the best tea leaf readers at the U.S. Department of the Treasury and the International Monetary Fund could not.
We believe that decisive action by this Congress can prevent the next wave of hog operations from going on the auction block and a further consolidation of our industry. NPPC has developed four initiatives that we believe will help pork producers immediately and for the future. These initiatives are designed to shock the hog market in the short term and help restore equilibrium over the long term, thereby reducing wild market swings and the dislocation they bring. We urge all members of the committee to support their inclusion in the farm assistance package pending before Congress.
Page 155 PREV PAGE TOP OF DOC Segment 1 Of 2 First, pork producers are requesting a one-time-only, direct cash infusion based on sales during the last quarter of 1998 (or other relevant period), with a $50,000 payment limitation applying. The $322 million earmarked for livestock and dairy assistance in the Senate emergency farm package to be spent at the Secretary's discretion, is fully inadequate compared to the $4 billion in equity lost by pork producers since 1998. We believe these payments, totaling $600 million, should be available to all producers, regardless of size, exactly like payments to grain farmers. The Small Hog Operations Program (SHOP) and the fiscal year 1999 Emergency Supplemental Appropriations Bill provided direct cash payments for economic loss assistance to pork producers, totaling approximately $150 million. While smaller producers have benefited from the funds made available thus far, many pork producers have not yet qualified for any cash assistance program
Second, the recently accepted funding for 50,000 tons of pork to Russia should be followed by another humanitarian aid package, of at least 50,000 metric tons, for shipment in the fall or early winter. Such a P.L 416 shipment would help reduce cold storage stocks and boost prices during a time of expected high supplies.
Third, pork producers believe a Humanitarian Inventory Assistance program, with the product being donated to needy countries, would help reduce the breeding herd now and bring much needed equilibrium to the hog market. Under this plan, USDA would purchase hogs from pork producers bidding production into the program. Successful bidders would have to operate at reduced production levels for a prescribed period of time. Packers would be allowed to process the animals during non-work hours (weekends, nights, etc.). All animals would be processed into carcasses, specific cuts or canned product for humanitarian distribution, thereby minimizing the impact on the domestic market.
And fourth, pork producers need your immediate support for their long-term survival. The USDA Under Secretary for Rural Development has pledged both technical and cost-share assistance in order to help pork producers form a national producer-owned cooperative(s), as well as to conduct an economic analysis of the feasibility of building and operating, processing and marketing operations. We urge Congress to provide $500,000 in the fiscal year 2000 agriculture appropriations bill to efficiently complete this economic analysis and $150 million to build and or expand new slaughter capacityonce the feasibility study is completed. Clearly, this action must be taken to provide the opportunity for independent pork producers to reposition themselves in the value chain to capture some of the record domestic and export value in the pork chain.
Page 156 PREV PAGE TOP OF DOC Segment 1 Of 2 As I speak here today, the future structure, control and ownership of the pork industry is being determined. The viability of a large number of professional, independent pork producers hangs in the balance. This economic reality is being played out in lenders' offices and around farm kitchen tables every day across the country. The bottom line is independent pork producers need a little help from you now to survive long enough to see light at the end of the low price tunnel.
Thank you for your time and attention and I would be happy to answer any questions committee members might have.
Testimony of Ronald Rayner
Mr. Chairman, thank you for holding this hearing today. I am Ron Rayner. I am a cotton producer from Goodyear, Arizona and I serve as president of the National Cotton Council. I appreciate the opportunity to discuss the economic crisis in the U.S. cotton industry, its causes, and our recommendations for Congressional action.
Mr. Chairman, much of the U.S. economy escaped relatively unscathed by the Asian economic crisis and enjoys continued prosperity. U.S. agriculture and the U.S. cotton industry were not so fortunate.
U.S. cotton prices are at a 14-year low, well below the cost of production, and international prices are just as depressed. There has been a dramatic decline in the worldwide demand for cotton, spurred primarily by the Asian economic crisis, but also caused by a significant increase in polyester production in Asia and the unpredictable cotton and textile policies of the People's Republic of China. Those policies converted China from a significant importer to an export competitor. U.S. Raw cotton exports declined by 45 percent in 1998 to the lowest level since 1985.
Demand for U.S. raw cotton by U.S. textile mills has declined even though American consumers are buying more cotton products at retail. In 1998, for example, U.S. imports of cotton textile and apparel products surged to 65 percent of total consumption as Asian textile producers, faced with depressed home markets, dumped surplus production onto the U.S. market (see attached chart).
Page 157 PREV PAGE TOP OF DOC Segment 1 Of 2 Farm income, on farms whose primary crop is cotton, will show a significant decline this year. This expected downturn in income follows on the heels of a very poor 1998.
Net farm income for 1999 is estimated by USDA to be $11 billion below 1996, and almost $5 billion below 1997. And those numbers for 1999 include $2.5 billion of extra Federal assistance contained in the 1998 emergency bill which was paid out in June 1999. Further, projections for the major commodities in 1999 anticipate a 12 percent decline from 1998. Meanwhile, costs of production have stayed relatively constant for 1998 and 1999 after escalating in 1996 and 1997.
A dramatic increase in commodity stocks since the 1995 season is another measure of the seriousness of the situation. For example, world cotton stocks are up 28 percent, which puts further pressure on prices and USDA has raised its projection of U.S. beginning stocks in 199900 by nearly 10 percent to 3.9 million bales.
With prices at levels well below the cost of production; with dramatic increases in imported cotton textile and apparel products displacing U.S. mill consumption; with continued subsidization of Chinese cotton production and export sales; and with an over-capacity of state controlled synthetic fiber production, the short-term situation is critical. We believe it is imperative that Congress provide immediate assistance to the U.S. cotton industry and to U.S. agriculture.
We believe the essential components of an effective relief package are: reinstatement of cotton's step 2 competitiveness program; substantial direct economic and disaster assistance payments to farmers; and elimination of limits on the marketing loan program to allow cotton and other commodities to move to market rather than to government inventory.
From 199096, cotton's competitiveness provisions worked well when conditions warranted. The funds available for Step 2 were capped at an arbitrary level in the 1996 farm bill and were exhausted in December 1998. Since then prices have fallen substantially and U.S. exporters are unable to compete in a world market featuring state trading, subsidized competition and over-supply.
Page 158 PREV PAGE TOP OF DOC Segment 1 Of 2 Reinstating Step 2 will help US exporters compete for markets and ensure U.S. domestic textile mills have access to competitively priced cotton. The increased consumption will boost prices for U.S. farmers and help alleviate the severe economic stress. The Congressional Budget Office has concluded that much of the cost of reinstating Step 2 will be offset by savings to the Commodity Credit Corporation in net lending costs as off-take increases and stocks decline.
The cotton industry and agriculture in general will also benefit from elimination of the limitation on marketing loan gains. As commodity prices continue to fall in the United States and around the world, producers and the Commodity Credit Corporation are feeling the impact of existing marketing assistance loan limits. If the limit on loan gains is not increased, we will see U.S. agricultural competitiveness decline and the Federal Government accumulate significant commodity stocks for the first time in 14 years. Loan forfeitures and the resulting large Federal stock accumulation will cause crop prices to fall even further, will increase Federal Government costs, will further exacerbate the economic strain being faced by farmers and ranchers, and will disrupt the marketing and pricing potential of next year's crops.
This is not a small farmer versus large farmer issue. The limit is cumulative on all crops, so it takes relatively few acres to trigger. Increasing the marketing assistance loan gain limitations is not an issue of cost either. It will ultimately save the Federal Government money because it will encourage marketing and discourage loan forfeitures. Because the modification will enhance the potential to market this year's crop this year, it will facilitate flow and help boost overall producer income.
I also want to clarify that LDPs or marketing loan gains are not payments in addition to loans. And large LDPs are caused by deteriorating prices. For example, if I accept this weeks 16.26 cents/lb. LDP, I cannot place that cotton into the loan. That cotton will then be sold on the cash market at current prices. Once I reach my limit, however, my only alternative is to place my remaining cotton under loan and forfeit, an alternative, I believe, that is contrary to sound policy.
Page 159 PREV PAGE TOP OF DOC Segment 1 Of 2 The very real threat of a large number of producers reaching their marketing assistance loan gain limits will impact marketing decisions across the country and among all commodities eligible for the marketing loan. The limitation needs to be increased, at the very least, and it needs to happen soon so that producers and merchants can continue to market the 1999 crop in an orderly fashion. If Congress is unable to eliminate the limitation under these very severe and unique circumstances, I hope you will consider authorizing the Secretary to issue marketing certificates to alleviate this situation.
The Senate considered various delivery mechanisms for the direct assistance provided in the emergency package. After careful review, cotton producers prefer an approach that utilizes the existing AMTA structure to deliver this assistance. The portion of the 1998 emergency assistance package that provided supplemental AMTA payments was implemented very quickly and efficiently by the Department of Agriculture. Even though cotton farmers were critical of the concept of decoupled payments in 1996 and recognize the various inequities, they have reluctantly concluded that timeliness and consistency of rules within the current crop year are imperative.
Mr. Chairman, we believe that the question whether farm policy should return to a production linkage, such as the deficiency payment program or other similar system, is a matter for future debate and consideration. We know members of this committee, for example, have devoted significant efforts to developing a more equitable distribution system. We are anxious to participate in a discussion about future farm policy, but sound, lasting policy is rarely developed under such dire circumstances as we face today. U.S. agriculture needs emergency assistance now and it should not be delayed by extensive debate over fundamental farm policy.
Even the significant agricultural assistance measures developed by the Senate and added to the fiscal 2000 agriculture appropriations bill will not fully restore farm profitability. However, they will help many farmers and ranchers survive an otherwise disasterous year.
Page 160 PREV PAGE TOP OF DOC Segment 1 Of 2 As you requested, I have attempted to outline the situation and outlook for U.S. cotton. Our industry believes the Senate package provides the essential components of effective, timely assistance. If additional funds become available, we certainly urge the Conference Committee to consider providing assistance for weather related crop losses for the Farm Service Agency so it can deliver programs in a timely manner, and for International market Development Programs administered by the Foreign Agricultural Service.
Thank you for the opportunity to present these comments on behalf of the U.S. cotton industry. We look forward to working with Congress and the administration to complete what the Senate has started.
Statement of Ryland Utlaut
Mr. Chairman, members of the committee, my name is Ryland Utlaut. My family and I grow corn and soybeans near Grand Pass, MO, and I currently serve as chairman of the National Corn Growers Association (NCGA), representing more than 30,000 farmer members nationwide.
Thank you for the opportunity to testify before the committee today. In early August, nearly 200 farmers visited Washington and told the story about the state of the farm economy. During that time, a NCGA task force, made up of growers across the nation, spent countless hours shaping NCGA's response to the current situation. I am happy to be here today to share our recommendations with Congress to deal with today's dire situation. Let me begin by first touching briefly on where we are today.
It's no secret to anyone in this room that the price of corn and other commodities has declined dramatically in recent years. Farmers received an average price of $3.24 per bushel for corn produced in 1995. That price dropped to $2.71 per bushel for 1996 corn and $2.43 for 1997 corn. The 1998 marketing year ended August 31 with an average price of $1.95 per bushel, and the U.S. Department of Agriculture, most recently, projected the price for 1999 corn to between $1.75 and $2.15 per bushel. Yesterday, I was bid by my elevator $1.69 per bushel.
Page 161 PREV PAGE TOP OF DOC Segment 1 Of 2 Our current problems are caused by a complex web of factors, not the least of which is weak worldwide demand compounded by ever-increasing U.S. stocks. Lately, it's been popular to pin all of our problems on the Freedom to Farm provisions of the 1996 farm bill. But Freedom to Farm did NOT cause the current economic crisis in agriculture and abandoning it is not the answer. The nation's corn growers continue to support a market-oriented approach to farm policyan approach that allows farmers to make the production decisions for their operations and focuses on building demand for corn both in the United States and abroad.
But if Freedom to Farm is going to work, there are other factors that need to fall into place. We need a commitment to research to keep us competitive in the future by unlocking new uses, maximizing production levels and preventing major disease problems. We need affordable, effective crop insurance tools to help us manage the risk inherent in an industry dependent on weather. We need a strong global economy and access to markets around the world. We need a tax system that allows us to keep a reasonable portion of what we own. We need viable, efficient transportation systems to best serve our customers at home and abroad. And because those things are not fully in place, America's farmers find ourselves in a very difficult position today.
Despite the fundamental soundness of Freedom to Farm, the current price situation underscores the fact that, regardless of how good a farm program is, there is always the possibility that farmers' cash income will not cover production costs and other expenses. In those cases, we need the Federal Government's help to address problems that are beyond farmers' control. That is why we are all here today.
Given the current state of the farm economy, there's clearly a need for assistance. The trick is how best to provide it. Farmers need immediate, short-term relief to help them weather the current crisis. But at the same time, we cannot lose sight of the importance of forward-thinking, long-term policies that will help us avoid future farm crises by building stable markets for our products both at home an abroad. That said, the recommendations I will outline for you will attempt to encompass both.
Page 162 PREV PAGE TOP OF DOC Segment 1 Of 2 To address the current economic crisis facing U.S. agriculture, NCGA urges Congress to take immediate action in the following areas:
Market Loss PaymentsSupport emergency market loss assistance to provide immediate, short-term relief for struggling farmers. Specifically, an emergency market loss payment equal to 100 percent of a producer's 1999 Agricultural Market Transition Act payment.
Payment LimitationSupport changes to the marketing assistance loan program to ensure that a producer's full production is eligible for loan deficiency payments (LDPs). Current payment limitation rules will severely restrict marketing options, increasing loan forfeitures and storage and interest costs.
Storage. Support the restoration of a storage facility loan program and enactment of an Orderly Marketing Program to provide short-term storage assistance without encouraging the stockpiling of grain. All corn would be eligible for the six-month program. Participating farmers would receive a sliding-scale payment of three cents for each bushel stored for the first two months, two cents per bushel for the third and forth months, and one cent per bushel for the fifth and sixth monthsor a maximum of 12 cents per bushel over 6 months.
Risk Management. Pass crop insurance reform legislation that increases affordable risk management options for all producers. The preferred means of doing this is by maximizing subsidies at the highest levels of coverage. To reinforce the importance of producer-driven risk management and provide financial assistance to producers, 1999 crop insurance premiums should be waived.
Trade. Loss of export sales due to the Asian economic crisis, unwise U.S. sanctions policies and trade protectionism against corn and corn products is a major contributor to today's price problems. Congress and the administration must take steps to restore export markets with a goal 2.5 billion bushels this marketing year. Specific actions that should be taken to achieve this goal include:
Page 163 PREV PAGE TOP OF DOC Segment 1 Of 2 reform of U.S. sanctions policies that restrict shipment of food, feed and medicine, with an immediate focus on lifting sanctions against Cuba;
support for China's accession to the World Trade Organization;
enhanced funding, support and use of international market development programs;
resolve trade disputes with Mexico regarding high fructose corn syrup;
responsive and aggressive implementation of food aid and donation programs in countries where this will build long-term demand and not disrupt commercial sales.
After Congress completes its work on current pressing legislation, producers and legislators must work together to avoid the problems being faced today and to ensure the viability of this nation's agriculture industry in the years to come. To this end, the NCGA urges Congress to concentrate its efforts on:
CRP and Acreage Idling. Oppose acreage idling efforts that will result in global shifts in production. Short term, mandatory idling proposals will not work. Congress should support full utilization of the Conservation Reserve Program at its current 36.4 million acre cap. In addition, NCGA recommends that continuous enrollment acres be fully supported and removed from the existing acreage cap.
Transportation. Support authorization and funding for needed improvements to the aging lock and dam system in order to help farmers ship their grain more efficiently and cost-effectively.
Ethanol Market Development. Support efforts to increase the use of clean-burning ethanol in reformulated gasoline, a move that could add 20 to 50 cents to the value of every bushel of corn grown in the United States.
Taxes . Support efforts for a more fair and equitable tax structure including; further capitol gains tax relief, repeal of the Federal estate tax, and immediate full deductibility of health insurance premiums.
Page 164 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. Chairman, Congress has the opportunity, through the pending Agriculture Appropriations Conference, to assist their farmers through a difficult time. NCGA was fortunate to have been given the opportunity to assist in the development of the Senate Farm Aid package and we feel that it is a step in the right direction for our producers.
As you know, the Senate version of the fiscal year 2000 Agriculture Appropriations bill (S. 1233), passed August 4, contains roughly $7.4 million in farm assistance. The bill includes a number of NCGA-supported provisions, including:
As mentioned earlier, a provision for direct payments to farmers equaling 100 percent of a producer's 1999 AMTA payment. For corn growers this equals 36 cents per bushel.
Funding to help producers purchase additional crop insurance coverage for the 2000 crop year.
A provision raising the cap on payment limitations in the loan deficiency program (LDP) from $75,000 to $150,000.
Also included in the bill, and critical to members of the NCGA, is a sanction reform amendment sponsored by Senators John Ashcroft (R-MO) and Chuck Hagel (R-NE). The amendment requires prior congressional approval before the President imposes unilateral sanctions that include agricultural products or medicine, and it also requires the President to cease implementation of such sanctions already in place.
Before I close, I would like to take this opportunity to thank the committee for their work on long-term risk management solutions. Specifically, NCGA supports this committee's efforts to provide long term risk management in the form of H.R. 2559, the Agricultural Risk Management Act of 1999. The $6 billion the bill provides for years 2001 through 2004 to boost subsidies for crop insurance premiums, expand the list of covered crops and provide incentives for developing new policies is crucial to today's farmers and demonstrates the committees understanding of the tools necessary for a prosperous farming economy. It is NCGA's hope that this measure will be considered before the full Congress soon.
Page 165 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. Chairman, members of the committee, the nation's corn growers thank you for holding this timely hearing and we appreciate the opportunity to express our views. I'd be happy to answer any questions or provide more details on the recommendations I've just outlined.
The need for Congress to pass an emergency assistance package is very real. Farmers throughout the country are struggling and the time to act is now. Many producers will not be able to sustain their farms and families on today's prices. We look forward to working with you in the weeks to come to fine-tune this vital package.
Testimony of Terry Detrick
Thank you, Mr. Chairman.
Let me begin by thanking the Chairman and Ranking Member for the opportunity to appear before the committee today.
My name is Terry Detrick, and I am a wheat farmer from Oklahoma. With my family, I operate a farm that has been in the family for generations. I currently serve as national vice-president of the National Association of Wheat Growers.
Like all wheat farmers across the nation, my family farm has been hit hard by the continued decline in wheat prices. According to the USDA, wheat prices have fallen over sixty percent since 1996 and are at an almost all time record low. Even more troubling is the fact that wheat prices have failed to match production costs for three years running.
The bottom line is simple: Wheat farmers across the Nation are in serious trouble. After years of struggling to get by, many have accumulated large debt, and without significant financial assistance, thousands will loose their operations this year.
The lost market compensation payments authorized last year by Congress as part of the fiscal year 1999 Omnibus Appropriations Act, distributed an additional 31 cents per contracted bushel of wheat. This financial assistance provided a much-needed boost to wheat farmers and kept many in business for one more year. However, this one time payment failed to solve the underlying problems that are forcing wheat farmers into bankruptcy.
Page 166 PREV PAGE TOP OF DOC Segment 1 Of 2 Current low prices are further complicated by weather related disasters across the nation's wheat producing regions. This year, farmers in Texas, Oklahoma, Kansas, and elsewhere were preparing to start harvest of the bulk of the nation's winter wheat before rains delayed operations for weeks. Likewise, many northern States received too much rain during the spring planting season. This kept many farmers out of their field's altogether and resulted in millions of acres left unplanted.
These weather related losses are further complicated by low participation in the Federal crop insurance program. While many wheat farmers have traditionally purchased Federal crop insurance, others have elected not to participate in the program for a variety of reasons. As part of last year's relief effort, Congress provided a significant discount to farmers who purchased crop insurance this year. This has greatly increased program participation in my home State.
It is the strong belief of the National Association of Wheat Growers that a long-term solution is needed, and needed now.
The first step towards this solution is the immediate passage of an emergency assistance package. Wheat farmers support the emergency package included in the Senate's fiscal year 2000 Agriculture Appropriations Act. However, Congress should also approve emergency disaster relief for farmers in areas effected by weather related crop failures in 1999.
The real solution, however, is much more long-term. The National Association of Wheat Growers has issued a Call to Action that outlines our priorities. A copy is attached to my prepared testimony. Let me share with you our three top long-term priorities.
We believe Congress should enact meaningful reforms and long-term improvements to the Federal crop insurance program this year. NAWG supports the forward-thinking reforms included in legislation reported by this committee prior to the August Congressional recess.
Page 167 PREV PAGE TOP OF DOC Segment 1 Of 2 Congress should also adopt legislation to reform U.S. sanction policy and open foreign markets to U.S. commodities and food products.
Finally, NAWG applauds the recent congressional effort to lower taxes and believes Congress should approve meaningful tax reform that eliminates the inheritance tax. Specifically, Congress should adopt the FARRM legislation authored by Senator Charles Grassley.
Again, let me thank the Chairman for this opportunity to share the wheat grower's perspective on the current farm condition. Let me again stress the need for immediate action. The problems we are facing are desperate and real. Many wheat farmers will go out of business this year. You have the opportunity to soften the blow; I encourage you to act on it and act on it now.
Testimony of United Fresh Fruit and Vegetable Association
Mr. Chairman, members of the committee, the United Fresh Fruit and Vegetable Association appreciates the opportunity to share with you our views on the crop and economic losses facing the U.S. produce industry. We also want to thank you for your interest in this critical issue and look forward to working with you over the coming months to ensure the concerns of the fruit and vegetable industry are fully addressed.
As the Washington based trade organization representing the views of producers, wholesalers, distributors, brokers and processors of fresh fruits and vegetables, we are very concerned about the impact of volatile economic conditions on the future viability of our industry. The produce industry, like other agricultural commodities, is facing excessive stress due to widespread environmental and economic factors. Many of the same issues facing major program crops such as reduced demand from Asia and Latin America, a strong U.S. dollar, persistent impediments to trade, in addition to disease infestation and adverse weather conditions are plaguing the produce industry. As such, any relief measure considered must provide adequate funding to fully and equitably address economic loses due to a number of factors presently facing fruit and vegetable growers such as disease infestation, natural disasters, unfair trade barriers, and competition from highly subsidized competitors.
Page 168 PREV PAGE TOP OF DOC Segment 1 Of 2 We very much support the $50 million included by the Senate in the fiscal year 2000 agriculture appropriations bill for the Secretary of Agriculture to administer a program to provide emergency and market loss assistance to fruit and vegetable producers. However, inasmuch as fruit and vegetable production losses far exceed $50 million, additional funding is critically needed to address the emergency needs facing growers across the country. The attached study prepared by Arizona State University examines major price and revenue losses of fruit and vegetable commodities over the past five years and clearly indicates the widespread economic impacts of recent shocks to the industry. According to the study, price declines over the past five years ranging from 53 percent for grapefruit to 1.3 percent for fresh oranges were reported. Additionally, according to State Departments of Agriculture across the nation, crop losses to the produce industry resulting from disease infestation and adverse weather conditions range from $90 million from the 1998 freeze in California which severely impacted crop production for Valencia oranges, tangerines, and grapefruits to $14 million in losses from Asiatic Citrus Canker infestation currently threatening Florida's citrus production.
In response to present disaster needs facing the industry, United strongly supports additional funding to address 1999 crop losses and emergency funding needs under existing Federal authorities. Some of the key losses identified and program needs that have been estimated in consultation with industry and State and Federal departments of agriculture include the following:
Citrus Freeze. $90 million is needed to assist citrus growers in California who suffered crop losses due to the 1998 freeze. These producers were not eligible for assistance provided to other producers who incurred similar losses due to technicalities under 1998 Disaster Assistance statue.
Citrus Canker. $14 million is needed to compensate citrus growers who have lost trees due to Asiatic Citrus Canker, which is presently threatening the industry.
Page 169 PREV PAGE TOP OF DOC Segment 1 Of 2 Spotted Wilt Virus. $20 million is needed to assist fruit and vegetable growers who have lost crops due to the Spotted Wilt Virus. Currently there is not effective treatment of control measure to combat this devastating disease.
Pierce's Disease/Glass-winged Sharpshooter. $4 million is needed for research and to support eradication efforts of a new pest recently introduced into California the Glass-winged Sharpshooter which has caused Pierce's Disease and devastated a large portion of California's grape, citrus and almond crop.
Pest Eradication and Detection. $75 million is needed to allow USDA's Animal Plant and Health Inspection Service (APHIS) to begin to effectively combat invasive pests and disease which has resulted in complete losses and yield reductions within the produce industry. Over the last year, extensive damage has resulted in millions of dollars in crop losses to fruit and vegetable growers. Additionally, $50 million has been recommended by the recent National Plant Board Report, ''Safeguarding American Plant Resources.''
Commodity Purchases$30 million has been requested in increased purchases of fruits and vegetables under USDA Foreign Agriculture Service food assistance programs to provide market relief for depressed produce commodities.
Market Access Program (MAP). Increased funding is needed under the MAP program to enhance export trade capabilities and develop international markets for fruit and vegetable growers.
Food Quality Protection Act (FQPA). $10 million in research funding is needed to develop effective, feasible, safe alternatives to vital pesticides used in the production of fruits and vegetables that presently have no alternatives and may be canceled under FQPA.
Mr. Chairman, these are just some of the major areas in which the industry has specific needs. We also expect that additional damages will be reported as a result of recent natural disasters such as Hurricane Floyd.
Page 170 PREV PAGE TOP OF DOC Segment 1 Of 2 As you work over the coming weeks and months to examine the effectiveness of our present Farm Policy and consider emergency relief options, we trust that you will take in consideration issues of concern to the produce industry and continue to work with the industry to address its needs. Our growers are not unlike other producers who are facing many of the same challenges of depressed prices, natural disasters, and unfair trade barriers, among other economic factors. We very much appreciate your attention to the challenges facing the produce industry and looking forward to expanding upon this dialogue with you and other members of the committee during the coming months.
Statement of T. James Davis
I am submitting testimony today because I believe it is important for Congress to hear the difficulties farmers are currently facing in central Washington, and I am concerned that members of this distinguished committee have not heard that message clearly. A combination of factors have contributed to threaten the livelihood and economy of central Washington, from grain growers to the tree fruit industry.
As the current president of Central Washington Grain Growers, Inc., wheat farmer, and fourth generation farmer in central Washington, I can tell you first hand that not only the livelihood of many farmers is at stake here, but because most of the economy in central Washington is based on agriculture, the livelihood of the region is at stake. I know when most folks from other areas of the country think of Washington State, they think of high employment, Microsoft, Boeing, and a burgeoning high-tech industry. I think it is important for Members of Congress to realize that is not the case across our State, and in fact the economic realities of central Washington is night and day from that of Seattle, which is on the west side of the State.
A combination of factors have contributed to threaten the central Washington's agriculture, and it will take a combination of actions to save it. I am extremely grateful that the committee is having important hearings to discuss the difficulties facing agriculture throughout the country, and your actions are very commendable. As Winston Churchill said; ''action this day,'' is necessary, and I believe these hearings are a good first-step.
Page 171 PREV PAGE TOP OF DOC Segment 1 Of 2 I would like to outline just a few actions that I think Congress and the U.S. Government can and should do. I would like be of additional help, but until I can spend less time on my combine, and more time trying to effect policy, I'll have to leave it at this.
First of all, many thanks to Congress for its consideration of emergency supplemental funds to aid our struggling farmers. Unfortunately, as I understand the current proposal, only $50 million for the entire country will be made available, likely through low-interest loans, to the ''minor crops and vegetables.'' The apple growers in central Washington would have to compete for those very limited funds with a very large pool of growers across the country, and I just can't see how that small amount of money, spread so thin, can offer the kind of relief that is needed. To put that in perspective, I am told that Chelan County's apple industry alone has suffered by $50 million. As some of these counties in central Washington are now seeking declarations of ''economic disaster counties,'' more must be done.
Second, Congress must better consider the implications of the FAIR Act of 1995, promoted as a freedom to farm initiative. This flexibility may have a practical application in the low rainfall regions of eastern Washington if alternative crops could be successfully grown in these 8- to 12-inch rainfall areas. There are, however, some substantial impediments to overcome if our members are to make a successful transition to what I will characterize as a ''market-oriented'' or de-regulated farm policy.
It is my observation that deregulation or if you are more comfortable with the terms re-regulation, take longer and require coordination of resources and compromise by stakeholders that is not fully appreciated by policy makers and regulators. These transitional issues may delay or forestall the intended benefits. Other industries have experienced the impacts of deregulatory change. Airlines, railroads, trucking, telecommunications, natural gas, and electric utilities, to name a few, have undergone or are in the process of instituting market oriented changes. With no exceptions have the proposed changes being implemented in those industries come as quickly or as smoothly as some observers optimistically forecasted.
Page 172 PREV PAGE TOP OF DOC Segment 1 Of 2 Is it reasonable to expect that an industry as large as the aggregated values of agriculture will be any more able to make the transition quicker and smoother than the other industries I have identified?
In each of those other industries a regulatory structure or regulatory compact existed that facilitated change. The regulatory framework for agriculture involves the Congress in design of farm programs, and the administration in the negotiation of trade policies. Both have much work to do if the freedom to farm concept is to succeed.
The Congress must pass fast track legislation. Other program shortfalls such as inadequate risk management tools and farm income safety net provisions must also be addressed. Fine-tuning is absolutely essential to the design of any effective public policy.
The forthcoming WTO negotiations in Seattle must allow American farmers access to world markets that are restricted by the trade distorting practices of other countries that are unfairly subsidizing their producers. Congress must make this point very clear with the administration.
If we as American producers and the cooperative that serve us cannot make a profithow sad and how painful it will be for us family farmers to know that the food America consumes will not be coming from an American farm.
"The Official Committee record contains additional material here."
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