Segment 1 Of 5     Next Hearing Segment(2)

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House of Representatives,
Committee on Agriculture,
Washington, DC.

    The committee met, pursuant to call, at 9:30 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
    Present: Representatives Smith, Lucas of Oklahoma, Chambliss, Moran, Thune, Gutknecht, Simpson, Ose, Hayes, Fletcher, Pickering, Johnson, Osborne, Pence, Rehberg, Graves, Putnam, Kennedy, Stenholm, Dooley, Clayton, Berry, Boswell, Hill and Larsen.
    Also present: Representatives Lucas of Kentucky and Hinojosa.
    Staff present: William E. O'Conner, Jr., staff director; Tom Sell, Alan Mackey, Jeff Harrison, Callista Gingrich, scheduler/clerk, Hunter Moorhead, Christy Cromley, Anne Simmons, and Russell Middleton.

    The CHAIRMAN. Good morning. I appreciate everyone being here, especially Members who are here since the House decided that it would not be in session today, which is great. We don't have to break for any votes, and we are looking forward to the opportunity to proceed and appreciate the members that are here for staying in town and attending.
    I want to welcome everyone to the first of what promises to be a very intense and interesting set of hearings on the future of our Nation's farm policy. I want to thank members for their participation not only during this morning's hearing but for their active participation throughout this process.
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    I believe that we can all agree that conditions in farm country are not nearly as good as they could be, or should be. Last year, this committee held a series of hearings, 10 in the field and five in Washington, that gave us the opportunity to hear testimony of over 200 producers representing farmers and ranchers from every region of the country. I believe those hearings provided the committee with a sound education on the serious problem facing American agriculture today.
    Our hearings last year were only the first step in a long process. Now it is time that we move beyond generalities and search for concrete ideas that will improve the economic conditions of agriculture. Yesterday, we heard from farm economists who outlined the conditions facing American agriculture and the implications of certain Federal farm policies. It is within that economic framework that we now set our sights on finding real solutions to the problems facing our producers today.
    Last year, I charged each of the major farm organizations and agricultural commodities with the task of building consensus within their respective bodice so as to provide this committee with very specific policy recommendations. I have asked each witness that will testify before this committee in the coming weeks to not only provide detailed proposals of where they would go on policy in the future but how that policy would affect related industries, how it would impact our ability to move product in the world market, how it would comport with our WTO obligations and how it would affect our Federal budget and overall spending on farm programs.
    I expect that these hearings will be challenging, both for our witnesses and for members, as we engage in very detailed discussions about the complexities of farm policy. But we have a serious obligation before us, and it is only by putting the ideas on the winnower's table that we will be able to refine our thoughts and eventually build consensus around policy that will support a robust agricultural industry in this great Nation for all times.
    With that, I am pleased to welcome and invite our witnesses to the table today to present testimony on behalf of the cotton industry. I want to thank you for your willingness to be the first to take the plunge as we dive into these hearings. Reaching a consensus, even within one commodity or industry, is no easy task, and I want to commend you for the work you have done to bring together all segments of the U.S. cotton industry, including producers, ginners, seed crushers, warehousemen, shippers, cooperatives and textile manufacturers. I also want to commend you for the quality of your testimony in terms of providing very thorough and detailed analysis of your policy recommendations.
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    For purposes of introduction, Mr. Robert McLendon, who will be presenting the testimony today, is a farmer from Leary, GA, and is currently serving as chairman of the National Cotton Council. Joining Mr. McLendon this morning is Gaylon Booker of Memphis, TN, who is executive vice-president of the National Cotton Council, and Mr. Mark Lange, also from Memphis, who works for the National Cotton Council as vice-president of economic services.
    Again, I want to thank our witnesses for being here.
    Now I would recognize my good friend, Mr. Stenholm, for his opening comments.
    Mr. STENHOLM. Thank you, Mr. Chairman; and thank you for holding this hearing this morning, scheduling it and moving our committee forward. I commend you for aggressively pursuing the hearing schedule that is necessary for us to develop our future agricultural policy.
    Mr. McLendon, welcome to this morning's meeting and to those that accompany you at the table. The National Cotton Council has met the chairman's request pretty darn good. I want to say not perfectly. There is a little bit of ambiguity in your testimony as I read it last night, and that comes as no surprise. When you have to please all seven segments of an industry and driving policy, it is difficult to come together. But you have done a remarkably good job in outlining the policy as it pertains to cotton, and for that I join the chairman in saying thank you and commending you. I have read your testimony. I will have some questions regarding your recommendations when we get to that point.
    Yesterday, we heard testimony from Keith Collins, USDA's respected economist, and also Mr. Gardner and Dr. Ray. It is safe to say that this committee has our work cut out for us. Given agriculture's existing budget baseline, current WTO limitations and a depressed agricultural economy, the members of the House Committee will earn their pay as Congress tackles the delivery of disaster assistance under the present farm program and rewrites a new omnibus farm bill.
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    So, once again, Mr. Chairman, thank you. Let me commend you for wasting no time in moving forward to address the challenges. And let's not waste any more time. Let's go on to our testimony.
    The CHAIRMAN. Thank you, Mr. Stenholm.
    Mr. McLendon please begin when ready.
    Mr. MCLENDON. Mr. Chairman, members of the committee, thank you for inviting us to be here this morning.
    My name is Bob McLendon. I operate a diversified farm in Leary, GA. My primary crops are cotton and peanuts. I currently serve as chairman of the National Cotton Council's Executive Committee and immediate past president of the Council.
    On behalf of the entire cotton industry I would like to commend you for holding these hearings on farm programs and express our appreciation for the opportunity to testify today.
    Most of the fundamental aspects of my testimony today are similar to the message I delivered here last July: Financial difficulties continue for farmers across the country, with prices too low to cover the cost of production; budget authority for agriculture is not sufficient; and the FAIR Act remains inadequate to protect farmers during times of extremely low prices.
    In keeping with your directive, Mr. Chairman, my testimony this morning will focus primarily on recommendations for amending commodity titles. However, I would like to start my remarks by suggesting that until amendments to long-term agricultural policy are enacted it is very important that Congress continue to address the immediate, short-term financial needs of producers.
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    For the short term, we urge Congress to continue to provide relief similar to the emergency assistance enacted during the last 3 marketing years. Specifically, we urge Congress to:
    Number 1, supplement existing AMTA payments with additional marketing loss payments at the highest possible levels.
    Number 2, allow producers to receive these supplemental payments on the higher of existing crop bases or an average of the recent planting history, provided adequate funds are available.
    And, No. 3, mitigate the impact of limitations on supplemental payments, enabling producers to qualify for total payments of not less than the amount of the AMTA and the marketing loss payments received for the 2000 crop year.
    Mr. Chairman, we also favor the continuation of assistance to help offset the impact of low cottonseed prices.
    Our discussions within the Council on longer term farm policy have focused on the level of support that is necessary for cotton producers to continue to compete, given rapidly escalating costs of production and inputs and the cotton and textile policies of our competitors.
    We like certain aspects of the current policy. Cotton's three-step competitive provisions, coupled with the marketing loan program and the issuance of marketing certificates, continue to play a central role for cotton. These provisions have enabled our industry to compete worldwide under most market conditions and have helped prevent excessive stock accumulations. We urge their continuation in the new farm policy.
    Beyond these fundamental components, our approach in recommending new policy is to indicate the level of Federal assistance we need and the delivery mechanism we can support. Unfortunately, until CBO provides an official score, we cannot know with certainty the budget impact of these proposals or how they will affect our commitments within the World Trade Organization. Therefore, we would prefer they be understood as supportable concepts as opposed to our final recommendations with respect to every detail.
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    Because of the need to provide adequate income support in a cost-effective manner and meet our international trade commitments at the same time, the National Cotton Council proposes new farm policy that relies on a combination of coupled and decoupled payments.
    Our goal is income support from programs and the market that will provide cotton producers with a return equivalent to what they have received in recent years from all sources, including emergency assistance.
    We encourage as much reliance on decoupled, AMTA-like payments as feasible. Additionally, we recommend some type of counter cyclical income support that is as coupled and as commodity-specific as practical without exceeding the amber box ceiling agreed to by the United States in the WTO.
    Number 1, our members can support crop-specific payments that are triggered when the price of a covered commodity falls below a specific threshold. This would be similar to the 1990 farm law target price system.
    Number 2, we also can support crop-specific payments, triggered when revenue per acre for a covered commodity falls below a specified threshold. This is similar to the modified SIP program.
    Number 3, if necessary to comply with U.S. obligations under WTO, we can support a market-basket approach, whereby payments are triggered when gross revenue for specified commodities falls below a threshold level. However, under a market-basket approach, there would undoubtedly be years in which the revenue for an individual commodity would be out of sync with the market basket of commodities. We have a few more concerns with this approach than the more commodity- specific approaches that I just mentioned.
    All of these programs share the important common advantage of, No. 1, cost effectiveness as compared to a purely fixed payment program and, No. 2, their predictability as compared to the emergency assistance packages Congress has approved during the past 3 years.
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    I want to stress that we support a counter cyclical approach to Federal assistance as an addition to the current AMTA mechanism, not as a complete replacement for it.
    As a part of revising commodity titles, we encourage you to retain as much cropping flexibility as possible. We support base acreage provisions that offer farmers the choice of keeping their current payment base or opting for an updated payment base. We also urge continuation of assistance to offset low cottonseed prices.
    And, importantly, we urge you to eliminate payment limits or, at a minimum, retain the three-entity rule; retain provisions for the CCC loan redemptions with marketing certificates; and provide for separate and reasonable limits for each category of benefits.
    Payment limits in any form are both counterproductive and discriminatory. Limiting farm program benefits on the basis of size tends to disadvantage the larger, more efficient farming units, causing them to be broken up into smaller units that are less efficient and less capable of surviving in a global market.
    Moreover, crops such as cotton, with a relatively high cost of production, are especially disadvantaged by payment limits since their imposition results in a smaller percentage of a cotton farmer's output being eligible for benefits.
    Mr. Chairman, continuation of the marketing loan program is a central component of our recommendations today. We cannot, however, report that we have industry consensus on the loan rate. Our producer members favor a somewhat higher loan than the capped 51.92-cent level under the current law, but other segments of our industry have reservations about raising the loan rate. Our leaders continue to discuss this matter, and we believe we will be able to provide a timely recommendation with respect to loan rates during the course of new farm bill discussions.
    In closing, I would like to summarize our recommendations for Extra Long Staple cotton policy.
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    The Council supports continuation of the ELS nonrecourse loan program without amendment. We also support continuation of the ELS competitiveness provisions that were authorized in the fiscal year 2000 agriculture appropriations bill, but we support full funding of this program. Finally, we support establishment of some form of counter-cyclical payments commensurate with those that could be established for Upland cotton. We believe a price objective for American Pima cotton, in the neighborhood of $1 per pound, including returns from the market plus counter-cyclical payments, would be commensurate with an 80-cent price objective for upland cotton.
    Mr. Chairman, that concludes our farm policy recommendation for upland and ELS cotton. With the help of my colleagues, I would be pleased to respond to any questions the panel might have on our recommendations.
    The CHAIRMAN. Thank you, Mr. McLendon.
     Mr. Booker, Mr. Lange, either one have comments that you wish to make at this time?
    What we have done is we have invited everybody to write a farm bill, and in that then they begin to get a little bit maybe appreciation of the difficulty it is to do that. Because it has got all to fit, and we don't always have scoring when we look at it, and we have got different colored bobbings, and we have got WTO agreements, and we have got all these things that this stuff has to fit in, and it is challenging, as I think you are aware.
    Let me ask a question here in regard to your proposal in which under your estimate, if you are establishing a floor based on 1999 payments—that is around 80 cents a pound for cotton, that correct?—anticipation of 60-cent cotton price, and that is going to leave a 20-cent gap, how do you make that up? How do you make it up under the proposal?
    Mr. MCLENDON. Well, we recommended a fixed payment decoupled payment of 10 cents a pound; and we arrived at that through the fact that in the year 2000 crop year that was part of the equation, the amount of money we received. But we used a decoupled payment of 10 cents and then a coupled payment based on a farmer's acreage and his historic yield, that the balance of approximately 10 cents would be coming from that, which would be—and the reason for breaking it up was to comply with the WTO. And I have a much better appreciation of what you have to go through in writing a farm bill.
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    The CHAIRMAN. OK, so you would have two payments, one coupled and one decoupled.
    Mr. MCLENDON. Yes, sir.
    The CHAIRMAN. Now, if I am a cotton producer and we are basing that on historical pounds, is that on the historical base that I am using to receive my AMTA payment today?
    Mr. MCLENDON. Yes, sir, we are proposing that you would have a choice.
    The CHAIRMAN. That or I could prove up.
    Mr. MCLENDON. That's right. You could come to the last 5 years.
    The CHAIRMAN. So I don't have to necessarily be growing that cotton, I wouldn't today, to receive an AMTA payment.
    Mr. MCLENDON. That's right.
    The CHAIRMAN. That is one of the criticisms, obviously, we have gotten is we are making payments to people that may not be farming; and I want to see how you address that.
    Would it also be possible for me—let's say I have a historical cotton base that I have been drawing AMTA payments on, and I was growing—now I decide—for the past several years. I decide I was going to grow corn. So now I am a corn farmer. And if I can use—if I can, rather than using my historical base, I can prove it up, could I then be eligible for an assistance package under corn and under cotton?
    Mr. MCLENDON. No, sir, we are proposing that if you chose to use the last 5 years you would go with the corn program, and you would be no longer eligible for the cotton that you received up till the end of the Freedom to Farm Program.
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    The CHAIRMAN. All right. In the Commission on 21st Century Agriculture report hearing, your testimony of a few days ago, one of the things they proposed was using as a trigger mechanism, and basically so that we put it in the right box, was to be using farm income, historical farm income, and when it fell below that then a payment would be triggered, counter-cyclical payment would be triggered but not crop-specific. And my question that I asked of them was: What if you had an extremely good year in cotton and an extremely bad year in corn and overall you had farm income at the same level? Then those people who were really distressed in the corn production would not get any assistance, but what you are doing is you are basing it on the income that a cotton farmer received over the past or the basis year of 1999, and I would presume for the other commodities as well.
    Mr. MCLENDON. Yes, sir. Of course, and we have the same problem with the market-basket approach you do. And a crop that makes up a small part of the seven program crops—you could have a bad year for rice or cotton and where the corn or wheat makes up a big part of that market basket you would have a distorted picture. The overall picture would look good. So we have the same concerns you do.
    The CHAIRMAN. We are doing more of a regionalization then if we talk about basing our payment trigger on the price of cotton given a basis year of 1999.
    But what if you have, let's say, within the industry that you have got an extremely good year in the Delta and you have got an extremely bad year in west Texas. And, obviously, if you have got a huge amount of cotton that has come out for loss of disaster or whatever then that generally is going to trigger a higher price for that cotton which is available. So that overall you have had a—not only did that farmer in west Texas not get the 60—or it would generally be less than that probably anyway—didn't that get that 60 cents, but then overall they wouldn't be eligible for any assistance if the overall going to the cotton producer met the 1999 base level. Is that correct?
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    Mr. MCLENDON. No, sir. Your counter-cyclical payment would be based on that farm's historic acreage and yield, so it would not be paid on production. Now the price he got out of the market, that 60-cent that CBO is saying we would get this year, would be from the sales but that those two payments, coupled and the decoupled, your west Texas farmer would get those payments.
    The CHAIRMAN. But if those were based on the market price falling below the 1999 base, if the market price was not below the 1999 base because—because the fact you had a huge loss in one area and another area made good and they were getting a lot more for their cotton if they were getting 80 cents a pound in the Delta, then that wouldn't trigger a counter-cyclical payment.
    Mr. MCLENDON. That is right. You are correct. And if the average price received for cotton by the countries was 80 cents, then you would have that farmer that would not receive a payment.
    The CHAIRMAN. I will try to abide by the clock as well.
    I should have mentioned in my opening statement there will be a list of questions that we are going to try to get answers from everybody who comes. Some of those will be covered in the question period. Some of them will not be. So we do want to—depending upon what we are able to cover and what we are able to glean today, we probably will be submitting questions for your review and response.
    Mr. Stenholm.
    Mr. STENHOLM. Mr. McLendon, you state that the FAIR Act's Achilles' heel has been exposed, that bankruptcy has been avoided only because of emergency payments. Is the same not true of the 1995 farm bill, that but for a large expenditure under its authorities farmers would have been bankrupt? How are the two bills different in this respect, the 1985 farm bill and the 1995–96?
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    Mr. MCLENDON. Well, the 1995 farm bill scaled down Government payment and Government assistance. We did not have the target price concept that the previous legislation had. And I guess 1985 had target price.
    Mr. BOOKER. That is correct.
    Mr. MCLENDON. So that is the reason we are going back in our example No. 1. That concept worked extremely good for cotton in that that if you had a target price and you had a type of counter-cyclical payment when prices fell below that and so when the FAIR Act was enacted it scaled down these payments. We had good prices when the FAIR Act was passed in 1995, but the Cotton Council has some reservations about that legislation being effective when prices came down.
    But that is basically the difference in what happened when prices came down. We had nothing to catch us, to hold us up, and so without what you have done the last 3 years we would have been in an extremely bad situation in the country. Things are—we just been able to survive thanks to what this committee and Congress has done for us. But that is basically the difference in the two legislations, in that 1995 didn't have a safety net and 1985 did.
    Mr. STENHOLM. Both of your models you submit today sort of suggest a target price. Would you not prefer a target price except for the WTO limitation problem?
    Mr. MCLENDON. We have discussed that, and that's our answer, to comply with our trade agreements within WTO. We had to devise a mechanism that would allow us to abide by the rules that we would agree to, but it is a very good method of providing a safety net. It worked really good for us in the past.
    Mr. STENHOLM. Yesterday, we had testimony that specifically drew attention to the fact that currency values are having a major effect on trade as far as competitiveness is concerned. And we have examples in the grains, for example, in which up to a 40 percent advantage can go to a grain producer in another country because of the value of the currency in that country. We have had the blessing, I think, of a strong dollar. I have a hard time saying that a weak dollar is going to solve America's problems. It is creating a tremendous problem for agriculture in that we have to compete in this marketplace.
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    Do you have any direct information that would show some of cotton's competitors in the international marketplace? Has their currency—what kind of an advantage it gives them? For example, if it is 40 percent, 50-cent cotton in the United States, will be competing on a level playing field with 30-cent cotton roughly in another country. Do we have that with some of our major competitors? Anything you could share with us?
    Mr. MCLENDON. Could I call on Mark Lange to address that as our economist?
    Mr. LANGE. One of the critical factors for cotton is textile imports, and the way we see currency impacts most directly in the United States is that a dollar today will buy two knit shirts, where it only bought one a year ago from the imported market. And so the impact follows indirectly. We get an import surge on textile and apparel products and which damages our U.S. textile industry and reduces demand for U.S. textile products and reduces the U.S. mill purchase of our producer's cotton.
    Mr. STENHOLM. We are going to want to pursue that a little bit more in the spirit of which the chairman mentioned in additional questions for the committee when we get a little further aligned.
    You, along with other agricultural organizations, sent a letter to the House and Senate Agriculture Committees requesting they send letters to the Budget Committee requesting agricultural's baseline be increased to the amount spent on regular and emergency programs in fiscal year 2000. That is approximately $32 billion. Does the Council believe that $32 billion will be necessary per year to fund the next farm bill?
    Mr. MCLENDON. We certainly think the level of support should be commensurate with what we received the last 3 years. And, you know, you go for fiscal year basis or calendar year basis and get different figures, but I think that we probably need somewhere between $22 billion and $25 billion. We within the Council don't have a firm policy on that figure, but we do have a policy supporting on a level of support that we have received the last 3 years, and that is a big figure.
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    Mr. STENHOLM. Sure is.
    The CHAIRMAN. Mr. Smith.
    Mr. SMITH. Thank you, Mr. Chairman.
    Just following up on Congressman Stenholm's question. Do you see anything in the future where cotton in the United States can be competitive in a world market without this kind of Federal subsidy?
    Mr. MCLENDON. Yes, sir, I have given a lot of thought and concern to that. I make my living farming and I would like to get everything I get from the market.
    There are two areas that I think that could help me to become extremely competitive in the world market and eliminate the need for assistance, Federal assistance. I have been able to reduce my—on my farm, cost of production with technology that has been offered to me; and I see the role of Congress helping in the process of approving technological advances that are available to me on my farm.
    An example of that, thanks to this House, the appropriations that has been passed for the Boll Weevil Eradication Program plus approval of BC technology and round-up technology has improved the varieties that are available to me. I have reduced my variable cost on my farm 50 percent in the last 20 years.
    Mr. SMITH. How much closer does that mean, move you towards being in a competitive situation with imported cotton?
    Mr. MCLENDON. It is getting me closer to there, but we have got to have a margin of profit that allows me to compete in the world. And I can get that by two ways. I can reduce my cost, and I can improve the selling price of my product through improved trade negotiations that our Government has been involved in which will allow us to be on a more—a level playing field in the world, will help us to be able to better sell our products. So that is a secret to us being able to survive, is reducing our costs and having improved market to sell our product in.
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    Mr. SMITH. Mr. McLendon, here is my concern with cotton and all farm commodities, is I am particularly aware of the problems that are facing us with the insolvency of Social Security and Medicare and when the baby boomers start retiring in 2008. And the additional responsibility for meeting our commitments for the benefits that we have promised in legislation means that we are going to be—there is a $9 trillion unfunded liability down—and I will guarantee you that if it comes to a competition of using available dollars with increased taxes or whatever to fund agriculture at the level we have been funding for the last 10 years or to pay those Social Security and Medicare payments, Social Security and Medicare are going to win out; and then there is going to be real desperation in the agricultural community.
    Somehow the challenge ahead of us is to try to develop the kind of programs that are going to allow us to survive the tremendous financial pressure on Government starting 8 to 10 years from now. So somehow we have got to be smart enough to start being less dependent on Government programs or to develop those kind of programs like you suggest where we get it from the marketplace.
    Mr. Chairman, I would like to consider a 10-year farm bill. I think 10 years gives us a little more opportunity to develop the kind of farming operation knowing what we are going to get.
    I want to finish my time, though, asking about crop insurance. What percentage of cotton farmers would you guess use crop insurance?
    Mr. LANGE. We think there are about 60 percent that are using the buy-up beyond the CAT coverage right now.
    Mr. SMITH. And give me—I mean, we spend a significant amount of dollars in subsidizing the crop insurance program. Could that money be better spent in counter-cyclical payments or other farm program payments?
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    Mr. BOOKER. Mr. Smith, we believe that, on the one hand, you need a good farm program designed much like the one that we have recommended here. And we believe also we need a good crop insurance program to help us deal with disasters, weather-related, insect-related, other kinds of disaster. But the programs we recommended here for farm policy I don't think one of these should substitute for the other. We need them both.
    Mr. SMITH. You need them both, but it is all dollars. Eventually in the budget process it is all a consideration of how many dollars are spent. And crop insurance on its own merits—without the Government subsidy, no farmers would pay that price. So is that a perpetual thing, that it is not going to work without that continuous forever Government subsidy?
    Also, the question we have got to face up to is where we go on farm programs and how do we get the reward for farmers, the payment for farmers that are a reasonable level of what they can sell their commodities for at the marketplace, rather than continuing a program through tax dollars that is going to be under more scrutiny and more probably a greater likelihood of reducing in the next 8 or 10 years.
    Thank you, Mr. Chairman.
    The CHAIRMAN. Thank you.
    I want to give you—one of things that I suggest to people, you said everything that you want is everything you get from the market. Well, you could get it from the market today, and the market is not real well. So always say at a profitable level.
    Mr. MCLENDON. Opportunity to make profit.
    The CHAIRMAN. The market is not working real well right now.
    Mr. Larsen.
    Mr. LARSEN. Just, really, one question. I am new to the committee, new to cotton, but I just have a basic question about costs and cost drivers and if you could enlighten me, at least me, on perhaps what are the top four or five cost drivers in your industry. What of those costs do you think that you have some control over and what are you doing as a result to control those costs?
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    Mr. MCLENDON. In a fixed cost—and I break up costs into fixed and variable—most producers have had to get bigger to survive because our margins have continued to shrink and we have gotten—we use bigger equipment, less people, just like other industries that are producing things that are not agricultural products. So the consolidation in agriculture has occurred just like it has in other industries, and that has allowed us to reduce our fixed cost. We are doing more with less.
    To give you an example, on my farm, when I had six-row equipment, I had seven tractor drivers; and now I use 12-row equipment, and I have four tractor drivers. So we have addressed the fixed-cost problem.
    The thing that concerns me, and I have just about run out of things to do to try to reduce my cost, and this technology thing that I mentioned has allowed me to reduce my variable costs, and now we have got high oil prices and energy prices, and so I am going to be faced with high nitrogen prices this year. It has doubled. I bought nitrogen for $90 a ton last December, and I am paying $180 for it now. So it is a challenge to reduce my cost, but there is a lot of inputs that go into the variable cost.
    And now because of the technology that we are buying through the seed, the seed now that used to be a minor item really on a cotton farm—and I have got friends in west Texas, they would have enough seed to plant their crops three times—well, now the seed costs about $7 an acre, and the technology fee is 32 bucks an acre.
    So things are shifting, but that the kind of challenge we have in our business is to reduce our cost. But the seed now is the biggest cost, the technology fee, but it is a good investment. It is the type of investment we can make and get several dollars back because it reduces chemical uses and insecticide uses and so—but that is how the—and what I am doing on my farm is not uncommon throughout this country. We have gotten bigger equipment, and we use the technology that is available to us, that is offered to reduce our overall cost. We are not able to reduce it as fast as we need to, but it is a challenge for us.
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    Mr. LARSEN. Thank you.
    The CHAIRMAN. The committee would like to recognize a guest and appreciate your being here. Mr. Hinojosa from Texas is sitting in on the committee today.
    Mr. Osborne.
    Mr. OSBORNE. Thank you for being here today.
    I am not that familiar with cotton like maybe others on the committee. I do have a couple of concerns. You are asking for no payment limits, AMTA payments, higher loan rate coupled and decoupled payments, some counter-cyclical payments, continuing emergency payments; and it seems to me that if we were to do this for all commodities that would be a huge expense. And I am very sympathetic to what is going on in agriculture. I know a little bit more about corn and soybeans and milo than I do cotton. But I guess, as I look at the budgetary process, I agree with a couple of comments earlier that at some point we probably can't continue to do this and do all of the things that we are trying to get done in Government. And so just a couple of quick questions.
    Is there any value-added agriculture in the cotton industry? And, if so, could you explain to me what potential there is there?
    Mr. MCLENDON. Yes, sir. Thank you very much.
    I mentioned earlier that we were recommending that the level of support from Government be to the level of what we received the last 2 or 3 years. I might point out that since 1985 we have received about $10 billion a year, but I mentioned what we would received the last 2 or 3 years was considerably higher than that.
    Mr. Osborne, in regard to value added, the value of cotton, what we say to Farmgate or off the farm is about $5 billion, the 16 to 17 million bales that we produce as farmers in this country. One out of every 13 jobs in this country is as a result of cotton. And the value—the retail value of all cotton products is about $55 billion. So we take that $5 billion of cotton, raw cotton that we as farmers produce and it is rolled over through the process of finally being made into a shirt or some kind of textile apparel, and the retail value of that is about $55 billion. There is no other commodity that stimulates the economy like cotton does.
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    Mr. OSBORNE. OK. Another question—and maybe I should know this but I don't. Are we importers or exporters of cotton?
    Mr. MCLENDON. We consume—of the raw cotton that we produce on the farm, we domestically consume about 60 percent of that, about almost 10 million bales, and then we export about 40 percent of that. That runs about 8 million bales. Now, we are consuming in this country a little more than 20 million bales of cotton in the form of textile apparel even though we are only producing 16 or 17 million bales, and it varies from year to year based on whether we get a rain or not. But over 60 percent of the textile apparel that we consume is imported into our country.
    Mr. OSBORNE. And do you see some problems currently with WTO and NAFTA? Do you feel that that is working? Do you feel that there is some adjustments that need to be made in terms of foreign trade?
    Mr. MCLENDON. Well, I mention that trade is important to us. And Congress passed the CBI parity bill this past year, and I commend this committee and on work that was done. We worked on that for 3 years, and what that will allow us to do is to take U.S.-produced yarn and fabric and send it to the Caribbean and make textile apparel and bring it back into this country duty and quota free. Because of our location, we got a transportation advantage, and we think that this legislation is going to help us be more competitive and sell more U.S. cotton. We will be able to compete with the Asian imports of textile apparel into our country. NAFTA has hurt some commodities maybe, but, for cotton, Mexico has resulted in being our No. 1 market for U.S. cotton, and it is the labor that is there. We are able to utilize that labor just like in the Caribbean, and so NAFTA has helped cotton.
    These are the kinds of things that I was referring to that from a trade standpoint would help us to sell cotton.
    Mr. BOOKER. If I could comment just a bit further, I guess, in response to your question, the short answer is we are net exporters of raw cotton, but we are major net importers of cotton textiles. And with respect to your observation about the cost of the program, it is a very expensive program that we are recommending, but our cost estimates of these programs come in somewhat under what the Federal Government has been spending for the past 3 years on programs including the emergency assistance. And if we get any kind of improvement in prices the counter-cyclical part of these costs that are implicit in our program diminish or go away.
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    Mr. OSBORNE. Thank you. I have no further questions.
    The CHAIRMAN. Mr. Berry.
    Mr. BERRY. Thank you, Mr. Chairman.
    First of all, I would commend the Cotton Council for their presentation; and anybody that can come up with a program that makes everybody happy in that industry does an outstanding job. You always do, and I appreciate it.
    Mr. McLendon, I appreciate your remark about your wish to get all of your income from the marketplace. I think every farmer in this country feels that way, and I certainly feel that way. I am a farmer also, as you know, but I am confident that our farmers can compete on a worldwide level if we had a level playing field.
    The bad news is that playing field does not exist, and I don't think it will in my lifetime. I wish that was not the case, but I don't think it will. And, you know, given that situation, I think that is one of the justifications for having a safety net farm program that—something like what you recommended.
    You know, I think our own monetary policy regulations that are put on our industry from various and sundry sources within our own Government, the international situation that we have to deal with concerning market access, nontariff trade barriers and phony environmental issues put a burden on us with other governments that we just simply can't compete with on our own. And we have to have our own Government help support us, along with the fact that as we negotiate market access if we don't have a farm program backing us up in that arena, with both hands tied behind us, it doesn't work very well.
    I also feel compelled at this point to make the comment that an adequate supply—a reasonably priced supply of food and fiber is just as important to the security of this Nation as anything else we do. It happens so easily in this country and almost appears to be without any effort whatsoever and the American farmer is so unrecognized for his enormous contributions to the economy and the economic success of this country that I think we should recognize that at this point and recognize the fact that we cannot be a secure Nation—if we think farm programs cost a lot now, just wait till we get into the situation with food and fiber that we are in with oil right now. We will find out how much it costs, and it makes the little bit that we are spending on farm programs as a Government look pretty small. And it is actually a pretty efficient investment for our Government to make in the supply of food and fiber.
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    So I appreciate what you and the Cotton Council have done and appreciate you being here before this committee today.
    Mr. MCLENDON. Thank you.
    Mr. BERRY. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Pence.
    Mr. PENCE. Thank you, Mr. Chairman; and I would also like to commend Mr. McLendon and the National Cotton Council for your presentation and your leadership.
    I am also one of the freshmen on the committee. I am the only freshman that currently is not living on or active in farming, but I represent a district in east central Indiana where farming is a way of life. We are mostly focused on corn and soybeans in eastern central Indiana. But I do wear cotton and want to admit that to you.
    I am fascinated by this whole debate and am honored to be on the committee, because I think this is a very important 2 years in the life of American agriculture, particularly coming off of some difficult times in different sectors of the agriculture economy and trying to figure out how we deal with this counter-cyclical issue, as the chairman has indicated that he desires for this new farm bill to do.
    My question is a very broad one; and that is, as you look at, over the last 6 marketing years, the price of U.S. spot market cotton has fluctuated more than 100 percent. Having a business background, that seems to me to be mind boggling in terms of planning. Could you explain in layman's terms how you account for that kind of price fluctuation during that period?
    Mr. MCLENDON. Well, it is not simple; and I don't know that I can answer it so it is simple. I will ask Mark to comment on it, but I want to say just one thing. He can do a better job as an economist than I can as a tractor driver. It is something that has always happened and I look back at trying to market my crop and I see how it has been and if I had been smart enough I could have sold it at that price. You know, hindsight's 100 percent. But what you have seen has been happening for a long time, and I will ask Mark to respond to it to give a more specific answer.
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    Mr. LANGE. In 1995 and 1996 the world felt like it was running short of cotton, and world prices ran up very sharply. And in a very short period of time the Chinese—actually within 2 years after that—had accumulated a rather substantial stock of cotton, and the world began to be very nervous about what they intended to do with that stock. And in the 1999 year they actually began to move that cotton into the world market very, very aggressively; and we saw in a very short period of time prices fall dramatically and reaching a modern low of about 44 cents in January 2000. So it was a dramatic switch from a very tight market in 1995–96 to the Chinese moving a tremendous amount of stored-up cotton on to a soft market after the 1998 economic recession in Asia.
    Mr. PENCE. Mr. Lange, would you characterize that as dumping on the world market or is that too harsh of a term?
    Mr. LANGE. Well, it amounted to a dumping effect. But, in fact, I don't think it was an attempt by the Chinese to necessarily drive anybody out of business. It was a domestic decision to reduce their stocks, the stocks that become very burdensome to them. They began that crop year with stocks larger than their expected use of cotton for that year, and they were expecting to produce a sizeable crop as well. So it was just a domestic policy decision.
    Mr. PENCE. One last question. Mr. McLendon, you have been very complimentary about the CBI parity bill, and I wondered if you might recommend that this committee and this Congress consider expanding that legislation to even a larger sphere in this hemisphere?
    Mr. MCLENDON. We do not have specific policy on expanding NAFTA, but based on what I have seen NAFTA do, and I think that it would help cotton to expand it, to expand markets, anything that would give us transportation advantage, enable us to sell additional cotton I think would help us.
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    All the abundant labor in Asia, it is creating an opportunity to make cheap textile products over there. And as long as the dollar stays strong—and I am like Mr. Stenholm. I like a strong dollar. I like a strong economy. And if the dollar had been doing it, that is fine, but it does create an opportunity to sell textile products in our country.
    So anything that would enable me to sell U.S. cotton or sell more raw cotton like NAFTA has done I think would be good for us and I think we should explore that. But it is a complicated thing, and you have got—a lot of people don't want to do, but NAFTA has certainly helped us. And I think CBI, it being implemented now, it was enacted effective October the first, and I think we have got tremendous opportunity with that. So I think we should look at expanding it.
    Mr. PENCE. Thank you.
    The CHAIRMAN. Mr. Boswell.
    Mr. BOSWELL. No questions at this time, but I just want to make a comment. I, too, appreciate your presentation and concerns. And as a producer, not of cotton, I know you have to have profitability; and I will work with this committee and our leaders to do what we can to be sure that you stay in the field and you keep raising cotton.
    Mr. MCLENDON. Thank you. We appreciate what you have done.
    The CHAIRMAN. Mr. Kennedy.
    Mr. KENNEDY. I, too, would like to thank you and the National Cotton Council for giving us a specific proposal. I would also like to acknowledge that we have our good Minnesota corn growers with us here today and appreciate their interest in the other programs, and I think it is good for agriculture to understand the rest of agriculture.
    Mr. McLendon, you talked about technology and how that has helped you not only reduce your costs but it also has helped cotton and other crops to be grow in more places and with higher yields than we have really ever had before, and they have seen the increase in yields every year. It seems to me that the only real long-term hope we have of getting our profit out of the marketplace as we have been talking about is if we can be growing demand by as much or more as we are growing the production through increased yields.
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    On the corn and soybean side we have the opportunity, for example, to go into energy and convert corn or soybeans into energy in the form of ethanol or biodiesel and tap into an entirely different market to grow demand. What ideas does National Cotton Council have and what efforts are you doing to grow demand for cotton worldwide or find other uses?
    Mr. MCLENDON. Well, a program that has been really beneficial to us is a CCI program which is a—it is a partnership with the cotton industry and with Government to fund this thing to create demand where we target markets to go in and promote cotton, U.S.-produced cotton; and we have done this all over the world.
    We also have the NAP program. That has long been available. So those type of export enhancement programs that we have provided funds for have been a tremendous benefit, and we—it is not an exact science like corn for ethanol is not. You get an overproduction or underproduction. So, based on weather, we can't make the growth of market equal our production. You have spurts back and forth. But the CCI program that we have that Congress has funded has been a tremendous benefit in stimulating demand for U.S. cotton and cotton products.
    Mr. LANGE. If I could, I might also mention that the U.S. cotton grower places a check-off program on themselves and funds the Cotton Board which, in turn, supplies funds for Cotton Incorporated which has led to a very dramatic increase in the U.S. consumers' purchase of cotton products at the retail level in the last 15 years. It has been an amazing story of success.
    Mr. KENNEDY. Good. Well, thank you for those comments.
    One of other things that we are also focusing on is trying to start new multi-lateral WTO discussions on opening up trade. What opportunities are there for American cotton producers if we have a successful WTO negotiation?
    Mr. BOOKER. Well, we are interested in market access and particularly from some markets that our textile products have not been able to gain easy access to through the years. Also, we have talked about the heavy burden that American agriculture places on the Federal Government through the programs that we have had to have to keep us solvent; and through the Uruguay Round of the GATT negotiations we did see overall subsidies by the signatories to that treaty say that they would reduce their subsidies. But the United States was below the subsidy levels at that time of some of the other signatories, and we agreed to bring those down in the same relationship.
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    And I believe as we go into the new round of FTO talks that if we are going to propose that agriculture subsidies be reduced, as I understand our negotiators were planning to do, that we certainly need to be sure that we do not come out of those rounds with U.S. agriculture further disadvantaged in terms of what we are permitted to do as opposed to what the other signatories are permitted to do in support of their agriculture segments.
    Mr. KENNEDY. I think that is appropriate in any multilateral negotiations. You are right. But with a similar type of balanced approach, consistent approach across the country in subsidies, do you think that would be a significant opportunity for American cotton? Is that what you are saying?
    Mr. BOOKER. I guess what I am saying is we fully anticipate that subsidies are going to be reduced, so long as they go down in some sort of equilibrium way among the signatories; and we think that that either keeps the playing field from getting more unlevel at a minimum, or we might have an opportunity through these rounds to better level the playing field.
    Mr. KENNEDY. I thank you for your comments and thank you for your specific proposal.
    The CHAIRMAN. Mrs. Clayton.
    Mrs. CLAYTON. I thank you, Mr. Chairman.
    Unfortunately, I wasn't here for all of our testimony, but I was trying to see if I understood correctly when you said that you thought the AMTA payments were appropriate but you thought they needed to be a little more—they weren't decoupled sufficiently—I am reading from Mr. McLendon's testimony. Do you feel that the AMTA payments that came through our program were not decoupled enough or needed to be more?
    Mr. MCLENDON. They are decoupled; and, of course, they are decoupled so they would comply with the WTO agreements. What we were saying, that the additional payments would be coupled, the supplemental payments that we recommended would be decoupled based on the farm's base that they had in the crop and also the yield that they had assigned to that farm based on what they had done in the past. So we were recommending a decoupled and a coupled payment. If so, we could comply with the WTO agreements that we had.
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    Mrs. CLAYTON. In other words, you wanted balance in whatever we did not to violate the WTO.
    Mr. MCLENDON. Yes, ma'am, we had to try to live within those rules.
    Mrs. CLAYTON. I am from North Carolina; and, of course, the Boll Weevil Eradication Program—at least we claim it started in North Carolina. I am not sure it was, but we claim it. When we invest money in the boll weevil eradication office, we have a bigger yield; and sometimes when we have a bigger yield prices go down, so you wouldn't suggest that we should not invest in that?
    Mr. MCLENDON. No, ma'am I do not. Really, what has happened on cotton yields, our yields have actually gone down in the last—not significantly. But we have not had the increase that we would like to have. What the boll weevil program has done is allowed us to produce that cotton cheaper. That is one of those technology things that allowed me to stay in business.
    Mrs. CLAYTON. So you would encourage the continuance of that.
    Mr. MCLENDON. Yes, ma'am, I do. That program has really moved forward. We either have—the Southeast has eradicated and all cotton-producing areas of the country either have an existing program going on or have been eradicated. So that is a tremendous success story.
    Mrs. CLAYTON. In my region, people are coming back to cotton. Of course, those who are already well established in cotton wish not so many people would come into it.
    I remember visiting out in Texas one time, I guess Mr. Combest's area, and talking to the cotton farmers, saying North Carolina is really growing cotton; and they said do not do that. That will really mess up the price. They say, it is good. Too many North Carolinian's get in it, the price is going down.
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    Well, the same analogy, I guess, can be applied to small farmers. It is expensive and efficient and though—so the Council is encouraging both small farmers and medium-size farmers as well as large farmers—what do you recommend as small farmers get into the business and looking at the expense, knowing where the trend is, what advice are you giving your small growers now?
    Mr. MCLENDON. I have neighbors and friends of all sizes that grow cotton. And the things they have to do is the same—a small farmer has to do the same thing as a middle-size farmer. They have to cut their cost and do it cheaper. And it is not basically different. It is just that we have to continue to do the best job possible to reduce costs.
    The main difference is the small farmers in most cases does all his work himself, but it is a decision he makes. But economics of scale gives some advantages, and a lot of times a farmer will start off small, and he will get bigger. And most cases that is what happened. We have had to get bigger to survive. And the small farmer—you know, I started off a lot smaller than I am now; and I had to get bigger to survive.
    Whether a man starts off with a hundred acres or 500, acres he has the same problems. He can make a decision to stay small if he wants to, if he wants to do more of the things off the farm. But it is a decision—a personal decision a farmer has to make.
    Mrs. CLAYTON. One other question related—my time is out. I'm sorry.
    The CHAIRMAN. We will do another round in a moment.
    The CHAIRMAN. Mr. Thune.
    Mr. THUNE. Thank you, Mr. Chairman.
    I want to thank all of you for being here today as well.
    I also come to this issue admittedly not as well versed in the commodity that you grow as I am with some of the things that we grow on the northern Plains, but I think it is of good value from all of us who come from agriculture country to understand the full gambit of agricultural programs. The more I hear, the more I find there are a lot of similarities in the plight of agriculture all over this country, irrespective of what it is we raise. I think those of us in the northern Plains are probably prepared to strike a deal with you today, though, and that is we won't grow cotton in South Dakota if you guys decide not to grow soybeans in the South.
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    Mr. MCLENDON. That is a deal.
    Mr. THUNE. I say that somewhat in jest, but I do have a question, a somewhat—admittedly an ignorant question perhaps, but do cotton farmers change their planning decisions based on Federal farm programs? Are there acres that get shifted to other crops as a result of decisions that are made here in Federal farm policy?
    Mr. MCLENDON. No, sir. It is a tremendous investment to get into cotton production, like a lot of other types of production, and you have specialized equipment. You have a cotton picker that costs $175,000 that you use for 3 months out of the year. So we do not shift production that much. You make an investment, and you have got to use that equipment. You have got so many people out there. And on a short term, no, sir, the Federal farm programs do not get you in and out.
    And that is the—when the freedom of farmers is debated—I like planning flexibility, but we just can't go from one crop to the next and just shut down the operation for 12 months.
    You can shift your production. I was a corn producer before I started producing cotton. I made a long-term commitment to change, and I still have a corn combine and still have grain bins, but I made the commitment to get into the cotton business because of several reasons, not because of farm programs.
    Mr. THUNE. Are there—and, again, this is a question perhaps I should know the answer to, but what level of tariffs are there or other trade barriers to imported—either raw cotton or textiles in this country?
    Mr. LANGE. There are several quotas that exist for raw cotton imports in the United States. There are tariff rate quotas under the WTO. There is also a quota that is associated with the NAFTA Agreement. When the NAFTA Agreement reaches its fruition, there will be a no barrier with the trade with Mexico on raw cotton. Then there remains a special import quota trigger that is part of the competitiveness provisions than we seek to continue, and that has been triggered several times in the last 5 years, and raw cotton has entered into the United States under the provisions of the special import quotas.
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    Mr. THUNE. How does that compare or are those types of barriers relative or proportionate to world-wide—the access that we have to the market of other countries? The reason I ask that question, what I am sort of getting at is, what is it that has the most direct impact on your profitability? Is it world market conditions and the types of barriers that exist? If you can compete on a level playing field is that more important to you than Federal farm programs? What has the most direct impact on your profitability?
    Mr. LANGE. In response to your first question, the ones I mentioned specifically deal with raw cotton. Another very important component is textile trade. One of the things we find is the United States, in meeting its requirements under WTO, is continually opening our textile market and by the year 2005 there will be no textile quotas left in the United States for members of signatories of the WTO.
    One of the problems we have is other signatories of the WTO are not opening their boarders to U.S. textile products, and in some cases—for example, China uses import licensing and currently is not importing much in the way of U.S. cotton because it denies a textile mill in China the access to it. It won't issue an import license. Import licensing is another form that we see in several countries of the United States that deny us access to that market. We are unable to ship them raw cotton.
    Mr. THUNE. OK. I think my time is up.
    Thanks, Mr. Chairman. Thank you.
    The CHAIRMAN. My invitation to the gentleman from South Dakota would be, you grow all the cotton you can grow in South Dakota.
    Mr. Chambliss.
    Mr. CHAMBLISS. We have a lot of people trying to grow it. Bob, as my neighbor and long-time good friend, I am very proud of the work you do at the National Cotton Council and have enjoyed working with you folks. I thank you for being here today to talk to us about your ideas concerning the incorporation of the cotton program into the next farm bill.
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    We have got a little bit of a problem in the Southeast, particularly with respect to the discrepancy in AMTA payments that you are well aware of. You are here representing all cotton growers, but I want you to amplify a little bit what you talked about in your presentation with respect to basing AMTA payments on the antiquated cotton bases that were used in the 1995 cotton farm bill and the effect that that has on the Southeast.
    Mr. MCLENDON. Yes, thank you. It is a pleasure to be with you. It is a pleasure to work with you over the many years we have done, and I look forward to continuing to work with you and this committee.
    But what has happened is, under Freedom to Farm, which we knew that would happen in some cases, you had a movement from one crop to another; and what happened in the Southeast we moved from corn, like I have done, to cotton. So the last few years we have increased our cotton acreage in Georgia, for instance, to about a million and a half acres; and we are getting an AMTA payment on about 900,000 acres.
    So when you look at the payment made, we have a tremendous production in the Southeast that is not getting a supplemental AMTA payment or a regular AMTA payment. So we are recommending in our short-term recommendations to this committee that a farmer have a choice with remaining with his existing acreage and yield, or he has an option to move to a modified acreage and yield on his farm or acreage on his farm, and this would make this, we think, fair.
    We are penalizing a guy that made a choice of changing crops under the Freedom to Farm, and we feel like that by having a choice to go to his most recent planted acres that it would be fairer to the growers. And this happened, Mr. Chambliss, outside the Southeast, but it is been more pronounced in the Southeast than any other section of the country.
    Mr. CHAMBLISS. And the program that you have outlined to us this morning corrects that problem as well as a number of other problems within the current——
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    Mr. MCLENDON. Yes. We have addressed that. And producers have discussed this for a long time. So we felt by giving the farmer this choice you would not penalize anybody. And the first thing you want to know, what is this going to cost? And we have estimated somewhere between 3 and 5 percent is the only increase we are going to have in the program. So it is not a big cost thing, but to an individual producer it will mean a lot more to that individual producer. But on the overall scope of the program it is, we estimate—Mark has done a lot of research on this—it is 3 to 5 percent is the cost of this choice.
    Mr. CHAMBLISS. And the net effect of that is going to be to get whatever payment comes from the Government to agriculture country in the hands of the farmer that is actually a producer on the farm, isn't that correct?
    Mr. MCLENDON. That is correct. The guy that is producing the crop will get the payment.
    Mr. CHAMBLISS. We had a little problem that we corrected 2 years ago with our Step 2 Program, and I understand that your proposal includes the market competitiveness provisions. And if you would tell us in your opinion what would have happened in the cotton industry had we not made an appropriation for Step 2 a couple of years ago when we corrected that problem.
    Mr. MCLENDON. I am going to ask Mark. I could give it to you. Let him address it. It is his program.
    Mr. BOOKER. Well, the Step 2 Program has been a very integral part of our program, and we introduced the marketing alone back in 1985. It worked well. It helped us get a lot of excessive stocks worked on over the life of that farm bill.
    But we discovered during the course of our experience under the 1985 Act that there were times when we were not quoting U.S. cotton competitively with some of the lower-priced growths in the world because we were set up to discover a world price key to the 5 cheapest growers, an average of that; and the lower growths were often well below that. So the Step 2 Program was introduced to help us get closer to those lower quotes and did a good job of it.
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    When we lost funding, when we depleted the funding for Step 2 back in 1999, we saw the effect of it in lost sales. We even began to see the New York Board of Trade price, which had been at a premium over the world price, fall back below to that world price level; and then, when the underfunding was restored, we saw it climb back up to about where it had been before. So the effect of it as when we lost it was to cost us some market and at the same time cost us some return from the market in terms of price. We think that if we don't have that program then that is the sort of thing that we can see for the longer term.
    Mr. CHAMBLISS. Gaylon, we are sure glad to have you on board, but we are going to miss our friend Phil Burnet.
    The CHAIRMAN. Not all of us are—just teasing.
    Mr. GUTKNECHT. Thank you, Mr. Chairman.
    I also come from the northern tier where we do not grow cotton, but it has been very interesting to listen to your presentation.
    Let me say for a minute—not really a question but a comment. As a Member who also serves on the Budget Committee, the discussion about trying to preserve a $32 billion baseline, which is, in effect, I think what you were saying, that is going to be very, very difficult.
    I just have to tell you—and that is not to say that those of us who are very empathetic to agriculture are not going to be in there trying to fight for every dollar we can. The chairman and the ranking member are already putting their oars in the water as it relates to the overall budget agreement.
    We are also, I think, fortunate that the gentleman who chairs the Budget Committee now, Jim Nussle, is from northeast Iowa and really does understand the problems being faced by agriculture. But at the end of the day that is going to be a very tall order to try to preserve that level of baseline funding, and that is just not just for your benefit but for everyone who is here from the various commodity groups.
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    The only issue I would like to ask you about, because one of the concerns we have in my area is the whole issue of concentration, I never really understood how do you sell your cotton and is that of any concern to your producers that we are seeing fewer and fewer potential buyers of products that farmers produce and, on the other side, fewer and fewer suppliers, if you will, of the things that you have to buy. And are we doing an adequate job of enforcing some of it—antitrust laws currently on the books?
    Mr. MCLENDON. I will respond a little bit and then call on Gaylon to finish it.
    We have had a tremendous consolidation in the manufacturing segment of our industry. That is a part of the Cotton Council, and we are working to improve their profitability, but they have really struggled the last few years, and we have had numerous mills to close. These are not cut-and-sort operations that rely on a lot of labor. These are yarn manufacturers that are very mechanized. They are as competitive as anyone in the world.
    We can compete producing yarn. But that industry is just like agriculture. It has really suffered from profitability. The stock of the publicly traded companies has really gone down because the profits have gone down, and we have had mills—almost every week you hear of somebody closing a mill or in serious financial trouble. That concerns us.
    But the actual merchandising segment has not consolidated, it has some, but not to the level that the manufacturers have. So far, the problem is the lack of profitability, that is our problem, more than trying to consolidate and eliminate the competitors that has been done.
    Mr. BOOKER. I think that is the right answer. I believe if you ask your question to a farmer on the turn row who is not making any money, you might get some of them to say, yeah, we need to see more buyers out there. But I think the fact of the matter is it is a highly competitive merchandising community and the competition among those that are out there to get Mr. McLendon's business generally would say that he is going to find somebody that will bid as much as the New York Board of Trade price, which is a major auction process, allows him to bid.
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    Mr. GUTKNECHT. Thank you.
    The CHAIRMAN. I will need to make sure the record does not go uncorrected. When I came to town almost 30 years ago, the first person I met in town was Phil Burnet, so I figured I could make that joke.
    Mr. Ose.
    Mr. OSE. Mr. Chairman, I am learning about cotton today, so I am going to listen rather than talk.
    The CHAIRMAN. Good. We will let you hear a bunch then.
    We will start now on another round. I have got some questions that I want to ask, and just answer them as briefly as you can, and maybe I can get through a number of them.
    How dramatically does your proposal change if you have got a $40,000 payment on a plantation?
    Mr. LANGE. Mr. Chairman, we believe that the sort of payment structure you see in front of you, on our model, if the counter cyclical is provided, a payment limit structure similar to the existing AMTA.
    The CHAIRMAN. Are you talking it existing AMTA at $40,000 or are you talking about what we have done the last few years, which is double that?
    Mr. LANGE. Well, if the counter cyclical is going to emulate what the supplemental AMTA has done, it is going to have to have a separate payment limit similar to what the original AMTA payments have.
    The CHAIRMAN. Forty thousand dollars.
    Mr. LANGE. Or higher.
    The CHAIRMAN. I know. I am also trying to be realistic here. Because, obviously, we have some challenges. And I agree with you. I have made no bones about it. I prefer no limitations. But I haven't figured out how we are going to do that yet. And I want to make clear, I have your testimony, but under your proposal you are not making any recommendations for any kind of acreage or production controls.
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    Mr. MCLENDON. No, sir, we think it is counterproductive to have acreage controls in it. We are in this world market and if we cut our acreage somebody else will step up and increase their acreage. We have discussed this a great detail.
    The CHAIRMAN. Under the figure that was given—and I am not sure who helped provide that earlier. When somebody asked about the participation rate of cotton producers and crop insurance, the number came back at 60. Was that last year?
    Mr. LANGE. Mr. Chairman, I gave that number. Yes, that is the percent of cotton farmers that we understand use the buyout provision.
    The CHAIRMAN. The question was, was that last year, the crop year we just ended?
    Mr. LANGE. Yes.
    The CHAIRMAN. We are just entering the cotton crop year under the new program. I would be very interested if you assess that throughout the year to see whether that number may be changed. The crop insurance program that a cotton producer can buy crop insurance today for versus what was at the last year program is substantially different.
    Mr. LANGE. From everything we hear from producers we expect a rather substantial increase in the number of participants.
    The CHAIRMAN. Thank you. I just wanted to get that on record, because I think we are going to be seeing that number of things, and many don't recognize the fact that the last crop year under cotton was under a different program. Do you believe that either iteration of model one would create any incentive for a producer to take the payment and not produce the crop?
    Mr. MCLENDON. I don't think it is an incentive because if—we probably still would have the same problem that we have had under the existing program. It gets a lot of publicity, but in any area, in traveling around, there is not a lot of people doing that. But it will not stop that because of having to comply with the WTO. But I don't think we have a lot of farmers getting their payment and not working the land. No, sir, I don't think it will be a problem.
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    The CHAIRMAN. If the Congressional Budget Office determines that your cost estimates on gross Government expenses are underestimated, how would your program be modified in order to comply at acceptable levels?
    Mr. BOOKER. Mr. Chairman, if they say that we have got too much or that we have underestimated the amber box spending, then I think we would like to come back and take a look at how you could get more of that spending into the green box. One way to do that under this first iteration of model A is to increase the fixed payment and decrease the counter cyclical. We think the second best approach to that would be to go toward that market basket approach where you have got a lot more room, apparently, but it has a few warts on it.
    The CHAIRMAN. I appreciate that; and, obviously, we won't hold you do that. I generally do not answer questions that start with the word if. But if that does occur and if we are looking at that, obviously we would like to have your input because it—you know, a lot of proposals that you see can substantially be changed once numbers dramatically change.
    Mr. BOOKER. That is why we have proposed in the testimony Mr. McLendon did that we would like these to be viewed.
    The CHAIRMAN. We will do that.
    From a practical standpoint, what is the earliest date that you believe change in permanent farm law should become effective?
    Mr. MCLENDON. The discussion is going to go on, and I knew that we are beginning the process, and you know we have a hard job ahead of us in probably 2002 for permanent changes in the law. I think as difficult a job as you have and your committee has, it is going to take that time to get it done.
    The CHAIRMAN. I will come back to that and just throw out some scenarios in a little bit on my next round.
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    Mr. Stenholm.
    Mr. STENHOLM. Mr. Booker, congratulations on your new position with the Council. And, Mr. Burnet, in spite of the chairman's rather disparaging remarks, he and I both are counting on you in your new position to double the price of cotton so that there will not be any concerns about budget considerations or anything and that we will reduce the cost of the taxpayer through the market. We know you will come through for us on that.
    Mr. BOOKER. We are looking forward to that.
    Mr. STENHOLM. Sorry Mr. Gutknecht had to leave, because his question regarding concentration—I would like to point out that in the area of marketing and price information transparency I think the cotton industry has got a system that I wish was emulated in all of agriculture in which you have instantaneous pricing. Any cotton farmer in a cooperative gin or an independent gin may walk into his gin office and immediately see what his cotton is selling for. You can find out who is buying it, perhaps. But the important thing is you know exactly what price is cotton and what grades are selling for.
    Originally, when we started on this, there were a lot of producers opposed to that but no more, because now we understand marketing is extremely important and with the new technology now we will go even further. That is something the entire industry should be looking at with a positive eye.
    To those within the industry, and I say here as I mentioned in my opening remarks, the fact that we have seven segments in an industry that attempt to work together—in fact, do more than attempt—it is very difficult to get producers and ginners and crushers and warehousemen and merchants and cooperatives and manufacturers to agree on a policy. But when we start talking about competitiveness and budget costs, I think we are going to have to sell our colleagues on the necessity of having Federal assistance to our producers in the international marketplace because we cannot compete on the dollar alone. I believe so strongly we cannot compete.
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    Mr. Lange, I thought your number that you threw out regarding we can now buy two shirts for the price of one on a dollar—well, just think for a moment what our machines—the competition they are having to meet in being able to make that shirt in America and sell it. Pretty tough. And that is why we have attempted to make sure that our mills, our manufacturers can buy cotton at the same price that others can buy it. And that is the Step 2, Step 3.
    You can look at the figures, and you will see we have been relatively successful. We have been able to increase the amount of cotton we export. We have been able to increase the amount of cotton we are manufacturing in the United States. At the same time, we are facing tremendous competition regarding—as—purely as a result of the dollar.
    I hope that the other industry representatives that will soon come before us—I do not think it is helpful when the Grain Council, for example, says that there are important jobs this year, and will be continuing to try to educate people on the Hill that counter-cyclical payments, blunt market signals lead to overproduction, sets-asides, et cetera. I don't know of a grain farmer or a cotton farmer or any other farmer that could survive or could have survived in the last 5 years without Government payments. Now I am sure there are those out there because of debt, what have you, but when you look at your bottom line I doubt you can.
    We traveled last year. The chairman and I made all 10 of our field hearings. We had 200 witnesses that came before the committee, producers. Only one suggested what some still believe is in the best interest of agriculture. Only one farmer came forward and said, Congress, you made a mistake when you appropriated the additional dollars. If you would have let the Freedom to Farm Act work as was intended, we would have a better situation today.
    Well, I have a hard time finding many to agree with him, the devastation that would have occurred in rural America as a result of that. But we still have that.
    I wish folks who use the product that farmers produce would begin to understand the answer is not cheaper prices. We can't get it any cheaper in this country and survive. It cannot be done. If you can show me how to prove me wrong on that statement, then let's have that discussion.
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    And to those of you who will be reading this testimony and hearing about it, I welcome you sitting at that table and explaining to me how the answer to our farm problems is cut the budget and let our farmers compete in the international marketplace without our producers being there. I don't see how we can do it, but I welcome the folks to come before this committee and explain it. I will enjoy having you tell me, and I will be the first to say I was wrong after you have explained it to me.
    I don't have any questions. But I had to get that out of my system. I am kind of bugged with some folks right now.
    Mr. MCLENDON. I agree 100 percent.
    The CHAIRMAN. I hope it is not me.
    Mr. STENHOLM. No.
    The CHAIRMAN. Mr. Osborne.
    Mr. OSBORNE. I am almost speechless at this point.
    I am interested in the safety net issues, and I am really interested in exploring with lots of people revenue insurance, as you have mentioned. We got the AMTA payments, we have the LDPs, and we have the emergency payments. And it seems like it is fairly involved, complicated. FSA offices have a hard time keeping up with it.
    So we have explored the idea from time to time in my area of the country of some type of revenue insurance where if you averaged—just throwing out a figure—$300 of revenue per acre over a 5-year history and then having private insurance companies insure your land for $300 per acre and expand the payments to where maybe the Government payment for the premium was 90 percent—that is just throwing out a figure—do you see that as being any type of workable or acceptable type safety net? Have you thought about that? Is it feasible?
    Mr. MCLENDON. We have discussed it. We call it cost of production insurance, and we have discussed it.
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    First of all, we would not want that to be a delivery system for program benefits that we receive from Congress. But it is—and there have been some pilot projects by the crop insurance to look at the cost of production. I am not as familiar with those as I probably should be. But it is something that has been discussed in the past and ended up the reform of crop insurance last year. I am sure it received a lot of discussion. And the crop insurance program is improved, like the chairman mentioned. But it is something that we have discussed for a long period of time.
    Mr. LANGE. There are several firms currently exploring the possibility of offering a cost of production insurance on a pilot project basis in several areas of the Cotton Belt. So in 2001 hopefully we may see how a product like that can function.
    Mr. OSBORNE. One other question I have. In some of the northern tier States you hear a lot of commentary about green payments. I would imagine that you are under some heat on EPA regulations, and it makes your cost of production higher. So it has occurred to me if we are going to require and impose more environmental restrictions that maybe the Government should participate more heavily in paying for consequences of those requirements. So we have such things as payments for buffer strips along streams, CRP lands. I am sure in your case carbon sequestration probably would not have much validity. But do you see anyplace where the so-called green payments, environmental payments might be of assistance to you, would make any sense?
    Mr. MCLENDON. We don't oppose those type payments. Our concern is that sometimes we might be required—in order to get a payment, we would have environmental requirements that we had to meet on the farm before we could receive any payment; and that concerns us. But the program that we have now to assist us to plant pine trees or grass are fine. We do not have any objections to those type of things, but we do have concerns that we might have environmental requirements that we had to meet if we had a lot of those type of payments in order to have any program benefits, and we oppose those.
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    Mr. OSBORNE. Right. And I don't necessarily envision this as being additional requirements, so it may simply be more adequate payments for conservation practices that are now being expected of you. But since you are in such a different industry than I am familiar with I was just—and I appreciate your answer.
    Mr. MCLENDON. Well, it is something that we have talked about; and from a farmer's standpoint they are concerned about having to open up their land to anybody who wants to come on it if they receive some of that environmental—and they are concerned from a liability standpoint. Somebody gets hurt out there and what goes on now from a—in the court of law and the liability of somebody coming on your land that you did not give permission but they can still sue you.
    We don't oppose those type of payments at all, as long as we don't have a list of standards that you have to live up to in order to get any kind of program benefits.
    Mr. OSBORNE. You just don't want additional regulations.
    Mr. MCLENDON. Being from the Southeast, you know we have had thousands of acres of pine trees planted; and Congress has participated in that program by assisting not only in the payment—a portion of the cost of planting the trees, and it has been a good program.
    Mr. OSBORNE. OK. Thank you.
    The CHAIRMAN. Mr. Dooley.
    Mr. DOOLEY. Thank you.
    I want to compliment the Cotton Council for the work you did in putting together a very thoughtful program. Some of us are concerned about what we see happening. It looks like a disconnect between sustained low commodity prices and land values that have—in the last few years have stayed pretty strong and in some cases even increasing.
    You know, my assessment is that that could in some ways be a reflection of capitalization of some of our direct payments or Government programs into land values. I think one of the things we will struggle with moving forward is how do you ensure that we develop a foreign policy and program that benefits actually the target population out there, which I think is actually the farmer, which oftentimes and increasingly is not the land owner. And I am concerned with your decoupled payment of 10 cents that you would have is going to be based on either current history or current yield or past history, which inevitably would be tied to that particular piece of property, would it not?
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    Mr. MCLENDON. Yes, sir, it would be; and that type of payment has to be tied to the land, we think, in order to be complied with the WTO.
    Mr. DOOLEY. But that is going to be the most significant component of your program, would be this 10 cents per pound, would it not?
    Mr. BOOKER. Of the projected prices that we see in the CBO baseline it would be.
    Mr. DOOLEY. Be significant.
    I guess the other concern that I have is—and it is not that I have a better solution, but when you do it decoupled and you are also doing it coupled payment—and Mr. Combest asked a question, is that you could still then be moving out of cotton or out of corn, so to speak, getting your decoupled payment on corn and then getting a coupled payment on cotton.
    Mr. BOOKER. Well, the way these—and the models that we have drawn up, both the decoupled payment and the counter cyclical payment are based on historical data. They don't have to be that way. The National Cotton Council's policy permits us to support a program that would be where you would have a counter cyclical paid on what is produced or current acreage.
    Mr. DOOLEY. Which would be the coupled payment?
    Mr. BOOKER. Yes.
    Mr. DOOLEY. But that would mean that you would then—you could then, though, see, basically, if people making decisions due to prices to some extent, that I am going to get my 10-cent payment on the cotton, move into another product and another commodity and get my coupled payment there.
    Mr. BOOKER. There are trade-offs in these approaches, as you know, of course. If you went to a coupled approach for than counter-cyclical payment and if you asked us is there a possibility that Government programs can influence shifts among crops, then the answer would more likely be, yes, we could see that.
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    The way it is structured here you can answer that the Government program is not likely to influence the movement of one crop to the other. You make those decisions on some basis other than what the Government program is.
    But, again, if somebody has a good approach that couples the payment and there is good reason to do it, there is no reason why the Cotton Council couldn't support it. And the Cotton Council would still be supportive of the prohibition that we have on moving into nonprogram commodities and receiving a decoupled payment. In my area we have a lot of folks growing vegetables and especially crops, and they are not too keen on the Government having to subsidize their movement into these crops.
    Mr. BOOKER. What we have done here is, the structural program, just based it on seven program crops; and we haven't attempted to address what you do on other commodities.
    Mr. DOOLEY. You do not have a policy position on a prohibition against moving into these other nonprogram commodities.
    Mr. BOOKER. I am reminded here that we support the fruit and vegetable provision.
    Mr. DOOLEY. Yes, that is obviously very important.
    I guess as we move forward here the one thing that I think we need to continue to focus on, and again a good-faith effort on your part, is how can we ensure that the investment of taxpayer dollars we are offering to create this safety net are in fact going to go that farmer. In some of the programs that you are advocating here I am concerned that a significant portion of that is going to be capitalized in rents, land values—and, you know, I hope we can find ways in which we can structure our program so I can minimize that, so we can actually see asset valuations that are more commensurate with actual market conditions that can, I think, go a long ways to ensuring a more realistic financial situation in the industry.
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    Mr. MCLENDON. Your observation that we have not had decreases in land prices—and in spite of what is going on in the country with low prices, that did happen in the 1980's; and it hasn't happened so far because we have had, in my opinion, such a strong economy away from agriculture that there has been a tremendous demand to buy farmland by nonfarmers. And I think if we are in a recession now and it does get worse I think it will happen. I think the people that are professional farm managers have been concerned for the last 2 or 3 years that we were going to have a decrease in land value because they saw it in the 1980's. We had low prices and a bad situation.
    Again, in my opinion we have had such a strong economy outside of agriculture it has supported land values, but that support won't last forever, and your concern will go. But I don't see the payments that we are receiving increasing land values or holding them up. I don't see that.
    The CHAIRMAN. Mr. Chambliss.
    Mr. CHAMBLISS. Gentlemen. You may be correct, Bob, that it may not be holding land prices up. But obviously Mr. Dooley and I share that concern about who gets that money that I alluded to in my previous question, and on our subcommittee he and I will be working very hard to ensure that whatever Government assistance is provided goes to the farmer and it doesn't affect land lease payments, which in our part of the world is a critical issue.
    I will tell you, too, that yesterday we had some very noted economists testifying about their ideas concerning what we ought to be thinking about for the new farm bill, and one idea that was thrown out is the fact that probably a large contributor to low commodity prices are large Government payments. You can't totally substantiate that, but, obviously, we need to be looking at that. There is going to be some concern raised about that as we get into the next farm bill, and I am not sure what the answer is.
    I was interested in your comment on Mexico becoming our largest importer, and we all know that that is the case from a cotton perspective. I see some folks in the audience that represent the textile industry, and I know they would be quick to tell us on the flip side of this we have seen a migration of our textile industry south for labor reasons, and that is probably what has contributed to Mexico becoming our largest importer.
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    In that vein, does the Cotton Council have a position on the fast track legislation, trade legislation?
    Mr. MCLENDON. We support fast track.
    Mr. CHAMBLISS. Good. In talking about your proposal, you talked in terms of what we have done over the last 3 years from an emergency supplemental standpoint. Am I understanding you correctly to say that if we followed your proposal to a T and if the development of the crop insurance reform program that we passed last year does what you think it ought to do and what we think it ought to do, would we in effect be out of the emergency agricultural supplemental bills from a congressional perspective?
    Mr. BOOKER. I don't know whether we can predict that the new crop insurance program would get us completely out of that or not, but we could certainly hope that it would go a long way towards reducing any needs for Federal assistance related to crop disasters. To the extent that we have got problems related to general economic problems, there could be still a need for some Government assistance.
    Mr. CHAMBLISS. Has the Council taken any position on whether or not a farmer who does not participate in the crop insurance program would be entitled to natural disaster caused payments?
    Mr. MCLENDON. No, sir.
    Mr. CHAMBLISS. OK. The one thing that I want to make sure that we continue to talk about in terms of going back to our land lease payments, Bob, you allude to the fact that we have got a lots of recreational folks coming in, buying our lands, particularly in our area of the country; and I am sure that is happening across the country. They are buying farmland particularly for recreational purposes. Do you see that having any effect on our lease rates?
    Mr. MCLENDON. No, sir. In a lot of cases those people are able to take less return on their investment than a farmer has to get in order to pay for his land. I have seen that happen.
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    Of course, you and I both live in an area where I think we have got more of that going on in the Southeast than in other sections of the country, because I will mention that in meetings and I can see the response. It is not quite as pronounced as it is in the South, maybe because of our climate or what it is. But it has not driven up the rental rates. High commodity prices in 1995, 1996 drove up rental rates; and that did more to drive up rental rates than anything. Then as prices came down it has been awful difficult to get the landowner to accept less rent. It is a lot harder going down than it is going up.
    Mr. CHAMBLISS. In your testimony you allude to the fact that we have had more cotton planted in the last year. I assume that is attributed to the Boll Weevil Eradication Program. Is that a fair statement and do you see that continuing to increase?
    Mr. MCLENDON. I don't think it will continue. It will go back. That was a fair statement for the Southeast that had lost cotton production because of the weevil. When we eradicated the weevil we put profitability back into producing cotton, and we got a response in acreage.
    Now you have sections of the country, such as the high plains of Texas, they do not have alternate crops like we did in the Southeast. They do have an alternate crop but not as many choices as we do in the Southeast. So the shift from corn and other acreage to cotton was because of the weevil, and has allowed us to produce cotton at a point we could make a profit again and which we lost it. But I don't see that happening in the other sections of the country. I just see it—the effect will be it will allow us to produce cotton cheaper.
    Mr. CHAMBLISS. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Berry.
    Mr. BERRY. Thank you, Mr. Chairman. I would like to associate myself with the complimentary remarks that have been made about Phil Burnet here today. Phil has been a great——
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    Mr. CHAMBLISS. I think I am the only one that complimented him.
    Mr. BERRY. Well, Phil has been a great friend to me personally and to this committee and to American agriculture; and, Phil, I want that to be part of the record. We appreciate what you have done, and we expect great things from now on. And I am sure Mr. Booker will continue the great tradition of the National Cotton Council and your staff.
    I would also associate myself with the comments that the ranking member earlier—just kind of shows us the ''where's the beef'' situation. You know, if we can do this without the Government being involved, I would love to see how we can do it, but I don't think we can.
    I would just like to ask one question and see what the Cotton Council thinks about that. Do you think that the United States has enforced its own trade laws and its own trade agreements effectively?
    Mr. BOOKER. If you were asking that question to the folks that I understand must be seated behind me here from the textile industry they would say there is no way that is right. We have seen those quotas exceeded by major proportions. So I think our answer to that is, no, we haven't done a good job with it.
    Mr. BERRY. I think that is yet another reason why we have to have programs. Thank you.
    The CHAIRMAN. Mrs. Clayton.
    Mrs. CLAYTON. Some of my questions were asked by others. But I want to go back to the AMTA payment, the response you gave the chairman in terms of the AMTA payment. Were you asking for the AMTA payment to be limited at the 40 or were you asking the AMTA payment be supplemented?
    Mr. MCLENDON. We were asking that the supplemental AMTA payment—the additional AMTA payment, they did have a separate payment limit in addition to the decoupled payment.
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    Mrs. CLAYTON. OK.
    Mr. MCLENDON. So you would have two payment limits. We were recommending that each part of the program have its own pavement limit, not just one overall payment limit.
    Mrs. CLAYTON. I see. What was the overall payment we did last year? We gave out monies the first time around, but——
    Mr. MCLENDON. Well, we have a $40,000 payment limit on the AMTA payment, but we also have the three-entity rule that allows you to participate in the program. But the $40,000 is a payment limit on the AMTA payment. Then you have the marketing loan payment limit in addition to that.
    Mrs. CLAYTON. Yes, but that is the supplemental you were speaking of.
    Mr. MCLENDON. No, ma'am, that is a totally different program. But the additional AMTA payment, when Congress—when you passed it you set it up under a separate payment limit. It was not the original payment limit. So a farmer that had maxed out, he had gotten $40,000, he was entitled to additional payments under the supplemental program.
    Mrs. CLAYTON. Is that the three-step program we did? Maybe I am confused on what we did. I thought we had a three-step program.
    Mr. MCLENDON. We do, and that is separate from this supplemental AMTA payment.
    Mrs. CLAYTON. I will just follow up on my own. Let me ask you again about the yield because the AMTA payment is based historically on—how many is it—3 years or 5 years?
    Mr. MCLENDON. It is 5 years.
    Mrs. CLAYTON. It is 5 years. And the reason you spoke to Representative Chambliss about the boll weevil and others is that we are far more efficient in production than we have been. So to be limited to the historical yield then the rates are not equal and, therefore, not only is this in the South but I guess this may be for other crops other than cotton.
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    But what I hear from cotton is that we want some way of adjusting the—is there a mechanism in the system—I guess maybe the chairman can ask the—is there a mechanism in the system that can allow for the county or for the individual farmers to have an update? I know you recommended that, but is the system now with a trigger that you can get a county-wide yield and that each of the farmers could benefit from that?
    Mr. MCLENDON. There is not a mechanism for change that the law provided for a certain period of time establishing the yield and the base that that farm had, and we were recommending that that be reviewed.
    Now if you are not a grower, if you have not grown cotton, then you can go in and be assigned a county yield. But for a grower that has a history of planting or that farm has a history of planting—not the grower, the farm has a history then——
    Mrs. CLAYTON. He is limited to the average of the 5 years.
    Mr. MCLENDON. Yes, ma'am.
    Mrs. CLAYTON. The other question, your Cotton Council involves your manufacturing, I guess your retailers as well as all the processes as growers as well. I know in my district many of the manufacturers—and you referred to some of them as mom and pops. But some of them are not mom and pop. Some of them are going out of business and making that decision for, I guess, good and valid economic reasons. But in the last year I know we have lost at least 1,500 jobs in various places in my district just—probably less, the last 8 months, really.
    Last year—a large company like Burlington a few years ago announced three plants closed in my State. Then you have the smaller ones now, some of them consolidating, some not. But, eventually, the nexus to the industry does have a relationship with growers; and I thought I heard the response to a question was that the consolidation or the diminishing of people who have been buying your goods and manufacturing your goods has not had any negative impact on price or is that—that activity can happen, the manufacturer can go out of business, that doesn't affect you?
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    Mr. MCLENDON. It does affect us and anytime you have people going out of business, they are going to buy less U.S. cotton and it is going to reduce prices. The things that have been done and we are trying to do, we have stopped it from getting as bad as it could have been if we hadn't been doing anything, but certainly the consolidation and people going out of the textile business has reduced people buying our cotton, and that certainly hurt the price of U.S. cotton.
    Mrs. CLAYTON. Thank you.
    Mr. MCLENDON. And I think if we could return to a better profitability in the manufacturing segment and they could use more cotton, it would create demand and improve our price.
    Mrs. CLAYTON. Thank you, Mr. Chairman.
    The CHAIRMAN. I thank the gentlewoman. If there is a group that I need to remind that I was not an early advocate of the current farm program, it is not this group. At the time I talked about the fact that I was very concerned that if things didn't go just perfectly that we did not have an adequate safety net in the program, and that is why I have dedicated my previous 2 years as chairman of this committee to try and work on the safety net side of it. That is why we are having these hearings today. Congress has appropriated in the ballpark of $25 billion in additional money the past 3 years to help agriculture through some tough times.
    So it brings me back to where I left off earlier, and it is a question I am going to want to pursue with every group that comes in. My goal in trying to look at where we are today and what it is we may possibly be able to do is driven by the economic conditions in farmland over the past 3 years. And my thought about that is that recognizing there are parts—you have talked about them today—of the program that people like, and that is, you are not farming for government programs, you are not farming based on government acreage allotments or whatever, that you have flexibility, those parts are pretty universally agreed to as being good parts of the program. We have heard that all throughout our hearing process, but obviously we have some deficiencies and those are the areas that we are trying to deal with.
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    Well, my contention is if we are going to look at that now to try to see what we can do about that, that if there is a legislative fix that we can address those problems in, it gives a lot better assurance to the producer that is out there that there will be some help, rather than that producer having to wait and depend upon the fact that we may at about harvest time come up with a program that helps them through. It gives their people financing their farming operations a lot better assurance, and I think it is just a better way to do business. I also think strongly that it is something we should have considered in the budget. Let's be budget honest about it and put it out there and know what we have got to work with.
    If we do that, then the question becomes, how long do we do that for? Well, if it is good fix, I would say let's do it beyond just another 2 years of the current program, let's make it longer. And if that is the case, basically that becomes the farm bill for the next—let's say we do it for 5 years—that becomes the farm bill, and so really in reality we rewrite it this year.
    Well, there are those that will argue, and I think justifiably so, that if we do that we are violating a contract that was made when this farm program passed that there would be 7 years of payments based upon history. Well, we have kind of gone beyond that anyway. Well, in 1999, for example, we had cotton, 7.88 AMTA payment. We doubled that. 2000 was 77.3 cents a pound. We gave that plus the 1999 payment. 2001 is based on 5.99 cents a pound and we don't know where we are going to go with that.
    And I want to make for—you know, just because a contract was signed, if it is a bad deal, let's see if we can't change it. But I would like to know your opinion of how much of a credibility or how much of a problem that would cause if we can come with a good solution—and I don't want to do a bad solution—so if we can come with a good solution, some people may say, well, you have violated that contract; well they didn't mind last year when we doubled the payment, which really wasn't a part of the contract either. So how is that going to sell in farm country, if the question finds a solution that substantially increases, substantially improves the deficiencies we have in the current program, how much of a problem is that going to create in people's minds that we are not going to be around in 2002 to give that AMTA payment which is going to be less than 6 cents a pound?
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    Mr. MCLENDON. I think if you improve what is offered to the farm, farmers, it will be well received. For those farmers that have that contract got 2 more years on it, and if it is detrimental to them, then you we have got a problem.
    Mr. LANGE. Mr. Chairman, I would say the type of program we outlined in our testimony would swing straight off this current program and would simply allow some adjustment in base, if possible, and would be using essentially the same contract base with no harm to producers who are holding current contracts and adds to the safety net that they would be eligible for. I don't think there is a problem of a sale of that kind of program in agriculture.
    The CHAIRMAN. Mr. Stenholm.
    Mr. STENHOLM. No further questions, really. A comment. Mr. Osborne, regarding your question regarding revenue insurance, that is a concept that I think we really ought to continue to look at as supplemental ideas to our insurance program and perhaps to our overall quest for an adequate price risk insurance or whatever we want to call it. Also, I want to repeat, and again for edification and education, you know, cotton incorporated in our checkoff in which individual producers are making a fairly substantial investment in our own industry I think is key to being able to receive the—at least ask for the kind of Federal help that we ask for. And I hope that all of our checkoff programs will, with due diligence, meet the concerns of the growers, but the growers will also understand the significance of continuing to invest in our own programs as being a good compelling argument for us politically.
    The question is this: It is no secret we have got some major problems with cost of electricity, cost of natural gas, irrigation costs, fertilizer cost. I think it is safe to say economically that if the cost of irrigating is too high based on the expected price of the commodity, it would be prudent to shift to a dry land situation for a short period of time rather than irrigate and pump on the fertilizer at a cost in which you will not expect to receive a return on your money. Mr. McLendon.
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    Mr. MCLENDON. And I think that will happen this year.
    Mr. STENHOLM. I think it is going to happen this year for the reasons that I just mentioned.
    Mr. MCLENDON. In the discussions and meetings we have had in the last 60 days with producers, particularly in the West, we have got tremendous increases in energy costs. I think there are going to be shifts, maybe not even farming the land, where people might sell the water rights. That is being discussed, sell the contracts on natural gas.
    So it is a tremendous problem for us and that is the reason we need to continue this partnership between you and us because of the things—our cost production looks like it is going to be even up this year over last year because of energy being passed on to us in higher fertilizer costs and diesel prices. And my diesel bill on my farm was doubled in 2000. It cost me twice as much to buy my diesel fuel as it did in 1999 and now I have got diesel prices that are still up now I am going to be faced with fertilizer prices.
    Mr. STENHOLM. And here I guess in encouragement to the cotton industry, I have observed that you cannot produce food and fiber without oil and gas. You cannot produce oil and gas without food and fiber. And therefore, there ought to be a natural partnership now. And just as we are hearing testimony of the importance of farm legislation, and I would be remiss if I didn't say publicly right now how much I appreciate the chairman's activities in this current farm bill, how bad it would have been were it not for he and a few others on this committee standing up for agriculture against philosophical landslide. But that is history and it is recorded.
    But we have to develop a national energy policy and components. The corn industry I think is going to play a tremendous role in the alternative fuels side of this area. I think perhaps we will have research in which we will find various commodities that are now under the gun, so to speak, are going to pay a very constructive role in helping meet our national energy policy. And, therefore, I hope that as we get into both of these, that we will have the support from agriculture for an energy policy that will provide the kind of stability and pricing that we are going to have to have in the energy area and that we can make the same arguments for production in agriculture. I think they are one and the same: our environmental concerns, our production concerns, our foreign competition, all of the things that go into it.
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    So as we proceed down the line, and we will have additional questions for you that we will be submitting in writing, but I hope that we will find a way to keep agriculture unified in support of a national energy policy that will provide an abundant supply of energy at a price we can afford, to use it to produce that which the United States consumer and the world will need.
    The CHAIRMAN. Mr. Osborne.
    Mr. OSBORNE. We have been here a long time and I appreciate your patience. I just had a couple of things. We talked a little bit about land values, and in our part of the country we find that people in agriculture tend to be aging. I guess we are all aging, but the average farmer rancher is maybe 59, 60 years of age. Not very many young farmers coming into the business. And it seems that land prices, you know, are a problem, the capital outlay, and I would assume that is true in your area as well. And so I am assuming you are in favor of doing away with the inheritance tax. Is that true?
    Mr. MCLENDON. Yes, sir, I am very much in favor of that. And it affects me personally, and most cotton producers and all farmers throughout the country and small business people, and that is really a plus for us.
    Mr. OSBORNE. The other thing as kind of an adjunct to that question, we have some folks who have some debt and they have had a considerable appreciation in the value of their land. And so I thought—I have a bill to eliminate or provide a $500,000 one-time capital gains tax exemption for the sale of farmland, which is similar to what people have for the sale of their homes. And do you see in your part of the country that being advantageous? I assume it would be.
    Mr. MCLENDON. I think it would help keep young people on the farm. And that is the thing in my community, I live in a typical rural community that has lost population. My children moved to the city, and all the problems that we face on the farm has not encouraged younger people to get in agriculture. And the average age of the farmer in this country goes up every year and we have got less and less people wanting to farm. And any kind of tax legislation that would cut out inheritance tax or improve on the capital gains would help people being able to financially start farming. With the return we get on our investment in agriculture, it is just almost impossible for somebody to start off unless they are given land by their parents to get into agriculture.
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    Mr. OSBORNE. One last thing. I know there is a lot of discomfort with the people in agriculture I talk to, and that is that whether they are profitable or not, whether they are able to survive or not. The last few years has depended on the emergency payments in November and December, and that is an uncomfortable way to live because nobody knows what they are quite going to be. And it seems to me one of the fundamental tasks of this committee ought to be how we can shift that to a an earlier date or a front end, because obviously if you are going to get a loan from a bank and you really don't know what is coming down the line, that is very difficult. And I am assuming some of the things you have talked about today are an attempt to shift the back end payments toward the front, but I noticed you are still talking emergency payments and those being factored in. Do you see any way that this can be done that we are not relying on payments in November and December that are of an unspecified amount that could be factored into the program where we know up front more what we can rely on?
    Mr. MCLENDON. This program we are recommending does define—except you won't know what the average price the farmer receives for his cotton—but it will better allow the producer and his banker understand what he will get. What he doesn't get up front he will get in the fall, but it will be known that he will receive a certain amount of income if he doesn't get it out of the market.
    Mr. BOOKER. That is true.
    Mr. MCLENDON. It certainly will improve the farmer's ability to obtain credit to make his crop, and we were conscious of that when we made our recommendation. We discussed it.
    Mr. OSBORNE. Thank you.
    The CHAIRMAN. Mr. Hinojosa, did you have a question?
    Mr. HINOJOSA. Yes, I do.
    The CHAIRMAN. Mr. Hinojosa, it has been the policy of this committee that we welcome nonmembers of the committee to sit in with us. It was my understanding you understood that it was also the policy that they did not ask questions. And we are glad to have you here, however, we will continue with that policy.
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    Mr. HINOJOSA. Thank you for the opportunity to come and sit in and listen.
    The CHAIRMAN. You are welcome. Let me ask you this question. It has been pointed out that a number of times over the—since the passage of the farm bill in 1996 that, you know, part of that deal was, well, we are going to have tax relief and regulatory relief and those kind of things, and I won't go into to why those never occurred, but maybe it will be different now. But anyway, I don't suspect that you have done this certainly to a prepared at this point, but one of things I would like to see fit, would be possible for you to do as an industry, is to give to us some of those more onerous regulations that producers, not only the producers of the raw product but, as well, those people, since you do represent seven segments of an industry that have to contend with that we might need to take a look at.
    I will readily say most of those didn't originate or would they come under the jurisdiction of this committee, but in a total compilation of those things which do in fact impair agriculture: tax policy, we don't have tax policy; regulatory policy, we don't certainly have all of that; trade policy, we don't have all of that. Those things are very important for us to be able to at least speak on behalf of agriculture, and so as one of your submissions, I would ask that you do that.
    I also want to clarify, it was pointed out to me and I want to make sure that these numbers correspond and correlate to your numbers, that there had been some question today about the total number of dollars that your program might obligate. Some have suggested that it might be as much as $33 billion a year, but it appears that in some calculations that that would be closer to an annual obligation of $20 billion.
    Mr. BOOKER. That is true, Mr. Chairman.
    The CHAIRMAN. I would also note that the $20 billion is substantially less than what we are currently spending or have spent on the last two crop years. I would commend you for that. I don't know that that is always going to be the case when we have these suggestions. But it would also seem to be that what you are proposing is—and somewhat to an earlier question I asked, certainly a question Mr. Osborne asked—was that if you can give farmers a little longer-range planning, and that is why we are having these hearings, to see if we can come up with a program that allows a planning rather than simply hope that at the end of year we come up with this money; that if this that is the case, it probably gives them more of some assurances when they are going in both to their financiers as well as to the other people they deal with as they are putting in a crop. So if that is the case, we are actually talking about potentially less money, we are talking about it in a way that provides more stability in agriculture and better planning.
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    That is a direction certainly, and is a goal that we are trying to move forward and I commend you for that. What we have got to look at is, we are trying to do some balance overall as we move forward, is how do we in fact achieve those goals within some budget constraints?
    I would recognize Mr. Putnam.
    Mr. PUTNAM. Thank you, Mr. Chairman. I apologize for being late. I don't have any questions at this time for the witness.
    The CHAIRMAN. It's about time to wrap this up.
     Let me mention one other thing in this whole discussion of budget, and we are not there yet, but in 2002, the total AMTA payment is supposed to expend $4.1 billion, and at the end of that period of time—that is the baseline we have, and if we are dealing with a new farm program, that the most we could do with that baseline would be basically the lowest period of time, the year 2002 AMTA payment. So this is of concern. It has been mentioned by a lot of people. It is of concern to me.
    I am having those discussions as we are ongoing, but it is vitally important, I think, for us if we are responsibly going to give some overall assurances to agriculture about where we are going to be, we have got to start looking at the impact of that baseline on new farm programs. And it is very important to our ability to craft a program in which we are able to at least give some kind of assurances.
    I want to thank you again for your testimony, for the amount of time that was obviously spent, for being the guinea pig in going first. I think you have set a standard that others will judge their success or failure by. I am hopeful that at the end of this process—and hopefully it is sooner rather than later—that we have some direction on which we can go to begin to look at what solutions are available and what ones that we might be able to enact.
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    I would say, without objection, that the record of today's hearing will remain open for 10 days to receive additional material and supplementary written responses from witnesses from any questions posed by members.
     This hearing is adjourned.
    [Whereupon, at 11:50 a.m., the committee was adjourned, subject to the call of the Chair.]
    [Material submitted for inclusion in the record follows:]
    Consumer flammability standard issues include:
     Children's Sleepwear
     Upholstered Furniture
     Mattress and Bedding
     Wearing Apparel
    U.S. Consumer Products Safety Commission (CPSC) Description
    Regulations for open flame and/or cigarette ignition of apparel and home furnishings.
    At least 3 million bales of cotton in apparel and home furnishings could be affected plus testing, chemical treatment, and environment/worker safety costs.
    Cost of Compliance
    Children's sleepwear, underwear, playwear: Potential loss of 100,000 bales valued at $30 million (assuming price of 60 cents/lb.) if 1996 amendments rescinded. The loss could be considerably greater should an extremely rigid and unnecessary standard be set for all wearing apparel for children under age 7. For example, cotton's share of the childrens' sleepwear market once exceeded 90 percent. Flammability standards imposed in the 1970's virtually eliminated cotton from this market for many years.
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    Upholstered furniture: CPSC underestimates cost by $2 billion (about half the cost would be to the cotton and cotton textile industries).
    Mattress/bedding: Potential loss of 500,000 bales valued at $150 million.
    Current Status and Opportunity to Address
    The 1996 amendments to the children's sleepwear flammability standard were upheld in 1999. Bills (H.R. 730 & 528) have been introduced to remove the 1996 amendments and legislation is expected to be introduced to have all apparel for children under age 7 meet stricter flammability standards. The briefing package for a flammability standard for upholstered furniture is expected in April and CPSC could propose a standard in May. An advanced notice of proposed rulemaking for mattresses/ bedding is expected in April-May. Industry groups will continue to work all avenues to prevent unnecessary regulation for apparel and home furnishings as well as possible Congressional oversight of these issues.
    Clean Water Act.
    U.S. Environmental Protection Agency (EPA).
    Regulations will classify non-point source pollution as a point source under TMDLs.
    Additional costs to farmers for compliance measures; infringement on farming practices; Federal permits for runoff discharges.
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    Cost of Compliance
    National Governors Association estimates that states will have to spend $1–2 billion just to complete water pollution surveys; costs to farmers is unclear at this point and will vary with pollutant.
    Current Status and Opportunity to Address
    The TMDL rule was finalized in August 2000 and becomes effective October 1, 2001. At that point, it will be the responsibility of the States to determine their impaired waterbodies and develop TMDLs. However, the rule gives EPA the final authority on approvals of these State plans. It is imperative that Congress provide some oversight to assure that EPA does not arbitrarily override these local decisions.
    Clean Air Act.
     Hazardous Air Pollutants (HAP)
     Particulate Matter (PM)
     Ozone (O3)
    Environmental Protection Agency and State Regulatory Agencies.
    Environmental air quality standards for controls for hexane emissions from cottonseed oil mills. This is referred to as a maximum achievable control technology (MACT) or national emissions standard for hazardous air pollutant (NESHAP) standard.
    Regulations (national ambient air quality standards; NAAQSs) for control of criteria pollutants, PM and O3, which affect all cotton operations.
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    MACT Standard: Some small oil mills have ceased operation; cost about $2,000/ton of reduced emissions.
    PM/O3 Standards: affect cost of energy, transportation plus permit and control costs.
    Cost of Compliance
    MACT Standard: The costs of compliance with a new MACT standard per ton of reduced emissions are estimated to be $2,000. Assuming a 0.15 gal/ton of hexane reduction in emissions (about 1 lb./ton of production) is required, an affected large cottonseed oil (average 400,000 tons of production/year) will incur a total annual cost of compliance of $400,000 (400,000/2000*$2,000). For an affected small cottonseed oil mill (average 125,000 tons of production/year), the annual cost of compliance is an estimated $125,000 (125,000/2000*$2,000). For such a MACT standard, NCC analysis suggests that 14 cottonseed oil mills would be affected, 8 large and 6 small. Hence, the aggregate annual cost of compliance with a more stringent MACT standard would be an estimated $3.95 million.
    PM for gins: Determining the cost of compliance for the cotton ginning industry is difficult because of the wide variance in estimates of a gin's contribution of PM2.5 and PM10 in its emissions relative to total particulate matter. However, using worst case assumptions (the highest estimate of PM 2.5/10 in gin emissions), the minimum cost of compliance for an average gin (around 18,000 bales annual production) would be approximately $140,000. If extreme control measures are required to achieve compliance, the cost would increase to almost $500,000 for the average gin. In some cases, the retrofit costs for adding new control equipment, necessary for compliance, could be more than the actual value of the ginning facility.
    The cost for PM/O3 standards for cotton production is difficult to determine and is dependent on how emissions for agriculture are determined and calculated (EPA will be determining this). If not determined correctly it could force ''permits to farm'' in some areas and result in significantly affecting farming activities.
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    Current Status and Opportunity to Address
    The MACT standard for vegetable oil processing is expected in April/May. The PM and O3 NAAQSs were amended in 1997. A PM2.5 (fine dust) standard was added to the PM10 (coarse dust) standard and the O3 standard was made more severe. The Supreme Court recently upheld these standards and both are being reviewed for possible amendment in 2002. The industry will work with Congress on possible oversight to ensure that sound science is used to determine regulations and for possible new legislation for better consideration of cost-benefit in implementation. EPA should defer production agricultural operations from permitting requirements until such time, in conjunction with USDA, has based policies, guidance and/or proposed rules on sound science and appropriately defined the applicability of the Clean Air Act requirements for these facilities.
    Food Quality Protection Act (FQPA)
    Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)
    Environmental Protection Agency.
    The complex FQPA requires reassessment of all pesticide tolerances within the 10 years following enactment in 1996. On parallel track, FIFRA requires re-registration of older products (those registered prior to 1984).
    The new components of risk assessment that FQPA authorizes, such as drinking water, residential, aggregate, and cumulative are difficult if not impossible to estimate realistically.
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    If EPA does not have data or methodologies, it often uses default assumptions. These assumptions are very conservative and overestimate risk that can result in the cancellation of uses when no real safety hazards exist. Re-registration places additional safety standards before approval for re-registration. Additional safety factors and sensitive end points make the targeted margin of Safety (MOE) nearly impossible to meet.
    Cost of Compliance
     Loss of products either by direct cancellation by EPA or by the registrant due to prohibitive costs to maintain and/or defend registration. Usefulness of products can be effectively lost by restrictions on rates and seasonal application caps.
     More expensive new products typically have a narrow range of pests that are controlled. In the future, a producer may have to apply two rather costly chemical products to control two pests, rather than use one inexpensive broad-spectrum product.
     U.S. cotton producers are at disadvantage when other cotton producing countries have ready access to cotton products under less stringent regulations.
    (1) NCC conducted an economic benefit statement on the OP tribufos (DEF), the most widely used cotton defoliant. We estimated an $157 million impact annually if the product were to be cancelled.
    (2) With 10.2 million-acre boll weevil eradication underway in 2001, availability of malathion is critical to completion of the program. Malathion is just as critical to protecting the 4.5 million acres already free of the boll weevil. Benefits of boll weevil eradication will be lost and cotton producers will be forced to return to intensive chemical control of boll weevil. Malathion is now under FQPA review and re-registration. NCC analysis indicates that the loss of malathion and other organophosphates would result in economic losses to the U.S. cotton industry well in excess of $1 billion.
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    (3) FIFRA re-registration reviews are currently being conducted on dicrotophos (Bidrin), an organophosphate (OP) used only on cotton. With boll weevil no longer a problem in many areas, dicrotophos, a 30-year-old product, is now the product of choice because of its economics, its spectrum of activity on the post-boll weevil insect pest complex. Most pests are piercing-sucking pests like stink bugs, plant bugs, aphids, thrips and fleahoppers. Unfortunately, dicrotophos is now at risk of being cancelled or severely restricted because of overestimated risks based on default, inexact data. EPA's timeline will not allow for an extension until appropriate data can be developed.
    (4) Pirate (chlorfenapyr) is available in other cotton countries. Last year, the U.S. EPA forced the registrant to withdraw its registration application for use on cotton in the U.S. Pirate provides the most effective control of beet armyworms on cotton.
    (5) Section 18 process for Emergency Use Exemptions is in need of revision to improve efficiency. The Texas application (a renewal) to use Furadan (carbofuran) required 110 days for EPA to respond rather than the 50-day review.
    Current Status and Opportunity to Address
    Two days before leaving office, political appointees at EPA entered into a consent decree with NRDC in order to ''settle'' a lawsuit brought by the anti-pesticide activist group. The court agreement was reached without seeking input from stakeholder groups that were intervenors in this case. The agreement places an unachievable timeline on new EPA officials. In effect, it gives NRDC and other environmental groups enormous control over the Agency's pesticide program by placing unrealistic timelines on registration decisions. Regulatory science cannot be put on a schedule, especially if methodologies like cumulative risk assessment and common mode of action have not even been developed. Cotton uses 18 of the 40 organophosphate (OP) products. Several of these are critically important major products with no readily available alternatives. These products could be at risk if EPA is forced into unreasonable timeframes for making decisions. This week, intervenors are urging the court to accept public comment on the consent decree.
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     Cotton Dust
     Process safety (PSM)
     Safety and Health Programs (proposed)
     Recording and Reporting Occupational Injuries and Illnesses
     Other Safety and Health Regulations
    U.S. Department of Labor-Occupational Safety and Health Administration and state safety and health regulatory agencies.
    Worker safety & health standards for specific substances and work processes.
    Ergonomics (through the general duty clause); most of the health and safety standards are burdensome, have costly recordkeeping requirements, and contain unnecessary requirements.
    Cost of Compliance
    NCC analysis indicates that the annual cost to U.S. cottonseed mills of compliance with the ergonomics standard recently proposed by OSHA would have been approximately $1 million. In addition, other segments of the cotton industry such as textile mills also would have faced substantial compliance costs. Annual recordkeeping requirements in the textile industry are estimated at $25,000 to $50,000 per textile mill. Costs of compliance with other OSHA regulatory issues are estimated at $10,000 for cotton gins, $15,000 for oil mills and $25,000 for textile mills.
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    Current Status and Opportunity to Address
    Though largely unsuccessful, there have been attempts to craft legislation in both the House and Senate for OSHA reforms that place more emphasis on actual workplace safety than enforcement, establish partnerships with businesses, and reduce recordkeeping requirements for small businesses.
    The ergonomics standard was rescinded by Congress (using the Congressional Review Act). Legislation (S598) has been introduced that would force the DOL to adopt within 2 years a new standard set forth in clear terms to address ergonomics hazards and spell out the measures required of an employer to comply with the regulations. The standard for recording and reporting of occupational injuries and illnesses was finalized 1/19/01 to start 1/1/02. The safety and health program standard proposal is expected in fiscal year 2001. The crystalline silica proposed standard is expected in 2001. Industry will work with the Congress on oversight of these issues.
    Worker Protection Standard.
    Environmental Protection Agency and State Regulatory Agencies.
    EPA revised regulations governing use of pesticides used in production of agricultural plants on farms. WPS was fully implemented in 1995 following a year delay by Congress.
    While cotton producers desire to protect their valued employees, many of who are permanently employees, the WPS imposes additional layers of pesticide safety regulations on the employer and the employee. Employers must provide specified personal protective equipment (PPE), provide decontamination sites, and place signs on treated fields. Employees are required to wear PPE under hot humid conditions in the summertime. EPA published a 150-page booklet on dealing with heat exhaustion. Protection requirements are often overly burdensome and require a series of management decisions and actions on a daily basis. WPS regulations place additional liabilities on the producer.
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    Current Status and Opportunity to Address
    EPA is currently in the process of holding workshops to gather information to justify revisions to the WPS standard. Discussions in workshops have been focused on new rules to tighten enforcement and additions to penalize employers. This increases liability risks to the employer.
    Driver Hours of Service Proposal.
    Commercial Driver Licenses.
    U.S. Department of Transportation (DOT), Federal Motor Carrier Safety Administration (FMCSA).
    Proposed regulation limiting the hours of service for drivers of commercial trucks.
    Federal regulation that supercedes any existing state regulation related to the requirement for a CDL in order to operate commercial trucks.
    Proposed regulation modifies the exemption for agriculture and redefines what constitutes an agricultural operation in a severely restrictive manner impacting the timely transportation of producer owned seed cotton modules from the farm to the gin and producer owned baled lint and cottonseed from the gin to storage.
    Federal requirements for a CDL with no provisions for an agricultural exemption impose burdensome restrictions to licensed driver availability during the harvest season for producers and for ginning operations. Additional Federal regulations related to CDL holders add unnecessary costs to agricultural operations that otherwise were exempted under prior individual state regulations.
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    Cost of Compliance
    Unknown costs due to harvest delays in transporting modules from the field to the gin and in transporting baled lint and cottonseed from the gin to storage on the producers' behalf for market.
    Requires additional record keeping by growers and ginners employing CDL holders and severely limits the pool of potential truck drivers during the harvest season.
    Current Status and Opportunity to Address
    H.R. 4511 would have prohibited the Secretary of Transportation and the Administrator of FMCSA from taking action to finalize, implement, or enforce the hours of service rule. Final action on the FY2001 Transportation Appropriations bill permits FMCSA to collect and analyze public comments on its proposed rulemaking for hours of service, but prohibits the agency from taking any final action on the proposed rule during fiscal year 2001.
    H–2A Program.
    Immigration and Naturalization Service (INS) and Department of Labor (DOL).
    In recent years, attempts have been made administratively and legislatively to reform the H–2A program to streamline its many requirements for easier use by agricultural employers. Only modest improvements have been made administratively by INS and DOL; whereas, legislative efforts have also fallen short of passage.
    Very few cotton growers and virtually no cotton ginners are able to utilize the current H–2A program because of its cumbersome requirements. Local worker shortages for many agricultural employers make it necessary that the H–2A program be significantly modified or another guest worker program for agriculture be made available.
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    Cost of Compliance
    Because the H–2A program is voluntary, there are no compliance costs for those who choose not to participate. However, H–2A program participants have a number of costly requirements, including provision of employee housing and meals, payment of the higher of the adverse effect wage or prevailing wage rate for that occupation, transportation costs, and typically consulting fees for the handling of DOL paperwork and worker recruitment. Favorable changes to reduce program costs and streamline the process of employing guest workers will of be great benefit to current program participants and will make the program more attractive to agricultural employers currently not participating.
    Current Status and Opportunity to Address
    Congress adjourned last December 15 without considering S.1814 (AgJOBS), which made necessary reforms to the H–2A program and provided an opportunity for the most experienced undocumented agricultural workers to adjust their immigration status. Agricultural groups will continue efforts to work with Congress for passage of favorable agricultural guest worker legislation.
    Regulatory Oversight of agricultural biotechnology products
    USDA-Animal and Plant Health Inspection Service (APHIS)
    Food and Drug Administration.
    Environmental Protection Agency (EPA)
    Existing cotton products were approved by a new set of regulatory procedures established by USDA, FDA and EPA. The cotton industry has placed value in this process since this rather rigorous approval by three regulatory agencies has helped to respond to questions of environmental and consumer safety.
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    New products based on biotechnology have been rapidly adopted by the cotton industry. Biotechnology based cotton products were first introduced in 1996. In 2000, over 65 percent of US cotton acreage were planted to transgenic cotton varieties. Insect protected cotton has resulted in a reduction amounting to millions of pounds of pesticides used in cotton for insect control.
    The regulatory involvement of EPA in management of resistance in Bt cotton and Bt corn has subjected this issue up to open debate. It has invited involvement by anti-biotechnology activist groups to use the threat of resistance and incidental impact on monarch butterfly as means to attack this extremely valuable and environmentally sound technology. Initially, Bt cotton was given a time-limited conditional registration. Prior to expiration on January 1, 2001, EPA extended the registration for nine months, until September 2001. In the 2001 growing season, cotton growers expect to plant more than 5 million acres in Bt cotton. Now, the availability of this technology is at risk until full registration is obtained.
    Cost of Compliance
    We are concerned that EPA will be pressured to make IRM requirements (refuge requirements) so strict that growers will abandon the technology. Should this happen, the benefits that have been accrued by using this technology will be lost or significantly reduced.
    Current Status and Opportunity to Address
    Bt cotton is under consideration for re-registration and we hope that EPA will maintain dialog with us as they go through the decision making process.
Answers to Submitted Questions
    You state that the FAIR Act Achilles heel has been exposed, that bankruptcy has been avoided only because of emergency payments. Is the same not true of the 1985 farm bill, that but for the large expenditures under its authorities, farmers would have been bankrupt? How are the two bills different in this respect?
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    The FAIR Act as initially enacted represented a significant decline in real support to farmers. This clear difference between the FAIR Act and the 1990 bill was masked because of strong commodity prices that existed in 1996 and 1997. Federal expenditures were being made despite relatively strong commodity prices and decent producer income levels. The NCC, however, cautioned its members in 1996 that when prices declined, the true differences in support between the FAIR Act and the 1990 Act would be clear.
    Price declines in 1998, 1999, 2000 and now, 2001, have demonstrated the clear difference in the two acts—the FAIR Act significantly cut support levels. Therefore, Congress had to act to supplement producer income when markets became depressed.
    Note that the policy changes in FAIR were wholly dissimilar to those contained in the 1985 Act. The 1985 Act implemented a modest decline in target prices, a dramatic change in policy to reduce government stocks by allowing commodities to be sold at market clearing levels, an aggressive export policy, and moderate loan rates. The Act also contained stocks-to-use targets, controls on plantings and, most importantly, predictability.
    The FAIR Act combined a significant reduction in overall support with a removal of all production controls, caps on all loan levels and, oddly, unpredictability. It is not contradictory to argue that the fixed payment system of FAIR is more unpredictable than the system in place under the 1990 Act. Although the payment is known in FAIR, overall income levels can vary widely depending on prices and the fixed payment scheme itself has tended to result in a higher percent of the Federal support going into rental rates.
    Expenditures under the FAIR Act were relatively large when they were not needed, and insufficient when producer income levels plummeted. Expenditures under the 1985 bill were significant, but that bill also started with higher target prices than existed in 1990 and had the added burden of dealing with very high government stocks at its inception.
    Further, because expenditures under the 1985 bill were entitlements and predictable, farm financing and profitability could be better predicted at the local level. Farmers operated with a sound known safety net in place under the 1985 farm bill. The last several years under the FAIR act have found local lenders and producers crossing their fingers in expectation that Congress will enact supplemental spending to help them survive very tough economic times.
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    The FAIR Act leaves producers exposed during low prices, forcing Congress to act to bridge the gap, but also instilling in the production system the expectation that Congress will provide additional monies. This last point mitigates the impact of prices on planting decisions.
    If the Federal budget situation in 1998 through 2000 had been similar to conditions present in the early 1990's it is doubtful that Congress would have been able to provide the expenditures that have been authorized for Market Loss Assistance for the past several crop years. The difference between providing for mandatory spending authority and reliance on annual emergency appropriations is fundamental. Mandatory spending authority is based on comprehensive policy with long term goals of economic stability in U.S. agriculture and rural communities. Reliance on annual emergency appropriations can be dangerous policy if the Federal budget situation is unstable.
    You state that support measures coupled to production are more cost-effective and fixed, decoupled payments are less cost-effective.
      (a) Is this true if current marketing loan rates have encouraged producers to increase planting (cotton plantings up 0.66 million acres in 2000 over 1999), production and expenditures?
    (b)   Would fixed, decoupled payments be more cost-effective if Congress had allowed producers to depend on their AMTA contracts without supplemental AMTA payments in 1998–2000?
    (a) NCC analysts find that programs with support tied to measures of farm prices and paid on some measure of actual acres planted tend to be more cost effective than fixed payments because the payments under the coupled program decline as farm prices rise. Fixed payments do not vary with movements in farm prices and can be grossly insufficient during times of very low prices and unnecessary during times of high prices.
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    Current loan rates for upland cotton do not appear to be contributing significantly to planting decisions. The loan rate for upland cotton has been 51.92 cents per pound since the 1995–96 crop year. Since the 1995 crop, upland cotton acreage has varied from a high of 16.7 million acres to a low of 13.4 million acres. Because loan rates for all crops, except soybeans, have essentially been constant over this period, NCC believes that the shifts in cotton acreage reflect producer expectations regarding changes in relative rates of return between competing crops. With loan rates virtually unchanged, market signals (both costs and output prices) would appear to be contributing to U.S. acreage shifts.
    (b) While the total Federal outlays would be lower from 1998 through the 2000 crops had supplemental market loss assistance not been provided, that reduction does not translate into cost-effectiveness. The total eventual cost of permitting agricultural bankruptcies and rural economic disruption would have been far greater than the cost of supplemental assistance. Congress therefore moved in a timely manner to avoid otherwise calamitous results. The U.S. agricultural crisis of the mid 1980's would have been repeated without the emergency appropriations. The cost of 1980's crisis to the U.S. farm credit system alone far surpassed the supplemental market assistance provided in the last 3 crop years.
    You state planting flexibility could be retained under a counter-cyclical price deficiency program. How would this work?
    NCC has proposed a counter-cyclical program that is triggered by commodity specific farm prices falling below specified levels. The payments would be made to growers based on the difference between USDA's commodity specific average farm price and the respective commodity's target level times the producer's choice of 85 percent of current AMTA base program acres for that crop or 85 percent of an average of recent plantings of the specific crop. This would retain full flexibility in planting while offering counter-cyclical price protection to producers.
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    You state there are disadvantages of a revenue deficiency program: (1) identifying a target revenue from historical data, and (2) problems of very low or no production resulting in a high price that could result in no payments.
    (a) Do not both problems exist under a price deficiency program, which you give a favorable consideration?
     (b)In the first, isn't identifying a targe price equally difficult as identifying a target revenue? Only past political agreement on target price levels might make it seem less so.
    (c) In the second, would not high prices resulting from very low or no production also result in no payments under a price deficiency payment program? Nationally, high prices and very low production might result in low revenue that could result in payment under a revenue deficiency program.
    (d) Or, are you speaking of a single farm in which high national price very low or no individual production could result in no payment?
    (a) The counter-cyclical price program we propose does not draw the price support level from any history of average farm prices. Identifying a revenue support level appears to be more problematic. Revenue based programs derive from the product of price and yield so that fuller information regarding variability in prices and yields and any covariance in price and yield are necessary. Further, we believe that revenue deficiency programs may have duplicative or competitive implications with crop insurance. The recent crop insurance package has done a great deal to improve the coverage for yield losses. Thus, farm program support for prices coupled with sound crop insurance coverage on yields can offer adequate protection to agricultural producers.
    (b) While it is the case that politically there was support for target price levels in the 1981, 1986 and 1991 farm bills, the recent years of persistently low commodity prices make discovery of any historically based crop revenue target difficult. This further compounded the disastrously low yields suffered by cotton producers for the past 3 years.
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    (c) The low cotton yield issue points directly to the fact that low production need not translate into high prices. The NCC proposed counter-cyclical price program would cover the situation of the past 3 years where revenue targets would likely be insufficient. There would need to be the political will to use some measure other than recent historical context for the establishment of the revenue target.
    Additionally, the counter-cyclical price support mechanism paid on the AMTA or modified AMTA base contains full recognition of substantial differences in yields across the regions. Per acre based revenue deficiency programs may not sufficiently address large differences in yields across producers or regions. Furthermore, it is the case that so-called natural hedge sometimes appears in grain and oilseed markets. In this case there seems to be strong negative correlation between crop size and average farm price. This is an aggregate relationship that breaks down at the regional and grower level.

House of Representatives,
Committee on Agriculture,
Washington, DC.

    The committee met, pursuant to call, at 10:04 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
    Present: Representatives Pombo, Everett, Lucas of Oklahoma, Chambliss, Moran, Schaffer, Thune, Jenkins, Gutknecht, Hayes, Fletcher, Johnson, Osborne, Pence, Rehberg, Graves, Putnam, Kennedy, Stenholm, Peterson, Dooley, Clayton, Bishop, Baldacci, Berry, Etheridge, Boswell, Phelps, Hill, Baca, Larsen, and Ross.
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    Also present: Lucas of Kentucky.
    Staff present: William E. O'Conner, Jr., staff director; Tom Sell, Alan Mackey, Jeff Harrison, Callista Gingrich, scheduler/clerk; Craig Jagger, Anne Simmons, Russell Middleton, and Howard Conley.
    The CHAIRMAN. The hearing of House Committee on Agriculture for review of Federal farm commodity programs with American Farm Bureau Federation will come to order.
    I would like to welcome everybody to the second in a series of hearings on the future of American farm policy. I would like to thank the members for their dedication to this process. This promises to be a demanding series of hearings, but I believe that everyone on the committee recognizes its importance. When we reach the end of these hearings, the American agricultural economy will be much stronger as a result of our efforts. Our producers are looking to us to provide a remedy for the dismal conditions that face American agriculture today. During our field hearings last year, over 200 producers told us that improvements were needed and needed quickly. Those hearings gave us a clear picture of what was wrong. Now we must focus on finding the best permanent solution to the problems facing the agriculture economy.
    That is why I have charged each of the major farm organizations and the commodity groups to provide this committee with specific policy recommendations. Because these groups represent the producers who will be directly affected by the actions of this committee, they are uniquely positioned to recommend detailed proposals of what policy they believe should be enacted as well as how that policy would affect our Federal budget, how it would comport with our WTO obligations, the impact on related industries, and our ability to move product in the world market.
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    This process is designed to place many policy options on the table. A smart consumer does his or her homework before making a purchase. We need to be educated consumers in this process. Only by looking at all of the potential courses of action with a cynical eye will we be able to arrive at the best resolution for the troubles facing American agriculture today.
     Today I am pleased to welcome and invite our witness to the table on behalf of American Farm Bureau Federation. For the purposes of introduction, the testimony today will be provided by Bob Stallman, who is president on the American Farm Bureau Federation. I thank the witness for being here. I recognize my good friend, Mr. Stenholm, for an opening statement.
    Mr. STENHOLM. Thank you, Mr. Chairman. Bob, welcome back to the committee. I look forward to hearing your testimony this morning.
     I am especially interested in hearing Mr. Stallman's thoughts on increasing the baseline for programs affecting farmers and ranchers in rural America and how this will fit into the bigger fiscal debate that we are about to undertake. I appreciate very much that your written testimony touched on a broad range of issues that are important to farmers and ranchers. I look forward to working with you and your members to secure additional funding in areas such as conservation, research, and rural development. These are as vital to the health and prosperity of our rural economy as a good commodity program.
    Again, thank you, Mr. Chairman, for your leadership. I look forward to today's dialog as well as the upcoming hearings and having some additional questions.
    The CHAIRMAN. As I indicated earlier, all members' statements will be made a part of the record.
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    [The prepared statement of Mr. Bishop follows:]
    Mr. Stallman, your presence here is extremely helpful in our efforts to shape new and improved Federal farm policies and programs for the years ahead.
    I also want to thank our chairman and ranking member for their leadership in arranging these hearings.
    Together, those of us in Government and those of you in the private sector have an awesome responsibility.
    Our job is to not only plan the authorization of the farm bill during this term of Congress, but to do it in a way that makes it possible for the country's competitive agriculture system to survive and continue producing the healthiest, safest, and most economical supply of food and fiber in the world.
    How effectively we do our job will not only be of monumental importance to farmers and their families, it will be crucial to the well being of every single American consumer.
    With this in mind, Mr. Stallman, I have several questions I would like to ask you at this time.
    The CHAIRMAN. Mr. Stallman is from Columbus, TX. Mr. Stallman, please begin when ready.


    Mr. STALLMAN. Thank you, Mr. Chairman, Mr. Stenholm members of the committee. We appreciate the opportunity for the American Farm Bureau Federation to come before you today. I want to begin today by talking about a farm opportunity rather than a farm problem. I ask you as policy makers to commit to a view of agriculture in which it plays a vital role in solving world problems, and in the process, sets the stage for our industry to grow. It is not an exaggeration to call our farm opportunities issues of national security. American agriculture provides food security for this Nation and much of the rest of the world. We contribute to our national economic security by running a policy of balance of trade and generating off-farm employment.
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    We contribute to the world's environmental security by making use of intensive high tech production that saves fragile lands. We can do much more. Our vision of the future is a vision of a growing industry that depends less on Government payments and more on returns from the marketplace. But we must implement policies that will grow our markets. We can build demand by continuing to pursue a level playing field in international markets. We must finalize the elimination of unilateral trade sanctions and open trade with these markets now. We must increase market promotion and market access. We must pass trade negotiating authority. We must fight world hunger with increased food assistance programs. As markets grow, farm program costs decrease and farmer income grows from the marketplace.
    Our vision of the future is for farm income to increase by farmers investing in and capturing more value-added dollars. Such farmer-owned ventures provide for rural development, increased competition in the marketplace, as well as increasing farm income from the market. A cornerstone of this vision is a major role to renewable fuels in our Nation's energy policy.
    Agriculture can provide fuels that improve air quality and make the Nation less dependent on foreign oil. This energy contribution improves the environment, decreases reliance on foreign oil, creates jobs, dramatically increases agricultural markets, and decreases farm program costs as markets grow. However, bridging the gap between where we are now and where we want to be in the future requires an expanded public investment in agriculture. Part of this public investment directly positions agriculture for renewed growth. Increases in conservation, research and export promotion activities are needed to lay the base today for responsible growth in our industry.
    Another part of our short-term reality is that we will continue to need income support consistent with our international trade obligations. Part of this new spending authority would be counter-cyclical, and therefore, would decline as opportunities for market growth are realized.
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    Before I move forward with our specific recommendations for the next farm bill, I want to share the parameters used for our board of directors in making the recommendations.
    (A), during the past 3 years, Congress has had to provide ad hoc assistance due to low incomes in the agriculture sector. Such ad hoc relief, while providing needed assistance, is a poor substitute for a long-term policy on which farmers, lenders and taxpayers can count. The Farm Bureau's recommendations are based on a reasonable amount of increased spending for agriculture. We recommend that starting in fiscal year 2003 or 2002, if the new farm bill can be completed, an additional $12 billion per year be utilized for agriculture.
    (B), we believe it is extremely important for the new farm bill to stay within our WTO amber box commitments.
    (C), while some producers do not believe the crop insurance program is an effective risk management tool, we did not consider changes in the crop insurance program during our debate. Congress, as you well know, recently spent 18 months and $8 billion reforming the program. It would not be prudent to recommend the additional reforms until we can evaluate the effectiveness of the recently passed provisions.
    And (D), the recommendations we present today are targeted toward the next farm bill. They are not our recommendations for a short-term, low-income relief package. We believe Congress should approve $9 billion in emergency assistance for fiscal year 2001 as soon as possible. Delaying this work only harms those producers who are unable to obtain financing without at least some signal the Congress will approve additional assistance.
    While we seek passage of a new farm bill at the earliest opportunity, it appears improbable that a bill could be in place in time to impact producer decision-making for the 2002 crop year. If that is indeed the case and there is no significant change in the current depressed crop price situation, farmers and ranchers will likely need emergency assistance in 2002 as well. It is important to note that the Farm Bureau is the only group that will appear before your committee that represents producers of all agricultural commodities in all 50 States. Because of this diversity in American agriculture, our recommendations constitute a toolbox approach. We, like this committee, must ensure balance between all those interests. We believe our recommendations achieve that balance as well as stay within a reasonable budget request in our WTO commitments.
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    Specifically, Farm Bureau recommends, one, PFC or production flexibility contract payments to current contract holders and current provisions limiting the planting of fruits and vegetables on land receiving PFC payments should be continued. Farm Bureau considered the need for updating bases and yields but believes that until more analysis is available, bases and yields should not be updated.
    Two, the $4 billion PFC baseline should be increased by $500 million in order to allow oilseed production to be eligible for a PFC contract. Three, we support a loan rate rebalancing program to move loan rate up to be in historical alignment with the current soybean loan rate of $5.26 per bushel. Four, the farm bill should include a new counter-cyclical income assistance safety net that would be classified green box. Our proposal would provide payments to producers of a crop when the State's gross cash receipts for that crop falls below a set percentage of the 4-year average of the State's gross cash receipts for that crop during fiscal years 1996 through 1999.
    This revenue level is the payment trigger. Eligible crops would be wheat, oilseeds, cotton, rice and feed grains. No payments would be made if income were above the payment trigger. Payments would be decoupled from current prices and yields for each commodity. We note that as the level of aggregation decreases from national to regional to State, the Government cost and producer benefits would increase. Farm Bureau is willing to trade a lower trigger level for a more local rather than national level of aggregation. We would like the program to be structured similarly to the marketing loan program. It would be designed to require a $3 billion baseline, but if receipts were more than CBO has projected in the outyears, less than $3 billion would be spent.
    Five, we oppose supply management programs, a farmer-owned reserve, or any federally controlled grain reserve, with the exception of the existing cap emergency commodity reserve. We also oppose the extension of CCC loans beyond the current terms, means testing, all payment limitations and targeting of benefits.
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    Six, we support alterations for the LDP payment mechanism to make it more flexible for producers.
    Seven, the Dairy Price Support Program should be extended with the support price of $9.90 per hundredweight. We also support reauthorization and expansion of the Northeast dairy compact and authorization of a southern dairy compact.
    Eight, up to $1 1/2 billion annually should be authorized on an as-needed basis for counter-cyclical payments to producers of fruits and vegetables. In general, we support a counter-cyclical program similar to the one outlined for program commodities of oilseeds of the 94 percent trigger level. However, it is important to note that we do not believe a counter-cyclical program for all fruits and vegetables works equally well and that we will continue to analyze other options if there is a better way to design such a program, whereby it varies on a commodity-by-commodity basis.
    Nine, Farm Bureau supports a non-recourse marketing loan program for wool and mohair that would operate similarly with other commodity marketing loan programs with a loan rate of $1 per pound for wool and $5.26 per pound for mohair.
    Ten, the amount of acreage eligible to be enrolled in the CRP should be increased to 38 million acres. The new acreage should be targeted toward buffer strips, filter strips, wetlands or grass waterways.
    Eleven, we support implementation of a program to provide financial assistance to farmers and ranchers to help them execute unfunded State and Federal regulatory mandates.
    Twelve, a voluntary environmental program that provides producers with additional conservation options for adopting and continuing conservation practices to address air and water quality, soil erosion and wildlife habitat should be implemented.
    Thirteen, Farm Bureau supports a greater percentage increase for expansion of agricultural exports than any other percentage in our proposal, $400 million in additional funding annually. With over one-third of our production moving into the export market, expanding those markets rather than allowing them to continue to shrink is key to the recovery of the current farm economy crisis.
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    Fourteen, additional authorization and funding of $100 million annually for the agricultural marketing equity capital fund to help producers develop value-added enterprises should be approved. A significant portion of this funding should be targeted towards soy diesel and ethynol development programs.
    Fifteen, Federal funding for agriculture research should be increased by $500 million annually.
    That is a very brief summary, Mr. Chairman, of the points in our lengthier written statement. Our overall proposal would cost almost $12 billion per year in additional funding for agriculture. It would increase our WTO amber box expenditures by a little more than $4 billion, a number we believe will not cause the United States to exceed our commitments.
    In closing, we have also provided a list of other Farm Bureau priorities. It is important to note that not all farm policy issues are farm bill issues. In fact, many of those issues are unfortunately not even under the purview of the House Agriculture Committee. While we understand we are here to discuss the next farm bill, there are many outside factors that will have an effect on the success of this policy.
    Until the Federal Government seriously undertakes reforms in other areas crucial to agriculture such as trade, regulatory costs and taxes, American farmers will continue to be hamstrung.
    That concludes my oral statement, Mr. Chairman. I will be happy to answer any questions.
    [The prepared statement of Mr. Stallman appears at the conclusion of the hearing.]
    The CHAIRMAN. Thank you very much.
     Mr. Gutknecht.
    Mr. GUTKNECHT. First of all, I would like to thank the Farm Bureau for their testimony. I find myself almost in absolute agreement with most of the things you have talked about today. But I have to speak on behalf of the dairy farmers in the upper Midwest. I find that even though the Farm Bureau and I agree on just about everything, I find it astonishing that your opening statement was about opening trade and expanding opportunities for American farmers around the world. I cannot really envision why the Farm Bureau then would decide that you want open trade with China, for example, but we do not want to give dairy farmers access to markets in States like Vermont.
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    I really do feel like the last couple of years we have gotten rolled on the issues of dairy compacts, milk marketing order reform, and I just want to say to the Farm Bureau and anybody who is here, members of this committee, I am not going to get rolled again. Because our dairy farmers in the upper Midwest are receiving below break-even prices for their milk. They are the people—and I have a lot of empathy of all folks in agriculture, but I have a special place in my heart for those dairy farmers because they get up every morning and milk those cows.
    Back in Minnesota yesterday morning, the average snow depth in Minnesota was 32 inches. It was 5 degrees below zero and they were still out in those barns milking those cows. And they are doing it for less than break-even price. The idea that the Farm Bureau is coming out now saying we need better access to markets around the world, and yet we are going to set up these internal cartels within the United States is astonishing to me. So I just want to serve notice whether it is my friends or those who may disagree with me, we are not going to stand idly by and let that go on forever. We are going to fight like bearcats, we are going to fight like badgers, we are going to fight like gophers to make certain that the dairy farmers in the upper Midwest get a fair break. And that is not too much to ask, especially from a group like the Farm Bureau. I yield back my time.
    Mr. BALDACCI. If the gentleman would yield.
    Mr. GUTKNECHT. Yes.
    Mr. BALDACCI. We have never referred to these entities as cartels. I just wanted the record to be clear on that and we look forward to a fruitful discussion with you as this all comes together.
    Mr. GUTKNECHT. We hope it will be fruitful. The last couple of years have not borne much fruit for the dairy farmers in the upper Midwest.
    Mr. DOOLEY. If the gentleman would yield. I would like to have a response from the Farm Bureau on how you rationalize this policy, which does seem to be not nearly as market-oriented as most of the Farm Bureau policies in your advocation or the expansion of the Northeast compact, as well the creation of another compact knowing that the Farm Bureau really tries to guide their direction by a pretty strict adherence to policies, how does this fit into your formulation of being a market-based approach?
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    Mr. STALLMAN. I suppose my response to that revolves around the fact that we are a national organization. We have all the various dairy producer interests in our organization that exists nationally. We have had healthy debates within our rooms and halls on dairy policy. And this is basically the balance that our delegates say that we should support.
    The CHAIRMAN. Mr. Peterson.
    Mr. PETERSON. Thank you, Mr. Chairman. Reading through your testimony, one of the points you have in there is you are opposed to any supply management. That is the position. As I understand it, the Northeast dairy compact, one of the components of it is that includes supply management. So how does that square with your other provision in there?
    Mr. STALLMAN. We actually considered that in this last year's policy debate. And the precise language of our policy is new supply management programs.
    Mr. PETERSON. So as long as it was there before, it is OK?
    Mr. STALLMAN. That is basically what our policy says.
    Mr. PETERSON. How about the southern compact? Would that have supply management or not?
    Mr. STALLMAN. Well, we didn't get into a great deal of debate as to exactly how that proposal would be implemented. We have dairy producers in the southern States that are very interested in putting that in place after seeing the success of the Northeast dairy compact. But the details of how that program would be implemented is something we have not got to the point of really flushing out as an organization.
    Mr. PETERSON. Also on this other compact I have heard that the southern compact is now being considered to go all the way to Nebraska, which at least those of us in Minnesota don't think of as a southern State. So what are the parameters of the southern compact?
    Mr. STALLMAN. We do not have any boundaries other than the fact that a lot of what we would consider the true southern States have been talking about wanting to create one. But I think the question is still open as to what the boundaries would be, and a lot of this is obviously being debated in State legislatures even. So we will have to see how it plays out, unless we move forward. If we move forward with that, I am sure we will be able to develop more details as to the boundaries and parameters of the program.
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    Mr. BALDACCI. If the gentleman would yield.
    Mr. PETERSON. Yes.
    Mr. BALDACCI. I just want you to know from Maine it is all pretty southern as you look down there as this compact spreads across.
    Mr. PETERSON. You think Nebraska is a southern State?
    Mr. BALDACCI. From Maine it is pretty southwesterly from where we are.
    Mr. PETERSON. How about Minnesota?
    Mr. BALDACCI. Are they part of the Union? What I wanted to suggest is maybe as we look at a national agriculture policy and we recognize that 52 percent of the farm income is being supported by Government payments in many parts of the country, and you look at the Northeast and you see a Northeast dairy compact that keeps the compact between the small dairy farmer and the consumer as an element of a national agricultural policy. Thank you very much.
    Mr. PETERSON. If the gentleman would take note my position, which you probably have not heard very much in the Midwest, is as long as you folks have supply management as part of your program and your compact, I have no problem with it. I am serious. It is an internal deal up there. Anyway on the CRP, that is an issue that I have involved in quite a bit, the Sportsmans Caucus and other ways, and I think I heard you say that your recommendation is we go to $38 million acres, but the new additions would be only in the grass waterways and biparian areas and that sort of stuff?
    Mr. STALLMAN. We really did not say only, but we think that increase should be targeted to those areas as providing probably a large chunk of environmental benefits for the number of acres. We in the organization have had a lot of internal debate about CRP, the impact it has on infrastructure, impacts it has on young producers coming in. So we kind of balanced it in terms of a limited increase targeting in these areas. Obviously, it has not been funded to the full authorization, at this point anyway. But that is basically why we focused that as a limited increase.
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    Mr. PETERSON. Before I run out of time, kind of implicit in the CRP was that $5 million of the $36.4 million acres was set aside for those very acreages, and I think after 4 years we had only managed to sign up 800,000 acres, because frankly, it is more hassle than it is worth for a lot of people. Now there has been apparently an increase in what they are going to pay out to these folks. I am not sure that is going to make any difference.
    Did you have any discussion about that? I think if you raised the $38 million you will still not get very many people signing up in that program is my own view. But I would be curious if you had a discussion about that.
    Mr. STALLMAN. We actually have. We understand the difficulties in the requirements being met now for those kind of areas. I think we could definitely support a more user-friendly process, farmer-friendly process in terms of getting those acreages signed up. Whether we can accomplish that, I don't know. I think your point is well taken. It will be difficult to get that acreage given the kind of restrictions and requirements that exist now.
    Mr. PETERSON. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Chambliss.
    Mr. CHAMBLISS. Thank you, Mr. Chairman. Mr. Stallman, I want to thank you for supporting the Southeast dairy compact, by the way. We think it is a great idea down our way. I heard you say you are a national farm organization. I know and understand that and I recognize the influence that your organization holds throughout the country with all farmers, and because of that, I am curious as to why you did not address peanuts, tobacco and sugar in your recommendations.
    Mr. STALLMAN. Mr. Chambliss, I had a sneaking suspicion you were going to ask me that question. There are a couple reasons. The reasons are slightly different for each of the three. One, with respect to the peanut industry, the industry is still trying to come together on where to go for the future. We have actually, as an organization, been trying to facilitate some of those discussions, but I did not think it appropriate when our own producers were not together as to what needed to be done for us to be making comments and suggestions in those particular areas. That process is ongoing, and hopefully it will bear fruit in the short term.
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    The sugar industry is doing something very similar. They understand and we understand the significant problems that exist with the sugar program as it is structured, with the Mexico situation, the production situation we have here, and once again the sugar industry is doing is a lot of that same kind of internal discussion to come up with solutions for their future.
    Once again, our producers have suggested that until that time and until our members that are sugar producers can come to the table and tell us this is what we want you to say, we felt this best to refrain. The tobacco growers that we have as members have suggested that as that being a separate title, that at this time we should not really be commenting on that in the context of this hearing.
    Mr. CHAMBLISS. Will you submit a supplemental recommendation once various sugar and peanut growers get together on this?
    Mr. STALLMAN. We will be glad to do that.
    Mr. CHAMBLISS. In your comments in your oral testimony plus in our written testimony, you acknowledge that the acreage and yield used for making AMTA payments and the recommended production flexibility contracts that you set forth, it is out of date. And in fact, the PFC acreage is based on years 1991 through 1995, and the years are 1981 through 1985. And in spite of that, your recommendation is that bases and yields should not be updated until more analysis is available. But yet, you also recommend that oilseed production should be eligible for a PFC contract, and you recommend using the 1998 through 2000 soybean years for computation of those payments.
    Now I have talked about the problems we have got in the cotton industry and the changes in the acreage planted and yields as they relate to AMTA payments, and I will not get into that, but I am just curious why your organization would recommend crop-specific recommendations with respect to what you call your PFC payments. If we are going to use current updated information on soybeans, why wouldn't we use it on cotton, corn and all other crops?
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    Mr. STALLMAN. Well, remember that I talked about this being a toolbox. With respect to continuing direct AMTA payments, we are talking about continuing that at the baseline level of $4 billion as opposed to the amounts that have been going out in the past 3 years. And we had a lot of internal discussion. There had been significant acreage shifts in a lot of commodities and yields. I am a producer and I understand that very clearly. The situation you face, though, if we make those adjustments, is there is going to be winners, there is going to be losers. We have had producers tell us we made in changes based on flexibility inherent in the 1996 farm bill with sort of the understanding, correct or not, that we were not going to go back and pay a penalty for doing that. So you will have a class of producers who will basically be harmed by reallocating those, and you will have a class that will benefit. To compensate for that somewhat in our counter-cyclical program approach, we talk about trying to have a nearby calculation of production, bases and yields and use an updated base in that area for when prices get low, which would help address part of the problem that you are talking about.
    So it is a mixed bag, and one thing we want to avoid as an organization is putting any shocks out in the countryside where you have abrupt changes, because as you do that, that makes it difficult for a lot of producers, and then adjustments have to be a lot quicker.
    So that is the basis for us doing it. We realize they are out of date, but at least for that component of direct payments, we are suggesting that you continue to use those until we can really analyze what the impacts will be across the country.
    Mr. CHAMBLISS. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Larsen.
    Mr. LARSEN. Thank you, Mr. Chairman. One comment and one question. With regard to the CRP program, glad to hear you say that it ought to be more user friendly. In the northwest Washington, we are dealing with the listing of the Pacific Chinook an endangered species, and it is wreaking havoc with the farms on the wet side of Washington State, and having improved a CRP program that makes it easier for farmers to participate will be an important element to help them do the right thing. So I hope that we can work to address those issues.
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    Second, just a quick question about the assistance for fruit and vegetable producers, can you walk through a little bit, can you recommend a program—this is something that would be important to folks in my area—could you walk through a little bit how that might work with the committee?
    Mr. STALLMAN. We have a lot of fruit and vegetable producers as our members, and that segment of the agriculture industry in this country is coming under greater and greater stress for a lot of reasons. Whether they are trade related, regulatory, Food Quality Protection Act implementation, labor cost and the list goes on. So the question internally has been that is a significant segment of the American agriculture, about 21 percent of American agricultural production. Congress has had to deal with some of these same issues in the past 3 years whether it was potatoes, apples, citrus canker, the avocado quarantine.
    There seems to be continuing opportunity for problems in specific commodities in that sector that pop up, and then assistance is needed short term, and that was what the basis of our proposal is allocating, in essence, it is sort of discretionary in that we don't want to put a standing program in place. The fruit and vegetable industry does not want a standing program in place like we have for the program crops, but we thought there should be a mechanism to address these issues, short-term issues that affect the various commodities in the fruit and vegetable sector. So that is basically our proposal, and it should be triggered based on petition. Once again, we think there has to be a need shown to the secretary, and then a formula base, and we suggested using a counter-cyclical formula very similar to the others. Although we are not really wedded to that. It is just that that is one method of addressing the allocation of funds.
    Mr. LARSEN. Thank you, Mr. Chairman.
    The CHAIRMAN. Thank you.
    Mr. Thune.
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    Mr. THUNE. Thank you, Mr. Chairman. Mr. Stallman, thank you for being here today and I appreciate the opportunity to hear your recommendations. There are a lot of things in here which I think made sense. One question I had, you served on the 21st Century Commission on Agriculture. The counter-cyclical program that was proposed there, which was in the aggregate, seemed to me to be really difficult to implement for a lot of the reasons that you mentioned. I think a State-by-State approach makes sense to me.
    Commodity-by-commodity approach makes sense to me. The trigger level that you have in there, how is that different from—I don't recall what the 21st Century Commission's report—Mr. Flinchbaugh is back there. Maybe he can help us with that. How does your proposal differ from what they were proposing to do in that?
    Mr. STALLMAN. Well, we actually studied the commission proposal, and I did sign on the majority report as a commission member. We had some concerns as an organization about the aggregated nature of that approach, and the fact that it doesn't relate as closely to what happens to a producer as what many of us as producers thinks needs to be the case. It is a balancing act, because what we want to be sure of because of our amber box commitments is that that type of program should be green box rather than amber. The commissions report clearly was. What our board said is we need to design a program and we think we have to be as closely connected to what happens on an individual farm as we can and still remain green box. And so that is why we have focused on using a State average.
    I mean, theoretically, you could bring it down to a county average. Although when you do that, costs go up because it is more closely coupled to the experiences on the individuals' farms. And so it was sort of a balance. We think we stretched the program down to the producer level as much as we could probably, and still have it remain green box. In my statement, I pointed out that in the case that is not so. We were willing to take a greater level of aggregation to achieve that green box status. So it is kind of a balancing act, and that is where we came down and tried to get a little closer to the producer level.
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    Mr. THUNE. Is there any reason why it would not be even if you did a State-by-State green box? How would that be considered distorting.
    Mr. STALLMAN. Well, the WTO agreement on agriculture annex II, and it is in section 6, and I will spare the committee the reading of that text, but in essence, you cannot couple the payments, if they are direct payments, you cannot couple those to current production, require producers to currently produce a crop, and there is a couple of other provisions. But in essence, you cannot couple it closely to the producer. So theoretically, if you went down to the county level and did it on a commodity-by-commodity basis, you could still remain green box, but I think it would be more subject to challenge.
    Mr. THUNE. And you are proposing $3 billion for that counter-cyclical program, in your mind will that be adequate to the job? If we go down this road and we have got loan rates and LDP's and we have got production flexibility contracts and a counter-cyclical program, do we have still then have to deal with each year the emergency disaster payments, because in some way we exceed the disaster in terms of whether it is markets or price or whether it exceeds what this would allow us to do.
    Mr. STALLMAN. What we have tried to do with our toolbox approach is put in a place a program, and that is why we are asking for the $12 billion, and have all these components of the program, that hopefully would prevent the situation that has existed in the past 3 years where prices are low, the programs are not adequate and we have to go through the agonizing process of trying to get supplemental assistance payments. You asked if it was adequate. We took the numbers and the situation that it looks like we will be facing in the short term anyway, and what we did in terms of improving counter-cyclical support, in essence, figuring out a way to institutionalize the kind of emergency assistance that has had to be provided based on low prices with the prospects of continuing low prices and rebalancing loan rates is a part of that. We allocated $2.3 billion to that raising those loan rates to adjust up to the soybean loan rate, and then the $3 billion in the counter-cyclical program. So in terms of additional counter-cyclical assistance that only is triggered when prices are low, as prices come up as we all hope they do, those dollars disappear in terms of Government costs. So that would be $5.3 billion total in those two areas to try to provide the counter-cyclical support that the Congress has been forced to provide on an ad hoc basis.
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    Mr. THUNE. The total price tag on this additional is $12 billion over current base line spending? Thank you, Mr. Chairman, Mr. Stallman.
    The CHAIRMAN. Mr. Dooley.
    Mr. DOOLEY. Yes, thank you for the testimony. I have a few questions on your counter-cyclical program, is that if I understand it correctly, you are basing that on a 3-year average in the State 1998 through 2000, correct?
    Mr. STALLMAN. Not the counter-cyclical program. Recalculating the soybean AMTA we are doing on that basis. For the counter-cyclical, we are talking about using 1996 through 1999. We have kind of a chart.
    Mr. DOOLEY. My question, is if I understand it correctly, the payments are going to be made on a historical base and not what would be current production?
    Mr. STALLMAN. That is one of the requirements of making the program green box. It has to be on forecast basis and not connected to that year's production.
    Mr. DOOLEY. If I am a farmer in the State of California and I am looking at cotton prices this year that are going way down, I make a decision doing out of cotton and go maybe into a feed grain, is that—we calculate what the gross cotton revenue will be in California, which are going to be down, not only because of price but because people made a market-based decision and moved out of that commodities, I am going to get a payment, a counter-cyclical payment even though I didn't plant cotton in that area.
    Mr. STALLMAN. That would be correct. And that is solely because, once again, the requirement under the WTO agreement to make the payments green box versus amber box.
    Mr. DOOLEY. I understand the need be consistent with the WTO, but I guess I have some real strong reservations about making a payment to a farmer who made a management decision to move out of a commodity, did not produce that commodity. I could be making that decision to maximize my bottom line in the market place, and yet I am going to get rewarded if farmers in the aggregate did the same thing that might have very little to do with price. You make a management decision to move out and we will be providing the payment because gross receipts are down?
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    Mr. STALLMAN. Well, in essence, that is what we have been doing with the AMTA payments and the double AMTA. It is basically the same principals, although the calculation is slightly different.
    Mr. DOOLEY. I would agree with that. That is where we have seen some of the problems with the AMTA payments too. A lot of that in some ways have been capitalized into land values and land risks. Once again, you will have a program that is going to be providing taxpayer revenues to farmers who should be doing—in responding to the marketplace. And again, it seems to be this in terms of being consistent with the principals being market-oriented. I guess I have trouble following the logic on that.
    Mr. STALLMAN. Well, once again it is a balancing act. As a producer I would prefer to have every payment coupled directly to what you do on the farm. But given the amber box caps that we are faced with and given the other components of our toolbox approach, we basically run out of room in that category. Unfortunately, or however you want to view it, one of the requirements to make it green box is it cannot be coupled to current production. And we feel what have done is the double AMTAs that have been going out are, in essence, the same thing. They have not been coupled to production, and there has been some criticism of that.
    Mr. DOOLEY. Again, in the State of California if I moved into, as some of our farmers are doing, specialty crops, historically, had I been a cotton farmer in the years 1996 through 1998, I would get a payment?
    Mr. STALLMAN. In 1996 through 1999, if you had historically been a producer and if those triggers were met with respect to the State's gross cash receipts for that commodity, cotton, in this instance, you would get a payment, yes.
    Mr. DOOLEY. Obviously, I am not very comfortable with how we are approaching this. I guess the other issue I look at in terms of your realignment of your loan rates, what was the formula there? What was the determination in terms of how those were increased and what was the market reference that was the function of this increase?
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    Mr. STALLMAN. We looked at several different ways of doing it whether we were using long historical relationships to soybeans, whether we captured a closer historical relationship.
    Mr. DOOLEY. I guess what I am wondering if I am a cotton and corn farmer, what is the historical relationship to soybean, I guess? Why are we talking—why isn't that apples and oranges?
    Mr. STALLMAN. It probably is to an extent, except that you can look back at past data. Basically we used a USDA projection that was done frankly by Keith Collins as one method of rebalancing the loan rates. We looked at 20-year historical time lines; we looked at 10-year historical time lines. We came back that this period more closely indicated what the changes had been with respect to the commodity, the commodity loan rates and the soybean loan rate had clearly been higher and had encouraged movement into soybean acres because of that higher loan rate, and that these numbers would provide a more historical balance where producers would be less inclined to plant, say, in this case, soybeans, strictly for a loan rate.
    So it is less of a correlation in the case of cotton and rice obviously than it would be probably in the feed grains.
    The CHAIRMAN. Mr. Osborne.
    Mr. OSBORNE. Thank you for coming today. It is good to see you again. I wanted to ask a question about the 4-year average price at the State level as a baseline. What if you have 4 years of very depressed prices. In other words, if we continue as we have the last couple of years and we see $1.50 corn, how do you work your way out of that in terms of support?
    Mr. STALLMAN. Any counter-cyclical program that uses a base, and that is why the results change, depending on which base period you use. We are not talking about a revolving base. We are talking about a fixed base in this instance.
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    Mr. OSBORNE. I thought you went forward——
    Mr. STALLMAN. No.
    Mr. OSBORNE. You are not doing that?
    Mr. STALLMAN. No, because one of the requirements is it should be a fixed historical base to make the program green box. Therefore, you could come back and recalculate in intervals on a different base, which is what we are suggesting, to update the basis on the counter-cyclical program that we said we did not want to do on the fixed AMTA payments.
    Mr. OSBORNE. Another question I have is it looks like your program is really well thought out, a lot of good elements to it, but it probably tends to incorporate some economies of scale. What do you say to the 500-acre farmer, the small farmer? Do you feel there is anything that can be done that should be done to help that individual compete with somebody who is farming 3, 4,000 acres?
    Mr. STALLMAN. Well, I don't know that our goal is to help a 500-acre farmer compete with a 5,000-acre farmer. Components of our tool-box approach, particularly the conservation plan area in there, is something that would assist smaller producers. It would not be targeted towards smaller producers, but that would be an opportunity for smaller producers to do some things, market some environmental benefits, if you will, for the public in return for a payment.
    So that would be one component that would help. Getting back to your previous question about State prices. The prices in the counter-cyclical formula would be at the national level, production would be at the State level. So to the extent there is regional varying in prices that could have impact, but we would use a national price level with State production.
    Mr. OSBORNE. I guess one last element here. I see you have come up with an essentially $2 loan rate for corn in 2001. And you have strictly based that upon what you feel would be comparable to the current soybean rate. And you feel soybeans have been disproportionately high, the loan rate, in recent years?
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    Mr. STALLMAN. Basically. That is not just our judgment, but there seems to be a consensus that particularly in terms of variable cost or production, that the soybean loan rate has been respectively higher then the other loan rates, and that is what is different, the additional production into soybean acres.
    Mr. OSBORNE. Say some more about conservation payments. You are talking about buffer strips?
    Mr. STALLMAN. It would go much beyond that. There are two components of our plan. One particularly is to assist the livestock industry, not just the livestock industry, but that is where the need may be very great in the near future for programs to help offset the regulatory cost of water quality regulations, for instance.
    So that is one component. The other component is sort of a whole farm plan component, if you will, provides a set of environmental benefits for a price or for a payment for continuing those practices, implementing those practices. We are really not down to specifics of identifying each practice and what that is worth to society, but overall, that would be the basis on which the program would be developed.
    Mr. OSBORNE. You talk about expanding CRP payments, making them more beneficial to the individual farmer. You talk about short-term CRP. Have you discussed anything like that?
    Mr. STALLMAN. We are not really keen on the idea of a short-term CRP because we are afraid that that would be used more in the context of taking acres out of production for farm economic reasons as opposed to focussing on the environmental reasons. The expansion we are talking about would be more or less the traditional CRP program, where you take acres out of production for an extended period of time. But what we are saying is in addition, if we can improve the ease of use and the requirements to get into it should be targeted to some of the water quality areas. All that revolves around the debate that we are facing now in society about the importance of water quality and the role that agriculture plays in maintaining water quality.
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    Mr. OSBORNE. Thank you.
    The CHAIRMAN. Mr. Boswell.
    Mr. BOSWELL. Thank you Mr. Chairman, and thank you, Mr. Stallman, for coming back and meeting with us. I appreciate it. It is good to see you again. I used to have a term when I had another life that I lived in when I was an artillery man to make a bold adjustment. I think you were bold today and I want to compliment you for it. I think it is bold. I think it is justified, and I will say this to the rest of the committee because I don't know where it is written, but it seems to be a continuation of this national cheap food policy, and I don't think our folks buying groceries necessarily would agree with it, but if somebody maybe would tell me what is the percentage this day of disposable income spent on food in the United States?
    Mr. EVERETT. It is about 10 percent.
    Mr. BOSWELL. Somewhere 10 or a little above. Well, it is unparalleled anywhere else in the world that it is that way. So if American people want that food policy, and it seems to me—I don't know where it is written across the sky—then we are going to have to do some things like you are saying for production agriculture. It just seems to me like that is just the way it is.
    So, Mr. Chairman, you have taken us across the country having hearings and so on. It did not seem to be anybody just quite ready to grab a hold and come with something, and I think today we have heard a bold suggestion and I appreciate it. What was the new term you used? It wasn't disaster payments.
    Mr. STALLMAN. Counter-cyclical income support.
    Mr. BOSWELL. Support. I like that. I also take note that you have listened to our producers and you seem to have taken a little adjusted feeling about the loan rates.
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    Mr. STALLMAN. That is correct. That is the wishes of our delegates.
    Mr. BOSWELL. I do not know why I knew that before you did. But somehow I did. I guess because I go amongst our folks a lot and that is what they tell me. I am pretty enthused of what you brought today. I will read it carefully. Mr. Chairman, we asked for some suggestions, I think we got some. So thank you for coming. I don't have any questions and I look forward to seeing what we can work out in the new farm bill.
    The CHAIRMAN. Mr. Rehberg.
    Mr. REHBERG. Thank you, Mr. Chairman. I bring you greetings from your president in Montana. You attended a listening session I had in Lewistown a couple days ago, which brings me to my point. I traveled 2,500 miles over that course of 10 days and had 15 listening sessions, and in every case, I was told by my farmers that the Crop Insurance Program does not work for them.
    I know that your delegates, perhaps, glossed over that issue, and I guess I would like to ask why. They feel that by the time that kicks in it is too late, they are broke, or it is not going to matter at the levels the crop insurance kicks in. So were you hearing something different from your membership or were you not looking specifically at some of the spring wheat, the winter wheat or some of the crops we have in the State of Montana?
    Mr. STALLMAN. We heard some of the same comments from our members, but it was based on past experience. This is the first year that the revisions and reforms will be put in place. We think they made some positive improvements to the crop insurance program, and we think our producers will begin to see some benefits. That is why we did not include any particular recommendations on our crop insurance. We thought it was important to let the new act get implemented this year, see what the results are and then come back and talk about if changes are necessary.
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    Mr. REHBERG. The other point I made, and I am sorry my distinguished colleague from Minnesota is no longer present. There are some of us still paying off our loans because of the Whole Herd Dairy Buyout competition with those of us purely in livestock. I note the LDPs for grazed-out wheat. Does your membership worry about the potential or the economic effect that it might have on those of us who are purely grazing operations? We don't take advantage of the wool subsidy. We don't take advantage of some of the other subsidies or supports. We have great concerns of the grazing within the CRP and the grazing within grazed-out wheat areas or the subsidization of those types of enterprises.
    Mr. STALLMAN. We didn't. We actually had discussion in the other direction that if corn silage should qualify for an LDP, why shouldn't grazed-out wheat? We did not have a lot of discussion, and in the past we have had a lot of discussion about the effect on the livestock producers and grazing issues.
    So this was viewed more in that context, I suppose, than as a competitive issue with respect to the livestock industry. Our livestock producers did not raise a red flag about this during our delegate session. I am not sure why, but they didn't.
    Mr. REHBERG. Probably because through diversification on their farm or ranch they are in more than one crop.
    Mr. STALLMAN. Probably.
    Mr. REHBERG. So that that will be something that perhaps I will continue to raise. Thank you.
    The CHAIRMAN. Mr. Berry.
    Mr. BERRY. Thank you, Mr. Chairman. I would just associate myself with the remarks that have already been made. Mr. Stallman, I think you have done a good job here. I think all it takes is money right now. Three of my closest friends and people that came through the 1980's and the 1990's either decided to quit this past weekend or declared bankruptcy Monday. And that is not a very large circle of people. And I think we need to recognize we have got a crisis situation in American agriculture and deal with it as that. We appreciate what you did here today. Thank you, Mr. Chairman.
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    The CHAIRMAN. Mr. Putnam.
    Mr. PUTNAM. Thank you Mr. Chairman I thank Mr. Stallman for being with us and presenting a specific plan. I want to ask you a few questions about the fruit and vegetable counter-cyclical payments. This is a major change from present policy on fruit and vegetables, and I am curious how you all arrived at $1.5 billion. Is that—what was the basis? Is that an estimate on the market loss of fruits and vegetables around the country in the past year or how did you arrive at that figure?
    Mr. STALLMAN. Probably not real scientifically. We looked at the problems per se of the apple industry, which they indicate their losses are extensive. In fact, they are approaching over $500 million a year by itself, and then we looked at some of the specific circumstances that occurred in the recent past with some sectors, and once again, we consider this to be a discretionary program triggered by request triggered by need, but it provides a mechanism which, except through the congressional process, had been missing in the past.
    And given the kind of agonizing that goes on when we have to take up a particular commodity as you all do in the Congress here to talk about problems and the need for assistance, we were talking about an allocation of money out of the $12 billion that could be used for those instances where segments of the fruit and vegetable industry needed it to address, whether it was import surges or massive disease situations, things that the industry has come to this body for assistance in the past. But at least have a mechanism that could be implemented by the Secretary and there would be a balance allocated to provide it.
    Mr. PUTNAM. In crops such as apples, oranges, tree crops that are long-term investments in agriculture, what impact would a counter-cyclical program have on production and production decisions in the potential for overproduction knowing that that safety net is now there.
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    Mr. STALLMAN. That could have a very real impact actually. That is one reason we wanted to be sure we pointed out that this is an example of a methodology that could be used. Actually, we had some meeting with our fruit and vegetable producers just 2 weeks ago. They weren't ready to really come up with a specific program because this is not a one-size-fits-all program, particularly in the fruit and vegetable industry. This is an example of how you could do an allocation in terms of a trigger in an allocation in terms of a loss that is experienced by any particular segment.
    Our policy does not bind us to this specific proposal, but this is one thought as to how a proposal could be implemented trying to meet the requirements of the chairman to have some specificity when we talk about programs. We are certainly willing and will continue to work for refinement of a program that would meet the needs of the fruit and vegetable industry.
    Mr. PUTNAM. It is very innovative and I thank you all for throwing that out on the table for dogs to chew on a little bit. Let me change gears and ask you about a conservation title. The sense in Florida, and I think more generally in the Southeast, is that the conservation programs were generally designed for, and the resources directed to the Midwest is that the sense of your membership, that there should be some alteration of the language to provide for a more equitable use and distribution of those resources around the country.
    Mr. STALLMAN. That is certainly one component of our $3 billion for conservation programs. We think talking about environmental benefits that are site specific, if you will, farm specific to an individual area is very important. So I think the focus will be nationwide on our proposal as opposed to targeting any particular area, once you get away from the CRP program. When you get away to the regulatory—I know some in Florida with water quality issues being paramount, that there are issues that your producers face there that our program could address.
    And in terms of other environmental benefits that could be provided by farmers and ranchers in return for a payment for implementation in continuance of those practices would be something that would be beneficial to Florida as well as all parts of the country.
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    Mr. PUTNAM. Is the maximum amount allowed per producer under EQIP adequate to the types of infrastructure capital investments that some of those producers are having to make?
    Mr. STALLMAN. We do not think it is at the present time, no.
    Mr. PUTNAM. Thank you. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Hill.
    Mr. HILL. Thank you, Mr. Chairman. And thank you for coming, Mr. Stallman. In your testimony you make no reference to tobacco. I have got about 2000 tobacco growers in my district. Do you have a recommendation at all on tobacco?
    Mr. STALLMAN. We do not. That is not part of the farm bill. We were focussing on the farm bill. Being a separate title, we did not have any recommendations for this hearing today.
    Mr. HILL. OK. When you are formulating your counter-cyclical proposal, I am assuming you discussed the downsides, and I am wondering if you share what weaknesses you have seen in your proposal. Is there a chance having payments trigger in Texas but not in Oklahoma, even if things are just as bad right across the State line?
    Mr. STALLMAN. Theoretically yes, if you are basing it on an average, a State-by-State average. As I said in my earlier comments, one of the downsides is if you do not have a coupled payment directly to a producer on an individual farm that addresses his own individual situation, the further you move from that, there is a downside in that the needs of a producer, a group of producers in an area, or whatever the case may be, may not be the same as what the payments or the triggers would indicate. Once again, that is the balance you run into when we are trying to design a green box program as opposed to having one that is amber box.
    So theoretically, yes. I would point out that the past 3 years it has been relatively easy for the Congress to allocate payments because prices have been down across the board. But as a rhetorical question, what would have happened if two commodity sectors would have tanked and the other three would have been better off. How would the Congress have made a decision for emergency assistance? That is the kind of areas you get into addressing when you try to use a counter-cyclical program as we proposed on a commodity-by-commodity basis.
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    Mr. HILL. But aren't these the same kind of concerns we had with LDP national payments.
    Mr. STALLMAN. Some, yes. Absolutely.
    Mr. HILL. OK. Thank you.
    The CHAIRMAN. Mr. Kennedy.
    Mr. KENNEDY. Yes, I too would like to thank you on a good proposal. It sounds specific in balance and I very much appreciate you presenting that to us, but also being a fellow member of the Gopher State, I would second Congressman Gutknecht's remarks and say, that is, it does compromise your credibility on it, normally being free trade but supporting the northeast cartel.
    My first question is you talked about the renewable fuels in the earlier remarks and then you talked about some incentives for coops for biodiesel and ethynol, but did you go beyond that and talk about some of the broader issues like banning MTBE, keeping the oxygenate requirement and those types of issues, or was that part of your proposal in order to expand, demand and produce dependence on foreign oil?
    Mr. STALLMAN. We have been working very diligently on the whole alternative fuels area, whether it is MTBE or the oxygen proposals, we have been working very closely in that arena. This committee would not have jurisdiction over that. But yes, we have talked about all those. We have been advocating doing whatever we can to increase use and demand for alternative fuels, primarily ethynol derived from agricultural crops.
    Mr. KENNEDY. And I appreciate we do not have jurisdiction but I appreciate your comments there as well. My second question deals with your proposed new voluntary environmental incentive plan that you talked about a second ago being site specific, and you talk about in your report being designed and tailored to participants to meet their own needs. And I applaud the concept, but as a person that is frustrated from years of dealing with regulations at the Federal level regulations, the State level regulations at the local level, in knowing that States like Minnesota have a very well developed conservation network of county-by-county soil and water conservation districts, is there not a way we can approach both this issue and maybe even the EQIP issue by having block grants to States that have well developed conservation infrastructure, for them to deal with and address these issues as they see fit so that the farmer doesn't have to deal with three levels, but can hopefully be dealing with one person, because I am fearful that this would result in multiple they would have to deal with and a necessity to build up a bigger bureaucracy across rural America.
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    Mr. STALLMAN. I think philosophically we had had those same concerns, although we did not discuss the concept of block grants to States. And I think that probably comes down to the fact that each State very significantly, in both their ability to deliver those kind of programs and the perception of producers in those States, is to, I guess, what kind of quote deal you may get with your individual State. I suggest that some producers would think they would be more at risk in terms of regulatory burdens at the State level than perhaps they would be at the Federal level. But as a producer myself and as an organization, we certainly do not want to do anything to increase bureaucratic overhead structure and the regulatory burdens on producers.
    Mr. KENNEDY. I would encourage you to think about an opt-out provision for those States where that might make sense, recognizing that all States don't necessarily have the same infrastructure that we do. So thank you for your comments.
    The CHAIRMAN. Is the gentleman completed?
    Mr. KENNEDY. Yes, I yield back my time.
    The CHAIRMAN. Mrs. Clayton.
    Mrs. CLAYTON. Thank you Mr. Chairman and thank you, Mr. Stallman, for your report. I have reviewed it. I have not studied it in its entirety, but it certainly is a balanced report. And you went into some detail to try to make it consistent with our new trade laws, and I don't know how close we will come to that, but we want to thank you for making that effort. And in that regard, one of questions I want to ask in terms of the WTO, the request of $4.2 billion in addition to the amber box finding you had suggested, it puts us, I think, very close to the ceiling, if not above it, of where we are supposed to be in terms of staying in compliance with that last notification, 1997 AMTA was at $6.2 billion, and the EMS ceiling was at $21 billion. However, AMTA support has gone up drastically, I guess, because it is emergency funds we can think that that is outside of the box, but I just bring those convergent issues to your attention, and just ask if you feel those are coming dangerously close or do you have any concerns about that?
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    Mr. STALLMAN. If you look at the baseline for 2002, our amber box expenditure should be roughly $13 billion. And so there still is room for additional spending in that area. Now obviously, if you have counter-cyclical programs in place and prices go into the tank worse than what they have been, or perhaps even equal to what they have been, we run a risk of getting close to that $19.1 billion cap that we are operating under now. We are very cognizant of that. I guess part of the problem in designing a program—well, first, philosophically I would be perfectly happy to spend exactly $1 less than what the $19.1 billion cap is as means of putting pressure on your European competitors particularly, to come to the table and negotiate, which is what has been lacking in the recent history and may be lacking for a while yet.
    So I view that as a way of bringing the people to the table. The problem in constructing a program that does that on a counter-cyclical basis, it is very difficult to ascertain exactly where you are going to end in any given year because of the variation in prices. But we are very cognizant of the cap and feel like we have probably provided enough cushion within the proposal we have here that so hopefully we would not exceed the $19.1 billion.
    Mrs. CLAYTON. I am reminded that this committee heard testimony from Bruce Gardner from the University of Maryland where he testified that sustained growth on export perhaps is rare, and yet much of our future and opportunity is based on agriculture trade. And in the last few years, the last 2 or 3 years, in particular, our growth has gone in reverse. Given the historical reality as well as our most recent experience, are there things we should be looking at to be sure what our projection and our hope is for a more prosperous agriculture economy which is based totally on moving more goods to export?
    Our history has not been there and according to him, if you look over a long period of time, the sustained growth has been limited when we have had wars and other things going on. So what do we change in dynamics to ensure our assumption is based on something other than a wish?
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    Mr. STALLMAN. That is a very good point, and I think it is a key point in some of the commentary in our proposal we make about the importance of opening up markets. I am familiar with Dr. Gardner's views and the comments he made before the committee. He is basically right on the historical basis. But then again, we have been operating in the context of having all these trade restricting provisions that are in the international marketplace, the subsidization, the European union using export subsidies extensively, and incidentally, in terms of agriculture, they are illegal in any other industry sector except agriculture. Those are the kind of burdens we are facing in trying to get that export growth. If we ever get to a level field, I am convinced American producers can compete with anybody in the long run because of our productivity, efficiency and technology.
    But we first have to achieve those market openings which we have not been able to. In 1996 we talked about the need to do that. I would suggest that particularly given recent events with the EU and some of our trade disputes there, that we probably have gone backwards, and I think our export numbers show it. The one bright ray on the horizon perhaps is China, if they exceed the WTO, and if we get the access that we have been promised, that would provide some market opening. But your point is very well made. If we do not get that market opening, if we do not have these multi lateral agreements that opens those markets, we will not have a growth in our exports.
    Mrs. CLAYTON. Thank you, Mr. Chairman.
    The CHAIRMAN. Thank you.
    Mr. Everett.
    Mr. EVERETT. Thank you, Mr. Chairman. Let me first pick up on Mr. Chambliss, and I had a discussion before that you have not had anything on peanuts or sugar or tobacco, and then Mr. Hill brought up tobacco. I understood from your conversation with Mr. Chambliss that you would have a report forthcoming that would include recommendations there, but yet I didn't feel that that is what you told Mr. Hill on tobacco.
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    Mr. STALLMAN. Well, particularly with respect to sugar and peanuts, that is kind of an ongoing deliberative process and when we reach that point we will be glad to provide this committee with recommendations in that area. Tobacco being a separate title when we get down to the point of considering that we will be glad to provide commentary, and we have many tobacco producers in our organization, based on what they think what a reasonable suggestion would be.
    Mr. EVERETT. In other words, we can expect that information from you at a later date.
    Mr. STALLMAN. At a later date. I am not sure I will be able to tell you what a later date. But at a later date we will be happy to.
    Mr. EVERETT. I thought you might be able to solve that problem for me.
    Mr. STALLMAN. We are not that good.
    Mr. EVERETT. I would like to ask you on the conservation side, what does your membership think about buffer strips? Do think it is worth the time or effort? It is a good program for a program they can take advantage of or is it something that they don't think they can use?
    Mr. STALLMAN. Comments have varied anecdotally that I have received. In general, it appears that the requirements might be a little burdensome, and it may disrupt farming practices, there may be things that can be done to ''make things better on the farm and still accomplish the environmental goals that buffer strips are supposed to.'' I think we could look at some improvements in this area.
    Mr. EVERETT. I would like to move over to what Mrs. Clayton was talking about. The Export Enhancement Program, in the last 4 years, it has roughly about $2 billion available to be used, and our friends over at USDA have only used about $20 million of that $2 billion. I think they think it is an unwise position to use that money. Would you comment on that?
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    Mr. STALLMAN. There is a school of thought that says it doesn't accomplish what it is intended to do. Organizationally, once again, we think it is an important tool to be used to allow us to compete in that marketplace if the subsidies from our competitors are being used that we need something to ''help fight the battle.'' so we do think it has been underused and we would certainly encourage its use.
    Mr. EVERETT. As I understand their position, they believe that it would force down the price of these commodities. Do you think that is the situation?
    Mr. STALLMAN. Well, I am not enough of an economist to probably comment intelligently. I have read some of the ''studies'' that have ''shown that that is the case.'' I am not sure I am in total agreement, because where we have used it I know there have been instances where we have certainly gotten some sales and some market access where we would not have had otherwise. So I am not sure personally, but we do think it is an important tool to be used in the toolbox to help support agriculture as we move toward to get this level playing field.
    Mr. EVERETT. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Bishop.
    Mr. BISHOP. Thank you, Mr. Chairman. Mr. Stallman, many of the specialty crop producers that we have heard from, especially the peach producers, indicate that they do not want Federal income support programs. Was there a particular segment of the fruit and vegetable industry within your membership that requested the program? And can you tell me how, in a related fashion, you will deal with the split within a particular fruit, vegetable or other crop segment? How you deal with the producers that do not want to enter into an income support program, and sort of what is your definition of a grower association that would be eligible to sign a petition to the Secretary?
    Mr. STALLMAN. Well, as I indicated to Mr. Putnam, our proposal is probably one concept. We are in the development of looking at all the issues. Some, you are right, producer segments wouldn't want to participate. That is why we have a petition mechanism in there, and that is triggered by a certain percentage of either growers or producer groups. We do not have a specific definition as to what a producer group should be at this point. That is getting down to a level of probably regulatory detail. I realize that is important as to who is representing producers. That is why we want to try to structure it so it would take a commodity sector in the fruit and vegetable area to come forth and make the case and show the support for assistance for whatever the problem may be and make that case to the Secretary.
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    Mr. BISHOP. I guess related to that, do you have any suggestions for how USDA should determine the universe of growers or grower associations so that you will know that when you have that 75 percent magic number of growers or growers association?
    Mr. STALLMAN. That is somewhat of the same problem we have had in the beef and pork check off referendums. There should be a mechanism that does define who a producer is and actually as a producer myself, I would want them to be the ''true producers.'' sometimes that is difficult to do. But we don't have any specific suggestions that would guarantee that.
    Mr. BISHOP. On another subject, you mentioned adding $500 million in oilseed payment funding, the AMTA payment base. You describe how producers growing soybeans could receive a payment. What about the other oilseeds such as canola and how would they be treated?
    Mr. STALLMAN. With respect to adding AMTA?
    Mr. BISHOP. Yes.
    Mr. STALLMAN. What we talked about with AMTA was bringing in the soybeans themselves. In our counter-cyclical program, we talk about incorporating all the oilseeds.
    Mr. BISHOP. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Pombo.
    Mr. POMBO. Thank you, Mr. Chairman. Mr. Stallman, I too have some questions about the fruit and vegetable portion of your testimony. To start off with, how did the figure of $1 1/2 billion, how did you come to that amount?
    Mr. STALLMAN. We basically looked at the different sectors of agriculture. We looked at the fact that the fruit and vegetable industry in the past, other than very ad hoc targeted kind of assistance payments when situations were bad, had not really been addressed in terms of program spending. Our commodity advisor committees talked about the need for that level of funding available, not necessarily in an entitlement program, but that level of funding available to address some of the needs which seemed to be increasing as we go forward.
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    Whether it is a situation like the Tri-Valley situation in California, whether it is some of the import surges that are over-occurring, and once again, the invasive species and the kind of diseases we are coming up with now can have a dramatic impact on any sector, so we did not have an allocation of the $1.5 billion commodity-by-commodity and what may be needed, but looked at that as a reasonable amount of money that could be allocated for that sector, once again, only used when needed and when desired by a specific commodity sector that met some minimum requirements.
    Mr. POMBO. I know that the apple industry has asked for additional assistance. How would this program that you are proposing help them? How would they fit into that?
    Mr. STALLMAN. They would fit in basically the same way. Our apple producers are telling us, giving us some short-term numbers they need and longer term, looking at some type of assistance program if the prices do not improve. This would provide a mechanism for apples to be brought under the same requirements as the other fruits and vegetables.
    Mr. POMBO. You mentioned Tri-Valley, and I am not sure exactly how and I am trying to understand how this program would work that you are proposing, when you look at Tri-Valley you have peaches, pears, tomatoes, apricots. I am not exactly sure if the situation that those producers found themselves in that they would actually fit into this program.
    Mr. STALLMAN. They may not. I am not sure either. That is why we talk about the fact that it is difficult to, at this point, lay out a program that will fit every situation and fit the entire fruit and vegetable sector. Once again this is one throwout of the chute, as we say in Texas, for a concept that could be put in place to provide for those instances where potato producers and apple growers have come to the Congress seeking assistance, where there could be a mechanism in place, assuming that sector wanted to request it where the Secretary could provide some funding. It is not meant to be the last word in what we think the fruit and vegetable industry needs for the future.
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    Mr. POMBO. Let me ask you, the program that has been used in the past, the market loss assistance type program, why did you go the direction you did versus going forward to a market loss assistance type program?
    Mr. STALLMAN. We actually discussed that somewhat. We thought this was a little more comprehensive approach in terms of setting up a structure to do it. But once again we were going to be open to suggestions from our food, fruit and vegetable growers as we proceed down this path as to proposals that may fit them better. We wouldn't be opposed to implementing something along those lines, assuming our fruit and vegetable growers come together and say this is a better idea.
    Mr. POMBO. Well, I appreciate that you did include the fruit and vegetable producers as part of your proposal. I know a lot of things that the committee has heard in the recent past, they have kind of pushed those growers aside and said they did not fit in anything, so I appreciate the Farm Bureau has included them in their proposal and hopefully we can come to some kind of an agreement, because like you, I come from a State that produces a lot of fruit and vegetables, and those guys are hurting right now. So thank you.
    The CHAIRMAN. Mr. Stenholm.
    Mr. STENHOLM. Bob, I have not only appreciated your testimony, as I said in my opening remarks, for its inclusiveness, but for the manner in which you have answered the questions this morning. I always chuckle when we members of Congress accuse someone sitting down there as being inconsistent in your views. I have to chuckle about that from time to time. But one comment you made a moment ago, or someone made regarding a level playing field, I hope it is becoming evident to all interested now that we are not going to get a level world playing field any time soon.
    Just take a look yesterday at the front page of The Washington Post, concern now about the genetic splicing of wheat. Now that means the technology that has allowed America to become the best-fed Nation in the world will be under continuous fire, and we are going to have tremendous choices to make whether we will continue the technological advancements, and that means those who oppose technology mean they will assume the responsibility of literally starving to death tens if not hundreds of millions of people in the world.
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    But today they have got the high ground, and it is going to affect our policy. And then also in yesterday's Washington Post, we found that China is not maybe going to move into the WTO as quick as they have said they would. Well, this is the same China that enjoys a tremendous market in the United States. I don't know how long we are going to continue to negotiate as we have been negotiating, and just assume that everybody else is going to play by the same rules because China clearly said we are not. We are going to drag it out as long as we possibly can.
    Then this morning's Washington Post. Europe, headlines, says that we are going to remove tariffs on developing countries by 2009. I agree with you when you said from the amber box 1-cent less than what we are legally able to do is a pretty good number if we are serious about negotiating and building. But that gets us into a little bit of a budget problem.
    Now, so far we heard from the Commission, and I see Dr. Flinchbaugh is back behind you and some of us kind of had a few things to say about busting the budget. Cotton council comes before us, bust the budget. You come before us today, bust the budget. Well, whose budget? I think all of us around this dais need to take a good hard look at our budget, and it is certainly my hope that as we, the Congress, in the 107th Congress, develop the budget for fiscal year 2002, that we will take a look seriously at our own rhetoric. I happen to agree with you. I happen to agree with the letter that you were joined by several of our farm and commodity organizations, livestock groups of honestly coming forward and saying as long as we are going to operate under the philosophy that we are now operating under the current farm bill, and with the projections that we have already been told in this committee in the first hearing, that we are looking at lower and lower prices for at least 2 more years, that it would be foolish for us not to provide in our budget for the expenditure of those dollars or be prepared to accept the consequences of not doing it.
    Just as we have heard there are a few out there that believe we ought to accept the consequences. But I think you, Mr. Stallman, in representing your membership, know that rural America cannot stand that without paying a dear price. And as we look at that, have you all had any discussions regarding currency values and how that plays regarding our ability to compete on a level playing field?
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    Mr. STALLMAN. Absolutely. The strong dollar, and I have it in my written testimony, effects directly our ability to export our products to other countries. That is just another barrier that we have to overcome as agriculture producers, when one out of every three acres is being exported what happens with those currency exchange rates with respect to the dollar is critically important for outmarket competitiveness against our other competitors out there.
    I don't know any way to address it other than to point that out as a factor in terms of our export sales and what that does to both our opportunities for future growth, or in some instances, in this case, just maintaining what we have. I am not sure that you know that there is a solution other than that that is another area that if we want to maintain a productive agriculture sector in this country, that until we get a more equitable balance and a $370 billion trade deficit, I do not think is sustainable over the long term. I am not an economist, but those kind of numbers indicate a massive outflow of capital from this country. I don't think that is a sustainable thing. And when the value of the dollar comes into more reasonable relationship with other currency, it will benefit us as producers, but until that time it will have a direct effect on our net farm income.
    Mr. STENHOLM. A follow up, I have just taken a quick look at the President's blueprint for new beginnings in the budget, and find myself very concerned about where we are headed with agriculture. But I am willing to cut the President and the administration a little more slack because of lack of time to get specific, and I don't think this is the time to do anything other than to ask legitimate questions, but then to be prepared to have the kind of specific answers that we are going to need as to changes in philosophy.
    And I would anticipate that some time soon, or at least before we finally pass a budget in the House, that the administration will come forward and will make their specific recommendations to the committee as to how we deal with some of these questions as you have done today. But in the meantime, there is a concern level here because I, as in your testimony, indicate that you support tax cuts, I am for them. Who could be against them? Unless the level of those cuts begin to impede our opportunity to pay down our national debt. I have to chuckle at the concern today that some of us have that we are going to pay down the debt too soon. I have to smile about that one because that is a problem that I would love to have. And since it will only occur in 2007, 2008 and 2009 when we have that problem, I think we could probably be a little slow about worrying about that.
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    But I say this more for my colleagues as well as our membership's ear is that I would hope that all Members, both sides of the aisle in the 107th Congress, would be insisting that our leadership pass a budget first before we start doing individual components. I would hope what I hear that we are going to have the marginal tax rates on the floor early without taking into consideration how are we going to deal with Social Security and Medicare and how are we going to deal with your request and agriculture's request of $12 billion additional over and above the baseline over the next 10 years. How are we going to do that? And this is my question for you, would your members prefer to have the tax cut, and if we do not have money left to increase for spending on agriculture programs, just cut the budget?
    Mr. STALLMAN. We view our role as an agriculture organization to come before the Congress as many other interest groups do to make the case for the funding needs and for societal purposes that it meet. In this case, our $12 billion request is actually based on some numbers. When you look at the 1980's farm crisis if you do deflated or account for inflation in those numbers, that period of time from 1982 to 1988 spending averaged in current day dollars about 24-plus billion dollars. The past 3 years, on average, about $24 billion. Our program is designed to be counter-cyclical in a great part of the spending.
    Therefore, if the situation improves where we are not in a farm crisis situation, those dollars are diminished substantially. But if the conditions exist as they did in the 1980's as they have for the past 3 years, it appears that that level of funding is about what the Congress allocates to agriculture. In the past 3 years, it has been in an emergency supplemental basis, which doesn't allow for much planning by producers, lenders or the Congress, either one. So if you take our $12 billion over roughly an $11 million base line, I think for 2003 we are about $23 billion, and then if you discount the fact that we are adding $500 million for research, that reduces that number a little bit.
    So in essence, there is a rationale for how we came up with that number. Once again, if prices improve, a lot of that spending goes away.
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    Mr. STENHOLM. Well, I am going to let you get away without answering my question because your answer was a real good one, and I do not blame you for not answering my question. But let me say, Mr. Chairman, in conclusion, I really enjoyed your last answer that you gave not to the question I asked you, because you are right. I have done a little research myself because I keep hearing back that some of my comments I make that people think I am opposed to cuts. I am not, and I will show you specifically at the appropriate time those tax cuts that we are for.
    But what I am for is doing it in the context of a budget. And I do not apologize for one second as you have not for asking for agriculture under current policy and current world conditions that which you have asked because to do less is going to do harm, and we cannot afford to do more harm to rural America than what is now happening, even under these tremendous expenditures. I did a little research on my own, and since I have been here now since 1979 and I find it very fascinating that since 1979, we, the Congress, have cut foreign aid 50 percent. Cut it in half from what we were spending in 1979 as a percent of our gross domestic product which I am told is a relevant way to make comparisons, relevant.
    You can argue about it but it is relevant. When we talk about discretionary spending, which we hear so much about and that is, what we are in the business of appropriating, we have cut a little over 35 percent. Defense alone we cut 38.7 percent, which should answer some of the questions to those that are skeptical as to whether we need to put some more resources into military. We do. But time for us to look at these opportunities, as you call them, just exactly as you presented them back to us today.
    Factually, looking at it from the standpoint of the real world, the international marketplace, stop this business that there is a free marketplace out there. There is not one. I found it amazing when we start looking at trade, Canada buys more from us than all of Europe put together, and yet we let Europe wag the dog. Mexico is about to become, in 3 more years, at the current rate at what Mexico buys from us, they will become a better market for us than all of Europe. I think it is time for us to start looking at these things, and to do that though we better pass a budget with a baseline that will give us the tools to work for, and I commend you and your organization for not only asking for the money, but for also justifying it, doing what the chairman has asked you to do, be specific and then justify your answers. That is the kind of straight talk we need here, and hopefully it will take with 51 or 52 of us around this dais, we get around to doing some things that might shoot us in both feet before we started.
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    The CHAIRMAN. Mr. Osborne, do you have another question?
    Mr. OSBORNE. Yes, thank you, Mr. Chairman. I would like to maybe pursue the last line of questioning a bit more, because obviously the budget is foremost in everybody's mind right now. Nobody is quite sure how it will work out. It seems to me that emergency payments have almost become part of the program in the minds of many people. And I think what you have tried to do here is shift emergency payments into the program itself, which I think is necessary because obviously at some point, emergency payments are going to go away. I am sure. I am not real clear on previous numbers because I am new here, but my understanding is that the baseline has been somewhere in the $10, $11 billion, is that correct? And if you are adding $12 billion on to that, that makes $23 billion. And again, being hazy on the numbers, I think maybe we might have spent as much as $28 billion in this last year. Is that right, Mr. Chairman?
    Mr. STALLMAN. It is actually $32 billion. But we prefer in agriculture to look at it on a crop year basis.
    Mr. OSBORNE. So I guess where I am going with this, is this enough? Because I don't know if we can keep going back and saying well, OK, here's the program. But we need some emergency payments in 2004 and 2005. What I would rather see us do is to write a bill where emergency payments are no longer part of the process, and you know the loan rate $1.89 on corn going to $2.01. In my part of the country, most producers will say last year it cost them $2.36 to produce a bushel of corn. So unless they knew something about the futures market and were pretty adept, they didn't make money.
    So I understand what you are doing here, I think it is a step in the right direction, but I think as a committee, we need to be totally realistic and we cannot continue to draw up a plan that is going to rely on emergency payments. I think you have made a good effort here, but I guess my question to you is do you feel like what you are proposing is something you can live with, and say, well, OK, we are done with emergency payments at that point?
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    Mr. STALLMAN. Well, that was our goal. While it has been very necessary and very appreciated, the emergency payments is not a system that A, is probably sustainable or B, is good from agriculture policy standpoint. So what we attempted to do was to incorporate the same kind of parameters in this ''$12 billion program.'' at the same time, making a good chunk of it counter-cyclical so if we have conditions like we have had, we will be spending hopefully what we need to support agriculture without having emergency assistance, or if prices improve, then we will be spending substantially less. If we work in a lot of the other areas we have talked about, economic stress is caused by a lot of factors. Cost is one of them.
    If we can increase demand for products, and I am not talking about export growth here, I am talking about alternative fuels. We have a grand opportunity right now, given all the conditions that exist for us to significantly improve demand, particularly for ethynol and that immediately hits the bottom line of producers in terms of better prices, particularly for corn but also other products.
    And so there is a lot of things to do, and whether this is enough nor not, we would certainly hope it would be because we realize that there is a limit as to what we can expend in terms of funds for our agriculture programs. We did a quick analysis of all of our policies, and it looked like the cost of implementing all of the policies adopted by our delegates would be about $35 billion. Well, the board had to do some priority setting and that is what we have attempted to do with this proposal.
    Mr. OSBORNE. Thank you.
    The CHAIRMAN. Mrs. Clayton.
    Mrs. CLAYTON. There were several interesting areas that you mention, and I want to revisit with you if you would, and to thank you for your support of the Southern Dairy Compact in conjunction with the Northeast, and I am going suggest to my colleague from Minnesota who wanted to challenge you on that that we are hopeful that the Southern Dairy Compact can indeed be added to the Northeast, because the dairy farmers we are meeting with, they are suffering, and the opportunity to add to the income is just critical. They are going out of business.
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    I have just completed having five regional round table sessions, 20 counties. And I met in many counties where we had no dairy farmers, and just 5 years ago we might have had five. And those who are still hanging on are hanging on by a thread. They look forward to staying in business and they see this as an opportunity. I want to visit you with two other areas, the EQIP and the rural development.
    In your first statement, you said such farmers own ventures provided for rural development, increased competition in the marketplace. Then on page 21, you do have a recommendation that you should increase the capital, increase the rural economic development and the agriculture market equity capital fund to $100 million to support that. But are there other things that you see as an agriculture organization that is so interdependent with the environment and the economy of the area, and to the extent you are having fluctuating commodities, many of your members, their wife's and sometimes even your members themselves are working outside.
    So there is not a, it shouldn't be really a dichotomy. They are interrelated. And to the extent we are looking at a farm bill, I am trying to get the farm organization to help us fashion the kind of relationships that we ought to be looking at through this committee, not some other committee in terms of rural development.
    And it may not be dollars. It may be infrastructure. It may be a variety of things that says that those of us who live in rural America where we have agriculture as part and where we have other things and what enhances the quality of life that you as an agriculture organization would want to be thinking. And this is a little bit out of your traditional way of doing it. And I do appreciate the increase that you proposed on page 21. But are there other things that you could suggest to us.
    Mr. STALLMAN. Well, we did not delve a lot into a lot of detail into that area. Obviously, being the organization we are, the condition of rural economies is extremely important to us. We focused on this one fund with $100 million as a way to help develop infrastructure, jobs and create market demand for agriculture product. That is sort of our focus. But in terms of our quality of life and some of the other issues that I think would be beneficial to rural economies, our environmental incentive payment proposal would account for some things that would make rural areas better places to live, attract other people and other industries, and so I think that would have an auxiliary impact on those rural economies. It would be very beneficial.
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    We really did not get beyond that, but I listen to our members all the time about conditions of schools, conditions of rural hospitals, all of those issues that are important to maintain a viable rural community. And they are concerned about the economic conditions that are deteriorating those institutions, and we are very concerned about that, but we did not get beyond the specific areas we talked about in terms of how to address that.
    Mrs. CLAYTON. If you have some further discussion and have some recommendation, I would be open, and I think the committee would be too. Let me go quickly to EQIP. I appreciate the EQIP reform suggestions you made and all of them seem to be reasonable and needed and would improve it. One of concerns I heard, I did not see, was that and it was not just EQIP, but the conservation programs in general, there is a small disadvantaged farmer who participates in this who would not have the money to advance and then be reimbursed is succinctly denied the opportunity without being denied because if you do not have the $5,000 or the $10,000 to do the up front and the ability to plant and do other things, and you cannot borrow, you are at a decisive disadvantage.
    And I do not know if you have to look at some alternative where economic needs demonstrate where there could be an advance or supplement where we could make sure as we include this opportunity, we include it for the disadvantaged farmer who is struggling, trying to be environmentally responsible and also trying to provide income for his family.
    Mr. STALLMAN. Once again that gets back into the overall rural economies and the Commission, in the 21st Century Commission we had significant discussion on that issue. I view our voluntary incentive payment proposal as a way that does not have those kind of restrictions that you are referring to that exist now as a way for small producers to benefit directly from those kind of programs, and there is nothing from a conceptual standpoint, even to prevent an advanced payment to accomplish an environmental objective, even on a small-farm basis.
    So I don't think that our overall program precludes those kind of opportunities.
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    Mrs. CLAYTON. OK, thank you. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Pombo.
    Mr. POMBO. Thank you, Mr. Chairman. I just have one additional question. Mr. Stallman, in reading over your testimony, there is one part in here in talking about fruit and vegetables again, where you say that in order to be eligible for the program, that a specific commodity would have to make up 75 percent of the farm's total revenue in order to qualify for this particular program. I have concerns about that in light that most of my producers are fairly diversified, and rarely does one particular crop make up more than 50 percent of the total revenue of that particular operation. They intentionally try to diversify so that if one crop is particularly hurt and a large portion of my producers wouldn't qualify for the program if this was the way that it was put together, whereas, someone with a smaller hobby-type farm that just produces one particular crop would qualify for it and that is not their main source of income, or they are a very, very small operation.
    Mr. STALLMAN. That is certainly a valid point. Mr. Stenholm talked about straight talk, and I am here to tell you that is not a magic number and we do not view this as a magic solution. What we want to do is go forward with our fruit and vegetable producers and talk about those very specific kind of issues. You are absolutely right. In that context, a producer may not qualify, then the policy question, because if they are diversified and they are impacted but not significantly in terms of their overall viability of staying in business from a policy standpoint, do we want to support a specific commodity in that instance? I think that is a policy question and we are not attempting to address it in any final or definitive fashion today. This was just an example and we certainly are going to be amenable to going back and looking at triggers and ways to implement these kind of programs.
    Mr. POMBO. Just to go along with that, in your particular situation you are in the cattle business. You produce other crops. When we have a year like what we have gone through right now, cattle which may have cattle which may have been 50 percent of your operation, as the rice crop goes down, it becomes, all of a sudden, a much higher percentage of your revenue, and you would not qualify under that?
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    Mr. STALLMAN. Absolutely.
    Mr. POMBO. So I think while I appreciate what you were trying to do, I think it may cause us more problems if we have a figure in that range. I do want to say I appreciate your prepared testimony a great deal. This will be very valuable for committee. So thank you.
    Mr. STALLMAN. Thank you.
    Mr. POMBO. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Stenholm.
    Mr. STENHOLM. A couple more points that I want to reemphasize. Your support for renewable fuels and the role that agriculture can play in our energy needs that we are vastly becoming more acquainted with, and I too think that there is a constructive role that agriculture can play. I want to ask one final question. You had a previous answer on this, the question on raising the loan rates or rebalancing the loans of which I agree with the fundamental concept of rebalancing, but a question is often asked, we are producing more than we can produce at current loan rates. You increase loan rates, you will encourage more production. What do we do about it? You are opposed to supply management. I am too, but I am for inventory management. We are just trying to figure out a way to do it. Any help?
    Mr. STALLMAN. What we tried to do in terms of an incremental increase in these loan rates to get them closer to soybeans is basically they are—at least not have acres allocated on the basis in differential and loan rates between soybeans and other commodities. I guess our view is that it will probably shift acres, but overall, production acres may not increase. My cotton friends tell me that their costs of production are way above our proposed loan rate. Once again, I think that should be the criteria, is the loan right rate high enough to actually trigger decisions for planning based solely on the loan rate? We don't think those numbers are that high.
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    As Mr. Osborne indicated, his corn producers cost of production is significantly higher than what these loan rates are. We view the loan program as merely a mechanism of primarily for marketing, to allow orderly marketing, to allow producers some options in terms of how they market their crop, and at the same time provide some cash flow. So we don't believe that these numbers are high enough to stimulate production. We do think that the readjustment will reallocate some acres that have perhaps been in soybeans back to some of the other crops.
    The CHAIRMAN. Mr. Stallman, thank you for your testimony. There may be additional written questions that Members have. Without objection, the record of today's hearing will remain open for 10 days to receive additional material and supplementary written responses from the witnesses to any question posed by a Member. The hearing is now adjourned.
    [Whereupon, at 11:57 a.m., the committee was adjourned, subject to the call of the Chair.]
    [Material submitted for inclusion in the record follows:]
     (1) Do you believe your proposal of rebalancing loan rates and a counter cyclical safety net provides for a more equitable method of distribution of economic assistance than the delivery via supplemental AMTA payments? Are you opposed to the manner in which Market Loss Assistance payments have been delivered the past 3 years?
    We are not opposed to the way that Market Loss Assistance payments have been delivered for the past 3 years. The issue is how to have a system in place that does not require yearly emergency appropriations. AMTA payments provide fixed, guaranteed payments. Increasing loan rates would provide additional payments when prices are low. One drawback of the LDP/MLG approach is that producers with weather related production losses get less assistance because payments are tied to production. The counter-cyclical approach would provide assistance when gross income falls below a trigger level. The three programs together should provide a better safety net than just one program.
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    (2) Since many producers across the country have adjusted crop acreage in response to the flexibility provisions of Freedom to Farm, just exactly how you would go about allowing soybean acreage to be included as an AMTA crop and not allow producers to actually build base. For instance, from 1991–95 a producer had 100 acres of corn, 30 acres of beans and 10 acres idle. For 1998–2000 the producer had 100 acres of corn and 40 acres of beans. For the period of 1991–95, another producer had 100 acres of corn and 10 acres idle and for 1998–2000 they had 100 acres of corn and 10 acres cotton. Under your proposal it appears there would also be a possibility of base building for soybeans (since it appears under your proposal a farm would get credit for 40 acres instead of 30 acres).
    If a producer has shifted production from a non-program crop to soybeans since 1996, that acreage would be included in the new base. Our first goal is to provide assistance to producers of the roughly 60 million acres of soybeans who do not receive fixed payments under the current program, but have received emergency market loss assistance payments over the previous 2 years. We also want to make sure that a producer would not receive two payments on the same acre. Since soybean producers want payments based on recent production, allowing ''new'' acres to become part of the soybean base has to be allowed to occur. The addition of soybeans to the AMTA payment system is meant to provide a distribution structure for soybeans for the $500 million budget allocation we have suggested which is roughly equivalent to the emergency payments for soybeans for the past 2 years. While recalculating bases for the other AMTA payment crops is feasible, it would involve significant shifts of acreage on a regional basis and until an analysis is completed to quantify the economic effects, we would be opposed to adjusting the other crop bases. No one would ''lose'' AMTA payment base under our soybean proposal unless they made a decision to substitute allowable soybean acres-for one of the other AMTA payment crops for which they had a base.
    (3) Are you suggesting that farmers who produced soybeans be given the opportunity to ''build base'' greater than the acreage they had during the 1991–95 period and those that utilized the flexibility portion of the farm bill but planted crops other than soybeans are not afforded this opportunity?
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    This is not a base building issue like those in the 1980's and early 1990's. There was no base for soybeans before 1996 and a base was not created by the 1996 farm bill. As noted in the response to the previous question, the issue is how to make $500 million in additional assistance to soybean producers. Those who did not plant oilseeds on flexibility acres would not receive payments.
     (4) Why should a historical period different than used for AMTA be used for soybeans?
    Acreage for soybeans has shifted since 1996 and a more recent base would reflect that shift. The base would be similar to that used to provide the emergency assistance to soybean producers over the last 2 years.
     (5) Are you suggesting that if a producer planted 100 acres of corn from 1991–95 and planted 100 acres of soybeans from 1998–2000 that we should let them elect which crop will receive payment? Did this producer simply elect to utilize the flexibility provisions we provided and is there a reason to update the AMTA acreage to include soybeans?
    Yes, we are suggesting that the producer be allowed to choose which payment he/she receives. They used the flexibility provided. If Congress chooses to deal with the sets of winners and losers that would result from updating bases and yields for the AMTA crops, then including soybeans in a revised program is an option. Not updating those bases and yields and adding a program for soybeans at $500 million per year would likely be a less disruptive way to address the issue.
     (6) Under your proposal it appears if the producer had 20 additional acres producing hay during the AMTA base period and the same acreage was planted to beans during the soybean historical period, they would get 20 acres of soybean AMTA since the farm had cropland acreage greater than the AMTA acreage. Did this producer simply elected to utilize the flexibility provisions we provided and is there a reason to update the AMTA acreage to include soybeans?
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    Yes they would get a payment for the 20 acres of soybeans. As noted in the answer to the previous question, we chose this approach because it may be the least disruptive while providing assistance to
producers of soybeans that currently have no permanent means of providing assistance beyond the marketing loan program.
    (7) If loan rates were not rebalanced, would you still suggest that soybeans be included on the AMTA contract? If so, based on what justification?
    Our proposal is a comprehensive ''toolbox'' approach to a new farm bill. At this point, we would still support soybeans being included in an AMTA contract since this was meant to address a different concern
separate from the rebalancing of the loan rates. Soybean producers have no other permanent mechanism for receiving financial assistance.
    (8) Based on your comments about feed costs, does the Farm Bureau believe that rebalancing loan rates will lead to slightly lower commodity prices? If not, then how would it slightly lower feed grain costs?
    If acreage has shifted from corn to soybeans because of the higher loan rate, increasing the corn loan rate should cause a slight shift back to corn. Also, increasing loan rates in general may lead to a slight increase in total acreage.
    (9) Are you proposing loan rates be determined by a formula such as the larger of the rebalanced loan rate or 85 percent of the average market prices for the preceding 5-year period, excluding the highest and lowest market price or are you proposing a fixed rebalanced loan rate for each crop?
    We want to rebalance loan rates by holding the soybean loan rate at its current level and adjusting the other loan rates up. A chart in our testimony indicated specific loan rates. We believe our rebalanced loan rates should be fixed for the term on the new farm bill. However, they must be consistent with available CCC spending and our WTO Amber Box commitments.
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    (10) What impact would a $75,000 marketing loan program payment limitation have on producers if loan rates were rebalanced?
    To the extent that rebalancing loan would increase payments to producers, they would be hurt by the payment limit. Farm Bureau has long advocated the elimination of payment limits.
    (11) Why do you believe the counter cyclical program for the eight major commodities is not ''amber box'' payments given the calculation includes a component based on current year production and prices for a specific commodity?
    The program is not based on current production and price. Note item three on page nine of our testimony. The calculation is based on a forecast of cash receipts.
    (12) If permanent legislation containing your proposal was enacted as a part of a 5-year bill and assuming your counter-cyclical program was determined to fit in the ''amber'' box, what do you propose should happen if Government expenditures exceed the WTO ''amber'' box ceiling at any time during the 5-year period?
    We are committed to staying within the spending limits for the Amber Box. Our intent is to develop a counter-cyclical plan that is classified as Green Box. If the plan were determined to be Amber Box and there was not adequate spending available in the Amber Box, we would seek modifications in the plan to make it Green box.
    (13) Comment—On page 8 of your testimony it states that ''The price employed in calculating receipts is measured at the national level, but production would be measured at the state level.'' Since prices received by farmers varies by state and you can track prices for many commodities by state, why would you use a national price and state production to calculate receipts instead of using a state price and production?
    Prices received varies by state as well as by individual farmers. We suggested using a national level price to simplify program implementation.
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    (14) Your counter cyclical proposal for the eight major commodities is based on forecasts. At what time during the year would you propose the forecasts be made and at what time should payments be made?
    Forecasts should be made prior to the crop year for which payment is being made, ideally as late as possible to improve the reliability of the forecasts. Payments should be made as soon as possible after the forecast.
    (15) The counter cyclical proposal for the eight major crops limits the counter cyclical safety net component to growers who produced the crop duringthe years 1998–2000. Does this mean a producer must have produced the crop all 3 years or any one of the 3?
    Our general approach would be for payments to be based on the average of the 3 years. As noted with the AMTA payments for soybeans, producers should not receive payments for more acres than their total planted acres for the eight crops. Some consideration would likely need to be given for prevented plantings and similar issues that have been part of previous farm bill.
    (16) The counter cyclical proposal for the eight major crops makes payments on the basis of average production during the 1998–2000 period. In parts of Texas, drought has covered a large area of the State for all 3 of these years. If a dryland cotton farmer averaged 100 pounds per acre each of these years, would your counter cyclical payment be limited to the same 100 pounds?
    That would be the case in our proposal as presented, although modifications could be made to allow substitution of APH or county average yields to adjust production for disaster conditions. Another option would be to use additional years, such as 5, 7 or 10 years. These details need to be further considered as the committee works through the deliberative process of building a new farm bill.
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    (17) Is the proposed $3 billion baseline for a counter cyclical program for the eight major crops based on a national or state level program and was 94 percent of the historical period cash receipts also used to determine the cost?
    The example on page 9 of our testimony was based on a national trigger. Our goal is to have the program run on state triggers because of the variations by states in production. The 94 percent trigger was used as an example to show how it would work for 2001 with a $3 billion spending goal. We recognize that the counter-cyclical program must compete for funds with other proposals that are part of our ''toolbox'' approach to farm policy. Our proposal is to spend about $3 billion per year on average for this program. As stated in our testimony, we are ''willing to trade a lower trigger level for a local rather than national level of aggregation.''
    (18) Under your proposal, counter cyclical payments would be made anytime cash receipts for a crop in a state in a given year are less than 94 percent of the 1996–99 average. But, what if cash receipts are down in the state just because less of the crop in question was grown that year?
    Our policy allows for some flexibility in determining the exact trigger to be used to determine when payments would be made. Even with a national trigger, less of a specific crop could be grown given the flexibility components of our proposal and create the same situation. If the trigger were set at a county or individual level, the same situation could occur.
    (19) If permanent legislation authorizing economic assistance for fruits and vegetables was authorized, should there remain a restriction on the planting of fruits and vegetables on AMTA contract acres?
    (20) The growing season for fruits and vegetables varies across the country. Your proposal effectively gives the Secretary 150 days after the final date of harvest to make a decision as to whether a particular crop has suffered an economic loss that would trigger a payment. You would then have to go through some signup. In addition, since payments are subject to prorate because of a limited funding you could not make payment for the first crop approved until you either approved or disapproved all crops. Do you have an idea how many months after the end of a growing season it might take before a producer could expect to receive a payment under your proposal?
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    As stated in our oral testimony, we are still considering modifications to improve the implementation of a discretionary assistance program for fruits and vegetables. Our goal would always be to get payments to producers in a timely fashion consistent with maintaining the integrity of the program. Details also have to be worked out for crops like oranges where harvest spans 2 calendar years.
    (21) You state in your written testimony that only growers who derive 75 percent of their income from a given commodity would be eligible for payment under your counter cyclical fruits and vegetable program. Would you also propose that only those producers who income from that specific crop meets the minimum percentage threshold would be eligible to sign a petition to the Secretary urging assistance be made available? If not, why?
    That is another detail that needs further work. The first reaction is that all producers would be eligible to petition.
    (22) Are currency exchange rates the single largest factor that impacts our ability to competitively export agriculture products? If not, what is?
    If all other conditions are held constant and the buyer is deciding based primarily on price, then currency exchange rates are the key factor. But all other factors are not held constant and considerations other than price are often involved. Tariff barriers, export subsidies and sanitary and phyto-sanitary issues are often involved. At other times it is the ability to delivery large volumes of quality products in a time manner that makes the sale. That is why we need a comprehensive trade and transportation policy in addition to a workable farm program.
    (23) What domestic or world factors have the most impact on the profitability on the group of producers you represent?
    The most important world factors are economic growth in middle income developing countries and restrictions on market access to countries with a growing demand for food. Rising incomes is a key factor in creasing demand for food. That rising demand for food is of no benefit to U.S. farmers and ranchers if we do not have market access.
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    (24) What position has your industry taken with respect to entitlements of disaster benefits for producers who don't buy crop insurance?
    Producers from many areas of the country continue to report that crop insurance still does not work for them. We are hopeful that the reforms of the crop insurance system passed by the Congress last year will make crop insurance work for more producers.
    (25) Since the Agriculture Risk Protection Act of 2000 provided substantial improvements to crop insurance, do you believe that ad hoc disaster legislation should be authorized for crops currently covered by insurance? If yes, why?
    See the answer to the previous question.
    (26) Do you believe it is important that any counter cyclical program benefits are targeted towards those producers actually sharing in the risk of the production of major crops (cotton, corn, wheat, rice, grain sorghum, barley, oats and oilseeds)?
    As under current programs, there is virtually no way to guarantee that payments will not be bid into land rents, land prices or other factors that control access to land and other productive resources.
    (27) Would a $40,000 counter cyclical payment limitation have a significant impact on your programs ability to function as a reasonable safety net?
    Yes. Farm Bureau opposes payment limits for farm programs.
    (28) Do you believe your counter cyclical program distorts market signals and causes producers to grow crops that they might not otherwise grow in the absence of the program?
    Yes, but that is true of all farm programs and crop
insurance. The goal of our ''toolbox'' approach to farm policy is to provide an effective safety net that causes as little distortion as possible. By basing the program on price forecasts and making payments based on past production, this should cause less distortion that some of the other options that have been proposed.
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    (29) At the time a borrower is arranging financing for the upcoming crop, do you believe that with some reasonable degree of certainty a lender could determine what a producer might expect to receive in counter-cyclical payments on a per unit basis assuming the Farm Bureau concept for the major commodities was enacted into law?
    A lender should at least have a rough idea. The base period will be known. The trigger level should be available. The forecast of cash receipts will be made before planting starts.
    (30) If applicable, what percent of producers in your organization purchase a ''buy-up'' crop insurance policy?
    We do not ask our members to provide that type of information.
    (31) Are you satisfied with the ''Posted County Price'' concept used by USDA to establish marketing loan gains and loan deficiency payments for crops other than cotton and rice?
    The concept is fine, but members still report inequities across county lines and state lines. Some of this may be due to county loan rates that have not been updated recently. It may also be due to changes in marketing patterns that are not fully incorporated into data used to set PCPs.
    (32) Do you believe that the loan deficiency component of the marketing loan program keeps prices at a level lower than they would otherwise climb in the absence of the loan deficiency component of the program?
    Taking of LDPs may affect the timing of some sales within a crop year, but domestic and worldwide supply and demand forces set market prices. The current marketing loan program is much better than the previous loan programs.
    (33) Do you believe the elimination of payment limits would encourage producers to expand their farming operation, encourage overproduction, cause a shift from one crop to another, et cetera.?
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    Based on the decline in the number of farms, growth in size of farms and growth in total output since farm programs began 70 years ago, it would be difficult to argue that payment limits have prevented structural changes from occurring.
    (34) From an ideal standpoint, when is the earliest date you believe any changes in permanent farm law should become effective?
    (35) The FAIR Act covered 7 crop years. How many years do you think the next farm bill should cover?
    To assist producers with financial planning, we support a longer farm bill duration rather than a shorter duration. We also realize, as shown over the past five years, that conditions can change quickly and policy has to respond to those changes.

House of Representatives,
Committee on Agriculture,
Washington, DC.

    The committee met, pursuant to call, at 10:03 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
    Present: Representatives Pombo, Smith, Everett, Chambliss, Moran, Thune, Gutknecht, Simpson, Ose, Fletcher, Johnson, Osborne, Pence, Rehberg, Putnam, Kennedy, Peterson, Etheridge, Phelps, Larsen, Ross and Lucas of Kentucky.
    Also present: Representative Pomeroy.
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    Staff present: William E. O'Conner, Jr., staff director; Tom Sell, Alan Mackey, Jeff Harrison, Calista Gingrich, assistant clerk; Craig Jagger, Anne Simmons, and Howard Conley.

    The CHAIRMAN. I will call the hearing to order. We are glad to have a former member of this committee, Mr. Pomeroy, here with us this morning.
    I think we are going to have a Journal vote soon. We will go ahead and try to get started, and if the committee will bear with me a moment, I have an opening statement.
    I just have to tell you this story. This is the picture that comes to my mind every time I see the word ''barley.'' I used to go on a wheat harvest in the summer. Those of you who have handled barley know that when you are cutting barley versus wheat, one of them has a tendency to itch a little more than the other.
    We got into Kansas, and the wheat was not ready yet. There was some barley on the ground that we had to put a pick-up reel on. We only wanted to occupy one combine. So I volunteered, because we didn't get paid if we were not cutting.
    The barley made 105 bushels, and I was in an old John Deere 55. It was in low gear, as slow as it would go. It took me a week to pick up all that barley. It nearly killed me. It just ate me alive, because you couldn't drive fast enough to keep the dust from just fogging around you.
    So I want you to know, some people think of beer or hops or other things, but when I think of barley, I think of itching. And I don't say that in any kind of derogatory tone. I just want to you to know that I have some appreciation of the crop that you folks raise.
    Welcome to this third in a series of hearings to explore specific proposals for farm policy. As you are aware, we are in the process of examining our farm commodity programs with the goal of bolstering our Nation's agricultural economy.
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    During our field hearings last year and during prior hearings this session, we have heard about the significant problems facing rural America. With the help of the members of this committee and with the detailed input of our commodity groups, I am confident that we will arrive at the best solution for agriculture.
    I have charged each of the commodity and farm groups appearing before this committee to present detailed policy recommendations. Reaching consensus within a single industry is not an easy task, but I believe that it is necessary and possible. Each commodity group, by submitting specific policy recommendations is helping this committee transform a potentially rocky process into a smooth evaluation of the farm safety net. When we are completed, our Nation's farmers and ranchers will be the beneficiaries of our hard work and diligence during the process.
    Today I am pleased to welcome our guests, particularly Mr. Dan Wiltse, president of the National Barley Growers Association, and invite him to the table. Mr. Wiltse will be testifying on behalf of all barley growers and the entire barley industry; one might even go as far as to say all makers of barley-based beverages today.
    Mr. Wiltse, that is a big constituency. I look forward to your testimony, and I look being forward to questions that my colleagues might offer.
    I recognize Mr. Peterson, who is sitting in in the absence of Mr. Stenholm as ranking member.

    Mr. PETERSON. Thank you, Mr. Chairman. I want to associate myself with your remarks, because When I was on the farm, I used to harvest barley. I would tell these guys earlier that that is what I remember is how bad it itched, because we didn't have cabs in those days. I had the same experience as you had. I always cringed at that part of the harvest.
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    So I think that the moral out of that is that we ought to give these guys a little better break because they have to put up with that.
    The CHAIRMAN. Can we make it retroactive?
    Mr. PETERSON. Yes. I also want to welcome them, and especially Rob Riley from my district, from northwest Minnesota, way up near Canada. They say up there that it is not the end of the world, but you can see it from there. Rob is one of our great young farmers who we rely on for leadership, and frankly, as you know, we are having a hard time keeping young people in agriculture, so we are proud of everything that he does.
    This crop, which is a fairly good-sized crop in my district, is having a tough time. We need to work with them to try to make sure that we don't have the same situation go on with barley that happens elsewhere; basically, that the crop has been eliminated, almost. They are going to bring forward some proposals that I think make sense, like raising the loan rates and some other proposals.
    I look forward to working with them and look forward to their testimony. I appreciate you, Mr. Chairman, having this hearing and giving them a chance to bring forward their positions. Thank you.
    The CHAIRMAN. Without objection, all Members' opening statements will be added to the record.
    A number of our witnesses and friends here today from the barley industry are from States of members of the committee, some of the districts of members of the committee, as Mr. Peterson mentioned, such as Minnesota. I know Mr. Simpson has constituents and friends here, some people we saw in Boise at our hearing that we held last year.
    At the table we have our former member, Mr. Pomeroy, to do an introduction. But we have Mr. Daniel Wiltse, president of the National Barley Growers Association from Lisbon, ND; Mr. Rob Rynning is accompanying him, vice-president of the National Barley Growers Association from Kennedy, MN; and Mr. Steve Johnson, executive director of the Iowa Grain Producers Association in Boise, ID.
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    Mr. Pomeroy.
    Mr. POMEROY. Thank you very much, Mr. Chairman.
    You are quite right. When many of us think barley, we kind of get an itch for beer. You two just get an itch.
    I am delighted to be back here in the committee again, and as I look at some of the new talent on the committee, Mr. Ross, Mr. Osborne, Mr. Rehberg, I can quickly understand why my departure has not diminished talent on this committee. You have had an upgrade, and I congratulate you for that, Mr. Chairman.
    I came by this morning to introduce a constituent of mine, Mr. Dan Wiltse, president of the National Barley Growers Association. We are very proud of Dan and barley in North Dakota, the largest producer of barley in this country.
    As you look at kind of trying to expand the opportunity for farmers to vary their production and pursue profit wherever it may lie, the reality is we have places like the northern plains where the options are limited. Wheat and barley have been our staples, and under the existing farm bill, with the laws set where they are, it has really been difficult to maintain profitability in light of the absence of alternatives.
    Cass County, just for an example, has gone from the second largest producer of barley in the country to the largest, acreagewise, producer of soybeans, driven in no small part by the incentives inherent in the market loan rates undergirding those crops. It really has placed barley as a shrinking crop in terms of its importance, relative importance, in agriculture in North Dakota.
    As Congressman Peterson mentioned, we certainly don't want this to go the way of oats. Frankly, some things have to be done to prevent it from happening in that way.
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    Their testimony today will—I am pleased to tell you, the specific proposal being developed by barley is also being prepared in concert with what the wheat growers are coming up with, and it is still being refined, and it is very difficult for a small crop like barley to come up with a comprehensive design for a new farm bill, but bear with it. I think you will get a much better appreciation for the economics of what they are dealing with.
    One of the things I think we need to look at in the new farm program is how we recognize that barley is primarily being raised for malting purposes. The loan rates, the treatment by USDA is that all barley is basically a feed crop, a much lower value crop. That has taken away some of the value farmers have hoped to have had from the barley plantings.
    So with that, Mr. Chairman, I am very pleased to be back in the committee again. I want to particularly commend you for grabbing the bull by the horns, so to speak, and getting on with this series of hearings on the farm program and what we might do to build a better one.
    The CHAIRMAN. Nice to have you back, Mr. Pomeroy.
    Mr. Wiltse, please begin.

    Mr. WILTSE. Thank you, Mr. Chairman.
    I do appreciate your appreciation for barley. Expansion in our research dollars will surely take the itch away.
    It is a privilege to address the committee on U.S. farm policy and how it affects our Nation's barley producers.
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    As has been said, I am Dan Wiltse, a farmer from Lisbon, ND, and president of the National Barley Growers Association.
    The National Barley Growers Association, comprising board members from Minnesota, North Dakota, Montana, Idaho, Oregon, Washington, and Maryland, represents the interests of U.S. barley producers on issues affecting national agriculture policy.
    The National Barley Growers Association has a unique story to communicate to the committee today. We understand we are charged by the committee to come forward with testimony that is both specific to barley production and, at the same time, comprehensive, with the goal in mind of identifying solutions for stabilizing farm income for all of agriculture, and doing so in a way which is realistic within the Federal budget.
    Barley production. Barley is a food crop as well as a feed grain. Currently, about one-half of the barley produced in the United States is grown for food use, and that being largely malting purposes. Malting companies pay a premium for this high-quality barley. But even with a premium price, national barley production is decreasing due to higher loan rates for other crops.
    Low prices for feed barley and a low loan rate compared to other program crops make it difficult for farmers to justify growing feed barley. These factors have caused an even greater reduction in feed barley production.
    Barley has become an endangered commodity in the United States. Barley acres and production have steadily declined from 13 million acres to 5.8 million acres over the course of the last 15 years. Also, barley production in 1999 reached a 25-year low, and acreage was the lowest in 100 years. Barley production—in fact, barley exports have fallen by 70 percent, while imports have increased by 36 percent, making the U.S. a net barley importer.
    The infrastructure of the U.S. barley industry is threatened by this steady decline in acres. Malting barley demand remains constant at around 150 million bushels per year, yet our national barley production continues to decline. The domestic malting industry, whether buying barley from contracted or open market production, has always been most efficient when the plants are located closest to the production areas.
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    As U.S. barley acres continue to decline, the domestic barley industry may relocate their plants near more stable production areas. That would take jobs, plants, and labor to Canada or Europe, where barley acres and a supply of malting barley are stable.
    The National Barley Growers Association is not looking backward to find excuses for our industry and infrastructure. We have been strong supporters of the increased planting flexibility provided by the 1996 farm bill. However, planting flexibility combined with loan rate provisions in the 1996 farm bill is resulting in a downward turn in barley acres.
    Specifically, freezing loan rates and tying barley's loan rate to its feed value relationship to corn have placed barley production at a competitive disadvantage with other crops. We want the next farm bill to restore equity between barley and other crops.
    Our views on three key areas—the Marketing Loan Program, fixed and decoupled AMTA-type payments, and a countercyclical income safety net program—comprise the balance of my statement.
    Marketing loans. Modification of the marketing loan program is a top priority for barley growers. Under the current farm bill, the barley loan rate reflects feed value relationship to corn on a per-pound basis. Since the ceiling is established at $1.89 for corn, and since a bushel of barley is 48 pounds compared to 56 pounds for corn, the effective loan rate is capped at $1.65. This feed value relationship underestimates the true market value of malting and food barley, which have averaged 53 cents higher than feed barley over the last 10 years.
    The National Barley Growers support basing the barley loan rate on a 5-year Olympic average of barley prices. The loan rate should be no less than 85 percent of the average barley prices received by the farmers during the 1996–2000 period, adjusted to reflect historical price differences between commodities. This would provide a floor of $2.14 per bushel for barley.
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    A broader version of this proposal to rebalance loan rates for all loan-eligible crops has been proposed by the American Farm Bureau Federation. It would enhance the income safety net in a countercyclical way, offering higher LDPs when market prices fall below the loan rates. It would also reduce the current distortion in planting decisions caused by the loan program.
    If this proposal leads to nationwide increases in barley acreage due to higher rebalanced loan rates, we might also see lowered costs for barley industries.
    Finally, the Farm Bureau proposal would increase Government expenditures by $2.3 billion per year, and would be subject to amber box limits under the Uruguay Round agreement.
    Barley growers also support using the all-barley price to determine loan repayment rates. PCPs should be set at levels that do not encourage producers to forfeit feed barley in the event marketing loan gains would otherwise be higher than the LDPs.
    Until Congress rewrites the farm bill and rebalances loan rates, barley growers support using the all-barley price to determine the barley loan rate.
    Finally, current Federal payment limitation on marketing loan gains and LDPs should be abolished so everyone can fully utilize the countercyclical program for all eligible production.
    AMTA payments. The National Barley Growers support a decoupled, guaranteed, and fixed crop payment for the life of the next farm bill. Similar to AMTA payments, the crop payment should be extended without regard to domestic price fluctuations, and should be decoupled from the current and future production to avoid influencing planting decisions.
    The aggregate level of AMTA-type payments should be no less than the $5.6 billion fiscal year 1999 level. The allocation among the seven AMTA crops should be maintained at levels established in the 1996 farm bill. Likewise, the minimum barley AMTA payment level should be stored to 27.2 cents per bushel affiliated with the 1999 AMTA program.
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    Finally, in the event Congress includes payments for loan-eligible crops not included in the original AMTA formula, the barley growers support an offsetting increase in total annual spending.
    The Countercyclical Supplemental Income Program. Low commodity prices have brought out the inadequacy of the current farm program safety net, including the AMTA payments and the Market Loan Program. Producers of all commodities need an additional program that will provide income support payments when income or the per-acre return of a commodity sector declines.
    The recent emergency supplemental assistance programs have been extremely helpful, but they provide no long-term protection, which causes great uncertainty among producers and their lenders.
    The National Barley Growers support creation of a Countercyclical Income Support Program based on projected shortfalls in commodity cash receipts. This program would replace current ad hoc emergency payments, and funding for this program should be in addition to the previously mentioned modifications to the Marketing Loan Program and continued AMTA payments.
    Our organization has not developed a model to fully analyze such a program for all commodities. Instead, we intend to work with other farm and commodity organizations to develop a meaningful countercyclical program proposal which will distribute approximately $3 billion in green box payments to farmers on a commodity-specific basis.
    The barley growers anticipate supporting a countercyclical program proposal currently being formulated and analyzed by the National Association of Wheat Growers. This program would trigger commodity-specific payments when market prices are less than an established market support level for each commodity.
    Once the market loss support payment is triggered, per-bushel or -unit farm program payments would equal the differences between the established market support level for a commodity, and the per-unit AMTA-type payment, and the higher of either the national average marketing loan level or the forecasted national average market price.
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    The proposal would drive the per-bushel or per-unit market support level by dividing the commodity's total average production from 1995 to 1999 into the commodity's gross income and total support during the same 5-year period. Based on this formula, barley's market support level would be $2.88 per bushel.
    If barley's established support level is $2.88 per bushel, the per-bushel AMTA-type payment is 27 cents, and forecasted prices in a year are less than barley's national average marketing loan level of $2.14, barley producers would receive a market loss support payment of 47 cents per bushel. The per-unit market loan support payment could be prorated in the event eligible payments otherwise exceed the funding level allocated from the countercyclical program.
    After it is determined that a commodity is eligible for market loss support payments, payments to eligible producers will be based on a farmer's barley acres and yields during a decoupled historical base period.
    Other agricultural policy components critical to our farm income. The National Barley Growers Association supports further examination of voluntary incentive-based green payments similar to the Conservation Security Act introduced in both the House and Senate. The program should provide payments in exchange for implementation of conservation practices, improving our water quality, soil erosion, and wildlife habitat. The program would support farm income, benefit the public at large, and be classified as green box under WTO rules.
    Identification of funds and implementation of this program should be included with changes to the Marketing Loan Program, AMTA-type payments, and a countercyclical program. The Barley Growers support $1 billion in new funding for conservation incentive payments, although our priorities for new funding center around improvements for the Marketing Loan Program, decoupled program payments, and funding for a countercyclical program.
    Finally, it is critical to farmers and the farm economy for policymakers to clearly indicate that farmers will receive emergency funding for the 2001 and 2002 crops of not less than the combined AMTA payments and supplemental economic loss assistance provided by the 1999 crop. Without adequate emergency assistance for the current crop year, many barley farmers would be out of business before the next farm bill is implemented.
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    Mr. Chairman, that concludes my statement. Thank you for the opportunity to appear before the committee today.
    [The prepared statement of Mr. Wiltse appears at the conclusion of the hearing.]
    The CHAIRMAN. Thank you very much, Mr. Wiltse. I am glad you were able to make your statement before the committee.
    The committee will stand in a brief recess while Members go vote and return as soon as possible. Thank you.
    The CHAIRMAN. I appreciate your patience. Let me just make a note that we probably have an hour, an hour plus, and at that time there may be another series of votes, and this may continue.
    So what I will do is to encourage Members to be courteous of our guests' times. We will certainly ask pertinent questions, but with all groups, I am sure there will be some follow-ups. There may be a point where, instead of having you sit around and wait for us, we may end the hearing so you can make more use of your time. But we will certainly proceed.
    I had a question just to delve into a little bit more. Back to your testimony, I want to make sure that I understood this correctly, Mr. Wiltse. You said that about half of the barley production is used or purchased by breweries?
    Mr. WILTSE. Malting companies, and also for other food uses there is a small percentage, but about half is used for food purposes. We consider malting a food purposes.
    The CHAIRMAN. Was that true when there is about 13 million acres in production versus the 5.8 million today?
    Mr. WILTSE. No. There was more feed barley.
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    The CHAIRMAN. More feed barley at that time?
    Most of the malting purposes that use consumption of barley, are they done on a contract basis with the grower?
    Mr. WILTSE. In my area of North Dakota, traditionally the majority of it was contracted, and as we opened markets north of the border, there has been less contracting in the States because we have larger available supplies in North America.
    The CHAIRMAN. Just buy it off the market?
    Mr. WILTSE. Yes. Especially we have had some quality problems. It is very easy to access barley wherever.
    The CHAIRMAN. If I am a producer of barley and I have a contract for malting purposes, I presume that my standards to meet that contract are probably pretty high in terms of quality and cleanliness and so forth.
    Is that barley—if a malting company goes in and buys it off the market, do they have a difficult time in finding the quality of barley that they are looking for?
    Mr. WILTSE. The quality of barley has very high standards for the malting industry. We appreciate that. We have had some problems meeting quality standards, and as more gets rejected, farmers become less apt to try to raise malting barley because of the risk of getting rejected and then taking the feed barley price.
    But we are working on raising our quality. We have expanded growing areas more to the west because of the wetness in the eastern part of our growing region. Contracting has increased in the West. Just this year for the first time in the East we have seen increased contracting by maltsters because they are fearing the demise of the domestic production.
    The CHAIRMAN. Is that contract that a maltster provides to a producer—I presume it is at a premium from what market price would be?
    Mr. WILTSE. Market price for malting barley is very little different from the contract malting price, but it is a premium to the feed price.
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    The CHAIRMAN. OK. So if a malster was buying off the open market malting barley, then the price would be comparable to what a contract would be?
    Mr. WILTSE. Basically I would say that the contract prices probably somewhat set the level in the market, or vice versa.
    The CHAIRMAN. If you were a producer and your intent was to produce malting quality barley, and you were successful in that, then you would be getting more in the market for your barley than you would if it was just feed barley?
    Mr. WILTSE. Yes. Traditionally of all the acres of barley planted, a fairly high percentage is planted as malting barley. The seed used is malting barley types, in hope that it will be graded malting and bought in the fall at malting barley price.
    We know every year that only about half of the barley will be used for malting, but we take that risk.
    The CHAIRMAN. You said that we are now a net importer. Most of that barley that comes into this country is produced in Canada?
    Mr. WILTSE. Yes. If you remember, approximately 2 years ago we had shipments from the EU, and we did our best to discontinue that. Thankfully we have not had that happen again.
    The CHAIRMAN. Mr. Peterson.
    Mr. PETERSON. Thank you, Mr. Chairman.
    Just to follow up on that line of questioning, if you have a contract and you don't make malting barley, what happens? Do you have to fulfill that contract? Or are you locked into having to produce so many bushels for that person that you have got the contract with?
    Mr. WILTSE. Congressman Peterson, normally there are ''act of God'' clauses. A majority of the time these are act of God, weather conditions. So then you are free to sell in the open market, most likely at a discount, not all the time as feed barley price. But if the quality is bad enough, you wind up in the feed market.
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    Mr. PETERSON. I have heard stories that some of these—I don't know if it is maltsters or breweries—are going up to Canada and giving them a certain type of seed that they apparently use in their—they have this certain variety that they use in their beer to get the right kind of taste, or whatever, and they are going up there and providing this seed, and it is maybe not necessarily being provided in the United States.
    Is that true? Is that going on?
    Mr. WILTSE. I won't comment on that specifically, but I will say that since 1993, with the NAFTA agreements contractors have taken domestic—U.S. domestic varieties into Canada. They have been licensed by certain grain companies in Canada, and U.S. companies have contracted production up there in hopes of expanding their growing area so they have a wider area to draw the high quality or the specifics they need.
    Mr. PETERSON. That ostensibly was driven by the need to—maybe because of the quality problem we were having, that was part of their reasoning?
    Mr. WILTSE. Part of the reason, but I remember back in 1992 I went and met with the western Canadian wheat producers or wheat growers and told them that this NAFTA agreement would ruin our market, because we had just opened up about double the acreage to raise malting barley on. When you have excess production, it will lower the price.
    They asked me to write an article for them in their bimonthly magazine they send to their growers. They have an article in the back, ''In My Opinion'', and I wrote that, and they wouldn't print it. That is exactly what happened.
    Mr. PETERSON. The net result of all of this has been to reduce the price of malting barley because we have more malting barley on the market, right?
    Mr. WILTSE. Reduce the price of malting barley is part of it, lower the costs. But they had a wider area to draw from overcoming weather problems.
    Mr. PETERSON. Right.
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    On this loan rate that you have proposed, I think I understand it, but you apparently are using the same figures that the Farm Bureau—they were in here and testified last week, and it is the same figures they came up with.
    Is that—did they get it from you, or did you get this from them? Did you guys come to this together?
    You are coming up with this number based on what the feed value relationship is to soybeans and then adding on a premium for malt barley; is that what you are doing? Or how did you come up with this $2.14?
    Mr. WILTSE. The malt barley isn't looked at by itself, it is all-barley. Never before has the all-barley been used in the calculation of our loan rate.
    Mr. PETERSON. It has been feed barley?
    Mr. WILTSE. It has been feed barley.
    Mr. PETERSON. You are trying to blend the two?
    Mr. WILTSE. We are blending the two, and then also raising it to the equivalency of soybeans.
    Mr. PETERSON. Mostly to keep the shift from going out of barley and into soybeans, as have a lot of crops as well?
    Mr. WILTSE. Right. As Congressman Pomeroy has stated—and I don't want to lead you to believe that all of the barley growers in growing areas have the option to switch to soybeans or oilseed crop. That is the Red River Valley. There are many producers in the western United States that don't have the option of raising anything other than barley at the altitudes because of growing season length.
    Cass County, ND, has switched from the No. 2 barley acreage in the Nation to the largest soybean acreage in the Nation. That is not because it was market-driven, it was because of the loan rates.
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    Mr. PETERSON. Right.
    Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Moran.
    Mr. MORAN. No questions, Mr. Chairman.
    The CHAIRMAN. Mr. Rehberg.
    Mr. REHBERG. Thank you, Mr. Chairman.
     I notice here your testimony kind of follows the Farm Bureau's testimony as well. I asked the question of crop insurance of them. Do you take the same position, that you want to be in a wait-and-see attitude about the changes that were made in the last Congress, or do you have particular problems with your membership and crop insurance as it is designed for this year?
    Mr. WILTSE. Crop insurance has been basically the same as the loan rate, kind of aimed more at the feed side. We have had some options in crop insurance for malting, but they don't always work the way—so we are still tinkering with a malt barley option for insurance.
    Mr. REHBERG. Would you be making recommendations to the committee on that perspective, or have you not gotten that far?
    Mr. WILTSE. We have recommendations, but today I don't know that we will go into them.
    Mr. JOHNSON. No, thank you.
    Mr. WILTSE. More in the West there are some concerns, especially where they are contracted. I have no comment today.
    Mr. REHBERG. Members of my constituency did express concern, as I have been traveling around the State of Montana, that they didn't feel the crop insurance was particularly appropriate for their operations and wanted to talk about it. I just wondered if you had had any discussions within your association that you would be presenting.
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    Mr. WILTSE. They may have some of the same concerns that I do, too, in my State. Montana and North Dakota have traditionally been arid States, and we have had some years with no crop. We take a zero. Crop insurance was meant to prevent those things. So there has been the ability in the reform to take a T yield for those zero years, and that has been beneficial.
    I am not clear on what—the reform has helped us. Like I say, there are always some problems in individual areas that need to be worked out.
    Mr. REHBERG. Thank you.
    Mr. WILTSE. A universal crop insurance plan does not work everywhere.
    The CHAIRMAN. Mr. Kennedy.
    Mr. KENNEDY. Yes. I would like to, first of all, thank you for your testimony, and I particularly welcome Mr. Rynning from Kennedy, MN. One of my lifelong dreams was to be the basketball coach at Kennedy and have five sons and really confuse the sportscasters. I never achieved that dream, but I am happy to be living out another dream here today.
    I just want to thank you for your testimony. It seems very sound and well thought out.
    I should also say that I have a father-in-law that used to grow barley just outside of Moorhead, in Hawley, MN, so I am familiar with barley and with your issues.
    You have given complete testimony already, but are there any ideas you have for growing demand for barley, for looking for alternative uses for barley? That is a big issue for us down in corn and soybeans in southwest Minnesota. I was just wondering if there were any thoughts you had on that?
    Mr. WILTSE. Yes. Originally in North Dakota our first ethanol plant was built for barley. Corn—for whatever reason, sometimes price, sometimes just availability of low-grade corn—it switched to corn. But I see in the future that can play a part as well in barley, and maybe other crops also, in helping our energy problems in this country.
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    Excuse me, you had a second part of that question.
    Mr. KENNEDY. I did.
    Mr. WILTSE. Exports, that is what it was. Yes, we are looking very favorably for Asia to be a great, great boon for the malting industry, and probably even the feed industry.
    When that will really take off, we don't know. But as we know from prior experience, underdeveloped nations or lesser developed nations, as they develop, beer consumption goes up. This country has been stable for quite some years, so we are developed, but when that happens, we want to be part of that.
    Of course, we have competitors around the world that—we are closer to China than some of them, but because of the subsidies and whatever, they are able to service those markets.
    Mr. KENNEDY. Good. Thank you for your comments. I will look forward to learning more about how we can help you on both of those areas. Thank you.
    The CHAIRMAN. Mr. Smith.
    Mr. SMITH. Thank you, Mr. Chairman.
    Is the roughly 7 percent of barley that is imported, is that for malting? What is the major import of barley, who imports it, and how is it used?
    Mr. WILTSE. We import mostly malting from the north. The imported barley that went into California a couple of years ago was feed barley, and I believe there still may be some that comes by ship along the west coast from Canada into the dairy feed lots.
    Mr. SMITH. As far as growing the barley, does malting barley require a different type of soil or environment as far as moisture, or is it simply a different seed that produces some kind of a crop that beermakers like better than traditional barley?
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    Mr. WILTSE. Malting barley can be grown in wide areas, but a malting variety needs to be specific for a maltster's needs. A feed barley generally will never be a malting barley if it is a feed barley barley type.
    As I said earlier, most of the barley planted probably is a malting type, but then they select out of that. There are areas where it is only grown for feed.
    Mr. SMITH. How much higher would the price be for malt barley versus feed barley?
    Mr. WILTSE. How much higher the price?
    Mr. SMITH. Yes.
    Mr. WILTSE. It depends.
    Mr. SMITH. Ten cents?
    Mr. WILTSE. No. I apologize, you were not here for the testimony.
    Mr. SMITH. I apologize. I am sorry.
    Mr. WILTSE. The last 10 years' average was 53 cents. We like to have the universities, our State systems, along with the malting and brewing companies, spend research dollars to develop better malting varieties that are bred to be varieties that are best for malting.
    Mr. SMITH. This may be a tough question, but maybe if we limit it to North Dakota, give me an estimate of what percentage of the barley that is grown in North Dakota would have the climate and the soil types to grow soybeans or corn.
    If you get too far north, then do I understand that it is too short for wheat, the growing season?
    Mr. WILTSE. Also very far west you don't raise soybeans or corn. The moisture in the river valley is adequate for soybeans and corn, but I would say only about one-third of our State could raise soybeans, and probably less than that, probably one-fourth, corn.
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    Mr. SMITH. So with the loan rate the way it has been, has everybody that can raise soybeans and corn—are they shifting? Are they switching?
    Mr. WILTSE. Yes, and not just to soybeans. Other oil crops have the same advantage with the marketing loan, such as sunflowers and canola. There has been quite a dramatic shift. But since these crops cannot be raised every year, every year, on the same soil because of disease problems, there have to be rotations.
    So even when we might want to raise soybeans every year, because of that marketing loan, we have to switch back to barley, wheat, a grass type of crop. We are fortunate in the Red River in North Dakota and Minnesota to have that option. As we go west, those options are not there. We are working for every barley producer.
    Mr. SMITH. My final question, Mr. Chairman, is right now, as you might guess, with the budget the way it is, trying to limit it under the President's suggestion of a 4 percent limit overall on discretionary spending, the question is going to be how much of an extra low price, extra AMTA payment, we can come up with.
    If you had your preference of using that additional money, would you use it in an AMTA payment, or some kind of a—do away with the AMTA payment and go to a countercyclical type of payment of some kind?
    Mr. WILTSE. Are you referring to the new farm bill, or getting to the new farm bill?
    Mr. SMITH. I am just talking about this year. This year, as we look at additional help for agriculture—and what we have done for the last 3 years, of course, is the extra AMTA payment—if we were to have come up with funding for an extra AMTA payment, would you recommend that we stay with the extra AMTA payment, or use it to increase the LDP or some other kind of countercyclical effort?
    Mr. WILTSE. Our priority is that barley gets its loan calculation derived from the all-barley bushels, and then that gets our loan rate up, which would also give us a little higher LDP.
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    Then we have set—until we get a new farm bill, because I think it will be some time, we want a double AMTA payment equal to the 1999 level, double AMTA, AMTA plus AMTA plus.
    Mr. SMITH. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Phelps.
    Mr. PHELPS. No questions.
    The CHAIRMAN. Mr. Thune.
    Mr. THUNE. Thank you, Mr. Chairman.
    Gentlemen, thank you for your testimony, and Mr. Wiltse, a couple of questions. You mentioned in your testimony that barley is an endangered commodity. If your proposal that you have presented to us today were enacted, would you see the number of barley growers increase?
    Mr. WILTSE. I wouldn't see the number of barley growers increase, they decline every day, but the barley acres would certainly increase. We would become more competitive with the other crops, and we would then grow for the market and not necessarily for the higher marketing loan of another commodity.
    Mr. THUNE. If that happened, do you foresee any future oversupply problems like we have with some of the other commodities, such as corn?
    Mr. WILTSE. Barley still itches.
    Mr. THUNE. Would your proposed modifications to the marketing loan program and AMTA payments in any way reduce or eliminate some of the distortion in planning decisions, do you think?
    Mr. WILTSE. Our proposals are designed to eliminate those distortions that are dictating the way we plant today.
    Mr. THUNE. By doing what you propose doing with the marketing loan rate, you think that that will eliminate, I guess—call it distortions, for lack, of a better word that exist out there today?
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    Mr. WILTSE. Yes.
    Mr. THUNE. OK.
    You said in the marketing loan sections of your testimony that the Farm Bureau proposal could lower costs for barley industries. Can you explain that a little bit further?
    Mr. WILTSE. I am following up on a prior question, where I said barley itched.
    We would see an increased production, which should lower the cost for our feeders who feed the barley. We will have adequate supply for our maltsters and other—even if we were to use it in the ethanol plants, but everyone would benefit as a user.
    Mr. THUNE. OK. In coming back to a question that, I guess that Mr. Rehberg asked earlier, too, some of the things that you are suggesting are tracked somewhat with the Farm Bureau proposal.
    Do your growers have problems with that proposal? What would make the wheat growers more attracted to barley growers?
    Mr. WILTSE. The countercyclical part of it. Just so you know, we just finished our National Barley Growers winter meeting here Monday. Our growers' representatives from all the barley States were in town and polished off this testimony and our policy papers. So we are in agreement.
    Mr. THUNE. I guess I don't have any further questions, Mr. Chairman.
    I appreciate your testimony, and in looking at all these different options on countercyclical, the one that was presented last week by the Farm Bureau from my State's perspective made a lot of sense simply because it does allow for a region-by-region, State-by-State, as opposed to an aggregation of income and then trying to determine what that is. So we are trying to come up with what is the best way to do that.
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    Mr. WILTSE. I agree with that. Their proposal, that is regional. We agree that is a better way to do that.
    Mr. THUNE. I don't know how a nationwide program gets implemented, but it is certainly a point of debate among organizations, and I am guessing will be here as well. Thank you for your testimony.
    Mr. Chairman, I yield back.
    The CHAIRMAN. Mr. Chambliss.
    Mr. CHAMBLISS. Thank you, Mr. Chairman.
    Mr. Wiltse, we currently have, as I understand it, two loan rates, one for your malt barley and one for your feed barley. What you are proposing is that we come out of this with an all-barley rate.
    It is also my understanding that your malt barley is a higher quality and gets a better price than the feed barley. I am curious as to why we should have one loan rate for both different types of barleys.
    Mr. WILTSE. To correct, sir, we don't have two loan rates today. We have one loan rate for feed barley, and malt barley takes that same loan rate.
    Mr. CHAMBLISS. I misunderstood.
    Mr. WILTSE. All the barley bushels are calculated as a percentage of corn, corn's loan rate, and so it is all basically classified feed barley.
    We would appreciate if the barley loan rate was calculated the same as other crops, using all their production and their market price. That would blend the feed and malt barley together, and we would have one loan rate. That is only fair. That is the way that all the other commodities are calculated, so we would like to be calculated the same way.
    Mr. CHAMBLISS. All right. You in your testimony attribute the decline of malt barley production to higher loan rates for other grain crops. Now, are you saying that is the sole determining factor, or are there some other factors that we need to be aware of in there that are causing the decrease in the planting of that barley?
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    Mr. WILTSE. There are other factors also, yes. But that is a major factor in this new farm bill for the last 1996 FAIR Act. With the high marketing loan—of course, we didn't see that the first year of that farm program. But as prices decreased, other commodities had higher loan rates that were much more advantageous.
    Barley does not receive an LDP very often because its loan rate is so low relative to the others because it is based only on the feed barley. Malt barley producers very rarely use the Government loan program to store their barley because it is so far less than what the value of their crop is.
    Mr. CHAMBLISS. If I understand correctly, and I apologize for not being here for all of your testimony, but you are basically proposing a fixed AMTA payment similar to what we have had, I think you said based on 1991 numbers, plus a marketing loan arrangement for barley in the next farm bill.
    Mr. WILTSE. That is correct.
    Mr. CHAMBLISS. Would you be any better off without an AMTA payment if the loan rate were higher?
    Mr. WILTSE. It would surely help.
    Mr. CHAMBLISS. OK. Thank you, Mr. Chairman.
    The CHAIRMAN. On the Chair's time, I yield to Mr. Smith for a follow-up question.
    Mr. SMITH. Help me understand a little bit on the competition in buying your barley.
    For example, on the malt barley, does each brewery start bidding, or is there a broker in between? Is there a problem with competition in the price you are paid for your barley, especially the malt barley?
    Mr. WILTSE. I am going to yield, because I have been answering all the questions, and I have these fine gentlemen to help today.
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    Mr. SMITH. I really wanted Mr. Rynning to answer that question.
    Mr. WILTSE. That is just fine.
    Mr. RYNNING. As I understand, you are wondering why the differential?
    Mr. SMITH. No, the competition in terms of who buys the barley. Is there a broker that turns it into malt? Do the breweries compete with each other on buying the closest and the best? How does it work?
    Mr. RYNNING. It varies quite largely as to who you may have a contract with. It may be a local elevator working as a middle man dealing with a maltster, it might be with a brewer themselves that malts their own product around to their breweries, or it may be somebody that is an individual business that malts the grain for different breweries. But they are all under competition. They may service different areas, but many times their contracts overlap so there is some competition there even with contracts, and then also there is open market competition.
    Now, freight may dictate which one works better for you in each individual region, but there definitely is competition.
    Mr. SMITH. So that is not a concern, that is not a problem? There is enough competition out there that when supplies go down, when production goes down, the demand will drive prices up for whoever has cut the production?
    Mr. RYNNING. That is what we hope for, but I am afraid many times our neighbors to the north have answered that. We have tried to supply——
    Mr. SMITH. Do most of the imports come in from Canada?
    Mr. RYNNING. Yes sir.
    Mr. SMITH. Thank you, Mr. Chairman.
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    The CHAIRMAN. Certainly.
    Do any of you have an approximate idea about how many bushels are used by the malsters on an annual basis?
    Mr. WILTSE. About one-half of our production.
    The CHAIRMAN. Your production, is that the 150 million a year?
    Mr. WILTSE. No. Domestically we use 150 million a year. If we export malt barley, it will be in excess of that.
    The CHAIRMAN. Domestically we use about 150 million bushels in malting?
    Mr. WILTSE. Right. That has been fairly level for quite a few years now.
    The CHAIRMAN. So, let's see. What is the average yield on barley?
    Mr. WILTSE. I guess about 47. I was thinking it was 50.
    The CHAIRMAN. Forty seven bushels?
    Mr. WILTSE. Yes.
    The CHAIRMAN. Why would your countercyclical proposal, other than being part of permanent law, be better than the market assistance that Congress has provided in the last 3 years?
    Mr. WILTSE. Mr. Johnson.
    Mr. JOHNSON. Mr. Chairman, I think that the barley growers, in their discussions at the meeting this past week, have elaborated that having a fixed payment and then a payment that is in law on a countercyclical basis that can be counted on, as opposed to the ad hoc kind of decisionmaking that we have benefited from, will——
    The CHAIRMAN. I will preface that question by saying, other than being in permanent law. If they were both the same, if you had the type of assistance package that was provided each of the last 3 years versus a countercyclical, why would your countercyclical be better?
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    I preface that by saying, other than being in permanent law.
    Mr. WILTSE. It should save you money, unless the market really goes down, because when you make that——
    The CHAIRMAN. So you are proposing that farmers would get less?
    Mr. WILTSE. If the market moves up, we wouldn't need that extra payment.
    The CHAIRMAN. Why do you have an AMTA payment and a countercyclical payment, then?
    Mr. WILTSE. We need enough to get the crop in the ground, first.
    Mr. Johnson?
    Mr. JOHNSON. Mr. Chairman, from what we hear in Idaho, it is that growers want to have that basis for decisionmaking; have a fixed payment that they can count on at that certain level, and then they feel that a countercyclical follow-up payment that could react to market prices is a lot more acceptable to the general public than a fixed one. So I think Dan pointed out, you could save a little money that way in periods of high prices.
    The CHAIRMAN. But during times of higher prices we wouldn't be giving a double AMTA payment?
    Mr. JOHNSON. That would be true.
    Mr. WILTSE. Yes. We were asking for the double AMTA payment for the 2001 and 2002.
    The CHAIRMAN. Right. For the remainder of this program?
    Mr. WILTSE. Right.
    The CHAIRMAN. But in a longer-term proposal, if you had a countercyclical payment to be based upon, I am presuming, on a farmer's current production of what they were producing that year, and that obviously if the price was down they would get a payment based upon a level established under the countercyclical payment, and if it fell below that, they would get a payment to come up equal to that.
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    But under the longer-term proposal, are you still proposing that there be an AMTA-type payment and then on top of it a countercyclical-type payment?
    Mr. WILTSE. Yes, because we are not sure that we will get our level of where the countercyclical kicks in at a level that we can maintain production.
    The CHAIRMAN. Would you base that future program, where you got a basic AMTA payment and a countercyclical payment on top of it—would you base your AMTA payment on the historical production on a farm?
    Mr. WILTSE. Yes.
    The CHAIRMAN. One of the things that some people have complained about, but they have never come up with a better alternative, is that we are basing payments, when we give an AMTA payment, we are basing it on past history. It may not be reflective of what a person is producing today.
    But you would still use that historical base as the determination for the AMTA payment?
    Mr. WILTSE. Yes, because we have not found a better way to do it and to keep the WTO green box, it has to be on a past production.
    The CHAIRMAN. If we have a new farm program and it has an AMTA payment for barley that is based on historical production on the farm, and that farmer is raising corn, they are going to get their AMTA payment based on the historical production.
    The countercyclical payment which they might receive would be based on their corn production rather than on the price of barley. Right?
    Mr. WILTSE. Yes. We have looked at this and tried to figure out, there are winners and losers in that. Maybe that will be the obligation of this committee to find a better way to do that.
    The CHAIRMAN. That is why we are having you all do this; we want you all to see how much fun this is.
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    Mr. WILTSE. Yes. We understand and appreciate it.
    The CHAIRMAN. Mr. Peterson.
    Mr. PETERSON. Thank you, Mr. Chairman. I might take a little bit of a shot at part of why some of this is coming forward the way it is. It is kind of exemplified in my district.
    When the AMTA payments were locked in, some of my people feel like corn and rice got a better deal than wheat and barley did, somewhat because of these loan rates and history and so forth.
    But what happened in reality out there is, and what is still happening, is that we have corn acreage in the southern part of my district where they have had yields the last 3 years like they have never had. There has been phenomenal yields in corn and soybeans. Then they got these AMTA payments on top, double AMTA payments.
    Up north in my district, where they really do not have a lot of alternatives to shift to other crops, they have gotten these lower payments in the first place and no way to make up this difference. So right in my district, the people in the south have never made so much money, and the people up north are having a hard time hanging on. We are getting a lot of young people like Rob who are quitting.
    So that is where some of this tension is coming in this whole issue here. One of the reasons I think the Farm Bureau came out with this proposal, which is not a bad idea, is to keep the AMTA payments and create a supplemental program. That kind of splits the difference, if you will.
    I think that is kind of where this is all coming from, because it depends on where you are at how you view this whole situation.
    The CHAIRMAN. Will the gentleman yield?
    Mr. PETERSON. Yes.
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    The CHAIRMAN. This is an interesting discussion. This is why we are having these hearings. That leads me to ask this question. This is just delving into your minds, as far as what is best.
    If you had a basis—you are suggesting that we change the basis, and most commodities are saying let us base it on the soybean long rate. If you had a basis for borrowing better than was established under the original AMTA program in 1996, would that help compensate some of this concern?
    Mr. PETERSON. Absolutely. The best thing you can do is raise the loan rates, which is what they have been saying.
    The CHAIRMAN. If the gentleman would yield further, if we were able to develop a countercyclical program based upon what a person is producing in the current year that was high enough, would you then consider that it might not be necessary to have that AMTA payment as a guaranteed payment?
    Let us just take a hypothetical. If you could develop a countercyclical payment that would cut across the production, then you knew if your costs of production—if your price was low, you were going to have it brought up to that level, would that be more attractive to you and, in turn, not having that specific, definite AMTA payment?
    Mr. WILTSE. I think that would be advantageous. I think we would want to look at it. I think most of our members would agree to it, but I don't think you can sell that in this town, because the budget would never know how much was spent.
    The CHAIRMAN. That is true, and it doesn't now. That is obviously part of the problem.
    All of this $25 billion was not in the budget. It was spent, somebody gave us the money to spend it, but it was not ever considered in the budget. That is one of the things I hope we can do, be more realistic. I thank the gentleman.
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    Mr. WILTSE. The northern barley growers in Minnesota, as Representative Peterson referred to, appreciate the double AMTA payments because they deserve them. But the great corn yields in southern Minnesota—I will bet there are a few corn growers who feel guilt about getting double AMTA payments.
    Mr. PETERSON. They do.
    The other thing, before my time runs out—here, I want to focus in a little bit on this part of your statement that relates to conservation. I know this is not like a major thing, and you made that point.
    I am curious as to why you would be supporting this Conservation Security Act. From what I know about it, it is mostly focused at livestock producers, trying to deal with some of their problems.
    As I understand it, what they are looking at is setting up systems of permanent easements where they can come in and get permanent easements on land and stuff, which my people up in my country, at least, are not too excited about.
    So I am kind of curious, because you mention specifically in here that you—this Conservation Security Act introduced in the House and Senate was—how much time have you actually spent on this?
    Mr. WILTSE. We had Senator Harkin's staff at our meeting.
    Mr. PETERSON. That is why.
    Mr. WILTSE. Yes. It appears—of course, this is not in stone yet, and I don't know how much of it has even been looked at here—this appears that this will also benefit small grain producers that are already doing some of the conservation practices that are required in this bill.
    And if we have an ability to add additional income to our farm for something we are doing to protect our environment, I guess we will take the pat on the back.
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    Mr. PETERSON. Right. Well, I think I agree with what you are saying there, but I just want to make that point. We could do this privately, too. I don't think we need to have a new program. I don't think we have to have another bureaucracy within USDA to deliver conservation.
    I mean, we have a lot of programs that are working, the Wetland Reserve Program, the CRP, the WIC Program, the EQIP Program, that are not being funded at the level they should be funded at. We don't have the staff out there to give them the technical assistance.
    I think before we go and set up some new bureaucracy that we are going to underfund, we ought to take these programs that we know are going to work and that we have sorted out a lot of the details, and make them work before we go off on setting up some new bureaucracy that may or may not be controlled by the people that we like to have control them, if you know what I mean.
    Mr. WILTSE. Yes, I agree with your comments. The fact is that many small grain-producing counties are at their limit on CRP.
    Mr. PETERSON. Are you in favor of raising that county limit?
    Mr. WILTSE. No, I am not.
    Mr. PETERSON. We have an ally there.
    Mr. WILTSE. I believe it has hurt rural America.
    Mr. PETERSON. Does your group have a position on CRP at all?
    Mr. WILTSE. We have supported CRP in our policy paper. I don't have that right in front of me. I could read you the statement. But we are not in favor of expanding it.
    Mr. PETERSON. I would just say that I think we are going to move in the direction in the new farm bill of doing more conservation funding because that is the way we can get urban support, and we can do a lot of good things and so forth.
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    I would just say to you that I would like, before you guys get this in stone, I would like to have discussions with you and maybe some other people as well as to how we do this. It could well be that maybe we want to set up a new Conservation Security Act, but I at this point have not been convinced that we need to do that. There are maybe other ways that we can approach that.
    Mr. WILTSE. Sure. Rob, from your State, would like to comment.
    Mr. RYNNING. I would like to say that we will certainly be keeping a close eye on this and seeing how it develops. This is something that is an ongoing process. We certainly are going to keep a close eye on it.
    The CHAIRMAN. On page 3 of your testimony, Mr. Wiltse, the first full paragraph there where you are talking about the Farm Bureau proposal, et cetera, you say, ''If this proposal leads to nationwide increases in barley acreage due to higher rebalanced loan rates, we might also see lower costs for the barley industry.''
    I am reading that to mean that you might see a lower price for barley.
    Mr. WILTSE. Right now, because the production has gotten so limited, transportation costs have eaten up some of the benefit of an increased market price when there is shortage.
    The farm rate does not reflect the shortage. But if it is available closer to the need or the user, there would be less, and it would affect the price that the government or USDA would make up. This is transportation costs.
    The CHAIRMAN. You are talking about dollars in the pockets of the farmers?
    Mr. WILTSE. Right. It would not change that much. It would benefit the end user, that he does not have to drive 100 miles.
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    The CHAIRMAN. Who makes the change? Does the end user go to the barley producer, or does the barley producer go to them?
    Mr. WILTSE. Either way.
    The CHAIRMAN. What do you anticipate would happen?
    Mr. WILTSE. If there were more barley acres?
    The CHAIRMAN. Yes.
    Mr. WILTSE. I think it would be accessed the way it always is. What happens if there is no end, if you lose the demand in an area, the barley production just goes away because I cannot afford to take my product to another area where they are raising it and they have a higher demand. But if it came back, I could raise barley in a local area if the demand was right. We have lost demand because we cannot ensure production.
    I might say that we were at FAS a couple of days ago, and looking at our competitiveness with the EU, we can produce barley and compete with them, but the thing that allows us not to compete is rail and ship transportation for exports.
    The CHAIRMAN. Would this be true in the case of malting barley as well as—your transportation costs and everything else involved in it? If you have a malt barley contract, does the producer have to pay the transportation to get that to the——
    Mr. WILTSE. Always. One-half of the cost of barley production is transportation.
    Mr. PETERSON. If I could, Mr. Chairman.
    The CHAIRMAN. Please.
    Mr. PETERSON. For example, in Cass County, ND, they are talking about there was a Budweiser plant there in Morehead, in my district, right across the river. They use a lot of malt barley, I assume.
    If the production is being lost right there—as was said, they went from the second highest malt barley area to the highest soybean area—then Budweiser has to ship that stuff in from Canada or wherever else, and that I think makes the point of what he is talking about here.
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    What happened to us up in the valley is we had these disease problems where we could not—in addition to all this other stuff where we could not guarantee the quality of the barley because we had things which affected the quality of the crops in our area, affected the malting quality, as I understand it. That was another problem in our part of the world.
    Mr. WILTSE. Anheuser Bush has definitely had to go farther to access barley to keep their plant operating at the levels they want to run. I would appreciate it if Anheuser Bush would pay the freight, but we pay the freight. I actually deliver more to them now that I am farther away. The elevator used to access. Now I have to deliver to that elevator. I used to drive like 5 miles to my local elevator. Now I drive like 75 to the Anheuser Bush plant. It definitely costs more if the production is not there.
    The CHAIRMAN. Has your industry taken a position with respect to the disaster benefits being linked to whether or not a producer has crop insurance?
    Mr. WILTSE. Yes. We supported crop insurance reform, and if a person—and as we thought in the last farm bill, insurance would be more of a requirement to get us through the times of disasters. When they were willing to pay a producer without insurance about—close to the same payment as an insurance holder, it disturbed not only me but I think many of our members.
    The CHAIRMAN. While it is kind of, as you said in the beginning of your testimony, sort of the chicken and the egg syndrome, I have never felt that you should force a farmer to invest in a bad program. That was one of the reasons the first thing this committee did was to make the most dramatic reform in crop insurance that has ever occurred. It is not still what we would like for it to be. I think we will have another bite at that sometime in the future. But it is substantially better than it was.
    Do you have any guesstimate about the percentage of barley producers that would participate in the new Crop Insurance Program?
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    When do you plant barley in Minnesota and in Idaho? What time of year do you plant?
    Mr. WILTSE. April, May, usually.
    The CHAIRMAN. You are coming up on that fairly soon?
    Mr. WILTSE. Yes.
    The CHAIRMAN. Do you have any idea on what your new crop would be on the new program?
    Mr. WILTSE. I would say the percentage is very high. In fact, North Dakota is probably the highest insured acreage in the Nation, but I would say—I know we are over 90 percent.
    The CHAIRMAN. Over 90 percent participation?
    Mr. WILTSE. Yes.
    Mr. JOHNSON. We are pretty low in Idaho.
    Mr. WILTSE. As I mentioned earlier, Idaho has questions on working with some options in the malting, especially I think it was the malting varieties, or when you are raising malting barley but making it work for them. We have the malt option in crop insurance today, but it does not fit them. If it can be fine-tuned you will see the acreage under insurance increase.
    Thank you for your testimony. As we would say down in Texas, you have had to lick this calf more than once. I realize particularly how it is tied with other commodities does somehow make it a little more difficult in coming up with a proposal. I think you did a very good job. Thank you for it.
    One of the things I would like for you to look at is, we are talking about all the boxes. That complicates our life substantially, and yours.
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    I would like for you to look at—this is not something you can probably give an answer to today, but be considering this as we move forward through this process, and then particularly as we begin to look at actually legislative language to create a farm bill, we would be interested in knowing at what level we would have to set or establish a countercyclical program that you think barley producers would be comfortable with and not have a guaranteed AMTA payment.
    Different commodities are going to differ, but that is one of the things that I would like for us to pursue as we go forward, is at what level that would need to be to make farmers feel comfortable, and the way we base that.
    I have seen some countercyclical proposals discussed. I have never seen anything actually presented that bases the payment on a period of time in which we had the lowest prices in history.
    Well, when you start comparing what the payment would be under that countercyclical proposal, it would be substantially less than a farmer is getting today under double AMTA, or they got last year and the year before and the year before that.
    So the way we arrive at the formula for determining what that payment should be, I personally think that has to be something other than the previous 3- or 5-year average price when you are talking about the lowest markets we have seen in decades.
    So how do we do that? So we would like suggestions as we go forward. I would like you all to think about that as an industry, and as we begin to look at a countercyclical, certainly I have no objection to the concept. I think a lot of farm programs have been based on that. The old target price system was based on countercyclical.
    So look at that in terms of what is fair, and how do we base that?
    Mr. WILTSE. Mr. Chairman, we have grappled with that level in those price periods, and we didn't know how bold we should be.
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    The CHAIRMAN. This is your chance. Basically, everybody gets to write their own farm bill.
    Mr. WILTSE. We can go back in history and find higher crop prices, especially in periods of time when we have production costs 50 percent of today's.
    Truly, we believe that that level tomorrow should be higher than it was back then, because of ever-increasing production costs and ever-increasing regulations.
    So I'm sure that we can work with other commodities groups. It will have to be, I think, put together by all of us, because we are going to have to agree with equitable levels for all commodities.
    The CHAIRMAN. There is a lot of thought being given, and I think it is a realistic view to look at, basing this on something which does move. Production costs certainly have increased, and in a lot of areas they have increased substantially just in the last year, not just over the last decade, but just gigantic leaps, primarily energy-related.
    I think we want to look at, do you base some kind of an assistance program for agriculture on the cost of production? Nobody knows what that is yet. You can ask 5 people and you will get 10 answers.
    But on something realistically, you don't want to do it to the extent that you try to discourage good management and good farming practices and encourage abuse or inefficiencies, you want to reward those. So that in itself is difficult.
    But there are a number of proposals on risk management and a number of other things that are floating out there in which you use the basis for the program on what it cost to produce crop.
    The first point is, in my own mind, that is more realistic in terms of today rather than in terms of what has the market been in the last 5 years that is totally, totally unrelated to how much it had cost to produce it. If you just totally base it on market price, I don't think we are looking fairly at what the net income for the farmer was.
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    Mr. WILTSE. Mr. Chairman, I am very glad you agree.
    I think that the cost of production is a tough thing to drive at.
    The CHAIRMAN. Very difficult.
    Mr. WILTSE. For instance, in an arid region of North Dakota or Montana, usually production costs are quite a bit less, and so are the bushels produced. In a better area where there are more produced, more bushels produced, the production costs are higher; namely, land and things.
    So we built that cost of production into our system already, and unless someone goes and puts up a center pivot on some dry land, setting a price will take care of everybody's production costs. It shouldn't skew it.
    So I don't see that being a big problem. But we could come in every year or every 2 years and—for that 2, 3, or 4 percent cost of living and keep up with this thing, like the rest of the community does.
    The CHAIRMAN. Thank you again very much. I am sure we will have questions to be submitted and further discussions as we move forward. We appreciate it very much.
    This hearing is adjourned.
    [Whereupon, at 11:57 p.m., the committee was adjourned, subject to the call of the Chair.]
    [Material submitted for inclusion in the record follows:]
Answers to Submitted Questions
    You state if nationwide increases in barley acreage occur due to higher re-balanced loan rates, we might also see lowered costs for barley industries. Does the Barley Growers believe rebalancing loan rates will lead to slightly lower commodity prices? If not, what costs will be lowered for barley industries?
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    Generally speaking, increased domestic barley production would presumably result in lower domestic cash prices, resulting in lower feed and other industry costs. Additional barley acres would also result in lower transportation or freight costs, as barley would be more available and closer to end-use markets and processing locations which are usually near the production.
    In your testimony you state freezing loan rates and tying barley's loan rate to its feed value relationship to corn has placed barley production at a competitive disadvantage with other crops. Of the two items, which one has the greatest impact on planted acreage?
    As the main reason barley production is at a competitive disadvantage with other crops, NBGA does not wish to distinguish between: (1) current (frozen) loan rates; and (2) the barley loan rate determined solely from the feed relationship to corn. Regardless of whether frozen loan rates or the feed relationship calculation is the cause of barley's disadvantage, the barley loan rate is lower compared to the relatively higher loan rates of other crops. The goal of NBGA is to raise barley's loan rate relative to the loan rates of other crops. Whether the justification used for raising barley's loan rate is ''rebalancing'' all loan rates, or taking into account the value of the whole barley crop in establishing the barley loan rate (i.e., not just the feed value), is immaterial.
    As you know, different classes of wheat each have their own loan repayment differential. Food grade corn and corn for livestock consumption have the same loan and loan repayment rate. In your testimony you state barley growers support using an ''all-barley'' price to determine loan and loan repayment rates. Would your industry support a specific loan rate for food grade barley and another for feed grain barley? If not, why?
    No! Barley is barley. NBGA does not want repayment rates (or loan rates) to differentiate between feed and malting/food barley. NBGA wishes for the barley loan rate calculation to take into account the value of the entire barley crop, as opposed to only the feed value of the crop.
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    If an ''all barley'' loan rate was established, would there be an increased probability that feed barley that was put under CCC loan would be forfeited in comparison with the current loan and loan repayment program or would producers only utilize the loan deficiency program?
    NBGA is aware of the circumstances whereby forfeiting feed barley could result in marketing loan gains that are larger than a loan deficiency payment for the same bushels. Consistent with the goals of the statute, NBGA does not wish to encourage commodity forfeitures under the Marketing Assistance Loan Program. To avoid the situation where barley marketing loan gains would largely exceed LDPs, NBGA encourages USDA to establish county loan rates and repayment rates, or PCPs, at levels that take into account county-by-county barley acres and prices.
    Is the USDA rebalanced loan rate of $2.14 based strictly on feed barley?
    No. It is NBGA's understanding that $2.14 is derived by dividing the ratio of average 1996–2000 ''all'' barley prices ($2.29) to soybean prices ($5.61) into the current soybean loan rate ($5.26). [$5.26 divided by the ratio of 2.458 = $2.14.]
    Does your organization have a position with respect to allowing soybean acreage to be included as an AMTA contract crop?
    As long as the pot of AMTA funding is proportionately increased by the value of oilseeds (or soybeans) wishing to be eligible for AMTA-type payments, NBGA does not have a position for or against this proposal. Conversely, NBGA supports the proposal only if AMTA payments/ratios of current program commodities are not reduced.
    You stated barley acreage has decreased slightly over 8 million acres in the last 15 years. To what crops has the barley acreage shifted?
    Farm policy changes over the course of the last two farm bills have had the unintentional effect of encouraging production of crops other than barley, and of enrolling acres in the Conservation Reserve Program instead of barley production. Oilseeds and spring wheat are the leading crops replacing barley acres.
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    Based on our description of how you believe the wheat growers counter cyclical proposal will work, why do you believe this program would be ''green box'' under the WTO rules?
    Under the NAWG proposal, Market Support payments are calculated from comparing ''forecasted'' prices to the Market Support Level (which is derived from historical production and prices). Furthermore, the counter-cyclical payments to farmers, if triggered, would be extended based on historical production. As such, NBGA believes any counter-cyclical payments would not be ''amber'' box because they would not be based on ''current prices or production'' as defined in the Uruguay Round Trade Agreement.
    You describe a formula that would establish a barley Market Support Level of $2.88 per bushel. In your example, you note an AMTA payment of 27 cents per bushel and barley prices less than a national average marketing loan rate of $2.14 per bushel would equate to a counter cyclical payment of 47 cents per bushel. You state you would like a meaningful counter cyclical program that distributes approximately $3 billion annually. The NAWG proposal for 2003 suggests a barley Market Support Level of $2.72 per bushel and an equivalent level of support for other program crops and oilseeds would cost $5 billion.
    First, NBGA learned of corrected National Agriculture Statistics Service barley production data subsequent to submission of the NBGA statement to the House Agriculture Committee. As such, taking into account the corrected production data, the Market Support Level under the proposal for barley would be $2.72.
    Second, as to the cost of the counter-cyclical program proposal, because NBGA did not have the resources to fully analyze effects of the proposal on other commodities, and thus was unable to fully predict the ''cost'' of the program, NBGA instead proposed a limit of $3 billion for the program's implementation. NBGA understands that as a result of the program's limited funds ($3 billion proposed), eligibility for multiple commodities in a year may have to be pro-rated.
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    Did you anticipate a pro-rate factor would have to be applied to a $2.88 Market Support Level for barley and comparable payments for other crops to limit expenditures to $3 billion?
    Due to certain circumstances at the time of the development of the NBGA statement, yes. The NAWG counter-cyclical income support proposal does not limit total program funding, and estimates annual [un-prorated] projected costs of the program. NBGA also supports unlimited entitlement funding for a counter-cyclical program. However, as NBGA did not have the resources to project an unlimited counter-cyclical program for all commodities, and in attempting to be realistic toward budget constraints, we determined a finite $3 billion amount of program funding would be a positive step toward a meaningful—though possibly pro-rated—counter-cyclical program.
    NAWG's proposal contains a market support level of $2.72 per bushel for barley. If costs for 2003 and 2004 were to approach what NAWG suggests, you would be looking at a 60% pro-rate to limit costs to $3 billion. At what level of pro-rate is your proposed counter cyclical payment no longer meaningful?
    A new counter-cyclical program, in conjunction with other program adjustments proposed by NBGA (an equitably calculated barley loan rate, re-balanced loan rates and continued AMTA-type payments), even if pro-rated at 60% eligibility, would still be meaningful.
    The NAWG counter-cyclical income support proposal does not limit total program funding, and estimates annual [un-prorated] projected costs of the program. NBGA also supports unlimited entitlement funding for a counter-cyclical program. However, as NBGA did not have the resources to project an unlimited counter-cyclical program for all commodities, and in attempting to be realistic toward budget constraints, we determined a finite $3 billion amount of program funding would be a positive step toward a meaningful—though possibly pro-rated—counter-cyclical program.
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    You support $1 billion in new funding for conservation incentives. Additionally, you propose additional spending of $2.3 billion for rebalancing loan rates, $5.6 billion for AMTA and $3 billion for counter cyclical, for a total of $10.9 billion in additional commodity funding. Would you support $1 billion in new funding for conservation incentives if additional commodity funding was limited to an amount less than $10.9 billion?
    In order to fairly answer this question, NBGA would have to see the details and probable distributions or commodity-by-commodity allocations as posed by the hypothetically under-funded commodity program(s).
    NBGA's priorities, in descending order, are modifying the barley loan rate as previously stated, extending AMTA-type payments at 1999 levels, and implementing a counter-cyclical income support program. Without further information, NBGA reserves judgment on necessary initial funding for the aforementioned programs before committing to funding for conservation incentives, to which we remain open and interested.
    What is the minimum level of support for commodity programs your organization feels is necessary before you could lend support to an additional $1 billion in conservation funding?
    [Same answer as above.]
    Are you opposed to the manner in which emergency assistance Market Loss Assistance payments have been delivered the past three years?
    NBGA supports the recent distribution of the Market Loss Assistance payments in that the payments were: 1) based on current AMTA-formula base acres and yields (i.e., not based on updated acres whereby barley would have received a smaller portion of the overall funding due to the recent decline in national acres because of barley's inequitable loan rate); and, 2) the distribution method was relatively quick and timely.
    What impact would a $75,000 marketing loan program payment limitation have on producers if loan rates were rebalanced?
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    The effect of a payment limit of $75,000 would be to limit the benefits of the Marketing Loan Program to producers with fewer acres. NBGA opposes payment limitations on marketing loan gains and LDPs so that everyone can fully utilize this counter-cyclical program for all eligible production. As farmers increase production to account for rising production costs, a payment limitation of $75,000 becomes punitive and arbitrary.
    If permanent legislation containing your counter cyclical proposal was enacted as a part of a 5-year bill and assuming your counter-cyclical program was determined to fit in the ''amber'' box, what do you propose should happen if government expenditures exceed the WTO ''amber'' box ceiling at any time during the 5-year period?
    Under the example, consideration should first be given to shifting the counter-cyclical ''amber'' box payments to a more decoupled ''green'' payment distribution method. If that fails, the rules and definitions of the Uruguay Round agreement would have to be re-examined. If future expenditures exceed the limits on domestic supports subject to discipline, the newly enacted domestic support payments exceeding the limits should be re-defined to be not subject to discipline to match domestic support methods and definitions utilized by the European Union (e.g., ''blue'' box).
    If permanent legislation authorizing economic assistance for fruits and vegetables was authorized, should there remain a restriction on the planting of fruits and vegetables on AMTA contract acres?
    Are currency exchange rates the single largest factor that impacts our ability to competitively export agriculture products? If not, what is?
    For barley, exchange rates are a significant factor impacting the barley industry's ability to competitively export. Additionally, the unfair predatory pricing practices of exporting State Trading Enterprises like the Canada Wheat Board also act as an impetus to fair export competition.
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    What domestic or world factors have the most impact on the profitability on the group of producers you represent?
    In addition to exchange rates, the primary factor in this regard is the current inequitable loan rate calculation for barley. Additionally, transportation and infrastructure factors, grain import levels (largely from State Trading Enterprises) and production costs significantly affect the profitability of all barley producers.
    If applicable, what percent of producers in your organization purchase a ''buy-up'' crop insurance policy?
    NBGA does not currently have this information.
    What position has your industry taken with respect to entitlements of disaster benefits for producers who don't buy crop insurance?
    NBGA believes those with crop insurance policies deserve higher payment rates. Conversely, those without crop insurance or buy-up policies should receive fewer disaster benefits than those with crop insurance or buy-up policies.
    Since the Agriculture Risk Protection Act of 2000 provided substantial improvements to crop insurance, do you believe that ad hoc disaster legislation should be authorized for crops currently covered by insurance? If yes, why?
    Yes. First, even with enactment of the Agriculture Risk Protection Act many quality problems—out of the control of good planting practices—are not adequately covered by crop insurance policies. With many crops, like malting barley, quality factors are the largest determinant of a farmer's return per acre. Converting quality losses to yield losses utilizing arbitrary reduction in value factors still does not compensate many producers for weather related losses. As such disaster legislation should still be authorized to address this problem when needed.
    Second, crop insurance policies for malting barley are still inadequate in many parts of the country. The requirement that a farmer utilize certain types of malting contracts (as approved by the Risk Management Agency) before being eligible for crop insurance still make it logistically impossible for certain farmers to qualify for crop insurance in certain open-market-driven malting barley regions. As such, for those barley farmers who do not have access to certain contracts to qualify for crop insurance, disaster assistance authority may still be necessary in the event a region experiences a crop failure or natural disaster.
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    Do you believe it is important that any counter cyclical program benefits are targeted towards those producers actually sharing in the risk of the production of major crops (cotton, corn, wheat, rice, grain sorghum, barley, oats and oilseeds)?
    NBGA supports extending future counter-cyclical income support payments to program participants exposed to market risks.
    Would a $40,000 counter cyclical payment limitation have a significant impact on your programs ability to function as a reasonable safety net?
    This needs further review, but yes, this would have a significant negative impact on the effectiveness of program and policy changes as we have proposed.
    Do you believe your counter cyclical program distorts market signals and causes producers to grow crops that they might not otherwise grow in the absence of the program?
    No, if Market Support Levels (under the NAWG proposal) are equitably established, in addition to re-balanced loan rates.
    At the time a borrower is arranging financing for the upcoming crop, do you believe that with some reasonable degree of certainty a lender could determine what a producer might expect to receive in counter-cyclical payments on a per unit basis assuming your concept for the major commodities was enacted into law?
    Yes. Based on reasonable price forecasts, a lender could determine what a producer might expect to receive in a counter-cyclical payment on a per-unit basis, assuming the NAWG plan was enacted into law.
    Do you believe that the loan deficiency component of the marketing loan program keeps prices at a level lower than they would otherwise climb in the absence of the loan deficiency component of the program?
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    Do you believe the elimination of payment limits would encourage producers to expand their farming operation, encourage overproduction, cause a shift from one crop to another, et cetera?
    From a practical standpoint, when is the earliest date you believe any changes in permanent farm law should become effective?
    NBGA believes a permanent change to the Marketing Assistance Loan Program, rectifying the calculation by which the barley loan rate is established, should be enacted immediately. Re-balancing all commodity loan rates in the manner proposed in the NBGA testimony should also be enacted as soon as possible. Implementation of a counter-cyclical income support program should be enacted to replace ad hoc market loss assistance previously distributed through double AMTA payments. Until an equitable counter-cyclical program is developed, Congress should proceed with implementation of current farm laws through fiscal year 2002, and ad hoc distribution of additional economic loss assistance at levels commensurate with the last three years ($9 billion average).
    The FAIR Act covered 7 crop years. How many years do you think the next farm bill should cover?
    Without knowledge of the proposed budget allocation for the agriculture authorizing committees to write the next farm bill, NBGA is unable to commit to a position on this issue at this time.
Answers to Submitted Questions From Mr. Stenholm
    (1) In the larger picture, your testimony advocates providing an additional $12 billion per year for agriculture, as did the recent letter to the Budget Committees leadership, which the Farm Bureau signed. The news these days abounds with stories of how the President's proposed $1.6 trillion tax cut could well become a $2.5–7 trillion tax cut, using all, or nearly all, of the on-budget surplus.
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    This raises a question that, however disturbing, we must consider: How would modify your proposal if there is no more additional money for agriculture after 2002, if there is only the current CBO baseline of $4 billion for annual AMTA payments, varying amounts under the commodity loan program at current loan rates, and projected expenditures for current dairy, tobacco, peanut, sugar and export programs?
    Implementing the National Barley Growers Association (NBGA) commodity program proposals with only current baseline funding levels would be impossible. NBGA commodity program priorities center on increasing the national average loan rate for barley; continuing and increasing AMTA-type payments; and implementing a counter-cyclical income support program. If, hypothetically, Congress made available only current baseline funding levels for the next farm bill, by definition Congress could not increase AMTA payments and implement a new counter-cyclical program as NBGA has proposed. NBGA would not support the creation of a new counter-cyclical program in lieu of the current level of AMTA payments without first examining the details of such a proposal. However, NBGA believes Congress could—for administrative purposes—clarify that the current national average barley loan rate, and the method by which the Department of Agriculture calculates the barley loan rate, should be increased and should take into account all barley prices instead of only the feed value of barley. With encouragement from Congress, USDA could make this change because the Marketing Assistance Loan Program is an entitlement program under which current law authorizes mandatory spending.
    (2) This is also by way of asking, is your proposed program scalable? Can it be adjusted to meet a reduced level of expenditures, even as little as no additional funding? Or does your proposal need to be completely rethought beyond some level of minimal additional funding?
     In response to whether NBGA's proposals are ''scalable,'' our counter-cyclical program as proposed is scalable because NBGA assumed total funding for such a program would be limited and consequently we allowed for prorating payments to eligible participants. By definition our proposed continuation of AMTA-type payments are scalable, and comprehensive rebalancing of loan rates are also scalable though NBGA does not encourage this approach to improving the Marketing Assistance Loan Program.
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    (3) In your testimony, you support the continuation of existing Production Flexibility Contracts (PFC) to current contract holders, do you think this is an effective way to target payments to producers or is there another way to more effectively provide assistance to producers actually growing a crop?
    The contracts, their amounts and beneficiaries, were designed as transition payments to move producers away from the dependence on government programs. In the context of your testimony, these are no longer transition payments. What do you see as their specific justification, both in dollar amounts and beneficiaries that is not provided by other elements of your proposal, both in dollar amounts and beneficiaries.
     AMTA: Though NBGA's testimony proposed continuation of current distribution methods for future AMTA-type payments, we recognize these payments would be calculated from historic production, acres, and yields not necessarily reflecting current or future cropping practices. NBGA does not support changing this distribution method or the calculation of those payments without first examining details of any proposed change. NBGA furthermore does not support any reduction in the proportion of AMTA funding allocated for barley. Under this premise, NBGA supports decoupled AMTA-type payments being targeted to those actively farming.
    Although Congress likely designed AMTA payments to ''transition'' and reduce support from farmers, as the question states, NBGA supports the continuation of level AMTA-type payments through the course of the next farm bill period. These payments are non-trade distorting and considered ''green'' under current WTO rules, they provide an underlying level of support for production agriculture while consumers enjoy safe, abundant, and reliable food supplies, and the payments would provide reliability and consistency for the purposes of farmers securing credit for an occupation that otherwise does not have certainty due to weather and other risk factors in farming.
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    (4) In your testimony, you state your desire to have a green box counter-cyclical income assistance program. Yet, you suggest an increase of $2.3 billion in amber box expenditures to raise and rebalance loan rates. This proposal has also been estimated to increase planted acreage by 1.5 million acres, stimulating production.
    Did you consider reducing the oilseed loan rates to alignment with other commodities while offsetting the loss of income through your proposed counter-cyclical green box program? If so, why did you not choose to do so?
    NBGA did not consider reducing loan rates of oilseeds in order to realign loan rates of all commodities. NBGA believes oilseed loan rates should not be reduced; Congress should raise loan rates of other commodities so they reflect historic price relationships between those commodities and oilseeds.
    (5) You also state the need for an all-barley loan rate, rather than one based on the feed price, citing the decline in planted acreage since 1985. How much of that loss in planted acreage results from CRP enrollment and agronomic problems, such as wheat scab that has affected the upper mid-west, and more favorable loan rates for oilseed crops?
     NBGA agrees with the question's assertion that recent declines in barley acres are due to more than just loan rates. However NBGA believes the primary reason for the decline is that farm policy changes over the course of the last two farm bills have had the unintentional effect of encouraging production of crops other than barley, in addition to scab disease, and enrolling acres in the Conservation Reserve Program instead of barley production.
    (6) After realigning other loan rates with the oilseed loan rate, how much would a higher barley loan rate overcome these particular problems? Does not a 53-cent average premium for malting barley over feed barley provide adequate incentive to plant malting varieties?
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    Regarding the question on existing premiums for malting barley, the marketplace premium for malting barley provides essentially the only incentive to plant barley at all. There is no guarantee that any malting barley varieties, even those planted with a malting contract, will in fact achieve requisite malting barley quality. Over half of annual domestic feed barley stocks come from malting barley varieties that don't meet malting barley specifications of the marketplace or a contract.
    (7) With an all-barley loan rate and an ultimate feed barley redemption rate for barley under marketing loan, will not feed barley producers receive a premium, through the loan program, to the feed barley price? Will that not increase barley production and lower feed barley prices as well as raising government expenditures?
     NBGA is aware of the circumstances whereby forfeiting feed barley could result in marketing loan gains that are larger than a loan deficiency payment for the same bushels. Consistent with the goals of the statute, NBGA does not wish to encourage commodity forfeitures under the Marketing Assistance Loan Program. To avoid the situation where barley marketing loan gains would largely exceed LDPs, NBGA encourages USDA to establish county loan rates and repayment rates, or PCPs, at levels that take into account county-by-county barley acres and prices. NBGA believes this ultimately will help result in restoring national barley acreage and prices to historic levels.
    (8) Might this not threaten to restore the problems of the pre–1990 farm bill when high malting barley prices raised the season average price and reduced the payment rate for feed barley producers?
    Barley is barley. NBGA does not want repayment rates (or loan rates) to differentiate between feed and malting/food barley. NBGA wishes for the barley loan rate calculation to take into account the value of the entire barley crop, as opposed to only the feed value of the crop.
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