SPEAKERS CONTENTS INSERTS
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REVIEW OF THE FARM ECONOMY
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SEPTEMBER 18, 1999, HUTCHINSON, KS
Serial No. 10635
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 DOCMICHAEL 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 DOCLEONARD 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
Barett, Hon. Bill, a Representative in Congress from the State of Nebraska, opening statement
Stenholm, Hon. Charles W., a Representative in Congress from the State of Texas, opening statement
Collins, Keith, Chief Economist, U.S. Department of Agriculture
Page 5 PREV PAGE TOP OF DOC Drabenstott, Mark, Vice-President and Director, Center for the Study of Rural America, Kansas City Federal Reserve Board
Giessel, Tom, Kansas Farmers Union
Glickman, Hon. Dan, Secretary, U.S. Department of Agriculture
Griebel, John, farmer, Stockton, KS
Hobleman, Deanna, Women Involved in Farm Economics
Managan, Steve, livestock producer
Nichols, Mark, cotton producer
Schmidt, Gordon, corn and wheat producer
States, Carolyn, Kansas Farm Bureau
Stoskopf, Dean, farmer
Allen, Duan and Sharon, Stafford, KS, statement
Angell, Elmer and Lorena, Medicine Lodge, KS, statement
Beachner, Eugene, St. Paul, KS, statement
Bortz, Barry, Pratt County, KS, statement
Page 6 PREV PAGE TOP OF DOC Dreitz, John, Plains, KS, statement
Hixson, Larry, WaKeeney, KS, statement
Hoffman, Darwin N., Tribune, KS, statement
Kansas Livestock Association, statement
Kansas National Farmers Organization, statement
McBee, Gary, Dighton, KS, statement
Meisinger, Mark, Marion, KS, statement
Smedley, Cliff, Johnson, KS, statement
Stuckey, Carolyn, Inman, KS, statement
Stuckey, Ron, Inman, KS, statement
Swearington, Eugene, Hiawatha, KS, statement
Woolf, Charles, Macksville, KS, statement
REVIEW OF FARM ECONOMY
SATURDAY, SEPTEMBER 18, 1999
House of Representatives,
Committee on Agriculture,
The committee met, pursuant to call, at 10:01 a.m., at the Kansas State Fair Grounds, 4-H Encampment Building, Hutchinson, KS. Hon. Bill Barrett, (vice chairman of the committee) presiding.
Present: Representatives Lucas of Oklahoma, Moran, Schaffer, Gutknecht, Simpson, Stenholm, and Boswell.
Page 7 PREV PAGE TOP OF DOC Also present: Representative Latham.
Staff present: Michael Neruda, Hunter Moorehead, and Andy Johnson.
OPENING STATEMENT OF HON. BILL BARRETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA
Mr. BARRETT. The hearing of the Committee on Agriculture to review the agriculture economy will now come to order.
Good morning. My name is Bill Barrett. I am from your neighboring State of Nebraska and I have the honor of chairing this committee hearing. The Chairman of the House Agriculture Committee is unable to be with us today. He had planned to be here but his wife is having a little minor dental surgery and I think his priorities are perhaps in the right place, but he asked me to extend to you his regrets and that he wanted to be here. Perhaps he could come back at a later time.
This is an important hearing. I want to personally thank Congressman Jerry Moran for the arrangements that he has made in making certain that his colleagues on the Agriculture Committee get to Hutchinson and participate in this event. This is not the first time the Agriculture Committee has come to Kansas. I believe Pat Roberts brought this committee in 1995 to perhaps Dodge City, if I remember, to discuss some issues at that particular time. So Jerry is to be commended and, by the way, he's doing a great job for you folks from Kansas. [Applause.]
I also want to take a moment to thank Agriculture Secretary Dan Glickman for his presence here today. Dan needs no introduction to you folks, but I would hasten to add that Dan served a very distinguished 18-year career on this Agriculture Committee. I had the privilege of serving with him part of that time. I respected him very much. I continue to respect him to this day. I think he is doing a good job and I am glad Dan brought members of his staff with him today, Mr. Collins and, of course, Mr. Drabenstott, as well, from the Federal Reserve.
Page 8 PREV PAGE TOP OF DOC We are here today to reach the producers who are affected by the current farm crisis and to determine its effects on the farming economy. It's always enjoyable to visit with farmers and ranchers on their own home turf as opposed to meeting them in Washington, DC. It's impossible for most of you folks to get to DC for hearings because you're too busy trying to make a living and you are too busy with the demands of farming today to get there.
Also, I am thankful that college football is now in the air. We Cornhuskers cannot wait to get a piece of Kansas State. And if that's not enough, folks, the gentleman to my right, the ranking minority member of the Agriculture Committee continues to remind me of how Texas A&M got a piece of Nebraska last year, as well as Kansas State.
We have a very distinguished contingent of Members of Congress today in Hutchinson which truly, I think, expresses the interest and the concern that members of the Agriculture Committee have regarding the condition of agriculture. We do have a ranking member of the Agriculture Committee. I just identified him, the gentleman to my right, a very well-respected, knowledgeable person that we all enjoy being around, from Texas, Charles Stenholm. [Applause.]
And joining us to my left is a very, very solid legislator, a former member of the Oklahoma Legislature, Mr. Frank Lucas. [Applause.]
You all know your own congressman, I hope, by now. Let me again say hi, Jerry Moran. [Applause.]
Mr. Leonard Boswell is with us representing, again, the minority, a newer member of the Agriculture Committee, doing a heck of a job, a former legislator from the State of Iowa State Legislature, Leonard Boswell. [Applause.]
And joining us from colorful Colorado is Mr. Bob Schaffer, another solid member of the Agriculture Committee. [Applause.]
In addition, we have a gentleman from Minnesota, member of the Agriculture Committee, who is our resident expert on dairy, Mr. Gil Gutknecht. [Applause.]
Page 9 PREV PAGE TOP OF DOC Another is your member of the Agriculture Committee, the gentleman from Idaho. He's big and he carries a lot of weight already in the Agriculture Committee, Mike Simpson. [Applause.]
We have finally with us, unless I have missed someone, the gentleman on the end who is a former member of the Agriculture Committee, now a member of the very powerful Appropriations Committee. He is in charge of agricultural appropriations. He carries the purse strings. I wish you would all take a moment to say hello to him before you get out of this room, Tom Latham. [Applause.]
Our producers have certainly long known the hardship and the struggle that comes from working the land, however, multiple years of adverse conditions and depressed prices have created market conditions for which farmers haven't seen since the 1980's. These conditions have caused an enormous strain on all of our producers and the strain is felt not only by our producers but throughout our communities as well.
Again, Chairman Combest hoped to be here, but in his absence let me suggest to you that Larry has announced this last week that he will begin holding farm policy hearings early next year across the country to engage in debate on farm policy, what should we do to make some changes, if anything, and we look forward to hearing from you.
We want input from all across the country, again, producers, agriculture business people, lenders and so forth. I think it's a very important step that the Agriculture Committee will be taking. It's very obvious that farmers are facing depressed prices due to a lower demand for farm products. Last year under similar circumstances Congress did pass an assistance package worth over $5.9 billion. This aid package did provide a much needed boost to farm economy, however, I do continue to believe that additional efforts may be made, need to be made, for a change. With the global markets constantly increasing, the importance of flexibility, I think Freedom to Farm has met that challenge by producing producers. It has offered farmers to compete on a more level field.
Page 10 PREV PAGE TOP OF DOC This field may be level but just as the rows in a field of corn, there can be highs and lows. As legislators and producers, we need to work together in times such as these to survive the low spots and return to the crest. Our farmers are the most important commodities that we have in America today. I look forward to working with my colleagues here, other members of the Agriculture Committee, to provide an adequate safety net that producers can depend on within the general principles of Freedom to Farm.
Thank you, again, Mr. Moran, for your hospitality and I am delighted to yield now to the distinguished ranking member of the committee for an opening statement. Mr. Stenholm.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman. I, too, am delighted to be here. We're here to listen and hopefully learn and to use this information in a productive way. Always delighted to be in the home State of my friend and Secretary of Agriculture, Mr. Glickman. I am delighted to be here. Let's get on with the hearing.
Mr. BARRETT. Thank you very much, Mr. Stenholm. The first panel at the table, our first witness is, of course, the Honorable Dan Glickman, Secretary of Agriculture. Mr. Glickman is accompanied by Dr. Keith Collins, the Chief Economist with the U.S. Department of Agriculture and, of course, we also have with the first panel, Mr. Mark Drabenstott, who has testified before this committee before. He's vice-president and director of the Center for the Study of Rural America. He's with the Federal Reserve Bank of Kansas City. Your printed statements, by the way, will be made a part of the record. Dan, we'll yield to you first.
STATEMENT OF HON. DAN GLICKMAN, SECRETARY, U.S. DEPARTMENT OF AGRICULTURE
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Mr. GLICKMAN. Thank you very much, Bill, and to the impressive group of Members which Jerry Moran has corralled here. I've never seen a field hearing with as many Members as this one and I think, Jerry, it's a tribute to you and your leadership on the committee and I want to thank, also, everyone else here, but particularly my friend, Charlie Stenholm, has been in this congressional district at least two times before and I appreciate his friendship and leadership.
I'd like to introduce some people out in the audience. One is my dad, Milton Glickman. He came to protect me. And the other, I don't know if he's going to be on one of the panels or not, but the chairman of the Commission on the 21st Century for Agriculture, Barry Flinchbaugh, I guess, is one of my mentors here. I'd like you to know Flinchbaugh, and he's trying to help us get ourselves out of this mess that we're in. I appreciate his friendship.
Keith Collins, who is here, will give the bulk of our testimony because Keith has been in the department for many, many years and has as good an understanding of the rural farm situation as anybody I've ever met, but we also have our State folks here, our State Director of the Farm Service Agency, Adrian Polansky, is here. Our State Director of Rural Development, Bill Kirk, is here. I do not knowis Thomas Dominguez here? There he is. We have an awful lot of other employees who are here.
I have had the opportunity and privilege of testifying before this committee earlier this week and so these folks have all heard this before and, therefore, I will not repeat it. I am sure they're very pleased about it. I would like to make a couple quick comments which I have said and that is that with the general economy being the best probably since the Depression, the highest job creation, the lowest unemployment, the lowest interest rates, the highest home ownership, the unemployment rate in Kansas, for example has never been any lower than I believe it is at this current time. That's true almost everywhere in the country.
Page 12 PREV PAGE TOP OF DOC Then you have part of the economy that is not celebrating in that great revival. That's the farm economy, the agriculture economy. There are a lot of reasons for it that I am sure Keith and Mark will talk about it. One of it is that we're in the fourth year of worldwide record crop production everywhere in the world and even with the weather problems that we're having in the east coast and the drought that has affected the east coast and some parts of this part of the country, by and large, production is up everywhere for just aboutI mean, that's maybe overstating it a bit, but that certainly is part of the problem, and you couple that with the fact that demand for our products overseas has been weaker in Asia and Latin America particularly, it has created a real serious problem for domestic agriculture. Then you have other situations like international currency fluctuations where our value of our dollar with respect to other currencies has created a disincentive for countries to buy our products.
Now, notwithstanding thatand we very much strongly support an emergency assistance package which I understand the Congress will take up next week and I don't know whether it's going to get finished or not next week, but that package will have several billion dollars' worth of both income assistance as well as natural disaster assistance to take care of the people who have been hurt by the current weather problems and that package, we strongly believe working together, can get passed by the end of this fiscal year and those payments can go out in a formula that is fair.
We have some differences of opinion with the Senate bill which would make most of the payments supplemental AMTA payments and we're not sure that that is the fairest way to get those income assistance payments out because a lot of folks will be getting payments who had no production at all and, therefore, did not suffer any losses. But saying that, I am confident we can work those things out. We have to have a natural disaster component to this bill because, quite frankly, there are tens, if not hundreds of thousands, of farmers around the country who are either droughted out or flooded out who need that natural disaster assistance. As part of that package we've also proposed some crop insurance additions, expansion of the CRP and some salaries and expenses for USDA accounts. But I am confident that we will get an emergency package out working together with the Congress and that's something that's very important. The President feels very strongly about that as well. I would say that notwithstanding the current nature of the farm programs, direct payments to farmers this year, total payments, including crop insurance reimbursements, will near $18 billion which is, if not the highest 1-year Government payment in record, then it's close to it. There may have been one in the 1980's when you lap over two fiscal years. That includes market loss payments, AMTA payments, LDPs. We put out $3.7 billion in LDP payments this year. That's a twenty-fold increase in fiscal year 1998. In 1997 there were virtually no LDPs. This has grown dramatically. We put out $2 billion worth of payments, $1.3 billion in CRP contracts, $200 million in dairy market loss programs, $175 million in small hog operations. Our farm credit this year, we put out about $4 billion worth of farm loans. Demand for USDA credit this year is 70 percent higher than last year, largely because USDA tends to be the lender of last resort. A lot of people can't get financing the traditional ways and they will come to us for direct and guaranteed loans and the demand on us is astronomical largely because of the economic situation. Even with the problems in agriculture, there has been a huge Federal assistance program because of laws Congress passed and as implemented by the administration.
Page 13 PREV PAGE TOP OF DOC Now, in addition to that, with respect to other things I thought I might mention that this year USDA will have shipped out about 78 1/2 million metric tons of food aid which is more than 5 times what we did last year and the largest tonnage in about 30 years and that includes about 6 million tons of wheat and wheat flour that have been distributed to countries like Russia and the African continent and South Asia. That includes about 850,000 tons of corn, 800,000 tons of soybeans, 390,000 tons of rice plus poultry, pork and some beef, and that's flood relief for Kosovo refugees, family victims in North Korea. If you notice a few days ago the President announced some relief of sanctions to North Korea, but they have been getting significant amounts of food.
I guess my point is that one of the things I've been instructed to do as a way to get rid of surplus commodities is to try to donate as much as we can to needy people around the world and that amount is, as I said, 5 times greater than we did last year and about 3 1/2 times greater than the average in the last 10 years, so that is a very significant part and that will continue.
In addition to that, our credit guarantee programs jumped 40 percent to top about $4 billion of credits, GSM credits on export sales this year. The act remains strong and even though exports in value have gone down a little bit, in volume we're about the same or slightly higher. That is, prices are lower. We're still getting as much in exports out, but the value of them is down because of some of these other factors that I have talked about. So the idea here is to continue to do those things that we possibly can do but I would have to tell you, world agriculture is also suffering in kind of the same way U.S. agriculture is suffering.
Exports are a big part of the safety net, but I think we've learned in the last few years, exports are not the only part of the safety net. You can't rely exclusively on exports because world economic conditions go up and down and, therefore, you have to have a strong domestic safety net program to deal with the fluctuation whereby when exports are not sufficient, and that's one of the reasons why I was very pleased to see that Congressman Combest has called for a review of the 1996 farm law and while I have not said that that law is the cause of all of our problems, because I don't believe it is, I think other factors have caused these problems. I do not believe that Law provides an adequate safety net when you have large surplusses and weak demand and, therefore, you needthat needs to be augmented, either through more effective crop insurance or else through a different kind of farm program that perhaps helps people through income type of adjustment. Congressman Stenholm has taken the leadership in that and we have basically endorsed his proposal to try to look back through the years and help farmers with some stability by providing them some form of an assistance package based upon historical production, historical yield and income related things. So we will certainly work with them on this situation, but we've got a lot of challenges in agriculture.
Page 14 PREV PAGE TOP OF DOC I think working together with the Congress we're going to be able to work through those challenges, but I think it is worthwhile pointing out that with about the $17 to $18 billion worth of direct payments that USDA Commodity Credit Corporation has made this year coupled with the multi-billion dollars' worth of food assistance package that are out there as well as most of our credit guarantees, we are trying to engage this problem in the most aggressive way possible and I know there's a lot to be done in the future and I know that this hearing will provide some opportunity to look at what are other things that we can be doing to try to increase farm income during these difficult times, and, Mr. Chairman, I would ask if Mr. Collins could now perhaps complete the USDA message, if possible.
Mr. BARRETT. Thank you, Mr. Secretary. Mr. Collins, please proceed.
STATEMENT OF KEITH COLLINS, CHIEF ECONOMIST, U.S. DEPARTMENT OF AGRICULTURE
Mr. COLLINS. Thank you very much, Mr. Chairman and Mr. Secretary. I would represent the Secretary's observation that to see nine Members of the House of Representatives here today is a tremendous commitment to hearing the problems of American agriculture directly from the people experiencing it here in Kansas. I know that from looking at the program here today you're going to hear from people who drive tractors. Mark Drabenstott and I do not. Perhaps the two of us in our few minutes of oral comments can provide some observations from looking at the national data and the regional data of what we think is happening in American agriculture today. I think there is a great deal of public interest in what's happening to agriculture and there are general questions about how bad the farm economy is. Is it as bad as some people are hearing? And there's general questions about what should be done about it and how big an assistance package should be made available, and I'd like to address those questions for just a couple of minutes.
Page 15 PREV PAGE TOP OF DOC First of all, regarding the question of how bad things are in agriculture, as economists we have definitions of what a recession is in the overall economy. It's two quarters of gross domestic product growth. But we don't have definitions of growth.
One of the things I've looked at is in trying to judge just how weak the agriculture markets are today compared to the history of the 20th century, and if you look at the receipts that farmers get from the marketplace and compare that to what they've averaged over the previous 5 years and do that for every year in the 20th century, you find something pretty surprising. Since 1957 there's only been one year when cash receipts from agriculture were below the previous 5 years and that was in 1986. Our projections for the 19992000 crop year would make that the second year. If you look at the whole history of the 20th century, cash receipts fell below the previous 5 years, only right after World War I when demand fell off, during the Great Depression in World War II, in the 1950's, in the 1980's and here again in 1999. So that tells me that the market is extraordinarily weak.
Now, fortunately, Government has been able to make a lot of payments, as the Secretary noted, and that has helped shore up the farm situation quite a bit.
Well, why has the market gotten so weak here in 1998 and 1999? Well, one thing has been the drought, disease, pests and flood problems that we've had in America for 2 years. This year alone the Secretary has declared an emergency in all or part of 29 States. Our current estimate of the losses due to the drought in the middle Atlantic and Northeastern States is $1.3 billion. Our current estimates of losses due to the floods and excessive moisture in North Dakota, Minnesota is $400 million and so these are losses on top of the normal things that happen in agriculture every year where we have a couple of billion dollars in losses ordinarily.
The second major factor that's causing this problem is the large increase in global production that we've seen over the last 4 years and, of course, that's affected directly our exports. Probably all heard the data on exports. We had a record level of $60 billion in 1996. It's down to only $49 billion this year. For the year 2000 we're projecting a little increase to $50 billion but that's not much. Basically it suggests that we've flattened out or starting to come up.
Page 16 PREV PAGE TOP OF DOC I think there's good news in export volume. If you look at the export volume of commodities from 1993 to 1997, it averaged about 112 million tons. We're projecting 115 tons in the year 2000, so volume is coming up and it's coming up for most of our major commodities. In over the past year, wheat and wheat flour exports on a volume basis are up 13 percent, for example, and from a world point of view, for the first time in several years we're going to have consumption exceed production for wheat, for corn, for cotton and for rice. It's not true for oilseeds, but it's true for all of those other commodities, which means that world stocks are going to start to come down, so I think that's a positive development and it reflects improving Asian economies and I think to some extent the value of the dollar, which is coming down a little bit, but the U.S. situation shows the real problem we have with supplies and I'm not going to mention all of the commodities during my statement, but I will mention wheat.
The situation in wheat is troubling. We have the lowest production since 1972. Our September crops report showed 10 percent less wheat production. We have modest increase in demand, as I indicated, by exports going up. Yet, next June 1st we'll probably have nine hundred million bushels of wheat in storage at a season average price of $2.60. We have the fourth largest corn crop this year, the largest soybean crop ever. So our production is growing faster than what we can get out of increases in demand.
On the livestock side I don't think we're as universally bad as we are for crops. Milk receipts are looking fairly good. Broiler receipts are fairly good. Hogs, unfortunately, are terrible and seem to be staying that way and cattle, while we have some enthusiasm about stronger cattle prices, in late 1999 and year 2000, unfortunately, if you saw yesterday's report, we released the report at 3 o'clock yesterday afternoon, our Cattle on Feed Report, and much to the surprise of everyone it shows that placements in the feedlots during the month of August were up 17 percent year over year and so, unfortunately, I would say I'm still optimistic about cattle prices getting stronger but we're going to have enormous meat supplies through the rest of 1999 coming onto the markets.
Page 17 PREV PAGE TOP OF DOC Let me wrap up by just characterizing the overall, what I suggest as a recession in agriculture. It's a lot different than the one we had in the 1980's. Then we had high input prices like interest rates that caused a collapse in land values. We had high debts and it caused soaring debt-asset ratios, and we called that whole period in the eighties a credit crisis. Here in 1999 we don't have a credit crisis. What we have is a cash flow crisis, a cash flow crisis. To put that in perspective, receipts for farmers will be down $15 billion from the marketplace but net farm income, something we calculate as the Nation as a whole, is only down slightly and the reason for that is, I think, the Government payments the Secretary talked about. Government payments so far this year, the second highest in history, and if we have the assistance bill passed, disaster assistance bill passed this fall, then we'll probably set a record in Government payments. So that's a mitigating factor. That's helping the American agriculture with weak cash receipts.
There's also an obscuring factor that's going on and gets mixed up. That is we have some sector that are not doing too badly. I mentioned milk, broilers, fruits, vegetables, greenhouse, nursery. If you take all those commodities I just mentioned and add up the farm receipts from those commodities in 1999, they'll be $12 billion higher than they were in 1995, so that's offsetting, that's obscuring what's happening in field crop agriculture.
Let me end by giving you a calculation that I've done. I've looked ahead to the 19992000 crop year and I've computed farm income on a crop basis for wheat, for feed grains, for soybeans, for rice and for cotton and when I do thatprojected farm income based on our September crop report for the 19992000 marketing year would be down 19 percent from 1998 and down 33 percent from the average of 1993 to 1997. So despite what the aggregate factors might show, if you look at field cropsand I could throw in hogsyou see prospects for a dramatic drop in farm income. To put this in a different perspective, in nominal dollar terms the projected net income for field crops for the 19992000 year is $7.7 billion below the average of 1993 to 1997.
Page 18 PREV PAGE TOP OF DOC Now, what's in the Senate emergency assistance bill would be about $6 billion for major field crops and that would compensate about 80 percent of the drop in income below the average of the mid 1990's.
Lastly, let me say that there are a number of factors that will shape the markets as we look ahead that are still unknown, the pace of the recovery that's going on in Asia and other areas of the world, the export policy of China which are dramatically affecting cotton and import price things, the commodities of other countries. The details of the emergency assistance package which is yet to be worked out and, of course, the dominant factor always, global weather.
Right now I think the farm economy would benefit from three types of actions. The first is direct financial assistance, the second would be actions that could help move some of the imbalanced markets toward greater balance and, of course, that's a tricky thing to do and, third, actions that help reduce and improve producers' production, risk management and marketing practices.
With that, I'll conclude. Thank you very much, Mr. Chairman.
Mr. BARRETT. Thank you, Mr. Collins. Mr. Drabenstott.
STATEMENT OF MARK DRABENSTOTT, VICE-PRESIDENT AND DIRECTOR, CENTER FOR THE STUDY OF RURAL AMERICA, KANSAS CITY FEDERAL RESERVE BOARD
Mr. DRABENSTOTT. Thank you, Mr. Chairman. Good morning. It's a pleasure for me to be here. U.S. agriculture is in the midst of a sharp downturn. Yet, from a financial point of view things are not as bad as they may seem and given agriculture's cyclical nature, the current slump needs to be kept at a longer-term perspective, especially, I believe, from a policy point of view.
Page 19 PREV PAGE TOP OF DOC U.S. agriculture appears mired in a deep slump, yet, the sector's full range of economic indicators is more mixed and not yet resonating the full tilt recession we remember from the mid 1980's. Farm prices, as has already been noted, give the most bearish signal with crop prices testing lows not visited since the early 1970's as big supplies collide with weak demand, especially around the world. But farm income bears less evidence of a steep downturn. In total, agriculture is shaping up to have good income this year with Government payments, as has already been noted, making up what the market would otherwise take away. And farmland values, perhaps the closest thing to a Dow Jones Index for agriculture, are generally holding steady, suggesting more caution by farmers but also revealing remarkable resilience.
While farm signals are mixed overall, are there early warning signs that farm balance sheets and farm lender portfolios are headed for serious trouble? Financial indicators suggest farm credit problems generally remain manageable for many borrowers and lenders. For instance, the number of farmers with high leverage balance sheets and negative incomes, what we typically refer to as the most vulnerable category, is in the single digit range for the Nation as a whole while perhaps somewhat higher in states like Iowa where big pork losses have hurt incomes. Farm lenders, meanwhile, are in strong shape going into year-end loan reviews, although anxiety appears to be rising due to the number of farm cash flow statements in the red. Farm loan delinquencies have nudged up at commercial banks but the number remains very low compared with the mid 1980's. Moreover, agricultural banks have historically strong capital reserves and net earnings to guard against any further erosion in credit quality.
When you take all of this together, financial indicators suggest that most farmers are weathering this slump reasonably well. A small but significant group probably faces difficulty in upcoming loan reviews.
On that note, I think it's important to remember that what's true in aggregate is not necessarily true for individual farmers. There can be little doubt that some Government payment of the totals that were discussed already are reaching farmers that don't need it while some farmers may need assistance but get little.
Page 20 PREV PAGE TOP OF DOC Still, it appears that relatively few farmers will exit this year due to foreclosure. A big question going forward, of course, is whether the current downturn will turn into a financial crisis like the 1980's. Protracted weakness in farm cash flows could lead to lower land values, eroding balance sheets, and more widespread farm loan problems and this situation certainly bears watching. The outcome will depend on how quickly commodity markets turn around and the size of Government payments until they do and agriculture's financial stability in the period ahead may be much more sensitive than usual to Government payments.
The current downturn, however, it seems to me, also needs to be kept in a longer run perspective. By nature, agriculture is a cyclical business with ups and downs that can last years rather than months.
A lot of issues remain crucial, especially as participants respond to the downturn. In the long term, agriculture's surest path to prosperity is fostering growth in global demand and crafting policy that takes into account the broad structural changes sweeping agriculture today.
As policy matters respond to the current slump, I think four issues seem especially vital. First, grain stocks are not that big. Measured against annual use, total grain stocks amount to around 23 percent or about 3 months of grain. That's a long way from the huge pile of grain that hung over commodity markets in the mid 1980's. While the odds favor continued weakness in prices, there is the possibility that markets could improve.
Second, growth in global demand remains a crucial goal. No food exporter stands to gain more than the United States when world demand grows. No one else has the unmatched capacity and efficiency to serve markets that are growing. Thus, aid packages that bridge the down times may be needed but they should not distract or prevent efforts to grow our markets. The new WTO round will hold huge stakes for U.S. agriculture and reducing tariffs across the board is the surest ticket to U.S. farm prosperity.
Page 21 PREV PAGE TOP OF DOC Third, policy must adapt to a new agriculture. One of the biggest challenges facing policymakers today is deciding how to respond to the structural changes swirling throughout the industry. A tidal wave is changing how agriculture does business, who does business, and where it does business. This tidal wave is the spread of supply chains, a trend that some call industrialization. This new wave poses a whole new set of farm policy questions. What's the public role? Regulating an industry with fewer players, fewer markets and more contracts? What steps should policy take to help farmers stay in the new supply chain game? Addressing these questions may be more important to many farmers today than the next farm assistance package.
And, fourth, a broader approach to rural policy is needed. The changes swirling through agriculture today are literally redrawing the rural landscape. Supply chains are changing agriculture's geography, concentrating activity in relatively fewer places, and spotting a new economic revolution in rural America. Many rural places will still depend on commodity agriculture to be sure, but they will build their economic future with fewer farms, fewer banks and fewer businesses. On the other hand, some rural communities will hitch themselves to the brave new world of industrialized agriculture and supply chains, but relatively few communities may prosper in this world. Thus, agriculture policy alone, I believe, will not cure rural ills in the next century.
To be sure agricultural policy will remain a basic element of rural policy, yet, if policymakers want to shape the economic future of all of rural America, rural policy will need to encompass a much broader range of issues, and at a minimum, such issues need to begin to be identified.
Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Drabenstott appears at the conclusion of the hearing.]
Page 22 PREV PAGE TOP OF DOC Mr. BARRETT. Thank you, sir. I would remind the members of the committee that the 5-minute rule is now in effect in terms of questioning and we thank all members of the panel.
Dan, just going back to your comment aboutexcuse me, Mr. Secretaryabout the extraordinary expenditure by USDA and they are, there's no question about it. I recall during the mid-eighties the recession of that period of time, perhaps the expenditures were higher than that and in order for me and the committee and others not to be singing off of a different page, could we confirm those figures?
Mr. GLICKMAN. I think the numbers I've seen in this year, we are close to a record 1-year CCC expenditure, but during 1986, 1987 and 1988, because of the nature of how payments were made from one fiscal year to the other, those times were more difficult and over a 2-year period there were probably more dollars paid out but we're close to that right now.
Mr. BARRETT. Could we get a breakdown? Could we get numbers from USDA?
Mr. GLICKMAN. Yes. In fact, one of the big items is the LDPs, which when the farm bill was passed was estimated to be virtually nothing. This year we're approaching $4 billion in loan deficiency payments which are basically low price payments that were provided as a result of going to a full market-based economy without any real setaside authority, but I can get you that breakup.
Mr. COLLINS. If you'd like, I can give it to you off the top of my head.
Mr. GLICKMAN. Then thank God he's here.
Mr. COLLINS. We set the all-time record expenditure record for pricing income support activities in 1986 at $26 billion dollars. This year we're about $19 billion. That's fiscal year 1999. There's a second calculation that we sometimes look at and that's the direct payments to producers because those other figures include export activities and things like that. If you look at the direct payments to producers, the all-time record was $16.7 billion in 1987 and this year our current estimate based on the September crop reportthis is a calendar year estimateis $15 1/2 billion so that would be the second highest as well.
Page 23 PREV PAGE TOP OF DOC Mr. BARRETT. I appreciate that. Give us a breakdown, the whole committee. We have been hearing and talking about emergency assistance starting about $4 billion working all the way up to $16, now $17 billion for this year. We have caps. Where do we meet the caps?
Mr. GLICKMAN. Both the White House and the Congress are working within the confines of the budget laws that were passed, particularly the 1997 Budget Act where there are not only caps but there is a reluctance to go into the Social Security Trust Fund by either the White House or Congress to pay for other expenditures. So, quite frankly, that does limit the amount of money that can be spent on discretionary items like agriculture. However, we are in an emergency with respect to a lot of the kinds of spending that we need to do, so hopefully we will be able to get a fairly significant multi billion dollar package through that will live within thethat will not spend the Social Security Trust Fund and provide assistance to producers. I've said that we generally support the Senate numbers which are around $7 1/2 billion but if Congress in the next week or two will work its will to try to get as many dollars as they can within those limits. I would have to say again that it's imperative that that proposal take care of disaster assistance for those who have suffered drought or flood disaster. The Senate bill does not, and in addition to that, we do our bestwe're going to provide income loss assistance payments to producerswe do our best to assist producers who actually lost money this year rather than just relying on a formula established 3 years ago that was relying on a farmer's base acres that was established in the middle 1980's who may have not planted a crop or may have planted a different crop. So working within those confines, I'm hopeful we can get some assistance out.
Mr. BARRETT. But as we approach the $18 to $19 billion that you've spoken of, we're getting dangerously close to WTO caps.
Mr. GLICKMAN. Oh, those caps. I don't think we're close to those caps, no.
Page 24 PREV PAGE TOP OF DOC Mr. COLLINS. No, Mr. Chairman, we are not. Our total commodity limit is $19.9 billion. In addition to that, we have non-commodity specific limits of $9 1/2 billion. We've not yet decided where the last year's emergency payments go, but let's just suppose that they went into the commodities specific limits. That would give us a total of about something like $12 billion which would still give us plenty of room under the WTO limitation.
Mr. BARRETT. I thank you for that. My time has expired. Mr. Stenholm.
Mr. STENHOLM. Thank you, Mr. Chairman. About 9 months ago the oil patch had very serious problems. The oil producing nations decided to practice a normal business practice called inventory management. OPEC and non-OPEC nations agreed, rather loosely, to control their production in order that they might deal with their price problem. So far it is working. Prices of oil, October futures, $24. Mr. Drabenstott and Mr. Collins, what's wrong with that as a business practice to be followed perhaps by agriculture?
Mr. COLLINS. Well, if you just have a few producers and some exports as you might have in OPEC and if you can get them all to agree, you can raise prices. The problem in agriculture is you don't have just a few. You have a couple of million producers in the United States and you have millions more around the world.
Mr. STENHOLM. I want to specifically take the time to talk about international markets and the United States as one producer, not as multiple producers, but the United States, particularly when we start looking ahead to the next WTO round and the negotiations that will occur there and compare it to what we have previously thought and negotiated and the specific question which often gets thrown back supply management became a four letter word, but now inventory management seems to be maybe something that we can talk about but we can't if there is something wrong economically with what OPEC is doing.
Mr. COLLINS. You're distinguishing between production control and inventory management, I take it, in your question?
Page 25 PREV PAGE TOP OF DOC Mr. STENHOLM. Yes.
Mr. COLLINS. Production control has got lots of problems and I won't mention those. Inventory management, on the other hand, is something that's been proposed off and on over the years, such as an international buffer stock scheme, for example, where when supplies get large there would be a cooperation among the nation's producers to store and share among the costs of that storage to elevate prices. The problem with that has simply been a lack of will on the part of other exporters in the world to participate in such a thing, including in the United States, a lack of such will. I don't close the door on some type of an international food reserve perhaps that could be worked out, say, with the world food program and could be used for humanitarian assistance as well and I raise that issue because as we look out over the next 20 years, one of the things we do is an annual report on food aid needs and availability. We think there's going to be a substantially growing gap between what is being made available between humanitarian assistance by the major exporters and what is going to be needed by those who don't have the means to acquire it, and that's mainly Africa. I think there's economic merit to that kind of international buffer stock system.
Operationally, it's very difficult to operate. Who's going to bear the costs? When do you put grain into the reserve? When do you let grain out of the reserve? It sort of falls apart on the complexity of agreeing on those rules.
Mr. STENHOLM. Mr. Drabenstott, would you comment on this?
Mr. DRABENSTOTT. I would offer two comments, Congressman. The first is that there is an important distinction between inventory management and supply controls. Keith is quite right, the critical issue with inventory management is who pays the freight, and I think the question is how do you get U.S. taxpayers, let alone taxpayers in other countries, to agree to that and, secondly, with respect to OPEC, OPEC's strategy most commissions might agree might be successful in the short run, but in the long run supply controls have the effect of encouraging supply development in oil in non-OPEC countries, developing alternative forms of energy and encouraging conservation on the part of consumers around the world. So over the long term I think there are real doubts as to whether the OPEC oil cartel model is really a successful one if it's built strictly on supply controls.
Page 26 PREV PAGE TOP OF DOC Mr. STENHOLM. Let me say that the spirit in which I asked the questionand I appreciate your answeris in negotiations. I think we need to talk about this again. It's very difficult. We've been there, done that. It's very difficult, but I don't see any other real good answers for agriculture in this specific case unless we do have a will among producing nations to practice inventory management and I totally agree on the food assistance area. It shouldn't just be the United States. It ought to be the entire producing world that participates in that and that's why Chairman Combest and I have written you, Mr. Secretary, encouraging you in your leadership position to consider either a summit of producing nations to talk about this prior to or part of the WTO rank.
Mr. GLICKMAN. There actually is a worldwide food producers meeting in Rome in November and the FAO is sponsoring it. I think that's a very appropriate subject to discuss.
Mr. BARRETT. Thank you, Mr. Stenholm. The gentleman from Oklahoma, Mr. Lucas.
Mr. LUCAS. Thank you, Mr. Chairman, and, as always, when I have the opportunity to visit with the Secretary and the Chief Economist, I like to ask my questions that come up in my town meetings back home. One of theand I'll cover a little different ground today than the other day, gentlemen, but one of the questions that comes up often in my town meetings is that with regard to the Export Enhancement Program, why can't it be used to address things like the different fluctuations in currency values? Why can't it be used in the opening of first-time markets, those kind of things? What kind of analysis in regard to those issues does the Department do?
Mr. COLLINS. Well, Mr. Lucas, the main justification for the Export Enhancement Program has long been to meet the unfair competition of foreign countries. I think it probably could be used for alternative opportunities like the ones you mentioned, opening up first-time markets, and I think we've looked at that in the past. It's very difficult to turn that program on and off, for one specific sale, for example, and when you're doing it that way, it's very difficult to show that you're actually increasing exports very much because you might buy your way into one market, but if you're not using it broadly in all other markets, your competitors will move into those other markets that you're not concentrating on and take some share away there. And so I think it'syou step back and make a broader statement about the Export Enhancement Program. Generally, folks who have looked at it on economic grounds, including myself, have concluded that it's not a very cost effective tool, so that's sort of one set of economic conclusions that have been reached among lots of economists. That is, it causes imports to come in from Canada, it lowers worldwide prices, it causes more wheat to be consumed and less corn around the world, and it hurts corn exports and all that sort of stuff. But there's another set of reasons as well or justifications as well that can be looked at and that is sort of a strategic use, the policy and political use of it. Can it be used to put a cost on European unit? Can it be used to increase the cost to make them? Those are more difficult questions to answer, but you canI think you can find justifications for using the EEP, but I think on balance most of the analysis has shown it's not too effective.
Page 27 PREV PAGE TOP OF DOC Mr. LUCAS. The next question that comes from my constituents back home: Have the Europeans, the Canadians, Australians, have they lived up to the word of GAP and all other agreements that have been signed on it?
Mr. GLICKMAN. The fact is that the answer is no. Perhaps legalistically they've done it enough that we haven't been able to successfully bring or win a lot of some of these more exotic WTO cases, although we've taken them to court on things like beef hormones and bananas and things where we think they are not playing the game based on good scientific rules, but Australia and Canada still have basically a State board that exports their commodities where the value of transactions are hidden and they're not transparent and, therefore, we don't know what kind of subsidies they're using. In Europe, I think the figures show that about 80 percent of the world export subsidies for agriculture are practiced by the European union and less than 5 percent are practiced by the United States and, of course, that's one of our goals in the next WTO round is to get rid of these support trading subsidies.
One thing I'd mention about the EEP. What we've asked for is if we don't spend the money on EEP is to spend it on other export programs, but the Europeans subsidize their commodities overseas at a rate so much greater than we do that in order to use a competitive program we would have to quintuple or 25 times the amount of expenditures to have any good because of the lack of funds we have in there, even the ones we don't use. If I may add something, that's why we've decided, as opposed to EEP, to substantially and dramatically ratchet up food assistance but you're getting rid of more of the commodity than you would get rid of in EEP, much more, 10 times more, and at the same time you're targeting people who actually need the food rather than kind of categorically making sales where you bonus up the sales to people who may not actually need it.
Mr. BARRETT. Thank you. The gentleman from Iowa, Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Barrett, I appreciate you being here and, Jerry, thank you for inviting me to Kansas. It's good to be here.
Page 28 PREV PAGE TOP OF DOC I've got kind of a large district up in Iowa, goes from the Mississippi River almost to Missouri and just one county short. Another 25 miles I'd be river to river, and I grew up around Des Moines and I've got Iowa State University in Ames. We haven't been doing so good in football but we're coming back. In fact, we even, a couple few years ago, unexpectedly, one good afternoon, knocked off Nebraska.
Mr. BARRETT. Your time is up. [Laughter.]
Mr. BOSWELL. As you probably already figured out, I don't have to have this microphone.
Mr. STENHOLM. I yield the gentleman my additional time.
Mr. BOSWELL. I would like to continue, just for the fun of it, a little discussion on inventory management that Congressman Stenholm started on. We, too, have distinguished professors in our State in economics and so on. I won't say which one, but one made the comment, if we reduce production in our management, then Brazil is going to just increase and so what have we accomplished? We've just lost market. We've all said that? Yeah, we do. Well, the thought was throwed out there today. I had three forms cross my desk in the last couple weeks. Was thatwhen John Deere does inventory management and cuts back because the marketplace is not demanding it, they don't just keep producing so they'll go into a rest period or they'll cut back, and does so Case International, ha-haJohn Deere slowed down so do they buck up? Now, what I want you people that are smarter than me to address, if you could
Mr. GLICKMAN. That's the other two guys.
Mr. BOSWELL. You're the Secretary. You can direct it the way you want to. Why do we just assumeI'm guilty of it so I'm not pointing my finger at anybody and if I do, I'm pointing it at me too, that if we're below the cost of production then why do we think that some other country, if we start doing some management, is just going to jump in and overproduce for a loss? [Applause.].
Page 29 PREV PAGE TOP OF DOC I didn't know I had a following here today. Seriously, I'm wondering if you would address that because I hadn't thought of it. That idea came up in our forum and I'm anxious to kind of follow up on it, but as I have thought about it during a little windshield time, there might be some sense to it. I don't know. What do you think?
Mr. COLLINS. I guess the issue here is maybeput the question differently maybe. The first question might be why don't farmers themselves engage in inventory management when market gets weak just like John Deere engages in inventory management?
Mr. BOSWELL. That's an easy answer. There's a hundred of us here to answer that one.
Mr. COLLINS. What's the answer?
Mr. BOSWELL. Because our size of it psychologically. I don't think it makes a difference.
Mr. COLLINS. If you look at the variable cash expense of producing corn in the United States, our most recent survey showed it was $1.20 a bushel. Loan rate is a $1.89 a bushel. How do you cut back production when you can make more than your variable cash expenses at the loan rate? As a matter of fact, looks like what's happened with total acreage planted in the United States. Prices have fallen 50 percent over the last 2 years. Fifty percent decline in market prices, 1 percent decline in acreage planting. Farmers don't practice inventory management because their variable cash expenses are so low relative to their total expenses. I'm not saying their total expenses are low.
Give you another example, soybeans. Variable cash of soybeans are growing one-third. Out-of-pocket variable expenses are low and that's why people keep producing. That's historically been a problem in agriculture and that's one of the reasons people embrace the plan management that was recognized as a problem. You have to really get terribly low prices to drive people out of business to get acreage cutback and that's true in other countries in the world as well. Their variable cash expenses tend to be low too and so that's why you don't get that much cut back there either.
Page 30 PREV PAGE TOP OF DOC Mr. BARRETT. Mr. Drabenstott, did you have a quick comment?
Mr. DRABENSTOTT. Well, a quick comment would be that I think the lesson of the late eighties, early nineties is that when we take acreage out of production, other countries do expand the production, and to complete your story, if we do idle substantial acres in the U.S., John Deere will sell more tractors in Brazil.
Mr. GLICKMAN. Can I make one quick comment if I might? In the early eighties we had about 85 million acres in setaside and conservation authority which is about two timestwo and-a-half times almost what we have right now as part of the CRP and other types of authorities. There's no question that the current farm bill does not provide any acreage reduction or setaside authority. However, saying that, I do believe that there is a lot of fragile land out there that should not be in production and working with the Congress, I hope that we can get the caps lifted on CRP in order toCRP has beenwell, it's not a setaside program. It does have that effect, even though it's primarily a retirement program for conservation purposes. I think that would help some, but I would make two other comments.
Farmers, even with the issues that Mr. Collins talked about, do not have the tools to market that they used to have. For example, we do not have money to lend for on-farm storage anymore. Now, for a farmer to make sensible marketing decisions and if public and private storage facilities are totally filled up, we need to reexamine that, particularly in this area we're entering into with genetically engineered crops where you don't know what crop ought to go to one place and not going to pay for storage but the ability to store a crop gives a farmer, while not setaside privileges, gives him or her much greater authority to market during supply.
Second thing has to do with commodity loans. They're loans that all fall due in roughly the same time with no authority for the producer to actually extend those loans at his or her privilege, that adds to the inventory at the wrong periods of time. These are tools that you could reestablish without necessarily going back to rigid supply management.
Page 31 PREV PAGE TOP OF DOC Mr. BARRETT. Thank you. [Applause.]
Mr. MORAN. Let me use my first opportunity to thank you and the other members of the committee for coming here. It is significant that nine Members of Congress are in Hutchinson, KS today. We braved hurricanes, came thousands of miles, folks. I never thought as a Kansan I would ever expect my travel plans to be changed by a hurricane, but it happened this week, and these Members of Congress have lots of places, including with their families, that they would very much like to be and I think their participation here today demonstrates a real interest in trying to solve agriculture. All of these folks here on this panel are strong allies of the American farmer.
Also, let me thank Secretary Glickman for his presence here today. We are in his former congressional district back in 1992. I'm glad to know that I've learned from the best and anytime I have a tough crowd, Mr. Secretary, I bring my 83-year-old mother along just in case there'sand I'm sure
Mr. GLICKMAN. Your mother is not sitting next to my father, is she?
Mr. MORAN. I'm obviously going to have to work more on my repartee because you always have a comeback, but it is nice to have you here and express your support and interest in this hearing. And, finally, let me thank the farmers and ranchers who are present in this audience. I was hopeful that there would be a sizeable crowd in large part because I wanted to use this opportunity to convince my colleagues in Congress that the circumstances we face in Kansas and across America in agriculture in the business of farming and ranching are serious and that Kansans care a lot about these issues. They matter a lot to us. The survival of our way of life in our rural communities is dependent and I know there's a lot to be done in the field at this time of the year, but your presence in Hutchinson as well is very much appreciated by me as hopefully a statement to my colleagues that we in Kansas want to work closely with Members of Congress, members of the administration, and see if we can't improve the chances that there's going to be some profitability in farming in this country.
Page 32 PREV PAGE TOP OF DOC Just a couple of questions of these panelists. Mr. Drabenstott, when I first read your testimony, heard your testimony about farm income, on the other hand, doesn't show the steep downturn, thanks mainly to big Government payments, as I read that I thought, I guess you're telling us that things aren't as bad as they seem or that my constituents are telling me, but as I thought about that last phrase, thanks mainly to large Government payments, it dawned on me that that's more of a symptom of the fact and further evidence how difficult things are and as you would know and certainly members of this panel know, the ability to provide Government assistance in agriculture is, at best, an iffy circumstance year after year, and so initially I thought well, Mr. Drabenstott is here to tell us that things aren't too bad. I think your testimony highlights that they are and as we talk about farm income, I think we ought not lose sight of the size of the farm and the number of farmers which also has an impact upon the income per person. Part of agricultural policy, it seems to me, ought to be directed toward kind of the rural aspects of keeping rural America alive and keeping the number of farmers in business. As much as the farm income, we ought to be caring about the number of people who are able to engage in this profession.
Finally, your farmland values, do you have any evidence that outside investors have an impact on the stability that you find in farmland values such that it's not other farmers, that land is being purchased for other purposes?
Mr. DRABENSTOTT. Congressman, the answer to that question depends a lot on where you are. Obviously, in many parts of rural America, particularly those that are near major metropolitan areas, those that are near particularly scenic areas, there is active participation by farm investors. I think as you move further and deeper into farm country, you find that the farmland market is more driven by the farmer buying the farm next door and expanding the size of his operation. We track land values throughout our seven states in our Tenth Federal Reserve District and, clearly, as you move toward the mountain states of Colorado, you find more evidence of land values being held up by off-farm investors. It is still the case, though, that when you look at land values here in the State of Kansas our survey would suggest that over the past four quarters they've been essentially flat.
Page 33 PREV PAGE TOP OF DOC Mr. MORAN. Either Mr. Collins, Mr. Drabenstott, or Secretary Glickman, any thoughts about the impact of the continued concentration of agri business, either who farmers buy from or who they sell to, that having a consequence on the farm income?
Mr. GLICKMAN. I can't answer that question specifically. I will tell you that the trends toward consolidation are rapid and in some cases frightening, particularly in the livestock industry. We actually filed and lost a case we filed against IBP, but we have filed a case against Farmland and that involves a Kansas feedlot and then one against Excel dealing with issues of size and preferential pricing practices in the economics of consolidation taking place. There's probably no issue out there in American agriculture that emotionally has people more concerned than this trend towards concentration which is much more acute in the livestock industry than it is in the row crop side of the picture. I can't tell you right now what impact it actually has on farm income other than it has changed the way we produce hogs and chickens in this country dramatically, just a profound effect, and perhaps Mr. Collins may want to comment.
Mr. COLLINS. I'll address that generally. One of the things the Department of Justice looks at when they're going to review a merger in acquisition is they look right at the heart of that question you just asked. What is the effect on the price the farmer will pay for the import itself and look at two offsetting factors. First thing they look at is the efficiency that's going to be created by the merger and acquisition, say some input industry that's merged. Are they going to be become more efficient and be able to sell their products to farmers at a lower price and will farmers benefit or are they going to be more efficient and pass that on to farmers? That's one effect that can happen that can actually benefit farmers from concentration. On the other hand, it can work the other way to the extent that they've got market power and they can effect price through their sales or purchase decisions and exercise market power. That could disadvantage farmers.
Page 34 PREV PAGE TOP OF DOC So you have to look at whether there's going to be a competitive environment that's going to prevail and what the efficiency gains are going to look like. That doesn't answer your question specifically, but those are the very issues that are looked at in mergers and acquisitions.
I think the question of the meat packing industry now, there's been a lot of concern about the exercise of market power. There have been some studies that show there is market power being exercised but not necessarily illegally. That's what USDA has to deal with through the grain inspection package in stockyards.
Mr. MORAN. Thank you, Mr. Chairman.
Mr. BARRETT. I would remind members of the panel and our witnesses that we are trying to operate under the 5-minute rule. We do have two panels today and we have airplanes to catch starting at about 1 o'clock, so we'll try to stay within the constraints, our time constraints, but I think this is very good questioning, very good answers, and exceptionally good dialogue. We'll try to be a little loose, but please try to stay within that 5-minute rule. The lights are right in front of us.
Gentleman from colorful Colorado, Mr. Schaffer.
Mr. SCHAFFER. In the omnibus budget appropriations package in 1998 we spent considerable time over the merits of theI think it was $18 billion in the IMF appropriations and that appropriation occurred and it seemed to coincide withwell, the assistance that we provided Brazil seemed to coincide with a tremendous increase in production in Brazil, particularly in soybeans and beef, and I just want to ask about that. Coincidence doesn't always necessarily mean a cause and effect, but I would like to get the opinion of perhaps Mr. Drabenstott about the efficacy of basically U.S. assets being utilized in a way that help stabilize the economy of a country that we depend on and rely on and view as a trade partner but also becomes a competitor and an importeror an exporter, when it's become cheap beef and cheap soybeans?
Page 35 PREV PAGE TOP OF DOC Mr. DRABENSTOTT. You raise a good question. I don't have any specific evidence that the IMF assistance was tied todirectly to expansion in their agricultural production. They were a competitor before the IMF package and they will be one after. I think the reality is that in a global market, U.S. agriculture has a huge stake in seeing the global economy grow. We benefit as much or more than anybody else when the pie is growing and in general I was a strong supporter of that assistance because it seemed to make a lot of sense to try to help and particularly get the Asian economies back on their feet.
One other dimension that one has to bear in mind is that over the long run we are going to have growing competition from some other countries as a result of expanding trade. That may require over time some adjustments in our own agriculture, but when you look at it at the end of the day, I think there is no question that U.S. agriculture is a net beneficiary of steps to expand global trade.
Mr. SCHAFFER. Mr. Collins.
Mr. COLLINS. I think that's well said. I would agree with that completely. I think it's enormously important for us to help other countries of the world develop economically because I think on balance when you look at foreign countries as a whole, their food consumption will outstrip their food production capacity and us being a great provider and efficient provider of food should be able to benefit from that. We cannot just select out a country and not provide them that kind of assistance through the IMF just because they produce some commodities that compete with ours on the agricultural front. I think the general principle is help world economic growth.
Mr. SCHAFFER. Let me jump to the world trade rule, from our favor that has an impact of about $500 million a year, as I understand.
Mr. GLICKMAN. Two hundred million dollars actually.
Mr. SCHAFFER. Regardless, that decision went our way but we still seem to have problems with the European Union, which the world trade ruling allows us to retaliate in some sense.
Page 36 PREV PAGE TOP OF DOC Mr. GLICKMAN. We have retaliated against a lot of things, including some things that the French hold precious to them like goose liver, foie gras, which I doubt very many people in this room eat every day, but to them it's kind of a more spiritual food and they weren't really keen on what we did. I must tell you that the sanctions we've imposed on them, I think, are beginning to have some impact, but I'm not too optimistic that they're going to turn and change their minds anytime soon, but we won the case and we have to do what we have to do in order to retaliate. I mean, that's the way of the world. They're wrong on the issue but if they're not going to voluntarily accept our meat, which is wrong, then we've got to retaliate.
Mr. SCHAFFER. My final question is perhaps more of a commentary, but I'd like to hear your comment on it as well, and that is that I am impressed, frankly, with the Department of Agriculture and the commitment that you've shown to the Agriculture Committee and American farmers on trying to help farmers improve their financial standing, but there are a number of competing Federal imposed fixed costs of doing business that we see from several other Federal agencies, Fish and Wildlife Service with respect to endangered species, EPA with respect to the regulatory scheme on farmers and ranchers and, of course, the Internal Revenue Service when it comes to the tax policy. We have passed, I think, an important piece of legislation with respect to the tax policy that the President says he will nullify, but with respect to the other two, these regulatory issues, does the Department of Agriculture foresee any opportunity to help exercise some compassion for farmers with those agencies that don't deal with farmers?
Mr. GLICKMAN. I can give you two examples. One is the Food Quality Provision Act which has to do with basically removal of pesticides. We were designated with EPA to work through this licensing issue of pesticides and I'm comfortable that agriculture now has a seat at the table on this. When it comes to the Clean Water Action Plan to try to deal with pollution coming from large feedlots and even smaller feedlots, we were also designated in an equal role with EPA, so we are trying to provide productive agricultural input into these regulatory decisions.
Page 37 PREV PAGE TOP OF DOC Mr. SCHAFFER. Thank you.
Mr. BARRETT. The committee's expert on dairy issues. The gentleman from Minnesota, Mr. Gutknecht.
Mr. GUTKNECHT. Thank you, Mr. Chairman. That's a bit of a curse. I understand when we go back to Washington we're going to take up H.R. 1402 and have an interesting debate next week on dairy policy. I think the questions that need to be asked have been asked and I'll try not to use all my time because I think we do want to hear from the farmers and ranchers here in Kansas. I do want to share a couple of things because as the Secretary mentioned, hopefully next week we're going to take up some kind of a short-term program and I know that there are differences of opinion certainly on this panel and obviously within this room in terms of agricultural experts and farmers and ranchers in terms of what we can do in the short term.
Let me suggest a few things that I think we can do where I think there is at least an emerging consensus and one I think you've already touched on this extending the commodity loans for 6 months. Mr. Secretary, I think that would be a very good idea. At one time I did not actually think that, but we have a real big problem in the upper Midwest. We've got something like 550 million bushels of corn that's going to have to come into the market here in the next couple of months. The second point you raised about on-farm storage, I think they go hand-in-glove and I hope the Congress will take a serious look at both of those issues because in some respects our farmers are placed at a disadvantage. I've used the analogy, they go into the casino and they're playing cards against the big grain companies. The big grain companies not only know what cards they're holding but they know when they have to play them. In some respects, we place our producers
Thank you very much, but we do place our producers at a real competitive disadvantage and I hope we can take up those two issues and take a very serious look at them in the next several days. I think another issue that's come up everywhere I have been, and I suspect here, is I do think it's time for the Congress to take a serious look at some kind of a moratorium on agriculture mergers. [Applause.]
Page 38 PREV PAGE TOP OF DOC At least allow us and other public policymakers in Washington to sort out what this all means. I think there is agreement that there's going to be some kind of emergency cash infusion. As a member of the Budget Committee, I think I'm the only Member here who is both a member of the Agriculture Committee and the Finance Committee. I would take pleasure if we could do as much as possible before October 1. I think the only way we can do it is some kind of an agricultural extension. We're willing to work with you to come up with something. I think you've mentioned some problems that would create in terms of fairness. We're willing to work with you on that but the key would be to get this money on the way to our farmers and ranchers as soon as possible.
Another issue, and I think we're getting close to a conclusion that I hope we can do before the not too distant future, and I would love to see it done before October 1st and that's the whole issue of mandatory price reporting. It's a very powerful issue but one of the problems we have in the upper Midwest and I suspect even here in Kansas is that more and more of these contracts are tied to the spot market cash price and that is becoming so thinly traded that it really doesn't reflect, it seems to me, what may or may not be the correct pricing scheme and at least if our producers know what's happening out there they can perhaps make better decisions on how they're going to market their live animals.
Finally, and this is one that I hope you will respond to, Mr. Secretary, the whole idea of expanding CRP. Now, that has been a popular program. We have been somewhat critical of your agency from time to time about not making maximum use of the authorized acreage that we've given you and we hope we can work with you on some kind of perhaps an emergency CRP with perhaps as short as a 3-year sign-up to help us get through this and take some acreage out of production.
Those are some things I think we can do in a relatively short period to improve the overall plight of agriculture in America.
Page 39 PREV PAGE TOP OF DOC Longer term, I think there's a central question and I raised this the other day. I'm reminded of the Rodney Dangerfield line. He came home one night and his wife was packing and he said, ''What's the matter, dear?'' and she said, ''I'm leaving,'' and he said, ''Is there another man?'' and she looked at him and said, ''There must be.'' And I thinkand we're herecertainly I'm not here to defend Freedom to Farm. I think there are a number of things that at the time we passed it made perfect sense because we saw expanding opportunities worldwide for American farmers. As you mentioned, when you lose $11 billion of exports almost under any kind of programand I've already used my 5 minutes and I wasn't going to do that, I'm sorry.
Can I close with this question? I think this is the central question long term about agriculture. Can we create the counter cyclical program that will serve as a shock absorber to take some of those bumps out of the road? And it seems to me we've got to look long term at what kind of a farm program can we have to work as a counter cyclical absorber. Now, yield back.
Mr. BARRETT. Yield back what? I am pleased to yield to the newest member of the Agriculture Committee, the gentleman from Idaho, Mr. Simpson.
Mr. SIMPSON. That's why no one trusts politicians. They say they won't take their 5 minutes and then they run over.
Mr. Secretary, I asked you this during our agriculture hearings and I'd like to ask you again so that the people here have an opportunity to hear you respond. What priority is the administration placing on the agricultural policy in the upcoming Seattle Round of the World Trade Organization and what is the administration doing to make sure that priority is met when we go to Seattle?
Mr. GLICKMAN. Agriculture is the threshold substantive program to be dealt with in the next round of the World Trade Organization. While there are other important issues, telecommunications, insurance, Internet issues, service industries, agriculture is the one where the rest of the world still has the highest barriers to our products and the highest export subsidies. The priorities, I think, in the next round are, one, to get rid of and lower tariffs. We're the lowest tariff country in the world and we need to get the rest of the world down. Export subsidies, 80 percent of them are in the EU. We have less than 5 percent of them in this country. To deal with the state trading enterprises of Australia, Canada, other countries, to deal with the issues of sanitary and industries where other countries use unscientific reasons to keep the products out of the market, perhaps cultural likes and dislikes, and those are issues that are very high priority and I cannot imagine that you're going to have a successful round without it. Also, there's a successful resolution of those and other related problems.
Page 40 PREV PAGE TOP OF DOC Mr. SIMPSON. Thank you, Mr. Secretary. One other thing you've talked about is market consolidation and concentration of market which is a great deal of concern to my constituents and before I came to Congress I was a dentist, not a farmer. I was just a dumb old dentist and so let me ask a dumb old dentist question. We question whether market consolidation has had an effect on price and it seems to me the question is not that there's not enough money in agriculture total, it's just producers aren't getting a fair share of that money, but yet when I take my dental dollar and I go to the grocery store, that bread isn't any cheaper, the beef isn't any cheaper, and nothing else is any cheaper. What evidence would be required to show that market consolidation is, in fact, having an effect in monopolizing markets and consequently not making sureor not making sure that producers aren't getting their fair share and what can Congress do to address that in your opinion?
Mr. GLICKMAN. I can say answering that question is like pulling teeth. I think our economist will know more than I, but I will tell you an interesting anecdote and I mentioned this at the hearing, the single fastest growing part of American agriculture, when you look at whether it's in cooperatives or when you look at what kind of organizational structure, is in direct marketing, farmers markets. We now have over 3,000 in the United States compared to 1,000 in 1990. It's very profitable. It's also highly labor intensive. In fact, it's kind of interesting. Kansas used to be either the first or second largest producing StateI hate to say this in front of youof potatoes and onions. I'm sorry, but it was that way and we became a row crop State after the second world war and farm programs encouraged farmers not to grow specialty crops, but be that as it may, the reason why it's the fastest growing is because the farmerthere's not a lot of middle people between the farmer and the consumer in that thing. You direct market so you can kind of get what you want for the tomato or the apples or fresh fruits and vegetables or anything that's there. And the trick that we have to try to do in the next millennium in agriculture is give farmers more bargaining capability in that process. To date and over the last couple, three decades it's been kind of like the old Kevin Costner movie, if we grow it, they will buy it. The problem is they will determine what they will pay for it. We don't have any power of determining what we pay for it. Now, we have to figure out a way around that situation, either througheither using our antitrust laws more effectively or, in addition to that, finding other Americanisms, more effective use of cooperatives, these organizational tools, look at agriculture and figuring out are there options for farmers beyond just growing row crops to doing other things as well where they can get more into the direct marketing? That's the best answer I can give you. It does require enforcement of the Federal antitrust laws.
Page 41 PREV PAGE TOP OF DOC Mr. BARRETT. Thank you. The gentleman from Iowa, a former member of the Agriculture Committee, now a member of the Appropriations Committee, a very important man, Mr. Latham.
Mr. LATHAM. And when Iowa State beats Nebraska we'll talk about how important we really are. We are 20 this year.
For the audience here, I think one problem we have in agriculture is that at this table here you're looking at about a 100 percent of the farmers in the House of Representatives. Mr. Boswell, Mr. Lucas and myself are people who actually live on farms and make our living on the farm and in the House, I think that's about it actually and, I mean, I live in a town of a 158 people, Alexander, IA. I actually live in the suburbs outside of town farming and I think we have totalking about agriculture in rural communities, when I graduated from high school in 1966 there were 50 kids in my class. When my daughter graduated in 1995 there were 17 kids in her classand this was 1995. We're seeing long-term that there is a huge change in agriculture and now it's coming up that there's personal needs of kids, things like that that are really changing the whole rural community.
Mr. Secretary, and I have greatest personal respect for you and I consider you a very good friend and I know that the Office of Management and Budget in the White House makes you do things that sometimes you don't want to. I was caught by your earlier statement and I totally agree with you how important food assistance is and as an appropriator, I always look at all of the numbers. It's very troubling and I know you were somewhat not real proud of the budget that was brought to our committee this year and asked to be appropriated, but just truth in advertising, the administration, the Clinton-Gore administration, through Office of Management and Budget cut export credit guarantees by $215 million this year in their proposal. They cut P.L. 480, Food for Peace, by $95 million. They cut Food for Progress by $42 million and this is not you, but I know the green shades and the OMB are making you do it, but I think everyone should be aware of what we have restored in our bill, at least these cuts that were proposed by the administration. I think everybody should be aware that there's a real problem sometimes trying to get the truth out there.
Page 42 PREV PAGE TOP OF DOC Mr. GLICKMAN. What I would tell you is I think you're accurate as it relates to Food for Progress. The other items are what you would call estimated use items because they're withinlike, for example, the GSM programs are within the CCC revolving fund borrowing authority, so I have used that authority to greater amounts than what was actually estimated in the appropriations submissions.
Mr. LATHAM. We're talking about your proposal for 2000.
Mr. GLICKMAN. I understand that and the folks at OMB have to work with multi agencies, multi problems and we try to push, with your help, to get those numbers up where we can.
Mr. LATHAM. We also have to appropriate on the basis of what your request is and if we came there there would be $95 million less for Food for Peace, Food for Progress, $42 million, and less for guarantees.
Also, I hopefully have time here, but you had mentioned earlier about getting payments to people who really need them in the emergency assistance. Do you have a plan to do that? I'm very concerned. The last year from October, November, we had the money for people who had real disasters, crop disasters last year, and it was like two point $3 or $4 billion and that money wasn't distributed until this June and that'sit becomes very complicated in either department and if we change the whole system it would be next June before we get any money.
Mr. GLICKMAN. There were two parts of last year's disaster bill. The part on supplemental payments was out within 10 days to 2 weeks. The other part was the people who suffered natural disaster losses and the reason why it took so long is because Congress set up two pots of money. One was for multi-year disasters, for people who suffered at least three of the last 5 years, and the other was single-year disasters and then you put a cap on the amount. So what that meant I had to do was wait until every single farmer in America came in, proved their claim, so I'd figure out how much I had to allocate down from the amount. Now, I'm not telling you thatand, by the way, your foresight was that you put in enough money so we were able to get about 85 percent to everybody else. What we have to do, I agree with you, that both parts of this disaster program have to be such that they can be implemented quickly.
Page 43 PREV PAGE TOP OF DOC Mr. LATHAM. I agree.
Mr. BARRETT. All time has expired and I want to take this opportunity to thank the members of the panel. We appreciate it very much. I would ask that the next panel please move quickly to the table. Again, we're operating under certain time constraints.
While the second panel is moving into place, let me suggest that if members of the panel want to summarize their remarks, this would be much appreciated because I think it's important that members of the panel have an opportunity to ask questions and from that discussion and that dialogue, we can all learn something. Again, it's wheels up at 1 o'clock. So with that, let me tell the audience that Carolyn States from Hays, KS, with the Farm Bureau, is with us; Tom Giessel, from Larned, KS, with Kansas Farmers Union, is with us; and Deanna Hobleman, Republic, KS, representing the Women Involved in Farm Economics. With that, Carolyn, would you like to lead off, please?
STATEMENT OF CAROLYN STATES, KANSAS FARM BUREAU
Ms. STATES. Good morning. My husband and I are grain farmers in north central Kansas and I serve on Farm Bureau's Sixth District Women's Chairman and was appointed to the 28-member task force with Kansas Farm Bureau specifically to evaluate farm policy in the FAIR Act in the past year in 1998. We concluded that continued planning flexibility is essential for future farm legislation. The ability to adjust cropping practices in response to crop rotation needs and mark signals enables the user to optimize production in a way that benefits the consumer and the environment as well as themselves. For example, our change from a wheat corn fallow to wheat-corn rotation reduces erosion and conserves fuel. This flexibility also gives rise to the need for increased storage facilities as farmers participate in specialty and identity preserve crop production.
Page 44 PREV PAGE TOP OF DOC Kansas Farm Bureau supports the reinstatement of low and no interest federally guaranteed loan programs for construction of on-farm grain storage. Marketing loans and LDPs are yield dependent, therefore, not beneficial to those who have suffered a crop loss. In other words, no bushels, no LDP. In addition, the inequity between loan rates for different crops provides an unintended incentive for producers to plant the crop with the higher loan rate. This has been made evident by the increase in 1999 soybean acres in Kansas. The calculation of production flexibility payments is simple and straightforward. Kansas Farm Bureau supports the concept of a permanent counter cyclical market based AMTA program that would compliment an improved risk management program. Along with farm accounts for farm risk management, Kansas Farm Bureau supports affordable voluntary commodity insurance programs.
Current crop insurance premiums are not affordable and in line as the level of coverage increases, a clear disincentive to purchase crop insurance. Kansas Farm Bureau encourages reforming the calculation of yield history so that multiple year disasters do not unfairly distort coverage. We also encourage the development of new insurance products that have been given serious and thorough examination. Those that are practical, actuarially sound, and affordable. We encourage the appointment of more farmers to the FCIC Board of Directors because their knowledge of what is needed and will be used should result in a better insurance product and also higher participation because farming is a business, a global business. Trade is vital to U.S. agriculture. American farmers have proved they can produce. In fact, the U.S. has the lowest percentage of income spent on food in the world. Unfettered access to world market is essential. Federal export programs must be competitively funded and utilized with all U.S. trade negotiations and policies focused on maintaining an equitable position with our nation, the famous level playing field. The Congress must approve trade negotiating authority and admitting China to the WTO. Kansas Farm Bureau strongly enforces the revision of U.S. grain export standards to meet those of our competitors to elevate the U.S. to a supplier of choice in the world market. As implied in the FAIR Act, common sense and sound science must be a basis to regulate the food and fiber industry.
Page 45 PREV PAGE TOP OF DOC Producers face an increasingly restricted environment in implementation of the Clean Water Act and Clean Air Act by the EPA. For this reason, regulatory reform that the EPA has awarded itself and compensation for farmers and ranchers for complying with existing regulations.
Conservation Reserve Program is valuable and Kansas Farm Bureau supports the full enrollment of all acres authorized in the FAIR Act, with assurance that soil, water and natural resources are given the highest priority.
Unforeseen factors such as the Asian crisis, the strong dollar, block of trade opportunities, and the whole spectrum of weather-related disasters, farmers are in a cash flow crunch and losing equity. Because we didn't have enough remaining soil moisture to plant another crop, we will have to wait over another year and have more expense to seed, herbicide and fertilize before then. The emergency assistance package and its increase in AMTA payments as the mechanism for the delivery of support to help producers get to next year is urgently needed.
Mr. Secretary, Representative Barrett, Representative Moran and members of the committee, thank you for coming to Kansas and thank you for your attention.
Mr. BARRETT. Thank you. Mr. Giessel.
STATEMENT OF TOM GIESSEL, KANSAS FARMERS UNION
Mr. GIESSEL. Thank you, Mr. Chairman, and special thanks to Congressman Moran for doing this for our farmers in the State. I guess you have a copy of my written statement. This will be in the record.
The topic of this hearing is review of the farm economy. I'm going to do that for my farm and Pawnee County, KS.
Page 46 PREV PAGE TOP OF DOC As I left this morning, I shined the pickup lights in the wheat. Wheat is $2.23, corn $1.64, and I think milo around $2.40. In 1995 they were $3.72 for wheat, $5.11 for milo, so I may give you a little indication. But put this in perspective. Currently now at those price levels it takes a 100,000 bushels of corn to buy a combine corn header, 100,000 bushels. It doesn't sound too bad until you think how much corn that is. That's like 34 train car loads. Take it one step farther and if you convert that into corn flakes, which about half a bushel goes into corn flakes, you have supplied corn flakes, a serving size, for 45,600,000 Americans. You have bought breakfast for 45 million Americans to buy a combine to harvest this crop and that's only half of the corn. The other half goes into feed or ethanol, maybe a little cornstarch for the chafed farmers, I don't know, but it goes somewhere.
But think about that, in order to buy a combine you feed 45 million Americans breakfast, or put it in the context of wheat, that's enough wheat if you convert it to bread, two slices of bread here, 42 million Americans have a sandwich thanks to you buying that combine. That is what we're talking about. These are dramatic numbers. We're talking about the price of what we get and that's how I convert it. The average American uses 3 pounds of corn a day, be it in ethanol or food or whatever. ADM and Cargill pay 8 1/2 cents for that corn. Wouldn't 16 cents be a little more reasonable? Couldn't they afford that? I think so. That would double the price of our commodity.
I'll briefly mentionand I guess I'm talking about home now. I farm with my brother, rent ground just like all of these people do, different landlords, many of them widow landladies. Went in to talk to one the other day. She called us because she had concern about some of her bills, 80-some years old, real sharp person. She just couldn't understandfertilizer, herbicide, we had to spray the corn, go into crop share, and she says, is this right? We went through it and, yeah, it was right, and we kind of talked about what we were going to get, wasn't going to be a bad crop, not a great crop. There isn't much there. Here's a widow woman, she and her husband worked all their life to have this half section of ground. It's getting close to where she's going to dip into her Social Security check to subsidize ADM and Cargill.
Page 47 PREV PAGE TOP OF DOC I thought maybe I was the only one in this position but I visited with a loan officer at a local bank and he told me the same story about another farmer who was having problems. He was trying to figure out what crop to plant. I thought well, I guess that's good news, bad news. It's kind of the definition of mixed emotions like seeing your mother-in-law drive over the cliff in your new pickup. I found out one thingand I try to laugh every once in a while because it is really serious business. When we quit laughing is when we've really got a problem. Just to wrap up, and I'll be real brief because I know everybody wants to have a chance to hear from everyone else and get a chance to visit, there's several things we can do. I think this isfirst of all, I think it's shifting from a rural issue to more of an urban issue. I think it's more of an urban issue every day. If I wasn't farming, these are the people that I would trust to raise my food and put my food on the table and do it right. I don't want to get in a position where we're going to see an ad on TV where somebody might come up and say, are you a farmer and the answer might be no but I did stay at the Holiday Inn Express last night. That's how terrible it is. We need real farmers, real people that have dirt under their fingernails, have manure, smell the manure and spit the blood, and I'm real proud of every farmer and I want to keep that. I think we're going to have to raise the loan rates. Second, I think we need to look at our antitrust laws. We had a chance to visit with Department of Justice people a few days ago. I'd love to answer some questions about that and then finally, I'll just say that it'sI think it's long-term structure. We need to look at a lot of questions. We have 26 million people in this country that are hungry, 34,000 worldwide starve every day, die of starvation and malnutrition while every farmer in the world is going broke. There's something wrong. We can do this. It's just below the dignity of the United States of America to operate in this fashion.
So thank you for your time and thank you for coming out to Kansas.
[The prepared statement of Mr. Giessel appears at the conclusion of the hearing.]
Page 48 PREV PAGE TOP OF DOC Mr. BARRETT. Thank you. Ms. Hobelmann.
STATEMENT OF DEANNA HOBELMAN, WOMEN INVOLVED IN FARM ECONOMICS
Ms. HOBELMANN. Good morning. I'm Deanna Hobelmann. I'm a partner with my husband in a diversified farm at Republic, KS. I presently serve as a national Area Director for Kansas Women Involved in Farm Economics. WIFE is a grass roots organization with a long-term commitment for improving the profitability in production agriculture. Your concern prompted this hearing and I thank you for being here.
To state the obvious, there are serious concerns. It's a little difficult to explain, but it feels like being in the tentacles of an octopus. There are many issues. We seem to be held very tightly within the grasp of something that's very difficult to understand. It's difficult to pinpoint what's squeezing ranch and farm income the most. I believe that the struggle that's faced by farmers and ranchers across the Nation stems from an age old problem. The problem has been repeated constantly, but today it seems to be magnified and speeded up. As I see it, the issue farmers and ranchers face is one of control. Who should control our food supply, few or many? Together we will decide.
We're talking about control of the land. Who will farm it? The average age of farmers and ranchers is raising steadily. Our Nation faces the largest transfer of land in rest memory. Is that why there's such a struggle for that control? Will young farm families who relish the challenge that's inherent in production agriculture be able to take up that challenge or will we have corporations in that position?
When we began farming in 1972 our first crop of milo sold for $1.83 and $1.78 a bushel. On Monday the cash price at our local elevator was $1.43 a bushel. Add that LDP of 28 cents and we have a total of $1.71, 7 cents less than 27 years ago. There isn't any automatic salary increase here. [Applause]
Page 49 PREV PAGE TOP OF DOC The milo seed we planted that year cost $13.90. Today's harvest was planted with milo costing over $60 a bushel and all of the other percentage costs are similar. It really doesn't cash flow. Then we could repair the equipment. Now the repair shops are telling me that there are farmers waiting until things really break down, then they're taking it in, hoping to make it through one more use.
Field crop agriculture in Kansas is in trouble. There's a line in a recent USDA farm income projection that lists earning of a farm operator household from farming activities which, if I figure it right, includes imputed rental value of farm homes and $49,828 of off farm income included in every farm family income, to reach a total of earnings of $4,676.
Who will farm the land? Who will control it? You gentlemen and all of us must decide. Who's going to answer those two questions before we decide what the solutions are? America's farmers and ranchers are greatly affected and it boils down to a few things. The control is the main thing. Who will control genetics, trade, transportation, competition? Contracts can control, even information and definitions can control. It all boils down to controlling which pocket is going to receive a profit. There has to be a solution that's right for farmers and for the nation, not one party or the other, one company or the other, one individual or the other.
This is supposed to be the United States of America, but it seems we can't even be united for the good of something that's as important as the control and safeguarding of our nation's food supply.
The planting flexibility within the 1996 farm bill was an example of a win-win situation. We're focused on negatives of the economic situation in production agriculture. Will you answer the question of control soon in favor of numerous farms and ranches that are profitable enough to allow people to make a living or will it be control in the hands of a few?
Page 50 PREV PAGE TOP OF DOC I don't want to go any closer to the days told about in an old history textbook when farmers found it was cheaper to burn corn than sell it and buy coal to warm their houses.
I pray that you and your colleagues will be the avenue that is used to assist farmers and ranchers of today as they pursue their livelihood profitably on America's farms and ranches with profitable rural villages and cities nearby.
Thank you for the opportunity to appear.
[The prepared statement of Ms. Hobelmann appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, Mrs. Hobelmann. It's nice to see those red suits again. They are powerful. You see 40 or 50 of those in the halls of Congress you know they're powerful. I appreciate your testimony.
Ms. HOBELMANN. Thank you.
Mr. BARRETT. Ms. States, I guess to you and perhaps all of the panel very quickly a question on loan rates, lifting caps. A year ago in a hearing in Washington on the overall review of the farm economy at that time Secretary Glickman, I believe, and others have indicated that they are in favor of lifting the loan rate. What is your reaction to that?
Ms. STATES. You mean raising the loan rates, sir, by lifting?
Mr. BARRETT. Yes, and also the term of loans, but go ahead.
Ms. STATES. I'd be happy to speak to that. As Farm Bureau, we do not feel that would be a wise thing to do, increasing the loan rates, because people tend to view that loan rate as well, at least I can get that much for this crop and it perhaps unfairly distorts the market of what they plant and also as for lengthening the time, 9 months now almost runs into the South American harvest, and I'm thinking of wheat particularly, and so by extending the time of a loan, that would just further hold bushels. We should get bushels out into the market. We don't want more bushels stacked up and we need to get them out so the market can play out itself rather than continue to hold them.
Page 51 PREV PAGE TOP OF DOC Mr. BARRETT. Thank you. Mr. Giessel.
Mr. GIESSEL. We found with the USDA statistics that the lowering of the loan rate really hasn't changed the support volume. It's stayed fairly static for 25 years. We would be definitely in favor of raising the loan rate. We would be in favor of extending the length to give more marketing flexibility.
Mr. BARRETT. Ms. Hobelmann.
Ms. HOBELMANN. I believe our opinion is basically somewhere between these. We findperhaps that's enough said. You've each had contact with members of my organization to know where we stand on this position.
Mr. BARRETT. Thank you. I wanted to ask Mr. Drabenstott the question about land values.
As I remember, Mark, in your testimony you indicated that they'd remained pretty static, which interested me. In visits in my part of the world I find the same thing and yet I'm wondering if you can share with me about land values in Kansas, Iowa or wherever. Do you have a feel for it?
Mr. GIESSEL. I will answer on the basisI visited with a realtor a little bit yesterday and seems to be fairly static but what we are seeing is some outside interest. I know some people have contacted me over the last couple of years that want to buy some landthey were from a metropolitan area in the east side of the Stateso they could come out and hunt, and then if we wanted to farm it on the side, that would be fine. Seriously, they were serious. I've heard this on the radio station in your state, the advertisement we want to spend three-quarter of a million to a million dollars on land, we'd like river bottom for this, so there's competition out there for that land. I don't think the land prices have dropped, but I don't think it's a true reflection of the economy. Myself, I don't know of many of my neighbors that are aggressively pursuing land purchases.
Page 52 PREV PAGE TOP OF DOC Ms. HOBELMANN. If I might speak to that, I think also our part of the area doesn't really see anything in a change. I think with what we're seeing is that more people who already have land are being able to purchase it. We're also seeing less ability of those who would like to become farmers, even further down the line than what they ever were before.
Mr. BARRETT. Thank you very much. It occurs to me that this is unlike the situation that we had in the eighties where land values were dropping. As I said, they're stable in my area with the exception of some of the marginal ground which I think is probably true in your areas as well.
Mr. GIESSEL. I would think that the minute those land prices do break, though, that people like in the Federal reserve are going to notice that things are going to go to hell in a hand basket real fast because that's what happened last time and this is what's boiling up things right now. In my area, people are really out of money for the most part.
Mr. BARRETT. This is one of the reasons the land volume is very important to me. I'm a former real estate broker. This is a signal, as it was in the eighties, of something that may or may not be happening, so I appreciate those comments. Mr. Stenholm.
Mr. STENHOLM. Mrs. Hobelmann, you used the relevant question who will control and that's a question we farmers are going to have to answer in a way that we have not been willing on to in the past.
We have never been willing, and if we're not willing to do it in the next year or two, it's not going to happen and we need to accept that. We all make our speeches, we say the things that guarantee to get the applause, but unless we have the dedication of cooperative effort that we've never had before in agriculture, we're not going to solve that problem because the rest of the world is not going to wait on us. It's hard for me to admit that, but I think the quicker we start talking about that in real terms, cooperative effort in the traditional sense and cooperative efforts reaching out to corporate partners in realizing that they have to work harder with us to get more of the consumer dollar in our pocket or we're going to have a seriously changed agriculture that will not be in the best interests of the nation. But that has to happen and I'm encouraged because more effortsas was pointed out, the farmer's market approach, small percentage, but it's the theory that will work.
Page 53 PREV PAGE TOP OF DOC There's another area that we've got to spend some time on and that's the relevant question now regarding what is it we want USDA to do for us, with us and to us? I mean, we've got to answer that question. We spent a lot of time knocking EPA and knocking this, that and the other. We've got a major crisis with GMOs now in which we'd better find an answer working with our corporate partners to that or we're going to lose. We can make all of the political statements and knock on EPA all we want to, but the truth of our matter is our urban cousins want safe air, clean water and good food but we're not getting that message across. Our Henleys are doing a better job of the public perception. We've got to find a way to do that. That's a battle. What is it we want USDA to do for us, with us and to us? We conducted some hearings several years ago up inI was the chairman of the Department OPerations and Nutrition Subcommittee. We held a hearing in Nebraska at that time. We passed a bill in 1992 that said that we ought to take a good hard look at how many county offices we need to deliver what service to us and how can we most efficiently deliver that service. Folks, we haven't done it. Now, maybe Kansas is perfect, maybe Nebraska is perfect. Texas is not and we're going to have a knock down drag out starting next week regarding where do we need to locate our offices. All this business that we farmers have towe can't drive 15 miles or 30 miles or 40 miles to our office, you won't have to do that. With Internet and communications, telephones, e-mail, all of that is irrelevant today but we're still demanding from the local level up that we keep the same structures to NRCS, FHA, FCIC and, by the way, we in Congress took care of that when we took FCIC out of Team USA because that's what risk management wanted to do and that was a mistake, but that's what we did because that's what theoretically farmers wanted to do.
Who will control? It's going to be up to us and I hope that we on this panel will be able to give us the tools to do it and that's my desire. One point I want to make before that red light goes on, the Secretary made a statement a moment ago that we're going to do all of this budget and this disaster aid by October 1. There's going to be an attempt. We can't do that and it's irrelevant whether we do it by October 1 and the sooner the Congress and my colleagues up here, the sooner we admit that we have busted the caps and we're going to bust them even a little bit more if we do what we've got to do and we are spending social security trust funds into the year 2000 already with what we've done and stop this game and get down to serious business and get down to serious budgeting in which we can have in a bipartisan way the tightest, most fiscally responsible budget we can have, the quicker we will start solving the problem. But I hate it when we start pointing fingers. There's two of us across the street, we've got Republicans. We may disagree, but we're friends. Every man on this panel, we consider ourselves friends. We have different ideas. Ultimately we've got to get a majority of what we're going to do, but the budget is a real obstacle to us that we're going to have to overcome. I say obstacle. It's really a blessing that we're fighting about surpluses today.
Page 54 PREV PAGE TOP OF DOC Mr. BARRETT. Mr. Lucas.
Mr. LUCAS. Thank you, Mr. Chairman, and the ranking member is exactly right. We have responsibilities in a huge way and I have to take note and that's to help and many of my colleagues on both sides of the aisles, we have come a huge direction, a huge distance in putting the Nation's fiscal house in order. When I was elected in May 1994, the Federal deficit that year was $203 billion and if you counted the transfer and Social Security funds or don't count that to make the number real, it would have been $350 billion and we've come to the point where we are so close. Now, when all of the final things that are done this year that have to be done, that so close may not be so close and Mr. Stenholm is exactly right and that's why it's going to be in addition to agriculture why the big picture is going to be hard and tough to get done this fall.
But back to the question for the panel here. The comment was made by Mr. Giessel and some others about raising the loan rate and in Oklahoma in the town meetings that I've conducted this has been a topic that's come up many times and the reason I address this question to you, Tom, your colleagues in Oklahoma, the Oklahoma's Farmers Union, are very strong and intense in their view about raising the loan rate, but one of the things they acknowledged to me is that if you raise the loan rate then you encourage more production and to maintain some sort of a balance potentially you have to go back to a situation with less flexibility or in the sense some sort of supply management or inventory control, however you want to describe it. The view of the leadership at home in Oklahoma is that's just fine, if that's what it takes to raise the loan rates, then let's go back to raise. Do you have an opinion on this?
Mr. GIESSEL. I think everyone has to control their inventory to a certain degree. We had a flexible 10 or 15 years ago, but as far as this idea of starting to raise more crops if the price goes up, I think it cuts both ways. I've had this discussion with Mr. Collins in the USDA. I find in my area the cheaper things get, the more people plant because they've got a cash flow and take more money to the bank and it is counterproductive and I can tell you out in our area it's happening. We're going to have piles of corn and piles of milo. Perfect example of grinding hay market. They tell me there's enough grinding hay purchased to get us to the crop year 2000 and that's with low prices so I guess I'm willing to try a little more.
Page 55 PREV PAGE TOP OF DOC Mr. LUCAS. But you're willing to go back to Federal supply management, Federal determination of these issues if that's what it takes?
Mr. GIESSEL. I think we can make it more palatable than it has been in the past. I think you're going to have to take a look at it.
Mr. LUCAS. Even with the loan deficiency comments, that's one of the problems that has come up about how the LDP program sets different rates for different things and perhaps that's a slight advantage for soybeans and that's driving resources over to soybeans but, nonetheless, I appreciate your honesty and frankness because your colleagues in Oklahoma are pretty point blank, they want the loan rates to go up and they're willing to go back to supply management and that's where they view things go. Of all, we have to address the needs right now. We have intermediate needs that have to be addressed. There's going to be a long-term date which, quite frankly, about Mr. Combest setting the hearings to begin that debate, where do we go in the long term?
Mr. MORAN [presiding]. Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Chairman. I have to say this, a couple things you've caused me to think about in the last few minutes. We really need the price. We don't need loans.
Mr. GIESSEL. That's right.
Mr. BOSWELL. That's a hard nut to crack and we didn't have a solution yet. I've had my meetings, all of us have. We're here today. One other thing before I want to ask you a couple quick questions. Mrs. Hobelmann made the comment, I do farm the land. Well, I'm so tired of people saying to me that it don't matter, somebody will farm it. Hog wash. That is pure hog wash when you think about our condition. In the town I live, I leave my place and I travel in what I used to call my old legislative district when I was in the State Senate. I know that land and I've watched it change hands to go consolidated or go to the absentee owner and what do I see? I see very poor conservation and I see very poor stewardship. Now, all of our city folk cousins are going to have to realize that we've all got an investment as we thinkmaybe it won't happen in Leonard Boswell's lifetime, but it's sure going to be faced by my grandchildren. We're not making more land. We're sure making a lot more people, so this has got to get in the mix somehow too. In all things, bigger is not better and all my whole life I've seen the farms around me getting bigger because I go there to the little town of Davis City, out to my place, and there used to be thirteen homesteads and there's now probably four. So it's changing but we get into the soil conservation, the stewardship. That's something that's not in the mix of conversation immediately. Thank you, Deann, for your comments. I was going to ask about the loan rate. That happens to be in my district all the time. Thank you, Mr. Chairman, for taking care of that.
Page 56 PREV PAGE TOP OF DOC I'll ask two other questions. What about farmer-owned reserve and what about setaside and CRP additions, all three of you?
Ms. STATES. Well, Farm Bureau definitely supports the CRP and encourages much into it because as you were speaking, the conservation and the stewardship of the land, that is a very vital part, we think, also of conserving and continuing to farm in a quality way, and so we support full implementation and if Secretary Glickman wants to add more acres, that would be wonderful.
Mr. BOSWELL. What about the farm reserve authorities?
Ms. STATES. Well, looking down the road the way things seem to be going now, we believe that farmers need more storage in orderbecause more crops are coming possibly. There's controversy about GMO crops and so rather than reserve so much, just more on-farm storage or ability to segregate crops to take advantage of a niche perhaps that we see that can improve our income, our bottom line.
Mr. BOSWELL. But not farm loan reserve?
Ms. STATES. No, sir.
Mr. GIESSEL. Yes, sir, I think we've always supported the conservation reserve program. I think we would support a short-term reserve here, 3 to 5 years. Also set asides, I think might help some people make that decision. I mean, on a basis of more at the feel for the inside rather than from the Government. I mean, I think people now are planting more acres. Out in our area we're a fallow where you plant. Freedom to Farm come along and more people jumped the gun and I think overplanted. Maybe it will help people take a look at that ground needs rest just like people do. We would support a farm loan reserve. I don't think there's anything wrong with having a food reserve. I'd lot rather have a food reserve than a lot of other things we have.
Ms. HOBELMANN. I would think if a farmer-owned reserve is put into place it needs to see farmers receive payments at the same rate as what commercials would receive those payments since the cost is the same for the farmers to hold that gain as it is someone else. Also on that particular point, the commercial elevators, the small commercial elevators we're seeing are unable to go ahead and update facilities. We've got the larger equipment on the farms. They can't keep it away from us. I think last year we sat in line 5 hours to unload a truck, so there's some problems with some increases in capacity and available for on-farm as well as off farm.
Page 57 PREV PAGE TOP OF DOC Mr. BOSWELL. Thank you. Mr. Chairman, I'd yield back. I'd make a last comment. Our job is not going to be easy, is it?
Mr. MORAN. Thank you, Mr. Boswell. You're very observant.
Carolyn, Tom and Deanna, I appreciate your testimony today. I appreciate you taking the time out of your lives to be here. I'm going to forego asking you questions. I have that opportunity regularly and I'd like to leave as much time as possible for folks in the audience to be able to talk at the end of the hearing, so I would recognize Mr. Schaffer.
Mr. SCHAFFER. Thank you, Mr. Chairman. I've done calculation on the time we have left to finish the meeting. I would have one question and that is you've heard the Department of Agriculture's opinions and explanation on the Export Enhancement Program. I'd like to hear your thoughts and views on that practical as well, it's relative usefulness from your perspective.
Ms. STATES. I think that the Export Enhancement Program is useful. It perhaps is not the best way to open up large markets and we would certainly like to see it be used to the fullest that it's authorized because it has been authorized and Farm Bureau feels if it's a tool that's available, it should be used.
Mr. GIESSEL. Kind of hate to answer this way, but I've got mixed emotions. Actually we support it but I think Secretary Glickman's done some innovative things with money. I think we maybe need to take a second look at different ways. We're not going to win that war with the EEU having the money they have versus the money we have and, I'm sorry, I don't want to go into a battle with the water gun and that's kind of what we've got.
Ms. HOBELMANN. WIFE does support the use of export enhancement and also some of the other food programs we have, the P.L. 480, recognizing that we've got laws to deal with that. Cargo preference laws to deal with in that aspect too.
Mr. MORAN. Mr. Gutknecht.
Page 58 PREV PAGE TOP OF DOC Mr. GUTKNECHT. This time I really will be brief. I just want to thank the panelists and I think you have done an excellent job of articulating the points of view as well as the dilemmas that we face.
I will just say this, though, in terms of artificially or raising the loan rates, we in Washington can amend laws, we can rewrite laws, we can repeal laws, but there's one law that we cannot repeal and that's the law of supply and demand and the concern that I have is that if you artificially begin to try and raise the price it strikes me that at the end of the day you have to have supply management. If you raise prices 20 percent and cut supply 20 percent, you're still where you are. I just think that a more productive thing for us to really concentrate on in Washington is how can we increase demand both internationally and domestically. I think there are a number of areas available to us that we can look at in both the short and the long term. For example, buy a blend of soybean oil and diesel fuel. We're beefing up research on that and that's an area that I think represents real opportunity. We've got to look at ways that we can, from a public policy standpoint, beef up that demand side because at the end of the day the real key to increasing that farm income is to sell more of what we can grow either domestically or internationally. But I do want to thank you for coming today and you've done an excellent job of expressing your points of view on the real dilemmas and problems we face in terms of the agricultural problem.
I yield back, Mr. Chairman.
Mr. MORAN. Mr. Latham.
Mr. LATHAM. Just one thing on the Export Enhancement Program, and, again, I guess I'm always looking at numbers on the Appropriations Committee, but we had available to the department in 1998, $494 million to use for the Export Enhancement Program which primarily goes to help wheat, and the department used $2 million of it and it's justyou talk about using all of the tools available, it's very, very frustrating. The point I made earlier about there are three or four of us here who are actually farmers, the rest of us have farm districts, we really care and will do everything we can to help. I would like to hear from you folks and anyone else, if you can give me in about a 30-second response, what difference does it make to a person in Manhattan, New York City, whether the food that they eat is going to be cheap and the highest quality in the world comes from a family farm or from a corporate farm?
Page 59 PREV PAGE TOP OF DOC Mr. GIESSEL. It does make a difference, I think, when you point blank sit down and visit with them. When I take some trips I'll sit down and ask them. I think they care about a safe food supply.
Mr. LATHAM. We'll guarantee them.
Mr. GIESSEL. But then it probably doesn't make a damn. I don't think our food export people should hold that in pretty high esteem. I think it's elevated. Number one, of all of the issues that are important in this country because we are the superpower, militarily in the world. What else is there? The bottom line is we live in a world of political market and that determines who's going to eat and who's not going to eat. Most of us are 5 minutes or 10 to a grocery store with access to what we want. But there are many people in the world that aren't in that position and that doesn't make for a stable world.
Ms. HOBELMANN. I would say that a lot of rural America, those farms and ranches have taxes paid on them. Mr. Boswell hit on a very good point when he sees a difference how land is treated when it's lived on by people who are right there. I think that parted with conservation in particular.
Ms. STATES. I doubt that people in Manhattan do think about that actually, but I think when they would think about where their food comes from, I do think they think of smaller family farms. I think that the difference in the United States and the rest of the world is that we've always, for the most part, had an abundant food supply. We haven't had empty grocery shelves, and that's not true in Europe and the rest of the world. During war time and things and in response to your question, I don't think that they really do think about it but when they do, they think about a small farm and maybe not, maybe an efficient farm, but that's where part of our responsibility as farmers is to get people who have no concept about what farming is and what an advantage they have to be able to have access to our agricultural products. That's our responsibility to let them know and understand and I think that's important.
Page 60 PREV PAGE TOP OF DOC Mr. LATHAM. Let me just say to help and we all do, everybody that's here cares enough today to be here, but we have to get, in the House, 218 votes and most of these constituents of the people like that think food comes from the grocery shelf and they don't have a clue what a family farm is and what a difference it makes and if you, anyone else, please let us know if we can getwe need all of the arguments we can possibly put together. Thank you, Mr. Chairman.
Mr. MORAN. I'd like to thank the panel, Carolyn, Tom and Deanna. Thank you for being with us. Appreciate your testimony.
Mr. BARRETT [presiding]. I'd ask the third and last panel to come to the table as quickly as possible. John Griebel from Stockton, KS; Steve Mangan from Tribune, KS; Mark Nichols from Altus, Oklahoma; Gordon Schmidt from Inman, KS; and Dean Stoskopf from Hoisington, KS.
STATEMENT OF JOHN GRIEBEL, STOCKTON, KS, FARMER
Mr. GRIEBEL. I guess if I had to narrow it down to just a few items, I think persons need to recognize that low prices are not the problem. That's what we all see but that's not the problem we should be addressing. The real problem out there is due to supply and demand and if we don't have the demand adequate out there to keep up with the supply, then we're going to have the low prices that we're going to see. Until we recognize that and quit addressing how do we fix the price, we're never going to reach the solution. We're going to be here every year like we are right now arguing about the same thing. We spent some time talking abouthere today what's going on in rural America, number of farms going down, businesses closing, fewer people in our schools. That's a trend that's been continuing since the 1930's and I don't think short of mandating that people not move anymore that we're going to stop that. We do have serious problems caused byor when prices are where they are, this rapid exit from rural America causes as a result of low prices. We have to realize that farmers are price takers and not price makers so every cost that's added on, either directly or indirectly through regulations or taxes, is going to have an immediate and long-term effect on the farm economy. So at any point where we can reduce the tax burden on farmers or their input suppliers or their marketing channel or reduce the regulations involved, the farm economy is going to see an immediate long-term positive effect on their income. Limiting production through past policies is not the answer. It will only return us to the very spot we are in a few more years. What we need to focus on is the demand side. The United States is not the only supplier of grain. If we create a void in supply, our competitors are going to be more than happy to fill that void. Until we recognize that and are willing to accept that, we are going to be at a severe disadvantage. What we can do is focus on increasing the standard of living in the United States and countries around the world to increase that demand focus on increasing non-food uses of some of the product we grow like biofuels, biolubricants, bioplastics and so on.
Page 61 PREV PAGE TOP OF DOC I want to skip to the GMOs. The way I see it, it's just a non tariff barrier to trade and there's no rational reason to not allow the importation of GMO products into any country. If we don't take a firm stand on that, if we don't recognize what it is, we're going to be at a disadvantage. We need to do everything possible to address that. We need to make that a high priority.
I want to focus on some of the positive things going on in agriculture. I think we've not done that. We've notnever been more productive than we are right now. Part of that reason is the adoption of technology and one of those technologies that our producers are embracing is the use of no-till farming practices, and when you combine that with some of the other technology out there like GMOs, we're becoming more and more productive. We can produce our product at a lower cost per bushel. The important social benefit to that is that through use of especially no-till, topsoil is created, produce increases, reducing the need to convert rain forest to farmland. Bio-diversity will be maintained and endangered species will recover thanks to the partnership between industry and farmer. This isn't wishful thinking. It's happening today. Unfortunately, we face well-meaning opposition from the very groups whose purpose is to achieve what we are already achieving and these groups are on the verge of preventing U.S. agriculture from adopting the technology necessary to save it.
I guess I'd like to summarize quickly, if I haven't gone too long already, is low grain prices are not the problem, it's the lack of grain sales that needs addressing. Supply controls have long term negative effects. The Federal Government needs to keep its promises and decreased taxes and regulations will have immediate and positive effects, and we need to make the European Union, GMO issue a high priority and if U.S. agriculture creates a void or we're not allowed to use the technologies that are currently available our competition will and we will lose that battle for the international market.
[The prepared statement of Mr. Griebel appears at the conclusion of the hearing.]
Page 62 PREV PAGE TOP OF DOC Mr. BARRETT. Thank you, sir. Mr. Mangan.
STATEMENT OF STEVE MANGAN, LIVESTOCK PRODUCER
Mr. MANGAN. Thank you very much. I'd like to thank each and every one of you here this morning for letting us take part in this process and to give youI share with you my views and opinions with your committee.
Being a farmer-feeder from west central Kansas, I would just like to briefly talk about two general areas this morning that I feel would have a significant impact on my operation, the community in which I live, and in the crop production and livestock industry as a whole. Those areas being: Expansion of new Government programs into the livestock business and, secondly, Federal farm programs dealing with crop production. Gentlemen, oftentimes, when the economics of our business are not what we would like for it to be, we often look for things to blame and to try to find the problems. As I look for answers, I continue to believe very seriously and very strongly that the profitability of the livestock portion of my operation still relies on a very simple principle of supply and demand. The economic pain suffered by my livestock operation in the past several years has been very real. This economic hardship in my opinion still was a direct consequence of producing too much tonnage or supply in relation to that demand. The economic history of the livestock industry, if you were to look back, illustrates that this economic pain will eventually bring the supply into balance with the demand, if left untouched by Government programs. One only has to think back to the mid 1980's and the effect that the dairy herd buyout had on the entire meat complex and realize that the proposed pork action plan that is under consideration now may not be in the best interest, long term, for all livestock producers. I can remember very clearly the economic hardship that our family operation suffered as a result of that action. I am not sure if the same operation has the equity left to withstand a similar one now. As an individual that makes his living in agriculture, I am concerned with the expansion of Government farm programs into the livestock portion of my business. The Livestock Insurance Proposal and the Mandatory Price Reporting Measures that are currently being considered, in my opinion, would only create more Government intervention into my operation on the livestock side and would do very little to address some of the important issues that we need to be looking at.
Page 63 PREV PAGE TOP OF DOC But, in comparison, when talking about the crop production side of my farm, I would be quick to tell you that the transition, the market loss, and the disaster payments received from the Federal Government are becoming more and more important in order to cash flow the farming activities of my operation. Some say that the ''Freedom to Farm'' has actually been the ''Freedom to Fail.'' I guess I am one that strongly disagrees with that. I believe that Freedom to Farm has finally given me the ability to create more opportunities to enhance the production potential of my farm. Has that increased production caused the large supplies that we are currently seeing now and is that to blame for the low prices that are at or have been at near record lows? I think we would all agree that the answer is probably a yes, somewhat, but in saying that, let's not forget that the Freedom to Farm program had two major components or points when it was formed. One was to give the farmers of this country the freedom to plant and farm their land as they so desire and, secondly, the Government would do its part to increase the markets for that production produced.
Gentlemen, in my opinion, the farmers of this nation have done their job extremely well. I think that it is now time for the Government to start working on their side. I would like to say I think there would be a couple thingsand this has been mentioned several times this morningthat could help to do this. One is the use of the Export Enhancement Program and we've heard several opinions of that this morning. I think we must get our product on a competitive advantage or competitive market playing field in the world market. Let's not encourage more storage, but rather explore more ways to move supplies. With around the $500 million in the EEP, I sometimes, while driving my tractor, often wonder if the EEP was properly used would we ever have had an LDP payment?
Also the Crop Insurance Program I think which you all are working on at the current time can also be reformed to benefit producers. One area I feel would help would be the opportunity to maintain continued insurance levels after several years of disaster.
Page 64 PREV PAGE TOP OF DOC Mr. BARRETT. Thank you, Mr. Mangan. We do have copies of your testimony, as I said, and we do appreciate your verbal testimony very much. I want to get to the other three members of the panel. Mr. Nichols.
STATEMENT OF MARK NICHOLS, COTTON PRODUCER
Mr. NICHOLS. Thank you for allowing me to speak today. It's very encouraging to hear strong bipartisan support on agriculture relief. It is imperative that differences be resolved quickly in Congress to move forward with a viable assistance package.
U.S. cotton prices are at a 24-year low, well below the cost of production and international prices are just as depressed. It is imperative that Congress provides needed assistance to the U.S. cotton industry. Important components of any relief package approved by Congress are reinstatement of cotton's step 2 program for the remainder of the current farm law, substantial direct supplemental payments to farmers, and the relaxation of payment limits.
From 1990 to 1996 cotton's competitive provisions worked well when conditions warranted. The funds available in step 2 were arbitrarily capped in the 1996 farm bill and were exhausted in 1998. Since then prices have fallen substantially and U.S. exporters were unable to compete in a world market featuring subsidized competition and oversupply.
The cotton competitiveness amendment sought by the cotton industry would provide the funds needed to allow step 2 to operate for the remainder of the farm bill. Reinstating step 2 would allow U.S. exporters to compete for key markets and ensure domestic textile mills have access to competitively priced cotton.
The cotton industry and agriculture will also benefit from an increase in the limitation on marketing loan gains. As commodity prices continue to fall in the United States and around the world, U.S. agriculture producers and the CCC will soon feel 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 Federal Government is likely to accumulate significant commodity stocks for the first time in 14 years.
Page 65 PREV PAGE TOP OF DOC This is not a small farmer versus big farmer issue. In perverse fashion, the marketing assistance loan gain limitation hurts more when such assistance is most needed. Producers who never dreamed they would hit the marketing loan gain limit will be surprised as they add up the cotton, soybeans, wheat and corn.
The two assistance proposals that have been debated in the Senate contain different delivery mechanisms for direct assistance. We support an approach that utilizes existing AMTA structure to deliver this assistance. The Department of Agriculture implemented that portion of the 1998 emergency package that provided AMTA payments very quickly and efficiently. Why take a different path at this time when the AMTA mechanism has shown to work so well?
I believe that whether the farm policy should return to production linkage, such as old deficiency payment programs, is a matter for future debate and consideration. Lasting policies are rarely developed under such dire circumstances. U.S. agriculture needs emergency assistance now and should not be delayed by further debate over fundamental farm policy.
The primary short term interest of cotton and the majority of agriculture is passage of the emergency assistance package. If that is accomplished, there is a need to evaluate the medium and long-term outlook and the policy implications.
Since Congress is unlikely to continue to consider short-term assistance, it may be time to modify farm policy in advance of the expiration of the current farm bill.
The National Cotton Council has some preliminary recommendations. First, an effective agricultural policy would require adequate budget resources. When producers are confronted with market conditions beyond their control, it is imperative there be an adequate safety net. Cotton's marketing loan and three-step competitiveness provisions provide that safety net by responding to our competitor's pricing and production practices. The cotton producers generally favor the cropping flexibility of the current law.
Page 66 PREV PAGE TOP OF DOC In addition, effective trade policy, tax relief, environmental laws and streamlined regulations are an important part of the overall agricultural policy.
Mr. BARRETT. Thank you, sir, right on the money. Mr. Schmidt.
STATEMENT OF GORDON SCHMIDT, CORN AND WHEAT PRODUCER
Mr. SCHMIDT. Good morning. My name is Gordon Schmidt and I want to thank you, Mr. Chairman, for this hearing and I want to thank the rest of you Congressmen. I know you have a lot of other things to do besides travel to Kansas this week. I'd like to particularly thank Congressman Moran, our good Congressman from here. I sometimes think that maybe his DNA includes both R & D, but I'm not sure in terms of politics. He's open-minded at best. He's willing to think outside the box and I like that.
I'm appearing here today because I've worked a lot on farm policy. I was originally Chairman for Dan Glickman getting elected to the House the first round so I've had kind of a history with him. I spent some time in Washington, DC, spent some time with a good friend, Barry Flinchbaugh, who we may or may not always agree, but I do consider him a great outspoken person who thinks about a lot of angles. I also spent some time with Keith Collins and going through the program that I'm going to talk about here in a minute.
Maybe the philosophy first. I'm comfortable with the truth and the truth is arrived at through questioning and doubt. I'm uncomfortable with blind conviction coupled with ego and pride and the inability to admit when we're wrong. That's a philosophy that I try to live by. I think it's a good philosophy that all of us need to think about every day and it's the only basis from which we can come to some kind of farm policy that's workable.
We farmed about 4,000 acres. My nearest field is 20 miles from here. There are four of us on this farm.
Page 67 PREV PAGE TOP OF DOC I'd like to tell you what's happening on my farm. Last yearand I think we're hopefully in the top 20 percent in terms of the efficiency in the operation. Last year my net farm income dropped 75 percent. My brother-in-law, who joined me in 1984, his dropped by about 50 percent. Our agronomist, who also farms and does the agronomy part of the team and has a wife that works full-time off the farm, his income dropped less than 30 percent. My hired man had no drop in income. And I'm serious. That is exactly the point I'm making.
Efficient farmers are in trouble. We've been told to get larger and more efficient. That is not the only answer and as they said, with tears in their eyes, if you go, we go. We have often heard that the smaller or the inefficient are in trouble. I'm sorry, this is kind of like an iceberg. There's a lot more under this thing than we see. There are a lot of good producers who are in trouble. It costs us on our farm, with four people, a million dollars to put out a crop. If we take out crop insurance, 35 percent deductible plus we pay the premium plus the Government subsidizes on a point system, you're going to lose $350,000 before your insurance kicks in. You do that 2 years in a row and you're done for, so crop insurance won't save you on that one. And if you have a loss, a total loss, you're pretty much out of the ball game and that's pretty scary. My dad could go to the wheat bin and get some wheat and talk to his dad and grandkids and neighbors and put out a crop and feed the neighborhood for almost nothing. I don't have that choice. I have to pay a $144 for a bag of corn and if I don't raise it, I just raise less so that's a whole tough issue we face.
We have huge cost of production. I think I'm efficient but there are a lot of things I can't do that the past generation did.
Another thing I want to talk about a little bit is to touch on philosophy and wind that with what's happened with Freedom to Farm and I think Pat Roberts meant well. I think he's a hard worker but in that process the freedom to plant was what farmers wanted, but what we got with it is what's hurt and that is no control over production and basically a lack of a safety net. We need a safety net. I've given you a copy of that. Thank you.
Page 68 PREV PAGE TOP OF DOC Mr. BARRETT. Thank you, Mr. Schmidt, and thank you for your Farm Program 2002.
Mr. SCHMIDT. I'll be talking to you.
Mr. BARRETT. Mr. Stoskopf.
STATEMENT OF DEAN STOSKOPF, FARMER
Mr. STOSKOPF. I'm in the enviable position of being the last panelist and I feel like I'm right on the edge here and if John keeps pointing at me, I'm going to be pushed off the edge in a minute, so I'll try to be brief about what I'll say.
Mr. SCHMIDT. Just like farming.
Mr. STOSKOPF. Right. Trying to summarize what I've said and reach a few things that really haven't been talked about too much today.
I really appreciate the House Agriculture Committee's use of the Internet in putting out their hearings, availability with that and the testimony that people provide. It gives somebody a chance from central Kansas to feel a part of the process to be able to see what's going on in Washington, DC, in agriculture. That's made it kind of frustrating this week as I listened to parts of it and watched parts of it.
Some of the statements that have been made this weekone of those statements that was made was the AMTA payments don't go to the people who need it and the payments should be based on actual production. We own half of the land we farm and rent the other half. Our 12 landlords are an important part of our operation. Many are dependent upon the income received from that land and like many of us, if they don't receive enough income from that land and have to sell it, I don't have the resources to purchase that land. Current discussion this week seems to put the agricultural producer at odds with those landlords. In our operation we consider them as an important partner and AMTA payment portion that goes to them, they depend on it just as much as I do as the operator of that operation. We lost over half our wheat crop in 1998 and 1999 to hail. AMTA payments still came to us on that production. If it had been based on production, we wouldn't have received those payments and with that, we really needed those payments more than if we would have raised a big crop like people who are outside our area did.
Page 69 PREV PAGE TOP OF DOC There was discussion about the distribution system and doing something different and I'd like to relate again to the 1998 wheat crop. We had hail on May 25, 1998, disaster assistance program was passed in October, and we did receive our market loss payments in November of that year but we did not receive the disaster payments until June 3. Our 1999 wheat crop was half hailed out on May 15 so we didn't even receive the assistance from the year before, before we lost a major portion of our next crop. I think the point of this is that we're in a real financial crisis now and that income that we're needing and you're talking about needs to come now. We don't need 6 or 8 months to devise a new system to get that assistance out this year. There's a lot of long term things we need to look at.
Crop insurance has been discussed. Again, we had crop insurance and that helps, but I'm like Gordon, that top 35 percent makes a big difference and we need to have some way that we can have the insurability to get that at a fair premium. One of the areas that has been brought up is the WTO talks and I'm firmly convinced that that probably will have more impact on the agriculture than the next farm bill is going to have and we must develop a comprehensive trade policy going into those talks for us to survive in agriculture.
Representative Moran also serves on the Transportation Committee and we've talked about the railroads and water system that are deteriorating in the United States where in the other parts of the world they're expanding their transportation system. That's putting us at a competitive disadvantage to our competitors across the world and we desperately need assistance with that.
CRP, we have acreage in CRP. I think it probably should be expanded. There's a lot of land that really should be in some type of a conservation program but we need to look at the criteria that CRP acceptance is now in the environmental index. We have ground that was not early CRP program. We were required to mow and spray it to get rid of weeds in that original grass establishment. The latest CRP program, we have to plant on that ground to qualify it for CRP. Those are the same weeds we had to spray 10 years ago to clean out of there.
Page 70 PREV PAGE TOP OF DOC I guess in summary the main thing I would like to see is some real common sense put into this discussion and I agreed with some of the thoughts about the differences, and one last thing that hasn't been talked about, Food Quality Protection Act, the phosphene gas or aluminum phosphene that is talked about being taken away. If we lose the grain fumigant products like that, we don't need the farmers longer-term loans or more storage. The insects are going to take care of that surplus feed. Thank you.
Mr. BARRETT. On that positive statement, your time is up. And in the interest of time, the Chair will yield his time to members of the panel. Mr. Stenholm.
Mr. STENHOLM. I thank this panel and all of the panels for your excellent testimony. I've been reading through some of what you've been skipping over and you've got some good suggestions, one of which we will certainly be taking. As one of those that has had the AMTA payments perhaps do not go to those that need it, you give the example clearly where it does, where you've got a good working relationship between the landlord and the tenant. But we have far too many examples where the landlord has taken the land back, taken the AMTA payment for purposes of a different type of agriculture, and I really do not believe that folks that are no longer farming are deserving of an AMTA payment. But if it's a small percentage of it then it only becomes a perception problem and we have to deal with perception of the urban colleagues. And the Wall Street Journal is a great newspaper that tends to focus on the negative of this. I use them as the example from time to time and that's why we came up with a little different plan called a supplemental income plan, and it takes more than a few weeks to develop it, it's not going to happen for this year, but I seriously want to see it considered for next year. I would like to see put in permanent some kind of a supplemental income plan so we don't have to come back to Congress again next year. All of the projections are we've got at least one more year of low prices. If so, now is the time to do it.
One question I want to ask, and I don't really want you to answer it today. I have been of the opinion, I agree, Freedom to Farm, I being a farmer myself, my son, et cetera, we like the flexibility of planting what we believe should be planted and doing it on our farm and I've had examples given to me today of how this is working and we don't want to change that. One of the proposals that I proposed in the 1996 farm bill was to recognize that we have got larger and larger farms but I really don'tif you want to farm half the county, I really do not think that the Government owes you a price guarantee on every acre and I propose that we have where we come up with a nonrecourse and a recourse loan. Everybody can participate in the recourse but we have a limit on how much we can put into a nonrecourse loan and, therefore, Freedom to Farm, freedom to plant really means that and that means that you would not have a loan deficiency payment on those bushels over and above whatever we decide will be a supportable entity. Some say well, why don't we do that this year?
Page 71 PREV PAGE TOP OF DOC The problem is now under the current program, if you don't increase the limit on loan deficiency payments as is being suggested, the Government assumes control and we spend the money. We acquire the commodity so under the current program, it wouldn't work, but I really think if we're going to go into the international marketplace and we are, we're not going to escape that, and all of those that want to go back to the supply and demand, it ain't going to happen. The political support is not there in this farm country, much less anywhere else, but your suggestion about finding different ways to deal with cost of insurance, cost of production being defined what you actually spend to make the crop, not based on what the averages in all of this is but the individual farm is something we're very interested in and you will have proposals for you to look at. But the question I pose to you and to everyone else, can we develop another limit on recourse and nonrecourse loans that will help the market system and help us make those kind of decisions about how much corn we are going to plant if the market price is going to be a buck and-a-half? If you're going to farm 5,000 acres and you know thatand picking numbers out of the air that three thousand are going to have to get whatever it gets, then there will be no support for it. That's the question. Give me the answer later.
Mr. BARRETT. Thank you. Mr. Lucas.
Mr. LUCAS. Clearly, we have lots of good discussion. From the town meetings that I've conducted and what I think I'm hearing here basically is the same message. We have to have a price to survive but we want that flexibility. The challenge in that remains, if you go back and look at the statistics in the last seventy some years now in this country on approximately the same acre of land we have increased our productivity by 400 percent. We literally produce four times more on the same acreage than we did 70 years ago and that has a huge impact on the commodities. That has a huge impact on facing the challenge of providing that flexibility and at the same time getting a decent price. I arrived in the Nation's capital in the spring of 1994 when a lot of folks saidespecially in 1995 and as we went into 1996that we might not ever be able to pass another farm bill. That was the discussion at the time. Well, we proved the world wrong. It may not be a perfect document but we passed the farm bill in 1996. We now will, whether it begins next year or we have to do it by the following year, face the same challenge of coming up with another piece of legislation to address the needs of agriculture in rural America. If you'll work through us and work with your elected officials and work through your fellow citizens, we'll come up with the best possible bill we can. If for no other reason, then we have to do that. We have to do that. This is not an acceptable option. We have to pass another farm bill that will hopefully take us another step in the direction of helping rural America.
Page 72 PREV PAGE TOP OF DOC With that, thank you, Mr. Chairman, for the opportunity to participate.
Mr. BARRETT. Thank you. Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Chairman. I'll be very short. I think we found out here todayI'm going to be within a minute but we've got a very difficult thing just listening to folks here today and so we'll deal with it. What else can we do? I agree with whoever said with this big fork in the road that we've got to do well. I know that our Secretary, which you all know, feels that way. I've talked to him personally and talked to others and I think all of us are going to push as hard as we can that this is taken to the best of our ability. But we've got to set aside some other differences when we go forward and that will come out in discussion. Some of us are already talking about it. I won't take time today.
Jerry, I thank you for inviting me here to your great State and I appreciate it. We're in this together, no question about it. I yield back my time.
Mr. BARRETT. Thank you. Mr. Moran.
Mr. MORAN. Thank you. Again, in hopes of allowing for some audience participation, I would yield back my time but I again thank this panel for their participation today and all of the folks who are here. Oh, I should mention the Oklahoman. Nice to have you surrounded by two Kansans on your side. We feel safe with you in our State that way. I yield back my time.
Mr. BARRETT. Mr. Schaffer.
Mr. SCHAFFER. Thank you. I would merely conclude my remarks today by expressing my appreciation, not only to Jerry Moran for organizing this meeting and bringing us all here to Kansas, but also in a more general sense, my district is the eastern plains of Colorado, that part that shares a lot in common with all of you here in Kansas. To that extent our issues are quite similar and our agriculture economy is virtually identical and this western partnership is the right strategy to pursue in trying to move forward on our interests.
Page 73 PREV PAGE TOP OF DOC So, once again, the town meetings that I hold throughout my district and the agriculture forums that I hear, I just want you to know there's a great part of the west that comes to similar conclusions and has allowed me and many of us here to join forces in a similar strategy to try to elevate the agricultural economy throughout the state. Again, we agree on most things. That Arkansas lawsuit is not one thatneedless to say, that's for another forum. I, again, want to express my appreciation for the opportunity to learn more about agriculture and become even more confident that the direction is a little more clear knowing the magnitude of the problem that we share with Kansans. Thank you.
Mr. BARRETT. Mr. Gutknecht.
Mr. GUTKNECHT. Thank you, Mr. Chairman. I don't have any questions for the panel. I would say, Mr. Schmidt, in reviewing your report here, I think you've got some excellent ideas and I want to thank Congressman Moran as well as the committee. It should be obvious I think to everybody here that we don't have all of the answers in Washington. In fact, sometimes I'm not sure we even understand all of the questions, but I think it is important as we go forward that we do listen to each other and I hope thatMr. Chairman, I hope that as we go forward into January, I know that Chairman Combest has talked about having some hearings. I certainly hope they will be around the country and we hear from real producers. We're not going to get everybody to agree all the time, but I think if we work together, listen to each other, we can come up with a farm policy and a strategy to go into the next century that will hopefully guarantee something that we've taken for granted for a very long time is not going to go by the wayside and that is an unlimited number of young people that are willing to go out and take a chance at farming. That is something we cannot lose.
Mr. LATHAM. First of all, I just want to thank Jerry Moran for inviting us here and Mr. Chairman for holding the hearing here. I will try to be brief, but talking and several statements were made about the demand side of the equation and some of the frustration I have is that in the last 80 years we've had 120 ''sanctions.'' That's a kind word today, politically correct word for an embargo. Over half of those, 61 or 62 of those, have been put on in the last 6 1/2 years. We currently have about 40 percent of the world's population under some type of an embargo and we have got to address that problem and it's not a liberal thing, a conservative thing. There's people on both sides of the issue. A lot of religious conservatives think we ought to have more of them and you had Jesse Helms this week talking about another sanction or embargo and it's just using agriculture as a weapon in foreign relations is wrong, it always has been and we've got to stop it. When you have 40 percent of the world population under some kind of an embargo, it's pretty hard to sell to them. Another frustration that I have, I met a year ago with our representative to the World Trade Organization. I was shocked as a farmer from Iowa talking with her. She had no clue that there was a problem in agriculture. It was not even on her radar screen. All they want to do is export high tech and for usand you talk about the World Trade Organization talks, we have some problem, we must make them aware of what's going on in agriculture. Quite honestly, there's a lot of people who think all of the future is in high tech stuff, computers. Support that and we'll save the American economy. Well, it's worked for everybody but us and we've got to make sure that that is the centerpiece of our talks and our discussions and we are going to do everything we can to raise the issue, maintain the visibility of the issue, and that's why a meeting like this is so important, not because we're here but because you're here and you need to contact Jerry, you need to contact everybody in Congress to make sure that message gets through. With your help, I think we can make a difference. Thank you, Mr. Chairman.
Page 74 PREV PAGE TOP OF DOC Mr. BARRETT. Thank you, Mr. Latham. And thanks very much to the panel. I thought this was an excellent panel. Again, we appreciate your testimony, your sharing with us, and I think I'm going to exercise the prerogative of the Chair here. We were to exit the building at 1 o'clock, folks. Because of the dialog here this morning, I'd like to suggest that we do have a couple of comments from you folks. Let me stretch to 5 minutes and let me suggest two or three of you come up. One minute per person and we'll go for 5 minutes and it's over. Thank you, gentlemen of the panel. Go ahead. We'll keep a clock on you. In fact, I'll ask Mr. Stenholm to keep the clock.
STATEMENT OF CLIFF SMEDLEY, JOHNSON, KS
Mr. SMEDLEY. My name is Cliff Smedley from Johnson, KS. I married into a farm family and I put together what I believe is an excellent solution that you folks need to entertain and I have copies of it here, nine copies, and anyway, in addition to that, I wanted to address the issue that Mr. Collins addressed earlier of efficiency. He sees efficiency as being the biggerbeing able to get thehave the better purchasing power and for the bigger being able to have the power to put things together. I think that that's not necessarily the only efficiency you need to look at. Studies have shown that smaller groupings ofthat smaller operators are able to take
Mr. BARRETT. Sorry, time is up.
STATEMENT OF JEFF BARR, HAZELTON, KS
Mr. BARR. Jeff Barr, Hazelton, KS. I farm in Kansas and Oklahoma. I appreciate the K101 interviews. Carbon sequester, I don't know how many of you are aware of it. I don't know what's going on. I love the thought of doing something for the environment and maybe getting paid for it. Why aren't we in the Global Warming Treaty? What's going on? Let's find out.
Page 75 PREV PAGE TOP OF DOC Mr. BARRETT. Thank you.
STATEMENT OF DARRELL LARSON, MCPHERSON, KS
Mr. LARSON. My name is Darrell Larson from McPherson County, KS. I had a couple of questions and they've gone past me with everything that's gone on, but I'd like to make a short statement. There's been a lot of talk here today about world trade. If the U.S. Government can't or won't compete, then the world trade means nothing to American farmers and ranchers. Demand has not kept up with supply. We need to focus on a program to control our inventory so that we can get a fair price. Selling into the world market below cost is stupid for everybody in America. The American farmer and rancher cannot compete against other governments on our own. We've got to have government help from our own country. Thank you.
Mr. BARRETT. Over here.
STATEMENT OF GENE SWEARINGEN, HIAWATHA, KS
Mr. SWEARINGEN. I'm Gene Swearingen from Hiawatha, KS, northeast corner of Kansas. I appreciate the opportunity to be here. I think the Freedom to Farm Act is basically a sound proposal that has been adopted but it's not complete. The insurance, the crop insurance, the getting rid of the sanctions, other things to complete that, if we'd have had all that done at the same time the act was adopted, we might not be facing some of the problems that we're facing today and I challenge you to try to complete that act and I think we'll be better off. And I saw a sign coming down here, every farmer feeds 128 people. I'm proud to be one of those farmers and I think you have a great influence on making that ratio change, however, it's going to change. I can't give you the answer but you're sitting there and going to control that answer. Thank you. I have copies of my testimony I'd like to submit to you and if you will take care of them.
Page 76 PREV PAGE TOP OF DOC Mr. BARRETT. Thank you, sir.
STATEMENT OF RAY KOHMAN, SOLOMON, KS
Mr. KOHMAN. Thank you. My name is Ray Kohman. I'm from Solomon, KS and I farm with my brother about 2,000 acres and 2,000 head of cattle a year. I'm also the president of the Kansas National Farmers Association, the NFO. Our area is bargaining and collective bargaining. Mr. Stenholm, a lot of the things you're saying is a lot of the things that are hard. The economists in response to your question about forming farm marketing alliances and such, he said it was hard. Well, yes, it's hard. Anything that's worthwhile is hard. Organizing farmers is hard but it's something we've dedicated ourselves to do and it's a challenge. I think we need to look into cooperating with you, other farm organizations all need to work together. We need to form a community and work on these problems together and that's the only way we're going to solve this problem. Thank you,.
Mr. BARRETT. Thank you. Over here.
STATEMENT OF DAVE ALBERS
Mr. ALBERS. My name is Dave Albers. I was here last year, same song, second verse. This might be for Mr. Latham. He wanted help on how to convince people from Manhattan how they wanted their food control dictated. Hypothetical question. Ask that person whetherif whether they're familiar with bed and breakfasts, whatever. I like to feel like my wife provides me a bed and breakfast, three good square meals a day. Would they like to have their meals for the rest of their life in a bed and breakfast environment or in an institutional cafeteria?
Page 77 PREV PAGE TOP OF DOCSTATEMENT OF MARVIN FLETCHALL, MITCHELL COUNTY, KS
Mr. FLETCHALL. Marvin Fletchall from Mitchell County and it relates to the last man's comments here. The argument I'd approach the other congressmen with is who's going to turn the money back into the economy quicker, the family farmer or the corporate entity? So I think that's the way to look at it, to turn the tax dollars back into the economy.
Mr. BARRETT. Thank you. Right here.
UNIDENTIFIED SPEAKER. I'm from from Ness City, KS and my beef is about the ULB payment. The farmers, the young farmers out there, I'm talking for them mainly and that's that they get hailed out and they don't get nothing. Is there anything you can do about that?
Mr. BARRETT. Thank you. I said you were the last speaker. I must yield to the fairer sex. This is the last speaker.
UNIDENTIFIED SPEAKER. I'm from St. Francis. I got up at 3 a.m. To drive 5 hours to come and see you. There's a lot to say, but I'd like to encourage you to include God in this. It is a complicated issue as are so many other things and I appreciate your hard work and you coming here and your time and your energy. I want you to know that I do indeed pray for you, not by namesometimes you, Mr. Moranbut almost every day. Thank you.
Mr. BARRETT. Thank you Connie, so very much. He does need all the help he can get.
Mr. BOSWELL. She can add me to her prayer any time she wants to.
Mr. BARRETT. We want to thank you folks again. This has been an excellent morning. I thank my colleagues on the panel. We appreciate the fact that you have taken the time and the trouble to share with us. The Chair would seek unanimous consent to allow the record of today's hearing to remain open for 10 days to receive additional testimony and supplementary written statements. With that, it's so ordered. This hearing of the Committee on Agriculture is adjourned.
Page 78 PREV PAGE TOP OF DOC [Whereupon, at 1:12 p.m., the committee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Mark Drabenstott
The views expressed herein are strictly those of the author, and do not necessarily represent those of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
U.S. agriculture is in the midst of a sharp downturn. Farm prices have plunged to lows unmatched for nearly three decades as big supplies of meat and grain have collided with weak world demand. Taken alone, the farm prices would indicate a serious blow to many farmers. Farm prices alone, however, do not tell the whole farm story.
The rest of the story lies in a passel of farm income and financial indicators. Farm income measures suggest that things are not nearly as bad as they might seem due to bountiful harvests and big government payments. And a look at farm balance sheets shows that most farmers are still in reasonably strong shape, in no small part due to farmland values that have been much more unsinkable in the 1990's than in the 1980's. Finally, farm lenders appear to be in the best shape of all, with large capital reserves to guard against what thus far has been only modest erosion in farm loan portfolios.
Depressed farm prices, therefore, have cast a long shadow over the agricultural outlook, but thus far at least the corresponding drop in income has been counterbalanced by hefty government payments. What is true in aggregate may not be true for individual farmers, however. With payments based mainly on historical output measures, there can be little doubt that some government payments are reaching farmers that don't need it, while some farmers may need assistance but get little. How significant this distribution problem may be is difficult to determine. Overall, it seems safe to conclude that most producers have weathered the downturn reasonably well, without the widespread loan problems that were the hallmark of the last farm recession.
Page 79 PREV PAGE TOP OF DOC In short, we are not yet close to the financial crisis that roiled the sector in the mid1980's, but protracted weakness in farm markets could lead agriculture more in that direction. My testimony develops this conclusion in three steps. The first section shows that market returns have plunged, but farm income has been buoyed by the biggest government payments since the 1980's. The second section shows that farm financial indicators are strong overall, with a relatively small group of farmers now sliding into serious financial trouble. The third section discusses the challenge of responding to near-term farm problems in the context of even bigger long-run issues.
A MIXED PICTURE IN THE FARM ECONOMY
Viewed simply, U.S. agriculture appears mired in a deep slump. Yet the sector's full range of economic indicators is decidedly more mixed, and far from resonating the sort of full-tilt farm recession that we remember from the 1980's. Farm prices give the most bearish signal, with crop prices testing lows not visited since the early 1970's. Farm income, on the other hand, bears little evidence of a steep downturn, thanks mainly to big government payments. And farmland values, the closest thing to a Dow Jones Index for agriculture, are generally holding steady, defying commodity markets and a host of naysayers throughout the countryside.
Weak commodity prices are the clearest indicator of agriculture's slump. Through August, prices for corn, wheat, and soybeansthe Nation's three biggest cropswere all down about a third from the average of the past 3 years. Livestock prices were also relatively weak, especially for hogs.
Farm prices are low for three main reasons. Crop supplies are big due to favorable weather throughout much of the Farm Belt and large plantings worldwide. Global demand is weak in the wake of the Asian crisis, although there are early signs that demand could begin growing again. And the U.S. dollar has been strong against many currencies, making U.S. farm exports more difficult, especially compared with Latin American competitors such as Brazil.
Page 80 PREV PAGE TOP OF DOC Despite the low farm prices, farm income measures send a much more sanguine signal about the health of the farm economy. Farm income has not fallen nearly as much as depressed commodity markets would suggest. Net cash farm incomea broad income measure that excludes inventory adjustments and depreciation for capital equipmentis projected at $53.7 billion this year, down only slightly from last year due to an estimated $16.6 billion in direct government payments. Moreover, the Senate has passed legislation that would add another $7.4 billion in farm aid. If the Senate bill is enacted, it is unclear how much of the extra aid would actually reach farmers this year. But if we assume that at least a major portion is issued in the final months of this year, farm income may well top the average for 1990 to 1998 ($54.7 billion). Put simply, agriculture is shaping up to have a good income year, with government payments making up what the market would otherwise take away.
Finally, farmland values are sending what is best described as a neutral signal, as values generally hold steady in many parts of the Nation. The significance of farmland as a signal for the sector should not be underestimated. In the 1980's farm crisis, land values were as good a barometer as any in tracking the various stages of U.S. agriculture's recession and recovery. Land values in the Heartland began falling in 1981 with the onset of the farm recession, fell steadily into late 1986, and then began turning up in 1987. In retrospect, that was practically a mirror of the farm recession as it played out among farmers and lenders.
Currently, land values say that the farm economy is flat, but they also suggest that farmers are growing more cautious about the future. In the seven states of the Kansas City Federal Reserve District (Colorado, Kansas, western Missouri, Nebraska, northern New Mexico, Oklahoma, and Wyoming), non-irrigated land values edged down 1 percent in the four quarters ended in June. Here in Kansas, non-irrigated land values actually rose 0.5 percent the past four quarters despite the tumble in wheat prices. The Chicago Federal Reserve reports similar findings in its territory of eastern Corn Belt and Great Lakes states. Land values in the Chicago District were steady for the four quarters ended in June. This average did reflect substantial variation across key farm states, with Indiana, Illinois, and Iowa all registering year-over-year declines, while Michigan and Wisconsin had substantial increases.
Page 81 PREV PAGE TOP OF DOC How have land values stayed unscathed by the plunge in commodity prices? Abundant harvests and the ballast that government payments have added to farm income are clearly part of the explanation. Another part is the strong income that many farmers posted in 1996 and 1997, income that many farmers have been willing to invest in land rather than in the stock market. A final part is the willingness farmers have shown in the 1990's to buy land with substantial cash down payments. Thus, farm real estate is much less highly leveraged than in the early 1980's, when many farmers were clearly poised for trouble when values started heading down.
In short, a macro view of the farm sector presents a mixed picture. Farm prices are depressed, but farm incomes are not. Land values, perhaps the single best barometer of farm financial conditions, may indicate some wariness developing in the countryside, but no clear recession signal yet.
FARM FINANCES STRONG OVERALL
While farm signals are mixed from a macro point of view, how do farm finances look on closer inspection? More particularly, are there any early warning signs that farm balance sheets and lender loan portfolios are headed for trouble? Thus far, financial indicators suggest that farm loan problems remain small and manageable for many borrowers and lenders. That said, problems will almost certainly increase if commodity markets remain soft for an extended period. Thus, agriculture's financial stability in the period ahead will be much more sensitive than usual to the level of government payments.
One helpful way of assessing farm financial conditions is to gauge how many farmers are heavily leveraged and have persistent cash flow deficits. The 1980's proved that farmers with debt-asset ratios above 40 percent and negative cash flows generally went out of business. How many farmers are in similar straits today?
The answer is surprisingly small. USDA analysts estimate that only 6 percent of U.S. farms had a high debt/asset ratio (greater than 40 percent) and negative net income at yearend 1998 (USDA). Fully 62 percent were in the favorable position of comparatively little debt (a debt-asset ratio under 40 percent) and positive net income. The remainder, about a third of all farms, had a mixed financial outlook, with a combination of relatively high levels of leverage and marginal incomes. It is important to note that these numbers do not incorporate the impact of the low farm prices throughout 1999, which will almost certainly lead to an increase in the 6 percent figure by yearend. Still, the fact remains that most farmers entered the current farm slump in reasonably strong financial position.
Page 82 PREV PAGE TOP OF DOC To provide a better sense of how things look at the state level, we compared farm financial conditions in two important farm states in this regionIowa and Kansas. Analysts in both states used farm business records to determine how many farms appear headed for serious financial problems in the near future. Slightly different methodologies were used in defining four financial categories. However, there are sufficient similarities between the two approaches (and with USDA's) to draw a few general inferences.
Iowa appears to be feeling the downturn somewhat more than the Nation as a whole. Analysts project that 14 percent of Iowa farmers were in the vulnerable financial category at the end of 1998, more than double the national figure (Jolly and Vontalge). Moreover, another 22 percent were projected to be in a weak position, with poor solvency and low income. In both cases, the percentages rose significantly from 1997, but it is important to remember that the 1998 numbers are projections and not based on actual 1998 farm records. The apparent financial erosion in Iowa clearly reflects the sharp deterioration in the pork industry in 1998, one of the worst years for pork losses in decades. Pork is one of the main anchors of the Iowa farm economy.
Kansas farmers, on the other hand, appear to be faring somewhat better. The percentage of farms in the vulnerable category is about the same as for the Nation (Kastens and Featherstone). Still, a quarter of Kansas farms are in the weak category, a group that bears further watching. Moreover, there was a sharp drop in the percentage of farmers in the favorable category from 1997 to 1998, reflecting the downturn in wheat and hog prices.
The Kansas analysis shows that nearly a third of the state's farms are now in either the vulnerable or weak categories, the highest combined percentage since 1986. History shows, however, that a one-year increase in the number of farms in these categories is not necessarily a good predictor of future financial problems. Put another way, most farm loan problems take some time to develop, and a one-year slippage in farm finances is often reversed by a rebound in farm markets.
Page 83 PREV PAGE TOP OF DOC The condition of farm lenders helps to round out the farm financial picture. As a whole, farm lenders are in strong shape going into yearend loan reviews. Since many farmers have negative cash flows from ongoing operations, however, anxiety is mounting among farm lenders. Perhaps the best overall measure of how farm lenders are faring is the delinquent portion of their farm loan portfolio. In the 1980's, this measure provided a painfully precise track of the farm recession's impact on farm lenders.
Loan data for the Nation's commercial banks show loan delinquencies nudged up at midyear, but they remain far below levels registered in the 1980's. Delinquencies were running 3.1 percent of total farm operating loans, up from 2.8 percent at yearend and 2.6 percent the year before (Chart 1). These numbers pale compared with the pile of unpaid farm loans bankers faced in the 1980's. In the case of farm operating loans, for instance, delinquencies peaked at more than 10 percent of total loans in 1985. Farm real estate loan portfolios look even stronger. Delinquent loans were just 2.5 percent of all commercial bank farm real estate loans, down from 2.7 percent at yearend 1998 and unchanged from a year ago.
Finally, farm lenders have very strong capital reserves to guard against any further erosion in the quality of their farm loan portfolios. Agricultural banks (those with a higher than average portion of their loans in agriculture) had capital reserves equal to 11 percent of their assets. This is a high level by historical standards. Moreover, these banks were posting a 1.2 percent return on their total assets, again a strong performance by historical standards. While profits may edge down in 1999, they are unlikely to drop sharply. In short, there is ample evidence that agricultural lenders have significant scope to manage the farm loan problems currently in prospect.
Taken together, current farm financial indicators suggest that most farmers will weather this slump reasonably well. A small, but significant group of producers probably faces some significant financial restructuring in upcoming loan reviews. In some cases, this will lead to a decision by the producer to leave farming while some equity can still be salvaged. It appears relatively few producers will leave farming due to foreclosure on the part of lenders. And lenders themselves appear to be in a strong position to weather the downturn.
Page 84 PREV PAGE TOP OF DOCTHE CURRENT DOWNTURN IN A LONGER PERSPECTIVE
When farm prices fall as low as they are now, agriculture tends to adopt a short-run focus. But agriculture is a cyclical business, with ups and downs that often span years rather than months. Thus a broader perspective is especially valuable at times like thesefor farmers and policymakers alike. What issues should be born in mind as policy responds to the current slump? Four seem especially useful.
STOCKS ARE NOT THAT BIG.
Commodity markets could recover much more quickly than many observers now think possible. The reason is a simple one: grain stocks are not that big. Measured against annual use, total grains stocks currently amount to just 23 percent, or about 3 months of grain. This is a long way from the huge mountain of grain that hung over commodity markets in the mid1980's. In 1986, for instance, the stocks-use ratio was nearly 70 percent. The glut of grain was so big that Congress idled tens of million of acres through the Conservation Reserve Program (CRP) to keep it from growing.
Crop prices clearly have the potential to bounce higher. For that to happen, it will probably take (1) adverse weather in the United States or another major growing region of the world, (2) a significant spike in world food demand, or (3) some combination of the two. The odds favor continued weakness in prices, but there is the possibility that markets could improve quickly.
GROWTH IN GLOBAL DEMAND REMAINS THE GOAL.
Farm aid packages take center stage when farm prices are this low, but policymakers would be prudent to keep an eye on the long-term prize. For U.S. agriculture there is no question that this prize is encouraging growth in the world food market. No food exporter stands to gain more when world demand grows than the United States. No one else has the unmatched capacity and efficiency to serve markets that are growing.
Page 85 PREV PAGE TOP OF DOC Thus, while packages to bridge down times may be needed, they should not distract or prevent efforts to grow our markets. The new WTO round will hold huge stakes for U.S. agriculture, and it needs to be successfully launched and completed. Tariff reductions will be important in agriculture, to be sure, but in many other areas, too. Indeed, it is progress in all these other areas that fuels the income gains abroad that are U.S. agriculture's surest ticket to future prosperity.
POLICY MUST ADAPT TO A NEW AGRICULTURE.
One of the biggest challenges facing policymakers today is deciding how to respond to the structural changes swirling throughout U.S. agriculture. The downturn in farm markets commands the most attention, but it may not be the most important force at work.
A tidal wave is sweeping throughout U.S. agriculture. It is changing how agriculture does business, who does business, and where it does business. The tidal wave is the spread of supply chains, a trend some call industrialization.
Many farmers no longer grow the generic commodities of the past. Instead, they have signed on as the first link in a more tightly choreographed food system. The key component in this choreography is a business alliance known as a supply chain. In a supply chain, farmers no longer make independent production decisions and sell their crops at the local elevator. Rather, farmers sign a contract with a major food company to deliver precisely grown farm products on a pre-set schedule.
The tidal wave now sweeping U.S. agriculture poses a whole new set of agricultural policy questions. These include the public role in regulating an industry with fewer players, fewer markets, and more contracts. One of the most important questions will be what steps, if any, public policy will take to help farmers stay in a new supply chain game. Addressing this question may be more important to many farmers today than the next farm assistance package. Renewed attention to farm cooperatives is one approach that probably deserves additional attention.
Page 86 PREV PAGE TOP OF DOCA BROADER APPROACH TO RURAL POLICY IS NEEDED.
The changes swirling through agriculture are redefining the farming business, but they are literally redrawing the rural landscape. The spread of supply chains is likely to dramatically change where agricultural production locates in the 21st century. For the past 200 years, a hallmark of commodity agriculture in the United States has been its wide dispersion. Corn, for instance, has been grown for more than 1,000 miles across the Nation's midsectionfrom the rolling hills of Pennsylvania to the wide-open prairie of Nebraska. Supply chains will have a very different geography, concentrating activity in relatively few rural places, much like the poultry industry that is now concentrated in relatively few places in the Southeast, the mid-Atlantic, and the upper Midwest (Drabenstott, Henry, and Mitchell).
In short, a new geography in agriculture may turn into an economic revolution for rural America. Many rural places will still depend on commodity agriculture, but they will build an economic future with fewer farms, fewer banks, and fewer businesses. Meanwhile, some rural communities will hitch themselves to the brave new world of industrialized agriculture and supply chains. But relatively few communities may prosper under supply chain agriculture.
Given these changes facing rural America, it is clear that agricultural policy alone will not cure rural ills in the future. To be sure, agricultural policy will remain a basic element of rural policy. Yet if policymakers want to shape the economic future of all of rural America, rural policy will need to encompass a much broader array of issues. At a minimum, such issues need to begin to be identified.
U.S. agriculture is contending with a steep slump. A sharp drop in farm prices has sounded echoes of the mid1980's farm crisis. Yet a closer look at farm financial indicators suggests that farm income and farm finances are holding up much better than expected. And agriculture's perennial bellwether, the value of farmland, is holding steady, reflecting a growing sense of caution on the part of farmers. In short, the current downturn is still far from the farm crisis of the mid1980's.
Page 87 PREV PAGE TOP OF DOC The big question going forward, of course, is whether the current downturn turns into a crisis. Protracted weakness in farm cash flows could lead to lower land values, eroding balance sheets, and more widespread farm loan problems. This situation certainly bears watching. The outcome will depend on how quickly commodity markets turn around and the size of government payments until they do.
Low commodity prices command agriculture's attention, but the current downturn needs to be kept in a longer run perspective. By nature, agriculture is a cyclical business, and long run issues remain crucial, especially as participants respond to the downturn. Stocks are still relatively low, and markets could rebound quicker than pundits expect. And long-term, agriculture's surest path to prosperity is fostering growth in global demand. The structural changes sweeping agriculture complicate policy decisions today, and underscore the value of policies that help farmers participate in the supply chain world of the future. Finally, those structural changes also reinforce the need to explore a broader agenda for the Nation's rural policy.
Statement of Mark Nichols
Good morning, my name is Mark Nichols; I am a cotton, wheat, and feeder cattle producer from Altus, OK. Thank you for allowing me to speak today.
There has been a spirited debate in the Senate on proposed agricultural assistance packages. It was encouraging to hear strong bipartisan support for agricultural relief. It is imperative that differences be resolved quickly and for Congress to move forward with a viable assistance package.
Much of the U.S. economy escaped relatively unscathed by the Asian economic crisis and enjoys continued prosperity, but U.S. agriculture and the U.S. cotton industry were not so fortunate. The Asian economic crisis has manifested itself in depressed commodity prices and increased levels of textile imports. Both results have robbed the U.S. cotton industry of profitability. Without a proper response from the U.S. Government, our industry, along with U.S. agriculture in general, will be decimated as farmers and allied sectors are increasingly unable to meet financial obligations.
Page 88 PREV PAGE TOP OF DOC U.S. cotton prices are at a 24-year low, well below the cost of production, and international prices are just as depressed. We have seen 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 detrimental cotton and textile policies of the People's Republic of China. Raw cotton exports of the United States have declined by 45 percent in 1998 to the lowest level since 1985.
Demand for U.S. raw cotton and U.S. textiles is under siege from a flood of cheap cotton textile imports. While the textile industries of some Asian countries were only 20 percent export driven before the Asian crisis, many are now exporting upwards of 80 percent of their textile production. In 1998, textile imports surged to 65 percent of total U.S. consumption as Asian textile producers, faced with depressed home markets, dumped surplus production onto the U.S. market.
Farm incomeat least farm income in cotton, soybeans, rice and the other major commoditieswill take significant decline this year. This expected downturn in income follows on the heels of a very poor 1998. A combination of poor weather and low prices in the 1998 crop year prompted Congress to pass, and the President to sign, a very substantial emergency package. It was badly needed then, as it is now.
The economic facts attest to the serious conditions that exist. Wheat prices are at their lowest levels in 13 years; soybean prices are at a 27-year low; hog prices are approaching a 27-year low; cotton prices are at their lowest levels in 24 years and grain prices are matching a 13 year low. And as far as net farm income is concerned, it is estimated to be $11 billion below 1996, and almost 5 billion below 1997. And those numbers include the $2.5 billion of extra Federal assistance contained in the 1998 emergency bill. Meanwhile, costs 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. World grain stocks are up 27 percent, and cotton stocks are up 28 percent, while U.S. stocks of these same commodities are up 226 percent and 130 percent.
Page 89 PREV PAGE TOP OF DOC Make no mistake; U.S. cotton and U.S. agriculture in general are in serious jeopardy.
With international and domestic prices extremely depressed, with dramatic increases in imported cotton textiles, with continued subsidization of Chinese cotton sales and a continued decline in demand for U.S. cotton, the situation for U.S. cotton is critical. It is imperative that Congress provide needed assistance to the U.S. cotton industry.
Critically important components of any relief package approved by Congress are: reinstatement of cotton's Step 2 program for remainder of current farm law; substantial direct supplemental payments to farmers; and relaxation of payment limits.
From 199096 cotton's competitiveness provisions worked well when conditions warranted. The funds available for Step 2 were arbitrarily capped 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 subsidized competition and over-supply.
The cotton competitiveness amendment sought by the cotton industry would provide the funds needed to allow Step 2 to operate for the rest of the farm bill. Reinstating Step 2 will allow U.S. exporters to compete for key markets and ensure U.S. domestic textile mills have access to competitively priced cotton. Equally important, the increased consumption will boost prices for U.S. farmers and help alleviate the severe economic stress. Moreover, 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.
The cotton industry and agriculture in general will also benefit from an increase in the limitation on marketing loan gains. As commodity prices continue to fall in the United States and around the world, U.S. agricultural producers and the Commodity Credit Corporation will soon feel 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 is likely to accumulate significant commodity stocks for the first time in 14 years. If the limit does lead to additional loan forfeitures, and I believe that it will, 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.
Page 90 PREV PAGE TOP OF DOC This is not a small farmer vs. big farmer issue. The limit on marketing assistance loan gains has always been inconsistent with the intent of the marketing loan program. In perverse fashion, the marketing assistance loan gain limitation hurts producers more when such assistance is most needed and inflates the Federal Government's budgetary costs. As prices deteriorate, producers will see more marketing loan gains and will hit the loan gain limit quicker than ever before.
And remember, because the prices of all major commodities have declined so much, producers who never dreamed they would hit the marketing loan gain limit will be surprised as they add up the gains attributed to cotton, soybeans, wheat, and corn. And when the limit is hit, producers will do the obvious, they will forfeit their commodity to the CCC, helping make the United States a residual supplier of commodities in world markets.
Increasing the marketing assistance loan gain limitations is not truly an issue of cost either. It will ultimately save the Federal Government money because it will avoid loan forfeitures. And because the increase will enhance the potential to market this year's crop this year, it will facilitate flow and help boost overall producer income.
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 orderly market the 1999 crop.
The two assistance proposals that have been debated in the Senate contain different delivery mechanisms for direct assistance for 1999. We support 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. Why take a different path at this time, when the AMTA mechanism has been shown to work.
Page 91 PREV PAGE TOP OF DOC I believe that whether farm policy should return to a production linkage, such as the old deficiency payment program, is a matter for future debate and consideration. Lasting policy is rarely developed under such dire circumstances. U.S. agriculture needs emergency assistance now and it should not be delayed by further debate over fundamental farm policy.
The significant agricultural assistance measures under consideration in the Congress will not fully restore farm profitability. However, they will help many farmers and ranchers weather an otherwise disastrous year and enable them to survive until global surpluses can be worked down and market prices can improve.
While the primary focus of today's session is on long-term policy, it is important to consider the current situation and outlook. The primary short-term interest of the cotton industry and a majority of agriculture is passage of an emergency assistance package. If that is accomplished, there is a need to evaluate the medium and long-term outlook and the policy implications.
Unfortunately, most economists are not forecasting a substantial improvement in the agricultural economy in the next 18 months to 3 years. Since Congress is unlikely to continue to consider short-term assistance, it may be time to modify farm policy in advance of the expiration of the current farm bill.
The cotton industry has some preliminary recommendations. First, an effective agriculture policy will require adequate budget resources. When producers are confronted with market conditions beyond their control, it is imperative there be an adequate safety net. Cotton's marketing loan and 3-step competitiveness provisions can provide that safety net by responding to our competitors predatory pricing and production practices. Cotton producers generally favor the cropping flexibility provisions of current law, but are not in full agreement on whether direct assistance should be in the form of decoupled AMTA payments or counter-cyclical production based payments. Cotton producers are in agreement that limitations on benefits or targeting is severely disadvantageous to commercial sized operators.
Page 92 PREV PAGE TOP OF DOC These are a few of our preliminary views. In addition, effective trade policy, tax relief, reasonable environmental laws and streamlined regulations are an integral part of overall agricultural policy.
Farmers are facing a difficult challenge over the next few months and years. We look forward to working with Congress and the Administration to develop effective policy to meet these challenges. Again, thank you.
Statement of Dean Stoskopf
Good morning! My name is Dean Stoskopf. I am a fourth generation farmer from Hoisington, KS.
I would like to welcome the members of the committee to Kansas and thank you for coming. I appreciate the availability of the House Agriculture Committee on the Internet. This lets me and other interested people receive timely information on the agriculture issues.
This access to information on the current debate is helpful but, at the same time, frustrating. Monday, I was going to tell your how the FAIR Act of 1996 has helped my operation. It has given me flexibility to grow different crops and change crop rotations. When we lost half our wheat to hail last year, we could hay it and plant other crops without waiting on the FSA to give us permission. And the AMTA payments were received, even though we had low production.
I was going to say that the current farm crisis was not caused solely by the FAIR Act. Favorable weather has produced excess world-wide crops the last four years. The collapse of the Asian economy and the strong dollar has affected our exports and the lack of a comprehensive trade policy has cost us many sales world-wide.
Instead, I would like to respond to comments made during the House Ag Committee hearings this week.
Page 93 PREV PAGE TOP OF DOC It has been said that the 1996 farm bill is not doing what farm bills should to help ag producers cope with the changes in the ag economy. A recent FAPRI study compared the 1990 and 1996 farm programs. The study showed that the 1990 program would have increased income 0.3 percent over the 1996 program. In other words, the old program would not have helped either.
Another comment has been that the current farm bill is not counter-cyclical. It seems to me that as prices have gone down, the loan deficiency payments have gone up. Sounds counter-cyclical to me!
Statements have been made that AMTA payments do not go to the people who need it and that payments should be based on actual production.
We own one-half of the land we farm and rent the other half. Our twelve landlords are an important part of our operation. Many are dependent on the income they receive from the land. If they cannot receive enough income from the land and have to sell it, I do not have the resources to buy it. The current discussion seems to put the ag producer at odds with the landowner. We consider them as important partners in our operation.
We lost our half our wheat crop in 1998 and 1999, and the AMTA payments still came. Payments based on production would not have been available to us. When you lose your production, the support is needed that much more.
Another statement is that a new delivery system should be developed to distribute the support.
Our 1998 wheat crop was hailed on May 25, 1998. The disaster program was passed in October 1998. We received our additional AMTA payments in November of 1998 but did not receive the disaster payment until June 3, 1999. Our 1999 wheat crop was hailed out on May 16, 1999 and we had not even received assistance for the 1998 loss yet.
Many farms do not have the time for new programs to be developed. Agriculture is in a financial crisis. Help ag producers get thru the the immediate crisis now. Then talk about developing new programs and delivery methods.
Page 94 PREV PAGE TOP OF DOC
My point is this: passage of the emergency aid package is essential. This would get ag producers thru the short term.
Crop insurance reform is also necessary. The House bill is good. So is the Kerry-Roberts bill in the Senate. A workable plan can come out of the two proposals.
Long term needs are as follows:
A comprehensive trade program needs to be developed. We must be aggressive in dealing with our competitors. The upcoming WTO talks may have a greater impact on agriculture than the next farm bill!
Our transportation system is falling apart. Our railroad and water systems are deteriorating. At the same time, world-wide, our competitors are building and expanding their transportation systems.
Concentration in agriculture is another big issue to be addressed long-term. At what point does control of agriculture become too concentrated? This issue is getting more important to ag producers every day.
The Conservation Reserve Program should be reviewed and expanded. Increasing the acres to forty million acres would be helpful.
The criteria for CRP acceptance needs to be examined. We have ground that was put into the early CRP. We were required to mow and spray it to remove undesirable weeds. In order to get the same land accepted in the latest CRP program, we will have to plant forbs next spring.
These are the same weeds that we were required to spray for and get rid of in the first CRP program 10 years ago!
Other land that was accepted in the early program is no longer eligible. Let's put some common sense back into the CRP criteria and plans.
Page 95 PREV PAGE TOP OF DOC Ag producers continue to face increasing regulations. The Food Quality Protection Act threatens to take many crop protection products away from us. The loss of phosphene gas as a grain fumigant will be devastating. If grain storage products are no longer available, we do not need a Farmer Owned Reserve, more loans for building storage facilities, or longer loan periods. The insects will take care of the surplus problem for us.
The Clean Water Act and the Clean Air Act also threaten our ability to farm.
I care as much about the environment as anyone else. We need sound science, not political science, when we discuss these issues. A little common sense would go a long way to resolving many of these issues.
Again, thank you for coming to Kansas and listening to our concerns. I hope that we can get past the political rhetoric and one-upsmanship and use some common sense to get ag producers thru these difficult times.
Testimony of Deanna Hobelmann
Good morning, Mr. Secretary and members of the committee. I am Deanna Hobelmann, a partner with my husband on a diversified farm at Republic, Kansas. I presently serve as national Area Director of Women Involved in Farm Economics, better known to some of you as WIFE. (I would like my entire written comments entered into the record.)
WIFE is a grass roots organization committed to improving profitability in production agriculture. Our national office is in the home of the national president and there is no paid staff. Members volunteer to tell the story of farmers and ranchers and their families and communities. I appreciate the invitation to appear before this Committee. I thank you for your concern that prompted this hearing about the economic issues facing farm producers.
To state the obvious, there ARE serious economic issues affecting agriculture producers. The issues are many and it's like being wrapped into the tentacles of an octopus. We seem to be held very tightly in the grasp of somethingit's difficult to pinpoint what is squeezing farm and ranch income the most. No one seems to be able to tell us how to escape. I believe the struggle faced today by Kansas farmers and ranchers and by all in production agriculture across the Nation is an age old problem. The problem has been repeated constantlybut today it seems magnified and speeded up. Throughout time, people and nations have struggled to be in control. As I see it, the issue farmers and ranchers face is one of CONTROL. Who do YOU want to control the land? Who should control our food supply? our nation? our very lives? Together, we will have to decide.
Page 96 PREV PAGE TOP OF DOC We are talking about the control of the land. Who will farm the land? The average age of Kansas farmers and ranchers at the last census (1997) was 54.4. The age is rising steadily, with the upper 50's most mentioned. Because of this, our Nation faces a period of the most massive transfer of land in recent memory. Is that why there is such a struggle for control?
Will those young families who relish the challenge inherent in producing a good crop be able to take up the challenge, or will it be corporations with time schedules and labor requirements and cash flow projections? Will our young farmers still be on the farm when the world's oversupply situation changes. Cash flow is a problem for everyone, but especially for those struggling to build equity.
When we began to farm in l972 our first crop of milo (grain sorghum) sold for $1.83 and 1.78 per bushel. As I write this, the cash price for the milo being harvested today (91399) at my local elevator is $1.43 per bushel. Combined with the LDP (loan deficiency payment) of $.28 per bushel gives me a total of $1.71 for milo harvested today. For comparison, the milo seed that we planted for the l972 crop cost $13.90 per bag, while today's harvest was planted with seed that averaged over $60 per bag. In 1972 my records show that we paid $.14 per gallon for diesel fuel for our tractors and $.34 for gasoline. Today diesel costs $.80, while gasoline is $1.20 and up. A basic 135 horsepower tractor would have cost $13,500 in 1972one with a cab and air was $22,500. Today a 130 horsepower tractor would run $67,000. Can you see why there are cash flow problems today?
Who will control the land? Who will farm the land? There are two questions for which I believe you must determine an answer before long term solutions can be found. The recurrent economic difficulties in production agriculture come ever more quickly and then spread over the land.
Farmers and ranchers are gravely affected by the struggle to achieve control, which is reaching out to squeeze the life from our way of making a living. Remember that octopus? When I speak of control, I refer to the control of genetics, the control of distribution (transportation) and control of who's pocket will receive the profit. Control is the key word for many things that affect the economic plight of farmers and ranchers. Among areas where control is changing or has changed are:
Page 97 PREV PAGE TOP OF DOC (1) Trade inequities: free trade is not necessarily fair trade. We must have FAIR trade. We must have a level playing field. American producers must be able to compete with imports coming into this country since those imports compete with our domestic production. We need country of origin labeling. (Please see attached position paper titled ''Trade Talk.'') Export programs already in place are not being utilized, such as Export Enhancement (EEP), and P.L. 480-food for peace. Here's a place where lines blur: P.L. 480 donations are costly to transport because of cargo preference requirements in the Jones Act.
(2) Transportation: Our policy notes that farmers and ranchers ''are the only industry that pays the transportation costs on all it produces and all it consumes, without being able to pass those costs on. This includes both hidden and obvious cost whether vehicular, rail carrier, or waterborne transportation.'' (p. 33)
Cargo preference laws (Jones Act) require food aid to be shipped on U.S.-flag, U.S.-built, U.S.-crewed and U.S.-owned vessels. Is that a form of subsidizing shipping industry while farmers pay the cost. Cargo preference has been an issue for as long as I've been a member of WIFE. Transportation of American produced commodities and goods should be by the most economical means.
Railroad mergers and closing of lines have caused many states to become ''captive shippers.'' The person who pays that bill is the farmer or rancher who has to purchase and ship everything.
(3) Sanctions: The influence of sanctions on farm markets has been well documented. Shipments often reach sanctioned nations through third parties. Do sanctions actually achieve the affect for which we are told they were intended?
(4) Concentration/mergers: Control is the key word in much of the consolidation of the industries who supply us with our inputs and distribute our production. These rapid structural changes are dramatically impacting not only rural communities, but the Nation's food security. We're told we have adequate anti-trust laws on the books. Are they being strictly enforced to stop market monopoly and/or market price control? In my opinion, the answer is no! There must be strict enforcement of the Packers and Stockyard Act and of anti-trust Laws.
Page 98 PREV PAGE TOP OF DOC (5) Control of genetics: Is this something that should have remained in the public domain for the good of the nation? I believe there is a rapid concentration of power through control of genetics. It is my understanding that much of the past, present and future genetics developed by many companies are presently in the hands of one commercial company.
(6) Information overload: Is there any industry for which more information is available on every aspect of production? How many industries could be profitable if competitors were given access to their facilities and board rooms. Production agriculture is asked to provide information about how many acres we plant, how much we expect those acres to produce, how many bushels of on-farm storage we have and on and on. Satellite surveys and Internet reports are available for all. How many reports do we broadcast to the world in the course of a year from government and private industry about expected farm production? I would ask you, are these reports sometimes damaging to the economic well-being of the American farmer and rancher?
(7) Contracts: When farmers contracted with government in the l996 farm bill, they believed they were entering a two-way contract. Farmers were giving up commodity support payments and the government, in turn, promised enhanced export opportunities, reformed crop insurance and tax relief provisions. In my opinion, the farmer has held up to his part of the agreement, but the government has let us down. Take government programs for example. We can not depend on the contracts remaining the same as they were the day we (and Uncle Sam?) signed the contract. With the stroke of someone's pen, the government seems to be able to change what we thought we had both signed.
Contracting problems loom ever larger as commercial firms enter the field. Farmers and ranchers have little experience in understanding and interpretation of contract language. They also have little protection or recourse when misunderstandings arise. There never seems to be enough time to learn or money to hire someone who understands. WIFE supports the introduction and passage of legislation which affords protections that include time to reflect and to withdraw from the contract. The legislation should create a bargaining obligation between processors and producers.
Page 99 PREV PAGE TOP OF DOC (8) Definitions: Until we know how things are defined by all parties, it is difficult to determine whether everyone is speaking of the same thing. WIFE believes that A family farm is a form of business enterprise in which the management decisions are made by a family engaged in the production of food or fiber for profit which is intended to provide the major source of income and capital for investment.
Mark Drabenstott's definition of agriculture is ''everything from inputs to the retail counter.'' The most recent one I heard was even more inclusive, stating ''Agriculture is everything from gene technology to the retail counter.'' I believe farmers and ranchers may be the only ones within those definations that can set the price for neither their inputs nor their production.
I also have a concern about the use in reports of projected farm income of off-farm income and imputed rental values being included, as farm income. I believe it presents a false picture of the income of farm families.
USDA 1999 farm income projections were recently released. Headlines indicated that income is forecast to be near l998 levels; with nearly $6.0 billion each year in Government support. However, those projections are figured with each household having off-farm income included$49,828 for each farm household. That report shows that off-farm income as 91 percent of the USDA's forecast of 1999 net farm income.
Many of us are wondering where in rural America those jobs are. A local agricultural loan officer estimates farmers he works with show average off-farm income at about $17,000. He noted that most don't make enough to come out ahead but they work for health care coverage. (His comment brings up the need for full deductibility of health insurance for the self-employed.) A farm management firm officer said their farmer-clients off-farm income might realistically be $20,000, maybe $25,000.
That USDA same report, shows a line called gross imputed rental value of dwellings for the US agricultural sector of $11.4 billion. The imputed rental value of dwellings accounts for over 25 percent of the forecast net farm income (estimated to be $43.8 billion.) There is a line in the report that said earnings of the (farm) operator household from farming activities is $4,676. I believe that figure includes the imputed rental value of the family home.
Page 100 PREV PAGE TOP OF DOC There has to be a solution that is right for farmers and ranchers AND for the Nationnot just one party or the other, not just one candidate or the other, not one company or the other, not one individual or the other. This is supposed to be the United States, but it seems we*re never united for the good of the Nation on something that's as important as the control of our food supply. And our food supply is the security of the nation. I read a piece by Barry Weber, writing on DTN NewsBreak that contained this statement ''the fabric which truly holds us together as a people is woven of those threads spun from people helping people.'' We must reach a solution that will help everyone.
The 1996 farm bill provided flexibility to plant crops which would grow best on the particular land one farms. Flexibility can allow farmers to vary as needed for weather and disaster situations leaving the decision to the farmer who is there. Almost without disagreement, farmers and ranchers feel that they benefit from this flexibility and the environment benefits as well.
The planting flexibility within the l996 farm bill is an example of a win-win solution, possible and beneficial for everyone involved. We are all focused on the negatives of the economic situation within production agriculture. We must focus upon suggestions and find solutions where farmers and ranchers and America wins!
I believe a student of history would note that a fall in the national economy historically follows a fall in the economy on America's farms and ranches. I don't want to go any closer to the days told about in a history textbook, when farm families burned corn rather than sell itthey couldn't sell it for enough to buy the coal to warm their homes?
I thank you for the opportunity to appear before this committee for Women Involved in Farm Economics to share my view of production agriculture as it been shaped by the blessing I was given of being able to farm. I pray that you and your colleagues will be the avenue used to assist the farm families of today as they fulfill their desire to pursue their livelihood on America's family farms.
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Testimony of John C. Griebel
My name is John C. Griebel. I am a 5th generation northwest Kansas farmer. I've been invited to testify regarding the state of U.S. agriculture from a producer's point of view. I'm sure you will hear plenty of testimony about the current low commodity prices and the general sad state of affairs in many areas of the country. No doubt some regions are suffering more than others from either too much or too little rain. You will also hear expert testimony from economists. Testimony from several groups representing farmers will be heart felt but predictable. I hope to focus your attention on differentiating between symptoms and the problem. I also will offer my opinion as to which areas require immediate action and which require a well-planned strategy to improve U.S. agriculture in the world market.
Since the 1930's, consolidation of farms and the wage gap between rural and urban areas has caused a decline in rural population. This process is expected to continue. This movement of population has caused an accompanying closing and consolidation of rural businesses. As the smaller towns lost population, post offices, city services and schools have disappeared. In normal years this process takes place almost without notice. In the years of the farm credit crisis of the 1980's this process was accelerated. At the accelerated rate, property values declined, income was lost and the entire fabric of rural life was ripped.
This is the second year in a row of low commodity prices. The effect on the rural economy, while not yet as disruptive as in the 1980's, is sudden and potentially severe. Farmers are feeling the effects as they struggle to meet budget projections. As the producer falls behind on revenue projections and ahead of projected borrowing, the relationship between lender and borrower is strained. Lenders are recommending a reduction in inputs as a way to bring borrowing back in line with projections. This will have an adverse affect on the borrowers profitability and their ability to meet repayment requirements in following years. If a price recovery does occur during the next year, a producer forced to trim inputs will be unable to fully benefit from the recovery due to lower than average production caused by reduced inputs as required by the lender.
Page 102 PREV PAGE TOP OF DOC There is still time to react in such a way that the downward trend would be slowed. However, low commodity prices are not the problem. Low prices are the result of supply exceeding demand. The temptation will be to fix the problem in one of two ways. By artificially raising prices through government purchases of grain or limiting production or both. This arrangement is prone to annual political tinkering and has a history of failure. This approach's failure led directly to the freedom to farm act.
Grain producers all recognized that the freedom-to-farm act would lead to increased grain production. The Federal Government promised to respond to that increased production by increasing access to foreign markets. The Federal Government has not kept that promise. Increasing trade barriers, trade embargoes and inadequate marketing have hindered grain sales. When combined with increasing supplies and an Asian financial crisis, prices have predictably plummeted.
Limiting production through traditional acreage set asides would have some positive price effects. These benefits would be short lived as foreign competition fills the supply gap. A return to the pre freedom to farm programs that focus on controlling supply is not a solution because the U.S. farmer is not the world's only supplier of grain. As I see it, the only viable long term solution will focus on increasing the U.S. and global standard of living, increasing our share of the international market and encouraging the development and expansion of industrial uses of grain such as bio-fuels, bio-lubricants, bio-plastics et cetera.
If we can all agree that low prices are not the problem and supply controls are not part of the solution, we can move on to other significant stresses on the farm economy. Farmers are price-takers not price-makers. This fact cannot be ignored when considering increased taxes and regulations. In most industries an increase in cost is passed on to the consumer in the form of higher prices, reduced services or both. Farmers can only absorb increased costs and attempt to reduce them in other areas or increase production per acre by becoming more efficient. If it is possible to find cost savings or increase efficiency, there is a time lag between incurring the cost and realizing the savings. The time lag causes a decrease in net farm income during that time. A decrease in net farm income ripples throughout the economy long after the initial cost increase.
Page 103 PREV PAGE TOP OF DOC The long-term effect of higher costs from direct or indirect increases in taxes or regulations is reduced profit margins, fewer farms and larger farms. Larger farms are generally more efficient and more productive than smaller farms because of their ability to adopt new technologies more rapidly. Increasing farm size leads to higher total production, which if demand is unchanged drives prices even lower. Increased costs from taxes and regulation have a dynamic effect on the farm economy. Increasing costs lead to lower prices and fewer farms until a new equilibrium is reached. The result of this dynamic effect is a more rapid decline in farm numbers and increasing farm size.
I believe government restraint when considering a tax or regulatory increase will benefit farmers and all other citizens. Conversely, reducing taxes and unwarranted regulations will improve both the farm and U.S. economies.
There is one more concern I have before I move on to the positive aspects of the U.S. farm economy. This matter is both immediate and long term. The European Union (EU) and to some extent domestic buyers of U.S. grain are blacklisting certain genetically modified grains. There is no scientific basis for refusing the importation or use of genetically modified organisms or (GMO's). There are instead many rational reasons to encourage the use of GMO's. I can only conclude that either the EU and some domestic buyers are ignorant of the facts, too poorly educated to understand the facts, are irrational, or are using scare tactics to erect trade barriers against U.S. grain.
I would think that a country that spends tens of billions of dollars to fight the Europeans' war in Bosnia and Yugoslavia would exercise some leverage when it comes time to make or enforce a trade agreement. It is either the lack of knowledge, rational thinking or resolve at the highest level of government that allows this situation to continue. A simple phone call from the Chief Executive to the European Union heads of state would correct this problem.
Addressing the concerns expressed by domestic buyers of U.S. grain will be more difficult. They are reacting to consumer preferences, rational or not. The only solution I see is educating the American consumer. This approach may take time because we live in a country where education has ill-prepared citizens to make informed decisions. These people cling to many misconceptions regarding the economy, government, science and agriculture.
Page 104 PREV PAGE TOP OF DOC No discussion of agriculture is complete without addressing what is good in the industry and the long-term opportunities available. Never have so few produced so much. Agriculture worldwide is adopting technology at an increasing rate. The use of GMO's that have the ability to resist insects and non-selective herbicides result in fewer insecticides and herbicides being used. This is especially important as people demand fewer contaminants in their water supply.
For example, I have been able to successfully eliminate the use of soil applied herbicides completely. This has resulted in a reduction in expenses of $25/acre. There are no rotation limitations and no herbicides will ever make it to groundwater.
In fields where insect populations have reached economic treatment thresholds, a soil applied insecticide or a non-selective over the top treatment would be required. The latter kills all living insects and animals in the field. The former has the chance of reaching streams and groundwater. Instead, the use of a GMO would eliminate the need to use soil-applied insecticides. This method would have no negative effect on the environment when used appropriately. The use of GMO's to combat insects and weeds is far less expensive and more profitable than conventional treatments.
The freedom-to-farm act made it possible for many farmers to take full advantage of a no-till cropping system. No-till production means that except for the seeding operation, no soil disturbance occurs. There are many benefits to a no-till system. Soil erosion is eliminated. Topsoil is created. Greenhouse gasses are converted to organic matter in the soil. More diverse rotations are possible. More intensive cropping sequences are obtainable. When soil erosion is stopped fertilizer stays on the land and is used more efficiently. Producers can become more productive, more profitable and more immune to sustained low prices when combining GMO's and no-till cropping systems.
The use of no-till practices and GMO's have an important social benefit. As topsoil is created, production will increase, reducing the need to convert the rain forests to farmland. Bio-diversity will be maintained and endangered species will recover thanks to the partnership between industry and the farmer. This is not wishful thinking. It is happening today. Unfortunately we face well-meaning opposition from the very groups whose purpose is to achieve what we are already achieving. These groups are on the verge of preventing U.S. agriculture from adopting the technology necessary to save it.
Page 105 PREV PAGE TOP OF DOC Agriculture faces a daunting challenge and opportunity. There will be an additional 2 billion people to feed within 20 years. Unless we encourage the adoption of the currently available technologies including GMO's, the world will be forced to convert irreplaceable rain forest to agriculture. No amount of international outcry, benefit concerts or treaties will stand in the way of a person's demand for food. This is quite a challenge. It is also a golden opportunity for U.S. farmers if they are knowledgeable, willing, and enabled to seize it. Our competitors are embracing technology. If we don't, we will lose the battle for the international market.
I'd like to summarize by emphasizing the following points. Low grain prices are not the problem. The lack of grain sales is the problem that needs attention. Supply controls will have long term negative effects. The Federal Government needs to keep its promises. Decreased taxes and regulations will have immediate positive effects. The administration should make the EU-GMO issue a high priority and use every means available to eliminate trade barriers. Agriculture worldwide is rapidly adopting new technologies to meet the increasing worldwide demand for food. No-till farming allows a producer to plant crops successfully that previously he could not. The freedom-to-farm act allows the farmer to take advantage of crops and new rotations that would have been prevented in previous farm programs. American agriculture will be at a competitive disadvantage if the U.S. farmer is forced to delay adopting available technology.
"The Official Committee record contains additional material here."