SPEAKERS CONTENTS INSERTS
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FORMULATION OF THE 2002 FARM BILL
(PEANUT PROGRAM, FOREIGN TRADE)
SUBCOMMITTEE ON SPECIALTY CROPS
AND FOREIGN AGRICULTURE PROGRAMS
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
JUNE 13, 28, 2001
Serial No. 10710
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Printed for the use of the Committee on Agriculture
For sale by the Superintendent of Documents, U.S. Government Printing Office
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COMMITTEE ON AGRICULTURE
LARRY COMBEST, Texas, Chairman
JOHN A. BOEHNER, Ohio
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
SAXBY CHAMBLISS, Georgia
JERRY MORAN, Kansas
BOB SCHAFFER, Colorado
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana
Page 3 PREV PAGE TOP OF DOCGIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
MICHAEL K. SIMPSON, Idaho
DOUG OSE, California
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
CHARLES W. ''CHIP'' PICKERING, Mississippi
TIMOTHY V. JOHNSON, Illinois
TOM OSBORNE, Nebraska
MIKE PENCE, Indiana
DENNIS R. REHBERG, Montana
SAM GRAVES, Missouri
ADAM H. PUTNAM, Florida
MARK R. KENNEDY, Minnesota
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
EARL F. HILLIARD, Alabama
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
JOHN ELIAS BALDACCI, Maine
Page 4 PREV PAGE TOP OF DOCMARION BERRY, Arkansas
MIKE McINTYRE, North Carolina
BOB ETHERIDGE, North Carolina
LEONARD L. BOSWELL, Iowa
DAVID D. PHELPS, Illinois
KEN LUCAS, Kentucky
MIKE THOMPSON, California
BARON P. HILL, Indiana
JOE BACA, California
RICK LARSEN, Washington
MIKE ROSS, Arkansas
ANÍBAL ACEVEDO-VILÁ, Puerto Rico
RON KIND, Wisconsin
RONNIE SHOWS, Mississippi
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
Subcommittee on Specialty Crops and Foreign Agriculture Programs
TERRY EVERETT, Alabama, Chairman
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SAXBY CHAMBLISS, Georgia
BOB SCHAFFER, Colorado
WILLIAM L. JENKINS, Tennessee
MICHAEL K. SIMPSON, Idaho
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
DENNIS R. REHBERG, Montana
ADAM H. PUTNAM, Florida
GARY A. CONDIT, California,
Ranking Minority Member
SANFORD D. BISHOP, Jr., Georgia
JOHN ELIAS BALDACCI, Maine
MIKE McINTYRE, North Carolina
BOB ETHERIDGE, North Carolina
KEN LUCAS, Kentucky
BENNIE G. THOMPSON, Mississippi
MIKE THOMPSON, California
PELHAM STRAUGHN, Subcommittee Staff Director
C O N T E N T S
JUNE 13, 2001
Page 6 PREV PAGE TOP OF DOC Condit, Hon. Gary A., a Representative in Congress from the State of California, opening statement
Everett, Hon. Terry, a Representative in Congress from the State of Alabama, opening statement
Adkison, Dykes, peanut producer, National Peanut Growers Group, Elba, AL
Fincher, Doyle, president, Western Peanut Growers Association, Seminole, Texas, on behalf of Florida Peanut Producers Association, Georgia Peanut Commission, Georgia Peanut Producers Association, Panhandle Peanut Growers Association, Western Peanut Growers Association
Kanjorski, Hon. Paul E., a Representative in Congress from the Commonwealth of Pennsylvania
Plowden, Evans, general counsel, American Peanut Shellers Association, Albany, GA
Shays, Hon. Christopher, a Representative in Congress from the State of Connecticut
Smith, Ben, board member, American Peanut Product Manufacturers, Inc., Columbus, GA
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Everett, Hon. Terry, a Representative in Congress from the State of Alabama, opening statement
Boyd, Hon. Alan, a Representative in Congress from the State of Florida, opening statement
Putnam, Hon. Adam H., a Representative in Congress from the State of Florida, prepared statement
Becker, Kevein, senior vice-president, International Banking Group, CoBank, Denver, CO
Hamilton, Tim, executive director, Mid-America International Agri-Trade Council, Chicago, Illinois, on behalf of Coalition to Promote U.S. Agricultural Exports
Penn, J.B., Under Secretary, Farm and Foreign Agricultural Services, U.S. Department of Agriculture
Suber, Tom, president, U.S. Dairy Export Council
Tallman, Dusty, president, National Association of Wheat Growers, Brandon, CO, on behalf of the National Association of Wheat Growers, Wheat Export Trade Education Committee, and U.S. Wheat Associates
Valpey, John, executive director, Associated Rice Marketing Co-op, Durham, California, on behalf of USA Rice
Page 8 PREV PAGE TOP OF DOCPrepared statement
Weil, Robert E., II, officer, Weil Brothers Cotton Inc., Montgomery, AL, on behalf of The National Cotton Council
Crawford, Bob, exective officer, department of citrus, State of Florida, statement
FORMULATION OF THE 2002 FARM BILL
THE PEANUT PROGRAM
WEDNESDAY, JUNE 13, 2001
House of Representatives,
Subcommittee on Specialty Crops,
and Foreign Agriculture Programs,
Committee on Agriculture,
The subcommittee met, pursuant to call, at 10:00 a.m., in room 1300, Longworth House Office Building, Hon. Terry Everett (chairman of the subcommittee) presiding.
Present: Representatives Chambliss, Hayes, Fletcher, Rehberg, Putnam, Condit, Bishop, McIntyre, Etheridge, Baron, and Stenholm [ex officio].
Also present: Representative Clayton.
Staff present: Pelham Straughn, subcommittee staff director; Callista Gingrich, chief clerk; and Susanna Love, and Russell Middleton.
OPENING STATEMENT OF HON. TERRY EVERETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALABAMA
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Mr. EVERETT. The hearing of the Subcommittee on Special Crops and Foreign Agriculture Programs to review proposals for the Peanut Program will come to order.
Good morning. I want to thank all of the witnesses for coming here today. I know some of you have traveled a great distance to appear before the subcommittee, and it is greatly appreciated. I especially want to thank the producers who are taking the time to be with us today, when most of the growers have just gotten their crops in the ground. But on the other hand, it may be a little too wet to go out there, for those of you who live in the Southeast and parts of Louisiana and Texas.
The premise behind this hearing is to listen to all of the industry sectors, and even Members of Congress who have an interest in this program. My goal for the Peanut Program is simple: to keep the domestic peanut industry viable and for producers to be profitable in years to come.
As we look to the future, those who make their living in peanuts are facing tough battles. The No. 1 problem the industry faces is imports. Peanuts and peanut butter imports from Mexico will be able to come into this country in unlimited amounts and duty-free starting in the year 2008. Starting in 2004, the tariff rate on Mexican peanuts will be low enough to allow Mexican peanuts to be competitive with our domestic level of support. The Free Trade Area of the Americas agreement could also allow NAFTA-like access to one of the world's largest producers of peanuts: Argentina.
We also tend to forget about the past battles that have been fought on the House floor. During the battle of the last farm bill, the current Peanut Program only survived by three votes. We must offer a Peanut Program that satisfies not only the majority of the Committee on Agriculture, where you will find many friends, I guarantee you, but also the majority of the House, where friends are a little bit harder to find.
Page 10 PREV PAGE TOP OF DOC At this hearing, three proposals for changes to the current program will be presented. The first will come from our colleagues, Mr. Shays and Mr. Kanjorski, and the other two proposals come from two different views from the production side of agriculture. I look forward to the hearing and all of our witnesses, and I hope this hearing will lead to a Peanut Program that benefits producers, manufacturers, processors and consumers but, more importantly, preserves the peanut industry in the United States.
I would like to turn to my ranking member and friend, Mr. Condit, for any opening statements he may want to make.
PREPARED STATEMENT OF HON. GARY A. CONDIT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. CONDIT. Mr. Chairman, I do not have an opening statement. I simply want to tell you that I appreciate you holding this hearing. I know it is a very important issue to some of the members on this committee and the full committee, and it is very important to different regions of the country. So I look forward to the testimony this morning in hopes that we can gather information that will guide us to develop a constructive and positive policy as it relates to peanuts in this country.
So with that, Mr. Chairman, I will turn it back to you and listen to the witnesses.
Mr. EVERETT. Thank you very much.
The Chair requests other members to submit any opening statements they may have for the record so our witnesses can begin testimony immediately.
I am not sure that our first panel is here yet, in which case let me call panel 2, Mr. Doyle Fincher and Mr. Dykes Adkison.
Mr. Fincher is president of the Western Peanut Growers Association, Seminole, Texas, on behalf of the Florida Peanut Producers Association, Georgia Peanut Commission, Georgia Peanut Producers Association, and the Western Peanut Growers Association, the Panhandle Peanut Growers Associationand I assume that is the Florida panhandleand Western Peanut Growers Association.
Page 11 PREV PAGE TOP OF DOC Mr. Adkison, who lives in my district and we have known each other a good long time, is a peanut producer and also represents the National Peanut Growers Group and is from Elba, Alabama.
Mr. Fincher, if you will please begin.
Let me point out one other thing first. I am kind of a stickler for a couple of things. Number one, starting on time, and number two, holding all statements to 5 minutes. Your complete statements will be made a part of the record and, as far as members are concerned, if we need a second round of questions, I will be happy to do that.
So if you will begin and try to hold your testimony to 5 minutes, please.
STATEMENT OF DOYLE FINCHER, PRESIDENT, WESTERN PEANUT GROWERS ASSOCIATION, ON BEHALF OF FLORIDA PEANUT PRODUCERS ASSOCIATION, GEORGIA PEANUT COMMISSION, GEORGIA PEANUT PRODUCERS ASSOCIATION, PANHANDLE PEANUT GROWERS ASSOCIATION, AND WESTERN PEANUT GROWERS ASSOCIATION
Mr. FINCHER. Mr. Chairman and members of the subcommittee, I am Doyle Fincher, president of the Peanut Growers Association from Seminole, Texas. Today I am representing a coalition of State peanut organizations from across the country: the Georgia Peanut Commission, the Georgia Peanut Producers Association, the Panhandle Peanut Growers Association, and the Western Peanut Growers Association. These organizations represent approximately two-thirds of the peanuts produced in the United States.
Also in the hearing room this morning is Armond Morris, Chairman of the Georgia Peanut Commission, along with three of his board members: Terry Pickle, president of the Georgia Peanut Producers Association; Kelly Horton, a member of the Peanut Growers Association; and Jeff Crawford, executive director of the Florida Peanut Producers Association; and five board members of the Western Peanut Growers Association.
Thank you for allowing us to testify before your subcommittee on our plan for the future of the Peanut Program. In 1993 and 1994, the passage of the NAFTA and GATT trade agreements, respectively, changed the way peanut growers have conducted business. This is just the beginning of the problem. As tariffs decline under the NAFTA and with the very real prospect of a Free Trade Area of the Americas agreement by 2005, we will see a continued increase in access to our markets by foreign-produced peanuts.
Page 12 PREV PAGE TOP OF DOC Evidence of this downward trend occurred in the last few appropriation cycles. Peanut growers came to Congress for help to offset Peanut Program costs for our ''no net-cost'' program. If the no net-cost program remains in its current form, growers will have to come back to Congress for help. We believe we have a plan that keeps American producers competitive in America and the world marketplace. Our proposal is a plan for the future.
The first part of our plan is to establish transition payments based on the historic quota. The quota would be suspended, just as bases were in the last farm bill. Payments would be made to the quota holder for the life of the farm bill, not less than 5 years, at a level of 14 cents per pound per year. These quota holder payments need to be made exclusive of payment limits. The 14 cent annual payment is an approximate average peanut lease rate of the State of Georgia, the largest peanut-producing State.
For our cost estimates, we use the 2001 quota level of 1,280,000 tons, which is 1,180,000 tons of quota plus 100,000 tons of temporary seed quota of farmer stock peanuts. This resulted in a projected annual Government cost of approximately $358,400,000 per year. Since these payments would be coupled from production, they would not be subject to any WTO constraints. For purposes of this transition payment, the quota should be held at the 2001 level for the life of the bill.
The second component of our plan is to establish a marketing loan program for peanuts, the same structure developed by this committee for other commodities. After grower meetings in counties across the country, we suggest a $500 loan rate.
Payments resulting from the marketing loan should not be subject to payment limitations. Farmers have had to get larger to survive. The current payment limit structure inhibits farmers from obtaining adequate financing at local banks in many cases. If the elimination of payment limits cannot be accomplished in this farm bill, we propose that the payments would be in the form of generic certificates that allow the grower marketing options to manage the payment limits.
Page 13 PREV PAGE TOP OF DOC Because we are significantly reducing our support rate, we request the committee to consider an annual escalator based on increases or decreases in the cost of production that would be applied to the market loan rate. This would be tied to the consumer price index with a maximum increase or decrease of 2 percent per year of the total loan rate.
We have included a chart with the potential government exposure, using data from the University of Georgia and the U.S. Department of Agriculture. In developing the cost estimates, production figures from each peanut producing State have been based on the State's maximum annual production during the periods of 1978 to 2000. We have an attachment to show that. The total U.S. production based on this figure amounts to 2.7 million tons which reflects a 50 percent increase in production over the current production level. The peanut production of many States today is significantly below the maximum it attained in the past that has been used in our cost estimates. The estimated cost of our proposed marketing loan program should be approximately $350 million per year. The repayment price would be based on the world market price, using Rotterdam as a reference point. This does not reflect any increase in the market loan rate over the life of the legislation.
Currently we are charged with $347 million for our level of support under the Uruguay Round of the GATT. We suggest if loan deficiency payments exceed $350 million, the Secretary of Agriculture be given the authority to limit loan eligibility based on prior production history. This would involve structuring an inactive base, proven recent production history, that only becomes active in the event that the Secretary determines that it is necessary for the year to stay within its GATT commitments.
Mr. Chairman, as peanut leaders, this has been a difficult road in determining the best program proposals for the future of the peanut industry. We believe we are on the right track in developing a program that works for growers.
Again, I appreciate you allowing us to present our testimony this morning. We are glad to answer any questions from you and the committee members.
Page 14 PREV PAGE TOP OF DOC [The prepared statement of Mr. Fincher appears at the conclusion of the hearing:]
Mr. EVERETT. Mr. Adkison.
STATEMENT OF DYKES ADKISON, PEANUT PRODUCER, NATIONAL PEANUT GROWERS GROUP, ELBA, AL
Mr. ADKISON. Thank you for this opportunity to discuss options for a new farm bill. Peanut producers want and need to have your support.
My name is Dykes Adkison. I am a peanut farmer in Elba, Alabama. A written summary will be summarized here from what you have.
I am here today representing the National Peanut Growers Group and my purpose is to help sustain thousands of active farm families in peanut production. Our organization is the only national peanut producer organization and represents all of the Nation's peanut producing families. All growing areas are represented in the National Peanut Grower Group.
Mr. Chairman, the Peanut Program is absolutely necessary to the peanut producers. U.S. producers are dependent on the program. Additionally, consumers and manufacturers are dependent upon the program to provide a safe and economical supply of peanuts.
We are told that about 80 percent of all U.S. peanuts are sold to only two processing companies. One of these companies is owned by the Nation's largest agribusiness processors. What marketing ability does a small farmer have in this situation? The clear answer is, very little without the Peanut Program. We deeply depend on and appreciate this committee for the Peanut Program.
As compared with the program before the current law, peanut producers have lost 10 percent of the peanut support price, resulting in a loss of income of millions of dollars to the peanut producers. Growers also lost the escalator provision in the current program; thus, the peanut support price and, thus, the peanut farmer's income has been frozen since 1996. There has been essentially no benefits to the housewife in the grocery store. Prices have not come down; they have gone up since 1995.
Page 15 PREV PAGE TOP OF DOC We have two recommendations, Mr. Chairman, long term and short term.
Short term, if a new farm policy cannot be developed quickly, the peanut producers again must receive market loss payments as have been available during the last 2 years. We deeply appreciate you and this committee for helping make these payments available to the peanut producer and ask that consideration be given to doubling this payment this year.
In the long term, despite the value of the Peanut Program, producers realize that the political realities in Washington involve budgets, trade agreements and antiprogram proponents. The National Peanut Growers Group has voted on various options for consideration as the farm bill begins, and we present to you today a description of these options that we feel is best for taxpayers, consumers, processors and manufacturers and, most importantly, the farmer.
In reviewing these options to make producers competitive with imports and, at the same time, offer the consumer a product with no domestic price disadvantage, this step 2 concept/market competitiveness option, similar to cotton, is deemed as the most viable option by the National Peanut Growers Group. Under this option, producers are offered a price support level that will allow them to keep up with the cost of production. Additionally, the processor will be afforded a peanut that is priced competitively to imports. This will also answer consumer advocacy groups that wrongly contend that U.S. peanuts artificially drive retail prices up, although we believe this is not the case. Finally, we believe the cost associated with this option will be below the current WTO support levels attributed to peanuts. This option would allow the domestic poundages to be bought at a price competitive with other organizations.
The quality of the peanuts produced in the United States is generally superior to imported peanuts. A domestic competitiveness option for peanuts would be helpful to processors and would ensure that U.S. consumers continue to have high-quality peanuts available. The processor would buy based upon quality and delivery.
Page 16 PREV PAGE TOP OF DOC Marketing options for any production above domestic consumptions level then could be enhanced by an increased loan level for additional or export crops. As is mentioned in the written testimony, this is the only proposal that keeps total spending under control. Estimates are well under the attributed AMS levels of $347 million.
The competitiveness provision is a cost containment provision. By limiting domestic support to domestic average consumption, the cost of this option is limited.
In addition to providing the producer a cost of production adjusted support rate, the processor is buying a quality and delivery. Therefore, there would be no price incentive to purchase any foreign peanuts and reduce the need for tariffs that are currently being reduced under trade agreements. At the same time, it would not be considered trade distorting, because there is only leveling of the market and not undercutting the market.
We feel the best cost containment tool is to use a supply management mechanism. This is not to control the amount of peanuts grown, but to control the amount eligible for domestic support. There would be no planting restrictions.
We also believe that the Federal/State Inspection Service is a pivotal part of delivering quality peanuts to the processor.
The National Peanut Growers Group supports a farmer stock price of 39 cents a pound. We support a cost of production adjustment provision that would be adjusted annually at the rate of not less than 2 percent, using the Consumer Price Index. We also recommend that peanuts grown for export would be allowed to move into the domestic market if a shortage occurs.
The Market Competitiveness/step 2 option brings about a condition enabling the producer to stay viable and keep up with cost of production. This option also creates minimum Government outlays with positive returns for the producer, processor, manufacturer and consumer.
Mr. Chairman, a recent poll of the Peanut Grower Magazine shows that over 76 percent of U.S. peanut growers support maintaining a two-price system and/or our proposal. The same poll showed less than 15 percent support the decoupling/marketing loan proposed, or 85 percent oppose it.
Page 17 PREV PAGE TOP OF DOC Mr. Chairman, on behalf of the National Peanut Growers Group, we sincerely appreciate the time.
[The prepared statement of Mr. Adkison appears at the conclusion of the hearing.]
Mr. EVERETT. I am going to ask this panel to step aside for a moment and we will delay questioning, and I would like for our two Members who have some peanut legislation, Mr. Shays and Mr. Kanjorski, if they would, to now give us their testimony. The reason I am doing this is we expect a vote about 10:30, and that way we can kind of get this show on the road.
Mr. Shays and Mr. Kanjorski, good to have you. If you will, Mr. Shays, proceed.
STATEMENT OF HON. CHRISTOPHER SHAYS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CONNECTICUT
Mr. SHAYS. Thank you, Mr. Chairman. Mr. Chairman, I appreciate the opportunity you are giving Paul Kanjorski and me to share our views on the Federal Peanut Program. As your committee prepares to draft the new farm bill, you will have the opportunity to move the new Peanut Program away from strict supply controls to a market-oriented approach that benefits consumers, employees in the food industry and, ultimately, peanut growers. We are here to encourage you to seize this opportunity.
We have long opposed the current Peanut Program. It is a bad policy and it is a relic of the Great Depression.
The Peanut Program is unique in that peanuts are the only commodity that use quotas to restrict production. As a result of these restrictions in price supports, the General Accounting Office, GAO, found consumers pay between $300 million and $500 million annually in the form of higher costs for peanut butter and other products containing peanuts. Quite frankly, I have a hard time understanding why the U.S. Government would artificially inflate the price of peanut products. This policy harms so many for the benefit of such a select few.
Page 18 PREV PAGE TOP OF DOC I also have a hard time understanding why our Government favors one group of peanut farmers, those who own quotas, over other American farmers who do not own this privilege. I believe the time is long past for a change in peanut policy and I think many peanut farmers are starting to recognize this.
Today you are going to hear from groups of growers who not only understand that reforms are necessary, but recognize they are inevitable. Despite the obvious need for reform, I understand some growers not only want to maintain the current system, but are actually calling for an increase in the peanut price support from $610 per ton to $780 per ton. I hope you agree that this proposal is shocking. Why would Congress even consider such a giveaway to such a privileged group of quota holders?
The world of agriculture has changed tremendously as a result of NAFTA and GATT, and the Free Trade Area of the Americas will continue the progress we have made in knocking down trade barriers. As we open our markets to foreign competition, our peanut quota system will be exposed as the anticompetitive cartel it is. When nations like Argentina gain tariff-free access to U.S. markets and are able to sell peanuts at half the quota price, U.S. farmers will suffer as a result. But we can prevent this by bringing the Peanut Program into the 21st century and eliminate the enormous disparity between world and domestic peanut prices.
Either at the existing level of $610 or at the proposed $780 per ton, the program creates a two-price system which is likely to be found in violation of the World Trade Organization or WTO commitments. The WTO has already ruled that the Canadian Dairy Program, with a higher domestic price and a lower export price, was an export subsidy, which means the United States maintains a two-price Peanut Program that is also subject to challenge and mandated reform under the WTO.
As a strong supporter of free trade, it is clear to me we need to continue pushing for open trade among the countries of the world. My message today, in fact our message today is simple: If peanut growers in this country do not bring their prices more in line with world prices, they will be swept away by foreign competition. Now is the time to discipline ourselves in order to discourage investment in peanut production abroad.
Page 19 PREV PAGE TOP OF DOC If I were a peanut farmer, I would be demanding these reforms, and if I represented a district with peanut farmers, I would say to them, we need to get off this program as quickly as possible. We will get you Federal money to buy out the quotas, but you cannot sustain yourselves in these programs once our trade barriers come down.
Later today, Congressman Kanjorski and I will join a bipartisan group of more than 40 cosponsors in reintroducing our bill to eliminate the Federal Peanut Program. Our legislation does not pull the rug out from anyone, but rather phases out the Peanut Program incrementally over the next few years. In 2004, the program will be replaced with a nonrecourse loan system similar to that which exists for other commodities.
Mr. Kanjorski and I have also asked the General Accounting Office to review the Peanut Program so Congress will have a better understanding of how it operates. This new study will update GAO's 1993 report titled ''Peanut Program: Changes Are Needed to Make the Peanut Program Responsive to Market Forces.'' For this update, we have specifically requested that GAO assess the impact of NAFTA, the WTO, and FTAA on the peanut industry, and the impact of the Peanut Program on U.S. trade objectives for other agriculture commodities.
In conclusion, it is our goal to reform the Peanut Program so it can be acceptable to American consumers. I hope this committee will take advantage of the farm bill reauthorization process to develop a program consistent with other farm programs which encourage farmers to respond to the forces of supply and demand, rather than to bureaucratic fiats.
Once again, I appreciate the opportunity to testify on this subject and I would be pleased to answer any questions the subcommittee might have.
Thank you, Mr. Chairman.
Mr. EVERETT. Mr. Kanjorski.
STATEMENT OF HON. PAUL E. KANJORSKI, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA
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Mr. KANJORSKI. Thank you, Mr. Chairman. I want to join Mr. Shays in that I have a prepared statement that I will submit to the committee. I think Mr. Shays made a fairly full argument.
I want to say that after 65 years, it seems to me reasonable in a free enterprise economy that quotas and protections and subsidies be examined and eventually lifted from a special identified group in the country quite unique to all others. I come from an area that is economically distressed. I understand the distressed nature and the need sometimes for Congress to establish some sort of supports and rules to take care of certain problems in certain regions of the country or certain elements of our economy. But when you look at what has happened to the Peanut Program, it is now almost laughable. Sixty-five years later, two-thirds of the people have these quotas, some of whom are living on Park Avenue in New York and benefiting with a greater payment for their quota than the farmer who grows the peanut actually gets in a competitive market.
That seems to me to not only be inefficient, but it is irrational, and it seems that after the 7 years of the strongest economy in the world, and particularly the adoption of the Freedom to Farm Act, this is an archaic system that has been left over, and it is time to go, and go quickly.
Mr. Shays and I have and will introduce a bill which provides a fairly fast take-out of this program over 4 years so that it will not be shocking, but it will put us into real market forces. I think particularly of the nature of the makeup of the new Congress and the new Members, a lot of them have not had an opportunity to know this archaic system is around there. They probably should examine it. I cannot imagine anyone, outside of the immediate region where these quotas are given, rising in a debate with their opponent or before their constituents that could possibly defend this program.
Page 21 PREV PAGE TOP OF DOC It just does not make sense for the American consumer and it does not make sense for most of the peanut farmers that would like to grow peanuts in this country and be competitive. As Mr. Shays points out, it really works havoc on the competitiveness of the American farmer in peanuts, and eventually in the world market when they become overcome.
I would suggest that we have this opportunity today, and the payment of these subsidies, 80 percent of which go to only 22 percent of the holders of these quotas, is just irrational. It is our opportunity now to say to the peanut farmerincidentally, I understand they will make an argument that after 65 years, they now have a property right that has to be condemned. That is very interesting, that the Federal Government establishes a support system that grows into a property right. But even if that were the case, even if we have to accept, as we did in the cow program to buy out milk producers years ago, if we have to put money aside to condemn out these quotas, it should be done now. It should put us into a real, honest, competitive market worldwide and nationally, and it should save the consumers of America $300 million to $500 million and eventually not damage the real efficient peanut farmer of America.
So, Mr. Chairman, as the committee marks up its program for peanuts, I would hope that this year they strike the notion that we are in the 21st century and we are no longer in the first half of the 20th century, and the need for peanut quotas and these support systems has long ceased. It is now time for us to wean that element of our society from its subsidy addiction. Thank you very much.
[The prepared statemetn of Mr. Kanjorski follows:]
PREPARED STATEMENT OF HON. PAUL E. KANJORSKI
The Peanut Program is a relic of the Great Depression with restrictive production quotas, high price supports, and severe import restrictions.
The Government mandates quotas each year for peanuts, keeping domestic prices at almost $300 per ton over the world price. This is nearly double the world price.
Page 22 PREV PAGE TOP OF DOC The program is a de facto transfer from consumers to producers. The GAO has estimated that this benefit to peanut quota holders is worth over $300 million annually.
These quotas are sold or passed down through generations. As a result, over two-thirds of quota holders do not even farm the land for which they hold the license. The value of renting out a peanut quota is $240 per ton and more.
The current Peanut Program hurts farmers by:
Providing quota holders with Federal entitlement status not available to most peanut farmers;
Imposing a quota rent cost on actual peanut farmers. This is the largest portion of cost of production for peanut farmers who want to plant quota peanuts;
Denying market opportunities and planting options to farmers who do not hold a quota;
Awarding 22 percent of peanut quota holders with 80 percent of the subsidy payments;
Creating severe trade barriers to peanuts entering the U.S. market. The United States cannot expand exports of other agricultural commodities into foreign markets.
The Peanut Program also greatly hurts consumers by:
Forcing consumers to spend another $300 to $500 million each year for peanuts and peanut products;
Requiring the purchase of higher-priced quota peanuts for the School Lunch Program and other food assistance programs;
Causing U.S. consumers to pay more for peanuts than international consumers able to buy exported U.S. peanuts at a much lower price.
The Peanut Program also costs the Federal Government millions of dollars. Based on the most recent GAO report of 1993, the program cost the USDA $34.4 million a year from 19861990.
Page 23 PREV PAGE TOP OF DOC The Shays/Kanjorski bill phases down the peanut price support level for quota peanuts over three years, with the quota system being eliminated in 2004.
In 2004, the Peanut Program would be replaced with a non-recourse loan. Peanuts would then be grown in the United States with the same freedom afforded producers of other agricultural commodities under the 1996 farm bill.
The bill would also provide a mechanism for USDA to purchase lower-priced non-quota peanuts for food assistance programs.
Mr. EVERETT. Thank you.
Mr. EVERETT. I thank the two Members for appearing.
Does any member have any questions for this panel?
Mr. CHAMBLISS. Yes, I do.
Mr. EVERETT. Mr. Chambliss.
Mr. CHAMBLISS. Well, gentlemen, we are pleased to see you all here, and why am I not surprised at anything either one of you said? We have had discussions about this on the floor for the 6 1/2 years I have been here.
If I understand, Chris, what your argument is is that there is an artificial inflation in the price to the consumer that is created by this program.
Mr. SHAYS. In part, that is my argument; yes, sir.
Mr. CHAMBLISS. And that the housewife or whoever purchases the peanuts at the grocery store pays more for the product because of the existence of this program.
Mr. SHAYS. Correct. I would say that is true. And I would also say that as Republicans in particular, we have tried to get at these kinds of welfare programs. Whether it is welfare in the urban areas, which I was willing to reform to my own constituents, or to the farmers in your district, it is a welfare program that needs to be eliminated.
Page 24 PREV PAGE TOP OF DOC Mr. CHAMBLISS. That being the case, you are aware that in the last farm bill, we decreased the support price from $670 a ton down to $610 a ton, which if your argument is correct, there should have been a corresponding decrease in the retail price to the consumer of peanut products. That is about a 20 percent decrease.
Mr. SHAYS. Yes, but that would be holding everything else constant. There were other increases in prices. Had we not reduced it from $675 to $610, prices probably would have gone up because of all of the other cost increases.
Mr. CHAMBLISS. Well, in fact, the consumer prices of peanut products have increased over the last 6 years.
Mr. SHAYS. And would probably increase more.
Mr. CHAMBLISS. And when they were decreasing the price of peanuts.
Mr. SHAYS. Right.
Mr. CHAMBLISS. Do you know how much the cost of peanuts is for a normal Snickers Bar?
Mr. SHAYS. I would think it is tiny.
Mr. CHAMBLISS. It is about a penny, about a penny and a half.
Mr. SHAYS. The problem is that in the Snickers Bar you also have sugar, which also has price supports. That has a lot of problems.
Mr. CHAMBLISS. We will come back and talk about sugar later, Chris. Do you know how much the cost of raw peanuts that goes into the pocket of the farmer is for a quart jar of peanut butter?
Mr. SHAYS. No. I suspect it is very small, and I think that many farmers are at subsistence levels.
Mr. CHAMBLISS. Yes. That is why I have a hard time buying that argument. I will have to say to you, I agree we needed to make some changes the last time and we are going to make some additional changes this time, but Chris, your argument just does not hold true by the fact that there is an artificial inflation of the price out there, in direct correlation between the support price and the retail price at the grocery store.
Page 25 PREV PAGE TOP OF DOC Mr. Kanjorski, I note you talk about the fact that this has been a 60-year program and that these folks now are coming in and saying that there is a right that they have, that if you are going to take it away from them, it ought to be condemned from them and it is laughable that they ought to be compensated.
I just read an article in the newspaper on the way up here yesterday about a descendent of an individual who rode a pony in the Oklahoma land rush and was given a large tract of land by the Federal Government back in 1893, I think it was. We gave it to him. In this instance, we gave the peanut quota to individual farmers around the country after they were begged to grow peanuts to produce peanut oil so that we would have an alternative oil during World War II that we could use to lubricate our machinery. But those folks were given that land, the same as these folks were given that quota.
Is it fair to say we ought not to compensate peanut quota holders by taking away their peanut quota and, at the same time, should we not go back and ask those folks who we gave that land to all over the western United States to give that land back or compensate the Federal Government for it? I do not see how you can differentiate between those two examples.
Mr. KANJORSKI. Well, if we do away with the subsidy, let them sell their quotas and see what the real market value is of that right. There is not any value there. It is only valuable because we are still underwriting the subsidy. If you take away the subsidy, there is no value to the quota. Land is something different, it is real property, it has substance.
Mr. CHAMBLISS. You use the word subsidy. How does the Federal Government, under the program today, subsidize the farmer?
Mr. KANJORSKI. Well, if you restrict that only quota products can be purchased in the United States, that artificially inflates the market as to where it goes. It is a limited supply and that sets the price, and that is a subsidy, a differential.
Page 26 PREV PAGE TOP OF DOC Mr. CHAMBLISS. But we have already talked about the fact that it does not artificially inflate the price. It has not inflated the price.
Mr. KANJORSKI. I do not necessarily agree with you. Now, maybe my facts are not absolutely correct, but I understand that the average rent for these quotas, the absentee owners that live on Park Avenue that own these quotas, they derive $240 a ton, and that is the highest cost of that particular ton of peanuts that the farmer has to bear. So actually, the people that are growing this product are not always gettingmost often are not always getting of the money. Two-thirds of them are not. It is going to these people that have this absentee program that is out there.
Mr. CHAMBLISS. But still, how do you say that it artificially raises the price when the price at the retail level has gone up while the support price has come down?
Mr. SHAYS. Mr. Chambliss, I would love to jump in here. I mean, we may disagree on this, but we do know that the wholesalers have to pay a larger price because of a restriction in demand, and it is basic economics. So I mean, I would think we could debate about a lot of things. We could debate about the subsistence level of the farmer, that many of them are struggling, but we cannot debate this fact that they have to buy peanuts at an almost double-the-market rate, and that clearly adds to costs.
Mr. CHAMBLISS. The problem with your argument
Mr. EVERETT. I am going to have to interrupt here. We have gone well over the 5 minutes. If you would like questioning on a second round, I would be more than happy to do it, but right now we have a vote going on. I am obligated to recess until we can return from that vote.
Would you like for the two Congressmen to return?
Mr. CHAMBLISS. Yes, I really would.
Page 27 PREV PAGE TOP OF DOC Mr. SHAYS. I would be delighted to. Listen, this is a very important issue and I appreciate that you care enough to ask questions. Thank you.
Mr. EVERETT. The Subcommittee on Specialty Crops and Foreign Agriculture Programs will now resume.
Mr. Stenholm, do you have any questions?
We will give Mr. Chambliss another 5 minutes.
Mr. CHAMBLISS. I do not think I will take all of that 5 minutes.
Chris, I do not think this is the right forum for us to argue about the merits of this back and forth because I think we understand what your position is. But let me just clarify two things, because I think it is critically important that these people who Terry and I and others in peanut growing regions represent, understand that there is real strong opposition out there to the concept of this program. If we do not drastically change the program, modify it and, in your words, bring it up to date, we are going to continue to have this fight year in and year out from folks on the opposite side who believe that the program ought to be eliminated.
Mr. SHAYS. Mr. Chairman, I am absolutely convinced you will. Excuse me, I call you Mr. Chairman for reasons on the Budget Committee as my vice chairman; but, Mr. Chambliss, the bottom line is it will come up particularly in the authorization years, but it will even come up in the budget years as well?
Mr. CHAMBLISS. In your proposaland we have not talked about that in terms of thatbut do you recognize that there is a right and an asset that these folks have acquired over the years, and do you believe that they ought to be somehow compensated for that asset that they have acquired over the years under this program?
Page 28 PREV PAGE TOP OF DOC Mr. SHAYS. Mr. Chambliss, after 60 years of having a quota and having a system like this and buying and selling farms and so on with quotas, there accumulates this right.
Mr. Kanjorski and I may say technically there is not a legal obligation on the part of the Government, but I think there is a moral obligation. And we support the concept of buying out the quota, phasing it out, buying it out, and then going to a price support system where the product will be sold at the market rate and the Government will compensate for a rate above the market rate.
We also acknowledge that when you have a system like this, you have inefficient farmers, smaller farmers that can survive with a protected system, but when that system disappears, they need the assistance that would accrue from a buyout and a price support.
Mr. CHAMBLISS. OK. And lastly, just to comment, Mr. ChairmanI was going to get back to Mr. Kanjorski on this because he is the one that mentioned thisand that is the proposition that there are quota holders, peanut quota holders who live on Park Avenue in a big high-rise, and with multimillion-dollar homes, that are abusing this program. That has been an argument in years past. But just for the record, I want to make sure that everybody understands that is not the case; that in the 1996 farm bill, when we rewrote the Peanut Program, we eliminated the ability for people who live outside of States where quota peanuts are grown from holding quota peanuts. So there are no more out-of-State quota holders.
Mr. SHAYS. He was thinking of the Park Avenue in Atlanta.
Mr. CHAMBLISS. Maybe on Peach Tree, but not on Park Avenue in New York.
Mr. SHAYS. No, you are right. We did do that and that was a step in the right direction.
Mr. CHAMBLISS. Yes. Like I say, you and I have had very good discussions about this over the years and we will continue to do so, and I thank you for being forthright. I want to say again for the record that while you and I may disagree over this, every time that this issue was about to come up, you came to me and told me what you were going to do and did not blindside us. You were very straightforward and you are my good friend, and I would expect nothing otherwise from you, but I thank you for taking that attitude.
Page 29 PREV PAGE TOP OF DOC Mr. SHAYS. Thank you. I thank you for that comment. I would like to just even add to it that I have only sponsored the amendment during the authorization year and have not sponsored it during a budget year. I might have voted for the proposal, but did not encourage a debate on withholding money to implement the program.
This is the time that we should reform the program. I think we can work together. I think ultimately it will be in the best interests of everyone that we do that.
Mr. CHAMBLISS. Thanks, Chris.
Mr. SHAYS. Thank you, Mr. Chairman.
Mr. EVERETT. Let me just conclude and thank you for your testimony, and the testimony of Mr. Kanjorski, but just oneMr. Shays, just one point that I would like to point out that Mr. Chambliss did discuss.
I just really do not believe, in all due respect, that you can make the argument that the consumers suffer because of the price support. Historically, that cannot be substantiated by fact. Now, we may disagree on the merits of the program, how the program is constructed and so forth, but I am sorry, but that is just in my understanding contrary to fact.
Mr. SHAYS. Just a quick comment to say that we have asked for the GAO to do a scientific review of it, so either my position or yours or a combination of the two will be revealed.
Mr. EVERETT. We thank you again, and we thank you for your testimony.
Mr. SHAYS. Thank you so much for your courtesy.
Mr. EVERETT. I will now call the second panel back up, Mr. Fincher and Mr. Adkison. And will the armed guards please escort Mr. Shays out of the room?
Mr. SHAYS. I feel safer here than in the hall.
Mr. EVERETT. Gentlemen, welcome back. I apologize to you for the way we have to do things around here, but both of those Membersas a matter of fact, Mr. Kanjorski already had to leave for another purpose, and Mr. Shays needed to also. We have another hour before another vote, maybe just a little longer, and I hope that we can wrap up the hearing before that time.
Page 30 PREV PAGE TOP OF DOC I only have a few questions, and let me start with you, Mr. Adkison. For the benefit of the committee, let me make sure I understand the NPGG's proposal. Producers of quota peanuts receive a support price of $780 a ton. This support price would be offered through the three area marketing associations to the producers. Processors or shellers would then be able to obtain the peanuts at a certain predetermined price, the average import U.S. price, North American import price, and converted by the Rotterdam market price, and the Government making up the difference between that price and the $780 support price. Is that basically your program?
Mr. ADKISON. Yes, it is, Mr. Chairman. This also takes care of payment limitations to the farmer because these payments would not be paid directly to the farmer.
Mr. EVERETT. We understood that in your testimony. But if you will, since we are short of time, if you could just confine your answers to the questions I ask.
Does your proposal continue the quota system? I cannot determine through your testimony whether it does or not.
Mr. ADKISON. We would have what is known as quota to date, but be changed to the competitive marketing.
Mr. EVERETT. You would just change the name.
Mr. ADKISON. Yes, but we still have the poundage.
Mr. EVERETT. We would just call it by a different name.
Mr. ADKISON. That is right.
Mr. EVERETT. OK. We have known each other a long time, but let me throw something out there. In the last program, Peanut Title, that title only passed by three votes. I changed four of the votes on the floor, including Bob Walker from Pennsylvania, by the way. I know Saxton also changed some votes on the floor. That was $610 a ton. Your current proposal adds back in an escalator proposal, does it not?
Page 31 PREV PAGE TOP OF DOC Mr. ADKISON. Yes.
Mr. EVERETT. The way we were able to reach an agreement is by taking the escalator clause out, and cutting the support price back to $610 a ton, and now you have come forward with a support price of $170 more than the price that only passed by three votes.
Mr. ADKISON. Right.
Mr. EVERETT. And you added back in the escalator clause. We also have NAFTA staring us in the faceabout in 2004 we begin to see the tariff drop to a domestic supply price support, and in 2008 those tariffs disappear and they come in unlimited amounts, come in here duty free.
Mr. ADKISON. Correct.
Mr. EVERETT. My question to you, we have to settle thisas I said earlier, you will find a lot of friends on the Agriculture Committee, but I have to ask you a question. If your proposal goes up against the Shays proposal and the Shays proposal wins, is your group ready to accept the responsibility of the tremendous loss to the quota holders because they will not be compensated?
Mr. ADKISON. No, we would not hope that would happen.
Mr. EVERETT. Beg your pardon? How would you not think it would happen, since a lesser proposal almost failed when we were up with the last Peanut Title?
Mr. ADKISON. We have a statement made the other day that we have more peanut producers going out of business in the last year or two than in the history before, because we are losing money. So if the escalator clause had stayed in, we would probably have been somewhere around that $780.
Mr. EVERETT. Well, I would say since we both live in the same part of the country, that there are an awful lot of things other than the support price that had to do with the peanut farmers going out of business. I am a peanut farmer, as you know, and we have had either droughts or hurricanes in my district for the last 5 years.
Page 32 PREV PAGE TOP OF DOC Mr. ADKISON. True.
Mr. EVERETT. And I would have to say that that had a considerable amount to do with it.
Let me also say that I am appreciative to this Congress that in the last couple of years, we put $28 billion worth of disaster relief in NAFTA payments, et cetera, out there to aid the farmers, and that probably kept 45 to 50 percent of the farmers in business because they would have gone out of business without that.
You did not really answer my question, Dykes. I asked you if it fails, are you prepared to accept the responsibility of costing the quota holders literally tens of millions of dollars? I am not prepared to accept that.
Mr. ADKISON. No.
Mr. EVERETT. Well, why are you offering that proposal?
Mr. ADKISON. The reason we offered this proposal is it is the same thing that our marketing loan friends have offered, so we would just mention them.
Mr. EVERETT. Let me give myself another round here to get some questions in and then I will go to the other members.
Mr. Fincher, your proposal is that the groups would like a 14-cent quota buyout payment per year for at least 5 years, coupled with a marketing loan of $500. Is that basically correct?
Mr. FINCHER. Yes, sir, that is basically correct. Let me explain why we went to that. The Chairman had asked us a number of time, plus Congressmen in this room have asked us a number of times, to try to get together on one proposal. We came up to the 550 to get one area in, because they wanted a 500 market loan. In order to reach the $780 that the other group was trying to come to, we come to 14 cents. You put the $500 and the 14 cents, it totals $780. But they did not want it, so that proved to us that they did not really want anything other than the quota system which we have. So that is why we came up and decided to testify to this and try to get everybody together, which the chairman asked us to do.
Page 33 PREV PAGE TOP OF DOC Mr. EVERETT. Mr. Fincher, what bothers me about the marketing loan proposal, I see some good things in both proposals, but the one thingand I have talked to Dykes about the problem I see in the $780 proposal. What bothers me about your proposal is, how are we going to limit production?
Mr. FINCHER. Mr. Chairman, we will be happy to work with the staffers to figure this out if it becomes a problem. We have talked about it and it is a possibility that it could become a problem. But we feel that some authority could be given to the Secretary to regulate this through some system that would make some, I guess, peanuts eligible for the market loan, and some that have not been growing peanuts not be eligible. I do not know exactly how we would address that, but we believe that we can address that through some legislation if we need to.
Mr. EVERETT. OK.
Mr. FINCHER. Now, if you look at my statement, I did not bring it out, but I worked some scenarios. If you take the last 22 years of the total production of peanuts, the best year for every State, we are only producing about half of that today, so I do not really see that as being a real big problem. But it could become a problem. We are willing to address that.
Mr. EVERETT. Well, let me just say that, like Dykes pointed out earlier, we are all in here to protect the thousands of peanut farmers that are left. This committee certainly has that, and I know both of you have that in mind.
At this time, I will ask Mr. Chambliss if he has any questions.
Mr. CHAMBLISS. Thank you, Mr. Chairman.
Mr. Fincher, that issue of how you control production, I think is a critical issue, and I am concerned about that but yet I am not concerned about it. I have been holding a series of hearings around the country and we have held some here in DC on general farm commodities, and everywhere we go, the thing that I consistently hear from my farmers is that the flexibility granted to farmers under the 1996 act is the best thing we did; that it allowed farmers to make a decision about what to grow.
Page 34 PREV PAGE TOP OF DOC I am not sure that we as a Federal Government ought to try to control that and change that policy that was put in the farm bill, and I say that kind of in discussion really, and will take any comments you would have about it.
But Armond Morris is a dear friend of mine. I do not know how many acres of peanuts Armond grows today, but I would venture to say that if peanuts all of a sudden, for whatever reason, went to $1,000 a ton this year, Armond would probably double his production next year. That is just the nature of the way farming operates. You guys that grow crops know and understand when cotton went to $1 a pound, all of a sudden we had cotton in south Georgia wall to wall, and it tends to take care of itself, the supply and demand.
But I want to make sure that manufacturers like Ben Smith there, have a good supply of quality peanuts, but at the same time, that we do not craft a program that moves all of our cotton growers into peanuts and moves all of our corn growers into peanuts. I think we have to be very careful about that. I do not know what that answer is. That is part of what we are here today to discuss. If you have any comments about that, I would appreciate hearing them.
Mr. FINCHER. Congressman Chambliss, I appreciate the question. My answer to that would be we have to rotate peanuts, and if we do not rotate peanuts, we quit making peanuts. So therefore, I think it might jump in any one given year a little bit, but I think it will take care of itself from that standpoint.
Now, in reference of peanuts moving to the other States, you are looking at a completely different set of equipment to harvest and to dig these with. Whether or not their finances will allow them to do that, that is a risk, and it may be something we have to look at. But as of today, I do not see that as being quite as big a risk as it might be.
Mr. CHAMBLISS. Well, one other aspect of your proposal that I want to comment on and would like to hear your comments on it, again, as I go around the country and talk to farmers, the one thing I talk about is my son-in-law, a lot of you have heard me say, has been very lucky in being able to come back to the farm and farm with his dad and whatnot. But the average age of the farmer today is rising; it is in excess of 57 years of age, and that is happening all over the country. There is not a whole lot to draw young people back to the farm, and we have a lot of opportunity to hopefully change that direction.
Page 35 PREV PAGE TOP OF DOC Under your proposal, the way I read it, these young farmers would not have to go out into the marketplace and buy a peanut quota. If they wanted to grow peanuts, they could grow peanuts immediately, without having to make a capital investment. Again, that goes to the flexibility issue, but I think that is good. And I think that is a way to draw these young folks back to the farm to get them involved in agriculture. I hope that was done in part by design on your part when you crafted this program.
Mr. FINCHER. It absolutely was. In fact, two of my board members here are exactly the same scenario as what you just gave. They are starting up farming, the last 10 or 15 years, and had no quota. So they either had to lease a quota, paying $240 for the domestic market, or they had to go for export. This would allow them to grow peanuts for the domestic market.
Mr. CHAMBLISS. Is there any way to peg a world price for peanuts?
Mr. FINCHER. I am sure there is, and I am not prepared to answer that. We used the Rotterdam market in our statement, but there has got to be something in USDA somewhere that could give us that price. I am sure that has been monitored somewhere.
Mr. CHAMBLISS. OK.
Thank you, Mr. Chairman.
Mr. EVERETT. Thank you. Mr. Stenholm.
Mr. STENHOLM. Mr. Chairman, do you as yet have any indication from the administration as to their position on the questions that you very correctly asked the members of the panel a moment ago?
Mr. EVERETT. I have none.
Mr. STENHOLM. Do you have some indication the administration will be coming forward with their position on the questions that you asked?
Page 36 PREV PAGE TOP OF DOC Mr. EVERETT. I have none.
Mr. STENHOLM. None.
Mr. EVERETT. I would point out to our ranking member of the full committee that as you know, the chairman of the committee asked peanut growers to come together with a proposal some months ago, and that did not happen, and we really started this process, and I am very grateful to you and the full committee chairman, in the last session of Congress when we started talking to the growers around the country. But at this point, I would assume the administration, that this has not been on their radar screen.
Mr. STENHOLM. I appreciate that answer, but I also believe that it is timeI have been more than willing to cut the administration and the Secretary all the slack that she needs, because she does not have a full complement of players yet. But we are still under the time frame of marking up the Peanut Title during the month of July, and I do not believe that we should be expected to mark that up without some guidance from the administration as to the position they are going to take, because you have asked some very tough questions today, and they are very good questions, of which I hope everybody was listening today.
Because as you heard from Mr. Shays and Mr. Kanjorski, the old opposition to the current Peanut Program is there and strengthened. The number of individual members of the full committee that have any institutional knowledge and memory of what happened in 1990 or 1985 or 1980 or 1996, 35 members of this committee alone have not been here, Mr. Chairman, as you have, since 19951996. And therefore, I am beginning to get more and more concerned about some of the testimony this morning and some of the opinions being voiced now, because as you and Mr. Chambliss have said, I share the same concerns about the producer interests in this.
I also recognize that we cannot sell peanuts unless the manufacturers are able to buy them and use them and sell them in volumes that need to be sold.
That leads me, Mr. Fincher, to a question for you. On March 6, you testified to the following: ''The economic situation for cotton producers contrasts markedly with the stability that has characterized the peanut industry.''
Page 37 PREV PAGE TOP OF DOC What has changed your mind about a marketing loan during a year when cotton prices continue to sink to depression levels?
Mr. FINCHER. Congressman, we have made several visits to the Hill up here, visiting with staffers. Also we have sat down and visited with you and several other Congressmen in here, and we were told that we were probably going to have to come up with some kind of a different system than what we had had, some way or another. We did not get any direction exactly how we had to do this, but probably ''Do not come with what you have, because it is going to be hard to sell.'' and for the same thing that has been told in here, we only won by three votes last time. So from the guidance that we thought we were getting is why we came up with this proposal.
Mr. STENHOLM. Mr. Adkison, the way I understand the National Peanut Growers Group, the so-called step 2 proposal, producers would take their harvested peanuts to the sheller and would receive a Government support price, $780 that you recommend, or whatever level the Congress ultimately determines appropriate. Shellers would then redeem the peanuts at a world price. If this is correct, this proposal is more similar to a market loan without the LDP option and a redeposition mechanism similar to a generic certificate. If this is correct, why do you call it a step 2?
Mr. ADKISON. Well, it was formed back with the step 2 Cotton Program, which was a very similar program.
Mr. STENHOLM. Similar, but not
Mr. ADKISON. Not entirely, but similar.
Mr. STENHOLM. But that was the direction that it came from?
Mr. ADKISON. It was the 21st century agriculture proposal that drew this step proposal up.
Mr. STENHOLM. Under the market loan proposal, would there be a weekly price announcement or some other time frame?
Page 38 PREV PAGE TOP OF DOC Mr. ADKISON. Under this competitive marketing loan, I would have to let Dan answer that. That is deeper than I can go.
Mr. STENHOLM. If you do not have an answer now, if you could provide it for the record, I think this is something that we need.
Mr. EVERETT. Mr. Putnam.
Mr. PUTNAM. Thank you, Mr. Chairman. I thank the panel for their testimony.
I represent an area in central Florida that grows citrus and raises beef cattle and fresh fruits and vegetables. Like everybody else in agriculture, we are hurting, trying to deal with the threats and/or opportunities that come from international trade agreements; trying to deal with the fact that fewer and fewer young people want to take up the call to agriculture, and we do not have any program similar to what the Peanut Program has, with the exception of what could be legitimately called Government support in the form of a tariff on frozen concentrate orange juice.
Tell me, for somebody who is a novice to the Congress, but someone who has spent a lifetime in agriculture and certainly is committed to agriculture, what makes the peanut commodity unique to the fruits and vegetables that do not receive similar programs such as what we are discussing here today?
I will let Mr. Adkison start.
Mr. ADKISON. Peanuts are a very perishable item. We can't carry forward like you do the grains, or like cotton or this kind of thing. Peanuts have to be sold immediately after harvest. So therefore we are into a different situation than the other products are.
Also, our input into peanuts is greater than it is into the other commodities also. We invest more to make a crop of peanuts.
Page 39 PREV PAGE TOP OF DOC Mr. PUTNAM. You invest what?
Mr. ADKISON. We invest more money per acre to grow a crop of peanuts than you would cotton or corn or other commodities.
Mr. PUTNAM. Mr. Fincher.
Mr. FINCHER. I am not exactly sure what your question was. Is it compared to fruit and vegetables?
Mr. PUTNAM. Yes, sir. I guess I was asking you to justify the program as to fruits and vegetables and other crops that do not have a program. What is the greatest barrier to peanuts competing on a world market or any other market, domestic or international?
Mr. FINCHER. Well, the world market of peanuts is considerably below what our quota support rate is. This is one reason that we have addressed this market alone, which will bring the price down below what the support rate is now and make it more competitive for people who want to try to produce peanuts. I am not sure what that will do as far as producing peanuts, but it is getting away from the quota system, it seems like everybody don't like.
Mr. PUTNAM. You mentioned in your testimony that export and domestic marketing promotion are the right strategy for the peanut industry. Do I understand correctly then that you believe that you can compete on the world market with some support and that market assistance, market access programs and things like that would be helpful to the peanut industry?
Mr. FINCHER. Yes, sir.
Mr. PUTNAM. And what level of funding do you recommend for the MAP program?
Mr. FINCHER. I do not have those figures before me.
Page 40 PREV PAGE TOP OF DOC Mr. PUTNAM. You can just get that
Mr. FINCHER. I think we can supply that later if that would be fine.
Mr. PUTNAM. As it relates to the free trade area of the Americas, which of those Latin American countries would pose the greatest competition to domestic peanut producers?
Mr. FINCHER. Argentina.
Mr. PUTNAM. Is that the dominant peanut producer for the world or just for Latin America?
Mr. FINCHER. Well, they are pretty large for Latin America. Also Brazil could come on board. There is a lot of stuff going in cultivation down there. Years ago they used to be big in peanuts. They have drifted off to soybeans now.
Mr. PUTNAM. Does the Argentine Government support their domestic peanut producers?
Mr. FINCHER. I cannot answer that truthfully. I think they do, but I am not sure of that. I think wejust a minute.
Stanley Fletcher said there is no price subsidies or price support in Argentina.
Mr. PUTNAM. I think, like in a lot of other crops where there is an uneven playing field, they really sort of hold competitive advantage, I assume, all things being equal, for peanut production as opposed to Brazil or the European Union, who have tremendous domestic support programs?
Mr. FINCHER. Congressman, can I address that to Stanley Fletcher and let him address that question?
Mr. PUTNAM. My time has expired. We will get together. There is going to be a long debate.
Page 41 PREV PAGE TOP OF DOC Mr. FINCHER. OK.
Mr. EVERETT. I hope it is not, over a period of time. Let's see.
Mr. BISHOP. Thank you very much, Mr. Chairman. And let me thank the witnesses for coming and for offering your thoughts.
As many of you may know, I think my district produces more peanuts than any other district in the country. And combined with Mr. Chambliss, I think we probably produce pretty close to 70 percent of the peanuts produced in the country.
And as I understand it, Mr. Fincher, you represent the vast majority of that 70 percent of peanut producers; is that correct?
Mr. FINCHER. Yes, sir.
Mr. BISHOP. I am very, very impressed by the fact that, after getting the instructions that you got and our pleas for the people within the industry and the producers to get together, so that we could try to at least be reading from the same script and singing from the same sheet of music, that you all have made a valiant effort to do that.
I am impressed that I see producers, shellers and manufacturers working together to come up with a viable program that will be mutually beneficial to them as well as to the overall industry. And I appreciate that very much.
I am concerned, Mr. Adkison, about the proposal that you have put forth in that, as has been said before, politically speaking and dealing with political realities, we passed the last bill with no net-cost by maintaining that it would not be a drain on taxpayers by a mere three votes.
That bill cost much less to taxpayers, to the government, than would the proposal that you have put on the table. I mean, does your group really feel like, given the political environment that we are in, having heard the testimony of Mr. Shays and Mr. Kanjorski, which is the chronic testimony that we hear every time we have to take up this debatedo you really think that it is realistic to expect that, one, the Congress will pass it; and two, that if it gets to the Floor, it will not just end up in a kamikaze-type act for the program being ended altogether so that the industry itself will be in a lose-lose situation?
Page 42 PREV PAGE TOP OF DOC Mr. ADKISON. Our proposal, sir, is $347 million under; that is, under their proposal. If you go with the marketing loan, the 14 percent after payment and have a POP payment between the price, you are talking about a great deal more money than our program. We have the cheapest proposal out there.
Mr. BISHOP. You may have the cheapest proposal, but in terms of political realities and in terms of how the Members of Congress who are not familiar with the program, who represent various other aspects of the peanut industry, manufacturers, when you factor all of that in, do you actually think that the Members who seem to be inclined to want to end these types of programs would be more inclined to accept this proposal than they would the proposal that is being offered by Mr. Fincher, which would appear to be even more controversial and more unacceptable than the one we passed in 1996?
Mr. ADKISON. The National Peanut Growers Group, as I made the statement before, the farmers back home who we represent, this is exactly what they wanted by 76 to 80 percent. This is what the grower wants to maintain, his poundage on his farm.
And also we feel that Congress, we would think the Congress would certainly look at the price, the amount of money we are talking about, and if we have the cheapest proposal, the one that costs the least money, we would certainly think that would be a factor.
Mr. BISHOP. Well, I appreciate your point of view. I am just raising the questions because I know that these questions are going to be raised on down the line.
Mr. ADKISON. I understand.
Mr. BISHOP. And I appreciate your comments, but these are
Mr. EVERETT. Will the gentleman yield?
Mr. BISHOP. I am delighted to yield to the chairman.
Mr. EVERETT. Long range, it continues the quota indefinitely. How can it be the cheaper price when the market loan discontinues the quota after 5 years?
Page 43 PREV PAGE TOP OF DOC Mr. ADKISON. Well, we were looking at it from this Farm Bill instead of looking at it 20 years from now. We were looking down the road to give the farmers the best program we could have in this Farm Bill, because we know when the next Farm Bill comes up, we don't know what we will be facing.
Mr. EVERETT. I yield back.
Mr. BISHOP. OK. Your proposal, how does it help the producer who rents the quota but produces lots of peanuts as compared to the other proposal? It seems like in that proposal you make more people happy. You encourage the young farmers; you give them an opportunity. The farmers who do not own a lot of quota, but who are able to rent land to produce peanuts, it seems as if they get some reward; and the people who actually own quota will get some compensation for the quota that they own, it seems to me. And the shellers and the manufacturers seem to be moving more toward a lower cost of getting their raw materials.
It seems to me that you are satisfying a bigger segment of the industry with that proposal than you would by maintaining the existing concept, which is basically a continuation of the program as it used to be.
Mr. ADKISON. Our proposal does not prevent anybody from planting peanuts. He can plant all he wants. He has a market going into the loan. He has signed a contract with the shellers with the marketing loan. We see the after-payment going to the landowner and not to the grower.
So I fail to see, unless you own quota, where that after-payment was going to do the grower any good.
Mr. BISHOP. Right. It will not. But that is what concerns me. What I think is going to be raised when the proposal that you offer from the National Grower Group is scrutinized, which segments of the industry will be best served? Where will the most good come? Will it be focused with a small group or will it be focused to benefit the entire industry?
Page 44 PREV PAGE TOP OF DOC I do not have the answers to those questions, but those are serious questions which I think everybody is going to want to have answered. Will more people benefit from one proposal as compared to the other?
Mr. Chairman, I yield back.
Mr. EVERETT. Mr. Hayes.
Mr. HAYES. Thank you, Mr. Chairman, for bringing this matter to the table.
And thank you, Mr. Adkison and Mr. Fincher, for being here to testify for us today.
I spent a good deal of time in discussion with my good friend Bob Sutter about the issue and feature for the peanut growers; and I might just add at this point, I cannot imagine a committee in this Congress that is more concerned with the welfare and the impact on the farm community of what we do. So unanimity of purpose within this group, regardless of party or region, is very, very strong.
From that point my problem arises, and that is, you gentlemen represent two distinctly different points of view. Mr. Sanford Bishop has pointed out very well the difficulty that we have in carrying these somewhat complexit might not be complex to you, but when you take it across the street, it becomes complex for people to understand and to get that 218 votes that we need in order to do what is best for the farm community.
That is his point and my point.
And I would simply ask you all, again with all due respect and having thanked you for coming and for your input, how can you leave here today and go back to your growers and your farmers and everybody involved and presentwell, let's call it like it isa more unified, a significantly more unified approach to what you want us to take to the Congress and sell, which will benefit everybody involved, particularly the farmer in the peanut industry?
Page 45 PREV PAGE TOP OF DOC Mr. ADKISON. If you are looking at cost, I think we have got the best program, as I stated. If you are looking at what the grower, the actual peanut growers want, it is our proposal by about 75 to 80 percent. So we are a National Peanut Grower Group. We represent the growers, and that is what we are doing.
Mr. HAYES. What do you think, Mr. Fincher? My peanut farmers, I do not see an 80 percent agreement rate among them.
Mr. FINCHER. No, sir, there is not an 80 percent agreement. Where I think he is coming up with 80 percent, the National Grower Group, which is a self-appointed group to represent the peanut growers, the growers do not vote on these National Grower Group members so they kind of do their thing. And being out from all areas, you have got one or two on there representing them.
We are not represented by the National Peanut Growers Group. Now, in Texas, we are producingthe Western Peanut Growers and the Panhandle Peanut Producers Board is producing 80 percent of the peanuts in Texas. You take the Southwest, we are producing 64 percent of the peanuts in the total Southwest, and we are not represented by the National Growers Group.
So our proposal, the reason we come forward with it, is that we felt that was the way the growers were telling us to go. If we are going to lose our quota, we would like to be paid for it. And by this decoupling paymentthey keep talking about the AMTA payment. I don't know where the AMTA payment is coming from if our statement shows it will be a decoupling payment which will last 5 years.
Mr. HAYES. I appreciate your input. You are doing a good job of making my point for me.
Mr. Chairman, I know you are concerned with this, and there are certainly assets within staff and other areas here that can help you all after this public airing of our concerns to again reach a consensus that we can carry across the street and do what is best for the peanut farmer.
Page 46 PREV PAGE TOP OF DOC I yield back. Thank you.
Mr. EVERETT. Thank you.
Mr. ETHERIDGE. Thank you, Mr. Chairman. Let me thank you also for pulling this together. Let me add my voice of support to what the ranking member said earlier. I think he is absolutely on target. When we are dealing with issues of this importance to the future of this country and our farmers, I for one would like to know what the administration's policy is on it and their position before we finish to markup.
The issue on MAP funding was brought up earlier. I introduced legislation increasingit was about 200 millionseveral years ago. It has been chewed away to about 80 million. The truth is that we have MAP funding because we do not have good trade policy; and the farmers are on the end of the whipping stick of all of that, and we wind up putting money in to try to promote overseas. I hope we will deal with that.
Let me ask each of you quickly, I understand from your testimony thatover and over that the United States is the world's largest market for edible peanuts, and that edible use of peanuts in the rest of the world, in all the rest of the world, equals that of the United States.
Why is that and why are peanuts, regardless of where they are grown, not consumed in a greater number outside the United States, if you know that answer? And if you do not, I hope you will get it back to me in writing.
Mr. ADKISON. I do not know that answer.
Mr. FINCHER. I do not know that answer.
Mr. ETHERIDGE. Well, it seems we are talking about going back to the 1996 farm bill, one which I have said was freedom to go broke, not freedom to make a living; otherwise, we would not have put billions and billions of dollars in to save farmers.
Page 47 PREV PAGE TOP OF DOC We have a couple of programs at least to keep farmers making some money. I happen to have tobacco and some peanuts in my district, and we are talking about doing away with those and putting them on the world market, when we do not really know why more peanuts are not consumed outside the United States, the places we are talking about growing those peanuts for. It seems to me that we ought to know that fact before we jump off the cliff. I hope you will get that back to me.
Mr. Fincher, if I could ask you a questionif somebody has already answered this question, I will move on. I apologize; I was in a Science Committee meeting in a markup.
Your testimony calls for transition payment to peanut quota holders at a level of 14 cents a pound per year for at least 5 years, based on the 2001 levels of 1.280 tons. And you say it will cost about $348.4 million a year, or $2.4 billion, assuming the life up. Where are we talking about that money coming from, out of the money set aside for the new farm bill?
Mr. FINCHER. Yes, sir.
Mr. ETHERIDGE. OK. I just wanted clarify that to make sure.
Mr. Adkison, if you would, as you know, Congress has moved more commodities into the free market through the Freedom to Farm Act, and I have said it before, I think it has been a freedom to go broke because of where so many farmers have gone as a result of the world market. Program crops grown receive the fixed AMTA payments and have access to marketing loans.
Since Congress has had to pay out an additional $25 billion in payments to farmers, we note that Freedom to Farm has not been the success it was predicted to be in 1996.
Now, the proposal that Mr. Fincher has outlined sounds very similar to what we did in 1996. Are you afraid that what happened in program crops this past several years could happen to peanuts if we implement this program? And let me go one step farther and say, wheat now it takes almost a bushel and a half of wheat to buy a loaf of bread. I know who is not getting the money out of that. But very few millers and very few retailers are going out of business.
Page 48 PREV PAGE TOP OF DOC Corn is less than it costs to buy a bag of cornmeal, and on down the list. Soybeans. And I love to eat candy and I love peanuts, but if they increase a penny or two, I will pay for them. But I guarantee you the farmer is not getting that. Your comment?
Mr. ADKISON. We do feel that the AMTA people are not faring very well at all either. All the other crops, cotton and corn, are differentI know for corn. Our group does not want to see peanuts get under AMTA. You come within Appropriations. We would like to see a bill that would be stable for the life of the farm bill. Whatever we come up with for the peanut grower, it would be a reasonable price for the farmer and the processor, the sheller, everybody. We could all live. We want to live and let live.
Mr. ETHERIDGE. Thank you. I yield back.
Mr. EVERETT. Mrs. Clayton. We are privileged to have Mrs. Clayton here, a valued member of the full committee, not a member of the subcommittee. But we are pleased to have her.
Mrs. CLAYTON. Thank you for allowing me to sit in and make a comment.
I do not have a question, but I am always intrigued. Mr. Bishop calculated his percentage; his district is the largest growing district of peanuts, and he and Chairman Everett have 70 percent, so the rest of us divide the other 30 percent? Is that how it goes, Mr. Bishop?
We join him in being in support of our peanut farmers, but I must say we recognize that we are in a different political environment and we have struggled with that. I have a lot of peanut farmers, and we are trying to find an equitable position where the producer, as well as everyone else who is in that chain, is protected.
And we do need to have some compromise between the two positions, or just recognize that those of us who are your strongest advocates are having a difficult time in this committeeand I am not on this committee, but the committee as a whole. You have to get out of this committee first. And those of us who struggle on the floor to get those three extra votes, some of us know we had to beg for those three extra votes for people who we know are not going to be with us this next time.
Page 49 PREV PAGE TOP OF DOC They come from urban areas. The reason why they need to do some things with urban people is they need those votes. That is why the nutritional program is very important.
There are only 50 members of this committee, and this committee is not fully imbued with the importance of our peanut farmers. So there is a real need for the understanding that it is an uphill battle. And I do not want to discourage anyone, but I do want to put it in the perspective of the timetable we have. The challenge is that the farm bill should be written and completed before we go on our August recess. That is the end of July. And this committee is charged with getting a proposal out that they think can pass out of this committee. Then the committee as a whole is charged with getting a farm bill that they think they can get 218 votes with all the components in the farm bill.
So those of us who represent a lot of peanut farmers are struggling, trying to have you help us as to how do we best craft that position. There are good points in both of these proposals, but the reality is that the quota, if you ask for the status quo, and then ask for more money, it does fly in the face of the reality.
But if you can makeand I think our colleague from Florida asked the question that is going to be asked: How do you rationalize this program in light of all the other programs that are not being subsidized? We have three subsidy programs, the quota program, subsidy programs we call themsugar, peanuts and tobacco. I am real lucky; I have two of them. I have an uphill battle with both of them.
But we need to find how we really work with this in the reality of the farm bill. And the farm bill is going to be completed in the next month, so we need your thinking critically early.
And I am empathic with all factors of the peanut industry. I am particularly empathic and well know that my first priorityresponsibility is the producer. And I know that the producer is really the one that is getting short shrift in this whole structure.
Page 50 PREV PAGE TOP OF DOC There is a question as to how much you should grow. I mean, the flexibility, Mr. Chairman, that you talk about is problematic. Part of the reason we havepart of our problem is our prices, that we have overproduced. And part of it is that we have overproduced cotton, cotton goes down; and overproduced soybeans, and the price goes down. And now we overproduce peanuts and the price goes down. The flexibility of doing so much from pillar to post does say that you have to take the risk of producing for the market, and if everyone else does that, then there is a tendency to overproduce, and you take the consequences.
This committee and Congress has been bailing farmers out when they do that. In the last 3 years, there have been $9 million, $6 million, over $26 million because of flexibility in the price support. And I do think we need to find a way to put a safety net to that. Indeed, when farmers get in trouble, we have an obligation, not because the farmers get in trouble, but because we have an obligation to secure the food security of this Nation.
And so, in that respect, there is a public need for us to be engaged, but we should not encourage habits or practices that mean that once we have let that happen and you have proceeded down that road and you cannot make money, then immediately the Federal Government has to bail you out because that has been the practice we have had.
So, Mr. Chairman, thank you again. And I want to work with the committee and work with my peanut farmers to see how we can best save them and, obviously, the industry.
Mr. EVERETT. I thank the gentlewoman for her comments. They are well placed.
You guys have been on the hot seat long enough, and we have some more questions. What I will do, I have a number of questions that I have and I am sure some of the other panel members have, and we will submit those questions to you. And I will give you a short time frame. I am going to ask you to please respond to those questions within 14 days after you receive the questions. And I appreciate it, and I appreciate your appearing here today. Thank you.
Page 51 PREV PAGE TOP OF DOC I will now call panel 3: Mr. Evans Plowden, general counsel, American Peanut Shellers Association of Albany, Georgia; and Mr. Ben Smith, board member, American Peanut Product Manufacturers, Inc. out of Columbus, Georgia.
STATEMENT OF EVANS PLOWDEN, GENERAL COUNSEL, AMERICAN PEANUT SHELLERS ASSOCIATION, ALBANY, GA
Mr. PLOWDEN. Thank you, Mr. Chairman. I appreciate the opportunity to be here. The members of our organization handle about 90 percent of the peanuts produced in the United States. So we obviously have a vital interest in what this committee and this Congress is doing and is going to do with the Peanut Program.
As Mr. Etheridge indicated earlier, the United States is the market for edible peanuts. The rest of the world is about equal to that. And if I have time left, I will try to respond to Mr. Etheridge's question.
In the past, this market has been protected, as you know. That is not true anymore. It is not protected from imports; we have got NAFTA now. We have got peanut-containing products that can come in, and we have WTO.
The best of my information is, that is not going to turn around. In fact, it probably will continue. We will be more open to imports than we have in the past. And NAFTA will allow unlimited imports of kernels. Now, there are unlimited imports of peanut butter from Mexico, made from Mexican peanuts, and the chairman has already alluded to the issue with Mexico and NAFTA. So I don't think anybody disagrees with the circumstances in which we find ourselves.
The disagreement, if there is one, is in the remedy. If we continue the way we are, we are going to lose the export market and we will continue to gradually lose the domestic market.
Page 52 PREV PAGE TOP OF DOC As you know, the price of U.S. peanuts is higher than the world market, but that is not true onlyI am not talking, Mr. Chairman, only about the support price here. We have got a price structure that builds in extra cost not only because of the price support system, and it does not benefit the grower. We have got antiquated regulations and procedures and entities that have grown up while this program has been in effect that add no benefit to anybody. They add cost to the system and, therefore, make our peanut less competitive while, at the same time, providing no benefit to the farmer. They are counterproductive and, frankly, fly in the face of innovation and efficiency.
Let me hasten to say, Mr. Chairman, I am not talking about food safety matters or environmental matters. I am talking about procedures that have developed to solve a problem that may have at one time existed and no longer exists, or procedures that were to solve a problem that can now, with the technological advances that we have seen over the last 50 years, can now be resolved in a more efficient and better way.
The peanut industry in the United States from a regulatory standpoint is really in the 1950's and the 1960's, and yet our competition worldwide is in the 21st century. So I would urge the committee, when it considers significant reform, which would seem to be what everybody is proposing, regardless of whether Mr. Fincher's or Mr. Adkison's program is adopted. Certainly those are significant reforms, and we would urge the committee in making its reforms not only to reform with respect to a competitive price, because of the trade agreement, but also create either the legislation or the environment that unneeded and costly procedures and structures that now exist are reformed or eliminated.
We support, the American Peanut Shellers Association supports and our members support the marketing loan concept that was proposed in the testimony of Mr. Fincher. We believe it is the best way to preserve the peanut industry in the United States. However, I would have to say to you that we have some concern. We believe there is some danger during the adjustment from our current supply management system to a marketing loan program that overproduction may occur, and our segment of the industryhandlers, shellersare quite concerned with these prospects of overproduction.
Page 53 PREV PAGE TOP OF DOC We would expect an increase in demand, both because we will recapture import, we should take that market back, and we will have some increase in demand as well.
So we think that there will be an increase in demand, but we do not think it will be enough to offset the prospect of overproduction. That would increase government cost and it would also be detrimental to shellers and growers.
Mr. Chairman, I see that I am about out of time, so I will quickly say with respect to the overproduction issue that we would suggest to the committee that it might want to consider a transition from our current system to a marketing loan system in which the marketing loan was available in traditional geographical growing areas. It would be only as a tradition, and it would prevent a fairly dramatic disruption of infrastructure and employment. A lot of that has built up around the current system, and we think it would be wise to move in some transition from the current system to a marketing loan system.
I see my time is up. I would be glad to answer, or try to answer, any questions the chairman or any member of the committee may have.
[The prepared statement of Mr. Plowden appears at the conclusion of the hearing:]
Mr. EVERETT. Thank you very much.
Mr. Smith, good to see you again. I don't think we have had the pleasure since 1995 in Albany, and I think you were president of the organization at that time. But it is good to see you again. Proceed.
STATEMENT OF BEN SMITH, BOARD MEMBER, AMERICAN PEANUT PRODUCT MANUFACTURERS, INC., COLUMBUS, GA
Mr. SMITH. Thank you, Mr. Chairman and members of the committee. It is good to be back before your subcommittee again.
Page 54 PREV PAGE TOP OF DOC My name is Ben Smith, manager of peanut operations for Tom's Foods in Columbus, Georgia. I have been involved in the peanut business for over 30 years and am a long-time member of the American Peanut Product Manufacturers.
I am here today on behalf of the APPMI to express the organization's view about the current peanut price support program and the need to institute market-oriented reforms of the program so that everyone in the peanut chain, from the farmers to shellers to employees in the food industry to consumers, can share the fruits of a growing and prosperous peanut industry.
The Peanut Product Manufacturers want to be a part of a viable industry that has a strong future of growth. As a peanut product manufacturer in south Georgia, I have lived and worked among peanut growers all of my business life, so I know that the commodity programs and policies are critical to the local communities. It has been difficult for me to witness the effect of governmental policies that restrict crop production and keep prices at economically unjustifiable levels. Surely, this is a prescription for the demise of an industry and, thus, a serious situation for the countless families that derive their livelihood from it.
I believe that the peanut industry, likewise, can and should unite in support of a new Peanut Program that benefits all segments of the industry. Today, more than any time since the Peanut Program was established, I sense that there is a real commitment on the part of most of those in the industry to do just that. In fact, Mr. Chairman, today you are witnessing a historic moment with all three segments of the peanut industrygrowers, shellers and manufacturersstrongly supporting a single Peanut Program, the marketing loan.
Peanut growers from Georgia, Florida, and west Texas have proposed a marketing loan program to take the place of the current Peanut Program. Shellers have endorsed this approach, and we, as manufacturers, endorse it as well. Peanut manufacturers are aware that a market loan program would eliminate the traditional domestic quota and that this peanut quota has been capitalized into the value of the quota owner's land. And additionally, financial institutions have lent money based upon these assets.
Page 55 PREV PAGE TOP OF DOC We understand that the elimination of the quota system will be for quota owners the same as depreciating a vested property right conferred on them by the Federal Government. Therefore, a decoupling payment should be made available to quota owners in order to compensate them for the loss in their capitalized value. Furthermore, we think this decoupling payment should not be subject to payment limitations.
There are several reasons to move from a quota-based program to market loan. The North American Free Trade agreement, NAFTA, changed the game for the peanut industry by setting in motion a lowering of tariffs on peanut imports from Mexico. In 2003, peanut butter from Mexico will enter the United States duty free, and the over-quota tariff rate will be low enough for peanut kernels from Mexico to begin entering the U.S. market in more significant quantities. In 2008, Mexican peanuts will be allowed to enter the U.S. market in unlimited quantities. Therefore, the time to act is now to ensure that U.S. growers will remain competitive.
U.S. peanut growers can no longer rely on the quota system, which limits domestic production in concert with higher tariffs on peanut imports to provide a shield to healthy competition. Since the U.S. peanut growers produce some of the best-quality peanuts in the world, U.S. peanut product manufacturers continue to prefer purchasing domestically produced peanuts. Furthermore, the opportunity is ripe for peanut growers to quickly move to a competitive program before its foreign competitors capture too large a share of U.S. and international peanut markets.
As Congress is in the process of developing a Peanut Program that will keep the American peanut producer competitive in both the domestic and export markets, it is very important that at the same time Congress make a constructive evaluation of any nonvalue-added cost regulations such as, for example, those required by the Peanut Administrative Committee.
In conclusion, there are two competing Peanut Program proposals before the committee today, one which turns the hands of the clock backward and makes the current situation worse versus one which is more consistent with other commodity programs and creates opportunity for those up and down the peanut chain.
Page 56 PREV PAGE TOP OF DOC APPMI believes the choice is obvious. A marketing loan will place the Peanut Program on a sound basis for the future by making it consistent with farm programs of other basic agriculture commodities. This approach will enable the American peanut industry to thrive for the next decade.
I thank you for the opportunity to express our opinions and will be available for any questions that you might have.
[The prepared statement of Mr. Smith appears at the conclusion of the hearing:]
Mr. EVERETT. I thank you. I have no questions. I just would comment that my personal goal, and I am sure the goal of this subcommittee and the full committee, is to make sure that the peanut industry remains in the United States. I do not have to tell this particular panel that my allegiance has always been to the producerI think you know that very welland it continues that way today.
But this is kind of a historic moment in the peanut industry in that we do have, at least in one of the proposals, all segments of the industry coming together.
And at the end of this, I don't know what is going to happen, but I do appreciate your testimony here today.
Mr. BISHOP. Let me just echo what the chairman has said. I think it is indeed a historic moment. I have been on this committee now for 9 years, and we have been talking to various representatives of the peanut industry, and it is alwayswhenever we get all segments in the room together, almost a situation where we needed a referee. But today it is really historic that we have been able to hear from these panels a proposal which all segments of the industry agree on.
Of course, I know that there are two proposals, and I know that we have got to look very closely at both of those proposals. But I am just pleased that the industry seems to be coming together, because it is very, very vital in the context of these trade agreements that we are faced with that we preserve the peanut industry in America because of all of the jobs and the impact that it will have.
Page 57 PREV PAGE TOP OF DOC So I just want to thank you for what you have done to make it possible and for bringing us these proposals. And please continue to work at it, so that we, hopefully, can find a consensus among all of the groups in the industry. Thank you.
Mr. EVERETT. Mr. Chambliss.
Mr. CHAMBLISS. Mr. Chairman, I understand your policy. I do have one quick question that I think will get a yes or no from Ben.
First of all, to both of these guys let me say, we appreciate you being here. Evans has been my friend longer than either one of us want to remember, 35 years I guess, and a great working relationship. And Ben, we have been on the opposite side of issueson this issue, but Ben is a great leader for his industry, and I appreciate his honesty and forthrightness.
Ben, let me just ask you one direct question that I think you can answer yes or no. That is, if we go back to the old program, have a $780 price with 2 percent escalator clause in there, what would your segment of the industry do? Would they support that or oppose that?
Mr. SMITH. I think they would oppose it.
Mr. CHAMBLISS. OK. And my comment is, I think one thing that we need to understand in this processand you guys, I think, have hit on it directly, particularly Evans, in your comments about having an antiquated program that had regulations that do not work and whatnot.
We are not talking about an either/or situation. We are not talking about this proposal that come from GFA and the Southwestern Growers Association and others, versus the proposal that came from Mr. Fincher's group that he represented. It is not that we are going to take one or the other.
We are talking about policy changes and we are absolutely right. We are dealing with regulations that are 60-year-old regulations. And we are in a different atmosphere right now, political atmosphere. That is true. But still we have farmers that are operating in the 21st century and they are not operating in 60-year-old conditions on their farms. And we have got to bring all of our programs, furthermore, and make sure that we give our farmers policy that will allow them to compete in the marketplace. It does not make any difference whether it is the domestic marketplace or the world marketplace, but we have got to change policy.
Page 58 PREV PAGE TOP OF DOC And the proposal from Mr. Fincher's group does change policy, and it improves policy in my opinion. It may not be the ultimate answer, but it does change policy. And I think that is the key difference here that, Evans, you did hit on when you talked about the regulations that we have to operate within and your industry has to particularly deal with on a day-to-day basis; and I think that is critical.
Thank you all for your long-standing work and relationship and, gee whiz, what a change in the day to have everybody in the industry from grower to sheller to manufacturer come forward with a proposal as opposed to three different proposals and throwing rocks and daggers at each other. I commend you all for the work you have done in coming forward.
Mr. EVERETT. Mr. Stenholm.
Mr. STENHOLM. After the last comment, I do not want to rain on everybody's parade today, so I will just say the same thing. It is kind of nice to see everybody at least in the same book if not on the same page. That is something we have never heard before.
But I feel compelled to make an observation, because I was asked by another peanut producer last week, we are telling you what we want and what we need, but somebody is going to have to tell us what we can get. And with all due respect, the budget does not allow the kind of a consensus that has developed, not just on peanuts but on cotton and wheat and corn and all of the commodities.
When the Conservation Subcommittee held its hearing the request for conservation needs of our producing lands in this country came to $80 billion, and that is about $6.5 billion more than we have got. With all the euphoria about how good Freedom to Farm has worked, let me point out to my colleagues that we last yearnet farm income, it took 52 percent of taxpayer monies to get net farm income up to a record low.
And now we are asking the same thing for peanuts. We are asking to put ourselves in the same position of competing in the world market.
Page 59 PREV PAGE TOP OF DOC Mr. Plowden, Mr. Smith, your testimony is right on target, but sometimes I think those of you who use that which we produce are going to have to start answering one question that I have been posing to everyone: How can you expect us to compete with Mexican peanuts when the value of the peso is 50 percent of the dollar? How can we be expected to compete with Canadian lumber and Canadian wheat when the value of the Canadian dollar is 40 percent of the U.S. dollar?
When we are talking about producers that are selling to you that are having to buy and sell on this market, competing in that export market, when the only differenceassuming that we get equitable treatment between producers in our trade agreement, there can be as much as a 50 percent difference in currency. How can we be expected or should we be expected to compete under those circumstances without subsidization, which you have provided for the market loan we provide?
I notice that you are critical of the $780-a-ton support price, but I don't believe you are critical of the $780 if it is a market loan that allows you to buy the peanuts at $500. Am I correct?
Mr. SMITH. Yes.
Mr. STENHOLM. Why?
Mr. Smith. Obviously the $780 proposal shifts much of the cost to the consumer, as opposed to
Mr. STENHOLM. Which shifts it to the taxpayer.
Mr. SMITH. Which is a larger base. And there is a significant justification, I think, for us to maintain an infrastructure of domestic food production in the national interest of this country, as opposed to allowing that food production to be supplied primarily from importation. And we think that there is ample justification in respect to national security policy to maintain our domestic food production infrastructure. And if that takes some moving of the commodity to a wider base, the tax base, we think that is an appropriate philosophy.
Page 60 PREV PAGE TOP OF DOC Mr. STENHOLM. You do not know how much I appreciate hearing you say that, Mr. Smith.
Mr. Plowden, we have kind of been on the opposite side for 23 years on many of these issues. My only regret isnot only you, I am not picking on you any more than I am picking on a lot of other folks in this.
I wish you had been here when we were debating the budget. I have supported a budget that provided a little bit more resources for it, because I could see this coming. But my friends on the other side of the aisle thought we could do with less, and it is really going to put the pressure on us now.
And I am committed to living with the budget; I guarantee you, we are going to live with the budget. But I think we are going to have to change our expectations somewhat, all of us, about how we do that without further wrecking producer income. It is totally unrealistic, and there is no supportive evidence that I have seen anywhere in any of our commodities that we can change anything on price and be more competitive in the international marketplace.
If somebody out thereany time I say no way, nowhere, then I get prepared to be corrected; and I am saying this for the benefit of everybody listening. There are a lot of folks.
Show me where we can ever be competitive and gain market share by strictly lowering our price. Because I think that is going to be critical to the debate that we are going to have to have. So I am asking and begging and pleading for people to come and show where, by lowering the price to our producers, we are going to gain consumption. It has not happened over the last 25 years.
I want to see what can be done to change it today, because if not, we are going to have the disaster that you yourself have not testified to. I know the time is out, but I appreciated very much the spirit of both of your testimonies today, the spirit that has gone into the differing grower group. We still don't have consensus, but I think we are getting there.
Page 61 PREV PAGE TOP OF DOC It is helpful for you to take the attitude that you have taken today, and I look forward to working with you to solve the difficult problems that this budget has created doing the things that we have to have to have a sustainable peanut industry.
Mr. EVERETT. I certainly appreciate the ranking member not raining on our parade. And I find some comments made here today from people who supported NAFTA and the lowering of the trade barriers in some cases amusing.
Let me say that we havein closing, I would like to urge the two different producer groups to come to some kind of consensus and do it quickly. The full committee has asked the commodity groups to come up with a united position for their individual commodities, and it was done by every other commodity group with the exception of peanuts; an internal peanut proposal was not presented to the full committee.
Chairman Combest has set out a very ambitious schedule for us, and we are to complete the farm program in July, by the end of July. This committee has to make a recommendation to the full committee prior to that point. So we have a little time yet, and I hope we will take advantage of that time.
We have had some tough questions here today. I have had to ask close friends tough questions, but that is part of the job. I think I have been surprised that in all the publications I have received concerning peanuts that there has not been one single mention of the Shays bill, which is the only bill out there that, frankly, has had any support from Members of Congress up to this point.
And so we have an awareness now today that that Shays bill is alive and well. And it will compete against whichever of the amendments, the proposals that go before the Congress in all likelihood. So I thank you for being here today.
Without objection, the record for today's hearing will remain open for 10 days to receive additional materials supplemental written responses from witnesses to any question posed by a member of the panel.
Page 62 PREV PAGE TOP OF DOC The hearing of the Subcommittee on Specialty Crops and Foreign Agriculture Programs is adjourned. Thank you very much.
[Whereupon, at 12:12 p.m., the subcommittee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Ben Smith
Mr. Chairman and members of the committee: My name is Ben Smith and I am the Manager of Peanut Operations for Tom's Foods of Columbus, Georgia. I have been intimately involved in the peanut business for over 30 years and I am a long-time member of the American Peanut Product Manufacturers, Inc. (APPMI). I am here today on behalf of APPMI to express the organization's views about the current peanut price support program and the need to institute market-oriented reforms of the program so that everyone in the peanut chainfrom farmers to shellers to employees in the food industry to consumerscan share in the fruits of a growing, prosperous peanut industry.
The peanut product manufacturers want to be a part of a healthy, viable industry that has a strong future of growth. As a peanut manufacturer in south Georgia I have worked and lived among growers all of my life, so I know that commodity programs and policies are critical to local communities. It has been difficult for me to witness the effect of government policies that restrict crop production and keep prices at economically unjustifiable levels. Surely, this is a prescription for the demise of an industry and thus a serious situation for the countless families who derive their livelihood from it.
As a Georgian, I also have seen what can happen when all segments of an industry pull together to solve common problems. There is no better example of that than the cotton, where a unified approach to farm policies and programs has led to a resurgence of cotton production in Georgia.
Page 63 PREV PAGE TOP OF DOC I believe that the peanut industry likewise canand shouldunite in support of a new Peanut Program that benefits all segments of the industry. Today, more than any time since the Peanut Program was established, I sense that there is a real commitment on the part of most of those in the industry to do just that. In fact, Mr. Chairman, today you are witnessing an historic moment with all three segments of the peanut industrygrowers, shellers, and manufacturersrallying behind a single Peanut Program, the marketing loan.
Peanut growers from Georgia, Florida and West Texas have proposed a marketing loan program to take the place of the current Peanut Program. Shellers have endorsed this approach. We as manufacturers endorse this approach. And we are willing to sit down anytime, anywhere, with anybody to work out the details of this bold new idea that we think can chart a course of growth and prosperity and fairness for everyone associated with the peanut industry.
A marketing loan program will make U.S. peanut growers competitive with other peanut growers in the international marketplace. The peanut marketing loan program proposed by the Georgia, Florida, and West Texas peanut growers is similar to the current marketing loan programs for cotton, rice, wheat, corn and other commodities. A marketing loan simply authorizes peanut growers to repay their commodity loan at a lower ''market'' level, which will make them competitive with any other growers in the world.
The Marketing Loan. Under a marketing loan program, peanut farmers would no longer be treated differently and a significant component of their cost of productionquota rentwould be eliminated; consumers would benefit from lower peanut prices; U.S. manufacturers would sell more peanut products and thus create more jobs; and U.S. producers of other agricultural commodities would not be compromised in their efforts to find new markets for their commodities.
Page 64 PREV PAGE TOP OF DOC Marketing loans are designed to achieve two goals simultaneouslyto allow the producer to receive no less than the loan rate for their commodity, while letting the price of that commodity respond to market demand. These two goals are achieved by allowing producers to repay their loans at the market price if the market is below the loan rate, and keep the difference. In that way, the Federal Government avoids assuming ownership of the commodityand all the costs and complications of government storage and disposal of surplus inventoriesand stocks can flow freely into market channels. The result is income support without a price floor.
Existing Marketing Loan Features. Marketing loans in the form of nonrecourse loans were made available to producers of wheat, feed grains, upland and extra long staple (ELS) cotton, rice, soybeans and minor oilseeds under the Market Transition Act (AMTA) provisions in the Federal Agricultural Improvement and Reform (FAIR) Act of 1996. Loan rate caps for each of these commodities were specified in the law. Marketing loan repayment provisions apply when market prices drop below the established loan rates.
For all loan commodities, except ELS cotton, USDA must use marketing loan repayment provisions that allow producers the option of repaying marketing loan assistance loans at levels below the original loan rate plus accrued interest. These provisions reduce the chance that commodities pledged as collateral for a marketing assistance loan will become the property of the Federal Government through loan forfeitures.
For farmers who forego the use of marketing assistance loans, loan deficiency payment rules apply. Loan deficiency payments are a commodity payment program authorized by the Food Security Act of 1985 that makes direct payments, equivalent to marketing loan gains, to wheat, feed grain, upland cotton, rice or oilseed producers who agree not to obtain nonrecourse loans, even though they are eligible. The payment rate for loan deficiency payments would be set at the rate needed to make the per unit benefit the same as received by producers who took out loans and repaid them at the marketing loan repayment rates.
Page 65 PREV PAGE TOP OF DOC Marketing Loan as Applied to Peanuts. The peanut loan rate in a marketing loan program would need to be set at a level to have the effect of capturing a much larger share of the world peanut market. This price would certainly be doable, considering that the current support price for quota peanuts is $610 per ton, but the cost of quota rents are estimated to be as high as $240 to $300 per ton. Once the payment of quota rent is eliminated, a major cost of producing peanuts is eliminated. Of course, elimination of the quota would allow efficient farmers to optimize their farming operations by planting more peanuts.
In addition, the marketing assessment on producers and first purchasers of peanuts would be eliminated. Peanut growers and shellers would no longer be required to pay marketing assessments of approximately $10 million annually.
Peanut manufacturers understand that peanut quota has been capitalized into the value of the quota owners' land and that financial institutions have lent money based upon this asset. We understand that doing away with the quota system for quota owners is analogous to the taking away of a vested property right conferred upon them by the Federal Government. Thus, a decoupling payment should be made available to quota owners to compensate them for the government taking of a capitalized property interest. Peanut quotas have been leased, bought, and sold for many years. Many farmers have paid substantial sums for the quota since 1996. Any government compensation for the loss of this property interest should not be subject to payment limitations.
A federally financed buyout of peanut production quotas would qualify for the green box under the Uruguay Round Agreement on Agriculture (URAA). The basic criterion for inclusion in the green box is that policies ''have no, or at most minimal, trade-distorting effects or effects on production.'' Generally, this means that support must be: 1) publicly funded (i.e., not directly funded by consumers), and 2) non-price supporting. A quota buyout would meet these criteria since a buyout would not require anyone to produce or not produce peanuts.
Page 66 PREV PAGE TOP OF DOC Reasons to Move to a Market-Oriented Peanut Program. A key motivation for shifting from a peanut quota program to a marketing loan program is the strong incentive that the current program provides for other countries to increase planted acreage of peanuts as U.S. peanut farmers continue to restrict the amount of peanut acreage. Other U.S. commodity growers have already explicitly recognized that it was not in their interest to manage world supplies by limiting planted acreage only in the United States.
The North American Free Trade Agreement (NAFTA) changed the game for the peanut industry by setting in motion the lowering of tariffs on peanut imports from Mexico. In 2003, peanut butter from Mexico will enter the United States duty-free and the over-quota tariff-rate will be low enough for peanut kernels from Mexico to begin entering the U.S. market in more significant quantities. In 2008, Mexican-origin peanuts will be allowed to enter the U.S. market in unlimited quantities. Therefore, the time to act is now to ensure that U.S. growers will remain competitive.
If peanut growers do not move to some sort of marketing loan program in the upcoming farm bill, they will continue to fuel the growth of production in Argentina, Mexico and other countries, that will increasingly gain expanded access to the U.S. consumer market. New multilateral trade agreements, including upcoming World Trade Organization (WTO) and the Free Trade Area of the Americas (FTAA) agreements have a high probability of reducing very restrictive tariffs on peanut imports into the United States. WTO and FTAA negotiations are likely to lead to more significant tariff reductions on peanut imports because prohibitively high U.S. tariffs on peanut products in excess of 100% stand in stark contrast to minimal or zero tariffs on most other commodities.
If challenged under the WTO, the U.S. Peanut Program could be determined to be in violation of WTO commitments as an export subsidy. In a case brought by the United States against the Canadian two-price dairy program, the WTO ruled that Canada's high domestic price and lower export price constituted an export subsidy. In 1999, Canada agreed to implement reforms in its dairy program to comply with the WTO ruling, and the United States continues to challenge Canada's dairy reforms as inadequate. The U.S. two-tier peanut price support programwhere quota peanuts for domestic edible use receive a high loan rate, while non-quota peanuts for export are eligible for a lower support priceis the same system as the Canadian two-tier pricing program.
Page 67 PREV PAGE TOP OF DOC The on-going WTO and FTAA negotiations, the existing GATT and NAFTA framework, and the upcoming farm bill each separately and in concert present serious challenges for the existing Peanut Program. We are encouraged that many peanut growers have acknowledged that the current commodity policy for peanuts is inconsistent with the existing and future course of world agricultural trade policy.
U.S. peanut growers can no longer rely on a quota system of limits on domestic production imposed by the government and high tariffs on peanut imports to provide a shield to healthy competition. In fact, the Peanut Program is the only remaining food commodity program that continues to rely on a quota system for domestic production. Since U.S. peanut growers produce some of the best quality peanuts in the world, U.S. peanut product manufacturers continue to prefer purchasing domestically produced peanuts. Furthermore, the opportunity is ripe for peanut growers to quickly move to a competitive program before its foreign competitors capture too large a share of the U.S. and international peanut market.
The health of the U.S. peanut industry is dependent on consumer demand. Everything being equal, an expanding demand will generate an expanding industry. The price sensitivity of peanut demand is evidenced by the fact that the 10% quota price reduction in the 1996 FAIR Act led to a 10% growth in peanut usage in the first four years after implementation of the farm bill. In stark contrast, rising peanut quota loan rates in the five years leading up to the 1996 farm bill had caused peanut usage to fall by 16%.
A more significant loan rate reduction will stimulate domestic peanut demand and discourage the growth of peanut imports. If domestic peanut prices were competitive with imported peanuts, U.S. peanut growers could provide the 150,000 to 170,000 tons of farmer stock peanuts supplied by imports.
In addition, the current Peanut Program requires the U.S. Department of Agriculture to purchase higher-priced quota peanuts for its various food assistance programs. Elimination of the peanut quota program would make peanuts more affordable, so USDA would be able to purchased more peanut products, such as peanut butter for the National School Lunch Program and other feeding programs.
Page 68 PREV PAGE TOP OF DOC Clearly, the current Peanut Program is in need of reform. It discriminates unfairly between quota holders and additional peanut growers; it fosters the growth of competing peanut production abroad; it encourages the export of U.S. manufacturing jobs; and it compromises the ability of other U.S. farmers to increase their access to world markets.
Problems with a $780 per ton Support Price and Maintaining a Quota System
The National Peanut Growers Group (NPGG) has an alternative proposal for the Peanut Program. The NPGG recommends a program which maintains the basic quota system of overly restricted production and sets the support price at an unrealistically high level of $780 per ton. This proposal is the antithesis of a market-oriented program and in fact would only hasten the decline of the U.S. peanut industry.
The NPGG proposal continues the current inequity of government treatment between quota and additional growers. Under the NPGG proposal, only quota growers would be allowed to grow peanuts for the domestic edible market. Additional growers would continue to be restricted to growing peanuts for export and crushing and would only be eligible for a much lower loan level. In other words, additional peanut growers would still be denied the opportunity to sell their peanuts in their own country and would be denied benefits provided by the Federal Government to other peanut growers.
There is no precedent in other commodities or in farm policy history for the NPGG proposal. While the proposal is presented as similar to the Cotton Step 2 Program, it is quite different. The Step 2 Program is merely a supplemental program for the cotton marketing loan program. The cotton marketing loan is the vehicle for supporting the income of cotton farmers and keeping the price of cotton competitive in international marketplace. When U.S. cotton is still not competitive in world markets, the Step 2 program makes payments to cotton shippers and others to make cotton competitive.
The NPGG proposal provides a greatly expanded role for area marketing associations. Farmers would no longer be able to sell quota peanuts in the market. All quota peanuts would go to the area associations and shellers could buy quota peanuts only from area associations.
Page 69 PREV PAGE TOP OF DOC There is no precedent in U.S. farm policy for requiring all farmers to sell all of their commodity to designated government-backed associations. There is no other U.S. farm program where a farmer is required to sell their product to the government. In fact, it could be said that the proposal would set up the area marketing associations as state trading enterprises (STEs). Therefore, this proposal runs counter to the efforts of U.S. agricultural trade negotiators to get other countries to dismantle their STEs.
Furthermore, there is no precedent for avoiding the issue of payment limitations by making government payments to the commodity association rather than the farmer. If it were possible to do this to avoid payment limitations, other commodity groups would have established such a mechanism.
Perhaps even more so than the current peanut quota program, the NPGG proposal likely would be determined to be in violation of WTO commitments if challenged, inasmuch as it maintains a two-price system with government payments coupled to production. In the Canadian dairy case, Canada unsuccessfully argued that the Canadian system did not constitute an export subsidy because it did not directly pay farmers to export. A new two-price Peanut Program with payments to farmers coming directly from the Federal Government would be a clear violation of WTO commitments on export subsidies.
Serious Reform or Elimination of the Peanut Administrative Committee
In developing a new Peanut Program, it is critical that Congress focus on removing the unnecessary costs of the current system of marketing peanuts in the United States. One such entity which has unduly raised costs for the peanut industry is the Peanut Administrative Committee (PAC). This quasi-government committee manages U.S. peanut quality standards.
While the PAC may have some legitimate role in overseeing outgoing peanut quality standards, it has no useful purpose in setting incoming quality regulations, especially since it has a track record of making decisions that have stifled progress in the peanut industry. In fact, the PAC has a history of standing in the way of new improvements, innovations and technological advances that could benefit the peanut industry. Therefore, we urge the subcommittee to carefully examine the role of the PAC with a view toward significant reform or elimination of the PAC.
Page 70 PREV PAGE TOP OF DOC The Choice Between Peanut Program Proposals. In conclusion, there are two competing Peanut Program proposals before the committee todayone which turns the hands of the clock backwards and makes the current situation worse versus one which is more consistent with other commodity programs and creates opportunity for all those up and down the peanut chain.
APPMI believes the choice is obvious. We applaud the courage of the Georgia Peanut Commission, the Western Peanut Growers Association, the Florida Peanut Growers Association, the Panhandle Peanut Growers Association, and the Georgia Peanut Producers Association in advocating reforms to the Peanut Program that will allow the industry to become more competitive with foreign producers. A marketing loan will place the Peanut Program on a sound basis for the future by making it consistent with farm programs for other basic agricultural commodities. This approach will enable the American peanut industry to thrive over the next decade.
If the committee is prepared to entertain the marketing loan approach as a way to address the problems of the current Peanut Program, we stand ready to work with you, the members of this Committee, growers, shellers, consumers, and labor unions, to hammer out the details of the marketing loan program, to enact it into law and to get about our businessthe business that is of common interest to us allgrowing the peanut industry.
Thank you for this opportunity to express the views of APPMI. I would be happy to respond to any questions.
Statement of Evans Plowden
Good morning Mr. Chairman. My name is Evans Plowden. I represent the American Peanut Shellers Association. Members of our association handle approximately 90 percent of the peanuts grown in the United States.
We appreciate the opportunity to present our views on peanut legislation to the committee. We obviously have a vital interest in this legislation.
Page 71 PREV PAGE TOP OF DOC The United States is by far the largest market for edible peanuts in the world. In fact, edible uses for peanuts in the rest of the world combined, approximately equals that of the U.S. This market is not only the largest in volume, but the price is almost double that in the rest of the world. Consequently, the U.S. market IS the market for edible peanuts.
Over the last several decades the U.S. market for edible peanuts was protected from significant imports. That is no longer true today. Additionally, products containing peanuts may be imported into the United States without restriction. The consequences of direct kernel and peanut butter imports together with imports of products containing peanuts has eroded the volumes for U.S. growers and shellers. The prospects for the future seem to be much the same. NAFTA now allows unlimited imports of peanut butter made from Mexican peanuts and will soon allow virtually unlimited imports of kernels from Mexico. As you know, there are other trade agreements on the horizon.
There is no real disagreement over these circumstances. Everyone agrees that the price of peanuts in the market place must decline so as to become competitive with peanuts from other origins. Unless that is done the United States industry will lose the export market in the short term and the loss of the domestic market will continue.
The price of U.S. peanuts is higher than the world market, not only because of price supports but also because of a highly complex, set of legal and regulatory procedures administered by entities that have developed over the decades which are no longer useful. These regulations are often counter productive and add to the cost of the finished product. I am not speaking here of food safety or environmental regulations but rather outdated procedures which were instituted in the past to address issues that either no longer exist or because of technological advancement can be addressed in better ways. An example is that because of these outdated regulations in the U.S., we still must keep peanuts identified and preserved on small wagons until dried before purchasing, rather than using modern technology of continuous flow dryers. The peanut industry, from a regulatory standpoint is still operating in the fifties and sixties. We have to compete with people who are operating in the 21st century. It would be an absolute tragedy to make dramatic reforms of the basics of the Peanut Program and then leave in place a bureaucratic structure that is no longer useful but rather counter productive. It prohibits efficiency and adds costs to the benefit of no one.
Page 72 PREV PAGE TOP OF DOC We urge you to be aware that the reforms needed in response to trade agreements include not only price competitiveness but also eliminating unneeded and costly procedures and structures.
It is our view that the marketing loan concept proposed by the testimony of Doyle Fincher is the best approach to preserve the peanut industry in the United States. However, there is some danger that, during the adjustment from the current supply management program to a marketing loan program, overproduction might occur.
Our segment of the industry is quite concerned about the prospects of overproduction. While we would expect an increased market for domestically produced peanuts, both due to a potential increase in demand and due to U.S. peanuts retaking that portion of the market having been lost to imports, we are concerned that production could dramatically outpace even that increased demand. Such overproduction would of course increase government costs but also be quite detrimental to the peanut shelling industry and growers.
In making this adjustment, we support, during a transitional period, eligibility for the marketing loan in those geographical areas of the United States that have traditionally produced peanuts. While there might still be some overproduction in those traditional areas, we believe that the dangers of overproduction would be manageable, peanuts would be orderly marketed and we would not have the large infrastructure and community disruptions that would occur if this transitional step were not taken. Mr. Chairman, I want to emphasize that we see this as a transitional step and that eventually the marketing loan could be available everywhere. However, much infrastructure and employment has developed over the decades of the existing program in the historic growing states and regions and some transition period would be wise.
In closing let me say again that after much thought, we believe that the marketing loan concept is the best way to allow all of us to successfully compete in the biggest and best market in the world.
Page 73 PREV PAGE TOP OF DOC Thank you Mr. Chairman. I will be glad to try to answer any questions you or members of the committee may have.
Statement of Doyle Fincher
Mr. Chairman, members of the subcommittee, I am Doyle Fincher, president of the Western Peanut Growers Association, from Seminole, Texas. Today I am representing a coalition of state peanut organizations from across the country; the Georgia Peanut Commission, the Georgia Peanut Producers Association, the Florida Peanut Producers Association, the Panhandle Peanut Grower Association and the Western Peanut Growers Association. These organizations represent approximately two-thirds of the peanuts produced in the United States.
Also in the hearing room this morning is Armond Morris, chairman of the Georgia Peanut Commission along with three of his Board members, Terry Pickle, president of the Georgia Peanut Producers Association, Terry Canada, president of the Panhandle Peanut Growers Association and Jeff Crawford, executive director of the Florida Peanut Producers Association.
Thank you for allowing us to testify before your Subcommittee on our plan for the future of the Peanut Program. In 1993 and 1994, the passage of the NAFTA and the GATT trade agreements, respectively, changed the way peanut growers have conducted business. Minimum access for other peanut exporting countries caused reductions in our poundage quotas. The export market for U.S. growers is virtually non-existent. Export and domestic marketing promotion monies are the right strategy for the peanut industry but have little chance for success with our current pricing structure.
This is just the beginning of the problem. As tariffs decline under the NAFTA and with the very real prospect of a Free Trade Area of the Americas agreement by 2005, we will see a continued increase in access to our markets by foreign produced peanuts. The current Peanut Program's effectiveness will continue its current downward spiral. This spiral must be stopped.
Page 74 PREV PAGE TOP OF DOC Evidence of this downward trend occurred in the last few appropriation cycles. Peanut growers came to the Congress for help to offset Peanut Program costs for our no net-cost program. If the no net cost program remains in its current form, growers will have to come back to the Congress for help. The losses will increase year after year due to increased imports. This die has been cast. Our coalition of the largest peanut growing areas of the country, producing the majority of U.S. peanuts, wants to break this trend. To save the peanut industry in the United States, we have to develop a Peanut Program that responds to the marketplace. The Congress made sweeping changes to farm programs in 1996 but the Peanut Program remained structurally intact.
Now it is time to transform our program to meet the variables of the future. Are these trade agreements to be reversed? Will the Congress reject the Free Trade Area of the Americas initiative? I think not.
We believe we have a plan that keeps American producers competitive in America and the world marketplace. Let us compete. Let us reverse a trend that does not allow our sons and daughters to come back to the farm, that breeds depression among growers and prevents any form of long-term business planning. Our proposal is a plan for the future.
The first part of our plan is to establish transition payments based on the historic quota. The quota would be suspended just as bases were in the last farm bill. Payments would be made to the quota holder for the life of the farm bill, not less than five years, at a level of 14 cents per pound per year. Peanut quotas have been capitalized into farm values and in many cases producers carry debt based on the purchase of these quotas. These quota holder payments need to be made exclusive of payment limits. The 14 cent annual payment is an approximate average peanut lease rate in the State of Georgia, the largest peanut producing state.
Page 75 PREV PAGE TOP OF DOC For our cost estimate, we use the 2001 quota level of 1,280,000 tons (1,180,000 tons of quota + 100,000 tons of temporary seed quota) of farmer stock peanuts. This resulted in a projected annual Government cost of approximately $358,400,000 per year. Since these payments would be decoupled from production, they would not be subject to any WTO constraints. For purposes of this transition payment, the quota should be held at the 2001 level for the life of the bill.
MARKETING LOAN PROPOSAL
The second component of our plan is to establish a Marketing Loan Program for peanuts, the same structure developed by this Committee for other commodities. After grower meetings in counties across the country, we suggest a $500 loan rate. We feel based on a Texas A & M study that this is a reasonable level in comparison to other commodity program prices. (See Attachment 1) This level of support provides growers a safety net while allowing growers to compete in the market with foreign imported peanuts.
Payments, resulting from the marketing loan, should not be subject to payment limitations. Farmers have had to get larger to survive. Still, these farms are family farms that need some form of safety net on all of the commodities they produce. The current payment limit structure inhibits farmers from obtaining adequate financing at local banks in many cases. If the elimination of payment limits cannot be accomplished in this farm bill, we propose that the payments would be in the form of generic certificates that allow the grower marketing options to manage the payment limits.
Because we are significantly reducing our support rate, we request the Committee consider an annual escalator based on increases or decreases in the cost of production that would be applied to the marketing loan rate. This would to be tied to the consumer price index with a maximum increase or decrease of 2% per year of the total loan rate.
Page 76 PREV PAGE TOP OF DOC We have included a chart with the potential Government exposure using data from the University of Georgia and the U.S. Department of Agriculture. In developing these cost estimates, production figures from each peanut producing state have been based on that state's maximum annual production during the period 1978 to 2000. (See attachment 2) The total U.S. production based on these figures amounts to 2,700,000 tons which reflects a 50 percent increase in production over the current production level. The peanut production of many states today is significantly below the maximum it attained in the past that has been used in our cost estimates. The estimated cost of our proposed marketing loan program should be approximately $350, 000,000 per year. The repayment price would be based on the World Market Price using Rotterdam as a reference point. This does not reflect any increase in the marketing loan rate over the life of the legislation.
We understand that in making this transition to a more market-oriented program, there are some questions that will not be answered until the new program is in place. For that reason we are also suggesting a safeguard against excessive government costs.
Currently, we are charged with $347 million for our level of support under the Uruguay round of the GATT. We suggest if Loan Deficiency Payments exceed $350 million, the Secretary of Agriculture is given the authority to limit loan eligibility based on prior production history. This would involve structuring an inactive base, proven recent production history, that only becomes active in the event the Secretary determines that it is necessary for the U.S. to stay within its GATT commitments.
Mr. Chairman, as peanut leaders, this has been a difficult road in determining the best program proposal for the future of the peanut industry. We believe we are on the right track in developing a program that works for growers.
We recognize the investments in quota over the years and have sought a remedy to protect those investors. Our highest priority is the future of the industry. We will gain back the consumption lost to imports and at the same time will be more competitive in the export market. This program will put more money back into our rural communities as our growers prosper.
Page 77 PREV PAGE TOP OF DOC Again, I appreciate you allowing us to present our testimony this morning. We are glad to answer any questions from you or the committee members.
Statement of Dykes Adkison
Thank you, Mr. Chairman, for this opportunity to discuss options for a new farm bill. Peanut producers want and need your support.
My name is Dykes Adkison, I am farmer from Elba, Alabama.
I am here today representing the National Peanut Growers Group and my purpose is to help sustain thousands of active farm families in peanut production. Our organization is the only national peanut producer organization and represents all of the Nation's peanut producing families. We are governed by a farmer-selected steering committee made up of representatives from grower-elected association boards all across the peanut growing regions.
The NPGG is made up of the following organizations: Alabama Peanut Producers, Georgia Agriculture Commodity Commission For Peanuts, GFA Peanut Association, Georgia Peanut Producers Association, Texas Peanut Growers Association, Southwestern Peanut Growers Association, Oklahoma Peanut Growers Association, Virginia Peanut Growers Association, Inc., North Carolina Peanut Growers Association, Peanut Growers Cooperative Marketing Association, New Mexico Peanut Growers Association, South Carolina Peanut Board, and Florida Peanut Producers Association.
Mr. Chairman, the Peanut Program is absolutely necessary to peanut producers. U.S. producers are dependent on the Program and in turn, so are hundreds of rural communities that are supported by peanut growing families and support industries associated with peanut production and marketing. Additionally consumers and manufacturers are dependent upon a program that provides a safe and economical supply of peanuts.
The peanut farmer is a family producer and a solid citizen in his community. However, that small family producer must work an entire year to produce a crop that, because of its perishable nature, must be sold almost immediately at harvest. We are told that about 80 percent of U.S. peanuts are sold to only two processing companies. One of these companies is owned by the Nation's largest agri-business processor. These shelling companies in turn sell to various product manufacturers. Again, this portion of the peanut industry is dominated by ''very'' big business. Six multinational billion dollar corporations purchase 75 percent to 80 percent of the domestically used peanuts.
Page 78 PREV PAGE TOP OF DOC What marketing ability does a small family farmer have in this situation? The clear answer is very little, without the Peanut Program. We are deeply dependent on, and appreciative to this Committee for the Peanut Program.
There are strong consumer benefits to the Peanut Program also. Consumers benefit greatly from the Peanut Program because, to receive program benefits, peanut producers must produce a consistent supply and comply with one of the strictest quality programs in agriculture. This steady supply has held prices in check and avoided the ''boom and bust'' that has plagued other commodities. The result has been that peanut butter is one of the least expensive protein sources in the U.S. diet and peanuts are the least expensive nut for a snack food.
Mr. Chairman, just as the recent trade agreements have not been kind to peanut producers, neither has the current farm program. As compared with the program before current law, peanut producers have lost 10 percent of the peanut support price, resulting in a loss in income of millions of dollars to peanut producers. Growers also lost the escalator provision in this current program, thus the peanut support price, and thus farm income from peanuts has been frozen since 1996.
And Mr. Chairman, there has been essentially no benefit to the housewife from these losses to producers. Consumer peanut and peanut prices have risen since 1996.
The current situation, Mr. Chairman, adds to the economic difficulty facing peanut farmers today. Every farm input has increased since 1996. I know you are fully aware of the dramatic increase in fuel costs that farmers faced last year and the outlook is only for more increases in fuel costs. This factor alone will force many producers off their farms this year.
Mr. Chairman, we have two recommendations for this Committee, short term and long term.
Page 79 PREV PAGE TOP OF DOC Short term, if a new farm policy cannot be developed quickly, then peanut producers must again receive market loss payments as has been made available the last two years. Again, Mr. Chairman, we are deeply appreciative to you and this Committee for helping make those payments available to peanut producers, and ask that consideration be given to doubling those payments this year. It is only in this manner that economic losses faced by peanut farmers from current policy can be offset.
In the long term, Mr. Chairman, despite the value of the Peanut Program, peanut producers realize the political realities in Washington involving budgets, trade agreements, and anti-program proponents. The National Peanut Growers Group has voted on various options for consideration as a new farm bill begins, and present to you today a description of the option we feel is best for the taxpayer, consumer, processor, manufacturer, and most importantly the farmer.
This is a serious matter for producers, Mr. Chairman. Today, we are facing oversupply stemming from record high peanut imports, and record high peanut butter imports. GATT and NAFTA were not kind to peanut producers as it is projected we will lose to imports more than 10 percent of our domestic market over the next several years. We make these recommendations with this increased competition in mind.
Marketing Competitiveness Option
In reviewing the options to make producers competitive with imports and at the same time offering the consumer a product with no domestic price disadvantage, the Step-Two Concept/Market Competitiveness Option (similar to cotton) is viewed as the most viable option by the National Peanut Growers Group.
Under the Market Competitiveness/Step-Two Option, producers are offered a price support level that will allow them to keep up with the cost of production. Additionally, the processor will be afforded a peanut that is priced competitively to imports. This will also answer consumer advocacy groups that wrongly contend that U.S. peanuts artificially drive up retail prices, although we believe this is not the case. Finally, we believe the cost associated with this option will be below the current WTO support levels attributed to peanuts.
Page 80 PREV PAGE TOP OF DOC Since the world edible market is primarily in the U.S., it is important that we work to keep domestic peanuts into our home market as well as the world market. The Market Competitiveness/Step-Two Option was offered by the 21st Century Production Agriculture as an option, that while similar to the Cotton program, it would stimulate the purchase of U.S. peanut domestically at a competitive price. Under the current program, quota or domestic peanuts are generally priced at a level that is above the world price due to U.S. production costs, regulations and various other reasons. This option would allow the domestic poundages to be bought at a price competitive with other origins.
The quality of U.S. produced peanuts continues to be generally superior to imported peanuts. A domestic competitiveness option for peanuts would be helpful to processors and would ensure that U.S. consumers continue to have high quality peanuts available. The processor would be buying based upon quality and delivery.
The introduction of a domestic Market Competitiveness/Step-Two Option creates a viable domestic support rate, when adjusted for cost of production it also means a more viable producer. Secondly, the peanuts could then be bought by a processor at a determined competitive price rate. Differences between the support rate and adjusted price would be a program cost that is estimated to be lower that WTO attributed spending for peanuts. The price could be determined by using an average import price, North American Import price, and a converted Rotterdam market price. We realize that developing a world price mechanism is important, but is also difficult considering that there are limited price discovery markets for peanuts.
Under this concept the producer would not receive a direct government payment and thus would not be affected by payment limits or annual Appropriation battles. Marketing options for any production above domestic consumption levels then could be enhanced by an increased loan level for additional or export production.
One mechanism for delivery of the domestic support rate would be through established CCC draft mechanisms, utilizing the area marketing associations. The processor would then repay the CCC for delivered domestic peanuts at an established price level. This would eliminate any government dollars from moving into processor hands.
Page 81 PREV PAGE TOP OF DOC As was mentioned earlier, estimated Program cost should be less than the $347 million attributed to U.S. Peanut Program Support. If the cost adjusted domestic price support rate for the producer was $0.39 per pound or $780 per farmers stock ton and the determined world price was $.25 per pound or $500 per ton (average converted price including C.I.F.) the competitiveness costs would $.14 per pound or $280 per ton. Therefore, there would be a cost of $336 million ($280 per ton times 1.2 million tons of domestic consumption).
The competitivesness provision is also a cost containment provision. By limiting domestic support to domestic average consumption, the cost of this option is limited.
In addition to providing the producer a cost of production adjusted support rate, the processor is buying on quality and delivery. Therefore, there would be no price incentive to purchase foreign peanuts, and reduce the need for tariffs that are currently being reduced under trade agreements. At the same time this would not be considered trade distorting, because there is only leveling of the market and not undercutting the market.
Although the NPGG did not specifically address what are currently referred to as additional peanuts, there are ways to assist in marketing peanuts for the export market. Peanuts produced primarily for the export market could then be supported at a higher rate using an optional marketing loan concept. If an export loan level was in place, the producer could have the choice to produce for the world export or utilize the Association pools. The export market would be made more attractive by an improved loan rate, without relying solely on a purchaser contract. Costs are estimated to be minimal because the market would dictate production for the export market. Additionally, the support rate expense would be offset by returns from alternative oil and meal markets that is closely priced to the export support rate and export loan sales.
Other items that were deemed important for producer survival were cost management, and maintaining high product quality. We feel the best cost containment tool is the use of a supply management mechanism. This is not to control the amount of peanuts grown, but to control the amount eligible for domestic support. There would be no planting restrictions. However, only an amount equal to domestic consumption would be eligible for the domestic support rate with Competitive Option.
Page 82 PREV PAGE TOP OF DOC Furthermore, if buyers are going to make purchasing decisions based on quality, the NPGG feels they must maintain the current grading system. The Federal/Sate Inspection Service is a pivotal part of delivering quality peanuts to the processor.
As was mentioned earlier, peanut farmers have lost a great deal of income since 1995. In part due to the cuts in price in the budget driven 1996 farm bill, but also partly because of a frozen loan rate. Therefore, a price support adjustment is needed. The NPGG supports a farmer stock support rate of $0.39 per pound. Additionally , we support a cost of production adjustment provision that would be adjusted annually at a rate of not less than two percent using the Consumer Price Index.
It is also important there be an adequate supply of peanuts for the domestic market. Therefore, we recommend that peanuts grown for export would be allowed to move into the domestic market if a shortage occurred.
The Market Competitiveness/Step-Two option brings about a condition enabling the producer to stay viable and to keep up with cost of production. At the same time there is maintance of the base structure of the Peanut Program with more flexibility and competitevness. With no direct payment there is no payment limit problems or AMTA cost. The processor will be able to buy the domestic peanut at a level competitive with imports, thus eliminating the price incentive for foreign peanuts. This option also creates minimal government outlays with postive returns for the producer, processor, manufacturer, and consumer.
Mr. Chairman we developed these recommendations with cost considerations in mind while we support the elimination of the no-net-cost provision, we have taken a step towards being competitive, all this with the taxpayer, consumer, processor, manufacturer and farmer in mind.
Mr. Chairman, on behalf of the National Peanut Growers Group we thank you for this opportunity.
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FORMULATION OF THE 2002 FARM BILL
(AGRICULTURE TRADE PROGRAMS)
THURSDAY, JUNE 28, 2001
House of Representatives,
Subcommittee on Specialty Crops,
and Foreign Agriculture Programs,
Committee on Agriculture,
The subcommittee met, pursuant to call, at 10:12 a.m., in room 1300 of the Longworth House Office Building, Hon. Terry Everett (chairman of the subcommittee) presiding.
Present: Representatives: Everett, Fletcher, Rehberg, Condit, Etheridge, and Lucas of Kentucky.
Staff present: Pelham Straughn, subcommittee staff director; Lynn Gallagher, Jason Vaillancourt, Callista Gingrich, chief clerk; and Andy Baker.
OPENING STATEMENT OF HON. TERRY EVERETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALABAMA
Mr. EVERETT. Good morning. This hearing of the Subcommittee on Specialty Crops and Foreign Agriculture Programs to review foreign agriculture trade programs will come to order. I would like to thank the witnesses for coming together, especially Under Secretary Penn, for coming up to the Hill.
As you know, we are all still carrying on with the ambitious schedule Chairman Combest has set for us to mark up a new farm bill by start of the August recess. This hearing to review USDA's export and market promotion programs is a part of that process.
Page 84 PREV PAGE TOP OF DOC As we are all aware, America's farmers and ranchers have entered into a new period, where to be successful they must not only fulfill this country's demand for food and fiber, but also must compete at an international level. The House Agriculture Committee has long sought ways to expand our overseas market share and ways to combat unfair trade practices.
I truly believe the United States' farmers and ranchers can compete with farmers and ranchers in any country. They have shown that. But they should not be forced to compete with other governments.
We must consider our global competition when we discuss our export programs. The EU in 1998 spent nearly $6 billion in export subsidies. The United States only spent 146 million. I do not think that we should lower our export program levels without the EU doing the same, and I certainly do not think we should do so before we go into the next round of negotiations.
It is now time to follow through with the promises we made our farmers and ranchers. Let us push for export programs that strengthen our economy and benefit the hard-working American farmer and ranchers.
And the Chair would request all members submit their opening statements for the record so that the witnesses may begin their testimony to ensure we have ample time for questions.
[The prepared statement of Mr. Putnam follows:]
PREPARED STATEMENT OF HON. ADAM H. PUTNAM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA
Thank you for holding this hearing to explore ways in which American agricultural producers can better develop foreign markets abroad and increases our international export capacities.
Foreign agricultural trade programs such as the Market Access Program help to open valuable international markets and assist our farmers and ranchers in promoting U.S. products globally through consumer promotions, market research, and technical assistance. It is estimated that the return on the MAP's investment has been 7 to 1, that is for every MAP dollar; the agricultural producer receives $7 in return.
Page 85 PREV PAGE TOP OF DOC Many regions throughout the country benefit from the MAP's employment and economic effects from expanded agricultural export markets. In 2000, agricultural exports totaled over $50 billion, generating 814,720 full time jobs, including 513,274 off-farm sector positions. However, agricultural exports have fallen off in recent years, and there is much work to be done to open foreign markets for American agricultural goods.
While the Uruguay Round Agreement on Agriculture requires reductions in direct export subsidies, no direct reductions were required in market promotion programs such as MAP. Hence, the Market Access Program is an excellent tool the United States may utilize and remain within prescribed spending limits. It is also relevant to recognize that European Union subsidizes many of their agricultural productsincluding fruits and vegetablesby billions of dollars annually. It is extremely difficult for our producers to compete against such practices and that why it is more important than ever to provide marketing assistance to our agricultural producers.
The Market Access Program has been an extremely useful tool to enhance the value of citrus exports and create new markets for agricultural products in my state of Florida. Through the MAP, the Florida citrus industry has been able to dramatically expand the sales of Florida citrus products around the world. The program has played and integral role in nearly tripling the value of fresh Florida grapefruit exports since the program's origination.
Florida citrus growers understand the importance of this program, and that is why today the Federal MAP dollars that assist citrus exports are matched over 100 percent by grower dollars. The MAP assists all producers, from the smallest to the largest grower. The MAP is the type of export assistance, that the U.S. Department of Agriculture should pursue in assisting American agriculture to compete against unfair trade barriers and maintain a positive balance of trade.
The Agricultural Market Development Act, H.R. 98, which I have cosponsored, that would build on the successes of the MAP by expanding MAP funding from its current authorized level of $90 million to $200 million to allow for further exports of U.S. agricultural goods abroad. I urge my colleagues to consider expansion of the Market Access Program in the farm bill and I look forward to working with the subcommittee and the full committee in the weeks to come on this important issue.
Page 86 PREV PAGE TOP OF DOC
Mr. EVERETT. At this time I would like to welcome my friend and neighbor, Congressman Allen Boyd from the Second Congressional District of Florida. And, Allen, if you will proceed. And before I start that, let me tell all panel members, including Members of the Congress, that we will strictly adhere to the 5-minute rule. Thank you.
OPENING STATEMENT OF HON. ALLEN BOYD, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA
Mr. BOYD. Thank you very much, Mr. Chairman, Congressman Etheridge. I have submitted a written statement for the record and I will try to summarize very briefly that statement. I appreciate the opportunity to come before you today, and I do that on behalf of myself and Congressman Doc Hastings of Washington, who has co-authored the bill with me.
As you know, Mr. Chairman, I have spent my entire professional life in agriculture and we watched with interest the 1996 FAIR Act, so-called Freedom to Farm Act. And I think that most of us would agree that it has been a failure for agriculture. That act was based on several principlesthe principle of flexibility, obviously, which it did give our farmers; the principle of opening world markets, more trade; the principle of less Government regulation, and the principle alsoit eliminated the Government safety net programs. And what I want to concentrate on, of course, today is the world markets, the trade issue.
Mr. Chairman, traditionally, the agricultural trade surplus, as you know, has been central to keeping our balance of trade deficits low. Since 1998, though, agricultural exports have fallen dramatically and imports have increased. As a matter of fact, from 1998 to 1999, the agricultural trade surplus decreased from $14.8 billion to $10.3 billion. That is the smallest in the last decade.
Mr. Chairman, the Market Access Program, which I am here to discuss today, works. It assists producers in developing foreign markets through consumer promotions, market research, and technical assistance. As you know, Mr. Chairman, it has a 50-percent match which the participants in the program must meet.
Page 87 PREV PAGE TOP OF DOC In 1998, our competitors outspent us in market research and consumer promotion 4 to 1. Let me give you an example. The EU spends $100 million to promote its agricultural products in the United States alone. That is more than the United States spends on the entire MAP for the whole world.
That is why Doc Hastings and I have introduced H.R. 98, to restore the amount of funding available for the Market Access Program to its original 1991 authorization level, up to $200 million, not less than $90 million; a minimum of $35 million on foreign marketFMDP. And it also permits use of the unexpended EEP funds for MAP or FMDP.
Right now, foreign countries directly subsidize their agricultural exports and spend far more than we do promoting their products abroad. If our farm programs are to work, Mr. Chairman, we must do a better job in this area.
MAP, and FMDP are the only available programs that give our farmers a chance to compete on a level playing field in the global marketplace.
Mr. Chairman, I am going to try to catch you up on your time. I know you are a little bit behind and I am going to close my remarks by urging your support of H.R. 98 and the inclusion of its provisions in the upcoming farm bill. I would be glad to answer any questions, Mr. Chairman.
[The prepared statement of Mr. Boyd follows:]
STATEMENT OF HON. ALLEN BOYD, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA
Good morning Mr. Chairman and distinguished subcommittee members. I would like to thank you for the opportunity to address your panel.
The test of any farm policy is how it performs in a depressed market, and unfortunately, as we have seen, the 1996 farm bill has failed to sufficiently protect our Nation's farmers. While the Nation's economy as a whole is booming, rural America continues to suffer a severe economic depression. Markets are crumbling, prices are continuing to drop and America's family farmers are struggling for survival.
Page 88 PREV PAGE TOP OF DOC As many of you know, I believe the role of the Federal Government in American agriculture is to enhance the quality of life for our citizens, support production of agriculture and provide economic opportunities for farm and rural residents to ensure we do not become dependent on foreign governments for our food supply. It is a national security issue. In order to ensure a safe, affordable, nutritious and accessible domestic food supply, Federal farm programs should provide an economic safety net for farmers and ranchers and help open, expand and maintain global market opportunities for agriculture producers. This safety net is a vital component of a stable domestic farm economy.
It is this last point I would like to bring to the subcommittee's attention. In the midst of periodic global economic turmoil and trade wars, one such common sense program is workingand working wellto develop foreign markets for U.S. agricultural goods. The Market Access Program successfully helps our farmers export their products globally. MAP partners with our agricultural producers to develop foreign markets by assisting them in promoting their products abroad through consumer promotions, market research and technical assistance. Participants in the program are required to provide matching funds of up to 50 percent of the program costs.
All regions of the country benefit from the program's employment and economic effects through expanded agricultural export markets. In 1998, agricultural exports totaled $53.6 billion, generating 814,720 full-time American jobs, including 513,274 off-farm sector jobs. Agricultural exports have fallen dramatically in recent years, decreasing by 7 percent, or $3.5 billion from 1998 to 1999. At the same time, agriculture imports have increased by $800 million. This has brought the U.S. agricultural trade surplus down from $14.8 billion in 1998 to $10.3 billion in 1999. This is the smallest U.S. trade surplus in the past decade.
While some progress has been made through trade agreements, there is still much to be done to open foreign markets to American agricultural products. Although the Uruguay Round discipline has decreased direct export subsidies such as the Export Enhancement Program, no reductions are required in green-box market promotion programs such as MAP which are not under WTO scrutiny.
Page 89 PREV PAGE TOP OF DOC In 1998 competitors outspent the United States by nearly 4 to 1. Total foreign expenditures for export promotion were over $1 billion compared to U.S. expenditures of $287 million. Our farmers are currently trading with countries that spend 20 times more on agriculture export subsidies and market promotion expenditures than the United States. The European Union currently spends $100 million to promote their agriculture product sales in the U.S. alone. That is 10 percent more than the United States spends on its MAP promotion program for the entire world.
Congressman Doc Hastings and I have introduced legislation, H.R. 98, the Agricultural Market Access and Development Act, to restore the amount of funding available for MAP to its original 1991 authorization level.
Specifically, the bill would authorize the Secretary of Agriculture to spend up to $200 million on MAP, but not less than the current $90 million, to help small businesses, cooperatives and organizations that represent U.S. agriculture producers promote their products overseas. Likewise, this legislation would also set a minimum of $35 million to be spent on the promotion of U.S. bulk commodities overseas through the Foreign Market Development Program. Finally, H.R. 98 permits the use of unexpended Export Enhancement Program Funds for the MAP or FMDP. Formerly, EEP funds were used to subsidize U.S. exports to make them more competitive; but unfortunately, were subject to discipline in the Uruguay Round, classified as amber box, and slated for reduction. These unused funds usually amount up to $500 million a year.
Right now, foreign countries directly subsidize their agricultural exports and spend far more than the U.S. each year promoting their products abroad. MAP and FMDP are the only available programs that give our farmers the chance to compete on a level playing field in the global marketplace. MAP is a good program and one that is critical if our farmers want to gain access to new markets. It is a program that provides benefits to virtually all types of commodities from every corner of our country including fruits, nuts, vegetables, all sorts of grains, cotton, catfish, livestock, seafood, dairy, timber, seeds and the list goes on.
Page 90 PREV PAGE TOP OF DOC In my State, the citrus industry has been particularly successful in their efforts to gain access to new markets in Asia for example, through their participation in MAP. Additionally, while the tomato industry in Florida has been largely devastated as a result of the North American Free Trade Agreement, they have formed a successful MAP partnership with their colleagues in California to create new markets promoting U.S. tomatoes in Canada and Japan. I mention the tomato industry example to underline the fundamental significance of not only free trade, but fair trade. Given the growing access of foreign producers to U.S. markets, our American producers must have to means to develop and access markets around the world in order to compete and survive. The type of success achieved by the Florida citrus industry helps explain why, each year, every available penny of MAP funds are allocated for export promotion activities. Clearly, this is a vital tool for American farmers in developing new markets for U.S. agriculture.
It is time to expand this program so more American farmers and ranchers can benefit from it and be successful in promoting their products abroad. I strongly urge your support of H.R. 98 and the inclusion of its provisions in the upcoming farm bill.
I thank the committee for its time and consideration.
Mr. EVERETT. Thank you very much. Does any member have any questions for our distinguished guest?
Mr. ETHERIDGE. Mr. Chairman, only to thank him and to let him know that this member certainly supports that I have been a strong supporter that MAP was underfunded. But I would also say to you that I have been pushing and have introduced legislation also on MAP to include tobacco that has been left out. And then, as we do that, I would certainly want to make sure that that is included in the funding increase that we put in there. Thank you, Mr. Chairman.
Mr. LUCAS of Kentucky. Yes. Mr. Chairman, I am also very supportive of what the gentleman has had to say.
Page 91 PREV PAGE TOP OF DOC Mr. EVERETT. Well, I think you have got some approval here today and we thank you for appearing.
Mr. BOYD. Thank you, Mr. Chairman. And I also thank Mr. Etheridge and my friend, Mr. Lucas from Kentucky.
Mr. EVERETT. Thank you. We now call the second panel, the Honorable J.B. Penn, Under Secretary of Farm and Foreign Agricultural Services, U.S. Department of Agriculture. Mr. Under Secretary, if you will.
STATEMENT OF J.B. PENN, UNDERSECRETARY, FARM AND FOREIGN AGRICULTURAL SERVICES, U.S. DEPARTMENT OF AGRICULTURE
Mr. PENN. Thank you. It is a pleasure for me to be here today to discuss the Department's export, trade, and promotion programs. And I will try to brief and we will submit the longer statement for the record.
Let me begin by noting that trade continues to be a vitally important aspect in terms of the long-term economic health of the U.S. food and agriculture sector. Last year, our exports were $51 billion. This year, we expect them to be $53.5 billion, and that will produce a trade surplus, as the Congressman noted, of $14.5 billion. And the agriculture sector is one of the few sectors in the economy that consistently produces a trade surplus.
So we think that providing our exporters with the tools to expand their foreign sales and to take advantage of new market opportunities is the goal of the trade title of the FAIR Act of 1996. When you note that most of the world's consumers, 96 percent, live outside the United States, most of them are in developing countries where any increases in incomes are spent for food. That makes that a very vital aspect of the U.S. agricultural marketing strategy. And a significant proportion of our farm and food system, perhaps as much as one-third, is already oriented to these markets.
Page 92 PREV PAGE TOP OF DOC The 1996 legislation continued the basic agricultural export programs that were first set forth in the Food Security Act of 1985. And that law specifically authorized the Export Enhancement Program, the Dairy Export Incentive Program, the Targeted Export Assistance Program, which is now the MAP, and it modified several other trade tools such as the CCC Export Credit Guarantee Program.
Well, the basic philosophy behind trade legislation has changed very little since 1985 and the various programs have not been modified very much. But in sharp contrast to that, we note that the global trade environment and the U.S. food and agricultural system have changed very markedly.
Today, U.S. agriculture operates in a global, high-tech, consumer-driven environment. Capital, technology, and information flow instantly between buyer and seller. Consumer demands are constantly changing. They are challenging market institutions and traditional ways of doing business. And multinational companies today are processing and sourcing products from all over the world, which they, in turn, sell throughout the world. And it is in a marketplace that is driven by consumers who demand quality, safety, health, and convenience while still being very price conscious.
In 1985, very few us new about a lot of the changes that would occur, such as the Internet, which is now a very necessary business tool. Biotechnology, at that time, was still on the distant horizon, and today it is generating new products that make farmers more productive and promise to makepromise to provide consumers with enormous benefits. And it is also, I might add, producing enormous controversy.
Well, let me just, for a moment, note a little bit about trade performance since 1985 when these programs were reauthorized. In 1985, the NAFTA was still 10 years away and the Uruguay Round had not even been started and it was not concluded until 1994. And in 1985, we had exports in that year of $31 billion. And I would not that 64 percent of those were bulk exports, 15 percent were high-value. Today, the proportions have flipped. Bulk has fallen to 37 percent and the high-value processed exports are 42 percent of the total. So have seen a big shift in the composition of our exports.
Page 93 PREV PAGE TOP OF DOC Second, we have seen a big shift in the markets and our customers. Japan, of course, continues to be the top market for U.S. food and agricultural products, but other markets have been growing in importance. In 1985, Canada and Mexico accounted for only 11 percent of our export sales. Today, they are over 25 percent. And we have got a lot of new markets in which we have seen significant growth, particularly in Asia and, notably, China, the Philippines, and Indonesia.
So these exports are very important to the total U.S. economy, not just to the farm sector. But our analysis suggests that there is a big multiplier effectthat for every dollar of exports, there is an additional $1.39 cents that is generated in other activity throughout the economy. So overall, these exports are worth some $130 billion to the U.S. economy. They generate over 800,000 jobs. A lot of these jobs are in rural areas.
So the global marketplace is very highly dynamic and, if we are to stay competitive, we have to be proactive. Unfortunately, we have seen our share of world agricultural trade fall from 24 percent in 1985 to 18 percent today. Our exports are still rising, but they are rising at a slower rate than other countries.
At the Department now, we are focusing very carefully on our trade strategy and what that trade strategy should be. And let me just say that we have some very good markets, some very big markets, but they are very mature markets, such as Japan and Europe. And our strategy is to maintain those markets, but, at the same time, focus increasingly on the fast-growing markets in Asia and that are largely in some of the developing countries.
Now, as we look at reauthorizing the trade title of the farm bill, I must note that there are some other activities that are going along at the same time. There is the trade promotion authority initiative that is underway now. There is the Free Trade Areas, the Free Trade Area of the Americas negotiations ongoing, the launch of a new trade round under the WTO, continued examination of our export credit guarantees, and the administration has underway a comprehensive review of the foreign aid programs.
Page 94 PREV PAGE TOP OF DOC So I would say, in conclusion, Mr. Chairman, that while the trade title have served U.S. food and agriculture very able since 1985, we now have an opportunity to step back and review all of those programs in the light of this changed global trade context.
And some of the considerations that we would suggest to this committee are given our WTO commitments and our
Mr. EVERETT. I would ask the gentleman to sum up, if you will. Your complete record statement will be put into the record.
Mr. PENN. OK. But let me just say, Mr. Chairman, that we do think this is a good opportunity to review all of these programs. That the world has changed very significantly since many of them were authorized. And we look forward to working with this committee in trying to develop this title of the farm bill. Thank you.
[The prepared statement of Mr. Penn appears at the conclusion of the hearing.
Mr. EVERETT. Thank you very much, Mr. Under Secretary. Let me ask youthe issue of export subsidies beingmainly be an issue between the United States which retains legislative authority to use its export subsidy programs, such as the Export Enhancement Program, the Dairy Export Incentive Program, and theand on the other hand, the European Union, which continues to subsidize heavily a broad range of agricultural commodities, do you see a willingness on the part of the EU to accept tighter discipline on its agricultural export subsidies?
Mr. PENN. Well, I am very optimistic as we go into this next round that we can build on the progress that was made in the Uruguay Round. And I think, as you note, that the European Union is one of the trading regions of the world. It continues to subsidize products, continues to have trade-distorting supports, and we think there is some significant gain that can be made there during the negotiations.
Page 95 PREV PAGE TOP OF DOC Mr. EVERETT. In other words, you do see that willingness on their part. Have you had direct conversations with them already thatwhere they have indicated that willingness?
Mr. PENN. Well, Mr. Chairman, as you know, we are beginning a negotiating round that nobody wants to show their hand going into the round. And, of course, the European leaders are not saying up front what they are going to do. But we do think, looking at the situation very strategically, that there is an opportunity for them to make some reforms that would be to the advantage of U.S. producers and to the global trading regime.
Mr. EVERETT. Well, I am glad to hear that because there is certainly a feeling up here on the Hill that we may be disarmed before we go into these negotiations or as we approach these negotiations. And I would hope that that is not the intent and that it would not happen.
Mr. PENN. That is not our intent.
Mr. EVERETT. I think you will see the Congress become interested in these negotiations if they go home. And I predict that there will be some trouble in passing further initiatives if the American farmer is not treated a little bit better on this. Mr. Condit.
Mr. CONDIT. Mr. Chairman, I would like to go ahead and let Mr. Etheridge ask questions since he has been here for awhile.
Mr. EVERETT. Mr. Etheridge.
Mr. ETHERIDGE. Thank you, Mr. Chairman and I thank my colleague for yielding.
Mr. Under Secretary, thank you for being here and, Mr. Chairman, thank you for holding these hearings. I think it is important that we get them in before we start on the farm bill. One thing I would just remind you, Mr. Penn, if I may, because I believe if Mr. Stenholm was here, he would repeat itas we get ready for this farm bill, it really would be helpful to us, to those of us who are members, to know what the administration and the Department plans to do as we get ready to get rolling. So I hope we will hear from you in that regard on a broader range of issues.
Page 96 PREV PAGE TOP OF DOC But specifically, let me touch on the issue. Just a few minutes ago, Mr. Boyd was here talking about the Market Access Program, or MAP, and when the Secretary was before the full committee last month, I raised the issue for her, when she was talking about Free Trade of the Americas. I have introduced legislation, H.R. 1610, because under current law, for a specific commodity, tobacco, they cannot use the MAP, and this would help relieve that ban. And I asked the Secretary if she would look at that bill and let me hear back, and I have not heard. And if you would, please, prod that, I would like to know where that is so we will know as we start to move the legislation.
As you also know, there is nothing in the permanent law that could prevent the leaf exporters from taking advantage of other programs, such as Foreign Market Development Programs and GSM credits. However, each year, the agriculture appropriations bill contains riders prohibiting the Department from spending funds to promote the sale of tobacco, thereby cutting off foreign access to these programs to our farmers.
And it is my understanding that even if these riders were removed, the USDA would not allow tobacco leave exporters to take advantage of GSM credits due to a problem in the past with exporters bringing in foreign tobacco, blending it with U.S. tobacco leaves, and then export it using GSM credits.
Can you talk more about this concern that USDA has regarding the use of these credits thatand then tell me what the administration's position on having these riders removed to allow our farmers to participate in these markets? Because it really is a tool that would help the farmers who pay an awful lot of taxes in this country.
Mr. PENN. Well, Mr. Etheridge, I am not prepared to talk about that this morning, but I will certainly look into that and we will send you a response. But I just simply haven't been there long enough to get into all of those programs and all those details. Also, I will remind the Secretary of the commitment. And I do know that there is a review underway of tobacco's eligibility in all of the Department's programs. There are meetings and discussions being held about that and we should have something to report data very soon.
Page 97 PREV PAGE TOP OF DOC Mr. ETHERIDGE. A follow-up on that. Would it be possible for me to get that response prior to the markup on the farm bill?
Mr. PENN. We will try. We will do our very best.
Mr. ETHERIDGE. It would be kind of hard to get it after we have written it.
Mr. PENN. Yes.
Mr. ETHERIDGE. So I can anticipate receiving it then. Thank you, sir.
Mr. PENN. Yes, sir. Thank you.
Mr. ETHERIDGE. In your testimony, you mentioned that USDA has a working group to develop a proposal for a new farm bill, and I mentioned this earlier, but I didn't go into detail. Can you give us an estimate as to when we might expect to see that written proposal if you kow?
Mr. PENN. Yes. I very much appreciate your strong interest, and we have received Mr. Stenholm's message, and we have received Mr. Combest's time table. And so we are working as hard as we possibly can to try to develop our views on the farm bill, and we hope to provide those the week before the markup. And we don't have a firm date for that markup, but we are planning to offer our input on the commodities title and on the conservation title for sure before the markup. It is not practical, nor possible, as you know, for us to develop a full-blown proposal given the time that we have had and the resources that we have available. So we are going to try to provide our input in the form of a principles or a guidance book, if you will.
Mr. ETHERIDGE. Thank you. And I think it would be important, because I would hate for us to move and not allowed you the opportunity to make the input that I think is important for the administration now. Thank you, and thank you, Mr. Chairman.
Mr. PENN. We appreciate that.
Page 98 PREV PAGE TOP OF DOC Mr. EVERETT. Thank you. And I will tell all members, if we need a second round, we will have one. Mr. Lucas.
Mr. LUCAS of Kentucky. Mr. Chairman, I share my colleague, Mr. Etheridge's, concern about seeing that these riders are removed for the leaf tobacco. He is concerned about Flue-cured and I think Mr. Fletcher and I are concerned about the burley. So I share his concerns as well.
Mr. EVERETT. And, Mr. Fletcher, I suspect we are going to hear something similar. The gentleman is recognized for 5 minutes.
Mr. FLETCHER. Well, thank you, Mr. Chairman. Sorry I was a little delayed here, but appreciate your holding this hearing and the work you are doing. Certainly trade is very important. As we have seen, our burley growers have a reduction of quota of about 50 percent since 1997, and very little effort, actually no effort, made for helping with export. I know there are some concerns aboutexpressed in the last administration about health. Actually, our tobacco appears to be lower in nicotine and thereby having a less additive properties than some of the foreign tobacco.
I would hope that withunder MAP and the other Export Enhancement Program that we would give it due consideration. It would have a tremendous impact on our farmers back home, the burley growers and the flue-cured tobacco folks as well. And let me ask you, Mr. Under Secretary, if you have, I don't know, any comments or thoughts on that issue.
Mr. PENN. Well, I could just repeat what I said to Congressman Etheridge.
Mr. FLETCHER. Well, I can actuallylet me read that testimony since I was late, butunless you would like to make further comment on that.
Mr. PENN. No. We are looking into those issues.
Mr. FLETCHER. Thank you. Mr. Chairman, if I might add one more question.
Page 99 PREV PAGE TOP OF DOC Mr. EVERETT. Yes. Certainly.
Mr. FLETCHER. Let me ask you this. On the tobacco program we have price support systems here. I don't know if you have any experience on that, but how does that affect our ability to export tobacco and maybe the price differentials from overseas tobacco? What do you see thatand not only that, our price support system, how would that roll into some of the trade agreements, as far as where would that fall in consideration with WTO, et cetera?
Mr. PENN. Well, let me tell you, at the outset, I would make no claim to having a very good understanding of the tobacco programs. But being an economist, I can, I think, convey that it has been our experience with virtually all of the price support programs that when they hold the domestic price above the world market price, that that encourages imports and it certainly makes our product less competitive and much more difficult to export. And I think from the economics literature, that is generally the consensus with respect to the tobacco program, that the high internal price supports have been an impediment to competitiveness and to exporting the product.
Mr. FLETCHER. Do you think any changes in the Export Enhancement Program might overcome some of that problem?
Mr. PENN. Well, I think it is possible, but you also suggested the involvement with the trade policy and the WTO and the trade commitments and many of these kinds of programs are deemed to be trade-distorting and, of course, count against our obligations under the Uruguay Round. And so it is very difficult to devise programs that offset the impact of the price support program and help promote exports.
Mr. FLETCHER. Let me ask one other thing, Mr. Chairman, if I might, about the Uruguay Round and the TRQs that were set on the back underneath that. Since that agreement was made, we continue to increase the importation of foreign tobacco and decrease the amount of domestic tobacco that we are buying. So it seems that at the same time that we are not opening up markets overseas, we are importing more, which has a detrimental effect on our farmers. Any comment on that?
Page 100 PREV PAGE TOP OF DOC Mr. PENN. Well, on the tobacco one, I think you stated very correctly that we are importing more and more tobacco because our tobacco is more and more expensive relative to offshore tobacco. And, of course, we import the cheaper product. Because our tobacco is priced higher than the world market price, it is very difficult for us to export. Even if markets were open, it is very difficult to export.
Mr. FLETCHER. But with our TRQs, it seems like we set up a disequity here, inequity, in the sense that if we support our prices, that we open up our borders. I know a lot of companies use other measures to make sure they protect their farmers in particular areas. And there has seemed to be a marked inconsistency in the last administration and I would hope that you all take a very serious look at that and try to have a more consistent policy that takes into the effect the well-being of our farmers. Thank you.
Mr. PENN. Thank you.
Mr. EVERETT. Mr. Condit.
Mr. CONDIT. Thank you, Mr. Secretary, for being here today and I appreciate your time. I want to follow up kind of the line of where Mr. Fletcher was going. I will say this to the Secretary of Agriculture, as well, whenever the appropriate time. But it seems that some of us that represent agricultural areas are extremely concerned about the process by which those of you who were in the negotiating room when FTAA and WTO and all the trade agreements were made, how aggressive you are going to be with our trade representatives, because they look at total. They look at all the industries. And it seems to some of us that when you lump them all together that agriculture gets the short end of the stick. We believe that that has been the case with the last administration and the administration before that. At least, I do. And I think there are other members who think the same way.
So all I want to know from you is to get a comment from you about the process, and I want to know the intensity of people who represent us, us, meaning the agriculture industry, whether you are going to fight, whether you are going to make sure that we get a fair shake and that the other industries in this country, which California has a lot of them. They all want fair shakes toobut it seems to me we are the first ones that they take off the table. And so I just wanted you to maybe respond to me what the process is for the negotiations and what the give and take is with our trade representatives.
Page 101 PREV PAGE TOP OF DOC Mr. PENN. Well, thanks, Congressman. I think that is a fair comment, a fair question. The new administration, I think, has brought renewed enthusiasm and vigor, and I certainly hope in the end it proves to be expertise to this process. The freer trade and expanding these trade agreements is at the top of the President's agenda and he has brought Mr. Zoellick in as the special trade negotiator and he is very energetic and enthusiastic and has already moved quickly to settle some ongoing disputes and, I think, has brought a lot of new energy to the process.
And, at the Department, Secretary Veneman. You know her professional background. Trade is her highest priority issue. And she has tried to bring people who also have some background in trade and can represent the United States very effectively, we hope, in all of these negotiations, not just the WTO, but the FTAA and others.
Also, at USTR, there is the newly created position of special negotiator for agriculture, and that position is being filled at the moment. So we think that this time around that the Department is providing more of the analytical input into the process, into the negotiations for agriculture. We think having that special position at STR gives us more leverage and gives us more opportunity to make agricultural views known specifically.
And we are trying to re-energize these advisory committees that surround this process, the so-called agricultural ATACs and APACs, the Agricultural Policy Advisory Committee and the Agricultural Trade Advisory Committees. And we are trying to make sure that we get broad representation from all aspects of agriculture, all aspects of the food industry. And those committees serve a very vital role as we go through the negotiations, both as a sounding board and offering new advice. So I think, Congressman Condit, putting all of those things together, where we are in the process now that I could reassure you that agriculture's interests are going to be very well looked at for this time around.
Mr. CONDIT. Well, let me just mention to youand I actually have mentioned this to the Presidentthat last go-around when we did trade negotiations, fast-track, NAFTA, et cetera, Imy gut told me there was a great deal of support even though maybe it was split with some commodities in the agricultural community. I just wanted to let you know, and I will let the Secretary know, aslike I have the President, is that I think agriculture is very leery of where you guys are taking us on trade negotiations because some of the things that they thought were going to happen did not happen and that you are going to lose support.
Page 102 PREV PAGE TOP OF DOC If you can't convince the agricultural industry that they are going to get a fair shakeat the end of the day, that they have a fair playing fieldeverybody else ends up OK. But you got a lot of commodities in the industry that didn't end up OK. So in building your support in the House and even in the Senate, I think you are going to have a difficult time unless you can convince them these new positionsand there is a new enthusiasmto make sure that agriculture gets a fair shake, you are not going to play very well when it comes to getting the votes on these agreements. That is all I got to say. I don't
Mr. PENN. Well, I appreciate the advice and we hear you. We know that this is the second time around. That there was a lot of euphoria and enthusiasm and, frankly, maybe a little bit of overselling of the advantages of trade in the mid1990's. And we are trying to re-energize people and to take a more pragmatic and realistic approach this time around.
Mr. CONDIT. I appreciate that. And you are correct. There is always an overselling. I mean, I remember the debate on NAFTA and fast track. I mean, it was almost like if you were for it, we were going to have a marvelous future. And if you weren't for it,we were going to go down the tubes. It is probably somewhere in between. So you ought to take sort of a balanced approach, which also means that if you don't get a good deal for us, why do it? You know, if you make a deal that ultimately doesn't end up very good for us, you don't do it just for the sake of making a deal.
Mr. PENN. I agree.
Mr. CONDIT. Thank you.
Mr. PENN. I agree. No deal is better than a bad deal, as they say.
Mr. EVERETT. Mr. Secretary, thank you very much for coming up. There will be additional questions that we will submit to you for the record. And just in closing, let me say that I spoke to the President last Thursday on this issue and he said that he anticipated breakthroughs for the agricultural community in the new negotiations. And I just kind of hope that everybodythat downstream and upstream are on the same page together because this Congress will be looking for breakthroughs for the entire agricultural community. Mr. Etheridge.
Page 103 PREV PAGE TOP OF DOC Mr. ETHERIDGE. Mr. Chairman, if I may. Thank you for yielding for just a question to associate myself again with Mr. Condit's statement, because I think, so that it is not misunderstood, there are a lot of members in a lot of parts of this country that have been very supportive of trade, but they are very leery now that it is not fair anymore. And they are looking for fair trade, not just free trade. And they feel like we have been giving and it is time thatour farmers right now are going broke. We are putting a lot of money into keeping them afloat and they would like to get their money from the marketplace. And I would reinforce that, that there is going to be a lot of selling to be done, I think, this time around.
Mr. PENN. Thank you.
Mr. EVERETT. And let me finally say that this committee and, I think, the agricultural community in general is very much interested in exports, but we are getting a little bit more interested in imports too. And, in fact, imports don't necessarily play by the same rules that are farmers and ranchers have to play by. And that would probably be something that Congress takes a close look at. But we thank you for your testimony. And, as I said, we will submit additional questions to you for the record. Thank you very much.
Mr. PENN. Thank you, Mr. Chairman.
Mr. EVERETT. And I would like to call the third panel please. Mr. Tim Hamilton, executive director of Mid-America International Agri-Trade Council, Chicago, IL, on behalf of the Coalition to Promote U.S. Agricultural Exports; Mr. Dusty Tallman, president, National Association of Wheat Growers, Brandon, CO, on behalf of the National Association of Wheat Growers, the Wheat Export Trade Education Committee, and the U.S. Wheat Association; Mr. Tom Suber, president, U.S. Dairy Export Council, Arlington, VA. And one of my constituents, Robert E. Weil, chief executive officer, Weil Brothers, Inc., Montgomery, AL, on behalf of the National Cotton Council. Mr. Kevin Becker, senior vice-president, International Banking Group, CoBank, Denver, CO; and, finally, Mr. John Valpey, executive director, Associated Rice Marketing Co-op, Durham, CA, on behalf of the U.S. Rice Federation. And, Mr. Hamilton, if you will, please begin.
Page 104 PREV PAGE TOP OF DOC
STATEMENT OF TIM HAMILTON, EXECUTIVE DIRECTOR, MID-AMERICA INTERNATIONAL AGRI-TRADE COUNCIL, CHICAGO, IL, ON BEHALF OF COALITION TO PROMOTE U.S. AGRICULTURAL EXPORTS
Mr. HAMILTON. Thank you. Good morning, Mr. Chairman. My name is Tim Hamilton and I am executive director of the Mid-America International Agri-Trade Council and Food Export USA, Northeast, which are regional trade organizations that offer services to help U.S. food and agricultural companies to promote their products in foreign markets. Today, I am testifying on behalf of the Coalition to Promote U.S. Agricultural Exports of which we are a member. We commend you, Mr. Chairman, and members of the subcommittee, for holding this hearing to review our agricultural trade programs and which to express our appreciation for this opportunity to share our views.
We would also like to express our appreciation to Congressman Boyd for his testimony and his leadership, along with Congressman Hastings in sponsoring legislation that would increase funding for both the Market Access Program and the Foreign Market Development Program. Their legislation, H.R. 98, has gained a total of 31 cosponsors and has been strongly supported by our coalition.
The coalition is an ad hoc group of over 80 organizations representing farmers, ranchers, cooperatives, small businesses, regional trade organizations, and the 50 State Departments of Agriculture. We believe that the United States must continue to have in place policies and programs that help maintain the ability of the American agriculture to compete effectively in a global marketplace still characterized by subsidized foreign competition.
Farm income and agriculture's economic well-being depend heavily on exports, which account for one-third or more of domestic production and provide jobs for millions of Americans and make a positive contribution to our Nation's overall trade balance. In 2001, U.S. agricultural exports are projected to be around $53.5 billion, down $6 billion from 1996. This is caused by a combination of factors, including continued subsidized foreign competition and related artificial trade barriers.
Page 105 PREV PAGE TOP OF DOC According to recent USDA information, the EU and other foreign competitors are outspending the United States by a factor of up to 20 to 1 with regard to the use of export subsidies and other expenditures for export promotion. In 1998, in addition to spending $6 billion in export subsidies, our leading foreign competitors spent a combined $1 billion on various activities to promote their exports of agricultural, forestry, and fishery products, including some $379 million by the EU alone.
As the EU and other foreign competitors have made clear, they intend to continue to be aggressive in their export efforts. For this reason, we believe that the administration and Congress should strengthen funding for MAP and for other export programs as part of a strong trade component in the new farm bill, and also ensure that such programs are fully and aggressively utilized.
It should be noted that MAP was originally authorized in the 1985 farm bill at a level of $325 million and that actual funding reached a high of only $200 million in the late 1980's. Since then, funding has been gradually reduced to its current level of just $90 million, a reduction of more than 50 percent.
In order to reverse the decline in funding over the past decade for a number of our agricultural export programs, our coalition strongly supports increasing the authorized level of funding for MAP from its current level of $90 million per year to $200 million per year. We also urge that no less than $43.25 million annually be provided for the Foreign Market Development, or FMD, Program for cost share assistance to help boost agricultural exports.
For FMD, this proposed increase reflects the 1986 level of funding, adjusted for inflation. Further, the coalition recommends that the EEP Program, Export Enhancement Program, be fully funded as allowed under the Uruguay Round agreement. And if the program has unused funds available at the end of the fiscal year, they should be used for related market development program and promotion activities or other WTO legal activities. This is similar to the legislation included in H.R. 98.
Page 106 PREV PAGE TOP OF DOC We wish to emphasize that MAP and FMD are administered on a cost-share basis with farmers and other participants required to contribute up to 50 percent of their own resources. These programs are one of the few tools specifically allowed under the Uruguay Round Agreement to help American agriculture and American workers remain competitive in a global marketplace, which is still characterized by subsidized foreign competition. By any measure, they have been tremendously successful and extremely cost-effective in helping maintain and expand U.S. agricultural exports, protect American jobs and strengthen farm income.
Let me now describe how my organization utilizes the MAP to help U.S. food producers to get started exporting, to promote our country's value-added agricultural exports. The 50 State Departments of Agriculture participate in MAP through four State regional trade groups.
We identify three different levels of assistance for smaller exporters, including Exporter Training and Education, Market Access and Opportunity, and Market Promotion. Our Food Export Helpline is available to help companies with specific questions on how to enter new markets, how to handle documentation or other technical issues they confront. We also publish regular newsletters, which inform thousands of companies about opportunities and events in the export market.
We help companies find importers and distributors overseas. International trade shows are one of the most important means of locating new customers. We support U.S. companies with the technical information they need to learn if their product can be competitive in another market.
And, finally, our Branded Program offers cost-share assistance, through which we support 50 percent of the promotional costs for small companies. This encourages firms to take the risk to attend international trade shows and promote their goods. We routinely hear from small companies that they simply would not consider the export market if it were not for this program.
Page 107 PREV PAGE TOP OF DOC Mr. EVERETT. Let me ask the gentleman to sum up. We have your testimony.
Mr. HAMILTON. OK.
Finally, I would like to say that during the last year, U.S. companies signed over 1,000 new customer agreements nationwide through our efforts; 200 small companies made their first export sale, and none of this would have been possible without support from the MAP.
As world trade increases, so does competition. It is essential that we retain and, in fact, increase funding for the MAP in order to continue to build our markets for U.S. agriculture.
Mr. EVERETT. Thank you, sir.
Mr. HAMILTON. I appreciate very much this opportunity to testify in support of these important programs.
[The prepared statement of Mr. Hamilton appears at the conclusion of the hearing.]
Mr. EVERETT. Mr. Tallman.
STATEMENT OF DUSTY TALLMAN, PRESIDENT, NATIONAL ASSOCIATION OF WHEAT GROWERS, ON BEHALF OF THE NATIONAL ASSOCIATION OF WHEAT GROWERS, WHEAT EXPORT TRADE EDUCATION COMMITTEE, AND U.S. WHEAT ASSOCIATES
Mr. TALLMAN. Good morning, Mr. Chairman, and, committee members. My name is Dusty Tallman. I am a wheat producer from Brandon, Colorado, and president of the National Association of Wheat Growers. Today, I am also representing the Wheat Export Trade Education Committee and U.S. Wheat Associations, as well as NAWG. Additionally, the positions I present here today represent a broad consensus among farm and agricultural-related organizations that have participated in a Trade-Title Working Group. The testimony you have before you on the trade title for the next farm bill outlines elements critical to our competitiveness in the world market.
Page 108 PREV PAGE TOP OF DOC Before I continue, I would like to express to the subcommittee the disappointment of the wheat industry in last Friday's announcement by USDA to notify the WTO that the domestic support payments were not green box; they were amber box. We believe that the procedures were carried out to deliver the assistance and were in line with the definition of a green box payment.
That being said, we strongly believe that the aggressively funded trade title is imperative to the health and prosperity of U.S. agriculture. The United States must maximize the use of all trade programs within WTO limitations. We must work together to ensure a fair and open world market for our farmers and ranchers. Producers want to rely on market dollars, not tax dollars.
Other members of the Trade-Title Working Group will give testimony to various other programs vitally important to the U.S. wheat industry. As part of our agreement in the coalition, we are tasked with specifically addressing the Export Enhancement Program, or EEP.
We support the reauthorization and full funding allowable under WTO of EEP to enhance U.S. wheat exports and market development programs until all export subsidies and anti-competitive practices of export State trading entities have been eliminated. EEP has not been utilized in its current form since 1995, despite continued use of subsidies and anti-competitive activities by our competition.
EEP has never been an across-the-board subsidy. Instead, the USDA selects specific countries, specific commodities, and sales volumes. This targeted approach has been used to challenge unfair trade practices by particular countries and particular markets. It also seeks to pressure countries to negotiate reforms in international agricultural practices.
EEP hasn't been just a wheat program. Among the other commodities, whose sales have increased to the program, are grain sorghum, rice, poultry and poultry feed, barley and barley malt, eggs, soybean and other vegetable oils and dairy cattle.
Page 109 PREV PAGE TOP OF DOC EEP has served, and through active use, would continue to serve, two essential functions. First, it can help spur an increase in U.S. exports. That, in turn, means higher farm incomes, more U.S. economic growth, and a positive contribution to the U.S. balance of trade. Second, it will bring our foreign competitors to the bargaining table. Already, agricultural negotiations are underway in Geneva, aimed at solving many of the problems that made EEP necessary many years ago.
For both of these reasons, it is vital that EEP be maintained. Since the predatory trade practices of the EU and the Canadian Wheat Board have not come to a halt, we still need EEP in order to remain competitive. Sinceand since WTO trade talks are once again in progress, we need EEP as a leverage in order to convince other countries to agree to real reforms that show that the United States is serious about addressing and removing trade distortions.
Indeed, the most sensitive stage of the WTO agricultural negotiations is just ahead. This would be the worst possible time to back down on EEP. It would fly in the face of U.S. foreign policy, trade policy and our economic interest. Now is the time to strongly re-endorse this program and send a clear signal to our subsidized and monopoly trading competitors that the United States is up to maintaining tough trade policy over the long haul.
It is time to reverse the players in thisin the game. We need to take charge of the trade debate and say that our farmers are important and that we needand that we are going to do everything legal under our Uruguay commitments to ensure that our producers have a fair share of the export market.
We strongly recommend that the Department de-link the trade policy considerations associated with EEP and reconstitute it as a flexible, commercial program designed to enhance U.S. farm export competitiveness. USDA should also be obligated to meet its annual funding levels and volume level commitments agreed to in the Uruguay Round of GATT. If these levels are not met by the end of the sixth month of each fiscal year, the amount of GATT legal funds that remain unspent on EEP activities must be expended within the fiscal year on market creating and promotion, green box programs.
Page 110 PREV PAGE TOP OF DOC At least one-fifth of these funds must be spent on market development and export programs for wheat and the remainder must be made available by the Secretary to all agricultural products and commodities for green box market expansion activities.
Putting this money each year into market billing programs for the next several years should send a very clear message to our competitors and will show a strong commitment to producers across our Nation. We oppose any attempt to use unspent EEP funds to make up for shortfalls in any other program, including market development programs and the Market Access Program. These programs must be funded at levels mentioned by other witnesses and all unspent EEP monies must be considered new resources to enhance competitiveness in the world market.
A program that our competitors dislike as much as they do EEP is one that must not be removed from our negotiator's toolbox. We urge you to revitalize the Export Enhancement Program and work with us to make all unutilized funds available to exportto our export programs.
[The prepared statement of Mr. Tallman appears at the conclusion of the hearing.
Mr. EVERETT. Thank you, sir. Mr. Suber.
STATEMENT OF TOM SUBER, PRESIDENT, U.S. DAIRY EXPORT COUNCIL
Mr. SUBER. Good morning, Mr. Chairman. I am Tom Suber, president of the U.S. Dairy Export Council, and I am pleased to testify today on USDA's export programs. Most of my comments represent a broad consensus among food and agriculture-related organizations that have participated in a Trade-Title Working Group that are here today.
USDEC represents the export interests of U.S. milk producers, dairy cooperatives, proprietary processors, and trading companies. Most of our funding comes from the farmer-funded promotional assessment through Dairy Management, Inc.. USDA's export promotion programs provide the next highest source of funds followed by the annual dues of our 70-plus members.
Page 111 PREV PAGE TOP OF DOC America's dairy industry is the country's second largest agricultural sector. It provides a livelihood for 80,000 dairy farmers located in every State of the Union. Dairy is one of the top three agricultural sectors in fully half the States, and dairy's impact on the country's economy is compounded if one considers our processor members who turn milk into cheese, ice cream and milk powder.
Before 1995, our industry paid little attention to export markets and relied almost exclusively on Government disposal programs. Creation of the Export Council in 1995 acknowledged that the industry cannot rely on the domestic market alone and united the industry behind an ambitious trade agenda.
In 2000, the United States exported about 5 percent of total U.S. milk production, an amount exceeding $1 billion in assorted U.S. dairy products, for a second consecutive record-breaking year. That impressive number would have been larger if not for price depressing the export subsidies and high-market access barriers.
The Foreign Agricultural Service plays a critical role in our success, and without an effective FAS, agricultural's trade goals will remain unfulfilled and the health of the entire sector will be adversely impacted. Even so, efforts by FAS are constrained by a continuing shortage of resources. Its heavy workload forces it to react primarily to daily crises rather than proactively addressing the critical issues that would expand U.S. exports.
A special concern is the need for in-depth analyses of the domestic and market access practices of a wide range of countries in order to reach equitable and reciprocally fair agreements in the country's many recently initiated multilateral and bilateral negotiations. For this reason, we emphatically echo the recent testimony of the National Milk Producer's Federation before the House Agriculture Committee last month, requesting $20 million for FAS to establish a Trade Agreement Monitoring Program.
To talk specifically about DEIP, the price-depressing export subsidies significantly impede our exports. And the Trade Title Working Group has asked me to highlight the importance of the Dairy Export Incentive Program. The authority of DEIP expired in 2002 and must be renewed in the next farm bill. DEIP is the only WTO-compatible vehicle by which U.S. suppliers can compete in a world dairy commodities market where export subsidies set artificially low prices.
Page 112 PREV PAGE TOP OF DOC U.S. skim milk powder and cheese use the DEIP most consistently. The maximum annual level for U.S. skim milk powder is about 68,000 tons; for cheese, about 3,000 tons. In contrast, the European Union can subsidize 290,000 tons of skim milk powder and 360,000 tons of cheese. That simple contrast illustrates the crucial importance DEIP plays in leveling the international playing field.
Perhaps more important is the leverage DEIP provides in negotiating the next WTO Agreement. Our industry would readily accept elimination of DEIP as part of dismantling of all export subsidies. In fact, rapid elimination of export subsidies is the dairy industry's highest priority in the next round. Even the last round's limited subsidy reductions demonstrated that less dumping of product will firm up world dairy prices and make U.S. dairy products more competitive.
While the industry is prepared to negotiated DEIP away, until that time, it is vital that Congress reauthorize the program.
An especially successful illustration of the value of USDA's export promotion programs is the growth in unsubsidized dairy exports. In 2000, 82 percent of our record $1 billion exports were unsubsidized, up from 56 percent in 1995. That comes primarily from the effective partnership with the Market Access and Foreign Market Development Programs.
However, the limited funding of these programs has severely hampered their ability to keep up with inflation, match the promotional spending of our competitors, and serve the growing number of qualified and motivated U.S. agricultural cooperators. Therefore, we join the other members of the Trade-Title Working Group in urging you to fund MAP at the $200 million level and the FMD program at a level of $43.25 million.
Under WTO, these programs qualify as fully unrestricted agricultural domestic support. As such, they merit the full backing of a Congress committed to strengthening America's food and agricultural sector. These programs also require matching funds from each industry, and dairy brings $7 million to these efforts. The portion of this that FAS qualifies as matching funds routinely exceeds 150 percent of the FAS allocation to dairy. Since 1996, our industry match has grown 66 percent, but FAS allocations have grown only 11 percent and do not reflect dairy's role as a billion dollar exporter.
Page 113 PREV PAGE TOP OF DOC In concluding, Mr. Chairman, I would note that the members of the Export Council recognize the valuable support provided by Congress and USDA expanding dairy's role in international trade. But success today doesn't mean we can stop. Success engenders more success only if it supported with the resources that growth demands.
So I will close by repeating our request to fund MAP at $200 million, the FMD Program at $43.25 million, to renew the DEIP Program, and to expand the ability of FAS to negotiate, implement, and monitor trade agreements. Thank you for the opportunity to testify and I will be pleased to answer any questions you might have.
[The prepared statement of Mr. Suber appears at the conclusion of the hearing.]
Mr. EVERETT. Thank you very much. Mr. Weil, I bet you thought you left the humidity in South Alabama. Didn't you?
Mr. WEIL. No, sir.
Mr. EVERETT. If you will, you are recognized for 5 minutes.
Mr. WEIL. Thank you, sir.
STATEMENT OF ROBERT S. WEIL, II, CHIEF EXECUTIVE OFFICER, WEIL BROTHERS COTTON, INC., MONTGOMERY, AL, ON BEHALF OF THE NATIONAL COTTON COUNCIL
Mr. WEIL. Thank you for holding this meeting today, Mr. Chairman. My name is Bobby Weil. I am the chief executive officer of Weil Brothers Cotton in Montgomery. I have been in the cotton merchandising business for over 25 years. My family has been merchandising and exporting U.S. cotton for nearly 125 years. Over half of my company's business involves international trade.
More than 40 percent of annual U.S. cotton production is exported each year in raw cotton form. In addition, the equivalent of 5 million bale equivalents of cotton was exported in 2000 in the form of value-added textile and apparel products.
Page 114 PREV PAGE TOP OF DOC Our industry is facing the toughest international and domestic competition in history. Five countries, China, the United States, India, Pakistan, and the former Soviet Republic, produce about 70 percent of the world's cotton. China, India, Pakistan, and many developing countries are unalterably committed to textile production and are, through one mechanism or another, subsidizing either their production or manufacturing industries or both. This competition is reflected in some fairly stunning forecasts for 2001.
Domestic mill use in the United States of cotton will fall over 3 million bales below its 1997 level, a drop of more than 30 percent. Over 100 U.S. textile mills have closed in the last 18 months. The anticipated U.S. cotton crop is expected to be similar to the last 2 years or even larger, meaning we will have to find a home in foreign markets for at least an additional 2 to 3 million bales of cotton or see our carryover levels soar.
One of the most significant influences on the U.S. cotton market is cotton textile imports. Over half the 21 million bale equivalents of textile and apparel products U.S. consumers purchase annually, are imported products containing foreign cotton. Competition will continue to intensify as textile quotas are phased out in the terms of the WTO agreement.
Further, compared to other agricultural products, cotton is especially vulnerable to the effects of an appreciating dollar through its impact on imports of cotton textiles and apparel products. In order to meet these challenges, this committee has worked to forge a partnership between Government and the private sector to enhance our competitiveness and help secure markets against sometimes unfair competition.
Congress has provided many tools to assist agricultural exports. On behalf of the cotton industry, I want to thank the members of this committee for the support of these programs. However, recently, it appears the viability of these programs is being threatened. The Market Access Program has had no increase in funding despite its clear positive impact and its categorization as green box. In nominal terms, support under MAP has fallen about 55 percent since 1992. In real terms, it has fallen even more.
Page 115 PREV PAGE TOP OF DOC The Foreign Market Development Program has seen its funding fail to keep pace with inflation and then decline. The most cost-effective export program of all, the Export Credit Guarantee Program, has been offered up by trade negotiations in return for no significant concessions by any of our competitors.
The U.S. insistence on read cuts in tariff levels, cuts that begin from applied tariffs, has been ridiculed within the WTO. We are especially disappointed that the administration has chosen to classify supplemental market loss assistance payments as subject to WTO amber box limits. We applaud and support Chairman Combest's strong response to this decision.
The upcoming farm bill provides this committee the opportunity to reassert itself as fully supportive of an aggressive program to restore U.S. agriculture's ability to compete in highly subsidized international markets. We urge the committee to strengthen export assistance and promotion programs and to ensure these programs are fully utilized. We also urge the committee to clarify USDA FAS's mission, and to ensure existing trade agreements are enforced.
In the past 2 years, export credit guarantee programs have benefited over $5.5 billion in U.S. agricultural exports, including a significant quantity of cotton. Yet, the latest proposal being considered in the OECD contains fee increases, short and long terms, and repayment requirements that would make the program ineffective for U.S. exports of cotton. We have estimated these changes could reduce annual U.S. cotton exports by a half million bales and reduce prices to the producer by 3 cents per pound. The OECD proposal undermines GSM102 while providing no corresponding reductions in export subsidy programs operated by our competitors.
And instead of moving to cripple this important program, we should be attempting to improve its effectiveness. The cotton industry supports changes to this program that can begin to address differences in currency evaluations that will allow repayment in local currencies and that will include freight and other shipping charges in the total amount guaranteed. We recommend that the Department carry out a pilot program under which the repayment of credit is guaranteed based upon documentation, other than letters of credit, and we suggest that the amount of the loan guaranteed under the supplier credit program be increased to 85 percent of the credit made available.
Page 116 PREV PAGE TOP OF DOC Mr. Chairman, we are also concerned over OECD negotiations in discouraging new crop sales. We urge the Department to announce the terms of the 2002 program right away. We need some edge there. We support the other commodities here inat the $43.25 million a year level for foreign market development and 200 million for market access promotion.
Cotton's marketing loan and 3-step competitive provisions continue to form the cornerstone of an effective U.S. cotton program. Maintaining all aspects of cotton's competitiveness program is central to the long-term competitiveness of our industry. Without the step 2 program to partially offset the impact of a strong dollar, U.S. raw cotton exports would likely have experienced a far larger decline than was the case this past year. In addition, we support the elimination of the 1.25 cent threshold contained in step 2. We also support farm law provisions to compensate for a strong U.S. dollar.
Now, I want to briefly discuss foreign trade
Mr. EVERETT. If you will, please, I
Mr. WEIL. I will just summarize very quickly.
Mr. EVERETT. I am sorry. I have to ask my friend, we are familiar with your testimony. I am going to have to ask my friend to conclude his testimony.
Mr. WEIL. Thank you. But we urge the committee to reauthorize and improve their export credit program, the FMD and MAP's, and, in conjunction with our domestic cotton program, these will help U.S. cotton meet many of the challenges we face.
[The prepared statement of Mr. Weil appears at the conclusion of the hearing.]
Mr. EVERETT. Thank you very much. Mr. Becker.
STATEMENT OF KEVIN BECKER, SENIOR VICE-PRESIDENT, INTERNATIONAL BANKING GROUP, CO-BANK, DENVER, CO
Mr. BECKER. Thank you, Mr. Chairman. Mr. Chairman, and, members of the committee, my name is Kevin Becker. I am senior vice-president in CoBanks' International Banking Group and I am pleased to appear today to testify on the importance of USDA's export loan guarantee programs and to provide recommendations for improvements in these programs.
Page 117 PREV PAGE TOP OF DOC CoBank, with $25 billion assets, is the largest bank in the Farm Credit System and a key provider of financing for U.S. agricultural exports. Our international mandate is focused almost exclusively on financing agricultural export sales, of which we process over $2 billion annually. We have been a key lender under the USDA's export credit program since their inception.
Before I begin my specific testimony, I would like to add our voice in support of those who are urging the committee to provide full funding of all USDA export programs. USDA's Export Credit Guarantee Programs are vital tools in supporting the export of U.S. agricultural products. With respect to any export credit program, the key factors of program usage and success are the level of the guarantee, the length or tenor of the loan allowed, and the fee associated with the guarantee.
The GSM102 and 103 programs, with total guarantee allocations of around $5 billion, have been the primary export tools used in recent years. The Supplier Credit Program is smaller, but has great potential for expanded use. I would like to focus first on several recommendations for legislative changes in the GSM and Supplier Credit programs which represent the consensus among farm and commodity groups that have recently participated in a Trade-Title Working Group.
First, the authorization for the making of GSM and Supplier Credit guarantees expires at the end of Fiscal Year 2002. The authority needs to be extended to ensure that the program survives.
Second, the Supplier Credit Guarantee Program currently guarantees 65 percent of credit granted directly by exporters by foreign buyers. An increase in the guarantee level to at least 85 percent is necessary for this program to be truly effective. The Trade Working Group further believes that a tiered guarantee arrangement designed to provide higher guarantee coverage at shorter tenors would make the program more useful.
Page 118 PREV PAGE TOP OF DOC Third, guarantees under Supplier Credit are currently limited, by statute, to 180 days. Credit up to 1 year is often appropriate and needed to meet the terms offered by competitors. The Trade Working Group strongly recommends that guarantees under the Supplier Credit Program be extended from 180 days to 1 year.
Finally, guarantee fees charged under the Supplier Credit Program should more accurately reflect risk. Supplier Credit fees are currently subject to a statutory cap of 1 percent. The Trade Working Group supports this cap, but believes the 1 percent limit, with respect to credits of 1 year or less would be better reflected as 1 percent per annum. A 1 percent per annum fee would mean that an exporter providing 30-day financing, for instance, would pay a maximum fee of one-twelfth of 1 percent, reflecting the fact that the risk is outstanding for only one-twelfth of a year. In effect, we recommend that the fee be assessed on an annualized basis.
GSM102 also carries a statutory fee cap of 1 percent. We believe that this represents an appropriate maximum level for GSM fees and that any move to allow fees in excess of the 1 percent cap would be unnecessary and detrimental to the effectiveness of the program. With regard to GSM102, CoBank's key administrative recommendation would be for USDA to lengthen tenors to the authorized 3-year maximum wherever possible.
Certainly, GSM is important when selling into countries with little access to credit, however, improving economic conditions and better access to commercial bank financing in the importing country mean less of a comparative advantage for GSM. Accordingly, GSM needs to be utilized lessaccordingly GSM tends to be utilized less as economic conditions in the buying country improve. For this reason, in Mexico, a market where GSM guarantees are limited administratively to 2 years, we have seen a sharp drop in program activity. We recommend that USDA respond by lengthening tenors to the 3-year maximum wherever country credit conditions warrant.
Finally, I would note CoBank's opposition to the current draft proposal of the OECD that would dramatically reduce tenors and increase fees for U.S. agricultural credit programs. We believe that any further negotiations on export credit should be taken up in the full WTO where U.S. negotiators can demand appropriate concessions from our competitors in exchange for reductions in our export credit programs.
Page 119 PREV PAGE TOP OF DOC In closing, I would reiterate our view that USDA's export credit programs are critical tools for opening and maintaining markets for U.S. farm products. These programs have resulted in higher farm income and export job creation and they help U.S. farmers to maintain market share in an increasingly competitive global marketplace.
Mr. Chairman, thank you very much for the opportunity to share our views. I will be happy to address any questions when appropriate.
[The prepared statement of Mr. Becker appears at the conclusion of the hearing.]
Mr. EVERETT. Thank you, Mr. Becker. Mr. Valpey.
STATEMENT OF JOHN VALPEY, EXECUTIVE DIRECTOR, ASSOCIATED RICE MARKETING CO-OP, DURHAM, CA, ON BEHALF OF USA RICE FEDERATION
Mr. VALPEY. Thank you, Mr. Chairman. I am John Valpey from Durham, California, representing Associated Rice Marketing Cooperative. It is an organization of about 200 growers. We export rice and sell rice also domestically. I am also Chairman of the California Rice Commission and also Vice Chairman of International Promotion Committee for the U.S. Rice Federation. And, again, I am representing the views here on foreign market development of the Trade-Title Working Group.
To help U.S. agriculture compete for today's export markets in the world of this increased spending that we have been discussing, particularly the European Union and the Cairns Group, in which we continue to experience low prices and record low prices for commodities in some sectors, we recommend that the Foreign Agricultural Service Market Development Program be funded annually at not less than $43.25 million, which you have also heard today.
I would like to leave you with a few reasons why you should give that strong consideration in the upcoming farm program. First, agriculture exports mean U.S. jobs and vibrant local economies. We know that to increase demand for products means jobs for farmers, but it also is very significant in the supply industry and service industries dealing with our agricultural export products.
Page 120 PREV PAGE TOP OF DOC For U.S. rice, exports are critical. We have historically exported 40 to 60 percent of our annual production. According to USDA data, rice exports of $1 billion supported an estimated 45,000 total direct and indirect jobs during the past year.
Major States of rice business are Arkansas, California, Louisiana, and Mississippi, and many of the agricultural communities in these areas rely almost exclusively on exports.
Second, it makes sense for U.S. agriculture to partner with Federal Government in export promotion. When production exceeds demand, outlets for farmers' production needs to be identified. This is not something that a farmer may have the ability to or inclination to pursue. And that is the organizations to which farmers belong become the source of these efforts. Being comprised of grower dues and support in varying degrees, even these organizations are not in a position to invest substantial amounts of money of the grower dollars that they so dearly collect. So a partnership is necessary.
When coupled with barriers to international trade, like tariffs, sanitary, phytosanitary, regulations imposed by foreign Governments, it becomes easier to understand that U.S. agriculture alone has neither the financial resources nor the political clout to open and develop foreign markets. The Federal Government is a natural partner to help U.S. agriculture overcome these barriers to trade and also provides the catalyst for investments by farmer.
Third, the FMD program is an important part of that partnership in which U.S. agriculture commits more money than they receive. For more than 45 years, this FMD, the private-public partnership, has allowed both sides to pool their technical and financial resources to conduct overseas market development activities that rely heavily on trade servicing and technical assistance in support of high-value, high volume commodities. And these range from hogs to cotton to rice, soybeans, poultry, and many others. USDA gives funding preference to nonprofit U.S. agricultural and trade groups that represent an entire industry or are nationwide in membership and scope.
Page 121 PREV PAGE TOP OF DOC For fiscal year 2000, the last FMD year completed, U.S. agriculture contributed 42.19 million of their own money to augment the 30.76 million made available by Congress. U.S. agriculture is serious about making this commitment and this partnership work and encourage your support.
Fourth, U.S. competitors are outspending and overtaking us on export markets. As you have heard earlier here today, both European Union and Cairns Group spend substantially more on these programs than we do. I won't requote the numbers, but you have already heard them here today.
Fifth, although Congress has been allocating the same amount of money to FMD for a number of years, the real buying power, purchasing power, of the money has significantly eroded. When adjusted for inflation and exchange rate movements, the real buying power of the approximate $32 million that Congress has been using to fund the FMD program for the last 15 years, has declined to approximately $20 million in value, effectively a cut of 37 1/2 percent.
The $32 million funding level for FMD was established during the 1986 farm bill debate, when, in fact, Congress said more resources would be given to support agricultural productsexports.
In conclusion, Mr. Chairman, we urge the committee and other members to support U.S. jobs and rural economics by giving U.S. agriculture the tools we need to work with USDA and expand U.S. exports. To at least accomplish the real buying power of $32 million, we urge that FMD be funded at no less than $43.25 million annually in the next farm bill. Thank you, Mr. Chairman.
[The prepared statement of Mr. Valpey appears at the conclusion of the hearing.]
Mr. EVERETT. Thank you. Before I begin my questioning, let me make a couple of comments.
Page 122 PREV PAGE TOP OF DOC First of all, I want to express my sincere appreciation to this panel. Let me say from the start that I am a believer in the 5-minute rule, and if you stay around here long enough, you will find out why. Second, though, we are expecting a series of votes probably in the next 20 or 25 minutes. And that is one reason I want to make sure that we stayed on course to get through. Once that series of votes occurs, you would be in there perhaps as much as an hour waiting for us. So I think we can conclude our questioning and you won't have to sit around and wait an hour for us to start over.
Well, I will start. Mr. Weil, could you go into some detail about the impact of currency values on the cotton industry's ability to export its product?
Mr. WEIL. It is actually a double-edged sword, sir. Thank you for the question. On the one hand, our cottonas the dollar gets stronger, competing against foreign growths, we have to take a lower price in order to sell the same piece of cotton. So that depresses the prices. And in the last 5 years, we have seen cotton prices come down now, I think, to about as low as they have been in 15 or 16 years. And the other
Mr. EVERETT. OK. But I believe I have got a great cotton stand, but I think the last time I checked, cotton was below 40 cents a pound.
Mr. WEIL. Yes, sir.
Mr. EVERETT. Is it in that neighborhood now?
Mr. WEIL. Yes, sir. It still is, unfortunately.
Mr. EVERETT. I can grow it, but I can't sell it for a profit.
Mr. WEIL. No, sir. That is tough level for producers. On the other hand, a strong dollar also generates more imports of a protection of barrel goods, which cripples our domestic textile industry, which is the No. 1 customer for our cotton producers. And as we lose that industry, then there is more and more emphasis on trying to export cotton. So the strong dollar does not do cotton good, either going out or coming in.
Page 123 PREV PAGE TOP OF DOC Mr. EVERETT. Mr. Hamilton, in your case, how is MAP money exactly used? What kind of promotional activities does MAP funds go to?
Mr. HAMILTON. The types of activities that we use are primarily geared towards small companieseverything from getting them involved to learn how to export products, to introducing them to importers and distributors around the world. And then once they have established distribution agreements in other countries, to actually help them promote their products. That takes the form of things like trade shows, helping them meet the right customers at trade shows. It means bringing buyers in from other countries to meet with different suppliers here in the United States. It means working with importers and retailers, food service operations in other countries to promote U.S. products. Those types of things. It is really a 3-step process that we use.
Mr. EVERETT. Mr. Valpey, USDA says the cooperator program will now operate at about 28 million annually, and because there is no longer a significant carryover of the prior year's monies to provide the $34 million annual program level. How will this impact the FMD program? Can it be effective at the $28 million level?
Mr. VALPEY. Well, I think it is fairly significant, at least, I can speak for the rice industry. We think that this is a building block of a reliable program that we use to match funds with from our own investments. And, in fact, we have been trimming the real dollars being available on the depreciated basis from currency exchange, et cetera, where our programs have been reduced.
And we are in a critical point where we are considering having to close certain areas where we should be really developing markets because we don't have the critical mass of investment. You have to have a certain level of investment to have a program. And when you get below that, you have to withdraw from certain areas. So the reductions in funding tightening will, in fact, reduce the areas which we should operate in, and we, quite frankly, should operate in more areas instead of less. So it is pretty serious. And to get more money from the private sector and farmers today, is a tough task, as you might imagine.
Page 124 PREV PAGE TOP OF DOC Mr. EVERETT. Thank you. Mr. Condit.
Mr. CONDIT. Thank you, Mr. Chairman. And I, too, would like to thank the gentlemen for being here this morning and providing us with this information. I would like to ask each of youand you could just respond to it very quickly. Did your organizations support NAFTA? And we can start with you, Mr. Hamilton.
Mr. HAMILTON. Yes. Our organization supported NAFTA almost across the board. There were certain exceptions to it, but generally they have supported it across the board.
Mr. TALLMAN. Yes, sir. The wheat organization, with a lot of discussion, did support NAFTA.
Mr. CONDIT. With a lot of what?
Mr. TALLMAN. Discussion among the States. There were different opinions, different States.
Mr. SUBER. Our organization didn't exist at the time, but we, in retrospect, believe NAFTA has been beneficial to U.S. dairy exports.
Mr. WEIL. Cotton supported NAFTA. In fact, a goodly amount of our textile productions moved to Mexico.
Mr. CONDIT. A great amount of your what?
Mr. WEIL. U.S. textile production.
Mr. CONDIT. Has moved.
Mr. WEIL. Yes, sir.
Mr. BECKER. CoBank was a strong supporter of NAFTA.
Mr. VALPEY. As was USA Rice Federation.
Mr. CONDIT. OK. Thank you. And can you distinguishI think the chairman sort of got into thisthe difference between the FMD and the MAP. The FMD, I understand, is you put some matching money in it. You set up an office or something somewhere overseas to promote your product. Is that correct?
Page 125 PREV PAGE TOP OF DOC Mr. HAMILTON. Our organization does not participate in the FMD program. But my understanding is over the years that it is intended more for bulk commodities and more long-term market development, opening new countries to U.S. bulk commodities, whereas the Market Access Program is geared more toward promotion and value-added products in the United States.
Mr. CONDIT. So does anyone here participate in that program, FMD?
Mr. VALPEY. Yes, sir. The rice industry does participate.
Mr. CONDIT. Is that the way it goes?
Mr. VALPEY. It is a joint application. And, as I understand, the funding that we use, we designate more towards the trade servicing staff, foreign market existence, if you will. The MAP's are usually more specific in terms of the activities that we are now performing in a given location.
Mr. CONDIT. So a couple of you actually benefit from the FMD program. Right?
Mr. VALPEY. Yes.
Mr. CONDIT. Do all of you benefit from the MAP?
Mr. BECKER. CoBank does not use the MAP.
Mr. CONDIT. OK. Let me just throw out something to you. Over the years, we changed the MAP, the name of it. We have sort of tried to change it because there has been opposition from people from nonagricultural areas that always think it is something other than it is. I have been very supportive of it, actually have asked to have it increased in conference committees, so on, and so forth. I would only throw this out to you. You all benefit from it. There are certain agricultural commodities that don't benefit from it and don't get anything for it for a variety of different reasons.
Page 126 PREV PAGE TOP OF DOC But it is almost like the MAP is sort of a subsidy to us because of the trade policy that we end up with. And I would just suggest to all of you that, don't be overly anxious to grab the MAP in lieu of getting a good trade deal for agriculture. Becausekeep your eye on the ball. Those people who negotiate for us say, oh, we will fix that someplace else. You the MAP to offset whatever trade agreement you get. We will give thebut not everybody in agriculture benefits from that.
And the fact of the matter is, is they keep dwindling the amount on us when we get to the Floor. So we get a piddley amount of money and we get a bad trade policy that impacts agriculture. So I am suggesting to you, someday, all of you guys get together in a room and think about should we do that. Should we embrace the MAP and for a trade off, we are forcing,the U.S. Government to deal with agriculture in a different way, see that we get a fair shake on trade?
It is not a fair tradeoff to get the MAP that iswhen it gets to the Floor, it is doomed to be reduced anyway, because most people who come from nonagricultural areas don't get it. They think it is some kind of subsidy and you can never explain to them that it is an offset for the bad trade policy that you get as it relates to agriculture.
So I just think you guys might want to start thinking about this. Is this worth it? Is it worth getting that? I know you all benefit from it, but a lot of other people don't. Is it worth getting that and not demanding that you get a good trade policy? So I would just throw that out to you. You don't have to comment to that. That is my venting about the way we have been treated with trade and the way we have been treated with the MAP. I guarantee you when we get to the Floor on the MAP, they will make it sound like it is a general assistance program. The American people will think you get that because you get some big welfare assistance or general assistance, when, in fact, you are getting it because you don't get a good trade policy.
Mr. EVERETT. I thank the gentleman, and I thank the panel. For the record, let me point out that I co-chaired the entire NAFTA Task Force for the Republicans, along with Duncan Hunter of California and Congresswoman Helen Bentley of Maryland. There were winners and losers in NAFTA. In my district, cotton won, but it hasit will destroy the peanut industry, as we know it, in this country. There is no question about that. I also lost over 9,000 cut-and-sew jobs in my district. Alabama lost some 23,000 cut-and-sew jobs; Florida, some 40,000. So NAFTA has been a double-edged sword, if you will. Not everybody has benefited.
Page 127 PREV PAGE TOP OF DOC But it is the law of the land now and we will redo the peanut program to try to be competitive with theand keep the industry alive in this country. And we will continue to hope that the tariffs are notthat the tariffs that go down and disappear, don't do that in a one-way street. We certainly need exports and I think our trade policies need to be looked at very carefully. And I would suggest to this group and your associates, that we keep a strong arm on the trade negotiators while they take a look at this. I did have a conversation with the President last Thursday and he wasas a matter of fact, he pointed out that agriculture would finally get a break in its trade policies, and I hope that is true.
Finally, without objection, the record of today's hearing will remain open for 10 days to receive additional materials and supplemental written responses from witnesses to any questions posed by a member of this panel. And this hearing of the Subcommittee on Specialty Crops and Foreign Agriculture Programs is adjourned.
[Whereupon, at 11:36 a.m., the subcommittee was adjourned, subject to the call of the Chiar.]
[Material submitted for inclusion in the record follows:]
Statement of Tim Hamilton
Good morning, Mr. Chairman. My name is Tim Hamilton, and I am executive director of Mid-America International Agri-Trade Council (MIATCO) and Food Export USA-Northeast, which are regional trade organizations that offer services to help U.S. food and agricultural companies promote their products in foreign markets. Today, I am testifying on behalf of the Coalition to Promote U.S. Agricultural Exports of which we are a member. We commend you, Mr. Chairman, and members of the subcommittee, for holding this hearing to review our agricultural trade programs and wish to express our appreciation for this opportunity to share our views.
The Coalition to Promote U.S. Agricultural Exports is an ad hoc coalition of over 80 organizations, representing farmers and ranchers, cooperatives, small businesses, regional trade organizations, and the State Departments of Agriculture (see attached). We believe the U.S. must continue to have in place policies and programs that help maintain the ability of American agriculture to compete effectively in a global marketplace still characterized by subsidized foreign competition.
Page 128 PREV PAGE TOP OF DOC Farm income and agriculture's economic well-being depend heavily on exports, which account for one-third or more of domestic production, provide jobs for millions of Americans, and make a positive contribution to our nation's overall trade balance. In 2001, U.S. agriculture exports are projected to be around $53.5 billion, down $6 billion from 1996. This is caused by a combination of factors, including continued subsidized foreign competition and related artificial trade barriers. U.S. agriculture's trade surplus is also expected to be about $14.5 billion, down nearly 50 percent from 1996, with continued low commodity prices also forecast.
According to recent USDA information, the EU and other foreign competitors are outspending the U.S. by a factor of 20 to 1 with regard to the use of export subsidies and other expenditures for export promotion. In 1998 (the most recent year for which data is available), in addition to spending $6 billion in export subsidies, our leading foreign competitors spent a combined $1 billion on various activities to promote their exports of agricultural, forestry, and fishery products, including some $379 million by the EU.
According to USDA, spending by these competitor countries on market promotion increased by 50 percent over the 199598 time period, while U.S. spending remained flat. We have no reason to believe that this trend has changed since then. Furthermore, almost all of this increase has been directed to the high-value and consumer-ready product trade.
How does this play out in the marketplace? Some major retail chains overseas no longer budget for travel for their buyers because they expect us to cover those costs. Recently, a major importer canceled our invitation to meet with U.S. suppliers because he received a more generous offer from Canada. These experiences are becoming routine.
Information compiled by USDA also shows that such countries are spending over $100 million just to promote sales of their products in the United States. In other words, they are spending more to promote their agricultural exports to the United States, than the U.S. currently spends ($90 million) through MAP to promote American-grown and produced commodities worldwide! In fiscal year 1999, the U.S. recorded its first agricultural trade deficit with the EU. In fiscal year 2000, that trade deficit nearly doubled to $2 billion.
Page 129 PREV PAGE TOP OF DOC As the EU and our other foreign competitors have made clear, they intend to continue to be aggressive in their export efforts. For this reason, we believe the administration and Congress should strengthen funding for MAP and other export programs as part of a strong trade component in the new Farm Bill, and also ensure that such programs are fully and aggressively utilized. It should be noted that MAP was originally authorized in the 1985 Farm Bill at a level of $325 million, and actual funding reached a high of $200 million in the late 1980's. Since then, funding has been gradually reduced to its current level of $90 milliona reduction of more than 50 percent.
In order to reverse the decline in funding over the past decade for a number of our agricultural export programs, the Coalition strongly supports increasing the authorized level of funding for MAP from its current level of $90 million per year to $200 million per year. We also urge that no less than $43.25 million annually be provided for the Foreign Market Development (FMD) Cooperator Program for cost-share assistance to help boost U.S. agriculture exports. For FMD, this proposed increase reflects the 1986 level of funding, adjusted for inflation. Further, the Coalition recommends that the Export Enhancement Program (EEP) be fully funded as allowed under the Uruguay Round agreement, and if the program has unused funds available at the end of the fiscal year, they should be used for related market development and promotion activities or other WTO legal programs.
We wish to emphasize that MAP and FMD are administered on a cost-share basis with farmers and other participants required to contribute up to 50 percent of their own resources. These programs are one of the few tools specifically allowed under the Uruguay Round Agreement to help American agriculture and American workers remain competitive in a global marketplace still characterized by subsidized foreign competition. By any measure, they have been tremendously successful and extremely cost-effective in helping maintain and expand U.S. agricultural exports, protect American jobs, and strengthen farm income.
Page 130 PREV PAGE TOP OF DOC Let me now describe how my organization utilizes the Market Access Program to help U.S. food producers get started exporting, and to promote our country's value-added agricultural exports. The 50 state departments of agriculture participate in MAP through four state regional trade groups. These groups coordinate the export promotion efforts of the states, and focus on assisting smaller food and agricultural processors and farmer cooperatives.
We identify three different levels of assistance for smaller exporters: Exporter Education and Training, Market Access and Opportunity, and Market Promotion. Let me tell you how MAP funds are used to support those efforts:
Exporter Education and Training
Our Food Export Helpline is available to companies with specific questions on how to enter new markets, or how to handle documentation or other technical issues they confront. We also publish a regular newsletter, which informs thousands of companies about opportunities and events in the export market.
MARKET ACCESS AND OPPORTUNITY
We help companies find importers and distributors overseas. International trade shows are one of the most important means of locating new customers. We support U.S. companies with the technical information they need to learn if their product can be competitive in a market.
Our Branded Program offers cost share assistance, through which we support 50 percent of the promotional costs for small companies. This encourages firms to take the risk to attend international shows and promote their goods. We routinely hear from small companies that they simply would never have considered the export market if not for this program.
The MAP focuses on value-added products, including branded foods. Overseas consumers, like those here in the U.S. tend to buy products based on brand names. By promoting brand names that contain American agricultural ingredients, we build long-term demand for our products. These value-added products support jobs and encourage investment in our own processing industries.
Page 131 PREV PAGE TOP OF DOC Here's just one example: Palermo's Villa is a small Midwestern supplier of frozen pizzas. They used MAP funding to sponsor in-store promotions in Canada. From those promotions, their export sales more than tripled and they've doubled their purchases of inputs, like wheat flour, cheese, tomato sauce and meat. They've added more than 30 new jobs at their plant. This effort supports long-term, sustainable demand for U.S. products and the jobs that add value to those products.
The MAP also stimulates private investment. While the MAP requires that companies match all Federal dollars on a one-for-one basis, in fact most companies spend much more than that. Last year, companies in our program spent over $4.00 for each dollar they were reimbursed.
During the last year, U.S. companies signed over 1,000 new customer agreements worldwide, through our efforts. And over 200 small companies made their first export sale of U.S. agricultural products. None of this would have been possible without support from the MAP.
American products are seen world wide as high quality products. Safe products. Selling higher quality products requires promotion. The MAP is an investment in promotion that pays off.
As world trade increases, so does competition. It is essential that we retain, and in fact, increase funding for the Market Access Program, in order to continue to build our export markets for U.S. agriculture.
I appreciate very much this opportunity to testify in support of these important agricultural export programs, and would be pleased to respond to any questions you may have.
Statement of J.B. Penn
Page 132 PREV PAGE TOP OF DOC Mr. Chairman, members of the Committee, I am pleased to be here today to discuss the Department's export, trade and promotion programs.
Trade continues to be vitally important to the long-term economic health and prosperity of the U.S. food and agricultural sector. Last year, U.S. agricultural exports were valued at $50.9 billion. This year, sales are expected to reach $53.5 billion, producing an agricultural trade surplus of $14.5 billion. Dollar for dollar, we export more meat than steel, more corn than cosmetics, more wheat than coal, more bakery products than motorboats, and more fruits and vegetables than household appliances. Agriculture generally ranks among the top six U.S. industry groups in export sales, accounting for about 5 percent of the Nation's total exports. U.S. agriculture is one of the few sectors of our economy that consistently enjoys a trade surplus.
Providing our exporters with the tools to expand their foreign sales and to take advantage of new market opportunities is the goal of the trade title of Federal Agriculture Improvement and Reform Act of 1996. Most of the world's consumers96 percentlive outside the United States. And, many of them are in developing countries where much of the income growth is spent on food. A significant portionperhaps as much as one thirdof our farm and food system already is geared to serving these export markets.
The 1996 legislation continued the basic agricultural export programs set forth in the Food Security Act of 1985. The 1985 legislation, which was designed to shift agriculture to a much more market-oriented direction, recognized trade as a major contributor to the economic health of the farm sector. It also recognized that our exporters sometimes were forced to compete against the treasuries of other countries in terms of export subsidies and other unfair trade practices. As a result, that law specifically authorized the Export Enhancement Program, the Dairy Export Incentive Program, and the Targeted Export Assistance Program (which evolved into the Market Access Program), and modified several other trade tools, such as the CCC Export Credit Guarantee Program.
Page 133 PREV PAGE TOP OF DOC The export programs have been adjusted only slightly over the years, but the basic philosophy behind trade legislation has changed very little since 1985. In contrast, the U.S. food and agriculture system has changed markedly.
Today, U.S. agriculture operates in a global, high-tech, consumer-driven environment. Capital, technology, and information flow instantly between buyer and seller. Changing consumer demands are challenging marketing institutions and traditional ways of doing business. Today, multinational companies are processing and sourcing products from all over the world, which they in turn sell throughout the world, in a marketplace that is driven by consumers who demand quality, safety, health, and convenience while continuing to be price conscious.
Technology is constantly transforming world markets. Improvements in transportation, storage and food technology mean more food can be moved further and faster at lower cost. Information technology is vastly improving efficiency in all links of the food chain. In 1985, few of us knew about the Internet; now, it is a necessary business tool that we use every day. Biotechnology was still on the distant horizon. Today, it is generating many new products that make farmers more productive and promise to provide consumers enormous benefits.
When the 1985 legislation was developed, we had not yet begun to negotiate the U.S.-Canada Free Trade Agreement, and the North American Free Trade Agreement (NAFTA) was 10 years away. The Uruguay Round of multilateral trade negotiations establishing the World Trade Organization (WTO) was not launched until September 1986, with negotiations completed in 1994. These historic agreements have brought about significant changes in U.S. agricultural trade.
A close look at what we export now and who and where our major customers are reveals significant differences from 1985. Export sales were $31 billion in 1985, and bulk products were 64 percent of the total while consumer-oriented high-value products were only 15 percent. Last year (2000, the last full year of data), consumer-oriented products had grown to 42 percent of the nearly $51 billion in agricultural exports, but bulk product exports had declined to 37 percent. The share for semi-processed intermediate products remained the same at 21 percent.
Page 134 PREV PAGE TOP OF DOC U.S. meat sales illustrate the rapid growth in consumer-oriented product exports and demonstrate how our trade policy initiatives and market development programs have worked together to benefit U.S. producers. Since 1985, meat and meat product sales have multiplied sevenfoldfrom $900 million to $7 billion in 2000.
Japan continues to be the top market for U.S. food and agricultural products. But, other markets have been growing in importance over the years. For example, Canada and Mexico accounted for 11 percent of our exports in 1985today, they account for over a quarter of our exports. We also have seen significant growth in Asian markets, notably China, the Philippines and Indonesia.
The business of food and agriculturefrom producer to processor to the food service sectorgenerates 16 percent of the gross domestic product and employs 17 percent of the workforce. And, the benefits of trade in this sector extend to the entire U.S. economy.
USDA data indicate that each dollar in agricultural exports multiplies throughout the economy, generating $1.39 additional economic activity in manufacturing and other sectors. The total contribution to economic activity from agricultural exports is some $130 billion. This activity generates over 800,000 jobs60 percent of them off the farm in processing, transportation, and marketing. These jobs pay higher than average wages, and many of them are in rural areas where good-paying jobs are sorely needed.
The global marketplace is highly dynamic, and we must be proactive if we are to recapture market share. Twenty years ago, the United States was the world agricultural export leader, accounting for 24 percent of world trade. Today, that share has eroded to 18 percent. Even though our exports have risen substantially since thenand are projected to continue to risethey are rising at a slower rate than exports of other countries. In fact, the European Union, our major competitor, is on the verge of overtaking us as the world's largest agricultural exporter.
Page 135 PREV PAGE TOP OF DOCTRADE STRATEGY
At the Department of Agriculture, we are mobilizing resources to conduct a comprehensive and thoughtful analysis of what American agriculture needs in a new farm bill, including the trade title. As we begin the process, I am convinced of two things. First, we need to move forward aggressively on trade reform to enlarge the world trade pie. Then, we need to make sure our exporters have the tools they need to capture a greater share of the benefits flowing from trade reform. I know that some in the agricultural community question the benefits of trade reform,some feel that the United States has given up too much for too little benefit. But we can point to an impressive array of export growth statistics as a result of trade reforms.
I must also note that, contrary to widespread reports, the United States has been quite successful in defending our producers from unfair foreign trade practices. The United States has brought 32 complaints to the WTO that have been concluded. We prevailed in 15 cases that went to litigation,14 were resolved to our satisfaction without litigationand we lost only three cases.
I11Second, we must sharpen our strategic focus to include those fast-growing, emerging markets that have the most potential for market share expansion. Our analysis shows that these include many of the developing countries in Asia, Latin America, and some selected opportunities in Africa and the Middle East. Over the next decade, food consumption in these markets will surge, benefiting from very favorable demographicsa growing middle class that has rapidly rising disposable incomes, which they are eager to spend on more and better food. Gaining share in these fast-growing markets, without sacrificing hard won gains in large mature markets like Japan and the European Union, is the most effective way of increasing our overall share of world agricultural trade.
TRADE POLICY INITIATIVES
Page 136 PREV PAGE TOP OF DOC Development of the trade title of the upcoming farm bill must be closely linked to a number of other critical trade policy initiatives.
The enactment of trade promotion authority is first and foremost among these.
This is at the top of the President's trade legislation agenda and essential if we are to achieve our trade reform goals.
We are also negotiating the Free Trade Area of the Americas that will provide U.S. producers and exporters with much greater access to 450 million consumers (outside the NAFTA countries) who will have $2 trillion in income in 2005.
WTO negotiations now underway will bring much needed reforms to correct and prevent restrictions and distortions in world agricultural markets.
We continue to work on an agreement on export credit guarantees in the Organization for Economic Cooperation and Development.
The administration is committed to a comprehensive review of the U.S. foreign aid programs, including the Title I of the Agricultural Trade Development and Assistance Act of 1954, (Public Law 480), Title I program, to evaluate their effectiveness and to develop options for possible program reforms.
The programs in the trade title have served the U.S. food and agriculture sector well. But, the upcoming farm bill presents us an opportunity to review those programs to see if they can be improved to meet today's challenges. We look forward to working with the Committee throughout the farm bill process to address the important issues facing our food and agricultural industry.
For example, given our WTO commitments and negotiating proposals, are there new approaches to export market development and assistance that clearly would not be subject to disciplines under the Uruguay Round Agreement on Agriculture?
Page 137 PREV PAGE TOP OF DOC Should the new trade title provide more flexibility to the Secretary of Agriculture to shift priorities and funds depending on the dynamic world trade situation?
What funding levels are adequate to meet today's global competition?
Are our aid and development programs still appropriate for today, or have they become obsolete or cumbersome?
Are there better ways to use our programs to help speed countries along the development time line?
And, of course, our trade and domestic programs must be complementary. Programs that may have worked against one another in the past must be reassessed. It makes no sense to have trade policies and programs promoting farm exports while our domestic support programs only serve to reduce our competitiveness. It is crucial that our domestic and export policy be consistent with our existing international obligations, and at the same time gives us latitude in pursuing our ambitious goals in the new negotiations.
These are just some of the questions that will need to be addressed as a new farm bill is being developed. USDA's Farm Bill Working Group is developing the Department's 2001 Farm Policy Proposals that will cover a broad set of issues vital to agriculture such as farm programs, conservation and environment, rural development, consumer needs for a safe and affordable food supply, and research, as well as global trade.
Trade is the single most critical element to the long-term financial future of our food and agricultural industry. The administration has major trade initiatives underway that will benefit our industry, and we look forward to continued strong bipartisan support from this Committee.
Mr. Chairman, the U.S. farm policy process provides us with a great opportunity. Every five or so years, whether we want to or not, we get to take a top-to-bottom look at our farm policy. Today, our agricultural industry faces many challenges at home and around the world that need to be reviewed and addressed. I look forward to working with the Congress, this Committee, and our entire food and agricultural industry as we begin work on the trade title of the farm bill.
Page 138 PREV PAGE TOP OF DOC That completes my statement, Mr. Chairman. I would be pleased to answer any questions you may have.
Statement of Dusty Tallman
Good morning Mr. Chairman and committee members. My name is Dusty Tallman and I am a wheat producer from Brandon, Colorado and president of the National Association of Wheat Growers (NAWG). Today, I am representing the Wheat Export Trade Education Committee and U.S. Wheat Associates as well as NAWG. Additionally, the positions I present here today represent a broad consensus among farm and agriculture-related organizations that have participated in a Trade Title Working Group, Subcommittee on Export Assistance and Promotion Programs. The testimony you have before you on the trade title for the next farm bill outlines elements critical to our competitiveness in the world market.
Agricultural exports are an extremely important element of success for U.S. wheat producers. In fact, we consistently export nearly 50 percent of our total wheat production. We strongly believe that an aggressively funded trade title is imperative to the health and prosperity of the wheat industry. The U.S. must maximize the use of all available trade programs within the World Trade Organization's (WTO) limitations. This will enhance our negotiating leverage and ultimately return the cost of any program to the government by increasing marketing opportunities around the world and reducing producer reliance on government payments. We must work together to ensure a fair and open world market for our producers. This will require a full set of competitive toolsproducers want to rely on a market dollar not a tax dollar.
Foreign Market Development Program. The wheat industry strongly supports one of our most effective agricultural export programs, the Foreign Market Development (FMD) or Cooperator Program. The Cooperator Program is funded jointly by U.S. agricultural producers and the Federal Government. Many producers directly support the program through check-off funds collected at the state level, which are then allocated to U.S. trade organizations that promote the export of one or more U.S. agricultural commodities. None of these producer-supported organizations has a business interest in or receives remuneration from specific sales of agricultural commodities.
Page 139 PREV PAGE TOP OF DOC The Cooperator Program has played an important role in increasing U.S. agricultural exports from $3 billion at its inception in 1955 to a level of $53 billion in fiscal year 2000. It is one of the key building blocks of a sustainable, results-oriented U.S. agricultural export strategy. In order to secure the growth and health of the FMD program, we believe that it should be authorized at no less than $43.25 million. This reflects a funding level consistent with an inflation increase during the last ten years when the program funding remained stagnant at $33.5 million.
It is timely and appropriate at this juncture to take steps to preserve and strengthen the Foreign Market Development Program to fulfill a commitment to our producers made during the 1996 farm bill debate to enhance export market opportunities. It is a unique public/private partnership which successfully advances the export sales of U.S. producers and agricultural processors and is not limited under our WTO commitments.
Market Access Program. The wheat industry supports aggressive funding for the Market Access Program (MAP). USDA's Market Access Program is a cost-share program under which farmers and other participants contribute their own resources to be eligible. It has been and continues to be an excellent example of an effective public/private partnership that works. Since it was originally authorized, funding has been gradually reduced from a high of $200 million to its current level of $90 milliona reduction of more than 50 percent. Clearly, in the face of continued subsidized foreign competition, this needs to be reversed.
Global agricultural trade is still characterized by extensive use of export subsidies by our competition. While programs such as MAP have already been reduced in recent years, our foreign competitors have continued to heavily subsidize and aggressively promote their products in an effort to capture an increasing share of the world market at the expense of U.S. producers. A recent USDA study shows our competitors outspending the U.S. by as much as 20 to 1 on market promotion and export subsidies. Our competitors are spending over $100 million just to promote their products into the United Statesmore than what the U.S. currently spends under MAP to help promote exports of all American grown and produced commodities world-wide.
Page 140 PREV PAGE TOP OF DOC For these reasons, we strongly urge that funding for MAP be increased from its current maximum allowed level of $90 million to its previous level of $200 million with a floor of $90 million as part of the next farm bill. This would help send a strong message to our competitors and enhance the negotiating leverage of the U.S. throughout the current round of WTO negotiations. Again we are not limited by WTO commitments for this ''green box'' program.
Export Credit Guarantee Programs. USDA's export credit guarantee programs were designed to facilitate the sale of U.S. agricultural products. GSM programs have effectively assisted many countries in the purchase of U.S. wheat. The industry supports the continuation of the GSM programs. Additionally, we support revising the export credit program to better meet the needs of private sector buyers. We are interested in expanding the use of the Supplier Credit Program which the COBANK representative will cover in more detail.
Food Assistance Programs. The wheat industry supports the continued use of P.L. 480 (Food for Peace) and Section 416b (Food for Progress) as long as they do not interfere with commercial sales. Food assistance should play a significant role with respect to total U.S. foreign aid.
Export Enhancement Program. We support the reauthorization and full funding allowable under the WTO of the Export Enhancement Program (note: the current maximum allowable under the Uruguay Round commitments would be $578 million), to enhance U.S. wheat exports and market development programs, until all export subsidies and anti-competitive practices of export state trading entities have been eliminated. EEP has not been utilized in its current form since 1995 despite continued use of export subsidization and anti-competitive activities by our competitors.
I would like to provide in greater detail how we believe the EEP program can be revitalized and put back to doing the job for which it was originally intended. Let me begin by asking you to take a look back and highlighting some of the history and successes of the program.
Page 141 PREV PAGE TOP OF DOC After the prosperity of the 1970's, U.S. agriculture entered a deep recession in the early 1980's. Among all the other signs of trouble, the slump in American grain exports loomed large: it was both cause and effect of the dire straits in which farmers found themselves.
Wheat exports, for instance, hit nearly 1.8 billion bushels in the 198182 marketing year (which runs from June through May). But in the following year, they fell to 1.5 billion bushels ... stagnated at 1.4 billion in each of the next two years ... and then plummeted to just over 900 million bushels in 198586. Meanwhile, total world trade was dropping too, but not as fast as U.S. exportsmeaning other exporting countries were increasing their share of the world market at the expense of the United States. Indeed, EU wheat exports rose 25 percent from 198182 to 198586.
The export bust hit wheat farmers hard because they depended on overseas sales for as much as two-thirds of their annual production. The United States has the capacity to produce far more wheat than we can ever use domestically, so being able to compete in export markets is crucial to wheat producers' economic health.
It was clear, as new farm legislation was being written in 1985, that wheat exports needed a boost. And it wasn't only wheat: Total U.S. agricultural exports fell from a high of $43.8 billion in the fiscal year 1981 to $31.2 billion in fiscal 1985 and $26.3 billion in fiscal 1986. As America's overall trade deficit was rising toward $170 billion, its agricultural tradeone of the few areas to show a consistent surplus in recent yearswas falling fast.
Something had to be doneand several things were done. The 1985 farm law made dramatic changes in price support policies for wheat and other major commodities, with the aim of ensuring price-competitiveness. Meanwhile, economic policymakers began acting to bring the dollar down to a more reasonable level against other major currencies: the U.S. currency's high value had made American farm goods more expensive for foreign buyers (similar to one of the problems facing U.S. exports today).
Page 142 PREV PAGE TOP OF DOC But there was a broad consensus that this wasn't enough. In addition to all the other factors that had caused America's exports to slump, this nation's farmers were facing subsidized, unfair competition from all over the globe. For example, the EU's agricultural policies were paying producers high prices for unlimited output with surpluses as the predictable result. Those surpluses were then dumped into world markets. For 198788, the EU wheat support price was equivalent to about $6.50 per bushel, while world prices during most of the year were less than $3.00 per bushel. The big difference between the two numbers was made up by an EU export subsidywhich explains both why the EU was able to export wheat, and why it has chronic budget problems.
Wheat producers often pointed out, too, that it wasn't only the EU that played by different rules. Major grain exporters like Canada and Australia sold their wheat through quasi-government marketing boardsbodies with monopoly power over exports, and consequently with a sizable amount of government-sponsored market muscle.
The U.S. had been putting pressure on the Europeans and others to stop export subsidies for several years. Quiet diplomacy had been tried, and hadn't worked. There was in 1985, a fairly broad consensus that it was time to fight fire with fire. It was time for the U.S. to do whatever it took to regain lost market share and increase exports.
The result was the Export Enhancement Program. It was, from the first, a bipartisan effort. It was created by the administration in June 1985 in consultation with Congress and the private sector. Later that year, Congress gave it a firm legislative footing by mandating an aggressive continuation of EEP in its omnibus farm bill. Authority to operate the program also exists under a longstanding statute, the Commodity Credit Corporation Charter Act.
EEP has never been an across-the-board export subsidy. Instead, the U.S. Department of Agriculture selects specific countries, commodities and sales volumes. The targeted approach has been used because, in addition to its main aim of raising U.S. export volumes, EEP was designed to challenge unfair trade practices by particular countries in particular markets. It also seeks to encourageindeed, pressurecountries to negotiate reforms in international agricultural practices. On this last front, it has had notable success: agricultural trade was the centerpiece of the negotiations by the member nations of the General Agreement on Tariffs and Trade (GATT) in Geneva. Though the major farm exporting countries held widely different views of what the talks' outcome should have been, it can be argued that there would have been no talks without the powerful incentive EEP provided.
Page 143 PREV PAGE TOP OF DOC EEP hasn't been just a wheat program. Among the other commodities whose sales have increased through the program are grain sorghum, rice, poultry and poultry feed, barley and barley malt, eggs, soybean and other vegetable oils, and dairy cattle.
When USDA was actually administering the program, which they basically refuse to do today, USDA selected both countries and commodities. In selecting countries, USDA picked markets where the U.S. faced subsidized competition from other suppliers, mostly the EU. All U.S. commodities were eligible for EEP as long as they met the program's criteriathat is, the EEP must raise sales above the level they would otherwise have reached (additionality); the program must challenge only competitors who subsidize their exports (targeting); overall U.S. economic growth has to increase through the program (cost effectiveness); and Federal budget outlays should be no greater than they would have been without the program (budget neutrality).
From the beginning of the program in 1985, results were impressive:
Well over a billion bushels of U.S. wheat had been shipped overseas.
Of the top ten markets for U.S. wheat in 198788, eight made purchases under EEP.
The U.S. share of world markets rose from 29 percent in 198586 to 31 percent in 198687 and 42 percent in 198788.
Total 198788 U.S. wheat exports were up 60 percent over 198687 levels. The increase primarily reflected large purchases by the Soviet Union and China, both of which bought wheat under EEP.
EEP served, and through active use would continue to serve two essential functions:
1. Help spur an increase in U.S. exports. That in turn means higher farm incomes, more U.S. economic growth, and a positive contribution to the U.S. balance of trade.
2. Help bring our foreign competitors to the bargaining table. Already, agricultural negotiations are underway in Geneva, aimed at solving many of the problems that made EEP necessary several years ago.
Page 144 PREV PAGE TOP OF DOC For both of these reasons it is vital that EEP be maintained. Since the predatory trade practices of the EU and the Canadian Wheat Board have not come to a halt, we still need EEP in order to remain competitive. And since WTO trade talks are once again in progress, we still need EEP as leverageto convince other countries to agree to real reforms and that the United States government is serious about addressing and removing trade distortions.
Indeed, the most sensitive stage of the WTO agricultural negotiations is just ahead. This would be the worst possible time to back down on the EEPit would fly in the face of U.S. foreign policy, trade policy and our manifest economic interest. Now is the time to strongly re-endorse this program and send a clear signal to our subsidized and monopoly trading competition that the U.S. is up to maintaining a tough trade policy over the long haul.
Some business trade groups, our competitors and many in USDA have not only worked to stop the program but continue to criticize EEP as unfair and want to see it completely eliminated, saying it gives foreign customers a better deal than U.S. buyers. This criticism shows a misunderstanding of the purpose EEP is meant to perform. It's aimed only at those foreign markets where U.S. goods have been disadvantaged by unfair competitive practices.
o back down on EEP now would be the height of folly. It would send precisely the wrong signal to our foreign competitors. I would like to propose that the government's unwillingness to maintain an active use of EEP has shifted our competitors' focus to destroying our export credit programs and criticizing our food aid programs. While they still hate EEP they have been forced to look for other programs to criticize and in so doing take the focus off of their own trade distorting practices such as export subsidies and monopolistic trading.
It is time to reverse the players in this game. We need to take charge of the trade debate, say that our farmers are important and that we are going to do everything legal under our Uruguay commitments to ensure that our producers have a fair share of the export market. The wheat industry and many others here today urge you to include full funding for EEP allowable under our Uruguay Round commitments in the trade title of the new farm bill.
Page 145 PREV PAGE TOP OF DOC Do not let the Office of Management and Budget and internal agency politics dictate what tools you can make available to strengthen market development as well as helping our negotiators stack the deck in our favor at the negotiating table.
We strongly recommend that the Department de-link the trade policy considerations associated with EEP and reconstitute it as a flexible, commercial program designed to enhance U.S. farm export competitiveness. The U.S. Department of Agriculture should also be obligated to meet its annual funding levels and volume level commitments agreed to in the Uruguay Round of GATT. If these levels are not met by the end of the sixth month of each fiscal year the amount of GATT legal funds that remain unspent on EEP activities must be expended within the fiscal year on market creating and promotion, Green Box programs. At least one-fifth of these funds must be spent on market development and export promotion programs for wheat and the remainder must be made available by the Secretary to all agricultural products and commodities for Green Box market expansion activities.
Putting this money each year into market building programs for the next several years should send a very clear message to our competitors and will show your strong commitment to producers across the nation. Efforts of this type are needed to put the United States at the head of the table in negotiations aimed at removing market barriers around the world. We urge you to give us all the allowed tools, including the maximum dollar amount allowed under the EEP to be competitive in the world market.
Over the years USDA has borrowed from Peter to pay Paul and by doing so has removed the clout the EEP program was designed to have over trade distorting practices of our competitors. This must be stopped. For example:
The 1996 farm bill authorized maximum funding levels for EEP through fiscal year 2002 as follows: $350 million for fiscal year 1996; $250 million for fiscal year 1997; $500 million for fiscal year 1998; $550 million for fiscal year 1999; $570 million for fiscal year 2000; and $478 million in each of fiscal year 2001 and fiscal year 2002. Note that the authorizations for the early years are lower than the maximum value levels allowed by the Uruguay Round Agreement on Agriculture.
Page 146 PREV PAGE TOP OF DOC The 1996 farm bill cut EEP in the near years to provide money for the contract payments. In the out yearsthose leading up to the next round of multilateral trade negotiationsthe authorizers in Congress authorized the use of EEP at levels of $550 million in fiscal year 1999; $579 million in fiscal year 2000; and $478 million in fiscal years 2001 and 2002. These figures were consistent with U.S. commitments on the reduction of export subsidies contained in the Uruguay Round Agreement on Agriculture but continued to reduce the leverage on competition.
Congressional appropriators have used the lapse in the operation of the EEP program to find ''savings'' to fund other programs. In 1999 the Department of Agriculture beat the appropriators at their own game by proposing a cut in the EEP to fund crop insurance from fiscal year 19992003. Earlier USDA had recommended an EEP program funded at $500 million (as authorized in the farm bill) and the appropriators cut it to $150 million to fund a crop insurance shortfall for one year. For fiscal year 1999, the Department proposed to increase the funding for EEP from $150 million to $320 million and to resume the program ''should global market conditions warrant.'' This ''increase'' for fiscal year 1999 was really a cut from the authorized level of $550 million.
Adding insult to injury, the Department proposed to make EEP a more flexible, multi-year program. Under that proposal, a total funding level of less than $1.2 billion would have been made available to the Department for EEP during the 1999 to 2003 period. According to the budget summary issued by USDA, the proposal would provide administrative discretion to the Department to determine the annual level of funding for EEP (subject to the $320 million limitation in 1999). And any funding that was not used in one year would remain available for use in a subsequent year subject to the Uruguay Round agreement commitments. USDA estimated that cutting EEP from a multiyear funding level of $2.1 billion to $1.2 billion saved $1.4 billion for use in other mandatory spending proposals.
Page 147 PREV PAGE TOP OF DOC The wheat industry strongly objects to this kind of fiscal jerry-rigging when we are losing export opportunities.
We would oppose any attempt to use unspent EEP funds to make up for short falls in any other program, including the existing market development-cooperator program and the Market Access Program. These programs must be funded at the levels mentioned earlier and all unspent EEP monies be considered new resources to enhance competitiveness in the world market.
A program that our competitors dislike as much as they do is one that must not be removed from our negotiators' toolbox. We urge you to revitalize the Export Enhancement Program and to work with us to make all unutilized funds available to strengthen our export programs.
There are some additional issues the U.S. wheat industry believes cannot wait for the next farm bill that I wish to bring to your attention. They are part of a complete package that the U.S. needs in its ''toolbox'' if we are to remain competitive.
I11Presidential Trade Promotion Authority. The wheat industry believes that Congress should grant trade promotion authority to the President that is unencumbered by environmental or labor provisions this year.
Unilateral Trade Sanctions. We recognize that significant work was done last year to reform U.S. sanctions policy. However, the industry supports continued efforts to ease access to formally sanctioned markets by eliminating licensing requirements, allow access to export credit programs for all countries without a presidential waiver and rescind the travel restrictions and the prohibition on commercial financing for Cuba.
Thank you for your attention to wheat's proposals for the new trade title. The wheat industry will continue to work on expanding effectiveness of the trade title in an effort to aggressively promote U.S. wheat exports. We look forward to working with the Committee further on discussions of the trade title.
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Statement of Thomas M. Suber
Mr. Chairman and members of the Subcommittee, I am Tom Suber, president of the U.S. Dairy Export Council (USDEC). I am pleased to appear before you today to testify on the topic of foreign agriculture programs and the dairy industry's successful partnerships with the Department of Agriculture's export enhancement programs. With the exception of the implementation details pertaining to the USDA's export promotion programs, my comments represent a broad consensus among farm and agriculture-related organizations that have participated in a Trade Title Working Group, Subcommittee on Export Assistance and Promotion Programs.
The U.S. Dairy Export Council is a non-profit, independent membership organization that represents the export trade interests of U.S. milk producers, dairy cooperatives, proprietary processors, export traders and their allied industry suppliers. Its sole mission is to increase the volume and value of U.S. dairy product exports. USDEC maintains offices in Mexico City, Tokyo, Seoul, Hong Kong, Shanghai, Brussels, Bangkok, Sao Paulo, Taipei and the Middle East to assist in the export of U.S. dairy products worldwide. USDEC receives the majority of its funds from Dairy Management, Inc., the organization responsible for managing the national farmer-funded dairy promotional assessment known as the check-off. The market promotion programs of USDA's Foreign Agricultural Service provide the Council's next highest source of revenue, followed by the annual dues of our seventy-plus members.
America's dairy industry is the second largest agricultural commodity sector in the United States, measured by farm cash receipts. The 80,000 dairy farmers in the U.S. live in every state of the Union, from Vermont to California, and Florida to Idaho. Dairy is one of the top three agricultural sectors in fully half the states, and almost two-thirds of the members of the House hail from one of these ''dairy'' states. Internationally, the U.S. is the world's largest single country producer of cow's milk.
Page 149 PREV PAGE TOP OF DOC Impressive as those numbers are, they represent only the milk producer side of the industry; dairy processors, the companies that turn milk into yogurt, cheese, ice cream and milk powder, add overall strength and employment to the impact of the industry as a whole on the country's economy. In addition, we know that our ability to increase production is limited only by our ability to access new markets. This makes our efforts to market U.S. dairy products for export all the more important to the industry and to the overall rural economy.
While the Export Council is only about five years old, the very fact that it exists
indicates a profoundly changed attitude in this important agricultural sector. Before 1995 the industry paid little or no attention to creating new export markets; it relied on government programs to clear inventory. No longer content to depend exclusively upon the government to dispose of its ''surplus,'' the industry has united behind an ambitious export and global trade reform agenda. We realize we cannot bank our future solely on the domestic market.
As such, dairy is a relative newcomer to international trade, and that trade is still modest in comparison to that of our world competitors. In 2000, the U.S. exported about 5 percent of total U.S. domestic milk production. While U.S. milk production has steadily increased over the last few years, as a share of production, U.S. dairy exports have steadily kept pace.
In 2000 the U.S. exported over $1 billion in assorted dairy products, the second consecutive record-breaking year of foreign sales. While that's an impressive number, it could be even larger if not for the price depressing export subsidies and high market access barriers of our competitors.
The role of DEIP. The farm and agriculture-related organizations that participate in the Trade Title Working Group, Subcommittee on Export Assistance and Promotion Programs have asked me to highlight the importance of the Dairy Export Incentive Program (DEIP) to our industry.
Page 150 PREV PAGE TOP OF DOC Part of the Dairy title to the farm bill, DEIP is not subject to the appropriations process and so is not scored by the Congressional Budget Office. However, the authority for DEIP expires in 2002 and must be renewed in the next farm bill. DEIP is WTO-compatible and is as well the only vehicle under the Uruguay Round agreement by which U.S. suppliers can compete in a world dairy commodities market where export subsidies have set artificially low prices.
The two commodities most frequently utilized under DEIP in recent years are skim milk powder and cheese. The annual maximum level of subsidized exports allowed under DEIP for U.S. skim milk powder is about 68,000 metric tons; for cheese, the maximum is about 3,000 tons. In contrast, the European Union can subsidize 290,000 tons of skim milk powder and 360,00 tons of cheese. That simple contrast, in a nutshell, illustrates the crucial importance of this program.
On a milk equivalent basis, the EU accounts for fully 72 percent of the subsidy allowances agreed to in the Uruguay Round; the U.S., which produces two -thirds as much milk as the EU, accounts for just three percent. The use of such heavy export subsidies by our competitors drives down international prices, making the export of U.S. dairy commodities uncompetitive. With a renewal of the DEIP program, U.S. suppliers will be able to compete, albeit to a limited degree.
More important than DEIP's impact on leveling the international playing field is the leverage it provides in negotiating the next agricultural agreement in the WTO. The U.S. dairy industry has openly and repeatedly stated that it is quite ready to accept elimination of the DEIP program as part of dismantling of all agricultural export subsidies. In fact, elimination of export subsidies is the dairy industry's highest priority in the next WTO round. Even the limited reduction of those subsidies included in the Uruguay Round Agreement has demonstrated that when product dumping is limited, world dairy prices do firm upand result in more competitive U.S. products in the world market.
Page 151 PREV PAGE TOP OF DOC Despite the impact of our unrelentingly strong dollar, world prices for skim milk powder have now risen to a point just below domestic price levels. Though still lower than U.S. prices, world commodity cheese prices have shown a relatively steady upward trend, as well. Limits on EU subsidies have contributed significantly in both instances. Eliminating export subsidies will enhance considerably the competitiveness of U.S. dairy commodity exports.
The industry is fully prepared to give up the DEIP program in WTO negotiations in exchange for reciprocal concessions. Until then, it is vital that Congress re-authorize the program and direct USDA to use it to the fullest extent domestic market conditions warrant.
USDEC in partnership with USDA. While the DEIP program has been very important to dairy exports, an even more successful illustration of the value of USDA's export promotion programs is the growth in America's unsubsidized dairy exports. In 2000, 82 percent of our record $1 billion dollar exports were unsubsidized dairy products. That's a remarkable shift from 56 percent of a lower amount in 1995. And one of the primary causes of that growth is the effective partnership the industry has with the Foreign Agricultural Service and its Market Access Program and Foreign Market Development program.
From a standing start five years ago, dairy exports have grown rapidly. Today the U.S. exports more dairy products than it does sports gear, or forklift trucks. In agriculture, less than ten commodities can lay claim to more than a billion dollars in exports.
This success is the result of strong, vertically integrated support from every sector of the dairy and export industries and of our partnership with USDA-managed programs designed to help expand trade.
The dairy industry contributes more than rhetoric to its support of export market developmentit brings a significant amount of cold, hard cash to the table as well. First, Dairy Management Inc. commits more than $6 million a year to underwriting market development and generic product promotion programs. In addition, we receive funding through membership dues from dairy cooperatives and corporate entities such as Land O'Lakes and Kraft, as well as export-minded agencies such as trading companies and state departments of agriculture. These dues provide another three-quarters of a million dollars a year to USDEC.
Page 152 PREV PAGE TOP OF DOC In total, the industry delivers close to $7 million of its own money to its participation as a cooperator in USDA's MAP and FAS programs. Yet, it's clear that the limited funding level of these programs has severely limited the ability of MAP and FMD spending power to keep up with inflation, match the promotional spending of key competitors, and serve the growing number of qualified and motivated U.S. agricultural cooperators. Therefore, we join with the other members of this Trade Title Working Group in urging you to fund the Market Access Program, at the $200 million level and to fund the Foreign Market Development Program at a level of $43.25 million dollars.
Under the WTO's classifications for agricultural domestic support, these two programs are considered ''green'', or fully unrestricted. They merit full support from a Congress committed to boosting trade and strengthening the well being of the food and agriculture sector. These programs have the added value of requiring each industry to bring matching funds to bear.
The funding constraints have amplified procedural flaws in the process of allocating funds under the program. According to the USDA's published criteria for determining program allocations, the applicant cooperator's industry contribution level is weighted at 40 percent in the annual recalculation of support levels and past performance accounts for 30 percent. Growth in exports, as a result, would be supported by growth in support, allowing the cooperator to build on success and expand the positive economic impact of the program.
In actual implementation, however, the results of the formula are difficult to rationalize, especially in how industry contributions are treated. Through USDEC, the industry brings $7 million to its export program; about half of this qualifies under FAS criteria as matching funds. Since the 1996 marketing year, matching funds from the U.S. dairy industry to both the MAP and FMD programs have grown 66 percent. But the allocations from USDA have grown only 11 percentand do not reflect dairy's role as a billion dollar export industry. The attached chart shows those industry matches:
Page 153 PREV PAGE TOP OF DOC Over the last six years, the dairy industry's actual match to the Market Access Program has ranged as high as 235 percentand has never been lower than 167 percent.
During that same time period, the industry's match to the Foreign Market Development program has been as high as 250 percent, and never lower than 157 percent.
When the programs are combined and the industry's overall performance in the actual match is considered, dairy has put its money where its mouth is at levels ranging from 166 percent last year to 214 percent in 1997.
In terms of total dollars from all sources, last year the industry put up $2.94 for every $1 provided by the FAS. That's not an industry matchthat's an overwhelming vote of confidence, a landslide of support from an industry facing considerable fairand unfairmarket competition. This level of support is matched by outstanding export performance, especially in moving away from a reliance on government export subsidies.
It's possible that the FAS allocation formula on industry match and performance is distorted due to the department's practice of pre-determining total allocations for each of its commodity divisions before the cooperators submit their annual Unified Export Strategy plans outlining industry match and performance. As a result, FAS in effect pre-judges its individual allocations by forcing cooperators within each division to be evaluated just against each other, rather than across the agency.
As uncollegial as it may appear to raise the process by which individual allocations are made, I suspect this topic has been a constant source of anxiety and discussion between each and every cooperator and FAS.
The MAP and FMD programs are vitally important to the U.S. dairy industry. Their ability to contribute to the future export growth of our industry is in serious jeopardy, however, unless Congress authorizes $200 million for the MAP and $43.25 million for the FMD program.
Page 154 PREV PAGE TOP OF DOC The FAS Mission. Finally, Mr. Chairman, I would like to touch on the critical role FAS performs in creating and managing our trade programs. FAS has provided significant and effective leadership in coordinating a wide range of food trade programs implemented by U.S. private sector cooperators and other U.S. government agencies. Without a strong and effective FAS, our international trade expansion goals in agriculture, and consequently the health of the entire U.S. food and agricultural community, will remain unfulfilled. In addition, efforts by FAS and U.S. cooperators in this area are constrained by several other factors.
First, FAS employees are and have been heavily overworked due to the continuing lack of resources. Despite an increased number of U.S. cooperators, a growing number of countries seeking to accede to the WTO, new trade agreements to be implemented and new trade negotiations to be conducted, FAS staffing levels have remained more or less unchanged in recent years. The result is an FAS staff only able to react primarily to daily crises, rather than moving ahead proactively on the critical issues that would enhance our country's ability to expand exports. For this reason, we emphatically echo the National Milk Producers Federation request in testimony before the full House Agricultural Committee in May for an additional $20 million dollars for the budget of the Foreign Agricultural Service to establish a Trade Agreement Monitoring Program. Such a program will greatly enhance America's ability to monitor our competitors' compliance with past agreements, as well as to devote sufficient attention to ongoing negotiations.
Mr. Chairman, the singular mission of the U.S. Dairy Export Council is to expand exports of U.S. dairy products. The industry's coordinated and effective marketing and promotion have achieved excellent progress toward this goal in the past five years. However, many of our marketing efforts with significant potential for increased success are futile to pursue in the face of worldwide high tariffs, non-tariff barriers and/or illegal domestic supports designed to prevent U.S. products from entering a market.
Page 155 PREV PAGE TOP OF DOC A good example of this is the European Union. While the EU annually exports nearly $800 million dollars worth of dairy products into the United States, the U.S. exports only about $35 million to the EU. The reason for this disparity is not the absence of desire or the lack of an effective marketing strategy on the part of the U.S.it is multi-dimensional market protection on the part of the European Community. Trade to the EU in dairy and other agricultural commodities is heavily distorted through a quagmire of restrictions and barriers implemented by the EU to protect its domestic agricultural industries. To identify and resolve those constraints we need the talented, but scarce, human resources of the Foreign Agricultural Service to focus more attention on trade policy. Without information regarding domestic subsidy programs, high tariffs, TRQ administration (quota fills), hidden and overt sanitary and phytosanitary barriers, and more, we often can't even form the right questions with which to challenge these illegal European policies.
Although the egregious practices of the EU have made penetration of that market close to impossible, we have successfully initiated multilateral and bilateral negotiations with other nations. However, reaching equitable and reciprocally fair agreements requires detailed analyses of the domestic and market protection practices of countries such as Canada, Brazil, and Japan. You can be sure the embassies of our trading partners are 100 percent devoted to seeking such information regarding our food and agricultural programs. We urge you to support the Foreign Agricultural Service with additional funding and to consider seriously strengthening FAS's resources, both human and monetary, to allow it to devote more attention toward trade policy.
Mr. Chairman and members of the Subcommittee, the dairy industry was part of the earliest foundation of U.S. agriculture. While in the 19th century farmers milked their cows and delivered dairy products to neighbors and customers in a restricted geographic area, the 20th century saw technological advances that expanded both our ability to produce these products and to share them with the world. Glass bottles of milk may no longer be delivered to our back stoops, but American cheeses are consumed by people in Japan and Mexico, whey proteins from the U.S. are exported to Korea for use in sports drinks and infant formula and American ice cream is served in homes and shops from China to Saudi Arabia.
Page 156 PREV PAGE TOP OF DOC Congress and the Department of Agriculture are to be congratulated for recognizing the importance of international trade to the economy of the agricultural industry in this country, and the Foreign Agricultural Service has been absolutely key to the success the U.S. has established in this area. As globalization continues to shrink the distances and differences between countries, international markets for the products of America's farms have expanded beyond the most optimistic predictions of even ten years ago.
But our success in growing the international trade of America's agricultural products, including dairy, doesn't mean we can stop working to improve on our efforts. Now is not the time for resting on our laurels or for a policy of benign neglect predicated on the assumption that if it works, it's not broken and doesn't need fixing. Success engenders more success only if it is supported with the resources, human and monetary, that growth demands.
We repeat our call to Congress to renew the Dairy Export Incentive Program in the next farm bill, to fund the Market Access Program at $200 million dollars and the Foreign Market Development Program at $43.25 million dollars, to expand the ability of the Foreign Agricultural Service to negotiate, implement and monitor fair trade agreements and to address the weaknesses in the FAS allocation process.
These actions are imperative to expanding our growth in agricultural trade, to strengthening our stature in the international marketplace and to assuring the economic health and successful future of America's farming community.
I appreciate the opportunity to testify before you today and will be pleased to answer any questions you might have.