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Page 340 PREV PAGE TOP OF DOC Segment 3 Of 5 THE FUTURE OF FEDERAL FARM COMMODITY PROGRAMS (LIVESTOCK)
THURSDAY, MARCH 22, 2001
House of Representatives,
Committee on Agriculture,
The committee met, pursuant to call, at 9:35 a.m., in room 1300 of the Longworth House Office Building, Hon. Richard W. Pombo (acting chairman of the committee) presiding.
Present: Representatives Goodlatte, Smith, Everett, Lucas of Oklahoma, Moran, Thune, Gutknecht, Simpson, Ose, Fletcher, Pickering, Johnson, Osborne, Pence, Rehberg, Graves, Putnam, Kennedy, Stehholm, Condit, Peterson, Dooley, Clayton, Holden, Berry, Etheridge, Boswell, Phelps, Lucas of Kentucky, Thompson of California, Hill, Baca, Larsen, Ross, Shows.
Staff present: Alan Mackey, Pete Thomson, John Goldberg, Christopher D'Arcy, Callista Gingrich, Jeff Harrison, Elizabeth Parker, Russell Middleton, and Andy Johnson.
OPENING STATEMENT OF HON. RICHARD W. POMBO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. POMBO. If I could have everybody come in and take their seats, please. The hearing of the House Committee on Agriculture to review Federal Farm Commodity Programs with the livestock industry will come to order.
I would ask that any Member who has a opening statement that it be submitted for the record at this point.
[The prepared statement of Chairman Combest follows:]
Page 341 PREV PAGE TOP OF DOC Segment 3 Of 5 PREPARED STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
We all know that America's farmers need help. Virtually all of our commodities are facing depressed prices and their cost of production have risen dramatically over the last year due to increased energy costs. Yesterday the House Budget Committee made clear that America's farmers will not be left out in the cold. Funds will be reserved in the budget to provide needed assistance to farmers this year, as well as to strengthen the farm safety net for the future.
We are already working to provide long-term solutions for the crisis facing agriculture today. This series of hearings is designed to allow the folks who earn their livings on the farm to explain to us exactly what aspects of farm policy they would like changed or kept the same. The witnesses are also expected to explain how their policy recommendations would affect related industries, the ability to move product in the export market, the effect on farm program expenditures, and our WTO obligations.
Today it is the livestock industry's turn to occupy the witness table and I welcome the panel and look forward to hearing their testimony.
Mr. POMBO. We would like to invite our panel to the table. Miss Barb Detterman, president of the National Pork Producers Council from Early, Iowa. We have Mr. Simpson, did you want to introduce?
Mr. SIMPSON. Yes, Mr. Chairman, if you would allow me the honor. As you know, the last 3 weeks we have had testimony from different industries and I want you to know that we have had three people from Idaho, both with the wheat industry, the barley industry, and now Cindy Siddoway with the sheep industry. And we haven't even come to potatoes yet.
So we are very proud to have Cindy here. She is one of the great spokesmen for the sheep industry and has testified before this committee many, many times. A constituent of mind from Idaho and we just very proud to have you here. Thank you, Cindy.
Page 342 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. POMBO. She is accompanied by Dr. David Anderson, I believe, assistant profession and extension economist of the Agricultural and Food Policy Center of Texas A&M University, College Station, TX. And Mr. Jule Richmond, president of the Texas Sheep and Goat Raisers Association from Blanket, TX. Also joining the panel is Peggy Vining, vice-president of the International Operations of Perdue Farms from Salisbury, MD. And Mr. Wythe Willey, president-elect of the National Cattlemen's Beef Association from Cedar Rapids, IA. And, Miss Detterman, if you are ready you may begin.
STATEMENT OF BARB DETTERMAN, PRESIDENT, NATIONAL PORK PRODUCERS COUNCIL
Ms. DETTERMAN. Thank you, Mr. Chairman and members of the committee. Pork producers are extremely pleased to testify today on farm commodity programs and other policies that will ultimately become a part of the next farm bill. I am Barb Detterman, and I am a hog, corn and soybean producer from Early, IA. I am also president of the National Pork Producers Council. U.S. pork producers believe that the best way to enhance our potential for profit is to have the market forces of supply and demand determine levels of production and price.
Pork producers have operated for virtually our entire history in the market place without Government subsidies or controls. The FAIR Act took American agriculture closer than any proposal toward a market or a future, which is why NPPC supported in 1996. We continue to believe its core principals are sound.
Approximately 60 to 65 percent of the cost of raising a hog is feed. And of course, corn and soybeans are the major components of that feed. Overall the U.S. pork producers use 16 percent of the soybeans and 12 percent of the corn raised in the United States. So you can see the changes in the commodity programs that affect the feed price have profound financial impact on our industry. Conversely, as major customers for grain and oilseed producers, issues and problems for our industry invariably affect grain and oilseed prices. But even the FAIR Act contain some items of Government involvement that cause misallocation of resources and less than optimum economic results.
Page 343 PREV PAGE TOP OF DOC Segment 3 Of 5 One example is the distortionary affect of the loan rates for corn and soybeans. Shifts and acreage away from both corn and wheat to soybeans is a clear evidence of this imbalance. Analysis by other agricultural groups suggest that a rebalancing of loan rates would yield in more optimum acreage allocation. And we as NPPC believe the rebalancing can be accomplished so as to make it cost neutral from a Government outlay point of view. Clearly, low commodity prices signal that additional funding will be necessary. And NCCP could support a counter-cyclical program, providing the program allowed U.S. market prices for grain to move with world supply and demand.
This would allow you as livestock producers to buy grain at the same price as their competitors in other countries and, therefore, compete on our ability to convert feed grains to meat. The devil of such system, of course, is in the details. And NPPC would have to fully evaluate the details before deciding whether or not we could support a specific proposal. My comments today reflect the preliminary farm bill views of pork producers. We look forward to working with the committee as these ideas and proposals are examined and debated and as our industry will fundamentally be affected by the direction and scope of whatever farm policy changes eventually emerge in the farm bill.
In the little time that I have I wanted to touch on the issue of conservation. Livestock producers in several States face and will soon face costly environmental regulations as a result of State or Federal law designed to protect water quality. The Federal regulations under the Clean Water Act include total maximum daily load programs and the proposed new concentrated animal feeding operations per net requirements. Federal regulators are also exploring the possibility of expanding Federal regulation of agriculture under the Clean Air Act. At the same time State legislatures or agencies around the country have enacted or are considering stringent environmental requirements that are to be applied to livestock producers and in some cases, all of agriculture.
Page 344 PREV PAGE TOP OF DOC Segment 3 Of 5 One concrete indication of just how much assistance producers is the demand for help from the Environmental Quality Incentives Program, EQIP. Since 1997 EQIP has accumulated a backlog of 196,000 unfunded applications for approximately $1.4 billion. More than have of those are from livestock producers. For this reason, we urge the committee support at least $10 billion of the life of 5-year farm bill and mandatory spending for USDA conservation programs to address livestock's environmental needs. Specifically, for water or air quality issues. These funds should be used to provide financial incentives, cost sharing and technical assistance to livestock, dairy and poultry producers to develop both manure management and nutrient management plans that are built on technologies and practices that protect air and water quality.
Any successful conservation program must be available nationally and must be open without restriction to every producer, regardless of size or production system. Instead of a size limitation, we feel it is much more appropriate and equitable of the livestock community is treated in the same manner as the row crop producers through the use of a payment limitation.
Yes, if I dare say it, we are requesting parity, but not parity in the same sense of the farm bill debates in the past. We are looking for parity in the treatment of livestock and row crop producers. The public wants livestock production and livestock agriculture to provide environmental benefits, clean water. And we are not going to be paid for this in the market place. Only with parity can we afford to give society what they want and realize the full environmental benefits of this program.
Finally, in closing, I appreciate the opportunity to be here today. And we look forward to our close working relationship with the committee, and look forward to working with you in the future.
[The prepared stament of Ms. Detterman appears at the conclusion of the hearing.]
Page 345 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. POMBO. Thank you. Miss Siddoway.
STATEMENT OF CINDY SIDDOWAY, PRESIDENT, AMERICAN SHEEP INDUSTRY ASSOCIATION
Ms. SIDDOWAY. Thank you, Chairman Pombo, Congressman Stenholm, and members of the committee for this opportunity to visit with you on such an important issue at we are dealing with today.
My family and I run sheep in Mud Lake, ID, and I serve as president of the American Sheep Industry Association. Accompanying me today are Jule Richmond from Blanket, TX, president of the Texas Sheep and Goat Raisers Association. And Dr. David Anderson, associate profession and extension economist of the Agricultural and Food Policy Center for Texas A&M. I very much appreciate these gentlemen and the fine work that they have done with leaders from across the United States in developing a specific program recommendation.
The wool market world wide is severely depressed with prices of 33 cents last year. This is the lowest in well over a decade and one of the worst prices in history. The majority of wool prices available do not even cover the cost of shearing the sheep, much less the transportation and the testing expenses. A portion of the wool production, particularly in the Midwest, was simply just discarded or given away as the market price was less than transportation costs to a warehouse or to a wool pool location just in order to sell the product. Wool has historically representative 5 to 10 percent of U.S. operations revenue, depending of course on the quality and the volume of the clip. But when wool becomes an expense versus an income it affects the entire operation. Loss of 5 percent of income often means the difference between profit and loss for our farms and ranches.
Likewise, the mohair industry has experienced a stagnant market. Mohair producers on average generate 75 percent of their gross income from the sale of mohair fiber. Thus, the impact of the depressed market prices from mohair during the last 6 years has caused mohair production to decline from 13 million pounds in 1995 to a projected 2.75 million pounds for calendar 2001.
Page 346 PREV PAGE TOP OF DOC Segment 3 Of 5 The European Union continues to provide more than $2 billion annually in government price support and subsidies to their sheep producers, and maintains permanent quotas on land imports to their member countries. If we cannot change the sheep support programs in Europe and level the playing field, then we absolutely must provide some form of a safety net program for our U.S. producers.
The industry recommended marketing loan and loan deficiency and payment program is a loan rate set at $1.20 per pound of wool average with a schedule of premiums and discounts to adjust for value differences. Dr. Anderson is an excellent resource of help with any questions on the Center's model based on the benefits of a 40 cent per pound emergency market loss payment for the 2000 crop and the approximate cost of production as compared to the loan rate for cotton. Repayment is based on the lower of world price for principle and interest. The Agricultural and Food Policy Center estimates an annual cost of $19 million for wool and $3 million for mohair.
The marketing loan is recourse rather than the more common non-recourse. And at the end of the loan period wool and mohair could not be forfeited to the Government. A basic minimum loan rate provision provides an avenue for all producers to participate without inefficient testing of off-sort wool or small lots, which is particularly important to the small farm flock sector. A wool pelt credit provision would be included to ensure appropriate benefits for wool sold on the lamb pelt at the minimum basic loan rate for non-tested wool.
Existing payment limitation provisions for marketing loans and loan deficiency payment would be applicable to the wool and mohair program. A schedule of premiums and discounts for recommended uses as demonstrated in the examples in our statement is absolutely workable for our industries. Mohair would work the same way as the wool program with the loan rate recommended by the industry at $4.20 a pound. It is a modest safety net at a modest expense.
But the modest cost estimates at this program do not reduce, however, the importance of the price support for American sheep and goat-producing farms and ranches.
Page 347 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. Chairman, my message to you and the members of the committee is that a workable safety net is needed for agricultural producers, and that the sheep and the goat industry must be included in that policy. Our industry is proof of what happens to an entire business when a national safety net is totally eliminated. While there are survivors, and I am one of them, over 25 percent of the U.S. sheep farms and ranches have gone out of business in this decade. Mohair production is down 74 percent since 1995. We have lost industry infrastructure from trucking companies to sharing crews to lamming processing companies, wool warehouses and wool textile companies. As they leave the business it brings additional economic hardship to our family farms and ranches. The recommended program, as a permanent provision, will assist not only producers but these affiliated segments of the lamb and wool business. And in industry we are committed to investing in our future. As we are utilizing and investigation every tool we can find, including cooperatives, processing ventures, quality improvement programs and marketing and promotion support.
Again, Mr. Chairman, I thank you and the committee for conducting these hearings and giving producers the opportunity not only to tell you of the severe economic conditions, but as more importantly the chance to provide some specifics to address the problem.
I appreciate the committee's continued support of the American sheep and goat industries. And Dr. Anderson and Mr. Richmond and I are pleased to answer any questions.
I would also like to add into the record a letter of support from the Texas Sheep and Goat Raisers. Thank you.
[The prepared statement of Ms. Siddoway and the letter from Texas Sheep and Goat Raisers' Association appears at the conclusion of the hearing.]
Mr. POMBO. Thank you. Miss Vining.
STATEMENT OF PEGGY VINING, VICE-PRESIDENT, INTERNATIONAL OPERATIONS, PERDUE FARMS
Page 348 PREV PAGE TOP OF DOC Segment 3 Of 5 Ms. VINING. Thank you, Mr. Chairman, Congressman Stenholm, and members of the committee for the opportunity to testify on behalf of the National Chicken Council and the National Turkey Federation regarding the future of the Nation's farm commodity program policy.
And Peggy Vining, vice-president of international operations for Perdue Farms. My company processes both turkey and chicken for domestic and international markets.
The National Chicken Council represents companies that produce and process about 95 percent of the young meat chickens in the United States. The National Turkey Federal represents 98 percent of the U.S. turkey industry, including processors, growers, breeders, hatchery owners and allied industry.
Also, Mr. Chairman, the committee has before it a statement from the United Egg Producers whose members account for 80 percent of the U.S. shell egg production. I believe you will find UEP's statement consistent with the points that I will make today.
The National Turkey Federal and the National Chicken Council strongly support Federal commodity programs that are market oriented and allow farmers to take full advantage of domestic and international opportunities. Any future farm program must remain flexible both in times of stress and in times of robust market growth. U.S. poultry producers supported the 1996 farm bill and continue to believe that the principles and objectives of the Federal Agricultural Improvement and Reform Act, or FAIR, provide the best path to pursue.
Market-based policies will make American agriculture stronger by rewarding efficiency, encouraging productivity, managing risks and allocating resources. U.S. poultry producers must be able to purchase corn, soybean meal and other feed ingredients at costs that are not artificially above world levels. The FAIR Act gives us that ability, especially in countries like China where the price of products must be globally competitive or our business will go to our competitors.
Page 349 PREV PAGE TOP OF DOC Segment 3 Of 5 To maintain that edge we must continue the market-based policies put in place in the last farm bill. The planting flexibility inherent in these policies enable farmers to respond to market feed grain demand. And that in turn allows the poultry industry to respond quickly to domestic and international poultry demand. Market-based policies also ensure grain prices. The single biggest cost of poultry production will be based on market forces and not on Government programs that artificially manipulate crop planting, supply and ultimately prices.
Some call for the inclusion of a counter-cyclical program in the next farm bill. NCC and NTF have not been able to devise a practical counter-cyclical program that maintains market-based flexibility. We think a better solution is to ensure that AMTA-style payments are at a level that provide farmers sufficient income protection during the widest possible range of economic conditions.
With respect to the actual payment level the NCC and NTF differ slightly. The National Chicken Council has no policy at this time regarding the payment level. The National Turkey Federal would support payments in the range of AMTA and market loss assistance payments for fiscal year 2001. An appropriately crafted farm bill can increase the competitiveness of U.S. poultry in international markets, which also leads to greater support of farm income. It take roughly 2 pounds of feed to raise a pound of chicken or a pound of turkey. So increased production for overseas sales increases domestic demand for feed grains. In the last 30 years world poultry consumption outside the United States has increased more than 500 percent. Last year more than 18 percent of U.S. chicken and approximately 9 percent of U.S. turkey was sold in export markets.
Beyond the commodity program, Congress can craft a more successful program and increase farm income by supporting the administration's position on WTO and bilateral trade agreements.
The next farm bill should bolster funding for export promotion, especially with regard to value added products. Between 1995 and 1998 the European Union and its producers increased spending on agricultural export promotion from $314 million to more than $400 million. The CAIRNS group, which includes Australia, Brazil, Canada and New Zealand, doubled funding to more than $600 million dollars in the same period. New Zealand reinvested into promotion 5 cents of every export dollar it earns. By comparison, Government producer export investment increased from $225 million to just $287 million between the same period, 1995 to 1998. The trend is going flat in 2001. And we are reinvesting into promotion less than one penny of every export dollar earned.
Page 350 PREV PAGE TOP OF DOC Segment 3 Of 5 The next farm bill must structure our export promotion programs, such as the Market Access Program and the Foreign Development Market Program so that the U.S. spending levels are comparable to those of our foreign competitors.
Finally, we must correct WTO illegal actions, such as the EU's arbitrary ban on U.S. poultry. Politically motivated charges of U.S. dumping of chicken in South Africa and the projectionists' ban on the U.S. chicken in the Philippines and Indonesia. We must also pay special attention to the impact of environmental regulation on commodity pricing. State and Federal rules will cost producers with more than 50 animal units at least $12.2 billion during the next 10 years. This could force many poultry producers out of business reducing the demand and prices for feed grains and oilseed.
NCC and NTF strongly join with other livestock groups in calling for the next farm bill to provide USDA's conservation program with at least $10 billion over a 5-year period. These funds should be available for environment audits, technical assistance, direct cost share for physical improvements and other appropriate environmental activities.
In summary, we recommend refining the FAIR Act rather than moving away from a market-oriented policy. U.S. poultry producers are anxious to help feed grain and oilseed producers turn their crops into value added poultry to help the growing demand in the world for turkey, chicken and other poultry.
A market-oriented farm program will achieve that goal. And poultry producers look forward to working with the committee to craft such a program. We recommend bolstering farm income by making a stronger commitment to export promotion and by providing financial assistance to poultry and livestock producers struggling to meet environmental regulations.
The National Turkey Federation and the National Chicken Council thank you for allowing our testimony today. And we stand willing to help in any way that we can.
Page 351 PREV PAGE TOP OF DOC Segment 3 Of 5 [The prepared statement of Ms. Vining appears at the conclusion of the hearing.]
Mr. POMBO. Thank you. Mr. Willey.
STATEMENT OF WYTHE WILLEY, PRESIDENT-ELECT, NATIONAL CATTLEMAN'S BEEF ASSOCIATION
Mr. WILLEY. Thank you, Mr. Pombo, Mr. Stenholm, members of the committee. The cattlemen, through the National Cattlemen's Beef Association, appreciate the opportunity to present what our views in the farm program and farm policy as you go into 2002 farm bill. I am Wythe Willey, president-elect of the National Cattlemen's Beef Association. And I am a cattlemen from Iowa.
First of all, let me tell you that I haven't heard anything here today so far that I disagree with. And I would echo the comments of the, in particular the pork and chicken representatives in regard to the effect of commodity programs on feed grain prices and their affect on the market. I would also echo what I just heard the poultry people talk about in term of export markets and the need to do some corrective legislation there.
We have distributed to you copies of our position paper. I will try to briefly summarize that and then try to save some time for questions for you all.
It's early in the farm bill debate. We want to take some time to impress upon this committee the importance of not only the livestock industry, but particularly beef and to the total agricultural economy. The sale of cattle and calves is the largest single contributor to farm receipts. Livestock sales account for nearly half of all farm receipts. And sales of cattle and calves account for 40 percent of those livestock sales. Livestock consume approximately 3 out of 4 bushels of grain that is used domestically. Cattle and feed lives count for one-fourth of the total grain consumption. All beef cattle account for about 30 percent. If you put dairy in that mix it accounts for about 40 percent of the total feed grain use. Cattle, livestock in general, but cattle in particular get a much higher percent of the retail dollar back to the farms and other farms commodities.
Page 352 PREV PAGE TOP OF DOC Segment 3 Of 5 A buzzword today is value-added. Livestock are value added. One of the best value added things we can do is, of course, produce livestock on our farms and export them to other countries. That helps our balance of trade, it helps agriculture in general. The beef industry, in particular, because of the versatility of the ruminant animal, uses not only forages but many by-products of industry, such as grains, screenings and by-products of manufacturing. My hometown, Cedar Rapids, IA, grinds about 1 million bushels of grain a day. Every bushel produces 15 to 20 pounds of by-product. If that weren't fed to cattle it would have to go into the landfill. Cattle can effectively utilize that product and make a good product out of it.
We, like the pork and chicken people, are concerned about distorted market signals coming from farm commodity programs. We do not support direct price or income support for the beef industry. But we are concerned that efforts to increase farm income by raising import prices through the beef and livestock industry.
If I have a point to make to you today it is that agriculture should look to the market and not to Congress for their income. They should like to the market place to make their decisions, not to congressional action. On the other hand, we do understand that farm programs are a major component of U.S. domestic policy and will remain there for the foreseeable future.
Therefore, our main concern and focus as we work with you on this next farm bill will be to not benefit one segment of agriculture at the expense of another. We have concerns about mandatory set-asides and acreage reduction programs, the farmer-owned reserve, the Non-recourse Loan Forfeiture Act, particularly to the extent that that causes the Government to become an owner and storage of mass amounts of grain like we have seen in the past. The Government incurs high storage costs, the grain deteriorates and everybody loses.
We do think that there are many positive aspects to the 1996 farm bill. While it's been much maligned, it is good policy. Our position is simple. As long as the loan program is focused on marketing loans and there is a political willingness to accept the resulting budget exposure that those loans entail, or indifferent as to what levels are established for those individual commodity loan rates.
Page 353 PREV PAGE TOP OF DOC Segment 3 Of 5 Freedom to Farm has been criticized for not providing an adequate safety net and not dealing with overproduction. Current proposals to increase those loan rates thoughhowever, would seem to further the ongoing problems of low prices and over supply and may well reach the cap on ''amber box'' payments. The safety net solution would then be to consist of ''green box'' AMTA payments to farmers. While this strategy might help facilitate a trade war with European Union and the ultimate demise of the European farm subsidy programs, it would be counter-productive for American agriculture to support policies that would stimulate overproduction leading to lower prices.
We appreciate the fact that we have a chance to have input in the new farm bill. But I would ask you to keep in mind, not only the impact of your commodity programs on the rest of agriculture, but on a broader agenda for agriculture. We have brought here today an open letter to American agriculture from our president, Lynn Cornwall, and ask that be included in part of the record. What he asks in that letter is to take a look at a broader agenda for agriculture, for all of rural life, and to move beyond traditional farm programs.
I am pleased to be here today on behalf of the Cattlemen. And I will be glad to answer any questions you might have.
Mr. POMBO. Thank you. I had two questions for the panel. And I would like all of you to answer it. to start with, you all talked about the export market value added. I would like to know from each of you, and starting with Miss Detterman, what specific things is your industry doing to increase your export market with value added products?
Ms. DETTERMAN. Our industry has done several things. As you know, we were a net importer until 1995. And we are now a net exporter. And the specific things that we have been doing is working with meat export federation and establishing markets overseas for our products. And we continue to grow that market tremendously. We are seeing growth in not only the Japanese market but also other maybe non-traditional markets for us.
Page 354 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. POMBO. It is specifically on value added instead of just say whole carcasses or wholesale cuts going over. What kind of products are you developing in terms of a value added product that gets your customer to begin to look for your specific product?
Ms. DETTERMAN. We have a symbol that we use called the U.S. pork seal. I have a pin on that is recognizing our products. And a lot of the further process products, such as sausages, for the processed hams. And then, of course, in variety meats area those are further processed products. But those are all sent to countries under the U.S. seal label if the packer chooses to those. With the opening of Chinese market this is a huge benefit to us in using products that aren't used here in the United States but are value added, such as variety meats.
Mr. POMBO. Thank you. Miss Siddoway.
Ms. SIDDOWAY. Yes. I would like to respond on behalf of the wool side. And if Mr. Richmond would like to add anything on the mohair, I would ask that he be allowed to do so.
We are rather excited about the progress that we are making as far as exporting on our wool. We have increased from 7 percent to over 30 percent of our export. One thing that we really are anxious to focus on more is expanding to international markets. We only have a couple of buyers here so there is not a lot of competition left here in the United States where we sell our wool. So by doing a better job of describing our product and advances in technology as far as testing our wool, it enables us to sell it on the world market.
Also, through technology Internet sales are now becoming available. We are working on that. We are also sending American product to other countries just so that we have the recognition of the value of the American product. Because for many years it has been underestimated I think of the true value here.
Also, as the fine wool market enhances we are also looking at more markets for the medium wools and the coarser wools. So it is an exciting opportunity to actually market our wool internationally. And I don't know of Jule would like to respond on the mohair side.
Page 355 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. POMBO. If you would like to.
Mr. STENHOLM. While Jule takes the mike let me say that I see Mike Simpson has left. But it makes a pretty good team when you have got an Idaho holding the reins and a Texas Tech graduate riding shot-gun. But keep the goat industry up there.
Mr. POMBO. Yes, sir. Go ahead.
Mr. RICHMOND. Thank you for the opportunity and thank you, Congressman Stenholm. We in the mohair industry have been seeking out much value added in our industry. In the last 5 years through producer-generated check-off dollars we have spent some $800,000 in identifying new markets that would be supportive of the mohair industry. A large amount of that money has been directed to the product that we have, it is the slower moving. We feel like we have been very successful in redirecting focus in our industry to the coarser fibers that we work with. We worked extensively with a company in Peru on developing carpet yarn. We are finding that there is a great amount of interest in that. A lot of that will be here in the United States as well as things that will be actually processed overseas.
And we feel that we are becoming in a very positive situation. And we feel like very soon a big majority of our product will be once again above the cost of production.
Mr. POMBO. Thank you. Miss Vining.
Mr. VINING. I say to you that the poultry industry I think has been very active in the international market place in developing value added products.
In 198586 period, the industry formed a cooperative called the USA Poultry Egg Export Council. Totally dedicated. This is a group of poultry individuals who are totally dedicated to the international market place. We have offices that are set up around the world representing the poultry industry. Strategically located in the Far East, Mexico, many different countries of the world to represent U.S. poultry. They give seminars to educate the consumers in the other countries about the benefits of U.S. poultry from a food safety standpoint, what we have to offer. They give the industry feedback as to products that we can develop that would be very effective in the market place. Rather than just taking a U.S. product to another market and say, take and eat, we try to develop products that have the taste, the profile, the texture that the consumer in the other country is looking for. Every country is a little different.
Page 356 PREV PAGE TOP OF DOC Segment 3 Of 5 We have been very effective in increasing our value added sales through those sources.
Mr. POMBO. And, Mr. Willey.
Mr. WILLEY. Thank you. To answer your question, I think from the beef industry the answer is just about everything. The export market has become in the last few years such an integral part of our market. Particularly, with beef industry funding, the Meat Export Federation to the extent it does. And our exports now exceed, particularly in dollar value, our imports by quite a bit. I can remember when there was a lot of complaints about imports. Well, we are far in excess in terms of the value that we export.
And that really is in two areas. One is in high value products. Like Japan is our biggest market. And in spite of the strong dollar and some weakness in their economy, they have continued to take more product, high quality product.
The other area is in what we call variety meats, things that we don't use very much in this country. Egypt takes a very large percent of the livers produced by our cattle. China, a new market, takes cow stomach, something we don't eat here. And we're particularly appreciative. I see Congressman Dooley here who worked on the China Trade bill the last time I was here. We have already seen tremendous benefits from that bill already. I think chicken has the same experience in that respect.
In addition to that, the same ready-to-eat products in the beef what's for dinner ads are also available for export and starting to get some market over there, too.
Mr. POMBO. Thank you. Mr. Stenholm.
STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman. And I might say it has certainly been music to my ears this morning to hear all of the witnesses testifying, basically in agreement. As Mr. Willey's first comment was that he had heard nothing that he disagreed with the previous witnesses. And we haven't always had that luxury when we come to testimony from what many times are competitors for the consumer dollar.
Page 357 PREV PAGE TOP OF DOC Segment 3 Of 5 I have personally am very appreciative of the fact that each of you in your own way have testified in favor of an adequate baseline for overall agriculture. And therein is one of the realities that we in agriculture are learning to face. And I am glad to see now that we are beginning to get some of the public recognition of the fact that. Whereas you say that we want to maintain a market atmosphere, we certainly do. But when you are competing in an international market place in which there are Government involvements to the degree they are in the other areas, particularly in the area of grains, you rightfully will testify in favor of being able to buy your grain at competitive rates with what you competitors are going to be doing.
When you then see that last year soybeans hit a 27-year low, corn and wheat hit a 14-year low, and they are lower today than they were last year, then you begin to see that it is unrealistic to believe that we can pursue a market-oriented agriculture without the Federal Government, the i.e., the taxpayer providing help and assistance. And that is something that we have a politically difficult time dealing with around this town. Because there are those that believe that we should not be spending these dollars on agriculture.
You rightfully have asked, each of you, for the budget and the next farm bill to look at environmental concerns, i.e., the soil and water conservation. But also the necessary research and development of sound water, air quality, et cetera, that surround large animal operations. And you rightfully have asked for that money. And that is something that I hope we will be able to provide. Because it is absolutely necessary for us to continue the productive agriculture that each of you represented here today.
Now there are some dark clouds on the horizon. And I say this for the benefit of my colleagues, particularly on the majority side. Take a good look at the budget that passed the Budget Committee yesterday. And you look at the risk that is going to be involved for agriculture line by line when you look at that budget. And then you asked yourself next week, can you vote for that and will say to these people at this table and every other witness that has come before this committee, that we do support that which you have asked us to do, which I do in its entirety. We have to be realistic and recognize that unless we continue to provide in the baseline that assistance, which you have asked and everyone one of our commodity groups have asked for, unless we are willing to get up and do that next week then take a good hard look at your hold card regarding where we are going to be heading. And I say this, I want to run up the yellow flag of caution. But I will say it is a 95 percent certainty that if the budget passes in the form it passed the Budget Committee, agriculture is going to be looking at a much different problem, whatever commodity we are talking about today. Look at the health concerns we have. The need of heaving up our own boarder inspections today and all of the things that go into this.
Page 358 PREV PAGE TOP OF DOC Segment 3 Of 5 So I say this, I commend the witnesses for your testimony this morning. I commend the fact that agriculture is together like it has never been together before. You are realistic. We are looking at a very serious problem. When you have farm income dropping to the level it did last year for $45 billion net for all of agriculture, and 52 percent of that being Government payments, this is not the time for us to unilaterally disarm our farmers. Which in my opinion, the budget that passed yesterday, 95 percent certainty it will do.
My time is expired. I have said, I commend the witnesses. Because I think your testimony in taking in its entirety does as good a job of justifying that which we are attempting to do in the trade area, in the market promotion area, and all of the things that when we go to the floor with an appropriation bill we get criticized. But this group in a bipartisan way, stand shoulder-to-shoulder with our producers.
If we unilaterally disarm ourselves by not giving a baseline, then do not say we still are supportive of that which you testified today.
Mr. LUCAS of Oklahoma. Thank you, Mr. Chairman. Mr. Willey, your comments on behalf of America's cattlemen seem in essence to be saying in effect, leave us alone Federal Government when it comes to supply management. Is that an accurate assessment of your comments, sir?
Mr. WILLEY. Yes, it is.
Mr. LUCAS of Oklahoma. Now there are a lot of folks who would say that you are in an industry which tends to go through booms and busts. You have stock number increases out in the countryside, supply goes up, supply and demand being what it does. We see some tough times out in the farm and in ranch country and herds are called and numbers go back up. Is it in your opinion that that system of allowing supply and demand to work its will, has that been productive and positive from the American cattlemen and women's perspective?
Mr. WILLEY. Oh, I think it is. We call it the cattle cycle. We have times when we have too many cattle and times when we don't have as many and prices are high. But pretty clearly, with some exception with droughts and some other outside extinguishes, certainly our people respond to the cycle, cut back when they should. And probably the market works in the purest form in the cattle industry than most any other part of agriculture.
Page 359 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. LUCAS of Oklahoma. And you are in an industry where there are huge investments in not only livestock but in the ranges and the ranches, the land they operate on. Which of course, has been one of the points made by many other groups, that there was such huge investments that the market could not be allowed to work. But clearly, the same investments are in the livestock industry.
Mr. WILLEY. Yes. Cattle, obviously, because of their value are a high capital business. It takes some big land base also. So we are really more affected by credit policy, the Federal Reserve Policy and tax policy than many other farm commodities. But in large, our position is yes, let the market work. We are not asking for any subsidies. And try not to do anything that affects our fellow commodities, which would affect us.
Mr. LUCAS of Oklahoma. So some of those 50 cents fats help provide later on the 80 cent fats?
Mr. WILLEY. That's right.
Mr. LUCAS of Oklahoma. Fair enough. To the panel as a whole, you mentioned the conservation issue and addressing the water and air quality issues that we will face in this coming farm bill, and as producers in agriculture from this point on in this great nation. There are those that would advocate in my town meetings that those resources need to be channeled, that we can't address the needs of every producer with the conservation resources that are available. How would you respond to that thought, and is there a perspective from your industry that when we help address the water quality and air quality needs that your various sectors of the livestock industry have to contend with. Do we reach out and help everyone, do we focus towards the smaller producers? Give me a perspective, panelists.
Ms. DETTERMAN. I think from the pork industry standpoint, we don't expect Government to pay for everything. We would like a cost share program which would then spread the funds over a broader range. I think we can use the same situation that we used on the row crop side of payment limitations. But make the funds available to all producers and not be size or system specific. I think we have an opportunity to go there in helping all producers because if we affect all producers with those regulations.
Page 360 PREV PAGE TOP OF DOC Segment 3 Of 5 Ms. SIDDOWAY. From the sheep industry standpoint, I think the best way to achieve the conservation goals are to keep family farmer farming. I am a fifth generation. And we want our property and out land to be there the next year. We want good air for our children, we want good water for our children. I think it is important for society as a whole to have a healthy environment. And it is my opinion the best way is to keep the family farmer that is going to come there year after year because he has more at stake than perhaps anyone.
Unfortunately, many are over-regulated at this point. I think we have to have some incentive bases along with the regulations, so that it is not cost prohibited to continue to do some of the things that are being regulated on our farmers.
Ms. VINING. I think I would say to you that in our industry it is probably more of a contract grower issue that it is a producer issue. But to do some things like making funds available for environmental audits, technical assistance, direct cost share for physical improvements, things that I had mentioned earlier today would be the better route to take.
Mr. WILLEY. Well, we would be very much in favor of cost share, particular for small producers who have got environmental regulations that there's no way they can be able to pay for them by themselves.
Mr. LUCAS of Oklahoma. Thank you, panel. Thank you, Mr. Chairman.
Mr. POMBO. Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman. And I want to thank all the panel for their testimony. I want to try to understand your arguments on the whole totality of what you are saying here. I think all of you pretty much are saying you want a market-oriented situation. And then at the end of your testimony you are asking for $10 billion over the next 5 years to fund additional environmental regulations. And so is the argument that these regulations are really not necessary or not relevant so, therefore, the Government should pay for it and not the market place? Is that what you are saying?
Page 361 PREV PAGE TOP OF DOC Segment 3 Of 5 In the case of hog facilities up in my part of the world they are very controversial and especially in the lake country people don't want to site them there because of the waste problem. So the market place won't pay for this or can't pay for this or you think shouldn't pay for this. What is the rationale for why we should pick up this $10 billion, and why should it be picked up out of the market place?
Ms. DETTERMAN. I think from the pork perspective, clean water is a public issue and is a public benefit. We definitely know that we will not be paid for this in the market place.
Mr. PETERSON. Well, if I could stop you.
Ms. DETTERMAN. Sure.
Mr. PETERSON. Sure, clean water is a public benefit. But if you didn't have the hog facility you wouldn't have the water problem in the first place. So it is created by the facility that is built.
So why can't the market place carry this? Why is this different than the rest of the free market attitude here?
Ms. DETTERMAN. I think with the sound science that is being used in siting the facilities, I think they are being very, very technically advanced and they are very sound in what they are doing. I know we have some operations in Iowa, too, that sometimes people aren't very happy with. But it is more of a public perception than sound science.
We need sound science with affordable and achievable regulations that can be handled. And producers want to do the right thing. We want to make sure our water is clean and our air is good. We don't want to raise our families any differently than anybody else. But the thing of it is, is that we need the technical assistance in making sure that we continue to use that sound science in going forward from there.
Mr. PETERSON. So the sound science could be paid for out of the market place. And the stuff that is not sound science should be paid for by us.
Page 362 PREV PAGE TOP OF DOC Segment 3 Of 5 Ms. DETTERMAN. I think we could use both the technical assistance also helping the research that is being done on ARS and is doing some wonderful research for all livestock industries. And I think that is very, very important that we continue that type of research. So, yes, we need the money for the sound science also.
Mr. PETERSON. Anybody else want to comment?
Mr. WILLEY. Well, I can only really speak for cattle and give you a fairly local example. I went to a meeting last week in Ames. And about 1,200 Iowa, mostly cattlemen, but all livestock producers showed up. And EPA has issued this 750 page set of regulations that affect a lot of operations that have never been regulated before. Including what we call small open feed lots in Iowa many of which have been in the business for over 100 years. And I would say that on an individual basis there ought to be some cost benefit analysis made there. Are they really an environmental problem and is there over-regulation? If there is, some general feeling that there needs to be more regulation and more conservation-type matter, particularly on a big acreage. I think it is appropriate that there might be some cost share.
Mr. PETERSON. Well, yeah, and I totally agree with you on that. I think that they are going too far with some of these small operators and some of what they are trying to put on. That is what I was trying to get at, is when you are asking for $10 billion from us over the next ten years, I don't know, I think that was in your testimony, too, or not.
Over the next 5 years you want usbut there was no delineation about how that was going to be allocated. In my own view, if you have had these small operators out there and they are, have got some acreage and they have been dealing with their manure for 50 years or whatever, I think that is different than when you get a great big, huge operation that comes in and builds a new facility and then thinks the Government should pay for the waste water problems that are caused by that huge new facility. I think those are two different things. And is there a differentiation in your policy about how this $10 billion is going to be allocated?
Page 363 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. WILLEY. Well, I think there is an appropriate distinction to make there. And I think we have had a few years of experience with some more cost share for some of the smaller operation.
Mr. PETERSON. Thank you.
Mr. POMBO. Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman. Panel, I appreciate your testimony. A couple of things. One observation, and that would associate myself with some of the things that Congressman Stenholm mentioned about the budget. That we are going to have some needs in agriculture, but also note, that at least in my experience since I have been here, the budget doesn't mean anything anyway. So we go through the exercise every year and because the law says we have to. And then we go through appropriations and we always change it. It doesn't seem to really matter that much.
But two questions. One has to do with value added. Mr. Rehberg and I have a pair of bills, actually, to promote value added industries in this country. One of which creates a tax credit for producers who invest in value added operations. We would welcome, obviously, all of your support of that. I know that South Dakota Cattle Association is already on board and endorsed that legislation.
But the first question has to do with what you all think we might do, or perhaps USDA might do better in terms of promoting value added industries in this country. Any suggestions that you might have? Because I really believe that is part of our future.
Ms. DETTERMAN. I think one of the things for the pork industry is the strongly supported the MAP, the Market Access Program. That is very, very important to us. Export federation uses those dollars plus combines our check-off dollars and soybean check-off dollars and puts those together so that we get a lot further, triple impact with the dollars there. So that is extremely important to our industry is to continue that program and then strengthen it.
Page 364 PREV PAGE TOP OF DOC Segment 3 Of 5 Ms. SIDDOWAY. From the sheep industry also, we utilize Foreign Agricultural Service dollars, and also world development dollars. There is some exciting things being done in some small communities on the wool side on the meat side as well. And it is keeping families home together working on the farm and creating a second income, if you will, or to supplement the income from raising sheep by making wool products, scouring the wool. Making sweaters, cottage industry, spinners and weavers, there is a tremendous amount of this. And much of it is due to some dollars from world development.
Ms. VINING. Just as a point of information, I don't know if you are aware, the International Trade Commission at this point in time is making a study on value added products, which I understand should be completed sometime this fall. So I would encourage you when that is completed that you might want to take a look and see what they have come up with.
From an industry standpoint, as I mentioned earlier, all of our companies, poultry-the poultry industry companies work with concerns in other countries like Japan, like China, Singapore and Malaysia to develop products. And our research teams work together to develop products that accommodate that market place. And that particular end of our business, Perdue in particular, is growing continually. We know the importance of our international market place. And the industry is focusing more and more of their efforts in developing those markets and products that fit those particular markets. Doing advertising generically through the industry to support value added and what we have to offer.
Mr. WILLEY. Well, I think generally anything that you can do to help producers, even in small groups, in some of their innovative or cooperative proposals, I think your bill does that. In the beef industry we have had a lot of emphasis through the check-off and through producer groups on developing more uses andfor the chuck and round. And we have got a whole bunch of really good microwaveable products, pot roasts that you can put in your microwave and have it in 5 minutes. So anything you can do to help that is good.
Page 365 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. THUNE. I appreciate that. And if you have other suggestions, we welcome those. Because I really think that's going to be, in terms of profitability and agriculture and capturing more of that food dollar through value added.
The second question has to do with sort of what is happening internationally right now, particularly in Europe. Might this not be a good time for a country of origin meat labeling legislation to move through this Congress, in terms not only of the positive impact that I think it would have on most producers, but also certainly from the consumer standpoint, food safety and confidence in the products that they buy.
Ms. DETTERMAN. I think as pork producers we would want to make sure that the pork industry does not have to pay for the costs of the country of origin labeling. I think that would be additional costs to producers that could be a problem for us.
Ms. SIDDOWAY. The sheep industry has been a long-time advocate of country of origin. When you walk into a supermarket and you see a product from Australia, lamb that has an American flag on it, it is a little deceptive. Although it is a product of Australia, it is very deceptive to the consumer. I have always felt like country of origin was a consumer issue. And as a consumer myself, I like to know where my products come from.
Ms. VINING. The National Chicken Council, at this point in time, really has no position in this area. NTF basically is opposed to this. They feel there may be some retaliation from other countries like Mexico from a turkey standpoint. So it kind of goes in both directions on our side from the poultry industry.
Mr. WILLEY. Cattlemen generally support country of origin labeling. In fact, we have voluntary program that we have come up that we have presented to the USDA for their approval. To a great extent, we think the consumers ought to know what they are getting. And to that extent, it would be somewhat advisable.
Mr. THUNE. In closing, Mr. Chairman, I just think as a matter of principle we grow and raise the best products in the world. I think it would be advantageous to producers and certainly to consumers as well to have that kind of legislation in place, and have that kind of a system in place. So I hope we can generate some support and would welcome your support for that. Thanks, Mr. Chairman. Thank you, panel.
Page 366 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. POMBO. Mr. Dooley.
Mr. DOOLEY. Thank you, Mr. Chairman. I thank everyone that testified today. Just to touch a little bit on Mr. Stenholm's point is that there is going to be a limited amount of money in the budget. And while it is questionable whether or not the budget is real, there still is going to be a limited amount of money that we are going to have to spend. So it really requires us to prioritize our spending.
And I would appreciate, Mr. Willey, your comments in terms of besides the money for some of the environmental issues that we are dealing with. Also the doubling of the research, which I think is very, very important. Because in terms of the appropriate role of the Federal Government in agriculture, this is one area which I think really does provide long-term returns to the industry and actually, to the profitability of agriculture.
So I would hope that all the association as we move forward in this process in terms of doing another farm bill, also identify and work with the cattlemen and others on making research as a priority.
The other thing I would ask for folks to consider, and especially in light of some of the problems we are seeing in Europe now with BSE and hoof and mouth disease, is that I believe that it is in our long-term interest also to beef up funding of APHIS. Is when we see an increase in the amount of trade going both ways, we are inadequately funding that agency and component of the Federal Government that can really help us with the interdiction of the importation of problems and pests. Again, the commodity groups as well as you folks today would be a very strong advocate of us making a very significant increase in APHIS funding. Because I think that is something that is going to be important. And the reason I talk about this in terms of priorities, we might get to the point where we can't afford $10 billion in the conservation, plus another doubling of the research. And from my perspective, there is probably going to be the need to have a trade off to take some of that money and put into some of these other areas that I think are going to be equally, if not more important. And maybe in some ways, a more appropriate function of government versus then even on the conservation side.
Page 367 PREV PAGE TOP OF DOC Segment 3 Of 5 I don't know if anyone has any comments on that.
Mr. WILLEY. Well, I might, if I could. And I second what you are saying. It is very important that we keep the research that we need to do, the infrastructure. The money that we spend on income, while I am sure it is appreciated, it is gone as soon as you spend it. But in research and particularly appropriate regulation that goes to good safety and animal health and research is very well spent. And you will get rewards on out through the years. So I thank you for those comments.
Mr. DOOLEY. Anybody else?
Ms. DETTERMAN. I would also like to comment on that. We also agree that research is extremely important in the funding of APHIS. We have worked with them several times on issues and know that it is extremely important. But we also feel the conservation dollars are going to be extremely important. Just the proposed regulations alone are going to impact 276,000 existing operations. No new operations. So it is very important that we have that.
Mr. SIDDOWAY. I would also like to comment on additional funding for APHIS. We hope to be scrapy-free here in the United States where we have got an effort going to eradicate all scrapy. And it is going to take a lot of money. APHIS has been very instrumental in this process. So we would also encourage for increased funding of APHIS.
Ms. VINING. I might add to that, too, I agree with what has been said. But you might want to take a look also at FFIS and beef up what they are going on meat inspection coming into this country.
Mr. DOOLEY. Absolutely. And yet one another issue I think we ought to be thinking a little more creatively. Every year we have a fight over how we can spend dollars on the market, development programs and MAP program. We have hit a $90 million ceiling on that. It looks like with the President's budget coming in with $90 it is going to be difficult to increase beyond that.
Page 368 PREV PAGE TOP OF DOC Segment 3 Of 5 But again, I think we need to be looking at some of the other opportunities for us to enhance you market development and market access. And maybe it is through the Foreign Agricultural Service and some of our cooperator programs. And what I would also ask again, as we move through this process, if your associations can also be looking at how we can achieve that objective of enhanced market development internationally, recognizing the political environment, might not allow us to continue to see a significant increase in the market access program. How else can we get there? And again, trying to package this in a way that at the end of the day once we have made our final decision on how we are going to allocate our scarce taxpayer dollars that we are still maximizing that objective on the market development. So my time has expired. Thank you for your very thoughtful testimony.
Mr. POMBO. Mr. Gutknecht.
Mr. GUTKNECHT. Thank you, Mr. Chairman. I think Mrs. Clayton and I are the only members of this committee who also serve on the Budget Committee. And I want to share a few members with the members of this committee, as well as, members who listening here. Because we are going to hear a lot in the next week about baseline, baseline, baseline. We are not talking about baseball. But I do want to remind members that when we pass the farm bill, and many of the groups that are here and many of the groups that have testified up to this point, we are supporters of the farm bill that we are currently operating under.
But for the benefit of younger members, we said then that I fiscal year 2002 we would be working off an agriculture baseline of about $7 billion. The baseline that was recommended last night for agriculture was $19.1 billion in budget authority. Not $7 billion, but $19.1 billion. And to compare that to what we actually had in outlays for last year in the baseline, it was $18.2 billion. Now I know that we are going to have this argument and there is going to be demagoguery and there are going to be speeches, and we are going to hear a lot of ''the sky is falling.'' The truth of the matter is, we don't know what is going to happen to agriculture in the next 12 months. I mean, if I knew, I would be down at the Chicago Board of Trade and I would be placing my bets. What the result of some of the health problems that they have got in Europe and in other parts of the world, what is that going to do to American agriculture? We really don't know.
Page 369 PREV PAGE TOP OF DOC Segment 3 Of 5 Let me just share with you also, I serve on the Science Committee. And we have heard from an awful lot of scientists, almost the Henny Penny's of the science community that we are facing this globalthey hate to use global warming but many of them privately talk about global warming. They talk about climate change. They have been predicting for the last 5 years that we are going to see some devastating effects on weather patterns in the world. And I suspect if you predict that long enough sooner or later you are going to be right. And it may well be this year. We don't know what is going to happen.
But I just want to say on behalf of the Budget Committee, and particularly for Chairman Nussle, who does come from farm country, who does understand the problems of agriculture, and who does recognize that if there are serious problems in agriculture we on the Budget Committee on going to respond. And we have already acknowledge within the framework of the budget document we are putting together that if there is a real agriculture emergency this year, we will respond. But the idea that somehow that we are not being fair to agriculture, I think is really disingenuous. When you look at where we said we would be, as I say, most of the farm groups that have testified before this committee, we are at least supporting the farm bill, we were looking at a baseline of about $7 billion for this year. And this year we are looking at a baseline of about $19.1 billion.
So I just want to say that so as the debate begins next week about the budget bill, I certainly am concerned about the future of agriculture. We cannot afford to lose a generation of younger farmers. I agree with that. But at the same time I don't think that in fairness to all of those farmers we can say that we want to create a system where it almost could become a perpetual welfare program. I think we have to look for creative ways to help agriculture compete in the world market place.
And I want to thank all the groups that are here today, because I think you have done a fabulous job over the years of recognizing at the end of the day that markets are much more powerful than armies or even Government subsidies. And I have met with some of our counterparts from Europe. I regularly meet with the members of the German Bundestag. They recognize they cannot continue to subsidize their agriculture the way that have for the last 15 years.
Page 370 PREV PAGE TOP OF DOC Segment 3 Of 5 So ultimately, I hope as we begin the debate about the budget we can at least be honest with the numbers we are using. I think the budget we have voted out of the Budget Committee last night is very fair to agriculture in terms of baseline. And we stand ready. Now I would disagree with my colleague from South Dakota. I think the budget does matter. I think what is in this budget and I think Presidentwe have a new sheriff in town. He is committed. He has made it clear that he believes that the Federal budget should not grow at a faster rate than the average family budget. And I thin that has tremendous support around the rest of the country, particularly among families. And I know that our appropriators are creative and they will find ways to perhaps circumvent that budget document. But I think they are quickly learning that there is a new sheriff in town. And just because they may want to spend more money does not necessarily mean that ultimately this President will sign their bill.
So I think the President has made it clear that he is going to limit the growth in Federal spending, and we are all going to have to adjust to that new reality. Thank you, Mr. Chairman.
Mr. POMBO. Thank you. Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Chairman. I will say welcome to Wythe. I am proud to have you there bearing testimony representing agricultural cattlemen. I appreciate it very much. And also the lady from Early, thank you for being here. And all of you. I appreciate your comments. But I am just fortunate to have a couple folks from Iowa, which I am very proud of. And I am proud of the testimony you have given. I am of the opinion, Mr. WilleyI want to call him Wythe. That is what I have been calling him for years. Wythe, you talked about that meeting you had with Ames a few days ago. That concerns me a lot. And I submit to you and whoever is listening to us that American producers, livestock producers, all of us, are conservationists, everyone of us. We are environmentalists. I think that there is too many people hollering ''wolf'' at our door. We do not want to contaminate the water or the air. We do not want to do that. And I have maintained for years for me and my neighbors and the people I know I am not in the pork business, but I know a lot of people that are. But I can tell you, the cattle business is not causing a problem. And so I hope that the people understand that.
Page 371 PREV PAGE TOP OF DOC Segment 3 Of 5 I appreciate some of the things that my good friend from Rochester just spoke about. Let me remind us again, this nation has an unwritten cheap food policy. Now if I might say so, if that is what we want, and I think we all do. And I have not encountered anybody that says, raise the percentage of disposal income we spend on food. So I think seriously that we all have, all Americans, have a responsibility when it comes to agriculture, whether you are a producer or not. If you want that, then we got to share in it. And so I make no apologies for the extra funding that we gave to agriculture last year. And I know you don't either, Gil. I mean, absolutely you don't. If we want that and we have these trying times, we have trying times. If you don't think so just go out there and work the books of an American producer on the farm or the ranch.
Well, that situation and our international situation we are in because of a variety of things, then they are going to have to help pay for it. And I think that is fair. So I just have to get that out. I think we are conservationists, I think we are environmentalists. And I think that if folks want to have the cheap food policy, they ought to accept. And I think that's why you and I can go to our friends from the city and get them to vote with us when we have to have some help. So I just would like to say that.
Wythe, a lot of producers, and Miss Early, a lot of our producers are also great producers. I know that from where I come from let the market find its places, and that is where you are coming from. But then again, a lot of my constituents are grain producers. A lot of them. And they don't feed all the grain themselves. There are pork producers and there are cattle producers, would you make any comment to how they feel about some of these comments we have made here? And I am going to have to go shortly as everybody else. But I have got a couple minutes yet, so I would like for you to comment about that.
And then lastly, my other question, and then I will be done, Mr. Chairman, is we got this threat that has beenthe diseases around the world going on, and I am worried about our situation as some of you probably are. But would either of you folks, or any of you, but I will address this to Wythe. We have the National Disease Research Control Center at Iowa State University. It is located adjacent to it. And would you want to make any comments about this significance and the importance that has to us as producers across this country? Wythe?
Page 372 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. WILLEY. Well, that is extremely significant. If you watch morning television they are taking those sheep out there to test them and deal with them. And I can tell you this, that those people there are professionals. They know what to do. And when those animals get there they will know how to take care of them. There won't be any bad pictures come out of that. And but it was built quite a number of years ago and needs to be rebuilt. I understand you have got some legislation in Congress. We could have built that thing 75 times with the amount of money that went into Agriculture budget last year.
And in regard to our comments about research, that benefits both agriculture and the consumer and everybody in America. I think that is of utmost importance. So I would encourage you to do that.
Mr. BOSWELL. If I might just dialog with you a little bit. We did appropriate $9 million last year to upgrade. And I think only about $2 million of that has been delivered, Mr. Chairman. So all of us, you folks as well as us, ought to keep that in mind.
Mr. WILLEY. Yes. We appreciate whatever you can do. Because that is really important.
In regard to the grain farmers versus the livestock industry, that is a balancing act. And we recognize there needs to be a safety net. And we recognize you can't just go cold turkey. In that respect, the committee has a lot of good judgment. And you are very close to agriculture. Most of you people come from agriculture areas and you just have to make that balance.
Mr. BOSWELL. My time is up. Thank you, Mr. Chairman.
Mr. POMBO. We, as you heard the bells going off, we have a vote going on on the floor. We are going to temporarily recess the committee. That is why everybody left at the same time, if you don't know. We will be back in just a couple of minutes to finish the questions. So the committee stands in recess.
Page 373 PREV PAGE TOP OF DOC Segment 3 Of 5 [Recess]
Mr. SMITH [presiding]. As soon as we get our clerk backthe prospects for floor votes arethis is a motion to adjourn. After we complete this vote there is about 10 minutes left on the rule. And then we will be going back for another three votes. So we will reconvene and that will give me the latitude to ask several questions. I am Nick Smith from Michigan.
And in terms of Government services, taxpayer effort to support to animal livestock/poultry industry in the United States, do any of you have any comments on your suggestions for increasing our efforts? One area that 60 Minutes seemed to suggest is that our ability for testing, for example, through DSE, was limited. Is there other areas of outreach, is there a concern about the efforts of our agricultural attaches as in terms of their efforts to seek out new markets? Just any brief comments, any of you might have.
Mr. VINING. I would say that if you can get the attaches and the other countries to do some education for consumers about food safety and our products that we are marketing and what we have to offer, I think that would be very, very helpful. The more education, the more seminars, the more activities we have to educate the consumers in other countries about our products, about what we can do, what we have to offer, the better off we will be.
There is a lack of understanding I think in some of the other countries from a consumer standpoint.
Mr. SMITH. Mr. Willey, any other comments from the witnesses?
Mr. WILLEY. Well, first of all, I would say that kind of reiterates our comments about the need to do some research and fund the Animal Disease Lab, make sure that true science takes the forefront in this area. And obviously, we have always got a problem educating consumers, not only in our country, but world-wide. Consumers are like the rest of us, they just don't have time to read a lot of stuff. So any emphasis that could be put in that area would be positive.
Page 374 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. SMITH. You had a comment.
Mr. DETTERMAN. Yes. We currently have facilities also that need updated in Palm Island. And we have the facilities to do testing. We just need to do the emphasis like we were talking about the NADC facility and Ames. But also continue in Palm Island and make sure that that is kept modernized also.
And also, we do a lot of surveillance for disease in monitoring in different parts of the country that those dollars need to stay in place also.
Mr. SMITH. Miss Siddoway?
Mr. SIDDOWAY. Well, in your question of BSE, I see it is quite a media event. Although we don't have any BSE in this country. I think it shows how cautionary our departments are. And the same with the hoof and mouth disease. The efforts they put in place immediately to protect the domestic industry I think is phenomenal. So I feel very confident in our personnel and in our agencies, and how quickly they did respond to both those issues.
Mr. SMITH. Let me get your advice, suggestions on EPA's greater involvement in CAFOs, the Confined Animal Feeding Operations. In 1972 when we passed the Clean Water Act there was a floor amendment in the Senate who had been getting quite a lot, as I understand it, pressure from the hog factories that were going up that they shouldfactories such as those should be considered point-source pollutions. So he made an amendment that said in effect that large confined animal feeding operations could be considered as point-source pollution. And then over the years, especially in the last 6 years, EPA has taken that and been much more aggressive in moving on farms and into States.
I am personally a little concerned that the jurisdiction has been a little bit far-reaching, especially in light of the recent Supreme Court decision. I have introduced legislation that gives more of the responsibility back to States. It is H.R. 1138. H.R. 1138 does several things. It says, if the States have a program within that State that deals with nutrient discharge from animal feeding operations that develops guidelines to assure that water quality is going to be maintained as it concerns animal feeding operations. And several other provisions that help assure, that help direct that State to take on that responsibility. Then the States would be the sold determine of what is a confined feeding operation, taking that responsibility. And though poultryI guess poultry still is being invaded to some extent. Your suggestions where we go on this legislation and this consideration of the EPA being more involved in State issues.
Page 375 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. DETTERMAN. As pork producers we support permits that are science-based, achievable and affordable. As long as they are science-based and achievable and affordable, then they make sense in an industry. And from that standpoint, including looking at nutrient management, which includes manure testing and all those types of things, because we want to do the right thing for the environment.
But additional regulations that can be costly and have no science base definitely need to be looked at, and definitely should not be brought into part of the regulations if they are not science-based.
Mr. SMITH. But you are saying, Miss Detterman, that you are not particularly concerned whether that science base comes from the Feds and the Feds doing the regulation or the States doing it?
Mr. DETTERMAN. We believe that one universal Federal policy would be better than having a lot of different regulations. Different regulations are difficult for producers to handle.
Mr. SMITH. Miss Siddoway?
Mr. SIDDOWAY. Well, I would hope EPA would work very closely with agriculture to have a full understanding. I think in the past perhaps the two agencies have not worked closely enough. I would be certainly supportive of State regulations. We are working on that now in Idaho for formulate it.
The concern from the sheep industry, sheep are not confined very much. Maybe for a short time
Mr. SMITH. That doesn't make any difference in the guidelines that EPA is
Mr. SIDDOWAY. Yes. And that is my follow-up. But some of the regulations that are coming down would affect all of us, and larger producers or smaller producers. We certainly want a say in that. and I think you get more input from local or State regulations to get that input.
Page 376 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. SMITH. Miss Vining?
Mr. VINING. I would say to you that our industry, of course, is very concerned about water quality and land use, et cetera. The issue of co-permitting has been very popular in the last bit. And we indeed are opposed to that. We need your technical assistance in order to get this done and to handle this particular situation. We need your help, I would say.
Mr. SMITH. Mr. Willey.
Mr. WILLEY. I had the opportunity to quickly look at some of the aspects of your bill. Our policy is that environmental solutions should be locally led, sight specific, and science-based. We say we should do it from the ground up, not Washington down.
The State flexibility, which I think your bill provides, offers an opportunity for those locally led solutions. And to me that bill has got tremendous merit from that standpoint. And I also think, or hope you are addressing, the fact that the new EPA regulations would make point-source pollution from an expanded cattle feed lot and even the area where those nutrients are spread for fertilizer, would be included under EPA.
I have not had a chance to read that bill in detail, but it looks to me like you are going the right direction. You would have been a real hero if you would have been out in Ames the other day.
Mr. SMITH. Representative Stenholm, we are having EPA representatives come in from Chicago walking on Michigan farms because there has been a complaint. And once there is a filed complaint, technically EPA is obligated to go seek out and investigate that complaint. Especially in those farms as suburbia keeps reaching out, we see more and more complaints simply from the smell or simply from thinking they see something that might not look good. So a huge consideration of who should be in control and what is reasonable and what is logical. But I think the point is well made, that science-based information.
But agriculture needs to face the fact that environmental concerns are going to be a huge part of how agriculture operates in the future. Mr. Chairman, I will give my seat back to you and relinquish. Mrs. Clayton.
Page 377 PREV PAGE TOP OF DOC Segment 3 Of 5 Mrs. CLAYTON. Thank you. Thank you, Mr. Chairman. And thank all of our witnesses for their very thoughtful and helpful testimony. And we do appreciate your input as we try and grapple with the farm bill. And in some ways, the livestock and those from the pork, from the poultry, as well, and livestock. Perhaps in a better shape than other parts of your fellow agricultural participants. And I particularly appreciated Mr. Willey's concern that he didn't want to put one sector at a disadvantage to the other. Because that is not true. Agriculture is in that both together. Although you are doing a little better right now, to the extent that we even call on and others don't, pretty soon the whole has a relationship. You are integrated because we are interdependent on each other. So I appreciate that attitude of knowing agriculture is indeed related to each other.
As I am sure you know better than I could that the uncertainty of the livestock in the market created by the presence of mad cow disease, as well as, now the hoof and mouth disease, is an enormous threat to our domestic market. As well, we must be extremely vigilant to ensure that none of these diseases cross into the United States. I have a couple questions and I also have a question about conservation.
Are you satisfied with our current efforts, both specifically to the hoof and mouth disease, but also more broadly with regard to infectious and the disease to guard our borders against intrusion of diseases that threaten or cripple the United States livestock? The second one related to that would be, what has been the effect of the mad cow disease and the hoof and mouth disease on the demand for poultry, pork and beef? Have the restrictions on sales of meet within the EU affected demands in the United States meet overseas? Mr. Willey and Miss Vining.
Mr. WILLEY. To answer your first question, it appears to me, and I think the public is seconding that, that USDA and the various Government agencies have done a pretty good job. I know that have some budget constraints, but they have moved pretty quickly and with some criticism. But I think the swiftness with which they moved, to what they have done up in Vermont, the risk is so far exceeds the need to do it that they need to get in there. And they have had some Federal court cases and they have walked through that. and they are going to take care of the problem. So I think they have done very well.
Page 378 PREV PAGE TOP OF DOC Segment 3 Of 5 And we have a good infrastructure here. And one of the comparisons you can make is that Europe has not kept their research and infrastructure and food safety concerns up. And they have put more of the money into income payments as compared to us. And that investment that we have had here in the United States is paying off.
Your second question, has it affected our demand. Our demand for beef last year and so far this year is at record levels. And I think that is consumers expressing confidence and a preference for the product that our people are producing. And that confidence is also a reflection of Government and the regulatory agencies.
Mrs. CLAYTON. Mr. Willey, how much of the livestock of your business is exported?
Mr. WILLEY. I think we export probably about 10 percent.
Mrs. CLAYTON. Ten percent. So 90 percent is domestic?
Mr. WILLEY. Ten or 12 percent.
Mrs. CLAYTON. Ten to 12, OK. Miss Vining?
Ms. VINING. I think overall the industry itself it satisfied with what we are doing as far as testing and what we have been doing in protecting our industry from the BSE situation, et cetera. I would suggest that continued vigilance is certainly necessary because this could turn into a very extreme situation that we might need to monitor very carefully.
As far as impact internationally, if I can speak for our company, not necessarily for the industry, but you company is getting more and more inquiries on a daily basis for poultry for other countries. I think there is a shortageturning out to be a shortage in some countries. And we are getting tremendous inquiry. I cannot speak on behalf of he industry; I don't know what they are experiencing. Only from Perdue's aspect business seems to be picking up to a degree.
Page 379 PREV PAGE TOP OF DOC Segment 3 Of 5 Mrs. CLAYTON. All right. I have one other question, I am going to do it very quickly. By and large, most of the livestock now is very co-integrated. Meaning, it is related on a contract. And many of the farmers that arein fact, I think that is the trend. And many of the farmers who I am hearing from are beginning to express concern about being able to negotiate from an even playing field, rather that is in in the poultry or the hog, and I don't knowthe cattle, but I hear more from the poultry and from the hog farmers.
Can you share with us what your industries have done to ensure the farmers, which you are negotiating with, that they indeed that parity. Many of them invest heavy into their barns and their equipment. And they don't own their equipment so they feel some vulnerability when you own everything and they have the risk at the bank. I have been talking and I know Perdue better than I know everyone else, so I have been talking to the people at Perdue. But share with me the things you are doing in your industry that will give your farmers the confidence that you are not stretching them across the barrel.
Mr. DETTERMAN. I know in the pork industry, National Pork Producers Council has done a lot. We have put out two guides in contracting for producers to go through. They are very thick guides that producers can go through. And for education we have also done educational seminars for those producers. And furthermore, I think that a lot of the pork industry may not vertically integrated, but we are maybe vertically aligned. Producers are still independent producers but they have contracts one way or the other withnot size specific and not how to do it. but this is slotted to meat consumer demand because they want traceability to their product. And so becoming that vertically aligned system hascan answer all those questions.
But like I said, there is contracting guides. And the seminars that we have done have been very well attended and are very good pieces of information for our producers.
Mrs. CLAYTON. Miss Vining.
Page 380 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. VINING. I am not an expert in that particular area. I am more the sales group of Perdue Farms. But I would be happy to get back to you with a written response from our people.
Mrs. CLAYTON. OK. My final comment is about the budget. I am on the Budget Committee with my good friend, Mr. Smith. And I can tell you that I offered an amendment that was defeated. But I will leave that for another debate. But our budget process will govern everything.
I understand you have asked for $10 billion for conservation. You are also asking for more monies for promotion. And the budget debate determines our commitment to our rhetoric. And so at the end of the day I hope indeed that what we have said here and those of us who are members of agriculture would indeed vote for a budget that includes parity and opportunities for our farmers. I think it is irresponsible of me as a member of the Budget Committee to insist that I will take care of the farmers when they are bankrupt, rather than to plan for them now. We have had experience now for the last 3 years knowing we have had emergency spending at $9 billion, at least. And to not put that in the baseline, none of you as corporate representatives would ever not consider the experiences of the last year, less the last 3 years, in your projection for budget. And that is what we did yesterday. And I think that was not where we should have been as really good fiscal and responsible. I know my colleague who is on the Budget Committee disagrees with that. But I just want to let you know we need to be very, very vigilant in making that agriculture is not an afterthought. Not an emergency, but indeed is in the baseline that if we need conservation it needs to be put there. We need promotion, it needs to be put there. And we failed that opportunity. Perhaps we can do it on the floor next week. I look forward to it. Thank you.
Mr. SMITH. I don't disagree. But just a follow-up on that. The last administration didn't recommend that the increase payments go in the baseline, nor did the current administration. However, the 302A provision of the budget which sets the overall spending guidelines is adjusted and manipulated and changed around as we get to the Appropriate Committee on what is called the 302B provisions of the budget law. And so it is generally the total amount that is there, which overall is a 4 percent increase, plus the flexibility of all other available funds that is coming from the Social Security surplus or the Medicare
Page 381 PREV PAGE TOP OF DOC Segment 3 Of 5 Mrs. CLAYTON. Does it go into baseline or does it go into emergency spending?
Mr. SMITH. No, the spending is going to be determined by the appropriators on how they divide up what is available. Let me switch to the gentleman from Kentucky, Mr. Fletcher.
Mr. FLETCHER. Thank you, Mr. Chairman. And as member of the Budget Committee, certainly there is a lot of ways to skin a cat. And there is some diversity of opinion there. But we did have a long discussion on agriculture. And many of us on the Budget Committee are very supportive of agriculture and felt very comfortable in the way we did it. We have certainly a large reserve fund and anticipate taking some of that, probably you of even fiscal 2001, as well as fiscal year 2002 to meet the needs. We are waiting for a little more quantification of those needs that have not come. And I think this committee will be responsible for doing a lot of that and making recommendations to the specific amounts. We had those reserves set aside waiting those exact numbers so we would know what we were doing. And, Mrs. Clayton, I share your concern. So thank you.
Kentucky farmers are hurting because of one of the large crops they have is tobacco. Beef, fortunately, was on the upswing when tobacco was down and buffered the difficulties our farmers facing. Let me ask you, this is probably redundantand I am sorry, I had some other committee meetings so I wasn't here for all the presentations. I did look through them, and in particularly, beef affects my State more than some of the other areas, at least my district.
Let me ask first, and this may have already been addressed, so if it you can briefly refer me to the previous notes and I can look at those. What challenge do we have or risk, and, Mr. Willey, let me ask you this, on the mad cow, hoof and mouth and possibility of affecting us here in this country. There is a lot of discussion about that and I would just like to hear your comments on that first.
Page 382 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. WILLEY. Well, we have never had BSE and it has never been found in this hemisphere. So say that it never will would be a stretch, because I don't know. But I think that in watching this over the past few years, USDA and the other Government agencies have been very vigilant and have really put in the necessary controls to keep it out. I think even if that would happen here, I think that we are in a position to be able to control it and eliminate it immediately. And we have talked at some length about the need to keep putting money into research and into those regulatory areas that indeed protect the food supply and are for the benefit of consumers. And we are very much in favor of that.
Mr. FLETCHER. Have we seen a change, I mean, what increase in demand have we seen in the international market because of that?
Mr. WILLEY. Well, you would expect that if there were to be some increase it would be in Europe. Unfortunately, Europe has some very severe non tariff barriers. We can't seem to make them happy with our product. And the fact of the matter is, they don't want to compete with the American farmer. But I do believe that the food safety issue, because of our higher standards, will probably in the long run mean that we will have increased trade. And we certainly had very good demand from overseas, in spite of the strong dollar.
Mr. FLETCHER. Well, thank you. Let me ask you one other questions. There is an effort in Kentucky in kind of a branding of beef, we are trying to look at something to ensure that we can have a stream of product, beef product, that when it comes to flavor and quality is more consistent. What do you see as the marketability of that, and what is your thoughts on that? and is it going to be something that the general public would have or see as something that they would have in high demand?
Mr. WILLEY. Well, we are pretty positive in that respect. We have had increased demand consistently the last 6 or 7 quarters. Beef demand last year was the highest it has ever been. We sold last year, this is an amazing statistic, we sold more beef at a higher price than we have ever sold in the history of the country. And we did with a much reduced cattle herd. So the efficiency is there.
Page 383 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. FLETCHER. It looks like the Atkins Diet is working. I don't know
Mr. WILLEY. Well, they may be helpful. And we obviously, have to give some credit to the economy since beef is a higher priced item. But a good deal of the credit goes to the fact that programs like you are talking about where people stepped in and produced a product which is more convenient, which has some real solid guidelines and consistency and traceability. In essence, beef has moved to a great extent from a commodity to a brand and product that people know about. And that has been extremely beneficial to the producers. In fact, the producers have been the one that have gotten most of the extra money.
Mr. FLETCHER. OK. It looks like my time is up. And thank you.
Mr. POMBO [presiding]. Mr. Etheridge.
Mr. ETHERIDGE. Mr. Chairman, thank you. And let me thank you for this hearing. And let me say at the outset that I would like to associate myself with Mr. Stenholm's comments earlier. I think all of us need to be concerned about the actions that all of us in this body take over the next several weeks. Because it is going to impact on what we do. I had to step out a few minutes ago and met with some young farmers. That is almost an oxymoron anymore. Because there are not many young farmers left. And that is a major concern of mine and I hope of yours. Because as we think of the age of the American farmer our food capacity and our ability to provide for feeding ourselves could be in trouble. And I won't get into the budget aspect anymore than that. But I think it is one we need to be concerned about very greatly.
I do hope at some point, Mr. Chairman, we do have the hearing we have asked for on hoof and mouth disease. And I am going to just touch on that briefly. Because I think it is important that we make sure we have the resources available, that we are prepared to deal with any eventuality. And according to my research, we have been fortunate in this country. We have not had any in the United States since 1929. We have been fortunate. We have worked hard. I think our USDA, our State agencies, and our producers have worked very hard at that.
Page 384 PREV PAGE TOP OF DOC Segment 3 Of 5 My question, if at least Miss Detterman, Mr. Willey and those of affected, I know the question has been asked. But very quickly, are there things that you are aware that we are not doing? Are there holes that we might call attention to in the interim before we have a full hearing and make sure additional resources are there that we could be doing, number one, to keep it out, and number two, to just make the consumers feel good. Because I think sometimes we talk about the negatives and it creates problems for the consuming public. And then I have one additional question before my time runs out, if you will answer that one very quickly.
Ms. DETTERMAN. OK. I think that what we are doing, the inspection service is doing an excellent job to date. But we need more resources to continue that. APHIS veterinarians have decreased from 1,200 down to 580. And we can't continue that slide down. We have to stop that and increase that. Also research funding and those types of things. The NADC lab needs to be updated. Those types of things have got to continue to play a very major role in our security system.
Mr. ETHERIDGE. Thank you.
Ms. SIDDOWAY. Food safety is of considerable concern to all producers and consumers in general. I think that the quick efforts in both on the BSE and the hoof and mouth disease have shown that we do have programs in place. Nevertheless, it puts a lot of stress on those programs both financially and with personnel. And I think we need to increase in both those areas.
Mr. ETHERIDGE. Thank you. Mr. Willey?
Mr. WILLEY. Well, I second what the pork producer just said. And I say that it is not an accident that we have not had hoof and mouth in this country since 1929. That has been because of some very stringent procedures and quick action whenever it would come up in adjoining countries. Hoof and mouth, as compared to BSE, is extremely communicable. It is worse than the flu among the preschool. So probably the most important things to think about right now, they may well need some supplemental funding. This is not a problem that they contemplated when they presented their budgets or you voted on them. And continued cooperation between the different agencies.
Page 385 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. ETHERIDGE. I appreciate that. The final question, and I hope the committee overall at some point can address this whole contracting issue. It is a growing issue in my State. North Carolina produces a substantial amount of pork, poultry, turkeys, et cetera. And I am hearing from a lot of producers. You need to know that. They are very concerned. Because if they don't get the contracts and they have invested a half-million-dollars in equipment, they are liable. And then all of a sudden their flocks or their hogs get held back, they have no recourse. So I think that is one we will have to address in the future, Mr. Chairman. I hope we can get to that.
My final question, Miss Detterman and Mr. Willey, to you. In the outline we received from the President on his budget there was a reduction in funding for agricultural research. It concerns me greatly. Because all the agriculture areas are down. And I know we are concerned. But would you just elaborate on why such cuts are harmful to the industry? You have already touched on part of it on something we have got to deal with. Because I see this as really our seed corn for the future. If we don't do the research, we are in deep trouble. And I hope you would comment very briefly on that for me, please.
Mr. DETTERMAN. I think that it is extremely important, as we have said earlier, and like Mr. Willey said, this is not an accident that we don't have these diseases in this country and that we have stopped so many things. And also that our food is the safest is because of research. And I think the thing that we have to remember is not only do Government dollars go into those research projects but also producer check-off dollars are going into it. and Land Grant University, a lot of that is being all put together. So we are getting a lot more impact and we have to continue to keep that in mind.
Mr. ETHERIDGE. Mr. Willey?
Mr. WILLEY. Well, I would say the one thing I would emphasize in addition to the comments that have been made, is that this committee and the Congress has got to balance where you are putting the money. And as opposed to increased subsidy or high subsidy payments that just go to income, we are pretty strongly in favor of research.
Page 386 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. ETHERIDGE. Thank you. I would echo that. But at the same time, if you don't have farmers still out there to do it you don't need the research either. Thank you, Mr. Chairman. I yield back my time.
Mr. POMBO. Mr. Putnam.
Mr. PUTNAM. Thank you, Mr. Chairman. I just want to make a couple of points that build on the discussion that we have had about APHIS. Last week at the Port of Mobile a container of cargo, a container was received that had a load of British tractors on it that had not been washed down.
We have had in the last 6 months in the State of Florida two introductions of the African Heart Water Tick, which would kill 80 percent of the deer and bovine populations. Our APHIS inspectors did not have the decontamination protocol for what killsor what the proper decontamination chemicals were for hoof and mouth. They were provided that by our State Inspectors. We have had two introductions of screw worm in the past year in the State of Florida. And we have 14 direct flights daily into Florida from the United Kingdom.
We are as a sentinel State totally unprepared for the issues that these trade agreements. The rise in the low cost echo tourism, air fair, vacation opportunities have provided. And APHIS is woefully understaffed and under-resourced.
And, Mr. Chairman, I would just make the point of as someone from a sentinel State, we are ground zero for our luck has run out, which we have had essentially since 1929. And I think it is just imperative that we do everything we can to redirect resources and make sure that APHIS is properly staffed. Especially, in these major ports of entry, California, Louisiana, Florida, Texas. APHIS had to borrow 24 veterinarians from the State Department of Agriculture to get on top of this issue.
I would just ask the panel for an expansion of your thoughts on ways to redirect those resources, some opportunities to get a better handle. We have new technologies coming down the pike that allow trucks coming in from Mexico to pass through a scanner. And without ever even opening the containers or whatever they can be transmitted, the inventory, the value, who it is being shipped to, who it is being shipped from. And that is all well and good from a commerce point of view. But it is a disaster for agriculture.
Page 387 PREV PAGE TOP OF DOC Segment 3 Of 5 I would just ask the panel for their thoughts on that, and say to you, Mr. Chairman, that as someone from a sentinel State, improving our inspection and detection procedures is as important to my State as the traditional farm programs are to the midwestern States. I look forward to working on that in this latest farm bill discussion.
But I would like to hear some additional thoughts on APHIS and
Ms. DETTERMAN. I think as far as pork producers, our veterinarian who is in charge of our science and technology is Dr. Beth Lotner. And she has worked with APHIS very explicitly on this area, especially, when the British tractors came over. And we have worked with them on several issues as things have come from other countries. I cannot emphasize enough that we have to have the resources to get more veterinarians, more APHIS vets. And make sure that we have those people in place, not only in your State but in other States. It is so crucial just not only on imports but private people, and what they might carry off the airplanes with them is very, very crucial.
Ms. SIDDOWAY. I think that we totally agree with you. And we have spoke earlier about additional personnel and resources directed toward APHIS. Your comment on your State's ability to be prepared is rather frightening. Although, we work at a national level, many of us, and we see preparation at the national level, the impact on these States is very detrimental. And I think maybe the resources, additional resources, and the technology transfer and the communication is extremely important to get these folks in the local areas and in the States prepared for such an emergency.
Ms. VINING. I would concur with what the other ladies have said. I think it is very important that we protect ourselves. This is a country, we have done a good job compared to some of the other countries in the world. But there is still a lot that we can do to improve that. And to put additional resources in that category, I think would really behoove it.
Page 388 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. WILLEY. I have been agreeing with these nice ladies all day, so I will do that today on that question. It is a huge job. And you have identified some of the individual situations that Government personnel are faced with.
The only thing I disagree on, the implication that that might not be more important than crop subsidies. From the cattlemen and the livestock standpoint, it is more important. Animal health and animal products represent a bigger cash return to our State. And so a cut in farm subsidies would be nothing compared to a disastrous livestock disease in a State like Iowa.
Mr. PUTNAM. Well, I agree with you. And I would just say that we would be remiss if we did not take advantage of this hoof and mouth opportunity to educate travelers and the public that this is not just a threat to agriculture, it is not just a threat to our industry. It is a very clear threat to public health and consumer safety.
We have people again, talking about Florida, up in arms about piling up orange trees and setting them on fire. People in America would come unglued for us to start piling up cattle carcasses, sheep carcasses and putting the can diesel to those. And people would just go bananas.
And we absolutely have to get on top of this issue and do a better job educating the public. Thank you, Mr. Chairman.
Mr. POMBO. Thank you. Before I adjourn the hearing, I just say that I appreciate the testimony of the panel. It was very interesting. And I think that you answered the questions that the committee has had. There may be further questions that members that were not able to come back may submit to you in writing.
I will just say that we have heard a little bit of the opening salvo on the budget issues here this morning. It is a concern to everybody on this committee where we ultimately end up. But being a cattleman, I can tell you that the greatest concern that I have for the future of the livestock industry in this country is the regulatory environment that we have created that makes it increasingly difficult for us to compete on the world market against people and other countries that have no where near the regulatory issues that we have piled on top of our livestock producers. And it gets worse every year. And many of the folks that will criticize on the budget are unwilling to even look at the regulatory issues that we continue to pile on top of our producers. And if we are going to be competitive on the world market in the future it is imperative that we look at the regulatory environment that we have created in this country in order to us to be able to compete on that world market.
Page 389 PREV PAGE TOP OF DOC Segment 3 Of 5 And I would ask all of you to continue to spread that message amongst your elected representatives until they finally begin to understand that we cannot be expected to compete on the world market with the regulatory environment that we have right now.
I want to thank you all for testifying. Again, there will be additional questions that will be submitted to you in writing. The hearing record will be held open to give you the opportunity to respond to those questions so they can be included in the hearing. Thank you very much for being here. And the hearing is adjourned.
[Whereupon, at 11:40 a.m., the committee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Cindy Siddoway
On behalf of the Nation's sheep and goat producers, I want to personally thank you Chairman Combest and Congressman Stenholm for holding these much needed hearings. I appreciate the opportunity you have provided to discuss the U.S. industry's recommended program for the upcoming farm bill.
As you are well aware, due to the committee's active support of recent emergency measures to assist our industry, and your discussions with sheep producers across the country during the committee's field hearings in 2000, these are very trying times in our industry.
While presenting for the record the economic situation facing America's sheep and goat industries, we are also providing the committee with specific recommendations of a program that will assist American farmers and ranchers.
As much of agriculture today is in a very serious economic situation, so is the Nation's sheep industry. The wool market worldwide is severely depressed with the average price of U.S. wool falling from 38 cents per pound in 1999 to 33 cents in 2000, the lowest price in well over a decade and one of the worst in history. The majority of wool prices available do not even cover the cost of shearing the sheep, much less the transportation and testing expenses. In fact, thousands of producers have been storing one to three years of wool production due to depressed prices. A large portion of the wool in storage in the U.S. has moved back into the market place during the past year due to the need for revenue for the sheep operations and we believe also due to the emergency payments for the 1999 wool clip. A portion of the wool production particularly in the midwest was simply discarded or given away as the market price was less than transportation costs to a warehouse or wool pool location in order to sell the product. This is an extremely frustrating situation for those producers.
Page 390 PREV PAGE TOP OF DOC Segment 3 Of 5 Wool has historically represented 5 to 20 percent of U.S. sheep operation revenue depending on quality and volume of the clip, but when wool becomes an expense versus income, it affects the entire operation. Loss of five percent of income often means the difference between profit and loss for farms and ranches.
The wool market depression is readily apparent in all wool producing countries. Excess production in countries such as Australia with an enormous stockpile of wool which depressed the market throughout the 1990's, and increased competition from chemical fibers in textile production have been two key factors. A third factor for American wool prices has been the strength of the U.S. dollar. Three factors, American growers have no control over.
Likewise, the mohair industry has experienced stagnant market conditions during the last 6 years. While sheep operations expect 20 percent or less of the operating revenue to be derived from the sale of wool, mohair producers on average generate 75 percent of their gross income from the sale of the mohair fiber. Unlike sheep, Angora goats are primarily fiber producers, and a much smaller percentage of the gross revenue is generated from the sale of live animals for meat consumption. Thus, the impact of the depressed market prices for mohair during the last 6 years has caused mohair production to decline from 13 million lbs. in 1995 to a projected 2.75 million lbs. for calendar year 2001.
Although the average market price for mohair during the specified period has been below cost of production, the mohair market during the last 18 months has seen an increase in market price for the finer grades of over 300 percent. This has resulted in approximately 40 percent of the clip selling at modest profits while the remainder of the clip remains unsold and in storage. Some producers have chosen to sell their clip for prices well below the cost of production. Thus, 60 percent of the total clip is still being marketed at below the cost of production. The higher prices have reduced the decline in mohair production throughout the United States. Historical trends have shown that as finer mohair escalates in price, the coarser grades begin to sell at a premium in due time. Thus, producers are hopeful that the upward trend in market prices will eventually result in a market price for adult that will surpass cost of production.
Page 391 PREV PAGE TOP OF DOC Segment 3 Of 5 This market crisis underscores the importance of the emergency market loss assistance provided for the 1999 and 2000 production. While the recommendations we present today are specific for the next farm bill, given the likely timeframe for the legislation, market loss assistance for 2001 is strongly supported for this production year.
There is tremendous support in the industry for inclusion of a permanent support program for agriculture. This will be debated and ultimately implemented by Congress in the next farm bill. We believe that workable opportunities exist in the form of a marketing loan program, tied to world wool and mohair prices to add a much-needed measure of stability and income during world market depressions. Without a doubt, our agriculture lenders will be easier to work with if there is a modest safety net for these crisis periods.
The European Union continues to provide more than $2 billion annually in government price support and subsidies to their sheep producers. The European Union maintains permanent quotas on lamb imports to their member countries. Sheep inventories in Europe have not experienced the severe decline in numbers that we have in the U.S. If we cannot change the sheep support programs of Europe and level the playing field then we absolutely must consider providing some form of safety net programs for U.S. producers.
The industry recommended wool marketing loan and loan deficiency payment program is as follows (with several critical points to make an effective marketing/support tool for producers):
The loan rate is set at $1.20 per pound average with a schedule of premiums and discounts to adjust for value differences. This rate would mirror the benefits of the 40-cent per pound, emergency market loss payments for the 2000 crop and the approximate costs of production as compared to the loan rate for cotton.
Repayment is based on lower of world price or principle and interest.
The Agricultural and Food Policy Center estimates an annual cost of $19 million as the projected cost for wool. The projected cost for wool and mohair combined is $22 million annually.
Page 392 PREV PAGE TOP OF DOC Segment 3 Of 5 The marketing loan is recourse rather than the more common non-recourse type to avoid any government stockpile of product. The industry would prefer to avoid forfeiture of product to the government. The recourse provision would work the same way with a marketing loan as the non-recourse provision, however at the end of the loan period wool and mohair could not be forfeited to the government. This recourse marketing loan would have to be redeemed by the producer, however it still provides risk management benefits. Any storage costs are the responsibility of the producer.
A basic minimum loan rate provision provides an avenue for all producers to participate without inefficient testing of off-sort wool or small lots, which is particularly important to the farm flock sector. A sales receipt for the current year's wool would be submitted with the application form to receive the deficiency payment of the difference between a basic rate of possibly 40 cents and the sale price on a greasy basis. (Greasy wool is raw wool as sheared from the animal). We believe this is an important component to ensure delivery to all producers across the Nation.
While participation rate at this level is a small percent production, the number of farms to participate is a considerable share of U.S. sheep operations. A wool pelt credit provision would be included to ensure appropriate benefit for wool sold on the lamb pelt at the minimum basic loan rate for non-tested wool.
Existing payment limitation provisions for marketing loans and loan deficiency payments would be applicable to the wool and mohair program.
The industry has a committee of wool experts from across the United States developing a further detailed schedule of premiums and discounts for recommended use. A schedule, as demonstrated in the enclosed examples, is absolutely workable for the wool and mohair industries.
Modest safety net at a modest expense.
Page 393 PREV PAGE TOP OF DOC Segment 3 Of 5 The program and repayment rate is tied to world wool market prices, which provides a key element of market orientation to the industry. Overall expectations of the wool market are for strengthening of fine wool prices as sheep inventories worldwide decline and the demand for wool products improve.
We have positive indicators of a stronger wool market in the future particularly in monitoring the Australian wool market indicator this season. Improvement is not an overnight event obviously, as the Australian stockpile is still in existence but dwindling and the overall economy for apparel consumption could decrease.
The market-oriented provisions of this recommended program lend itself to further strength of U.S. production for our domestic and the international market. Enhanced product testing and description under this program will improve our ability to market overseas; it improves the product description in order to interest more buyers of U.S. product, whether domestic or international textile companies. Loan values are tied to the world price indicators to avoid market disruptions but must move into the marketplace eventually due to the recourse provision. The loan provision provides an essential risk management function which is available no where else in the sheep industry for any of our production.
Mohair would work the same as the wool program with the loan rate being set at a different rate. The loan rate recommended by Dr. David Anderson of the Texas A&M Agricultural and Food Policy Center recommends a $5.25 lb. loan rate. While the mohair industry feels Dr. Anderson is correct in his analysis of an average before premiums and discounts, the industry recommends an average loan rate of $4.20 lb. be considered. Enclosed within your package you will find a schedule organized by industry experts offering a recommendation of seven separate grades to ensure equitable rates are established for categorized grades.
In today's strengthening market the program would only pay a deficiency payment on three of the seven recommended grades within the schedule at today's market price. With limited mohair production worldwide and the demand strengthening for finer natural fibers, the expectations are for strengthening mohair market conditions in the future. Added to increasing market opportunities created through industry efforts, the average market prices look favorable going forward. However, the industry's rapid decline during the past 6 years necessitates a safety net to provide stability within the industry and allow time for the markets to return to profitability. The estimated cost of the mohair program within today's market conditions would result in the total cost of the program being approximately $2.75 million annually.
Page 394 PREV PAGE TOP OF DOC Segment 3 Of 5 The mohair industry has seen a reduction in total production of 74 percent since 1995, due to unstable market conditions with extreme volatility and severe drought in the region that produces over 90 percent of the mohair nationwide. Producers have either reduced their herd sizes or liquidated entirely to compensate for the adverse conditions. Industry experts feel confident that a modest cost-effective safety net to protect against volatile world market prices and the exchange rate problems would help stabilize the industry. All agree production volume would level off at current levels and the industry would have the security necessary to encourage growth and achieve success from its product and market developments aimed at re-building and re-vitalizing the industry.
The American Sheep Industry Association is committed to helping industry adapt to the changes in the wool market. This year we are working to advance our marketing channels, better describe wools so they can be sold electronically and will aggressively seek to replace our lost U.S. apparel and textile industries as users of U.S. wool. We are optimistic that these production and marketing programs will enhance the United States wool producer's position and price relationship to other wool producing countries. We have successfully moved during the 1990's to the international wool markets growing from 7 percent of U.S. production going overseas to 30 percent today.
The mohair industry has worked diligently during the last 5 years to develop and create new products and markets that will increase competition and ultimately increase the price of mohair. The primary emphasis has been directed toward adult mohair where the weakest market conditions exist. Nevertheless, time is needed to allow these efforts opportunity to generate results, which the industry feels will result in better market prices for the producer. The US, along with South Africa, produce over 90 percent of the world's production of mohair. Thus, the US industry faces a barrier in remaining profitable with our largest competitor due to the obvious differences in cost of production. As a result the industry has focused on developing niche products aimed at US consumers that are market friendly and reward a modest market.
Page 395 PREV PAGE TOP OF DOC Segment 3 Of 5 We understand the changes in the U.S. textile industry will mean additional changes for U.S. wool producers and we intend to meet the challenge however, I firmly believe the marketing loan and loan deficiency payment will provide a measure of stability to allow producers to do their part.
Dr. David Anderson of the Texas A&M Agricultural and Food Policy Center has worked with the industry for more than six months to provide the in-depth analysis of the marketing loan/loan deficiency payment program for wool and mohair. The modest cost estimate of this program does not reduce however, the importance of this price support for America's sheep and goat producing farms and ranches, which is very critical to their financial stability.
During the course of discussions in the industry over the past 6 months regarding the farm bill commodity title, the ASI board of directors focused on a permanent program for wool and mohair. While recognizing that other Federal commodity programs have an effect on sheep operations, that effect is less than other for livestock industries, therefore not applicable. We have taken no position on AMTA levels or loan rates for other commodities, therefore are indifferent to adjustment policy issues. Grazing provides a larger proportion of feed requirements for our market animals in comparison to other livestock species.
Mr. Chairman, my message to you and the members of the committee is that a workable safety net is needed for agriculture producers and that the sheep and goat industry must be included in that policy. Our industry is proof of what happens to an entire business when a national safety net is totally eliminated. With the elimination of the industry support, there were no price supports whatsoever for the 1995 through 1998 clips. I operated my business without any price support for four years and survived, but I can tell you the situation is tough. Over 25 percent of the U.S. sheep farms and ranches have gone out of business in this decade. Mohair production is down 74 percent since 1995.
We have lost industry infrastructure from trucking companies, to shearing crews, to lamb processing companies, wool warehouses and wool textile companies. We depend on these segments of our industry to produce and market our wool production. As they leave the business, it brings additional economic hardship to our family farms and ranches. The recommended program as a permanent provision will assist not only producers, but, these affiliated segments of the lamb and wool business from shearing companies to textile mills. Each of which producers depend on and in turn they depend on our production for their livelihood. Stability of the industry with the help of the program allows further investment by each affiliated business and an overall strengthening of the sheep industry.
Page 396 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. Chairman and members of the committee, I assure you that only the best and toughest sheep farmers and ranchers are left today. We are committed to investing in our industry, and are utilizing or investigating every tool we can find including cooperatives, processing ventures, quality improvement programs, and marketing and promotion support.
The industry has had a proposal before the U.S. Department of Agriculture for over a year. We are hopeful, that Secretary Veneman will soon publish the proposed order for industry funded marketing and are grateful for your support in this regard. We are committed to change as demonstrated by the industry adjustment plan approved by the sheep industry. However, our efforts depend on sufficient revenue from lamb and wool sales to make needed investments. I fear that continued losses in the wool market will impede our ability to make investments.
I would be remiss not to mention again to the committee, on behalf of ASI and all of our producer members across the country, our appreciation for your support on our successful section 201 trade case and for your opposition to the amendment to the fiscal year 2000 Agriculture Appropriations Bill that attempted to single out wool producers in striking the very much needed market loss assistance payments for wool.
As your committee builds on the field hearings of last year and this series of hearings with the specifics provided by industry today in crafting the agriculture programs of the future, I commit our full assistance to you in this important undertaking.
As we move through the 2001 wool shearing season that is underway on farms and ranches throughout the country, emergency assistance is extremely important for this year given the record low prices. We sincerely appreciate the effort and leadership you have provided in both consideration of emergency assistance for this year's production and the long-term goal of a permanent safety net for wool and mohair producers.
Again Mr. Chairman I thank you and the committee for conducting these hearings and giving producers the opportunity not only to tell you of the severe economic conditions, but as importantly the chance to provide specifics to address the problem. I appreciate this opportunity and the committee's continued support of American sheep and goat industries and am pleased to answer any questions.
Page 397 PREV PAGE TOP OF DOC Segment 3 Of 5 Statement of Peggy Vining
Thank you, Chairman Combest, Congressman Stenholm, and committee members for the opportunity to present the poultry producers views on the important issue of determining the future direction of Federal farm commodity programs and policy. The National Chicken Council and National Turkey Federation appreciate the chairman's invitation to be part of this very vital discussion. I am Peggy Vining, vice president of International Operations for Perdue Farms. Perdue Farms produces and processes both turkey and chicken with a significant and increasing share of the firm's products being sold into the export market.
The National Chicken Council (NCC) represents companies that produce and process about 95 percent of the young meat chickens (broilers) in the United States. The National Turkey Federation (NTF) represents 98 percent of the U.S. turkey industry, including processors, growers, breeders, hatchery owners, and allied industry.
Also, Mr. Chairman, the Committee has before it a statement from the United Egg Producers, whose members account for 80 percent of U.S. shell egg production. I believe you will find UEP's statement consistent with the points I will make today.
MARKET-ORIENTED APPROACH NECESSARY
With respect to the specific issues being addressed today, the National Turkey Federation and National Chicken Council strongly support Federal farm commodity programs and policies that are not only market-oriented, but encompass the capacity to take full advantage of future market opportunities, both domestically and internationally. Any future farm program, like any good, successful food company today, must be flexible and nimble, both in times of stress and in times of robust market growth.
U.S. poultry producers supported the 1996 farm bill and continue to believe that the principles and objectives of the Federal Agricultural Improvement and Reform Act (FAIR) provide the best path to pursue. Market-based policies will help make American agriculture stronger by laying the foundation for rewarding efficiency, encouraging productivity, managing risks, and allocating resources. To do otherwise for those of us in the global marketplace means our fundamental competitiveness is jeopardized.
Page 398 PREV PAGE TOP OF DOC Segment 3 Of 5 Clearly, the domestic U.S. market is where the majority of poultry is sold. Increasingly, however, the growth market is not the mature U.S. marketplace, but the global marketplace. Furthermore, the international market allows U.S. poultry processors to better balance supply and demand for the various poultry parts. North America is essentially the only region of the world where consumers overwhelmingly prefer breast meat or the white meat parts of the bird. All other regions have a very strong preference for leg meat. Thus, being able to compete in the global market allows poultry producers to better balance supply with a broader range of consumer demand.
Basic to being competitive in the world poultry market is the ability of U.S. poultry producers to purchase corn, soybean meal, and other feed-ingredients at costs that are not artificially above world levels. The FAIR Act enables us to be competitive, especially in countries like China where the price of products must be globally competitive or the business will go to U.S. competitors.
To continue to stay competitive, we believe it is important to continue the market-based policies put in place in the last farm bill. The planting flexibility inherent in that policy is critical to farmers being able to respond to market demand for feed grain, which in turn ensures the poultry industry is able to respond quickly to domestic and international demand for its products. It also ensures that grain pricesthe single biggest cost of poultry productionwill be based on market forces and not on government programs that artificially manipulate crop plantings, supply and, ultimately prices.
There has been criticism of this program by some who claim it is great during times of strong commodity prices but is insufficient to protect farmers during periods of low prices. NCC and NTF are sensitive to the committee's desire to support income during periods of low prices and the reasons why some groups are calling for the inclusion of a ''counter-cyclical'' program in the next farm bill. NCC and NTF think a market-based formula, without caps, for marketing loan program rates would be appropriate. A 5-year moving average, dropping the highest and lowest years from the calculation and multiplying by 85 percent would have minimal effect today. The loan rate for corn, for example, would drop from $1.89 per bushel to $1.75 per bushel. But, such a program could provide higher loan rates during some periods of distress.
Page 399 PREV PAGE TOP OF DOC Segment 3 Of 5 Beyond that adjustment, creating a counter-cyclical program that maintains market-based flexibility is probably not practical. Certainly, NCC and NTF have not been able to come up with such a program. We think a better solution is to ensure that AMTA-style payments are at a level that provides farmers sufficient income protection during the widest possible range of economic conditions. With respect to the actual payment level, the National Chicken Council and National Turkey Federation differ slightly. NCC has no policy at this time regarding the payment level. The National Turkey Federation would support payments in the range of the AMTA and market loss assistance payments for Fiscal Year 2001.
UNITED STATES MUST CAPITALIZE ON WORLD POULTRY MARKET POTENTIAL
An appropriately crafted farm bill can maintain or even increase the competitiveness of U.S. poultry in the international markets which leads to greater support of farm income. It is critical to remember that increased poultry sales abroad benefit the grain and oilseed farmer as much as these exports benefit poultry producers. It takes two pounds of feed to raise a pound of chicken or a pound of turkey. Every additional pound of poultry the United States can produce for the overseas markets increases demand domestically for feed grains, oilseeds, and similar feed ingredients.
In the past three decades, world consumption outside the United States has increased more than 500 percent to a quantity that is now four times the size of the U.S. poultry consumption volume. By comparison, U.S. poultry consumption over the past three decades has tripled.
One example of the potential for increased U.S. poultry exports is to consider that China's average per capita consumption of poultry is less than one-fifth the U.S. level. If the average Chinese consumer ate just one more chicken per year rather than the average six per year currently consumed, the increase in Chinese consumption would represent more than one-sixth of current U.S. chicken production.
Page 400 PREV PAGE TOP OF DOC Segment 3 Of 5 During the 1990's, U.S. poultry producers benefited from a tremendous growth in exports. Chicken export volume increased nearly five-fold over the decade just ended. Last year well over 18 percent of U.S. chicken production was sold to international markets. Turkey exports grew even more impressively, almost nine-fold; and if the peak year of 1997 is considered, the growth was more than 11 times the volume in 1990. Almost nine percent of U.S. turkey production is sold into export markets.
Potential world consumption of poultry is truly remarkable. The potential for U.S. producers to supply a part of the increase in global poultry demand is tremendous if given the competitive opportunity to do so.
While the following recommendations may be outside the commodity program provision of the farm bill, they are, nonetheless, critical to increasing farm income and better ensuring the new program is successful. In short, the United States must continue to work aggressively and boldly for more liberalized world agricultural trade. All countries must be challenged if they do not live up to their trade agreements. Renewal of the President's ''trade promotion authority,'' previously known as fast-track negotiating authority, would be a good step. However, if this step is not taken, it should not be an excuse to hold back vigorous work on international trade negotiations. Further, the United States must seek to open markets through the inclusion of agriculture in regional and bi-lateral trade agreements. Of special and immediate importance is to continue great vigilance over China's accession to the WTO.
This committee also needs to use the next farm bill to bolster funding for export promotion, especially with regard to value-added products. The United States is lagging further and further behind our competitors. For example, the European Union and its producers in 1995 were spending $314 million on agricultural export promotion; by 1998 that figure was more than $400 million. The CAIRNS Groupwhich includes such major agricultural exporters as Australia, Brazil, Canada and New Zealanddoubled government and producer funding from $282 million in 1995 to more than $600 million in 1998. Some estimates indicate that figure could top $1 billion in 2001. New Zealand is particularly aggressive, reinvesting into export promotion five cents for every export dollar it earns.
Page 401 PREV PAGE TOP OF DOC Segment 3 Of 5 Our record in the United States pales by comparison. Federal-producer export investment was $225 million in 1995 and increased to $287 million in 1998. The trend is flat going into 2001, and we are reinvesting into export promotion less than one penny of every export dollar we earn. The next farm bill must structure our export promotion programs such as the Market Access Program Foreign Market Development program so that our spending levels are comparable to those of our foreign competitors.
On a related subject, it also is disheartening to see the United States misusing food as a foreign relation's weapon. For example, U.S. trade sanctions against Cuba are troublesome and have not proven effective in more than three decades. Trade sanctions involving food should not be the first course of action when the United States faces a serious dispute with another country. Farmers in this country pay the price for such actions.
The bottom line for poultry exports is that this segment is at serious risk unless government provides both the protection and the tools to enable U.S. poultry exporters to keep pace in a very competitive and often unfair world trade environment. U.S. exports are being undermined by the actions of foreign governments in numerous markets throughout the world. If these WTO-illegal actions are not successfully challenged, our ability to compete in the world marketplace is seriously diminished.
Examples include but are not limited to the following three problems: the politically-motivated and unsubstantiated charges of U.S. dumping of chicken in South Africa; the straight-out ban on U.S. chicken in countries such as the Philippines and Indonesia; and the EU's arbitrary ban on U.S. poultry because we use pathogen-reducing antimicrobials during processing to meet U.S. government food safety standards.
ENVIRONMENTAL RULES COULD UNDERMINE COMMODITY PRICES
While much of this statement has focused on commodity program mechanics and the role international trade plays in commodity prices, there is another domestic issue that affects commodity pricesenvironmental regulation. Costly state and Federal rules are expected to cost producers with more than 50 animal units at least $12.2 billion during the next 10 years. If the Federal Government does not share in the cost of implementing the regulations it is promulgating, many poultry producers will be forced out of business, thus reducing the demand and prices for feed grains and oilseeds.
Page 402 PREV PAGE TOP OF DOC Segment 3 Of 5 NCC and NTF strongly join with other livestock groups in calling for the next farm bill to provide USDA's conservation program with at least $10 billion over a five-year period. These funds should be available for a wide-variety of activities, including environmental audits, technical assistance and direct cost share for physical improvements.
In summary, we recommend refining the FAIR Act rather than moving-away from a market-oriented policy. Building a good foundation for a stronger, more dynamic U.S. agricultural economy can best be done by pursuing the progress already accomplished by the current farm bill. U.S. poultry producers are anxious to turn increasingly larger quantities of feed grains and oilseeds into value-added poultry products, especially to help meet the growing world demand for chicken, turkey, and other poultry. A market-oriented farm program will help us achieve that goal.
We also recommend bolstering commodity prices by ensuring a stronger commitment to export promotionespecially value-added promotionand by providing final assistance necessary to ensuring environmental regulations do not drive poultry and livestock producers out of business and reduce the domestic demand for feed grains and oilseeds.
The National Turkey Federation, the National Chicken Council, and the many members of these organizations appreciate the opportunity to share our concerns and recommendations with you. Thank you for this special privilege.
Statement of United Egg Producers
The United Egg Producers appreciate the opportunity to place their views before the House Agriculture Committee. UEP is a farmer cooperative whose members account for over 80 percent of shell egg production in the United States. Farm cash receipts for eggs amounted to $4.3 billion in 2000.
The committee will hear testimony today from a witness representing the broiler and turkey industries. We commend this testimony to the committee's attention, and are in broad agreement with its themes and priorities.
Page 403 PREV PAGE TOP OF DOC Segment 3 Of 5 The committee's present series of hearings deals with commodity price and income supports. There are no price or income supports for the egg industry, and we do not request any such policies. Likewise, we prefer to leave the design of these policies to those directly affected by them.
Like other livestock and poultry producers, however, we do ask Congress to avoid designing other commodity programs in ways that would hurt our industry. Our basic request is to allow commodity prices to be determined by the forces of supply and demand. We ask Congress to craft price or income supports in such a way that their interference with market signals is minimal.
SOME PRIORITY ISSUES
At another time, we will seek to testify before the committee and its subcommittees on those topics that affect egg producers more directly. These topics include:
Trade policy, where we support efforts to reduce trade barriers worldwide but would urge Congress and the Administration to consider seriously a renewal of the Export Enhancement Program for eggs as a means of increasing U.S. leverage in ongoing trade talks and restoring foreign sales of U.S. shell eggs in the face of subsidized European competition;
Environmental and conservation policy, where we urge Congress to provide substantial resources for new or existing programs that offer voluntary assistance to encourage livestock and poultry producers to adopt environmentally sound management and stewardship practices, and share some of the cost imposed by the Federal Government upon producers under state and Federal regulations, including those pursuant to the Clean Water Act; and
The future productivity and sustainability of U.S. agriculture, which will require a diverse range of effortsexpanded research funding, continued improvements to the safety of our food supply, and efforts to educate the public about the importance and role of production agriculture.
Page 404 PREV PAGE TOP OF DOC Segment 3 Of 5 We will provide additional information on these priorities as the committee commences hearings and deliberation in each area.
FEED COST: A CRITICAL FACTOR IN EGG PRODUCTION
Feed is the single greatest cost of egg production. Almost 60 percent of the cost of producing eggs is feed. Therefore, the egg industry has a major stake in Federal policies that would significantly affect the cost of feed.
For each dozen eggs she lays, a hen eats about 3.5 pounds of feed. Generally, 67 percent of a typical feed ration by weight would be corn, 22 percent soybean meal and the remainder other ingredients. In some regions, sorghum might substitute for corn and cottonseed meal for soybean meal.
Nationwide, our industry produces about 6 billion dozen table eggs per year. This means annual feed consumption of approximately 21 billion pounds. Since layer rations are approximately 67 percent corn by weight, the table egg industry's annual demand for corn is about 14 billion pounds or about 250 million bushels.
If each dozen eggs equates to 3.5 pounds of feed, and if about 67 percent of the feed is corn by weight, then each dozen eggs represents 2.3 pounds of corn. In early March, cash corn bids at Chicago were $2.12 per bushel, and egg producers in many regions of the country would pay substantially more than this. Since each bushel of corn weighs 56 pounds, the value of corn in a dozen eggs, at $2.12 per bushel of corn, is approximately 9 cents.
A rapid increase in feed costs makes a dramatic difference in production costs. If the price of corn were $3.12 instead of $2.12 per bushel, the extra $1 per bushel would mean that the corn cost would be 13 cents instead of 9 cents in each dozen eggs.
This 4-cent difference may sound modest. However, in 2000 the average production cost for a dozen eggs was estimated to be 42.8 cents per dozen, of which feed costs amounted to 24.6 cents per dozen. The average egg price paid to producers in 2000, according to USDA, was 46.9 cents per dozen. This meant an average margin for the year of just 4.1 cents per dozen, and for the first half of the year returns were negative. A 4-cent-per-dozen increase in feed costs would have virtually wiped out the reported margin for the entire year.
Page 405 PREV PAGE TOP OF DOC Segment 3 Of 5 In fact, there is good reason to believe the USDA figures significantly overstate profitabilityor in last year's case, understate lossesin the egg industry. The benchmark pricing recognized by the industry is the service provided by Urner Barry Publications, Inc. Prices paid to producers by customers are typically negotiated ''back of,'' or at a discount to, the Urner Barry price quotation. From reports by UEP memberswho account for 80 percent of all productionwe estimate that in 2000, most producers got 35 cents less than the Urner Barry quote. For large eggs in the Midwest, the year's average Urner Barry quote was 71.15 cents, so subtracting 35 cents yields 36.15 cents, not USDA's 46.9 cents.
This means that on average, producers in 2000 were losing more than 6 cents a dozen on eggs. Like many other segments of production agriculture, their production costs were not covered by low prices that resulted from a surplus of laying hens. To add 4 cents per dozen more to production costs in this already difficult environment would have devastated the industry, hastened consolidation, forced many smaller operations out of business and had other undesirable effects.
Another way to gauge the impact of commodity price changes on our industry is to look at the nationwide effects. Earlier, we said that the egg industry uses about 250 million bushels of corn each year. A $1 per bushel change in corn prices, therefore, increases or decreases the industry's total costs by $250 million. This change would be about 6 percent of total farm cash receipts for eggs.
LET MARKETS DECIDE
The price of corn, soybeans and other grains and oilseeds will fluctuate with supply and demand. Adverse or favorable weather, strong or weak export demand, a turn in the cattle or hog cyclesall these factors can cause feed prices to increase or decrease. Egg producers accept these realities.
The egg industry simply asks that Federal policies allow prices to be market-driven to the greatest extent possible. This means that we ask Congress not to enact policies that would distort the price of feed.
Page 406 PREV PAGE TOP OF DOC Segment 3 Of 5 Prices are distorted when government policies short the market, leading to artificial price spikes. But policies that artificially encourage surplus grain or oilseed productionwith the accompanying depressed pricesalso distort the market. Although low grain and oilseed prices reduce egg production costs in the short run, in the long run they may induce egg surpluses by encouraging excessive expansion in the industry.
Whatever income supports and safety nets are provided through the farm billand we do not seek to dictate what such programs should look likethey should be designed so that prices are free to move in response to supply and demand. The market, not the government, should set feed costs.
UEP thanks the committee for its consideration of its views and commends the committee and particularly its chairman for initiating early work on the next farm bill.
Statement of Lynn Cornwell, National Cattlemen's Beef Association
The last few years have definitely taken their economic and emotional toll on American agriculture. NCBA recognizes that mandatory spending programs to supplement farm incomes are appropriate in times of severe financial duress and respects the rights of other commodity and farm organizations to continue support for those programs. However, during difficult times, the tendency is to search for a short-term ''silver bullet'' that will annually maintain U.S. agriculture at the expense of programs that will enhance long-term sustainability .
I am concerned that in our singular focus on mandatory funding for short-term income supplements we are missing a golden opportunity to address a broader agenda with a new administration that will ensure future prosperity for U.S. agriculture and for the U.S. economy. This broader agenda must consider a balanced approach including discretionary spending for research, inspection and foreign market development, address costs of regulatory complianceincluding costs of food safety and environmental regulationsas well as account for tax, credit, debt reduction and trade policy and public education programs.
Page 407 PREV PAGE TOP OF DOC Segment 3 Of 5 Today's agriculture faces issues that our parents and grandparents never considered. We must move beyond traditional farm programs that narrowly focused on increasing commodity prices and farm income. We must address a broader agenda that includes creating demand for U.S. agricultural products and addressing costs of production. These issues must include research to develop new technologies and then public education programs to gain acceptance of new technologies that increase productivity and sustain supplies of safe and wholesome food.
The cost of regulatory compliance looms ever larger in the overall cost structure of American agriculture. Food safety and the environment have become a part of our vocabulary and a major focus of the day-to-day management of our businesses. NCBA agrees that addressing these issues is critical to maintaining demand and sustainable production of U.S. agricultural products. However, costs associated with regulatory compliance must also be considered. Regulations must be implemented in a common sense manner that does not impose a prohibitive cost structure on the underlying production industries.
Tax, debt reduction and credit issues are also critical in the overall cost structure of U.S. agriculture. A balanced agricultural policy agenda must consider legislation that would reduce costs for all Federal and State taxes and local property taxes. Agriculture is a capital intensive sector and working for legislation to assure credit availability and sound monetary and fiscal policies that do not distort interest rates are critical. Working aggressively to end taxes that are punitive to farmers and ranchers, contrary to capital creation and negative to young farmers and ranchers who want to enter the business are critical to long term sustainability. Reducing one dollar of costs for regulatory compliance, interest or taxes has the same impact on an agricultural producer's bottom line as increasing income by one dollar from higher commodity prices.
On the food safety side we in the meat industry are continually conducting research and working to identify new ways to protect consumers. Regulations must be based on science and ongoing research is critical to maintaining and updating the scientific foundation underpinning the regulatory structure.
Page 408 PREV PAGE TOP OF DOC Segment 3 Of 5 Proposed regulations are currently being considered that could literally add tens of billions of dollars of costs to the bottom line of agricultural operators with no real improvement in consumer safety. Increased discretionary spending for research, inspection, monitoring and surveillance is also critical to assure that US agriculture is not exposed to foreign animal and plant diseases. Our industry is especially aware of these issues given global concerns with BSE and outbreaks of Foot and Mouth Disease (FMD) in Europe and South America.
U.S. agriculture must also focus on programs to increase demand for our products, either as raw commodities or as ingredients in value-added food products. Improving consumer acceptance of emerging technologies is critical to maintaining and enhancing demand in domestic and international markets. Trade policy that removes trade barriers and increases access to international markets and reduces costs (tariffs) of US food products to international consumers is a critical component of a balanced U.S. agricultural program. Increased funding for foreign market development and market access programs is necessary to gain acceptance of U.S. agricultural products by international consumers.
On the trade front, the beef industry has more than quadrupled exports since the 1988 Beef-Citrus Agreement with Japanand meat exports are essentially exports of value-added US grain and oilseeds. Last year we exported a record 1.2 million metric tons of us beef and beef variety meats valued at more than $3.6 billion. By diversifying our trading partners, we have been able offset the risk of selling to only one market. Prior to agreements with Korea and the NAFTA more than 70 percent of us beef exports were shipped to Japan. Since NAFTA US beef exports to Mexico have increased from $164 million in 1993 to nearly $600 million last year. Exports to Korea totaled nearly $537 million in 2000. While total beef exports were record large during 2000 Japan's share of total exports declined to less than 50 percent as we gained access to other markets for us beef.
The current discussion regarding the next farm bill is primarily focused on tweaking and resurrecting traditional commodity programs and obtaining specified spending levels while ignoring a broader agenda and problems that pale in comparison. I recognize that there must be a balance between all the competing needs of agriculture. I also recognize that traditional farm programs are deeply imbedded in agriculture. What I suggest is that we all take a step back and examine the entire range of issues impacting the business climate for us agricultureincluding food safety, trade, tax policy, environment, credit, debt retirement, public lands access and agricultural researchand the necessary mix of mandatory and discretionary spending. Together we can develop a comprehensive agricultural policy that deals with this broad range of issues instead of focusing simply on one or two programs.
Page 409 PREV PAGE TOP OF DOC Segment 3 Of 5 I have been told that we have short-term problems that can't be solved with long-term solutions. However, in many ways our current short-term problems are the result of short-sighted, long-term decisions that were made years ago. It is time for all of us to step outside the traditional thought process and develop a comprehensive package that assures sustainability and competitiveness of us agriculture during the 21st century .
Answer to Submitted Question From the American Sheep Industry Association
If the committee reports a bill that only addresses funding for field-crop commodity provisions, will the livestock groups support such a vehicle if it does not include funding for conservation or agricultural research?
The American Sheep Industry Association supports the top priority of the commodity title in legislation that includes the marketing loan program for the wool and mohair industries. While funding for the conservation and research provisions is strongly supported by our industry, support for the legislation depends on the commodity provisions foremost.
Answers to Submitted Questions From the National Chicken Council
Thank you for your letter of March 28, 2001, and the follow-up questions to the Agriculture Committee's hearing of Thursday, March 22. The National Chicken Council appreciates the opportunity to provide further information about the issues you raised.
With respect to the question of the Committee reporting a bill that only addresses funding for field-crop commodity provisions, you ask, ''Will the National Chicken Council support such a vehicle if it does not include funding for conservation or agricultural research?'' Permit me to address the issue as follows: The National Chicken Council strongly believes that the field crop commodity provisions should not be separated from the closely-related and interdependent provisions that address natural resource conservation and agricultural research. In the past, the farm bill has been encompassing of a wide variety of provisions and broadly supported by stateholders involved in these provisions. Although there have been many changes in agriculture and food issues, programs, and policies, the National Chicken Council supports the continuation of the position that the farm bill should not separate basic, fundamental elements. Given the increased pressures on the agricultural budget, it will more difficult to determine and set priorities if individual programs are considered on an individual basis. If the National Chicken Council can provide more input on this question, please let me know.
Page 410 PREV PAGE TOP OF DOC Segment 3 Of 5 Regarding the question of a greater need of Federal support for conservation programs, particularly EQIP, you ask, ''Are there specific changes to EQIP that the National Chicken Council believes would make it more effective in dealing with environmental regulatory pressures on poultry producers?''
In its present form it is very difficult for poultry processors to obtain EQIP funding through their States. The criteria for obtaining funds are vague and the process for preparing and submitting a proposal is very daunting. Available funds to poultry processors are also very limited, since they must compete with all other non-point source activities within their respective states.
You also raised the question as to whether our industry has any specific recommendations regarding the current direction and support for Federal agricultural research programs. The National Chicken Council is a part of the National Coalition for Food and Agriculture Research (National C-FAR) and the Animal Agriculture Coalition. In addition to supporting the research funding goals and general research direction of these coalitions, the National Chicken Council would like to see increased support for research addressing foodborne pathogens at the farm level. This is where we need to place our emphasis if we are to achieve our food safety goals.
THE FUTURE OF FEDERAL FARM COMMODITY PROGRAMS (SOYBEANS)
THURSDAY, MARCH 29, 2001
House of Representatives,
Committee on Agriculture,
Page 411 PREV PAGE TOP OF DOC Segment 3 Of 5 The committee met, pursuant to call, at 9:35 a.m., in room 1300 of the Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives: Combest, Stenholm, Goodlatte, Everett, Chambliss, Moran, Thune, Jenkins, Gutknecht, Simpson, Hayes, Pickering, Johnson, Osborne, Pence, Rehberg, Graves, Putnam, Kennedy, Peterson, Dooley, Clayton, Berry, Etheridge, Boswell, Phelps, Lucas of Kentucky, Thompson of California, Hill, Larsen, Kind, and Shows.
Staff present: William E. O'Conner, Jr., staff director; Tom Sell, Alan Mackey, Callista Gingrich, Jeff Harrison, Craig Jagger, Christy Cromley, Anne Simmons, and Howard Conley.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
The CHAIRMAN The hearing to review the Federal farm commodity programs with the soybean industry will come to order. I welcome everyone to this eighth hearing in the most recent series of farm program hearings of this committee. As we all know, yesterday the House passed a budget resolution that contains what I consider to be a very solid commitment for agriculture.
For the first time, we will have the opportunity of crafting policy based on what is best for American agriculture rather than arbitrary numbers. With this commitment, however, this committee was given a great charge as well. According to the budget, we will be required to report a bill by July 11, 134 days.
Fortunately, I think we are off to a strong start. We began a concerted effort to inspect and revise our farm policy more than a year ago, as we crossed the country in a series of 10 field hearings. Our work has continued this year as we have brought major farm organizations and commodity groups before this committee to provide very specific, detail-oriented proposals on where they would like to go with farm policy in the future.
Page 412 PREV PAGE TOP OF DOC Segment 3 Of 5 In these hearings, we have charged each of the witnesses appearing to explain to us exactly what aspects of farm policy that they would like changed or kept the same. Witnesses have also been expected to explain how their policy recommendations would affect related industries, the ability to move product in the export market, the effect on farm program expenditures, and our WTO obligations. These are rigorous expectations I realize. It is not easy to build consensus even among a group of people focused on one commodity, but the process is a worthy one that will ultimately benefit agriculture, its producers. And that is what we are all here for.
Testimony today will be presented on behalf of the soybean industry by Mr. Bart Ruth, first vice-president of the American Soybean Association. Mr. Ruth is accompanied by Mr. Marc Curtis, chairman of the American Soybean Association.
I would like to welcome our witnesses to the table and would certainly recognize Mr. Stenholm for his statement, at such time that he might arrive. And the gentlemen are there. So please proceed.
STATEMENT OF BART RUTH, FIRST VICE-PRESIDENT, AMERICAN SOYBEAN ASSOCIATION, RISING CITY, NE
Mr. RUTH. Good morning, Mr. Chairman, and, members of the committee. I am Bart Ruth, a soybean and corn farmer, from Rising City, NE. I serve as first vice-president of the American Soybean Association and as chairman of ASA's Public Affairs Committee. Accompanying me is ASA Chairman, Marc Curtis, from Leland, MS. In addition to ASA, we appear today on behalf of the National Sunflower Association and the U.S. Canola Association.
I would like to express our appreciation to you, Mr. Chairman, for conducting these hearings on domestic farm policy alternatives for the next farm bill. We look forward to working closely with your committee and your staff in developing effective legislation. Before describing our ideas on domestic farm programs, I would like to briefly describe the policy environment facing you, as oilseed producers, in recent years, and its impact on our consideration of various policy alternatives.
Page 413 PREV PAGE TOP OF DOC Segment 3 Of 5 The authors of the FAIR Act did not expect the transition from Government dependence to market orientation to take place solely as a result of changes in domestic farm policy. They made clear that the overall economic and trade environment of U.S. agriculture needed to be changed to reduce production costs and enhance the competitiveness of U.S. farm exports. A list of these policy commitments is included in my statement.
We appreciate that renewed efforts are underway in the new Congress and in the new administration to focus on the problems facing agriculture and to complete the FAIR Act's unfinished agenda. However, even if progress is made in the near future, these efforts must be viewed as long-term investments. As a result, we must assume that conditions during the next several years could remain much as they are today.
Key elements of the FAIR Act should be maintained the next farm bill. These include full and unrestricted planning flexibility, continuation of non-recourse marketing loans, no statutory authority to impose set-asides, and no authority to establish Government or farmer-owned reserves for oilseeds.
In addition, oilseed producer organizations oppose any limitations on marketing loan benefits, fixed-income payments, or any counter-cyclical income support payments. I will now briefly describe our recommendations for domestic farm programs for major commodities.
Oilseed producer organizations support maintaining current oilseed loan rates for 2002 crops and setting these rates as floors, rather than ceilings, under the next farm bill. The formula for adjusting loan levels to 85 percent of Olympic average prices in the previous 5 years should be retained and discretion should be provided to the Secretary to set loan levels above the floor when prices warrant.
ASA does not believe that the current national average soybean loan rate of $5.26 per bushel has been responsible for most of the expansion in U.S. soybean acreage since enactment of the FAIR Act. We attribute most of the growth to other factors. First, the incentive to build bases for program crops under previous farm bills had created tremendous pressure to exclude soybeans and other non-program crops from rotations. Introduction of unrestricted planting flexibility and decoupled income support payments reversed this pressure and allowed producers to achieve a more agronomically optimum crop rotation.
Page 414 PREV PAGE TOP OF DOC Segment 3 Of 5 A second factor was the relatively high soybean prices between 1995 and 1997, compared to prices for other commodities that compete with soybeans for acreage. Third, new soybean varieties have been developed in maturity groups that are far better suited for northern and western climates than before. Last year, virtually all of the expansion in soybean plantings occurred in North and South Dakota, Minnesota, Wisconsin, Michigan, Nebraska, and Kansas.
A fourth factor has been the prevalence of scab and other diseases affecting wheat and other crops. In major wheat States, such as North Dakota, moving out of wheat production has been the only way to avoid reoccurrence of scab.
Other factors may encourage soybean plantings in place of corn for 2001. High costs or limited availability of natural gas and fertilizer have offset recent improvements in corn prices. Also, the continuing disruption of foreign and domestic U.S. corn markets, resulting from the Starlink debacle, may be contributing to this year's expected decline in corn plantings.
A final issue to consider is that global consumption of soybeans grew by 55.7 percent in the 1990's. This compares to 26.9 percent for corn and only 6.2 percent for wheat. As a result of continuing strong domestic and foreign demand, U.S. carryover stocks of soybeans this fall are expected to total about 12 percent of use. By comparison, corn stalks are projected at about 20 percent of use and wheat supplies will be 32 percent of use. To the extent the soybean loan rate is a factor in planting decisions, reducing it would increase production of crops that are already in greater surplus.
Oilseed producer organizations support requiring oilseed loans to be repaid at the lower of a Posted County Price or an Adjusted World Price, or AWP. The AWP would be set on a weekly basis in reference to prices of oilseeds delivered at major foreign markets, including freight costs. The purpose of using an Adjusted World Price is to ensure that U.S. oilseeds and oilseed products are competitive in both foreign and domestic markets under the next farm bill. U.S. crops are currently marketed at prices that reflect the domestic market, but not overseas markets. Basing loan repayment on values that directly reflect the prices of our competitors in foreign oilseed markets would address this situation and would also help offset the negative effect of the high value of the dollar on U.S. exports.
Page 415 PREV PAGE TOP OF DOC Segment 3 Of 5 Oilseeds are not currently included in the formula for determining payments under Production Flexibility Contracts, or PFCs. Oilseeds were grown on 31 percent of row crop acreage last year, and the percentage is likely to rise in 2001. Our organizations strongly support expanding the PFC Program to include oilseeds.
Specifically, we ask that baseline annual funding of $4.008 billion provided for PFC payments after 2002 be increased to $5.7 billion, with the additional amount distributed to farms that produced oilseeds during the 1997 through 2001 period. USDA data indicates that during 1996 through 1999, soybeans averaged 28.5 percent and other oilseeds averaged 1.2 percent of the value of crops that would be included under an expanded PFC Program. The increase in PFC payments reflects this 29.7 percent oilseed share.
Oilseed PFC payments should be distributed based on a farm's acreage and yield for each oilseed produced in any single year during the 1997 through 2001 period. As under the current PFC Program, oilseed payments would be transferable with the acres on which they were produced in the selected year.
We do not propose changing the current formula or base period for distributing PFC payments for other crops. We recognize that, unless a common base period is used, an oilseed payment could be made on the same acres on a farm on which a PFC payment is already made. However, we believe this situation is preferable to backdating oilseed payments to reflect obsolete production data in the early 1990's or updating payments for other crops that have lost acreage under the FAIR Act and that would receive reduced PFC support.
Oilseed producer organizations support replacing ad hoc emergency economic assistance payments, which have included an oilseed payment with a counter-cyclical Income Support Program. After 3 years of improvisation, farmers and their lenders need longer-term assurances that a safety net is in place to protect against low prices and income.
We propose a program that would offset any shortfall in the national gross return per acre for a crop from the Olympic average national gross return per acre for the crop during the 1993 through 1997 period. Gross return per acre is defined as the higher of the season average price or the loan rate for the crop, multiplied by national production, and divided by the national harvested acreage.
Page 416 PREV PAGE TOP OF DOC Segment 3 Of 5 We propose providing payments to producers equal to the shortfall in a crop's return per acre on 85 percent of harvested acres in the current year. USDA would use estimates for current year prices, production, and acreage to determine the per-acre payment, which would be made as producers document their harvested acres.
The concept of compensating producers for low income based on acres complements the marketing loan program under which benefits are tied to actual production. It addresses a perennial shortcoming in the Federal Crop Insurance Program. Every year, many producers experience below-average yields, but not low enough to qualify for crop insurance coverage. This low-yield gap in income support would at least partially offset by providing payments on harvested acres.
In our view, this proposal will not count against U.S. commitments to reduce trade-distorting domestic support in the WTO. Paying producers on 85 percent of their current year acreage would support classification as production-limiting or blue-box program, which would be exempt from discipline under the Uruguay Round Agreement. We are continuing to analyze this counter-cyclical concept and hope to provide information to the committee on how it would apply on a State, as well as national, basis.
The balance of my statement comprises a summary of analysis we have completed on the farm program we are recommending to the committee. This analysis has been performed by AgriLogic, Incorporated, of College Station, Texas. In order to provide information comparable to the December 2000 baseline analysis prepared by the Congressional Budget Office, or CBO, we asked AgriLogic to conform the assumptions in its macroeconomic model to reflect those used by CBO.
Using CBO assumptions, direct payments to producers under ASA's recommended policies average $10.4 billion over the 2002 to 2008 period. As indicated on the attached summary comparison report prepared by ArgiLogic, soybeans received the bulk of benefits under the marketing loan and counter-cyclical Income Support Program. However, returns above variable costs increase for all commodities under the proposal.
Page 417 PREV PAGE TOP OF DOC Segment 3 Of 5 In our view, the CBO baseline is highly pessimistic regarding the outlook for soybean prices and relatively optimistic regarding prices for other commodities. For soybeans, CBO does not project prices to rise above the loan rate of $5.26 per bushel until the 2006 crop. By comparison, CBO expects corn, wheat, and cotton prices to remain above the loan rates for these crops throughout the baseline period. As a result of these assumptions, nearly all of the costs of maintaining current loan rates is attributed to soybeans.
Similarly, CBO's price assumptions have the effect of increasing the projected cost of our counter-cyclical proposal for soybeans and reducing outlays for other crops. Corn prices never fall below the 1993 through 1997 benchmark. Wheat, cotton, and sorghum receive substantial support, although not to the extent of soybeans.
In contrast, the more conservative AgriLogic econometric model shows all commodities receiving counter-cyclical payments in 2002. Total annual payments average $11.7 billion, with the increase reflected in higher costs for cotton and rice support. Average payments for soybeans are little changed under the AgriLogic model.
AgriLogic's analysis indicated our proposal would have minimal effect on livestock production and prices. Average hog prices decline 3.9 percent as reduced soybean mean and feed costs result in increased hog production.
With unrestricted planning flexibility, almost certain to be continued in the next farm bill, there is no reason for any commodity organization to seek a disproportionate share of Government support. The consequences of oversupport are overproduction, even lower prices than we have today, and substantial market distortions. Oilseed producers do not want to see these consequences for our crops.
Mr. Chairman, there are other important priorities that need to be addressed in the next farm bill. ASA has endorsed the Conservation Security Act introduced in the House by Representative Emerson, and in the Senate, by Senator Harkin, last year. ASA also supports a significant increase in funding for agricultural research in the next farm bill. Specifically, we encourage the committee to provide annual funding of $1.5 billion for conservation payments and $1 billion for research.
Page 418 PREV PAGE TOP OF DOC Segment 3 Of 5 Additionally, ASA supports increased funding of export assistance, market development, and food aid programs that are critical to expanding demand and improving commodity prices. To address market access, regulatory, and marketing issues in agricultural biotechnology, ASA recommends establishment of a new Biotechnology and Agricultural Trade, or BAT, Program.
That concludes my statement, Mr. Chairman. I want to thank you again for convening these important hearings and for inviting oilseed producer organizations to testify. Mr. Curtis and I will be glad to respond to questions.
[The prepared statement of Mr. Ruth appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much for your testimony. Could you spend a little more time on your counter-cyclical proposal and explain to me how you anticipate that working? How would you propose it work?
Mr. RUTH. Well, what we have proposed is taking a look at the national gross return per acre and comparing it with the baseline period of 1993 through 1997. Any year there is a shortfall in that, we would have a payment. I think in the written testimony that you have received, we have some illustrations. In the case of soybeans, the Olympic average gross return per acre for 1993 through 1997, is $238.59.
The CHAIRMAN. OK. That would be your base.
Mr. RUTH. That would be the base.
The CHAIRMAN. All right.
Mr. RUTH. And in the year 2000, taking a look at the loan rate of $5.26 multiplied by the 2.77 million bushels, comes up with the $14.5 billion value. You divide that by the harvested acreage, and the average gross return per acre for 2000, was $200.42.
The CHAIRMAN. OK.
Mr. RUTH. So there was a shortfall of $38.17.
Page 419 PREV PAGE TOP OF DOC Segment 3 Of 5 The CHAIRMAN. OK. So that would apply to anyone producing soybeans.
Mr. RUTH. We are proposing that that payment based on 85 percent of their acres. So on a 100-acre farm, 85 acres would receive that payment.
The CHAIRMAN. Right. But anybody anywhere in the country would be using the same base. If there is a shortfall from your base, and whatever that shortfall would be, would be the counter-cyclical payment of whether I am raising soybeans in Texas or we are raising soybeans in Indiana.
Mr. RUTH. Under this proposal, we had attempted to analyze this further back to a State-by-State basis or on a regional basis. And we haven't been able to complete that analysis and if we are able to accomplish that, we would be happy to share that information with the committee.
The CHAIRMAN. And the base acres, which you would calculate the 85 percent on, would be from what history?
Mr. RUTH. It would be in the current year's planting, is 85 percent of their planting acreage.
The CHAIRMAN. Whatever they are planting that year. And there would be no limitation on that or on the amount that one would be able to receive under the counter-cyclical payment.
Mr. RUTH. That is just based on 85 percent of their acres. Correct.
The CHAIRMAN. OK. Let us say that I am a producer in an area, for example, on your mapI assume you have those same maps. I am assuming you all provided those maps for uswhere you have got the changes and you have got the soybean acres reported. What happens in an area that traditionally has not been a soybean-producing area? Would anyone who decided they wanted to grow soybeans could this under the program.
Page 420 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. RUTH. Well, under the current FAIR Act, producers have that option to plant whatever they would like to plant in the summer.
The CHAIRMAN. Well, I realize that. Under the present FAIR Act, we haven't set a level that said that if you come in at less than $200 an acre, you get a payment. But that is my question. Anywhere that a person wanted to raise soybeans, there would be no limitations on that.
Mr. RUTH. That is correct.
The CHAIRMAN. OK. I a counter-cyclical payment type of program, which everyone, I think, maybe one or two exceptions, but most of the people, I will say, that have testified, are looking at counter-cyclical. I think we all are, recognizing the deficiencies of a payment system as was established under the FAIR Act, that doesn't take into consideration price.
One of the challenges that I want us to consider, as we are looking at farm legislation, if you maximize the market potentialwe are trying to do everything we canor I am, personally, with people in my district and others in agriculture, to maximize their market potential, look at varieties of ways of marketing. And we have seen some fairly successful stories where people look at options of marketing. Under a counter-cyclical payment, what keeps that from being a deterrent to trying to maximize your market potential if you know that if you don't make it up to that level that Government is going to? What is the incentive to try to maximize your marketing potential?
Mr. RUTH. Well, under this proposal, an example from 2000, the $38 would be the difference. Then when you are looking at a national basis, the size of that payment is never going to be real huge, because if you are factoring so much area and so many geographies that obviously if you took it down to a regional or State level, that payment would have the potential to be much larger because it would factor in weather in regional areas. As we look at what happens to our production year to year, we don't see that great of a change on the national basis that I think, producers are still going to have the incentive to produce the best crop they have and what makes the most sense agronomically and economically.
Page 421 PREV PAGE TOP OF DOC Segment 3 Of 5 Because that payment is not a guarantee. You know what the base is, but you don't know until after harvest, or harvest time, what the projected payment for that year is going to be. So I think your incentive as a producerand I think all producers are the samethat you try to grow the most on every acre and maximize your returns.
The CHAIRMAN. I have got some more and I am going to come back to on that on the second round. Thank you very much. Mr. Larsen. Not here.
Mr. ETHERIDGE. Thank you, Mr. Chairman, and thank you for the hearing. My first question, Mr. Ruth, concerns your proposed biotechnology agricultural trade programs to promote biotechnology. And, at first glance, it looks very similar to the Market Access Program. Could you explain more about the proposal and, let me say, I am a supporter of biotechnology and I am curious to know whether you see that as promotion for specific biotech products or for biotechnology in general. And who do you foresee having access to the BAT type programs? Would it be companies? Would it be cooperatives or a commodity organization?
Mr. RUTH. Well, in your written text that you have submitted, on page 10, we talked about the three different components that we envision under BAT. And we are talking about, commodity organizations, using them to educate our foreign markets. We talked about increased funding for U.S. Government programs to inform our customers in our export markets about the advantages of biotechnology and the additional food safety that biotechnology encompasses. And also, there is a need for increased personnel in the Foreign Agricultural Service to get the message out about biotechnology.
Mr. ETHERIDGE. So your envision would be a general general information on biotechnology as an educational instrument.
Mr. RUTH. Yes. We wouldn't be promoting specific products. It would be to promote expanded use of biotechnology. There is so much potential of biotechnology. As our world population grows, we need to be getting the message out that this is the way that we can continue to feed the growing world population.
Page 422 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. ETHERIDGE. OK. Thank you. I couldn't agree more. I think there is a lot of misinformation and I think it is going to have to take a concerted effort, not only on the part of producers, but the companies bear a heavy responsibility, in my opinion. They have sold the farmers on a lot of the goods and now we have got to be able to market our products.
Let me ask you on one other area. Last week I had a number of soybean farmers who came to my office and raised many of the issues that you have already raised today. So you are getting your message out, at least, to them. One thing they mentioned which you did not, in your written testimony today, that I saw, was the World Initiative for Soy in Human Health, or the WISHH Program, I think they referred to it as. And, as I understand it, this program is designed to expand the role of soy products in humanitarian assistance programs. Would you talk just a little bit about the role that these products currently have in the food aid programs and how you hope to see them expanded and how your organization really felt the need to establish it initially?
Mr. RUTH. OK. Recently we have had approval from the Farm Service Agency to add, was it seven new additional products to the mix of commodities that can be used in food aid programs. And this would be processed products, like flour, soy flour, and some of the refined products to be included in food aid programs. So we look at that as a positive step toward including more soy in diets around the globe. And we look at working with the global initiative for food aid and the school lunch program and those types of opportunities as excellent means for us to get our product into new markets and improve the diets of the people around the world. Do you want to add anything Marc?
Mr. ETHERIDGE. Let me follow it up on one more piece before my times runs out. Because I think what are the opportunities for the producer to have a part in the value-added as we expand these opportunities? I think that is an important piece if farmers are going to be able to expand their opportunities and gain additional income.
Page 423 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. RUTH. Well, we have always had in our policy that we encourage programs that enable farmers to work cooperatively to add value to their product where some of the things that are happening with fuel with biodiesel. There are some local farmer cooperatives that have gotten involved in that, and refining oil. There is lots of farmer-owned crushing facilities being developed. So anything that we can do to help promote that, we are glad to assist farmers in doing that.
Mr. ETHERIDGE. Thank you. Thank you, Mr. Chairman. I think this is an area that is very important as we look to the needs of increasing protein in the world and the amount of opportunity we have for the products we have to help world hunger and also expand the opportunities not only around the world, but in this country in the child nutrition programs in our schools. Thank you, Mr. Chairman. I think my time has expired.
The CHAIRMAN. Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman, and thank you, Mr. Ruth. I noticed in your testimony that you endorse the Conservation Security Act. I want to thank you for that support. I am going to be reintroducing that legislation later today. A couple of questions coming back to a question the chairman asked. South Dakota experiences probably a good case in point because we have seen a big increase in production in our State, if you look at that map. And you noted a lot of the reasons for increase in production. I would argue, as well, in visiting with individual producers, that loan rates have had something to do with that. I think that a lot of that has driven some of the increase in production, along with hybrid seeds and everything else.
But coming back to the counter-cyclical question that the chairman asked about, tying the counter-cyclical payment to production. The whole kind of concept behind FAIR was to decouple some of that. Tying the counter-cyclical payment to production seems to me that you are going to encourage more production of soybean acres, and we are already seeing that increase in production. It doesn't add in the long run. If you are looking for the impact that it is going to have at the marketplace, actually, have a downward impact on price.
Page 424 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. RUTH. Well, what we have proposed under this counter-cyclical is, it would be crop-specific, so there would be an establishment of baselines for all crops. I mean, not just soybeans. It is based the value of that production and not the volume of bushels or the acreage. It is based on the value of return per acre. Corn would have a base established of what the target was for that year. So I guess I don't see that driving a shift in acreage from one crop to the other.
Mr. THUNE. Yes,it is a little different concept than what has been proposed as a counter-cyclical by some of the other groups that have testified here. And so I think we always trying to understand how exactly that would work and what impact that would have in the market. So that is, at least, a question, I guess, we would probably like to explore more with you.
You mentioned also, early onI guess it was mentioned in reference to some of the objectives of the current farm policy that value-added was one of those. We have had some great successes in my State, not only with ethanol production with corn, but we have, in Volga, SD, a soybean processing facility that has done very well. And I guess I would be curious to know if you have other ideas about things that we might do or that USDA might do to create greater demand for biodiesel and other value-added products.
Mr. RUTH. Well, currently, we are developing proposals for inclusion of biodiesel as part of the renewable fuel strategy within Federal energy policy. We think that is not only important for the country and for the environment, but it is good for agriculture. I think a lot of the things we have talked about in the early part of the statement, we talked about some of the things that we need to continue to look at as long-term investments, and that is definitely one of them. And unless we make some changes and make some long-term investments, we are not going to see any different environment in agriculture 5 years from now as we are today, unless we do some of those kinds of things that make sense, not only for the country, but for agriculture.
Page 425 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. THUNE. Is there anything, though, and I agree with everything you have just said. I think as far as our energy policy, we have got to be looking in the area of renewables and this is just a ripe opportunity for agriculture to step up. But is there anything, in terms as we think about drafting the next farm bill, that we might include incentives to encourage producers to become more involved in those types of industries, those types of operations?
Mr. RUTH. Yes. What we have discussed, when we were talking about the renewables, is more of maybe trying to stay within the energy component and also in a tax component. I guess if there is ideas that you have, working within the Agriculture Committee and with agriculture policy, we would be glad to discuss that with you.
Mr. THUNE. All right. Well, I am curious to know because it is definitely, I think, a goal and it is how we go about getting there. And I do have a couple of pieces of legislation, one that is in the tax area, that provides a tax credit for producers who invest. And that is probably not something that is going to fall under the jurisdiction of this committee. But there is also coupled with that a grant program that would create agriculture innovation centers that would help kind of address the technical barriers that sometimes exist in value-added. But I see two obstacles, one being capital and the other being some of the technical issues.
And so if you have any suggestions about how we might reduce those barriers and improve the outlook for value-added agriculture, we would certainly welcome those, because that is, I think, going to be an important component in any policy we draft in the future. And the question is, how do we fit into that? What can we do to enhance, encourage, and further provide incentives for that sort of development? I yield back, Mr. Chairman. Thank you.
The CHAIRMAN. Mr. Hill.
Mr. HILL. Thank you, Mr. Chairman. I am curious as to why you think that the high loan rate for beans is not one of the factors contributing to the increased acreage for beans.
Page 426 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. RUTH. Well, when we look at when the major shift took place in beans, the largest shift took place in the first 2 years of the FAIR Act, which was the first time producers had the flexibility to plant what made sense on their operation. And, as we look at what has happened in the western corn belt, we had higher prices those first couple of years. It made sense for producers, not only financially, but agronomically, to fit into their rotation to make that shift. We are not saying that it was not a factor, but we think it is probably one of the minor factorsthe loan rate. Because those early years, soybeans were definitely above loan rate. So it was not a factor the first couple of years in the expansion.
And when I talk to producers at home, I have neighbors that say they can produce corn for loan rate more easily than they can the soybeans. So it depends on the individual producer, but I think if I was rating the factors on the shift, I would put loan rate down 5 or 6.
Mr. HILL. But what is the major reason why the soybeans then
Mr. RUTH. Just what the rotation does for your cropping practices, what it adds to your corn the following year. It adds nitrogen to the soil. Nearly any agricultural program will tell you that rotations make sense, and it makes sense for the environment. It makes sense for the producer. So that was the big drive under the previous farm bill. Most producers in the western Plains had anywhere from 90 to 100 percent feed-grain base. In order to participate in the program, you planted every acre you could to feed grains. And with the FAIR Act, producers finally had the choice to plant what they wanted. So that was the major reason for the first shift.
Mr. HILL. Well, but my farmers back in Indiana, where I live, tell me that it is more attractive to grow soybeans at this loan rate than it is corn. I mean that is major reason why they are doing this. But you are saying that that is not the case. That is not the major reason. Right?
Page 427 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. RUTH. It is going to vary by region. And I think also in soybeans you have less input cost especially the last few years, I know a lot of producers have been under pressure from their lenders to reduce their input costs, plant a crop that doesn't require as much capital up front. So I think that has been a factor. And that is probably what ties into your equation from producers in Indiana, that they are looking for a lower input crop and the loan rate certain regions it may factor in more than others. In an area where like Indiana where you probably had the rotation prior to the FAIR Act, it is probably more of a consideration than the rest of the Great Plains.
Mr. HILL. OK. That is the only question I had, Mr. Chairman.
The CHAIRMAN. Mr. Osborne.
Mr. OSBORNE. Thank you, Mr. Chairman, and thank you for coming. And I appreciate your testimony and obviously a lot of work and thought has gone into this. First of all, I would just like to compliment you and emphasize the importance that I feel on what you have on page 10, which has to do with conservation issues. Obviously, that is going to become more and more expensiveTMDLs and Clean Air, Clean Water Acts, and hopefully the committee will bear that in mind as we move forward. I think agricultural research is critical and, again, that has been a little bit of an apprehension of mine, that somehow that gets lost in the product in this project. And then, of course, FMD and MAP and Public Law 480, I think, it critical. And your ideas on biotechnology, I think, are innovative and good because obviously we are suffering from a poor perception internationally in terms of biotech and we have to do something to reverse that.
Just a couple of questions. What do you think would cause a producer not to plant more marginal acres under your counter-cyclical program? The big concern I have is that we simply increase acres that are not very productive. But if you are going to make a payment on the basis of 85 percent of your planted acres, is there any way that you can keep people from just going ahead and planting more in order to receive a higher percentage of payment?
Page 428 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. RUTH. The same question arises when you talk about crop insurance and we look at what crop insurance does. When you try to create a balance where you don't create an incentive to put those marginal acres into production, but yet you still have to write a program balanced enough to protect producers that are on that borderline between a marginal production area. I don't think under this proposal, especially when you are looking at a national average, that the payment potential is large enough to encourage anybody to, but if you are talking in the case we looked at here for 2000, $32 an acre, you are going to have to be within $15 or $20 of breaking even to start with before you would even consider it, because that payment is not a given. You don't know what that value would be until after the crop is planted because it wouldn't be determined until harvest time what that value for the year would be.
Mr. OSBORNE. I think the chairman alluded previously to the idea of the inherent dangers of proceeding on a national gross revenue rather than a State or regional. Because there are going to be some huge differences in cost of production and operation region by region. Are you moving in that direction or would you rather stay with a national gross average?
Mr. RUTH. Well, we intended to have the analysis at the State level. It has been a little harder to put a handle on that. I think on first impression, a program that breaks it down to a State or regional level is going to be a more costly program because you are going to have areas that are going to have a larger differential from year to year than you would on a national basis. And that was one of the discussions we had early on. If you devise a program based on a national average, is there a point where that program ever kicks in because the chances of a range at the national level are pretty small. And if you break it down to a State or regional level, the chances of certain areas of the country receiving a larger payment, are greater.
And so we hope to have that analysis and, when we do, we will have it for the committee's use. So it is something we are not abandoning and we continue to take a look at it.
Page 429 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. OSBORNE. All right. Then lastly, do you have an idea as to a total cost of the program? I know you have gotten individual elements here, but do you have a total cost or at least a range of numbers that you feel that you are going to end up with?
Mr. RUTH. Well, using the CBO assumptions, the total is $10.4 billion on a yearly average. When we use the AgriLogic model, which was a little more optimistic for soybean prices and a little more pessimistic for other grains, that increased the cost to, what, $11.7 billion. We do have a chart in there that breaks it out by program costs. And then that would be just the direct payment portion. Then we had the additional billion-and-a-half for conservation programs and a billion for research.
But when we break it down in 2002, the counter-cyclical component is around $3.8 billion, the LDP portion is about $4.5 billion, and the AMTA is about $4 billion. So one of our initial goals was to try to design a program that was balanced between the three components and not relying strictly on one leg of the stool, so to speak, to try to create a balance where all three components contributed equally.
Mr. OSBORNE. OK. Thank you.
The CHAIRMAN. Mr. Phelps.
Mr. PHELPS. Thank you, Mr. Chairman. Again, thanks for coming and giving us valuable input. Looking at your digressing on the FAIR Act's unfinished agenda, I know you discussed most of it in depth and responded to questions. But one of which I wondered, in a meeting with farms groups throughout my district, trying to get specifics on your last point, when you said relief from regulations that imposed uncompensated costs on agriculture. Can you give three of the most concerned regulations that you have that hamper your operations?
Mr. CURTIS. Congressman, I think right now the real buzzword in the countryside would probably be TMDLs. Certainly, TMDLs are something that we think will add a great deal potentially
Page 430 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. PHELPS. Do you want to explain that in case we don't know
Mr. CURTIS. Total maximum daily loads, which means that within a watershed, a level of each pollutant is established and with a threshold that, at any given time period, that threshold could not be exceeded. And if it is, steps must be taken to make sure that it is not exceeded. And example of that would be that if you had a threshold established for a certain pesticide, that it was predicted that it would be exceeded by allowing producers to all spray on 1 day, then, by regulation, only a set number of producers would be able to apply that pesticide on a given day, another set of producers in that watershed on another day, and so on, and so forth.
Again, as an example, maybe I was scheduled to apply my pesticide on this day and it rained and I was not able to do it, then maybe I would not even be allowed to apply that pesticide or at least not to a later date when it may not be effective. That is certainly going to interfere with our efficiency of our operations. It could reduce the effectiveness of that particular pesticide or that operation we were going to perform and such things that it is going to add costs to our operations.
Mr. PHELPS. So if I hear you right, there are no allowances for in case weather influenced the schedule. You don't have the flexibility.
Mr. CURTIS. TMDLs are just now being established, and I think it is really too early to determine exactly how they are going to work, but if there are going to be allowances, they are going to be mired in bureaucratic red tape, which, I think, will probably make it very difficult to do.
Mr. PHELPS. What is the answer in when you would give recommendations to
Mr. CURTIS. Well, I think the alternative to TMDLs is to continue, as we have done for many years, to promote voluntary or incentive-laden conservation practices to allow us to continue to make progress on conservation practices, such as no till, and so on, that would probably wind up serving the same purpose and getting the same results without regulatory burden and maybe even without the expense that we may have to be expending at this time. And bills, such as the bill Mr. Thune talked about earlier, about he is going to introduce later on today, it goes down that path.
Page 431 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. PHELPS. Any other regulations come to mind?
Mr. CURTIS. There is talk about dealing with hypoxia, requiring farmers to reduce nutrient inputs to their crop reduction systems, which would inevitably result in lower yields.
Mr. PHELPS. When you say there is talk, that is not presently
Mr. CURTIS. The regulations have not been published.
Mr. PHELPS. What about presently that you are facing? I am trying to accumulate a list because I keep hearing these regulations are so terrible, and we need to know what they are.
Mr. CURTIS. Right now I can't think of any. But I think the reason you keep hearing this is because all this has been in the works for the last 4 or 5 years. We see it coming. We know what is going to happen to us, when it does come, and we are beginning to get a few of these TMDLs in place now. In the next 3 or 4 years, they will all be put in place. We know what is going to happen to us.
Mr. PHELPS. Thank you very much.
The CHAIRMAN. Mr. Kennedy.
Mr. KENNEDY. Thank you very much for your testimony. Speaking what from my farmers claim is the number one soybean-producing district in the country, we appreciate you being here. And one of your former heads of your organization, Mike Yost, and I, are from the same hometown of Murdock. I would be remiss not to ask you to comment further on the U.S. Food for Progress Program, which is, I know, something he has talked to me about, and what you see the benefits of that and how you see that impacting prices in this country if we were to fund that at the levels you are speaking of.
Mr. CURTIS. Yes, sir. We think very much of Mike Yost. He was my predecessor and I learned a lot from him. Going back to the WISHH Program, a number of benefits to producers from the WISHH Programone, is, first of all, was getting product out and consumed, taking it off the marketplace, which we would hope would increase the price of our crop, once again, lowering cost to the Government, in fact, by being less LDPs and that type of thing. But maybe as important as anything is getting peoples who can't afford those products now exposed to them as a market development tool, where, when they are able to start purchasing products on their own, they are familiar with soybean products and that is what they want, as a market expansion tool.
Page 432 PREV PAGE TOP OF DOC Segment 3 Of 5 We have done those type things in the past in other programs. It has worked very well for us and we think this program will work very well, both as a benefit to the world's hungry, just a generation from this country. And we know for a fact that a well-fed child, in particular, has the potential to become better educated. We have research showing that a better educated person participates in the world economy better. So we would expect to see benefits to the world economy that way, plus, again, getting product off the market and getting them exposed to soybeans.
Mr. KENNEDY. Good. Thank you for those comments. Another way that we have focused on in Minnesota is, we are moving through the legislature at 2 percent soy diesel requirement, which would ultimately grow over time to replace the lubricity in diesel, that taking sulfur out, according to the new regs, would require. What kind of an impact would having a similar type of a program, a 2-percent blend, have on the prices of soybeans and, therefore, the reduction in the necessary Government support?
Mr. CURTIS. We think it would be very dramatic. We are working on proposals, along with other commodity groups, through the renewable energy bill that would be introduced, or has been introduced. And not to say too much, because we are still trying to develop those proposals along with other groups, but we are probably going to be asking for something in the area of a 3-cent excise tax reduction to be offset by a 3-cent reimbursement back into the Highway Fund from CCC, offset once again by the increase in the price of soybeans due to the increase of use of soybean oil from the marketing loan.
Mr. KENNEDY. OK. And on this counter-cyclical payment that we have talked about, some of the other organizations, rather than basing it on that year's production, have picked, for example, a 3-year average production so it wasn't as closely tied to production, therefore less likely to be qualified under the amber box, under WTO. Would you guys have opposition if the ultimate form of this came in a 3-year average type of format?
Page 433 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. CURTIS. I don't think we would have opposition. In fact, we actually looked at that. But the problem with that is the fact that since soybeans have not been in the program in the past, the USDA actually doesn't have any records previous to 1997 to base any historical data on. And that is the problem we ran into trying to base on a historical pattern before 1997.
Mr. KENNEDY. OK. And on the BAT Program, you didn't necessarily put a dollar amount. What kind of dollar amount do you think you are going to need on the BAT Program in order to offset some of the marketing that is going against these crops in Europe and other areas?
Mr. CURTIS. I think we actually did put a price on there of $200 million.
Mr. KENNEDY. OK. I didn't know if that was related to the BAT Program.
Mr. CURTIS. Yes, sir.
Mr. KENNEDY. And then on the research, you talked about an increased focus in research. Are there areas that soybean growers are focusing on for research that we should try to target those dollars?
Mr. CURTIS. Well, our proposal in our written statement was for agricultural research overall. However, as we have said in front of the committee before, soybean research, if I remember the numbers rightand I don't have it in front of meI think right now we have spent $29 million in soybean research, something like 38 or 40 on wheat, 40-plus on cotton and corn, each. We have felt for a number of years that soybean research was deficient. We did get an increase in soybean-specific research last year. I think it is pretty much stagnant this year. We do see needs for additional soybean-specific research and we would be glad to provide those to you.
Page 434 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. KENNEDY. Thank you, and my time is up.
Mr. CURTIS. Thank you.
The CHAIRMAN. Mrs. Clayton.
Mrs. CLAYTON. Thank you, Mr. Chairman. I also want to revisit the counter-cyclical proposal oras we are looking now at ways of understanding what is the best way to respond. In looking at many of the agenciesmany of the different farm sectors who have come and made proposals. I am trying to develop a grid to get a sense of it, but all of them have their adjustment given their experience. But as I understand your proposal is, because you don't have a historical basis, you have moved them from 1993 to 1997 and you want to take out of there, that is the period of time you are using to establish a base. Then, once you get the discrepancy, you will use that to apply it to 85 percent or wherever the production is in any given year. Is that correct?
Mr. RUTH. Eight-five percent of a producer's acreage would be eligible for payment in that year.
Mrs. CLAYTON. That given year. So the historical application is only establishing the base, but not the production.
Mr. RUTH. What we would be doing with that 1993 through 1997I think you do have a chart in your written portion of your testimony that shows the gross revenue per acre through that 5-year period and we are dropping the high and the low and coming up with the $238 per acre average. And that would be established as your payment base. And then your value in the current year would be assessed at harvest time and producers would be eligible to receive that difference in payment based on 85 percent of their acres. So the producer doesn't know the payment before he goes to plant the crop. So it is not really influencing a planting decision.
Mrs. CLAYTON. Well, that wasn't where I was going. I was really trying to understand, at first, and I was also trying to discern how, I think I have heard the chairman occasionally raise the issue of cost of production as a way of determining. You would try to minimize risk. We are trying to develop a safety net. What would be your opinion of looking at your actual input or expenditure and try to mitigate that, rather than use it as a historical point of that?
Page 435 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. RUTH. I think some of the changes in crop insurance over the past few years have addressed part of that, and I think you are going to see such a wide disparity in production costs. Marc's production costs for soybeans are drastically different than mine.
Mrs. CLAYTON. In other words, to get at the fluctuation in the market of the price control, do you think this is the only way you can fairly approach it?
Mr. RUTH. I guess I am not convinced that if you look at the cost of production and try to average on a national basis, I think you are such a wide, wide range in production costs per region that it is not going to adequately address the problem.
Mrs. CLAYTON. OK.
Mr. RUTH. I think the revenue per acre probably addresses the regional and State differences more so than the cost of production type program would. Yes. I guess I am not entirely clear on the question.
Mrs. CLAYTON. Perhaps, didn't make it as clear. I was trying to discern if this is the only way to address the safety net as to the vulnerability in the marketplace where the price control goes up and down and you want a price support. Given you had no experience, only on your formula that you propose or should we look at trying to reimburse you as to input and actual costs in a given year, since you serve the 85 percent of the production of that year?
Mr. RUTH. Do you want to take a stab at it?
Mrs. CLAYTON. Let me go to another question. That is all right.
Public Law 480, which is a program that you heavily depend on and which I strongly supportand I would put the order in which you have the WISHH Program is that the value of our expertise and our technology, allows us to feed the world. And I think that is the gift and so the first priority, in my mind, is that we are able to feed people. Second priority is that we would be able to get our products over there.
Page 436 PREV PAGE TOP OF DOC Segment 3 Of 5 One of the concerns I have, there is some concern about Public Law 480 and of management of that, of auditing that, and I just heard you say there was an interesting proposal where you think you could have as an additive to the oil and have the CCC pay out of that. And, as you well know, Public Law 480 comes out of CCC. That is where the local currency goes back into that. Do you have any concerns about Public Law 480 in this operation now given that you use that and rely on that to get much of your inventory out?
Mr. RUTH. The concerns you are talking about deal with, what, modernization and those kinds of questions?
Mrs. CLAYTON. Yes.
Mr. RUTH. Well, as part of our effort last year on our proposal for the Food Aid Giveaway Program that we were working on last year, we sat down with the private voluntary organizations and we sat down with our offices around the world and got real specific in identifying specific markets where they would not have an adverse impact identifying the recipients and trying to coordinate the efforts to make sure that the program was carried out properly and to avoid some of the problems. And I think we have seen an increased cooperation between the commodity organizations and the PVOs involved in these programs to better coordinate our efforts and make sure that they are done appropriately.
Mrs. CLAYTON. OK. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Graves.
Mr. GRAVES. I don't have any questions.
The CHAIRMAN. Mr. Shows.
Mr. SHOWS. Thank you, Mr. Chairman, and I apologize for being late, but I can hardly talk this morning. One thing I found about 20-something years ago in Mississippi, and a lot of marginal land was being planted because we were told to plant finch row to finch row, and there would be enough production. But anyway, the one thing that concerns me, you were talking about TMDLs. I really have a problem. Do you foresee that if they implement this, in some way, to regulate it, are you going to have to get a permit from EPA every time you go out and plant that year's crop orI know that was one of the concerns we had with the timber industry because that is where it came in first with the timber industry.
Page 437 PREV PAGE TOP OF DOC Segment 3 Of 5 The EPA did not come to the Congress, but they were doing it through their rules procedure, so to speak, and I think we were kind of successful in stopping that. Because we had hearings and I would call for public hearings to ask the farmers and timber growers to come to it. None of the farmers showed up. All the timberand we had like three different meetings and had a lot of people there at each one of them. I am afraid the farmer really hasn't understood yet how this could impact him on a negative way if every time you go toI don't know how they would implement it or enforce it or whatever, do you see them say, well, you got to get a permit before you plant this 40 acres by this river or stream or whatever? And how do you see that being done?
Mr. RUTH. Well, I know in some areas there has even been talk of an individual producer having a threshold of how many pounds of nitrogen he would apply and you would have to decide how you would apply that on your acreage and where. Those kinds of things would definitely carry a heavy cause for agriculture and we continue to battle those kinds of movements. And we encourage our ASA members and producers, in general, to participate in these hearings that EPA has around the country, participate in the hypoxia meetings, all those kinds of venues, to get the message out that we are doing our homework. We are doing our jobs, conservation-wise, to try to ensure that our environment improves in the areas where it is pristine and stays that way. That has been one of our focuses, is to encourage producers to participate.
Mr. CURTIS. Mr. Shows, of course you know that we are in the second year of developing our TMDLs in Mississippi.
I am sure you were right in the meetings you had with the forestry producers and all, a year or 2 ago, but I think row crop producers have gotten the message now.
Mr. SHOWS. They have gotten the message.
Mr. CURTIS. Yes. My indications in the meetings I have been into the last 6 months indicate that they have.
Page 438 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. SHOWS. Yes. I would hope so, because I think that is one of the reasons we were able to short circuit what EPA was trying to do to the timber business. And hopefully people will become aware of it. And I don't know a better student of the land than the farmer. And he may need or she may need some help and guidance and something, but I don't think we ought to have to get permits to plant our own land. Thank you. That is all I got to say. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Johnson.
Mr. JOHNSON. Thank you, Mr. Chairman, and, gentlemen, members of the committee. As you probably know, the National Soybean Research Laboratory is located at the University of Illinois in Champaign-Urbana, in my district. And I know from my years in the General Assembly, as a member of that Agriculture Committee, as well as an active member of the University community, what work they do on behalf of our soybean farmers around the country. Can you highlight for us, for this committee, some of your organizationand, by the way, I have the highest respect for the job that you and your organization dosome of your organization's research priorities?
Mr. RUTH. Marc has been involved with the National CFAR and spent more time on research than I have. I will let him address part of that. But one of the concerns that we have had in the past several years is that, as you know, farmer dollars invested in their check-off, a lot of that goes for research. But most of those dollars are restricted. They can only be spent on actual research. They can't be used to purchase equipment and some of the things needed for research. And as we have seen the dollars available from the Federal budget for research shrink, it has had a dire effect on a lot of the research that we do.
And, of course, as we have seen the value of soybeans decrease, the amount of check-off dollars available for research continues to decline. As we adjust the dollars available in the Federal Government for research the past few years and you adjust that for inflation, we are at levels below what we were 20 years ago. So as far as specifics, maybe Marc can touch on a few of the projects.
Page 439 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. CURTIS. Sorry for the delay there. We didn't bring our list this morning, but we have tried to put it together from memory.
Mr. JOHNSON. Well, if you would prefer, we would obviously be
Mr. CURTIS. Well, we will certainly supply you with a detailed list. Let me go ahead and mention a few that would be priorities. Germplasm development and continuing the development of improved varieties, is certainly of major importance to us. Disease researchdiseases are always changing from one year to the next. If we don't keep our research up on that, we wind up getting hit like I did this past year, with a new disease that produced yields as much as 60 or 70 percent.
Genetics and genomics is particularly in the area of biotechnology, as we have moved down that road. And, maybe as much as anything else, and we have already talked about this morning, nutrition, opening up a potentially very large new market for soybeans.
Mr. JOHNSON. You probably know that the 15th district is the center of some of the biggest soybean producing counties in the United States. Most of our farmers, Champaign, Iroquois, surrounding area, are in the traditional rotations, corn and soybean rotations, and they have grown beans for more than a century. We have seen, and I assume this is the case around the country, huge expansion in the number of acres outside of traditional growing areas. Is it your judgment that the inclusion of soybeans in the production flexibility contracts increased soybean plantings and, therefore, ultimately depress prices? What would be your answer to that?
Mr. RUTH. I don't think it is going to have any influence. One of the things that we have seen aswe obviously have the case where we have had new first-time soybean producers in the last 5 years, but we also have, as in your area, where producers historically have been 50/50 corn/soy, they aren't getting that PFC payment on half their acreage. So I think long-time soybean producers are being disadvantaged in the current program.
Page 440 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. JOHNSON. You were saved by the bell because I had the follow-up question with respect to Brazil and we can save that for another time.
Mr. RUTH. OK.
The CHAIRMAN. Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman. For those of you that areif I might make a commercial herethe Beatles' Magical Mystery Tour bus that they used on the tour, for those of you that are old enough to remember that, is right outside the building here and you can go in there and go through the bus or get your picture taken if you want.
The CHAIRMAN. Don't everybody leave at once.
Mr. PETERSON. It is right outside between Longworth and Cannon. Anyway, who are the Beatles? Right? I will ask about Brazil. I was talking to some people the other day about the situation down there. And this person had been there and apparently they are producing now as much as we are. Is that right?
Mr. CURTIS. No.
Mr. PETERSON. No. They are not yet.
Mr. CURTIS. Not yet.
Mr. PETERSON. They are close.
Mr. CURTIS. Not yet. They certainly have the potential, but have you got the numbers?
Mr. RUTH. I got acreage, not bushels, I don't believe.
Mr. PETERSON. Well, in any event, according to what this gentleman told me, who had been down there, that he thought that if at the world market price of $5, that they were going to keep opening up land like crazy down there. Apparently they got twice as much land as they have already opened that is still available. If we set up this counter-cyclical and all this support and put some kind of minimum price on beans in this country, is that going to just spur them on down in Brazil and is that going to make us put downward pressure on prices for the foreseeable future?
Page 441 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. CURTIS. Well, of course as long as we work under a marketing loan, there is no floor for the world market. There is a safety net for our producers, but there is no floor for the world market. And that is specifically why we have got our proposal for changing the repayment rate on marketing loans from the Posted County Price to the Adjusted World Price. And Adjusted World Price would more accurately reflect what the actual world price of soybeans, or any other crop that it was applied to, whereas Posted County Price does not do that. It has more of a domestic price, which can be out of kilter with the world price. So we think by moving to an Adjusted World Price, that makes us much more competitive in the world market.
Mr. PETERSON. OK. In your counter-cyclical program, if I understand it correctly, you could go into an area that can't produce soybeans because it doesn't have enough water so you could plant the acreage and not have a crop and get this payment. Is that the way it works? I mean, so you could go out to the middle of Nevada and plant soybeans and not get a crop and get a payment?
Mr. RUTH. Well, the producer has no idea he is getting a payment when he plants the crop because you don't know what the value from that year of that crop would be. And I don't believe $32 an acre, as in our example, is going to be enough incentive for somebody to go out and put in a crop that is costing certainly more than $30 an acre to put in.
Mr. PETERSON. But if you didn't get any croop, wouldn't you get 85 percent of whatever the deal is, the way it is structured? I mean, you get 85 percent of the last 5 years' price and then you deduct off that whatever you got out of your crop and then this is what you get. Right?
Mr. RUTH. No.
This is on a national basis. So that would be determined on a national basis. And in the example that is in your testimony, it was $30. That would be the payment difference on a national basis. The payment is on 85 percent of his harvested acres. So if he doesn't harvest an acre, he is not eligible for any payment.
Page 442 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. PETERSON. OK. What if you harvest and get 1 bushel an acre?
Mr. RUTH. Well, he is going to receive $5.26 for that bushel, and in this example, $32 and then his input costs are going to be much greater than
Mr. PETERSON. So that difference is a national difference and it is onlyOK. All right.
Mr. RUTH. So I don't believe that is going to be enough incentive to create expansion acres anywhere.
Mr. PETERSON. OK. I understand what you are doing. And lastly, I was curious as to why you didn't have any mention of soy diesel in your testimony.
Mr. RUTH. Well, as Marc mentioned, our current positioning is that we are looking at that as an energy component. But we think that is obviously an important thing for the market development for soybeans. And, as Mark alluded, we have seen, and I mentioned in the testimony, that we have seen tremendous global expansion in soybean use in the last 10 years, up 56 percent. And obviously, the biodiesel and expanding the market in that manner also is something we are excited about.
And we see a huge potential for offsets when we are looking at the amount of expenditures we are putting out for LDPs. For every 1 cent, we can have an impact on the market price. We can lower LDP expenditures by $27 million. So anytime we can do something on the market side to let producers reap more of their income from the market, there is a net savings to the Federal Government. So there is obviously a benefit for Government dollars in programs such as biodiesel and market expansion.
Mr. PETERSON. Thank you. Thank you, Mr. Chairman.
The CHAIRMAN. The House has two votes pending. The committee will take a brief recess and return as soon as possible after the second vote.
Page 443 PREV PAGE TOP OF DOC Segment 3 Of 5 The CHAIRMAN. We will resume.
Several of the commodity groups that have testified have talked about the desire to equalize the loan base with soybeans, to raise it to the level or the feeling that the soybean loan is more accurately reflective of the crop than other. Do you all have any comments on that?
Mr. RUTH. Well, we have taken the approach that we think our loan rate is about right and we would not be opposed to other crops re-balancing their loan rates. We didn't feel it was our place to come in and ask for that. We came in expressing our opinion that just trying to justify why we think ours is correct and that is where we left our testimony.
The CHAIRMAN. Well, as you probably know, they are not suggesting that we lower the soybean rate equivalent to that we raised the other rate.
Mr. CURTIS. In our testimony, in our written testimony, we have said that we think the current soybean loan rate needs to be made the floor rather than the ceiling.
The CHAIRMAN. Right. Rather than the ceiling.
The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. In your testimony, you propose using an Adjusted World Price, AWP, rather than a Posted County Price, like that used for cotton and rice. You also note that an AWP calculated from major foreign markets was recently determined to be as much as 37 cents per bushel below a Missouri-counted PCP. I guess your reasoning and logic is kind of puzzling to me because you cite currency evaluation disadvantage as a reason for making this change, but if we change it, that still doesn't make our soybeans more competitive at that rate, but it adds 37 cents to the cost over a billion dollars a year. So we have really just increased our income, but we haven't done much to increase our competitiveness with that. Or what am I missing?
Page 444 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. CURTIS. First of all, sir, I think the 37-cent figure you quote is a maximum and that in our testimony wethe example we illustrate here onlyAWP is only below PCP on 42 days. So that is not a year-round type thing. Only a limited amount of the crop would be exposed to that period of time where there is a difference. And 37 cents, being a maximum and not the rate on every day.
Mr. STENHOLM. I understand that. And I guess I was trying to follow your logic in going to an Average World Price, rather than a Posted County Price. And I am asking this question, as I have had other commodity groups, because it is very apparent now that the value of our currency, the value of our dollar being as high as it is, and the lowness of others, that we are at a distinct disadvantage competing. That is it. What I am looking for is how can we become more competitive?
Mr. CURTIS. Well, in our view, the Adjusted World Price is a step in that direction, as it has worked with cotton and rice for a good many years. The currency issue is just one of the reasons for moving in that direction. But we all know that the PCP is based on local domestic levels, which, in nearly every case, is above the actual price of beans traded on the world market. The Adjusted World Price, if it was administered correctly, it would accurately illustrate or could accurately illustrate the value of soybeans being traded on the open world market. We are not getting into the administration of the program. But an appropriately administrated Adjusted World Price, we think, would more accurately illustrate the prices of soybeans on the world market rather than Posted County Price.
Mr. STENHOLM. OK. Following up on Mr. Hill's questioning a moment ago, and also the Chairman's, your testimony states that oilseeds should be treated equitably with other programswith other commodities, et cetera, with regard to a counter-cyclical program or extension of AMTA payments, yet oilseeds have a marketing assistance loan rate that is more generous than other commodities relative to variable costs of production.
Page 445 PREV PAGE TOP OF DOC Segment 3 Of 5 Using USDA cost and returns data for the 1999 crop, wheat, corn, cotton, and rice varied from 94 percent of variable costs for cotton to 152 percent for corn. The soybean loan rate was 207 percent of its variable cost. Adding to the average LDP rate to the average price for seed, producers realized 124 percent of variable cost for cotton, up to 170 percent for corn, and soybean producers realized 223 percent of variable cost. Now, this suggests that soybean loan rates provided more than double the variable cost to apply to fix costs and profit. As far as equity, soybean producers would seem to have more than an equitable incentive to produce.
Now, how do you respond to that? In light of the fact that we have seen a tremendous increase in the acreage that has gone to soybeans which suggest that, when you look at variable costs, more and more producers are looking at the soybean loan rate as being fairly attractive, even though it is not financially attractive to their bankers or to anyone else. But compared to corn and, obviously, to wheat, not so much to the cotton, perhaps, but to wheat, it has become very much more advantageous, seemingly.
Mr. RUTH. Last night I sat down at looked at my average LDP per bushel on corn and soybeans. On the corn, it averaged 32 cents a bushel on the crop that I harvested last fall, and on beans, it was 88 cents per bushel. When you convert that to the amount of LDP per acre, the corn received a higher LDP payment per acre than the soybean production by about $5 an acre.
Mr. STENHOLM. But my question is, based your variable cost on your farm, for example, how does that compare?
Mr. CURTIS. Going from our own experience and the producers that we communicate, have not seen that. Your percentages there probably reflect a higher percentage for soybeans of a crop that takes much less money to produce.
Mr. STENHOLM. True.
Mr. CURTIS. And, so even though your percentages may look very distorted, the actual money you are talking about is not that much different or it may even be less.
Page 446 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. STENHOLM. No. But let me stop you right there, because under the Freedom to Farm, in which producers theoretically are going to produce that which they believe they can produce the most efficiently, i.e., lower cost per acre involved, and then looking at the expected market return, that decision is being made. Apparently, it is shifting to soybeans because at least, according to this information in USDA, it suggests that the return versus variable cost is much greater for soybeans than for corn on a national average, admitting that in region by region, county by county, you would have a different result. But from a national perspective, which is what we have to do when we try to do what I certainly would want to do, and that is treat all commodities equitably, it seems like that soybeans have an advantage today with the current price structure over corn.
Mr. RUTH. Well, Chairman Combest asked the question on our loan rate and how would we react to restructuring other loan rates. We expressed the opinion that we would not be opposed to adjusting other loan rates upward if you are trying to balance that equation. I think we can make the case when you look at stocks-to-use ratios, where we are at today, that the soybean loan rate is right on target. They are closer to target than the other crops.
If you are trying to determine whether we would be opposed to realigning loan rates, I would say, no. But we think ours is right. If the $5.26 is converted to a floor rather than a ceiling, and if the committee would like to propose that other crops be raised, we would not stand in opposition to that.
Mr. STENHOLM. No. And I understand that. And that is one of the options that we have. But I am asking the question more from the philosophical stance of the Freedom to Farm Act. Under that, theoretically we are to produce for the world market. That was the whole idea behind it. And in order to make those kind of decisions for the world market, we would like to see that all of the commodities are balanced so that you make a decision based on the market.
Page 447 PREV PAGE TOP OF DOC Segment 3 Of 5 These numbers suggest to me that for soybeans we have an extra incentive built in our program that says to our producers, produce soybeans. Because the loan and the protection to the individual producer, as pertained to covering variable cost, are more attractive today. Now, right, if we up the other loan rates to provide an additional incentive for other producers, theoretically we would get to that balance. But we are producing more beans than we can sell today. We are producing more corn than we can sell today. We are producing more cotton than we can sell today. Therefore, how do we respond to increasing the price when we are already producing more than we can sell at prices most of my producers tell me, we can't make it on?
Mr. RUTH. Well, we take a look at what demand has done over the past 10 years. Soybeans have experienced tremendous demand growth worldwide, 56 percent, which is far greater than the other crops. So I guess I would take some issue with the fact that we are producing more than what the market needs. Factoring in the increased demand, plus the fact that our stocks-to-use ratio is the lowest of any of the commodities that we have talked about, it says to me that producers are responding to that increased demand.
When we look at our world share of soybeans since the FAIR Act has been enacted, our percentage of soybean sales on the global production has actually increased slightly and stabilized since this act has been in place. We had been in a continual decline prior to that and I think we have stabilized that mix. As we have delineated earlier, with the other factors, I am not arguing that the loan rate hasn't been a factor for some producers in certain areas, but I think at least in my area, and in the western Corn Belt and Northern Plains, that agronomic factors and input costs have probably been a bigger driver.
The CHAIRMAN. Mr. Chambliss.
Mr. CHAMBLISS. Thank you, Mr. Chairman. Gentlemen, following up on Mr. Shows' comment on TMDL, I am not as convinced, as you all are, that the farming community is as well educated on that issue as it is, and, frankly, while we were going through with the timber folks on that issue, it was more high-profile. And I kept telling my farmers, you all don't understand, but really all of you all are included in this. And I can envision, if we continue to head down that same TMDL road that we were on a year or so ago, that every farmer in the country would have to present a plan to EPA indicating what you were going to plant, what chemicals you were going to use and what your plan was to control that runoff. It absolutely scared me to death and we didn't talk a whole lot about it back then.
Page 448 PREV PAGE TOP OF DOC Segment 3 Of 5 Re-emphasizing what Mr. Shows had to sayjust keep educating your folks. Just continue to keep this issue at a high profile where it needs to be, because it could resurface at some point. And I don't think this administration is going to be pushing it, but certainly we could see it again, and our farmers need to be ready in that event.
We have got to make a fundamental decision in crafting this next farm bill about AMTA payments. And you discuss this in your proposal, I know. And a lot of people will argue with us that AMTA payments are now simply more of a disaster type payment than they are truly a transition payment. And we have had a sympathetic ear in Congress with respect to doubling the AMTA payment for the last couple of years. And now we have folks like you all who want to, number one, come into the program and, at the same time, have a marketing loan over here that is more geared towards the true safety net.
My question is two-fold. Number one, what is your justification for continuing the AMTA payment in the next farm bill and, second, your justification, for bringing soybean growers into the AMTA Program?
Mr. RUTH. Well, I think one of the things that probably drives the opinion that AMTA needs to be included is, when you start looking at WTO commitments, I mean, we need to develop some kind of programs that fit into that green box. AMTA seems to be one that works fairly well. And, obviously, if you don't do that you are going to have to devise more conservation type programs just to fill that need. So it is not a perfect system and that is why we feel that soybeans and oilseeds needs to be included in that mix so that producers are treated equitably.
We have lots of long-time soybean producers that aren't in the AMTA formula. They have been producing soybeans for a long time that never had a feed-grain base to even start with to get AMTA payments. So that is why we feel it is justified to include soybeans in there. And when you look at the fact that soybeans are the second, number two, in value of U.S. farm commodities, it is our largest export crop, it truly is a major crop commodity in the United States, and we feel it should be included in that formula.
Page 449 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. CURTIS. To follow up a little bit on that also, sir, using CBO's projections for the next 5 to 7 years, their projections are that starting this next year, all crops, except for soybeans, the prices received by farmers for the crops goes above loan. Soybean stays below loan until, I believe, 2006, using their projections. Whether those are accurate projections or not, we don't know.
But the fact that those projections have been made and we are using those numbers in our financial analysis, we tried every way in the world to figure a system that would more equitably, between crops, distribute whatever money was distributed. And because of those projections and the way those numbers play out, there is no way, just simply because the CBO numbers say that soybeans are going to be in such a price crunch for the next 5 years versus the other crops. That is just the way the numbers play out. Like I said, we tried every way in the world to figure a more equitable method for distributing payments between crops, and we could not come up one.
Mr. CHAMBLISS. I am curious too about your formula for determining participation under the proposed, what, PFCs, I think is what you all call them. You are proposing using 1 year out of 1997, 2001. Did I read that right?
Mr. CURTIS. That is correct, sir. And the reason we did that is to address the concerns of the southern growers who have had pretty much 3 years in a row of poor crops, while the midwestern growers have had fairly good crops during those years. And then because we only have history from 1997 until today, at the Department of Agriculturethey don't have history on soybeans other than on a general and national basis. They don't have individual history before 1997. So that allows a southern grower to pick the best year out of the last 4 years. And hopefully, in that period of time, he will have had one decent crop in there that he can base his history on. And the midwestern grower would certainly have that opportunity also.
Page 450 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. CHAMBLISS. OK. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Pickering.
Mr. PICKERING. Thank you, Mr. Chairman, and Mr. Curtis. It is good to have a Mississippian here with us today, and I want to welcome you. Let me ask a couple of questions. In looking at the regional trends, as far as soybean acres planted, both in reductions and in increases, what do you see for soybeans in the south, especially in our area, the Mississippi Delta, in the coming years, as far as soybean acreage?
Mr. CURTIS. Well, that for a number of years, right after the 1995 farm bill was passed, we expanded our corn acres. That was done for agronomic reasons, along with cost reasons or profit reasons. The last few years, or particularly the last couple of years, we have lost soybean acres to cotton again. And you are very familiar with the insurance program, Crop Insurance Program, that cotton has, and that is a very significant contributing factor to the fact that we are already losing soybean acres today versus cotton in the Delta.
Also, as I was saying previously, we have had three bad crops in a row in the south, particularly in the Delta, but all over across the south. Nobody is doing well. There are a significant number of acres going into nonproduction uses. CRP is popular in our State. People are, even outside of CRP, are putting cropland back in timber and that type of thing. So the influence of 3 bad crop years and a very lucrative cotton Crop Insurance Program has taken some soybean acres.
Mr. PICKERING. As we look at farm bill changes and the Soybean Association is supporting a counter-cyclical mechanism, when we do that, should we look at reforming crop insurance as well? Is there a linkage between the two approaches and what you have seen over the last couple of years as we have moved acreage into cotton away from some of the other commodities? Is there a linkage between those two reforms and policies as we look forward?
Mr. CURTIS. We do see our counter-cyclical proposal taking up some of the slack in the weak parts of crop insurance, even though cotton growers have a very good Crop Insurance Program, soybeans across the south, particularly, and at least in Mississippi, and I assume across the rest of the south, still is not a viable program. So basing counter-cyclical programs on harvested acreage, rather than yield or production, kind of takes the slack out of the lack of crop insurance, in soybeans anyway, because a producer gets a payment as long as he harvested his acreshe doesn't have to come up with X number of bushels.
Page 451 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. PICKERING. Let me just make a few comments as we go forward in the year. As Mr. Chambliss and Mr. Shows had mentioned earlier, we have TMDL. I serve on both this committee and the Energy and Commerce Committee, and we have a number of the regulatory issues before that committee on some of the jurisdiction of TMDL, of FQPA, so the pesticides and the various uses that we have that are very important in agriculture to being able to manage the different insecticides, pesticides.
And I think it will be very critical to the agricultural economy in the future while I look forward and work with you in trying to make sure that we have common-sense regulatory approaches that don't put an undue burden on the farmer. As well as looking at the energy policy. I know that this summer the fuel costs, as well as the aggregate chemical costs, the inputs are going to be extremely high because of the energy situation. And your feedback and input to me, as I work on that committee, as well, would be very gratefully received and appreciated. Thank you, Mr. Curtis, for representing soybeans and Mississippi so well.
Mr. CURTIS. Thank you, Mr. Pickering.
The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. What does the biodiesel industry face in gaining wider use and acceptance? What are some of the things that on this committee we ought to be looking at, what Congress can do? And, specifically, is there a point where the price of soybeans impacts the biodiesel market or is there enough other material out there, such as waste fat/oil, that can be utilized so that the price of beans really isn't an issue in the biodiesel production?
Mr. RUTH. Well, we have just briefly mentioned some of the proposals we have talked about for renewable energy earlier this morning. Getting into a little more specifics, what we are proposing is that we would create an excise tax exemption of 3 cents per gallon of a 2-percent blend of biodieselup to 3 cents. I mean, if you blend it, it will blend less than that. It would be, obviously, less than 3 cents.
Page 452 PREV PAGE TOP OF DOC Segment 3 Of 5 At the same time, we would be creating a national renewable energy standard where the transportation fuel in the country would contain a set percentage of renewable fuels, which would either be biodiesel or ethanol. And we would propose that the loss to the Highway Trust Fund, created by this excise tax exemption, would be reimbursed by a pool, created within the Commodity Credit Corporation, to offset that loss of revenue at the Highway Trust Fund.
As I mentioned earlier this morning, if we look a 1-cent increase in the price of soybeans, we are talking about a $27 million savings to the Loan Deficiency Program. So we feel there would be an offset. Currently we have about 2.1 billion pounds of soybean oil in surplus. And if we can reduce that surplus by the inclusion of soybean oil into a diesel product, we can have an impact on the market and create the offset needed to reimburse the Highway Trust Fund.
Mr. STENHOLM. Do you have any information that shows what price beans would need to be to compete with $25 oil? You were looking at a ''level playing field'' between $25 domestic oil and the diesel that is produced there, versus beans or the biodiesel. Have any numbers been developed as yet as to what price we are talking about to be competitive and then how much you would have to subsidize it if it is not competitive?
Mr. RUTH. I don't have the specific numbers in front of me, but crude oil continues to rise and the commodity prices are lower and we are getting closer to that equilibrium. And when we analyze it, the 3-cent exemption actually gets the cost of a 2 percent blend equivalent to regular diesel.
Mr. STENHOLM. At what price of beanstoday's market
Mr. RUTH. That is at current prices.
Mr. STENHOLM. At current price what you are doing.
Mr. RUTH. As the market changes, it would vary slightly, the last 10 years, we have spent $26 million in farmer dollars in getting the soy diesel to where it is at today. We have done all the testing. It is a viable fuel for the marketplace. And it is to the point where we need a little incentive to get things really rolling to have an impact. Our organization, as well as other commodity groups, as well as industry representatives, have met several times in the past couple of months trying to develop a strategy as we move forward with the renewable fuels.
Page 453 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. STENHOLM. OK.
Mr. RUTH. We are having conversations with the Energy Committee, at this time, to try to put forth something in a renewable energy policy.
Mr. STENHOLM. The corn growers proposed a concept of an energy reserve for corn. I didn't see in your testimony where you have looked at any kind of an energy reserve or some way to provide for a stable supply of soybeans in the biodiesel. Have you looked at that or is
Mr. RUTH. I guess that is something we really haven't addressed.
Mr. STENHOLM. I believe that is all, Mr. Chairman. Thank you.
The CHAIRMAN. Gentlemen, thank you for your testimony. And we, I am sure, are going to have additional follow-up questions. And as you go further into this and if there are additional comments that you would like to make, whatever they may be, we would welcome them and encourage them. We appreciate, again, the time you took this morning to spend with us. The hearing is adjourned.
[Whereupon, at 11:38 a.m., the committee was adjourned, subject tothe call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement by Bart Ruth
Good morning, Mr. Chairman and members of the Committee. I am Bart Ruth, a soybean and corn farmer from Rising City, NE. I serve as first vice-president of the American Soybean Association, and as chairman of our Public Affairs Committee. Accompanying me is ASA chairman Marc Curtis from Leland, MI. ASA represents 27,000 producer members on national issues of importance to all U.S. soybean farmers. In addition to ASA, we appear today on behalf of the National Sunflower Association and the U.S. Canola Association.
Page 454 PREV PAGE TOP OF DOC Segment 3 Of 5 Before beginning our statement, I would like to express our appreciation to you, Mr. Chairman, for conducting these hearings on domestic farm policy alternatives for the next farm bill. We believe this is an excellent process through which Members of the committee can become familiar with the thinking of the producers that ASA and other farm organizations represent. We look forward to working closely with your committee and your staff in developing effective long-term legislation.
Mr. Chairman, the committee has asked us to develop and present specific recommendations on domestic farm policy, and to identify impacts our proposals would have on producers of oilseeds and other crops, on government outlays, and on U.S. obligations under the World Trade Organization. To this end, our organizations have engaged in an intensive effort over the past six months to identify program options and to analyze their various effects.
I would like to first briefly describe the policy environment facing U.S. oilseed producers in recent years, and its impact on our consideration of various policy alternatives. I will then present our specific recommendations, together with the results of our analysis.
OILSEEDS AND THE FAIR ACT
Prior to the FAIR Act, soybeans and other oilseeds had a loan program, but oilseed producers did not receive income support payments, nor were they required to comply with acreage reduction requirements, or set-asides. There was a clear division between program crops grown on a farm's base acres, on which income support was determined, and oilseeds and other non-program crops grown on non-base acres.
The FAIR Act eliminated this division by allowing unrestricted planting flexibility between program and non-program crops, excluding fruits and vegetables. The only remaining difference is Production Flexibility Contracts, under which farmers who grew program crops in the early 1990's receive AMTA payments that reflect pre-FAIR Act income support payments. The authors of the FAIR Act scheduled these payments to gradually decline, and anticipated they could eventually be eliminated as producers transitioned to full dependence on the marketplace.
Page 455 PREV PAGE TOP OF DOC Segment 3 Of 5 THE FAIR ACT'S UNFINISHED AGENDA
The authors of the FAIR Act did not expect the transition from government-dependence to market-orientation to take place solely as a result of changes in domestic farm policy. They made clear that the overall economic and trade environment of U.S. agriculture needed to be changed to reduce production costs and enhance the competitiveness of U.S. farm exports. The list of these policy commitments is well known to the committee. It includes:
A more aggressive policy on agricultural trade issues, including insisting on fair access to foreign markets, opposing unfair import barriers, and pursuit of increased trade liberalization in multilateral, regional, and bilateral negotiations;
Full use of legitimate export assistance and market promotion authorities, including funds provided for credit guarantees authorized under the Export Credit and Supplier Credit Guarantee Programs, and increased funding for the Foreign Market Development and Market Access Programs;
Expanded programming of humanitarian assistance under U.S. food aid programs, including P.L. 480, Food for Progress, Section 416, and other authorities;
Meaningful reform of U.S. unilateral economic sanctions on agricultural exports based on foreign policy, national security, or short supply reasons;
Support for increased use of U.S. agricultural commodities in domestic industrial markets, such as biofuels, and for expanded opportunities for producers to become involved in value-added processing activities;
A substantial increase in funding for agricultural research;
Improvements in the tax code, including elimination below and increased threshold of estate taxes, establishment of FFARRM accounts, full deductibility of health insurance and medical expenses for small businesses, and reduction of the capital gains tax; and,
Page 456 PREV PAGE TOP OF DOC Segment 3 Of 5 Relief from regulations that impose uncompensated costs on agriculture.
There has been incremental progress in several of these areas in the past four years. However, the need to address agriculture's unfinished agenda as a top national priority is evidenced by the desperate situation in the farm economy today. Prices for most major commodities are so low that 30 percent of gross farm income, and 60 percent of net farm income, was received last year in the form of government payments. Unless there is a substantial and unexpected expansion in world demand or shortfall in world agricultural production, these conditions are likely to continue for at least the next several years.
We appreciate that renewed efforts are underway in the new Congress and in the new Administration to focus on the problems facing agriculture, and to complete the FAIR Act's unfinished agenda. We will do our utmost to support these initiatives in the months ahead because we believe that agriculture's long-term competitiveness and prosperity are integrally tied to expanded trade opportunities, enhanced demand for agricultural products, increased research, and tax as well as regulatory relief.
However, it must be recognized that, even if major progress is made in the near future, these efforts must be viewed as long-term investments. It will be years before the economic and trade environment for America's farmers and ranchers is substantially improved. As a result, we must approach writing the next farm bill with the assumption that conditions during the next several years could remain much as they are today.
In developing specific recommendations on domestic farm policy, oilseed producer organizations have determined that key elements of the FAIR Act should be maintained in the next farm bill. These include full and unrestricted planting flexibility, continuation of non-recourse marketing loans, no statutory authority to impose acreage reduction programs or set-asides, and no authority to establish government or farmer-owned reserves for oilseeds. Providing these elements are continued, we support providing programs for oilseed producers that are equitable with programs provided to other major crops.
Page 457 PREV PAGE TOP OF DOC Segment 3 Of 5 In the event Production Flexibility Contracts are renewed or AMTA-type payments are continued, oilseeds should be included based on their value relative to other crops. If
Congress decides to replace annual economic assistance payments with a counter-cyclical income support program, oilseeds must be treated equitably.
In addition, oilseed producer organizations oppose any limitations on marketing loan benefits, fixed income payments, or any counter-cyclical income support payments. These restrictions only thwart the purpose of these programs to support producer income in years of low prices.
I would now like to provide a detailed description of our recommendations on the various components of a domestic farm program for major commodities. I will then summarize
analysis on the impacts these recommendations could have on production, government payments, and international trade obligations.
MARKETING LOAN PROGRAM
Oilseed producer organizations support maintaining current oilseed loan rates for 2002 crops, and setting these rates as floors rather than ceilings under the next farm bill. The formula for adjusting loan levels to 85 percent of Olympic average prices in the previous five years should be retained. The Secretary should continue to have discretion to set loan levels between the floor and the level indicated by the formula when prices warrant.
Loans should continue to be non-recourse, allowing producers to forfeit their crops in full repayment of loan principal and accrued interest. Non-recourse loans ensure that the program will operate to achieve its objectives of minimizing forfeitures and storage costs
and allowing commodities to be marketed freely and competitively. These goals are achieved only when the loan repayment rate is set at levels that clear local market prices. If the combined local cash price and prospective marketing loan gain or Loan Deficiency Payment does not exceed the value of the loan, including interest, producers have an incentive to forfeit. Since the program is intended to minimize forfeitures, the non-recourse nature of the current loan program helps ensure its proper administration.
Page 458 PREV PAGE TOP OF DOC Segment 3 Of 5 Speaking specifically on behalf of ASA, we do not believe the current national average soybean loan rate of $5.26 per bushel has been responsible for most of the expansion in U.S. soybean acreage since enactment of the FAIR Act. Soybean production has increased from 64 million acres in 1995 to an estimated 75.5 million acres in 2001. Of this 11.5 million acre increase, eight million acres were added in 1996, 1997, and 1998. Soybean prices were well above loan level for the 1996 and 1997 crops, and it was not known they would be below loan in 1998 until well after that year's crop was planted.
ASA attributes most of the growth in soybean acreage under the FAIR Actparticularly in the early yearsto four factors. First, the incentive to build bases for program crops under previous farm bills had created tremendous pressure to exclude soybeans and other non-program crops from rotations. Introduction of unrestricted planting flexibility and decoupled income support payments released this pressure, allowing producers to move part of their acreage out of crops that were being produced as much for the government as the market, and to achieve a more agronomically optimum crop rotation.
A second factor was the relatively high soybean prices between 1995 and 1997. The season average price received by farmers for the 1995 crop was $7.35 per bushel. Prices then fell to an average $6.45 per bushel for the 1996 crop and $5.35 per bushel for the 1997 crop. Still, compared to prices for other commodities that compete with soybeans for acreage, these were attractive values.
Third, new soybean varieties have been developed in maturity groups that are far better suited for northern and western climates than ever before. In crop year 2000, virtually all of the expansion in soybean plantings occurred in the northern and western states of North and South Dakota, Minnesota, Wisconsin, Michigan, Nebraska, and Kansas.
A fourth factor in expanded acreage for all oilseeds in recent years has been the prevalence of scab and other diseases affecting wheat and other crops. In major wheat states such as North Dakota, moving out of wheat production has been the only way to avoid reoccurrence of scab. Higher rainfall and late frosts in the North Central region has enabled this trend to continue in recent years.
Page 459 PREV PAGE TOP OF DOC Segment 3 Of 5 With regard to the 2001 planting season, other factors may influence increases in soybean plantings in place of corn. High costs or limited availability of natural gas and fertilizer have offset recent improvement in corn prices in the last two years. Also, the continuing disruption of foreign and domestic U.S. corn markets resulting from the Starlink debacle may be contributing to this year's expected decline in corn plantings.
A final consideration that supports maintaining the $5.26 soybean loan rate is the supply and demand situation for various crops. Carryover stocks of soybeans this Fall are expected to total 330 million bushels, about 12 percent of current domestic and export use. By comparison, corn stocks are projected at about 20 percent of use, and wheat supplies will be 32 percent of use. Assuming farm policies continue to encourage full production, reducing the soybean loan rate would likely increase production of crops that are already in greater surplus.
With regard to loan repayment rates, oilseed producer organizations support requiring oilseed loans to be repaid at the lower of the Posted County Price (PCP) or an Adjusted World Price (AWP). The AWP would be set on a weekly basis in reference to prices of U.S. and competitor oilseeds delivered at major foreign markets, including freight costs. Using this approach, the AWP for soybeans in St. Louis County, Missouri, would have been lower than the PCP on an estimated 42 trading days during the year 2000, primarily during fall harvest. On these days, the AWP-PCP differential ranged as high as 37 cents per bushel.
The purpose of using an Adjusted World Price is to ensure that U.S. oilseeds and oilseed products are competitive in both foreign and domestic markets under the next farm bill. The Posted County Prices currently used to determine loan repayment rates are based on terminal prices that do not necessarily reflect world prices. The FAIR Act and previous farm bills provide broad discretion for setting repayment rates at levels that minimize crop forfeiture and interest cost as well as allowing crops to be marketed freely and competitively. As a result, U.S. crops are marketed at prices that reflect the domestic market, but not overseas markets. Basing loan repayment on values that directly reflect prices of U.S. competitors in foreign oilseed markets would address this situation.
Page 460 PREV PAGE TOP OF DOC Segment 3 Of 5 Adjusted World Prices have been used to determine repayment rates under the cotton and rice marketing loan programs since 1985.
Oilseed producer groups are concerned that the high value of the U.S. Dollar relative to currencies of our competitors is very negatively affecting export competitiveness. We believe using an Adjusted World Price for loan repayment would help offset some of the competitive disadvantages currently facing U.S. oilseed producers.
According to analysis using CBO assumptions, the cost of using an Adjusted World Price for repayment of soybean marketing loans between 2002 and 2008 would total $174 million.
PFC (AMTA) PAYMENTS
Oilseeds are not included in the formula for determining payments under Production Flexibility Contracts (PFCs). Oilseeds were grown on 31 percent of row crop acreage last year, and the percentage is likely to rise in 2001. Soybeans are the second largest crop in planted acreage, and could be the highest in harvested acreage this year. In addition, soybeans and soybean products are our Nation's most valuable export commodity. However, while oilseeds are among the most valuable crops produced in the United States, they do not receive income support. Our organizations strongly support including oilseeds in an expanded PFC program in the next farm bill.
Specifically, we ask that baseline annual funding of $4.008 billion provided for PFC payments after 2002 be increased to $5.7 billion, with the additional amount distributed to farms that produced oilseeds during the 1997 to 2001 period. USDA data indicate that, during 199699, soybeans averaged 28.5 percent and other oilseeds averaged 1.2 percent of the $53 billion value of crops that would be included under an expanded PFC program (see attachment). Accordingly, annual soybean PFC payments would total $1.624 billion and payments for other oilseeds would total $68 million. The increase in PFC payments reflects the oilseed share (29.7 percent) of $5.7 billion.
Page 461 PREV PAGE TOP OF DOC Segment 3 Of 5 Oilseed PFC payments should be distributed based on a farm's acreage and yield for each oilseed produced in any single year during the 19972001 period, at the choice of the producer. As under the current PFC program, oilseed payments would be transferable with the acres on which they were produced in the selected year.
We do not propose changing the current formula or base period for distributing PFC payments for other crops. We recognize that, unless a common base period is used, an oilseed payment could be made on the same acres on a farm on which an PFC payment is already made. However, we believe this situation is preferable to ''backdating'' oilseed payments to reflect obsolete production data in the early 1990's, or ''updating'' payments for other crops that have lost acreage under the FAIR Act and would receive reduced PFC support.
COUNTER-CYCLICAL INCOME SUPPORT
Oilseed producer organizations support replacing ad hoc emergency economic assistance payments, which have included an oilseed payment, with a counter-cyclical income support program. After three years of improvisation, farmers and their lenders need
longer-term assurances that a safety net is in place to protect against low prices and income.
We propose a program that would offset any shortfall in the national gross return per acre for a crop from the Olympic average national gross return per acre for the crop during the 199397 period. Gross return per acre is defined as the higher of the season average price or the loan rate for the crop, multiplied by national production, divided by national harvested acreage.
In the case of soybeans, the Olympic average gross return per acre for the 199397 crops is $238.59 (see attachment). Using the 2000 soybean crop for illustration purposes, the loan rate of $5.26 per bushel (which was higher than the season average price)
multiplied by production of 2.77 billion bushels equals $14.57 billion. Dividing this amount by harvested acreage of 72.7 million acres, the average gross return per acre for 2000 crop soybeans was $200.42. The shortfall from the 199397 average of $238.59 is $38.17 per acre.
Page 462 PREV PAGE TOP OF DOC Segment 3 Of 5 We would propose providing payments to producers equal to the shortfall in a crop's return per acre on 85 percent of harvested acres in the current year. In the example just cited, if a producer harvested 500 acres of soybeans in 2000, he or she would receive the $38.17 per acre payment on 425 acres, or $16,222. Payments based on USDA estimates for season average prices and national production and acreage in the current year would be made as producers document their harvested acres.
The concept of compensating producers for low income based on acres complements the marketing loan program, under which benefits are tied to actual production. It also offsets a perennial shortcoming in the Federal crop insurance program. Every year, many producers experience below-average yields, but not low enough to qualify for crop insurance coverage. This gap in income support would be at least partially offset by providing payments on harvested acres.
Providing the counter-cyclical payment on 85 percent of a producer's harvested acres serves two purposes. First, the program should not fully compensate reduced income from the 199397 period, which included several years of historically high prices. Second, in our view, a case can be made that this proposal should not count against U.S. commitments to reduce trade-distorting domestic support in the WTO. We believe paying producers on 85 percent of their acreage should result in this program being classified in the blue box, currently exempt from discipline under the Uruguay Round Agreement.
We recognize there are major differences in return per acre for different crops in different states and regions of the country. We are continuing to analyze this counter-cyclical program concept, and hope to obtain and provide information to the committee on how it would apply on a state as well as a national basis.
FARM PROGRAM ANALYSIS
The balance of my statement comprises a summary of analysis we have completed on the farm program we are recommending to the committee. This analysis has been performed by AgriLogic, Inc., of College Station, Texas. In order to provide information comparable to the December 2000 baseline analysis prepared by the Congressional Budget Office (CBO), we asked AgriLogic to conform the assumptions in its macroeconomic model to reflect those used by CBO.
Page 463 PREV PAGE TOP OF DOC Segment 3 Of 5 Using CBO assumptions, direct payments to producers under ASA's recommended policies average $10.4 billion over the 2002 to 2008 period. As indicated on the attached summary comparison report prepared by AgriLogic, soybeans receive $5.7 billionjust over half of average payments. Returns above variable costs increase for all commodities under the proposal.
In our view, the CBO baseline is highly pessimistic regarding the outlook for soybean prices and relatively optimistic regarding prices for other commodities. For soybeans, CBO does not project prices to rise above the loan rate of $5.26 per bushel until the 2006 crop. By comparison, CBO expects corn, wheat and cotton prices to remain above the loan rates for these crops throughout the baseline period. As a result of these assumptions, the cost of maintaining current loan rates is largely attributed to soybeans.
Similarly, CBO's price assumptions have the effect of increasing the projected cost of our counter-cyclical proposal for soybeans and reducing outlays for other crops. Corn prices never fall below the 199397 benchmark. Wheat, cotton, rice and sorghum receive substantial support, although not to the extent of soybeans.
In contrast, the more conservative assumptions in AgriLogic's econometric model show all commodities receiving counter-cyclical payments in 2002. Average annual payments total $11.7 billion, with the increase reflected in higher costs for cotton and rice support. Average payments for soybeans are little changed under the AgriLogic model.
While CBO's baseline numbers are required to be used by Congress in developing farm legislation, we would urge the committee and others to also use a policy ''gut check'' in reviewing their projections. If a set of proposed programs appear balanced between commodities in terms of potential support, they probably are, regardless of the cost assigned to them.
The oilseed producer organizations approached this task with the goal of developing a balanced set of proposals. We believe we have achieved this goal. With unrestricted planting flexibility almost certain to be continued in the next farm bill, there is no reason for any commodity to seek a disproportionate share of government support. The consequences would be overproduction, even lower prices than we have today, and substantial market distortions. Oilseed producers do not want to see these consequences for our crops.
Page 464 PREV PAGE TOP OF DOC Segment 3 Of 5 With regard to the livestock sector, AgriLogic's analysis indicated our proposal would have minimal impact on production or prices. Average hog prices decline 3.9 percent as reduced soybean meal and feed costs result in increased hog production.
OUTLAYS UNDER U.S. AMS COMMITMENT
Costs under programs considered trade distorting under the WTO would remain below the $19.1 billion Aggregate Measure of Support (AMS) level established under the Uruguay Round Agreement. AMS-related outlays for other support programs primarily dairy, sugar, peanuts, and cottonhave averaged $6.2 billion in recent years. Under our proposal, the cost of the marketing loan program reaches $4.7 billion in 2003, and declines to less than $100 million by 2008. In the event our counter-cyclical proposal is classified as an amber box policy, the highest combined outlays for both the marketing loan and the counter-cyclical programs total $8.3 billion in 2002. Added to average AMS outlays for other commodities, the total would reach $14.5 billion, still below the current U.S. commitment.
OTHER FARM BILL PRIORITIES
Mr. Chairman, this concludes our summary of the analysis performed on our farm program recommendations. Before completing my statement, I would note that annual CCC outlays using CBO and AgriLogic assumptions are well below some of the other proposals submitted to the committee. This was a deliberate choice on our part, recognizing there are other important priorities that need to be addressed in the next farm bill.
Speaking specifically for ASA, I would like to identify several of these priorities. ASA has endorsed the Conservation Security Act, introduced in the House by Representative Emerson and in the Senate by Senator Harkin last year. ASA also supports a significant increase in funding for agricultural research in the next farm bill. Specifically, we request annual funding of $1.5 billion for conservation payments and $1 billion for research.
Additionally, ASA supports increased funding of export, market development, and food aid programs that are critical to expanding demand and improving prices. ASA recommends that the Foreign Market Development (Cooperator) program be authorized
Page 465 PREV PAGE TOP OF DOC Segment 3 Of 5 at a minimum of $43.25 million per year. This would restore the level of market development funding provided to U.S. agriculture, after adjustment for global inflation and exchange rate movements, to the same level provided by Congress in 1986. ASA
also recommends that the Market Access Program (MAP) be authorized at a minimum of $200 million. Finally, ASA recommends that funding for P.L. 480 be substantially increased to at least the level of $2.2 billion provided in 1985.
To address the continuing and increasing market access, regulatory, and marketing issues facing U.S. agriculture in agricultural biotechnology trade, ASA recommends establishment of a new ''Biotechnology and Agricultural Trade'' (BAT) program. Under this program, funds would be authorized for activities in three broad areas, as follows:
(a) Funds for agricultural market development organizations representing farmers and ranchers to carry out education and marketing efforts in foreign markets to positively influence the environment surrounding agricultural biotechnology;
(b) Increased funding for U.S. Government programs that inform foreign government officials and others about the U.S. approach to biotechnology, through U.S. missions to foreign countries and by hosting foreign groups to the United States; and,
(c) Increased FAS personnel to address the many issues affecting trade in biotechnology.
That concludes my statement, Mr. Chairman. I want to again thank you for convening these important hearings, and for inviting oilseed producer organizations to testify. Mr. Curtis and I will be glad to respond to questions.
THE FUTURE OF FEDERAL FARM COMMODITY PROGRAMS (SORGHUM)
WEDNESDAY, APRIL 4, 2001
Page 466 PREV PAGE TOP OF DOC Segment 3 Of 5 House of Representatives,
Committee on Agriculture,
The committee met, pursuant to call, at 10:00 a.m., in room 1300 of the Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives: Smith, Chambliss, Moran, Thune, Gutknecht, Simpson, Hayes, Fletcher, Johnson, Osborne, Rehberg, Graves, Kennedy, Stenholm, Peterson, Baldacci, Berry, Etheridge, Phelps, Lucas of Kentucky, Larsen, Ross, Kind, and Shows.
Staff present: William E. O'Conner, Jr., staff director; Tom Sell, Alan Mackey, Callista Gingrich, Craig Jagger, Anne Simmons, and Howard Conley.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
The CHAIRMAN. This hearing of the Committee on Agriculture to review Federal farm commodity programs with the sorghum industry will come to order. I will be less than parochial and not introduce all of the people in the audience from the 19th district of Texas, but will note that there are several here and, welcome.
Good morning, and welcome to this ninth in our series of hearings on the future farm programs. We are well past the halfway point in this series of hearings. And, while we have made significant progress in terms of collecting ideas and beginning to ruminate on them, there is much work that remains to be done. I thank our members, once again, for their commitment to the process and look forward to the discussions that will take place this morning.
High expectations have been placed upon the witnesses appearing before this committee. Each farm organization and commodity group has been asked to explain, in specific detail, their vision of future farm policy. Further, witnesses have been expected to explain how their recommendations would impact related industries, and our ability as a country to move product in the world market, as well as the effect of their recommendations on farm program expenditures and our WTO obligations.
Page 467 PREV PAGE TOP OF DOC Segment 3 Of 5 Crafting farm policy is not an easy task, but with the specifics provided by each witness, we will be able to focus our attention on the areas that are most critical to the American producer. Our end result will be a stronger, more effective, farm policy.
Today's testimony will be presented on behalf of the grain sorghum industry by Mr. Bill Kubecka, of Palacios, TX. Mr. Kubecka serves as vice-president for legislation of the National Grain Sorghum Producers. He is accompanied by Mr. Tim Lust, executive director of the National Grain Sorghum Producers, and Mr. Dan Shaw, the National Grain Sorghum Producers' Washington representative.
I would like to welcome our witnesses to the table and would recognize my fried, Mr. Stenholm, for any opening comments.
Mr. STENHOLM. No comments.
The CHAIRMAN. Mr. Stenholm has no comments. Gentlemen, thank you. As always, members statements will be made a part of the record. I would invite you to begin.
STATEMENT OF BILL KUBECKA, VICE-PRESIDENT, LEGISLATION, NATIONAL GRAIN SORGHUM PRODUCERS, PALACIOS, TX
Mr. KUBECKA. Thank you, Mr. Chairman, and members of the committee, on behalf of the grain sorghum producers nationwide, I would like to thank you for allowing this opportunity to discuss our proposal today.
My name is Bill Kubecka, and I serve as vice-president for legislation for the National Grain Sorghum Producers. I farm in a family partnership near Palacios, TX, between Houston and Corpus Christi. Our diversified operation includes grain sorghum, rice, and cotton.
NGSP represents U.S. grain sorghum producers nationwide. Our recommendations to you today are focused on specific needs of the grain sorghum producers, and we appreciate your consideration of them as you undertake the task of amending commodity titles in Federal farm legislation. However, until such titles are amended, we urge additional short-term emergency assistance for producers that are continuing to endure a marketing, energy, and profitability crisis. And we thank the committee for requesting the House Budget Committee to consider additional assistance for farmers this year.
Page 468 PREV PAGE TOP OF DOC Segment 3 Of 5 Analyses of these recommendations made in this testimony were conducted by the NGSP with input from the staff at the Food and Agriculture Policy Research Institute using their CBO model and by AgriLogic, Inc., of College Station, TX, using their private model based on CBO baseline information. This is not the actual CBO baseline, but, instead, it is an approximation of that baseline. These organizations currently are working on more complete analyses of our recommendations, and they should be available by late April. The FAPRI analysis is in response to a request to evaluate the impact of sorghum loan rates on production as requested by you, Mr. Chairman, and, Mr. Stenholm.
NGSP was among the members of the agriculture industry urging farm flexibility in 1996, and we stand by that concept today. We urge the committee to find a solution with the framework of the 1996 FAIR Act with few modifications. We should not go back to supply management program.
Our recommendations center on correcting inequities that would genuinely give producers the freedom to farm any crop that suits their marketing plans and conservation needs, rather than planting those that are most appealing from a farm policy standpoint. The sorghum industry believes that these inequities are greatly driving cropping systems and cropping decisions.
The loan rate for grain sorghum from 1972 to 1996 was never more than 5 percent below the loan rate for corn, until only recently, when the loan rate for grain sorghum began dropping, while the loan rate for other commodities remained steady. This ended in sorghum loan rate today, which is 10 percent below the corn loan rate.
As a result, we come before you today having just harvested the lowest number of grain sorghum acres on record since 1953. For this reason, our recommendation is to set the grain sorghum loan rate equal with the corn loan rate, and is the centerpiece of our testimony to you today. It is our strongest belief that should the committee choose to follow any of the other farm bill recommendations that are detailed in our written testimony, such decision can have little or no positive impact on our industry if we fail to achieve at least an equal loan rate to corn, thereby increasing options for producers and avoiding further grain sorghum acreage losses in a time of high energy costs, depressed markets, and other feed grains such as today.
Page 469 PREV PAGE TOP OF DOC Segment 3 Of 5 Producers are chasing Government policy by planting other feed grains with higher loan rates, better LDPs, and better insurance indemnities. In addition to our recommendation that loan rate for grain sorghum be equalized with the corn loan rate, loan rates for oilseeds should be kept at the current levels, while all the other loan rates for the commodities should be increased by 5 percent.
Based on the language from the 1996 law that gives considerable discretionary authority, loan rates could be determined in any number of ways using various factors. Given the potential for arbitrary interpretation of the law, we respectfully ask that the committee consider changing the law to set statutory minimums for corn and sorghum loan rates equal. There are several factors detailed in our written statement to support these recommendations.
These include demand opportunities as supported by stocks-to-use, relative loan rates based on weights of other commodities, cash markets, nutritional and end-use value, and conservation considerations. From an impact standpoint, research conducted by FAPRI, included in the March 15, 2001, National Wheat Association's testimony, shows that equalizing the loan rate with corn will cost only an average of $28 million annually and will increase production by 5 percent. Additionally, it will create a 22 percent per-acre increase in net returns to sorghum producers.
Projected costs over 8 years for increasing loan rates by 5 percent, and, again, with the exception of oilseeds, and equalizing the loan rates of sorghum and corn, would be $575 million with the high of $1.1 billion in 2002, and no net cost in 2005, resulting from ending acreage distortions between other commodities and oilseeds in an overall projected price increase.
An analysis of recent ending stocks and total use indicates any additional sorghum acreage generated by an equal loan rate with corn would generally be nondistortive to grain sorghum supplies. In fact, increased production would allow us to compete in several premium markets in which we are unable to compete today because of the lack of a reliable supply.
Page 470 PREV PAGE TOP OF DOC Segment 3 Of 5 This has also caused distortions in the marketplace when considering LDPs. Last season, cash price for corn and sorghum were very close, but loan rate discrepancies resulted in corn receiving a 20 to 30-cent LDP per bushel, while grain sorghum was only getting 2 to 4 cents LDP per bushel, if any at all. This inequity means a $20 to $30 per acre less for sorghum farmers that are already in a tight cash revenue situation.
Other feed grains that fall under the law in determining loan rates are oats and barley. On a pound-for-pound basis, that is detailed in our written statement, sorghum should be equal with all feed grains. These loan rate inequities for sorghum occur even when Nebraska grain sorghum producers are reporting cash sorghum sales as high as 10 cents per bushel over corn. And Government loan implied that corn is worth 18 cents per bushel more than sorghum. Nationally, in the past year, farmers realized grain sorghum prices that were equal to corn in most sorghum growing areas, while the loan rate for corn was 10 percent more than sorghum.
As sorghum acres have declined and end-use consolidated, decreasing market competition, NGSP believes daily cash markets reports are increasingly less precise. Therefore, we believe level loan rate policy is needed to avoid continual problems in this area. Certainly by now, we would like to have it examined and addressed how feed grain loan rates were calculated by USDA in the face of such cash market conditions. NGSP filed an open records request with USDA on December 20, in an attempt to thoroughly analyze the differences in USDA's formulas, based on cash market calculations and recommended solutions on such analysis. However, we regret that we were unable to present such analysis in this testimony because this open records request was recently denied by USDA and is currently under appeal.
University research trials, conducted over the last 10 years, have clearly shown that end-use value of sorghum is equal to other feed grains when properly processed. These studies are detailed for you in our written statements. Sorghum has been called the water-sipping, rather than the water-guzzling crop. University studies have compared water savings through alternative cropping systems and the use of crops that require less water, such as grain sorghum.
Page 471 PREV PAGE TOP OF DOC Segment 3 Of 5 One study, which ordered by Texas legislation, has found that the total 50-year water savings for six counties in the Texas Panhandle would amount to 3.5 million acre feet if producers converted from irrigated corn to irrigated grain sorghum.
Taking this to a wider scope, water savings from irrigated corn acres converted to grain sorghum could be astounding when looking at the total irrigated corn plantings in Kansas, Nebraska, and Texas combined. From a conservation standpoint, the question is simple. How can limited resources be more efficiently used? We believe that future water supplies should be a priority, and equal loan rate would help producers be able to conserve water.
From a producer's standpoint, there are producers who would welcome sorghum as a low water-use planning choice in our farms this spring due to irrigation costs, which have soared as a result the energy crisis. However, many will not switch because of the differences in loan rates.
NGSP is aware that ad hoc disaster and assistance legislation will become increasingly difficult to achieve and defend in the face of other needs. This points to the need for a counter-cyclical safety net. However, we are very concerned that safety net proposals so far do not take into account county and regional production and marketing anomalies that might not trigger payments or impact national supplies. Additionally, NGSP recommends that any payments be constructed on a commodity-by-commodity basis.
However, the models that we have access to at that time only score the national cost of our current proposed program at an average cost of $3.9 billion, based on AgriLogic's CBO model. Cost based on this model range from a low of $1.4 billion in 2008 to a high of $6.7 billion in 2002.
We are currently studying a county or regionally based safety programthe costs for any county and regionally plan that we might endorse at a future date would not exceed the costs of the national plan that we have scored for today's hearing. If such costs do exceed the budget of our current proposed plan, we would recommend factoring down payments to stay within the budget.
Page 472 PREV PAGE TOP OF DOC Segment 3 Of 5 NGSP envisions payments as market-loss payments and the crop should be planted and produced to quality for the counter-cyclical program. We are aware that using actual planted acres will be considered in an amber box payment under the WTO requirements, but our analysis projects that such plan would still fall within the WTO limits.
NGSP proposes basing a safety net on actual marketing receipts, plus market loss payments averaged over the 1996 to 2000 base period, divided by the average production units over that same time period. This establishes a base price for the 200208 period. To calculate the counter-cyclical payments, the current price per bushel must be then established. This price would be the higher of the marketing loan or the current year's average marketing receipts. The current price would then be subtracted from the base price, and this would provide a per-unit payment for each commodity.
We support a continuation of AMTA payments, although we recognize the negative impacts on the cash rents in the northern Sorghum Belt. NGSP believes that the Production Flexibility Contract should be extended through the next farm bill period, and annual payments should be frozen at the 1999 level. For all the reasons put forth in the letter dated March 15 from this committee to the House Budget Committee, it is imperative that farmers continue to have the guaranteed payments to help counter the issues and fixed costs that you discuss in your letter.
Providing these payments at these 1999 AMTA levels would require $5.8 billion to annual budget authority, or $1.8 billion annually more than the current baseline projection. NGSP believes that the AMTA payment should be calculated using the historical crop bases and yields that established the 1996 farm bill payments, and that AMTA payments include historical program crops. NGSP recommends that existing historic basis for current farm program crops should remain in place through the next farm bill.
Sorghum is a low water-use, low-input choice for many producers and conservation needs, such as these, and not Federal policy, should be prioritized in determining where and when it is planted.
Page 473 PREV PAGE TOP OF DOC Segment 3 Of 5 A global population that benefited from the late 20th century from Green Revolution, led by Dr. Norman Borlaug, is today facing a future predicted to have 23 percent of the world population experiencing severe water shortages by 2025. However, 50 percent of the increase in demand for water by 2025 can be met by increasing the effectiveness of irrigation and growing more water-efficient crops. A second Green Revolution, rather than a Blue Revolution, suggests a combined approach of water savings and appropriate crops such as more risk-tolerant sorghum, to produce more crop per drop.
Mr. Chairman, I would like to thank you and the members of the committee for this opportunity to present our ideas before you today. We look forward to providing you with additional information as we continue working on this process.
[The prepared statement of Mr. Kubecka appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much. I want to focus the majority of my discussion with you on your proposal. But I would like to ask you for the record, in your introduction, you are talking about additional short-term emergency assistance. Assuming there is some assistance package for the current crop year, how do you recommend we do that?
Mr. KUBECKA. Our discussions have been basically led to believe that for any timeliness of payments to be given out, that it would basically have to be done under the current system that we have had in the last couple of years.
The CHAIRMAN. Additional AMTA-type approach.
Mr. KUBECKA. Yes, sir.
The CHAIRMAN. Assuming that you would, as well, support doubling the payment limitation, as we have the past 3 years.
Mr. KUBECKA. Yes, sir. We do support that.
The CHAIRMAN. OK. So explain to me, I am having a hard time understanding this because I understand that you have got a split position on payment limitations. Explain to me how you propose that we deal with the limitation issue in a permanent bill.
Page 474 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. KUBECKA. Well, payment limits is a divided issue among this organization that we had considerable discussion. But what we have really come up with is that is not our major problem. Loan rates is our major problem. So that kind of evades your question but payment limits aren't our big problem for our industry.
The CHAIRMAN. What do you propose we do about it?
Mr. KUBECKA. Well, at least double them. I think we did have consensus on that, that that would take care of most of ouras our margins have gone down, our farms have gotten larger. And, as a result, it is more and more difficult to farm under the limits that we have today. So, again, doubling would be at least a start for us.
The CHAIRMAN. OK. Now, and if I am not mistaken, your actual recommendation is to retain the limits on AMTA at $40,000 and double the limits on price support payments from $75,000 to $150,000 with a annual growth inflation index.
Mr. KUBECKA. Yes.
The CHAIRMAN. You would recommend leaving AMTA payment limitations at $40,000. Correct?
Mr. KUBECKA. Yes.
The CHAIRMAN. OK.
Mr. KUBECKA. Yes. Based on the 1999 payments. As you can see, I wasn't involved in all the modeling, so I am having to make sure that that is what our model
The CHAIRMAN. Well, it really wouldn't matter what year weyou are suggesting we would use the 1999 year payment, but it wouldn't matter what year we were using if your recommendation is that it remains at $40,000.
Mr. KUBECKA. Yes, sir. We would accept the remainder at $40,000 to get our loan rate equal to corn.
Page 475 PREV PAGE TOP OF DOC Segment 3 Of 5 The CHAIRMAN. OK. Which brings up your proposal for equalization of corn and sorghum. An example that you gave, last year corn and sorghum cash prices were similar. Corn received a 20 to 30-cent LDP; sorghum was getting 2 to 4 cents. Equalizing the loan rate would not resolve this problem necessarily with respect to how USDA determines terminal market prices, Posted County Prices, and so forth, and so on. What are you proposing with respect for resolving the differences in LDPs?
Mr. SHAW. That is a good question. We have tried to come up with a satisfactory answer, and, to tell you the truth, Mr. Chairman, we haven't.
The CHAIRMAN. OK. Keep working on that. You understand the difference. If there is an understanding or perception that the loans are equalized and, yet, you still see a pretty strong difference between LDPs on corn and sorghum, then obviously the producer is not going to be as happy.
Some others have testified that what they would like to do is to equalize all loan rates based on soybeansthat they should all be equivalent towhere soybean loan rates are today. And even though you are talking about equalizing with corn, you wouldn't have a problem with that. Would you? If you equalize with corn and corn was equalized and all the others were equalized at soybeans, the parity of soybeans, that is not a problem to you all. Is it?
Mr. LUST. We propose a 5-percent increase in all other commodities, other than soybeans, to try to get towards that level. Exactly what that level is, I think you have seen some different testimony already on exactly what those numbers are. But we are supportive of the concept. Yes, sir.
The CHAIRMAN. OK. Itis my understanding there is one vote. There will not be another vote until about 2 o'clock. I would move the committee in recess. As quickly as Members could vote and get back, would be appreciated. The committee stands in recess.
Page 476 PREV PAGE TOP OF DOC Segment 3 Of 5 [Recess]
The CHAIRMAN. I thank the witnesses for their patience. I have been advised the next vote will occur in about 45 minutes to an hour. So we will proceed. Mr. Stenholm.
Mr. STENHOLM. Thank you, Mr. Chairman. Gentlemen, welcome. You stated in your testimony that commitments were made to the agricultural community to create an environment in whichand I quote, ''Freedom to Farm could thrive by opening foreign markets, easing tax and regulatory burden, and providing new risk management tools for farmers. Despite the best efforts of Congress, these promises were not delivered upon, and Freedom to Farm did not operate in an optimum environment.'' What were the best efforts of Congress that you cite?
Mr. KUBECKA. Initially, I think, the initial reaction of most producers were to be able to farm crops that were applicable to their region. I think, as the time went on and people understood the program, I think, you had the discrepancy in crops. Of course, every region has a little different scenario. But, of course, our issue today is that we have lost considerable acreage in the grain sorghum, because we jumped up several million acres in 1996. And as our loan rate went down, well, then it eroded. So the flexibility was the most positive thing that the 1996 farm bill did for us.
Mr. STENHOLM. But the flexibility we gave you. I am talking about what were the best efforts of Congress that you citedespite the best efforts. We gave that. That, seemingly, has helped contribute to the problem, not just the solution.
Mr. SHAW. Mr. Stenholm, if I understand the question, and maybe I don't, but we felt that Freedom to Farm was kind of like a three-legged stool. That we got the flexibilitythat is for sure, but we needed fast track. We needed an aggressive international export program along with that, and we also needed tax relief.
Mr. STENHOLM. That was my point there, because you say, despite the best efforts of Congress, I don't see where Congress did a whole lot to deliver on the export, on the fast track, on these areas. I don't recall us doing anything positive in that area.
Page 477 PREV PAGE TOP OF DOC Segment 3 Of 5 I am asking for you to be a little critical of us, not be wimpy.
Mr. SHAW. OK. We are being kind, sir.
Mr. STENHOLM. That is nice. We appreciate that. I just want the record to show that you were being nice and we don't deserve it.
Mr. KUBECKA. Speak for yourself.
Mr. STENHOLM. I am speaking for myself.
Mr. KUBECKA. OK.
Mr. STENHOLM. I am a member of the minority. We don't get anything done around here. What regulatory relief was attempted by the Congress that we didn't deliver upon? Or what did we not even attempt to do that you would have liked to have seen us do in order to deliver on the third leg of the three-legged stool? Mr. Shaw?
Mr. SHAW. Some of the regulatory measures that are coming down from EPA were a lot more burdensome towards producers. I know the sorghum producers had some of their pesticides, herbicides, taken away that they have used forever, it seemed like, and had to use alternatives. That is all I can think of right now, though I am sure that they have some more.
Mr. LUST. Well, I think in terms of the problems that we saw was probably misunderstanding the seriousness of some of the language that did get through that was mentioned previously, that has had real impacts in terms of taking old chemistry products off the market for us. And then all of the issues that we have in front of us still, in terms of FQPA and TMDL-type issues that I don't think we even fully know what the total impacts of are yet. But we look at it and see that it is potentially going to be very costly on our operations.
Mr. STENHOLM. Shifting subjects. On many of our so-called program crops, we have the lowest real prices in 70 years. That is where we are today. In spite of that, we have the stock market collapsing every day. We have right-sizing of businesses, those that have tooled up to produce in a market in which the market has evaporated, and, therefore, their logical reaction is to reduce production. That is what the market is telling them. It seems to me the market is telling us in agriculture, reduce production.
Page 478 PREV PAGE TOP OF DOC Segment 3 Of 5 One of the troubling aspects of something that I kind of personally like, but I have a difficult time increasing the loan rates. At current prices, we are still going to produce more than we can sell. And, yet, you recommend, as every other commodity organization has recommended, increasing the loan rates. If we are going to produce too much at current prices, how will increasing the loan rates send the proper market signals to producers?
Mr. LUST. It is an easy statement to make, but I think one thing that history has shown us also is, we have had 4 of the best years worldwide ever in the history of the world. And I think we have to be careful about writing long-term policy based upon short-term phenomenon.
Mr. STENHOLM. I agree with you on that.
I am talking about short-term phenomena this year.
Mr. LUST. Well, that is a much more difficult question. I think that certainly we can answer it from our industry's standpoint, and that is who we are here representing today. Our industry is looking at approximately 8 percent stocks-to-use ratio this year. Our industry can't meet the demands of our end-users because we don't have enough grain. So from our industry standpoint, we are a little bit unique in being able to say that we can handle more production.
Mr. STENHOLM. You find yourself in the same position that basically the wheat industry finds itself in. All of the market signals suggest that there ought to be a boost in prices because the stocks-to-use ratio are at all time lows. But, yet, the market still seems to be telling us you guys are producing too much. You say you can't meet the demand. You are correct in that statement, except it seems that the buyers do not recognize the unique value of grain sorghum and are willing to pay you that which you believe you are justified to do. Every other business, other than we farmers, when market says we are not going to pay you, we don't produce.
Page 479 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. KUBECKA. Well, I am going to answer that in my perspective. Of course, I have said in this testimony about Nebraska and the grain that was going to ethanol. Of course, I live down in the Gulf Coast and what we are sending down to Mexico and I am getting a premium to corn right now. The problem is with the guys up on the high plains, where they are locked into one end user and they don't have alternative markets. We are fortunate to have alternative markets. We have a big poultry feeding area east of San Antonio, and plus we have the demand from Mexico. So sorghum still works for us.
The CHAIRMAN. Mr. Osborne.
Mr. OSBORNE. Thank you, Mr. Chairman. And thank you for your testimony today. Being from Nebraska, I am a little concerned about the ethanol industry. I realize that sorghum is a major supplier for the ethanol industry and I realize that ending stocks for both sorghum and corn are surprisingly low. And one of the concerns I have had is it looks like there is an opportunity here to maybe double ethanol production in the next 2 to 3 years, and having an adequate supply for our ethanol plants is somewhat of a concern. And I don't know if there is any quick and easy answer here. I guess your assertion is that if you raise the loan rate, you are going to have more sorghum produced. Is that correct?
Mr. KUBECKA. Yes, sir. It is. Because policy is driving planning decisions.
As we stated earlier, and again, I may be getting back to the question earlier about LDPs, if a producerI mean, we are under undue economic stress, and if history has said that he is getting 20 to 30-cent LDPs on corn, he doesn't get that for sorghum. Well, that is considerablein a 100-bushel crop, that is $20 to $30 an acre.
So it starts way back in the planning process and the budgeting process deciding what you are going to plant. And so that is why it is so important for us to get this policy corrected.
Page 480 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. OSBORNE. One of the arguments that the other groups have madeand I don't know that you have made it specificallybut that is that the loan rate for soybeans has really driven a lot of acreage into soybeans. And I would imagine that some of acreage has come from sorghum production. Would you agree with that or not?
Mr. LUST. Yes. It is not only soybeans. I would suggest it is oilseeds, in general, in the Sorghum Belt. And that being the whole oilseed complex. And certainly, in our northern markets and our eastern marketsNebraska, Missouri areas, that is a true statement.
Mr. OSBORNE. I saw that you had suggested a loan price for oilseeds and I didn't see a specific soybean loan rate in your table. Am I missing something or
Mr. LUST. It would stay the same at the current level and we would propose to raise other commodities up to that level.
Mr. OSBORNE. One last question, and this probably a difficult question to answer. But I have a feeling that a lot of the people who appear before us are people who are engaged in fairly large farming operations. And one of the concerns that we often hear is, well, what are we going to do about small farmers because of the economy of scale? And particular, young farmers, I think most people would agree that there isn't a dearth, an absence, of young farmers in agriculture. And have you thought about that and do you have any suggestions that you would like to make that might address that situation?
Mr. KUBECKA. I don't know that I have any particular suggestion other than to coincide and agree with you that the realization is that the rest of the world is gearing up their agriculture production. And if we are not able to compete with them in some means or manner, yes, agriculture production will see a significant decrease here in the United States. It is not just our problem. This is an international problem. Been down South Americathey are putting immense amount of acres in down there. And I mean, those are our real challenges. I don't feel the challenge is between the north and south, east and west, or between the big and small here in the States. I think it is more on an international level.
Page 481 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. OSBORNE. I still, I guess, I would like to come back to my original question. And that is, do you see any way to equitably address economies of scale? Because, obviously, if you are farming four or five sections and you have certain equipment that is required and, yet, if you are farming 500, 600 acres, you still need a tractor. Maybe you don't need a combine, but you need some equipment and, therefore, the cost of production is just higher per acre for smaller farms. And maybe what everybody is saying to us is, well, we forget about that.
But the problem is, at some point, we are going to need some younger farmers coming into the business. And when you are talking about those guys starting out with three and four sections of land, unless they somehow inherit it or come by it, other than paying for it themselves, they simply can't compete. So, again, I just ask you the question, have you thought about any equitable solution to this problem?
Mr. LUST. We have thought about equitable solutions to it. Certainly, we see it within our own family operations. I think most of the board members, as well as my family, sees it, in terms of what the pass-along costs would be and the risks that a young person has to take to come back into the market and purely the capital to come back in. By the same token, I guess the questions that we have a time struggling with is the issues of the economies of scale and the efficiencies that are not just gained in this country, but around the world. And if we are truly going to compete on that world market, then it becomes a very difficult question to answer. So I wish I had a more concrete answer for you on how we help small farmers, but we don't have that answer.
Mr. OSBORNE. OK.
Mr. LUST. And don't know if it is a question that can be answered, frankly.
Mr. OSBORNE. OK. Thank you, Mr. Chairman.
Page 482 PREV PAGE TOP OF DOC Segment 3 Of 5 The CHAIRMAN. Mr. Phelps.
Mr. PHELPS. Thank you, Mr. Chairman. Good morning, gentlemen. Thank you for sharing with us. And forgive me if I am asking a question that may be in the statement that I wasn't able to hear totally. I know that you have alluded, as well I am interested, where I represent, in ethanol production. Do sorghum producers look at value-added opportunities beyond ethanol, or what are some of the other interests that you might have in your
Mr. LUST. Certainly, new demand is very important to our industry and, obviously, ethanol is the largest growth industry within our commodity today. The other area that we see unique opportunities within this country is in the food market. Today, less than 2 percent of the U.S. sorghum crop is consumed in human consumption. Around the world, that number is approximately 50 percent of sorghum production.
So we have a huge opportunity within this country to change some issues. We have some very unique health characteristics we believe that will help us break into that market. But as in all new markets, it is a slow process. When you start at zero, it takes time for it to mean a large number of bushels. But I can tell you it is growing rapidly today.
Mr. PHELPS. Along that line, is there some reason why that hasn't been identified as a great opportunity fromI see some of the nutritional values that you remark on. Is there some competition, product, or something that is keeping that opportunity from coming sooner?
Mr. LUST. I think a couple of issues there, to answer your questions, it has been a question we have had for many years. I think, traditionally, sorghum production has been in the plains areas while most of the food industry has been driven off the coasts and that has been an issue from a logistic standpoint, as well as just a notoriety of the other very large feed and food grains that you have in this country that have been in existence for hundreds of years. So I think that, perhaps, is part of the reason why it has been slow in moving.
Page 483 PREV PAGE TOP OF DOC Segment 3 Of 5 I think the other thing that has changed that, to some extent, is we have made great genetic changes in our crop, in terms of quality factors. And that has helped us be able to be much more competitive in the food market than we were even 5 to 10 years ago.
Mr. PHELPS. Are you involved in the biodiesel industry also with the product or does it not work?
Mr. LUST. Strictly ethanol from a sorghum standpoint.
Mr. PHELPS. Any reason why not or
Mr. LUST. It doesn't work with our commodity. From a chemistry standpoint it doesn't work.
Mr. PHELPS. OK. Thank you very much.
The CHAIRMAN. Mr. Chambliss.
Mr. CHAMBLISS. Thank you, Mr. Chairman. Gentlemen, I notice that, in your testimony, you talk about the fact that soybean acres have dropped significantly over the last several years, and I apologize if you have already discussed this. But what is the reason for that taking place?
Mr. LUST. Sorghum acres have dropped, in a large part, due, we believe, to two reasons. With the flexibility, we saw a 4 million acre increase between 1995 and 1996, when people had the flexibility to move out of other crops into sorghum. We lost those acres over the last 4 years. And two of the key factors we believe in that have been loan rates, number one, and higher loan rates for other commodities; and, two, Crop Insurance Program that has allowed higher gross revenue crops to have good bottom-side protection. And, therefore, producers have chosen to grow in a risk-year crop in the hopes that if it is a good year, they will make more money, and, if it is the bad year, well, the taxpayers will take care of it. And so from a sorghum industry crop that is not a high gross revenue crop, is a crop that is basically made for the more marginal areas and is more drought-tolerate, that has hurt us from an acre standpoint.
Page 484 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. CHAMBLISS. Talking about the loan ratesas I recall, your loan rate was tied to the corn loan rate, and the Secretary froze the corn rate, but didn't freeze yours. Do we know why that happened?
Mr. LUST. No, sir. We do not.
Mr. CHAMBLISS. There are not enough sorghum growers.
Mr. LUST. We
Mr. CHAMBLISS. I can tell you why it happened. We need more of them.
Mr. LUST. Yes, sir. I think the other answer to that is, is the formula that was chose to be using by the Secretary came into effect in that, in the average prices that they were being used. And as we mentioned earlier in our testimony, we would love to dispute those numbers, but we haven't been given an opportunity to do that. So I think to be truthful with you, this is not an issue for 2001. This is an issue that has been a struggle for a number of years.
And it is our industry's position that the simplest way to fix it is to change the law, to where we take the discrepancies and the potential for discrepancies out of the system.
Mr. CHAMBLISS. OK. I noticed also that you are, like some other commodities, proposing that if we have some sort of fixed-payment plan, that we use the current acreage yields and bases. Why would you not want to update that to current numbers?
Mr. KUBECKA. From our analyses, the biggest problem is that when you update them then you become an amber box payment.
Mr. SHAW. And I think the other reason is that since 1996, Freedom to Farm, farmers have not been mandated to certify their acres. There is a lot of acreage out there that we don't know if it if it is because of the lack of certification of those acres with FSA, we don't know if it is a true number.
Page 485 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. CHAMBLISS. I think that is probably a bigger problem than the GATT-related issue. But has there been any kind of systematic reporting of acreage for sorghum in the last 5 years?
Mr. SHAW. Not to my knowledge. There are some counties that will accept acreage reports and there is other counties that maybe mandate some acreage reports still. But it is so sporadic that
Mr. CHAMBLISS. It is a wholesale effort or requirement, obviously.
Mr. SHAW. Right.
Mr. CHAMBLISS. OK. How do you all accumulate you alls data that you are showing on these maps?
Mr. LUST. We have utilized two different groups on the loan rate issues the best we can. We have worked with the FAPRI organization; and the other group we have worked with is a private firm called AgriLogic that has econometric models that take all of these different factors into consideration based upon the best approximation they can of the CBO model.
Mr. CHAMBLISS. Is there not a requirement to report acreage if you are going to participate in the marketing loan?
Mr. KUBECKA. I stand corrected. All I have to do, as a producer, is report my production. I do not have to report acreage.
Mr. CHAMBLISS. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Berry.
Mr. BERRY. No questions, Mr. Chairman.
The CHAIRMAN. Mr. Etheridge.
Mr. ETHERIDGE. Thank you, Mr. Chairman. Just one. The question was alluded to a while ago at sorghum, soybeans, et cetera. This is more short-term than long-term and it may have an impact on the long-term as we face the current energy crisis. And you may have covered this in your testimony. I apologize for being late. But as we deal with that, with the natural gas shortage we have currently had with the diverting of the natural gas pulling off energy, the west coast, of the issues that may face the rest of the countryand more and more farmers, because of the cost of fertilizer and commodities in energy, may be moving to soybeans or others.
Page 486 PREV PAGE TOP OF DOC Segment 3 Of 5 Will that affect the sorghum issue, but, more importantly, overall farm issue as it relates to some of the issues we are going to deal with, with your testimony and your written testimony you have provided here?
Mr. LUST. I think that time will tell how big that impact is. I know, as we have said in board meetings this winter with our leadership, it is a critical issue to them and they are looking at changing crops based upon the fertilizer cost issues. Some of them were able to purchase fertilizer early and have been able to protect themselves; others have not.
I think the other issue, in terms of the Sorghum Belt, that we have to look at is, is there is quite a lot of irrigation in the Sorghum Belt. So actually that comes into play in a positive manner for our industry because we do use less water. So we actually could potentially gain a few acres in those areas because we willwell, frankly, my family has limited irrigation and we will cut back to probably only one water and we will change some of our other crop mixtures out. So it is a two-fold issue, I think, depending upon whether you are dry land or irrigated and then where the fertilizer situation is.
Mr. ETHERIDGE. Let me follow that a little bit farther, because I think that is important, as we look at these issues and look down the road for the overall payments and the challenge of American agriculture. Because I do think unless something happensand the more I hear is this is going to be a longer-term issue than any of us are thinking about. If that be true, it may have an impact in the short-term. But as we look at the long term and the issues we have to deal with, with the payments to farmers to be able to keep them in the field of agriculture, do you see this as having an impact on the bottom line of the profitability? And if so, how? Any of you who want to handle that.
Mr. LUST. Bill should be answering this, not me. But I think in his operation, as very detailed accounting data that he has shared with us, is that there is a potential for as much as a 33-percent increase in his cost of production. That is substantial. And, as we talked about some of the price issues that we have, there is no doubt that if cost of production and supply issues, particularly the energy-related, that catches us in diesel for our tractors. It catches us in fertilizer. It catches us in irrigation costs in the irrigated acres. Certainly, if you look at those, and those stay long term and don't decline, then there is going to be a very significant issue that we have to look at over a longer-term basis, no doubt about it.
Page 487 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. ETHERIDGE. Anyone else want to comment on that?
Mr. KUBECKA. Well, I think he has read my mind because we have talked certainly enough about this, but I mean, again, it is just amy farm is certainly a family farm with my two sons and myself. But, I have also become a very good businessman too and, again, if I can't make it work, we are going to have to do a change. At long term, something has got to give.
Mr. ETHERIDGE. Well, I raise that issue because we get a lot of people testifying and we are looking out and we don'twell, I am afraid we are not factoring some of these things in. Because I talked with a fellow the other day who is in the poultry businesshad four houses. And all of a sudden, in 2 months this winter, most of his profit went up. I am hearing that from everyone I talked with on propane. Now, propane is a poor man's gas because it is rural gas, stripped out of natural gas. So everybody is being caughtand the farmers, by and large, are caught with propane. That is the big issue because that is a rural gas in this country.
If that continues to rise, we got serious problems in agriculture in America because natural gas is a piece that our fertilizers and other things come from. And I have been a little bit surprised that I haven't heard more about that as people come in to testify. And that is going to have, in my opinion, if something doesn't happen and we don't have an energy policy, a real problem. Thank you, Mr. Chairman. And I see my time has expired.
The CHAIRMAN. Mr. Moran.
Mr. MORAN. Mr. Chairman, thank you. I appreciate seeing the map by counties. KansasI never know whether we are the Corn State, the Grain Sorghum State, the Livestock State, or the Wheat State. I am glad to share grain sorghum with the panhandle of Texas. That is the most important perspective from this committee. You indicated in your testimony about the loan rate for grain sorghum, 1972 to 1996 was never more than 5 percent. USDA started making changes in 1996. Were you ever successful in getting an explanation from the Department of Agriculture about why those changes were being made in comparing the loan rates to other crops?
Page 488 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. KUBECKA. Well, I mean, basically they always had a reason. We didn't ever accept the reason because what we were experiencing from producers out in the country and what they were telling us were always two different things. Yes, we were given a reason, but, no, we never believed it.
Mr. MORAN. USDA's reason made no sense in the real world. Is that true?
Mr. KUBECKA. That is correct.
Mr. LUST. It was based upon a 5-year average figure that is hard to argue with in terms of the absolute numbers there. I think the deeper questions we have is what is behind the initial numbers and where is that process at.
Mr. MORAN. I think from hearing your testimony and what I have read is, this loan rate issue is, perhaps, the most important one to you as what you would want the committee to take away from your testimony today is the importance of making changes in the loan rate issue as compared to other crops. Is that accurate?
Mr. KUBECKA. Yes, sir. We feel that this is our issue. I mean, at our national board meeting this winter, this was voted No. 1 issue because of the fact that if we don't get this policy corrected, then we will not have an industry. We will fade off in the sunset. And we think we have enough environmental usage, so to speak, in that we need to keep this crop around.
Mr. MORAN. Mr. Kubecka, I want to highlight another portion of your testimony. It is your policyother policy recommendations and it deals with the CRP contracts that were entered into in August of 1996, and the previous USDA's decision to eliminate the base on those acres. Maybe you want to highlight that issue. I want to highlight that issue. I think it is an important one that we are going to face and I appreciate you pointing it out. That down the road we are going to have a number of acres across the country that when they come out of CRP will have no farm program base.
Page 489 PREV PAGE TOP OF DOC Segment 3 Of 5 I assume that the previous Secretary was making a political statement about the farm bill. I appreciated the rhetoric, but I think the program changes were very great problems for a number of landowners and farmers around the country. Anything you want to add to that?
Mr. KUBECKA. My addition is thank you for bringing that up because it is a big issue in the Sorghum Belt because we have a lot CRP acres and it is a big issue. It was basically something that was done without any fanfare, without any knowledge, and it has caught a lot of people off guard. And then as these acres come out, it could be a very, very big detriment to our midsection and our plains States.
Mr. MORAN. I learned a lot today, but I learned specifically about the role that grain sorghum plays in the production of ethanol, and we sometimes don't think that way. And I also wanted to give you the chance to tell us what we could do to encourage grain sorghum in the production of ethanol.
Mr. LUST. Well, I think that we, as an industry, certainly are very appreciative of all the work that all of the Ethanol Coalition is doing, led by the corn growers, which tend to get the fanfare for that. But certainly, as we get into the Sorghum Belt, it is very critical to us. And as we have talked about answering the price question that Mr. Stenholm brought up, it is very beneficial to us in creating new demand and new competition. The incentives that are continuing to be looked at, at the Federal level, as long as those are brought out and continued to be supported, those are very important to us.
Obviously, we are watching the waver situation in the California market, due to our geographic location in the western plains. We will be very competitive. Ethanol plants that use primarily sorghum would be very competitive into that market if we had the opportunity to compete there. Certainly, there is legislation at the State level and Kansas, I believe, has passed. Oklahoma and Texas still have legislation alive that, I believe, will pass, in terms of some State programs there that will continue to help also. And so it is something that we continue to see as a very positive thing for our industry.
Page 490 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. MORAN. Thank you for your testimony. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Shows.
Mr. SHOWS. No questions.
The CHAIRMAN. You have mentioned that you really didn't have as much grain sorghum as was needed based upon demand. Is that correct?
Mr. KUBECKA. Yes, sir. It is.
The CHAIRMAN. Why is the price so low?
Mr. KUBECKA. Well, relative to other feed grains, we are at a premium where we are short of it, and certainly on the coast. And on our northern end, the ethanol plants, they paying a premium. Again, why are our supplies lowwell, I think you asked price
The CHAIRMAN. Right.
Mr. KUBECKA. I think it is supply and demand and there is alternative crops there. And if there is adequate supplies, which undoubtedly there is adequate supplies, and there is somebody willing to sell it to them. So that is going to hold the lid on us.
Mr. LUST. I think as a starch product, which is primarily what we are, there are a number of perfect substitutes and a number of imperfect substitutes. And when we look at global supplies in that area, then it doesn't allow our micro-issue to rise to higher prices due to the overall global supplies.
The CHAIRMAN. So there is a shortage, actually, of grain sorghum for specific grain sorghum uses, but, in terms of generic uses, there is an adequate supply because they have alternatives.
Mr. LUST. Yes, sir.
Page 491 PREV PAGE TOP OF DOC Segment 3 Of 5 The CHAIRMAN. Why do you want more to be planted or produced?
Mr. LUST. Well, I think two things. One is, we talked about the specific uses of sorghum. Those are very critical to us. I think the other thing thatthe seed industry representatives that are here from your district today, sir, are very important to our future as producers and us being profitable. Their private industry investment in research in development of this crop is critical. And as the critical mass of our industry falls below a certain level, they simply switch their industry research into other commodities and into other areas. So it is critical for us from an economyand we have talked about economies of scale from the producer's side. Certainly it is a reality of the business world today. And as we look at our seed industry and our allied industry, in terms of new chemical products and new hybrids of grain, it is very critical to us that we maintain an acreage base, as well as a profitability base for our producers to maintain this industry.
The CHAIRMAN. What is it going to take to get the price of grain sorghum up to a profitable level?
Mr. KUBECKA. I guess that it is not only sorghum, it is the feed grain complex. And what is it going to take? Probably a good drought somewhere in the world. Because we have had abundant supplies and, until that happens, I don't see a real turnaround.
The CHAIRMAN. There has been a lot of discussion about planting grain sorghum in this coming year versus corn, due to costs and water availability and the cost of producing the water to get it on the crop in those areas that they irrigate. And we have run some numbers here. The current loan rate is $1.71 for sorghum and $1.89 for corn. And if you produce 11,200 pounds of corn, that would gross out at $378 an acre; 8,000 pounds of sorghum, gross out to be $270 an acre at $1.89 if the loan rate were increased.
Farmers are asking themselves, would the decrease in income be offset by the decrease in production costs and can they make 8,000 pounds of sorghum? Many corn farmers are saying they cannot generate sufficient crop revenue to meet annual operating and long-term debt obligations when switching to sorghum. Would equalizing the loan rate solve the problem or would there be other factors that would still make producers hesitant to switch crops?
Page 492 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. LUST. I think the point that you are making, in terms of gross revenue generation, applies to an individual producer'sprimarily their debt load and what obligations they have that they have to generate those dollars to do. Certainly, no doubt, it is a higher-risk issue. Many of the people that we see switching acres this year with the difference in loan rate are people that are financially healed and they are looking at risk, and they are not wanting to lose more this year. If our loan rates were equal, I think there would be a larger percentage of those people that would go ahead and make the change.
Is there going to be some producers that probably financially can't afford to switch to a lower gross revenue crop no matter what? That is probably a true statement. They will have to take a higher risk to try to generate more dollars. I question, though, the sustainability of the issue for a long period of time.
The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. I want to come back to your testimony where you are talking aboutyou state, based on research, sorghum has a nutritional and end-use value equal or greater to that of corn. But, yet, the last records we have available, 1999, showed that consumers of corn paid 14 percent more for corn than they did for grain sorghum. Now, why would a consumer, a user of corn, be willing to pay 14 percent more for corn than sorghum if the nutritional value is equal or greater than?
Mr. LUST. I would suggest that they could get by with paying 14 percent less. And that is an issue of a lot of changes in logistics and marketing, in terms of our industry, and the fact that for many of our customers in the animal industry, we are a substitute product. It used to be they had corn or sorghum. Today, there are many other products, as well, that come into that mix.
So when we get into geographic areasfor example, today, I know both my national president and my legislative director are priced above corn in their home markets, while in the Texas Panhandle, we are still around that 10-percent difference in price. And I think part of that is, as we have less end users and they have more options, one of the things we have seen in that central market is they have gone to using shuttle trains of corn out of the Midwest and they have locked those in. Instead of buying sorghum first, they are buying sorghum on the spot market second.
Page 493 PREV PAGE TOP OF DOC Segment 3 Of 5 So if we have a blizzard in the Texas Panhandle, I would suggest that premium difference goes up considerably. If we don't, I would suggest that there is no need, as a businessman, to pay more than you have to.
Mr. STENHOLM. If I understand you, you are suggesting that in this capacity, or in these instances, marketing decisions are being made. And where you have been able to develop a local market or you are fortunate to be in an area that is more conducive to grain sorghum, the market does reward sorghum. But in other areas, perhaps, for volume, perhaps, for individual marketing decisions that have been madeperhaps, that producers in certain regions have not found a way to cooperate or work together to achieve that market power. Is that close to what you were saying?
Mr. LUST. Yes. I think so. And an example I will give you is we have seen some of the poultry pull off of sorghum in the last couple of years because of a lack of an available supply. When they pull off, they don't cut down; they stop. And when you have a significant end user that pulls out of a market like that, then you have a real problem. And so that is some of the issues that we have dealt with.
We have done a lot of marketing research on the marketing side of our commodity, and the number one complaint, time after time, is lack of an available, reliable supply. And so, as an industry, we are trying to do some logistical things of working with the elevator systems to try to concentrate sorghum or milo into more concentrated areas and try to deal with that. But I think as the industry changes and as sorghum is generally grown in some areas of the West where you have some pretty long hauls anyway, it is something that has been a unique issue for us in the last few years.
Mr. STENHOLM. And I think your records clearly show that where you have now the high energy cost and the irrigation cost, that there is going to be a very strong temptation to switch to sorghum because of the cost of irrigation and the amount of water that is needed. And, therefore, that will provide, at least, in many areas, an economic incentive to switch. Market is telling us that. Right?
Page 494 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. LUST. The energy market is telling us that from a production standpoint we should switch. The problems that we see is, is that from a policy standpoint in terms of guaranteed dollars, it is not that simple of a decision.
Mr. STENHOLM. No. And I agree and you gave a very rational explanation of what we get into when the risk assurance part of agriculture guarantees a higher price than the market guarantees, you are going to automatically have the kind ofwell, results that we have been seeing. The market is telling we, in agriculture, to park our tractors. That is what the market is telling us. I mean, you look at, day after day, businesses that aren't making any money producing what they are producing have got no choice but to quit producing.
But we, in agriculture, because this just-in-time delivery that has worked very good for manufacturing, is now being employed in agriculture. Sorghum is a prime example of the fact that we do not have an excess supply of sorghum to meet the demands long term. Short term, everybody is being filled. But a disruption anywhere, a major disruption in the food supply anywhere with drought or other natural phenomenon is going to cause the kind of problems we saw in energy.
This committee's challenge is what addition to the current policy do we need to make that avoids the devastation to our producers of what we are going through right now, while, at the same time, is friendlier to the taxpayer? We have got an interesting debate going on in the Senate, as we speak, on this subject right now, and it has been fun watching the discussions over there earlier this morning. But I will have one other round, but my time is up right now.
The CHAIRMAN. Mr. Osborne.
Mr. OSBORNE. Thank you, Mr. Chairman. Just a couple of questions here. I don't disagree, based on your testimony, that the loan rate obviously for sorghum must be out of whack and probably needs to be increased. But I noticed that your increase in your loan rate is roughly 14 percent. And you have pretty much put a 5-percent increase on all other commodities, which maybe, it seems to me, to be rather arbitrary, just to say, well, everybody else gets 5 percent and we get 14 percent. I imagine there will be a few arguments around the table at some point. And it seems that there should possibly be a formula put into place. And I don't know exactly what that is. But rather than just say, well, everybody gets 5 percent and we get 14 percent might be a problem. Do you want to address that? And it is partly a statement and partly a question, I guess.
Page 495 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. LUST. Yes, sir. The first is, is when FAPRI scored this out, they scored this out at $28 million cost. I think that is a very small number from any commodity standpoint and standards of what the cost is. I think we have tried to lay out some of the discrepancies over the past few years that have led us to have to go back to such an extreme in that raise.
I think the other issue you brought up in terms of what is the magical readjustment factor? Certainly, there has been a lot of discussion previously before this committee on that issue. Our 5 percent number certainly, I believe, it had been proposed earlier that soybeans would be lowered while other commodities were raised. I think that our approach was to try to leave oilseeds where they were at and bring others up to a more economical level. Is 5 percent enough? Is 5 percent too much? I believe there are probably smarter people than myself there to answer exactly what that level should be. I think our numbers were trying to look at what some of the equilibrium balances that we could see within the sorghum industry would be on that.
Mr. OSBORNE. Yes. Actually, in most cases, I think the groups coming before us have said, well, let us keep soybeans where they are and then adjust upward with other commodities. But, again, that will have to be resolved later on down the road. You mentioned that there are options for human consumption with sorghum. Yet, I noticed in the list of research items that most all of it had to do with animal feeds. Do you have some examples of uses for human consumption that we might talk about here?
Mr. LUST. There is actually a producer here from your district that has moved up in the value chain and has a food company that is marketing sorghum products. And in terms of that, it is a new growth market for us and it is still pretty small. We probably should have provided some data there. One of the areas that we have real benefits in, in that area, is that there appears to be some antioxidant advantages in terms of sorghum. Also, the main market that Twin Valley Meals is targeting is a gluten-free market. The celiac population in the United States is allergic to gluten. Sorghum does not contain gluten. So it is a very good niche market for our commodity.
Page 496 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. OSBORNE. One last question. On a per-acre basis, if you are producing for ethanol, is corn or sorghum more efficient? In other words, the number of bushels of sorghum on an average acre produced will yield so many gallons of ethanol. The same acre planted in corn will yield so many gallons of ethanol. Have you done an analysis on that as to which is most efficient?
Mr. LUST. Well, on a bushel-for-bushel basis, they are the same.
There is a 1 to 1 relationship from a bushel of sorghum or a bushel of corn into ethanol. On the per-acre basis, certainly, that is very dependent upon rainfall. As you move into the Corn Belt, where they have higher rainfall, better conditions, sorghum is going to be out-yielded by corn and there is going to be more bushels from corn. As you move back into the plains, in the droughter areas and the drier areas, that situation is going to reverse.
Mr. OSBORNE. Thank you. I have no further questions.
The CHAIRMAN. Mr. Moran.
Mr. MORAN. Nothing further, Mr. Chairman.
The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. The chairman reiterated part of your testimony regarding payment limitations and how you would view that. A thought that I have now listening to testimony now for the last several weeks, looking for some way to send a market signal. The market is telling us right now, as individual producers, cut back. That is what the market is telling us. It is not telling us to produce. You can't hedge a profit in anywhere right now today.
What if we took an individual approach in which weand just pulling a number out of the air nowsomebody determines that the market is calling for 70 percent production, commodity X, Y, and Z. And, therefore, our market loan program applies to 70 percent of what, Bill, you produce on your farm. The other 30 percent that you choose to produce, you produce it for the market, because the market is pricing what we are getting today. Let there be no mistake about it. The market is telling us sorghum is worth ''X,'' cotton is worth ''Y.''
Page 497 PREV PAGE TOP OF DOC Segment 3 Of 5 Therefore, if we say we are going to support, with a market loan, 70 percent of what an individual producer raises on your farm with what you used to call a normal crop acreage, the other 30 percent is yours, baby. Price it, sell it, store it, or not produce ityour choice. But if you produce it, there will be no market loan, no LDPs, no ability to insure it. It is yours for the market. What would your reaction be to that?
Mr. KUBECKA. Well, certainly if that was a law, I would abide by the law and not produce it.
Mr. STENHOLM. I am not saying that is the law. I am saying what your reaction be to that?
Mr. KUBECKA. Internally, at least what the experts or the people that study things beyond the local or national level on an international level say that historically, anytime we do that, we export our production abroad.
Mr. STENHOLM. No. There is no reason for us not to produce. If we producers believe that that market is going to be out there, we would produce 100 percent and go gangbusters and we would sell it on that market at whatever we could get, or convert it to ethanol, or make some other decisions on it.
Mr. LUST. It sounds familiar to flex fallow and I believe the data that I have seen suggests that if you don't get that benefit, you stop producing very rapidly.
Mr. STENHOLM. But that is precisely my point. The only way we are going to get the price up on what we produce is to short the market or have Government guarantee us a higher price. If Government guarantees us a higher price, then we are in to where we are today. Then we provide the incentive for the rest of the world. I am saying, what would the market signal be to the rest of the world if we say 30 percent of our production is going to be priced somewhere between zero and whatever you sell it for and we are going to sell it?
Page 498 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. LUST. The question that I believe is very important in that is, is the rest of the world, and particularly the European Union, are they waiting to see what we do in farm policy or are they just setting very high subsidies already that are in place? Because I think that as long as other Governments are competing against us, as individuals, then we have to ask our Government to stand up and help protect us in those situations.
Mr. STENHOLM. That is my speech. We are not going to change the Europeans. They are not going to change any time soon. It is very expensive what is going on right now to them and to us too, but they are not going to change. A lot of the rest of the world is going to change, and we are devastating producers everywhere in the world with the current policy that all countries are following. We are devastating it. And I am just looking for a way out of the box. And one of the ways out of the box is to let individual producers have freedom to farm. But the question is, why should we subsidize every bushel, every hundredweight, every pound of production into a market that is telling us we don't need it?
Mr. KUBECKA. We have certainly discussed that amongst us, as producers, in trying to figure out this gain, and it seems to be a big gain. We look at what is our value. If we all, say, quit farming 30 percent, what does that do the land rents? What does that do to tax structure? It is a bigger issue than most of us can conceive to how to make this thing work. And people tell us, well, when we had the supply management, well, then, the rest of the world
Mr. STENHOLM. Now, wait a minute now. I don't want the record to show I am suggesting supply management, because I am not. It is inventory managementthat every business in the country has to participate in or you go broke. What I am sayingand I just picked that 30 percent out of the numbermaybe 10 percent, maybe 5 percent, maybe some number would be workable. But supply management, you are right, does not work.
Mr. LUST. I think the question and the challenge we look at, as producers primarily in the plains States, is that if you are going to manage inventory, as you are suggesting, then there is probably no doubt about it that a portion of thatit all comes down to a per-bushel, per-acre, return. And those vary, we have found, tremendously within belts, as well as across geographic regions. So I am not making an absolute statement. But potentially what could happen is, the morethe higher cost production areas would choose not to plant, while producers in the lower cost areas would plant.
Page 499 PREV PAGE TOP OF DOC Segment 3 Of 5 The question is, is if our districts in west Texas happen to be some of those high-cost districts, and we have already set aside one-third of our production in a CRP program, and we set aside another one-third of our production in another program, what is that going to do to the infrastructure and what is that going to do to the rural areas that we are from? I think that is a very serious question that you have to look at when you start discussing that, is what could be the regional impacts?
Mr. STENHOLM. That is very true. That is very true. But we conducted 10 field hearings last year in 10 different States200 witnesses199 witnesses said, we like Freedom to Farm; one said I like Freedom to Farm too, but where you in Congress made a mistake is appropriating all the extra money. If you had just stayed out of appropriating extra AMTA payments and this, market would have worked this thing out. But, the end result would have been some devastation to a large number of rural communities in the short term, working it out, as the so-called market worked it out.
It is obvious that current policy is not adequate. You have testified to that. And I totally agree that we have got to balance loan rates. The chairman has challenged you to come with specific recommendations, in which you have done an excellent job today. The next step is going to be to get agreement among the various commodities as to what is the proper relationship in loan rates so that there is not an incentive to plant corn over sorghum and beans over corn, and all of the other. Balance those loan rates. That is the first step.
Now, we have got to take a look at the second part of this, and that is the risk management aspects, because if the risk management is going to create an incentive to plant crop X, to grow cotton in Nebraska, for example, because it wouldnow, don't think we are going that far, Tom, but we are going into the panhandle of Texas. And we have had enough of this even in the 17th district of Texas, in which you plant for the insurance program because that is where you will be able to stay in businessnot in the market.
Page 500 PREV PAGE TOP OF DOC Segment 3 Of 5 But that is the challenge, that some time between now and July 11, this committee is going to have to work out. How do we balance this, and then also how do we stack the deck a little bit more for the producer? The deck is pretty well stacked today against us. We have a very concentrated market. The people making these so-called market decisionsinteresting folks. Their governmentsin many cases, the Europeans, you mentioned, and that affects some of our commodities very rapidly. But the question that this committee is going to have to do is to try to come up with a rational policy response to accomplish what we need to accomplish.
One final point. I am very interested in the ethanol aspects now, and that is 180-degree turn for me in this. But it is one of the areas in which we, as producers, can balance our inventory. If we can find ways to takeI won't even use the word surplus. We don't have a surplus of food in the world, when you have got hundreds of millions of people starving to death. It is downright criminal to talk about surpluses of food. But the market is telling us we have got too much. Our distribution system is not what it ought to be. Somehow, some way, we have got to come up with a little better policy.
And ethanolwe are going to have a dairy hearing tomorrow, Mr. Chairman, and I remember the first time we got into some questions regarding exports, imports, and some of the problems there, and we will talk about that tomorrow. But ethanol production is one way that you, as an industry, and you are rightfully addressing that. And what percent of sorghum goes into ethanol last year?
Mr. LUST. Last year, about 10 percent. This year it is projected to be about 15 percent of our crop. Part of that is due to a shorter crop, but it is continuing to grow.
Mr. STENHOLM. In actual volume, it is continuing to grow.
Mr. LUST. Yes, sir.
Mr. STENHOLM. Are the plant under construction to utilize additional production if we produce it?
Page 501 PREV PAGE TOP OF DOC Segment 3 Of 5 Mr. LUST. Yes, sir. There is one in Russell, KS, that has already broken ground. There is eight projected in the Sorghum Belt that are at some point of the process. I didn't say those were all going to be built, but there are eight different groups, primarily in Kansas, but also a couple in Texas, that are looking at it. Certainly, Nebraska has been a strong leader in that area, in terms of production that plants that they are the largest user of sorghum.
Mr. STENHOLM. Do you consider that a premium market or what do you mean by premium market?
Mr. LUST. Well, certainly this year, we would consider them a premium market when they have stayed competitive even to the point of paying slightly more than corn and staying and utilizing sorghum in Nebraska. Certainly, it shows a very strong commitment by the ethanol industry to our product. And generally, as we said, it is 1-to1, flat relationship, but we know, due to some logistical issues, sometimes that means 2 or 3 percent, one side or the other. So we don't have to make a change.
Mr. SHAW. Mr. Stenholm, I think, too, that in the future, along with ethanol, biomass has a great future for excess acres, for acreage planting, for sorghum, specifically, anyway.
Mr. STENHOLM. One follow-up question. Have any of your research shown what price sorghum equates with $25 oil, or any number, any value ofyour answer, a moment ago, in saying that you have stayed competitiveand that is because, I assume, oil prices went to $30, $35 a barrel and then come back now to about $27. But one of the questions that we are going to have to keep looking at, and that is, at what value does corn and sorghum and biomass, et ceterahow does it compete with $25 oil or $20 oil or $30 oil?
Mr. KUBECKA. We had that discussion. No one in our group has that answer at that time. It is certainly something that we will look at. What we did come up with that ethanol production is actually doing, and that is allowing us to clean our air up. And that has been more the significant use of ethanol, rather than just being a replacement as an energy component.
Page 502 PREV PAGE TOP OF DOC Segment 3 Of 5 The CHAIRMAN. Let me follow up on that. I was just going to go to a closing here, but let me follow up on that, if I might. What does a gallon of ethanol sell for? Or what do you have to get for it to be profitable?
Mr. KUBECKA. I guess we are looking for some ethanol producers, which we don't have in our group.
The CHAIRMAN. All right. And I mean, anybody got an idea? Is it $1.70, $1.90? Mr. Osborne?
Mr. OSBORNE. About a $1.25 to $1.30.
The CHAIRMAN. So if you have fuel that is selling at the pump for a $1.79, it would be competitive.
Let me ask you this. If you are a sorghum producer and you are selling to an ethanol plant and do not own a part of that plant, are you basically just selling at market price?
Mr. LUST. Yes, sir.
The CHAIRMAN. So for it to be a truly value-added product to the producer, the producer needs to have a piece of that ethanol operation.
Mr. LUST. Yes, sir.
The CHAIRMAN. Mr. Lust, you are talking about proposed ethanol plantsare those being done by producers, by cooperatives, or are those being done by independent groups that would simply utilize the product in that area?
Mr. LUST. I believe on the eight that I am talking about, they are split four and four.
Four would be private and four would be cooperatively owned.
The CHAIRMAN. With be co-op.
Mr. LUST. And part of that comes down to a cash issue. I say cooperatively owned. I am not sure that we will put together enough cash to have total ownership of those, but certainly producers will have at least a partial ownership in those plants.
Page 503 PREV PAGE TOP OF DOC Segment 3 Of 5 The CHAIRMAN. Value-added is something that this committee is very interested in. And the ability for the producer to take that raw productcorn, cotton, wheat, milo, anything, grain sorghumand turn that into a product in whatever that product sold for was really what mattered to the producer, rather than what the price of milo is. Hypothetically, if you own a big chunk of an ethanol co-op, you really don't care what the price of milo is or grain sorghum is if your value is in how much you are able to make by selling that gallon of ethanol.
And in that we have got such aand farmers know this as much as anyone, an erratic availability of fossil fuel, at $1.25, $1.30, $1.50, $1.90, $2.20, a gallon, may be very realistic in the future. And if you are making a lot of money on ethanol by the gallon, then you, as a producer, are seeing value-added and so your input product is not nearly as important to you what that is selling for as it is what you are selling ethanol for.
One of the questions, and I don't know that much specifically about the operation of an ethanol plant. But if you have an ethanol plant that you are providingthat is beingthe raw product in it is grain sorghum, can you do an immediate conversion quickly to corn or is there something that you have to do differently in the plant to be able to move raw product?
Mr. LUST. It is tied to the enzymes that are used, but it is very simpleand maybe not very simple, but it is very doable to switch back and forth. In fact, one of the plants in Nebraskait dumps both grains in one pit and it literallyit is a price issue in terms of the starch base input.
The CHAIRMAN. As we go further in this, if there is any additional information or thoughts you have on that or anything else, I would certainly request that you provide it to the committeeand we are asking all groups that.
One other thing I would like to ask of you to do, because it was discussed here this morningand this is one of the real catch 22s that we are involved inis for a long time, we heard a whole lot about how crop insurance and risk management was not working. And so this committee endeavored to do a major rewrite and we did. So far it seems to be working. We have seen dramatic increases in wheat producers, which was the first producers' participationabout a 40 percent increase in producers, and about a three-fold increase in the 70 to 75 CRC buy up, that is the direction we would like to see it go.
Page 504 PREV PAGE TOP OF DOC Segment 3 Of 5 But the catch 22 is, as you have said, and as Mr. Stenholm has talked about, and as we have heard from producers who are coming in and telling us that they labored to go ahead and make a crop this past year. Not just grain sorghum, but others labored to make a cropwell, and let me also preface this by saying this was also under the old Crop Insurance Program, but this one may even be worse in this regard. And the ones that lost it, they were able to get their AMTA, double AMTA payment, got their crop insuranceactually came out, bottom line, better.
And that is not the goal. All the way through the risk management discussion, we talked about, we want to make a program that creates a protection, a risk management, but, at the same time, we want to encourage people to produce. We want to encourage that product to go to market. We don't want a person to be better off by abandoning their crop.
So as we go further, and particularly, as you look at the current Crop Insurance Program, as it affects grain sorghum, your comments and thoughts and assessments of that would be very well-received in this committee, because we did that with the intentit got overwhelming support in both bodies, and in fact, it passed the House both times by a voice vote.
But we want this to work. We don't want it to be that next year or the year after that, we have to go back and say, gee, we redid the Risk Management Program so well that now people want to grow a crop for crop insurance to collect their premiums. That is not our goal. Balancing these things sometimes gets real challenging and I think you certainly all have a recognition and understanding of that. But as you are there and as you are representing grain sorghum producers and as you see this thing work, your suggestions and thoughts in that regard would be very welcome.
Mr. STENHOLM. One final comment on the ethanol aspects. I was in a meeting earlier this morning. We had speeches from the automobile industry, the oil industry, and the environmental community. Any of them were not nearly as enthused about ethanol as many of us on this committee are. And, therefore, I think a certain amount of education, research, realism, needs to be constantly imposed on the agricultural industry of some of the uphill fights that we have got with the environmental community that do not believe as strongly as you have testified of the environmental benefits to ethanol. We have got an uphill fight. And because these are coming from folks that I would have thought would have been more natural allies, but are not, as yet, convinced.
Page 505 PREV PAGE TOP OF DOC Segment 3 Of 5 I think we must accept and work on and deal with it through research and development and also factual comments as to how we proceed regarding this, to which you have testified today to. You are not ethanol experts today, but you do recognize the marketing opportunities there. And I think from a national energy policy concept that biomass, ethanol, it all definitely has to be considered. But we have a good little ways to go to convince all the natural parties of that.
The CHAIRMAN. Mr. Osborne.
Mr. OSBORNE. I don't want to string this out, Mr. Chairman, but since we have talked a lot about ethanolin Nebraska, I believe there are currently four ethanol plants that are at various stages of construction. I believe two, maybe three, are cooperatively owned. I have mentioned this to the Chairman previously, but obviously one deterrent to that is the possible waiver in California.
We recently had a meeting of producers in Nebraska and I think all of them were asked to invest a certain amount of money. Obviously, if they don't have a lot of money to start with, and then that waiver is granted, it is very difficult. So just mentioning that for the benefit of the chairman and Mr. Stenholm and the whole group here, because that really is a major problem. And we have been talking to Ann Venneman about this a little bit too.
The CHAIRMAN. I thank all of you again very much. The timing worked out well on that. Again, any follow-ups or suggestions or thoughts, we would appreciate it. I am sure we will have the opportunity to visit again. The hearing is adjourned.
[Whereupon, at 11:48 a.m., the committee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
National Grain Sorghum Producers Answers to Submitted Questions
1. Equalizing the loan rate for corn and sorghum would not resolve the differences with respect to how USDA determines terminal market prices and the county Posted County Price so what, if anything, are you proposing with respect to resolving differences in LDP's between corn and grain sorghum?
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National Grain Sorghum Producers (NGSP) believes these discrepancies are rooted in the transportation differentials that are being used to calculate the PCP's. Using the differentials complicates these inequities. Instead, LDP's should be determined by using the terminal market closest to a given county when determining the differential. Sorghum farmers in the Texas Panhandle are penalized by not basing the rate this way, as opposed to farmers in the lower part of the state whose rate is compared to just the Gulf price. Additionally, NGSP is researching what, if any, effect a ''World Price'' system would have on eliminating these discrepancies.
2. If Congress decided it was not going to equalize the corn and sorghum loan rate but do something different than current law, how would you change the current legislative language for establishing the grain sorghum loan rate?
NGSP would advocate language that would implement separate loan rates for all feed grains. Loan rates would be set using a formula that would take into account value and demand (as determined by stocks-to-use numbers), with an equalization clause that would not allow acreage distortions as a result of loan rates. For example, the loan rate for sorghum would not be allowed to be less than 98 percent of the highest feedgrain loan rate on a pound-for-pound basis. NGSP also would urge significantly limiting or eliminating any discretionary authority in setting loan rates between feedgrains, although some discretionary authority might be retained that would allow across-the-board decisions on all loan rates for all crops.
3. Does NGSP believe it is a good idea to increase a loan rate to the point that it actually causes cash prices to decline?
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Research conducted by the Food and Agriculture Policy Research Institute (FAPRI) indicates that equalizing the sorghum loan rate with corn would increase production by 5 percent while decreasing farm prices by only 1.5 percent, or 3 cents per bushel. Additionally, it would create a 22 percent per acre increase in net returns to sorghum producers. Additional sorghum supplies and the resulting addition and diversification of a customer base would add competition, which usually results in higher rather than lower prices. Further, such a move would increase flexibility and choice for producers who are facing soaring irrigation costs and/or limited water supplies. One of the greatest challenges facing sorghum producers today is dwindling research and industry infrastructure as a result of an inability to reach critical mass due to declining sorghum acres. These declining sorghum acres have also resulted in the inability to grow or expand markets due to a lack of reliable supply. For example, poultry feeding markets have eroded because transportation via rail has become difficult or impossible due to a lack of critical mass. Further, U.S. sorghum exports to Japan are down by 18 percent since 1996 because of an inability to provide adequate, reliable supplies. Current 2000 stocks-to-use figures of just 9 percent, combined with potential growth markets that have been awaiting a reliable sorghum supply, indicate that the benefits of increasing sorghum production would significantly outweigh any negative consequences.
4. Does NGSP believe that corn and sorghum loan rates should be equalized, regardless of what happens with other commodity loan rates?
5. Explain in greater detail what NGSP means with respect to the equalization of loan rates for sorghum and corn extending to sorghum silage.
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Dr. Terry Howell from USDA-ARS facility in Bushland, TX, has found that if corn silage production could be replaced by sorghum silage, 432,000 acre inches of water could be spared annually in the Texas High Plains and South Plains. NGSP believes sorghum grown for silage provides an important drought tolerant alternative to corn grown for silage, and NGSP urges the establishment of a sorghum silage loan rate program equal to corn. Although a program for sorghum silage was established last year. NGSP and the seed industry have been charged with ''certifying'' sorghum silage varieties state-by-state in order to be eligible for this program. This is something with which the corn industry has not been charged. Additionally, NGSP has been charged with unnecessarily ''proving'' out grain yields through costly test plots. Rather, yield for sorghum silage should be based on actual tonnage of silage produced rather than grain-based yield calculations. Some of these sorghum silage varieties are paid at 80 percent, some at 100 percent and some at zero. We request that the law simply state that USDA treat corn and sorghum equally. NGSP believes this should be as simple as adding the words ''and sorghum'' to the corn silage policy.
6. Is it correct to assume that only actual units of the crop harvested will be eligible for the counter cyclical program payment? If not, how do you propose to handle situations that occur as a result of the producer not harvesting all or some of the crop for reasons beyond their control?
Only actual units produced would be eligible for payments. Our proposed counter cyclical program is meant to be a market loss program rather than function as a mechanism for addressing natural disasters. NGSP believes that crop insurance programs and natural disaster policy should continue to be the means by which natural disasters are addressed. NGSP does not believe that current crop insurance policies will be totally effective with regard to natural disasters. However, we do not want to encourage producers to plant a crop that they know will likely not produce because of a counter cyclical payment on top of crop insurance.
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7. Are you opposed to the manner in which emergency assistance Market Loss Assistance payments have been delivered the past three years?
No, NGSP believes these payments have been delivered in the best manner possible, given the circumstances.
8. What impact would a $75,000 marketing loan program payment limitation have on producers if loan rates were rebalanced?
The impact would be significant for some producers in the short term. However, NGSP believes the overall, long-term impact would depend on whether or not certificates would be an issue as well as producers' ability to work within the system to optimize their operations and stay within limits. Producers with higher-value crops such as rice or cotton in their rotations would potentially face the largest problems.
9. 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?
If such a scenario were to occur, NGSP would advocate factoring down eligible units or payments per producer or would advocate a formula that would transfer a portion of payments to blue or green-box payments. However, NGSP believes amber box payments should be maximized when possible.
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10. 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?
11. Are currency exchange rates the single largest factor that impacts our ability to competitively export agriculture products? If not, what is?
Although currency exchange rates are the most significant factor, other issues can increase the severity of such an environment. For example, sorghum's potential for increased markets in India was dealt quite a blow, as U.S. trade negotiators last year agreed to raise sorghum's zero tariff to an 80 percent tariff. The agreement also included higher tariffs on 13 other agricultural products, most of which were feedgrains and rice. Meanwhile, tariffs were lowered on 11 other products, primarily fruits and nuts. Neither the U.S. Grains Council (USGC), who handles foreign marketing and trade for the sorghum industry, nor NGSP were notified, consulted or given an opportunity to provide information during the negotiation process. A subsequent meeting with U.S. trade officials resulted in a preliminary agreement not to apply a tariff on corn and to lower the applied rate on sorghum to 50 percent from 80 percent. However, this offered little or no help for the sorghum industry. Additionally, as mentioned in Question 3, availability affects the ability to compete on the world market. Sorghum exports to Japan are down 18 percent since 1996 because of the lack of a reliable and adequate supply or sorghum.
12. What domestic or world factors have the most impact on the profitability on the group of producers you represent?
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On the domestic front, interest rates and U.S. Government policies in the form of direct farm support, tax laws and environmental regulations drive profitability. Meanwhile, global economics drive demand and price. But, the most significant factor that drives profitability is Mother Nature's impact on world supply and demand.
13. If applicable, what percent of producers in your organization purchase a ''buy-up'' crop insurance policy?
Nationwide, 17 percent of producers based on the most recent 2000 RMA data. We do not have a current figure solely for NGSP membership.
14. What position has your industry taken with respect to entitlements of disaster benefits for producers who don't buy crop insurance?
Sorghum is a low risk crop, and sorghum producers should not be forced to carry crop insurance to guard against occasional extreme disaster conditions that trigger disaster payments. For example, NGSP's current president has carried insurance on grain sorghum for two decades and only received an indemnity one time.
15. 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?
NGSP is awaiting final rules and implementation of this legislation before making such a determination. Insurance has been improved but still has not been adequate to cover all losses.
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16. 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)?
17. Would a $40,000 counter cyclical payment limitation have a significant impact on your programs ability to function as a reasonable safety net?
Yes, it would render it potentially useless for larger producers.
18. 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?
We believe that our commodity-specific, per-unit, commodity-by-commodity oriented program would be non-distortive to markets. However, NGSP cautions against other proposed plans including those that are based on whole-farm, nationally-based income, or those that pay producers who do not harvest a crop in an attempt to address low yields and encourage the planting of high-risk, high-potential-return crops in marginal or non-suitable areas.
19. 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?
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We believe the NGSP counter cyclical proposal would allow lenders to know what the per-unit Base Price would be. These numbers would be based on history and documented before loans would have to be approved.
20. 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?
Yes, but the current system assists in clearing supplies. We believe it is the appropriate tool given the current program.
21. 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?
NGSP believes it is economies of scale and the need for efficiency that cause expansion in the size of operations. Payment limits simply make it more difficult and costly for producers to manage their business. Eliminating payment limits would not cause overproduction or expansion beyond that which would occur for other reasons.
22. From a practical standpoint, when is the earliest date you believe any changes in permanent farm law should become effective?
NGSP understands the recently passed budget resolution dictates a committee markup by July 11. With this in mind, NGSP believes the priority is to write a farm bill that can best address the needs of producers. NGSP encourages that the conference process be used to its utmost in order to get buy-in from all sides and in order to fully analyze and project the consequences of new legislation. Therefore, we believe that in light of current circumstances, October 1, 2002 is a reasonable date.
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23. The FAIR Act covered 7 crop years. How many years do you think the next farm bill should cover?
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