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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.
    Mr. SUTTER. The cultural practices and rental practices in the DC area are such that many pounds are leased to the farm. But most are leased with the farm. In other words, the producers are rending the quota and the farm and they will still retain the expense of renting the land.
    Mr. CHAMBLISS. Still have land rent involved.
    Mr. SUTTER. Yes.
    Mr. CHAMBLISS. But you want the rent quota up. Mr. Fincher, what about in your part of the world, what is the average rental cost?
    Mr. FINCHER. About 13 and 14 cents.
    Mr. CHAMBLISS. OK. Which is the same in Georgia. Mr. Sutter, we may not grow them twice as good as you but obviously we are twice as expensive. So we are going to say we grow them twice as good as you all do.
Under the proposal, now we are talking about coming up with some sort of buy-out arrangement where our quota holders are going to be compensated for the quota that they have invested in, utilized over the years as a means of income, as well as, a means of producing peanuts. We are talking about going to a true marketing loan, not unlike we are doing with every other commodity that we have discussed today. We talking about going to a target price like every other commodity that have discussed today. Those are pretty drastic changes in the Peanut Program. And puts the Peanut Program on par with every other commodity. Would you gentlemen not agree with that?
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    Mr. SUTTER. It puts in on par with every other commodity. Yes, sir, I would not agree with the——
    Mr. CHAMBLISS. All right. Are our peanut growers prepared to make that drastic of change and move forward to a true marketing concept that that will provide?
    Mr. SUTTER. Prepared, I would say, no, sir.
    Mr. CHAMBLISS. Well, you are coming in here asking for that type of proposal. And if they are not prepared for it, what are they prepared for?
    Mr. SUTTER. Well, I guess I do not want to get into definitions of words. We would prefer not to have to deal with that. But it appears that that is the direction that this Congress is going.
    Mr. CHAMBLISS. Well, what you say and what you would prefer is the type concept that you came in here and discussed a couple of months ago where you have a support price of $780 a ton.
    Mr. SUTTER. Yes, sir.
    Mr. CHAMBLISS. But that obviously is not the direction in which we are moving. You are correct. But are your peanut growers prepared to move in this direction if that is the will of this committee?
    Mr. SUTTER. Well, there would be many peanut growers in the DC area that will not grow peanuts. They will be out of business because of high production costs. It costs more to grow peanuts in the DC area than it does in Georgia. We are faced with some production, some disease, some cultural practice costs in the DC area that will make it difficult for some people to grow peanuts. Yes, sir, that is correct.
    There will be some people who will be in business, some that will not.
    Mr. CHAMBLISS. Do you think those farmers are prepared to grow cotton, soybeans, corn, some other crop in lieu of growing peanuts?
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    Mr. SUTTER. I cannot answer that.
    Mr. CHAMBLISS. OK. Thanks, Mr. Chairman.
    The CHAIRMAN. Following a notice by the Chair of the committee to Members and posting on the door relative to cell phones, it has been relatively quiet but it seems to be slipping. I would ask all individuals in the committee room to please turn their cell phones off so that they do not audibly ring. Mr. Condit.
    Mr. CONDIT. Thank you, Mr. Chairman. I think I heard all these gentlemen in Mr. Everett's subcommittee speak to this issue. And I appreciate you being here again today. Except for Mr. Sutter. And Mr. Sutter initiated a little different proposal I think than what we heard in the subcommittee. And I guess I will wait for the direction of the chairman to get some advisement on how we proceed with that. But I would just give all of you an opportunity to respond to the issue of trade in the farm bill and in future discussions to trade. Do you have any view about that and how important it is to you?
    Mr. RONEY. If I could start, Mr. Condit. The U.S. sugar industry is in favor of genuine global free trade in sugar. We are because we are efficient. By world standards our cost of production are below the world average. And we welcome the opportunity to compete against foreign farmers on a level playing field.
    Mr. FINCHER. Well, I believe we are in favor of free trade. In fact, I have already testified to this, I believe, in Lubbock, Texas in response to Congressman Stenholm's question to reference that. My position is, I do not want to trade a load of cotton for a load of peanuts. But as far as free trade is concerned, I would for that.
    Mr. SUTTER. Well, we have not been particularly favorably looking at the trade agreements because of how it effected the Peanut Program as far as peanuts are concerned. NAFTA is with us and we would like the opportunity to compete. But we cannot compete when we dealing with commodities that are raised with labor that is not subject to the same labor laws, with chemicals that are not used in the United States. And we feel that we are at a disadvantage and that we should look at those aspects in leveling the playing field.
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    Mr. EVANS. In the dry pea and lentil and chickpea arena, trade sanctions to Cuba have cost us 170,000 metric tons a year. It goes into Cuba every year, peas, right from Canada, right around the east coast and right into Canada. Last year alone we feel we had a $53 million opportunity to sell Iraq, Iran, Libya and Cuba. And we were locked out of those markets.
    Mr. CONDIT. Mr. Roney, you made mention of some correction, you had made some reference to a correction in NAFTA. Did I mishear you?
    Mr. RONEY. No, sir. The side letter of the NAFTA that concerned the sugar provisions is in dispute with Mexico claiming that there was no valid side letter and that they should have unlimited access to the U.S. market, which would destroy this market for both the U.S. and Mexico. And the administration actually, dating back to the previous administration, has been attempting to work out with the Mexican Government some renegotiation of the sugar provisions that would help to restore balance to the sugar markets in both countries.
    Mr. CONDIT. And the side letter would be equivalent of?
    Mr. RONEY. Mexico where there were three side letters, sugar, tomatoes and trucking. And there has been controversy over all three. It seems as though it is probably not the best route to go in the future.
    Mr. CONDIT. Thank you, gentlemen, for being here. I appreciate your time.
    The CHAIRMAN. Mr. Moran.
    Mr. MORAN. Mr. Chairman, thank you. Mr. Roney, I have been reading your testimony. And I am currently on the summary and conclusions. And I am interested in knowing how closely your recommendations are included in the product that we are discussing here today? Part of what you say seems to be is very much directed toward the administration, toward trade issues. But the proposals that you suggest related to the farm bill, how do they compare to the draft proposal by the chairman and the ranking member?
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    Mr. RONEY. The elimination of marketing assessments in the concept paper. Really the guts of what we are proposing, the inventory management program, is a no-cost program. And our understanding from the chairman and Mr. Stenholm is that the concept paper was really meant to concentrate on those commodities that are costing money, that are budget issues. And we are working with the chairman and Mr. Stenholm and staff on the inclusion of the inventory management aspects of our program in the chairman's mark.
    Mr. MORAN. So this is work in progress?
    Mr. RONEY. Yes, sir.
    Mr. MORAN. Mr. You indicated that without changes in regard, I think in particularly to Mexico and their import issues, that provisions of the farm bill were perhaps irrelevant, that can be difficult to make a farm bill overcome the difficulties that result, I guess, from a negotiated agreement. And I also heard only part of your testimony, but it caught my attention about you believe that we are making—having success, making progress in regard to those issues with Mexico.
    Mr. RONEY. Yes, sir. I believe that we are. I think we are getting kind of a fresh start with new administrations in the U.S. and Mexico. There has been, for example, announcement in the press just in the last 2 days that President Fox of Mexico is extremely interested in converting of Mexico's sugar surplus, which they are otherwise trying to dump on the U.S. market, into ethanol. He had talks with the Governor of Illinois yesterday and seems to be taking solid steps in that direction. And that is the kind of advance that makes us much more optimistic that we will be able to work out a solution with Mexico.
    Mr. MORAN. Thank you very much. Mr. Evans, I would like to give you an opportunity to highlight again the importance of trade with Cuba to your industry, to your segment of the agricultural industry. It seems to me that members of this committee have attempted to make some progress, had made some progress in creating opportunities for agricultural commodities, food and medicine to be available to Cuba. The administration has announced its proposed rules in implementing that legislation. Any reaction as to whether or not, and this announcement is only a week old so I would not necessarily expect you to have an answer, but you may, about are we headed in the right direction and what more can we do?
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    Mr. EVANS. I think you are heading in the right direction. One thing we really need for all emerging markets is a, what they call a 90–90 plan, 90 percent guarantee of payment, and on a 90-day basis. For some South American counties and stuff like that. When we ship peas and lentils and chickpeas, and it is usually in small 40-foot or 20-foot container loads and maybe four or five at a time. So currently we are handicapped because of the currently the way the rules are written up are more for bigger commodities like bulk ships and that type of stuff. So if we could work some way in that way to guarantee the—the first shipments get paid for and our processors and exporters get their monies to give to the growers would be beneficial.
    Mr. MORAN. Guarantee being a Federal U.S. Government guarantee?
    Mr. EVANS. Yes. I mean, 90 percent. When you go after a market, that first—a lot of ours are processors and exporters that are just mom and pop type operations. They just do not have the deep pockets to take that hit.
    Mr. MORAN. And would you reiterate the significance of the Cuban market to your producers, percentage of the U.S. grown——
    Mr. EVANS. We grow about 250,000 metric tons of peas a year. And like I said, Cuba imports 170,000 metric tons. So it would be three-quarters of our market if we could get in there.
    Mr. MORAN. Thank you very much. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Dooley.
    Mr. DOOLEY. Thank you, Mr. Chairman. Yes. I am trying to understand this proposal on the Peanut Program a little bit better. I guess if you were to go out today and want to purchase quota what would be the range if you were to buy it?
    Mr. FINCHER. In our area we would go out and try to purchase quota it would be somewhere in the range of 40 or 45 cents.
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    Mr. SUTTER. That is the same in most areas, I believe.
    Mr. DOOLEY. OK. So then if I understand the proposal then what we would be offering, we would be paying to quota holders the 14 cents plus they would get the guarantee of the $500 a ton, correct?
    Mr. SUTTER. If they were producers. Yes, sir.
    Mr. DOOLEY. If they were producers. So how would you then—a quota holder that was not a producer would not get what? He would not get the——
    Mr. SUTTER. Loan rate.
    Mr. DOOLEY. The loan rate?
    Mr. SUTTER. Yes.
    Mr. DOOLEY. But a quota holder would then get the 14 cents plus he would get the rent, if he was on it——
    Mr. SUTTER. At that point, there would be no rent.
    Mr. DOOLEY. Well, so you are saying then if I am a quota holder today and I am leasing my quota, is that I get paid the rent on that. Under the program though that 14 cents that we are paying to quota holders, where would that go in that case?
    Mr. SUTTER. That will go to the quota holder. And that is it. That is a payment to him.
    Mr. DOOLEY. So why would you think that he would still to rent his quota?
    Mr. SUTTER. There would be reason to reason it.
    Mr. DOOLEY. Well, if I own quota and I think it has value to somebody, you are saying it wouldn't be any value in it anymore?
    Mr. SUTTER. That is correct.
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    Mr. DOOLEY. Why wouldn't it?
    Mr. SUTTER. Well, we are doing away with the quota system.
    Mr. DOOLEY. So you are saying then though at that point then there is—we are going to do away with the quota system so that all peanuts could be sold for all uses?
    Mr. SUTTER. That is correct. That is the marketing loan concept. Yes, sir.
    Mr. DOOLEY. And so currently we are spending the last year's prices, the additional peanuts were being sold for what about?
    Mr. SUTTER. Well, it depends on the use of the additional peanut. Those that were exported could have been exported at $325 or $375. The additional peanuts, depending upon what area you were in, were bought back and put in the domestic market because they were needed in the domestic market. And thet could as far as the additional peanut, could have brought anywhere from $400 to $500.
    Mr. DOOLEY. And the quota peanuts were being sold at?
    Mr. SUTTER. $610 a ton.
    Mr. DOOLEY. So what we are doing with this 14 cents a year, and what happens at the end of 5 years?
    Mr. SUTTER. There is no quota. There is no payment. We are talking 14 cents for 5 years as a buy-out of the quota.
    Mr. DOOLEY. So that would be 5 years, we would be talking about a 70 cent a pound return on that quota that you would own?
    Mr. SUTTER. That is correct.
    Mr. DOOLEY. So if you can buy if for 45 cents today then that would probably be a pretty good deal to go out and buy it now? How would—25 cents on top of that?
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    Mr. SUTTER. If you will assure me that you are going to pay me 14 cents for next 5 years I will go buy some. But today we do not have that assurance.
    Mr. DOOLEY. You are then making the assumption that if we authorize this program that it might not manifest itself in annual appropriations and that you are discounting that. Is that the——
    Mr. SUTTER. Or that it will be passed at all. I mean, if you are a producer buying quota today, you do not know for sure what is going to happen in Washington with the farm bill.
    Mr. DOOLEY. Yes. I would——
    Mr. SUTTER. You may have use of that quota for 2 years and then that is it.
    Mr. DOOLEY. So you are saying the quota actually today is discounted because of the uncertainty of the program?
    Mr. SUTTER. Yes, sir.
    Mr. DOOLEY. And that it would actually be worth more than that?
    Mr. SUTTER. But currently today you could buy it a 45 cents. And you could get though, if we pass this program as it is, being proposed, then you would have a quota that is being paid at 70 cents over 5 years.
    Mr. SUTTER. Conceivably, yes, sir.
    Mr. DOOLEY. So I guess I am just thinking through this in terms of, in trying to convince our colleagues that this is an appropriate way to go down the path. And they are going to make the same calculation I did that this is another 25 cents.
    Mr. SUTTER. I mean, there has been quota purchased in the last year for 60 and 70 cents when things looked a little more certain. I mean, it is not a static price that is good forever.
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    Mr. DOOLEY. Yes. Once we eliminate the quota then there will be absolutely no restrictions on where peanuts can be planted anywhere in the country any longer then?
    Mr. SUTTER. I cannot answer that question in terms of what the committee has in mind for how you would limit production in other areas.
    Mr. DOOLEY. I mean, as part of this proposal that you would limit? Is that what you guys are envisioning?
    Mr. FINCHER. On our proposal it was a marketing loan with a buyout of the quota. That is what we testified to when we testified here a while back.
    I understand as you heard a while ago that I testified that we scored above what has been a set-aside by the committee, the $3.4 billion. So our position is we are willing to work with the staffers and the committee to bring this marketed loan and this quota discoupling into the money that has been set aside by this committee. And that will be in the form of a marketing loan. Does that answer your question?
    Mr. DOOLEY. I would have to understand why it was scored beyond that. Was there an anticipation that you would have seen expansion of production in other areas that actually might have a greater level of efficiency that would then drive down the price, the market price that would result in higher marketing payments that would be below, because of the marketing loan? And whether or not you folks envision that, in order to stay within this $3.4 billion that you are going to in fact have to have some supply management and some restrictions on where peanuts can be planted in order to stay under the CBO numbers.
    Mr. CHAMBLISS. Would the gentleman yield?
    Mr. DOOLEY. Yes.
    Mr. CHAMBLISS. I just to very quickly answer your question. I think there is some misunderstanding. Their proposal is the quota is eliminated as soon as this bill is passed. Quota holders as of a certain date would be compensated for the quota they have. They would like 14 cents. They are saying they not be able to get 14 cents under the dollars that have been allocated. Peanuts can be planted anywhere. Everybody is eligible for a marketing loan. What marketing loan is, we do not know the answer to. At $500 and 14 cents a pound it scores above the $3.4 billion. And what Mr. Fincher said Mr. Sutter said is they are willing to work within the $3.4 billion to whatever those numbers come out to be.
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    Mr. DOOLEY. So the marketing loan and everything is in play there and there would be no restrictions on planting then.
    Mr. CHAMBLISS. That is right.
    Mr. DOOLEY. All right. Thank you.
    Mr. CHAMBLISS. We can plant them in California now in lieu of pistachios or whatever.
    The CHAIRMAN. Thank you. Mr. Putnam.
    Mr. PUTNAM. Thank you, Mr. Chairman. I would like to begin by welcoming some FFA students from central Florida. It is appropriate that they be here as we debate the farm bill as they are the future of American agriculture. I would wager a box of unsubsidized Florida grapefruit that I am the only Member of Congress who can still fit in my FFA jacket.
    But I do want to pose a couple of questions to Mr. Roney about the Sugar Program. I have read your Cliff's Notes version and I read the long version. And the short version you identify essentially three areas, two of which are difficult to deal with in the farm bill, the stuffed molasses issue and the Mexican side agreement issue. The third issue obviously being something that we can deal with. And you reiterate your desire to go back to a no net cost program. In the elaborated version there is considerable additional cost programs, in my opinion, loans for in process sugars and syrups, loans for sugar storage facilities and bankruptcy protection for growers when the processors go out of business.
    Can you elaborate on what cost that would have, if any?
    Mr. RONEY. Yes. The thing is, Mr. Putnam, I do not believe there would be a cost for any of those. Because the bankruptcy provisions I do not believe expose the Government to any cost. It is more geared toward the allocation of whatever assets are available to ensure when a processor goes bankrupt to ensure that the growers are taken care of first.
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    The in-process syrups going under loan merely affects the timing—at which the sugar can go under loan rather than the total amount that would eventually go under loan. And the storage facility program, I believe, would be set up as a no cost program. Because it would be a loan program with the expectation that growers would repay those loans.
    Mr. PUTNAM. Under the new arrangement with the Secretary would reinstate an inventory management system that would be done essentially in-house by the industry, policed by the industry. Would that then eliminate any situation where there would be a forfeiture?
    Mr. RONEY. If it is run adequately and carefully it certainly should. It is hard to imagine a situation where it would not.
    Mr. PUTNAM. So you are not proposing that you completely break away from the forfeiture program, but rather that it be modified to dramatically reduce the risk that that will ever be necessary?
    Mr. RONEY. Yes, sir.
    Mr. PUTNAM. And so since over the course of the last 15 years sugar has contributed to deficit reduction. And then since we have no longer been in a deficit situation they contributed this assessment, marketing assessment. And what is the value of what sugar has contributed to the Federal Government as a result of that?
    Mr. RONEY. During the period of 1991 to 1999 we contributed $279 million. We are averaging the size of the crop now about $40 per year. It was suspended in fiscal 2000 and 2001. But in current law it is set to resume this October 1 for fiscal years 2002 and 2003. Even though it was designed to help reduce the Federal budget deficit and we are now in surplus.
    Mr. PUTNAM. The concept paper though would address that issue though, would it not?
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    Mr. RONEY. The concept paper did score the elimination of the marketing assessment at $44 million per year. And the marketing assessment in current law is only for the next 2 years. But CBO in doing its baseline had to assume that it would continue indefinitely. And so that is why in the concept paper 10-year costs where it is really deferred revenue or lost revenue, came out to $440 million, or $44 million per year.
    Mr. PUTNAM. Well, I just want to commend you for thinking outside the box and adjusting to the current conditions. And hopefully, we can work with out international trade partners to work through some of these import leakage problems that are—in the words of your testimony, more important than anything else that we can do. Is that a fair assessment?
    Mr. RONEY. Well, those have got to be taken care of first. Certainly, what the committee does is absolutely essential. But what the committee does, the work the committee does could essentially be erased or completely offset by the failure to get our borders under control.
    Mr. PUTNAM. And you are aware that the USDA has produced a report that indicates that entering into the Free Trade Area of the Americas Agreement would impact two crops substantially, those crops being sugar and citrus, in a negative way.
    Mr. RONEY. We are well aware of that, Mr. Putnam. And we appreciate the opportunity to testify before this committee on the dangers of the FTAA to sugar a couple of months ago.
    Mr. PUTNAM. Thank you.
    The CHAIRMAN. Mr. Berry.
    Mr. BERRY. Thank you, Mr. Chairman. Mr. Roney, is every country a protected sugar market?
    Mr. RONEY. Yes, sir. As far as we know there are about 130 countries worldwide that produce sugar. And as far as we know every single one of them have some type of program in place to either protect their producers or their consumers or in some cases both.
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    Mr. BERRY. The only other question I have, the sugar that is coming in, either the stuffed molasses from Canada or coming in from Mexico, is all that sugar produced in those countries?
    Mr. RONEY. No, sir. The stuffed molasses coming in from Canada, Canada is just acting as kind of a thru station for it. British firms have set up an operation there that imports sugar mostly from Brazil and Columbia, mixes it with Canadian syrup or rather molasses. Ships it across the border to an operation the British firm set up in Michigan, which extracts the sugar for use in the U.S. market. Sends the molasses back to Canada for restuffing.
    Mr. BERRY. They do not even leave the molasses here?
    Mr. RONEY. No. It goes right back there. They are recycling it.
    Mr. BERRY. We need to learn how they do that. Only because we let them, I guess. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Kennedy.
    Mr. KENNEDY. Yes. And thank you for your testimony and your report. If I could continue with Mr. Roney. In terms of looking at the alternatives of moving towards a program similar to more of the row crops in creating a lower world price and loan rate or target price, et cetera. Is the reason you have chosen to go with the inventory management mechanism because with the 130 other countries managing their sugar markets there is really no way we can break through that to try to expand not only to fully utilize our domestic market but maybe gain some export markets. Is that what is preventing you from looking at that option?
    Mr. RONEY. That could be a factor, Mr. Kennedy. I would have to say that the main factor jogging us was budget. That we prefer to drive a system where we are not depending on the Federal Government to provide us payments. That we are not trying to cannibalize the money available for other crops. And that we have the opportunity to set up a no cost program. And that was our desire.
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    Now your remark is perfectly valid in terms of going, say, marketing loan route. That we fear would make us vulnerable to subsidize exports from other countries. Because as we would and stay in the system of marketing loans allowing our price to drop down to the world price by receiving income payments to compensate, that that might persuade the Congress or an unfriendly administration to eliminate our import quota. Our viewing, well, they have got the marketing loan payments, they do not need their import quota anymore.
    If that were to happen I think we would be immediately overwhelmed with the subsidized foreign sugar.
    Mr. KENNEDY. And when you talk about the fact that do not want to go into the inventory management mechanism until we get Mexico and molasses solved. Presumably we could do it. But if had not solved those two first the pain and suffering cutbacks that would occur with our sugar producers around the country would have to be that much greater in order to get the inventory in balance?
    Mr. RONEY. Yes, sir.
    Mr. KENNEDY. And as we look at the FTAA, what are the countries that are of particular concern to us that would make this contention issues in terms of being large sugar producers that are doing it at heavy subsidized prices. What countries within the FTAA are those of most concern?
    Mr. RONEY. About 30 of them are sugar producers. But overwhelmingly the country that would just overwhelm us, and indeed all of the Western Hemisphere with their sugar is Brazil. Brazil is by far the world's largest sugar producer and exporter. And they have done it through a very elaborate system of subsidy for their alcohol program. They are the world's biggest producer of sugarcane. But more than half of that is used for a fuel alcohol. And they have set up an entire infrastructure for that purpose in Brazil that enabled them to quintuple their cane production over about a 20-year period. And just the last 5 years or so they have doubled their sugar production and tripled their sugar exports because their alcohol market was not growing as they wanted it to. And they began to shift the cane into alcohol.
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    The other concerns we have about Brazil are that their labor and environmental standards are extremely low compared to ours And in fact, the U.S. Department of Labor has documented still in Brazil widespread use of child labor. And that is not the kind of fair competition that we would expect.
    Mr. KENNEDY. And your proposal is to not try to attempt to deal with sugar as part of FTAA. But to defer that to WTO. Are you more optimistic of appropriate result coming out of WTO negotiations?
    Mr. RONEY. We are more optimistic of a fair result coming out that way, Mr. Kennedy. Because in a multi-lateral contest we are going after all countries, all programs. If in the NAFTA or an FTAA, you are going after just the programs within that area. What we are going is making every country in that area more vulnerable to the subsidized exporters from abroad.
    The world's second biggest sugar exporter is the European Union through a very elaborate system of subsidies. And they are depressing the world market. What we would be afraid of in an FTAA is that we would be making all of our area vulnerable to the EU and not making any progress on the EU subsidies as we go through that trade agreement.
    Mr. KENNEDY. Thank you for you comments. And thank you all for your testimony.
    Chairman COMBEST. I had passed on asking questions in initial round. I intended to get back around to it toward the end. It looks like we are running short of time. But I do want to ask one question. Mr. Everett has a question as well. We are going to have a series of votes rather than keeping you here and just making you wait. We will go ahead and wrap this up. We may have some follow-up questions. We will go back to the very first question, Mr. Sutter, that Mr. Stenholm was talking about where he asked you and Mr. Fincher about what you thought the marketing loan level could be without increasing production. And you said $500. Are assuming at $500 a ton that a marketing loan for peanuts that there is going to be a substantial reduction of peanut production in certain parts of the United States?
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    Mr. SUTTER. Substantial reduction? No, sir.
    The CHAIRMAN. Well, I will tell you, there is going to be a substantial increase in production in parts of Texas when you got the farmers that are growing 31 cent cotton and can grow peanuts as Mr. Fincher can. There will be a huge increase in production in Texas.
    Mr. SUTTER. Yes, sir. And I would like to just to make a comment. Mr. Everett, I am most appreciative of your efforts as chairman of the subcommittee in this whole process.
    The CHAIRMAN. We'll let that go to Mr. Everett in just a second.
    Mr. SUTTER. OK.
    The CHAIRMAN. But did you have any further comments about that? At $500 there is going to be a lot of people growing peanuts.
    Mr. SUTTER. Our suggestion was a suggestion that I had in the testimony was a way to limit the production of $500 peanuts in the transition period to stay within the $3.4 million.
    The CHAIRMAN. Of allowing it only to producers?
    Mr. SUTTER. Yes, sir.
    The CHAIRMAN. That was not the question. The question was, what level could you set that that you would not increase peanut production. Was that the question? Without any connection or ties to the fact that you are limiting it. It is just a question that we are looking at because this proposal is an open-ended proposal. Anybody could produce it. And that is the question I am trying to get at, is what could you set that as a marketing loan without causing an increase in production. That was I understood the question was and I had understood your answer was $500 a ton.
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    Mr. SUTTER. I am not sure that you can do it at $500 a ton without any limit on production.
    The CHAIRMAN. Thank you very much. Mr. Everett.
    Mr. EVERETT. Mr. Chairman, first of all, let me say that I have a real fear of this peanut industry disappearing in this country. And that is the reason I feel like this program has to be changed drastically. And that is because of NAFTA. I would like to just briefly make a comment. I do not want to disagree with the testimony here today or any of my colleagues. But I find that saying the rental price is 14 or 15 cents a pound. In my estimation that is very high. It is from my part of the country anyhow. It may be different in other parts of the country. If you are looking at 15 cents a pound which I have been told that some people can rent it for that, and you are talking about half of the support price, $300 of the 2,000 short ton.
    I have been led to believe over the past the rental price was about a third of the production costs. And I do not want to get any further into that. But every time that we put into these quota holders, and I am one, by the way, in compensation, we have to take away from the producer. And I want to be fair to both sides. I want this industry to survive and I want producers to make money. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Chambliss, very quickly.
    Mr. CHAMBLISS. Yes, very quickly. I want to make sure I get something in the record. Gentlemen, in my part of the world we have had quotas sell for as high as 85 to 95 cents. You all have testified that there are varying figures. I assume that has changed over the years. It has gone up and down, fluctuated with the market itself. But in any event, when quotas sold it either sold with the land or without the land. But either way it sold, did anybody invest in that quota?
    Mr. FINCHER. What do you mean invest?
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    Mr. CHAMBLISS. Has a quota holder paid for his quota.
    Mr. FINCHER. We have several that have bought quota, several million pounds of quota from c1entral Texas and moved it to west Texas.
    Mr. CHAMBLISS. But now, did they buy it?
    Mr. FINCHER. Yes, they bought it.
    Mr. CHAMBLISS. They paid good money if they paid——
    Mr. FINCHER [continuing]. Money for it, they still owe money for it. And the banks have put that quota up as collateral.
    Mr. CHAMBLISS. Well, my point is that when we are talking about compensating quota holders we are talking about returning money to them that they have invested in that quota.
    Mr. SUTTER. Yes, sir.
    Mr. CHAMBLISS. Irrespective of what part of the country you are in, what price you pay.
    Mr. SUTTER. That is right.
    Mr. CHAMBLISS. It is what farmers have paid for that quota over the years.
    Mr. SUTTER. Absolutely. And in our area that is true.
    Mr. CHAMBLISS. Thank you.
    Mr. EVERETT. Mr. Chairman, one last comment, I do not want to keep this going. The 70-plus percent of the people who own quota do not farm it. And that is a fact. And they have been compensated by renting that quota out. Thank you, Mr. Chairman.
    The CHAIRMAN. Gentlemen, thank you again very much. And we will look forward to working with you as this continues 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 questions posed by members of the panel. The hearing is adjourned.
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    [Whereupon, at 4:18 p.m., the committee was adjourned, subject to the call of the Chair.]
    [Material submitted for inclusion in the record follows:]
Statement of Leo Bindel
     Mr. Chairman, Mr. Ranking Member, and members of the committee, on behalf of grain sorghum producers nationwide, I would like to thank the U.S. House Committee on Agriculture for allowing us this opportunity to discuss the draft farm bill 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 at Lubbock, Texas, our organization works to increase the profitability of grain sorghum production.
     We would like to start by saying thank 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.
    Loan Rates. 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-to-use ratios, relative loan rates based on weights of other commodities, high cash markets due to growth in new uses in ethanol, pet food and food products and conservation considerations that we 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 grain sorghum producers nationwide. Additionally, the sorghum industry recommends that a statutory minimum be placed in the law in the same manner as is done for cotton, oilseeds and rice. We recommend that this minimum level be set at $1.89 per bushel.
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     FAPRI analysis indicates that any additional sorghum acreage generated by equalizing the loan rate would generally be non-distortive to grain sorghum supplies. Indeed, from a critical mass and logistics standpoint, increased production would allow the sorghum industry to compete in several premium markets in which we are unable to compete today because of a lack of a reliable supply. It is no mere coincidence that last year, the spread between the sorghum loan rate and other feed grains was the widest it had been in more than 30 years, and our industry harvested the lowest number of acres on record since 1953.
     Our market research documents that our chief complaint from end users is that there is not a reliable supply of grain sorghum. We have lost demand because we cannot ensure production, and existing demand has eroded for this reason.
     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 earlier testimony to this Committee, we commend the committee for your effort in equalizing the relationship between all loan rates.
    Counter Cyclical Safety Net. 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 the different commodities that a $2.75 target price for sorghum would more fairly represent an appropriate support level for sorghum. 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.
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    Conservation. On a percentage basis, the Conservation Reserve Program (CRP) has taken more acres from our commodity than any other commodity as well as damaged infrastructure and economic activity in rural communities. For this reason, NGSP does not support any 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 retained 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 the crop base history on 10-year CRP contracts signed after August 1, 1996. Under present law, if the PFC program is extended, those acres coming out of CRP in 2006 and beyond will be ineligible for all farm program crop benefits. NGSP recommends that this problem on 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 family homestead that I would like to buy. But given the fact that today it has no base we are having a hard time establishing a fair market value on the property depending upon if it does or does not have government support payments.
     NGSP also is very supportive of the $300 million fund within 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. Leveling the playing field for grain sorghum will have significant impact on water savings.
     Mr. Chairman, I know that many of the members of this Committee are fortunate to be from districts with adequate rainfall and/or abundant water supplies. I know that you are not from one of these areas, Mr. Chairman, nor are you, Mr. Ranking Member; and, much of this country's grain sorghum is grown in areas with limited waters. For those of you on 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 Texas Panhandle paints the picture clearly on water savings. This study found that the water savings over 50 years in Texas could amount to enough water to supply 294,400 typical homes for a year.
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     Although the rebalancing of the grain sorghum loan rate does not fall in the Conservation Title, this is a recommendation that stands to benefit both producers and the environment.
    Loan Deficiency Payments. NGSP supports the present LDP program, but there are discrepancies in payment levels between adjacent counties. NGSP believes in the spirit of the law that affords payments to those who sell or agree to sell their production without taking out a non-recourse loan on that production. This action avoids the accumulation of commodities by USDA.
     The LDP program is a production program, and the producer must account for production. Upon harvest of the commodity and/or the sale of the commodity (loss of beneficial interest), a producer should be eligible for an LDP on that production. Present law states that the producer must have full possession, or beneficial interest, in the commodity at the time he or she applies for an LDP payment. NGSP recommends that beneficial interest rules be changed to allow those who have lost beneficial interest to apply for and receive an LDP, at the rate that was calculated on the day the producer lost beneficial interest in that production.
    Trade. From a trade and export standpoint, NGSP supports the increase in funding of the US Department of Agriculture's Market Access Program (MAP) but would recommend that $10 million of the increase be redirected to the Foreign Market Development (FMD) programs, which enable sorghum producers to effectively maintain market development needs and deliver consistent service to our customers and potential customers overseas.
    Research. NGSP supports the $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 through the Appropriations Committee. However, NGSP priorities are the commodity title including loan rates, AMTA payments and a counter cyclical program, trade and conservation.
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     Mr. Chairman, we would like to thank you and the members of this Committee for the opportunity to present our ideas before you today. We look forward to continuing to work together on this process.
     
Statement by Tony Anderson
    Good morning, Mr. Chairman, and Members of the Committee. I am Tony Anderson, a soybean and corn farmer from Mt. Sterling, Ohio. I currently serve as President of the American Soybean Association, which represents 28,000 producer members on national issues of importance to all U.S. soybean farmers. I am also appearing on behalf of the National Sunflower Association and the 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. The process of finding consensus on these issues, whether among farmers or among Members of Congress, is never easy. We also recognize the time constraint that the Budget Resolution has placed on the Committee, and the need to report legislation before the August recess. Oilseed producer organizations want to be full partners in this effort, and pledge all of our resources to the task at hand.
    As you know, oilseeds have never been program crops. Even with introduction of full planting flexibility under the FAIR Act, we have not received AMTA payments to support income. We have received an oilseed payment as part of the Market Loss Assistance provided in the last two years, but it has been less on a per bushel basis than the Supplemental AMTA payments made to program crop producers.
    In place of the benefits provided to other crops, oilseed producers have depended on the marketing loan program to support their income. As prices have fallen and remained at historic low levels since 1998, the size of Marketing Loan Gains and Loan Deficiency Payments have caused concern that oilseed loan rates have driven production decisions. In our March 22 testimony to the Committee, we identified other reasons for the rise in oilseed acres since 1995, including the release of pressure to build program crop bases. We stated that two-thirds of the increase in soybean plantings between 1995 and 2000 took place by 1998—prior to the appearance of loan gains and LDPs.
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    As we considered how oilseeds should participate in the debate on the next farm bill, oilseed producer organizations made the decision to attempt to reconcile differences with program crops. We recognized that crops that can be planted interchangeably should have programs that provide balanced and equitable—if not identical—price and income support. We said in our March statement that production decisions should be driven by the market, not by program advantages. We believe the programs we proposed in March would achieve these goals.
    Intending no disrespect to you, Mr. Chairman, to Congressman Stenholm, to your colleagues on the Committee, or to your very able staff, we do not find 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, the target prices they had prior to the FAIR Act, and 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 these unequal benefits, resulting in sharply reduced income protection for most oilseed producers and the likelihood of increased, base-driven production of program crops.
    Before providing details on these concerns, we would urge you and the Committee to take another look at some of the proposals advanced at 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. We strongly encourage reexamination of these concepts to see if a new approach can be developed, rather than going back to the target price model.
    Fixed Decoupled Payment. The Concept Paper proposes to establish a fixed payment of $0.34 cents per bushel for soybeans and $0.60 cents per hundredweight for other oilseeds. These amounts equal the reductions proposed in the national average loan rates for these crops. They also represent the difference between the ceilings and floors for oilseed loans established in the FAIR Act.
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    We do not believe that basing a fixed payment for oilseeds on the amount by which oilseed loan rates are reduced is equitable. In our testimony to the Committee in March, we proposed establishing fixed payments for oilseeds based on their value relative to AMTA crops. Applying a very conservative historical price relationship between soybeans and corn of 2.3 to 1 to the corn fixed payment of $0.26 cents per bushel, the soybean payment should be at least $0.60 cents.
    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 1991–95, when they planted significantly more acres to program 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.
Payment Yields
    While the soybean loan rate is proposed to be reduced in the Concept Paper by 34 cents per bushel for soybeans, an AMTA payment for soybeans is proposed to be established in the amount of 34 cents per bushel. Notwithstanding our previously stated concerns about
how this AMTA is inequitable in relation to other crops, at first blush it appears that at least soybean farmers would be compensated for the reduction in the loan rate. However, this is not the case. The Concept Paper would establish payment yields for determining oilseed fixed payments comparable to those for AMTA crops, which date from 1981–85. For soybeans, yields during this 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 $0.34 fixed payment, the actual payment rate for soybeans is $0.26 cents per bushel. This eight-cent reduction represents a loss of $232 million in income protection on a 2.9 billion bushel soybean crop. In some areas (e.g., the South, Western soybean and corn belt, and Northern regions), yields in 1981–85 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.
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    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 the loan rate protection that oilseed producers are being asked to give up. Producers of traditional program crops will not see their fixed payments devalued under the proposal, since they already are based on 1981–85 yields. Oilseed loan benefits are based on actual production. This is neither balanced nor equitable.
    We also are concerned about using payment yields that are so far out of date. If the Committee decides to pursue a program that uses yields as a factor in determining payments, the fact that current yields would result in higher cost should not be a deterrent. Other variables in such a program could be adjusted to offset the higher cost of using recent yields.
    Counter-Cyclical Payments. Regarding the establishment of a counter-cyclical payment program, the proposed target prices for oilseeds are clearly 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 to $0.56 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 set at levels that reflect their relative value. Otherwise, producers will go back to building the more lucrative bases for traditional program crops that receive significantly higher income support, in case the base period for making payments might be adjusted at some time in the future. Such a situation would be devastating for the soybean industry, and would result in a situation similar to the distortions caused by the 1981 Farm Bill, when soybean acres plummeted as a result of the higher government payments provided to producers of wheat, corn, cotton, and rice.
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    The proposed counter-cyclical program also would encourage producers to sign up for the 1991–95 AMTA base period, when they planted more acreage to traditional program crops. Since oilseed acres are not counted in this base option, these producers would forfeit income protection for oilseed crops. Even when prices fall below the soybean target price, payments would only be made to producers who sign up for the 1998–2001 base period. This would essentially return traditional oilseed producers to the situation they were in prior to the 1996 FAIR Act—low loan rates and no income protection.
    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 acres planted in 2001. If farms comprising this acreage sign up for the 1991–95 AMTA base, they will receive only a significantly reduced loan rate for income protection on their soybean production.
    Payment Bases. We do not believe producers should be required to choose between the current AMTA base period and the 1998–2001 period to determine their eligibility for either the fixed or the counter-cyclical payment. Our recommendation to the Committee in March would have allowed producers of traditional program crops to keep their AMTA base, but would have established a more current payment base for oilseeds. 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. 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.
    Loan Rates. We wanted to describe our concerns about the fixed and counter-cyclical programs before commenting on the proposed reduction in oilseed loan rates. If these other legs of the stool provided balanced income support for oilseed crops, we could be flexible regarding loan levels. Unfortunately, as I have stated, the fixed payment rates for oilseeds are not in proportion to those provided for program crops, and are further devalued by the payment yield. The oilseed target prices are also well below levels justified by historical price relationships. The result is a substantial incentive to choose the 1991–95 AMTA base period, which provides no income support to most oilseed producers and a significantly reduced loan rate.
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    The proposed oilseed loan rates would reduce income support to oilseed producers by $1.0 billion per year. Unless the other programs proposed in the Concept Paper are substantially modified to provide balanced and equitable support to oilseeds, oilseed producer organizations will support maintaining our loan rates at current levels.
    Adjusted World Price. We commend the decision to maintain the concept of non-recourse Marketing Assistance Loans in the Concept Paper. While loan repayment rates are not addressed, oilseed producer organizations continue to support allowing loans to be repaid at the lower of the Posted County Price or the Adjusted World Price (AWP). Adapting the AWP currently in place for cotton and rice could be effective in enhancing the competitiveness of U.S. oilseed and oilseed product exports.
    Other Crops. Regarding other crops addressed in Concept Paper, we support the decision to restrict multi-year support to crops eligible to be planted on base acres. Planting flexibility provides significant opportunities to producers, but also entails significant risks in price and income variation. Only crops that share base acreage, and that comply with required conservation practices, should receive program benefits. All crops should continue to be eligible for crop insurance and annual disaster assistance.
    Conservation. On behalf of ASA, we support reauthorization of the various programs addressed by the Concept Paper, including the CRP, EQIP, Wetlands Reserve Program, Wildlife Habitat Incentives Program, and the Farmland Protection Program. 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 production. While we support the sign-up of additional acres in the CRP target at improving water quality, we believe other, less sensitive acres currently enrolled in the CRP should not be extended in order to provide room for these additional water-quality acres.
    While we understand that the programs addressed in the Concept Paper use all available baseline funds, we continue to support establishment of a voluntary conservation incentive payment program, as proposed under the Conservation Security Act. We look forward to working with the Committee to make room in the overall package for conservation payments.
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    Trade. With regard to trade, we support reauthorization of the EEP and DEIP export assistance programs, the MAP and FMD market promotion programs, and Food for Progress.
    We have the following additional comments on these programs:
     The Committee should determine whether the EEP program needs to be funded at the level currently permitted under the Uruguay Round Agreement in order to support U.S. efforts to negotiate an end to export subsidies in the WTO agriculture negotiations. If EEP is not funded, our export competitors may see no reason to agree to reduce their own government-assisted export programs. If funding EEP entails substantial costs, we propose examining ways to allow EEP funds to be used for other WTO-permitted programs, including MAP, FMD, and humanitarian food assistance.
     ASA supports increasing annual funding of the Market Access Program to $200 million, slightly higher than the $180 million proposed in the Concept Paper.
     Regarding the Foreign Market Development Program, ASA strongly urges the Committee to consider our request to establish a minimum annual funding level of $43.25 million. This level reflects 1986 FMD spending, adjusted for inflation. The Cooperator Program is a core component of U.S. agriculture's long-term commitment to expand foreign markets. It represents a vital public-private sector partnership, and reflects our shared belief that U.S. farmers and ranchers will benefit as global agricultural trade expands. Cooperators have had major problems obtaining sufficient funds to keep FMD programs operating at a basic level. These annual efforts have drained resources from other needed activities. We urge the Committee to recognize the benefits of the FMD program, just as it has in the case of MAP.
     Food for Progress is a key part of our future national humanitarian assistance strategy. ASA sees this initiative playing an increasingly significant role in improving nutrition, including consumption of soy-based protein, in developing countries. We support increasing funding for Food for Progress to $1.0 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 increased funding for both Titles I and II of P.L. 480, and a phased increase in support for the Global Food for Education Program to the full commitment of $750 million per year.
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    ASA also supports authorization of a Biotechnology in Agricultural Trade program, to expand public and private sector efforts to educate and inform the populations and governments of developing countries about the benefits of agricultural biotechnology. This program should include activities that improve the capacity of these countries to evaluate the safety of biotech products for humans and the environment, so they are not forced to rely on the unscientific standards currently used by the European Union.
    Research. Oilseed producer organizations fully support the continuation and funding of the Research Initiative for Future Agricultural Systems.
    Nutrition. ASA supports the funding level proposed for the Emergency Food Assistance Program, and the reforms proposed in the operation of the Food Stamp program.
    Rural Development. ASA supports the various national rural development programs addressed in the Concept Paper.
    That concludes my statement, Mr. Chairman. I want to again commend you for initiating this process, and pledge our support for your effort to develop farm programs that are balanced and equitable. I look forward to responding to your questions.
     
Statement of Doyle Fincher
     Mr. Chairman, members of the Committee, my name is Doyle Fincher, President of the Western Peanut Growers Association. Today I am representing a 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 Georgia Peanut Producers Association, the Panhandle Peanut Grower Association, the North Carolina Peanut Growers Association and the Western Peanut Growers Association. Since I last appeared before this Committee, both the Alabama Peanut Producers Association and the North Carolina Peanut Growers Association have expressed support for the peanut marketing loan program.
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     As we testified previously before this Committee, our grower organizations representing the large 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 quotaholders who have made significant long-term investments and have planned their futures, in many cases, on their quota income should be compensated for the loss of their quota.
     We believe a payment of 14 cents per pound over the life of this bill, with a minimum of five years, is fair compensation. We pointed out in our earlier testimony that the 14 cents per pound is the average annual lease rate for 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 a peanut reform program. We appreciate the Committee's efforts to provide funding for peanut growers to move our program into the world marketplace.
     It is our understanding that the $500 marketing loan coupled with the 14 cent per pound transition payment will cost greater than the $3.4 billion proposed by the Committee.
     We also understand that the Congressional Budget Office has scored the quotaholder 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 over 10 years according to CBO. The total of these marketing loan and transition payment costs are greater than the $3.4 billion recommended in the Committee's Concept Paper.
     We believe that both the loan and the transition payment components are essential in making the New Peanut Program work effectively in all regions of the country.
     If our marketing loan and transition payment proposal must be reduced because of the budget constraints, it is important that they be reduced without significant bias towards the producer or the quotaholder. We must prepare for the future of the industry but not ignore the tremendous investment, made in good faith, of the past.
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     We ask that the Committee work with CBO to determine a marketing loan rate and a transition payment for the quotaholder that falls within your $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 Committee as you develop your farm bill peanut proposal.
     Thank you for allowing me to testify today.
     
Statement of Mark D. Williams
     My name is Mark D. 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 seven segments of the U.S. cotton industry, including producers, ginners, seed crushers, warehousemen, merchants, cooperatives and textile manufacturers.
     Mr. Chairman and members of the panel, I want to express our sincere appreciation to you, your colleagues and your dedicated staff for the exceptional effort you have made to hold hearings, to process what you have heard from witnesses and to prepare a timely concept paper for our review and comments. Given the pressure of time, budget and WTO commitments, the concept paper reflects a commendable job.
    In our opinion, the farm policies outlined in the Committee's concept paper are balanced and equitable and establish a very creditable foundation from which to build new farm programs that will provide a more effective safety net for farmers, that will enhance the industry's competitiveness and benefit the rural economy and consumers. From cotton's perspective, there is little about the basic farm policy concept of your paper with which to take issue. Our industry supports many aspects of the Committee's work product:
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     A marketing loan keyed to the world market price;
     Retention of cotton's 3-step competitiveness plan;
     Retention of fixed, decoupled payments;
     A new counter cyclical payment program;
     An option for growers to update their payment bases; and
     Retention of full planting flexibility, with no mandatory supply management requirements.
     The proposal also retains marketing certificates, establishes separate limits for each category of benefits, and we assume the 3-entity rule for payment limitations is retained. The Committee's paper also offers improvements in conservation, trade, research and rural development programs that are important to our members.
     Given the budget limitations within which you worked, you have done an excellent job to construct a long-term farm policy to help farmers cope with subsidized competition and changing market conditions.
     We understand the funding levels established in this year's budget resolution limit these proposals. And while cotton in particular, and agriculture in general, were pleased that Congress substantially increased agricultural spending, it remains the case that much of agriculture is experiencing serious economic stress, as a result of escalating input costs, weak demand, a strong dollar and resultant low prices. The National Cotton Council and several agricultural groups have observed that commodity programs need more funding and strengthening in order to restore economic viability for our farmers. Therefore, at the risk of sounding ungrateful, I would urge the Committee, as it prepares to debate the particulars of this concept paper, to consider some additional concerns of the cotton industry.
     For example Mr. Chairman, the price of cottonseed continues to be weak. Cotton producers rely on cottonseed revenue for about 13 percent of total returns and the value of cottonseed and cottonseed products is dictated more by production of soybeans and other major oilseeds than by cotton production. So, cottonseed prices can be weak even when cotton fiber prices are relatively strong. Accordingly, adjustments to compensate growers when cotton fiber prices are low do not, alone, adequately compensate them for both low fiber prices and low cottonseed prices. We support the inclusion of a cottonseed assistance program, similar to that in the previous two economic assistance packages, but triggered by price rather than subject to a fixed funding level.
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     Since our February testimony, the adverse effects of a strong dollar on our industry have intensified. We have shared our concerns about this with members of Congress and the Administration in recent weeks. It is becoming increasingly important for some action to be taken to offset the devastating effects of the strong dollar on our industry, particularly the textile sector. Analysis by National Cotton Council economists suggests that there is essentially a one to one relationship between the strength of the dollar and the rate of cotton textile imports. Said another way, for each 1 percent increase in the strength of the dollar, there is a 1 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 an annual rate of 8 million bales, reflecting the possibility of a permanent loss in domestic consumption due to mill closings. We believe that the 1.25-cent threshold currently used in the formula for computing Step 2 values needs to be eliminated in new farm law as an initial action to help our industry deal with the devastating impact of an increasingly stronger 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. We would observe that the establishment of a separate $75,000 cumulative limit could result in the denial of benefits to farms with multiple crops when prices are extraordinarily low, as they are today, since soybeans are eligible for the counter cyclical payment and are also included in the cumulative limit. We also note that soybeans are now eligible for a fixed payment but there is no corresponding increase in the limitation associated with fixed payments, so there could be some inequities among producers depending on their cropping mix.
     Mr. Chairman, while we don't know the final costs 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 are anxious to work with members of the Agriculture Committee and the Administration to (a) ensure that the interests of U.S. agriculture are paramount in decisions concerning which box agricultural spending is to be placed, and (b) make any adjustments, or shifts, that may be necessary to meet our WTO commitments.
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     The National Cotton Council has previously gone on record as favoring Trade Promotion Authority (TPA), but we do not support this authority unconditionally. We believe it is important for TPA to be conditioned upon a commitment by the Administration to negotiate in the best interest of U.S. agriculture and work closely with congressional leaders, keeping them informed and soliciting their advice and counsel on all WTO-related matters.
     We were concerned, as you were, about the Administration's decision to report Marketing Loss Assistance as amber box spending without discussing this matter with congressional leaders. We commend you for registering your dissatisfaction with that ill-advised action and we support your continued involvement in dialog with Administration officials to help restore their commitment to WTO negotiations that will truly serve the interests of U.S. agriculture. We believe it is imperative that our negotiators not establish negotiating objectives or enter into new agreements that would restrict this Committee's ability to write effective farm policy.
     Mr. Chairman, extra long staple cotton producers in Texas, New Mexico, Arizona and California have not been immune from the difficult economic circumstances facing the cotton industry.Those producers also need improvements in their program. We support continuation of the ELS non-recourse loan program with the current loan rate frozen. We also support continuation of the ELS competitiveness provisions and support full funding for that program. We also support establishment of some form of counter-cyclical payments for ELS cotton that are commensurate with those that may be established for upland cotton. We are optimistic that such an ELS program would not add appreciably to total farm program costs and would help to maintain equity between upland cotton, ELS cotton and specialty crops in the western cotton producing region.
     We support the increase in MAP funding contained in the concept paper and proposed reauthorization of other export assistance programs. We remain supportive of a relatively modest increase in funding for the Foreign Market Development program. At the very least, we suggest certain legislative improvements that will shore up the status of that program within the Administration and provide the opportunity for efficient use of funding made available for export assistance programs. We also recommend a few changes in the export credit guarantee program that we believe will improve that program as well.
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     We support the approach the Committee has taken with respect funding and enhancement of existing conservation programs. Conservation and environmental stewardship are important components of overall farm policy. The CRP, WRP and EQIP programs have enabled our producers to better control soil erosion, improve water quality and enhance wildlife habitat. However, because producers face such an uncertain financial future, it is important that this bill not lose sight of its primary goal—restoring the economic potential of U.S. agriculture.
     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.
     I want to stress again to you and to all members of the Committee how much our membership values the inclusive and open approach you have taken in this process.
     Thank you for the opportunity to provide comments and recommendations.
     I will be happy to answer questions.
     
Statement of Leland Swenson
    Chairman Combest, Ranking Member Stenholm, members of the House Agriculture Committee, I am Leland Swenson, President of the National Farmers Union (NFU). On behalf of our 300,000 family farmer and rancher members it is an honor to appear before you today to discuss the Draft Farm Bill Concept Paper provided last week by the Chairman and Ranking Member as the basis for new legislation to define U.S. agricultural policy in the future.
    At the outset, let me commend the Chairman and Ranking Member for their efforts in expediting consideration of new farm legislation and also for providing a draft of components that recognizes the importance of developing a comprehensive farm bill.
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    Unfortunately, the limitations imposed on the development of U.S. agricultural and food policy by the Federal budget create a real and serious challenge in meeting all the needs that should be addressed in the next farm bill. We believe the only responsible way these important commitments can be met is by developing a commodity policy that maintains an adequate and workable safety net for producers while proactively addressing new demand creating opportunities, commodity price improvement and appropriately managing inventories through reserve and other cost containment programs including new benefit targeting mechanisms.
    The concept paper is divided into seven sections: program crops, other crops, conservation, trade, research, nutrition and rural development. The NFU is pleased to offer its analysis and comments concerning each section of the draft, and contrast those views with the farm program proposal and additional agricultural policy elements supported by our members, that were initially provided to the Committee last March.
    Program Crops. The program crop provisions of the draft provide for a continuation of the provisions of the 1996 farm bill for the traditional program crops, and extension of fixed, de-coupled payments to oilseed crop producers in exchange for a reduction in their counter-cyclical marketing loan rates. The concept paper also provides a one-time optional adjustment in program payment acreage bases and the establishment of a target price mechanism to reduce the impact of depressed program crop prices on producers. In addition, the draft maintains the current payment limitation provisions on marketing loan benefits and contract payments and creation of a new $75,000 payment limitation on target price benefits. Presumably, the ''three-entity'' rule is maintained for the re-authorized program elements and extended to the target price provision.
    In addition to the current budgetary baseline associated with the program crops, approximately two-thirds ($44.886 billion) of the additional funding ($73.5 billion) provided in the fiscal year 2002 budget resolution is allocated to expanding the level of payments to those with eligible program crop acreage bases.
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    The NFU supports efforts to provide an equitable, counter-cyclical economic safety net for program crop producers that reduces the need for future ad-hoc assistance. We are concerned however that the farm bill concepts under discussion fail to address and correct many of the short-comings of Freedom-To-Farm, including the creation of new, price enhancing, market opportunities for producers.
    Acreage Bases and Yields. The concept paper contains provisions that provide producers the option to maintain current acreage bases or update their crop bases to the 1998–2001 average of planted acres to a contract crop for program payment purposes. This will result in the rational decision by a producer to select the base option that provides the greatest opportunity to maximize program payments regardless of current or future crop production and rotation realities. The draft however proposes to continue the use of historic program yields, including the establishment of comparable historic yields for oilseed producers, for de-coupled payment eligibility.
    If adopted these provisions will encourage further consolidation of farms into larger-sized operations in terms of acreage with little regard to producer investments in productivity or production efficiency. The bias of current programs to extend a disproportionate share of benefits to the largest landowners, who are not necessarily producers, will be exacerbated.
    De-coupled Payments. Agricultural Marketing Transition Act (AMTA) payments have been correctly criticized for their non-market impact on land values and rents, benefits based on historic acreage and yield factors and payments that do not necessarily reflect economic need or assumption of production and market risk. In addition, the de-coupled nature of AMTA payments results in production and market distortions within the context of planting flexibility allowed under the current Act. By continuing an AMTA-type program, provided to even more crops, and adding a de-coupled target price component in new legislation, while maintaining current planting flexibility; the production, market and equity problems associated with the capacity for cross-subsidization of crop production that leads to planting distortions will be even greater.
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    Table 1, page 11, identifies the maximum national average per acre level of cross-subsidization, attributable to de-coupled payments among the program crops, that may occur under current law compared to the draft farm bill concepts. Compared to soybeans under the current program, the incentive to collect de-coupled payments for one program crop while shifting production to oilseeds is increased by the draft proposal for wheat, corn, cotton and rice.
    Marketing Loans. The draft farm bill continues the use of the commodity marketing loan program, a counter-cyclical mechanism that maintains U.S. market competitiveness while providing a minimum level of production-based income support to producers. Unfortunately, other than the relatively minor adjustments in loan rates for sorghum and oilseed crops, the proposal continues the practice of establishing marketing loan rates in an arbitrary fashion extending both the loan rate inequities and production distortions that were manifested in Freedom-To-Farm. As a percentage of full economic cost of production, the most representative and equitable basis for establishing a safety net program for producers, the draft provides only marginal improvement over current law in terms of the loan rate relationship among program crops. The proposal however fails to utilize this current opportunity to improve the economic security for producers by enhancing the most market oriented provision of the safety net and establishing an effective long-term basis for determining loan rates.
    Table 2, page 12, provides a comparison of the current and proposed loan rates as a percentage of forecast full economic cost of production for the 2003 crop year. Although the soybean loan rate reduction represents a downward adjustment of 6.4 percent compared to current law, its proposed level will remain significantly higher than that for other crops. Government policy that maintains the disparities in loan rates between oilseeds and other crops as well as among the non-oilseed crops themselves will continue to exert a substantial distorting influence on crop production.
    When combined with the de-coupled payments proposed in the draft, it is apparent the effective economic safety net is improved over current law due to an infusion of new funds. However, as has been the case with Freedom-To-Farm, the nominal level of safety net is significantly higher than the effective or ''real'' level provided producers. Additionally, the policy distortions caused by arbitrary and inequitable levels of assistance are continued and the current bias in benefits that favors land owners, whether or not they are actual producers, is maintained.
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    NFU Recommendations. Last March, the NFU provided a set of agricultural policy recommendations to this committee that would provide an equitable, production-based, counter-cyclical safety net for producers that would maintain planting flexibility, and ensure market competitiveness without distorting production. We also suggested the use of new tools to create additional market demand for U.S. farmers as well as programs to ensure our capacity to be a reliable supplier of commodities to the market. In addition, we supported providing discretionary authority for the Secretary of Agriculture to implement cost containment mechanisms to balance supply with demand should our market expectations fall short of being realized. We continue to support this approach today.
    The NFU proposal is based on an improved commodity marketing loan program that provides a comparable safety net level for all program crop producers based on a percentage of the full economic cost of production and the elimination of de-coupled payment programs. Utilizing cost of production as the basis for annually determining loan rates provides a mechanism to automatically adjust the safety net for each program crop relative to changes in input costs as well as productivity, maintaining an equitable balance between those crops over the long-term.
    We continue to support programs that can enhance demand beyond that which can be reasonably expected from the commercial market under current conditions. These market expansion programs should include, at a minimum, the establishment of a renewable fuels standard and a long-term commitment to the Global Food For Education Initiative.
    In order to guarantee our ability to supply these markets we encourage the establishment of two limited reserve programs. The reserve stocks, equal to about one-year's commodity needs for bio-energy production and international food assistance, would be procured by the government. Farmers would be provided with the opportunity to store the reserve stocks.
    A third, limited reserve should also be established to complement existing risk management programs. This farmer-owned reserve would be similar to a commodity savings account that could be utilized by the producer to offset a portion of the economic losses sustained due to production or quality reductions that are not indemnified by multi-peril crop insurance.
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    Concerning payment limitations and the targeting of program benefits, the proposal continues the status quo for re-authorized programs, including the effective elimination of limits on marketing loan benefits through the marketing certificate authority, and establishes a new limit on the benefits associated with the target price.
    We believe a better system can be implemented that allows eligibility for one hundred percent of all earned marketing loan benefits. In our view, a single attribution system should be established that ties program participation to the individuals who actually undertake the production and market risk of farming. All participants would be eligible for marketing loans established as a declining percentage of cost of production on those units of production necessary to reach a maximum ''gross sales'' level or tier. The sales levels would be comparable to those established by USDA in their farm typology analysis. For example, all producers would be eligible for the same percentage level of marketing loan up to their first $100,000 of loan commodities. A slightly smaller percentage level of marketing loan would apply on the next $150,000 of loan commodities. A further reduction in the marketing loan rate would apply to the next $250,000 of loan eligible commodities. It is our view that this new targeting mechanism will not only help ensure a more responsible distribution of program benefits, but also can be a source of additional savings in commodity program costs that we estimate could be in the $1 billion to $1.5 billion per year range. We encourage the committee to request a further analysis of this proposal.
    Finally, we recommend the Secretary have authority to offer a voluntary ''Flex-Fallow'' type of program to establish an appropriate balance between supply and demand in order to ensure program costs are maintained at an acceptable level.
    Other Crops. The proposal provides funds to re-implement a wool and mohair program, extend the current dairy price support program, eliminate the deficit reduction marketing assessment on sugar and develop a new Peanut Program. For fruit, vegetable and livestock producers, the draft provides discretionary authority to combat plant and animal diseases with emergency funds and maintains the current planting restrictions for fruit and vegetable production on program payment base acres.
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    We commend the authors of the draft farm bill concept paper for re-establishing the wool and mohair program to assist those producers in rebuilding a sector of agriculture that has been decimated by competitive imports that are, in many cases, sold in the U.S. at world ''dump market'' prices. In addition, we support reserving funds for the development of a new Peanut Program in the near future that can address the economic concerns of the producers of that important commodity.
    NFU Recommendations. We are concerned that the simple extension of the current dairy price support program fails to adequately address the need for an improved economic safety net for that sector or ensure full compliance with U.S. laws governing the use of certain milk by-products, such as Milk Protein Concentrate (MPC).
    We support the establishment of a target price system for milk producers based on a percentage of the full cost of milk production to provide an improved safety net for dairy producers. The target price should be available to those who produce less than 2.6 million pounds per year or limit their production growth to no more than average increase in annual market demand.
    In addition, we support the establishment of a dairy producer assessment program that would apply to those who exceed 2.6 million pounds of production and expand output beyond the level of market growth. We believe the assessment will discourage over-production and provide resources, beyond the government's price support responsibilities, to purchase surplus dairy products for distribution through domestic and international nutrition assistance programs.
    The elimination of the sugar marketing assessment, that was established as a budget deficit reduction tool and should have been repealed at the time the Federal budget achieved a surplus position, is inadequate to meet the production and unfair trade challenges that sector must confront. We support immediate action to curtail the ability of processors to avoid established sugar tariff rate quotas by importing and reprocessing sugar-containing products. In addition, we support industry efforts to achieve a better balance between U.S. production, sugar imports and U.S. market demand, and encourage an adequate level of funding be made available to implement such adjustment programs.
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    Similarly, while we support funding to address plant and animal disease outbreaks that impact the producers of those commodities, we believe permanent authority and funding must be provided to assist those producers when markets and prices are threatened due to production variability or unfair trade competition.
    Finally, we note the draft fails to include any provisions to assist tobacco producers, who continue to be subject to declining production quotas and prices while the level of tobacco imports and concentration among processors increases. If the committee cannot agree on policies to assist tobacco producers, including an assurance that a Federal tobacco inspection program will be maintained, we urge that funding also be reserved to allow further consideration and development of a future tobacco program.
    Conservation. The draft farm bill proposal devotes a significant level of new funding resources to existing programs in our nation's efforts to enhance the conservation of our agricultural resource base. We are concerned, that diversified or less intensively operated farms that pose fewer environmental risks or have already invested in applied conservation practices may be less likely to be eligible for conservation program benefits or receive a disproportionately smaller share compared to those who continue to operate in ways that may degrade the environment. This may be particularly true with the Environmental Quality Incentive Program (EQIP), where the proposed level of funding is substantially increased without specific recommendations concerning eligibility requirements, program priorities and benefit limitations.
    NFU Recommendations. The NFU supports each of the programs outlined in the draft. We recommend that the enrollment level for the Conservation Reserve Program (CRP) be established at a level of not less than 40 million acres and capped at 45 million acres.
    We also support the establishment of a soil rehabilitation program. This program would provide rental payments to producers who should remove land from production for an intermediate period of time, 3–5 years, in order to address weather or disease related production problems such as extended drought, flood, Karnal bunt and fusarium head blight.
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    We encourage the committee to ensure that EQIP program funding does not result in conservation subsidies to large, integrated enterprises that have the capacity to meet environmental and conservation objectives and regulations without Federal assistance. Furthermore, we are opposed to the use of conservation funds as a tool to increase the scope of production and marketing contracts where producers have little or no management control over the livestock or crop enterprise.
    Trade. The trade section of the concept paper provides for the reauthorization of numerous trade and market promotion programs, and increases the level of funding for the Market Access Program (MAP) and Food for Progress.
    NFU Recommendations. The NFU supports the inclusion of the items listed in the trade section of the draft in new farm legislation. We also believe the committee should utilize this opportunity to further promote a U.S. trade policy agenda that seeks to ensure fair competition in global agricultural trade.
    In order to achieve this goal, we urge the committee to adopt recommendations to: (1) Create a mechanism to address the agricultural impact of exchange rate and currency fluctuations. (2) Seek appropriate and enforceable international commitments to ensure fair competition in commodities and products where differing labor and environmental regulations represent a substantial percentage of the total cost of production. (3) Ensure maintenance of our domestic trade remedies. (4) Encourage international coordination of efforts to reduce the anti-competitive practices and results of increased agricultural integration. (5) Eliminate all foreign policy sanctions concerning trade in agricultural and medical products. And, (6) expand the Trade Adjustment Assistance Act (TAA) to include agricultural producers.
    Research. The concept paper provides funds to continue the Research Initiative for Future Agricultural Systems through fiscal year 2011.
    NFU Recommendations. The NFU urges the committee to reauthorize the research title in new farm legislation and ensure adequate funding to extend the Research Initiative for Future Agricultural Systems through fiscal year 2011. As part of this initiative, we support establishing research priorities that are directed to value-added, small farm issues, carbon sequestration, organic agricultural production, production sustainability and testing of the products of bio-technology.
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    Nutrition. The draft farm bill provides $30 million per year for the Emergency Food Assistance Program (EFAP) and allocates $2 billion over ten years to simplify the food stamp application process and improve numerous aspects of State level program operations.
    NFU Recommendations. We support EFAP expansion and improvements in the management of the food stamp program as outlined in the concept paper; however, we are concerned that critical domestic nutrition issues have been overlooked.
    Roughly 31 million Americans are threatened by hunger each year and 12 million of those Americans are children. According to USDA, one in ten rural households faces hunger everyday.
    The Food Stamp Program is the nation's primary safety net against hunger. While participation in the Food Stamp Program has dropped significantly since the 1996 Welfare Reform Act, the number of Americans who go hungry has remained constant and the demand at hunger relief agencies nation-wide is up. NFU believes that we need to strengthen the Food Stamp Program both in access to the program as well as the adequacy of benefits in order to ensure that eligible people in need receive the benefits to which they are entitled. The Food Stamp Program needs to be modified to eliminate obstacles to families who receive food stamps during transition from welfare to work. For many low-income Americans, the cost associated with the application process, including lost wages and transportation, keep them from getting food stamps.
    Equally important, NFU believes we need to restore food stamp eligibility for legal immigrants and bolster funding for the Women, Infants and Children (WIC) Program and maintain full funding for child nutrition programs such as the School Lunch Program, School Breakfast Program and Summer Feeding Programs.
    NFU is a strong advocate of the Farmers' Market Nutrition Program that provides WIC or WIC eligible participants with coupons to purchase fresh produce from farmers' markets to help improve the diets of mothers and children.
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    NFU supports expanding Section 32, a program in which the government purchases surplus commodities and donates them to provide food for needy children and adults who suffer from hunger.
    In addition, NFU supports providing grants to states, similar to the program authorized in this years agricultural economic assistance package, to purchase commodities to help curb hunger and improve nutritional levels for people in need.
    Rural Development. The concept paper provides for increased funding for four specific rural development initiatives: strategic planning, direct loans for broadband expansion in rural areas, value-added grants, and grants for emergency drinking water. The proposed level of rural development funding is increased by $785 million over ten years. While each of the four areas proposed to receive increased funding is a worthy program, only one area is new—the Strategic Planning Initiative, that provides for regionally planned rural development pilot programs.
    NFU Recommendations. The NFU supports a significant expansion in rural development programs to enhance both future opportunities for producers in areas such as value-added development as well as rural infrastructure issues that affect both agricultural producers and rural communities. For farmers and ranchers, the value-added grants program represents the most important priority among the limited list of priorities identified in the draft. We support the additional funding provided for this program, however, we are concerned it may not be an adequate catalyst to expand value-added opportunities to the next level. The NFU supports an even greater level of funding, along with an expansion of programs to facilitate broader participation in value-added enterprises by producers who may not be able to meet the immediate investment requirements.
    The two community oriented programs for emergency drinking water grants and broadband facilitation loans are useful programs. The committee should consider, however, whether a more general emergency community grant program could be of greater utility and whether the broadband is the most immediate rural communication and/or infrastructure need at the current time.
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    We believe the strategic planning initiative to provide for regionally planned rural development pilot programs has merit and its effectiveness could be enhanced if the funding is utilized for empowerment zone type of projects including enterprise facilitation.
    Other NFU Recommendations. We believe the committee should also consider the merits of three additional titles within the scope of a comprehensive farm bill.
    Traditionally, the farm bill has contained a credit title. We believe, given the high level of economic stress faced by producers, local businesses and rural communities; it is important for the committee to fully review the current provisions of the credit title. By so doing the committee can determine if the authorities provided both the Farm Service Agency and the Farm Credit Service are adequate and appropriate in today's agricultural environment.
    We also urge the committee to adopt an energy title to reflect both the new opportunities in agriculture to produce a broad range of renewable energy resources as well as the increased reliance of modern agriculture on external sources of energy related inputs.
    In addition, we urge the committee to consider adding a title to the farm bill to address the issue and impact of agricultural concentration. Although this issue has multiple venues of jurisdiction, we believe it is so critical to the effectiveness of both domestic and trade policy and the future of U.S. production agriculture that it should be an integral part of any effort to address agricultural policy.
    Mr. Chairman, under your leadership and that of Ranking Member Stenholm, much debate and many ideas have surfaced concerning the elements necessary to create an effective food and agricultural policy for the United States. We believe the open process you have established for consideration of a new agricultural policy provides a welcome opportunity to achieve a workable farm program that is based on consensus and compromise.
    The National Farmers Union is unable to endorse all the components of the farm bill concept paper presented last week because they cannot adequately address the food and agriculture needs of America within the available budget. This reality requires all of us who support and promote American agriculture to seek new methods to ensure the available resources are utilized in the most effective ways possible to enhance the economic well-being of producers while meeting the conservation, development and nutrition challenges we must face as a nation.
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    We look forward to working with you, Mr. Stenholm, and the members of the committee in a constructive manner to craft such a policy. I will be pleased to respond at the appropriate time to any questions you or members of the committee may have.
     
Statement of Nolen Canon
    Mr. Chairman and members of the Committee, my name is Nolen Canon. I am a rice and soybean farmer from Tunica, Mississippi. I also currently serve as Chairman of the US Rice Producers Association. I am accompanied today by Mr. John Denison, a rice, soybean and cattle producer from Iowa, Louisiana. John is the chairman of the Rice Foundation, and the immediate past chairman of the USA Rice Federation.
    I am pleased to appear before the Committee today on behalf of the Rice Producers Association and the U.S. Rice Producers' Group, a charter member of the USA Rice Federation. Together, these two organizations represent virtually all of the nation's rice producers. My testimony represents the initial consensus position of these two organizations with respect to the Committee on Agriculture's Draft Farm Bill Concept Paper released on Thursday, July 13. Due to the very brief time that rice producers have had to review and analyze the Concept Paper, these comments must of course be considered 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.
    Before commenting on some of the specifics of the Concept Paper, let me begin by saying that the general reaction of rice producers to the Concept Paper has been positive. It appears that the Committee and its staff has done an admirable job of making the best of the limited budget resources available to it to craft a serious farm bill proposal consistent with many of the principles we articulated before the Committee in our testimony this March. Principal among these, the Concept Paper envisions maintaining producer planting and marketing flexibility while establishing a new counter-cyclical assistance program.
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PROGRAM CROPS
    Acreage Update. Rice producers support the option for producers, on an individual basis, to update their base acres to reflect recent plantings, provided that they are not required to do so. Some producers have raised concerns about the budgetary costs associated with such an acreage update, but as part of an acceptable, comprehensive package, rice producers are generally supportive of the proposed acreage update.
    Payment yields. 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.
    Fixed Decoupled Payments. 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. We proposed at that time and continue to support the provision of fixed decoupled payments at the rate of $2.56 per hundredweight for rice, as opposed to the proposed $2.04 per hundredweight rate proposed in the Concept Paper. The $2.56 per hundredweight rate represents the average of the PFC payment rates for rice over the seven-year life of the current farm bill.
    In addition, we are disappointed that the payment limits for these payments were maintained at the $40,000 level. As we testified in March, these arbitrarily set payment limits only serve to limit income assistance and reduce the effectiveness of the program. Eliminating or substantially increasing these payment limits will allow producers to more fully utilize income and marketing assistance programs, and help to address the cost/price squeeze that all farmers are facing, regardless of the size of their operations. If left unchanged, these limits will be 16 years old at the end of the proposed farm bill, and will reduce the effectiveness of the program over time if no accommodation is made for inflation.
    Counter-Cyclical Payments. We applaud the Concept Paper's proposal to establish a counter-cyclical payment (CCP) program to enhance the safety net for producers. Such a program, if appropriately designed and implemented, will supplement the support currently provided to producers and eliminate the regular need for the enactment of annual ad hoc farm assistance legislation as we have seen in the last four years.
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    In an effort to address this inadequacy on a long-term basis, U.S. rice producers continue to support maintaining a PFC-type fixed payment coupled with Loan Deficiency Payments, while supplementing them with a counter-cyclical payment paid to producers.
    Target Prices: We are concerned that the $10.71 target price on which the counter-cyclical payments are based will be more than 15 years old by the time the proposed farm bill expires. Clearly, 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 over the last four years. The CCP program that we proposed to the Committee was predicated on the need for producers to receive a total return of somewhere between $12.00 and $13.00 per hundredweight for their rice. A CCP program based on a target price of only $10.71 falls well short of our goal, and will likely provide producers with less support than has been the case during the past three years.
    Payment Rate: Counter-cyclical payments based on target prices does provide more certainty of when actual payments would be made to producers. However, because the CCP payments are based on the prices of program commodities in the future, we are concerned that the proposal may not pass muster with the requirements of World Trade Organization (WTO) rules. In part to satisfy these trade rules, we proposed that the CCP payments be based on the future receipts associated with program crops.
    At the same time, we would 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 all of these somewhat conflicting goals, and look forward to working with the committee as the bill progresses through the legislative process to address all of these goals to the extent possible.
    We note that the use of the national 12-month season average price in the calculation of payments under the CCP program will necessarily delay payments to producers until after the end of the marketing year. This delay and reduction in income will create a hardship for many producers during the transition to this new program and beyond. We would suggest two recommendations to address this important issue. To the extent that budget resources permit, we recommend that the payments be based on the average prices during the first five months of the marketing year. Second, the Secretary should be authorized to make advance CCP payments early in the crop year, similar to the provisions for advance deficiency payments provided under the 1990 farm bill.
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    Payment Limits: While we advocated that a CCP program not be subject to any payment limitation, 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.
    Related Program Effects: As we noted in March, many rice producers continue to be concerned regarding the effects that the current PFC payments are having on the rice-farming infrastructure. Because these payments are currently completely decoupled from rice production, some tenant farmers have been faced with situations where landlords make the economic decision to accept the PFC payments, while declining to produce a crop, or even to accept any risk associated with the production of a rice crop.
    This is one of several factors that have contributed to the significant decline in rice acreage in Texas since the enactment of the 1996 Farm Bill, from 300,000 acres planted in 1996 to 215,000 acres planted in 2001. Many of these producers are concerned that a CCP payment that is not coupled in some way to production will exacerbate this problem, especially in Texas.
    Rice producers believe that any new farm legislation should be carefully constructed to avoid further economic dislocations of this type. We will continue to work with the Committee on possible resolutions to this issue in the weeks and months ahead.
    Marketing Loan Provisions
    Rice producers strongly support the continuation of the marketing loan and loan deficiency payment (LDP) program. We applaud the Concept Paper's retention of this critical marketing tool for rice producers. We are also pleased that the Concept Paper maintains the loan rate for price at $6.50 per hundredweight and proposes to retain the authority for the use of generic commodity certificates in connection with the program.
    We are concerned that the $75,000 payment limitation on marketing loan gains and loan deficiency payments is not sufficient to provide producers with sufficient flexibility to market their crop. As evidence of the overly restrictive nature of this limitation, we would direct the Committee's attention to the fact that Congress has increased this limitation to $150,000 during each of the last three years. We would encourage the Committee to increase the limitation as producers are concerned that the Government may again accumulate stocks if they forfeit the grain for payment of the loan. Legislation is pending to similarly increase the limitation for this crop year for what will be the fourth year in a row.
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    In order to maximize producers' marketing flexibility and to minimize the need for Congress to address this issue repeatedly on an ad hoc basis, we request that the Committee consider either repealing the marketing loan gain/LDP payment limit, or increasing the limit consistent with the limit enacted for each of the last three years.
    Conservation. Rice producers support maintaining existing funding for our existing conservation programs, including the Conservation Reserve Program, Wetlands Reserve Program, Wildlife Habitat Incentive Program, Environmental Quality Incentive Program, and conservation technical assistance. However, we believe that new conservation funding should be targeted towards working land that is in production or considered in production. In addition we support funding and maintenance costs not only for science-based practices already being implemented that enhance the environment, but also additional practices that may be encouraged through higher incentive payments.
    We believe that all conservation payment programs need to be voluntary and incentive-driven, and that compensation for conservation practices should in no way be a substitute for existing or future farm safety net programs. As such, with the exception of an increase in biomass pilot acreage we do not support the increase in funding to fund increased enrollments in CRP proposed in the Concept Paper. We would strongly prefer that such increased conservation funding be targeted to production-based, incentive-driven payments to producers, rather than to increased land-idling or retirement payments. We also believe that there should be no payment limitations on any conservation program payments.
    Trade. Rice producers, millers, and the entire industry are dependent on exports for more than 40 percent of our annual marketings. As such, we strongly support programs to enhance the ability of the producers and the industry to enhance rice exports.
    We applaud the Concept Paper's proposed increase in funding for the Market Access Program to $180 million annually. We also support the reauthorization of the Foreign Market Development (Cooperator) Program as well as an increase in the funding for the Cooperator program to $43.25 million each year.
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    Finally, we would like to strongly urge Congress to approve Trade Promotion Authority for the President. Our industry's economic health absolutely depends on access to export markets. Increased export market access will only come from further multilateral trade negotiations and the United States will be successful in those negotiations only if the President has Trade Promotion Authority.
    In conclusion, the U.S. rice industry joins in complimenting your Committee and the Committee staff for the hard work that went into producing the Concept Paper. We believe that the Concept Paper represents 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. Mr. Denison and I will be pleased to answer any questions that you may have in this regard.
     

FORMULATION OF THE 2002 FARM BILL

THURSDAY, JULY 19, 2001
House of Representatives,
Committee on Agriculture,
Washington, DC.

    The committee met, pursuant to call, at 9:37 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.

    Present: Representatives: Boehner, Goodlatte, Pombo, Smith, Everett, Lucas of Oklahoma, Chambliss, Moran, Thune, Jenkins, Gutknecht, Simpson, Ose, Fletcher, Johnson, Osborne, Pence, Rehberg, Graves, Putnam, Kennedy, Stenholm, Condit, Peterson, Dooley, Clayton, Hilliard, Holden, Bishop, Baldacci, Berry, Etheridge, Boswell, Phelps, Lucas of Kentucky, Thompson of California, Hill, Baca, Larsen, Ross, Acevedo-Vilá, Kind, Shows.
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    Staff present: William E. O'Conner, Jr., staff director; Tom Sell, Dave Ebersole, Alan Mackey, Ryan Weston, Kathleen Elder, Callista Gingrich, chief clerk; Susanna Love, Andy Johnson, Anne Simmons, and Walter Vinson.

OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
    The CHAIRMAN. The hearing of the House Agriculture Committee to review the draft farm bill concept paper will come to order. Good morning. Welcome to our third hearing on the draft farm bill concept paper released by Mr. Stenholm and myself.
    Today the committee will hear the views of panelists representing agra-business, conservation and rural development issues. We appreciate your appearance before the committee this morning and your offer to help in those areas concerning Federal farm and rural policy programs.
    Those persons who have been following the first two days of the hearings know that the conservation portion of the concept paper has attracted a great many questions and serious discussion. The committee welcomes that interest. I certainly welcome it as well because I firmly believe that the draft concept paper represents a substantial commitment of this committee to the conservation initiative that we began in 1996 farm bill. In total the draft invests an additional $15.05 billion in conservation assistance, which if enacted would bring the total spending over the next 10 years to $36 billion.
    Under the draft nearly 7 million additional acres could be enrolled in the CRP. Additional wetlands would be restored and fewer would be converted through the use of the WPR. EQIP spending would be increased by a factor of 6, and improvements would be made to make the program more workable. Wildlife Incentives Program would finally get a predictable flow of funds, and protection of prime and unique farmland would be given greater importance. That is a significant commitment to conservation of our farming and ranching land.
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    In rural development, too, the concept paper provides funds for advanced digital communications and value-added agriculture. Farmers and ranchers will be given the means to capture the benefits of selling their product further up the processing marketing chain.
    The Paper also provides a planning infrastructure to assist rural areas and isolated communities in obtaining the funds, the benefits of USDA's current rural development program.
    Taken as a package I believe the draft farm bill concept represents a significant step forward for all segments of rural America. Again, I look forward to understanding the views of our experts who will be testifying. I would recognize Mr. Stenholm for any comments he may wish to make.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
    Mr. STENHOLM. Thank you, Mr. Chairman.
    Just some announcement of some membership changes that we have made on our side regarding subcommittees, most notably, Mr. Holden of Pennsylvania has been selected by our caucus to serve as ranking minority member of the Subcommittee on Conservation, Credit, Rural Development, and Research to replace Mr. Hilliard, who has been appointed to serve as ranking minority member at a International Relations Subcommittee. Also, Ronnie Shows joins the Department Operations, Oversight, Nutrition, and Forestry Committee, Bob Etheridge on General Farm Commodities and Risk Management, and Earl Hilliard moves over to the Livestock and Horticulture Subcommittee.
    The CHAIRMAN. I thank the gentleman and welcome the new appointments.
    Any statements for the record will be accepted at this time.
    [The prepared statement of Mr. Bishop follows:]
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PREPARED STATEMENT OF HON. SANFORD D. BISHOP, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA
    Thank you, Mr. Chairman and Ranking Member Stenholm.
    I would like to share my appreciation for the hard work that you and your staff have put forth to move forward with this critical proposal that will not only affect farmers but each and every citizen in this country.
    I would also like to thank the distinguished witnesses testifying today for taking time to help this committee iron out this farm bill draft. In particular, I would like to recognize a true friend and constituent, Mr. Greg McCormack, for traveling up from Albany,
GA, to share his views about the proposal. I look forward to hearing from him this morning and wish him and his family the best.
    It is my vision that these testimonies presented today will help this committee work through the proposed draft and produce a true farm bill that we can send to the House floor. I would like to see a farm bill that not only pleases our colleagues, but more importantly, legislation that promises a bright future for American Agriculture.

    The CHAIRMAN. I call our first panel to the table, Mr. Kendall Keith, president of the National Grain and Feed Association, Washington, DC, Mr. Bruce Ritter, executive vice-president, Louis Dreyfus Corporation on behalf of the Coalition for Competitive Food and Agricultural Systems from Wilton, Connecticut, Mr. Greg McCormack, president of Bob's Candies on behalf of the Coalition for Sugar Reform, Albany, Georgia.
    Mr. Keith, please begin and we will take the testimony in the order of the witnesses' introduction.
STATEMENT OF KENDALL KEITH, PRESIDENT, THE NATIONAL GRAIN AND FEED ORGANIZATION, WASHINGTON, DC
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    Mr. KEITH. Thanks, Mr. Chairman, and members of the committee. I am going to focus my comments today on conservation.
    Our association strongly supports the overall planned increased funding for conservation. Water quality improvement is a long-term problem for U.S. agriculture, and the increased funding for the EQIP Program is crucial if we are going to meet higher regulatory goals.
    We do, though, have strong concerns about the proposed expansion and the cap on the Conservation Reserve Program. With the 1996 Fair Act all other annual acreage idling programs were stopped. The record was clear after decades of experience acreage idling did not raise farm prices.
    The CRP, though, because it offered conservation and environmental benefits was continued but the CRP remains as the last significant U.S. resource idling program, and as such carries all the negatives of other land idling schemes of the past. It costs the taxpayer and taxes the economy by restraining growth and the use of productive assets.
    We would urge the committee to reconsider this portion of the proposal so the CRP is not once again employed as a supply-control tool to the detriment of rural economies and active farmers.
    First, it is important we think to recognize just how big the CRP already is. Its current size of 33 million acres represents over 10 percent of all U.S. acreage devoted to annual field crops. Another meaningful comparison is that U.S. CRP land mass is equal to about 50 percent of all planted acres in Canada. CRP is concentrated in U.S. wheat producing States. It has contributed to the shrinkage of wheat acreage, and we have witnessed increased Canadian wheat imports because of that. An expansion of the CRP is likely to have similar results.
    Land owners leasing their land to the Government are the only sizeable class of monetary beneficiaries of the CRP Program. Virtually everyone else in rural areas lose when active cropland goes into retirement. No crops produced, no input sold, and no crops to market meaning substantial job loss, loss of schools and infrastructure.
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    The CRP is a policy that depopulates rural areas at an astounding rate. There was a 1994 study at the University of Minnesota that estimated that land idling programs from 1950 to 1990 were responsible for 30 percent of total loss in population. Even in the 1990's when just the CRP has been the idling program a large number of the counties that have the 25 percent of acreage in CRP have had population losses between 6 and 13 percent.
    The CRP impact on rural economies raises an important question. Why should taxpayers spend money to revitalize rural areas while at the same time spend more money to put the brakes on economic activity with whole farm leasing programs like CRP? Of all land idling programs past and present the CRP Program is most harsh to the tenant farmer, the tenant farmer that is trying to maintain an economic-sized family unit, has less land to farm, and has to compete against the Government in bidding for reasonable rental rates.
    There is some associated danger in continued use of the CRP for rental of whole farms, and that is the contribution to the land-price inflation. When coupled with a higher baseline budget the CRP risks the land-price bubble, it will not be sustainable.
    We are also concerned about how our international competitors will react. In 1996 we renounced our reliance on acreage idling for supply control. A perceived reversal of our position on land idling will no doubt encourage our competitors to resume expansion.
    It is our recommendation the CRP remain kept at 36.4 million acres. The current 33 million acre program still have substantial room to grow and should be focused more on water quality than wildlife benefits. Much of the existing 33 million acre CRP is already devoted to the whole farm leasing, which causes both the greatest economic damage but also has the greatest benefit to an expanding game bird population.
    Water quality benefits of the CRP have not been as impressive as those for wildlife. Filter strips, bumper strips, and other proven methods for improving water quality need to be the new emphasis for the last 3.4 million acres going into the CRP.
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    Just a few comments about the commodity proposals in the Farm Policy concept paper. We agree wholeheartedly with the reduction in the soybean loan and replacing that loss with a direct payment. We are quite concerned about the income support benefits for farmers being tied to a guaranteed target price. Again, we are concerned mostly about the land-price inflation. We would recommend that these payments be done on a direct subsidy basis as opposed to a target-price program. We think the potential for land-price inflation is less.
    The other reason to go away from a target-price concept with the next WTO round the U.S. needs to take a leadership role and not move toward more distorting policies simply to leverage our own position in those trade talks.
    [The prepared statement of Mr. Keith appears at the conclusion of the hearing.]
    Mr. KEITH. Thank you very much.
    The CHAIRMAN. Thank you. Mr. Ritter.
STATEMENT OF BRUCE RITTER, EXECUTIVE VICE-PRESIDENT, LOUIS DREYFUS CORPORATION, ON BEHALF OF THE COALITION FOR COMPETITIVE FOOD AND AGRICULTURAL SYSTEMS, WILTON, CT
    Mr. RITTER. Good morning. I am Bruce Ritter, executive vice-president of Louis Dreyfus Corporation. I am also a fourth-generation family farmer from the Klamath Basin in southern Oregon. Louis Dreyfus is one of about 120 agriculture-related companies and trade organizations comprising the membership. We are committed to support of the continuation market-oriented polices and programs for U.S. agriculture.
    In my written remarks, which I am sure everyone has seen, I cover our specific proposals for what we believe would be sound agricultural policy going forward. I would like to focus the few moments I have here to speak on an overview of the market situation.
    The enactment of the Fair Act in 1996 was a watershed for American agriculture. For the first time we sent the signal to the world that we were no longer going to be the holder of surpluses and an idler of land. We were going to unleash the competitive power of American agriculture to compete in the global marketplace. And make no mistake, agriculture is competitive. It is a tough environment, and it is going to be tough in the future.
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    The industry is cyclical. It always has been. It always will be. I remember in 1996 about the time that these policies were first put into effect I taped to my bulletin board a note from a commission house in Chicago saying that the era of cheap corn prices is behind us forever. Three months ago I taped a note from the same author to my bulletin board that said we are in an era of continued surpluses. Neither is accurate. The seeds of the last 3 years have provided us with a unique opportunity over the next 2 to 3 years to promote the competitiveness and market power of American agriculture.
    There are several underlying trends that we are witnessing that have been masked by the apparent low prices that we see in the world marketplace. For the last 3 years the world has consumed more grains than it has produced. During that period of time the world has been on a major de-stocking program. China alone, over the last 2 years has reduced their stocks of grains and oilseeds by roughly 100 million tons. That number represents about 40 percent of anticipated U.S. corn production in the ensuing year.
    During that same period of time China, which in the last 12 months was an exporter of roughly 12 million tons of corn while reducing those stockpiles, has reached agreement on entering WTO in the fall. This period of time over the next 2 years when China is a full member of WTO is a unique and dramatic change in the opportunities for U.S. agriculture.
    Under WTO China in the 12 months of 2002 will be obligated to purchase roughly 4 million tons of corn. Think about it. That swing in 24 months from a 12 million ton exporter and competitor of U.S. agriculture to a 4 million ton importer is a 16 million ton swing. Sixteen million tons, about 600 hundred million bushels, are roughly 30 percent of anticipated U.S. corn exports. In the same time fully because of market growth in China and we have to understand China has an economy that is growing at 10 percent a year, creates dramatic increases in protein consumption. China has moved from importing no beans 2 years ago to importing 13 million tons of beans in the year we are in, and we anticipate more in the following year.
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    That de-stocking program that we see in China has taken place on a global basis. Every major exporting competitor is running at lower stocks than they were 2 years ago. Every major consuming country has less stocks in the pipeline than they had 2 years ago. The world is into real-time place management and inventory management today. Four years ago the concerns we heard were food security. Today the concerns we hear are excess supplies and inability to find homes in the marketplace for our goods. Nothing could be further from the truth. I want to impress on this committee the opportunities we see and the necessities and desirability of competitiveness going forward.
    The marketing loan allows us to compete. Competing acreage outside the U.S. has actually declined in the last 2 years. Our strongest and most formidable competitor is South America. In the right-price environment Brazil and Argentina can and will expand their acreage at 10 percent a year. Under Freedom to Farm and the ability for U.S. farms goods to clear at market prices, we have reduced that expansion of acreage.
    Looking forward over the next 2 years we are going to be moving from a period of time where the job of the market was to curtail production to one where the job of the market is to expand production to meet increasing consumption. The opportunity for U.S. agriculture going forward is dramatic if we continue the policies of Freedom to Farm.
     I look forward to answering your questions on any of the specifics but the message I want to provide is bad times create good times, and we are due for a cyclical upturn over the next 3 years if we have a continuation of current farm policies. Thank you.
    [The prepared statement of Mr. Ritter appears at the conclusion of the hearing.]
    The CHAIRMAN. Thank you. Mr. McCormack.
STATEMENT OF GREG MCCORMACK, PRESIDENT, BOB'S CANDIES, ON BEHALF OF THE COALITION FOR SUGAR REFORM, ALBANY, GA
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    Mr. MCCORMACK. Thank you, Mr. Chairman. My name is Greg McCormack, and I am president and chairman of the board of Bob's Candies in Albany, Georgia, and the third-generation of my family involved in this business. Today I am testifying on behalf of the Coalition for Sugar Reform.
    Our coalition is opposed to the Sugar Program, not the sugar producers but to the Sugar Program. The Sugar Program is not only harming the interests of consumers but it is not serving the growers well either. Obviously we disagree with the way they would change the program but sometimes common problems create common opportunities for cooperation.
    When Congress wrote the last farm bill, advocates of the Sugar Program argued that the program was run at no net cost to taxpayers. They argued that it worked, and it benefited producers. The committee needs to understand that much has changed since 1996. Domestic production rose almost 25 percent in the subsequent 3 years and will still be 15 percent higher than 1996 this year, despite lower prices. By contrast, imports have fallen 40 percent. Imports are not the problem. The problem is that our high sugar price supports have led to a surplus of sugar.
    Unlike 1996 the sugar market is not balanced. It is unbalanced. In 1996 the Government owned no sugar. By contrast the Government acquired over 1 million tons of sugar last year. USDA entered the market during the spring to purchase sugar in the hopes of shoring up prices, a hope that turned out to be in vain. Then USDA acquired much more surplus sugar through forfeitures under the Price Support Program. None of this had happened in 1996. Not only had there been no recent large-scale forfeitures of sugar, there was no great likelihood of forfeitures in the future.
    Again, the situation is different today. Not only have there been forfeitures there may well be more. Fewer than last year perhaps but still at substantial cost to taxpayers. In 1996 the Sugar Program did not result in a net outlay of taxpayer dollars at least directly but in 2000 taxpayers spent $465 million to buy sugar.
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    USDA's long-term baseline predict sugar stocks rising to as much as three times normal levels with taxpayers owning the biggest part of the surplus.
    Finally, the Sugar Program's affect on employment today is more evident than was the case in 1996. The problems of the cane refining industry are stark. The refineries that were operating when the current program began in the early 1980's about half have closed, taking over 3,000 good manufacturing jobs with them, and more recently Chicago's candy industry has been threatened by plant closings that are the direct result among other factors of the spread between U.S. and world sugar prices.
    My small company is not immune to this artificial spread between U.S. and world sugar prices. I will give you first-person evidence that will totally contradict earlier testimony from so-called studies that lower sugar prices are not passed onto consumers. With our competitors outside the United States able to produce and price their products using world-price sugar, they have forced us to reduce the price of our products to the point where we are selling many of our candy cane items at prices below 1995 levels.
    Just to give two examples, this product at Walgreen Drug Store sold for $1.99 last year but will sell at $1.59 this year. That is a consumer savings of $288,000 in this one small candy cane item at one retailer. At Sam's Wholesale Clubs last year consumers paid $5.99 for 200 pieces of this Bob's Sweet Stripes item. This year consumers will pay $6.69 for a new package containing 290 pieces of Bob's Sweet Stripes. This is a 30 percent reduction in the price to the consumer for a piece of candy with the resulting savings of over $1 million per year.
    These are only some of the ways in which 2001 is different from 1996. Even if you thought the current program was workable in 1996 and of course, we did not, you should come to a different conclusion today. This farm bill should reform the Sugar Program. We believe certain principles should govern our sugar policies. All the principles have one overriding theme. We should give greater sway to market forces than current policy allows.
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    First, policies should allow the market to operate in such a manner that supplies are adequate and balanced. This means that shorting the market through production control should be off the table, and market signals should be transmitted to all producing regions so that an imbalance of each sugar relative to cane sugar can be avoided. In turn, market balance will allow a return to viability for the cane refining industry.
    Second, our market needs to be more open to world supplies. In recent years as I have already pointed out we have gone in the other direction cutting imports by 40 percent. Reversing this trend is vital to accommodating our present and future trade obligations and to encouraging expanded market access worldwide for our competitive export commodities, whether pork, soybeans, corn, or beef.
    Third, our policy should not provide incentives for overproduction. The current support system has clearly encouraged more domestic production than the market needed. We must change that.
    Fourth, market prices must be better able to fluctuate with supply and demand. Too often in recent years price movements have been the result of abrupt and arbitrary Government policy changes, excess supplies induced by Government programs, the abrupt removal of those supplies from market channels, and similar factors.
    I ask you to remember three things. First, things have changed since 1996 and not for the better. Second, the current Sugar Program is no longer helping the people it is designed to help, and it is hurting many other people from all walks of life. Third, real reform must bring more market orientation to this outdated, counter-productive, and unsustainable program. Thank you, Mr. Chairman.
    [The prepared statement of Mr. McCormack appears at the conclusion of the hearing.]
    The CHAIRMAN. I thank all of you very much. Mr. McCormack, I think the committee members may need to do a little closer inspection of that candy. You might want to pass it around.
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    Mr. MCCORMACK. I actually have an empty box for contributions for my airfare back home.
    The CHAIRMAN. We understand contributions and empty boxes.
    Let me address my first two questions to Mr. Keith and Mr. Ritter. In your verbal statements as well as in your written statements you were talking about the approach. There is an assumption, I mean, there is an agreement I am presuming but please verify this, that there should be a safety net for farmers of some kind.
    Mr. KEITH. Yes.
    Mr. RITTER. Absolutely.
    The CHAIRMAN. Briefly tell me how you think a safety net should work for them.
    Mr. KEITH. From our perspective we are better off with the direct payments given the budget situation that provides substantially close to an average level of funding close to what we have seen in the last several years. We think the farmer is better off trying to individually manage his own cash flow and profitability over a period of years with a fixed payment as opposed to a target price on the board that we think will create an aggressive bidding war for acreage.
    The CHAIRMAN. A direct fixed payment?
    Mr. KEITH. A direct fixed payment.
    The CHAIRMAN. Such as there was under——
    Mr. KEITH. Yes.
    The CHAIRMAN. In terms of with input costs and costs of production and those sorts of things, would you suggest that if we did that at the same level that was paid, well, as you know there was declining payments. There were declining payments under the most recent farm bill, the current farm bill, at the range they are today should they be higher?
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    Mr. KEITH. Well, given the budget situation I guess we would suggest that you stay with the direct payments and allocate them accordingly.
    The CHAIRMAN. But I mean, at the payment rates of the producer at the same level they have been receiving, or should we consider a higher payment or——
    Mr. KEITH. We would recommend you shift the monies that have been allocated to the target price back to the direct payments.
    The CHAIRMAN. And increase the direct payments.
    Mr. KEITH. Yes.
    The CHAIRMAN. OK.
    Mr. RITTER. From our perspective farm income is a function of market returns, direct payments, which we strongly support, and production costs as you mentioned. Production costs over time are tending to decline. It is our view given the nature of the agricultural cycle that we are likely to have higher prices rather than lower prices over the next 2 years.
    It is very important in this period of time when we view the function of the market to increase global agricultural production during that period of time to allow the farmer to determine what he plants. I am not smart enough to know 2 years from now whether the market at the margin will be requiring more wheat acreage, more oilseed acreage, or more feed grain acreage. The desire to maintain farm income can be accomplished through direct payments to make up the difference between the market returns and what is determined to be an appropriate level of income but it is very important in our view to allow the farmer to make the individual decision. He can do that far more efficiently than any one company or the USDA can do themselves in trying to determine that.
    The CHAIRMAN. I guess I am trying to see where the difference lies between basically what you just said versus what we are looking at now where you do make that payment to a farmer based upon market conditions, the lower the market price, the more the payment, the higher the market price, the less the payment.
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    Mr. KEITH. Mr. Chairman, from our perspective it does shift some more risk to the farmer. It places more of a burden on the farmer to manage income year to year but that same risk will make people pause when they are bidding for land we think. And we think that is a healthy thing. Risk does play a role in the marketplace.
    Mr. RITTER. An element of risk is healthy. It is healthy for industrial competitors, it is healthy for the farmers. We, too, are concerned about the price of farmland in the U.S. and its impact on our competitiveness over time. The price that is received in the marketplace is primarily a function of the variable cost of production, and in that the U.S. and South America, for example, are very competitive. But land prices in South America are significantly lower. And if we try to build into the farm income levels and support payments, a level that encourages the continued increase of farmland prices in the U.S., it continues to widen that relationship between U.S. fixed costs and in this case South American fixed cost because South America clearly has the capacity to expand acreage at 5 to 10 percent a year for the foreseeable future.
    The CHAIRMAN. My time has expired. I am going to try to stay within that timeframe but I am sure we will have another round of questions. Thank you. Mr. Stenholm.
    Mr. STENHOLM. Mr. McCormack, if I understood your testimony and the wonderful candy examples that you used, you cited an increase in the price of that candy last year?
    Mr. MCCORMACK. We have rolled the price back of the candy. There was not an increase in the price of the candy.
    Mr. STENHOLM. There was not a price increase?
    Mr. MCCORMACK. No. There was a price decrease.
    Mr. STENHOLM. Price decrease.
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    Mr. MCCORMACK. Yes.
    Mr. STENHOLM. As a result of what?
    Mr. MCCORMACK. As a result of lower input costs from sugar being lower last year as well as competition with other producers that, whether they be inside the United States or outside the United States.
    Mr. STENHOLM. The statement you make that you are not against sugar growers but against the Sugar Program, I find that rather fascinating because I don't see how that you can separate the two, and that goes for all of our programs. You relocated your business to Jamaica. Is that not correct?
    Mr. MCCORMACK. No. We moved a portion of our business to Jamaica, about 5 percent of our production capacity in 1984. That plant is no longer operating as of last May.
    Mr. STENHOLM. You have no production now in Jamaica?
    Mr. MCCORMACK. No.
    Mr. STENHOLM. The coalition that you represent is advocating lower sugar prices based on what?
    Mr. MCCORMACK. Based on the fact that many foreign competitors are able to access lower sugar prices, and we have to compete in that marketplace with those lower input prices, as well as the fact that the Sugar Program did not seem to work for growers either last year. And that is part of our policy why we are not against the growers, we are against the program because the program obviously didn't work for either growers or users last year.
    Mr. STENHOLM. It always disturbs me when I hear that it is the farm program. We heard that the CRP is having a devastating affect on wheat growers. We are still producing more wheat than we can sell. The market price to our wheat producers has been declining, not going up, even as supply goes down. One of the questions that I have regarding Freedom to Farm is why have we not seen more of a price reaction? Obviously, somebody else is producing it cheaper or at least selling it cheaper. And one of the concerns we have, and this is across the board for all programs, the idea that we have to compete in a world market is great. That is the free market system. But if the world market is being affected by Government policies in other countries, then there is no way on this earth that a producer in America, whether it is sugar, whether it is peanuts, whether it is wheat, whether it is airplanes, there is no way you can compete in the business climate, I believe, unless your Government stands shoulder to shoulder with you. Do you agree or disagree with that broad statement? The three of you.
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    Mr. MCCORMACK. I agree narrowly with that broad statement but I think I would take it a step further by saying that as a manufacturer being forced to pay the higher price for that commodity, whether it be sugar, peanuts, or corn, it puts the manufacturers in a very unfair advantage with trying to compete with world prices for commodities, whereas the farmers do not have to compete with that under certain programs.
    Mr. STENHOLM. But I have a difficult time because I suspect in all of your products sugar is a very small component of the cost of your operation compared to energy, labor, salaries, transportation, fuel, energy. What percent of your product is sugar?
    Mr. MCCORMACK. Thirty.
    Mr. STENHOLM. Thirty percent.
    Mr. MCCORMACK. This is 100 percent sugar, this product.
    Mr. STENHOLM. What did it come down last year? What is your price of that product today?
    Mr. MCCORMACK. As I mentioned this product is 30 percent lower than last year per piece.
    Mr. STENHOLM. Per piece.
    Mr. MCCORMACK. Thirty percent lower. We actually lowered the price for this product and this product lower than the price reduction in sugar last year.
    Mr. STENHOLM. Now, I am a consumer. I am going to buy that. What does that sell for, that bucket?
    Mr. MCCORMACK. This sells for $6.67.
    Mr. STENHOLM. And it sold for $10 last year?
    Mr. MCCORMACK. No. This one has 50 percent more candy than this, it sells for about 20 percent more. This was $5.99. This is now 6.67.
    Mr. STENHOLM. So the actual consumer has gotten the benefit of that.
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    Mr. MCCORMACK. Definitely.
    Mr. STENHOLM. Man, my hat is off to you. You are the first company I have seen in which the price of that which we are receiving, we are paying as consumers has gone down. Everything else which we have researched has gone up, and yet many of your coalition blame the Sugar Program for it. I commend you. That is the way this ought to work.
    Mr. MCCORMACK. Well, I think if you look at candy canes, if you look at any hard candy product, candy canes I would surmise that consumers probably will benefit to the tune of $20 million at retail this year alone, and that is a very small segment of the candy industry.
    Mr. STENHOLM. In the second round I will have some other questions of some of the other members of your coalition as to why they haven't reduced the price of their product by 30 percent as a result of the decline of the sugar. You have done a very good witness to the first round.
    Mr. MCCORMACK. Thank you.
    The CHAIRMAN. Mr. Boehner.
    Mr. BOEHNER. Thank you, Mr. Chairman. Mr. McCormack, can you outline briefly your specific recommendations on how you would change the Sugar Program?
    Mr. MCCORMACK. Well, basically I would change it by supporting the Miller-Miller amendment to that bill. I think that is a better bill. It brings up more marketing-oriented type of policies to the Sugar Program but I would also caveat anything I say. I am not a technical expert on the Sugar Program. I know how it affects me as a manufacturer, and I am interested in trying to bring prices down to my company and then pass those savings along to the consumers as is apparent.
    Mr. BOEHNER. Mr. Keith, there has been much written and some discussion about the counter-cyclical payment scheme that is outlined in the draft white paper that we have seen. Can you give me your comments on what you think the affect of this will be on farmers across the country?
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    Mr. KEITH. Well, because the payments themselves are supposedly de-coupled from production it shouldn't have a tremendous production impact, although if you let farmers refigure their base and you send a signal that this may come up again the next time we have another round of farm bill discussions, toward the end of the program they are likely to be careful what they plant and plant a lot of their acreage. But in terms of counter-cyclical we are fearful that if you just take too much of the risk out of agriculture, it is not healthy.
    Mr. BOEHNER. The loan rates that are outlined in the draft paper do you believe that those loan rates provide an incentive, a disincentive, or are neutral in terms of driving planning decisions on the part of farmers?
    Mr. KEITH. They have a positive impact on planning on acreage.
    Mr. BOEHNER. Can you elaborate on that?
    Mr. KEITH. There is some recent ERS studies that indicate they are having a net positive impact of about 1 to 2 million acres currently.
    Mr. BOEHNER. Do you believe that the loan rates that we have today are an incentive for farmers to plant?
    Mr. KEITH. A slight incentive. Yes.
    Mr. BOEHNER. And do you think the slightly adjusted loan rates as proposed in the draft paper, they are OK? Think they are too high?
    Mr. KEITH. They will help.
    Mr. BOEHNER. They will help.
    Mr. KEITH. Yes.
    Mr. BOEHNER. Mr. Chairman, thank you.
    The CHAIRMAN. The committee will stand in brief recess while Members cast a vote and return. Thank you very much. Please make yourselves at home.
    [Recess.]
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    The CHAIRMAN. The committee will reconvene.
    Mr. McCormack, I have got $9 here. Mr. Stenholm and I were going to give you $7 for that large bucket and $2 for your flight. But you are giving our candy away. Give it to him out of that other bucket. We will make sure it is all, when you are done here. I want you to take him that money and bring back that bucket of candy right there, if you don't mind. Mr. Peterson is recognized.
    Mr. PETERSON. Thank you, Mr. Chairman. As will probably come as no surprise, I want to focus in on this CRP a little bit. And I initially want to make a couple of editorial comments, I guess, if you will. Respectfully, I would take issue with some of your conclusions.
    Up in my part of the world, I think there are very few people that would argue that one of the things that always makes people in the city curious is how land can be going up when we are having to sell below the cost of production. And in my part of the world, people, I think rightly, attribute it to AMTA payments. AMTA payments have capitalized into the land more than anything else, we think.
    The other thing that has happened is that hunting land, even if it is not in CRP, irrespective of whether it is in CRP or not, sells for more money in my area than farm land.
    And I am not close to a big city. So this is not people moving out, 40 miles from a big city to get a country place. I mean, it is just worth more money. In places such as South Dakota, Mr. Thune can attest to this, I think, farmers now, in a lot of cases, make more money from their hunting operations than they doing growing wheat or corn or some of these other commodities. It is a more profitable situation.
    I think that to blame some of these ills on CRP, I don't think it squares with what is going on out there in the real world, at least in the part of the country that I am familiar with.
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    And I don't know if you have had a chance to look at the history of land use that has been put out by the USDA. But it is very interesting to look at what is going on here. Back in 1990, we had 255.9 million acres planted in the major crops, 15 major crops. In 2000, we have 256.3 acres. So we have about the same amount of land in production that we had in 1990.
    Look at what is going on here over the last number of years. One thing that is interesting is that we have had 30 million acres basically disappear. They are not in land idling and they are not in production. And I would argue that part of the reason for that is that the CRP was changed. When it was originally put in, it was basically put in as a production control mechanism, the way to get some land out of production during these times when we had surpluses. And it maybe accomplished that. I am not sure what it did for prices. But we changed the CRP.
    I think part of the reason that you see these changes in land utilization is because now, it is no longer a land idling program. With these EBI scores and all of this, the land that is going into CRP has to have wildlife benefits. It has to be highly erodible. It has to have all these other characteristics. So I think part of the reason that we are seeing what is going on here is that this land that is going into CRP, I am not sure would be good crop land in the first place.
    In my part of the world, because we can't make any money growing wheat, for some farmers, this is the only way that they can stay in business. And they are not putting their whole farm in. They are maybe putting one-quarter in so that they can use that to try to keep the rest of the stuff in production.
    So I just hope we could keep this all in perspective and, understand that in some parts of the world, this CRP is providing a lot of good economic benefits. And I guess I just wondering if you would disagree with that. You just are philosophically opposed to us.
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    Mr. KEITH. We are opposed to an expansion because we don't know where you draw the line. Is it 40 million this year? Is it 45 million next year? Or in 5 years, but if you look at the overall program, there may be situations where what you say is true. But there are many other situations where the Government is having to bid $80, $100, $120 an acre to take land out of production. Well, I would argue that count of land is pretty productive farm land.
    Mr. PETERSON. But that is mostly going into this continuous signup, which is, we still have over 3 million acres available in the continuous signup. And we have been trying to increase those prices so they can bring them into the system.
    Mr. KEITH. Right.
    Mr. PETERSON. I don't think that if we, for example, if we raise the cap to 45 million acres, that doesn't mean that that is going to get into the program. we have a situation now where when they have had these signups, they haven't, a lot of people haven't been able to get in because they can't meet these EBI scores. So as long as we keep that system in place, I don't think the fact that we raise the cap is necessarily going to follow that we are going to have that much land go in because it is very specific as to what you have to do to get into the program. And that is probably as it should be.
    Mr. KEITH. We think there has been too much emphasis on the whole farms. And we think that that has led to too much emphasis on wildlife versus water quality. And the studies reflect this. Water quality has not been a big benefit from this program, but it could be.
    Mr. PETERSON. Well, and we have other programs that deal with water quality. And I would just, my time is expired, but I would just like to say that we made a conscious decision to focus on wildlife. And as I told the panel yesterday, we probably can't pass this bill if we don't do some things that are going to benefit sportsmen and wildlife and conservation.
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Those of us that represent just farming aren't going to be able to pass a farm bill if we don't have those other benefits. The Sportsmen's Caucus has 281 members, which is the biggest caucus in the house. Has made expansion of CRP the No. 1 priority. So I just want to get that on the record one more time.
    Mr. KEITH. It carries risks.
    The CHAIRMAN. Mr. Lucas.
    Mr. LUCAS of Oklahoma. Thank you, Mr. Chairman. And to, in a way, focus on some of the things that Mr. Peterson has discussed.
    In the Subcommittee on Conservation, Credit, Rural Development, agricultural research, we have had a number of hearings focusing on not only what is good policy and good economic policy, but also trying to craft some concepts that are politically doable. Because ultimately, here on the final analysis, it doesn't matter if we try to pass the best economic or agricultural economic policy in the world if we can't make it happen on the floor of the United States House, then it is for not. It is just a wasted political science exercise.
    That said, and I supposed I would address this comment more to Mr. Keith than Mr. Ritter. I would hope that your groups out there that you represent are flexible and open-minded enough to understand that as we work our way through not only the floor of the House, but also ultimately, a conference with the United States Senate, that there may be some things out there that we don't all necessarily aspow to the greatest of enthusiasm together.
    Do you believe that the folks that you represent, while very clear in the testimony you have given today, nonetheless, though, are willing to work in that common-shared goal to accomplish policy that is good for everyone?
    Mr. KEITH. Certainly, we are willing to sit down and talk. But it is, we try to offer factual evidence into the record and try to be constructive in our comments and to point out that sometimes programs can have an unintended risk in costs. And we need to keep our eyes open.
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    Mr. RITTER. If I could just add one brief comment. Certainly the CRP program is a good program and has been a successful program. But we have to recognize in terms of the balance that when we start bidding land into the program that has an economic value of over $100 an acre for you to take a benchmark, we are bidding into that productive farmland. And the bidding of that acreage into the program clearly is exporting production overseas. And that is a cost of the program.
    Mr. LUCAS of Oklahoma. I yield back, Mr. Chairman.
    The CHAIRMAN. Mr. Condit?
    Mr. CONDIT. Thank you, Mr. Chairman. Mr. Keith, thank you for being here this morning. You are an agricultural economist? Is that your training?
    Mr. KEITH. Yes.
    Mr. CONDIT. I would like to ask just a little bit about the CRP. And we have a thing in the West, in particular, California, where over water issues and environmental issues, we have something that is proposed. It is called land retirement. And the concept is to take land out of production. And normally, when you take it out of production, you provide water for other farming operations or you solve some environmental issue.
The consequences of that, a lot of times, is the impact to the economy of whatever farming communities, small community around there in terms of the spin-off value. Do you have any statistics, factual information about when we lose land under this program, what the economic impact to rural America is or to any specific region?
    Mr. KEITH. There is several. The Minnesota study I have cited is a National study. There are a number of State and Regional studies that have been done on land idling. Mostly in the Dakotas regions. I am not aware of one for California. But I imagine the parameters that have been estimated in those studies could to be used to obtain some logical results for California.
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    Mr. CONDIT. And I am not specifically speaking to California. I think our situation is a little bit different. It is more about water and the environment than anything else. But I am just, for rural America, have you totally, what the program does right now, can you come up with a number that, job loss, economic loss to these small rural communities when you take land out of production under this program?
    Mr. KEITH. There are ways to estimate the productive of output of the acreage that is out there. If you did away with the CRP program today, though, you would have quite a bit of slippage, as has already been indicated by Congressman Peterson. And so you might end up with 10, 12 million acres back in crop production out of the total. I don't know. I am not sure what the number would be. It would be an effect of the prices. But you can multiply that by, in terms of the national economy, there is a multiplier on grain production of about 2.25. So the value of the grain times 2.25 factor is essentially the benefit to the national economy.
    Mr. CONDIT. Mr. Ritter, I heard you mention about China in the market, growth there and so on and so forth. It appears, at least from the administration and our people who are negotiating trade for our country are willing to accept China to get an 8.5 percent crop support where we agree to a 5 percent. Can you tell me how you can figure out how our farmers can be competitive when they are allowed to do an 8.5 percent and we agree to a 5 percent?
    Mr. RITTER. The reality is, Mr. Congressman, that the actual subsidies employed in China are much less than that target. And China, as they reform the national economy, has a tremendous problem in dealing with the welfare of their 800 million peasants. And it is a fact that we have to recognize that their trade policy and economic policy will be very focused on providing a meaningful, transition of those 800 million people into the market economy. The real story in China, though, is the economic growth we are seeing there and its impact on total consumption in China.
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    A 10 percent a year economic growth combined with problems that are very similar to the problems of the American West in terms of the availability of water and the economic value of water are such that their productive capacity internally to keep pace with the expansion of consumption is going to require them, in our view, to be a significant and meaningful importer of U.S. goods over time.
    And that is codified within the WTO, in that they have to provide market access for quantities of corn, wheat and vegetable oil. So I view them as a customer over time. A tough customer, tough to negotiate with commercially or on a governmental basis, but an economy that recognizes the need for our agricultural products over time.
    Mr. CONDIT. I will give you that, over time. You are right. It is a great market that we absolutely have to be into. But what do we do in the short term? In terms to the negative impact on our farmers before we are able to get to the long term?
    Mr. RITTER. In the case of China, the long term is here. They are going to import 13 million tons of soybeans on a global basis this year. A lot of those come out of Argentina and Brazil, but a significant amount come out of the US, as well. That represents roughly 50 percent of their consumption of soybeans. They need the protein for their animal feed industry.
Under WTO, in the next calendar year, they will be obligated to purchase over a million tons of vegetable oil, 7 million tons of wheat and 4 million tons of corn. From a geographic standpoint, from a transportation standpoint, the U.S. is in a position to compete very well for those markets in the next 12 months.
    Mr. CONDIT. I see that my time is up. Mr. Chairman, I will come back to a second round, Mr. Ritter.
    The CHAIRMAN. Mr. Chambliss?
    Mr. CHAMBLISS. Thank you, Mr. Chairman. And I am, indeed, pleased to see my good friend, Greg McCormack here today. Greg and I have been good friends since before I got in this business. And even though he and I disagree oftentimes over farm policy, as he said, his family is a third generation candy manufacturer in southwest Georgia and certainly, one of the most well-respected families in our part of the world. Now that I have said all these nice things about you, Greg, when I represented you, you used to send me these candy bars every month. And I would appreciate you reinstituting that policy.
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Greg, I know you said you didn't understand the intricacies of the Sugar Program. But we made some changes in the program in the 1996 farm bill. What has happened since 1996, is the price of sugar has gone down about 30 percent, as you have stated. And as a result of that, you have been able to reduce your prices. Why isn't that reacting to the market? If prices are going down, why is that not a reaction to competition in the market and why would that not mean that the current program isn't working pretty well?
    Mr. MCCORMACK. Well, it is a reaction to the market when we go down on our retail prices or our wholesale prices of our products. I don't think that that was an anomaly year last year. Prices are back up close to where they had been historically, at least at the wholesaler refined level. And if you take those prices in and compare them to what competitors in Mexico, Canada, Argentina pay for their sugar, the reduction we had in the domestic market here nowhere approached the prices that they were paying. And that is who we compete with. And that is our major problem, is that the price, even when it was reduced by 30 percent or 20 percent, was still 50 percent higher than our competitor's price.
    Mr. CHAMBLISS. What has caused the price to go back up this year? It was down last year. What has happened?
    Mr. MCCORMACK. Forecasted, the supply will not be as large as it was last year. There will be some reduction in the supply. So it is a commodity that is traded on the open market. So there is speculation that there will be a little less supply this year than last year. More than there was 2 years ago.
    Mr. CHAMBLISS. I guess that is what I don't understand about why the current program isn't working. Because supply and demand dictates what the market price of 99 percent of commodities are. And I don't know that either one of us have an answer to it. But it just looks to me like, that the forces of the market has driven the price down now. Of course, the market may be driving the price back up. I don't know.
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    Mr. MCCORMACK. Well, you are talking about the force of the market driving the price down. That has happened, basically, once in the last 15 years. At least in my 10-year working with the business, where the price has actually dropped below the support level, so to speak. And it obviously didn't work. It reduced prices, but it reduced prices to the producers, as well, and they were certainly not happy about it. The Government was not happy about it. They bought a million tons of sugar. So I would contradict what you are saying, that it did not work.
    Mr. CHAMBLISS. Mr. Ritter, unlike the scenario that Mr. McCormack related in his business of the cost of this raw material going down, therefore, he was able to reduce his retail price, in the peanut industry, we had a reduction of a little over 10 percent in the support price in 1996. We have steadily seen an increase in peanut products since 1996. So that savings has not only not been passed on, but we have seen more profits being generated. We have had testimony from individuals over the last couple of months sitting exactly where you are sitting, about the fact that if we, once again, reform the Peanut Program, move towards a marketing loan concept, and they have even come forward with numbers that are within the realm of what at least is in the mix for discussion right now of where that program may wind up. That they would concur and approve and be pleased to see such a program put in place and would not oppose a Peanut Program, which would basically, may be designed very similar to corn, cotton, wheat programs. What is your reaction to that? What would your answer be to whether or not you would support such a concept?
    Mr. RITTER. I would like to reserve the right to respond to you in written testimony on that. I am not personally confident to provide you any meaningful input on the peanut program, I am simply not familiar with the Peanut Programs and the peanut industry.
    Mr. CHAMBLISS. Thank you.
    The CHAIRMAN. Mr. Holden?
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    Mr. HOLDEN. No questions for this panel.
    The CHAIRMAN. Mr. Boswell?
    Mr. BOSWELL. Thank you, Mr. Chairman. I just make a couple comments and I am going to alert Mr. Condit and Mr. Peterson if they would like some of my time. I like the dialog you had going. So if you need it, I will offer it to you in a moment.
    I farm in southern Iowa and returned to the land after being gone a little over 20 years, doing a military type situation. But, anyway, I had a corn base and a rolling ground and I think I am a conservationist. And I think I can prove it by inviting you to come to see what I have done. And so I set out to do what I thought was right. And did it. And then when CRP come along, I didn't qualify. I think my corn base was down to, like, an acre and a half or so. So I could make lots of comments on the uses and so on. But I want you to understand even having said that, that I think CRP is a good program. And I think the people in my State and that I have contact with are very encouraging that we not only keep the program, but expand it.
And so I was interested in the dialog about your willingness, I am acquainted with our grain and feed people in Iowa, as you probably are, as well. And I can tell you where their office is located. I work with them a lot. Good people. But I am interested in your comments that you made about a willingness to stop and compromise and think about this or to get involved.
Because make no mistake about it, what Mr. Peterson said to you about our coalition here, the caucus, if you will, is real. So let us, as you mentioned it a couple days ago, let us not be stubborn and get nothing. Let us kind of see if we can't work together.
And that would be my encouragement to you. I am not going to ask you any questions. But I just wanted to encourage you to be open about this and see if we can't find some compromise that give you some satisfaction of the folks you represent and also the folks that feel very strongly about the continuation and expansion of CRP.
With that, would either one of the gentlemen, Mr. Peterson, Mr. Condit, would you care to add time?
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    Mr. PETERSON. Well, I just appreciate the gentleman's comment. We could go round and round about this. But I have been down in your State hunting and even in Iowa, it provides some stability. And a lot of this land, and if you look at this chart where you can't really find any track between CRP and what is in production. I think part of the reason for that is that some of this land wouldn't be used, otherwise. And the money that comes to those farmers and those landowners gets spent in the economy. It might not get spent at the Cennex Store. It might not help the elevator. But the money that they receive is getting spent at the grocery store and all throughout that economy. So in a lot of cases, this land is not going to produce anything.
    But it is producing wildlife and it is helping water quality. I have got a big problem in my area in the Red River Valley. We have got floods these last years. And we have got the environmental groups trying to push more wetlands on us. And the wetlands are not going to solve our problem. The wetlands are full and the water just runs across country. We need to put CRP in there to stop this water. And to try to help from all this, get off all this erosion problem we have got.
    That land can't go in because it is too highly productive and it doesn't qualify. I would like to see us change the program because in some areas, even though it is productive land, we need some CRP to get some diversity to that land so we don't just have a flat expanse out there that doesn't have a tree or a bush or anything.
And so there is a lot of aspects to this and I just hope, as Leonard said, that we can come to a common agreement about what is the reality of what is going on here. The other thing I would like to comment on, if I could, Mr. Boswell, is on Mr. Chambliss' questions, I think everybody needs to understand that this world market in sugar is not a real market. Anybody who thinks it is ought to go out and travel around the world. It is a duck market. And these other countries are subsidizing their people at huge amounts. Way beyond what the United States has ever thought about. And when they produce too much, they dump it in the world market.
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    This is not a market price that anybody could make any money on if they had to compete in the real world on a free market basis. So don't anybody, in my opinion, look at that world market price of sugar and think that that is any kind of real market. Because Brazil is using their ethanol industry to subsidize it. The Europeans are subsidizing 50 percent beyond what we are. And they are dumping their excess production into the world market. The people need to understand that.
    Mr. KEITH. Could I just make a quick comment?
    Mr. BOSWELL. Well, I want to re-claim my time.
    The CHAIRMAN. Well, the gentleman's time is expired.
    Mr. KEITH. I am sorry, Leonard.
    The CHAIRMAN. Now, if the gentleman wants to make a response, please feel free to.
    Mr. KEITH. Two quick issues. One is when you do pay the land owner, you don't get the multiplier effect for the income. There is no question about that. Also, many land owners are absentee landowners.
    USDA data says that approximately 25 percent are absentees. So you lose 25 percent of the cash flow even provided by Government.
    Mr. MCCORMACK. And I just have one quick response. If you don't think the dunk market is real, try to compete with the manufacturer that buys on that market.
    The CHAIRMAN. Mr. Moran?
    Mr. MORAN. Mr. Chairman, Thank you. Mr. Ritter, the relationship, what is the relationship between farm prices and the farm bill or farm policy? Is there a direct, definable, recognizable consequence to passing the farm bill and what it means to prices in the market?
    Mr. RITTER. It is our view that a continuation of present farm policy and the Freedom to Farm Act will encourage consumption on a global basis and will restrict production elsewhere in the world. So over time, the impact of this farm bill will be for higher prices and more production in U.S. agriculture relative to that elsewhere in the world.
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    Mr. MORAN. That is the Freedom to Farm, the current farm bill is what you are describing.
    Mr. RITTER. Yes, sir.
    Mr. MORAN. And then the consequences if we adopted the draft concept that is before us, how is that different than your description of the consequence of the current bill?
    Mr. RITTER. I think the draft proposal is inconsistent with those efforts and those effects.
    Mr. MORAN. Is there a relationship between the price of farm commodities today and Freedom to Farm?
    Mr. RITTER. Yes. I think that prices to the U.S. producer, over time, and I recognize that today, we are coming out of a very low period of prices. Although, if you look at recent price action, there are certainly signs that those price levels are tending to increase. That over time, Freedom to Farm will lead to higher prices, on average, to the American producer.
    Mr. MORAN. Did they lead to the lower prices that we did the Fair Act lead to lower prices that we experience today?
    Mr. RITTER. No. Farm prices, on a global basis, are cyclical. In 1996, we had record high prices. $5 corn, $7 wheat. Those prices were not sustainable over time. They encouraged a dramatic increase in production elsewhere, led to a period of rapid expansion of production in South America. It was a period of time where China was very focused on food security.
    The Lester Brown theory of the world's inability to feed the population was in vogue. And it led to excess production and restricted consumption. There is clearly a elasticity of demand for lower prices. And that the period of low prices we saw in the last 3 years were an outcome of the high prices of the prior 3 years. It was as inevitable in our view as an up tick in prices over the next 3 years will be the outcome of the current environment we have been in for the last 2 years.
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    Mr. MORAN. Does the concept before us today encourage production beyond demand at a price for which farmers can't earn a living, can't cover their costs? And if so, or if not so, how does that compare to the Fair Act?
    Mr. RITTER. Well, I think it is a reasonable and good policy goal for this farm bill to try and support total farm income at a level that is commensurate with the ability of that farmer and those rural communities to maintain a livelihood. And it is necessary to have and useful to have a direct income support to those producers. Our concern and our focus is that those direct income supports that we determine are prudent are not allowed to become distortionary in terms of the farmer's decisions of what to plant.
    Mr. MORAN. As compared to overall quantity of agriculture commodities, you are talking about within the various segments of the agricultural industry, what crop to grow as compared to the macro sense of how much to grow to meet world demand.
    Mr. RITTER. I am sorry?
    Mr. MORAN. You are trying to avoid a distortion within commodity groups so that farmers don't make decisions based upon the farm program as to what crop to grow. My question is, what do we do to avoid the distortion of growing more overall crops than there is demand for at a price for which covers farmer's costs?
    Mr. RITTER. OK. Over time, farm prices on a global basis will revert relatively close to the cost of production. Agriculture is an industry at all levels, which easily attracts capital. Whether it is along the food chain or whether it is the development of land in Brazil, when prices reach a certain level.
    So in our view, the increase in consumption over the next several years of agricultural crops on a global basis is much better than people realize. And the function of the market is to encourage people to produce more, not to produce less. Yes, at some point during the life of this farm bill, before 2008, we will run into an ensuing cycle of low prices.
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    But our view, in the short term, is that there is every reason to expect the market place to clear commodities well. A classic example is soybeans. A year ago, we were expecting a carryout of soybeans in the U.S. of 350 to 400 million bushels. The reality is the carryout will be less than 250 million bushels. Six months ago, people were projecting a carryout for 1 year from now of over 600 million bushels. There is still 6 weeks left in the growing season, but assuming a relatively normal crop environment going forward and a trend line yield, a year from now, the market is going to clear those goods. In combination of China, Western Europe, strong meat demand on the global basis, a year from now, the carryout of beans on a global basis, will be no more than pipeline requirements. So we are not concerned in the short term of surpluses. We are concerned with ensuring that there is adequate production to meet the demands of the marketplace.
    Mr. MORAN. Thank you, Mr. Ritter. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Kind.
    Mr. KIND. Thank you, Mr. Chairman. Let me just echo a couple of the sentiments that we have heard from a few of my colleagues behind me. And that is in my conversation with a lot of my colleagues here in the house in regard to the farm bill and the farm bill concept that has been released, what they would like to see in it, I think there is the growing concern in regard to the status quo of farm policies.
    I don't know how many of you have had a chance yet to review the recent GAO report titled ''Information on Recipients of Federal Payments'' that was just released. But it shows that 90 percent of the USDA program funding is going to less than one-third of agricultural producers in the country. Primarily in 15 States in this country. Now, looking around this committee, those 15 States are very well represented. But it is not going to be the case on the floor of the House of Representatives. And a lot of the colleagues are starting to wake up and ask some serious questions about current farm policy.
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    Why are all these direct subsidies going to such few large commodity producers, leading to increased production and oversupply in market prices plummeting? And then the Congress is being asked year after year to come in with the farm relief bailout package, over $23 billion in the last few years.
    And they are wondering, what is going on with farm policy when we are funneling so much money to such few farmers, yet, we are seeing declining prices and nothing is improving at all. And that is the concern we have right now in trying to formulate a farm policy that is going to speak to a majority of the Members of this Congress.
    A majority of Members, by the way, don't have a single farm in their entire congressional district. And that is why I firmly believe that one of the ways that we can draw in more political support within this Congress to put together a good farm package is if we have a significant increase in the conservation title of the farm bill.
    I mean, that is something that speaks to suburban and urban representatives, alike, when it comes to better quality watershed management, better quality drinking water supplies, being able to protect valuable farmlands, small to mid-sized farms, as well. Not to mention the protection of wildlife and fish habitat. Which seems to be universally agreed upon in this Congress, too. And therefore, if we just go forward with the status quo policy of current farm policy, I think we are going to be looking for a major source of contention on the House floor, whether or not this is the right direction to go.
    Now, granted, a lot of these urban and suburban representatives used to take their lead from the work that was done in this committee and the leadership on farm policy. But I am finding more and more frequently, that is less the case today when they are starting to ask some serious questions.
    Where do we go with farm policy? Is this an appropriate opportunity to start restructuring farm policies to more regions of the country, have a buy-in in it. So that there is a fair distribution of farm program income throughout the entire country. And you have got States like Florida and California, for instance, that are only getting 3 cents on the buck of USDA programs. They are asking serious questions. What is in it for us? And I think this is going to be a source of contention when we report a bill out and bring it to the floor and start asking for support based on the work product that is done right here.
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    Now, Mr. Chairman, I would ask unanimous consent at this time to get the GAO report in the record for my colleagues' review, for anyone who hasn't had a chance to review that.
    The CHAIRMAN. Without objection.
    [The report is on file with the committee.]
    Mr. KIND. I think it is a significant report that is going to garner more and more attention. But let me just quickly ask, Mr. Ritter, given your expertise in farm policy, your familiarity with current WTO rules, are there sources of concern that you currently hold in regard to the farm bill concept, in regard to the current WTO rules and how we are trying to establish the next round of trade talks?
    Are we creating serious points of contention with our competitors or with trading partners overseas in regard to what we are offering right now? Because I see a lot of pitfalls right now in regard to the continuation of AMTA and countercyclicals and LDPs and everything else that is going on that is going to get us into trouble in the next round of trade discussions. I would be interested to hear your analysis of whether or now what we are working on right now is WTO compliant or if we are looking for some major fights ahead.
    Mr. KEITH. From our standpoint, we think a countercyclical program is a problem area in amber box proposal. How much it means and whether it gets us into trouble with our agreement, we don't know. We haven't done any estimation on that. But, clearly, we believe that there are opportunities here in the next WTO round to make progress. And United States needs to get out in the lead with a strong position. And this could, in fact, undermine it.
    Mr. KIND. Mr. Ritter.
    Mr. RITTER. I think we have to make sure we get the message out to people who don't have a farm constituency that agriculture throughout the chain provides significant income and well-being, not just to rural communities, but to the ensuing industrial processes down the road. Ninety-six percent of the people in the world live outside the United States. Those are the people whose income levels are going up. Those are the people whose consumption needs are going up. And those are the people we need to target in terms of the farm bill.
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     I reiterate what I said earlier. There is a lot better things under the table here, in terms of what is going on in the market place than people recognize today. And if we can get that message out and go forward with a continuation of present farm policies and this act, it is going to provide better access the markets. Agriculture is not free on a global basis. There are distortionary policies in every country and every competitor. Some people do things in one way, others in a different way. But we have got a lot of tough negotiations ahead in the WTO.
    So anything we can do to make ourselves look better, look cleaner, look fairer, I agree with Mr. Keith on the countercyclical payments. We need to keep the focus on opening markets. Because our farmers are the ones who are going to benefit from that.
    Mr. KIND. Thank you. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Osborne?
    Mr. OSBORNE. Thank you, Mr. Chairman and thank you, gentlemen, for being here today and appreciate your testimony. Mr. Keith, I would like to press on a little further with your discussion of direct payments being more efficient in some ways than a target price. I guess more specifically, how we can deliver those direct payments. What mechanism, would you care to flesh that out a little bit for me?
    Mr. KEITH. Well, no. We really don't have a plan. It is just the AMTA style payments tend to leave the marketplace free to make its choices. And we have seen a pretty good balance in the commodities over the period of time. You can't argue that if you allow farmers to rebid the base over time, that you may expand production a bit by even direct payments. But it is a pretty minor distortion compared to what you can get with other programs. So that is why we like it.
    Mr. OSBORNE. But you are not talking about the loan rate.
    Mr. KEITH. No.
    Mr. OSBORNE. Just AMTA?
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    Mr. KEITH. Just the AMTA. Yes.
    Mr. OSBORNE. I would like to also ask this. I think we have talked about it last day or two here. You have talked about the fact that ending stocks are low, both of you, I believe. And we have been somewhat interested in renewable fuels, renewable resources and do you see any wisdom to some type of a reserve for renewable fuels? Because with stocks low, if you build a whole bunch of ethanol plants, you may, at some point, have them sitting there without anything to put in them. And I know it is probably antithetical to your philosophical viewpoint. But I just wondered if there was any merit which you can see in something like this.
    Mr. RITTER. I have, and it is philosophical, probably, but I have a real problem with the impact of any reserve programs on the marketplace because it tends to be enormously price dampening. And the current market is really an example of that. China is on a major de-stocking program because they have built reserves for food security.
    Now, they are faced with disposing of them. I think the real reserve for the demand base, which we are building for U.S. agriculture, be it ethanol or be it export, capacity is the productive ability of the U.S. producer. The reserve is next year's supply. And yes, in a market that in the short term is determined by unpredictable weather variations and an underlying cyclicality to the markets, that ability to produce is something we should make sure is unleashed and available to the marketplace.
    If we need corn for an ethanol plant next year, even if we have a shortfall in production in a given year, yes, that may, impact the profitability of that plant. But over time, the ability of the marketplace, the American farmer to produce for that plant over the market is the reserve we need. Not stocks that are there for the market to rely on and dampen prices.
    Mr. OSBORNE. I guess one other thing I would like to talk about. You are talking about an up cycle. I think Mr. Ritter, particularly, were predicting that it was likely to happen. And I know that we are going to probably increase world population from 5 point some billion currently to roughly 10 billion in the next 30, 40 years or what the projections are. And do you feel that there will be an adequate ability on the part of agriculture to feed that many people? And I am asking you to go out there a long ways, but I would assume that there may be a fairly bright future for agriculture in view of the long pull.
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    Mr. RITTER. I think there is a very bright future for agriculture. And it is population driven, but even more so driven by economic growth. I always return to China. Ten percent economic growth on a population base of 1.2 billion or 7 or 8 percent economic growth on top of the population base of a billion in India. Those are our real dynamic impacts. Agriculture can produce.
    It is the most productive industry in the world. We tend to forget that. And I am not concerned with future shortages on a structural basis. Yes, there will be periods of time when we have relatively tight or relatively loose balance sheets. But over time, the demand for agricultural products in a growing economic environment will be there to allow U.S. farmers an open and dynamic marketplace.
    Mr. OSBORNE. Thank you very much. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Thompson of California. Mr. Bishop?
    Mr. BISHOP. Thank you very much, Mr. Chairman. Let me also take this opportunity to welcome my good friend and constituent, Greg McCormack from Albany, Georgia, here to the committee. I associate myself with many of the remarks of Mr. Chambliss. Greg is a close friend and we have the utmost and highest respect for the great job that his family has done for three generations at Bob's Candies.
    We have had some discussions, I might add, regarding farm policy, particularly the Sugar Program. and I appreciate very much the fact that Greg, you have really brought to the committee and brought to us very, very cogent points with regard to the program. Which, of course, have to be mixed into the political mixing bowl to come out with a policy that everybody can live with. But I want to welcome you and I want to thank you for your candor and thank you for the responsible way that your company has dealt with consumers with the reduction in sugar prices, by passing it on to the consumers. And please know that it has not gone unnoticed.
    And, of course, I think you could tell by the reaction that members of the committee were impressed. And, of course, we would hope that people who are in the manufacturing end of it will bypass some of those windfalls, if you will, onto the consumers as you have in your business. I don't have any questions for you, Mr. McCormack or for the panel members. But I just wanted to say make those comments and to let you know that we appreciate very much how you are coming. Because it is necessary for us, as we approach farm policy, to hear both sides of it and to be constantly reminded of the impact that the policies that we put in place have on real people and real businesses throughout our country and throughout the world. If you would care to comment, I would be happy to hear it. If you have an idea.
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    And, of course, I understand that you don't profess any technical expertise on the Sugar Program. But if you had a suggestion for how we might be able to work a program that would balance the interest of sugar producers as well as the needs and the requirements for low raw materials for manufacturers like yourself, I would be happy to hear from you.
    Mr. MCCORMACK. Well, again, as I have said, the Miller-Miller bill is what we would wholeheartedly support. But having said that, we also look at trying to reach some common ground with producers in the current framework. And while we don't feel marketing allotments would work at all from our point of view. In fact, I think it would just exacerbate the problem from a manufacturing or user point of view that we are experiencing, certainly the candy manufacturers in Chicago are experiencing possibly some sort of marketing loan arrangement. Where if I understand these correctly, the users might be able to benefit from some of the lower pricing on sugar. But the producers would be able to benefit from the loan rating and get the difference between the two.
    I understand that may have some consequences with the budget and the amount of dollars it would bring on budget rather than supposedly off budget as is currently professed to be. But in my limited expertise, I think that is something that might be some common ground, something that might be approachable.
    Mr. BISHOP. Mr. Ritter, would you care to comment on that?
    Mr. RITTER. Honestly, no. I would be happy to provide some written testimony later after I consult with my colleague. But I don't have any particular advice. No.
    Mr. BISHOP. Mr. Keith?
    Mr. KEITH. No.
    Mr. BISHOP. Thank you.
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    The CHAIRMAN. Mr. Rehberg?
    Mr. REHBERG. Thank you, Mr. Chairman. The danger of being one of the last ones to ask a question after so many times is pretty much everything has been said. But, Mr. McCormack, I guess the point remains, I have got at least three of the four major groups within the sugar industry in Montana. I have got producers, I have got processors and I have got retail. And, of course, I don't have manufacturing. And that would be your area of expertise. But I don't get it.
    The sugar producers, the sugar growers in my district can't make it. The processors, One has filed bankruptcy and the other wants to shut down his factory. Who is making the money? Where is it going? And are you better off if we design a program within this farm bill to help the producers, are you better off with or without them in business? And isn't it better to support what we are trying to do to keep them in business so that you don't have to become so reliant upon imports or is that really, ultimately, the goal is the cheaper imports?
    Mr. MCCORMACK. I don't think the goal is cheaper imports. I think the goal is a workable program. And from our point of view, a workable program would be a price that is more competitive with the world market. Not necessarily the world market as you define it in the dump market. But what our competitors, our users in Mexico, users in Brazil, users in Canada pay for sugar. Right now, my understanding in the sugar industry, we protect growers by giving them a floor for their sugar. With the users, we have no floor, we have no ceiling. But we have a floor, but we have no ceiling. And we are competing with people that pay half the price for sugar.
    Mr. REHBERG. OK. So doesn't, ultimately, that mean a lower price to you, but also a lower price paid to the producer? And if they are not making it now, how are they going to make it at a world price?
    Mr. MCCORMACK. Well, I would also ask you were all of these growers or sugar growing sugar 12 years ago. Probably not.
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    Mr. REHBERG. Oh, yes. In our area? Yes.
    Mr. MCCORMACK. The amount of sugar grown in this country now is considerably increased. I think the number was 40 percent increase or——
    Mr. REHBERG. I think you will find, I can't speak for Nebraska or any of the other areas that have sugar production, but our acreages have remained the same.
    Mr. MCCORMACK. Again, as I mentioned with Mr. Bishop, maybe a marketing loan that may bridge some of that gap. I don't know whether that is workable in the current framework. But it would certainly, from my point of view, as I understand it, it would make the price to the user somewhat lower. But it would also give some guarantee to the producer. That has not been something that has been suggested, I think, from a grower's side in the past. But it might be something that we could look at as some sort of frame work to negotiate and find some common ground.
    Mr. REHBERG. Mr. Keith, question for you. I appreciate your comments. On the factor, the 2.25 factor, does that work both ways? If we were to decrease acreage, it would improve our economics within our rural communities by a factor of 2.25. Does it cost our economies a factor of 2.25 if we add an additional 4 million in acres of conservation reserve?
    Mr. KEITH. No. I guess I didn't speak to that clearly. If you take the land out of production, you lose the productivity out of the land. And the value of that multiplied by 2.25 is roughly the value to the economy as a whole. And so the acreage idling is what takes away the productivity and the economic activity and pushes people out of the communities.
    Mr. REHBERG. Well, I appreciate testimony because, while I can't speak to the other members of the Congress who are not involved in agriculture, you have got to kind of hope they believe that if we tell them that they are hurting our economies by putting additional acreage in the Conservation Reserve Programs, you would hope that they would understand, and I am not sure they do, but I see you have got an agricultural background like I. When you were farming with your father, did you want to be in the hunting business? Or did you want to be in farming?
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    Mr. KEITH. I didn't want to be in the farming or hunting business. But yes.
    Mr. REHBERG. Probably because it wasn't profitable.
    Mr. KEITH. Well, anyway, I made my career choice. But we want to be careful what we are supporting, I think, and understand what activities we are supporting and what activities we are taking away from. And I think we just should look at the facts and try to make some logical choices. But there are ways to create conservation programs that allow land to remain productive. And we need to look at those, too. But we are very interested in the water quality issue because you can look at agricultural livestock crops and throughout. We have got a water quality issue in this indenture. And we have yet to really deal with it the way it is going to need to be dealt with if we are going to survive long term.
    Mr. REHBERG. Well, and I don't deny why you can publicly make the argument that you can make more money hunting on your farm then you can farming. You can also make more money subdividing and what does that do for your watershed? Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Dooley?
    Mr. DOOLEY. Thank you, Mr. Chairman. I thank the panelists for the presentation. I guess I would be interested, Mr. Keith and Mr. Ritter, you both raised concerns about the target price that is a part of the concept paper. And is it your, then, estimation that those actual target prices that we have identified in some cases could be even over the cost of production and thus, could distort the marketplace or are there other concerns that you would have on that?
    Mr. KEITH. I will say that the cost of production varies quite a bit from farm to farm. And those prices look rich to some farmers. To other farmers, they don't look all that rich. And so they are high relative to variable costs, average variable costs of production estimated by USDA. They are high relative to low cost in some cases. In particular cases where farmers are in a high equity position. But there is so much variability out there, it is really hard to make a broad judgment.
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    Mr. DOOLEY. Mr. Ritter, do you have any comment on that?
    Mr. RITTER. The real problem with the target price concept is that it encourages a farmer to make decisions on where he can receive the most income from the Government relative to his particular cost of production. Which is market distorting. We support direct transfer payments so that the farmer is left to make his decisions based on what the marketplace's signals are.
    Mr. DOOLEY. If we were to adopt this policy with the, going back to the future, I think one of you depicted it with going to a target price. What do you think would be the reaction of the EU? Do you think that they would then go back to their policy of reference prices? Or do you think that they would, what would be their reaction if we went down this path?
    Mr. RITTER. I think they would react negatively. Clearly, that would be an impediment to future negotiations in terms of global agricultural policy. The EU, I think, has come a long way in terms of moving away from tremendously market distorting policies. If you look at the current year in the EU, there is no export subsidy for wheat. Because, again, their balance sheet is tightened to the point where they are actually closer to putting restrictions on exports than they are to putting subsidies in place for exports. So, again, anything we do to support the current trend, with bumps along the road is towards increased liberalization on the part of the EU would be a negative.
    Mr. DOOLEY. I guess it would look at the concept paper, almost all of it, if you look at the vast majority of dollars, they really, are all going almost entirely to some form of direct payment, payments to farmers and land owners. Some of us are concerned about a lack of focus on trying to build on the demand side in terms of how can we invest Federal dollars in programs that can allow farmers to capture more value-added, the value-added dollar as well as how can we increase domestic and international market demand? Have any of you given consideration to programs that we should be thinking about developing or expanding upon that instead of, you know, focusing entirely on the supply side, as looking at how do we improve the demand situation?
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    Mr. RITTER. There is absolutely nothing that could have had more positive impact on demand over the last 3 years than Freedom to Farm. We have, the price structure we have seen that is, that in the last 3 years, has built tremendous demand for potential for future growth. One of the hidden successes of American agriculture is meat exports. If you look at a graph of meat exports over the last 5 years, tremendous growth. Tremendous growth. And that is obviously value-added. So we fully support that. In terms of specific programs, humanitarian aid is a real positive.
    There is always the question of at what point humanitarian aid interferes with normal commercial sales. But food aid is a market development tool. It is a humanitarian tool. It is a good tool. We would continue to encourage the support of those programs.
    Mr. DOOLEY. Thank you very much.
    The CHAIRMAN. Mr. Thune.
    Mr. THUNE. Thank you, Mr. Chairman, panel. I appreciate your testimony this morning. I think it is fair to say that there will be a substantial conservation title on this farm bill. And we have had enormous success in South Dakota with the CRP program in terms of wildlife production and that is, it has been an added value in my State because of a lot of the commercial operations that have developed as a result of that. And it has also been a very successful program because we have been able to take a lot of environmentally sensitive land, marginal lands out of production.
    Knowing that there is in this, even in the draft here, about $15 billion allocated to conservation, most of you have spoken against increasing the CRP program. I am curious to know what type of conservation programs you would like to see in this bill.
    Mr. KEITH. We would like to see more focus on building strips. There are times when you have to pay a pretty high price to get the right land out of production. And sometimes, that land is pretty productive. It is, but it is in the wrong place. Livestock enterprises today have challenges. In particular, the confined animal feeding operations. They are going to need assistance to comply with what EPA wants. Long term, we have to find a way to do that, as Mr. Ritter indicated. Livestock and meat export growth could be an engine to take us forward. But we are not going to get there unless we can expand production somewhere in some ways in the right approach. And so that is where we would like to see the increase in funding. There are research needs out there. There are a number of needs that can be fulfilled with the increased funds. But we are just concerned about just taking whole farms that are really productive and flat land and turning it into a, really, a game bird program.
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    Mr. THUNE. Who else would care to comment on that?
    Mr. RITTER. I have that. Thank you.
    Mr. THUNE. Let me ask you this question. If one of the comments that—Mr. Keith, you had mentioned, too, is that many of the CRP payments go to absentee landlords, people that aren't there. And that has been one of the things that arguments that have been made, too, against some of the decoupled payments, the AMTA payments and other payments that are in the current bill. And I, and that is a concern we all have. I mean, you want to see the assistance going to people who are actually farming the ground. And I guess the question I would have is do you have any suggestions about how we get the assistance to the people who are actually farming? I mean, most of, a lot of the stuff that we are talking about, that has been one of the criticisms, I guess, of the current program.
    Mr. KEITH. If I knew the answer to that question, I would state it here. But the problem is, the programs that will get the most money to the tenant farmer without the land owner's ability to intercede tend to be the most distorted from a market standpoint. But ultimately, I think that the landowner, all the benefits of the programs are going to go to the landowners anyway. And so I guess the message to the tenant farmers is to try to buy the land. Because that is where it is capitalized.
    And, unfortunately, if you get in a highly leveraged position and at some state we can't afford the kind of programs that we have today, there is going to be quite a dramatic adjustment. And that is what we fear. And we don't want that to take place.
    Mr. THUNE. Well, it seems like we get ourselves kind of, sort of cross purposes because for trade reasons and WTO compliance and everything else, that we have talked a lot about decoupled so you don't fall into the amber box, and yet, if you want to get the assistance to the people who are actually farming, doing something with loan rates would be one direct way of doing that. And yet, that has the adverse trade consequences and as has been, I would echo what has been said earlier today. And that is one of the things that we really want to do is figure out how on the demand side we open more markets and I am very interested in hopefully some testimony we will hear later today about the value-added component part of this bill, too.
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    But it is a difficult balance that we are trying to strike here. And there are going to be a lot of demands on, from the conservation groups. I have a big piece in this final bill. And we want to try and do the right thing and make sure that we aren't causing artificial inflation land values out there, too. And that is something that we always hear about. So, anyway, with that, I will yield back the balance of my time.
    The CHAIRMAN. Mr. Hill.
    Mr. HILL. Thank you, Mr. Chairman. Members of the panel, thank you for being here. Mr. Ritter, I was reading through some of your testimony. And you have already mentioned that you are opposed to the target price program. One of the reasons I think you are opposed to that, other than creating artificial market prices is that it falls into the amber box. But yet, you are opposed to expanding increased acreage under the CRP program. And I am, which does not fall under amber box. And I was curious as to why.
    Mr. RITTER. I was looking at that as two unrelated issues. I think I have explained why we have a problem with target price payments and the distortionary impact they have on farmer decisions. Our concern about expansion of CRP acreage is related to the concern that an additional acre of productive farmland into CRP effectively exports that acre of production to one of our competing countries. There are very positive reasons for the CRP program.
    There are very positive reasons to consider on a case by case basis why land would be better suited for CRP than agricultural production. But when the level of bidding required to move land out of production into CRP exceeds a certain level, it tells us that that is land that is, has significant productive capacity for agricultural production. And if we don't produce it, somebody else will. That is our concern.
    Mr. HILL. OK. Would you agree that there is a lot of conservation going on that, in this country that, the average farmer is not getting compensated for from the Federal Government because he just thinks it is the right thing to do? And do you have an estimate of how many acres that might be?
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    Mr. RITTER. I know it is going on. I know my brother does it. I can look at the ponds and the wetlands that he has created in the past 5 years just because he thought it was the right thing to do. And I think, generally, farmers are stewards of the land for more than just the incremental production they can derive from it. So, yes, it goes on. But I have no idea how to quantify that.
    Mr. HILL. OK. I found it interesting, your response to a question Congressman Dooley asked about creating demand. And are there things that we can do to create the demand? And your comment was that Freedom to Farm has created potential for future growth. Now, that is a nice statement. But it lacks the specifics. What are you talking about? How can we create demand?
    Mr. RITTER. If I go back to 1996 and Freedom to Farm, that was the first time we had a farm policy that said we are not going to try and support U.S. farm income by restricting production, removing surpluses from the marketplace and trying to isolate them and by discouraging production. We are going to deal with farm income by providing direct transfer payments to farmer and allowing the market to clear the excess production. That is why through a very cyclically difficult time in agriculture, which we all recognize, we have not built stocks. We have reduced stocks. On the fact that we are coming out of that down cycle of agriculture with stocks across the board along with major commodities, both in the U.S. and globally, much lower than we would normally anticipate and the low prices of the last 3 years built a significant demand base.
    Because we haven't restricted consumption through high prices. We have allowed consumption to encourage on a global basis and recognizing the nature that agriculture is cyclical. That period of low prices has built a demand base, which is real. It is not something in the future. It is here today. The fact that I can sit here and say that Chinese consumption of meal is going up 10 percent a year. And when you extrapolate that forward over the next 2 years, it is real. That is what we have accomplished.
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    Mr. HILL. When do you feel like, I know that you are not a prophet, but can you predict when you believe the prices are going to rebound because of this increased demand that you are talking about?
    Mr. RITTER. I wish I was a prophet. That would make this business a lot easier. But if I look at the marketplace today, soybean prices in Chicago have rebounded from the low $4 range to the low $5 range in the last 3 months. So in our view, there is some real evidence that that transition is taking place today.
    Mr. HILL. So your view is you are seeing real data that demonstrate that demand is on the increase, that stocks are falling and the price probably will come up within the next year or two?
    Mr. RITTER. The data is hard and real that consumption is increasing on a global basis. The data is hard and real that stocks have been significantly reduced. I believe that that will lead to higher prices over the next 12 months. That is a soft opinion. None of us can guarantee that. But the data, the hard data that I see certainly supports that conclusion.
    Mr. HILL. OK. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Simpson?
    Mr. SIMPSON. Thank you, Mr. Chairman. Mr. McCormack, being the resident dentist on the committee, I want you to know that I appreciate your business. In fact, I think sugar prices are too high, too. I think sugar ought to be given away. But let me pick up on a couple things that Mr. Peterson was talking about. Since 1996 has been mentioned, the price of sugar has gone down by 28 percent. And yet, the price of cereals, although I—Bob's Candy is good. In fact, I am going to switch to it. Because you have reduced your price and I appreciate that example.
    But a Hershey bar hasn't gone down in price at all. In fact, they have a tendency to go up. So I am switching to Bob's Candy. And these are really good. But cereal prices have gone up 4 percent, candy prices have gone up 8 percent, cookies and cakes have gone up 8 percent and ice cream has gone up 14 percent. If American manufacturers were being disadvantaged, making them more uncompetitive because of sugar prices, would you not expect to see those prices for those products decrease as the price of sugar went down, rather than increase?
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    Mr. MCCORMACK. I think it varies by the product. I think, certainly, with the Hershey bar, if there was a question what percent of the cost of that is sugar. And probably in the Hershey bar, it is fairly minor compared to the cost for cocoa, compared to the cost for marketing, compared to the distribution costs. And I would think you would expect to see less impact on something like a Hershey bar or Milky Way or Snickers. With the products that we make, it is hard candy. And I think you have seen a dramatic reduction in prices since 1996 for many products and hard candy. And those that did not reduce prices simply went away.
    They either went away through chapter 11 bankruptcies or they went away into another country to compete. That is what you are seeing with the candy manufacturers in Chicago. We, in fact, have opened a small company in Mexico now. Even when prices for sugar reduced last year in this country by 15 percent, they were still 50 percent higher than the competitors in foreign countries could obtain.
    Mr. SIMPSON. Well, you have mentioned the manufacturers in Chicago a couple times in your testimony and before the committee. That they may be moving to Mexico or looking at opening facilities in Mexico. And the statistics I have got are that the price of wholesale sugar refined sugar in Mexico is higher than in the United States. And that while the price of refined sugar in Mexico is higher, Mexican wages are about one-tenth what we pay our workers, protection for workers and the environment in the area of air and water quality are a fraction of what they are in the United States. Energy, tax, transportation and other costs are lower in Mexico than they are here. So is it the price of sugar or the other factors that you are moving to Mexico or people are moving to Mexico?
    Mr. MCCORMACK. Well, I can speak from experience. The price for sugar in Mexico right now for a Mequila [ph] plant is roughly 15 cents a pound, delivered. The price for sugar in the United States would be equivalent, double that, delivered.
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    Mr. SIMPSON. A what plant?
    Mr. MCCORMACK. A Mequila plant. An export facility. You have got to distinguish between plants that are in domestic supply, if you are supplying the domestic market, you are buying sugar in the domestic market of Mexico, I don't know what that price is. It probably is somewhere equivalent to the U.S. price. But many of the plants in most of the plants in Mexico, the Chicago manufacturers, we have put a facility down there. Those plants are buying re-export sugar. They are buying Mequila sugar. Set up under NAFTA. And that sugar is 15 cents a pound. It is exactly half what sugar is in this country.
    Mr. SIMPSON. So you could——
    Mr. MCCORMACK. So that is what we have to compete with.
    Mr. SIMPSON. So you can build a plant down there, but if you could only export out of that plant, you can't sell it domestically in Mexico?
    Mr. MCCORMACK. If you do, you don't get the cheaper price for the sugar. You can distinguish what portion that you export out.
    Mr. SIMPSON. And I guess that brings up the final point that I—this is bizarre. Kind of like Peanut Programs. You are going to grow peanuts in the non program. you have got to export them and that kind of stuff. It is a bizarre program. but if we had, and I guess I could buy your argument. If we had a true free market system in sugar or any other agricultural product, I could buy that. I could say American producers, go compete with the world. And I think they would do just fine. But the problem is, we don't have a free market. There is just not a free market there. It is this mythical thing.
    When you look at the fact that in Mexico, they are estimated to have subsidized their sugar producers by $2 billion since NAFTA went into effect. When you look at the EU, their target price is about 31 cents a pound, which is substantially more than the world price. How are American producers going to compete with that? I mean, if we could just throw them out into this mythical free market and say compete, when the rest of the world doesn't do it? I mean, that is the problem we have got with a lot of things in this Agriculture Committee and a lot of the programs that we have been talking about. Is that how do you have American producers compete in a mythical free world that doesn't exist?
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    Mr. MCCORMACK. Well, I think, like you, it wouldn't be a bizarre program if I had those answers. But a couple of things I would say to that, I do think that, I have lost my train of thought. I do think that I am sorry.
    Mr. SIMPSON. That is OK. I just wanted to let you know the American Dental Association appreciates what you are doing for us.
    The CHAIRMAN. Mr. Larsen.
    Mr. LARSEN. Thank you, Mr. Chairman. This question might either be for Mr. Keith or Mr. Ritter. I just want to understand the argument with regard to CRP. From what I understand, you are saying the down side to CRP is you take land out of production and therefore, the inputs that might go into that land, gas to run equipment, fertilizer, so on, isn't purchased in a local economy and it has, therefore, a detrimental effect on local economy. I guess the question some of us are getting at is why assume that that particular acre would be put into production, anyway, because, and that the farmer would do well by putting that marginal or that additional acre into production?
    Mr. KEITH. Part of the requirement for CRP, as I understand it, is that the land have a cropping history. Whether or not it will be good in the current environment is an open question. And I would suggest, I think I said this earlier, that there would be quite a number of those acres that might not go back into production. But we don't know. But if you are taking additional active farmland out of production, I think the results are pretty clear. And it depends on how much the Government is willing to pay. But in some situations, the Government has to pay a pretty high price to get land out of production. And the higher you bid, the chances are the more likely you are to taking the land out of production.
    Mr. LARSEN. It just seems to me, and I have these issues in my own district, that any one farmer should at least have that opportunity to make that choice because putting that additional acre into production isn't being helpful to them at all. So that is the experience in Washington, second district. May not be in other places.
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    Mr. RITTER. Landowners or tenant farmers?
    Mr. LARSEN. Landowners. Got a lot of turnip folks in my district. And if I may, I would like to yield a few minutes to Mr. Kind from Wisconsin.
    Mr. KIND. I thank my friend for yielding. Just one follow-up question for Mr. Ritter, given your experience and expertise in the potential of the China market, obviously, we are going to have NTR debate coming up later today. Many of us are going to go to the floor to speak in favor of it. Me in favor of NFN, NTR for China, supported PNTR. I think one of the risks that those of us who have supported these trade policies with China run from time to time is overstelling the true market potential over in China. And I want to ask your opinion and perhaps challenge you a little bit. I mean, we see what China has to do under WTO and compliance and opening up greater market share. And you have cited some figures on corn and now soybean on their increased imports.
    My question, though, is in regard to the internal politics of China. I think if there is any great risk of internal destabilization for the current regime in power, it exists in the countryside. In fact over the last couple of years, we have seen over 1,000 separate revolts in the countryside. This is a primary agrarian economy. And when the farmers aren't getting a decent price for what they are producing, they can't feed their families. They get angry. And I think the current Government understands that.
    My question is, how willing do you think the Chinese authorities are going to be to expose their market and expose their farmers to outside foreign competition? In that resist the temptation to either just repress these rides, militarily, as they have in the past or prop up these farmers through direct subsidies. I think there is a real risk because in the final analysis, even though they have agreed to join WTO, agreed to reduce their trade tariffs and barriers to our goods and products, their No. 1 concern is political stability. And that is going to, I think the greatest risk they face is in the countryside and with their farmers. And I would just like to hear your comments in regard to truly how great a potential is the China market for our farmers?
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    Mr. RITTER. I agree with the majority of what of what you just said, in terms of the risks and questions of China as a society and as a marketplace. We shouldn't make a mistake or delude ourselves into thinking anything other than that China's No. 1 concern when it comes to agriculture is protecting the stability of the rural population.
    There are really two Chinas today. And you see that when you visit Beijing and get in the car and drive for an hour. It is like going back 100 years. One is like downtown Chicago. The other is something out of a National Geographic from 50 years ago. And that is not an easy transformation for them to make.
    I think they are trying to do all the right things. They will make some mistakes. But I think that the other China, the 200 million people that are fully in the market economy, the 300 million people who are transitioning into the market economy are very much Western in their focus, in terms of what they want, in terms of lifestyle. And the Chinese consumer, which doesn't represent the 800 million peasants, but represents the 500 million people who have started or have already made that transition. Just like an American consumer or a French consumer. They want better quality food. They want better quality products.
    And you see the transition close to the large cities, in terms of a major movement of land from folk agriculture to specialty products. Vegetable acreage reallocation is a real story in China. It is not a question of a farm in California. It is a major transformation as their dietary practices and desires change.
    China has a real water problem over time. I talked to a farmer 30 miles outside of Beijing, who is pumping water today 90 feet. Ten years ago, he was pumping at 30 feet. That is not a sustainable resource over time.
    So in terms of being a marketplace for bulk commodities, for corn, for wheat, for soybeans, for vegetable oil, for meals, they are a real market. And I believe very strongly in that market. For that to happen, they need social stability. I think a lot of the things they are doing are the things that should be done. So there is nothing that is a sure bet, but I am a strong believer. Thank you.
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    The CHAIRMAN. Mr. Pombo.
    Mr. POMBO. Thank you, Mr. Chairman. Mr. McCormack, I want to re-ask a question Mr. Rehberg asked you a few minutes ago. As far as the sugar industry in this country, a few years ago, 10 years ago, I had three sugar mills in my district. Today, I have none. I had a vibrant sugar beet industry and it is gone. I used to grow sugar beets. And myself, my family and my neighbors all quit because there was no money in it. You just couldn't make any money. But coming from California, we had the option of going into other crops.
    The sugar industry, the growers, the processors are going broke. They can't make any money. And I really don't understand if you are paying such a higher price than your foreign competition, where is the money going? I mean, should we just not be in the sugar business in this country?
    Mr. MCCORMACK. I don't think we should be in the sugar business to the detriment of other crops or to artificially set a price that is not market-oriented.
    I think you are right. There are sugar producers and mills that are going out of business. There are other sugar producers that are not only doing well, they are doing well beyond their means, I believe. And I think it is a misappropriation of where this money is going. It is certainly not helping any of the users. Some of the growers are doing very well. But I think the program is so out of whack or so bizarre, to use Mr. Simpson's term, that there needs to be some major overhauls done to the program.
    And that is what we are proposing to do in conjunction with the growers.
    Mr. POMBO. My understanding is you basically want to eliminate the program.
    Mr. MCCORMACK. Miller-Miller would basically phase out the program, as I understand it.
    Mr. POMBO. And if we did that, I believe it would be the end of the sugar industry in this country.
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    Mr. MCCORMACK. I would highly disagree with you. There are many very competitive——
    Mr. POMBO. But if he can buy sugar at half the cost on this mythical world market, I don't think that there is anyone in the sugar business that is making 100 percent profit on producing sugar. So if you can go out into the world market and buy it at half, you eliminate the U.S. sugar industry.
    Mr. MCCORMACK. Well, you have made the assumption, one, that the world market will remain the same if the amount of sugar——
    Mr. POMBO. I am just using your figures.
    Mr. MCCORMACK. No. But if you make the assumption that the amount of sugar grown in the United States goes down somewhat there will be less sugar on the world market because more people will go into that market to buy it, therefore, the price will go up.
    It is a supply and demand market with that.
    Mr. POMBO. So we will destroy the U.S. sugar industry and then rely on imported sugar that will be at a higher price?
    Mr. MCCORMACK. I don't anticipate the U.S. sugar industry would be destroyed at all. I don't know what the numbers would be. I think VAO did a study several years ago that showed maybe 80 percent of the current sugar production would still exist. That the world price for sugar would rise with the reduction in sugar grown in the United States and more people would be in that market buying it.
    The world price would go up. Therefore, many of the growers in the United States would still be able to make a profit. They may not make—and I would counter there are many that are, I believe, making probably 70 to 80 percent. And those people will still continue to do quite well.
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    But I don't think that those people should, under the current program, benefit to the extent that they are on the backs of manufacturers that are using this product.
    Mr. POMBO. OK. I wanted to ask Mr. Ritter a question. In your testimony earlier, and correct me if I am wrong, you said that the major difference between our producers and I believe you said South American producers was land values. That the input costs were roughly the same, but that their land values were less, so they were able to produce at a cheaper level because of that. Is that what you said?
    Mr. RITTER. Yes. That is not the only factor that comes to bear, but the major factor in terms of looking at the total production costs, is the difference in the land values. Yes.
    Mr. POMBO. And you really believe that input costs are the same or close to the same?
    Mr. RITTER. Close to the same. Yes. I mean, the variable cost of producing soybeans in Argentina or Brazil is quite similar to what it is in the US. They use the same seed varieties. They use the same farm equipment. They have a higher capital cost because interest costs are higher in Latin American economies. But in general, in broad terms, costs are about the same and it is going to vary from year to year.
    In the short run, one of the things that impacts our farmers negatively is the strong dollar. Clearly, on a short-term basis, the wheat currencies in Brazil, Argentina, Canada, Australia negatively impact our producers. But on a global basis, variable costs of production are relatively close.
    Mr. POMBO. In your testimony, do you include some of those figures or if you didn't can you provide that for the committee?
    Mr. RITTER. Yes. We could certainly do that. We would be happy to.
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    The CHAIRMAN. The gentleman's time has expired for this round. Mr. Simspon.
    Mr. SIMPSON. Before you go on to the next one, may I make a clarification? I don't want a misunderstanding.
    I said the Sugar Program in Mexico was bizarre. Not the American Sugar Program.
    Mr. CHAIRMAN. The record is clarified.
    Mr. RITTER. Mr. Chairman, an apology. But I would ask if I could have 1 minute of time to address this committee as a family farmer. If it is out of order, if I can't, I would understand. But I would respectfully ask that.
    The CHAIRMAN. Yes. At the conclusion of the questioning, the gentleman will be recognized.
    Mrs. Clayton.
    Mrs. CLAYTON. Thank you, Mr. Chairman. I, too, want to reference the GAO farm programs. And the reason for doing that, as we talked about, who, indeed, benefits for the program. What our policies should be and to what extent we support an agriculture policy that all farmers can, indeed, participate.
    According to this GAO audit, it says the large farmers, which represent 70 percent. And those are the farmers who make more than $250,000 in net. And then they got 45 percent of all the resources. Now, we understand that the farm program is based on production. Those who are larger, obviously, get more. But, again, if a policy for the Government investing in a farm program is to benefit farmers in is arrogant, not select farmers, then you wouldn't have 7 percent of the total farmers produce getting 45 percent of the total amount of money.
    Medium farmers, and they get 17 percent. I am sorry. 17 percent of the farmers are medium. And they get 41 percent. And 76 percent, over two-thirds of all the farmers in the country that we are supposed to be helping, those who make 50,000 and below get 14 percent. So if our policy is, indeed, to help agriculture and to be more productive, we even have a conflict here And then Mr. Keith, I am struck by your, I think it is a very good approach that you make in terms of the value for conservation programs and distorting the price and taking it out of production.
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    So you take it out of production. It benefits only the landowner and takes it out, may be productive for the tax benefits. Well, what happened if we didn't provide these resources to farmers? Does this distort the world, are we distorting the market when we invest in farmers? Is there a distortion? Should we not let the farmers also be competitive like we let our manufacturers of cars be?
    Is the investment of farming to be a public policy that benefits the public interest? If it is not, then distortion will also be made if we invest in wheat farmers, corn farmers, it seems to me. I would like your response to that.
    Mr. KEITH. I think it was said earlier that we think the U.S. Government should stand behind farmers and try to support farm income. But we have a policy today that minimizes market distortions in the short run. It keeps us price competitive. But the more money that goes into farm programs, we all run the risk that we will long term distort the issue. And today, the United States, in many ways is——
    Mrs. CLAYTON. Well, over $20 billion went to farmers last year. Went to farmers. That is not the target. Those, indeed, were direct payments, AMTA payments, emergency funds. Would you say that is a distortion?
    Mr. KEITH. Well, that payment was made by choice, by Congress's choice after the fact. A big part of that was. And the programs are designed to be minimally distorting. The production decision.
    Mrs. CLAYTON. Should we also be designed to be equitable in terms of the number of people in the industry, itself? Or is it designed to help only select few?
    Mr. KEITH. Well, equity is a hard concept to define.
    Mrs. CLAYTON. Well, I agree. I agree. But let us say, in fairness, is that an easier word for you?
    Mr. KEITH. Not really. Sorry.
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    Mrs. CLAYTON. That is where the rub comes in. It is whose office is being gored? And if my peanut farmers are having difficulty—but my point is, we are rewriting the farm bill. And rewriting the farm bill, I suspect not many things will change, unfortunately. Because the system is predicated on reinforcing what there is.
    If you look at the States who get the bulk of it, they will continue to get the bulk of it. And so we are going to have to find ways where we tweak at the edges, unfortunately. And my concern is that we make the farm bill not only for those who are now profiting from it, but expand that opportunity. That is how fairness in my mind is. You expand opportunities. Not only for farmers, but for rural America. That is why we need a strong rural development piece, conservation piece and for me, poor folks ought to have the same opportunity at the trough as anyone else. Small farmers ought to have the same opportunity to make their farms marketable and take care of their families.
    So any farmer that is making $50,000 or less, is as important to me as any farmers making $250,000. So the efficiency model that we have that we have got to compete with the world market means that invariably, you are pushing down those less efficient family farmers. And that may be good for economics, but it is not good in terms for the survival, for the vitality for rural America. Thank you, Mr. Chairman.
    Mr. KEITH. I just had one comment. I think you are right on the disproportion of the income. And as I mentioned to Mr. Pombo about the Sugar Program, I do think it is a bizarre program. And it is even more bizarre than the numbers shaved under the GAO study. 40 percent of the revenue, of the benefits go to less than 1 percent of the growers in the Sugar Program.
    The CHAIRMAN. Mr. Smith.
    Mr. SMITH. Thank you, Mr. Chairman. I will take my 5 minutes and then we will recess until we finish these two votes.
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    I think you are excellent witnesses. I appreciate your knowledge. I appreciate your ability to articulate some of your interests and concerns. That being said, I am still suspicious. I hope, Mr. Chairman, that we will at some point have the National Grain Trade Council before this committee.
    In hearing testimony in past years when we wrote the 1996 program, it seemed to me that there was an interest in your organizations that you represent and the National Grain Trade Council to maximize the amount of product coming through your organizations and membership and/or to have the price paid to farmers at the lowest cost that still with Government programs could keep those farmers in business.
So I appreciate what you have said today. But still, to the extent that Mr. Keith, Mr. Ritter, that your organization benefits from a low price and significant volume. I mean, that is where some of your profits come from. And, certainly, Mr. McCormack, the lower price benefits your manufacturing effort.
    Let me ask you a specific question. Do you recommend, Mr. Keith, Mr. Ritter, going back to the 1996 provisions of simply having an AMTA phase out payment without any target price without any commodity non recourse loans programs?
    Mr. KEITH. We would favor that. I don't know how it is distributed across time. We don't really have a position on it.
    Mr. SMITH. Don't have a position on——
    Mr. KEITH. On how the direct fixed payments are distributed across time.
    Mr. SMITH. Yes. And before you respond, Mr. Ritter, I mean, the fact is that Government subsidies now are a higher percentage of average gross farm income than is net profit. Therefore, without any Government payments, most farmers in this country would not make a profit and eventually go out of business. Your comments, Mr. Ritter?
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    Mr. RITTER. I think that farm payments and a support of the rural economy is a necessary and positive contribution on the part of the farm bill.
    The comment I would very much like to make is that there is absolutely no relationship between cheap prices and profitability for the food chain.
    Mr. SMITH. No. But volume. I assume that the volume of product that you handle or that the marketing or the warehousing or the trade handles is related to profit.
    Mr. RITTER. I would hope so. I would also comment that if you look at the earnings record of agribusiness over the last 3 years, it has been as bad or worse without Government transfer payments to ease that, as farming come has been. This has been a tough 3 years for agribusiness. I could recite a whole list of my competitors who used to be here, who aren't here anymore. And that is not because they made too much money. This has been a difficult down cycle for everyone.
    Mr. SMITH. And I am going to recess at this point. And I would simply direct the clerks for a remaining 3 1/2 minutes of my time when I return, regardless of what the clock says now. We will recess until we can get back from these two votes.
    [Recess.]
    Mr. SMITH. Mr. McCormack, is cane sugar more profitable than beet sugar? Are you aware of the operational costs?
    Mr. MCCORMACK. Not at all. I do know that there is a different support price, or loan rate value for cane versus beet. I couldn't speak to a refiner or a producer, whether there is a difference in that.
    Mr. SMITH. All right. Do you see some danger? I mean, right now we are subsidizing our farmers at a level higher than we have ever subsidized agriculture in history, except for the last 5 years. But we are still competing with a situation where other countries, such as Europe, for example, or Japan, are subsidizing their farmers on a per acre basis five times as much as we are for Europe and Japan. The subsidy is of a much higher percentage.
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    Do you see some potential vulnerability or danger in losing our production capacity in terms of sugar, and becoming dependent on the world market, that might act like OPEC at some point in time, and gouge us on the price they charge you, or American manufactures, for sugar?
    Mr. MCCORMACK. Well that has happened, I guess, twice in my lifetime, I guess since 1974, maybe one time in 1980, where the price actually did rise up considerably.
    That really doesn't concern me, because everybody is in the same boat at that point in time. My competitor in Mexico, my competitor in Brazil, if the world price for sugar goes up, OPEC style, to eight cents a pound, they are paying that, just like I am paying that.
    I would much rather have that situation than my competitor always paying half what I am paying, and then maybe once every 30 years the price goes down where it is a little bit closer and maybe for one period of time I am close to competing. I can't exist for 30 years.
    Mr. SMITH. It would be my impression in sugar beets, I represent south central Michigan, and we have lost, like Mr. Pombo, we have lost our sugar beet producers in that area, as well as the manufacturers and processors.
    And the capital investment is so much different than it is for other commodities, such as the corn and soybeans, that the sugar beet farmers have gone to, that probably they are never going to go back to sugar, even if they see a real substantial increase in the price of sugar. So, once you lose that sugar production, it is going to be hard to get back. But in my remaining minute, Mr. Ritter, and Mr. Keith, do you see a danger in terms of doing away with our price loan program, that the advantages are that it clears the market. The disadvantages are that it probably is greater than the fixed cost of production.
    Therefore, the farmers feel that they have nothing to lose, so they might as well go ahead and produce for the non-recourse loan, or the LDP, whatever. So we continue that extra production.
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    But again, do you see a risk of not having any price support program that is going to result in a lot of that farm land either going to fruits and vegetables, or more likely going to other uses, such as country estates, or hunting forays in our area?
    I am talking about the danger of depending too much on imported products.
    Mr. RITTER. I am not here to comment for or against the sugar bill, because I am not competent in terms of full understanding of it, but I would make the general observation——
    Mr. SMITH. No, I am talking about feed grains, I am talking about cotton, rice, everything. If there wasn't a subsidy program in this country, and we left it totally to the market, there would be a tremendous challenge, it seems to me, in the farmers going out of business and then trying to recapitalize that effort to go back into production.
    Mr. RITTER. Yes, I see absolutely no reason, from my understanding of the farm economy and our goals in terms of what we want to provide and create in terms of rural opportunity, to do away with farm transfer payments. I think that is reasonable and prudent, absolutely.
    Mr. KEITH. I believe that the cycles, if we did that, would be much sharper and shorter. I think there would be a very difficult problem of adjusting. In this kind of an environment, in particular, when we have a strong dollar. But I think the distortions that are being created in today's kind of programs are pretty small in reality.
    They always have the choice of not growing at all, and they still get a fixed payment. It is like our old 0/92 program, in essence.
    So, there is a choice. And we have seen an adjustment in domestic acreage in the last 2 or 3 years, and we have seen an adjustment in global acreage. We have seen global acreage come down about 60 million acres in 4 years.
    Mr. SMITH. Well, I am going to ask Mr. Pombo, the chairman of our livestock and dairy subcommittee to take the chair.
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    As we look at the labor intensive industries in this country moving elsewhere, to take advantage of the labor, much of agriculture has some of that same challenge of being labor-intensive, where developing countries have a greater advantage.
    So, there is some propensity for some of that labor intensive, including agriculture, to go to other countries.
    And, with that, Mr. Pombo, I would remind the new chairman that Mr. Ritter asked to testify as a farmer/producer in conclusion.
    Mr. POMBO [presiding]. I recognize Mr. Stenholm.
    Mr. STENHOLM. Mr. McCormack, a moment ago you made a statement that I really associated with, and that is, you can't compete with dumb prices. And that's what we are faced with as we try to figure out what kind of a Sugar Program do we need, how does it need to work, and how does it need to treat fairly those that are our customers?
    It is the same problem we are having in another area now, and that is in grains.
    Canada has a 40 percent advantage in the currency value. A wheat producer in the United States can't compete with that. We are talking cotton, Australia has a 50 percent advantage.
    And the ideas or observations that you referred to a moment ago, and one of my colleagues talked about this short-term problem, but I don't advocate a weak dollar. That is not a solution to our problem. But when you start working, and I commend the tenure of the three of you today. It is much better than we have heard in the past, when you come forward representing your part of the agricultural industry.
    I sense that there is a groping and a grasping for a solution, other than eliminate farm programs. You come pretty close, Mr. McCormack, but I am giving you a break right now in this one.
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    But how do we then convince the rest of America that there is a good, logical reason for subsidizing our producers, when you are competing with subsidized producers of other countries, whether it be direct or indirect through the value of the currency?
    How do we deal with that, short term as well as long term?
    Mr. RITTER. I will try the long-term, because I don't have a short-term answer, and maybe Mr. Keith does.
    The dollar is a major, major impediment to our competitiveness, as you pointed out, across industries, because all our major competitors, Australia, Canada, Brazil, and Argentina, have had significant currency devaluations over the last 2 years, and that directly increases the competitiveness of their producers.
    That is not sustainable over time, but time, in terms of currency adjustments, is a long curve. So, I can look at the dollar on a purchasing power basis, and visit Buenos Aires, or visit Paris, and say this is not sustainable. It will correct over time, but we don't necessarily have time.
    So, in 3 or 4 years from now, currency adjustments will be made. But in the short term, I think it forces us, or is another supporting reason to assist the U.S. producer in a period of time where he is subject to a variable that he has absolutely no control over. And that is another reason for a continuation of direct transfer payments to the producer.
    Mr. KEITH. No magical answers. I think that we have got to come forward with the fact of how stressful the economic conditions are in agriculture today, with the prices where they are, but also be honest that there is an efficiency out there that, despite the costs of the inputs that are rising rapidly today, we do have a very efficient production sector, and we have figured out ways to make money. At least some people have, and that is what is contributing to some of the inflation in land prices.
    There are areas of the country, though, that aren't even seeing that take place. I mean, your part of the country, southwestern Texas and Oklahoma, there is not much land price inflation. It has been pretty flat for the last 4 years. It doesn't look very juicy down there, regardless of the situation.
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    So there is a valid reason. The high value of the dollar seems to be persistent at this stage, and it is also cyclical, but the cycles are longer than the commodity prices.
    So I think we need to just deal with the facts, and I think they are convincing.
    Mr. MCCORMACK. Short-term, I think, let me use your Canadian example, as well. One of our largest competitors in candy canes is based in Canada, and they not only have the advantage of the dollar, they have the advantage of the so called dumb price for sugar. So we are competing on two unlevel playing fields. One of those is, I look at the Sugar Program as part of that problem, and certainly the dollar.
    Where I think, short term, there may be some common ground, and I mentioned it before, is marketing loans. I know that is something that is difficult to come through, but it takes part of that onus of higher prices off the users. And that would be something we could consider, and possibly move forward on some common ground, and not necessarily do away with the program, but change it fairly dramatically.
    Mr. STENHOLM. That is one of the solutions. One of the solutions for a producer is to quit here and move to another country. That is what you have had to do, Mr. McCormack. This candy is wonderful candy, it is made in Mexico, right?
    Mr. MCCORMACK. I understand.
    Mr. STENHOLM. It wasn't because of the price of sugar, it was because of the price of labor, and other things, and the fact that you have the opportunity to take U.S. sugar, have it re-refined, and get it at a competitive price in Mexico, with your competitors.
    I understand that, and that is something we are looking at ways to level the playing field a little more for you, without destroying the sugar industry in the United States, which you have stated you would like to see that done, too. And target price is one way to do that, and it is much more complicated.
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    Fifty-two percent of the net farm income in the United States last year was Government payments. So we talk about all this efficiency, and all of these wonderful things that we are going. In the real world out there, if it weren't for Government payments, we would have had a depression in rural America.
    And that is why wildlife, CRP, there is a little more turnover in community dollars today, in areas in which you have had a development of CRP. As the communities are beginning to realize, as I, as a farmer myself, have realized, one of the worst things that has happened, as far as the rural communities, has been the low price of the wheat that we are growing, and the grain, and the cotton. Because it has taken the gins out, it has taken the elevators out, it has taken the fertilizer dealers out. The low prices are doing that.
    CRP and wildlife are giving many of my friends and neighbors an opportunity to make some money from those that would like to hunt, in the development of wildlife in those areas. And that might be a better alternative, down the line, than growing it for grain. That is something that we are looking at.
    Mr. POMBO. Mr. Osborne.
    Mr. OSBORNE. No further questions, Mr. Chairman.
    Mr. POMBO. Mr. Rehberg.
    Mr. REHBERG. I will take my opportunity at this point, and I would like to kind of follow up on what Mr. Stenholm was talking about.
    My big fear is that more and more of our producers do make that decision to locate elsewhere. And it won't be the family farmer, it will be the larger operations that have the capital that they are capable of locating elsewhere.
    And I think that for a long time our policy, our long-term policy in this country has made some big mistakes. And one of those, I think, is CRP.
    I think that we are taking more and more land out of production, which long-term, will hurt us. Because we will be losing. That market, world market, is growing, and we are sending the signal to take land out of production, and our competitors on that world market are sending the signal to produce more all the time.
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    And whether it is South America, or China, or who it is, they are all sending the signal to bring more land into production, to produce more, to chase that world market. And we are sending the signal to our farmers that we are going to respond to this low price that we have today by taking more and more land out of production.
    But, Mr. Ritter, I wanted to get back to you saying about the difference in the land prices. If we are competing in this world market, why are our land prices higher than they are with our competitors?
    Mr. RITTER. The most direct answer is because U.S. land values capitalize Government transfer payments; whereas land in Brazil and Argentina today reflects the market returns on soybeans, or corn, or wheat, or sugar production. And that is the risk, that those income payments, capitalized in land values, create a long-term cost structure for the American farmer, which makes it increasingly difficult for him, over time, to fully recover those costs.
    Mr. REHBERG. So our land values don't reflect the true agricultural value of the land?
    Mr. RITTER. No, sir. They reflect the agricultural value, plus the transfer payment.
    Mr. REHBERG. And what were to happen if our land values represented the true agricultural value of our land?
    Mr. RITTER. It is going to vary whether you are talking about prime quality Illinois prime land, or whether you are talking about western North Dakota wheat land; but the relationship can be as much as 40 or 60 percent difference in value.
    Brazilian land would be 40 or 60 percent the value of the competitive U.S. land, for example. The same thing would be true Saskatchewan versus Montana.
    Mr. REHBERG. I believe that you also said that you believe the CRP distorts land value, as well?
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    Mr. RITTER. I personally think that there is a value in a certain amount of CRP land for a whole bunch of worthwhile environmental and social goals. But, incrementally increasing the CRP from current levels, when to do so is going to require the entry of agriculturally productive and competitive land, is a distorting effect, yes.
    Mr. REHBERG. And if we substantially increase the amount of land that is in CRP or in a conservation easement, or what have you, what is the long-term impact of doing that?
    Mr. RITTER. It is supportive to land values. The CRP payments increase the capital value of land.
    Mr. REHBERG. And what happens, my final question, what happens to our ability to compete on that world market, as we take more land out of production in this country?
    Mr. RITTER. It has a direct and clear negative impact on our competitive ability. Over the next 10 years the world is demanding increased agricultural production. And, as I said in my earlier remarks, Brazil and Argentina particularly have vast reservoirs of land available to be brought into production, if we create an umbrella for them to do so.
    And retiring land here is a very significant step to creating that umbrella for the production increases to take place in Brazil and Argentina, as opposed to here.
    Mr. RENBERG. And if we do that, and take the land out of production here, it goes into production in other countries, do we lose the ability to compete in those markets? Or at least lose the market share?
    Mr. RITTER. We lose the market share until and unless at some point in the future we choose to bring that land back into production, yes.
    Mr. REHBERG. Thank you.
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    Mr. POMBO. Mr. Condit, did you have any further questions?
    Mr. CONDIT. I believe Mr. Ritter pretty much answered all the questions I have. I was going to go back to the 8 1/2, 5 percent. But you agree that that is a fair agreement, that China can make 8 1/2 percent on their subsidies and we do 5 percent, I understood you said that earlier?
    Mr. RITTER. I think that is fair, for two reasons.
    I think China has a real social need to protect its farm population, and when you are talking about people who are farming fractions of an acre, 8 1/2 percent doesn't go very far.
    The reality is that in the current regime and any environments that I see any time in the foreseeable future, they are going to be subsidizing it at vastly lower levels than 8 1/2 percent. There is no intent on their part, from anything I see, to really use that 8 1/2 percent, they simply want the flexibility, if necessary, in the future.
    Mr. CONDIT. I don't mean to be argumentative, and I don't want to be disrespectful or anything, but the words that you chose is that you think that the Chinese farmers ought to be able to protect, which is, we said we want to protect our farmers if we would be called isolationists, against free trade. I just seems to me that a double standard you have there.
    But that is fine, you answered the question.
    Mr. Keith, I just have a suggestion for you on the CRP. It just seems to me that one of the things that, at least I am looking for is, on the program, is you are opposed to expanding it. I would like to know the numbers, what the economic loss to rural American and to farming communities is going to be if we expand the program.
    It just seems to me you didn't really respond to that. I understand the water quality issue, I understand the environmental issue, I understand the issue Mr. Pombo was just talking about; but it just seems to me everything that we do in life is a trade off. But one of the most important things is peoples jobs, and the economy, and we do this, and when we do that you get a spin off value. And it just seems to me you haven't really made your point on that, what the loss is.
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    Mr. KEITH. I would be glad to respond for the record. I will say that there is a limitation, though, in any analysis that anyone can do on this, because there are no data on the productivity of the land that is in the CRP that was a part of the old program.
    Mr. CONDIT. Mr. Peterson, he's not here to make his own comment, but in discussions with him, he believes that in setting this land aside it actually has made it, the economy stronger in some areas, because of other uses, such as gaming, or what have you, but I don't know that there is any statistical evidence of either/or. So, it would be important if you had that. If you don't have it, you don't have it.
    Let me thank both of you, all three of you, for being here today. You have been here for a long time and I appreciate it very much. You have been very candid in answering the questions, and very helpful, and I appreciate it. Thank you, Mr. Chairman.
    Mr. POMBO. Mr. Berry.
    Mr. BERRY. Thank you, Mr. Chairman. Mr. Ritter, I find your comments encouraging, if nothing else. I haven't heard an encouraging word around here in a long time.
    Do you have any idea how we take the Government dollars that we have put out there, there is no question they have capitalized on land values, how do we keep that from happening?
    Mr. RITTER. No. I can raise the issue, I can tell you that there is a problem. I can't give you a good solid solution, to the extent you are going to associate some degree of risk with the dollars you offer in a program, it is helpful.
    Mr. BERRY. Good. I was hoping you all would know something that we didn't know. I'm sure you do, I have no doubt you know something we don't know.
    Mr. McCormick, I was wondering, do you have any concern about not being able to get enough sugar?
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    Mr. MCCORMICK. I have never, never had a problem not getting sugar.
    Mr. BERRY. Do you think we can create a situation in this country, though, where you could have that problem?
    Mr. MCCORMICK. As long as I am free to buy sugar anywhere else, I don't anticipate that.
    Mr. BERRY. You are confident that as long as we had a free market that it would always be there and that it would be cheaper than it is now?
    Mr. MCCORMICK. I am confident there would always be sugar there. I am not confident that it would necessarily always be cheaper. But as long as you let market forces act, there is sugar available, because people will bid people out of the supply chain, at a certain price.
    Mr. BERRY. Do you think there is any value in being able to say that we can supply the market, domestically?
    Mr. MCCORMICK. There is some value in it. I think it is overpriced right now.
    Mr. BERRY. I was wondering, you mentioned that you had lowered your prices 30 percent I believe?
    Mr. MCCORMICK. On certain items, yes.
    Mr. BERRY. How do you think, how profitable are you? Have your profits stayed the same, gone down, gotten better?
    Mr. MCCORMICK. They have disappeared.
    Mr. BERRY. You are not making any money?
    Mr. MCCORMICK. We were not making a profit last year, and don't anticipate making one this year.
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    Mr. BERRY. OK. Well then you know how these farmers feel, then.
    You mentioned that there were some of the sugar growers that were doing really well; can you tell me who they are? Because I haven't run into any of them lately.
    Mr. MCCORMICK. Well, obviously if there is more sugar being produced, you wouldn't produce it if you were losing money on it.
    My understanding is many of the cane producers in Florida, Louisiana, Texas, do quite well, especially some of the larger ones.
    Mr. BERRY. And they are still doing well?
    Mr. MCCORMICK. If political contributions are any sign. Certainly if political contributions are any judge, they do quite well.
    Mr. BERRY. OK, fair enough.
    Thank you, Mr. Chairman.
    Mr. POMBO. If there are no further questions, Mr. Kennedy? Do you have any further questions?
    Mr. KENNEDY. Yes, I just have a couple.
    Mr. POMBO. Yes.
    Mr. KENNEDY. I just want to go back to this land value thing, because I think just about everybody up here shares your concern with land values potentially making America not competitive in the world markets. But, when you talk about risk, if we put all of our money into fixed payments, that would be paid whether you had a good year or a bad year, versus the timing price mechanism that we had, and spent the same amount of money on the program, we would be guaranteeing a lower return, so that would obviously, tell the land owner that this lower amount that they can for sure count on. Granted, the target price gives a higher return, and its great if you are a farmer that owns your land, but it does bid the price up.
    But short of trying to survive with a lower farm income, I would encourage you guys to come up with whatever type of alternative that we could have that would make sure that this benefit was going to the farmer, rather than just the land owner, because I would share those concerns. And I note Congressman Berry's question, you didn't have a lot of ideas, but I would put some brainstorming together, and then we would be open to whatever you could hear on that.
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    And I will yield back my time.
    Mr. POMBO. Mr. Stenholm.
    Mr. STENHOLM. Mr. McCormick, I can't let that last little cheap shot go unanswered. I am talking about contributions. If you want to go down that road with those you represent, then get ready to go down that road, because if you were looking for salaries of the CEO's of the largest food manufacturing companies in this country, and compared the contributions that are being made to Congress, soft and hard, we will go down that road, and we will do it live, in living color on the floor of the House, where everyone can go down.
    Now that last remark undoes all of the good comments that you have made today with this memory. Because that goes right to the heart of what I have seen and heard from those you represent today that have been here for the 22 years I have been here.
    And it is those kind of little remarks that get us into the kind of discussions that are not helpful.
    This panel has done well up until that. Now if you want to go down that road, as I said, we will do it publicly. I serve warning to you, and to those you represent. If that is the way you want to go, we will go down that road.
    Mr. MCCORMICK. I withdraw that comment. I apologize. It was out of order, and I am sorry about that.
    Mr. STENHOLM. Apology accepted. Thank you.
    Mr. POMBO. Mr. Ritter, you said you wanted the opportunity to make a brief statement. I will yield here, at this point.
    Mr. RITTER. Thank you very much, Mr. Chairman, for your indulgence. I will make this as concise as possible. It is not direct to the issues we are discussing today, and it is Bruce Ritter speaking, it is not the coalition.
    As I mentioned earlier, I am a native of the Klamath Basine which straddles the Oregon/California border. I am a fourth generation family farmer. And there is an emotional issue there today that is a human and environmental tragedy. I don't know where the buck stops, but I would encourage anyone here who can raise a voice of reason in this issue to do so.
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    The water, irrigation water in the Klamath Irrigation District, which has been in existence for almost a century, has been cut off to 1,400 family farmers. Now, I am not one of them, my brother is not one of them. We have water rights outside that area, and quite frankly, we are economically benefiting at the margin.
    But these 1,400 farmers' livelihood is at risk. There are thousands of bald eagles at risk, because there is no water in the refuges. There are billions of migratory waterfowl that are at risk this fall, because there is no food, there is no water for them. The wildlife refuge, Tule Lake and Klamath Wildlife Refuges are the major stopover on the Pacific flyway.
    This was done as a result of the invoking of the Endangered Species Act, to protect the sucker fish. The sucker fish is a bottom growing fish. Lake levels are at the moment in the upper Klamath Lake held in place by a dam which raises them above the natural levels.
    The sucker fish is a noble creature that deserves to exist, but it is like the cockroach, it is going to outlive all of us. The geese and duck won't. Neither will the family farmer.
    And I don't have the answer, but I would strongly urge anyone on the Hill that can do anything to bring a voice of reason to an issue that is a catastrophe to the local environment, the local economy, and the individual farmer in an area that has co-existed for almost a century, where environment and farmers have both benefited. It needs to be addressed, and I appreciate the opportunity to put this in the record. I sincerely ask anyone who can look at it to do so. Thank you.
    Mr. POMBO. Well, Mr. Ritter, having had the opportunity to chair a hearing in Klamath Basin, and hearing from about 3,000 people that live out there, I am very much aware of the problem that exists, how we got there.
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    You are sitting there right now looking at a group of members who have been trying for years to rectify this situation, knowing that a train wreck was coming.
    Many of our colleagues either didn't want to admit it, or failed to realize that this train wreck is coming. And right now we are seeing the very tip of the iceberg in the region of the country that you talk about.
    In the area that I represent, and Mr. Condit represents, we are very close to being in the same place. And, unfortunately, some of my constituents don't see that yet.
    The area that Mr. Stenholm represents has been fighting against this, a situation very similar to this, for about the last 8 years. And their farmers have been severely disadvantaged because of restrictions on water.
    So, the problem that you are bringing to our attention is one that this committee and the members that are here have worked on for a long, long time, and I agree completely with everything that you just said.
    Mr. Stenholm
    Mr. STENHOLM. Just that Mr. Thompson of California, is working on just this problem, with the recommendation that he will be bringing to this committee, or other committees of jurisdiction. So, that is an area that has gotten a lot of concern from, I think I am speaking for every member of this committee, and thank you for bringing it up.
    Mr. POMBO. I thank you, and I am going to excuse this panel.
    I want to thank you all for your testimony, your patience, and for answers to all the questions that we threw at you. Thank you very much for being here.
    I would like to call up our second panel: Mr. Ken Babcock, Mr. Rollin D. Sparrowe, Mr. J. Read Smith, Mr. Michael T. Goergen, Mr. Jeff Eisenberg, and Mr. Paul Houghland, Jr.
    I want to thank you for joining us here today. I would just like to remind the panel that your entire written testimony will be included in the record. If you can limit your oral testimony to 5 minutes, the lights that are in front of you will give you an indication of when your time starts and when it concludes.
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    In order to try to stay on some kind of a schedule with the hearing, I would appreciate it if all of you would try to wrap up your oral testimony into 5 minutes.
    Mr. Babcock, if you are ready, you may begin.
STATEMENT OF KEN BABCOCK, DIRECTOR OF OPERATIONS, SOUTHERN REGIONAL OFFICE, DUCKS UNLIMITED, INC., JACKSON, MS
    Mr. BABCOCK. Thank you, Mr. Chairman. I would first start off by saying I apologize. I did not bring a bucket of ducks. If I did bring a bucket of ducks, I couldn't sell them to you, because it is against the law anyway.
    But I am pleased to be here. We appreciate the opportunity to appear before this committee.
    I am Ken Babcock, I am the director of operations for the Southern Regional Office of Ducks Unlimited. It is an area that covers 15 States. They span from New Mexico to North Carolina, and from Missouri down to Texas and Florida and all of the States that are in that region. And certainly I think everybody would agree that that is an area where natural resources conservation and production agriculture are part of the cultural fabric each and every day, and most of the lands in this region are truly privately owned, and so what we do and the way we look at farm bills legislation is with that in mind.
    Ducks Unlimited has been around for a long time. We have been here since 1937. We have recognized the role of private lands, because the majority of lands upon which ducks and geese and other wildlife depend are privately owned.
    We also share something in common with production agriculture, in that the highest priority areas that we have identified for water fowl on this continent are also areas that are very important from an agriculture standpoint. So, finding that interface is extremely important.
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    I would point out that the draft document, the concept report that we are looking at we consider to be preliminary. We hope that you will consider our comments in that regard as being preliminary as well.
    We came before the subcommittee on conservation last month, and we talked about four basic priorities that we brought to that subcommittee.
    I would also point out that at that time we were representing about 40 conservation organizations and presenting those four priorities, and those conservation organizations include about 10 million members. So, a fairly substantial group of folks.
    Those four priorities are that we would propose to expand enrollment of the Red Land Reserve Program back to the original cap of 45 million acres. We also propose that the enrollment cap on the conservation reserve, I mean on the Wetlands Reserve Program be established at 250,000 acres a year for the duration of the farm bill, and that we expand the wildlife habitat in city program to authorize expenditure of $100 million a year. And the fourth component, which is a new component, in terms of farm policy, would be to establish a grassland reserve program, to authorize up to 1 million acres a year into that program.
    Let me just mention a few of the real highlights, in terms of some of these elements in the limited time that I have.
    When we talk about CRP we think that truly CRP has been something that has produced commodities, but of a different type. They have been commodities of water quality, improved air. We have seen a reduction in soil, soil erosion, and in fact one of the components that prioritizes land going into the CRP is to reduce soil erosion, and in fact, soil is the most precious commodity that we have in terms of growing products on the land, whether it be crops or wildlife, but it is also one of the largest pollutants in our streams and lakes and other wetlands, and it is very important that we keep that in mind.
    We think that the demand for CRP and going back to the original cap of 45 million acres is warranted.
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    Another program that has also proven very popular is the Wetlands Reserve Program, and again, just like CRP, the WRP actually does target marginal lands, or lands that are highly erosive. But it also offers opportunities to return these lands that go into the Wetlands Reserve Program to more productive, long-term sustainable uses.
    Some of the immediate results that we get from the lands that go into the Wetlands Reserve Program are a reduction in some disaster payments that have in the past gone to these marginally productive lands. Floodwater storage, which improves our ground water recharge. Water quality is improved; carbon sequestration, dealing with greenhouse gases, another product that comes out of lands in the Wetlands Reserve Program.
    Again, we think that because of the fact that the caps have been achieved, even though Congress extended it a year ago, the demands are still there, more than a half a million acres that have been enrolled that cannot come into the program.
    The wildlife habitat incentive program is a component that producers can use to augment work that they do on their farm. It can be a part of a working landscape. There are some parts of a farm that may not be good from an overall standpoint of commodity or crop production, but they can, in fact, produce good wildlife habitat, and some of the other social amenities that go with it.
    The grasslands reserve program is a new component that we are proposing, and we think that this is an underserved group of landowners, people who own grasslands, and this program would be proposed to provide protection for a lot of those lands. And we have learned that protecting lands in their current and natural state, is often times more economical than trying to do restoration.
    The last thing that I would mention is with regard to EQIP. While we are certainly pleased to see the increased amount of money go into conservation related to the EQIP program, we feel that a lot of this may be related to things other than actual soil water conservation. We look forward to seeing how this works out.
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    The final thing I will say is that we are concerned that possibly the amount of money going into that, there may be a few years start up necessary to be able to build the infrastructure to deliver that.
    Thank you Mr. Chairman.
    [The prepared statement of Mr. Babcock appears at the conclusion of the hearing.]
    Mr. POMBO. Thank you. Mr. Sparrowe.
STATEMENT OF ROLLIN D. SPARROWE, PRESIDENT, WILDLIFE MANAGEMENT INSTITUTE, WASHINGTON, DC
    Mr. SPARROWE. Thank you, Mr. Chairman.
    The testimony that Mr. Babcock just presented goes into adequate detail on some of the specifics to really match what is in our testimony, and I will try to hit on a few additional points.
    We have been a part of the group that earlier testified in support of those statements.
    We appreciate the recognition by this committee of conservation, and its importance. We especially share your interest in seeing that it is a farm bill that serves everyone across the country. It has been very strong in the Midwest, but there are needs in the Northeast and Southeast and the West that are different, and we would like to see those attended to.
    We think the public is quite aware of how important these programs are, and recent polls indicate that the public seems to think there should be some additional benefits from subsidizing agriculture, and those that are quite popular are environmental benefits, things that solve real problems. This is why the wildlife community has worked so hard with the agricultural community, and with the farm bills, for several years now.
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    They also want more accountability for how these programs are delivered, and that again leads to multiple benefits. And I think you, the committee, have been telling us in our behind the scenes work with you that you want more accountability and specifics and reasonableness in dealing with how many resources are available.
    We have looked at the proposal and suggest some reallocation of the funding, more with an eye toward the balance that I just described than we do toward having a real specific proposal at this time for how those programs might be changed. But we support the modest increased in the very baseline programs of the CRP and WRP and others.
    Those are really benchmarks, whereas the EQIP program, which has had a wildlife benefit indicated as a part of it, has never produced in that regard. We are well aware that there is a kind of a grounds well that is saying that we should increase EQIP in a very large manner, to serve water pollution programs, water quality problems, and we don't want any wildlife in it, is what we are hearing from the agricultural community.
    This is puzzling to us, because the strength of our involvement of wildlife involvement with agriculture now, for the last three farm bills has been the ability for all of us to go out and demonstrate the multiple benefits that are derived from the public's expenditure of these monies. So we see it as an asset. Of course it also leads to the advances that we want to see in the programs.
    The issue of technical assistance has been with us for a long time, and we note that an EQIP program of this size would surely tax the ability of the Agriculture Department to deliver services. They, right now, have half the staff on hand that they say they need to deliver current programs. So a new program of this size certainly is going to need a delivery mechanism.
    We worked with three successive chiefs of NRCS in trying to deal with this technical assistance program, and we are proposing, in our testimony, technical assistance funding through the State fish and wildlife Agencies working very closely with NRCS, and we have documented a Missouri example that has worked very well for everyone involved, and in fact saves the Government money in its delivery.
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    We have been working with coalition building, not only in Washington, between wildlife agricultural groups, but out of the State level. And we have currently active eight groups that have met in eight different States. These are bringing commodity groups and wildlife groups to the table, to talk about what their mutual goals are for the farm bill programs. Nobody is trying to tell these coalitions what to say, we are simply saying to them, you need to get together, because in the end the Congress is going to listen to what its constituents want, and if they are organized, and on the same page, we have a better chance of seeing the advances made that we want.
    Finally, I would like to mention the fact that research has a need, in terms of evaluation and specific demonstration of the value of these programs seems even more important than we had thought when I listened to the testimony of the last panel. When I hear the fact that there are no data on land production, on CRP acres by someone who opposes more CRP because of that fact, it seems to me something is missing. And I think there is a great opening here for the committee to consider some specific thrusts in evaluating the benefits of these programs for environmental and other purposes, and using those to further benefit from the strength and support for the programs.
    We are encouraged by the hard work everyone is putting in this, and the chance to be here and talk with you, and we look forward to working with this committee in the future. Thank you.
    [The prepared statement of Mr. Sparrowe appears at the conclusion of the hearing.]
    Mr. POMBO. Thank you. Mr. Smith.
STATEMENT OF J. READ SMITH, PRESIDENT, NATIONAL ASSOCIATION OF CONSERVATION DISTRICTS, ST. JOHN, WA
    Mr. J. READ SMITH. Yes, Mr. Chairman, and members of the committee, my name is Read Smith. I am an active and struggling farmer and rancher from Washington State. I am here today representing the Nation's 3,000 conservation districts, and the 17,000 volunteers, like myself, that are elected locally and serve their constituents.
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    I have been a district official for 27 years. Where, during that period of time, I have spent most of it working with programs that this committee makes possible. Therefore, I have been on the firing line for quite some time.
    The national association appreciates the work that the committee has done in raising the priority of private lands conservation. It is a wonderful start. And we do support the land retirement programs that have taken up so much of the time this morning. But that really is not going to solve our conservation problems.
    If we even doubled the size of all these retirement programs, we would reach less than 1 percent of the private lands of America, that 1.5 billion acres, much of which there are no programs for.
    And I think my friends and colleagues and wildlife interests should recognize the value of properly managed working lands, for they provide, I know on my own farm, where I participate in all of these programs, some of the best habitat.
    Unfortunately, many of these land retirements programs target only certain areas, and only certain producers. And that really is doing an injustice to what we are trying to do, as to provide a service for all of America's private lands.
    The current and proposed cost share programs, although unproved, will still reach less than 5 percent of producers. It still leaves huge gaps across the country, with no participation by many States and many producers. We need to fix that, too.
    The current and proposed legislation relies very heavily on conservation compliance. Although conservation compliance was grounded in very good intentions, it has, over time, weakened to the point where it really is taken for granted. There is a fundamental disconnect in many areas of the country, in that producers look at those payments as entitlements, rather than a contract with you.
    An example is, a producer with a soil loss on his farm of 2 tons to the acre, across the fence from a farmer who has an elaborate, effective, sustainable system, with no soil loss, may receive the same payments. That is not raise to those producers, and it is certainly not fair to the public.
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    The districts of America urge this committee to consider a bold new approach to private lands conservation. I would hope that you would take a look at Representative Thune's proposal.
    We need a conservation plan that is based on incentives and voluntary action. If you do not perform, you do not receive the incentives.
    It will benefit all of the croplands of America, it will benefit all of the producers of America. The crop land, the forest land, the pasture and range. And it will benefit all of the landowners and operators.
    We really cannot wait another 10 years to take this first step. Our Nation's conservation delivery system is straining under the weight of limited resources and an unlimited workload.
    We must create a new system where individual conservation plans derive private lands conservation, not implementing Federal programs.
    And lastly, I would encourage the committee to support Congressman Lucas' bill, and I would submit, with your permission, submit some testimony from our coalition partners, the National Watershed Coalition, that would help the committee to appreciate that.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. J. Read Smith appears at the conclusion of the hearing.]
    Mr. POMBO. Thank you. Mr. Goergen.
STATEMENT OF MICHAEL T. GOERGEN, JR., DIRECTOR OF FOREST POLICY, SOCIETY OF AMERICAN FORESTERS, BETHESDA, MD
    Mr. GOERGEN. Hello. My name is Michael Goergen, I am director of forest policy, with the Society of American Foresters, and organization that represents more than 17,000 foresters from across the country, in a variety of different employment sectors.
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    I am also chair of the National Council on Private Forests, which is a Washington based group of organizations interested in private land forestry.
    I come today to talk to you about the 9.9 million non-industrial private forest landowners in the U.S. They are truly an underutilized resource to achieve forest sustainability in this Nation. And these individuals own approximately 363 million of the Nation's 747 million acres of forest land. Now that is about two times the State of Texas. And I don't have to tell this committee just how big that is.
    Mr. Chairman, actually Mr. Combest has a town in his district called No Trees, Texas. My goal here today, and the goal of the forestry community, is to make sure that no other member of this committee has a town called No Trees in their district.
    It is vitally important that we have programs that secure sustainable forestry options, and that provide landowners with incentives to keep their forests as forests, and not in a preserved state, but as working forest lands    Forests are truly the answer. I say that with full confidence. They provide important public benefits, including wildlife habitat, clean water, recreational opportunities, open space, forest health. They help maintain soils. They provide important forest products, and they help improve water quality.
    In fact, the city of New York has recognized that active forest management is the preferred land use in the watersheds that supply that city's drinking water. That is the city of New York saying, we want active forest management in the water that we receive downstream. And outstanding achievement for forestry, and one that I don't think is recognized nationwide.
    Timber is the second highest valued agricultural crop in the United States. It is only behind corn. Forestry programs, however, receive less than one-half of 1 percent all commodity support from the Federal Government.
    Now private sector and State efforts have definitely picked up some of the shortfall in resources, but unmet need is huge. Just as unmet need is huge for just about every one of the conservation programs that people are going to talk to us about today. And, in fact, I know that everybody up here will want to ask for more money. That is certainly in the interests of all of our conservation programs.
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    But the fact of the matter is that forestry hasn't been receiving much over the years. Now we are not saying that forestry is more important than any other agricultural commodity or sector, they are all critical to the importance of the Nation. It is must that we hope the Federal Government will increase resources to NIPF lands.
    We have 5 objectives for the farm bill. The first is that we would like a non-industrial private forest landowner cost share incentive program that is based on the concept of sustainable forest management, and provides predictable long term mandatory funding.
    Now I have been extremely encouraged by the place that it is in, in the draft that we have been talking about today. In fact, thrilled that forestry, for the first time ever, has been included in the mandatory programs.
    And I want to thank this committee for including that. Again, of course, everybody would like more money, but it is nice to be in the pot, and we surely do appreciate that.
    Our second goal is to create a sustainable forestry outreach initiative, within the reauthorized Renewable Resources Extension Act.
    The objective of this program would be to get information to landowners. Right now we have got 9.9 million landowners. Only 10 percent of them actually have a forest management plan. We need to get that number higher, because right now we are finding that landowners don't understand the value of their forest resources. They don't understand economic values. They don't fully understand environmental benefits that they can achieve through forest management. And we need to get that message out there. We need to leverage Federal dollars with private sector programs, to get that job done.
There are a host of different organizations that are working to achieve better forest management on the ground. And, with some Federal help, we can collect those resources together and get the message out to landowners. We would also like to see the existing conservation programs be a little bit more positive toward forestry.
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    Right now there are some bureaucratic and legislative barriers that prevent tree planting in some of the programs. We would like to see those barriers removed, and a lot more of the conservation programs take advantage of the real benefits that forestry can provide for a host of different environmental programs.
    We would also like to see programs in place designed to assist in wildland firefighting. Right now we know that most of the first responders are volunteer firefighters. We like to see much more attention paid to local communities, and their efforts to reduce fire risks throughout the forest.
    Finally, we would like to see a program allowing for use of biomass fuels in reduction efforts from wildfire, for energy purposes.
     Thank you very much for the time today, and I am looking forward to your questions.
    [The prepared statement of Mr. Goergen, appears at the conclusion of the hearing.]
    The CHAIRMAN [presiding].Thank you. Mr. Eisenberg.
STATEMENT OF JEFF EISENBERG, SENIOR POLICY ADVISOR, AGRICULTURE, THE NATURE CONSERVANCY, ARLINGTON, VA
    Mr. EISENBERG. Thank you, Mr. Chairman. I would like to thank you and all the members of the committee for this invitation to come before you at this critical juncture in the writing of the next farm bill.
    The Nature Conservancy views the many important programs under the jurisdiction of this committee as part of a larger mosaic in rural America. Programs that help support economic development and the conservation of the natural resources necessary for production agriculture and the welfare of Americans everywhere.
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    We applaud the work of the committee in supporting conservation as expressed in the draft concept paper. In particular, it goes a long way to addressing the real needs, the real resource management needs of confined animal feeding operations.
    We would like to see a little more investment be made to address the resource needs of both grazers and other sectors of production agriculture.
    In particular, we ask the committee to consider adding additional acres to the Wetlands Reserve Program, and to include a grassland protection program in the mark up of the farm bill.
    A few comments on other aspects of the concept paper also set forth below. The Nature Conservancy considers WRP to be the most important conservation program authorized by the Agriculture committee. The case for expanding the program is strong. At one time there were more than 220 million acres of wetlands in the country. This has now been reduced to 110 million acres on private land, and approximately 20 million acres on public land.
    To date, WRP has restored a million acres. The demand for participation has stripped the availability of funding by approximately a 4 to 1 ratio.
    The committee proposes authorizing 100,000 acres annually in the concept paper. Average enrollment in the program during the term of the current farm bill has been approximately 150,000 acres.
    The Nature Conservancy and the Sportsmans Caucus endorsed authorization of 250,000 acres annually. We urge the committee to increase the acres authorized, if possible.
    The grassland reserve program. This is a new program, as Ducks pointed out, Mr. Babcock.
    The Nature Conservancy has been working hand in hand with the National Cattlemens Beef Association, to create a program that protects grass. The grassland reserve program, H.R. 1689 was introduced by Congressman Schaffer and Thompson on May 2. The bill protects grasses through permanent and 30-year easements. It imposes no regulation on grazing, and in fact anticipates that these lands will remain working lands.
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    The principal prohibition in the bill, against breaking the soil for crops or other purposes. It also allows private entities, such as ranching land trusts, to hold easements under the program.
    The Conservancy and the Cattlemen share a strong commitment to keeping working landscapes intact. We understand that unless there is an economically viable rule in America the land could be lost, could be lost to less desirable uses from our point of view.
    Our No. 1 conservation goal in the West is to keep working landscapes intact. The Cattlemen want to keep their ranches on the ground. Our interests in this matter are very much in alignment, and many other groups have endorsed the proposal, including the Sportsman's Caucus.
    Historically, the greatest threat to grass in the United States was the plow. Conversion of grass to cropland remains an important threat today, largely as a result of commodity payment programs that provide incentive to producers to convert grass.
    The grass proposal has direct relevance for Texas. Historically 148 million acres of Texas was covered by native grass, which was about 17 percent of the land base in the contiguous 48 United States.
    This number has declined to 110 million acres in 1997.
    From 1982 to 1997 1.59 million acres of grass were converted to cropland in Texas alone. A study that TNZ Commission, with some others, explained that hunting leases on grass in Texas are an important source of income support for ranchers, and in fact, are making it possible for many ranchers to stay in business.
    The Conservancy believes that Congress should employ all policy options, including conservation, not surprisingly, to keep producers going.
    A grassland protection program should provide an option for producers to sell a permanent easement to Government.
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    Permanent easements are the overwhelming choice of producers who enroll in the Wetland Reserve Program and the Conservation Reserve and Enhance Program, in Illinois.
    Having nothing to do with the Conservancy or conservation interests, ranchers in California have submitted requests to the California Rangeland Trust for 380,000 acres of permanent easements. 30,000 acres of those requests have been funded.
    The Conservancy understands that many people have problems with permanent easements, it doesn't work for a lot of people. In our own work we urge families who have expressed doubts about tying up land for their children, no not do it. Permanent easements don't work for everyone, and that's fine. But I guess our position is, that it is a complicated land out there, and all sorts of pressures are going on, and there is a lot of people who want the permanent option, and we urge you to consider including it.
    We also understand that many if not all of the members of the committee have expressed concern about the cost of a grassland program. We believe the cost of the program is considerably lower than indicated by the initial costs estimates issued by the Congressional Budget Office.
    Grassland in most States occur in relatively isolated region, with relatively lowland prices. If the reasonable assumption is made that participation in the program will trap the location of grasslands throughout the country, then the overall cost estimate of the program should be significant less than the estimates first issued by CBO.
    I will mention just a couple of specific examples. The Conservancy is involved, they are trying to conserve ranch land in the Malaki region of New Mexico.
    We are paying, basically, $30 or $40 an acre for permanent grass easements there. For the same type of easements we are paying there. We just were involved in protecting a ranch in Colorado in the San Luis valley. There the fee acquisition costs of that land was $100 and acres, $100 or $200 an acre. The development value is 40, 50 bucks an acre.
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    These examples cover a lot of land in the west. We do not work to protect land that is subject to sprawl, such as in Vail, Colorado, or Jackson Hole. And this grass program is resource oriented. It is not aimed stopping sprawl.
    For this reason, we support inclusion in the legislation a requirement that USDA seek to maximize the projects benefits for the least amount of money.
    The purpose of the requirement would be to focus the program on those areas where large ranches and biodiversity remain intact. It I not on stopping sprawl in places where that's more of a problem.
    I also have worked with people to identify a formula that might more faithfully capture the costs of some of this land across the country, and I would be happy to continue working closely with your staff, to see if we can get that formula incorporated and made sense.
    I realize that some of the confusion about the costs of the program was because of a formula that was included in the initial legislation, and for that I want to apologize, and hope that we can get that straightened out.
    Just maybe a couple other points. We support the call for 45 million acres CRP. In particular we support the extension of the biomass provision. We strongly support making farmers more engaged in energy production.
    We are also interested and are going to pursue carbon sequestration policy options.
    I guess I will let it go at that, my time has run out.
    [The prepared statement of Mr. Eisenberg appears at the conclusion of the hearing.]
    The CHAIRMAN. Thank you. Mr. Houghland.
STATEMENT OF PAUL HOUGHLAND, JR., EXECUTIVE MANAGER, NATIONAL HARDWOOD LUMBER ASSOCIATION, BARTLETT, TN
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    Mr. HOUGHLAND. Thank you, Mr. Chairman. I would like to say hello to all of the members of the committee. I am Paul Houghland the executive manager of the National Hardwood Lumber Association.
    I thank you for the opportunity to discuss a unique opportunity to increase the conservation value of the farm bill, while further expanding our greatest naturally renewable resource, hardwood forests.
    The National Hardwood Lumber Association represents more than 1,500 mostly family-owned small businesses. And believe that there is no better conservation activity than the regeneration and sustainable management of hardwood forest.
    We are very excited that with only slight modifications to the existing farm bill, significant expansion of hardwood forest, and all their inherent environmental benefits can be a reality.
    America's hardwood forests are beautiful, functional, diverse, and sustainable. They provide clean air, clean water, abundant wildlife, carbon sinks, diverse recreation, valuable products, such as furniture and flooring and fine musical instruments. They are among the most functional and treasured items in the world, and they provide all this across a relatively long time frame, and at great benefit to society. Yet, there are millions of marginal crop and pasture land that could once again support economically valuable and environmentally friendly hardwood forests.
    There are million of additional acres of existing forest land that are regularly converted to non-hardwood uses, often simply because landowners cannot justify the long-term investment, often in excess of 50 years, which are required for proper sustainable hardwood management.
    Unfortunately programs under the existing conservation entitled the farm bill do not provide landowners with the assistance they need to make such long-term commitments.
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    The authorization of the farm bill provides a unique opportunity to improve existing conservation programs by prioritizing the hardwood regeneration and management.
    Many existing programs in the farm bill, such as the popular CRP, have been successful in helping landowners pursue valuable conservation practices, but lack sufficient measures to assist landowners who would otherwise be willing to make these long-term commitments and investments to sustainable hardwood management.
    Since properly managed hardwood forests offer the highest possible conservation value on most lands enrolled in the programs, hardwood regeneration should receive the highest of priorities in these programs.
    In order to provide the assistance landowners will need to commit to long-term investments in hardwood forests, we believe the farm bill must include the following: we think there need to be 30-year contracts for hardwood plantings under the existing programs, such as the CRP and EQIP and WHIP. Precedent to the 30 and the long year terms, in that the existing Wetlands Reserve Program there are 30-year contracts as well there.
    We think that there should be, and recommend that there would be, a 25 percent minimum of future acres enrolled in the CRP to be planted into hardwoods allocated on a State by State basis. To allocate in the highest priority in the points, the award points to hardwood plants, and to provide for continuous sign up of hardwood plantings, similar to the repairing and buffer and filter strip programs that are in existence now, and to include and to allow whole field inclusions for hardwood plantings.
     By increasing regeneration and sustainable management of hardwood forest and existing forest lands, this can be achieved by offered landowners hardwoods, specific assistance under the existing FIP, and we appreciate the fact that the proposed mandatory funding is being offered by the committee
    [The prepared statement of Mr. Houghland appears at the conclusion of the hearing.]
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    Mr. POMBO. One of the things that jumped out at me was in the disclosure part of, that you turned in. It says that the total awards of Federal funds for the year ended June 30, 2000, was a little over $37,200,000 in your organization. Is that, am I reading that accurately?
    Mr. EISENBERG. To be honest with you, that was prepared on my behalf, and I submitted it. I assume it is correct.
    Mr. POMBO. OK. I would like to ask you what, without debating the environmental benefits of these different conservation programs, what do you believe is the long-term impact on American agriculture, on food security, on our ability to not only feed the American people, but to compete in an international market for foodstuffs?
    What is the impact of all of these different programs which take land out of active agricultural production?
    Mr. EISENBERG. Well my own view, my own view, sir, is that the trends in American agriculture are basically being driven by underlying economic forces that have been in place since the beginning of the century, and those forces continue to be in play today, and driving the direction of the industry. And primarily innovation and technological improvement, and if more efficient producers, are going to be doing better.
    I think that that is what is going on. I understand there is a debate about whether CRP is resulting in more land coming out, or more production or less production. In my understanding, more wheat is being produced, and more crops being produced, even with these things there.
    So my own view is really that the impact of these few acres going into these conservation programs is really marginal, compared to the deep underlying forces driving agriculture today.
    Mr. POMBO. So, in your opinion, you don't believe it has an impact on our ability to produce?
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    Mr. EISENBERG. Well, I think it may, I am not an economist, sir, I believe it may have some relationship. My statement is that I think the primary forces driving the direction of industry have been in place and continue to be in place, and as our world gets to be more inter-related, if anything, those pressures are going to be ever more greater.
    Mr. POMBO. When we take land and put it in CRP or WRP or into this new grasslands program that they are talking about, when we take that land, and take it out of active production, and place it with a, some type of conservation easement or conservation program on it, do you believe that that land will ever go back into production?
    Mr. EISENBERG. Well, I can start, I can start with the relatively easier one, which is the grass program. That land is in production, it is intended to remain in production, and so that; so we can put that one aside.
    With respect to Wetlands Reserve Program, and also really primarily the continuous sign up practices under CRP, I view those, both WRP and those practices as essential to maintaining the resource base needed for production of agriculture to work.
    So, think any kind of long-term agriculture policy, as this committee is considering, in connection with the farm bill, needs to consider both the income support, but also preserving the resource base needed for production of agriculture to work.
    Mr. POMBO. What do you mean by the resource base?
    Mr. EISENBERG. Well, OK, in particular I think that with Wetlands Reserve Program that you need to have healthy functioning watersheds to sort of abate the harsh edges of floods. I myself have seen where flooding has destroyed and eaten up farm land, and wet lands are recognized. Wetlands are recognized as serving a function to help keep the land intact.
    I think the continuous practices and CREP similarly serve a function to protect the watersheds, the rivers, and also help filer run off problems for producers.
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    So, to me, the Conservancy happens to believe that really these conservation programs authorized by the Agriculture Committee have to have some kind of connection to production of ag. And these are the ones that we are really behind the most, to be honest, and I think there is a clear connection here between CRP, WRP, and certainly grass, and the needs of production ag.
    Mr. POMBO. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Stenholm.
    Mr. STENHOLM. Thank you, Mr. Chairman, and thank all the witnesses.
    Mr. Goergen, I don't represent No Trees, I represent mesquite trees.
    But I have had the privilege over my years to visit in some of our forest land areas. I was down in Ronnie Shows' district, a member of this committee, last year; and I saw some of the work that goes on when you apply the conservation practices that you have all talked about in your own way here today, and see what kind of timber development, how the conservation applies to both the productive use of the land, as well as the conservation use of the land. And it just continues to just boggle my mind. Those who, again, are very upset, those other organizations that purport to be conservationists. They are very upset with what the chairman and I recommended for the committee's consideration, today. Because when you see the results of good conservation, and applying it to production, as well as conservation, it is so much better than doing it their way, but yet we find ourselves constantly in battle with, as Mr. Ritter talked to us a moment ago in another matter out in the northwest. It just is frustrating, but that is part of our system. The recommendation of the chairman and I to the committee and to our colleagues, represents a 75 percent increase in dollars expended for conservation over the baseline. And just as each of you, in your own way, have said you could use more, I agree, we could use a heck of a lot more.
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    If we go back to 1937 and apply the standard that Congress applied to conservation in 1937, it was 6 percent of the budget. Six percent of $2 trillion is $120 billion dollars, for one year. For one year.
    But it shows how our priorities have shifted over the years, in this.
    So, as the chairman has asked other witnesses, as you proceed now, as we proceed towards Markup, and you suggest that we should spend more, help us with where we take it, and how it complies with Mr. Pombo's question of just a moment ago. That is critical to us.
    Now, Mr. Smith, I totally agree with the voluntary approach. I think our conservation district is doing an admirable job. But I remain very disappointed, in the fact that 10 years after the USDA reorganization act, we still have not been able to create Team USDA, in which we can have the kind of efficiencies that we need to adopt, so that we will have the manpower in order to deliver the services, whether it be EQIP, CRP, or whether it be some of our new proposals that are coming forward today.
    We still, because of the stove-piping from the top down, we were not there. And if we don't get there soon, and I hope we will get there soon, we will not be able to do with less dollars what we need to be doing.
    But I have really no questions for you, other than just this general statement. I still see that beautiful forested area, that family tree farming operation in Mississippi, and see what happens when you apply good conservation, versus when you do it like the folks that have the votes time and time again. When Bob Smith, our colleague from Oregon was chairman of this committee, I sat with him, riding shotgun on proposals day after day after day, and we lost every vote in the floor of the house. And it just is awfully frustrating.
    I hope this year, with the positive attitude of this committee, this is going to be the greenest farm bill that I have participated in, and this is my fifth one. The greenest that I have participated in, and I am for it. And I am for some of the things yet that we will make some changes in the recommendations thus far.
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    I just wish that we could find that same attitude in some of the folks that are the biggest critics of that which you do, and that which you represent doing. I wish we could do that, and I hope that they are listening and I hope that they will come in and the good faith that you have brought forward today, and that this committee will bring forth regarding conservation, so that we might accomplish more, not less.
    Thank you for being here.
    The CHAIRMAN. No Trees is appropriately named. But let me tell you that, because of that, we find every tree precious, and have a lot more respect for them than people who have an abundance of them.
    I don't represent a forestry area from a parochial basis, but in an effort to try, and as a member of this committee, to learn more about that and a lot of other things, I, several years ago, visited the Northwest, and some heavy forest areas, some of them were managed, had been harvested. They were pristine. There were beautiful trees, it was a beautiful area. We were also visiting some areas in which nothing was allowed. There were sick trees that were alive. There were dead trees laying all over the ground, and those who were taking us on this tour commented on the fact that it was an accident waiting to happen. It did. They went up when we had the massive fires in the Northwest a few years ago, those burned out, and I think that there is a balance that we need to continue to look at, from the standpoint of managed forest harvest, and conservation and how those tie and play hand in hand, rather than many times the extremes on both sides of the issue that we sometimes hear suggestions for Texas. You mentioned native grass, of what it was and what it is, could you give me those figures again?
    Mr. EISENBERG. Sure, unfortunately I failed to include it in the written statement, but I found it afterwards.
    And we had a study commissioned by someone from Texas A&M. Mr. O'Connor has a copy of that, I could get you one, too.
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    The CHAIRMAN. Just the numbers that you quoted.
    Mr. EISENBERG. OK. Historically, 148.3 million acres of Texas were covered by native grass. That number dropped to 111 million acres in 1997. From 1982 to 1997 1.59 million acres of grass were converted to cropland, and our thing is fine, producers should have the choice.
    The CHAIRMAN. Right.
    Mr. EISENBERG. But why not give some incentive to allow them to keep it in grass.
    The CHAIRMAN. Right. But that was the native grass.
    Mr. EISENBERG. Yes, the natural prairie that was there.
    The CHAIRMAN. That 111 that it dropped to in 1997 does not include that amount of land that went back into grass under CRP, does it?
    Mr. EISENBERG. Actually, that number does include, it gets complicated here. That number does include some amount that did go back to grass, either through CRP or other things.
    Our view would be, that grass that gets restored is never of the same quality, and it is more fragmented, and it doesn't really serve the same large landscape purpose that large ranchers, that NCBA and T&T are seeking through the legislation.
    So the 111 does include some land that was restored to grass. The actual drop was lower. And if you are really interested in all the numbers, I could get it for you.
    The CHAIRMAN. I am interested in it, and I just wanted to make sure that that was reflective, because I believe between Mr. Stenholm and myself, in our congressional district which we share one other, that it accounts for over 10 percent of all the CRP, original CRP contracts that were let, because there were many acres that went back in, and then many more would have, if they could have.
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    But the point being, if I am not mistaken, and I think it maybe wants us to go back and take a look at the program, but the native grass in my part of Texas is not a great grass. It is not, certainly, comparable with many other types of grass that one can, in fact, plant, and they did under CRP. Because again, if I am not mistaken, under the new CRP program, what would be referred to as a native grass in Texas, was not eligible to be planted back on that land. It had to be an improved type of cover, or whatever the case was.
    Again, in my part of Texas, in areas where there are new covers of grass, those areas generally do much better than native grass. And I think, just in terms of ground cover, conservation cover, providing food and shelter for wildlife, that we have found the introduced grasses to be a much better quality of grass, and it does a lot better job of cover than traditional native Texas grasses.
    Mr. EISENBERG. The Conservancy had an initial, and the NCBA had an initial interest in native. We started finding out what the story was around the country. It wasn't practical to just have native, and so in fact, we are now calling for natural grass with some priority to native, but we recognize the whole story is complicated and we would want to reflect the interests of what you are talking about here, too.
    The CHAIRMAN. Mr. Lucas.
    Mr. LUCAS. Thank you, Mr. Chairman. Which is why in the effort that the bill that I have worked on and put together in conjunction with our subcommittee based on the testimony that a good many of you of there have given, we break the concept of a grasslands reserve program into two categories, one restored, reflecting what the chairman is referring to, and also a second category of virgin sod, whatever that type of grass might be in that particular region, in an effort to channel those resources to reflect both. Because, clearly, their place is like Oklahoma, where we were homesteaded under the 640 law, where virtually everything, at one time or another, not all but virtually everything has been put to the plow. There won't be that much virgin sod, but in other regions of the country there will be.
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    And yes, in regard to the question or comment made earlier, there will always be rules or regulations specified by the Secretary.
    The CHAIRMAN. Mr. Condit?
    Mr. CONDIT. In any kind of a program there will be guidelines. The Lord has never created a farm program that didn't have several pages of rules and regs to be interpreted by the local FSA office, so that is a given.
    Taking that, and stepping back to the whole group for a moment, I think we have come a long ways, gentlemen, in the efforts that we have attempted to accomplish in subcommittee level and in this full committee. My gosh, almost everything that all of you have asked for, well not all of you, but almost all of you, at least half of it we have tried to respond up front. That is a huge first step up in all of these areas.
    Whether it is CRP, and as you listened to the panels this morning, not everybody wants 40 million, or 45 million acres of CRP. And a matter of fact, if you listen to my commodity groups, our commodity groups yesterday, a number would re-channel, or might even, if they had their choice, reduce those acres, and re-allocate the resources. So we made a pretty heavy commitment as a committee up here, and I hope that you will respect that in areas like farmland protection and WHIP. I mean, we are almost allocating per year more than the last farm bill in its total allocated.
    We have made a huge step in that direction.
    With that said, you have to understand that everything you want to do needs to be justified, and Mr. Sparrowe, in your written comments, and Mr. Smith, in your oral and written comments, I must take a note, and express my appreciation for your support of the money for the small watershed dam restoration program, the upstream flight control program. Clearly keeping that silt in its place, and maintaining that quality of water, and preserving property and life is an important thing, so thank you.
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    And, to the rest of this panel, some of these programs are extremely expensive. Grassland, if you really look at it from the perspective of the CRP, a grasslands reserve program is so cheap, compared to all of these other efforts, it is almost beyond belief.
    Is it true, Mr. Eisenberg, Mr. Babcock, that when you consider the full cost of restoration, and the permanent easements, we are spending, what, around a thousand bucks and acre on the wild wetlands reserve program? Is that a reasonable number?
    Mr. BABCOCK. There is no doubt, sir, that the permanent easements do, in fact, have a higher up front cost. But I would submit a couple of things. First of all, one time. It is a one time cost, it is not an annual thing over a long period of time.
    There is another element, and I have used the Wetlands Reserve Program, because I am really very familiar with it in my part of the world. The Wetlands Reserve Program all too often, in my opinion, is look at as land that goes out of production, and I would submit that actually the commodities that are being produced, short-term, are in the form of flood control or in the form of potential carbon sequestration, or because a lot of these lands in my part of the world are in bottomland, are good forests. Which is one of the best vegetative types for sequestering carbon.
    There is also the issue of recharging the groundwater. There is also the issue of, because of the hydraulic restoration on these WRP sites, of reducing flood problems and recharging the groundwater, as I have indicated.
    So I think there are commodities that are produced. One of the things that I think, as we look at the Wetlands Reserve Program, I think that as these lands that are in those programs in perpetuity, in fact like 75 percent of the landowners who put their land into WRP by their choice, elected the option to go for perpetuity, as opposed to the 30 years contracts, or the 10 year technical assistance agreements.
    But these lands, at some point in time, are going to produce a tremendous amount of fiber. They are going to produce glue fiber, and I certainly do hope that when that time comes that we will recognize that this is a sustainable and a renewable resources that can provide commodities for the landowner, and at the same time provide some of these other incidental benefits.
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    It has been mentioned, Congressman Peterson talked about the economic aspect immediately from the recreation standpoint. And there are a lot of lands that have gone into the Wetlands Reserve Program that the farmers were going broke trying to farm that very, very marginal flood prone wetlands. And, in going into this, they have been able to get the economic safety net from the up front costs. They have been able to then realize an immediate return, because in some instances, either by selling this land, or by leasing it, in some instances the value actually goes up with the addition of these amenities.
    Mr. LUCAS. I would hope that the chairman would indulge another round in a little bit, but I would remind at that point, when we speak about that, that the standards that we have used on things like the wetlands reserve program are the kind of issues that some of our producers out there, whether it is grasslands, or a number of these other programs, are going to call for some of the same benefits, if they are willing to make the same kind of commitments. So be thinking about that for the next round.
    I thank the chairman, and Mr. Condit indulgence.
    The CHAIRMAN. We will go as many rounds as members wish.
    Mr. Condit?
    Mr. CONDIT. Thank you, Mr. Chairman. Thank you gentlemen for being here today and giving us as much time as you have.
    The main issue that keeps California from having a greater CRP enrollment is the difference between agricultural values. The land development, the development values.
    Do you have any suggestions, Mr. Babcock, or Sparrowe, or Mr. Eisenberg, on how we create a greater incentive for California, or taking the pressure off of this land that is going to be developed and lost forever?
    Mr. EISENBERG. We have actually submitted language to your office, and shared with a number of offices, language that would address that problem.
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    The Department already has the authority to pay a rate that would be necessary to get producers to sign up. They have got that authority. What is really missing, though, is the political will to do it. Congress has the opportunity, through the farm bill, to send the signal in the statutory language that they want developmental values to be one of the factors considered in deciding how much to pay. It would be a no cost addition to the language, and it would just sort of clarify the political intent of this committee.
    We have shared that with your office in——
    Mr. CONDIT. I understand the Secretary has the authority, has that option, but has chosen not to use it, is that correct?
    Mr. EISENBERG. That is correct, and then again, I myself am supportive of your concerns, and pass language on to your staff, and others.
    Mr. BABCOCK. I think that the problem that you identified is one that concerns my organization as well, because it is development of land to meet the needs of a growing population in California. And that area, of course, is extremely important from our standpoint, in that 70 percent of all of the water fowl in the Pacific flyway ultimately find and depend on that part of the world for their winter home.
    One of the things that we have tried to do. And again we recognize, and one of the members of the committee mentioned earlier about what working farms do to provide for wildlife, and I certainly want to take the opportunity to recognize that there are an awful lot of wildlife benefits on land that are primarily geared to producing agriculture crops.
    And one of the things that our board of directors has approved is actually purchasing easements in California, to make sure that the land stays in rice production, because rice is an important commodity, in terms of meeting waterfowl needs, and I think we are going to have to look at some of these kinds of innovative—they are going to be costly, because of the very reason why that lands in California don't meet the requirements now, because of the elevated costs related to the value of those lands from an agriculture standpoint, and we are going to have to be innovative.
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    But I would point out that the last time I looked at the list, I think California was in the top five, among States that have lands enrolled in the Wetlands Reserve Program. And these are lands that certainly are probably marginal, or they wouldn't qualify in the first place from an agriculture standpoint, and expansion of the Wetlands Reserve Program should allow us to bring in more of those lands under that program.
    Mr. CONDIT. Does anyone else want to comment on that, or do you think it has been covered?
    Mr. SPARROWE. There is a precedent, in California, the same dilemma more than 20 years ago was faced when the Fish & Wildlife Service was attempting to work with landowners in the Butte Sink, in the Sacramento Valley, and in some other places in the San Joaquin, to preserve those lands, and everybody choked over the prospect of paying for easements at a rate that was almost as much as outright purchase.
    And what happened in that case, as I remember, is a couple of influential committee members from Congress flew out there for a duck hunt, looked at the situation, were shown the value of this resource, and decided that they simply had to bite the bullet or pay the California price.
    But in the long run, the value is there, and it is very important to the waterfowl and the historical resource base of California.
    Mr. CONDIT. Well, all I can respond to say is there is a great deal of pressure because the land is so expensive, and the population growth is shifting into some of the areas where agriculture exists. And the other option is to develop it, if we don't have some agricultural programs.
    So it should be an important part of this CRP
    Mr. J. READ SMITH. That will help them maintain the productivity of their farms and lands, and I don't think that CRP is the answer to do what you want.
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    Mr. CONDIT. Well I think that's possible. I think a blend of what you are doing, and maybe what the CRP is doing, we could do a blend, and create some incentive for people to do it private. I think it would be important to do that. I think that is a very good point, Mr. Smith.
    My time is up, Mr. Chairman, but I would like to announce to you, and to the panel that is coming up, because I certainly don't want to disappoint anyone, I have another committee meeting where we are discussing the State budget. So, in a few minutes I will be leaving to go to that meeting, and I just want to make sure that you are aware of that, and anyone else who is interested in that will know that I will be in the other meeting.
    The CHAIRMAN. Thank you, Mr. Condit. I have a picture here of No Trees, if you all are interested in it. I have been looking at it, and it was named by Mr. Charlie Brown, who started the town. It was decided to name the town after its arboreal deficiency.
    Mr. Peterson.
    Mr. PETERSON. Thank you Mr. Chairman, and I have heard from some quarters that the draft concept papers allocation of $1.2 billion additional funding for EQIP, some folks have told me that if we pass that, that they feel like that at the end of the day there is going to be money left over, that it is not going to be able to be expended, because we are not going to be able to get the technical assistance, apparently, and get the projects through the system.
    And so, they have said that even if we put that number in there, they don't think we can spend that much money, given whatever the situation is.
    So, my question is, are any of you aware of that, or have heard of that, or do you have any direct knowledge of that situation; whether, if we did allocate $1.2 billion a year for EQIP, additional money, whether that could actually be put into, put on the ground?
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    Mr. J. READ SMITH. And I am assuming that you are referring to the lack of necessary technical assistance to——
    Mr. PETERSON. Yes, I was told, if I recall correctly, I think that somebody, and I forget who this was now, in one of these meetings that I have been in, said that they thought that maybe half of that money would be at some time be on the table, at the end of 10 years, because we couldn't literally get this through the system.
    Mr. BABCOCK. Well, I don't believe that will be the case whatsoever, and as you know, the State and local component of the conservation delivery system has increased in capacity over the last 10 years. And I am more than certain that if the committee sees their way through to make a sizable increase in the EQIP, between the Federal, State, and local partnership, the capacity will increase very quickly and we will find the necessary help to get these dollars implemented on the ground. So, although it may be an initial problem very early in the process, we will move very quickly, and help our Federal partners.
    Mr. PETERSON. Did one of you folks testimonies say that we should ratchet this in? Didn't I read that in one of your testimony, that we should phase it in, just getting at this same issue?
    Mr. BABCOCK. Yes, Mr. Peterson, that was in our statement and it is based to a great extent on our experience when we implemented the Wetlands Reserve Program. When it came on line and had lots of requirements in terms of actually putting it on the ground, getting it on the farms, and for 2 or 3 years until actually through the development of cooperative agreements, with organizations like Ducks Unlimited and a variety of other people to help in RCS in delivery that, that program was kind of languishing earlier on, and it looked like we weren't going to be able to get that done.
    So, we do in fact have some concern. The last thing in the world that we would want to see is any kind of conservation title, any kind of conservation element of the farm bill not succeed, and not achieve what it was intended to achieve.
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    So I guess we would have some concern about the ability to take a program and increase it six fold in year 1, the ability to deliver that on the ground.
    We also think that there are some other elements, and I think that Dr. Sparrowe referred to that, about incorporating wildlife into EQIP, and there are some other things.
    There are some opportunities, even in dealing with some of the confined animal feeding operations, of using wetland restoration and creation, in terms of dealing with this issue as well. So there are some things that could be worked here.
    But, yes, I guess Ducks Unlimited would have some concern, and our biggest concern is that it could look like it was a failure, and we don't want that to occur.
    Mr. PETERSON. Yesterday, in the panel, I think it was the commodity groups, at least one of them, or maybe two of them said that they thought we should take the wildlife requirements of EQIP out of the program.
    So, what you are suggesting that we maybe enhance them, they want to get rid of them altogether. Apparently because they think it causes too much bureaucracy, or something, that they don't agree with. I am not exactly sure.
    What would your positions be if EQIP was changed to take wildlife benefits out. Would you still support an increase?
    Mr. BABCOCK. From our standpoint, certainly the wildlife amenities within that are what leads us to support it. We would have to look at the language, but I guess we would have some grave concerns about that, if that were to occur.
    We applaud the draft paper for increasing the amount of dollars toward conservation in total. We think that probably we would be glad to work with you, in terms of maybe how to redistribute that a little bit among the various elements, and we would look forward to doing that.
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    And, in fact, there are some bills that you and the Representative Lucas, and Kind and Pickering have on the floor, that actually had some real amenities that I think could be incorporated in this, and strengthen it greatly.
    Mr. PETERSON. Mr. Sparrowe, do you have a comment?
    Mr. SPARROWE. I want to reiterate my concern that we would all be missing a tremendous opportunity to work together in solving these problems, because with the fisheries and water quality problems in this country, I can't think of a clearer, straight forward way to solve them, than to solve effluent problems, for example.
    And there is no reason this has to be done just in the name of livestock, and no wildlife involved, because there are techniques as Ken Babcock mentioned, to tier the wetlands below such an area, and have the wetlands clean the water up. There are all kinds of innovative ways that have been used elsewhere in conservation that ought to be applied to this to make it work really well.
    Mr. J. READ SMITH. I would like to just say one thing about the EQIP program. I am probably one of the few people in the room that has sat through a number of EQIP contracts in my mostly , unsuccessful bidding process. There are so many indirect benefits to wildlife.
     I have done these practices on my farm at home for as long as I can remember, and it doesn't have to be written into an EQIP contract to benefit wildlife. The benefits are tremendous, and I would sure encourage some of my peers to come out and look at the kinds of things that will benefit wildlife.
    Mr. PETERSON. I think the concern is, at least my concern, when they have said that half of this new money is going to go into livestock, the majority of this maybe just dealing with the livestock problems of these big feeding operations. And I don't think you are going to get a lot of wildlife benefit out of that.
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    From what I am hearing from my sportsmen, they have concerns along the line that if it is not in there a good portion of this may go in an area that they have some questions about.
    So I think that everybody should just be advised.
    The CHAIRMAN. I think it would be a good time to put into the record, following Mr. Peterson's initial comments the fact of ramping up a program with substantial funds, and it is not going unnoticed, and we are looking at a variety of alternatives by which we can still claim the same amount of money, but not lose it to some of those other committees that occasional want to raid our budget when they start doing the appropriations process.
    So it is not something that we have ignored.
    Mr. Smith.
    Mr. SMITH. Thank you, Mr. Chairman Maybe directed to you, Mr. Smith, maybe directed to everybody, if they have a comment.
    As I talk to a lot of farmers across the country, they are suggesting that over the last 5 or 6 years the old soil conservation services, NRCS now, has become more of a policing authority, rather than an organization that has been the friend of the farmer and the supporter of the farmer. And that is partially derived from the requirement that if there is an official complaint of some potential violation of sodbusters, or whatever, that there is an obligation of NRCS to go check out that farmer, and comply with the strict letter of the law.
    Do you have any comment on that?
    Mr. J. READ SMITH. Well, on NRCS's behalf, they are only implementing the programs that you authorize and implement. So there has been, probably a tendency for them to do more looking than fixing. And I think we are all painfully aware of the fact that if a person walks through the door today there really isn't anyone there to help them plan. Because people are all busy implementing all of these Federal programs.
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    And it certainly is a concern. I know those folks don't like to do some of the things they are being asked to do as well, and in my comments earlier I shared with you some of my impressions on the success of conservation compliance. And that is one of the primary reasons, is these folks have been asked to do some things that they are not comfortable with doing.
    They took their job as wearing the white hats, helping people, helping volunteers that came in, and then they were asked to be a dirt cop, or whatever.
    But, it certainly is a problem. I don't know that it's as bad as you might suggest that it is, but, well, even some of the old conservation engineers and agents that are there are concerned with it, because they have now, they have made the transition from the old good friend of the farmer, helping the farmer, helping the farmer plan, helping the farmer engineering structures, and developing sod waterways to whatever. Spending most of their time, or a lot of their time, depending upon the community and how green the environment is with complaints, spending a lot of their time out inspecting.
    I guess it concerns me because the potential conservation benefit of a friendly cooperation has been significant in the past. And I don't know how the other wildlife organizations, or in some cases if some of those organizations are part of my concern of saying, well gosh, I think that farmer might be driving through a wetland, or might be plowing up what might be a wetland. So there is somebody in your other organizations that are going to NRCS and saying, look into this.
    If we were to make some changes, what would those changes be to make sure that the conservation service continues to be an asset and a help to those farmers in a friendly way.
    Mr. SMITH. Well, you are supporting a conservation incentives program, and that will exchange what we have today, people coming in and applying for conservation compliance, and then somebody has to go check on them. It will completely reverse that whole process.
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    You come in and voluntarily agree to do certain things, and you won't get paid unless you do them. And it is just the opposite of what we have today, and it will return the NRCS fields office staff to helping the people that come in the door, and the conservation district staff, and all the staff that is in there, instead of just policing them. And that's what we need to do.
    Mr. SMITH. Does anybody else have a comment or reaction?
    Mr. BABCOCK. One of the things that has made the conservation titles of recent farm bills so successful has been the fact, in our view, that it has been a way that land could be retained in private ownership. They have become a partner in, with NRCS in this regard, and certainly the thing that has made NRCS successful over the many, many years is that they have displayed the kind of initiative and the kind of working relationship with landowners that you described. And it would be a terrible loss, in my opinion, if in fact that was lost.
    There is a couple of things. First, there are some folks in various organizations, various individuals who probably do thing that once the Federal Government has acquired a right to this property that they have a right to dictate. In my view, they have bought a part of that right, and they have bought a partnership with that landowner. And this needs to occur.
    Now there are some people that are in this program that are probably going to ignore what in fact the program calls for. And certainly the public interest has to be protected. But I think you have got to use reasonableness, and I think that you have got to make sure that people understand up front what signing their name on a contract, whether it is CRP, WRP, a grassland protection program, or whatever, truly, truly does involve.
    Mr. SMITH. I think it is good to remind ourselves that the CRP program started in 1996.
    Mr. GOERGEN. I don't have any of those specific numbers that you are asking for with me today. And I am sure that we can provide you with some of those, from a forestry prospective, but with the help of this committee, last year we were able to convince the Environmental Protection Agency that in fact forestry, and active forest management was not a problem for water quality, and in fact, often was a boon for water quality.
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    And I think the example that I brought with me today, about New York City recommending that active forest management be the preferred land management use in the city's water shed demonstrates just how great these conservation practices can be. And of course in our particular interest, making sure that those conservation practices can include forestry where that is absolutely appropriate, and ought to be appropriate. But I will try to get you some specific numbers, as well.
    Mr. BABCOCK. I hate to go back to hunting again, but I will, because I can give you a real life example in a state that I deal with.
    A couple of years ago the University of Arkansas did a study on the economic impact of duck hunting in the State of Arkansas. And it was determined that a day, a single day of duck hunting in the State was worth a million and a half dollars, with a multiplier of 2 to 3.
    And I think that that goes to discount the claim that when lands go into WRP or go into CRP that they are taken out of the economy. There are different people, the people who own motels in Stuttgart, Arkansas certainly benefit. Maybe the farm implement dealer does not as much in some instances, but I think that there are real economic benefits that come from this, and certainly to say that just because land goes into some of these programs takes them completely out of the economic realm, I don't think that is correct.
    Mr. THOMPSON. And how about the value of say erosion protection, or ground water recharge, or flood protection?
    Mr. BABCOCK. I know that Dr. Sparrowe and I have served on committees over the last 10 or 15 years that have urged economists to make these kinds of analysis. To date I am sad to say I have never seen them. But they are there, and we need to figure out some way to quantify this, because ultimately, whether we are raising corn, or we are raising mallard ducks, or we are raising bobwhite quail or prothonotary workers, it is gone to rely on clean water, and lots of good, productive soil. And if we don't work together to make sure those two elements are protected, we are not going to have anything to argue about any way.
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    Mr. THOMPSON. Well, if any of you have any of this information that you could get to us, I would appreciate it. And also, I really want to emphasize the need to be able to quantify things like flood protection. We spend billions of dollars every year responding to flood problems, and my sense is enhancement in the area of wetlands, will certainly benefit that.
    The other question I had is, I am always curious to know if there are other dollars available in other programs that aren't being spent on clean water moneys, for instance, that could double for some of the programs that we are trying to fund in the farm bill. I don't know if we can get double credit for it, I would just as soon it would be spent, though, in a way that would improve the environment and quality of water and habitat, rather than just sit idle someplace. And I was wondering if any of you knew of any specifics that would apply there.
    Mr. SPARROWE. Well I know that there are, across our country there is approximately $550 million in State cost share programs that do a lot of the same things that you are talking about here today. So there is a major State component that is scattered across the country.
    The CHAIRMAN. Mr. Moran.
    Mr. MORAN. Thank you, I thank the panel. I have heard it expressed in our committee from time to time about how important it is that the dollar delivered under the commodity title of the farm bill be directed toward those actively engaged in farming. This is probably Mr. Sparrowe or Mr. Babcock. Is there any statistics? Do we know who is receiving payments under the conservation title, particularly CRP or wetland? Are those people absent landowners, are they actively engaged in agriculture?
    Mr. BABCOCK. I don't have any specific information in that regard but some anecdotal information based on my personal experience, and I would point out that Ducks Unlimited has a very active series of cooperative agreements within our RCS dealing specifically with WRP. In fact, it is like in 27 States now that we work with the NRCS to provide the professional expertise to do some of the wetland restoration.
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    And in fact in some instances we actually put the dollars in to making this happen. And I do know that because of that involvement we have a lot of contact with landowners and the landowners run the gamut. They run the gamut from people who own little small pieces of land only strictly for recreational basis but I can tell you that at least from an acreage standpoint in the Mississippi Alluvial Valley that has probably 300,000 acres of land in the Wetlands Reserve Program alone.
    Many, many, many of these and the majority of this acreage is by people who are still in the production agriculture business and what they have done is they have made the determination to farm the best of their land and to conserve the rest by going into these kinds of programs and it really is providing again that incentive to stay on the farm, to produce a commodity from an agricultural standpoint and at the same time provide some tremendous societal benefit.
    Mr. MORAN. Do we have any evidence that acres enrolled in CRP are inappropriately enrolled? Do we have any suggest that this program needs greater oversight into what kind of acres, whether they are wildlife habitat oriented, soil erosion, water quality, or have we pretty well hit the mark under the criteria created by the Congress in 1996?
    Mr. BABCOCK. I have no basis to respond to that.
    Mr. MORAN. No knowledge one way or another. Let me switch gears into the grassland reserve. Jeff, Mr. Eisenberg, first of all, how is this different than our farmland protection program and is there not just an opportunity to expand that program or is this something different?
    Mr. EISENBERG. Well, the thing about the grass program is it is really protecting a resource, not stopping sprawl. And I think that in the conservancy we are really interested in landscapes and resources and frankly less interested in farmland protection although that is a fine program too. I think it is critical.
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    Mr. MORAN. What is the criteria? It would seem to me that there will be sufficient demand for enrollment and absent some kind of criteria or point system like we have in the CRP program you may have more demand than the resources that you are suggesting or that we might allocate toward this program that are available.
    Mr. EISENBERG. Well, really the person who has carried this along here the longest was Senator Larry Craig. From the beginning they have been working with us and NTDA and we have had a shared interest in minimizing the administrative work involved with the program but we also recognize the fair point that you are bringing up.
    And so the criteria that is in at least H.R. 1689 was ranch operations, plant and animal bio-diversity and land under threat of conversion and I said earlier today I think we could add a criteria to get the most for your buck to try to exclude some or the more expensive land and make it clear we are not going for the sprawl areas.
    So there are criteria that are in H.R. 1689 but we are also interested in not replicating the elaborate kind of scoring systems that are involved in some of these other programs.
    Mr. MORAN. Would you anticipate a bidding process like we have in CRP?
    Mr. EISENBERG. Well, that has been suggested to me and we recognize the need to have criteria but we also have a strong interest in minimizing the paperwork involved with it and we are certainly open to good ideas on how to accomplish both those goals.
    Mr. MORAN. I will conclude by saying that I hope that nothing I have said in asking the question would suggest that we want more bureaucracy paperwork or requirements in any of these programs. We ought to have a lot less than what we do elsewhere. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Kind.
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    Mr. KIND. Thank you, Mr. Chairman. I want to thank the panels for your testimony today and your advocacy and your belief in these programs. I too am a strong supporter in the program that you are here talking about. I have seen it first hand and I think if we do this right, if we do the conservation title of this farm bill right, we could make this farm bill the great conservation bill of the 21st century.
    I think it is a goal that all of us share and you would be surprised at the amount of support that exists in this Congress to achieve that very goal. I think the Government is going to have a role to play in it. Of course all your organizations in the private sector are doing their part. Mr. Babcock, I have been a member of the DU for practically my whole life and I do my duck hunting up in the upper Mississippi River basin. In fact, we have the largest DU chapter in the Nation
    In the State of Wisconsin I have seen firsthand the wonderful partnerships that existed between DU and private landowners and the importance of wetlands protection. Earlier this spring we had major flooding problems along the upper Mississippi River and those flood experts are telling us it is because of the loss and the destruction of wetlands in the upper Mississippi area that we are going to see perennial flooding problems in future years until we can try to reverse that tract.
    So I commend you and the organization for the work you do in that area. And, Mr. Sparrowe, I want to commend you too. I think you brought a very important message here to the committee today and your efforts within your organization to set up meetings with farm groups and commodity groups throughout the country to explain that good conservation programs do not have to be mutually exclusive to good farming practice. And the farmers in my State of Wisconsin most of them who I have met with and have walked the lands with are good land stewards but these programs area way of being able to provide economic assistance to our farmers who are struggling in a more equitable fashion involving all the regions of the entire country.
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    And I think it is one of the greatest gripes that exist in Congress today is where the farm program money is going, who is benefiting, who isn't, what regions of the country are being left out. These conservation programs are more equitable. They bring more people in and quite frankly makes it easier then to form the political coalition we are going to need in order to pass a very good farm bill.
    And I think what I have heard from all your testimony today is the programs you are directly involved with or that you are advocating weren't and there is a huge unmet demand for these programs that exist today. In fact, there was a report that was just released, I believe it was this morning. I have been reviewing it while listening to your testimony. It is from American Farm and Trust, Trust for Public Land, a couple of other organizations titled Losing Ground, a State by State Analysis of America's Growing Conservation Backlog.
    Mr. Chairman, I ask unanimous consent to have this report submitted for the record for the benefit of our colleagues and anyone else who wants to read that at this time. Let me just highlight a couple of the major points within the report that they are talking about. Seventy percent of farmers and ranchers seeking funds to improve water quality are annually rejected due to inadequate funding. More than 3,000 farmers offering to restore more than 500,000 acres of wetlands are currently being rejected due to inadequate funding.
    Nine out of 10 farmers and ranchers offering to preserve open space by selling development rights are currently being rejected due to inadequate Federal funding. Three-thousand farmers and ranchers offering to create habitat on their farms and ranches are being rejected because of the inadequacy of the existing programs. Fifty percent of the farmers seeking basic technical assistance are being rejected because of inadequate programs for them.
    And so there is a great unmet need out there. I think that is one of the reasons I was principally motivated to introduce H.R. 2375 with Representative Gilchrest, Representative Boehlert, John Dingell, 20 other Republican colleagues of mine, over 45 Democrats who are the original sponsors of the legislation, close to 90 co-sponsors on the bill as well because there is a recognition of the need for these type of programs throughout all the regions of the country.
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    And if you are looking for an opportunity in order to emphasize your programs but also I think to help shape this farm bill into what I think it could potentially be, I would recommend you take a look at H.R. 2375 and some of the provisions that are contained in there. I mean the technical assistance aspects, Mr. Smith, alone I think is a very pressing need, something I consistently hear from from my farmers back in Wisconsin. There just isn't enough help, enough technical assistance to get them doing what they ultimately want to accomplish.
    And so I do appreciate your testimony here today, your concern about these programs and where the farm bill is heading. Obviously there is a lot of work that still needs to be done. But, Mr. Smith, let me just quickly ask you in regard to the Conservation Security Act that you just cited, one of the concerns I have with that bill, I was an original sponsor in the last session when Congressman Minge and Senator Harkin introduced it.
    One of the concerns is I don't see anything in regard to the technical assistance aspect and the need that exists there. I don't know if you are seeing something else within CSA that I am missing.
    Mr. J. READ SMITH. Well, first of all, Mr. Kind, I want to thank you for your personal efforts in raising the priority of conservation and I am familiar with your bill and I certainly support it and look forward to working with you and your staff. The conservation districts have a version of the Conservation Security Act that we feel strengthens some of the weaknesses of CSA and certainly technical assistance from whatever source, whether it is third party vendors or conservation district staff or NCRS staff is essentially the most important thing you need to happen to make that whole process work.
    We are increasingly aware of how important that component will be as well as having a local, a State and local decision-making component in that whole thing and I think that is where we separate ourselves a little bit from CSA but we are certainly working with those folks trying to convince them that we recognize some of those shortcomings as it is but we think that is a workable solution. We totally agree with the concept and certainly with your bill as well and we are just anxious to see something happen that we aren't doing now.
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    Mr. KIND. Thank you, Mr. Chairman. I will look forward to hopefully another round of questions.
    The CHAIRMAN. Mr. Goodlatte.
    Mr. GOODLATTE. Thank you, Mr. Chairman. Mr. Goergen, I understand the Society of American Foresters represents a nationwide group of foresters and people who work in the forestry community. Are there other organizations involved in developing your recommendation for the farm bill?
    Mr. GOERGEN. Yes, sir. We have been working with the National Council on Private Forests, which I am serving as Chair of right now as well. That group of consists of a variety of folks and I know I am going to miss some of them but the Tree Farm System, American Forest and Paper Association, Forest Landowners Association, Association of Consulting Foresters. In other words, a broad collection of actors who have been really working together to talk about some of the proposals that I have presented to the committee today.
    Mr. GOODLATTE. And why in your opinion is mandatory funding necessary for new sustainable forestry program?
    Mr. GOERGEN. Mandatory funding is appropriate because forestry investments are long-term investments and when we think about forests, before I compared forests to corn saying that it was the second most valuable crop in the country and that is true.
    The difference is that we don't harvest forests every year. Most landowners harvest forests as an isolated event in there in their lifetime and we need to think about these investments as long-term investments so that a stable, predictable, and positive investment climate for forest landowners where they know that money is going to be coming down the road especially for State forestry agencies who are going to be implementing the program know that that money is going to be coming down the road.
    It would be absolutely critical to the success of the program. We have had great ideas in the past but they have really suffered from a lack of funding and the mandatory funding that is provided in the draft outline right now is a start to really achieving something great in forestry.
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    Mr. GOODLATTE. Do you think that funds for the new program or any of the existing conservation programs should be targeted to certain species of trees or do you see this more as a cultural decision that should be made at the State level?
    Mr. GOERGEN. I think you have hit it right on the head. I think that if we were trying to describe management options for landowners at the State level from Washington we need to do so. Right now the way that programs could be set up to use the existing structure of the State stewardship committees to determine what is more appropriate at the local level so that those State stewardship committees would get input from a variety of different folks, make the decision about what is most appropriate for the States.
    The example of New York, they could be really focusing on water quality. East Texas, they could really be focusing on pine restoration. Virginia, they might want to talk about bottom land hardwood kinds of programs. The real focus though ought to be made at the local level and that is where the best forestry advice is going to come from.
    Mr. GOODLATTE. I think you have answered this in part but do you think it is important for forestry to be make a part of these conservation programs?
    Mr. GOERGEN. Absolutely. Right now we think there are some real barriers for forestry being involved in programs like CRP, the CRP program, which requires a previous cropping history, EQIP. All those programs out there could really benefit from tree planting and from forestry and being more engaged in those programs.
    And if we can do that in the future, I think that we would have a stronger set of conservation practices because we have demonstrated time and time again that forests and forestry are really an environmental winner for the country.
    Mr. GOODLATTE. Mr. Houghland, you mentioned in your testimony you need to authorize longer term contracts for hardwood planning. The existing statute allows the Secretary to consider bids on a continuing basis for hardwood planning. Does that not adequately address your concerns?
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    Mr. HOUGHLAND. It has not, no. The problem with trying to get the hardwood forests into the CRP program, it is a long-term investment and if they enroll in the program and it is good for 10 or 15 years and putting in hardwood trees, those trees at the end of that period have no value and until they have reached at least a 30-year cycle at that point they may have some marginal values but in 40 and 50 years there is no value to them so that is the reason we think that specifically allocating that 3-year contract and saying that there should be a percentage of CRP going into hardwood forests.
    Mr. GOODLATTE. Do any of you want to step up to the plate and take a swing at any of these softballs that I have thrown out here? Mr. Eisenberg, Mr. Sparrowe.
    Mr. BABCOCK. I would just point out that actually the Wetlands Reserve Program in the South in the lower Mississippi Valley and in a lot of other areas of the country is the anchor point in fact for what is probably the largest bottom land hardwood resource station effort that is going on, that ever has gone on. And I know that of the land in the lower Mississippi Valley, the 300,000 acre plus of that, all that land historically was bottom land hardwood forests, wetland bottom land hardwood forest, and most of that is going back into bottom land hardwood and most of it is being replanted.
    Mr. GOODLATTE. Very good. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Ose.
    Mr. OSE. Thank you, Mr. Chairman. I want to explore something if I might. We talked about economic multiplier effects and if I understand it, Mr. Babcock, you are suggesting that the economic multiplier effect of additional investment in wildlife or CRP or WRP somewhere between 2 and 2 1/2 times?
    Mr. BABCOCK. Let me first point out that I am a wildlife biologist by training and not an economist. I was quoting a study that had been done by the Department of Economics at the University of Arkansas where they were evaluating the value of a day of duck hunting and it was their conclusion that the multiplier on a million dollars worth of direct benefit per day had a multiplier effect of between 2 and 3. I was quoting something else. I don't have any expertise in that regard.
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    Mr. OSE. Do any of the other members of the panel have any input on that? So we don't have any first-hand testimony that we can corroborate here about what the multiplier effect. It might be zero, it might be 2 1/2, it might be 5.
    Mr. BABCOCK. If you are looking at putting it into hardwood forests it is a long-term investment and the multiplying factor at the end of that 30, 40, 50 years would be significant and the value of the land over that period of time is going to increase in value year by year but to give you a specific number, a multiplier, I couldn't do that.
    Mr. OSE. I guess the essence of my question, Mr. Chairman, is that we are being given information about the multiplier effect of say the WRP investment and CRP or EQIP but we are not being given any information about what the multiplier effect of agricultural use of that land might be in the substitution of it. So I think that is something we ought to identify at least in the course of these hearings.
    Now I heard a couple of other things. Let me just share with you. I you look around this panel here, Congressman Thompson is my neighbor in California. Much of the water that comes into the valley may very well originate from his district. Congressman Pombo, water flows south out of my district into his. After it helps my planters, it helps his. More then enough. Get in line.
    The question that I have has to do particularly with the Wetlands Reserve Program. It would seem to me that the demand or the desire to increase the amount of acreage dedicated to the wetland reserve would necessitate an increase in the dedication of water towards that program. And we are short arguably 3 to 6 million acre feet of water in California right now for all of our aggregate uses. If that is the case balancing all the different needs why would any Californian support an expansion of WRP?
    Mr. EISENBERG. Can I take a shot at that? The only areas that get restored under that program are natural wetlands that it would rain and hold the water. The thing is if someone had to give up their water for a wetland they shouldn't go into the program. It doesn't work for them.
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    Having said that, Californians are among the biggest beneficiaries of the program. I think by dollar value it has among the highest, first or second highest amount in the country.
    Mr. OSE. That is why I asked the multiplier effect but I didn't hear anybody tell me what the multiplier effect was on a relative basis.
    Mr. EISENBERG. I have actually tried to in trying to prepare for the farm bill over the past few years I have been interested in trying to find that out myself. And the answer was that that there haven't been really studies about what is the economic benefit of water filtration, what are the economic benefits of saving flood plains instead of paying out all this money for flood damage and stuff.
    I haven't been able to find that and so I was silent but with respect to California giving up water for wetlands you are not really diverting water from natural areas because those things would just exist as wetlands anyway.
    Mr. OSE. Let me go on to my next point, if I might. We still don't have any testimony about what the multiplier effect is. I want to be clear on that. The final two points that I want to make is that as we consider expanding these programs and this example arose in my district recently, we considered expanding these programs and taking either in fee simple or easement additional land under control of the Federal Government.
    We need to be very careful that we don't unduly restrict local use authority to make decisions on a local basis as to what is best for their locality. I would hate to see us in effect steamroll local or State government in an effort to address issues that might be quite important in say South Carolina but might not have any applicability in say California. So, Mr. Chairman, I appreciate the time.
    The CHAIRMAN. I thank the gentleman. Are there any members who would wish a second round of questions? Mr. Pombo.
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    Mr. POMBO. Thank you, Mr. Chairman. Mr. Eisenberg, I wasn't going to ask you any more questions until Mr. Ose asked in the Wetlands Reserve Program your organization has purchased land in my district, farmland, and is actively turning it into a wetland. And so I think the statement that the only land going into WRP is land that is a natural wetland anyway isn't exactly accurate because that it is using more water now than it was when it was being farmed.
    And just because California uses the program doesn't necessarily mean it works in terms of the amount of water that we have available.
    Mr. EISENBERG. Congressman, what I meant by that statement is the only land that get into the program is if the land meets the hydrology requirements, if it has hydrologic soil and hydrolytic vegetation and unless an area has those three requirements it wouldn't get in and if it does have those requirements it would naturally retain the water.
    And so when I said that only land that get in would be those that would retain the water anyway I was referring to the criteria upon enrollment into the program.
    Mr. POMBO. OK. Thank you for clearing that up. And just I think for the record, I don't put you or the organization that you represent in the same category that I do a lot of the other groups. At least you guys pay for the land and you always have. And I have always respected your organization for doing that. I don't always agree with what you do but at least you pay the guys when you take their land. A lot of the others just take it and I appreciate that.
    Mr. EISENBERG. Thank you.
    Mr. POMBO. Mr. Sparrowe. I mean there is some, you know——
    Mr. EISENBERG. I know, and really I thank you for the begrudging compliment.
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    Mr. POMBO. A lot of your colleagues just take it. Mr. Sparrowe, I need to understand on EQIP what you mean by there being a wildlife component to EQIP. I need to understand what it is you are trying to get.
    Mr. SPARROWE. One of the things I am suggesting that I mentioned a couple of times here is that there are multiple benefits to be declared from doing good things with those watersheds that are affected, for instance, by livestock effluent.
    Mr. POMBO. I understand that. If we put all of the money toward taking livestock effluent out of the watersheds my understanding is, and I believe you testified to, that would be a great benefit to wildlife. What else do you want? Do you want us just to give you money directly as part of this? When you talk about being a wildlife component, tell me what you are asking for.
    Mr. SPARROWE. It seems logical to me that there should be some involvement of wildlife interests in carrying out that work on the landscape because——
    Mr. POMBO. So you want to say you want to see that the table on those decisions are being made.
    Mr. SPARROWE. That is all. Indeed.
    Mr. POMBO. So if I were to go on and apply for a grant under EQIP, I would not just deal with the Federal agencies, you want me to deal with you too?
    Mr. SPARROWE. No, I am not asking to see the table for our organization. I am suggesting that the State wildlife agencies which deal on the land and have statutory responsibility for the fishing those streams, for example, e directly involved in some way. Now whether they are involved in the grant process or in the technical assistance process to carry out the work that can be done is something that really needs to be talked over, and I don't know the answer to that.
    But to simply say we don't want any wildlife in this whole program doesn't make sense to me. I think wildlife interests can be an asset at the local level as a part of the process while the work is being done.
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    Mr. POMBO. I am not disagreeing with you. I am just trying to ask what it is you are looking for in this because my understanding of the program is that we want to insure that livestock effluent does not get into the streams and rivers and lakes of our country and we want to put a huge amount of money into doing this and that to me, if all of the money goes toward doing that, that seems like that would be a huge benefit to fish and wildlife. And I don't understand.
    Mr. SPARROWE. If it is done right, it will.
    Mr. POMBO. I am just afraid that if we put—and I am not exactly sure, maybe we could talk about this later but I am not exactly sure what you want because I am afraid if we put more of some of the folks that we had problems with in the past into this mix we are going to spend a whole lot of money making them happy and not a lot of money fixing the problem.
    Mr. SPARROWE. Once again, my interest is in local wildlife interest being involved in this, not people who are lobbying against this program or for it to do other things than it is designed to do.
    Mr. POMBO. Well, I am from California so you got to weigh that into this.
    Mr. SPARROWE. I understand. You recall from an earlier conversation, I am too, a long time ago. I understand some of the problems with this but I don't have the specifics at this point.
    Mr. POMBO. OK. Thank you.
    The CHAIRMAN. Mr. Thompson.
    Mr. THOMPSON. Thank you. Mr. Chairman. I was interested in revisiting the issue that Mr. Moran raised earlier and it has been raised a number of times on this committee since we have been talking about the conservation programs and that is the idea that there is an active farmer and an absentee farmer or landowner and how these monies are being spent.
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    And I am not certain what the relationship to conservation is. It seems to me that if I own a property and I am an absentee owner and I am leasing that property out and somebody else is getting the payment it is all going to be factored in to the overall cost of either renting or renting out the land. It is not going to make any difference other than where the check goes what happens to conservation programs. Is that correct, Mr. Babcock?
    Mr. BABCOCK. Well, yes, I think that is correct. And quite honestly this is an arena that obviously we are in the wetland restoration business primarily and we don't get involved in these kinds of things other than working directly with the landowners. And more and more what I consider farmers, producers, ranchers don't live on the land anyway.
    Mr. THOMPSON. So the absentee owner gets the check, the amount of rent he or she gets is going to be less. So if the farmer gets the check the amount of rent is going to be more so it is a zero sum payment.
    Mr. BABCOCK. There is no question about that.
    Mr. THOMPSON. If there is increased monies for these conservation programs does this mean that your organizations will be able to leverage additional monies either public or private? Any of you.
    Mr. EISENBERG. Yes, I think in a big way. You increase pots of money and then all sorts of segments in society from both private and other public sources all get more involved as well. So I think there is actually a huge leveraging effect of the Federal conservation dollars.
    Mr. BABCOCK. I would just echo that. Again Ducks Unlimited has priority regions that we identify and there are large landscape areas and we look at every opportunity to again work with the landowners within that area and do restoration of wetlands and wildlife habitat. And when we have these kinds of programs we do in fact use these things to go to foundations to lever our ability to get those dollars.
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     We use them in promoting membership to Ducks Unlimited and other contributions that come to us so there is not doubt that it certainly does that.
    Mr. THOMPSON. And then I want to put in a plug for trying to figure out a better way or a more accurate way to quantify the work that is being talked about here. And Mr. Ose brought up the issue of the multiplier. There are a lot of different factors that go into this and how you factor how what a groundwater recharge is worth and what erosion prevention is worth or water filtering is worth.
    We need to figure out how to do that and be able to make that argument. And also I would argue that the money that comes into either my district or Mr. Ose's district that is in dispute here or the multiplier that is in dispute is often times out of the area money that wouldn't be coming into a region if it weren't for the opportunities that these types of programs present.
    And then one last observation, and I don't remember which panelist mentioned this, but one of you in regard to the grasslands program suggested that it was more of a resource protector rather than a sprawl preventer. And I can tell you that in the district that I represent there are some folks if they can't get some help, and this grasslands proposal would do just that, are going to fall subject to sprawl because they are going to parcel up their properties and they are going to allow those to be developed or at least be operated in a different way.
    And if you have one large contiguous piece of property it is managed differently. Once it is broken up and sold people expedite harvesting of trees. They change what is being done in regard to wildlife habitat and it can be a very costly situation for resources in that area. So I would think that the grasslands program does more than just protect the resource. I think it protects entire watersheds and entire regions.
    Mr. EISENBERG. Congressman, if I could comment. I actually agree with Congressman Ose. The information about a multiplier effect and what are the real economic effects of these programs, that is a fair question, and I myself would urge the committee to see if they could commission someone or urge someone to go do that kind of study. That is information that there are a variety of factors that are at play but that would be great to have you guys go ahead and pursue that.
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    The CHAIRMAN. Mr. Lucas.
    Mr. LUCAS. Thank you, Mr. Chairman. Mr. Sparrowe, I couldn't help but think about the interchange between you and Congressman Pombo. If your organization views itself as being a factor in the way the EQIP resources are allocated used then I guess the question that would be asked probably is what purpose does EQIP serve, why do you envision it as being necessary to be a factor of every one of these components? Expand, if you would, for just a moment, please.
    Mr. SPARROWE. I will again suggest that I am just suggesting there is an opportunity here for highlighting and insuring multiple benefits from the work being done from these programs. It also is a very large investment now going from a modest investment to quite a large investment all at once and we have had some questions here about delivery capability.
    In my view the fact that NRCS has only half the man-hour capability to deliver current programs by their own estimation with the new program of this size there needs to be a lot of help out at the field level and I see the help coming from Ducks Unlimited and from the State fish and wildlife agencies quite readily because this is the management world that I work with the most. It just seems like a logical marriage and it doesn't seem like there is anything to be gained by totally separating and saying we don't want that to be a part of this.
    Mr. LUCAS. Those of us who represent districts that have a very I guess fiercely independent streak have a lot of constituents who are sensitive about how all these programs work. In an instance like myself those of you who have worked with me have testified before the committee know that I have come a long ways in how I view a lot of these things this year.
    And my vision of what will ultimately wind up in the committee's mark of the bill what ultimately hopefully will work its way through conference committee and be signed into law by the President, I think that we will have done a tremendous amount for the environment, for wildlife, for preservation of natural resources but I am not so sure that the groups who have testified in previous sessions both before the full committee and before the subcommittee, I am not so sure that they are wrong when they want to see programs like EQIP focused on meeting the needs out there that have gone unmet for years, decades, centuries, whatever.
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    I can assure you that even with a substantial sum like we are talking about, the $1.2 billion a year for EQIP that the backlog of legitimate needs out there are so great I think the folks who are in the field at the conservation district level and at NRCS' level are so talented you will be amazed, we will all be amazed, how much of this money will be used from day 1 on. So I guess I just have to urge you to be sensitive when you make comments about how these resources are used and understand that our goal is to continue to work together, not to upset the apple cart. Any comments from the panel to venture out on that limb?
    Mr. EISENBERG. We are supportive of the committee's work on EQIP. We understand the tensions here. We think that wildlife and fish will benefit greatly by an efficiently working program. That is our basic view on it.
    Mr. LUCAS. And, Mr. Eisenberg, since you have spoken up clearly the concerns about the various members of this panel about how CRP and potentially EQIP and other programs affect land values that is legitimate and I would urge you that you don't have and I certainly don't have a formula yet that quite does things such as the grasslands reserve program in the fashioning be done yet. Hopefully by the time we get to that final bill we will have accomplished that. We will work on it.
    Mr. EISENBERG. We will work on it.
    Mr. LUCAS. With that, Mr. Chairman, I yield back my time.
    The CHAIRMAN. Thank you. Mr. Kind.
    Mr. KIND. Thank you, Mr. Chairman, just a couple more follow-up questions. Mr. Babcock, I know one of the issues with wetlands reserve and with DU in particular is the disparity of land values throughout the country. Obviously we got a lot of wetlands reserve in the upper Mississippi and down in the delta areas where land is relatively cheap but one of the problems is the equitable funding issue especially on the Chesapeake Bay area, for instance, some of the valuable land what would be prime candidates for wetlands. Reserves are incredibly expensive. I am wondering if you had any ideas because we were trying to address it again in legislation that I introduced to deal with this inequitable disparity of funding for WRP given the difference in land values around the country.
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    Mr. BABCOCK. That is no doubt an issue and it is one that has to be addressed but I think we go back to what the criteria is. What is the criteria for land qualifying to go into the Wetlands Reserve Program. It has to have been land that has been cropped. It has to have been land that virtually had problems being cropped because of the type of soil, because of the frequency and the duration of flooding and a variety of other things and it really makes these lands unproductive from a crop standpoint.
    Other than the fact of the Government payments that basically shore up the loss of crops in these lands, people who own these lands probably in many instances would have gone broke trying to make a living on them. But the fact of where they are located, the fact that they do offer some development opportunity, some shore front development and those sorts of things, I don't think there is an easy answer.
    I think that wetlands in the Chesapeake Bay and the watershed of the Chesapeake Bay, wetlands in the central valley of California from our standpoint are just as important as lands that sit in the Mississippi Alluvial Valley where I am from. And we are going to have to pay more in order to achieve the benefits that the Wetland Reserve Program—and we support having it all over the United States. We really do.
    Mr. GEORGEN. Just to jump in on that one from a tree guy's perspective. I know I harped on that a lot today but the fact of the matter is overall as we look at all these conservation programs if we can find ways to provide some small incentives to landowners. Landowners don't want to sell their land for parking lots. They don't want to do that. They want their land because they love the land.
    If we can find economic incentives for them to maintain that over the long term, and we need to talk to the Ways and Means Committee, we need to do a lot of things in addition to what we can just do in the farm bill. There is not enough money. But if we can plant trees in some of these areas and allow landowners over the long term to harvest those trees the initial investment the Federal Government makes in that will be excellent for the landowner in the long term.
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    And so that the value of that timber crop that is gong to be available in the long term is outstanding. And the economic angle that we can use as much as possible will be very strong over the long term.
    Mr. KIND. Thank you. I think all of you recognize as well that one of the attractive features of conservation programs emphasizing conservation titles, this next farm bill, is it is all WTO compliant at least if you do it right, if it is set up right, so as we go into the next round of trade talks and we talk at WTO restrictions already conservation is already compliant.
    We are not going to be generating a fight that we don't necessarily need to have that would spoil the chance of having a good round of new trade talks. And that, Mr. Smith, quite frankly is one of the reasons I am not on the Conservation Security Act right now as I was a year and a half ago. There are serious concerns that have been raised in regard to WTO compliance of CSA. I think that is a major issue that has to be addressed with CSA, otherwise you are not going to have the type of support in this Congress, especially from those who have supported trade policies in the past if it doesn't comply with the green box payments.
    And another I think significant issue with CSA as well, and it is a question that I have heard other people raise, is we have this environmental, this voluntary environmental plan that is submitted. What assurance will there be that producers, landowners won't just come, submit a plan, emphasizing what they are already doing, what practices are already in place and then just expecting payments for something that they are doing rather than offering some new value-added conservation measures so that there is some benefit of increased funding for new practices and conservation practices.
    Mr. J. READ SMITH. I agree with you totally and I think that emphasizes the importance of the local component in implementing that CSA. If it was a top down Federal paradigm as designed you may very well have that because as you know there is no Federal prescription to solve local problems. There is local prescriptions to solve local problems and that is why our version of that we feel is workable because it does eliminate some of those concerns that you just mentioned.
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    Mr. J. READ SMITH. Well, I was pleased to see an additional component in there to solve some of those technical assistance problems.
    But I think as we look towards each of these programs, the Federal programs in particular, we have to keep in mind that there is a large technical assistance component that goes along with each one of these.
    We have wrestled with CRP, as you know. This section XI cap has been a problem. These are going to be continuing problems.
    And I think that the committee needs to just keep in mind that there needs to be consideration made for adequate technical assistance.
    And I would point out to the committee too that it does not have to just be Federal technical assistance. We have State and local assistance; we have third party vendor assistance. We have farmers and ranchers themselves that can provide some assistance.
    And I think we need to utilize and leverage all of those opportunities to make this work.
    Mr. KIND. Thank you. Thank you, Mr. Chairman.
    The CHAIRMAN. Let the record state from Mr. Ose's earlier conversations, we will embark upon a multiplier effect to see if we cannot pull those numbers together.
    Tell the panel, thank you for your patience. Mr. Ose.
    Mr. OSE. Do I get a second round, Mr. Chairman?
    The CHAIRMAN. You do if you want one.
    Mr. OSE. Well, I would like to claim one.
    The CHAIRMAN. Claim away.
    Mr. OSE. You are a gentleman and a scholar. Thank you.
    I want to make the observation that I have heard sentiment among the members, some of the members of this committee, questioning the wisdom of rewarding land owners in terms of support payments and the like.
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    And I am struggling with the concept, I am struggling with the concept of not rewarding land owners who do not produce in one instance, versus this concept that we are apparently undertaking with respect to significant increase in funding for these programs of rewarding land owners for taking land out of production.
    I just seems like there is a basic or fundamental conflict in that particular logic.
    Do any of the panelists have any suggestions to what the threshold ought to be for this committee to set or consider in the context of the legislation as to the multiplier, what the multiplier effect ought to be for the investments that we are considering under these programs?
    Mr. EISENBERG. I think you should look at both what the resource benefits are from the practices, as well as, the economic benefits in the local community, and nationally. Plus the value that is given to the community overall by having a cleaner, safer environment.
    Mr. OSE. Do you have a number?
    Mr. EISENBERG. No. I accept that we do not have testimony on that point. And I agree and I accept that that is something that needs to be done.
    But all I am really able to do, all I am really saying here is, I could identify factors that ought to be included in a complete picture of what a multiplier effect is.
    Mr. OSE. Any of the other panelists?
    Mr. HOUGHLAND. Let me add to that also. You are concerned about taking land out of productivity. And I suppose all we are bringing is to put land into productivity and putting into trees, putting the hardwood trees. And recognizing that there is an increase in the value of the land, increase in the product.
    We are seeing now the loss of access to timber and public lands for the most part, that is gone. There is pressure being put on private land owners to provide that timber. And there is the pressure to stop that as well, even the private land owners.
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    Mr. OSE. When you talk about reforestation, what sort of a multiplier do you target in terms of what you invest versus what you receive?
    Mr. HOUGHLAND. Well, there is not going to be a receipt for at least 30 years.
    Mr. OSE. OK. So in the 30 years from now what kind of multiplier do you target? If I put $1,000 into timberland today, if I am in the timber business, what is the multiplier over a 30-year life?
    Mr. HOUGHLAND. If you invested in hardwood plantation, which there are not many. But in deforestation or reforestation, it probably would take $250 an acre or so to manage that over a period of time until it got up and was growing viably.
    Your first, when you start harvesting, and it depends on the species. From cherry to popular there is a great range in prices. But you could without, in just going on your first cut you should be able to take out $1,000 to $1,500 an acre.
    Mr. OSE. So four to six times over 30 years?
    Mr. HOUGHLAND. Yes.
    Mr. OSE. Or around 9 percent. All right. One point on that. The other aspect, Mr. Chairman, I do not know if you will recall when we flew out to Sacramento that day after our hearing in Woodland. We flew out over the valley and everybody gave me a hard time as I showed the flood control aspects of the drainage system.
    One of the interesting concepts that have occurred in California since the mid–80's in a desire to take particular matter out of the air, the State has got away from burning rice stubble.
    And in the lieu of burning that, what the program does is involved with flooding the fields and the straw deteriorates over a period of time. Then the flooding of the fields improves the viability of the land for wildlife and the like.
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    The prospect of flooding fields had an unintended consequence. And that was to significantly increase the flood exposure of communities downstream. Because land that had historically been kept dry in the winter was now flooded and could no longer serve as a standby place onto which water could be held.
    So this is not, I mean, Mr. Eisenberg's statement about the various inputs to this calculation needs to factor in the flood exposure of communities as a result of putting water on land that otherwise would be dry and available to hold water when we have significant downpours.
    Thank you, Mr. Chairman.
    The CHAIRMAN. I thank the gentleman and again the panel for the their patience. And this panel will be relieved.
    We will take a brief recess until Members have an opportunity to cast three votes on the floor. And will return as soon as possible to have our third panel.
    The committee is in recess.
    [Recess.]
    The CHAIRMAN. The committee will resume. And hopefully we will be able to complete this before we have any additional votes.
    Panel three is Mr. B.R. Phillips, III, who is the president and chief executive officer of the National Rural Telecommunications Cooperative in Herndon, Virginia. Mr. Steve McHenry, vice chairman, Partners for Rural America, Baltimore, Maryland, on behalf of State Rural Development Councils. Mr. David Graves, president, National Council of Farmer Cooperatives, Washington, DC. Mr. D.C. Coston who is associate director of agricultural experiment station, Oklahoma State University in Stillwater, Oklahoma.
    Gentlemen, thank you for your patience. Mr. Phillips, please begin.

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STATEMENT OF B. R. PHILLIPS, III, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL RURAL TELECOMMUNICATIONS COOPERATIVE, HERNDON, VA
    Mr. PHILLIPS. Thank you, Mr. Chairman. My name is Bob Phillips and I am chief executive officer of the National Rural Telecommunications Cooperative.
     I greatly appreciate the opportunity to appear before you today to address the farm bill concept paper. Particularly, since it has some exciting, positive implications for expanding broadband access into rural America.
    NRTC does work in support of 1,000 rural utilities and affiliates who serve 46 States. And we support them in bringing advanced telecommunications information technology to rural areas.
    Mr. Chairman, you and your colleagues are showing some great foresight in addressing this issue of broadband as part of the Rural Economic Development title in the farm bill.
    The economic development of rural communities depends very much on the availability of modern telecommunications capabilities. I would say it is not exaggerating to suggest that broadband will be the next ubiquitous service that we will expect everyone to have access to, no matter where they live.
    I know the committee and yourself are very well aware of the REA and the great work it has done in bringing telephone and electric service to all of the rural markets and the formation of the rural electric and telephone cooperatives in a public and private partnership.
    I suggest that a similar program is needed today to ensure that rural Americans are never left behind. Broadband is going to allow consumers to live where they want to live, not necessarily where they have to live. And likewise, businesses are going to have the same freedom in determining where to locate.
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    I would suggest to you that this will be of great assistance to the agricultural sector. I would cite the example of Country Roads Network, which is a portal for agricultural users on the worldwide web which helps farmers in ways that they can manage their crops, plan their planting schedule, monitor commodity futures, and report chemical and pesticides usage is just some of the examples.
    And all of these things will be enhanced if we can bring highspeed broadband Internet access.
    For much of rural America satellite networks are going to be the best option for broadband network delivery. And in some cases it is really going to be the only option.
    Satellite Internet systems do have all of the elements that are necessary to close the digital divide, which includes the fact that they can bring ubiquitous service, they can bring service that is highspeed, always on. And these systems are available today. And they can provide advanced applications, such as the ability to bring streaming audio and video, including distance learning and telemedicine.
    I want to suggest to you that nothing I am saying here in the testimony should imply that satellite will be the only technology solution for rural Americans. In many cases, the carriers are going to integrate satellite with the other technologies that they offer in order to ensure broader coverage of rural service.
    I would cite an example of the Diller Telephone Cooperative in Diller, Nebraska. They offer telephone, cable TV, satellite TV, and dial-up Internet service. They have recently expanded to put in a highspeed wireless Internet system.
    And sometime later in the next few weeks, Diode is planning to offer highspeed satellite Internet service in order to extend broadband to all the customers. Particularly, those who are beyond the reach of their landline network and their fixed wireless system that they have installed.
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    One of the greatest obstacles for Diller and other carriers and providers to rural broadband deployment is getting the funding that is necessary to build these rural networks on a wide scale.
    Our U.S. currently has a $100 million broadband initiative. And eligible rural entities have already oversubscribed that program.
    I believe Congress should consider expanding the RUS initiative, both in terms of the dollar amount and in the types of broadband services that would be allowed for financial assistance.
    We are cognizant that these funds are limited. And I believe there are some ways we can suggest to leverage those scarce resources. I would suggest to you a treasury rate program, a loan guarantee program and concurrent loans are all possibilities.
    In any program I think it is absolutely essentially that the minimum speeds that are required are consistent with what all the technologies can deliver. For example, in the current RUS pilot there is a requirement that the speeds are by directional at 200 kilobits per second. And this puts satellite and other technologies at a distinct disadvantage.
    I think it is equally essential that consumer premises equipment, that that is used at the home, should be eligible in any program that is designed to deliver broadband to rural markets.
    And finally, I believe that the loans that are made should be for the expected useful life of the asset.
    So in closing, I would say that I want to thank all the members of this committee. You, Mr. Chairman, and all the others here in Congress who are committed to expanding broadband access to rural markets.
    Broadband does have the capability to change lives of all of those living in rural America. And we believe your support is desperately needed to ensure that the potential of broadband reaches all rural, all Americans. Thank you.
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    [The prepared statement of Mr. Phillips appears at the conclusion of the hearing.]
    The CHAIRMAN. Thank you. Mr. McHenry
STATEMENT OF STEVE MCHENRY, VICE CHAIRMAN, PARTNERS FOR RURAL AMERICA, ON BEHALF OF STATE RURAL DEVELOPMENT COUNCILS
    Mr. MCHENRY. Thank you, Mr. Chairman and members of the committee.
     My name is Steve McHenry and I am the executive director of the Forum for Rural Maryland, which is the Maryland State Rural Development Council.
    I also serve as vice chair of Partners of Rural America and am pleased to be here today, thank you, representing the State Rural Development Councils. So called, SRDC's.
    The first State Rural Development Councils were established a decade ago to help the U.S. Department of Agriculture and the Federal Government advance provisions of the Rural Development Policy act of 1980, which called for greater coordination in the formulation and administration of rural development policies and programs.
    Today SRDC's operate in 40 States and together with the Washington-based National Rural Development Council, constitute the National Rural Development Partnership or the NRDP.
    The draft farm bill concept paper developed by the committee calls for the establishment of a rural development strategic planning initiative. We believe the formulation of the initiative should respond to four important facts.
    First, that a great number of rural communities currently lack the capacity to do meaningful planning.
    Second, although most individual, Federal and State programs require a development of certain plans, very little holistic planning, that is planning which recognizes the interrelatedness of the many elements that constitute a rural community currently takes place.
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    Third, too often planning activities do not realistically recognize that available Federal and State resources, and do not identify alternative and innovative solutions that can reduce the cost of projects while not in any way diminishing public health and safety.
    And finally, that there is very little collaboration and coordination among the many Federal and State agencies that administer programs that benefit rural areas.
    As the committee considers how the strategic planning initiative should be structured, it should be built on the ideas included in the 1996 farm bill. The 1996 bill called for the development of strategic plans for the States and the federally recognized Indian tribes, that would be developed with the participation of all the interested parties. Including State and local governments, State rural development councils, private sector, public organizations, community based organizations and the like.
    Mr. Chairman, as the committee shapes the planning initiative, we believe the initiative should, one, promote holistic planning using an integrated process, which includes a number of Stake holders, including the counties, the towns, regional organizations and similar stake holders.
    Two, increase collaboration and coordination among Federal and State agencies. Particularly, among those agencies which may not be thought of as rural development agencies.
    And three, promote multi-community and multi-county solutions to build economies of scale and increase efficiency.
    State Rural Development Councils are in a unique position to help facilitate the strategic planning initiative. The SRDC's already bring to the table government agencies at all levels, as well as, the private sector and the non-profit community.
    They have helped to coordinate all sorts of planning efforts, from planning for specific projects to helping create State-wide plans for economic development, health care and telecommunications activity.
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    Finally, Mr. Chairman, if I can make just two additional points concerning the SRDC's before I close. First, although the State Rural Development Councils operate under the general authority provided by the Rural Development Policy Act of 1980, and the 1996 farm bill provides specific responsibilities for the councils, the NRDP and the State councils have never been specifically authorized by Congress.
    Authorizing legislation was recently introduced in the U.S. Senate by 33 members of that body as bipartisan legislation. And a companion measure will be introduced in this chamber very shortly.
    We respectfully ask that this committee consider this legislation either as freestanding legislation or as part of the upcoming farm bill.
    And finally, a word about the financial condition of the NRDP. From the beginning, the NRDP and the State councils have depended on voluntary contributions of discretionary funds from USDA and four other Federal agencies.
    The NRDC's really have never had a significant and predictable source of funding. And most of them operate on shoestring budgets.
    We strongly believe that if Congress is seriously interested in seeing policies and programs that effect rural America, are better coordinated in a more complete and holistic manner, Congress is going to have to provide adequate resources to allow this to occur.
    Mr. Chairman, that concludes that my remarks. And on behalf of the State councils, we stand ready to work with you and the committee as you move forward. Thank you.
    [The prepared statement of Mr. McHenry appears at the conclusion of the hearing.]
    The CHAIRMAN. Thank you. Mr. Graves.

STATEMENT OF DAVID GRAVES, PRESIDENT, NATIONAL COUNCIL OF FARMER COOPERATIVES, WASHINGTON, DC
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    Mr. GRAVES. Thank you, Mr. Chairman. On behalf of the National Council of Farmer Cooperatives, we appreciate this opportunity to be here today to share our views with you on the committee's initiative to review Federal farm policy that would ultimately, we believe lead us to the point of reauthorizing the Farm Legislation.
    We have submitted a statement and at this time I would like if it was acceptable to the committee to summarize the key points of that statement.
     In looking at the working document that you and Mr. Stenholm and members of the committee have been considering for the past several days, we think that there is a very excellent effort to set the bounds on what the committee will have to deal with in terms of reauthorizing Federal farm legislation.
    Many of the ongoing and long-term provisions of Federal policy are continued in that working draft. It also looks like to us that you have been able to identify one of the often mentioned needs by agriculture. And that is that the income safety net as it applies to commodity prices and farm income be addressed in a more substantial way. Especially, in the nature of the counter-cyclical provisions that is added.
    As we look at it though, and as our membership, the membership of the National Council of Farmer Cooperatives being businesses in America that are owned by farmers, we would encourage the committee to take a very hard look at another component of Federal farm policy.
    While it is addressed to some degree in this working paper with value-added grants, we believe that that component of Federal policy needs to be substantially reviewed. And we believe aggressively modernized.
    If farmers in this country are to be more gainfully involved in the marketing of value-added products, meaning, products of some description or any description beyond the farm gate, then there is going to need to be an aggressive review of the challenges that the farmers have in entering into that kind of business venture.
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    What we hear from our members is that access to capital still is the single largest challenge facing farmers and the businesses that they attempt to build and own to move into value activities in a competitive, in an efficient and an effective way.
    We are recommending in our testimony that the committee consider at least two areas where assistance could be enhanced as far as access to capital.
    One, we believe that the USDA business and industry guarantee loan program should be aggressively modernized. And I will come back to that in just a moment.
    Because there is another proposal on the table and we urge you to consider the ramifications of the concept that has been put forward as an equity capital fund. Now that is still evolving and we believe it is or could be a very effective way to address this access to capital needs b the farmers and their businesses.
    But the B&I loan program is one that we would like to spend a couple of minutes on talking about the shortcomings of the existing program, especially, as it relates to farmer cooperatives.
    There are a number of provisions in the current program as operated by USDA that needs to be strengthened in order to provide the kind of assistance for these business to be effectively capitalized and we believe competitively operated in the market today.
    One, the loan cap of $25 million needs to be eliminated. Two, the 50,000 population requirement where these businesses can be operated should be eliminated.
    Today, as always, one of the most important factors in the success of a business is location. We believe it is at least this ingenious to require farmers to own businesses that may or may not be located where good business plans would dictate that they be located.
    Third, we believe that there should be a requirement by the Department of Agriculture to consider not only tangible but intangible assets, as well as, insubordinated, unsecured, insubordinated debt. Because in many instances that is considered cash as well.
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    We believe that the current authority to guarantee loans up to 90 percent is in fact not being utilized by the Department of Agriculture. In many cases, they are guaranteeing as little as 60 percent of the loan. We believe it should be a provision to require the Department of Agriculture to extend a minimum of 90 percent guarantee.
    And in addition, could give the Secretary the authority to go up to 100 percent in those cases where the Secretary deemed that was appropriate as well.
    We believe also that the 2 percent loan origination fee should be eliminated. That would simply make the loan program for farmer cooperatives be consistent with other guarantee loan programs that the Department of Agriculture currently operates.
    We believe there should be authority given for the Secretary to consider up to 35 years in repayment terms.
    And lastly, we believe that the current authority for the B&I loan program to provide farmers with capital in which to purchase stock. And farmer cooperatives should also be extended to farmers who wish to purchase stock in existing cooperatives. The current authority allows that to take place only in the case of new start-ups.
    Just very quickly, the last point in our recommendation is that we believe USDA programs in support of farmer cooperatives should be revitalized. By revitalized we mean, we believe that the independent agency status that existed up through the early nineties should be re-established.
    We believe that agency should be called Farmer Cooperative Business Service. We believe that agency should report directly to a renamed Under Secretary. The current Under Secretary for Rural Development we recommend be renamed Under Secretary for Rural Development and Cooperatives.
    Mr. Chairman, that completes our statement. I would be happy to answer any questions you or members of the committee would have. Thank you.
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    [The prepared statement of Mr. Graves appears at the conclusion of the hearing.]
    The CHAIRMAN. Thank you. Dr. Coston.

STATEMENT OF D.C. COSTON, ASSOCIATE DIRECTOR, AGRICULTURAL EXPERIMENT STATION, OKLAHOMA STATE UNIVERSITY, STILLWATER, OK
     Mr. COSTON Mr. Chairman, thank you, to you and the committee for the opportunity to be before you today.
     I am D.C. Coston with the Agricultural Experiment Station at Oklahoma State University. And am here representing the National Association of State Universities and Land Grant Colleges.
    I would like to speak about the role of value-added agriculture and revitalizing rural communities; and some of the experiences we have had at Oklahoma State; and how Federal funds invested in this type of activity can be an effective tool in stimulating rural vitality.
    Value added agriculture helps rural communities in three critical areas. One, by increasing the farmers share of the agricultural profit dollar. By providing U.S. producers a competitive advantage in the global marketplace. And by expanding jobs in rural areas.
    Value added markets exist and producers exist. The challenge is creating and implementing the means to connect them. This is what increased funding in the value-added grants program in your farm bill concept paper can do.
    At Oklahoma State we operate the Oklahoma Food and Agricultural Products Research and Technology Center. We support the growth of added food in agricultural processing by two major approaches.
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    One, conducting interdisciplinary research into agricultural based products. Not just into the food technology, but also into business structures and consumer patterns that can help producers and processors anticipate demand and meet it efficiently.
    Second, our education and outreach activities to producers, processors, cooperatives, State and local government agencies, Chamber of Commerce and others act as a catalyst to developing new economic partnerships among them.
    One outstanding success is from the region that Representative Lucas represents. The sixth district of Oklahoma. Alva, the northwest part of our State, is in the heart of the Hard-red Winter Wheat Belt.
    About 3 1/2 years ago community leaders and wheat producers were searching for opportunities to bolster their economy. And discussion turned to adding value to the bountiful wheat crop.
    One of Oklahoma States county extension directors was meeting with this group and offered to introduce them to the faculty and staff in our Food and Agricultural Products Center.
    Several of our staff became involved in this endeavor which lead to the formation of a producer-owned cooperative value-added products. They call themselves VAP.
    This group was seeking to enter a market that had limited competition and the potential for good profits. Our staff helped the group identify pre-proof frozen dough products as just such an opportunity.
    We helped them find processing equipment manufacturers, helped them develop recipes and the other things that were necessary for them to move forward.
    Armed with product and marketing information, along with a sound business plan that our staff helped prepare, cooperative leaders began the process of securing additional members. Over 700 members joined this cooperative and invested over $7.5 million in equity. And this helped secure additional commitments to $7.5 million in loans.
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    These funds were used toward the purchase and renovation of an old retail building in Alva and the construction of an assembly line.
    Today five semi-truck loads of frozen pizza crusts are leaving the plant daily for customers, the bulk of whom are pizza manufacturers on the east coast.
    As a result of this activity, there are now competitive products in the marketplace, farmers are enjoying profits from value-added to their wheat, and good jobs have been created in a rural area of our State.
    Another wonderful example has gone to light this week, perhaps you saw it on Good Morning America. And that is peanut butter slices, similar to cheese slices. We have some information that can be distributed to you. And we would ask that you might enter that into the record. We also have samples of these should you wish them when we are complete.
    On the national scene, Oklahoma State has entered into a consortium of land grant colleges that include Iowa State, Kansas State and the University of California.
    Aided by a newly awarded USDA grant, our collaboration will create the agricultural marketing resource center to help independent producers, cooperatives and processors succeed in developing value-added agriculture.
    This center will serve as a clearing house for information and coordinate research and development activities. These services will be available not just in our States, but also to producers throughout the Nation through our network of universities throughout the United States.
    This project is an excellent example of how Federal funding can help catalyze collaboration among the Nation's universities and rural interests.
    A couple of weeks ago my colleague, Dr. Sam Curl appeared before Representative Lucas' subcommittee and talked about the research and education parts of your proposal.
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    I do not want to dwell on that, but just a couple of comments. We support and appreciate what the committee is doing to extend the IFAFS program. Now in its second year, this program is already having a dramatic impact in bringing new information in technology to bear on issues of rural America.
    We also understand that you and the staff will be looking as you review the research and education title at how to improve the effectiveness and efficiency of those things that we and other organizations in research and education are involved in. And we look forward to working with you in assuring that. Because that is our goal as well.
    Mr. Chairman, thank you for the opportunity to be here with you and the committee today. I also want to thank you and the committee for the leadership and commitment you have shown to research, extension and education that supports the U.S. Food Agriculture and Natural Resource System. Thank you.
    The CHAIRMAN. Thank you. We will trade you some candy for some peanut butter. We paid the candy and then so that would make a fair swap and you would not be given it.
    I think all of you, Dr. Coston, I would be remiss if I did not say to give Sam Curl my regards.
    The the focus on when we start doing farm bill legislation the focus becomes on the program. And that is I do not know how long you have been around. But we have had some pretty long hearings.
    But the four of your sitting at that table may have as much to do with the success or failure of rural America as whatever we do in our farm bill. And what you do is critical. And it is important. And we so many times focus on just what is it that we can do for the farmer, which is important. I mean, I am not taking anything away from that.
    But rural America is dependent upon a whole lot of things happening other than just what is happening on the farm. And those of us who represent heavily rural areas, understand the challenges. Rural development does not just mean a business in a community. The reason you want the business in the community is to create jobs.
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    It sort of goes, I guess, Mr. Phillips, to what you are representing. I have contended for many years that the advance in telecommunications poses one of the greatest potentials for rural America as it does, as anything that I have seen come along in some time. Particularly, as this further develops.
    And you are having companies and larger cities that now looking at how much square footage they can save by work at home. They save tremendous amount on rent. The employee can receive the same wage and take home a lot more pay because they do not have to pay $150 a month to park. They do not have to have a wardrobe to work at home as they would downtown. Many of them do not have to have childcare. You do not have to pay $5 to $10 for a meal. Everybody benefits.
    Well, if you are working at home and if that business is downtown District of Columbia, or downtown Dallas, work at home could be in Farwell, Texas, as well as it could be in the suburbs of Dallas or the suburbs of Washington.
    And creating the infrastructure to allow that to happen is critical. And I think that there are tremendous advantages that rural communities can take and make over the through our telecommunications explosion.
    I know some wonderful examples. I personally know of some very small businesses in some very small towns that have done phenomenal work. And are doing some, creating tremendous sales through the Internet. These are some possibilities.
    But as well as it that in the creating of those jobs, if that job is work, if that person is working for a company out of Dallas, Texas, as long as that payroll is being made that is fine. But then that creates and helps the income and diversifies and it helps, and it helps all those others. And of course, in the community and both from a small business standpoint, as well as individuals.
    Telecommunications is going to be critical. And we have got to make for certain that rural America does not get left behind in that infrastructural development.
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    In terms of the idea that I wanted to mention to you or ask you, Mr. Graves, in some of your suggestions and to sort of what Dr. Coston's point is.
    Value added is a subject which we hardly talk about agriculture without talking about value-added. I have a good friend in a heavy corn district, heavy corn area of my district that the days of raising cheap cattle feed are over. We are going to have to figure out a better way to do that.
    I make references to some of the most progressive farmers that I have gotten to chance to know in Mr. Gutkneckt's district in Minnesota. Looking ahead and they are not growing an agriculture product. They are growing a product, creative product to which to sell.
    And value-added is critical. Farmers are going to have to do that. I think cooperatives have a wonderful opportunity to help minimize input costs to farmers, production costs. And to help maximize marketing potential.
    Some of your members that you and I know very well do that, and do it very well. And I think there is some real opportunities there.
    One question I wanted to ask you to get exactly what your opinion is and make a comment on it, one of the things you had recommended in addition to the 2 percent fee, the amount of the guaranteed loan, was the 50,000 population limitation on B&I. And tell me what you mean by that, and tell me why you recommend that.
    Mr. GRAVES. There is in the current rules a requirement that the farmer cooperative of the facility that would be financed by that loan be located in an area that was 50,000 or less in population.
    We believe that the origin of that has a very good basis. Most likely the thought was that we wanted to try to create jobs in rural America.
    The CHAIRMAN. Right.
    Mr. GRAVES. So far, so good. However, we have on the one hand the idea that this whole venture can be economically rewarding to the farmer. The farmer is going to be living, mostly likely, or at least most of them, if not even all of them, in rural America.
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    But if we require the business to be only located based on that piece of public policy to the extent that it violates the adoption of a appropriate business plan, it seems to us that we are hobbling the effectiveness, or potential effectiveness of the business ownership to result in the intended benefit to he farmer. It is just that simple.
    The CHAIRMAN. Well, I think that ought to be looked at. But I want to just mention here, if I may, if my colleagues will indulge me, a specific example of an individual who now owns a very, very formidable value-added, it is one of your members in my district. Actually, it is not, but it used to be and it may again.
    But be that as it may, the assistance to the farmer, I have a denim plant that takes and makes very high quality denim. And it is sold to a person that sells denim pants of a very high quality. And they buy all of it. They have done it for years. They utilize several hundred thousand bales of cotton every year.
    The farmers would benefit from that plant if it was in Littlefield, Texas, where it is, or in Lubbock, Texas, which is 30 miles away.
    But that, I think there are about 500 employees in that plant. And I will tell you that 500 employees in that plant in Littlefield, Texas, has a much more positive impact on that community than that 500 would in Lubbock. And Lubbock in my home. So I am not talking Lubbock down.
    But so I understand what you are thinking and where you are coming from. And particularly, if you are dealing with efficiencies and you are dealing with cost effectiveness and all of those things.
    What I would want us to look very carefully before we did that. Because I think the tendency would be that if we were doing that today, that that plant would probably be in Lubbock. And I am going to hear from people at home saying I should not be saying that.
    But the idea that that is done very successfully in a very small town and created so many jobs, that is a huge, that is the biggest employer in that community. And that has had huge implications on the economy of that small town.
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    That community has probably helped as much by the fact that that plant is located there and they hired and they have a work force of 500 people, as the benefits that the cotton producer has for growing cotton for that denim mill.
    And so this is a win/win deal. And we win in all instances. And I just wanted to mention that as a very specific example of why I think we ought to look very carefully before we do that. And still try to do what we could do encourage. If we are working through a B&I loan for our rural development or to help rural America, that we try to make for sure we help them as much as we possibly can in every instance we can. And this is a twofer. And just a comment.
    Mr. GRAVES. If I might just follow-up, Mr. Chairman. We could not agree with you more on that regard. To the extent that this program can create that kind of benefit for rural America, it should.
    We would simply encourage you and the members of the committee to look at that provision and study ways for it to not hobble a farmers potential in using that program to their benefit. That is our plea.
    The CHAIRMAN. I understand exactly what you are saying. And I think we should. Mr. Pombo.
    Mr. POMBO. Thank you, Mr. Chairman.
    Mr. Graves, I wanted to ask a question along similar lines as to what the chairman just asked you.
    Can you give us an example of a business that it would benefit to be, to remove that restriction?
    Mr. GRAVES. Just this week we received a request from a group of farmers in Illinois who want to submit an application to the Department of Agriculture to use the B&I loan program for funding for the building of a chip plant. Not a silicone chip, tortilla chip factory.
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    Their proposal is to build it and it would have an address of Chicago, which would, is going to be most likely denied.
    Mr. POMBO. A few more than 50,000, yes.
    Mr. GRAVES. And now I have very few details on that proposal. But if the farmers who want to and have looked at that as a marketing opportunity, and their business consultants have concluded that that is where that chip factory should be located, we would just hope that we would have the capacity in this piece of public policy to also try to be of service to those farmers as well. In that situation or anything like it.
    Mr. POMBO. I am sympathetic to what you are saying. Because in my district I have a couple of towns that are over 50,000 and would not qualify under this program if they located there. But I also understand the chairman's point about the impact on smaller communities of being able to bring that in.
    And I guess what I would really need to figure this out for myself is, in what cases would it be for one reason or another be impossible for that plant or that value-added business to be located in a smaller town. Using your example, is it not possible for them to be in one of the suburbs of Chicago and still service the Chicago market.
    And that is the kind of think that I think we need to understand before we make that change in that provision.
    The other question that I want to ask is that being involved with international product and all of our producers have to compete, what can we do to help you develop products for export? What kind of things do we really need to do to put incentives in place for you to develop value-added products for the export market?
    Mr. GRAVES. Just in the way of an introductory comment that, one of the steps that you are taking in this concept paper moves a long way toward helping farmers, as well as, cooperatives be more successful marketing in international market through the additional funding for the MAP program that is included in the concept paper.
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    And in your State, there are a whole host of cooperatives that are involved in marketing the products that their farmer members grow into the international market. And I will just, I sometimes hate to mention names but in this case I will just mention one anyway. Blue Diamond, Sacramento, is a good example of a group of farmers who benefit from that MAP program without really having to think in terms of building some kind of new or special product to fit the international market.
    The almonds are value-added because they are shelled and packed and in such ways to meet the consumer demand.
    But proposals also in the concept paper for the additional grant funds for value-added activities is a very strong statement in support of that objective.
    Mr. POMBO. See, I would prefer that we take a lot of the money that we are spending in some other areas and spend that on building our markets overseas. And in order to do that, we have to do some real research and development of the kind of products that they will buy.
    And I think that in many ways we have short-changed ourselves by exporting bulk product where we are always chasing the bottom dollar. Where if someone else comes in with a similar bulk product that is 10 cents a pound cheaper, we lose the sale.
    We need to do a much better job of manufacturing a value-added product here and in sending that overseas. The MAP program can help to promote that product. And I think that we need to do a lot more than we have in that respect.
    But we also have to develop those products and what a foreign culture or a foreign taste will accept. And it is that area that I think that we need to put a lot more funding in.
I appreciate what the chairman and Mr. Stenholm have done in that area. But I think we have a long way to go to get to the point where we are keeping jobs here in America for our people at the same time that we are promoting U.S. agriculture.
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    And it is that that I think we really need to get into. We have been struggling with exactly how to come up with a program that does that. And that is where I think we could use some help.
    Mr. GRAVES. We would certainly agree with your analogy or concept there about marketing value-added products and the benefit that would have for farmers.
    And then I was glad to hear you also include the thought that you are back to job creation in America when you are exporting value-added products as well.
    And there are any kind of investments around. But the one that the Department of Agriculture have put in recent years, every billion dollars in agricultural exports represents something in the range of 18,000 to 28,000 in the United States. Probably depends to what degree the product is value-added or moved to the close to the, for the product the consumer is actually winding up purchasing.
    But the, in addition to the MAP program, the FMD, foreign market development program, is one that we would urge the committee to review intently toward that objective.
    That is a program that is used for the purpose of helping collect intelligence. And understand what is in play in the markets around the world.
    Before I got to NCFC, National Council of Farmer Cooperatives, I spent eight working for the U.S. rice industry. And the U.S. rice industry, especially California, has benefited tremendously from the work we did in the Uruguay Round to get access to Japan. And we export a lot of U.S. rice. And that is one industry.
    And there are many industries that use that FMD program for the purpose of understanding and having contacts and developing information and intelligence about what will and will not sell, or will or will not work in the various foreign markets.
    Mr. POMBO. Thank you, Mr. Chairman.
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    The CHAIRMAN. Mr. Lucas.
    Mr. LUCAS of Oklahoma. Dr. Coston, one of the things in the concept paper calls for is about $370 million in value-added grant money.
    Based on your experiences with our Food and Technology Center at OSU, which all good Okies are very proud of and certainly were for a very long time for in the State legislature to make possible.
    Do you think based on what you have seen and you all have been able to accomplish there that perhaps there should be option for some of these resources to wind up duplicating similar efforts across the country?
    Mr. COSTON. I would like to offer a couple of comments. First, the answer is yes to that with some suggestions.
    I think we have learned quite a number of things in just about 4 years worth of operation. We have had engagements with over 370 enterprises in Oklahoma. And over 70 of those are start-up firms, the majority of them in rural areas that are adding value and creating jobs.
    Part of what we have been doing also is helping work on creating a national network among some other centers to where we are able to draw in expertise so we do not have to duplicate everything that exists in other States. And other States can draw on us.
    And part of it goes back to the market intelligence that Mr. Graves mentioned a minute ago. And learning where there are demands, both domestically and internationally.
    We would encourage, based on our experience and the success we have had, similar sorts of thing. But also using some Federal funds to provide incentives for us to work with colleagues throughout the Nation in doing things that are important nationally, so we do not duplicate so we get the maximum efficiency for the public investment.
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    Mr. LUCAS of Oklahoma. One other question along that line. One of the comments I frequently get from constituents in general, but agricultural producers and crop related folks in particular, is the need for someone to help them work through this grant writing process.
    Do we have the capacity to do that or could we have the capacity to do that?
    Mr. COSTON. I think that it would be good to provide perhaps as a part of that fund or in some way some funds to assist with that. Indeed, our staff in the Food and Agricultural Products Center, a part of our services as we work with companies, cooperatives and so on, help them with both their business and technology needs, is helping them get business plans in place. But also helping them secure funding.
    And in a number of cases, particularly with individual entrepreneurs or people who have not had much experience, we have actually helped them prepare some of those documents.
    Their being able to have some funds that would enhance that capability, I think would serve Oklahoma's. And I think it would serve citizens and organizations across the Nation.
    Mr. LUCAS of Oklahoma. Mr. Graves, not long ago in a conservation, it is not even worth going through the whole title, subcommittee meeting, you testified when we discussed the effect of the energy cost on production agriculture.
    And we had, what, three or four remaining cooperative refinery facilities?
    Mr. GRAVES. Four.
    Mr. LUCAS of Oklahoma. And you stressed on that day the capital restraints that there were interest among coops in helping people in the agriculture industry provide their own refined energy needs. Would some of those capital problems be addressed in the comments you made earlier about changes you see that need to be made?
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    Mr. GRAVES. They would. And those capital requirements are huge. As I understand them, those four cooperatives are faced with coming up with as much as $500 million totally to just simply satisfy the EPA regulations regarding the new sulfur content in diesel.
    Those are dollars that would not produce one nickel of return to the farmer. It is simply to continue to be able to make the petroleum based diesel fuels available that they are now making available.
    Mr. LUCAS of Oklahoma. Thank you, Mr. Chairman.
    The CHAIRMAN. Do you have any jelly slices?
    Mr. COSTON. No, sir. But we are looking for funds to pursue that project should you be willing to help us. Indeed, we have the ideas and we are ready to proceed, sir.
    The CHAIRMAN. You need to do a venture capital deal here. Mr. Moran.
    Mr. MORAN. Mr. Chairman, thank you. I noticed with interest that Mr. Phillips is a great optimist. Because his testimony, the first sentence is good morning. Good afternoon, Mr. Phillips. Yes, what day.
    In regard to your testimony, Mr. Phillips, you talk about legislation pending in Congress to improve the opportunities for access to broadband services.
    Your testimony does not mention probably the most prominent piece of legislation pending in Congress dealing with this issue. And I wondered if you had any advice as to Members of Congress in regard to that legislation and its effect upon access to broadband. Or if you intentionally did not answer that question.
    Mr. PHILLIPS. Well, certainly we would support anything that would help the initiative of getting broadband access to rural markets. That is what we are engaged in. And that is really what I am here today to talk about. And I think what you have in the Farm concept paper is a very great program to do that.
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    I know on the other bill that you are speaking about there is strong proponents and opponents on both sides. And irrespective of that, I just think that the focus you have here in the paper is a correct one. And it will do a lot of good.
    Mr. MORAN. Your association has no, has taken no position on that legislation. Is that accurate?
    Mr. PHILLIPS. That is accurate.
    Mr. MORAN. Thank you. Mr. Coston, one of the things that we talk a lot about in this committee is ethanol; and the value-added opportunities that ethanol presents to farmers; and the employment opportunities that an ethanol processing facility provides to a community.
    And it has certainly become a topic at home and I think across many of our districts about communities, farmers banning together. I am a sponsor of legislation to create cooperative opportunities for farmers in regard to ethanol.
    I have some concern that the frequency with which I read and learn of communities and farmers banning together to create that ethanol facility may be overreaching.
    Do we have any information out there, is there a good manner in which we can predict the demand for ethanol? Or have we started down a path of one ethanol facility after another coming on line, coming into business, being a piece of good news for my rural community, only to learn that a year from now, 5 years from now the demand for ethanol is not what was anticipated. Have we studied this issue?
    Mr. COSTON. I do not know of specific studies. I have just been appointed to the Ethanol Advisory Board in Oklahoma. I share with you some of that concern.
    I think we can look at agricultural industries across history and see that a lot of people read the same tea leaves at the same time.
I think it would probably, there would probably be some value in some type of a national study to look at just what that demand may be as there is some changes related to clean air legislation.
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    And there are any of a number of things that are driving some of this. And I think there would be some value.
    I also think there is another issue that is coming. It is one that we had a significant research program. And that is looking at turning biomass into ethanol.
    And we have an integrated program that looks at the biology of the material, the processing. But also the economics. And if our economists are reading the tea leaves right, that would create wonderful opportunities in some rural areas.
    But that technology will be a dramatic improvement in efficiency and could make some of the short-term solution, some people have to hustle pretty quickly. So I think there would be some value in at least what I am inferring. You think there could be something done——
    Mr. MORAN. I am slightly worried that we, I do not know the answer. But we may be misreading the signals. And I have four facilities already in the district with another six that are planning on communities coming together to build an ethanol facility. And I hope the market is there for ethanol.
    And I think if you went around the room many of us have kind of similar circumstances in Nebraska and South Dakota and Texas.
    Mr. COSTON. And Oklahoma.
    Mr. MORAN. And Oklahoma. Mr. Graves, State programs that we could use as role models. Is there a State out there that has developed a rural development program that you use in, that you have used or that you would suggest that we look at for the State of Oklahoma, Nebraska, Kansas, South Dakota or Texas. Man, these people know how to do it and they have got the program in place. And we ought to be looking at their plan.
    Mr. GRAVES. Mr. Moran, I would not have any information on that question.
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    Mr. MORAN. Thank you. My time has expired. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Thune.
    Mr. THUNE. Thank you, Mr. Chairman. And, panel, I appreciate your testimony. I am very interested in all the issues that you are addressing here today. Because I think they are all ingredients in a healthy rule economy. And we are talking a lot in this farm bill debate about the farm bill, obviously, the commodity programs, conservation programs, and all that sort of thing.
    But really the rural economy in my mind is much broader than that. It consists of quality health care for rural citizens, access of technology. Broadband is something I am very interested in. Bringing the same that we have access to in rural areas. Education. And of course, obviously, economic development in job creation. Which is becoming increasingly difficult in a lot of the small towns in rural areas because people are moving to the bigger cities. And that is a trend that is certainly not news. It has been around for some time.
    But one of the ways I think that we stem that out-migration from rural areas is to create opportunity. And we take what we do well, which is production agriculture, and figure out ways of adding value to that in keeping more of that food dollar in a rural economy.
    And that is where, to me, value-added agriculture is so critical so not only the future of agriculture per say, but also to the future of our rural economy. If we are going to preserve a lot of our small towns we just have to create some opportunities.
    So I guess I am curious to know just in your view what are the primary barriers out there? We have had some successes, as Mr. Moran noted. Of course, ethanol being one. And we have had a lot of cooperative type ventures.
    We want to see more of that. Maybe it is not ethanol, maybe it is soybean processing or seed crushing or premium beef or whatever. But value-added is something that I think from a policy perspective we really want to promote and encourage.
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    And I am just curious to know what you view to be some of the barriers and what recommendations you might have that, the things that we could pursue. There is a grant program that is in the chairman's mark. But are there things more specific than that that you would like to see us do? Mr. Graves, I volunteer you.
    Mr. GRAVES. Congressman, I think that it is going to be hard to address that question without starting off with access to capital by the farmer.
    A cooperative business owned by the farmer is not able to go to the capital market as the other businesses structured as non-cooperatives are, issue stock. And in a more traditional way. That is No. 1.
    In our recommendation though, we are suggesting that the program, that the resources and programs at USDA regarding support in the way of research, technical assistance, education needs to be revitalized.
    There are, if you take the question that was Mr. Moran was asking about, do we have too many farmers deciding to get into ethanol businesses or whatever. Not that you would be able to stop all that.
    But if we had an agency at the Department of Agriculture that was solely in the business of working with farmers and cooperatives to study opportunities and study those kinds of questions, maybe those kind of research projects would be owned, would be coming off line on a rather stead