SPEAKERS CONTENTS INSERTS
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FORMULATION OF THE 2002 FARM BILL
TUESDAY, JULY 17, 2001
House of Representatives,
Committee on Agriculture,
Washington, DC.
The committee met, pursuant to call, at 10:00 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives: Smith, Everett, Lucas of Oklahoma, Chambliss, Moran, Thune, Jenkins, Gutknecht, Hayes, Johnson, Osborne, Pence, Rehberg, Graves, Kennedy, Stenholm, Condit, Peterson, Dooley, Clayton, Baldacci, Berry, McIntyre, Etheridge, Boswell, Lucas of Kentucky, Thompson of California, Hill, Baca, Larsen, Ross
Staff present: William E. O'Conner, Jr., staff director; Tom Sell, Alan Mackey, Pete Thomson, John Goldberg, Craig Jagger, Ryan Weston, Callista Gingrich, chief clerk; Tyler Wegmeyer, Susanna Love, Anne Simmons, Russell Middleton, Danelle Farmer, Andy Johnson, and John Riley.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
The CHAIRMAN. The hearing of the House Committee on Agriculture to review the draft farm bill concept paper will come to order.
Good morning and welcome to our hearing this morning. I would like to extent a special welcome to the representatives of each of the livestock industries, the fruit and vegetable industry, dairy industry who will be testifying today.
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As you all know, this committee has invested a great deal of time and effort in hopes of crafting a comprehensive agricultural policy that would better support our Nation's farmers, ranchers and agribusiness for the future. Toward this end, many of your groups have previously testified before this committee either here in Washington or at one of our many field hearings that were held across the country. I want to thank you for the valuable input you have provided up to this point. I want to encourage you today to continue with that candor.
I would also hope that you will understand the limitations that we as a committee have dealt with. The draft farm bill concept release that was introduced by Mr. Stenholm and myself was an effort to provide new resources to address the most serious needs that are pressing all segments of agriculture today. We simply cannot meet everyone's wants. The budget provided us with $73.5 billion over 10 years. A substantial amount. But the requests that were tallied up after everyone testified earlier this year exceeded $275 billion. Needless to say, that makes our job very difficult.
In conclusion, I simply want to restate our intentions to pass a farm bill through this committee before the August recess. I hope that it would move through the process to be in place for the 2002 crop year. That means we all have a great deal of work to do and a short amount of time to do it. I am excited, however, to get started this morning. I recognize my friend and colleague, Mr. Stenholm, for any comments.
Mr. STENHOLM. . Nothing at this time, Mr. Chairman.
The CHAIRMAN. Any statements for the record will be accepted at this time.
[The prepared statements of Mr. Smith and Mr. Putnam follow:]
PREPARED STATEMENT OF HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Thank you Mr. Chairman for holding this hearing today on what will be our first discussion on the draft farm bill concept paper that the committee has prepared. The challenge that lies before us—to report out of committee an effective, passable bill that will improve farm stability and our rural economies for the next 10 years—is a difficult one. I think the frame work that has been drafted wil provide a good starting point for this task
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The farm economy is the backbone of our country's history and success. While we need to support farmers throug hthese diffiicult financial times, we should also worlk to draft a bill that will allow the farm sector to prosper on its own. I am confident that we can put together a market-oriented policy that will ensure a strong safety net for producers. I am looking forward to the challenge in the coming weeks to accomplish these goals.
PREPARED STATEMENT OF HON. ADAM H. PUTNAM A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA
I wish to thank the Committee for holding this important hearing to review federal agricultural policies for American fruit and vegetable growers or ''specialty crop'' producers for the upcoming farm bill. As a significant contributor to our Nation's agricultural production and balance of trade, it is extremely important that the issues affecting fruits and vegetables play a major role in the development of the farm bill. Non-program crops including fruits, vegetables, and other horticultural crops represent 24 percent of U.S. agriculture's commodity sales.
I applaud provisions within the committee's draft to respond to agricultural needs of specialty crop producers. These programs include retention of the flex acre prohibition, expansion of the Market Access Program, increased conservation funding, and emergency pest and disease exclusion.
It is important to understand that the fruit and vegetable industry did not call for any direct market assistance payments, instead focused heavily on expansion of related agricultural programs to assist their needs. Chief among these was expansion of conservation programs to meet the unique and growing needs of fruit and vegetable producers. The committee's draft increased the Environmental Quality Incentives Program (EQIP) to $1.2 billion. In order to assure adequate access to this critical conservation program, a specific portion of EQIP funds should be set aside specialty crops producers. Furthermore the program should be adjusted to meet the unique environmental challenges of specialty crop by including pest and disease management as a conservation criterion.
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The Market Access Program was increased by $90 million to $180 million under the committee's draft, in a large part, I understand to respond to the needs of the specialty crop community. However, with roughly only one third of the present program currently being awarded to specialty crop producers, it is recommended that the entire $90 million in additional MAP funding specifically be designated for specialty crops.
The committee's draft also addressed the critical need for USDA to have the ability to respond to emergency outbreaks of pest and disease—and I want to underscore the importance, and appreciation for, this provision. However, long-term preventative measures such as funding of $50 million for a Pest Detection and Surveillance Program to combat pests and disease before they take hold is also imperative.
Finally, additional resources for agricultural research are necessary to allow American producers to respond to agricultural challenges and allow our farmers and ranchers to compete in a world market. Included along these research priorities should be an emphasis on the development of mechanical harvesting to allow our fruit and vegetable growers to compete in a world market. Furthermore, rural development funds should be dedicated for the construction of farm worker housing to meet the crucial need for housing especially in the fruit and vegetable growing community.
I thank the chairman for his efforts to respond to the challenges facing all agricultural producers including growers of specialty crops, and I look forward to working with the committee in the weeks to come to meet those goals.
The CHAIRMAN. I would now invite our first panel to the table.
Mr. Chandler Keys, vice-president, public policy, National Cattlemen's Beef Association, Washington, DC, Mr. Peter Orwick, executive director of the American Sheep Industry Association, Englewood, Colorado, Mr. Ken Klippen, vice-president of the United Egg Producers in Washington, DC, Ms. Barbara Determan, president of the National Pork Producers Council for Early, Iowa and Mr. Thomas Stenzel, president of the United Fresh Fruit Vegetable Association of Alexandria, Virginia. We will take the testimony in the order of introduction. Mr. Keys, please begin when ready.
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STATEMENT OF CHANDLER KEYS, VICE-PRESIDENT, PUBLIC POLICY, NATIONAL CATTLEMENS BEEF ASSOCIAITON
Mr. KEYS. Thank you, Mr. Chairman. My name is Chandler Keys, vice-president of the National Cattlemen's Beef Association here in DC. Sorry we couldn't get a producer back here in time. I have got a couple cows out in Virginia with my dad, so I hope that counts a little bit today.
Program crops, to start off with the concept paper. The new plan is consistent with NCBA policy. We appreciate the market clearing aspect of the commodity program that you have outlined, the flexible planning. We worry a little bit about some talk in some areas about land idling, forfeit plans or storage programs, which are not in this package. And we appreciate that. We want to make sure, though, that the market place can keep up with the supply that we believe that is going to happen after this program gets in place. We have one question on the program crops and we are going to meet with the dairy industry and try to figure out if they have any other plans beside the extending the price support system that is in this concept plan.
On the conservation title, NCBA applauds the committee action on conservation. The EQIP funding should be adequate. We look forward to working with the full committee and the Subcommittee on Conservation to iron out the details and hammer out the details of the EQIP program. I brought today—I am not going to ask to put it in the record. But just for the committee to look at, this is the comments that NCBA has prepared for the AFO/CAFO rule and it due at the end of this month. The comments are about as long as the rule was, itself. It is a very extensive project and we believe that this administration will have to implement some kind of new changes to AFO/CAFO and EQIP should help us—this money with EQIP. Hopefully the new program on EQIP will help us combat with that.
We do support the Wetlands Reserve Program. We also support the WHIP Program. We believe this is where the majority of the wildlife work should be housed. We believe that it is adequately funded. NCBA is also very encouraged about the provision for technical assistance in your concept paper. This is a great start. We believe that this is one of the things that producers need out there, is technical assistance to help them to comply with State and Federal environmental law.
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We are a little concerned about the increase in CRP to 40 million acres. We believe that the CRP is large enough, particularly on whole fields. And if we do anymore increasing in CRP, it should be on buffer strips and not whole field areas. But all in all, the conservation title is a great start for us.
The trade, we are very pleased about the increase in MAP funding. We think that this program has worked well over the years. We would like to go to $200 million a year on that. But we will take the $180 if we can hold it through the process. This shows benefits for us overseas. And if we plan on selling more product overseas, we have to help advertise it to our new consumers.
Also in the research title, I am very excited about and I have participated in the research initiative for future agriculture systems. We have fully participated in this process of earmark or looking for projects that had been funding by this program. We would hope the appropriators will allow this program to go forward and not meddle with it.
Rural development, NCBA has been very involved in the past couple months in looking at this broadband issue, high speed Internet access to producers in rural areas. We are very encouraged about the loan program on broadband. Mr. Chairman, members of the committee, if producers are going to be able to market in the new marketplace and they are going to be able to buy and sell, they need high speed Internet. You cannot do buying and selling of cattle over a phone, over Internet phone line. It is just not quick enough. So the broadband has to get out there. And we hope that this committee will take that seriously in pushing through these loans and working with the Commerce Committee to make sure that rural areas have access to broadband.
In conclusion, NCBA supports the direction and the concept of this bill. We look forward to working with the committee on these action items and other action items that we believe will fill out the rest of this bill. And we hope to finish this bill within this year. And we look forward to working with you on it. Thank you, Mr. Chairman.
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[The prepared statement of Mr. Keys appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. Mr. Orwick.
STATEMENT OF PETER ORWICK, EXECUTIVE DIRECTOR, AMERICAN SHEEP INDUSTRY ASSOCIATION, ENGLEWOOD, CO
Mr. ORWICK. Good morning. Mr. Chairman and Congress Stenholm, members of the committee, the sheep industry is here this morning not only to speak to the concept paper and the draft that you have on the farm bill, but primarily to express our appreciation for inclusion of the sheep industry in this draft paper.
Very pleased with the Marketing Loan Program as included in this package. And I can say with the leadership, in fact, the aggressive leadership of the Agriculture Committee of the U.S. House, I think between the supplemental payment package that was put together through the leadership of this committee as well as following up with this farm bill, I can tell you that not a day has gone by in the last 2 to 3 weeks that a grower from somewhere in the country has not called in and mentioned the emergency payments on loan that were just gone out of the Farm Service Agency in the last 3 weeks. And for them, it comes down to a matter of cash flow. Very modest in size, but for these growers that are struggling through the economic conditions that still face agriculture, those payments are the difference. Not only for them and their cash flow, but it helps keep their banker in a more workable position. So I want to pass that along to you.
And hopefully, you are hearing the same thing from the growers. And I know the battle that you had last week in moving the appropriations bill, many members of this committee were active in the debate on the amendment specific to wool and mohair and, again, we thank you for your leadership and your support of agriculture. And they are not always the easiest issues to do. But I have talked to many members of the House, as well as members of the Senate that were watching the debate last week. And the wool debate was certainly the one that stood out in everyone's mind. And I think hopefully, helped a lot of the understanding.
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I am just going to hit several of the recommendations that the industry has been working with going back to the testimony March of this year and the analysis that was presented. Obviously, under the Marketing Loan Program, No. 1, we appreciate the guidance from the committee in the non-recourse provision to provide risk management benefits for producers. Again, I think that was strong leadership through the committee that made that possible.
Obviously, the recommendations from the sheep industry is looking at $1.20 loan rate average on the marketing loan and LDP. Mohair industry is at $4.20 average. With a schedule of premiums and discounts, looking at this Marketing Loan Program being the same as that that is provided for all the other commodities within this farm bill concept paper.
And I think that is an important point that we want to carry forward and continue to work with you. A recommendation that we had that we will continue to work with the committee and Congress is having a minimum loan rate provision for these non-graded wools. I think they will be particularly helpful for the farm flock sector, for the producers in the Navajo nation and elsewhere in the country where it just is inefficient to do the full testing on some of these smaller lots of wool. So that will be a key point.
The remainder is look for the same provisions as they are applied to the balance of the commodities.
Again, the sheep industry is very pleased with the committee's action on the conservation title, the EQIP Program and the targeting for livestock. We feel it is very important. The authorization provided for the Market Access Program within this concept is another key point that our industry has looked at because of the export potential. The use of the program is already there and the expanded need that the industry needs to include for both wool and mohair. We have been successful in the wool industry in the last few years to raise our exports view as production from 7 percent of the clip to 30 percent. We are very proud of that track record and I think your assistance, again, with the MAP Program authorization and increase on that amount is going to be helpful to the industry.
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And overall, again, to say that we want to continue to work with the committee. Strongly applaud the aggressive leadership that you have demonstrated in helping agriculture producers through these trying times. And in particular, the importance of the farm bill to provide a permanent type provision. Although it is a very modest program.
I want to finish up statement with the fact that this is not the Wool Act that is being reauthorized. In fact, it is nowhere close or in any manner comparable to the old National Wool Act. Thank you.
[The prepared statement of Mr. Orwick appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much. Mr. Klippen.
STATEMENT OF KEN KLIPPEN, VICE-PRESIDENT, UNITED EGG PRODUCERS
Mr. KLIPPEN. Good morning. Mr. Chairman, my name is Ken Klippen and I have worked in the egg industry all my adult life, as a producer, as an egg processor and as the director general of the International Egg Commission in London, England. Now, I am vice-president and executive director of government relations for the United Egg Producers here in Washington, DC. UEP is a farmer cooperative, whose members account for 80 percent of all the U.S. shell egg production.
I would like to make brief comments in four areas. First, we appreciate the substantial increase in funding for the Environmental Quality Incentives Program, EQIP and conservation technical assistance. Environmental regulations will impose a growing burden on our egg producers.
We have tried to be proactive in dealing with these issues. Last year, we signed an XL agreement with the Environmental Protection Agency. That is a voluntary agreement by which egg producers will take environmental and conservation steps well beyond what is required by regulation. In return, they will qualify for general permits, rather than individual permits with substantial savings in legal fees, consulting costs and paperwork burden.
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But even with the XL agreement, the costs of complying with regulations will be large. And sadly, we are looking at the prospect of increased costs at a time when egg producers are losing money on every dozen eggs they sell. Last year, egg producers lost 6 cents a dozen, on average. After a brief period of profitable prices this Spring, returns are, again, negative. In the July 16 issue, Feedstuffs Magazine reported producer prices of 46 to 51 cents per dozen in the Midwest. Producers do not make money at these levels.
Therefore, we commend the committee's commitment to expand EQIP and technical assistance. In fact, most reasonable estimates of our future costs would justify greater increases in both categories. But this is an enormous step. In fact, several steps in the right direction.
When the committee crafts actual or legislative language, we strongly urge that all EQIP and other funds be offered on a non-discriminatory basis. All producers should be eligible for assistance, regardless of size. Producers have grown larger because they have had to do so in order to remain competitive in the face of low prices. Since large operations account for a major portion of total production, it is counterproductive to exclude them from environmental programs. To do so is to allow social policy to stifle environmental progress.
Second, foreign markets are important to the future of the egg industry. We face trade barriers in many markets. But also have important opportunities for exporting both shell eggs and processed egg products. The concept paper proposes to expand the Market Access Program. And we strongly support this action. We also support renewal of the Export Enhancement Program for the U.S. egg industry.
Third, another indispensable element in building our future is research. Therefore, we strongly support the continuation of the initiative for future food and agriculture systems. We hope you will emphasize research in two priority areas. Food safety. Especially development and improvement of vaccines, quality assurance systems and other interventions that can reduce pathogen incidence. And second, human nutrition. Particularly the exploration of benefits inherent in functional foods like eggs.
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We need to do a better job of communicating the facts about agriculture to all Americans, especially our children and young people. UEP and other producer groups have supported an innovative curriculum called Food, Land and People. Since 1988, this Kindergarten through 12th grade program has worked to meet classroom needs for high-quality, objective and easily-integrated materials that deal with the complexity and interdependence of agriculture and the environment. It is important that today's children understand the importance of agriculture in society. Today's children are tomorrow's decision makers. We hope the committee will consider authorizing Federal assistance for this important effort.
Finally, Mr. Chairman, I would like to comment about future programs for grains and oilseeds. We prefer to leave the design of these policies to those directly affected by them. However, we do ask the committee to avoid designing other commodity programs in ways that hurt our industry. Our basic request is that you allow commodity prices to be determined by the forces of supply and demand.
Feed accounts for almost 60 percent of the cost of producing eggs. At a time when egg producers are already losing money, they cannot afford Government-induced distortions in their feed costs. The Government should not seek to artificially short the market. Neither should the Government artificially encourage overproduction. Grain and oilseed programs 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.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Klippen appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. Ms. Determan.
STATEMENT OF BARB DETERMAN, PRESIDENT, NATIONAL PORK PRODUCERS COUNCIL
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Ms. DETERMAN. Mr. Chairman and Mr. Stenholm and members of the committee, I am Barb Determan and I am a pork producer and a grain farmer from northwest Iowa, the town of Early, Iowa. I am also the president of the National Pork Producers Council. We are very pleased to testify here today on this draft farm bill concept paper. And we really want to thank this committee for your expertise and moving forward in the passage of the new farm bill.
First of all, the conservation area. You are to be commended for making conservation an essential tenant to the next farm bill. Your proposal to increase spending $15.05 billion over the next 10 years has the potential to make your farm bill one of the most important milestones in Federal conservation policy.
As I have stated before, livestock and poultry producers face or will soon face costly environmental regulations as a result of State or Federal law designed to protect water and air quality. In addition to State requirements, the regulations will come from the Clean Water Act TMDL Program, the proposed CAFO permit requirements and the Clean Air Act.
While producers have been very proactive and done a good job environmentally, we want to continue to improve. But in many cases, the improvements are cost-prohibitive. A $1.2 billion a year increase for the Environmental Quality Incentives Program, better known as EQIP, which 50 percent would go to the livestock and poultry producers, is a historic step forward. However, as previously testified from MPPC and other groups, the $1.2 billion is needed annually for livestock and poultry producers alone.
We, therefore, are respectfully request that the committee take full advantage of any opportunity that may exist to expand EQIP funding further in order to meet the pressing conservation assistance needs existing in all agriculture sectors.
There are several specific issues that we would like to address as you prepare legislative language for the conservation title of your farm bill. We feel very strongly that livestock and poultry producers must be eligible for conservation cost share assistance, regardless of the size of their operations. We understand that the farm bill concept paper will not exclude any operation from receiving EQIP assistance and we thank you for that.
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Family owned or operated livestock operations come in all sizes. And all of these will need cost share assistance if they are to remain economically viable while providing the public with the environmental benefits that we obviously seek.
It is our view that a payment limitation schedule comparable to that used in row crops is far more appropriate. Except that the payments should not be limited by the year, but by the needs of the overall EQIP contract.
Second, protecting water and air quality as it relates to livestock and poultry manure management must be national priorities for EQIP. While EQIP can provide benefits to wildlife, the Wildlife Habitat Incentives Program is the program for encouraging wildlife conservation and working lands. And we support increasing that funding.
Technical assistance is the key to the equation. And we commend you for the $850 million that your concept paper has proposed for Federal and non-Federal technical assistance. Program changes must ensure that EQIP allows for third party private sector experts to supplement the technical assistance that is provided by the USDA. A voucher system is one way that could be used to meet this need, but there are others that are under consideration at this time. We also feel that EQIP needs to be able to meet conservation priorities that are not defined as the basis of small geographic areas like watershed. And that existing provisions of EQIP that add considerable administrative burden with little associated environmental benefit should be closely scrutinized.
NPPC has also supported increasing the authorization of the Market Access Program and thanks the committee for doubling the authorization level from $90 million to $180 million. MAP and the Cooperative Program have been instrumental in helping boost the U.S. pork exports.
In the global food assistance area, we continue to support the creation of the new international food lunch program designed to help feed hungry children, improve nutritional standards and provide an outlet for surplus agriculture products. We feel that this program, the Global Food for Education and Child Nutrition Act presents the promising opportunity for American producers to assist children in struggling areas of the world. We do, however, caution that it is important for meat and dairy products to be fully represented to the greatest extent possible as this program goes forward.
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NPPC also strongly supports the $300 million in additional funds for the next 10 years in the Emergency Food Assistance Program. this increased funding will allow the USDA to make additional pork and pork product purchases for the numerous USDA food assistance programs. These purchases enable the USDA to provide nutritional assistance to needy Americans while at the same time providing much needed assistance to the agriculture commodity by supporting farm prices.
And finally, Mr. Chairman, NPPC commends your efforts to add significantly to a modest program that began a few years ago providing grants for start-up farmer-owned value-added processing facilities. During the past few years, economists of all stripes have pointed to this, that farmers need to capture more of this dollar. And your commitment here is greatly appreciated. Thank you.
[The prepared statement of Ms. Determan appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. Mr. Stenzel.
STATEMENT OF THOMAS STENZEL, UNITED FRESH FRUIT AND VEGETABLE ASSOCIATION
Mr. STENZEL. Good morning, Mr. Chairman, Mr. Stenholm and members of the committee. On behalf of the United Fresh Fruit and Vegetable Association, we would like to commend you for your work and for pushing ahead on the accelerated schedule to move the farm bill forward this year.
Obviously, we are still in the process of analyzing the concept paper and many of the details that are behind that. But in summary, we intend to work with the committee. We look forward to working with you to support several of the provisions that are laid out in the concept paper. But we also want to address several fruit and vegetable priorities that have been left out of the concept paper.
Let me briefly remind you of our process. We brought together over 24 different produce commodity organizations and regional grower groups over the past year. And this is the fourth time that the fruit and vegetable industry has been testifying before this committee with our priorities.
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We presented to you a package of over 50 specific legislative recommendations. The cost of which was not excessive, $3.58 billion over the 10-year period or less than 5 percent of the $73.5 billion provided for in the overall farm bill spending.
Let me assure the committee that as an umbrella trade association representing multiple fruit and vegetable commodities, this is serious business for us. We must find ways to address the needs in the specialty crop sector in a stronger way than we ever have before. We don't believe this can be the farm bill as usual. Or we will continue to see specific commodities breaking off and going around this committee's jurisdiction, seeking their own funds.
I don't have to tell you, I don't think anybody was particularly pleased with the process that one of our commodity groups has recently undertaken.
The time for specialty crops in the aggregate to have a major role in the farm bill has come. Let me briefly highlight the areas in the concept paper where we strongly support your initiatives and then the areas where we believe improvement is needed.
First, we strongly support your prohibition on planting of fruits and vegetables on contract acres. The retention of this provision is a critical issue of fairness and is needed for the economic stability of our industry. Now, in relation to this issue, we also support the committee's concept not to include any countersiclicle program for fruit and vegetable crops. These types of programs would not raise our grower returns, nor help grower profitability. Rather, they would breed dependence on Government payments and cloud the marketplace economic signals that our industry desperately needs for success. Now, that is not to say that this farm bill shouldn't invest, however, in the profitability of America's fruit and vegetable growers. We just need to do it sensibly.
Three areas in which the concept paper does a great job. The increase in Market Access Program funding to $180 million. We also suggest that a portion of this increase be segmented for specialty crops, rather than program crops that are already receiving direct program payments.
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Second, in conservation funding, the Environmental Quality Incentive Program, EQIP, the increase in this conservation program is particularly important to specialty crops and we would like to work with the committee on the details of the program to target this increase most effectively for our growers.
Third, pest disease and exclusion. We strongly support the ability of the Secretary to immediately access funds to address emergency outbreaks of invasive plant pests and diseases.
Now, there are several critical priorities that were not addressed in the concept paper. The first I will mention is nutrition. We believe there must be a major nutrition imprint on this farm bill. The time has come to employ market whole through strategies that assist farmers in a stronger marketplace while serving American's needs for nutritious food products. The committee has heard from groups as disparate as the American Dietetic Association, consumer groups, anti-hunger groups calling for this type of focus. Now is the time to work together on a substantive, creative program that marries the needs of America's farmers with its most needy citizens. We urge the committee to consider our nutrition program recommendations carefully.
First, a $200 million annual Surplus Commodity Purchase Program for specialty crops be used in USDA feeding programs such as school lunch and breakfast. A $50 million annual matching program to create a public private partnership to promote public education to increase consumption of fruits and vegetables. With a similar design to the MAP, produce commodity groups and other non-profit groups would develop programs to promote good nutrition and apply for matching funds to supplement their own investments.
A $6 million annual pilot program to provide State and local governments, food banks and similar organizations with infrastructure and technology assistance for more efficient handling, storage and distribution of fruits and vegetables.
In general, there are a number of areas in our written testimony that we would welcome working with the committee further. The areas of farm credit programs, increased conservation, pest exclusion and trade promotion.
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Bottom line, we recommend your serious consideration of these proposals, which have substantially scaled back from where we started this process. We do believe that all commodity groups must find compromises and work together with you to find sound budgetary strategies. We have outlined today programs costing less than 3 percent of the overall $73.5 billion pie. Yet specialty crops represent some 24 percent of our overall farm value and our critical part of our international trade success.
Please don't penalize our industry because we haven't asked you for a 5 or $10 billion direct support program for our growers. That might have been the easy route. But it would have been a slippery slope specialty crop growers don't want to tread. But we are asking for your strong financial support of our program priorities. We believe that is good agricultural policy. That it is sound budgetary policy. And that it is fair for America's fruit and vegetable growers. Thank you very much.
[The prepared statement of Mr. Stenzel appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. I appreciate all of your coming today on a relatively short notice and helping us to achieve our goal. And very much appreciate your testimony.
One of the things that I am going to be asking of every group is to help us recognize and sort through the challenge that we have. And that is this is the first farm program that has ever been written, given that we know the size of the room. The size of the room is substantially smaller than the size of the room would be had we been able to accommodate all of the requests through all of our hearing process. We can't change the size of the room. We can only rearrange the furniture. So what I would ask of each of you is that if there are things—some were mentioned specifically and some were eluded to by various of the witnesses. But if there are specific things, I mean, now is the time. The time is upon us and we are having one opportunity with a variety of witnesses that you have specific recommendations for changes. And if that, in fact, is the case, that you do have and those involved money, that my request to you would be for you to make suggestions about where that money would come from. Mr. Keys?
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Mr. KEYS. Well, I guess we would like to put more money in the MAP and probably put some more money in some of the conservation programs. I think if you asked our producers at our mid-Summer meeting here in a couple weeks, they would probably say, take it out of income transfer payments and balance that out more. Is that a political reality? I don't know. But certainly, we like the trend that we see in this bill. But we also understand and I think at the end of the day, what we really want to look at is long-term solutions for the viability of American agriculture. Particularly, as the fruit and vegetable people mentioned, the people that aren't necessarily thought of sometimes as part of the agriculture inside Washington. It is livestock and the non-supported commodities like fruit and vegetables. And we think the conservation program and the trade title and the nutrition and the rural development helps us long-term. And we think that the income transfers, while we understand they are an intrigal part of American agriculture, take away from that. How you balance that is what this debate is all about. But all in all, we are fairly happy and particularly happy with this concept paper. So we are probably not going to look for too much changes at least in the monetary side of it.
The CHAIRMAN. Mr. Orwick.
Mr. ORWICK. Mr. Chairman, we are just pleased to be in the room with you. And we don't take it from the sheep industry lightly the remarkable job that you folks have had to do. Therefore, we are not looking for more changes, but we will give you our absolute commitment that it should move through Congress. We are there in full support to move this package through and given the importance to our industry we are very pleased with the hard fight that is put up for agriculture by you folks. And we are fully committed to be there and help in any manner we can.
The CHAIRMAN. Thank you.
Mr. KLIPPEN. Mr. Chairman, producing eggs is not like manufacturing our commodity. The increased costs that are as often apparent or realized in a manufacture product can be passed on the consumer. That is not the case in agriculture. We are watching as egg producers are going out of business. Fifteen years ago, we had 2,500 egg farms in this country. Today, we have 295. It is important for us that we have the support in order to deal with the environmental regulations that are forthcoming. So we are very supportive of the efforts to try to provide this kind of assistance. But, basically, we are OK with the spending levels. We would like to see the support for MAP. We see that as an important ingredient in the survivability of the egg industry and other commodities, as well. So we are facing very difficult times. It is a difficult question to respond to because of the difficulties we are facing. But we recognize the need for the support that we are asking for.
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The CHAIRMAN. Ms. Determan.
Ms. DETERMAN. Mr. Chairman, we are extremely pleased that you have increased the dollars for several of the conservation programs. But we would, of course, like additional dollars in EQIP. As they said, the dollars that we are specified there, the $1.2 billion, is needed for livestock and poultry alone. So we would like to see the additional dollars there. And, of course, in MAP. That funding is extremely important to us and we would like to see some dollars there. And possibly look at the CRP savings as a way to fund those.
The CHAIRMAN. You mean in not to expand CRP?
Ms. DETERMAN. Right. Expand it, but not substantially.
The CHAIRMAN. Mr. Stenzel?
Mr. STENZEL. Mr. Chairman, like Mr. Keys at the other end of the table, we are sympathetic to the program crops, our allies in that area of agriculture. At the same time, that is where we would look to see particular changes in the funding priorities within the concept paper. We have suggested about $2 billion in the nutrition program area that is not included in the concept paper and see that as a reasonable balancing act that we would urge the committee to consider coming from that particular income transfer area. Let me mention this, as well. We believe these types of programs that we have recommended are our industry's best hope for profitability as U.S. growers of fruits and vegetables. There certainly is the alternative possibility that you could simply develop programs for fruit and vegetable growers similar to other program crops. Some of our commodities may want that at some point in the future. We are trying to hold the line on that as an industry. And our industry has come together to support this as our roadmap of how we think that we can sustain profitability and continue to grow fruits and vegetables in the United States.
I hope not to come back to you with the next farm bill, eating my words saying, sorry we couldn't do it. And now it is the time where we are going to need the same type of income transfer payments as other commodities. That is a possibility if we don't aggressively fund some of these programs now.
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The CHAIRMAN. Mr. Stenholm. Thank you all very much.
Mr. STENHOLM. Thank each of you for your testimony and just a couple of questions, Mr. Keys, you state in your testimony, we believe a minimum of $500,000 limitation per contract is needed for this EQIP work. That is a rather large amount of money as compared to any other limitation of payments that we have ever looked at. I would be curious as to where and how and under what justification you came up with that recommendation.
Mr. KEYS. Well, we looked at it if you combine some of the arguments that we have heard over the years on EQIP has been on size. And what NCBA started thinking about is we don't do a size thing on support payments to farmers. It is on payment limitations. And there is this certain number of payment limitations you can add up to entities per farm that you get close to, you hear of some payments of close to $400,000 and things like that when you put LDPs in it and AMTA payments and you put all those entities together so farms are getting close to $400,000. So we looked at that number and kind of rounded it up and looked at that and came up with a payment limit instead of maybe a size limit as an idea to make this sailable. It is just an idea that we are having.
Mr. STENHOLM. I have got to think about that one for just a minute. Mr. Stenzel, regarding the so-called specialty crops which, personally, every crop that is grown is special to whoever is growing it. I mean, we all understand that. And I certainly do. Are you aware of any States that currently are participating in the so-called surplus buy up or have or in your testimony, you referred to some cost sharing or some cooperation among various groups. Are you aware of any State efforts currently in which State funds are used to purchase—and I hate the word surplus. I mean, this is an inventory blessing we have. And what we are looking for is ways to take that which we have produced in abundance and get it to those that need it. And that is hungry people and i.e., school lunchroom programs, et cetera. Any awareness of a State effort?
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Mr. STENZEL. Mr. Stenholm, there are State programs. I am not personally familiar enough with them to share that with you now. But we would be glad to get you a report.
Mr. STENHOLM. I say this to you and to—I know that there is some interest in this on a State level today. Now, and I think there may be some fertile ground to be plowed in this area as we look at taking the dollars that we are able to make available through this committee and to use that to—well, hopefully encourage matching funds particularly in those States in which the commodities are grown. And then to look at expanding it in a way that our school lunchroom program or feeding of the elderly program and other nutrition programs might benefit from that which we have produced. I think this is an area that we haven't given as much thought to either from this committee or from that side of the mic down there. So I hope you will do that as we perceive through the markup on this bill.
The CHAIRMAN. Mr. Stenholm, I made a mistake. That happens a lot.
Mr. STENHOLM. That would be the first one today. Wouldn't it, Chairman?
The CHAIRMAN. Yes. They are talking about $50,000 per year for the 10-year term of the bill. So people would get $50,000 a year as they put their projects together.
Mr. STENHOLM. So in other words, an operation that has the need of a 10-year plan would be qualifying for—assuming we keep the limitation at the same $50,000 or somewhere in that vicinity for other programs.
The CHAIRMAN. Exactly.
Mr. STENHOLM. Thank you very much for that clarification. Do each of you at the table support the granting of the President of the United States trade promotional authority?
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Mr. ORWICK. Yes.
Mr. STENHOLM. And any qualifications to a yes, I would like to hear them.
Mr. STENZEL. Mr. Stenholm, the fruit and vegetable industry is pretty divided on this issue. It is an issue from the national level that we have not been able to take a strong position. We have a number of commodities that are opposed and several commodities who are supportive.
Ms. DETERMAN. Mr. Stenholm, the National Pork Producers Council is very much in favor of granting TPA to the President. In fact, we would like to see this done before we go into the November negotiations.
Mr. ORWICK. If I could add a point. Agriculture is integrated to every trade agreement that has gone through. Very few don't pick up agriculture. One of the things that has become very evident within the lamb and wool industry is when you do hit a dispute, you have done a good agreement, situations change, currency exchange rates change dramatically. Some of these production factors of other countries. And the bottom line is to maintain the section 201 and 301 provisions under these agreements so that when an import surge takes place, when a problem does arise, that there is an opportunity for growers to, in fact, address that problem. That is what we have as sheep industry and international trade commission, U.S. Trade Representative in fighting all winter, into the spring about the recourse that is available to farmers and ranchers in this country when a trade dispute does arise. And right now, it appears to me that the WTO is saying that there is very little recourse under section 201 when it is the farmers and ranchers that are also being injured as whether they have a place at the table in the trade dispute. And I think that is an important point as these trade agreements move forward, the industry certainly supports maintaining any opportunity for farmers and ranchers to actually address through legal means a trade surge or import problem.
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Mr. KLIPPEN. Mr. Stenholm, the agricultural industry does support entirely that provision.
The CHAIRMAN. Mr. Lucas.
Mr. LUCAS of Oklahoma. Thank you, Mr. Chairman. And I want to express my appreciation to the chairman and this craft. Especially in the conservation area. Many of the things that came up in the hearings that we had in subcommittee that were priorities and needs out there have been addressed and expressed. So thank you, Mr. Chairman. That said, of course, as the chairman pointed out, this is a work in progress. And I guess I will first turn to Mr. Keys. One of the things that your folks testified about, Chandler, and a number of other entities was the potential of creating a program not reflected in this draft at the present time, but something along the lines of what could be referred to as the grasslands reserve program. Using it both as a tool to preserve traditional historic sought out there and hold that part of rural America, but also potentially as a way to allow for a shift of some acres from CRP back into a more productive area. Could you expand for just a moment on that topic and why your folks were so supportive in subcommittee of the idea?
Mr. KEYS. Well, we are supportive of this grasslands program, basically, because we have gotten a lot of pressure in a lot of areas to convert grasslands into other uses. In California, it is vineyards. You name it. All kinds of things. And we have individual State cattle associations actually putting together land trusts. Colorado has one. I think Montana is putting together one. That are looking at how you manage the sale and the transfer of development rights. And one of the biggest factors there is, of course, where do you find the funds to do it? And that is why we worked with the Nature Conservancy and put together this package and talk to you extensively about maybe how we can transfer CRP. We are going to bring that up at our summer meeting to see if CRP that is a way we can do some transfer some of those acres into maybe some more productive land and get some development rights bought off on it. So we are supportive of it and, of course, the cattle industry is not a monolith. And there are some people out there that think that this is the worst thing since sliced bread. And so we have got some debate going on in the industry about this. But NCBA is committed to it and we are looking forward to working with you on this farm bill on this grassland program.
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Mr. LUCAS of Oklahoma. I appreciate that, Chandler. Because clearly, not only does the next farm bill have to encompass good economics. Things that will not only ensure the supply of food and fiber to this country and also help assure that we have that productive agricultural base out there. But it has also got to be politically doable. We have to attract votes not only from our own community, but from across the spectrum on the floor of the house and things like that reserve program. Setting aside those historic sod areas certainly has a political appeal. If I could now turn to Ms. Determan for a moment. Could you expand on your comments earlier about the concepts of what a payment limitation should be on EQIP? Because clearly, even though in the chairman's mark as was discussed in our subcommittee where we basically advocate not a 6 percent or a 60 percent, but a 600 percent increase in EQIP, six times increase, which is a substantial amount of money. There won't be enough dollars to do everything that everyone out there has and needs to do. Could you expand for a moment on your concept about how we spread that money around in an effective fashion?
Ms. DETERMAN. You bet. We are very, very supportive of no types of payment limitations on the EQIP from a standpoint of size of operations. Because as I said in my testimony, we definitely need it on all sizes of—I know, personally, our operation is a family operation. The size limitation would affect us dramatically. My children will tell you how much of a family operation we are on any given day. But I think that the increased funding there is extremely important and especially as our scientific economic tables will show you that the $1.2 billion is needed just in the livestock industry alone to get those things done. And this is part of where we feel conservation has to become a big part and is in the EQIP program.
Mr. LUCAS of Oklahoma. So then from your perspective, with a limited pool of resources even at $1.2 billion, it is better to limit so many dollars per operation as opposed to a, as you say, determining based on the size of the operation?
Ms. DETERMAN. Definitely. We would want to limit the dollars versus limit the size.
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Mr. LUCAS of Oklahoma. Anyone else on the panel who would care to offer any comments on that? Thank you. And with that, thank you, Mr. Chairman.
The CHAIRMAN. Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman. And I want to commend you and the ranking member for your leadership and bringing us to this point so we can have a debate regarding the amount of money that we have had to spend rightly to maintain our agriculture infrastructure. I think this is really important at this point that we sit and look at the policy in depth on what we are doing with these different programs. And I guess what I would like to get clearer from all of you is just kind of where you are coming from on this EQIP program. Is the reason that the Government needs to pay for this related to the fact that we are over-regulating or we are putting too much regulations on or we are requiring environmental regulations that go over the top and, therefore, are not justified, in your mind, so the Government should therefore, pay for it? Or is the policy implications that one of you had mentioned that you were having a tough time getting your income out of the marketplace. So is the reason that we have to do this because the marketplace can't sustain these environmental regulations for whatever reason? And, therefore, the Government has to come in and pick up these costs because otherwise we wouldn't be able to maintain the industry? And if that is the case, what about the situation where we increase production during a time when we have got already maybe more production than we can sell? Is it the Government's responsibility at that point to pick up these costs when we are building facilities and we maybe don't need at the present time?
And then lastly on that whole debate, if the last is the case, are we going to get into a situation where the people might come in and say that this EQIP money should not be in the green box, but should be in the amber box or blue box because we can't justify the reason that we are doing this. Yesterday afternoon, I had a Canadian delegation in my office already starting to raise some questions about what we are doing with this. so I know it is an awful long question and I roamed around a lot. But I think we need to think through what it is we are doing here if we are going to make this kind of an increase in EQIP that we understand exactly why we are doing it. Is it because we are over-regulating or there is more regulations that are necessary or the marketplaces won't carry this. So if any of you would comment about where what you think the underlying policy with this big increase is. Chandler, you have been in the box.
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Mr. KEYS. OK. Show you these rates—comment our staff has done with a couple law firms, engineering firms, economic firms. Just on the AFO/CAFO reg, it is going to change dramatically. Right now, if you just take a look at the current law on the book, on the book right now, it is not being enforced, Congressman. And if it did, if the current AFO/CAFO rule was enforced on farmer/feeders in your State and dairymen in your State, hog producers in your State, they would shut them down. So what I think this is is a long history of this Government going in and helping producers on conservation type issues. And it used to be the old conservation soil districts and things of that nature and CRP and old soil bank and the old conservation service technical assistance. So it is just a continuation of that history that we have provided. But things get more expensive. Particularly confinement livestock operations are very expensive to put in the manure handling facilities that are needed to make sure that we are complying with State and Federal law. So what has been flawed in the past is we have had this ridiculous limit, size limit on this program where people that are commercially viable operations say, well, I can't qualify for that. So they didn't go in. So you had a lot of the EQIP money going for technical assistance or paying for pickups or whatever it did. And maybe going for some hobby farms. And what we are trying to do here is get this back to where it is going to help production agriculture. And I believe, truly believe, it is going to help the farmer/feeder. You take a big guy in west Texas, a big feed yard. He is already in compliance because if he is not, he would have been shut down because it is so visual. But you get the farmer/feeding areas in Missouri and the corn States and things like that. If EPA really forced the States to enforce—as Minnesota, they have been in force, as you all know, in the last 10 years, a lot more aggressively than were in the previous. So we believe that that is what this is needed. And it is also cost share so the producer has to put his own money and time in it, too. So it is not just, like, he is going to have some investment there, too. We really believe this is important for the future of diversified American agriculture.
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Mr. PETERSON. The rest of you have a comment?
Ms. DETERMAN. I guess we in the pork producer industry really want to think about the fact that it is cost share, as Chandler said. And we are not asking for the Government to pay for the whole thing, by any means. But when there is a public benefit to this, which we are not saying that the regulations are bad. We are just saying there is a public benefit to this and there is a definite cost to the private land owner. So we feel like that the Federal funds are definitely in play here and should be brought forward. Because there has been a lot of things to address subsidies that have come forward to help cities meet these same requirements that have been put upon them because of the public benefits. So we feel like it is the same way. And like I said, producers, themselves, are putting a lot of dollars into this.
Mr. KLIPPEN. The egg industry supports that, as well. We look at this as a noble, worthwhile effort to try to improve the environment. But at the same token, we can see the increased regulatory costs, the burdens that are being put upon the individual egg producer in the various States. And so we see this as a cost sharing, as well. This is assistance we are looking at, not paying the entire bill, but assistance. We are trying to do what we can to meet the needs. But we are looking for some help.
Mr. PETERSON. Thank you. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Osborne.
Mr. OSBORNE. Thank you, Mr. Chairman. And thank you, members of the panel for being here today. I have a couple of questions for, I guess, the Pork Producers and Cattlemen. We have heard frequent comment to the fact that the current levels of spending in EQIP that are proposed would not be adequate. It is an increase of 600 percent. And you are proposing an increase, I guess, of 1,200 percent, which is quite a bit. And it does seem that the livestock industry compared to the commodities at the present time is doing a little better. Could be doing better, I am sure, than it is now. But I guess I am a little concerned about that in terms of where the dollars are going to come from. And I notice that there were some comments that concern about income transfer and that livestock doesn't participate in that. But I would wonder if it doesn't have something to do with your food prices, your feed prices for livestock. We do have very cheap grain, relatively speaking. And I would assume that there is some indirect benefit to your industries. Would you agree or disagree with that? I would be interested in your commentary? Anyone in regard to that?
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Mr. KEYS. Thanks. Mr. Osborne, commodity programs, we have found over the years, cut both ways. You have had the grain pick programs, where we paid the price of supporting grain farmers in the past in the early 1980's. The Dairy Buyout Program. And now, we have the Freedom to Farm and market clearing which has resulted in some lower grain prices. What NCBA and our State affiliates have always said is, we want the marketplace alone to decide. If it is $5 corn, we will live with it. If it is $2 corn, of course, we will live with it. But if it is a marketplace factor doing that, you will never see us come up here and complain about that.
Ms. DETERMAN. I think the reason that we have come asking for those dollars is that right now, there is 196,000 proposals in EQIP right now that haven't been funded. That totals $1.4 billion. We know there is an outstanding need for this and for livestock producers. And we feel like it goes a long ways in meeting conservation needs in the whole, entire agriculture sector. I mean, we are grain farmers, as well as a pork producer at our house. So we realize EQIP was probably the way that will help us the most. I think that the thing with the cost share is so important for us to realize that it is not just a Government assistance program, and like Chandler said earlier, it is not only a producer's dollars that he is putting into this, but his time and working with the USDA and others. It is extremely tedious system to go through. And a producer spends a lot of time getting these furrows together. And they want to do it right.
Mr. OSBORNE. Thank you for your comments. One thing I have been interested in, in EQIP, we have heard a lot of concerns and complaints about technical assistance. And if we are, in fact, going to increase EQIP expenditures by 600 percent, there are going to be a lot more plans out there that are going to have to be made, fulfilled—currently, I think one out of three EQIP applications are actually implemented. There are going to be a lot more plans at the present time. So do you feel that the present proposal and farm bill is adequate as far as technical assistance? And I realize there is a voucher provision in there. I am sure there will be some folks that aren't going to like that. But how do you feel about that and do you see a continued need for technical assistance?
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Ms. DETERMAN. We definitely support the concept paper in that we feel like a private, third party assistance is helpful. Otherwise, this is going to continue to backlog and the faster we can work through some of these is extremely important. The $850 million for the technical assistance is extremely good dollar number as far as we are concerned.
Mr. KEYS. It is great. There is a lot of good technical assistance available to us at NRCS. There is no doubt about it. And they are great people. But they have been particularly out of livestock, when we did the conservation compliance plans, of the earlier farm bills, we shifted a lot of technical assistance out of livestock and into row crop and conservation practices on row crops. So we really like the idea of having the ability to go in and contract with private consultants and engineers that know how to build feed yards and retainment operations.
Mr. OSBORNE. One last question for Mr. Keys. And that is that I notice your statement said that you support mandatory country of origin labeling. And that we kind of get some mixed signals from time to time from your industry. And I notice, also, you mentioned that you liked the beef made in the USA labeling and in some ways, that is a little different than pure country of origin. Would you quickly comment?
Mr. KEYS. It is a conundrum. And what it is is if we were king for a day and we could do mandatory price supporting, we would help shove it through the Congress and hopefully get the President to sign it. We don't think that is a political reality today. So what we are trying to do is work with this administration and the previous administration to do a voluntary program on made in the U.S. products. See how that works. The retailers said they would help us get this through and we are really relying on the Department and Ms. Veneman to get this thing pumped through or we will be going back and looking for law to make it mandatory.
Mr. ORWICK. If I could add, Congressman, I think another point that goes along with that on labeling is USDA grading of imported carcasses. And cattle and sheep industries have a Petition that has been at USDA for nearly 2 years. We have done a comment period. We are waiting for final rule and I hear that there may be another comment period in the works. And I think that is one that is very helpful for the people that we talked to is that is an American program built for American promotion. And it ought to be reserved for Americans. So we, again, push with support from USDA to tackle that issue of grading foreign carcasses.
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The CHAIRMAN. Mr. Baca.
Mr. BACA. Just a quick question. I know that, Ken, you specifically talked about the Environmental Protection's regulations being costly. Can you specifically identify what areas are costly and then areas that we have to look at as we are looking at environmental protections, both State and Federal? We need to be specific if we are going to look at policies or changes. And maybe all of you or any one of you can respond to any of those questions.
Mr. KEYS. I will start, Congressman. The trouble we have had with EPA over the years is that they are not site specific. And, really, they don't have much expertise on agriculture production practices at EPA. And so we have to rely on USDA to be in a partnership with EPA and coming up with the rules and regulations. For example, after we got in this AFO/CAFO debate with EPA, we had a meeting. This is just an example. Where the EPA staff that were going to write the regulations on feed yards. And they continued in a meeting of the Cattlemen's Association talking about slats and lagoons. And we looked at them and we said, what are you talking about? I mean, the cattle industry does not have slats and lagoons. And they said, well, aren't you like the hog industry? And that is just a vinuet of the problem we had with EPA. So we shipped EPA and they went out and saw the feed yards and saw cow/calf operations and saw all this and they got educated. And in the meantime, conversely, every time we have a meeting on this new rule and regulation, they are finding new things about the industry that they have to change their whole thought process on how they are going to regulate us. So it is a factor that we don't think that we are not going to be regulated. It is a factor of how we are going to be regulated by an Agency that ought to know our industry a little bit better than they do before they start plotting down our road of regulation. And that is where we just have a continually education process with the EPA on this issue.
Mr. BACA. What can we do? I think some of us would like to look at those regulations that are costly or areas that maybe we need to look at, whether it is site protection, looking at EPA, looking at others. But we want a specific recommendation from you. And if there is areas we can develop a policy, I mean, we can help the industry, itself, not only grow, but be protected, but also be in compliance as we look at State and Federal, too, as well, so we are not over-regulated from one perspective.
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Mr. KEYS. We would be happy to brief your staff. I will bring up this package tomorrow and we will go through it line by line. That is how detailed EPA is, it is just not one thing you can fix with them.
Mr. BACA. We realize that. But it is areas that we have got to begin to look at as bestly as we start looking at policies and we start looking at PNTA. We start looking at NAFTA. We start looking at trades with others. We start looking at our regulations from the State perspective and Federal regulations. And we start looking at products coming in from outside the effects it is even having on fruits and others too, as well. Because the common complaint that I get from many individuals is that the products that we have at our grocery stores aren't labeled on a lot of the products and the affects it is having on health. There is a difference between the chemicals, the pesticides that are utilized here versus what is imported or comes outside. So that is another area that I would like to look at and explore to make sure that we are dealing appropriately, not only in terms of funding, but also protection and the ability to make a profit for those growers in the United States versus those others that are coming in, as well. And anyone of you can answer or reply.
Mr. STENZEL. Congressman, in the fruit and vegetable sector, pretty much the environmental regulations are a cost of production that have really raised the bar in the competitive disadvantage for U.S. growers as opposed to growers in other countries. I wouldn't see it so much as a safety concern. There are strong environmental restrictions and FDA enforcement that any produce items coming into the country have to meet the same safety standards. But that is not to say that other products can't be used in their production. Really what it has done is raised the cost of production for U.S. growers.
Mr. KLIPPEN. Just to provide a few specifics that you are asking for. There is a need for producers under the regulations to develop comprehensive and nutrient management plans. And for egg producers who typically are not focused on developments of plans to dispose of the manure, they are more concerned about trying to produce those eggs and market those eggs, we see this as a added cost. There is one troublesome issue and it is moving from the Nitrogen base to a phosphorous standard on land application of manure. I am not saying that is bad. I am just simply saying that that is a more expensive process. So to be more specific to your question.
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Mr. BACA. Thank you very much.
The CHAIRMAN. Mr. Rehberg?
Mr. REHBERG. Sir, no questions.
The CHAIRMAN. Mr. Kennedy.
Mr. KENNEDY. Yes. Thank you all for your testimony. First of all, Mr. Stenzel, when you talked about buying excess production, a lot of our products that we are talking about elsewhere are more shelf stable. Would that be something that you would anticipate would have to go into a canned or frozen state in order to allow for the distribution of that in the various Government programs?
Mr. STENZEL. The distribution and handling of fresh fruits and vegetables is one of our more challenging items to deal with. Many States and school districts and now USDA is providing assistance in providing cold storage facilities and also helping them do a better job of handling the fresh products. It is certainly easier to store products for extended period of time. But we do believe that it is essential for the USDA feeding program, such as school lunch and school breakfast, to expose children to fresh fruits and vegetables. We have simply got to spend more time and energy in dealing with the infrastructure challenges to get those products delivered on a daily or weekly basis. It can be done, even though it is more of a challenge.
Mr. KENNEDY. So would you anticipate part of that $200 million being used to help and incentives to establish this type of infrastructure to be able to distribute it in that way?
Mr. STENZEL. It certainly could be. We have proposed a pilot program, as well, of about $5 million a year specifically for that purpose, for infrastructure development and assisting in the handling and distribution of fresh products. If, perhaps, there is an interest in spending more money in that way as opposed to direct buy of the commodity, I think from a fresh perspective, we would be very interested in working with you on that.
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Mr. KENNEDY. OK. Thank you. Mr. Keys, you talked about that if you could change this program, you would increase the investment in conservation. When you say conservation, do you mean EQIP or are there other programs that you would like to see increased in investment?
Mr. KEYS. Well, I think EQIP and WHIP and Wetlands Reserve and continuous signup. On CRP, we are not very interested in anymore whole fields going into the CRP. It is just taking out productive land. But certainly, those areas. I am not here bemoaning that I think we ought to really switch around too many of these. We are appreciative of the amount of money put in there and we will work with that. I think what we have to work on now is getting this program up and running so production agriculture uses it in an effective manner. So if it is a real success, which I hope that it is, Mr. Kennedy, we can come back and ask for more.
Mr. KENNEDY. Now, to all of the people that are talking about EQIP, which is most of you today, we have talked about the payment limitations. We have talked about the fact that you would like to have even more put in EQIP than the 600 percent increase that we have already had. But what further changes or concerns should we be focused on in writing this new bill as it relates to EQIP to make sure that we can have the comprehensive nutrient management plans and deal with the issues you are saying? What else, other than payment limits and size of funding should we really focus on?
Mr. KEYS. I think what we need to focus on is making sure what the intent of Congress is carried out. And I think what happened is EQIP, over the years, when you go in and sign up for EQIP today, if you qualify underneath the size limit, there is a whole host of criteria that you have to hit that really don't have anything to do with environmental quality as it related to when we first put the bill together. It had a lot of wildlife components, watershed components, things of that nature. It makes it hard to get on the list to get the money. Right now, there is $1.2 billion worth of backlog on EQIP that producers would like to put conservation programs in place. We would like to switch some of those criteria back into wetland reserve, back into WHIP and put those criteria in other programs, house them in other programs.
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Mr. KENNEDY. So you sense that EQIP has been hijacked into some other type of a program that is maybe better addressed with some of the other existing programs that are in place.
Mr. KEYS. Absolutely.
Mr. KENNEDY. Comments from pork producers or eggs or——
Ms. DETERMAN. We definitely think that the livestock and poultry people should be put as a priority on the list. And also streamlining the processing. The planning process would be extremely important. It is a very tedious process to go through. And so if we could streamline that, I think we could get more of them funded and actually into place in the country.
Mr. KLIPPEN. I think from the perspective of the egg industry, we would like to see a little bit of flexibility in the length of the contracts. But also, assistance or help in developing these comprehensive nutrient management plans.
Mr. KENNEDY. And is there more? You spoke about the independent contractors as opposed to relying entirely on the NRCS staff. Is the process that we have in place working well or are there other changes that we need to make to that to make that a more efficient process for you? Any of you that would choose to respond.
Mr. KEYS. We have a whole list of issues that we have worked with Mr. Lucas on and Mr. Peterson and the subcommittee that we would be happy to give to your staff. Some of them are in my full testimony, but we have a whole list of changes that we would like to see in EQIP to make it more effective. And I will make sure that that gets up to your staff this afternoon.
Mr. KENNEDY. We appreciate that.
Ms. DETERMAN. Same with pork producers. We have several issues. Especially the technical assistance and those areas that we feel like there is several very qualified third party people who can help us in those and get things out into the country faster.
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Mr. KENNEDY. I appreciate that. As you mentioned, a bulk of our corn and beans, which is a big part of our production in southwest Minnesota blows into your products. And we just need to make sure that we keep you competitive and consuming those good corn and beans, as well. Thank you.
Mr. KEYS. We like doing that.
The CHAIRMAN. Mr. Hill?
Mr. HILL. Well, thank you, Mr. Chairman. Most of the questions that I had have already been asked. But I do have a question of Mr. Klippen about eggs because I have in my district a lot of egg producers. And I am interested in why you are losing 6 cents a dozen on the average of eggs. What is going on in your market?
Mr. KLIPPEN. Thank you, Mr. Hill, for asking that question. It is always a pleasure to talk about the egg industry, but not when we are talking about losing money, unfortunately. We did an analysis yesterday as to what is occurring yesterday, July 16. We looked at the feed costs. Typically, feed costs are much higher or have been much higher over the last—well, back up on that. Right now, feed costs are costing about 23 cents per dozen of eggs produced. If you look at the cost for the grower, his house to house the chickens, the electricity, the insurance, the labor, that is about 8 cents per dozen, is what he estimates. Bird amortization, the life of the bird during its productive lay cycle. He amortizes about 8 to 10 cents per dozen for that bird. And then processing, cartoning and then transporting those eggs to the market, the fourth quarter quotation on that was 27 cents. If you add all those figures up, that cost is, under best conditions, is 68 cents per dozen. The [market] yesterday in the Midwest was 62 cents per dozen. So even though we have a very favorable feed cost, we are doing our best to try to limit all the other costs. We are still at 6 cents below profitable levels. And that is under the very best of circumstances. If all producers are producing like that, they would be much better off. But you are looking at a need for producers that maybe are not able to provide their house and electricity and insurance at 8 cents, but maybe 10 cents. We actually need a [market] of about 72 cents to break even. So we are well below the cost of production right now.
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Mr. HILL. Is there anything that we are doing here in Washington in terms of over regulations or increased costs that we are doing that we need to reconsider doing in order to affect your business at all? Do you have a comment like that?
Mr. KLIPPEN. Again, I appreciate that question. We are addressing those issues today and as Chandler has brought out on the AFO/CAFO rules, we also have our comments on that. They are quite extensive. We think that a lot of the environmental regulations are going to increase our costs significantly. And we are trying to address those as well. Thank you for asking that.
Mr. HILL. Is there an oversupply of eggs on the market that is causing you to be losing money now?
Mr. KLIPPEN. Yes. That is correct. We do have an oversupply in the market. Currently, we are trying to educate the industry that there is a need to cut back. And it is one of those situations where egg producers sometimes will expand in a depressed period of time knowing that eventually, they may pick up some other markets when producers go out of business. And as I mentioned earlier, 15 years ago, we had 2,500 egg farms. Today, we are only looking at 295 egg farms. And that is what happened, is when periods of depression where producers have expanded, they have seized additional markets when others have gone out of the business.
Mr. HILL. OK. Thank you.
The CHAIRMAN. Mr. Gutknecht?
Mr. GUTKNECHT. Thank you, Mr. Chairman. Like Mr. Hill, several of the questions I was going to ask have already been asked and answered. Again, thank you for your testimony. One of the issues that I have taken an interest in, particularly in the last 2 or 3 years is the whole issue of rotational grazing. And Mr. Keys, perhaps you would care to respond to this. We are looking at expanding the CRP acreage by some 3.5 million acres. One of the ideas that I am trying to work with staff here and we would certainly appreciate any input that you may have or Mr. Orwick may have relative to this. But we know, for example, in my district, there are acres that are being planted to corn and beans that, frankly, would be better if they were being used for some kind of grazing or planted the alfalfa or hay or something else. One of the things we are considering and we would certainly appreciate your help is as we expand the CRP acreage availability, perhaps taking those new acres and allowing them some kind of rules promulgated by the Department to allow those to be grazed. Does that make some sense to you?
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Mr. KEYS. Any grazing to CRP is a long, contentious issue. And NCBA is now at the point where we are looking at how do we particularly planning the creep acres or the acres on buffer zones and things of that nature. We are still going to be opposed to whole field panning grazing. And because if I have CRP and you never broke your land out and you don't have and you have got a cow herd, one day you come over to my place and you say, hey, I see you have got a cow herd. And you will say, yes, it is the greatest thing since sliced bread. I got this CRP acres. Got a couple hundred acres. They are going to pay me $30 an acre and they are going to let me raise cattle on it. Well, you don't have that opportunity and so it is a contentious it depends if you have CRP or if you don't have CRP on which side you lay out on that issue. And Mr. Peterson and I have had long discussions about this issue. But I think NCBA is trying to come up with a compromise on these creep acres because they are so hard to fence off and see if we can do something there on rotational grazing.
Mr. ORWICK. I would just add a couple comments. One of the things we find on the sheep industry is because we graze about everything there is, a lot of the specialty crops and the fruits and vegetables, that is part of the grazing in a lot of areas of country for sheep. Same way conservation reserve program, there are years when you get into a drought situation that is the only hay crop that those folks are going to put up. And it is been a saving grace for a lot of producers in many times. On a regular basis, I think there would absolutely be interest in producers being able to use them for grazing. But certainly in times of drought and severe weather conditions, they are very important for the sheep industry.
Mr. GUTKNECHT. Thank you, Mr. Chairman.
The CHAIRMAN. Mrs. Clayton?
Mrs. CLAYTON. Thank you, Mr. Chairman. Thank you for the hearing. And it is a great opportunity to see how the various sectors of agriculture respond to the proposed concept. And I am impressed at the witnesses you have gathered today, at least this panel, all seem to say that 60 percent increase in conservation is needed. I am not sure all of them like all the phases of the conservation program. But conservation is essential and I gather from the testimony or at least Ms. Determan that conservation is important to big sized farmers, as well as the small sized farmers. But let me just interject that one of the concerns I am hearing about EQIP is that as it is now constructed or perceived to operate in some parts, it says that farmer that does not have that money to lay out and want to also make sure he is doing the kinds of things that EQIP is designed in law to do, it is prohibited to do because if he has to go borrow that money, you are right. It is a shared cost. But a shared cost in such a way that if you disadvantage a very small family farmer and the cost is going to cost $25,000 for your share and you don't have that $25,000, then essentially, you are out of the ballgame. And yet, that farmer is making a contribution and that farmer is continuing not to have the advantage of environment safeties that we hear. I come from the State of North Carolina, so I am aware of the impending concerns about environments on the pork industry. I am aware of the monotorium that it had. And I know the pressure that the pork industry has had in meeting not only regulation proposed here, but EPA as well as the State and the political realities of the large farmers and the small farmers. I didn't know whether you all had experienced that there were concerns of your very small participant and your individual—industry. Pork, is their concern raised to you by your very small—do we have any small pork producers?
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Ms. DETERMAN. We definitely still have small pork producers. We have producers of all sizes in this industry. And that is one of the good things about our industry, is being so diverse in our size and management. But I think the producers are very concerned about the regulations that are coming down. And that is one of the reasons they have pushed us so hard on getting additional EQIP funding, is to make sure that we can meet those needs. Producers, as such, we want to do a good job. We have been doing a very, very good job as we go along. But each year, as we have more and more regulations, not only from the Federal level, but also many of our State and Local governments, also, those dollars are definitely cost of production problems for us. And those are the types of dollars that we need to have that cost share assistance.
Mrs. CLAYTON. I noticed in Mr. Keys' comment that he wanted to ensure that the consumer had confidence and I gather that would be—well, everybody in agriculture that once that consumer's confidence in the safety of the food so it is in the public's interest and public interest to have environment, but also, it is in the producer's interest to produce a product that is ensured that is food safety. So the environment components that are embraced, hopefully, you see it as a marketing strategy to add to the confidence of that. In fact, just reading in the business magazine, there is a dollar value in the greening of companies. And those who understand that consumers are making the election where they are buying from individuals, whether it be a car or produce or free from hoof and mouth or whatever. There is a dollar value in that. They either don't buy it or they do buy it.
Mr. KEYS. Absolutely.
Mrs. CLAYTON. So the public interest is not only served by this, but also the producer's interest in a business. That is a fact you researched and put in your business plan that you want to have environmentally safe part of that. Any comments on that?
Mr. KLIPPEN. If I may just comment about that. That is one of the motives that spurred on the egg industry and the development of its XL Project, Excellent Leadership through an arrangement with or a cooperation with the Environmental Protection Agency. We recognize that very factor that you bring out. And so the XL Project was to, basically, be a part of the solution, rather than just being accused of being a part of the problem. Where we go beyond what the regulations will call for. And the idea being that we have recognized that as stewards of the land, we have to do what we can to safeguard the land. And so the egg industry does recognize the value of the very things that you are talking about.
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Mr. KEYS. Congresswoman Clayton, just to clarify. On the cost share part of the EQIP, your time and equipment, the energy that you put in, other than money, can be accounted part of your cost share. So you don't necessarily have to put up cash.
Mrs. CLAYTON. Well, that is why I modified and said, where it is being implemented in some places apparently that cost share of any kind is not factored in the total cost. So the farmer or those who are administering the programs are not as sensitive in all areas.
Mr. KEYS. We need to make them sensitive.
Mrs. CLAYTON. Well, we just need to have a uniform implementation of the intent, but to make sure that not only the time share but also, you make it easy for big size, but also, you make it easy for the smaller, disadvantaged farmer to get the advantage of the Government assisting farmers to meet their environmental requirements, as we do all of us.
Mr. KEYS. Absolutely.
Mrs. CLAYTON. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Smith.
Mr. SMITH. Thank you, Mr. Chairman. Mr. Chairman, I would ask for unanimous consent my opening remarks be included in the record, along with a recommendation from changes in the farm program from Michigan commodity groups.
The CHAIRMAN. Without objection, all members' opening statements will be part of the record.
Mr. SMITH. I would like to go back to a Florida debate in the Senate in 1972. Where does EPA get the authority to the proposed and costly rules of CAFO's. And at that time, a freshman Senator from Kansas in the debate on the Clean Water Act said, well, normally, agriculture has been considered a non-point source. Mr. Dole says ''Another question of real concern to many farmers, stockmen and others in agriculture involves the term, point source and non-point source. Most sources of agriculture pollution are generally considered to be non-point source.'' My question is simply, to what sources of guidance are we to look for further clarification of the terms point source and non-point source? And Mr. Muskie explained that large confined animal feeding operations that through a ditch or flushing system or a pipe discharge a measurable waste into open water is considered a point source. And so at that time, there was the debate on these large, if you will, hog factories and there was some concern that maybe that should be point source. EPA was also mentioned in that Clean Water Act. And we have, as you are aware, dramatically expanded the regulations of EPA in terms of where they go in CAFO's. I would like your reaction to the possibility of giving States a little more jurisdiction in defining how they in their particular State want to assure that clean water is protected, rather than a one size fits all. And would agree to remodel the jurisdiction back to State government in term of the CAFOs point source/non-point source solution? And start with the Cattlemen and go down.
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Mr. KEYS. Absolutely. I mean, that is what our comments or regs say. Have EPA tell the State basically what their goals and aspirations are and let the States figure that out. And it has worked in the past. It can work in the future. It is interesting, in the Clean Water debate that you just mentioned, in the law, because feed yards aren't allowed to discharge. We are the only non-point source that is not allowed to discharge, except in a 24-hour, 25-year storm event. And it says right in law that we are the only ones that have to comply with that. So, yes, they had an extensive debate about that issue and still do.
Mr. SMITH. Well, I think it is a good lesson is as we review this farm bill, is that the propensity of the administration and the bureaucracy to expand what they see as some of their allowance——
Mr. KLIPPEN. Clean water is an important objective that we all desire. But we need to have some sort of national basis when we come out with regulations. Otherwise, we are going to have possibly some States enforcing stricter standards than other States, which would put those particular individual producers in that particular State at a competitive disadvantage over others.
So if there is some basis, national basis, by which to enforce. And involving the States, yes, definitely. But using that as kind of a standard.
Mr. SMITH. Well, EPA's standards now are not the maximum standard. Any State, even under the Clean Water Act, still has the authority to increase its regulations on any particular State environment. So the problem of putting some States at a disadvantage exists now under current law. Mrs. Determan.
Mrs. DETERMAN. Yes. We definitely believe that there should be a national basis for us because of the same reasons that Ken just explained. But I think that if the State does decide to go further that is up to each State. But nationally it should maintain the same standards. And as Chandler already pointed out, we are not allowed to discharge into public waters. And so we very much care about clean water and want to make sure that we are doing our best to make sure we keep it safe and clean.
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Mr. SMITH. Any other comments? I see my time is up. Thank you.
Mr. LUCAS of Oklahoma [presiding]. Mr. Baldacci.
Mr. BALDACCI. Yes. Thank you very much, Mr. Chairman. Let me just focus in on the prudent specialty, Mr. Stenzel. In your testimony you referred to the fruit and vegetable industry represents what percentage of American agriculture?
Mr. STENZEL. Approximately 24 percent.
Mr. BALDACCI. Twenty-four percent of the total farm income?
Mr. STENZEL. Farm value.
Mr. BALDACCI. And you are able to document that?
Mr. STENZEL. That is from the Department of Agriculture.
Mr. BALDACCI. It is from the Department of Agriculture. Now at what percentage have you estimated that those crops get out of the last farm bill?
Mr. STENZEL. Quite minimal. Most of our programs with USDA are user fee programs for inspection, that type of program.
Mr. BALDACCI. In your testimony you referred to the EQIP and a recommendation of a minimum of 25 percent EQIP funding targeted to meet specific needs of the specialty crops. And down below it says that there is no cost to do doing that in terms of taking 25 percent of the existing EQIP funding and dedicating towards that. Have you had any communication with any of the other industries in terms of that proposal?
Mr. STENZEL. We have not at this point.
Mr. BALDACCI. I think that that is something that a lot—well, some members on this committee would like to see increased. And I think that proposal would go a long way towards trying to make sure there was a balance national agriculture policy.
In earlier hearings we were being put in the position that the specialty crops did not want any resources and had not asked for any resources. And I think I want to first of all appreciate you coming together in a uniform proposal to address this area, and talking about maybe furthering some of the resources dedicated towards conservation.
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In your testimony you talked about nutrition. And you talk about including $200 million per year under section 32, the Surplus Commodity Program. My comment here is that we have developed a senior farm share program which utilizes the farmers markets and connects farmers directly to seniors. And it is one that is being very widely and well received. And there are not many of those programs that both farmers and consumers feel very good about. But that one is. And I would like you to kind of think about maybe incorporating not just the larger agriculture units but also the smaller farmers and the vegetable stands and the programs like that as we try to reauthorize that. I do not know if you have any familiarity with that program.
Mr. STENZEL. We have a bit and certainly see a great deal of value in that type of program. In some ways, what we are looking at in an expansion of that type of program that not only serves the retail farm stand-type business, but also for consumers and for kids in schools to be able to have access to fresh produce items all year round. Those are a little bit narrow in their current program.
Mr. BALDACCI. And just to the panel, I mean, one of the things that I have sort of thought about over the years is we deal with EQIP and the backlog and everything that farmers are being asked to do. I have always felt that the EPA budget somehow should share more in the responsibilities that are being placed on agriculture.
And I have always felt that the Agriculture Department and the budget has really downsized and cost-cut a long time before any of the other departments really got into it. And with the responsibilities in agriculture being placed in an environmental fashion in responsibilities that a lot of agriculture is very sensitive to the environment. They are the leading conservationists, environmentalists. They depend upon their farm income for that to come from the soil.
And it seems to me that the EPA budget should be somehow reflective in agricultural demands rather than just on the limited resources of EQIP or WHIP or these other programs. And if there is some thought in terms of how to articulate that in terms of an amendment or possible measures. But I do think if they are going to make these requirements and conduct these regulatory processes, that they ought to be providing at least some, or if not more, of the resources.
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So I would like to hear your comments and your thoughts about that kind of a suggestion.
Mr. KEYS. There is these things called prerogative–19 funds, these State revolving funds that go to municipalities and things of that nature that could go to agriculture. We have talked to EPA about using some of these things and cite some specific areas. And but then you get into fights with mayors and things of that nature, too.
You know how hard it is to come to that with money. And then they always say, well, you have the USDA. That is their final retort. Just go get your money there.
Mrs. DETERMAN. I think one of the things that we would want to take into consideration here is that we would want to use the technical assistance from the USDA. Because producers are used to working with the Depart of Agriculture, the NRSC and those folks. So and as the chairman has pointed out several times, USDA's understanding of our operation is a lot stronger, and we would be able to get through things a little bit quicker.
Mr. BALDACCI. Good reminder, thank you. Ken?
Mr. KLIPPEN. No.
Mr. BALDACCI. Thank you. Thank you very much, Mr. Chairman.
Mr. LUCAS of Oklahoma. Mr. Moran.
Mr. MORAN. Mr. Chairman, thank you. I appreciate the comments by all the panelists in regard to EQIP, which I think that is a strong consensus on its value, although apparently after some reformation and some different emphasis. And I look forward to working with all of you to see that we accomplish that goal.
Mr. Keys, Farm Land Protection Program versus Grasslands Reserve. I am curious as to the difference between what program we currently have in place and what is being talked about.
Mr. KEYS. Well, we are specifically looking at grasslands and I guess you could meld them together, so to speak. Farm land preserve is more being used in more densely urban eastern areas where suburb has come out to these farms, like in Maryland or Virginia. And programs being used would be Farm Land Protection Community, mainly on the east coast.
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So nature conserve as the NCBA put this grassland reserve deal together more as a further west program of grasslands and prairie lands. And it is just not development. I mean, it is a lot of producers sitting out there, you are sitting in Montana and these people that make a lot of money—well, they did make a lot of money on dot.coms. But Hollywood-types and people like that come into Montana wanting to buy a ranch. And there is not many production areas in this country you can cash-flow land anymore on cattle. And it is not just from suburban sprawl. It is just because people want these properties.
And how do you get ranching families and farm families in the situation where they can maybe get some money for development rights so they do not develop it. But makes it more equilibrium on their cash flow situation and how they operate. So that is what we have been looking at.
Mr. MORAN. But further west is a relative point. And I think this program has value in Kansas, which I guess is the center of the country. And look forward to working with you in the nature conservancy as we try to develop this.
I think the livestock sector of the agricultural industry has been ignored, perhaps, in a number of a conservation programs that we really have focused upon cultivation. And there is lots of areas I see in Kansas particularly, the Foot Hills, in which this could be a very useful program.
Mr. KEYS. Absolutely.
Mr. MORAN. I really wanted to visit with Mr. Stenzel about fruits and vegetables. And, Mr. Stenzel, your testimony, the options submitted to the committee and supported by the produce industry, aim to drive demanded consumption rather than ensure support levels that could distort the marketplace. I think that is a noble goal.
I am curious as to whether it is my understanding that this has been the historic position of the fruits and vegetables industry. I am interested in knowing whether there is disagreement among the industry. Does this continue to be the theme? Should we expect something different from some produce producers? My impression is that things are now so tough in all agriculture sectors that the demands for agricultural dollars, particularly in the commodity programs, may increase from a variety of sources. And I am curious as to what direction you are headed, whether this is really where you are. Are you going some place different? And is there a discussion in your industry as to what the right answer to this is?
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Mr. STENZEL. Mr. Moran, let me try to be as frank as I can be on that question. There are clearly different points of view within the industry. But this is where we are. This has been a hard-fought and hammered out consensus position across all of the multiple commodities that we represent.
As you are well aware, the apple industry has recently sought direct economic relief programs in appropriations measured through an annual-type basis. But they have not come to this committee asking for that on a program basis. They are part of this coalition that is looking at still these type of market incentives, these types of agricultural programs to help us through conservation, trade promotion, nutrition. I do fear, however, that as you said, that it is so tough in all segments of agriculture, that if we are not able to aggressively move against some of these programs now, the next farm bill I may not be able to sit here and tell you that same thing.
Mr. MORAN. I appreciate your perspective and your honesty. I does seem to me that—and this issue has arisen in the past. I remember Secretary Glickman's remarks about the importance of providing assistance to all segments of the agriculture industry. And it has tremendous ramifications, particularly, budget and dollars. And I want to do what I can to make certain that the things that drive consumption and demand are available for all of agriculture, including fruits and vegetables. And look forward to working with you and your industry as we try to come up with those policies.
Mr. STENZEL. Thank you.
Mr. MORAN. Thank you very much. Thank you, Mr. Chairman.
Mr. LUCAS of Oklahoma. Thank you. Mr. Condit. Thank you folks for being here this morning. And I would just like to ask Mr. Stenzel, did I hear you say that you speak with one unified position with fruits and vegetables?
Mr. STENZEL. Yes, Mr. Condit. We put together a group over a year ago with all of the regional grower groups, the commodity boards. And all of them are supporting these positions that we have recommended today.
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Mr. CONDIT. I understand that all of you are recommending an increase in the MAP program, the funding of the MAP program. I would like for each of you tell me, if you were granted an increase in MAP what exactly would you do with the money?
Mr. STENZEL. Perhaps I can begin on behalf of the various fruit and vegetable commodities. A number of programs, whether it is the grape industry, apple, citrus, a number of industries promote their products actively overseas. And yet they have limitations on the amount of money really that they can realistically expect under the current MAP program.
There would be two ways to expand, both in intensifying their market promotion activities in certain countries, such as Japan or Korea. But then also expanding their market promotion activities into additional countries where they are not active right now. It is a wonderfully economic, great economic payoff for us. The estimates are that every dollar that is invested comes back to U.S. agriculture sevenfold. So we see both intensifying efforts in individual countries, and then expanding the number of countries where there are programs.
Mrs. DETERMAN. Our industry, the pork industry, receives about $5 million in MAP funding right now. And we have used that for promotional activities in expanding our markets. And we are one of the commodities that has had an extremely good track record with increasing exports. In fact, we have increased every year. We are now a net exporter. And we would use those dollars, increased dollars, to increase our activities, promotional activities and marketing activities overseas.
Mr. KLIPPEN. Between the years of 1996 and 1999 inequitable egg exports have fallen almost 55 percent. We lost the market to United Arab Emirates. We have lost Hong Kong. We would like to be able to recapture some of this. And we could see the MAP being very instrumental in helping us with our exports. Mr. Hill was talking about the oversupply situation. This would certainly provide relief for the egg industry today if we had that opportunity.
Also, we would like to see the egg products that are used for pet food markets. There is a tremendous opportunity in Europe to utilize that. But we are facing some of the competition, inequitable competition from the Europeans. And we would like to see if we can't overcome those. So there is some opportunities that are available if we had the increased MAP.
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Mr. ORWICK. I would respond on the lamb side. In fact, we put a meeting together last Friday with the Meat Export Federation and the number of lamb companies in all sectors. And number 1, would be on the list for us would be the increase, the allocation available for lamb, to move it into more markets. On the wool side we have been more aggressive. And I think, number 1 area it has been on is expanding the list of countries that we are working with. Obviously, Mexico and Asia. We are getting more and more interest from the European countries, whether it is Italy and Spain that are looking at American wool. So that would be the next priority for this industry.
Mr. KEYS. Well, we would probably use it to go to China and teach the Chinese how to eat good U.S. American beef. And that is probably where we would spend the increase in that funding, Congressman.
Mr. CONDIT. Thank you for that response. Let me just, if you can do this real quick because I know I am going to run out of time, and I am the last person for this panel. But the extra money that you would get from MAP, could you not achieve that without that money if you wanted to invest your own money it in, or could you not achieve it if trade policy was a little different for this country? Is there anything that USDA or the people who negotiate trade agreements could do that would fix that rather than throwing money at it? Mr. Stenzel?
Mr. STENZEL. Mr. Condit, I think in some ways those are separate issues. There is clearly a tremendous amount that needs to be done in trade policy, USDA and USTR in terms of opening up new markets for fruits and vegetables commodities. As you know, for individual commodities it is a much tougher issue because we are relatively small industries in our own right. But a very aggressive stance needs to be taken to tear down those artificial sanitary phytosanitary trade barriers.
Now on market promotion dollars, these are additional incentives. And basically, it is that cost sharing program again where the producer group will put up the money, put up its share, up to half of the funds in order to then get matching funds, apply for matching funds, go through strict characterization and strict evaluation. And then try to open up new markets. Those may not be markets that we could open up without that type of matching fund support.
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Mrs. DETERMAN. The pork industry, we are already utilizing a lot of our own producer check-off dollars. And we also work in cooperation with the soy bean association in using check-off dollars. So the MAP funds are just one tool that we use. We work very hard in opening market access through trade policy. And we will continue to work in those areas.
But the increase in the MAP funds we would definitely be able to increase our promotion activities and educational opportunities overseas. So it is definitely a joint project with producer dollars, as well as, the MAP funds.
Mr. KLIPPEN. The egg industry is facing some severe competition by the European Union as it relates to subsidies of egg products. Anywhere from 3 to 6 cents per dozen on shell eggs. And upwards of 22 cents on egg products. So we face some rather severe subsidy challenges from European and those markets that we ordinarily at held.
But we can see that the market access would provide us that kind of assistance. We see the need for the industry to be involved and we can see where MAP would provide that access.
Mr. ORWICK. I would agree with the sentiment that there would be opportunity. But it is a tall order. Just as am example again, the European Union, their government is spending $2 billion a year just on their sheep industry. And to try and level that playing field is an enormous task. One of the other items that I think would be helpful is that as the industry gathers up their income matches, as groups here that are able to do so, the sheep industry is looking at a marketing proposal that has been at USDA since February of last year to help us collect more money to put up as matched from the industry to meet increased MAP funds.
Mr. KEYS. You have got to break these markets open. And then once you get them open you have to have people on the ground there to help sell the product. And we think that these MAP programs work real well with CBB or the Cattlemen's Beef or check-off dollars. Couple that with packer activity in those countries and pulling all those resources together to market the product.
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I think it is a success story for American agriculture and nothing that we need to step away from. There is a lot more other things I can point to that are not spent very well. But we think that this is being spent well.
Mr. CONDIT. Thank you, Mr. Chairman.
The CHAIRMAN [presiding]. Mr. Chambliss.
Mr. CHAMBLISS. Thank you, Mr. Chairman. And, Mr. Chairman, just once again, I would like to compliment you and Mr. Stenholm for crafting a heck of a farm bill. When we get this kind of national media attention for a farm bill, I think it really says something. I cannot imagine why else they are here.
I do not have a question, just a comment. Because what I have heard from everybody is basically that you think we are headed in the right direction from a conservation standpoint. You would like to see more money in there, as everybody would like to see more money. But you think we are headed in the right direction. All of you all do a good job of communicating with your members.
But I hope that each of you who are the point of the spear on this issue, along with the folks that are represented by Miss Tipton and Mr. Kozak, that are going to be testifying, they are the folks who really have done a pretty darn good job in the area of conservation over the years with some very tough issues. And they are going to get tougher. And that is why we are committing more money to it than we have ever committed before.
As we see livestock producers, egg producers, or whatever, being encroached on from a residential perspective or commercial perspective, it is going to get tougher. And they are going to have to be very mindful of the fact that they have got to change ways of doing business if they are not doing it the right way in looking to the future.
So I just hope that you folks will continue to convey to your membership the fact that we need them to be forward-thinking. We need them to utilize these programs that we have been talking about today. Some of your members do not use them. And they need to be more mindful of them and more cognoscente of the fact that it is going to get tougher out there to deal with EPA and the continuing regulations that, frankly, we can expect to come out from over there.
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So we appreciate the good job you all do. And we are looking forward to continuing to work through this process of this farm bill from a conservation standpoint with your folks.
The CHAIRMAN. Mr. Goodlatte.
Mr. GOODLATTE. Thank you, Mr. Chairman. Mr. Chairman, as you know, my district is overwhelming livestock-related. I appreciate very much your holding this hearing. You have been down and seen the importance of these industries to my district.
Let me ask all the members of the panel what kind of safeguards of producer information do we need to include in a conversation title of this bill? Don't all of you jump at once. Mr. Keys?
Mr. KEYS. We have seen over the years lawsuits out in public lands what some groups will go to try to find out what individual producers' financial backgrounds are, as you know, one thing you never ask a cattleman is how many, or cattlewoman, is how many cattle they have. And they do not want to tell you. We have to protect peoples' confidentiality in this process. We have won some cases out west on this issue, we would be happy to share those with you, when some groups tried to go to the Forrest Service and get confidentiality information using the Freedom of Information Act.
But it is very important. And we are willing to work with this. And we have worked and already talked to members of the committee about some confidentiality language that I have a couple lawyers on NCBA staff that are working on it right now to help the committee staff come up with the confidentiality language on these issues.
Mr. GOODLATTE. Thank you very much. If you would make that information available to the committee, that would be very helpful.
Mr. KEYS. Yes, sir.
Mr. GOODLATTE. Anybody else? Mr. Klippen.
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Mr. KLIPPEN. I might just echo what Mr. Keys has just said. We, too, would like to see adequate protection for the business confidentiality on this issue.
Mr. GOODLATTE. Thank you. Mrs. Determan.
Mrs. DETERMAN. Pork producers would echo the same information. We want this confidentiality kept there. And we would be happy to work with the committee in any way to get that information back.
Mr. GOODLATTE. Very good. Thank you very much. Mr. Chairman, thank you.
The CHAIRMAN. Mr. Etheridge.
Mr. ETHERIDGE. Pass.
The CHAIRMAN. Any members wish for a question on a second round? Mr. Stenholm.
Mr. STENHOLM. Listening to the questioning and the answers today, it is very apparent that everyone at the table is appreciative of the increase in conservation funds. And would like to see, in most cases, a little bit more effort in those areas. I would concur with that desire. But as the chairman stated, if you are going to increase into those areas you have got so suggest where the money comes from. And that gets rather difficult. Even though you say the answers were given a couple of times, let us take it from the income enhancement provisions.
Now one of the problems we have there is the income enhancement provisions for the commodities, grains in particular, are now set at 1990 levels. And, therefore, there is a lot of concern in the grain producing areas about the adequacy of those numbers. And I would again concur with that.
A little historical perspective perhaps for those that are suggesting that we are grossly underfunding the conservation numbers, we are. And 1937, Congress in its wisdom, put 6 percent of its total budget into conservation. A reason for that, we had just come out of the Great Depression, we have the Dust Bowl, and the country was seeing those things that needed to be fixed. Six percent of the budget this year would be $120 billion this year. That would take care of every request at the table and we would have some left over. Of course, that is not possible.
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A question that I had been asking a lot of groups and I want to ask you. And, Mr. Orwick, you mentioned in your testimony the impact of subsidies that other countries are having on the sheep and goat industry, wool and mohair. It is a known fact the Europeans expend $2 billion per year subsidizing their wool industry. I do not care what you are producing. If your competition is that kind of competition from governments, you are not going to compete too well.
We also have another blessing problem, and that is the strength of the dollar. When we have industries now that are forced to compete with other countries in which their dollar is worth 50 percent of ours, it is difficult to compete.
How do we structure a farm program that recognizes the other countries and what they do and do not do unless we go to the table and negotiate a way. We understand that we have many concerns. Mr. Stenzel, I understand the concerns of many of your industry regarding the ''fairness'' of competition. My question is always, how do we change these unfair characteristics if we do not go to the table and negotiate? That would be true on wool and mohair as well.
How do we adjust, or should we adjust, or what degree of concern should we put with currency valuations as we look at expanding trade and the levelness of the playing field? We will start with Mr. Orwick and Mr. Keys. Particularly, I would like to hear your views regarding that.
Mr. ORWICK. There is an absolute correlation between the health of this industry and what has happened to the currency exchange rates, particularly in Australia and New Zealand. I believe Australia's currency against U.S. dollar has changed 40 percent in the last 5 years. When they export to the United States, convert it back to the Australian dollar, that is a 40 percent price advantage, revenue advantage that their benefiting from.
And the farmer and rancher in Australia, the farmer and rancher in the United States has absolutely no control over that factor. That is something that has happened to his business, his returns, either positive or negative, that there is not much he can do about. And that is again, I will compliment this committee and the Congress for stepping forward in these emergency situations to try and at least deal on the revenue side to get people over the hump.
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We have looked at trying to include a formula that involves currency exchange ratios. Which work great when it is against you. But when do you do on the flip side. Eventually, at some point in time the policy in this country is going to be where the dollar is not near as strong against some of these other currencies. And then, in fact, that program may work against you. If you have a trigger level where it works against the United States producer to a certain percentage, and then the program kicks in, I think it would be an absolute benefit that you are absolutely right, that that is a factor that impacts every operation in this country.
Mr. STENHOLM. Mr. Klippen, the Canadians have an advantage with their dollar. And that, I believe, affects the egg industry also. And would you briefly expand on that, as also Mr. Keys.
Mr. KLIPPEN. That is very true, Mr. Stenholm. The Canadians do have an advantage. They have a program that is a way of protecting their markets. We can export our product into their market beyond a certain level. So they are actually protecting themselves while they are able to provide export monies to subsidize their exporting efforts. It is really a two-edged sword when you look at this what you are trying to address here in the trade talks. It is tough to really address the value or the dollar. When it is weak it may benefit us. And yet in other areas it is going to hurt us. So we look at that as a two-edged sword, Mr. Stenholm.
Mr. KEYS. Mr. Stenholm, it is just difficult to say. I do not think you can go the American public and say, we want to devalue the dollar. They will string you up.
But at the same time we have to compete against Australians and New Zealanders and the Canadians. And they all have weaker dollars. The Argentines tied their dollar to ours and we see what is happening to them. It is not very pleasant.
The Europeans, the largest subsidy of the agriculture in Europe is beef. And they got to because no one is going to eat it. And that is the only saving grace that the Europeans is no one will buy from them except the Russians. And that is at fire sale. So we are kind of in a quandary. But I do not know.
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Unless we have Mr. Greenspan up here to tell us how we weaken the dollar and get it more in equilibrium. And then the American public is not going to take after that. So we are in a conundrum as it relates to the rest of the economy.
Mr. STENHOLM. Thank you for those comments. And just in case someone else might have misunderstood me, I did not suggest weakening the dollar. But if there was any doubt, Mr. Keys, in what I said, I was not suggesting that.
But I was suggesting it for purposes of acknowledging and having more of our members of Congress, as well as, the general public, as well as, the organizations that are sometimes critical of the work of this committee to understand that that is a serious problems, one of which there is no simple, easy answer. But one that does have a major effect on the ability of our producers.
Again, whether it is agriculture or airplanes or anything else, where you are competing in that world as it is, not as we wished it were. It is something that must be considered and that is what this committee is trying to do. And that is what the proposal, the chairman and I have put forward, is attempting to do in our way.
We thank you for your testimony today.
Mr. KEYS. Thank you.
Mr. COMBEST. We do appreciate very much your being here. Just in follow-up to what Mr. Stenholm said, he and I have discussed, even though we had not announced it to the committee, but we will spend a great deal of time upon our return in September on the subject of the value of the currency and its disparity on trade. Even though we do not have jurisdiction over the issues or over any policy that would effect that, but to try to shed light further on the impact it is having on American agricultural export potential.
And this conversation is also going on at a rapid pace with our trade, people involved in trade. And what possibilities there might be to deal with this issue as it has so dramatically effected us. And we will be pursuing that further as it effects agriculture.
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I thank you again. The committee will take a brief recess. I believe the members have two votes on the floor. And we will return as quickly as possible following those votes and start with the second panel.
This committee stands in recess.
[Recess.]
The CHAIRMAN. The committee will resume and invite our second panel to the table. It is Connie Tipton, senior group vice-president of the International Dairy Foods Association of Washington, DC, Mr. Jerry Kozak, CEO of National Milk Producers Federation of Arlington, Virginia, and hopefully we will be able to conclude this without further voting interruptions. Ms. Tipton, please proceed.
STATEMENT OF CONSTANCE E. TIPTON, SENIOR GROUP VICE-PRESIDENT, INTERNATIONAL DAIRY FOODS ASSOCIATION
Ms. TIPTON. Thank you, Mr. Chairman, and members of the committee for the opportunity to comment today on the committee's farm bill concept paper. Our member companies are anxious to work with you and with the Congress to develop dairy policy that will improve the market conditions for producers without artificially increasing costs to consumers or distorting the marketplace.
And because of that we appreciate the fact that the committee's concept paper does not include new, complicated dairy provisions that would create greater distortions in the market.
In addition, we believe the focus of the legislation that you have drafted to assist producers should increasingly shift to providing incentives and assistance to promote good stewardship of the land through environmental compliance and land conservation. So we applaud and support that the committee recognizes these challenges and is willing to provide assistance in these areas.
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Continuation of the Dairy Price Support Program at the $9.90 hundredweight level is acceptable to our organization, although our members would prefer another approach that would less likely to interfere with markets. And if the Price Support Program is to be maintained for years to come, we think it is especially important that it be administered in a way that is responsive to markets.
Notably the committee has allocated an estimated $773 million for expenditures under this program during the forthcoming 10-year period, yet last year alone USDA spent nearly $500 million on purchases of non-fat dry milk as a result of the program management that was not responsive to markets. So we suggest that the committee consider including language in the bill that would require the Secretary to keep product purchase prices at levels that are in alignment with market prices. This is especially important because of the multiple classes and the pricing formulas included in the Federal Milk Marketing Orders.
If the Dairy Price Support Program is not managed to minimize Government-regulated differences in the value of farm milk used to make cheese versus that used in butter and non-fat dry milk, significant regional differences in farm milk prices will continue.
Likewise, we do not object to continuation of the Dairy Export Incentive Program at current levels. Again, however, the management of this program by USDA must take into account the current market conditions so as to not be disruptive of markets for dairy ingredients.
There are two additional provisions that we suggest for the committee's consideration. First, the dairy industry needs improved price risk management tools. We urge the committee to consider removing the prohibitions on forward contracting for class I milk for the duration of the existing 5-year pilot program so the impacts of providing the same benefit for class I can be tested. And at the very least we think the committee should consider allowing class I buyers and sellers to forward contract for some portion of their transactions. Currently, all other buyers and sellers in the milk market can forward contract, leaving those using or supplying class I markets at a disadvantage.
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Second, we encourage the inclusion of provisions to continue the successful check-off program that is funded by fluid milk processors. This is the only check-off program that has a sunset date built into the legislative authority for the program, and that was originally sought by milk processors themselves because they were unsure about the prospects of success of the program. But the program now, which is best known for the milk mustache ads, has been hugely successful in raising the awareness of the many benefits of milk and making milk more acceptable and popular with kids and in helping to stop the overall decline in per capita milk consumption.
This program as I am sure you know works hand in hand with the Milk Producer Check-Off Program to produce many programs, ads, and promotions that try to boost milk sales. To insure the uninterrupted operation of the program we encourage the committee to include provisions that would eliminate the sunset date of December, 2002, and we are pleased that the National Milk Producers Federation joins with our organizations in support of these changes.
In summary we appreciate that this committee wants to see a prosperous U.S. Dairy Industry. This is also the interest of our member companies and of course, of dairy producers. We have a dairy industry that is changing to meet market demands and to stay on the table in America's households, as well as be accessible in restaurants, schools, and at other away-from-home eating occasions. At the same time we have a dairy industry that must work to tap new customers in other parts of the world as we realize that 96 percent of the world's consumers live outside of the borders of the United States. Meeting these challenges will take a better partnership between producers and processors and will require policies that let the industry grow and compete. Thank you.
[The prepared statement of Ms. Tipton appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. Mr. Kozak.
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STATEMENT OF JEROME J. KOZAK, CHIEF EXECUTIVE OFFICER, NATIONAL MILK PRODUCERS FEDERATION
Mr. KOZAK. Good afternoon, Chairman Combest, Ranking Member Stenholm, and other members of the House Agriculture Committee. I am Jerry Kozak, chief executive officer of the National Milk Producers Federation.
I want to begin by commending this committee for its thorough and thoughtful consideration of the future of Federal dairy policy, and NMPF appreciates having had the opportunity 3 months ago to provide you with input to this committee on the shape of the next farm bill. Your leadership and your vigilance in pursuing an expeditious, fair process has reinforced dairy farmers' confidence in how such policies are developed.
I want to express our support for the committee's concept paper, and I pledge our organization's cooperation in helping you move this effort from concept into law.
Let me briefly comment on the significant points of interest to the dairy producer community contained in the committee draft.
First and foremost, we support the committee's recommendation that the Dairy Price Support Program should be extended at 10 years for a current level of $9.90 per hundredweight. This program is the dairy farmer safety net. No better or more cost-effective program exists to provide farmers a modest counter-cyclical program to protect against potentially devastating low prices. The price program extension will provide for a certain level of stability, which will in turn allow dairy farmers to plan for the future with confidence. At the authorized price level we do not believe the Price Support Program will serve as a simulative to excess production and will serve as a true safety net.
Likewise, we are equally supportive of the recommendations that the Dairy Export Incentive Program be extended and funded to the maximum extent possible under our WTO commitments. Until the export subsidies of our competitors are eliminated we must retain an ability to keep a toe-hold in foreign commodity export markets through the DEIP Program.
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We are concerned, however, that USDA has failed to implement this year's program, which was supposed to begin July 1, and we are equally concerned that the Department may delay it even further, and we encourage the committee to look into that.
In the same manner we applaud the committee's efforts on the recommended funding levels for the Market Access Program. Additional MAP funding will allow us to continue further developing our overseas markets and to compete on a more level playing field.
In addition to NMPF's earlier recommendations on these important economic tools you may recall that our organization also asked the committee to consider providing additional assistance to dairy producers as they endeavor to comply with the expanding web of environmental regulations. That is why we are pleased to see that the Environmental Quality Incentives Program, EQIP, will also be funded through 2011 at a level of $1.2 billion annually with 50 percent of that amount targeted at dairy and other livestock producers and with the eligibility requirements of size limitations removed.
Let me also commend you for additional funding that you have provided for the Emergency Food Assistance Program and the improvements you propose in making the Food Stamp Program more workable. These items are vital to maintaining the health of our citizenry, and the dairy industry benefits from their effective administration.
In conclusion, we at National Milk recognize that there are only so many dollars to be spent on farm programs specifically and on other Government initiatives. Some will criticize this committee for the list of items that were left on the cutting floor. We have a saying in the dairy industry, ''When you look at the Swiss cheese, don't focus more on the holes than on the cheese itself,'' and I don't see many holes in your committee draft outline.
Although we are disappointed like others that you did not choose to authorize a supplemental payment plan for class III and IV, we recognize that even spending $73 billion will not cover all the requests that you have received. However, I do ask the committee to reconsider and acknowledge the importance of continued funding to maintain our healthy domestic livestock industry now and in the future. And we believe that a voluntary Johne's disease control program for cattle should be part of that effort, and we urge you to reconsider that.
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I also urge the committee to consider including in the farm bill items that don't have any governmental or budgetary implications and which have profound implications for the fairness of the international dairy playing field. I am referring to the lack of a promotional assessment on dairy imports. Of those agricultural products with a check-off, dairy is the only major farm commodity coming into this country that does not have to pay a mandatory promotional assessment. This is an oversight that we think needs to be corrected so that importers share in the cost of promoting dairy products in our markets, a cost that is right now shouldered exclusively by dairy farmers, and we hope that the processor sector of our industry will also support this legislation.
Mr. Chairman, in our extensive testimony delivered in April we used the metaphor of a cheese wheel with various wedges to describe the related programs that we talked about necessary to be included in the farm bill. It is our distinct impression that the committee has done an excellent job of assembling those wedges in a comprehensive wheel.
We thank you for the opportunity to comment on the farm bill paper, and I want to emphasize that I think it is important to note that there are no Federal order issues involved in your draft concept paper. I think that will make this farm bill go a lot smoother, and we certainly would not be in favor of changing the class I forward contracting provisions at this time. So we thank you for the opportunity to comment on the new farm bill, and we look forward to working with you.
The CHAIRMAN. Thank you both very much. I like that, look at the cheese and not the holes. I am going to use that but I will give you credit.
Mr. KOZAK. Well, you may not want to.
The CHAIRMAN. I would first make a comment that we will be as we move forward looking at a variety of legislative considerations that do not have monetary impact but I would ask you both if there are areas in which you would make recommendations for change that would have a monetary impact and then what the implications would be of that.
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Ms. TIPTON. Mr. Chairman, as I think you know our organization is generally asking Congress not to spend money on our industry but to let the market have a larger role. We do, however, as I mentioned in my statement advocate having a national safety net for dairy producers. It is very important, obviously, for companies who process and manufacture dairy products to have an adequate supply of milk, and we appreciate the need for a strong and healthy producer sector. So we do support having a national safety net for dairy producers, and you have proposed a Price Support Program. That wouldn't be our first choice but we are certainly supportive of that, and as I mentioned we would like to see the committee put in place some safeguards to make sure that that doesn't overspend Government money that doesn't need to be spent.
Mr. KOZAK. Well, I think your task here is a lot easier because I appreciate Connie's remarks about the Price Support Program. I think we were both hoping that dairy didn't become an albatross as it has been in the past on the farm bill. So I think that there has been some good compromise.
Connie mentioned something that I think is important and that is in terms of Government expenditures when you look at, for instance, farm cash receipts for dairy it is about $24 billion, and in 1999 if you look at the Price Support Program including the export commodities was about $600 million, which is about 2.6 percent Government outlays. And I think we are pretty well satisfied with that. I think the committee has done a good job in responding to our issues. I think everybody who testified earlier in panel one could say I would like more money but I can tell you this, I think when you get too greedy, you create some problems for yourself.
So we are pretty well pleased on how the committee has allocated the dollars, and we thank you for that.
The CHAIRMAN. As you probably are aware the estimation over 10 years for the extension of the Price Support Program at $9.90 is $773 million. Mr. Stenholm.
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Mr. STENHOLM. Recently USDA reduced the purchase price for non-fat dry milk under the Dairy Price Support Program. Has the market reacted as you expected to this change as yet, or is it still too early to answer that question?
Mr. KOZAK. Well, I will go first. Well, first of all, I don't think we are selling any more powder in a world market because of that adjustment. I do think if you look at the future's market that our predictions were that the powder price would result in a dollar off the class IV price, and we still think that that is where it is headed, and we are still selling powder to the Government. So our organization didn't think it was a good decision, and I do think that as time plays out that some of the information will be forthcoming that shows it isn't.
Ms. TIPTON. A couple of comments. First of all, when the change was made in the purchase prices at the Department, it dropped the non-fat dry milk price to 90 cents, and world prices right now are hovering between 95 cents and a dollar. The domestic prices are 98 cents for non-fat dry milk in the marketplace, and yet as Jerry said inexplicably there are still some sales going to the Government. I don't know why someone would choose to sell non-fat dry milk to the Government for 90 cents when they could sell it in the market for 97, 98 cents. I don't understand that but that is something that has happened just in the last few weeks.
Mr. STENHOLM. Jerry, could you clarify the answer to Ms. Tipton's question?
Mr. KOZAK. Well, I don't think Connie will like to hear what the answer is, and that is is we still have a big concern that stockpiles of milk protein concentrate, I know you wanted to get out of here without hearing that but we still feel that if you look at the levels of milk protein concentrate coming in, unabated with low tariffs that those stockpiles are still having a significant problem for us. So I know the Department has said that MPC over the last quarter has dropped but I think we have got to recognize that the European union has suffered some severe consequences on their ability to produce powder because of foot-and-mouth, and we also have to recognize that we can't just look at one snapshot of a quarter on that particular issue. We have years of data to show exponentially that it is going to increase.
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So we think there are a number of factors, and I do think that the Department's decision needed a little bit more refinement. I wish they would have talked to us first. I mean, that decision was made independently without consulting our organization, and we produce 76 percent of all the non-fat powder in the country. So, Congressman, I think that we could probably provide some additional information.
Mr. STENHOLM. Excuse me. I interrupted you, Ms. Tipton. Finish your thoughts.
Ms. TIPTON. Just in response to Mr. Kozak's comment about Europe having difficulty producing enough powder, it seems to me with a world market price higher than our price support level purchase price at the Government and with a greater need as he has just identified in Europe for powder, I don't know why our domestic producers are selling it to the Government. I mean, I will just go back to that. I just don't know the answer to that but it doesn't make sense to me, and on the other side with respect to impact on producer income, the Department has just in the last month come out and indicated that because markets are strong and milk prices are high this year, the producer income even after this adjustment is expected to $4.1 billion higher this year in the dairy sector than it was last year.
So that is not to say that it doesn't have an impact but the impact is certainly mitigated by very healthy milk prices this year.
Mr. STENHOLM. Do either of you believe it would be valuable for USDA to have authority to purchase other products in addition to butter, cheese, and non-fat dry milk in order to support milk prices?
Ms. TIPTON. No. Our organization would not be supportive of that.
Mr. KOZAK. I think that we would. I think one of the things that we have been looking at as I mentioned in my testimony a couple of months ago is the usability of our products. I think it is from a business standpoint important for us to take a look at what the Government is purchasing, the impact of those purchases, and whether or not we can produce products that are more user friendly if you will for the Government in both the feeding and other nutrition programs.
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So I think it would be a healthy task to examine whether or not there can be some changes.
Mr. STENHOLM. Briefly what other product do you have in mind?
Mr. KOZAK. Well we have examined different forms, for instance, of the non-fat situation because obviously some forms of non-fat in the world market are more acceptable than others, you know. USDA does purchase instantized product but if you look at what they pay us to provide an instantized product and you go back to our manufacturers you find out that the cost of producing that instantized product is much greater than the Government is willing to pay us for. So we shy away from that.
I think there are some other cases, Congressman, where even milk protein concentrate could be looked at. I do think we need to think outside the box a little bit and still stay within the framework of what the essence of the Price Support Program is about.
Ms. TIPTON. Mr. Stenholm, if I might just make a quick comment in that regard, it would be our organization's view that the market, not the Government Purchase Program, should be driving what people are producing in this country, and I think we have seen one of the results of the Government purchasing non-fat dry milk has been overproduction of that product, when, in fact, the market was demanding other things. We think that that probably further creates a problem rather than solving a problem, to have a Government Purchase Program for a whole variety of products I don't think is necessarily the way to drive demand for those products. I think the marketplace and the need for the products as ingredients in other foods and other materials is really what ought to be driving production of MPCs or anything else. It shouldn't be a Price Support Purchase Program.
The CHAIRMAN. Mr. Gutknecht.
Mr. GUTKNECHT. Mr. Chairman, on this issue of milk protein concentrate I don't really want to beat this horse anymore than it really needs to be beaten but it is not so much a matter, Ms. Tipton, of what we produce. It is how much comes into the country, and it seems to me—and I am perfectly willing to work with the administration. I don't think this issue needs an act of Congress to resolve but I have been promised by the Secretary of Agriculture a chart which demonstrates that by adjusting the milk or the butter, powder tilt, that this problem will take care of itself.
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I am not certain the evidence is all in, and I just appreciate either one of you responding to what you now know about milk protein concentrate and whether or not the adjustment that was made by the Secretary about a month ago now is really making a difference.
She has promised me that it is. I haven't seen the evidence yet.
Ms. TIPTON. Well, just first of all, as you know the purchase program was holding non-fat dry milk prices at a level that made our industry sell non-fat dry milk, produce non-fat dry milk, and sell it to the Government instead of producing something that was needed by manufacturers of a whole variety of foods and pet foods, et cetera, and that is milk protein concentrates and in various forms.
Those were brought into the country because they were less expensive and because we didn't produce them here. They have dropped significantly as Mr. Kozak commented in this last quarter but I think it is really too early for that to be a cause and result from the adjustment of the tilt at the end of May. I mean, that has been a month, a little more than a month. I expect that there will be a result of that. I think that the market will drive people to buy ingredients that are at least cost, and I think that we can produce those here. And I guess our industry would rather see milk producers in the United States producing those things but we would like to see availability of ingredients in a costly fashion so that we can be able to compete. We don't just compete here in the United States nor do our producers. We need to be able to compete with products that come into the United States, and I don't care whether that is cheese or something else but if other countries can use MPCs that are cheaper than ours, you can see what that does to a finished-product industry.
This is not as easy as just slap a tariff on something. I think we need to see what the result is over a little longer period of time of this price support tilt adjustment, and I think we need to see what happens with the market demand for these ingredients.
Mr. KOZAK. Well, you could well imagine that we are in disagreement on that particular issue. Immediately from the moment that the Department indicated that there was going to be a butter powder tilt, without any consultation, without even I think reviewing the situation, one of the under Secretaries said, well, this problem now goes away because we have the butter, powder tilt, and of course, we don't agree with that. We have done a lot of work in this particular area as you know. We sent up to the impact of imported milk proteins. I think this answers a lot of questions. It also shows the tremendous support within the producer community against this issue, and I disagree with the statement that it is not a simple fact of tariffs.
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Congressman Stenholm asked the question of the panel before about trade promotion authority and whether or not organizations support it, and I think this is an issue that clearly our chairman, who was on the podium with the President on trade promotion authority, we have been outspoken on that particular issue, but we are having some hiccups, and the hiccups are that we are concerned about how the Department reported the amber box and the direct payments. We are concerned about the Department just dismissing this issue as being taken care of because we have a butter, powder tilt.
What dairy producers want is some trust that as we pursue these trade negotiations and as we pursue trade promotion authority, we are going to be protected. This is the loophole for milk protein concentrate as you have seen. You drive a milk truck through that loophole. We are bringing in blended products that are blended at 42 percent milk protein just in order to avoid the 41 percent tariff on skim milk powder.
Now, when the administration steps up and says we need to do something about an egregious problem, then I think you will see that our organization will have a better interest in moving forward on some of the trade policies.
So we do think it is a matter of tariffs and quotas. There isn't any other country when you look at the amount of milk protein concentrate that comes in from New Zealand, 70 percent of what New Zealand produces in milk protein concentrate comes into the US. Well, why is that? It is because all the other countries have tariffs and quotas on these products.
So we think it is really a critical issue, and we think it is a vital issue as we move forward to try to produce these products ourselves.
One final comment. We do have a milk protein concentrate industry in our country. It is dairy farmers producing ultra-filtered liquid milk down at the farm, and as long as this cheap product comes into the United States without any tariffs or quotas, it is going to impinge upon our ability to continue to expand those operations. In many cases in producing a product it is far more easier to use a liquid milk protein concentrate to produce a cheese or some other product than it is a dry product. So we think that this is really causing us a severe problem.
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The CHAIRMAN. Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman, and I am glad to see the large extent of unanimity here. That is unusual and refreshing. Mr. Kozak, in your statement here you say that the cooperatives handle 85 percent of the U.S. milk supply, 76 percent of non-fat dry milk, et cetera. One of the concerns that I have given up on all these reform fights that we have been through because it seems like we make things worse instead of better but one of the problems that we have not come to grips with is this volatility in the current system.
And I think in my area that is a bigger problem than anything else that we have got facing us because it is discouraging, especially young producers, at these times when the prices go up and then they go down, and it is a lot of our problem out there. I mean, there is other components to it but that is a big problem that as you know I have been trying to figure out how to deal with. I think we would all be a lot better off if we could figure out how to manage this industry so that we had a more stable way of pricing our production.
So my question is it is pretty obvious I am going to have an amendment some time during this process to look at giving the Secretary some kind of authority for inventory management but I am realistic. It is probably not too likely that this committee will authorize that. So given that with the amount of production that you control in the country and with your being exempt from the Capper Volstead Act so that you got some abilities to do some things other people don't, is there anything that is going on within your industry, within your organization that can look at ways to try to take some of the volatility out of the system?
Mr. KOZAK. Yes. We are examining some methods. We have had discussions at our board meeting. It has been pretty well documented in the trade press about the market agency and common type of concept in which we under the Capper Volstead Act have the ability to do certain things that may be advantageous in helping us to control our supply.
As you indicated if you think it is difficult to talk about inventory management, it is even more difficult to get a bunch of dairy farmer co-ops together to talk about a market agency in common in which somebody may get a free ride because not everybody may be willing to participate. But it is my personal view that the day has come for us to take a little bit more responsibility for the management of our products, and I must say that in the past two board meetings we have moved that concept fairly well. So I am optimistic that we could continue down that path and that at some point there will be the recognition that somebody may get a free ride. But in our society we know that no matter what you are dealing with somebody gets a free ride. But it is incumbent upon most of our co-ops to take a look at this area. So I would be happy to talk to you a little bit more about that. We are in negotiations with some of our co-ops about that concept, and I think it is a healthy way to go.
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Mr. PETERSON. Maybe you can't answer this but what kind of a timeframe are you looking at to try to come to some resolution on this? Are we talking a year or 2 or a shorter period of time? Do you have any sense of that?
Mr. KOZAK. Well, I would say that we are when you are dealing with an issue like the free rider concept, it is one that you got to keep working and just as you have to do here in the Congress. So I would expect that probably within a 6-month period that we would have something. I am optimistic because we have been doing it now for the last 6 months so I think a year is too long to continue it because you lose momentum. So I would hope that maybe within the next 6 months we would be able to do that.
Mr. PETERSON. And on the Johne's Eradication Program that you mentioned briefly in your testimony, have you flushed out how that might work just in general terms?
Mr. KOZAK. Well, yes. More than in general terms. You may recall that in our original testimony we specifically put forth a 7-page program which we worked with the National Johne's Working Group. We dotted all the I's and crossed all the T's, and so we have an extensive program on how we think it would work.
I should indicate that sometimes we say erratication. Ours is a control program.
Mr. PETERSON. How much would it cost, your program? Do you know?
Mr. KOZAK. Well, the original proposal we had was 1.3 billion over a 7-year period, which comes to about 190 million a year, and of course, we are willing obviously to take a look at whether or not given the resource issues here that that could be pared back to get the program rolling. So we have more details that you probably didn't care to have but we are willing to work with you.
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Mr. PETERSON. OK. Thank you. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Smith.
Mr. SMITH. Thank you, Mr. Chairman. I have read in a couple articles about dairy herds in California slowing down their expansion, in some cases moving out for the high cost for environmental concerns, for electric.
Can you tell me what is happening in California as far as expanded production?
Mr. KOZAK. Well, I think production is down. I don't have the latest figures but I think it was running somewhere between 2 and 3 percent, and I think that is reflective of certainly a couple of things.
Mr. SMITH. You are talking about California.
Mr. KOZAK. Yes. California. Isn't that what your question was?
Mr. SMITH. Yes.
Mr. KOZAK. OK. Two to 3 percent down in California. I think it is reflective of two conditions. Obviously, increased energy costs. Dairy farmers are just like everybody else encountering higher energy costs out there, and second, and this goes to the conservation issue is that California has had a hold on a number of permits because of environmental conditions, and that has I think contributed to a decrease in production. That is why it is so critical for what the committee has done of expanding that conservation, the conservation money.
Mr. SMITH. In terms of CAFO's are other States experiencing some of the problems that Michigan has encountered with the clean water provisions that anybody that files a complaint EPA is required to go investigate that particular complaint, and Michigan with a watchful eye by some of the environmental organizations, complaints are quite numerous, and EPA inspectors come out of Chicago and come into Michigan and walk on the farm and are very technical like a lot of dairy inspectors are in terms of compliance. And so the whole CAFO's argument that almost as an after sight when in the Clean Water Act in 1972 in terms of trying to identify some of the large livestock manufacturing or hog manufacturing units as point source rather than non-point source.
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Mr. KOZAK. Yes.
Mr. SMITH. Now EPA is what I considering running further than was ever the intent of Congress. Do you have a position, does your organization have a position on this?
Mr. KOZAK. Yes, we do. Carissa Itle on our staff, first of all, we have worked in the coalition with all the other livestock groups, and I sat through the panel so I think we would say we were in fairly good lockstep with the other livestock organizations.
I think one of the inherent problems that we encounter is that it is a complaint-based type of program, and that subjects a dairy producer as well as other producers to many open challenges. So we think that that needs to be reviewed, and this is a growing problem for us because as was determined earlier in the morning with the urbanization of our areas we are having a more difficult time. Our farmers are having a more difficult time of dealing with communities who aren't quite accustomed to agricultural practices.
Mr. SMITH. Well, one of the occasions in Michigan is after they walked on the farm without permission they noted several discrepancies, one of which was with a lot of farmers, of course, who pump well water and then run their milk for a pre-cooling through a system to pre-cool the milk before it goes in. And because that water was warmer than when they took it out of the ground, as they discharged that water back into a tile line, they were noted for a violation of the environmental control because they were putting the water back out at a warmer temperature than they took it out of the ground. So it should be a concern, and it is a concern, and my legislation that suggests that the State have greater responsibility to assure clean water is part of what I think is a solution.
Answer that maybe if you have time but also I thought we had an indemnity program for Johne's. What are we doing for Johne's now? Was that a short-term?
Mr. KOZAK. Well, no. Our organization proposed a National Johne's Control Program, which included the indemnity for Johne's. There isn't any indemnity at the present time.
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Mr. SMITH. Is there any Federal money going into a solution?
Mr. KOZAK. No. And that is one of the reasons why we need the program. We have money going into tuberculosis and brucellosis programs, and the program that we have designed is basically predicated on those prior programs. But at the present time there is no indemnity money.
I appreciate your comments this morning. I think it was well said that we think the Federal Government's role should be defining performance standards in the environmental area, and if they would go that route of defining performance standards and allow the States the discretion of how those performance standards are met, I think all of our industries would be far better off, and so we support your efforts in that whole arena.
Mr. SMITH. Well, certainly a lot of difference as you go throughout the country and what you might do that could possibly damage the aquifer or the ground water or any streams, and there is a difference in States and so there a one-size-fits-all again has its problems.
Mr. KOZAK. Right. When we had our dairy producer conclaves, the five regional meetings, I just say if you sat through those conclaves, you would have heard horror stories from our dairy producers about this whole particular environmental arena because part of what needs to be done is some consistency. If we comply with the regulation at EPA and we build our lagoon or whatever we do in conformance with that and we get a new inspector and that inspector comes back on the farm and says, well, why did you do it that way, we have a lot of problems. So if you talk to dairy producers this is an area that really needs a lot of attention.
Mr. SMITH. Thank you, Mr. Chairman. Thank you, Mr. Kozak and Ms. Tipton.
The CHAIRMAN. Mr. Boswell.
Mr. BOSWELL. No questions.
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The CHAIRMAN. Mr. Berry.
Mr. BERRY. No questions, Mr. Chairman.
The CHAIRMAN. Does any member have any more questions? Thank you both very much for your contribution. Appreciate it, and I am sure we will be talking in the future. Thank you.
Without objection the record of today's hearing will remain open for 10 days to receive additional material and supplementary written responses from witnesses to any question posed by a member of the panel. The hearing is adjourned.
[Whereupon, at 1:18 p.m., the committee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Thomas E. Stenzel
Good morning Mr. Chairman and Members of the Committee. My name is Tom Stenzel, President and CEO of United Fresh Fruit & Vegetable Association. I appreciate the opportunity to testify before the Committee again and provide further comment on future direction of farm policy with respect to the draft farm bill concept paper being considered by the Committee today. United commends the work of the Chairman and Ranking Member in their efforts represented in the draft proposal and look forward to working with the Committee to make improvements to ensure the unique needs of the produce industry are fully addressed.
As United and other representatives of the fresh produce have testified throughout the farm bill review process, commodity prices for many fruit and vegetable crops remain very low, with many at or below the cost of production. There are a variety of reasons for this, not the least of which are increased imports, excess domestic production, and increased buyer leverage caused by the consolidation of retail supermarket chains. Increased regulation of agriculture has also created both production and competitive challenges for fruit and vegetable producers. The loss of methyl bromide as a fumigant, for example, has been forecast to create a loss estimated at $1 billion. The Food Quality Protection Act presents similar problems for the industry as growers deal with the loss of critical production tools, while their competitors in other countries continue to have access to them.
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To address these unfavorable market and economic conditions, United requested the House Agriculture Committee to consider over 50 legislative recommendations developed by United's farm bill Working Group and supported by over 24 produce organizations representing fresh fruit and vegetable producers across the United States. The framework in which these recommendations were developed rested in the advancement of new policies outside the scope of traditional USDA commodity programs to help sustain financial stability and viability of the produce industry while ensuring appropriate flexibility for our producers. The options submitted to the Committee and supported by the produce industry aim to drive demand and consumption rather than ensure support levels that could distort the marketplace.
The cost of these new policy options that we believe are much needed to address the specific and unique needs of the produce industry are not excessive compared to the Federal Government outlays of other commodity programs now in effect. In fact, the produce industry's $3.58 billion farm bill proposal is less than 5 percent of the $73.4 billion provided by the Congress for total farm bill spending.
FARM BILL CONCEPT PAPER
As we analyze the program and funding priorities contained in the farm bill Concept Paper in relation to United's farm bill testimony presented on May 3, 2001, we recognize and appreciate the Committee's efforts in addressing several overarching policy initiatives. In particular, we support the following concepts of the Committee's proposal as they have been presented.
Prohibition of Planting Fruits and Vegetables on Contract Acres
First and foremost, by retaining language included in the Federal Agriculture Improvement Reform (FAIR) Act prohibiting production of fruits and vegetables on subsidized or contract acreage, we believe a vital step has been taken to ensure the future economic stability within the specialty crop sector. The market conditions and potential for disruption that led to the industry's concern in 1996 over planting flexibility have not changed. If anything, they have worsened and the need to retain this provision has become even more important.
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Market Access Program. In the area of international trade, the produce industry will likely benefit from doubling funding for the Market Access Program (MAP). Fruit and vegetable growers in the United States face significant obstacles to the development of export markets for their commodities including excessive subsidizes and other tariff and non-tariff barriers to trade. The European Union (EU) and other foreign competitors outspend the United States by some 20 to 1 in export subsidies and market promotion expenditures and in the EU alone total over $15 billion annually. Without targeted assistance for opening and maintaining new markets, the U.S. agricultural industry will continue to unfairly compete in increasingly global marketplace. While less than one-third of the MAP funding is directed to specialty crops, the increase will be of significant benefit for all who currently participate in the program.
Conservation Funding. The produce industry supports the Committee's efforts to significantly increase funding for the Environmental Quality Incentive Program (EQIP). As you are well aware, this program provides beneficial increases for the public in the form of a more stable and productive farm economy and an improved environment. In addition, protecting the environment and productivity today will mean less cost for producing products in the future and will therefore assist in ensuring sustainability in the years ahead. In turn, we would like to continue to work with the Committee to review and discuss the EQIP program and ways it can be further targeted to assist specialty crop farmers.
Pest Disease and Exclusion. Finally, we strongly support the efforts to ensure the immediate access by the Secretary of Agriculture to access Federal funding to address emergency outbreaks surrounding invasive pests and disease. With this enhancement, we believe that a major step forward has been taken to strengthen and improve the ability of our pest exclusion and detection systems effectively protect our nation's animal and plant resources and appreciate the Committee's effort in this area.
PRODUCE INDUSTRY PRIORITIES
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While we agree that the provisions included in the Committee's Concept Paper will benefit the produce industry, we believe that greater focus must be given to address the unique economic needs of the produce industry. Specifically, we ask that the Committee work with United and fruit and vegetable industry representatives in developing amicable language that specifically targets assistance through traditional and non-traditional commodity programs in the final proposal. In our examination of the draft proposal, specific areas should be focused on that we believe the draft proposal falls short in addressing specialty crop priorities and we ask the Committee to revisit.
Conservation. As mentioned earlier, the produce industry strongly support the additional funding for the EQIP programs. In addition to the increased funding provided, we believe legislation should be included which would designate a minimum of 25 percent EQIP funding targeted to meet the specific needs of the specialty crop industry. As you are aware, similar language designating 50 percent of such funding is provided for producers of livestock in the Committee's draft proposal as well as in section 1241 of H.R. 2854, the Federal Agriculture Improvement and Reform Act of 1996. Specifically, we are requesting that specialty crop growers who do not largely benefit from other Federal conservation programs or do not receive Production Flexibility Contract Payments be provided additional assistance through the EQIP program. The EQIP program has broad range support from specialty crop producers across the country and is now widely considered as the best example of a Federal conservation program that is beneficial to fruit and vegetable farming operations. This provision would allow that a minimum of 25 percent of the funding provided on an annual basis for technical assistance, cost-share payments, incentive payments, and education under EQIP to be targeted at practices relating to specialty crop production. No cost.
Farm Credit. Legislation should be included to increase the current limit on guaranteed operating loans from $731,000 to $1.5 million for producers of perennial fruit and vegetable crops and current limits on direct operating loans of $200,000 should be increase to $500,000 for producers of perennial fruit and vegetable crops. No Cost
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General Farm Policy. Legislation should be included authorizing a USDA Fruit and Vegetable Advisory Committee. Such a committee would allow produce industry members to provide suggestions and ideas on how USDA administers fruit and vegetable programs to meet the industry's changing needs. By maintaining an open dialog with its customer base, USDA can tailor its fruit and vegetable programs to adequately address the changing demands of the 21st Century and the global economy. No Cost
Nutrition. Legislation should be included to authorize $200 million per year under the Section 32 Surplus Commodity Program to purchase specialty crops. Such a provision would not only address surplus conditions, it would also optimize the amount of specialty crops in USDA feeding programs helping our children meet national nutrition goals and objectives. $2 Billion over 10 years
Legislation should be included to authorize a $6 million pilot grant program to provide: state and local governments; food banks; Federal food distribution program administrative organizations; and charitable and faith based organizations with a dedicated funding source for infrastructure and technology improvements to store, transfer, and efficiently distribute fresh fruits and vegetables obtained through Federal feeding and nutrition assistance programs, state and local government distribution channels, and private sector charitable donations. $60 Million over 10 years
Legislation should be included to require that USDA increase the amount of fresh fruits and vegetables in the Women, Infant and Children (WIC) program. No Cost
Legislation should be included to authorize $50 million per year to create a public/private program to initiate a nationwide education program to promote increased fruit and vegetable consumption. Similar to the MAP program, produce companies and associations would provide a detailed proposal that would be used to elevate the awareness and educate the targeted audience on the importance of proper diets and physical activity. USDA would match (up to 50 percent) of the implementation cost for this program. $500 million over 10 years
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PEST EXCLUSION/PREVENTION
Legislation should be included to codify the primary role of Animal, Plant and Health Inspection Service (APHIS) in ''safeguarding America's plant resources form invasive pests,'' and underscore the importance of full implementation of the 300 plus recommendations contained in the APHIS Safeguarding Report. No Cost
farm bill legislation should ensure that annual funds provided after fiscal year 2002 for Agriculture Quarantine and Inspection (AQI) activities are available without fiscal year limitation and no longer subject to the annual appropriations process. No Cost
Trade Promotion Assistance. Legislation should authorize $3 million per year to establish a Technical Assistance for Specialty Crops (TASC) fund within the USDA Foreign Agriculture Service (FAS) Commodity and Marketing Programs branch to address the unique technical problems facing exports of U.S. fresh fruits and vegetables. Such a fund would be used to remove, resolve and/or mitigate phytosanitary and technical trade barriers. Activities would include but not be limited to research, pest risk assessments, field surveys, development of database/resource materials, training, technical and/or professional exchanges. $30 Million over 10 years
Legislation should be included to direct USDA to utilize specialty crop commodities to the maximum extent possible within all foreign food aid programs to meet nutritional priorities of under-served and nutritionally ''at risk'' populations in eligible countries. No Cost
Mr. Chairman, these priorities many of which have no Federal cost are extremely important to addressing the challenges currently facing the specialty crop industry. Moreover, the costs associated with these priorities are well within reason compared to the assistance being provided to other commodity sectors in the draft proposal.
All to often, fruits and vegetables or so-called specialty crops are often ignored when it comes to the development and implementation of U.S. farm policy. Like producers of program crops, fruit and vegetable growers face significant challenges in the production and marketing of their commodities that must be addressed if they are to be competitive in an increasingly global marketplace. We ask that the Committee continue to work with the produce industry to ensure that fruits and vegetables are appropriately addressed as you move forward in the development of the successor to the FAIR Act. We certainly recognize the fiscal constrains facing the Committee, however, the many challenges facing the fruit and vegetable industry will only worsen if real and adequate assistance is not provided through a barm bill that appropriately meets the needs of the fruit and vegetable sector.
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Statement of Jerry Kozak
Good morning, Chairman Combest, Ranking Member Stenholm, and the other members of the House Agriculture Committee.
I am Jerry Kozak, the Chief Executive Officer of the National Milk Producers Federation in Arlington, Virginia. NMPF is the national voice of nearly 60,000 dairy producers, and 31 cooperatives, here on Capitol Hill and with government agencies. We develop and carry out policies that advance the well-being of U.S. dairy producers and the cooperatives they collectively own. Cooperatives handle approximately 85 percent of the U.S. milk supply. Farmer-owned dairy coops also manufacture 61 percent of the butter, 76 percent of nonfat dry milk, and 40 percent of the natural cheese, marketed in the United States.
I want to begin by commending this committee for its thorough and thoughtful consideration of the future of Federal dairy policy. NMPF appreciates having had the opportunity three months ago to provide input to the committee membership on the shape of the next farm bill. Your leadership and vigilance in pursuing an expeditious, fair process has reinforced dairy farmers' confidence in how such policies are developed. I want to express our support for the Committee's concept paper, and I pledge our organization's cooperation to help move this effort from a concept paper into law.
Let me now briefly comment on the significant points of interest to the dairy producer community contained in the committee draft.
First and foremost, we support the committee's recommendation that the dairy price support program should be extended 10 years at the current level of $9.90 per hundredweight. This program is the dairy farmer safety net; no better or more cost-effective program exists to provide farmers a modest counter-cyclical program to protect against potentially devastating low prices. The price support extension will provide for a certain level of stability, which in turn will allow dairy farmers to plan for the future with confidence. At the authorized price level, we do believe the price support program will serve as a true safety net, and not stimulate excess production.
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Likewise, we are also supportive of the recommendation that the Dairy Export Incentive Program (DEIP) be extended and funded to the maximum extent possible under our WTO commitments. Until the export subsidy programs of our competitors are eliminated, we must retain an ability to keep a toe-hold in foreign commodity export markets through the DEIP program.
In the same manner, we applaud the committee's recommended funding levels for the Market Access Program (MAP). Additional MAP funding will allow us to continue further developing overseas markets for U.S. dairy products, and to compete on a more level playing field with competing foods coming from other nations.
In addition to NMPF's earlier recommendations on these important economic tools, you may recall that our organization also asked the committee to consider providing additional assistance to dairy producers as they endeavor to comply with the expanding web of environmental regulations. That's why we are pleased to see that the Environmental Quality Incentives Program (EQIP) will also be funded through 2011 at a level of $1.2 billion annually - with 50 percent of that amount targeted at dairy and other livestock producers, and with the eligibility size limitations removed. This provision, along with the $850 million in technical assistance, and the added $300 million in ground water conservation, will help ensure that we maintain the safety and quality of our rural land and water in years to come.
Let me also commend you for the additional funding you have provided for the Emergency Food Assistance Program (EFAP), and the improvements you propose making in the Food Stamp program. These items are vital to maintaining the health of our citizenry, and the dairy industry benefits from their effective administration.
In conclusion, we at NMPF recognize that there are only so many dollars to be spent on farm programs specifically, or any other government initiatives. Some will criticize the committee for the list of items that were left on the cutting room floor. We have a saying in the dairy industry: ''When you look at the Swiss cheese, don't focus more on the holes than the cheese itself.'' I don't see many holes in your draft outline.
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Although we are disappointed that the committee did not choose to authorize a supplemental payment plan for Class III and IV milk production, we recognize that even spending $73 billion dollars won't cover all of the requests you have received. I do want to ask this committee to acknowledge the importance of continued funding to maintain a healthy domestic livestock industry, now and in the future. We believe that having a voluntary Johne's disease control program for cattle should be part of that effort, and we again urge you to consider authorizing and funding a multi-year program as part of the farm bill, or through some other appropriate legislative vehicle.
Also, I also urge the committee to consider including in the farm bill program items that don't have any governmental budgetary implications, but which do have profound implications for the fairness of the international dairy playing field.
I am referring in part to the lack of a promotional ''checkoff'' assessment on dairy imports. Of those agricultural products with a checkoff, dairy is the only major farm commodity coming into this country that does not have to pay a mandatory promotional assessment. This is an oversight that ought to be corrected so that importers share in the cost of promoting their dairy products in our markets - a cost that right now is shouldered exclusively by U.S. dairy farmers. I urge you to pass H.R. 2248 either on its own, or as part of the farm bill package.
This fairness issue I spoke of is also manifesting itself in the current lack of tariffs the United States maintains on imported milk protein concentrate and casein. Although another committee has jurisdiction on the MPC tariff matter, this committee's members do - and need to have - influence on others within the House whose votes will help pass legislation to impose the same level of tariffs on MPC and casein that we are currently assessing on related dairy imports. I hope you will consider supporting H.R. 1786.
Mr. Chairman, in our extensive testimony delivered to this panel in April, we used the metaphor of a cheese wheel, with its various wedges, to describe the dairy-related programs that we believed are necessary to include in the 2002 farm bill. It is our distinct impression that the Committee has done an excellent job of assembling those wedges into a comprehensive wheel.
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Again, I thank you for the opportunity to comment on the new farm bill draft paper, and I look forward to assisting the committee leadership in supporting its adoption into law.
Statement of Ken Klippen
Mr. Chairman, thank you for the opportunity to testify. My name is Ken Klippen, and I have worked in the egg industry all my adult life. I have been an egg producer, an egg processor and director general of the International Egg Commission. Now I serve as vice president and executive director of government relations for the United Egg Producers. UEP is a farmer cooperative. Our members account for 80 percent of all shell egg production in the United States.
The concept paper released by the committee last week is a crucial step toward the next farm bill. I would like to comment on several aspects of the paper.
CONSERVATION AND THE ENVIRONMENT
First, we commend and appreciate the concept paper's substantial increase in funding for the Environmental Quality Incentives Program (EQIP) and conservation technical assistance. As you know, regulations under the Clean Water Act and other statutes will impose a growing burden on livestock, poultry and dairy operations in the coming years.
Egg producers have tried to be pro-active in dealing with these issues. Last year, we signed an XL agreement with the Environmental Protection Agency—a voluntary agreement by which participating egg producers will take environmental and conservation steps well beyond what is required by regulations. In return, producers will qualify for general permits rather than individual permits, with substantial savings in legal fees, consulting costs and paperwork burden. The XL agreement will be implemented only in those States that choose to do so, and our organization is working closely with State regulators to make the program available in as many States as possible.
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Even with the XL agreement, the costs of complying with regulations will be large. These costs will include developing Comprehensive Nutrient Management Plans (CNMPs), building or modifying existing structures, revamping systems for handling manure and waste water, and making arrangements for field application of manure.
Unfortunately, we are looking at the prospect of increased costs at a time when egg producers are losing money on every dozen eggs they sell. Last year, egg producers lost 6 cents a dozen, on average. After a brief period of profitable prices this spring, returns are again negative. In its July 9 issue, Feedstuffs magazine reported producer prices of 46 cents to 51 cents per dozen in the Midwest. Producers are not making money at these levels. Even though demand is strong, it is overwhelmed by oversupply.
Our industry is trying to deal with the problem of low prices on both the supply and demand sides. As a cooperative, we have urged our producers to implement a voluntary program of supply management. We continue to support the highly successful efforts of the American Egg Board to expand the demand for eggs through research and promotion. Still, the increased costs of environmental compliance have the potential to make a bad economic situation worse.
There are no price or income supports for the egg industry. But like other segments of the livestock and poultry sector, we believe producers should be eligible for cost-sharing and technical assistance when we implement conservation practices and structures that will have a wide societal benefit. Congress has traditionally determined—and with good reason—that in agriculture, it is appropriate for all of us to share costs that will benefit us all. One fundamental reason is that agricultural producers do not have the ability to pass increased costs along to their customers.
Therefore, we commend the committee's commitment to expand EQIP and technical assistance. In fact, most reasonable estimates of our future costs would justify greater increases in both categories. At least in the early years of this farm bill, the livestock, poultry and dairy sectors alone could utilize $1.2 billion a year effectively. If opportunities present themselves to expand EQIP further, we respectfully urge the committee to take advantage of them. Our basic message, though, is that this is an enormous step—in fact, several steps—in the right direction.
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When the committee crafts actual legislative language, we strongly urge that all EQIP and other funds be offered on a non-discriminatory basis. All producers should be eligible for assistance, regardless of size. We realize there will probably be an upper limit on the amount of assistance anyone can get, but no one should be excluded because of size. Producers have grown larger because they have had to do so in order to remain competitive in the face of low prices. Since large operations account for a major portion of total production, it is counterproductive to exclude them from environmental programs. To do so is to allow social policy to stifle environmental progress.
TRADE
A second major priority for us is trade policy. Foreign markets are important to the future of the egg industry. As I recently had the opportunity to tell the International Trade Commission, we face trade barriers in many markets, but also have important opportunities for exporting both shell eggs and processed egg products. The concept paper proposes to expand the Market Access Program (MAP), and we strongly support this action. We have made a commitment to export markets through our cooperative's role in arranging export orders, as well as through our support of the USA Poultry and Egg Export Council. We are gratified that Congress shares this commitment. In light of continued European Union export subsidies for eggs and egg products, we also believe a renewal of the Export Enhancement Program for the U.S. egg industry is appropriate.
RESEARCH AND EDUCATION
Another indispensable element in building our future is research. Therefore, we strongly support the continuation of the Initiative for Future Food and Agricultural Systems. As you write the actual language of the farm bill, we hope you will consider emphasizing research in two priority areas: first, food safety, especially the development and improvement of vaccines, quality assurance systems and other interventions that can reduce pathogen incidence; and second, human nutrition, particularly the exploration of benefits inherent in functional foods like eggs.
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We need to do a better job of communicating the facts about agriculture to all Americans, especially our children and young people. UEP and other producer groups have supported an innovative curriculum called Food, Land and People. Since 1988, this K–12 program has worked to meet classroom needs for high-quality, objective and easily-integrated materials that deal with the complexity and interdependence of agriculture and the environment. UEP believes FLP is critically important to our nation's future, because most children—like most adults—have little or no direct connection to farming or ranching. The attitudes they bring to their future roles as leaders, consumers, activists or business operators will be influenced by the information they absorb in their school years. FLP makes learning about agriculture fun, creative and challenging. We hope the committee will consider authorizing Federal assistance for this important effort, and would be happy to provide draft language that would accomplish this goal.
COMMODITY PROGRAMS
Finally, Mr. Chairman, I would like to comment about sections of the concept paper that describe future programs for grains and oilseeds.
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 the committee to avoid designing other commodity programs in ways that would hurt our industry. Our basic request is that you allow commodity prices to be determined by the forces of supply and demand. We ask that you authorize price and income supports in such a way that their interference with market signals is minimal.
Our interest in these principles is direct. Feed accounts for almost 60 percent of the cost of producing eggs. At a time when egg producers are already losing money, they cannot afford government-induced distortions in their feed costs. The government should not seek to artificially short the market. Neither should the government artificially encourage over-production. Although low grain and oilseed prices reduce our production costs in the short run, in the long run they may lead to egg surpluses by encouraging excessive expansion in our industry.
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This is why we believe that grain and oilseed programs 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 considering our views. We commend you for your hard work on the farm bill, and would like to work constructively with you in the challenging tasks that lie before us.
Statement of Constance Tipton
It is my pleasure to provide this testimony on behalf of the International Dairy Foods Association, the Washington, DC-based organization representing the nation's dairy processing and manufacturing industries and their suppliers. IDFA consists of three constituent organizations: Milk Industry Foundation, National Cheese Institute and International Ice Cream Association. Our 500-plus members range from large corporations to single-plant operations, and represent more than 85 percent of the total volume of processed fluid milk products and related cultured dairy products, ice cream and frozen desserts, and cheese produced and marketed in the United States. The membership also includes companies that supply goods and services to dairy processors who are reliant on the overall success of the dairy industry.
State of the Industry Even though there has been greater volatility in milk prices in recent years, the U.S. dairy industry has been a bright spot among agriculture commodities. Milk production has grown by over 30 percent since 1980, reaching 167.7 billion pounds in 2000. Even more encouraging is that commercial disappearance of milk and dairy products has grown by nearly 40 percent during the same time period. This was the result of a combination of significant purchases by the government in the early 1980's (nearly 10 percent of total production) as well as growth in consumption of dairy products throughout the 80's and 90's.
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Reductions in the level of dairy price supports and the introduction of generic advertising programs for milk and dairy products have both contributed to market growth for dairy products. Dairy producers enjoyed record high milk prices, first in 1996 and again in 1998, followed by relatively high milk price levels again in 1999 and here in the second half of 2001 (note: the June 2001 class III price under Federal Milk Marketing Orders was the highest ever for that month). As in any industry, high farm milk prices do encourage stronger milk production growth, which in turn leads to periods of lower milk prices such as occurred in 1997 and 2000. However, the bottom line is that farm milk prices have become higher on average, while at the same time becoming less predictable and more volatile.
We urge this Committee to focus on implementing only those dairy policies which will allow the U.S. dairy industry to continue to grow. This would include a farm safety net which minimizes market price distortions and improved opportunities for risk management.
Future Policy Objectives. Our member companies are anxious to work with Congress to develop dairy policy that will improve market conditions for producers without artificially increasing prices to consumers or distorting the market.
To measure various policy options, our boards of directors have recommended four criteria against which all dairy policy proposals should be evaluated. Any new dairy policy should:
Be national in scope and minimize artificial enhancements of milk and dairy product prices, especially those that benefit some regions to the detriment of others;
Provide a safety net for dairy producers that, to the maximum extent possible, does not artificially interfere with market prices;
Promote the development and use of risk management tools by all segments of the dairy industry; and,
Be consistent with our country's obligations, commitments and objectives with respect to international trade agreements.
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Specific comments on the Committee's Concept Paper. We appreciate the fact that the Committee's Concept Paper does not include new, complicated dairy provisions that would create greater distortions in dairy markets. As this Committee is well aware, there is a long history of government programs that inhibit the dairy industry's ability to adjust to changing economic conditions and new market opportunities.
In addition, we believe the focus of legislation to assist our producers should increasingly shift to providing incentives and assistance to promote good stewardship of the land through environmental compliance and land conservation. These are costly goals, however, that may require partnerships between government and producers to be achieved. We applaud and support the provisions of this Concept Paper that provide assistance for such programs. Helping producers meet these costs helps assure an adequate supply of milk for dairy foods companies in the United States as well as prosperous U.S. dairy producers who can compete with other producers around the world.
Dairy Price Support Program. Continuation of the dairy price support program at the $9.90 per hundredweight level is acceptable to our organization, however, we would prefer another approach that would be less likely to interfere with market prices. If the price support program is to be maintained for years to come, it is especially important that it be administered in a way that is responsive to both domestic and international markets. Notably, the Committee has allocated an estimated $773 million for expenditures under this program during the forthcoming 10 year period. Yet last year alone USDA spent nearly $500 million on purchases of nonfat dry milk as a result of program management that was not responsive to markets. We suggest that the Committee consider including language in the bill that would require the Secretary of Agriculture to keep product purchase prices under the program at levels that are in alignment with markets.
This is especially important because of the multiple classes and pricing formulas included in Federal milk marketing order reforms implemented on January 1, 2000. If the dairy price support program is not managed to minimize government regulated differences in the value of farm milk used to make cheese versus that used to make butter and nonfat dry milk, significant regional differences in farm milk prices will result and certain products will be placed at a competitive disadvantage globally. This was certainly the case this year. Prices of milkfat were very high, greatly exceeding the price support and nonfat dry milk prices were kept above market levels by the government purchase price under the price support program. The net effect was high prices for milk used in class I, II and IV productsClass I = fluid milk; Class II = soft products such as yogurt, sour cream, cottage cheese, ice cream; Class III = cheese; Class IV = butter and nonfat dry milk while class III prices were very low. Dairy producers with high milk usage in class I, II and IV received much higher prices than dairy farmers whose milk was used primarily to make cheese. Additionally, government purchase prices for nonfat dry milk made the protein equivalent price for U.S. produced milk protein non-competitive with world market prices.
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It is important to operate the price support program in a way that will maximize the export competitiveness of U.S. dairy products as ingredients and to minimize creating economic winners and losers among our own domestic dairy producers.
Dairy Export Incentive Program. We join with the National Milk Producers Federation and the U.S. Dairy Export Council in support of changes in world trade agreements that will provide increased market opportunities for our nation's dairy products. One of our highest priorities among such changes would be the elimination of subsidized exports. Until this is a reality, however, we do not object to the continuation of our country's Dairy Export Incentive Program at current levels. Again, however, the management of this program by USDA must take into account current market conditions so as to not be disruptive of markets for dairy ingredients.
For instance, domestic milkfat markets have been tight during most of the past five years, but twice in this period USDA agreed to provide DEIP subsidies to export butter and related products. In both cases, this only served to further decrease the volume of milkfat available to domestic processors, resulting in significant increases in the cost of ingredients to, for example, ice cream, cream cheese, and processed cheese manufacturers.
ADDITIONAL PROVISIONS FOR THE COMMITTEE'S CONSIDERATION
Improved Risk Management Tools. One of the most important improvements that government can facilitate is providing more opportunities for producers and processors to work together to manage milk price risk through market tools, such as forward contracting and futures markets. We support authority for permanent forward contracting for all buyers and sellers of milk regulated under Federal orders, including class I. We urge the Committee to consider removing the prohibitions on forward contracting for class I milk for the duration of the existing 5-year pilot program so the impacts of providing the same benefit for class I can be tested. At the very least, the Committee should consider allowing class I buyers and sellers to forward contract for some portion of their transactions. Currently, all other buyers and sellers in the milk market can forward contract, leaving those using or supplying class I markets at a disadvantage.
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Provisions to help promote milk sales. The Milk Processor Education Program (MilkPEP) authorized by Congress to collect funds from fluid milk processors to help promote milk sales is the only check-off program that has a sunset date built into the legislative authority for the program. A sunset date was originally sought by the milk processors themselves because they were unsure about the prospects of success of such a program. The program, however, has been hugely successful in raising the awareness of the many benefits of milk, in making it more acceptable and popular with kids, and in helping to stop the overall decline in per capita milk consumption. The MilkPEP program works hand-in-hand with the milk producer check-off program to produce many programs, ads and promotions to boost milk sales.
For instance, through a jointly funded strategic thinking project, these dairy check-off programs have provided research and ideas that have lead to broader availability of milk, single serve plastic packaging, and an expanded variety of products and flavors. The investment by the check-off programs, coupled with a significant commitment by the industry for product development, plant operations improvements and expanded distribution, is paying off in growing sales of new, more competitive products.
To ensure the uninterrupted operation of the MilkPEP program, we encourage the Committee to include provisions that would eliminate the sunset date of December, 2002, as well as two other non-controversial provisions that raise the minimum threshold for participation in the program and bring definitions into conformity with those under the Federal milk marketing order program, as part of the comprehensive farm bill rewrite. The National Milk Producers Federation joins with our organization in support of these changes.
SUMMARY
Future dairy policy should attempt to eliminate or at least lessen the market intervention and regional distortions created by current dairy programs while providing a reasonable safety net for dairy producers.
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Enhanced risk management tools for milk buyers and sellers are needed to allow producers and processors to better manage their business.
Working together, dairy producers and processors can create more opportunities for growth throughout the industry.
We appreciate that this Committee wants to see a prosperous U.S. dairy industry. That is also, obviously, the interest of our member companies and of dairy producers.
We have a dairy industry that is changing to meet market demands and to stay on the table in America's households as well as be accessible in multiple varieties in restaurants, schools and at other away-from-home eating occasions.
At the same time, we have a dairy industry that must work to tap new customers in other parts of the world as we realize that 96 percent of the world's consumers live outside our geographic borders.
Meeting these challenges will take a better partnership between producers and processors and will require policies that unshackle the industry so that it can grow and compete.
FORMULATION OF THE 2002 FARM BILL
WEDNESDAY, JULY 18, 2001
House of Representatives,
Committee on Agriculture,
Washington, DC.
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The committee met, pursuant to call, at 10:00 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives: Combest, Pombo, Smith, Everett, Lucas of Oklahoma, Chambliss, Moran, Schaffer, Thune, Jenkins, Cooksey, Gutknecht, Simpson, Ose, Johnson, Osborne, Pence, Rehberg, Graves, Putnam, Kennedy, Stenholm, Condit, Peterson, Dooley, Clayton, Holden, Bishop, Baldacci, Berry, McIntyre, Etheridge, Boswell, Phelps, Lucas of Kentucky, Hill, Baca, Larsen, Kind, Showss
Staff present: Tom Sell, deputy staff director; Alan Mackey, Craig Jagger, Jeff Harrison, Callista Gingrich, chief clerk; Ryan Weston, Christy Cromley, Tyler Wegmeyer, Anne Simmons, Walter Vinson, and Russell Middleton.
The CHAIRMAN. Good morning. The hearing of the Committee on Agriculture to review the draft farm concept paper will come to order.
Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Chairman. Just if I could speak out of order for just a few seconds. Some of us have to leave temporarily to go to a Transportation Committee mark-up and so we are not leaving because of lack of interest. We will go and do that duty and return as quick as possible.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
The CHAIRMAN. Thank you. Good morning, and welcome to this the second of the recent series of hearings on farm bill reauthorization. I want to extend a special thanks and welcome to representatives of our Nation's most prominent farm and commodity organizations who will testify today. We do appreciate the expertise that you bring to the table, and we look forward to your comments and perspectives on the draft farm bill concept paper that was released by Mr. Stenholm and myself last Thursday.
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As you know this committee has invested a great deal of time and effort in working to craft a farm policy that will provide adequate and timely support for our Nation's farmers and to be an economic foundation upon which they can plan and prosper for the 21st century.
You all know that it is not a simple task. In addition to the basic policy arguments that have divided farmers for decades we have additional constraints, limited Federal budget, obligations under WTO, and the political reality that requires us to muster 218 votes for whatever we decide to do.
With respect to the budget we were given an unprecedented opportunity this year to make long-term improvements to our Nation's farm program when it was committed to $79 billion above the baseline for agriculture. I will say I think this amount when put into good policy represents a meaningful effort to address the profound needs that exist but I also realize that it does not come near to meeting all of the wants. In fact, when all of the requests presented in testimony before this committee were totaled, were tallied, they totaled $275 billion.
With respect to our WTO obligations I have made it absolutely clear from the onset that the committee will not forward to the President legislation that would violate our existing commitments. That said I want to be clear that our primary focus in this committee is helping farmers here in the United States. I realize that in really bad years the draft concept that we are considering today would provide assistance that might come close to exceeding the $19.1 billion limitations, however, this problem could easily be remedied with some relatively minor policy adjustments and should also be considered only with the expert and official guidance of USDA, who are responsible for reporting to the WTO. These are extremely complicated calculations. I do not think it is wise to wrench our policy around on unofficial, back-of-the-envelope estimates at this preliminary stage of the process. We will certainly make whatever minor changes are needed at the appropriate time with the appropriate information.
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Lastly, the draft we are considering today represents a package that we hope will be attractive to people from all different points of view. The counter-cyclical assistance provided to farmers is done so in a manner that is very relevant to the producer's farming operation. It is the target price system but is de-coupled and therefore, maximized market distortions that badly affect other sectors of the industry.
This package also makes an unprecedented commitment to conservation research, rural development, export promotion, and value-added development. I believe these and other provisions in the draft will help all Americans to realize the importance of this bill, and this goodwill should help us as we move through the process.
To conclude, I simply want to restate that it is our intention to pass a farm bill out of this committee before the August recess with the hope that it could be moved through the process and be in place for the 2002 crop year. That means we all have a great deal of work to do and a short amount of time to do it. I am excited to get started this morning and look forward to your honest and helpful critique of the concepts that we have put forward.
I recognize Mr. Stenholm for any comments.
Mr. STENHOLM. No statement. Ready to hear the witnesses.
The CHAIRMAN. Now at the table our first panel of witnesses, Mr. Steve Appel, vice-president of American Farm Bureau Federation from Dusty, Washington, Mr. Leland Swenson, president of National Farmers Union, Aurora, Colorado. Mr. Appel, please begin.
STATEMENT OF STEVE APPEL, VICE-PRESIDENT, AMERICAN FARM BUREAU FEDERATION, DUSTY, WA
Mr. APPEL. Thank you, Mr. Chairman. My name is Steve Appel. I am vice-president of the American Farm Bureau Federation, and I am a third generation wheat and barley grower in Whitman County, Washington.
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AFBF represents more than 5 million member families in all 50 States and Puerto Rico, and our members produce every type of farm commodity grown in America and depend on a strong and sound agricultural policy.
During debate on the 1996 farm bill Congress gave farmers their word regarding access to additional foreign markets through trade policy reforms, relief from over-burdensome regulations, additional and improved risk management tools, and tax reforms, all for their support of the Fair Act of 1996.
Now, facing a fourth consecutive year of all-time low commodity prices Congress must keep its side of the bargain.
The Farm Bureau would like to offer the following comments regarding the draft concept paper. First, additional agricultural exports will improve net farm income. We export about one third of our production. There is a chart in our written testimony which based on USDA data shows a remarkable similarity in the historical trends between agricultural exports and gross farmed income.
We can build demand by continuing to pursue a level playing field in international markets, and we commend your increase in the recommended funding for the Market Access Program and urge continued increases in market promotion and market access funding. We must pass trade promotion authority, and we must fight world hunger with increased food assistance programs because as markets grow farm program costs decrease and farmer income grows from the marketplace. We cannot afford to remain on the sidelines while other countries use export programs to capture our markets.
Number 5, funding for agricultural research has remained flat in real terms for 15 years while other Federal research has increased significantly. USDA received a 4 percent increase in research funding for fiscal year 2001, well below the average of 12 percent for other agencies.
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Number 3, we oppose payment limits. Farms have gotten larger to remain competitive. As farm size grows and the number of commercially-viable farms decline, payments that are based on units production will naturally be concentrated among fewer people. Family and multi-generation family farms account for the vast majority of viable commercial farms. These same farms produce a majority of the program crops grown in the United States, and as a result receive a majority of the Federal farm program payments.
Number 4, we believe producers should be allowed to lock in the published loan deficiency payment, LDP, at any time after a crop is planted, with payment being made only after harvest and yield determination. Under current law beneficial interest in the commodity is required in order to take out a CCC loan or receive an LDP. And there is no beneficial interest in a commodity until the crop has been harvested.
Producers choosing when to lock in would result in an equal opportunity for all producers to lock in their LDP at the most opportune time. While circumstances could shift, those producers harvesting early in the crop years over the past few years generally have been able to lock in a higher LDP than the producers harvesting later.
Finally, LDP dates should be extended to coincide with the USDA crop marketing year. Currently, producers may obtain a marketing loan or receive an LDP on all or part of their eligible production during the loan availability period. Final dates for requesting LDPs are March 31 for wheat, barley, and oats, and May 31 for corn, green sorghum, and soybeans. This change would help producers by extending the safety net another 3 months if prices should drop sharp late in the marketing year.
A payment in lieu of LDP should be provided to producers who choose to graze out wheat. This proposal would allow for producers to utilize grazed-out wheat as an important risk-management option and as a rotational cropping pattern for conservation practices.
And we support the transfer of all funding in the conservation section of the concept paper and the two conservation programs, a reformed EQIP program and a Conservation Incentive Program. The $15.05 billion should be allocated equally between livestock and crops, including fruits and vegetables. Given the limited amount of funds for conservation and the need to fund other programs, we do not support the expansion of the Conservation Reserve Program.
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The Incentive Program would be a voluntary program that would provide all producers with additional conservation options for adopting and continuing conservation practices to address air, water quality, soil erosion, and wildlife habitat. A payment would be made to producers who implement a voluntary management plan to provide specific public benefits by creating and maintaining environmental practices. The management plan would be a flexible contract tailored and designed by the participant to meet his or her goals and objectives while also achieving the goals of the program.
We appreciate this opportunity to testify on the concept paper and look forward to reviewing the legislative language as soon as it is available.
[The prepared statement of Mr. Appel appears at the conclusion of the hearing.]
The CHAIRMAN. Mr. Swenson.
STATEMENT OF LELAND SWENSON, PRESIDENT, NATIONAL FARMERS UNION, AURORA, CO
Mr. SWENSON. Thank you, Mr. Chairman. My name is Leland Swenson, and I am president of the National Farmers Union, and I have a grain farm up in South Dakota.
I want to commend you, Mr. Chairman, and Ranking Member Stenholm, for providing the draft concept paper and recognizing as you mentioned in your opening comments the importance of developing a comprehensive farm bill. And I want to commend you in the manner of how you have had a very open process of taking the ideas of farm and commodity organizations.
We understand that there are budget limitations that create a real challenge in addressing the comprehensive aspect of a farm bill, and we believe that we must develop policy that provides an adequate and equitable safety net for producers, it creates new demand opportunities, as well as improves producer prices in the market, and it contains the cost of the farm program. This will enable us to have money to do other aspects of conservation and rural development, and if we don't find a way to improve prices and contain costs of the commodity section, then we nutritionally hurt the other aspects of the farm program.
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We don't want to pit commodity against commodity, and we want to take a look at how we can have equity among those commodities. In achieving some of those goals we commend Congressman Peterson for legislation soon to be introduced that contains many of the alternatives to the draft that accomplished these goals.
Looking at the concept paper it contains seven sections, the crops, other crops, conservation, trade, research, nutrition, rural development. We encourage that you look at credit energy and concentration sections as well. What I want to focus my comments very briefly this morning on the program crops because if we can create an effective commodity policy, then we can assure dollars to do the other programs.
When we look at the draft concept paper, we see a continuation of status quo with modest adjustments in some of the existing programs. We see the extension of the contract payment to—or the modifications including extension of contract, payments to oilseeds in addition to the target price mechanism. We see that the draft paper will utilize nearly two-thirds of the additional funding being provided to the current budget resolution, and as we take a look at the draft we are concerned that it continues or exacerbates problems associated with some of the current aspects of the farm bill such as inequities within the marketing loan that create production and market distortions.
We were de-coupled payments that is proportionately benefit landowners through land prices and rent, and it suggests support levels that exceed real value due to the yield and base provisions within the concept paper and fails to account for changes in production costs and productivity. It also has the payment limitation mechanism that has proved ineffective and further distorts the safety net in favor of the largest producers and landowners.
Our recommendation is to substitute that structure with an improved marketing loan for the de-coupled contract payments. Establish the same percentage of full economic costs of production for all program crops within the marketing loan structure. That represents an element of common to all crops and not arbitrary, adjusts for changes in costs as well as productivity. It insures competitiveness in the global market as well as the domestic market. It is counter-cyclical. If the market prices of that particular commodity is low, then there is protection. It is based on production, not land ownership so it is really what producers are producing a day, what yield they are getting a day.
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It looks—we have a mechanism we urge you to look at within our proposal of enhancing market prices to reduce the cost of the farm program such as the limit reserve to insure the supply to the growth and the demand of renewable fuels and the expanded food assistance through the global school lunch program. And these can only be released from those reserves for those specific uses.
We also urge you to look at a limited farmer-owned reserve that has—I compare it to a commodity savings account that could supplement crop insurance, that has a release mechanism if your yield has suffered in that first 15 or 25 percent that is not covered by crop insurance then the farmer could release out of that to be able to protect themselves and that future year.
We also believe that the program has to have a cost-containment provision so we cannot accurately reflect as we have seen in the last number of years what is going to happen within the global economy and the market opportunity. And so we believe there should be authority to have a voluntary and discretionary authority for the Secretary to have a voluntary Flex-Fallow type of program for program costs containments.
We believe in targeting. We believe we should eliminate the multi-entity rule and implement a system of single attribution. There is no limitation in the LDPs and marketing loan gains but provide a declining loan rate as a percentage of costs or production for all program crops based on the USDA farm group types.
In conclusion, Mr. Chairman, we commend you again for your leadership and the manner of how you have conducted the process and the urgency you have given to it. We commend Congressman Peterson for exploring alternative components, and we hope you will give those consideration. We look forward to answering any questions. Thank you.
[The prepared statement of Mr. Swenson appears at the conclusion of the hearing.]
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The CHAIRMAN. Thank you both very much for your attendance and for your presentation. Some areas of obviously some change were recommended in testimony but I would like to pursue that a little bit more if I might and ask each of you that in the areas in which you would like to see other things done, and what would your recommendations be as far as the areas that should be changed in order to adequately fund those proposals? Mr. Appel.
Mr. APPEL. Mr. Chairman, I guess I would like to address the—our comments about the conservation aspects. Our concept in that particular area we see as a no-net cost in that we just want to move that funding into basically two program areas with the feeling that you wouldn't necessarily eliminate any of the practices that are going on under the other programs but they could be brought in under the Voluntary Conservation Incentive Program, kind of like the old ACP programs used to be but it would be more of a one-stop shop type things where farmers would not have the confusion of this program, all the alphabet soup that we deal with right now. Also, we feel that that kind of expenditure targets producing farmers as opposed to—and I don't want to necessarily pick on Conservation Reserve Program but the way the Conservation Reserve Program has been used in recent times, at least in my part of the country, it is being used by people that area going out of production quite frankly. They are farmers that are retiring and whatnot, and they are putting whole farms into the conservation reserve. If we could take that money and put it towards practices being done by active farmers, that helps to boost farm income or helps to offset the cost of those different environmental programs.
The CHAIRMAN. So you would propose not putting any money into Wetlands Reserve or Farmland Protection Program?
Mr. APPEL. Yes. What we would propose is that it not be labeled as such but that it would come in under these—the Voluntary Incentive Program, and those are the types of practices frankly that could be set up under this Voluntary Incentive Program if farmers were doing practices on their farms to preserve wetlands, for example. That might be an area where there could be a conservation incentive payment.
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The CHAIRMAN. In your—and Mr. Swenson, I will come to you in just a second while we are pursuing this. In your testimony basically there is no mention of the $49 billion in program crops. What is your position on the concept paper as the program crops are concerned?
Mr. APPEL. Well, Mr. Chairman, frankly we were quite pleased with the proposal in that area. We felt that dealing with the limited amount of funding that we have available to us that the committee has done a good job and would be fairly satisfied there.
The CHAIRMAN. Thank you. Mr. Swenson.
Mr. SWENSON. Well, thank you, Mr. Chairman, and I think you have raised an excellent point in the nature of how we find additional dollars for other programs because as we have seen the requests by farmers to—for funds for implementing conservation practices within their production operation have exceeded monies that are available currently. And so we need to find more dollars. The way to do that is to improve market prices and thus be able to reduce the Government outlays to support farmers directly at income.
The CHAIRMAN. And I realize that.
Mr. SWENSON. Yes.
The CHAIRMAN. But we don't have the luxury in writing a farm bill, we just have to use it as it is being scored, and I am very hopeful that those anticipated rises in prices do occur, but if we start making adjustments here, we can't put that off to rising prices. We have got to find that money somewhere else within this box, and that is what I am trying to find out, is where people's preference would be that we might find that or readjust money, take some out of some areas and put into others.
Mr. SWENSON. Well, I don't, again, you would pit area against area versus we pit commodity against commodity, and I—conservation is important as nutrition as important as rural development in the full picture of rural America. And I would not at all be a proponent of raiding one to benefit another. There are just so many good programs, and we have to find those dollars that are necessary to carry out the programs.
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The CHAIRMAN. I wish it were that easy.
Mr. SWENSON. I do, too.
The CHAIRMAN. Mr. Dooley.
Mr. DOOLEY. Thank you, Mr. Chairman, and Mr. Appel, a few weeks ago I know that you, the Farm Bureau, joined with the other members of the Coalition for Agriculture Research in hoping that we would increase the budget for agriculture research almost two-fold over the next 5 years. And I notice you also reference research in your statement. Is the Farm Bureau then still in support of this initiative to have this significant increase in agricultural research?
Mr. APPEL. Yes, Congressman. Farm Bureau is of a strong belief that agriculture research is of utmost importance towards the future of agriculture. That research gives us the ability to go out and compete on a world market and to continue to provide the safe and valuable food sources we have to this country.
Mr. DOOLEY. In the draft concept paper that was presented, which obviously has a lot of merit, doesn't achieve that objective. In fact, in the out years we would actually be spending less on one of the most important agricultural research programs, which is the Initiative, that we would actually be spending less than we are in the next 2 years. Clearly this is inconsistent with that position to try to double the agricultural research funding. If we were to have to try to find a way in this process, consideration of developing a new farm bill, to increase the agricultural research funding and we would then have to find some funds in some of the other programs, does the Farm Bureau have any ideas in terms of what would be the best offset that we might try to identify in order to gain this additional funding for agriculural research?
Mr. APPEL. Well, I am a little bit like Mr. Swenson. I hate to start pitting one area against the other, and I recognize as the chairman said that we are dealing with limited resources. And so I can't sit here and tell you that I know where we could come up with that additional funding but I can tell you that I believe we need that to happen.
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Mr. DOOLEY. That is why I just ask all the commodity groups and certainly the Farm Bureau and the NFU, too, is that when we look at our relative priorities here when we are looking at the budget that—or the budget or actually the farm bill that we are developing, on the additional money that we have available, which is $73 billion or $74 billion, is that we are going to be providing what will amount to almost $5 billion additional over baseline for the direct payments and the counter-cyclical program. We are providing an additional $1.5 billion a year on the conservation programs that are out there, and while it comes to research we are providing what is, it is less than $100 million. And quite frankly, I don't think that is reflective of the priorities of myself as a farmer or certainly of the interest in terms of Federal Farm Policy, and I hope that we can all work together to try to find a way to address this.
Mr. Swenson, I was interested in your tables. I was intrigued by table 1, and I am intrigued by it in part because I don't quite understand it, and I wondered if you could help me, walk me through this just a little bit so I can get a better understanding of just what you are trying to—I think I know what you are trying to so is you are trying to indicate that there is, because of our current and proposed programs, is that there is a shift in production to different commodities. Is that—if you can just sort of help me out here on this.
Mr. SWENSON. What you have in the structure of the concept paper is a means of which you can set up your AMTA and your target. And so the nature of how you take a look at the loan rate and then the other factors, you can have that movement of that commodity and farm the farm program rather than looking at farming the market.
Mr. DOOLEY. So explain to me, though, is that—basically what you are saying that is a farmer is going to be making a rational and financial decision based on how they maximize both their market income as well as the Government-support income. So what—explain to me then what these figures mean? Like where you have nominal de-coupled payments wheat as .46 and that program payment yield is 34.5. What does that mean?
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Mr. SWENSON. When you are taking a look at the current program and you are factoring in the 40 or the 85 percent factor that is in the concept paper, its impact on those particular commodities.
Mr. DOOLEY. And so that figure where you see dollars per acre available to cross subsidize production on wheat it is $13.49. That means what? That means—I don't quite—I still don't get that.
Mr. SWENSON. My understanding that is your payment. I can ask our economist to verify it but it is your payment that gets so that you could look at other, this is your payment coming in. Jim, would you like to make sure we address it appropriately. That is OK?
Mr. DOOLEY. Sure.
Mr. MILLER. Congressman, table 1 has two programs that are analyzed. The one is the current program and the other is the House Agriculture Committee draft that was proposed. The numbers that you allude to, the nominal figures are the amount of de-coupled payments. In the first case under the current program that is the AMTA amount at current rates on a nominal basis. The 85 percent factor is the acreage factor that is contained in current law and proposed in the committee draft. The program payment yield is the yield established for farmers on a national average basis that is used to calculate the amount of payment each individual producer would get. And so the 13.49 in the first case is the number of dollars per acre a wheat producer would receive but would not be required necessarily to plant wheat under the flexibility provisions of the current law. He would get $13.49, and he could plant any crop he wished other than those that are excluded such as fruits and vegetables.
If you look at the bottom portion of the same table, again looking at wheat, this takes the numbers that are included in the draft proposal. The nominal de-coupled payments assume a maximum deficiency payment, which in the case of wheat is about 94 cents I believe. The same factors in terms of the acreage eligibility, as well as program payment yields, and we notice then that the amount of money a wheat producer would get, one that has historic wheat base and has signed up for the program, would increase to $41.64 that he could then collect that money and still raise some other crop, whether it is a program crop or one of the non-program crops that is eligible under flexibility.
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Mr. DOOLEY. Thank you. I think this is really terrific information. I really appreciate you providing it.
The CHAIRMAN. Could you please identify yourself for the record?
Mr. MILLER. I am Jim Miller, chief economist for the National Farmers Union.
The CHAIRMAN. Thank you very much. If you would bear with us, we will take a brief recess to cast one vote. Mr. Everett will be recognized for questioning upon return.
[Recess.]
The CHAIRMAN. The committee will resume its sitting. Mr. Everett.
Mr. EVERETT. Thank you, Mr. Chairman. Mr. Appel and Mr. Swanson, thank you for coming. Mr. Appel, I—in your testimony, you said that you had to have fast track. Did I understand you correctly? In your testimony, you said you had to have fast track, as I understand.
Mr. APPEL. Yes. That is what I said.
Mr. EVERETT. Mr. Swanson, what is your position on fast track?
Mr. SWANSON. Our position on fast track is until we make improvements in the current trade laws that are on the books and make a commitment to address a number of those issues in future trade agreements, we would not support just the adoption of fast track.
Mr. EVERETT. I would point out that there have been winners and losers in fast track. And in my particular district, I oppose NAFTA for two reasons. Textiles and peanuts. Since the passage of NAFTA, I have lost just under 10,000 cut and sew textile jobs in my district. The State of Alabama has lost over 20,000. And because of NAFTA, unless we drastically change the Peanut Program, we will—the Peanut Program will end in the Southeast and perhaps in this country. So you will have to excuse me if I am just not overjoyed at the idea of passing fast track. As I said, there have been winners and losers. And I am particularly concerned that in our search, for instance, in research money, that we don't take anything away from those who suffered already. And peanuts have suffered—will suffer a great deal if the industry will literally disappear in this country, unless we drastically change the program in this coming farm bill. So I just wanted to point out to you that while I recognize that many of my colleagues have districts that have benefited from NAFTA and from these trade agreements, my district has not been one of those districts. And that all those in a discussion of this with my colleague not long ago, David Drier, who is chairman of the Rules Committee. I pointed that out to him. And he said, well, you need to vote for it because it will get you all those—the new job. I said that is what you told me 7 years ago. And I still don't have those new jobs. So I just want to go on record as saying that this is one member that is not convinced that he at this point can support fast track. Mr. Appel, you look like you would like to respond.
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Mr. APPEL. And I would like to respond to that. Being from the State of Washington and the diversified agriculture that we have there, I am very aware that there are winners and losers in all trade negotiations. And while I have a lot of growers and a lot of members of my organization that are in the State that have been hurt as a result of NAFTA or at least they perceive that. But I guess the point that I always make to them and that I would like to make to you, sir, is that if there is problems with trade agreements, and I agree that there are, you have to get back to the table in order to fix those trade agreements. And I think through fast track or whatever we want to call it today, whatever the title needs to be, I think that is the way we can get back to that table and legitimately try to negotiate a fix to those problems that you mentioned there.
Mr. EVERETT. Well, I don't know that trade agreements do a whole lot to fix $3 a day labor. Or environmental conditions that our farmers have to operate under that other farmers do not have to operate under. Yet, they are—because of the reduction in tariffs, their products will move freely into this country. In this case of peanuts, in the year 2008 and come to a domestic level of costs in 2004. But I appreciate your thought. Thank you, Mr. Chairman.
The CHAIRMAN. Mrs. Clayton.
Mrs. CLAYTON. Thank you, Mr. Chairman, for having this hearing and also for having the individuals who make recommendations on things they see excluded.
I want to go to the National Farmers Union testimony. Not that you see any exclusion, but you see a need for changing the marketing loan. Could you just expand on this a little further? Marketing loan amounts based on 100 percent of production and what impact would your recommendation have on making that available to more farmers or different farmers? Who wins and who loses under yours? And then the issue of—since my colleague, Mr. Everett, was talking about trade, to—any comments as to how the marketing loans, itself, fits into the acceptability not being in violation of our trade agreements?
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Mr. SWENSON. Thank you. I appreciate that question. First of all, under the marketing loan program, it fits with planting flexibility. It fits with what producers are producing today. And it also fits with what yield they are getting today. The enhancements that we propose versus the arbitrary level of which marketing loan rates are set today is that they reflect a percentage of the full economic cost of production. This would allow for adjustments to occur on an annual basis that take into consideration improved productivity because of increased seed quality or it would address energy costs or those types of factors that are totally beyond the control of the farmer. It also ties back to the farmer and what they are farming. Rather than just going to the land owner on the basis of rent. So we think it is the best type of structure. It is simplistic. It will create less bureaucracy at the Farm Service Agency office. So we would think it is better structured to go to. It is countersiclicle. If the price of that particular commodity is low, then it addresses that particular commodity, not as a whole. So those are the enhancements we think it brings to the structure of the farm program. But it allows the market to be the clearing mechanism if there is an opportunity for exports. It does not distort market—the cash market prices. That is going to depend on the demand that exists. And so we think it is the most positive way that benefits producers of all sizes, of all regions of all commodities. And that is the significance that we think——
Mrs. CLAYTON. Why wouldn't they see this as a subsidy and be in violation of the GATT?
Mr. SWENSON. Where you get into violation of the GATT is what you may run into in the cost factor of the difference between cash price and what you expend in supports, such as the loan deficiency payment. If that busted the cap. And so what you have to put in place then is some cost containment provisions for the discretion of the Secretary to use if a situation such as continued low commodities, disastrous world economy, you have those tools available for the Secretary to work within the changes that are going to occur.
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Mrs. CLAYTON. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Lucas.
Mr. LUCAS of Oklahoma. Thank you, Mr. Chairman. And I was pleased, Mr. Appel, to hear your comments once again endorsing the concept of having a graze out option on the LDP side. I think that gives a number of producers in the wheat areas and the small grain areas another option that mother nature generally does not provide. Mr. Swenson, does the Union have a position on that issue?
Mr. SWENSON. We have supported that.
Mr. LUCAS of Oklahoma. Good. And I appreciate that. Now, a question for both of you. As the chairman of the Subcommittee on Conservation and being very appreciative of the chairman and the ranking member for their proposal where they literally bump by over six times the amount of money that we would spend on the EQIP program. And I am very appreciative of that, Mr. Chairman and Mr. Stenholm. But nonetheless, knowing that there will always be far more needs out there, far more demands for those resources than we will have dollars to cover, if you could each give me some insights into how you would suggest we spread those limited resources around. We have in subcommittee, I should say, listened to discussions from people who advocate that it should be based on the size of a farm and acres or the number of livestock on a farm or in an operation, perhaps is a better phrase. Others have said, well, only so many dollars per operator or so many dollars per contract or so many dollars per year. Could both of you offer some insights into where your organizations—how your organizations view the best way to spread those EQIP dollars around?
Mr. APPEL. Well, Congressman, again, we would believe that that—those dollars and that money should be spread based on environmental need, quite frankly. There is certain areas of the country and certain commodities that could make better use than others can. But we would like to see that available to our fruit and vegetable growers, also, around the country. It is a way that they can offset some of those conservation costs. It is a little difficult, of course, until you see all the details. You don't know just how it would pan out. But, again, I don't think that we would support any kind of a limitation on a per farm or per producer basis, necessarily because the needs vary so much from one area to the other.
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Mr. SWENSON. Thank you, Congressman. I think it is an excellent point. I think we have to take a look at some program criteria, but we have to take a look at some limit. Otherwise, you are going to send most of the dollars that are going to go to a large confinement operation that may be under a direct production contract with the Smithfields or ConAgras versus the opportunity for independent producers of which have environmental benefits as part of their livestock operation.
Mr. LUCAS of Oklahoma. So, basically, you agree there would have to be some sort of a limitation?
Mr. SWENSON. Yes.
Mr. LUCAS of Oklahoma. Mr. Appel, you made the comment about supporting CRP, maintaining it at its current level. One of the challenges that we have found in the subcommittee is that that is an extremely popular program out there. Not only among certain members of Congress, but among the American public, especially those who may reside off-farm. If we don't pursue things like that and some of these other initiatives that build us the coalition of support here in Congress to pass this next farm bill, how do you envision that we appeal to those people who live off farm?
Mr. APPEL. Well, Congressman, I believe—and I will talk from a personal level here. What I have seen in my area of the country, which is southeastern Washington, the Polluse. The hilly country there. It is a highly erodible area. What has happened in the Polluse under the current structure of the Conservation Reserve Program is that whole farms are being bid into the program as opposed to simply the very most environmentally sensitive areas. And when whole farms go in, you have a concentration in one part of the county, that is where all the CRP ends up. And so consequently, what happens is the small rural communities disappear in that area and the opportunity for young and middle-aged farmers disappear in that area. I believe that from a salable point of view, that we can take the same dollars and the same number of CRP acres being put in and spread them out over a broader area, strictly focusing on environmentally sensitive areas in the Polluse, i.e., the very steepest slopes and what not. And you end up with an intermixing of habitat for wildlife, for example, intermixed with production property with grain and what not. And my observation is I happen to hunt on some CRP land. And once you get about 200 yards inside the border of that land, for instance, hunting pheasants as an example, the pheasants disappear. And the reason for that is they run out in the grain fields during the day to eat and they come back into the CRP to nest and they—seems like about 200 yards is—makes them comfortable. And we find the same thing with deer and other wildlife. So I think you can sell it on actually doing a better job of providing habitat and protecting the environment if you spread it out. And that is why I said that this whole bill is about choices, of course. We have to choose one program or another. And it is our feeling that if we leave funding at the current level on CRP and then simply, perhaps, do a better job of distributing that in the areas that you can sell it on that basis.
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Mr. SWENSON. Congressman, if I made a point. I think we have made significant improvements in the Conservation Reserve Program criteria, rates as the program has moved forward. And we have seen a lot of environmental benefit as well as other benefits that you have referred to. One of the things that I would urge the committee to consider, and that is a short-term sort of a Conservation Reserve Program, if you want to call it. We call it a soil restoration program. New issues are beginning to face producers, such as karnal bunt, scab, those types of disease issues that are impacting producers that don't have a lot of flexibility of other crops to produce. And if they could have a short-term 3- to 5-year program of which to enroll that into a program and take it out of production, we could eradicate those or stop those diseases from spreading and impacting other producers and benefit the Crop Insurance Program costs and a lot of other factors. So I hope you will give that a consideration as an offshoot of maintaining and expanding the Conservation Reserve Program. Thank you.
Mr. LUCAS of Oklahoma. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Boswell?
Mr. BOSWELL. Thank you, Mr. Chairman. I have just a couple of comments. And first off, over the past several months—well, the last couple years, under your chairmanship, you have been very proactive to try to get out and meet with the producers, the farmers across America and come up with what is being offered here. And I want to compliment you for your work. You and Mr. Stenholm. You have worked hard together and it has not been easy.
But amidst the concerns—and I say this to both of you and I am giving a heads up lead to the corn growers and soybean growers for the next panel. I will list your concerns of these two major commodities. And that is what I am. A corn grower and a soybean grower. I have been for years and the elevator that I was president of the board for years, that was our mainstay. So I understand.
I have a lot of respect for the people involved in those crops and all farmers. But the comments I have been hearing have been almost unanimous in disapproval of this proposal. And then the solution to this issue are—seem to be in opposition to each other. And we know soybean farmers are also corn farmers and visa versa. So my question to both gentlemen at the table is how do we recouncil these problems with our current budgetary restrictions and what manner that most effectively protects and ensures reasonable profitability and prepares our farmers and producers a future so—how do we rectify this? I mean, we have got—we are bumping heads here amongst ourselves on something that is going to have impact on the outcome. And seeing the budget restrictions, I am not too sure how we get there without your help. And I guess we know how you feel about it. But how are we willing to compromise about it? I am going to ask you two leaders of the organizations to comment.
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I will say this to my friends in the corn growers and the soybean. How do we climb this hill? Because we have got to do it. And I know I can be about as stubborn as anyone of you. I have been called that a time or two. But there comes a time when we have got to compromise. And I would like to comment on Mr. Everett's question a little while ago. It just triggered a thought in my mind. I have been holding out for fast track and fade ever since I come here. What have we accomplished? Where are we? Maybe it is time for us to say, well, maybe we have got to give a little bit. I would rather have a something than nothing. So much for that. Now, tell me what—how we solve this.
Mr. SWENSON. Well, I think you have raised a very strong point. In my particular farming operation in South Dakota, we have corn, wheat, soybeans, historically. Crop rotation. I think this year, we are 100 percent soybeans. Why? We are farming the farm program. We took our AMTA payment and we are taking the best LDP bet on soybeans. I talked to a farmer from Arkansas that traditionally, this variety of different types of commodities. 100 percent soybeans this year. Why? He is farming the farm program. What we have to change is inequities within the support mechanisms of the commodities. We have got to create that equity within the support mechanisms and not continue that. That is one of the biggest corrections that need to be made. That way, you practice appropriate crop rotations within the region and the planting flexibility allows you to do that. So that is the No. 1 thing. In response—because I didn't comment on Congressman Everett's thing on trade. He raised the points that we are concerned with. When you take a look at why we have got more commodities coming to the table this year for support and some of them being fruits and vegetables, peanuts, tobacco, you name it. It is because of what has happened under our trade agreement. And we are at the table for negotiations and improving our trade agreements. And what we urge you, as Members of Congress, is to make sure there is a commitment to change those trade agreements before we give the authority to just pass more trade agreements. And I see one of the biggest areas is affecting now soybeans and livestock producers is the currency issue. And yet, we are not getting that issue to be addressed within the structure of the mechanism on trade. And I know we are not here to debate trade, but we do have a trade section. But it is impacting the cost of farm programs of what is unfolding. So that is what we would recommend.
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Mr. BOSWELL. Mr. Appel, please?
Mr. APPEL. Well, Congressman, I recognize very much the issue that you raised. This bill as proposed does pit in many ways one segment of the industry against another. And we feel that all the time within our organization. I wish I had the silver bullet. But I will tell you, I do have a frustration because it seems like so much of the time we are here, trying to patch the holes, trying to fix that immediate cash need that the farmers have to survive this year or next year. But sometimes maybe—well, all of our resources end up going there and we don't necessarily look at the long term. The long term, I do believe—because I am a trade-oriented person. I do believe that long-term trade is one of the answers. Not the only answer, but one of the answers.
Mr. BOSWELL. Please don't misunderstand. I agree. And my comment that was triggered for Mr. Everett was that, how far we have progressed by hanging on, we are going to have it our way or no way? And I am starting to think after listening to you a little bit that maybe we ought to be willing to do some compromise to get going, rather than just having a standoff argument. Go ahead.
Mr. APPEL. Well, and I guess I wouldn't suggest that you are wrong there, Congressman. It may be time that we have to find a way to get it done. And I guess to use the old colloquialism, I guess that is why we pay somebody the big bucks, is to try to figure out the answers to these problems. And unfortunately, I don't have them.
Mr. BOSWELL. Thank you, Mr. Chairman. I am going to take my leave with Transportation and be back.
The CHAIRMAN. Mr. Thune?
Mr. THUNE. Thank you, Mr. Chairman. Mr. Appel and Mr. Swenson, welcome. Mr. Swenson, always nice to have a fellow South Dakotan here in the room with us today. And, Mr. Appel, you should come to Mr. Swenson's place in South Dakota to hunt pheasants because they are not just in the edge of the CRP. They are in the middle. They are everywhere. And we are trying to convince my colleagues from other parts of the country that that is where the pheasants really exist. And we have had great success with that. And that is why CRP is so popular in a lot of parts of the country. And so I appreciate your comments on that. I do have one question, Mr. Appel, for you. You talked about your Conservation Incentive Program as being taking part of that—the dollars, the budget's allocated conservation and breaking it up among livestock and crop sectors. How is—would that be materially different from what I have proposed doing in the Conservation Security Act? From what you have described, it sounded very similar.
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Mr. APPEL. I don't—I am not that familiar with your proposal, sir. But I don't think there is a lot of difference. It is just—it is, again, the devil is in the details and when we can study the legislation, you may find us on your side.
Mr. THUNE. OK. I appreciate that. I know some of your folks in your organization have looked at it. But the things that you were saying described very closely what we were trying to accomplish with that particular piece of legislation and trying to find a way that we can get all the crop groups and the fruit and vegetable people and the livestock folks and the sportsmen's groups all together on one page when it comes to the conservation title on this bill, which as you know, is challenging because there are a lot of very diverse points of view here. Mr. Swenson, I just—and I don't know. I was looking through your testimony. The commodity portion, the so-called safety net portion of your proposal, Farmers' Union Proposal, what is the total cost on that on the 70—I mean, there is a number in there, but I thought that was describing the chairman's mark or the draft that is on the table. Do you know what your—the change that you make in loan rates, what that would cost as a——
Mr. SWENSON. Well, we have looked at is when you program crops, not counting sugar, peanuts, tobacco. On an annual basis from 2002 to 2011, our projection is that program crops to be $5.5 billion. We think that targeting mechanism that we have outlined would save approximately a billion a year. And so that would be money, then, that could be used somewhere else. Research growth or conservation other areas. But it comes in less than what we have got in the mark.
Mr. THUNE. So $5.5 billion annually over the 10-year period, less a billion, perhaps, because of the way that you set up the targeting program. So possibly $4.5 billion a year or about $45 billion, roughly, over the course of the 10-year program? Is that fair?
Mr. SWENSON. Yes.
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Mr. THUNE. OK.
Mr. SWENSON. According to the figures I have been given.
Mr. THUNE. The reason I asked that is because we try and distribute the $73 billion in additional spending, we are trying to figure out how to distribute that, look at the conservation part and how much we can allocate. And I have been intrigued by some of the things that you have suggested and would also say, too, that a couple of the aspects of your proposal, the renewable fuels reserve, is something that in my mind, we have to be looking at not only agriculture, I think from the food production standpoint, but also where it intersects with energy production. Because we have enormous potential out there in farm country now with ethanol, biodiesel and so I think that is a very valid recommendation that you make and one that I hope that the committee will consider in structuring this package. But anyway, I was just curious to know, I guess exactly how that dollar breakdown—how that would work in your proposal.
Mr. SWENSON. Congressman, Larry Conner was just wanting me to clarify that. That $5.5 billion I talked about includes the existing baseline. Not just of the new money. So it even allows us to have more money.
Mr. THUNE. Additional dollars freed up. That was kind of what I was getting at there is that it gives us more flexibility in some of the other areas and things that we want to do. And in terms of the loan rate and how you would go about determining that national cost of production, that is, as you testified earlier this year, USDA has some data bank that maintains by commodity a national cost of production, so to speak. Is that fair?
Mr. SWENSON. Yes, they do. And they have had a commission that helped establish that. And that is very current. And it is kept up to date. And we think it is a good basis of which to begin the process. And, again, it treats all the commodities on an equitable basis.
Mr. THUNE. I see my time has expired. I appreciate very much your testimony and I yield back my time.
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Mr. SMITH [presiding]. Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman. If I might take a point of personal privilege, I would like to introduce a member of the Canadian Parliament who has joined us. They are interested in what we are doing here in America, he happens to be a farmer from Prince Edward Island, Wayne Easter. We have got him sitting here on the back bench. Who, also, as I understand it, used to be president of the Farmers Union in Canada, in fact, before he was in Parliament. So we welcome you being with us, Wayne.
Mr. Appel, following up a little bit on—I guess it was Mr. Lucas. I don't remember who it was that was speaking with you about the—how we were going to get support for this bill if we didn't address some of the conservation issues that some people are concerned about. This morning, I was at the monthly breakfast of the Congressional Sportsmen's Caucus, which has 281 Members of the House and 50 some Members of the Senate. We are the biggest caucus in the Congress, by far. Their focus this morning was the farm bill. And their comments were generally that while the amounts that have been put in the draft concept paper are heading in the right direction, there are still not enough resources. And just for your information, that group is supporting more CRP, more WRP, more WHIP and creating a new grasslands initiative and, of course, EQIP.
So given the fact that there is 281 members that have gone on record in supporting this kind of thing, I guess I would follow-up on the—maybe a little more specific about how you think we can pass a bill if we eliminated those programs. I have to tell you that in the fall, when you are hunting pheasants, they probably are in the side because they are running out and getting fed. But this big track CRP is one of the reasons that we have had ducks and pheasants and other critters come back so well. Because one thing it does, it spreads out the pressure from predators and gives people—gives pheasants and ducks nesting habitat that they didn't have before and that when you have got everything concentrated in the small areas, those predators just zero in and it really cuts down on their production. So I guess what I am saying is that there is a considerable difference of opinion from what you stated—you answered the question earlier stating what I have heard some other people say, some people in my district, that they have got these concerns about it. But that being the case, we still have all of the wildlife groups, conservation groups supporting a different direction. So I think it would be very difficult for us to pass a farm bill with $49 billion worth of money for commodities if we don't have our urban friends, suburban friends and conservation people supporting us. So do you think we could pass a bill if we ended up having the conservation community being opposed to it? Do you think we just—those of us as farmers can pass a bill all by ourselves?
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Mr. APPEL. Congressman, no, I don't. I don't believe that we could. And I—but I would hope that the conservation community wouldn't see this as a negative.
Mr. PETERSON. Well, they do. I can tell you they do.
Mr. APPEL. No. But in our testimony for—you say they do. You mean, they do, as far as the proposal by the committee?
Mr. PETERSON. Yes. Well, they think that the EQIP that was put in the draft concept paper is more money than should be put into EQIP. That that money should be—there should be increases in EQIP, but it should be reallocated to CRP, WRP, these other programs and create this new grasslands initiative. So what you said was, we think we ought to put—take the existing programs and split it between EQIP and some kind of incentive program. I can tell you emphatically that that will be vehemently opposed by the members of the conservation and sportsmen community. Just so you are aware. And I think it would be very hard for us to pass a bill if we did that.
Mr. APPEL. Well, I just want to make sure that I wasn't misunderstood when I said the existing programs. We did—we do have the stand that we believe that CRP funding should stay at the current level, at the $36 million. So what we were talking about is the increase there.
Mr. PETERSON. The increase? OK.
Mr. APPEL. And I understand that—I mean, if it was a perfect world and there was an unlimited amount of resources, we would be in favor of a lot of things. But we have to strike a balance. And we believe that the chairman has struck an equitable balance, I guess, is what I would say here, with this particular proposal. Again, I would reiterate that the incentive-based program as we envision it doesn't necessarily—incentive conservation program doesn't necessarily mean it is—no—more money is not being spent on wetlands, for example. That could be one of those areas under that. It is a matter of simplifying, not having all these different titles and alphabet soup that the growers have to deal with.
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Mr. PETERSON. Well, I don't want to—my time has run out. But if I could just say these groups, including those of us in the Sportsmen's Caucus have worked to make these programs effective and we feel like if it has changed to some kind of a more voluntary thing, that we wouldn't get the wildlife benefits out of it that we have been able to achieve. Well, yesterday, we had a whole panel here saying we should take the wildlife benefit concept or rules out of EQIP completely. And that is a big concern to those of us that care about hunting and fishing.
Mr. SMITH. I think on that point, it is interesting to note that in 1996, we didn't have the CRP provisions in the farm bill. Yet such overwhelming support on the House that the environmental groups and the sportsmen's groups are what included that special program. Mr. Gutknecht?
Mr. GUTKNECHT. Thank you, Mr. Chairman. First of all, Mr. Swenson, I just want to make sure in standing out Representative Peterson has done a very good job, I think, of explaining. It just takes a little longer for me to sink in. Essentially, what the chairman and ranking member have introduced is a plan that would—essentially has three parts to it. The decoupled payments, marketing loan rates and a way of tying other payments together with the target price. Your proposal would be essentially putting most of the emphasis on marketing loan rates. Am I correct in that?
Mr. SWENSON. That is correct. It creates the rest of the bureaucracy and gets down to what is the most fundamental countersiclicle support mechanism for what a producer is producing today and what kind of yields they are getting today. And that is the marketing loan program.
Mr. GUTKNECHT. Well, I think it is a very constructive proposal and I congratulate you for it. One of my concerns is, we—I have become very interested in this whole notion of how we can encourage people to do more environmentally friendly things. And we have this in our district. And I think even some of the people who are doing it probably acknowledge this. We are growing corn and beans on acres where we probably shouldn't be growing corn and beans. Several years ago, I had what amounts to an epiphany moment. I went out and visited one of my rotational grazers. And, in fact, he likes to say, intensively-managed rotational grazers. Because there is a difference. And we walked around his farm for a few minutes and I looked and I said, but you don't grow any corn? He said something that I will never forget. He looked at me like I had lost my mind and he said, well, I can buy it cheaper. And it is at that moment, I sort of stepped back and said that is the net result of what we have been doing. And my concern, I guess, about loan rates and about all of this is how do we sort of get off this cycle where we continually encourage production on land that perhaps shouldn't produce and at prices which are not profitable? I mean, the whole idea that we had when we originally passed the current farm program was that people would choose and the market would help decide. But that hasn't worked out particularly well. My concern is if we raise the loan rates, how do we encourage people to not produce on some of those acres? How do we encourage—some of these people who are doing, I think, the right thing with rotational grazing. And can either one of you help us—and these are tough questions and you can comment or just say, you pass. But I really would like to come up with some constructive proposal to at least give some incentive to those people who are out there doing the right thing.
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Mr. SWENSON. Well, you raise an excellent point. And that is the reason that we have proposed the mechanism of the loan rate as tied to a percentage of the pole economic cost of production so that the producer is really looking at what his soil, what his farm can produce, rather than just an arbitrary figure that may exist within the support mechanism and agriculture. So we do believe that the mechanism will lend the farmer to look more at the market and what the possibility of getting an economic return is, and not just produce, produce, produce. The other thing that I think we have done in the past is we have separated conservation initiatives from that of production initiatives. We have got a support mechanism for production and then we have got programs over here for conservation. We need to bring those two closer together. That is one of the reasons we have given strong support for the Conservation Security Act. Is that it begins to implement conservation practices as part of the production practice. And we just think that that is critical as we move forward and not to separate all of these components and pit one component against another. And we do believe that we need a better price for commodities. So it is not cheaper to buy it than it is to produce it. That sounds pretty ridiculous to do that. So we support all the points you raised and we think we have a mechanism to begin to address it.
Mr. APPEL. Congressman, I think you are addressing a concern that I was trying to express a little earlier about patching the holes. Because we have limited amount of resources. And we have a situation out in the rural community where many of our farmers are just struggling to survive, period. And so we take and we direct our resources that way to help them through those tough times. And then it seems like we use up all our resources doing that and don't have enough left to do the other things that we would like to do. But in a small way, that is what Farm Bureau was trying to address in this conservation incentive program, as we called it. Mr. Stark, to try to address, I think, those same issues that you were talking about. So I commend you to work in that direction.
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Mr. GUTKNECHT. Thank you. I yield back, Mr. Chairman.
Mr. SMITH. Mr. Etheridge.
Mr. ETHERIDGE. Thank you, Mr. Chairman. And let me join some of the others in thanking the ranking member and the chairman. I am sorry he is not here. For the work they have done on this with the limited amount of money we had to work with and they spent a lot of time traveling around the country listening to concerns. But let me follow-up with what we just had. Because I think it is important that—one of the challenges that face—the reason we are always patching holes is farmers have gone not through 1 year, not through 2 years, but they have been through a long period of successive years of lousy commodity prices. And in some cases, floods, droughts added to all those issues. We have got farmers wearing out their equipment and making no money. If we continue to be put in a position of patching, it is going to be cheaper to buy than it is to produce. Because we won't have anybody producing. And that is a long-term thing we have to look at. I don't really have a specific question.
I want to offer my thanks to Mr. Swenson for—in his testimony when he talked about tobacco. Let me talk about that because it is an important commodity in my State and in part of the Southeastern States. And you were very correct in pointing out the problems that the farmers are facing today in our region. Lower production quotas and—than they have had in a long time. The truth is, they are down about 50 percent what they were a little over 3 years ago. The prices are down and the increased importation of leaf, which is adding to that problem. Some of the same things many of our other producers are facing in other commodities in North Carolina. They grew all the other commodities we have because North Carolina is one of the diverse—one of the most diverse States in the top three in the country of our diversity of agriculture. While I agree with you, Mr. Swenson, that we—it would have been awful nice to have something in this concept paper to address these problems. And we would like to have had them as we did in peanuts. The tobacco growers, quota holders and the exporters and all those involved.
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They are really having a little bit more difficult time coming together. And I trust we can do it. Though we are still wrestling with it, as any of the member of this committee are, trying to find the best way to help them. And I don't point a finger, obviously, at the chairman, nor the ranking member because they have been very helpful in this and I want to thank them for it. It is a tough issue to deal with. And tobacco communities are taking a little bit longer to deal with it because it has been an important part, not just of the farmers, but the whole community. And it is a long-term problem, a challenge that we face.
Let me thank my colleagues on this committee for giving the growers and the quota holders the time to work through it and ask for their continued support as we move forward. Because almost every time we get to the floor, somebody wants to do away with the program that at least has helped some farmers survive. And they made a little money and we are going to need their help again as we move forward with this, this year. And let me thank both of you for your testimony. It is quite obvious that I think all of us on this committee are sensing the challenge we face. We need more money. We wish we had more, given the challenges our farmers face, but given the limited dollars we have to work with and some would see them and say, depending on their committee, we have got a lot of money. But we really don't, given the diversity of agriculture. The broadness of the—this country and our need and I think great challenge to continue to produce it in America and sell it overseas. Research is one of those areas we have to pay more attention to.
Conservation. If we can help, over the long term, with conservation of our farmers to take out marginal lands, that, again, would help on the production side, I think, and give them some money for those pieces. And we need your help. And the help of every group present this morning to work through this. And with that, Mr. Chairman, I yield back. Thank you.
Mr. ETHERIDGE. Mr. Swenson.
Mr. SWENSON. If I could just raise one question because the concern is, is that we want to eliminate tobacco. But we have less—there is minimal reduction in tobacco use, but we are seeing a tremendous increase in imports that are coming in. That is why the quotas are being reduced. But the impact on producers out there is that for independent producers that market their tobacco through the co-op system, they have to pay for the inspectors for that product when it moves into the market. And what companies are doing currently is they are coming out in contract with some of the larger tobacco producers and then they avoid—those producers avoid having to deal with the inspection process. So you have a shrinking base that try to pay for the required inspection process. One of the things that Congress may consider is how we can maintain for independent producers an inspection process that doesn't drive their co-op out of existence and out of business. And so I would hope that is something that the committee might look at. Because we do it for a lot of other services.
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Mr. ETHERIDGE. And that is an issue that is being looked at. Thank you.
Mr. SMITH. Thank you. I am Nick Smith from Michigan and I am next on the list for questions. Mr. Appel, are you concerned at all on the evening news, whether it is Fleecing of America or whatever else might publicize the subsidies going to agriculture, of statements like the top 12 farmers in this Nation, all millionaires, are receiving more than the 38,000 smallest farms in this country, that payments are being sent to farmers that exceed $4 million in farm subsidy payments? I guess I have a little concern about Farm Bureau's position that there should be no limitations on payments. And let me tell you why I am concerned. I am concerned because we are now facing a dilemma of possibly spending Medicare and Social Security surpluses. What we have vowed not to do. We are faced in the next 10 years with the problems of making Social Security payments, at least in the next 12 to 13 years. And there is only two ways to fix Social Security. You either increase the revenues coming in or you decrease the amount of payments going out. I think we leave ourselves in a very vulnerable position at such time that we might suggest that we are going to have to reduce maybe some of those payments going out either in Medicare or Social Security if farmers are receiving 1, 2, 3, whatever million dollars.
I just would point out some statistics. One farm subsidy recipient in Arkansas and price support payments for rice jumped from $22,198 in 1999, to a $1,202,000 in 2000. That same recipient received over $7 million in price support payments for upland cotton in 2000. And I am somewhat concerned. Another recipient in the same area received a price support payment in 2000 for upland cotton of 1.2 million. And the statistics go on. So I guess I—restating my question, are you concerned about the vulnerability and the future of agricultural programs if we—if the predicament of trying to come up with money to pay Social Security payments then comes in conflict with these kind of reports coming out of the news media?
Mr. APPEL. Well, certainly, Congressman, I am concerned about that. But let me address the issue of payment limitation and where Farm Bureau has come from throughout the years on this issue. We have basically always stood in opposition to them. And it comes down to where do you draw the line and how you decide where the appropriate place is for that line. For example, right now, today, in my particular industry, I have a neighbor who actually, he could save that farm as 20,000 acres of the Polluse, which would be a very, very large farm in the Polluse area. And it would have a couple, $3 million worth of gross sales and a pretty good-sized outfit. He, of course, bumps up against payment limitations all the time. But it is not just he. It is a family corporation. It is himself and three sons and a brother-in-law.
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Mr. SMITH. Well, the large—let me interrupt.
Mr. APPEL. Where do you draw the line?
Mr. SMITH. Because my time is just about gone. And I want to ask Mr. Swenson a question, also. But I—it is a concern that we should be looking at. Maybe the payment limitation is half a million. But individual farmers—and our farm programs, I think, have always favored the larger farmer, instead of the smaller farmer. Ever since we started in the 1934. Mr. Swenson, do you have any statistics on how much money goes to land owners that are not farming? And maybe, Colin, maybe you have some of those statistics, too. That should concern us. I wonder if we have the statistics.
Mr. SWENSON. Well, you have a majority on—I think it is almost 50 percent of the land today is—that is farmed is held by absentee land owners. They can be widows, estates——
Mr. SMITH. Can you provide me with those statistics? Who derives those statistics?
Mr. SWENSON. We derived them out of USDA. They have all the statistics and information. But I think the key thing is that what we have seen unfold the last number of years is that we have seen even with low commodity prices, which usually has an impact on what rental rates are for that farming, rental rates have continued to go up because of AMTA and AMTA plus and AMTA plus, plus. And so we continue to see escalating rental rates without a relation to commodity prices. And, Congressman, if I may, I think the issue you just raised is so critical. What we have seen happen unfold is farmers have gotten bigger and bigger. And I think some of that structure is because of the structure of the farm policy. And when we don't have an effective targeting mechanism, the Government is underwriting greater concentration than the production of agriculture. And so then when we get to the point where we are at today and we say, well, we can't limit it because we have got these few farmers producing such a volume of our overall production. We have got to continue to support them. I think it is the time to say where does government's roles stop? And I would say that we have a recommendation for you to consider and a targeting approach that is significantly different than anything ever looked at in the past. And that is starting certain sales category at a certain level of cost of production and once you go past $100,000, let us say, to $250,000, you lower it. And you could have significant savings in the cost without having to have a cut off. You do it in the mechanisms of support. So I think we have to address your issue. Very important.
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Mr. SMITH. Without objection, Mr. Peterson says he had some information from USDA.
Mr. PETERSON. Well, I don't know—this will just be for my own attribution. But the figure that I recall I was given is somewhere, like, around 32 percent of the payments that are going out or going to people that are no longer farming.
Mr. SMITH. The gentleman from Indiana, Mr. Hill.
Mr. HILL. Thank you, Mr. Chairman. Thank you, Mr. Appel and Mr. Swenson, from hearing today. Mr. Appel, I want to repeat your comments that you made and ask you a question. You say that during the 1996 farm bill, Congress gave farmers their word regarding access to additional foreign markets through trade policy reforms. Have we kept our word?
Mr. APPEL. In my opinion, no, sir, I don't think so. I—it was the feeling of—at least the farmers that I deal with that we were going to see a greater access to markets and opportunity to market those crops around the world. And the feeling out there in the country is that, no, that hasn't happened.
Mr. HILL. Let me ask you. I—this is my second term in Congress. I don't know what kind of promises were made back in 1996. Do you know what those promises were, specifically, in terms of trade policy and opening up markets?
Mr. APPEL. No, sir. I don't think I can answer in specifics at this point in time. But I know that even Senator Roberts, then Congressman Roberts, had made that comment to us. As time went on through the night, that he felt that they simply—he hadn't been able to help the Congress to deliver on all the things that were basically suggested.
Mr. HILL. Well, it seems to me that in 1996 when these promises were made, were they made in the context we were going to completely change the way farms were operated? They will let you grow, anything that you wanted, how much you wanted and we will create the markets. Now that we haven't created the markets, do we need to change the farm policy? Because apparently, we are not going to do anything as it relates to trade. Following up with Representative Boswell's question, what—if we are not going to change the markets or if we are not going to change the trading relationships that we have with other countries and create these markets, then do we need to seriously change the present farm bill?
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Mr. APPEL. In a philosophical sense, I don't suppose we can continue down the same road that we are going at this point in time. And you either have to have a market for the produce or you are going to have to not produce it. Like I said earlier in my testimony, about 30 percent of what we produce is exported at this point in time. So it is pretty easy when you look around the table at a group of farmers and say, well, OK, 30 percent of you, if we are going to close down, going to go to the extreme, close down and isolate the United States, 30 percent of you aren't going to be needed. Which 30 percent of you are going to go out of business and put that farm in——
Mr. HILL. My time is almost out already. I wish I had half an hour on this subject I reiterate the frustration of Congressman Boswell. When we ask the question, what do we need to be doing to create these markets, what kind of legislation do we need to pass, we don't get anywhere. It is just the same old rhetoric. We need specific recommendations from folks and we need compromise. And he asked you the question, what needs to be done, but you really didn't answer the question. Nobody answers the question here in Congress, what needs to be done. We never get there. And yet, we are still going through this same farm policy that we created back in 1996. I will let you respond to my frustration.
Mr. APPEL. I understand your frustrations, sir. I guess I would argue that at times, we do make suggestions. For instance, I am very supportive of market access promotion programs and those types of things. For example, the European Union and the Canadians and the Australians are all outspending us from somewhere from 4 to 6 to 1 in market promotion. And if you look at market share across the world, their market share has gone up and our market share has gone down.
Mr. HILL. But I asked you the question, did we keep our promise? And you said, no. My question to you is, what do we need to do to keep our promise?
Mr. APPEL. Well, again, I would—more money in areas like market promotion.
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Mr. HILL. That only? Go ahead, Mr. Swenson.
Mr. SWENSON. Well, I think you have raised this particular point. And I think we have got to reform our farm program. We have got to put more equipment in the toolbox which to deal with the changing global situation. The promises that were made in 1996 on paper, market access, lower end of tariffs, I think of every country in the globe that signed those trade agreements has complied. So have those commitments been fulfilled? Yes. Some of the political rhetoric that was expended that we are going to eliminate rules and regulations and eliminate all environmental standards and all this and that, no. That was just, to me, a lot of political rhetoric that was never fulfilled, if you want to call it. The other thing that I think you have got to deal with is we have got a changing global situation. Producers—we can say countries are pitting one against another. But as I have talked to farmers around the world, we are all dealing with low commodity prices.
Farmers are hurting globally. OK? What countries may be doing in trying to compete with markets are being impacted by the fact that technology transferred in the nature of production is different than what it was in 1996. The availability of different types of seed and technology. So do we have to have a different type of farm program? Currency. When Brazil makes an arbitrary decision to deal with a devaluation of currency, how do you deal with that in the structure if we don't have a mechanism in the farm bill? So I agree with you. I think we have got to re-write the farm bill. We have got to put some different tools or different equipment within the structure of that program to deal with what is going to be a changing world. And if we don't, we are failing to recognize that we are going to have a constant change. The interesting thing—I will close with this—those that are the biggest advocate of the free market are those that want to manage the economy. So they don't want a free economy, they want a controlled economy, but they want a free market. You can't have both. You can't manage the economy and not deal with other aspects. Thank you.
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Mr. HILL. Thank you, Mr. Chairman.
Mr. SMITH. Mr. Moran.
Mr. MORAN. Mr. Chairman, thank you very much. I am sorry I was not here to hear the testimony, but I read both the statements. Is it my understanding, Mr. Appel that with what I don't see as major overhaul of the concept paper, American Farm Bureau is supportive of that draft? That this is, in Farm Bureau's opinion, generally headed in the right direction? That we need to work on some details?
Mr. APPEL. I think that would be an accurate description. I can't say that we are necessarily supportive of the—because we have not seen the final legislative language and the devils and the details, as we say. But we feel that a good job has been done at trying to balance what resources we have available.
Mr. MORAN. Thank you very much. To both of you, I think a goal in drafting a farm bill ought to be to avoid what I consider is wrong incentives to overproduce. And does this bill encourage overproduction? I'm sorry. Does this concept paper, this proposal, promote overproduction?
Mr. SWENSON. I don't know that it would be an incentive for overproduction. I think it maintains the inequities, the significant inequities that exist today. In fact——
Mr. MORAN. Within commodity groups remain——
Mr. SWENSON. Right. And, in fact, if you take a look at what it does for wheat versus soybeans, I think it increases the discrepancy.
Mr. MORAN. Although that was one of our goals, was to eliminate that discrepancy. Mr. Swenson, the—as I understand the Farmers Union proposal is that we would put most of our resources into increasing the loan rate as compared to the so-called decoupled payments and the target price issue? Is that a fair assessment of where you would like to see us head?
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Mr. SWENSON. The structure changes it over to the loan rate. As far as the expenditure of resources, what we see if you took at our whole proposal is less expenditure of resources because you get a better price in the market. Then have more dollars, especially the new dollars, available for conservation, nutrition. Those types of programs that we think are critical in the overall picture of the farm program.
Mr. MORAN. Does your testimony today outline what those loan rates would be?
Mr. SWENSON. Yes. What we have proposed in ours was taking at least the starting at 80 percent of the full economic cost of production.
Mr. MORAN. And in doing that, as you remind me, it would cost us less money, money that can be spent elsewhere than the concept paper. Is that true?
Mr. SWENSON. With a full implementation of the other elements. Yes.
Mr. MORAN. And what do you think is the consequence in the market or to a farmer's decision-making process between raising the loan rate, as you suggest, versus having the three kinds of payments, the so-called decoupled payment, the target price and the LDP?
Mr. SWENSON. In the farmers that we have visited with about the program, they are going to make good management decisions. They will produce what they look at the market—the signals to give. What they think is the best crop rotation. And with the dollars available, implement the best conservation practices that get their operation. In addition, of course, we advocate more money for rural development. And it helps farmers then look at what they can do to add value to some of their commodities, if you want to call it, process it or direct market, such as fruit and vegetables in local markets.
Mr. MORAN. And the reason that my concern about incentives to overproduce to—and by that, I guess I mean produce more than the world will buy. Is it alleviated by the 80 percent?
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Mr. SWENSON. We believe it is. And you have got that equity. And the other mechanisms that are part of the overall program. I want to emphasize. Plus, we want to help generate new demand. When you can take a look at alternative use, not just in renewable fuels, but there are new opportunities for commodities to be used in other programs, if we make the dollars available to invest in those programs. And that, to me, is the most critical element.
Mr. MORAN. And my time is about to expire, but I often ask the so-called experts, particularly the economic experts that come before our committee—and I was interested in Mr. Hill's comments about trade and what commitments we have kept and not kept. I would be very interested in both of your organizations answer to a question that I continue to grapple with, which is, how do we overcome the differential in the currency rates between our value of our dollar and the value of other countries' dollars in getting our products consumed? You have talked, Mr. Swenson, about greater incentives. We have a tremendous gap to overcome. And none of the so-called experts from the Treasury Department, from Trade Ambassador's Office or from the Department of Agriculture, at least to my satisfaction and perhaps they have answered it adequately, but I understand how we overcome this differential. And to me, it seems like it is a major significant issue. I heard Mr. Appel talk about how demand and trade is important. And which I agree with. But we have a problem that seems to me that no one addresses. And until we address that major problem, all the other things are somewhat minor. My time has expired. But I would welcome any comments by either of you or a conversation following the meeting. Thank you.
Thank you, Mr. Chairman.
Mr. SMITH. The gentleman from Florida, Mr. Putnam.
Mr. PUTNAM. Thank you, Mr. Chairman. Mr. Swenson, a moment ago when discussing trade, you said that you found it odd that the people who are the most vocal about opening up new markets are the ones who also wanted to manage the economy. And it occurred to me that the people who, at least in agriculture, who are most vocal about wanting to move forward with trade agreements and open new markets are the ones who are guaranteed payment yields, fixed decoupled payments, subsidies, countersiclicle payments and target prices. And so if you are guaranteed not to go out of business because the Government is going to come in with an AMTA or a double AMTA or an emergency supplemental, what incentive would you have not to be concerned about moving into Latin America, moving into Asia, moving into Europe. When you are guaranteed to come out OK at the end of the year. Seems to me that the commodities that are the first ones to be traded away at the negotiating table in Rio or Geneva or wherever are the ones that don't cost the Government any money at all. Whether it is tomatoes or fruits and vegetables or any of the other produce industries. They are the ones that have suffered the biggest brunt of trade policy over the last couple of decades in this country. And I think that it is ironic, picking up on your terminology that the first ones we trade away are the ones that aren't costing us anything. And as we develop a national farm policy, a national agricultural policy, there is a lot of tendencies to make it a sportsmen's bill, make it an environmentalists' bill, make it the nutritionists' bill and somewhere in there, we are supposed to look down the road 5, 6, 10, 50 years and devise where we think rural America, agriculture ought to be. And in the interest of fairness and affecting all of agriculture, we have to pull in some unique and innovative programs to try to deal with commodities that have not traditionally been part of that policy. And so that we have these conservation programs that have been devised to reduce erosion, to reduce pollution, to reduce other consequences of dealing with our natural resources to cultivate and produce a crop. Now, the Farm Bureau, Mr. Appel, has recommended that we consolidate those programs into two, I believe, EQIP and CRP. Excuse me.
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Mr. APPEL. Excuse me. EQIP and a voluntary incentive-based conservation program. Which would encompass, basically, all those other things.
Mr. PUTNAM. Is it your opinion or position that by consolidating those non-EQIP programs, you are reducing overhead? Is it your opinion that there is not enough in each of those individual programs to accomplish the environmental objectives that they are laid out for? What is the basis for that consolidation?
Mr. APPEL. Well, basically, sir, all of those reasons, plus an ability to focus on true environmental needs around the country and provide a mechanism to get some conservation dollars to those other sectors that you talked about in terms of our fruit and vegetable growers. It was the feeling of the organization that we could better accomplish that.
Mr. PUTNAM. Do you support in the concept paper the 50 percent earmark of EQIP for livestock?
Mr. APPEL. Yes. We supported the 50 percent for livestock and 50 percent for crops, including fruits and vegetables.
Mr. PUTNAM. What would be the vehicle for this voluntary incentive-based payment structure for the non-EQIP program?
Mr. APPEL. You mean through whom?
Mr. PUTNAM. Through whom, would it be—would outside vendors be able to participate? Are you talking about essentially a fee-for-service type of arrangement that is voluntary incentive-based for the land owner to contract with NRCS to accomplish the following environmental goals? Is that the direction that you are headed?
Mr. APPEL. Really, the concept that we had in mind would follow along the lines—probably the best way to describe it is along the lines of the old ACP Program that we used to call the Agriculture Conservation Program. That was implemented through ASCS. And what you did there is you prepared a proposal, got buy off from the—what is now the NRCS, the conservation folks. They said, yes, this is an eligible, acceptable program. We think your practice is in good conservation measures or whatever. Whether it was putting in strips or waterways or whatever. And then the money could flow through the FSA today into the farmers' hands.
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Mr. PUTNAM. Thank you. I look forward to discussing that more with you.
The CHAIRMAN [presiding.] I would apologize for being out for a few minutes for another quick meeting.
Mr. Phelps, did you pass or did you—were you called on?
Mr. PHELPS. Never called on.
The CHAIRMAN. Mr. Phelps.
Mr. PHELPS. That is OK. Thank you, Mr. Chairman.
I want to commend you and Ranking Member Stenholm for your aggressive leadership and getting us on chart here of what we need to address. And thank you. I am sorry I missed your vocal testimony, but I have been reading about what you have both been saying and I am not sure what I can add. There is a lot of territory that has been covered here. But just maybe echo some of the frustrations as a second-termer, like Mr. Hill had mentioned he was. I am—I guess as a former school teacher and a business owner, I have always been resistant to accept that bigger is better. I have taught in small schools, administrator in small schools and I think that—and rural America, where I knew every student, the parent by name and what their trade was, their problems of—what their faith was based in. A lot of strengths in being small. And yet, we keep having proof and demonstrations in every category in life, whether it be business, operating schools in Galvin County now and so no areas of a school that is small, two or three rural schools—one roof that they were able to consolidate K through 12 because just the maintenance of the buildings, pre-existing buildings, would have exceeded just maintaining the level of what they could build a school to consolidate all of them. So bigger is better in that respect. The fact of cost. And I guess we were proven by entrepreneurs like Sam Walton that consolidating businesses to reduce the price for consumer access is better. Where I grew up, small town in—Western Auto and then Franklin Stores to work myself through college, are not there anymore. Downtown Eldorado and mainstream rural America. Because people like Sam Walton said, come under one roof where it is all air-conditioned, free parking. And we consolidated it all right here at a cheaper price. And I guess the volume buying, as well as reducing the cost is why they can do that.
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My point is, how do we try to contradict that same factor in economics to make the small farmer be able to compete? Because in your statement, No. 3 of—Mr. Appel, and your points, the farms have gotten larger to remain competitive. And if that is true, and I—all of us witnessed just a few years ago how the pork producers took another chin when the vertical integration concept has had its effect on them. But yet, someone is making money, evidently, when they get bigger. So my point is, is that what it is going to take for all the small family farms to cave in, relinquish their generational sacred operations, which I would love to uphold and preserve, to be able to compete on a global market? Because it seems like the things that we can change or control through policy are short-range fixes, too small, had to completely re-adjust, whether it be countersiclicle proposal or whatever we might want to put forth. And then the things that we can't change are seemingly, effectively, the currency rates, competition gets fiercer. I mean, the only way we are going to compete is reduce prices. And when we reduce prices, we run more of our own out of business. What a dilemma. And I don't—I am not sure I have heard anyone from expertise from all these agencies that has been testifying to down to all of us that explained how in the world some of those factors that are bigger than all of us, how do we change, is bigger better? I will let you comment.
Mr. APPEL. I wish there was a simple response to the question, Congressman. Historically, I mean, if you look at the history of agriculture, we have seen the farms grow ever since the beginning of time, basically. And while there is a good, legitimate argument you can make that that has been beneficial to society as a whole, by releasing the rest of the folks to go out in society and do all these other things, I believe that at times, you lose something, too, as you go to those larger farms, in terms of the close, hands on management. I would love to see a way to maintain the family farm. I wish I had that silver bullet.
Mr. PHELPS. Mr. Swenson.
Mr. SWENSON. Well, I think we want to keep the comparisons—when we talk about bigger is better in perspective. One of the things in the consolidation of the schools, you will see changes in savings in buildings. But if you went from a 30 size classroom to all of the sudden a 600 students per class, the quality of education, I think, would substantially deteriorate to the benefit of the students that savings might occur in the size of the building or the maintenance of the building.
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Mr. PHELPS. Let me just stop you. By the mere transition of going to bigger school consolidation, the cost can be reflective in producing smaller classrooms.
Mr. SWENSON. Oh, absolutely. But can the quality of education be sustained?
Mr. PHELPS. Right.
Mr. SWENSON. OK. So that is one issue there. And in perspective of agriculture, yes, changes are going to occur. But the nature of farm policy to drive it or to provide opportunity. OK? And I think that is what you want to take a look at—farm policy. Does it provide for a good manager to take advantage of good management practices of which to be able to survive? Not guaranteed that they are going to survive, but to survive. And not hit them one commodity against another. And I think that is some of the issues that need to be addressed by the structure of farm policy.
Mr. PHELPS. I just want to close with—I know my time is out. My brothers and I ran small businesses. The products that we were selling before Wal-Mart came into Sling County, Illinois, what we were paid wholesale, they were selling retail at Wal-Mart. That is why I am not in business any longer.
Mr. SWENSON. That is right.
Mr. PHELPS. Couldn't compete.
Mr. SWENSON. Absolutely. And when you talk about the business and they can control their environment, one of the things when you are so big like that, you are going to tell your suppliers what you are going to pay for it.
Mr. PHELPS. That is exactly right. Thank you. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Osborne?
Mr. OSBORNE. Thank you, Mr. Chairman. I will ask just one quick question of Mr. Swenson. I am sorry I was in and out of here. And maybe you have already talked about this. But I would be a little bit interested in the idea of Government-owned reserve tied to renewable fuels. And I know one of the arguments, of course, is that this may be price distorting when that grain comes out. And so I just—first of all, have you talked about it previously? Because I might have missed it. And second, one of the concerns I have, we are going to probably build 120 methanol plants here within 3, 4 years, if things go right. If we do have a drought, if we do have a problem, it is a concern. And I guess philosophically, I don't like the idea of farmer owned or Government owned reserves in some ways. But I just wondered if you would expand on that idea just a little bit because I am interested in the ethanol industry.
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Mr. SWENSON. And that is the reason that we have proposed this type of reserve. It is not to hold over the market. It is a dedicated use that reserve to go into the use for renewable fuels. Be it soybeans, be it ethanol, be that renewable fuel. And the very reason you pointed out is the reason we believe we need this reserve. We have an expanding market opportunity. And we hope that it will continue to grow, probably triple or more. We have a strategic oil reserve. Everyone supports that. Every—the public, every politician I know supports a strategic oil reserve. Now, we are going to make a commitment to expand our renewable fuels base, to help clean our environment. And I think we need to make as much a commitment to the strategic reserve of those commodities so that if we have a disaster, we don't have a contracting commitment of renewable fuels to supply the market. We need that reserve to hold us over during that time. That is the basis behind it. But it is not to dump into the market. And, in fact, it will help bring market prices up.
Mr. PHELPS. Thank you, Mr. Chairman. I yield back my time.
The CHAIRMAN. Mr. Condit.
Mr. CONDIT. Thank you, Mr. Chairman and thank you, Mr. Appel and Mr. Swenson.
You have been very kind with your time and the information that you have given us will be very helpful in crafting the farm bill which we are going to move through pretty quick. Next week, the chairman tells me we are going to mark it up. And we are going to get it marked up. We will get it passed and we will get it out of the committee with your help and other folks help that we have gotten information from. One of the points I would like to make—and I—just a suggestion to both of you and your organizations. I think there is a component of agriculture that we have to look at in a different way. We have to think out of the box. And that is the trade component. Mr. Boswell has brought it up, Mr. Hill has brought it up, Mr. Everett has brought it up. And I do see a cracking or a fragmenting of agriculture and its support for trade. And I would suggest to both your groups that if you haven't already, but think of a proactive way to be helpful to us to make sure that agriculture is at the table, that we get a fair shake. I heard Mr. Appel say you have got to move fast track. In some cases, we believe fast track, we lose all control over the agricultural component of trade. We are not sure that is the best way to go. But if your groups have not been proactive, I think that is—that would be very helpful to us. I mean, you have a very large membership, both of you. And I bet your membership is somewhat frustrated with what has happened in the past with the trade agreements. So I would only suggest to you that, don't rely on MAP. Don't rely on some agricultural program to take care of the deficiencies that we agree to in a trade agreement. That is nonsense. We have to go to the floor and argue with people that come from the intercities about MAP as though it was a general assistance or welfare program. And we are doing that because we didn't get a good trade deal. Don't just grasp the MAP as the answer. The answer is we get a fair square trade deal that is good for this country. And I just think both your groups ought to be proactive and other groups, as well. So I say that in kindness. I don't know if you are being proactive or not. Maybe you are. You can give me a yes or no or a quick answer. If not, I would hope that you would be.
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Mr. SWENSON. Congressman, you raised a great point. And we have shared with members and we will make sure that we get to you and your staff the list of those items that we think must be addressed in the next trade agreement to make it a fair trade agreement. We are very proactive. One of those, for example, is a country of origin meat labeling. We think those can be a beneficial thing for consumers in the nature of future structures. So we will share all that information with you. Thank you.
Mr. APPEL. The Farm Bureau, also, has been extremely active in the trade area and stay in close contact with USTR in terms of trying to develop some of the proposed trade objectives and we will continue to do that and also will provide you with any information that you would like to have, Congressman.
The CHAIRMAN. Mr. Stenholm has a follow-up.
Mr. STENHOLM. Mr. Appel, does the Farm Bureau have a position regarding the fuel reserve that Mr. Swenson was talking about?
Mr. APPEL. The short word, Congressman, would be no. We have not taken a position on the fuel reserve. Generally, as you know, Farm Bureau has opposed reserves in the past, farmer held or Government held. But as Mr. Swenson outlined it here, I would say that we would have to go back and take a look at that.
Mr. STENHOLM. I would respectfully ask that you do go back and take a quick look at that from the standpoint of as Mr. Osborne was observing a moment ago and with an energy bill on the floor and a separate committee, separate effort in this. I do think it has considerable merit to be looked at if we are going to develop an ethanol, a biodiesel, if we are going to develop those energy components. Which most of us are very interested in now. I do think that some kind of a reserve in the same way that we would be managing our inventory and other commodities, perhaps, makes some sense. So I would really like to see you take a look at that and give us your best shot and best recommendations.
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Mr. APPEL. We will do so.
The CHAIRMAN. In order to accommodate some Members' schedules and our guests, we are finsihed with this panel. Gentlemen, we appreciate your coming. The committee will stand in recess until 1 o'clock and then we will begin at that time with panel two.
[Recess.]
The CHAIRMAN. The committee will come to order.
Our second panel of witnesses today, Mr. Dusty Tallman, president of National Association of Wheat Growers from Brandon, Colorado. Mr. Mark Williams, who is a producer and a board member of the National Cotton Council from Farwell, Texas. Mr. Dee Vaughan, who is a producer and board member of the National Corn Growers Association from Dumas, Texas. Mr. Tony Anderson, who is president of the American Soybean Association, Mount Sterling, Ohio. Nolen Canon is chairman of U.S. Rice Producers Association from Tunica, Mississippi. If I was going down the road in Mississippi and I asked somebody to tell me how to get to Tunica, would they?
Mr. CANON. It is right down the road from Memphis, Tennessee.
The CHAIRMAN. I am sorry. And Mr. Leo Bindel, who is president of the National Grain Sorghum Producers from Sabetha, Kansas. Start, if you would, Mr. Tallman, and take testimony in the order of the way that the witnesses were introduced.
STATEMENT OF DUSTY TALLMAN, PRESIDENT, NATIONAL ASSOCIATION OF WHEAT GROWERS
Mr. TALLMAN. Thank you, Mr. Chairman and members of the committee. Thank for you the opportunity to appear before you today.
My name is Dusty Tallman. I currently serve as president of the National Association of Wheat Growers, known to our friends as NAWG. I live in eastern Colorado where my family and I operate a wheat farm.
I first appeared before you in March to present the views of NAWG's membership regarding the new farm bill. I am pleased that the process has worked so well and that I am again before you in only four short months. In March I provided details on NAWG's legislative proposal. Today I will offer our views of the committee's draft farm bill concept paper.
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Let me begin by saying that we are very pleased with the committee's work and efforts during what have been an intense few months. We are also thankful for the receptiveness of committee members and staff during this time. Your willingness to listen to our membership and work with our State leaders is greatly appreciated. I am confident we are proceeding down the right path, and the final product of your deliberations will be a farm bill we can all support.
On that note, allow me to begin with those aspects of the committee's draft that we support. We appreciate the fact that the committee maintained a planting flexibility that was the hallmark of the 1996 farm bill. Planting flexibility has revolutionized many of our growers operations, allowing them to plant to the market and maximize returns on every planted acre.
We support the way the committee resolved the issue over updated bases, providing producers with a choice of base periods as the appropriate move. We support the committee's decision on payment yields. We also support the committee's decision to continue the fixed, decoupled AMTA payments. These fixed payments have become an important way—important part of many producers operations. Although NAWG originally supported a higher payment rate, our growers believe you have done the best possible with the tight budget.
We support the continuation of the marketing loan and loan deficiency payments. The marketing loan is an important tool for delivering producers support.
Finally, we strongly support the inclusion of the counter-cyclical program in the committee's draft. NAWG has longed believed that a counter-cyclical program was the sole missing element of the 1996 FAIR Act. And we strongly support the committee's decision to include a counter-cyclical payment program in the new farm bill.
There are other aspects we strongly support, Mr. Chairman. And given enough time we will cover those today. Overall, we view the committee's draft as very thorough and complete, lacking only in specific details. And while it will take a few minutes to cover some of those specifics, NAWG first and foremost commends that the committee—recommends that the committee maintain the structural components outlined in the draft, namely, the fixed payments, marketing loans, counter-cyclical payment, the choice of base and the use of historic yields.
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The first issue we would raise with the committee is the selection of the 1995 target prices for the counter-cyclical payment. We would first note that as illustrated on page seven of our testimony, these target price levels are very close to what NAWG's own analysis has found to be fair and equitable levels of support.
Our growers do, however, feel that the target price for wheat set a $4 is too low. Following lengthy analysis, NAWG had established a $4.25 target price for wheat. This price was reflective of our efforts to ensure that all commodities are treated in a fair and equitable manner. We also feel that the levels we generated are more equitable than the 1995 target prices.
The objective of the NAWG proposal is to provide levels of support on an equitable basis across all commodities. To analyze the impacts of our plan we had FAPRI compare the impacts of the NAWG proposal on crop net returns above variable costs. The results illustrated that even after NAWG's efforts in our plan we still came out with a lower net average return than most other commodities. To drop the NAWG recommended target price by 25 cents further would widen this already existing disparity. We urge the committee to examine the relationships between commodity target prices. And we will work with you to find ways t raise the wheat target price to or near the $4.25 level.
Another aspect with the NAWG proposal was a rebalancing of marketing loan rates. Wheat producers have long felt that the $2.58 loan rate for wheat was too low. Particularly, when compared to loan rates available to other commodities. As such, NAWG's proposal established new floors for all commodities. NAWG proposed floors—NAWG's proposed floors actually coincide very nicely with the committee's recommendations. Again, however, the exception is wheat. We believe the committee has gone most of the way to providing real equity in the loan rate program. Our growers urge the committee to again reconsider the $2.58 loan rate for wheat.
NAWG's primary focus remains on the commodity title of the farm bill, and our energies will be spent toward that end. We would, though, like to comment on one additional point. NAWG, along with most commodity groups, has a standing policy against increasing the acreage cap on conservation reserve program above the 36.4 million acres. We would recommend that the committee reconsider this proposal.
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In conclusion, I would like to reiterate NAWG's support for the concept outlined in the committee's draft of the farm bill concept paper. We will continue to work for more equity and loan rates and target prices. But we first clearly want to communicate to the committee our support of the work you have done here already.
On behalf of the Nation's wheat producers, I wish to express our sincere appreciation for this committee's efforts on our behalf. We know that if it were not for your hard and that of your staff there would be less of us farming today. It has been an honor for me to appear before you today. NAWG and in its 23 State grower associations are ready to provide any other additional information you need. Thank you.
[The prepared statement of Mr. Tallman appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much. Mr. Williams.
STATEMENT OF MARK WILLIAMS, BOARD MEMBER, NATIONAL COTTON COUNCIL
Mr. WILLIAMS. Good afternoon, Mr. Chairman and members of the committee.
My name is Mark Williams. I operate a diversified cotton, wheat and grain farm in Farwell, which is located in the panhandle of Texas. I am a member of the National Cotton Council's Board of Directors and serve on its executive committee. My testimony today reflects the consensus view of all even segments of the U.S. cotton industry. Mr. Chairman, you, your colleagues and your dedicated staff are to be commended for your exceptional effort to hold hearings, to process what you have heard from witnesses, and to prepare a timely concept paper for our review and comments.
In our opinion, the farm policy's outlined in the committee's concept paper are balanced and equitable. You have established a very credible foundation from which to build new farm programs. It will provide a more effective safety net for farmers. It will enhance the industry's competitiveness. It will benefit the rural economy. And it will ensure we will continue to met consumer demand for top quality, affordable food and fiber.
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Emergency economic assistance Congress has provided in recent years has been critical to our survival. But it is clearly preferable to farmers, lenders and our customers to have a predictable, effectable—effective, long-term policy in place rather than rely on annual ad hoc assistant programs. We strongly support many aspects of the committee's work product, including a marketing loan key to the world market prices, retention of cotton's 3-step competitiveness plan, retention of fixed, decoupled payments, a new counter-cyclical payment program based on a target price concept, an option for growers to update their payment basis, retention of full planting flexibility with no mandatory supply management requirements, and continued availability of marketing certificates.
The committee's proposal also offers improvements in conservation, trade, research and rural development programs that our important to our members. While we were pleased that Congress substantially increased funding available for agricultural programs in the budget resolution, much of agriculture continues to experience serious economic stress as a result of escalating input costs, wheat demand, a strong dollar and low prices. Therefore, at the risk of sounding ungrateful, I respectfully ask the committee to consider some additional concerns of the cotton industry as you convert the concept paper to legislation.
For example, Mr. Chairman, the price of cotton seed continues to be weak. Cotton producers rely on cotton seed revenue for about 13 percent of total returns. The value of cotton seed and cotton seed products is dictated more by production of soybeans and other major oilseeds than by cotton production. Some programs that provide assistance when fiber prices are low may not adequately compensate producers for low cotton seed prices. We support the inclusion of a cotton seed assistance program in new farm legislation.
The adverse effects of a strong dollar on our industry have intensified since our February testimony. It is extremely important for some action to be taken to mitigate the devastating effects of the strong dollar on our industry, particularly, the textile sector. Our analysis confirms that for each one percent increase in the strength of the dollar, there is a one percent increase in the rate of cotton textile imports, and a corresponding decrease in U.S. mill consumption of cotton. In the last 6 months 45 cotton textile mills have closed, 15,000 jobs lost, and domestic mill consumption, which once reached 11.4 million bales, has fallen to annual rate of 8 million bales, reflecting the possibility of a permanent loss in domestic consumption due to mill closings.
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We will believe that the 1.25-cent quarter threshold currently used in the formula for computing step–2 values needs to be eliminated in new farm law, if not sooner, as an initial action to help our industry deal with the devastating impact of an increasingly strong dollar.
The cotton industry remains opposed to payment limitations. But if they cannot be eliminated supports the establishment of a new category of limits for counter-cyclical payments. Since soybeans would be eligible for the new counter-cyclical payment and AMTA payments, cumulative payment limits may have a greater impact on producers with multiple crops than ever before. We urge the committee to consider whether these limits should be increased to take soybeans into account.
Extra Long Staple cotton producers in Texas, New Mexico, Arizona and California have not been immune from difficult economic circumstances. Those producers need improvements in their program. We support continuation of the ELS non-recourse loan program with the current loan rate frozen. Continuation of the ELS competitiveness provisions and establishment of counter-cyclical payments for ELS cotton. A revised ELS program would not add appreciably to total farm program costs, and will maintain equity between ELS cotton, upland cotton and specialty crops in the western cotton producing region.
We support the increase in MAP funding contained in the concept paper and propose reauthorization of other export assistance program. We would remain supportive of a relatively modest increase in funding for the foreign market development program. We also recommend a few changes in the Export Credit Guarantee Program that we believe we improve that valuable program. We support the approach the committee has taken with respect to additional funding and enhancement of existing conservation programs. The CRP, WRP and EQIP Programs have enabled our producers to better control soil erosion, improve water quality and enhance wildlife habitat.
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However, because producers face such an uncertain financial future, it is important that additional funding for these programs can be fully utilized recognizing that the primary goal of this bill is to restore the economic potential of U.S. agriculture.
Mr. Chairman, we do not know the final cost of provisions set forth in the concept paper or how they will be classified within the world trade organization. We hope there will be opportunities to shift some income support from the counter-cyclical category to the fixed, decoupled category, if necessary, to meet our WTO commitments.
We favor trade promotion authority but not unconditionally. We were concerned, as you were, about the administration's decision to report marketing loss assistance as amber box spending. We believe it is imperative that our negotiators consult regularly with Congress and not establish negotiating objectives or enter into new agreements that would restrict these committee's ability to write effective farm policy.
Mr. Chairman, we understand that $73.5 billion can be stretched only so far. You and your colleagues have done an excellent job of crafting a proposal to invest in agriculture's future by restoring competitiveness and providing an opportunity to return to profitability. We want to continue to work with you to find ways to fund program provisions and to optimize the benefits from the dollars that are available for farm programs.
Thank you for the opportunity to provide comments and recommendations. I will be happy to answer questions.
[The prepared statement of Mr. Williams appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. Mr. Dee Vaughan.
STATEMENT OF DEE VAUGHAN, BOARD OF DIRECTORS, NATIONAL CORN GROWERS ASSOCIATION
Mr. VAUGHAN. Thank you, Mr. Chairman, for the opportunity to testify here today about future farm policy.
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My name is Dee Vaughan and I serve on the National Corn Growers Board of Directors. Lee Klein, president of the National Corn Growers also joins me here today.
NCGA commends the chairman and ranking member of the House Agriculture Committee for putting forth a farm bill concept paper that continues the production flexibility of Federal Agricultural Improvement and Reform Act. And adds the decoupled counter-cyclical program as an income safety net when commodity prices fall below target levels.
To help NCGA members evaluate this proposal, we applied the concept provisions to the 2000 crop year experience. We looked at both the aggregate effects with regard to how the proposal would fit within our international obligations. And then more specifically, how corn farmers might fare under the proposal. We appreciate this opportunity to share some of our concerns with the committee.
Our foremost concern is that a counter-cyclical payment that is commodity specific and linked directly to farm commodity prices will not be exempt from the U.S. WTO commitments to limit domestic farm program spending. Our analysis suggests that if this proposal had been in place for the 2000 marketing year our domestic farm program spending would have exceeded our WTO commitment. The total level of support would be almost $22 billion. And we report it as commodity specific and would be included in the U.S. aggregate measure of support under the Uruguay Round Agreement on Agriculture. Obviously, this production and price experience of 2000 is not an indicator of future program outlays. But this committee must weigh the very real potential that the United States could exceed our WTO obligations.
Further, this approach could make it very difficult for the United States to trade our liberalization objectives in the ongoing WTO agriculture negotiation. NCGA has proposed an alternative counter-cyclical mechanism that would have comparable costs and that we believe fits within the WTO exception from reduction. We believe that moving our domestic policy toward WTO compliance will strengthen our negotiating position and improve the comfort level with trade reform among U.S. farmers.
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The draft concept proposes an interesting twist on the old target price system. The fixed payment is included as part of the target price. We understand that the target price is the minimum that the producer would receive per payment bushel. That income will come as an automatic fixed payment, 26 cents per bushel for corn, plus any marketing assistance loan benefits, plus market returns, plus the counter-cyclical payment.
Because the counter-cyclical payment is calculated only on the commodity price, it may not provide adequate support in years when national production falls short and prices rise accordingly. The NCGA counter-cyclical income proposal would provide better protection, we feel like, in those years of low production.
The concept paper includes significant modification of the sorghum soybean and minor oilseed loan rates. NCGA policy does not address loan rates for other commodities, and we will not comment today on whether the proposed rates are appropriate. Our concern with the draft concept is that is does not address the implementation problems of the marketing assistance loan program. Many of these loan rates reflect outdated price relationships, in part because of the political difficulty of adjusting the local rates. The antiquated system is tolerable when harvest prices are strong. But when harvest prices fall below loan rates all these problems become very obvious to producers.
As we suggested in our testimony before this committee last April, NCGA believes that merely rebalancing the loan rates will not address the underlying dissatisfaction. However, if the committee decides to retain the marketing assistance loan, then the following changes should be made to make their loan program work more equitably for U.S. growers. Establish a preharvest LDP, allow producer choice to have their LDP set in the county grown or marketed. And most importantly, direct USDA to set the posted county price as the average of the two adjusted terminal prices for the county.
Aside from the implementation problems, many producers have suggested that the loan program does not protect those who may have suffered a natural weather disaster and do not have a crop from which to collect an LDP payment. However, the continuation of the marketing assistance loan program will prolong this disparity for those who suffer production or shortfalls.
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The NCGA counter-cyclical proposal would not link any portion of the payment to current production. NCGA proposed a counter-cyclical income program that would use more recent acreage and production experience to determine the eligible payment units. We think the counter-cyclical support should reflect the actual production rather than the outdated basis and yields. Because corn has experienced an incredible increases in productivity over the past 15 to 20 years that program yields have been frozen. Corn producers have great frustration with the current payment yields. Outdated payment yields effectively reduce the level of support and threaten to disrupt the balance of support between commodities.
If soybeans and other oilseeds become program crops it is necessary to establish acreage basis for those crops. We believe the committee concept proposes a reasonable compromise that allows each producer to decide whether to keep the base they have today or to update their basis.
NCGA does not support increasing the acreage cap for the conservation reserve program. We believe that given the limited funding available for all programs there should be a focus on providing a greater role in voluntary incentive based assistance for making the right management choices on individual farms. We have adequate resources allocated to existing CRP acreage. The $1.4 billion cost of the proposed increase in CRP acreage should be reallocated to environmental quality incentives program funding with direction given to the NRCS to include production practices such as conservation tillage or timing of nitrogen application, as well as, the broader management and structural options.
We applaud the committee concept for designating $900 million over 10 years for trade promotion. We believe that the additional funding will be better utilized if it is allocated between the MAP and FMD Programs, and if the total funding is gradually increased. Both of these programs provide invaluable assistance to market U.S. agricultural products abroad and are woefully underfunded.
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In closing, Mr. Chairman, this is the first step in the farm bill process. And we thank you for the ability to participate.
[The prepared statement of Mr. Vaughan appears at the conclusion of the hearing.]
The CHAIRMAN. Mr. Anderson
STATEMENT OF TONY ANDERSON, PRESIDENT, AMERICAN SOYBEAN ASSOCIATION.
Mr. ANDERSON. Good afternoon, Mr. Chairman and members of the committee.
I am Tony Anderson, a soybean, corn and wheat farmer from Mount Sterling, Ohio. I currently serve as president of the American Soybean Association, and also appearing on behalf of the National Sunflower Association and U.S. Canola Association.
We commend you, Mr. Chairman, for the leadership you and Congressman Stenholm have shown in developing a conceptual framework for the next farm bill. We also recognize the time constraint that budget resolution has placed on the committee. Oilseed producer organizations want to be full partners in this effort.
We recognize that crops that can be planted interchangeably should have programs that provide balance in equitable price and income support. We said in our March statement that production decisions should be driven by the market, not by program advantages.
Intending no disrespect, we do not find that the draft farm bill concept paper to be balanced and equitable in its treatment of oilseed crops. It gives program crops their current loan rates and target prices that they had prior to the FAIR Act and to the 2002 AMTA payment. It gives oilseeds reduced loan rates and establishes target prices and fixed payments at levels that do not reflect their value or historical price relationship to program crops. It then forces producers to choose between base periods that lock in this unequitable—unequal benefits resulting in sharply reduced income protection for most oilseed producers. And the likelihood of increased base driven production of program crops.
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We urge the committee to take another look at some of the proposals advanced in your hearings earlier this year. One of the benefits of establishing a new counter-cyclical income support program is that it can be built from the ground up, making it easier to address all crops equitably.
The concept paper proposes to establish fixed payment of 34 cents per bushel for soybeans, and 60 cents per hundredweight for other oilseeds. We do not believe that basing a fixed payment for oilseeds on the amount by which the oilseed loan rates are reduced is equitable. Applying a very conservative historical price relationship between soybeans and corn of a 2.3 to one on a corn fixed payment of 26 cents per bushel, the soybean payment should be at least 60 cents per bushel.
We believe that setting the payment rate for oilseeds at only 57 percent of what crop values warrant will encourage producers to sign up for the current AMTA base period of 1991 to 1995 when they planted significantly more acres to programs crops. Anticipating that these inequitable rates may be continued in future farm bills, farmers would likely increase production of traditional program crops that have higher relative payment rates.
The concept paper would establish paying the yields for determining oilseed fixed payments comparable to those for AMTA crops, which date from 1981 to 1985. For soybean yields during that period averaged 30 bushels per acre, 24 percent lower than current projected average yield of 39.5 bushels per acre. Applying this difference to the 34 cents fixed payment, the actual payment rate for soybeans is 26 cents per bushel. This 8 cent reduction represents a loss of $232 million in income protection on a 2.9 billion bushel soybean crop.
Outside the traditional Midwest corn and soybean growing region, yields in 1981 to 1985 were significantly more than 24 percent lower than current yields. For producers in these regions the loss of current income protection would be even greater.
We appreciate that the intent of applying historical payment yields to oilseeds is to treat all crops equitably. The effect, however, is to reduce the value of loan rate production that oilseed producers are being asked to give up. Producers of traditional program crops will not see their current 2002 AMTA payments devalued under the proposal since they were already based on the 1981 to 1985 yields. Oilseed loan benefits are based on actual production. This is neither balanced nor equitable.
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Regarding the counter-cyclical payment program, the proposed target prices for oilseeds are not equitable with those of other crops. The $5.76 per bushel target price for soybeans is 2.1 times the $2.75 target price for corn. Using a very conservative price relationship of 2.3 to 1, the soybean target price should be $6.32 per bushel, or 56 cents per bushel higher. The concept paper provides no rationale for setting target prices for oilseeds at levels well below their historical price relationship with other crops.
If the limiting factor is cost, then target price levels for all crops should be seen at levels that reflect their relative value. Otherwise, producers will go back to building the more lucrative basis for traditional program crops and receive significantly higher income support. Such a situation would be devastating for the soybean industry, and would result in a similar situation to the distortions caused by the 1981 farm bill when soybean acres plummeted as a result of higher Government payments provided to producers of wheat, corn, cotton and rice.
The proposed counter-cyclical program also would encourage producers to sign up for the 1991 to 1995 AMTA base period when they planted more acreage to traditional program crops. This would essentially return the traditional oilseed producers to this situation that they were in prior to the 1996 FAIR Act low loan rates and no income production.
A high percentage of oilseed production could be precluded from receiving income support under the concept paper proposal. Soybean production in 1995 totaled 62.5 million acres, about 83 percent of the 75.4 million planted in 2001. If farms comprised in this acreage sign up for the 1991 to 1995 AMTA base, they will receive only a significantly reduced loan rate for income protection on their soybean production.
We do not believe producers should be required to choose between the current AMTA base period and the 1998 to 2001 period to determine their eligibility for either the fixed or the counter-cyclical payment. The alternative would be to update the base for all crops and to establish equitable payment rates that would not disadvantage producers who have changed their crop mix.
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This approach would reduce the total amount of support provided to crops that have lost acreage under the FAIR Act but would not reduce support to individual farms and farmers. The proposed oilseed loan rates would reduce income support to oilseed producers by $1 billion a year. Unless other programs proposed in the concept paper are substantially modified, oilseed producer organizations support maintaining our loan rates at current levels.
With regard to conservation programs, we do not support raising the cap on CRP acreage to 40 million acres, because we believe additional conservation funding should be targeted at improving conservation on lands under protection. We do continue to support establishment of a voluntary conservation incentive payment program. And we look forward to working with the committee to make room for this program in the overall package.
With regard to trade, we support reauthorization of EEP and DEPEC's board assistance programs that MAP and FMD market promotion programs and the food for progress. We have the following additional comments in these areas. ASA strongly urges the committee to consider a request to establish a minimum annual funding level of $43.25 million for the foreign market development program. The Cooperator Program is a core component of U.S. agriculture's long-term commitment to expanded foreign markets.
We support increasing the funding for food and progress to $1 billion per year as part of an overall strategy that would support an annual commitment of 5.6 million tons of food aid. This plan would also include increasing funding for both Titles I and II of PL480, and a phased increase in support for the global Food for Education Program to the full commitment of $750 million per year.
ASA also supports the authorization of biotechnology in agricultural trade program to expand public and private sector efforts to educate and inform the populations in governments of developing countries about the benefits of agricultural biotechnology.
This would conclude my statement, Mr. Chairman. And I look forward to responding to your questions.
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[The prepared statement of Mr. Anderson appears at the conclusion of the hearing.]
The CHAIRMAN. Mr. Canon.
STATEMENT OF NOLEN CANON, CHAIRMAN, U.S. RICE PRODUCERS ASSOCIATION
Mr. CANON. Good afternoon, Mr. Chairman and members of the committee.
My name is Nolen Canon and I am a rice and soybean farmer from Tunica, Mississippi. I also currently serve as chairman of the U.S. Rice Producers Association.
I am accompanied today by Mr. John Denison, a rice, soybean and cattle farmer from Iowa, Louisiana. John was the chairman of the Rice Foundation and immediate past chairman of the USA Rice Federation.
My testimony reflects the initial consensus of the Nation's rice producers with respect to the Committee on Agriculture's draft farm bill concept paper. These comments are preliminary subject to the availability of information detailing the effects of this proposal on the Nation's rice producers, rice millers and the entire rice industry.
The general reaction of the rice producers to the concept paper has been positive. The committee and its staff have done an admirable job of making the best of the limited budgeted resources available to it to craft a serious farm bill proposal. Rice producers support their option of individual producers to update their base acres to reflect recent plantings provided they are not required to do so. Rice producers are comfortable with the concept paper's proposal to use the current AMTA payment yields for both the fixed, decoupled payment and the counter-cyclical payment. The proposal to continue some form of fixed, decoupled payments in the new farm bill is consistent with the position that rice producers presented to the committee in March.
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We are disappointed that the payment limits for these payments were maintained at the $40,000 level. Eliminating or substantially increasing these payment limits would allow producers to more fully utilize income and marketing assistance programs and to help address the cost price squeeze that all farmers are facing. If left unchanged, these limits will be over 20 years old at the end of this proposed farm bill and will reduce the effectiveness of the program.
We applaud the concept paper's proposal to establish a counter-cyclical payment program to enhance the safety net for producers. Such a program can supplement the support currently provided to producers and eliminate the need for an annual ad hoc farm assistance legislation as we have seen in the last 4 years.
We are concerned that the $10.71 target price on which the counter-cyclical payments are based will also be more than 20 years old by the time the proposed farm bill expires. Such a static target price cannot accommodate the ever increasing prices for energy-related products and other inputs that have placed rice producers in a cost price squeeze.
In addition, because the counter-cyclical payments are based on the future prices of program commodities, we are concerned that the proposal may not comply with WTO rules. In part, to satisfy these trade rules, we propose that the counter-cyclical payments be based on the future receipts associated with program crops.
We prefer that the CCP payments be more closely tied to future crop production to ensure that the payments be made to actual producers whenever possible. We understand the difficulty of satisfying these somewhat conflicting goals and look forward to working with the committee to address these goals to the extent possible.
The use of the national 12-month season average price in the CCP calculation will delay payments to producers until after the end of the marketing year. It will create a hardship for many producers. We recommend that these payments be based on the average prices during the first 5 months of the marketing year. And that the Secretary be authorized to make advanced payments early in the crop year. We are pleased that the concept paper recognizes the need for the payment limit for CCP payments to be separate from other payment limits. We remain opposed to payment limits of any kind.
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Many rice producers continue to be concerned about the effects that the current PFC payments are having on the rice farming infrastructure. Because these payments are decoupled from rice production, some landlords have decided to accept the PFC payments while declining to produce a crop. This has contributed to the significant decline in rice acreage in Texas since 1996. We will continue to work with the committee on possible resolutions to this issue in the weeks and months ahead.
Rice producers strongly support the continuation of the marketing loan and loan deficiency payment program. We applaud the concept paper's attention to this critical marketing tool for rice producers. We are also pleased that the concept paper maintains the loan rate for rice at $6.50 per hundredweight and proposes to retain the authority for the use of generic commodity certificates in connection with this program.
Also, the $75,000 payment limitation on marketing loan gains and loan deficiency payments is not sufficient to maximize producers marketing flexibility. Congress has increased this limitation to $150,000 during each of the last 3 years. We encourage the committee to either appeal or similarly increase the limitation for the life of the new farm bill.
Rice producers support maintaining funding for existing conservation programs. However, we strongly prefer that increased conservation funding be targeted to production- based, incentive-driven payments to producers rather than to increase land idling or retirement payments.
We applaud the concept paper's proposed increase in the funding for market access programs to $100 million annually. We also support the reauthorization of the Farm Market Development Program at $43.25 million each year. Finally, we would like to strongly urge Congress to approve trade promotion authority for the president.
The U.S. rice industry compliments your committee and its staff for the hard work that went into producing the concept paper. It is a positive step toward developing a new farm bill that will provide rice producers a more effective income safety net. We thank you for the opportunity to testify and look forward to working with you to improve this product as it moves through the legislative process.
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Mr. Denison and I will be pleased to answer any questions that you may have in this regard.
The CHAIRMAN. Mr. Bindel.
STATEMENT OF LEO BINDEL, PRESIDENT, NATIONAL GRAIN SORGHUM PRODUCERS
Mr. BINDEL. Mr. Chairman, Mr. Stenholm and members of the committee. On behalf of the grain sorghum producers nationwide I would like to thank the U.S. House Committee on Agriculture for allowing us this opportunity to discuss the farm draft concept paper.
My name is Leo Bindel and I serve as president of the National Grain Sorghum Producers. I farm in a family partnership near Sabetha, Kansas, between Kansas City and Lincoln, Nebraska. Our diversified operation includes grain sorghum, corn, soybeans and hay.
NGSP represents U.S. grain sorghum producers nationwide headquartered in the heart of the U.S. grain sorghum belt in Lubbock, Texas. Our organization works to increase the profitability of grain sorghum production. We would like to start by saying thank you to you for your hard work on drafting the concept paper. We believe that given the budget, WTO obligations and other interests involved in the farm bill debate, this bill is remarkably fair for all parties.
Specifically, our industry would like to thank you for your support in equalizing our loan rate in relation to other commodities. There are many factors that support this decision, including low stocks, the year's ratio, relative loan rates based on weights of other commodities, high cash markets need to growth, and new uses in ethanol, pet food and food products and conservations considerations that we have outlined in our April testimony before this committee.
We believe that from a long-term policy standpoint the loan rate adjustment is one of the most significant conservation items in the bill. And I will address this point later in my testimony. It allows producers the ability to plant a crop that will help them meet conservation compliance and save important resources. This loan rate adjustment is critical to the needs of the grain sorghum producers nationwide.
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Additionally, the grain sorghum industry recommends that the statutory minimum be placed in the law in the same manner as it was done for cotton, oilseeds and rice. We recommend that this minimum level be set a $1.89 per bushel. FAPRI analysis indicates that any additional grain sorghum acreage generated by equalizing the loan rate will generally be nondistortive to grain sorghum supplies. Indeed, from a critical mass and logistics standpoint, increased production would allow the grain sorghum industry to compete in several premium markets in which that are not able to compete today because of lack of a reliable supply.
It is no miracle incidence that last year the spread between the sorghum loan rate and other feed grains was the widest it has been in more than 30 years. And our industry harvested the lowest number of acres on record since 1953.
Mr. Chairman, nationally for the current marketing year, we expect grain sorghum cash prices to be equal with other feed grains. Given these reasons, as well as those detailed in other testimony to this committee, we can commend the committee for your effort in equalizing the relationship between all loan rates.
Our organization has been somewhat of a skeptic on all counter-cyclical programs. However, the counter-cyclical that is proposed here does meet many of our requests. It is totally decoupled and should not drive planting intentions. It is based upon a target price for each commodity instead of a gross revenue program that we do not believe would potentially ever trigger a payment for the sorghum industry.
Finally, it allows farmers and agricultural lenders to work together to figure projections for income and cash flow purposes much better than other counter-cyclical plans. NGSP does respectfully request that the sorghum target price be set at a higher level. Agrilogic data indicates those based upon cost of production numbers for different commodities that a $2.75 target price for sorghum would more fairly represent an appropriate supportive level for sorghum.
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Additionally, we support a regional based program. But understand, given the Federal Government's budget concerns, that reducing the safety net proposal to a smaller geographic area would cost additional money. On a percentage basis the Conservation Reserve Program has taken more acres from our commodity than any other commodity as well as damaging infrastructure in economic activity in rural communities. For this reason, NGSP does not support an increase in CRP enrolled acres beyond the current 36.4 million acre cap. CRP contracts that were entered into prior to the 1996 farm bill retain crop base history. And upon expiration producers on that land were eligible to enter into a PFC contract. USDA published regulations for the 1996 legislation that eliminated all crop base history on 10-year CRP contracts signed after August 1, 1996.
Under the present law, if the PFC program is extended those, those acres coming out of CRP in 2006 and beyond will be ineligible for all farm program crop benefits. NGSB recommends that this problem in CRP acres be addressed now in this farm bill we are discussing today. These CRP contracts should be given the same eligibility status as those CRP contracts that were accepted by USDA prior to August 1, 1996. A personal example of this problem is an 80 acre farm in CRP near my farm homestead I would like to buy was given—but was given the fact that today it has no base. We are having a hard time establishing a fair and market value on the property depending if it does or does not have Government support payments.
NGSP also is very supportive of the $300 fund EQIP to address ground water conservation issues. But as we have stated for our industry, the rebalancing of loan rates is the best conservation program of all. Level the playing field for—leveling the playing for grain sorghum will have significant impact on water savings.
Mr. Chairman, I know that many of the members on this committee or fortunate to be from districts with adequate rainfall or abundant water supplies. I know that you are not from one of these areas, Mr. Chairman, nor are you, Mr. Stenholm. As much of this country's grain sorghum is grown in areas with limited water, for those of you with this committee who are unfamiliar with the water situation to which I refer, a study ordered by the Texas Legislature that covered much of the panhandle of Texas paints a picture clearly on water savings. This study found that the water savings over 50 years in Texas would amount to enough water supply to supply 294,400 typical homes for a year. Although the rebalancing of the grain sorghum loan rate does not fall in the conservation title, this is a recommendation that stands to benefit most producers and environment.
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NGSP supports the present LDP program, but there are discrepancies in payment levels between adjacent counties. NGSP believes in the spirit of the law. It affords payment to those who sell or agree to sell their production without taking out non-recourse loans on that production. This action avoids the accumulation of commodities by USDA.
To the trade and export standpoint, NGSP supports increase in funding of the U.S. Department of Agriculture Market Access Program. But would recommend that $10 million of the increase be redirected to the foreign market development programs which enable sorghum producers to effectively maintain market development needs and deliver consistent service to our customers and potential customers over seas.
NGSP supports a $70 million included for research. NGSP believes that the money the committee recommended would be a huge supplement to the discretionary research dollars traditionally provided to the Appropriations Committee. However, NGSP priorities are the commodity titles including loan rates, AMTA payments and counter-cyclical program trade and conservation.
Mr. Chairman, I would like to thank you and members of the Committee for the opportunity to present our ideas before you today.
[The prepared statement of Mr. Bindel appears at the conclusion of the hearing.]
The CHAIRMAN. From your various commodity standpoints in areas where you would like to see changes made, where would you recommend—that effect dollars, where would you recommend that we look within the Bill to get those dollars? Mr. Tallman, we will start with you.
Mr. TALLMAN. We are still working on that because we know that there is a limited fund. Our first place to seek the dollars would be the additions to the CRP Program. I think you have probably heard from each group here that there seems to be plenty of CRP in the country. We have a tough time—a lot of producers have a tough time finding ground to rent or buy, either one, because it is tied up in CRP. So that is our first place to seek additional funding. We will have to go into it more deeply and find other places, too.
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Mr. WILLIAMS. I will give you about the same answer, Mr. Chairman. The National Cotton Council would want to go back and look at various aspects within the industry to decide on where we might have to switch some money. I might point out that the $1.25 on the step–2 threshold probably could be scored fairly well because we are facing a huge surplus of cotton. And it would reduce some of the storage and interests payment that might be going towards that cotton, if we could just sell a little bit more of it.
Mr. VAUGHAN. We made three recommendations for changes within the Concept. On the conservation we recommended that $1.4 billion be taken from the CRP Program. We will feel there is enough acres in the CRP Program as it is now. And that $1.4 billion be redirected into the EQIP Program.
On the loan changes we asked for we believe those are mostly administrative and that those can be handled by USDA with negligible budget exposure.
As far as the MAP and FMD funding, the committee recommended $900 million, I believe, for MAP. We suggest that $150 million of that be rechanneled for foreign market development programs.
Mr. ANDERSON. Mr. Chairman, at this point, until we are certain as to where the changes are exactly going to be, we are not exactly sure what the costs are going to be. We understand and appreciate the dilemma that the committee has to deal with here. All that policy producers have asked for in the hearing here is that we be treated equitably and fairly amongst the program crops as we enter into this new farm bill.
Mr. CANON. Mr. Chairman, we will recognize and know that conservation is a good thing. I believe that conservation is best expressed through stewardship. My contention is that farmers have always been and will remain the premier and primary stewards of this land. And to maximize conservation and stewardship, I think we would be best expressed through an adequate farm policy that helps address the monetary needs for all farmers in today's economy.
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Mr. BINDEL. Mr. Chairman, this is kind of a difficult question to answer. And I surely would not want to put commodity against commodity. But the grain—the National Grain Sorghum producers board of directors, we suggest that we cap the—at 36.4 million acres and not go any higher. And maybe some of the money from the 36.4 up to the 40 could be used for this endeavor.
The CHAIRMAN. Well, my interest is obviously not to get group against group. But it—I mean, this is—we had a round of hearings in which we asked people to, and you all testified or your groups did, that to give us conceptionally what it was they would like. Now we are to reality. And that was—and those things were very helpful to us. I mean, it was not a waste of your time or ours.
But now we are up to the point of we have to bring the reality into this. And obviously, not everyone is totally satisfied with the Concept. We had to start somewhere. As we make changes, those changes are going to have to come from some place or the other. I mean, we cannot just get them out of the sky. So if you are developing those, as you indicated some of you are, we would very much appreciate your sharing what your thoughts are with us. Because we have had some that have talked about a lot of different money and a lot of different areas. What I am trying to do is to prioritize now if I can what various people want. I mean, if it is not that you are choosing commodity program over conservation or whatever. But if those can be rebalanced, what it does, at least if you can give us recommendations, it gives us a better indication of what your priorities are when we are dealing with a finite budget.
Mr. Vaughan, how much would the proposal that the corn growers are making change if in fact your recommendations were amber box. I know that some people have advised you that they think they could fit, or one or two people have, that they could fit in green. There is a big disagreement as to whether or not that is the case. But let us just assume for a moment, because none of us is going to know. We think a counter-cyclical proposal based the way that the concept papers based has—is as good of a chance to getting in in a green boxes your proposal. But how much does your proposal change if in fact it is amber?
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Mr. VAUGHAN. When you speak of change, do you mean as far as——
The CHAIRMAN. I mean, how much—how much of your—of the suggestion that the corn growers is making as far as an approach to the farm program is based upon the fact that you feel that it would be a green box payment?
Mr. VAUGHAN. Well, we strongly support the proposal. And we acknowledge that there is a lot of disagreement on whether we are amber box or whether we are green box. We acknowledge that. There are people on both sides of the argument.
We believe that the proposal as we have stated it is very much improvement over what we have had the past few years. We believe that it is not as production distorting. And we believe that it is not as trade distorting as what we have had. We believe that it is an improvement in those areas. Even if it is not truly green box, we do feel like it is an improvement in that area.
We feel like there is probably also some of the recent determinations by USDA over previous payments. Maybe casting a little bit of a bias against our proposal.
The CHAIRMAN. And it is an income based counter-cyclical rather than a target price based or a fixed price based?
Mr. VAUGHAN. Yes, it is income.
The CHAIRMAN. How are the other commodity groups, what is your preference in regard to a counter-cyclical being target price based or income based?
Mr. TALLMAN. We do target price based.
Mr. WILLIAMS. National Cotton Council favors target price as well, Mr. Chairman.
The CHAIRMAN. Mr. Anderson?
Mr. ANDERSON. Mr. Chairman, I believe ours would be aligned with the income based aspect.
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Mr. CANON. Mr. Chairman, our original proposal is to be income based.
Mr. BINDEL. Mr. Chairman, ours would be target price.
The CHAIRMAN. We are finding out from these hearings part of the fun parts of this job. Mr. Stenholm?
Mr. STENHOLM. Along the same lines of the chairman, Mr. Anderson, were you—and I believe others indirectly, but you directly called for updating program yields to reflect current production. The question we would have to ask you and others is where do we find the $20 billion that would be required over the next 10 years to update the yields? And that is something as you continue to look at how you answer the chairman's question on all of you, that it is very costly. I also think it gives us a little better argument regarding the amber box/green box proposal by staying with older yields than newer ones. I would like to bring them up-to-date, too. It is the cost and it is a very substantial cost that has occurred.
I also would encourage you not to get too excited as it seems to be a consensus among farm groups to take more money out of conservation. The difficulty that we will have of passing the bill is going to be multiplied greatly by moving into those areas.
Mr. Williams, this week the adjusted world price for cotton is 31.91 cents, which is well below the cost of production. Yet USDA forecasts U.S. productions for the 2001–02 crop year to increase by 400,000 bales to $19.2 million. And I ask you and I ask others that can help me on this one, Mr. Williams, do you believe the program set forth in the concept paper will help producers make better market decisions?
Mr. WILLIAMS. Mr. Stenholm, I really think that the addition of the counter-cyclical component will have very little effect on your choice of crops. I think it would be whatever choices you are making now you will make then. Because that payment is decoupled. Some of the things driving the increase in cotton acres maybe are not related to market price. A lot of them are related to cost production, through boll weevil eradication and BT cotton, for example. So I do not think that the—like I said before, I do not think the counter-cyclical component will increase production.
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Mr. STENHOLM. Now the market is telling us to plant less. In fact, that is true on every commodity sitting at the table. We have got more than we can sell at a profit and yet all of the testimony we have heard thus far has been very opposed to anything that would send the proper market signal, like lowering the loan rate, for example. Lowering the incentive to plant when you—as we start looking at how do we balance our inventories. Unless we can sell it, how do we sent that market to that message to wheat producers that we need to have sent?
You do not have to answer that one right now. But as we—between and next Thursday when we start the mark-up, if you have got some suggestions as to how we might do a better job of that I am interested.
Along that line, everyone of you that are interested in ethanol, alternative fuels, biodiesel, I would like to have your reaction to the Farmer's Union proposal of the creation of a fuel reserve. If we can figure out a way to put cotton seed in it, too, Mr. Williams, well, you can comment on——
Mr. WILLIAMS. I would go for it.
Mr. VAUGHAN. Of course, we are very interested in the ethanol market. But we would look at a corn based reserve for ethanol just like we would any other type of farmer on reserve. Now we have not examined an ethanol based reserve. I do not know what the storage requirements for ethanol would be.
Mr. STENHOLM. Well, here let me give you a concept for you to think about and perhaps comment on. If we are going to do a fuel reserve, which makes good sense. If we are going to develop an ethanol business we had better figure out a way to have some predictability of supply. Or otherwise, you are going to see some real difficulties, I would think with an expanded energy component.
Therefore, I think the reserve is—we got to think in terms of pricing it competitive with oil, because that is who we are competing with. When we are competing with providing energy to our consumers at a price that will be comparable with the competition. And, therefore, a fuel reserve, i.e., whether it be for ethanol or any other purpose, I think is going to have to be looked at from the concept of competing with oil. And so that you will have the potential of a continuous profitable market on that which is going into ethanol.
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Mr. VAUGHAN. Well, certainly, we do not want to be disruptive to the energy supplies of the Nation. As ethanol does become more of a component of the Nation's energy supply, there is a possibility we need to examine an ethanol reserve of some type. As far as feed stocks though for corn, it is the policy of our organization that we will oppose any type of farmer on reserve. And we would look at that as being the same type of situation to have a reserve of corn for feed stock, even for ethanol.
Mr. BOSWELL. Mr. Stenholm, would you yield?
Mr. STENHOLM. Sure.
Mr. BOSWELL. It has triggered a thought in my mind, we in the corn patch do not think we are competing with the oil patch. We think we are complementing it. It is a better stability for our country.
Mr. STENHOLM. Well, you need to come back down to the 17th District and explain back when oil was at $8 a barrel why we were subsidizing ethanol producers?
Mr. BOSWELL. Charlie, I was there. And I understood that. I was there and I understood that. I stood out there on kicking dirt with the farmer out there on the oil patch. And but I still believe that because of the volume, the amount of energy this country consumes, we are still 5 percent of the, what, population consuming 25 percent of the energy. That no entity in itself can do this. And so I actually believe it is our, as corn producers and soy producers, which I am, as you know that, is to compliment and enhance. And not to—I do not think we are going head-to-head. I do not think we can, if you look at the percentages. And I do not think that is something we can do, not anytime in the near future. But we would like to compliment and be able to take away some of the usage we require coming out of OPEC. That is who I want to compete with.
Mr. STENHOLM. I appreciate the gentleman's comment. I wanted the record to show that my question was aimed as complimentary to the support for the ethanol, not in opposition to it. I am very interested in a fuel reserve. And will be—and that is why I am asking everyone at the table to begin considering it. Because if you are going to develop an ethanol industry, we have got to provide for predictability and stable supplies. And I think it can be very complimentary to the industries represented at the table.
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The CHAIRMAN. Mr. Everett.
Mr. EVERETT. Thank you, Mr. Chairman. Mr. Canon, as you are aware, the committee's concept paper doubles the MAP funding to $180 million. And we reauthorized the Cooperative Program at a current level of $28 million. Would you suggest putting a portion of the increase the concept paper gives to MAP and instead give some of that to the Cooperative Program?
Mr. CANON. We supported the concept for the increase in MAP funds. It is my understanding that this covers a broad range of commodities and satisfies some of their desires. So at this time, I am not ready yet to suggest changing that funding level.
Mr. EVERETT. Would you support keeping the Cooperative Program at $28 million?
Mr. CANON. Yes, sir.
Mr. EVERETT. Anyone else have any comments on that? Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Chairman. I have been thinking for several days of how we might meet the needs of, and I am particularly addressing the corn producers and soybean producers, they thought about this long and hard. Are you sure we cannot just march over there at the Budget Committee and get a few more dollars? I am being a little facetious. We have talked about that. Sometimes I am tempted to say, let us just gather up and we will get Mr. Lucas out in front of us. He is tall and we will just have him be the point man. We will just go over there and get some more dollars.
But I am still concerned, a little bit, you heard me talk about this morning with the Farmer's Union and the Farm Bureau, how we get to this balance, if we can. Because most of the corn producers that I know are also soybean producers from our territory. And you have got a kind of different approach here. And I think you have done a pretty good job of telling us where you are coming from. And the thoughts you put into it, I appreciate it.
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Since this morning have you had any more thought on how we might come together on this? I see you are sitting pretty close together. Have you been talking to each other?
Mr. ANDERSON. Friends for life, sir. We just were talking over lunch, so many of the areas that we jointly work now. We have a Commodity Classic Program each winter where we discuss ideas and have our general policy resolutions programs at the same time. We have visits and discussions about biotechnology that do not leave us at odds 100 percent of the time.
Mr. BOSWELL. Well, I know you cooperate. I am not questioning that. I am just wondering how we can get past this situation where we want to do things a little bit differently and it is going to take some money to do it and the chairman is telling us we do not have the money.
Mr. ANDERSON. Well, again, respectfully, sir, the only—and I appreciate your statement that most corn producers are soybean producers. But in many areas many soybean producers will not be corn producers.
Mr. BOSWELL. That is true.
Mr. ANDERSON. And those are the folks that I am here and challenge to—have the opportunity to represent today. And that is where some of our discussion points come from. And there are many areas where we do agree. And I believe we will continue to agree.
Mr. BOSWELL. Well, I do not—I am not at odds with you, Mr. Anderson. Because I have never asked for my soybean check-off to come back to me.
Mr. ANDERSON. Thank you.
Mr. BOSWELL. And I am not doing it now. But I never did, never thought I would. So I have supported both of your programs all the time when I was raising crops. So I mean, it is a genuine, very genuine request of how we can work this out to where we can bring to this plan something that will work in the interest of all of us as we want to continue to have viable, productive and profit-making out there on the farm.
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And that is just where I am coming from. So we will just continue to struggle with it. And we, again, as I told the chairman and ranking member this morning, we appreciate their efforts for a concept paper for us to look at. And now we are down where it is time to get down to the real gritty of it. And that is where we are at. And with the time line we are on, why we have no other choice but to do that. So I appreciate you input, your coming here and the thoughts you put into it. And we will pledge to continue to work with you to work this out. But we—and we have got some doing yet to do. And that is my point. I appreciate your efforts. And if you continue—as you continue to think on it, if you will, as you continue to think about it, why keep in touch and let us see if we can't come to a resolution that will be beneficial to all of our producers. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Lucas.
Mr. LUCAS of Oklahoma. Thank you, Mr. Chairman. Here is the question I would like to put to the entire panel. If you look at the proposal offered up by the chairman and the ranking member, which is a distinct possibility of working its way all the way through the process, look into the future for me a couple of years, 3 years down the road, and tell me what the impact on this proposal has offered up now we will have on the volume of your commodities being produced in this country. Because the reason I say that, the best agricultural economists in the world are those folks at the coffee shop, at the feed store with a pencil and calculator who figure all the odds, determine all the angles and do absolutely what they need to do every time.
Tell me, starting with Mr. Tallman, looking down the road, where will we be in wheat production in 3 years time under this concept?
Mr. TALLMAN. Well, if you look at the last few years' history, we have gone from about 75 million acres to about 59 million acres planted. Wheat has responded very well to the low prices that have been—that it has been faced with. I believe that if we not only adopt the domestic marketing or the domestic policy part of this, but the work on trade and international trade, 50 percent of the wheat is exported, we have not used even in the last 4 years or 5 years now and EEP has always been very beneficial to wheat.
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I believe we can move some more wheat out of this country. The projections we have seen on wheat have been from $3 to I guess, $2.88 to $3.50 over the next 10 years. So I think we will be moving toward more profitability on wheat. It is still going to be right on the boarder line though.
Mr. LUCAS of Oklahoma. But if the producers believe that this $4 target price is here for the foreseeable future, that will send a market signal to get out there and hustle some more, won't it, as far as production goes?
Mr. TALLMAN. Where the payments are all decoupled, I mean, the counter-cyclical is decoupled and the fixed AMTA payment, AMTA style payment is decoupled, it will give producers the opportunity to plant whatever they think they can make the most return on. It may be wheat, it may be something else. So I think all the way through this they will be responding to market signals.
Mr. LUCAS of Oklahoma. Mr. Williams.
Mr. WILLIAMS. Mr. Lucas, I said earlier, I do not believe that the—this concept will have anything to do with increasing production. Mainly because of what he said about being decoupled. I think the biggest factor in all of agricultural, especially cotton, cotton is such an exported commodity. And it is involved in all the way in finished products.
That the strength of the dollar has had more effect on us than anything. I know that is without—kind of outside your scope to address that. But I think things like in trade negotiations that the value of currency ought to become a major part of trade negotiations. I do not think in the past they have been addressed. And I would hope this committee would impress on administration to consider that aspect in future trade negotiations.
Mr. LUCAS of Oklahoma. Mr. Vaughan.
Mr. VAUGHAN. Well, NCGA's policy objective is to have a farm bill that is non production disparity. And we feel that the concept that has been proposed will be an improvement in that area dramatically.
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Mr. LUCAS of Oklahoma. Mr. Anderson.
Mr. ANDERSON. Well, again, I am going to leave with what we have requested is fair and equitable treatment as program crops. And through that, we would see that there should be no distortion of acreage. But with the concept as presented, we would see a shrinkage of oilseed production in acreage. Unless we can gather up the opportunity to have the oilseeds treated fairly as has been represented from past testimony and current testimony written, that suggests a relative value of our product in the market place as compared to the other products that are—that I am growing on my farm.
We see that right now from the current concept as presented, and requesting that oilseed producers look at periods of time when they are disadvantaged from program crops prior. That would be going back to the 1980 to 1985 time frame. Addressed in this as 1991 to 1995, which is previous to the 1996 farm bill, when soybeans were neither a program crop nor received any price income protection. But again, we would see producers going back to the previously known program crops in order to secure those levels of income protection.
Mr. CANON. There has been a great deal of debate here lately about the fence or the balance and the harmony between all of these AMTA rates, loan rates among the commodities. We would like to commend the committee on doing good work and being very close, in our opinion, to maintaining this balance and harmony among the commodities.
Which to answer your question, down the road, what will agriculture look like in a few years. If the maintenance of a reliable, safe and dependable food supplies in the national security as to this country, I would—it is my contention that this bill goes a long way. And I do not think it will drastically change the production of any particular commodity in any one direction. We also have some numbers here from FAPRI doing some future prediction on what they consider will happen if this particular concept paper is enacted. And we would be glad to share those with you as well.
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Mr. LUCAS of Oklahoma. Mr. Bindel.
Mr. BINDEL. From the grain sorghum producers, I mean, this concept paper and FAPRI has indicated that the grain sorghum producers we would have an increase of 5 percent increase in the commodity.
Mr. LUCAS of Oklahoma. And the reason I asked that question, gentlemen, it appears in my observations that it can sometimes take as much as five crop cycles before we respond to the bad news. But when something good happens, in two seasons, two planting cycles, we can leap back to where we started from. So from the decisions we make now, if they are good, will last for a long time. And if they are not, pretty darn quick they will come back. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman. I am a little curious to understand what your problems are with CRP, if it is that you think it is driving up the price of land or just where you are coming from. I think to continue to have a little bit hard time understanding that.
Up where I am from we have a lot of people that are farming today because they were able to take part of their farm and put it into CRP to stabilize their operation. I come from part of the world where no matter what the market does we do not have a lot of options. We can only grow wheat and barley. We have not found good corn varieties and so forth.
So there is other parts of the world that have a little different viewpoint from those of you that are more in the middle part of the country and in a little different climate and so forth. So I just hope you would be sensitive to that.
And it is just curious to me what kind of trouble you guys are trying to buy here. Because the $1.4 billion that has been proposed as an increase in CRP might translate to 1 or 2 cents increase in loan rates. I mean, and you are probably going to gain 200 votes against the farm bill. It does not seem to me to be a very good trade-off, to go in that direction.
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As I told the panel this morning. We had the sportsman caucus met this morning. We have 281 members of the House, 50-some members of the Senate. Their No. 1 priority is to increase the CRP, not to keep it where it is. And it is not just to go to 40 million acres, it is to go to 45 million acres. Which is what, by the way, we had in the CRP at one time. Now I have heard all these different arguments. Maybe we should talk about that this is somehow or another giving market share to our competitors. As I understand it, there is more land in production now in this country than there was before the CRP went into effect in 1985.
I still am a little curious as to why you think this is causing so much problems. Some people in my part of the world argue that the AMTA payments have caused more problems, they have driven up the price of land more than CRP has. And the question I get from urban people all the time is, why is land going up when you guys are losing money. Is it the CRP or is it the AMTA payments? Do you guys have any insight into why land is going up when we are not making any money on these crops? And where would you attribute it?
Mr. ANDERSON. I can speak for the small community that I am from in southwest Ohio. And we are receiving tremendous pressure from urbanization. And as farm land is taken up by shopping centers and new housing developments, the farmers that come out and want to relocate are trading acres. So it is not about the value or the opportunity of their property to return income. It is about their security their base for their home of operation. And as we compete with $2.25 corn or $4.50 soybeans as compared to $100 an acre for a new subdivision or commercial industrial plant to be built on some of my neighbors' farms, we just transfer the base out and it drives the price of land up. But it has nothing to do with the ability of the land to return to its value.
So we cannot stop the urbanization. And I would not suggest that we would stop individual property rights that tell my neighbors they cannot sell their property to a subdivision.
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Mr. PETERSON. You think it is only urbanization that is driving up the price? You do not think it is the commodity programs or the——
Mr. ANDERSON. I think that——
Mr. PETERSON[continuing]. I mean, in our community it happened in my area.
Mr. ANDERSON. I think that the seven elderly ladies that I rent land from get to live a decent lifestyle also. I am not trying to be disrespectful. But they want to live a continued, comfortable life. So if I see an opportunity to give them more money so they can live better so that they can do whatever they choose to do.
Mr. PETERSON. I do not have any problem with that.
Mr. ANDERSON. I understand. But to the notion of CRP who has been long the position of our delegates and our members that we are not interested in moving ground out of production for a supply control program.
Mr. PETERSON. Well, it is not a supply, Mr. Chairman. If I could just respond. We do not see it as a supply control program. It was created in 1985 for that purpose. But I am just telling you in a lot of parts of the country farmers are now making more money raising ducks and pheasants for hunting than they are raising crops or other kinds of livestock. And CRP has been a part of that.
Well, I guess my point is that there is a lot of areas where CRP has been a good economic thing and it has solved some problems and has created some other opportunities for farmers. And I hope we do not lose sight of that. Because we have to keep all this stuff in balance.
Mr. TALLMAN. If I could very quickly. My county in southeast Colorado was bid into the 25 percent level in probably the first 3 or 4 years. It is up at about the 33 percent level. There has been some small additions here and there. We have a small elevator there, small family-owned elevator we have owned since the 50's. We take in about a third of the wheat that we used to take in during wheat harvest. And we talk about rural development and putting money back in our rural communities. This is part of the problem that CRP has caused in some areas.
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As far as the National Association of Wheat Growers, we have an awful lot of members that say they cannot increase the size of their farm. Because the amount of ground that is in CRP. They either cannot bid against the CRP because the CRP is higher than rental rates. Or there is just not any available. And that is why our position is opposing any expansion of CRP, if can help it.
Mr. PETERSON. Thank you.
The CHAIRMAN. Mr. Smith.
Mr. SMITH. On the same subject, that the fact that everybody at the table is overproducing, in terms of the effect that we have on price and our production and world production. Can you give me the fixed cost in producing a bushel or a pound or a hundredweight of your particular commodity you represent? The fixed cost as opposed to the total cost. On my farm operation, if I can get more than the fixed cost, if I am going to pay the property taxes anyway, I have got the equipment and setting there anyway. Do any of you for those that have—might have looked at the fixed costs so, therefore, on my farm operation if the guaranteed price support from the Government is greater than the fixed cost, I might as well go ahead and produce it anyway because I am not going to lose anymore money. Does that—have any of you looked at that—those estimates? Yes, Mr. Anderson.
Mr. ANDERSON. Yes, sir. I am sure you are well aware that above the fixed cost we need to know what our yield was. And in our communities, since we are not irrigated, the challenge again becomes, what will my production be. So I cannot tell you to the penny or probably if I had my home production numbers with me, I could tell you. What I can tell you is that over a period of about 12 years now of relatively intense record keeping, our production costs have not varied within 5 percent. In yields and income has varied probably, straight from the market, probably has varied close to 50 percent.
Mr. SMITH. But I am assuming that the—and I do not know what the average for the United States is. Are we around $5.26, $5.28 a bushel for soybeans. That in your estimate, that is going to cover the fixed cost for the average yields you are going to get over a period of years. Would that be fair to say? Otherwise, you would not produce it.
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Mr. ANDERSON. I would say we would be very close at the $5.26. I would suggest that we are not going to cover all of our costs. We are not going to have a return to management, nor return to investment that would be incumbent upon any CEO of any other industry.
Mr. SMITH. No. But my point is, you have got a fixed cost. And if you can cover that—if you can grow the crop and cover the fixed cost, then you are just as well off as letting that management set idle and paying your property taxes and letting your equipment to sell out. The corn growers, do you have any guesses there?
Mr. VAUGHAN. Well, I was conferring with my colleagues trying to come up with a number. Ours varies. I am in an irrigated area and our fixed costs are actually lower than many parts of the country. We have such high variable costs that is the main part of our production costs. To give you a true assessment for corn, they are saying $2.60 to $2.70 total.
Mr. SMITH. Fixed costs?
Mr. VAUGHAN. No. That is total cost.
Mr. SMITH. Mr. Williams.
Mr. WILLIAMS. Kind of like being there, we got California cotton ground worth way more than what my ground is worth in Texas. But I would guess somewhere around 20 cents a pound, if that is what you are asking me.
Mr. SMITH. That is what I am asking. I mean, the question is, the challenge is, is we are over-producing, we are now under our past programs. We are exporting below the cost of production. How long does this Government want a policy where we encourage production to the extent. The good part is, we clear the market. The bad part is, we are in effect exporting our topsoil. Somehow we have got to be smart enough to come up with ideas of a Government program that is going to in some way keep a viable agriculture in this country without encouraging the kind of over-production. And ultimately, by the kind of support payments that we have the advantage of clearing the market, but export our commodities below the cost of production.
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Mr. WILLIAMS. Mr. Smith, may I talk about that for a second? Back in 1996 you would not have that argument with us. We had under-production. We had the process very high. So what has changed in those years and should we make a knee-jerk reaction to something that may be is a cyclical of a cyclical nature? I contend, the strength of the dollar again is causing a major part of this problem. And I do not know how you guys up there or we can make some adjustments for that. But let us recognize that for what it is and maybe support farmers during this time of high dollar values so that we will still be here when that cycle goes back down.
Mr. SMITH. But still, I mean, the elasticity of supply on price. You just have a little over-production and you see a significant downward reaction in price. Mr. Tallman, you were about to make a comment.
Mr. TALLMAN. I was—we were just kind of scrambling to figure that. We did figure total cost of production was about $4.70. And this is kind of an educated guess. I think the fixed portion of that is about 60 percent of that. So it is $2.80 a bushel for wheat, somewhere in that ballpark.
Mr. SMITH. Any other quick calculations? My time is sort of expired. Mr. Chairman, thank you.
The CHAIRMAN. Mr. Berry.
Mr. BERRY. Thank you, Mr. Chairman. I would just agree with Mr. Williams. I think the value of the dollar is the biggest problem we have got. And that also is the reason that we have for justifying spending tax dollars to support agriculture so we maintain the ability to produce food and power for this country at the level where we know we do have the secure situation. And I do not know what we do about it.
I think we have got—obviously, the level we have on this committee is all it takes is money. And we will continue to struggle with that. I think all of you have done a good job. And I appreciate what you all have done. I think the committee has done a good job. And certainly the chairman and ranking mmber have done a good job of trying to put together a package that some way or the other we can try to make it work for the next few years. Thank you, Mr. Chairman.
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The CHAIRMAN. Thank you. Mr. Moran.
Mr. MORAN. Mr. Chairman, thank you. I commented earlier this morning about the value of the dollar and looking for that solution. I appreciate you highlighting it again this afternoon.
Mr. Vaughan, your response to someone's earlier question about a desire of the Corn Growers to have to have a farm bill that is not production distorting, I think is close to what your words were. You also indicated that this concept is a significant improvement. I was not sure an improvement over what. And it—perhaps your desire to have a farm bill that is not production distorting is what I was attempting to say this morning about having a farm bill that does not encourage something I have called over-production.
And I would like to have you explore that a bit more with me as to what about this concept is good and bad in regard to allowing farmers to make their individual decisions based upon what the demand is for their product as compared to what the farm bill offers them in compensation. And if you would just expand upon your desire about avoiding a production distorting farm bill and where we are and where we go.
Mr. VAUGHAN. Well, the 1996 FAIR Act did a tremendous improvement over previous farm bills as far as eliminating a lot of production distortion. But we did still continue to see that. We saw, the trend into soybeans because of the loan rates and things like that. We feel like as you become more decoupled, more of an income approach, that you can even go farther down that road. And that is where we would like to travel, where you are not production distorting, you are not trade distorting. We can—you are not basing your decisions based on what the Federal Government is the farm program.
Mr. MORAN. And you believe that the concept paper offered by our chairman and ranking member moves us in that direction because the target price, counter-cyclical payment is not production driven? Is that true?
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Mr. VAUGHAN. Right.
Mr. MORAN. So there is—because this third leg of this income support system is there we are de-emphasizing the role that the LDP payment plays in encouraging production?
Mr. VAUGHAN. Well, people were planning for the loan, for the LDP. We feel like the decoupled or the counter-cyclical part of that will help in that area.
Mr. MORAN. And when you talk about this, are you talking about production just within your commodity, or are you talking about overall agricultural production? I understand the desire for us within a commodity within the various commodity groups not to—because of a Government program encourage or discourage the production or the growing of a particular crop. I would like to get it to the macro level, which is that we are producing all crops based upon market signals.
Mr. VAUGHAN. Absolutely. That is what—that is where we made our proposal the way we did. We want the farmer to be able to make his decision based on the economics and the markets at that time. And if that is to change crops or to—whatever fits. In our area this year, a good example of that, is we saw energy prices over the winter months that were tremendous. And since we are in an irrigated area that was a big cost of our production. And if you had the ability to flex in and out rather a rigid program or something that forces you into that situation where you have to plant that crop, you are a much better situation.
Mr. MORAN. Any comments from any of the other associations? Incidentally, I have looked at the panel, except for you, Mr. Canon. We grow all of the commodities that are represented at the table today in my district. And it would be nice if the wheat growers and the corn growers were in agreement. Traditionally, we have been thought of as a wheat State. We have now become a corn State. We want to give our farmers the opportunity to grow kind of everything at the table.
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I would be glad to grow rice, but I do not think we have the water, Mr. Canon.
Mr. CANON. I do not think so either.
Mr. MORAN. You do not want to increase production, I take it? Mr. Chairman, thank you very much. And I welcome Mr. Bindel, a fellow Kansan, to the panel and to the House Agriculture Committee today. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Condit.
Mr. CONDIT. Thank you, Mr. Chairman. And I just want to add, Mr. Berry, I appreciate you gentlemen being here today. It has been very helpful, your testimony in helping craft and draft the new farm bill.
There is a component that we have talked about. I am not sure that you have mentioned it today, but it has to do with trade. I just would like to hear your views of the trade issue. And you can make it as brief or as long as you want. But I just feel like I would be remiss if I did not hit you with that question as well. So whoever wants to start with that, can start with it.
Mr. TALLMAN. From the point of wheat growers, as I said before, 50 percent of our production is exported. We have lost market share for quite a few years in a row, even though our level of export has stayed at approximately the same. We strongly support the use of MAP, FMD, EEP. Any kind of program that we can devise that will help export some of our product. Because for most of those products, most of those programs that is, we use either matching money from producer organizations, or at least, somewhat of an input from producer organizations to help our exports. So we are very supportive of them.
Mr. WILLIAMS. We as well, it looks like we are going to have to export about 60 percent of our crop the way we are losing our domestic industry. This Congress passed a CBI legislation here, I guess, it was about a year ago, maybe longer now. That never has been fully implemented to its full advantage. And I would like to see that come about. I think that would help cotton in particular.
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And again, the only thing I would add is that you encourage the administration to take into account exchange rates when they do some of these trade negotiations.
Mr. VAUGHAN. We, of course, as my predecessors have stated, we support trade also. We are about 20 percent of our corn crop goes overseas. Tremendous amount of meat goes overseas. That is meat on the hoof or corn on the hoof. So we definitely support trade. We support MAP, we support the Foreign Market Development Funding. We also support the President having trade promotion authority. We feel very strongly about that.
In the past few years there has been, pardon me, I may miss it a little bit, but about 130 trade agreements made worldwide. And we are only a part of about two of them. So it is very important that we work to increase trade.
Mr. ANDERSON. The American Soybean Association has long been in favor of trade. We were here to discuss the Free Trade of the Americas Agreement. We were here to discuss WTO China. We will be back to hopefully try to finalize that. China has become the largest single country importer of U.S. soybeans in the last 5 years. We are very much in favor of international trade. We are very much in favor of trade liberalization and a level playing field that will allow us to continue down that road.
Mr. CANON. The U.S. rice industry is very dependent upon international trade. This year we will export somewhere around 45 percent of our crop. And in past years it has been much higher than this. We also have to contending its many unfair trade practices all the way around the world. The Japanese Government supports their farmers to a level 10 times more than ours. Europe as well. We have also been tattooed with probably more than any other commodity with trade restraints. In the 1950's, Cuba was the largest export market for U.S. rice. In the 1970's, Iran was the largest market for U.S. rice. In the 1980's, Iraq was the market for all U.S. rice. It is somewhat of a bitter pill for our industry to know that we are consistently trumped by the interests of the U.S. State Department. But we realize we have to accept some of that. But to the degree that trade has been open and fair for U.S. rice, it is not. And we just want to continue to work to try to open it up for our producers.
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Mr. BINDEL. Grain sorghum producers, we support trade. We have got one thing that a lot of the other maybe that do not have that are setting here at the table with me. We have a problem with not enough supply. We need more supply, so if some of the people would like to try to growing grain sorghum we would certainly appreciate it. But the MAP we support that. From $90 million in my testimony to $180 million. And we recommend delving into the $90 million to foreign market development.
Mr. CONDIT. Thank you very much. I appreciate that response. I would just say to you the same thing I said to the last panel and probably every panel that has been in here for the last few weeks is, keep yout focus on the trade agreements. And I would not count on MAP and any other program to totally bail you out. We have got to see that our trade representatives get a fair deal for us in terms of trade for agriculture.
So my suggestion is that we do not wait for the comma to come being that we are going to fund MAP to the term of $180 million. Because we know those of us who go to the floor and try to fight for that, which we support, is very difficult to do. So when we are in the thick of the trade component, we got to make sure that agriculture gets a fair deal. And I know that is your objective, too. But I—and I am speaking to the choir there. But basically, I think that is what we have to do, is focus on getting a fair deal.
But thank you, gentlemen. I appreciate you being here.
The CHAIRMAN. Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman. And thank you, panel, for your testimony. Just a couple of questions having to do with, in particular I think I will direct these to maybe the soybean and the corn representatives. But one of the things that I have heard in sort of shopping some of these concepts around in my State is particularly with respect to soybeans that—and I think what was hoped was that when we—there was a—the reduction in the loan rate would be offset by the decoupled payment for oilseeds.
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But in areas like South Dakota, which some people describe a fringe areas for soybean production, we have seen a lot of increase in the last few years. And I noticed it was referenced, I think, in some of the written testimony, too. But the question I have has to do with payment yields. Because they are outdated. And if you were talking about using the decoupled payment, the AMTA payment offset, the reduction, the loan rate, it might work were it not for the fact that we are using a lot of outdated, antiquated data and information, in not only the amount of acreage that is planted, but also in the number of bushels per acre that are being generated more currently.
And I assume you all think that an adjustment in those payment yields would make sense if you are going to develop this in an equitable way for all parts of the country. So that is Socrates way of asking that question.
Mr. ANDERSON. That would be very consistent with the position that we hold. The biotechnology has allowed us to increase yields. Has allowed us to plant soybeans. As a matter of fact, I do not know if the wet weather stopped it this year or not, but I think that South Dakota was about to outgrow the number of acres of soybeans that my home State of Ohio has been producing. So I am very much aware of the trend in production. And of course, I again would suggest that it is not driven by a loan rate. There are so many other factors around it.
But we would be very much in favor of an updated production number that would reflect the technologies that bring oilseed production, soybeans in specific, up to current yield levels. It has many, many more benefits than only in talking about the farm program. Our crop insurance yields would be adjusted accordingly. And we are working harder on that every day. But it would be a tremendous benefit to see our soybean yields increased back up to what current production levels are.
Mr. THUNE. If you went back go back to the 1981–95 period in South Dakota, especially the area of the State where I am from, which is western and places where did not just—historically have not had soybean production, a lot has changed. And so obviously, if you use that kind of outdated information it is going to have a big impact on States like mine when you do a computation of some of these formulas.
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Mr. ANDERSON. Over the last 10 years we have seen a global growth in the demand for soybeans at 56 percent. We have seen a U.S. 10-year growth demand for soybeans at 36 percent. We now have the biodiesel product that can help ease some of the energy concerns that Mr. Boswell so effectively brought up earlier.
And it is a product that works in so many areas. So, yes, we would agree whole-heartedly with you in that respect.
Mr. THUNE. Mr. Vaughan, as well.
Mr. VAUGHAN. Yes. We have seen a tremendous increase in the corn yields in the past 20 years or so since the yields were established in this country. If you look at attachment A of our testimony, there is a chart in there that shows the percentages of what the payment yield would be as a percent of the estimated payment, counter-cyclical payment.
And so we would very much be in favor of updating those yields. We feel like if you are going to move to a decoupled, to a counter-cyclical program that it is very important to use the current data possible to initiate that program.
Mr. THUNE. Thank you. One other question. And I would again, it was referenced in some of the testimony and some of the groups that was referring to here. But most of the groups, commodity groups, are at least asking for some kind of, or at least into the corn and the bean groups, are asking is a farm bill this morning for some sort of an incentive based conservation program. But not with great specificity beyond that, which does not give us a lot of direction. Do you want to keep the current EQIP Program as the basis for that? Or do you have some specific suggestions beyond just an incentive based conservation program? Mr. Anderson or Mr. Vaughan, either one.
Mr. VAUGHAN. We in our earlier testimony we advocated taking $1.4 billion out of CRP. And we did not advocate taking that out of conservation. We wanted to maintain it.
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Our philosophy is as an organization is we would like to go to a voluntary incentive based program where it helps farmers meet the conservation that the conservation needs to improve overall environmental quality.
Mr. THUNE. My question is though do you want to continue. Because that sort of exists I think in the EQIP Program. And an incentive based program without anything more specific than that could mean a lot of things. And we are trying to determine what is the best approach on the conservation title of this bill. And if there is room in EQIP to accommodate the crop side of this equation. The livestock folks are very clearly in favor of EQIP. That is I guess what I am asking. If there is anything you would like to say that would be more specific than other than just an incentive based approach.
Mr. VAUGHAN. OK. Well, we do support your CSA concept. We have expressed support in the past for the CSA concept as Mr. Harkin has proposed it over on the Senate side, as far as voluntary incentive based program. And we would like to go down that route. EQIP would take some capital reform to make it into the top program we would really like to see.
Mr. THUNE. That is kind of what I was getting at. Anything to add, Mr. Anderson?
Mr. ANDERSON. We have been supporters of EQIP. And our positions have always been payment limitations should not be an issue. Domestic livestock production consumes nearly 80 percent of the soybean meal that is produced in the United States. And around the areas of livestock production, we see the EQIP as providing benefit for cleaner water and better operations for livestock production. So we would be strongly in favor of keeping the EQIP and working with it in that respect.
Mr. THUNE. Thank you. And I see my time expired, Mr. Chairman. Thank you.
The CHAIRMAN. Mr. Etheridge.
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Mr. ETHERIDGE. Thank you, Mr. Chairman. Let me also associate myself with the comments Mr. Condit made earlier as it related to trade. And I will go a step further because he mentioned MAP. An I am a great supporter. As a matter of fact, I have testified at legislation to put more money in. One of the problems is, it seems like we are pushing that on the backside because it made bad trade deals that our farmers are—we are trying to get into a market after we have been negotiating, so we do not get in it in the way we should be able to trade. So I will keep that in mind.
Let me ask this question, if I may. And if it has already been asked, I apologize, I had to step out. And I will start with you, if I may, Mr. Anderson. Because you quite clearly stated in your comments that soybean growers have many objections about the draft proposal. However, we know from the—I know from the testimony what you would like to have. And all of the witnesses, Congressman Berry said, well, we would like to have more money. But we do not have more money to work with. We just got a limited amount.
But given a choice between what is outlined in the concept paper and the current setup of where we are, which would you prefer, I guess is my question. Because in my State we grow all the products represented at the table, except for rice. We do have a little grain sorghum. We did grow some down on the coast one time and found out we could not make the kind of money on it. We did not have enough wetlands. But would you care to comment on that?
Mr. ANDERSON. Again, our position has been that if we can look back at historical documentation easily documented series of facts that puts soybean production where it is, we are looking for fair and equitable treatment in the bill. And as I respectfully submitted, we feel as though that is not the position that the concept paper puts soybeans today.
We will have to stand by. We will gladly stand by my statement that suggests that we want fair and equitable treatment of the soybeans and the producers that we represent. I do not know if that exactly answers your question or not.
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Mr. ETHERIDGE. Well, you may have partially answered it earlier in comment to Mr. Thune when you were talking about getting a production numbers or up to current production.
Mr. ANDERSON. Correct.
Mr. ETHERIDGE. Reality is because I think it is true in North Carolina as it probably is across the country. Because the production numbers that we use on a lot of the farms today really are not realistic to what has realistically been produced over the last several years.
Mr. ANDERSON. We have been working in many areas to try to document the yield production advantages that have come over in the last few years. So again, we would be in a position the same as I just said to Mr. Thune that we are the same as corn, that we are interested in bringing current production levels into play in the new farm bill. And that does not necessarily mean more dollars. It means that if the committee is stuck at the dollar level where they are at, we are very interested in bringing out production numbers up to current relevant production in its——
Mr. ETHERIDGE. Make sense to me. Thank you, Mr. Chairman. I yield back.
The CHAIRMAN. Mr. Chambliss.
Mr. CHAMBLISS. Is there anybody sitting at the table representing a group that philosophically is opposed to the concept that has been presented in this draft bill? Everybody is pretty much in agreement that we have decoupled payment, a marking loan and a target price. There is a disagreement about the level of funding I understand that everybody wants. And that seems to be basically what we have been talking about. And there is no good answer to that, as I am sure all of you all have figured out.
We had a supply-side system in years past. Supply-side operation of any business has always seemed to help the price of that particular commodity. But in 1996 we heard a lot of having flexibility. And we gave farmers flexibility. Again, is that flexibility that has continued in this particular bill a problem to any commodity? Everybody agrees we ought to have the flexibility. And that is something that we heard in every hearing we had that we should have flexibility.
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Mr. Anderson, you are a soybean grower, as I understand. And I know you come from an area that grows corn and soybeans. With this type of flexibility that you have been given and you have already said that you would like to see a different structure, different price structure for soybeans. But we have moved corn up. The corn alone target price has moved up somewhat. Is that going to be an incentive to you to use that flexibility in your decision-making process to move more into growing corn as opposed to growing soybeans?
Mr. ANDERSON. I will still research all of the input costs necessary to grow the crop that is going to be produced on my property. I will look at the opportunities to market that crop. I will look at what the export numbers are and what the overall yield trends are. I will look at my opportunities with machinery and I will look at my opportunities for labor and man power. Then somewhere in that mix I will look at the Government payments that will be associated, the AMTA payments, the loan rates, and the counter-cyclical aspect of it.
At that time, I will have to make a decision whether or not, which crops will effectively work on the ground that I farm.
Mr. CHAMBLISS. Is that anything different from what you have done every year you have been farming?
Mr. ANDERSON. Yes, sir, it is.
Mr. CHAMBLISS. And how? What is the difference?
Mr. ANDERSON. The bills previous to the—or back——
Mr. CHAMBLISS. Pre-1996?
Mr. ANDERSON. Correct. I planted everything that I could possibly plant to the program crops in order to secure the income protection for my operation.
Mr. CHAMBLISS. And what is your preference, which way do you like to best farm, the——
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Mr. ANDERSON. For profit.
Mr. CHAMBLISS. Have you figured out a way to do that I should move south. Now I mean, seriously, what is the best thing for you as a farmer, to have the flexibility or to have the Government dictate to you?
Mr. ANDERSON. Flexibility. I look at the environmental impacts of the rotation capabilities and the application of new trends and crop protection agents. It all plays into the mix when we set up a farm plan.
Mr. CHAMBLISS. OK. Mr. Vaughan, in your written statement you say, and I quote, ''The loan program will prolong the disparity for those who suffer production shortfalls.'' Now I understand exactly what you are saying there. But we have struggled with just how to deal with that from a yield standpoint as far as plugging those yields into the program. But really isn't crop insurance a method that we need to factor into this process to cover shortfalls that you are talking about?
Mr. VAUGHAN. Well, crop insurance, of course, is a very big part of it. And we look at it as in our proposal as the third leg. AMTA payments, counter-cyclical and crop insurance.
But if you go to the counter-cyclical and you do not base any of it on production, then in short crop years with high prices you can still not designate a—or create a payment. And so those producers that do not have a crop to sell that year and a crop to collect and LDP on would still be disadvantaged.
Mr. CHAMBLISS. Well, but if you operate under the program that is set forth in the concept craft of the farm bill, isn't that taken care of? Doesn't the counter-cyclical payment that has been proposed take care of what you just talked about?
Mr. VAUGHAN. To a certain extent. But it still—if prices were high enough they would offset the loss in production and those farmers that did not produce that year still would not get a counter-cyclical payment. And like I say, they still would not get an LDP payment as well.
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Mr. CHAMBLISS. Yes.
Mr. VAUGHAN. I probably have not answered your question. But maybe I do not understand.
Mr. CHAMBLISS. I think you did. Because there is going to be no LDP payment.
Mr. VAUGHAN. Right. In those years with high prices.
Mr. CHAMBLISS. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Pombo. Mr. Osborne.
Mr. OSBORNE. Thank you, Mr. Chairman. Thank you, gentlemen for being here today.
I would like to ask one question. Maybe you could each answer it very quickly. Maybe one word would be preferable for me. I understand that you would not do well in politics doing that, would you? But there has been some discussion on the CRP. And I know probably the majority of you saying you would not favor increasing it. And one thing I would like to ask you is if we—given the fact that we are going to have 36 million acres or 40 million, or whatever in CRP, do you prefer to have it as it is now which can be whole farm or do you like it targeted more to marginal areas, erodable areas.
Do you feel that there should be some adjustment, or do you feel we leave it as it is right now?
Mr. TALLMAN. Probably targeted.
Mr. OSBORNE. OK.
Mr. WILLIAMS. I would agree.
Mr. VAUGHAN. Yes, targeted.
Mr. ANDERSON. Definite target.
Mr. CANON. Congressman, we have a position on that that we sent Mr. Lucas. And we would be happy to share you with that on some of the incentive driven programs we promote.
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Mr. BINDEL. I would prefer targeted. We would.
Mr. OSBORNE. OK. That will be interesting. Because I think it is something we need to look at as we go into the conservation title. And this is—my next question has really been something Mr. Chambliss and Mr. Etheridge I think alluded to earlier. But in Nebraska, as I talk to producers, and as they began to examine this proposal, they have a feeling that there is going to be a decided shift from soybeans to corn. Whereas in past years maybe we have had a disproportionate amount of acreage shifting to soybeans. Do you, Mr. Vaughan, Mr. Anderson, detect that as being the likelihood because of the target prices, or do you feel that that is not a problem with what you see here?
Mr. ANDERSON. We would concur with your thoughts there that have been presented to you. Again, under the—if farmers do not update their bases under the concept paper, the guys that produce soybeans will only be safeguarded by a much lower than $4.92 loan rate. So that our feeling would be, that we are going to forfeit a lot of acres not just to corn here, but to increase production elsewhere in the world, which then we forfeit world market share and create an everlasting problem.
Mr. OSBORNE. Mr. Vaughan.
Mr. VAUGHAN. I would agree that you are going to see some acres drift back into corn that have moved into soybeans in the past few years because of the lowering of the soybean loan rate.
Mr. OSBORNE. OK. So then given a finite number of dollars, the optimal solution as far as Mr. Anderson and some of your concern is more dollars. But given the fact that there is a set amount, do you see any adjustment that there needs to be made within the existing framework that would rectify that situation?
Mr. ANDERSON. I doubt the corn growers are going to want to lower their rates.
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Mr. OSBORNE. And—but I just wonder if there is any possible solution that you see?
Mr. ANDERSON. All we could possibly do is go back and look at the historical ratios that we can present and try to negotiate into some position from that point.
Mr. VAUGHAN. We had some comments in our meetings earlier this week that ratios are pretty close. They do not feel like that they are—once the initial, grip back from the high loan rates that the soybeans have had that—probably after that point in time it will be pretty well even.
Mr. OSBORNE. OK. And one last thing. Mr. Vaughan, I think you alluded to the fact that your program that you originally proposed for the counter-cyclical payment was primarily income based and as opposed to a target price. Would you quickly explain why you feel that is advantageous income based versus a target price.
Mr. VAUGHAN. Well, we believe it is less production distorting, less trade distorting. As we talked about earlier in the session we believe that that also gives us a lot stronger argument as far as getting our proposal into the green box. If you have a national income level you establish a producers portion of that counter-cyclical payment when it is generated by a previous history base period. All these things are income related. It gives us a much better argument for being in the green box.
Mr. OSBORNE. OK. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Putnam.
Mr. PUTNAM. No questions, Mr. Chairman.
The CHAIRMAN. Does any member wish another round with this group of witnesses? I want to thank you for your patience and for your testimony. And I could just encourage you while you are in town as a little bit of a side note, you and your groups, this committee and the House reported out a market loss assistance program for the 2001 crop which the Senate has to act on. It is my understanding that they are not taking it up again this week. And while you are in town if you are making any calls on the other side of the Hill, you might want to suggest that that potentially could come to be a problem. Checks have to be written before the 30th of September. And it is imperative that that be done before the August break. Thank you very much, gentlemen.
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I will call the third panel to the table.
Mr. Jack Roney, director of economics and policy analysis, American Sugar Alliance, who is here on behalf of the U.S. sugar industry. Mr. Doyle Fincher, president of Western Peanut Growers Association in Seminole, Texas. Mr. Robert Sutter, vice chairman of the National Peanut Growers Group, Spring Hope, North Carolina. Mr. Jim Evans, president of the USA Dry Pea and Lentil Council in Genesee, Idaho.
I would invite the panel to the table. And as soon as some of the departing noise subsides, Mr. Roney, you may proceed.
STATEMENT OF JACK RONEY, DIRECTOR, ECONOMICS AND POLICY ANALYSIS, AMERIACN SUGAR ALLIANCE
Mr. RONEY. I am Jack Roney, director of economics and policy analysis for the American Sugar Alliance. I am proud to speak on behalf of all American growers and processors of sugar beets and sugarcane.
I would like emphasize why the policy course we have requested for the U.S. sugar industry is the only one that will work for American sugar farmers, consumers and tax payers.
U.S. sugar policy was run at no cost to the U.S. Treasury from 1985 until last year. From 1991 to 1999 we were a revenue raiser of nearly $300 million. The Government has made no payments to American sugar farmers and processors since the 1970's. It has administered the loan program as it does for all other program commodities.
The Government was able to avoid cost by maintaining a domestic market price sufficient to induce sugar farmers to repay their loans rather than forfeit them.
In the past, the Government has had two tools to manage U.S. sugar supplies and price. One was the import quota which would be ratcheted up or down, depending on the size of the U.S. sugar crop and changes in consumer demand. The other, which became part of permanent law in 1990, was the Secretary's ability to limit domestic marketings of sugar. But the 1990 farm bill also limited the effectiveness of the import quota tool. Responding to pressure from foreign sugar exporters, the bill effectively set a limit—a minimum import quota of 1.25 million tons regardless of U.S. needs. The U.S. later agreed in the Uruguay Round of the GATT to codify this import minimum into international law at a slight higher level, 1.26 million tons.
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Then in 1994, the NAFTA granted Mexico up to another quarter of a million tons of guaranteed access. This effectively boosted potential minimum imports for more than 1 1/2 million tons, around 15 percent of U.S. sugar consumption. And further blunted the import quota tool.
The worst blow, however, came in the 1996 farm bill which suspended the Secretary's authority to restrict domestic marketings, eliminating that supply balancing tool altogether.
Other developments exacerbated the sugar supply situation. First, prices for all program crops plummeted soon after 1996. And the Freedom to Farm bill provided other program crop farmers the flexibility to receive decoupled payments on those crops while switching some acreage to sugar beets or sugarcane, which many did.
Second, Mexico is suing for even greater, virtually unlimited, duty-free access to the U.S. sugar market. And is able to send sugar to the United States above quote because of the NAFTA provided reduction in Mexico's above quota tariff to zero within the next few years.
Third, Canada and now other countries are circumventing the sugar import quota with concoctions like ''stuffed molasses,'' designed for the sole purpose of circumventing the U.S. sugar import quota.
With minimum imports so high, with over-quota imports out of control, and with the Secretary's ability to limit domestic marketing suspended, the Secretary has lost control of the U.S. sugar market. The result has been disastrous.
Wholesale refined sugar prices have been running at or near 22 year lows for most of the past 2 years. This has meant economic ruin for many American sugar farmers, who unlike other program crop farmers, have received no Government payments to offset low market prices. The Nation's largest seller of refined sugar is in bankruptcy. Many beet and cane mills have closed and others may. Sugar beet acreage is down 13 percent from last year.
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I would respectfully request that the committee ask the candy manufacturer who will testify before you tomorrow against U.S. sugar policy how much consumers have benefited from the disastrously low producer prices for sugar. I can tell you now the answer is not at all. While the producer price for refined sugar is down nearly 30 percent since 1996, the grocery store price of sugar is actually up by 11 1/2 percent. Candy prices are up 8 percent. Cookies and cakes up 8 percent. Ice cream up 14 percent. Higher profits for the grocers and food manufacturers, no help for consumers.
As a result of the low prices, last year for the first time in nearly two decades, sugar producers forfeited a significant quantity of sugar to the Government. And U.S. sugar policy cost money.
Had the Secretary been able to reduce imports below 1 million tons the past 2 years, or been able to limit domestic marketings, the market could have been kept in balance and this price disaster could have been avoided.
We have recommended the only policy path that will restore balance and economic stability to the U.S. sugar market at no cost to the U.S. Government, and in full compliance with our WTO and NAFTA obligations.
Number 1, resolve the stuffed molasses import problem. Legislation pending in the Senate, the Breaux-Craig Bill, will accomplish this.
Number 2, resolve the sugar provisions of the NAFTA with Mexico to help restore balance to both the U.S. and Mexican markets.
Number 3, restore and improve the Secretary's permanent law authority to limit domestic sugar marketings. The domestic inventory management program we propose does not limit plantings. It is not a set-aside. Does not limit production. And it will not prompt producers to expand production to increase their base. It can be implemented only when our import control problems are resolved.
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Domestic sugar processors simply may have to postpone marketing of and store at their own expense the sugar they produce in excess of the rate of growth in U.S. needs.
A restoration of the Secretary's authority for inventory management is the only solution that will restore balance and stability to the U.S. sugar market without cost to the U.S. Government, and in full compliance with our international trade obligations.
Thank you, Mr. Chairman, for the opportunity to testify.
[The prepared statement of Mr. Roney appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much. Mr. Fincher
STATEMENT OF DOYLE FINCHER, PRESIDENT, WESTERN PEANUT GROWERS ASSOCIATION.
Mr. FINCHER. Mr. Chairman and members of the committee, my name is Doyle Fincher, president of the Western Peanut Growers Association.
Today I am representing the coalition of State and regional peanut organizations from across the country. The Alabama Peanut Producers Association, the Georgia Peanut Commission, the Florida Peanut Producers Association, the George Peanut Producers Association, the Panhandle Peanut Growers Association, the North Carolina Peanut Growers Association, and the Western Peanut Growers Association.
Since I last appeared before the committee, both the Alabama Peanut Producers Association and the North Carolina Peanut Growers Association have expressed support for the peanut marketing loan program.
As we testified previously before this committee, our grower organizations represent the largest majority of the peanut production in every region of the country, supports a $500 marketing loan program for peanut producers. We also testified that our quota holders who have made sufficient long-term investments and have planned their futures, in many cases, on the quota income should be compensated for the loss of the quota.
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We believe a payment of 14 cents per pound over the life of the bill, with a minimum of 5 years, is a fair compensation. We pointed out in our earlier testimony that the 14 cents per pounds is the average annual lease rate of quota in the State of Georgia, our Nation's largest peanut producing State.
The draft farm bill concept paper provided $3.4 billion over 10-years for the development of the peanut reform program. We appreciate the committee's effort to provide funding for peanut growers to move our program into the world market place. It is our understanding that the $500 marketing loan coupled with the 14 cents per pound transition payment will cost more than the $3.4 billion proposed by the committee.
We also understand that the Congressional Budget Office has scored the quota holder transition payment of 14 cents per pound at $1.75 billion over 5 years. The $450 per ton marketing loan will cost $2.45 billion for 10 years, according to CBO. The total of these marketing loan and transition payment costs are greater than the $3.4 billion recommended by the committee's concept paper.
We believe that both the loan and transition payment components are essential in making the new Peanut Program work effectively in all regions of the country.
If our market loan and transition payment proposal must be reduced because of the budget constraints, it is important that they be reduced without sufficient bias toward the producer or the quota holder. We must prepare for the future of the industry, but not ignore the tremendous investments made in good faith of the past.
We ask the committee work with CBO to determine a market loan rate and a transition payment for the quota holder that falls within the $3.4 billion allocation for peanuts, if the committee feels that no more monies can be allocated for this significant change in the Peanut Program.
We want to continue to work with the committee as you develop your farm bill peanut proposal.
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Thank you for allowing me to testify today.
[The prepared statement of Mr. Fincher appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. Mr. Sutter.
STATEMENT OF ROBERT SUTTER, VICE CHAIRMAN, NATIONAL PEANUT GROWERS GROUP
Mr. SUTTER. Thank you. Mr. Chairman, thank you for the opportunity to appear before you today.
I am Bob Sutter, vice chairman of the National Peanut Grower Group. The testimony of the grower group has been submitted for the record. But today I would like to use my time to discuss some areas of concern. Because of the recent release of the concept paper by the committee and other quickly developing proposals, the National Peanut Grower Group has not had the opportunity to meet and take a position on these issues. Therefore, these comments are the result of discussions with growers and grower representatives over the past several days.
It appears that there is a great deal of support for the marketing loan concept. In testimony just given by Mr. Doyle Fincher, a loan rate of $500 a ton was recommended. Considering the $3.4 billion allocated to peanuts in the concept paper, our challenge is to make a $500 loan rate along with a quota payment fit within that total.
Mr. Chairman, peanut producers are not fans of NAFTA. It is the reason we are here today discussing a marketing loan program. The declining tariff rates and the resulting imports are destroying our Peanut Program. It only make sense that we be given the opportunity to use those tariffs to the advantage of the American peanut farmer.
Beginning in the year 2003 peanuts imported into the United States will carry a tariff of 58.1 percent. Assuming a $350 price, the cost exclusive of freight, would be $553 per ton. Under NAFTA, imported peanuts will be priced around $550 in the year 2003. Why are we in such a rush to give U.S. peanuts to the market at $200 less than the imported peanuts.
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With the use of the spread afforded by these tariffs we would be allowed to transition into the marketing loan program over the next 5 years, and offer a decent loan rate. This would reduce costs in the early years and allow the $3.4 billion to be used to the advantage of the producer rather than the end user.
I also would like to stress the need to have an active producer marketing association. It is imperative that producers have a marketing alternative. With concentrations in agriculture and in the shelling industry, producers have few choices when marketing their peanuts. Marketing associations would provide that alternative.
U.S. peanuts have to meet strict quality standards. These standards are supervised by the Peanut Administrative Committee. Continuation of these standards is very important. Without these standards we would be unable to ensure quality of domestic, as well as, imported peanuts.
Mr. Chairman, I do not need to remind you or any member how serious the economic conditions are on the farm today. And how important the Peanut Program has been to farmers in the past. What I am asking that as a result of this process, peanut growers be allowed to transition into a soft landing rather than being thrown from the plane.
Thank you, sir.
[The prepared statement of Mr. Sutter appears at the conclusion of the hearing.]
The CHAIRMAN. Mr. Evans.
STATEMENT OF JIM EVANS, PRESIDENT, USA DRY PEA AND LENTIL COUNCIL
Mr. EVANS. Mr. Chairman, I want to thank you for letting the U.S. Dry Pea and Lentil Council testify today. And because this is the first time that we have testified in front of your committee, I have some commodities. So I think some of the—if I could get you to pass out these three bags. You may not know the difference between a chick pea and garbonzo bean and lentil. So I want to set the record straight, to it will be.
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The CHAIRMAN. Is there test?
Mr. EVANS. And, Mr. Chairman, if you would look very carefully where those chickpeas and lentils are packaged, too, I think it is in your home district of Hereford, Texas.
Mr. Chairman and members of the committee, thank you again for letting us testify today. My name is Jim Evans. I am a fourth generation dry land farmer from Genesee, Idaho. I produce wheat, barley, dry peas, lentils and chickpeas on my farm. I am currently chairman of the Dry Pea and Lentil Council of the grower division. I would like to thank the chairman and the members again for the opportunity to speak today.
The USA Dry Pea and Lentil Council is a grassroots organization that represents growers, processors, exporters of dry peas, lentils and chickpeas in the United States. Membership in our organization spans the northern tier States of Washington, Idaho, Oregon, Montana, Minnesota, North and South Dakota, and also includes the southern States of Arizona and Nebraska. These crops are grown on over 500,000 acres of land last year.
My statement today is a reflection of the USA Dry Pea and Lentils Council's desire to be included as a full and equal program crop in the 2002 farm bill. We seek inclusion in the farm program because our industry is facing the most difficult times in our 60-year history. Historically low prices for the past 3 years are threatening the grower, the processor and exporter infrastructure our industry has developed since the 1940's.
Dry pea and lentil prices are the lowest in my 27 years of farming. Subsidized competition, trade sanctions, a lack of a competitive export credit program, a strong dollar, the Asian flu, favorable weather patterns for our competitors have sent our pea and lentil prices to the basement for the past 3 years. Since 1996 dry pea prices have dropped 49 percent, lentil prices 42 percent, chickpea prices 25 percent. This dramatic price decline has forced farmers to shift acreage into program crops that have a safety net, such as wheat, barley and oilseed. Production of dry peas and lentils and chickpeas will continue to decline if these crops are not included in the 2002 farm bill.
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Dry peas and lentils are an eligible flex crop under the current farm program and face the same volatile current program—excuse me. We do not have the—our crop—program crop is the only one that does not have a safety net when we have low prices. Every crop our membership grows besides peas and lentils is effectively a program crop with a safety net.
Due to this unique situation, our industry is watching farmers choose to grow crops that are eligible under the marketing loan program instead of growing the legumes like peas, lentils and chickpeas. Since the 1996 farm bill acreage has shifted away from legumes and spring wheat and canola and declined our industry and our industry's infrastructure will be unfairly affected by the Federal farm policies.
Dry pea and lentils are an eligible program crop in terms of there are no prohibitions for planting on program crop papers. However, the concept paper does not take the next step and put pulses on equal footing with other program crops that are eligible for marketing loan fixed payments and counter-cyclical price supports. By not authorizing a pulse crop safety net the concept paper will accelerate the current shift of acreage out of pulses as previously stated.
USA Dry Pea and Lentil Council feels that most farmers gross income under the concept paper will not be dramatically affected, just that farmers will continue to receive LDP's in times of low prices. And that currently loan-eligible crops rather than dry peas and lentils.
Despite not being presently included in the provision of the concept paper, our crops would otherwise fit into the mold of the draft paper. USA Dry Pea and Lentil Council has specific proposals for establishing a loan rate of our crops and a decoupled fixed payment could easily be determined whether appropriate target prices.
Dry peas and lentils and chickpeas are grown in a rotation with wheat and barley and minor oilseeds. These legume plants require no nitrogen or phosphate fertilizer. In fact, legumes fix nitrogen into the soil. They also break up the weed disease cycle and cereal grains like scab and foot rot. These legumes also play an important role in accomplishing conservation goals. They are a vital component of a no-till, direct-till, minimum-till cropping system that improves soil, water and air quality.
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In addition, legumes reduce the need for stubble burning. Field burning has become a major environmental problem in the Pacific Northwest as farmers move to spring wheat instead of a legume crop. It is important that growers have an option to include these environmentally friendly legumes in their cropping rotation.
Unfortunately, the current agricultural crisis is forcing farmers to move away from a sound crop rotation that includes legumes in favor of program crops with a safety net.
Finally, we believe pulse crops should be included in the proposed loan and flex fixed payment programs because of their positive nitrogen fixing and rotational benefits. The concept papers continuation of the status quo loan program, even with proposed reduction of loan rates for oilseed will continue to discourage farmers from growing pulse crops.
Thank you for hearing my testimony and I will entertain any questions.
The CHAIRMAN. Thank you very much. Mr. Stenholm.
Mr. STENHOLM. Mr. Fincher and Mr. Sutter, where should the market loan rate be set so that it will not stimulate production?
Mr. FINCHER. I think somewhere probably in the range of $425.
Mr. SUTTER. My turn? $500.
Mr. STENHOLM. $425 or $500. If we established a market loan for peanuts at $500 there would be no increase of production over and above what we could consume?
Mr. SUTTER. We are already producing more than we consume, Congressman. You mean above the current level, is that what you are asking?
Mr. STENHOLM. No. I am going to back to sugar in just a moment. One of the problems we have had with sugar, we had apparently a more lucrative program because we produce more than we could sell with an open-ended purchase program. Sugar has now come in with an inventory management program that is way to say no net cost. We set the market loan, it will be cosseted at whatever we decide. If you produce more than that, there is not going to be a cost associated.
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One of the concerns we have with peanuts on a market loan, open-ended, is that it will stimulate more production than we can sell. The second question, if that is to be the case, any suggestions as to how we manage our inventory if in fact we do encourage more production than we can sell?
Mr. SUTTER. My suggestion would be make loan eligibility a part of the program in relationship to the production the producer had in the past.
Mr. STENHOLM. In other words, establish a base and support X-amount?
Mr. SUTTER. Yes, sir.
Mr. STENHOLM. Mr. Fincher?
Mr. FINCHER. Well, you could establish a base on the total production of peanuts being produced. And if a new producer wants to come aboard, there could be provision in there to allow him to build a base over a 2- or 3-year period. Something similar to maybe what cotton has got.
Mr. STENHOLM. Mr. Roney, can you briefly explain the recommendation that you are making regarding the supply inventory management component of the sugar title that you are proposing?
Mr. RONEY. Yes, Mr. Stenholm, I would be glad to. Sugar is unique in the sense that it is the only major crop that by international law must guarantee of 1 1/2 million tons or it amounts to about 15 percent of our market to foreign suppliers whether we need that sugar or not. That boxes our producers in. Our producers would appreciate the kind of flexibility that other producers have had.
But it does not work for sugar. Because we have this commitment to foreign suppliers. If we are to be able to maintain domestic sugar industry, which I would argue we should be allowed to do because we are efficient by world standards, our costs of production are below the world average. We welcome the opportunity to compete on a level playing field.
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But until foreign policies have been brought down and distortions removed form the world market, we need to maintain our program. Otherwise, we are just putting our producers out of business for the sake of subsidized foreign producers.
In order to achieve a stable price in this U.S. sugar market, given the fact that we have got to import about 1 1/2 million tons of sugar per year, the only supply, the only management tool left for the Secretary is to restore the inventory management mechanism that is already in permanent law.
Mr. STENHOLM. Which is what?
Mr. RONEY. It is a system of marketing allotments. It is not a set-aside. It is not a production control. What is amounts to is the limitation in years when our production has risen in excess of our demand growth, that those producers who have expanded greater than our demand growth will be forced to store some of their sugar at their own expense until——
Mr. STENHOLM. How do you allocate the individual based, individual growers around the United States?
Mr. RONEY. We would prefer to take care of that within our industry, Mr. Stenholm. We have already within the industry had a very long and difficult sessions to sort out how best to allocate within our industry. We would prefer not to leave that on the doorstep of Congress or the administration to have to do. But we are willing to take on that difficult task ourselves. And we think we can do it in a market-oriented fashion that would not prohibit new entries. And that would in effect enable the producers who are most efficient and have the highest capacity to have the highest share of the market.
Mr. STENHOLM. Mr. Chairman, I will take the second round. My time has expired.
The CHAIRMAN. Mr. Everett.
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Mr. EVERETT. Thank you, Mr. Chairman. Mr. Sutter, I am kind of intrigued. Your written testimony says absolutely nothing about a transition period and nothing about being in favor of a marketing loan. Can you explain how that happened?
Mr. SUTTER. Yes, sir, I can. You are asking me why did it diverge from the National Peanut Grower Group written testimony as submitted?
Mr. EVERETT. Yes.
Mr. SUTTER. The testimony that was submitted basically stated the position of the Grower Group and let me explain, as Mr. Fincher mentioned a moment ago, that since the last time he testified there have been other people who have agreed with the marketing loan concept, which is Alabama and North Carolina.
When we originally voted by the National Peanut Grower Group on which policy to approve, there were four people who voted against the step–2 type competitiveness program, which has been the testimony of the National Peanut Grower Group for quite some time.
Since that time, there have been some changes. We have not had a chance to meet. But it was the feeling of the people, the grower groups or the grower representatives and growers in Washington in the last couple of days that we would submit the testimony of the Grower Group. And that other options were to be discussed on how we could make the $500 work in lieu of, or in considering the fact that we had $3.4 billion to worth with and how we could make the $500 fit into that.
Mr. EVERETT. In other words, a group of guys just got together up here and changed the entire testimony. Is that what you are telling me?
Mr. SUTTER. No, sir. Well, yes. Yes. I guess you could say that, yes, sir.
Mr. EVERETT. Yes, it is. Also, last time you testified or your group testified before this subcommittee, you wanted the price support. You wanted $780 a ton.
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Mr. SUTTER. Yes, sir.
Mr. EVERETT. And now you feel like you get by with $500 a ton on marketing loan? Well, what exactly do you see taking place the next couple of years? You want the price support system to stay in place?
Mr. SUTTER. No. I am looking for a transition in looking at what peanuts could be purchased for on the import market, as far as the tariff rate that are available. And which in the first year it would be $556. And we are looking for some way to get income out of the market instead of using it all out of that $3.4 billion so that we can spread that amount over fewer years than the 10 so we can get a better loan rate.
Mr. EVERETT. No. You are throwing it in with the market loan side, that $580. Is that what you are asking for the market loan of $580?
Mr. SUTTER. No, sir. I am asking for a transition period the first 2 years or 3 years into a marketing loan.
Mr. EVERETT. What happens during the transition period?
Mr. SUTTER. Well, we have somewhat of a highbred of a production control or loan eligibility program that would allow us to set the market price for peanuts close to what the imported price would be, rather than $325 or $350, which would be the world market price.
Mr. EVERETT. Are you describing a price support like the current one?
Mr. SUTTER. I am not describing a production control. I am describing a program in which loan eligibility would be a function of your past history in order to limit the amount that would be eligible for loan. And, thereby, limit the cost to the Government.
Mr. EVERETT. Would the quota system continue under——
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Mr. SUTTER. The quota system would not continue. It would be bought out.
Mr. EVERETT. OK. Have you got any idea how that transition period could take place?
Mr. SUTTER. How long it would take?
Mr. EVERETT. Yes.
Mr. SUTTER. Well, if you look at the tariff schedules in the first year, the cost of an imported peanut is $556. The second year it is $512. The third year it is $572. So it would be in the third year before you would have a cost when you look at the target price of $500 versus what it would cost to get an imported peanut in. And in that year would just be $28 a ton. So we are looking at trying to move the cost away from the Government in the first 2 years so that we can spread the $3.4 million over 6 or 7 years instead of 10 years. And we feel like this would allow us to offer a bit higher loan rate than the $450.
Mr. EVERETT. Mr. Fincher, what do you think about that?
Mr. FINCHER. I have not seen the proposal, so I really do not know how to comment on that.
The CHAIRMAN. That makes two of us.
Mr. EVERETT. OK.
Mr. FINCHER. Our position is to go ahead, and start with the marketing loan.
Mr. EVERETT. OK. I see my time is up. If I may have a second round, Mr. Chairman.
The CHAIRMAN. Mr. Condit.
Mr. CONDIT. No.
The CHAIRMAN. Mr. Peterson.
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Mr. PETERSON. Thank you, Mr. Chairman. I do not have too many peanuts so I will leave that to Mr. Everett and others. But on the sugar issues, and I apologize for being out when you gave your testimony. But getting back to Mr. Stenholm's discussion of the marketing allotments, as I understand it, your asking is one of the things that you may be re-established. Apparently there are in permanent law that they have been suspended?
Mr. RONEY. Yes, sir. They were suspended in 1996 farm bill. They were made permanent in the 1990 farm bill.
Mr. PETERSON. Right. So I guess I was reading through your testimony on how that was going to operate. And apparently they would not be put into place unless the stuffed molasses and the Mexico sugar dispute were resolved.
Mr. RONEY. Yes, sir.
Mr. PETERSON. Am I right about that?
Mr. RONEY. Yes. If we were not to do it that way we would simply be cutting back our production to make room for subsidized imports from Mexico or for imports that were of syrups concocted solely for the purpose of circumventing the import quota.
And we believe that those problems can be fixed. We are in discussions, the administration is in discussions with Mexico on that issue. And there is legislation pending in the Senate that would resolve the stuffed molasses issue. So that both those issues are solvable.
Mr. PETERSON. Well, I hope that you are right, they can be fixed. But I am not sure if I am as optimistic as you are that they are going to be fixed.
I am one that believes the Secretary needs this authority. And that clearly if we would have had this authority this last year we would be in better shape.
If this committee saw fit to put in re-establish the marketing allotments without those two provisions, in other words, they operate the way they used to, what would your industry be opposed to that?
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Mr. RONEY. Yes, sir, we would. For the reason I just stated. It would just put us in a hopeless situation. Once marketing allotments were put in place that would be a signal to Mexico, a signal to the creators of stuffed molasses and like products that we are essentially making room in our market for those products. So we really cannot go that route until those issues are resolved.
Mr. PETERSON. Now as I understand it, in the draft concept paper the assessments that were supposed to be re-established October 1 are eliminated and you support that?
Mr. RONEY. We support that.
Mr. PETERSON. But in addition to that, you propose eliminating the, whatever it is called, the——
Mr. RONEY. Forfeiture penalty.
Mr. PETERSON. Forfeiture penalty, yes. How much does that cost, do you know? Maybe you said this already and I was——
Mr. RONEY. No. The forfeiture penalty is unique, of course, to sugar in the 1996 farm bill. Ours was the only commodity on which this was placed. And it did have the effect of reducing our support price by 1 cent per pound or about 7 percent. And we are the only commodity in the 1996 farm bill that took an effective hit in their support price.
If we are able to have our inventory management program and run the program as its designed at no cost, and there are no forfeitures, there would be no cost to eliminating the forfeiture penalty. And in fact, last year because of the forfeiture penalty we paid into the Treasury $18.7 million in forfeiture penalty payments. So it was revenue raiser last year.
Mr. PETERSON. Well, it was $18.7 million that the industry had to pay?
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Mr. RONEY. That is right.
Mr. PETERSON. And you have no estimates about what that might be in the future if we had to change it? I guess that is what I was getting at.
Mr. RONEY. I guess a worst case scenario where we have no inventory management and we continue to have forfeitures, say on the record scale that we had this past year, then the payments would have been in the range of $18 to $19 million. So the deferred revenue or lost revenue would be at about the same amount.
Mr. PETERSON. Mr. Chairman, if I could. In just the remaining time, I want to call to the attention of the committee a situation that is going on that is kind of a local situation in Minnesota regarding Southern Minnesota Sugar Cooperative where they had 450,000 tons of beets that were taken in after they were frozen and they spoiled the pile. They had to haul them all out. It cost a lot of money. And I am being told now that the producers there are going to end up being paid $3 a ton for their production last year when it is normally $40.
And that the cooperative itself is in some jeopardy. The crop insurance apparently does not work because the beets were not adjusted. They did not realize there was a problem until they were already in the pile. And so now RMA is not willing to pay for this. And they did not have any other insurance, as I understand it. We have an extremely serious situation going on here that I think, I would hope this committee could take a look at. Because if there is not some kind of help, they may not survive.
This is not in my district. But I have a number of growers that got contracts or that bought contracts for $12.50 an acre last year to get into this cooperative. And their first crop, they are getting paid, why below the cost of production. So those folks are in problem. And so, Mr. Kennedy and myself, Mr. Gutknecht are working on some things. And I would hope that the committee could take a look at this situation somehow through this process. So thank you.
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The CHAIRMAN. I would just say to the gentleman so he does not think this an issue we are not aware of, the committee had been extremely involved in this. Mr. Kennedy has been extremely persistent with this. Continues to work on it, staff has been working numerous hours trying to come to some resolution with this. And this is a situation we are very familiar with. Mr. Chambliss.
Mr. CHAMBLISS. Thank you, Mr. Chairman. Mr. Roney, sugar has been operating as a no net cost program for how long?
Mr. RONEY. Since 1985 until last year.
Mr. CHAMBLISS. And you are coming in here now saying that you do not want to just continue being a no net cost program. You just want some market protection, basically. Am I understanding you correctly?
Mr. RONEY. Yes, sir. We want to restore our stability and balance to our market. And inventory management is the only way to achieve that.
Mr. CHAMBLISS. By all rights, it is a commodity program, there is no reason you could not come in here and ask this committee to fund a Sugar Program with a marketing loan, target price and an AMTA payment. But you are not doing that, are you?
Mr. RONEY. We are not, sir, no. We are not.
Mr. CHAMBLISS. OK. Mr. Fincher and Mr. Sutter, if I am understanding you two gentleman correct, what you are saying is that philosophically you do not disagree with the concept proposal with respect to AMTA payment to quota holders, marketing loan, target price. You may disagree on what those numbers ought to be, but you both are saying that if we can fit that concept within $3.4 billion that we would be in agreement to moving in that direction?
Mr. FINCHER. Yes, sir.
Mr. SUTTER. Yes, sir.
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Mr. CHAMBLISS. OK. Mr. Sutter, what is the average year renters pay for leasing a quota peanuts now?
Mr. SUTTER. In North Carolina it will be about 7 to 8 cents a pound. And that will vary from State to State. Virginia is somewhere in that area.
Mr. CHAMBLISS. OK. And under the proposal we are talking about a eliminating that cost, correct?
Mr. SUTTER. We are talking about eliminating the quota rent cost.
Mr. CHAMBLISS. Yes.