SPEAKERS CONTENTS INSERTS
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00–000 CC
2001
2001
FORMULATION OF THE 2002 FARM BILL
(GENERAL FARM COMMODITIES)
HEARINGS
BEFORE THE
SUBCOMMITTEE ON
GENERAL FARM COMMODITIES
AND RISK MANAGEMENT
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
JUNE 11, GLENCOE, MN; 18, FRESNO, CA; 23 MACON, GA, 2001
Serial No. 107–10
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Part 3
Printed for the use of the Committee on Agriculture
agriculture.house.gov
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COMMITTEE ON AGRICULTURE
LARRY COMBEST, Texas, Chairman
JOHN A. BOEHNER, Ohio
Vice Chairman
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
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GIL 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
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JOHN ELIAS BALDACCI, Maine
MARION 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
Professional Staff
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
Subcommittee on General Farm Commodities and Risk Management
SAXBY CHAMBLISS, Georgia Chairman
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JOHN A. BOEHNER, Ohio,
Vice Chairman
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
JERRY MORAN, Kansas
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
GIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
DOUG OSE, California
ROBIN HAYES, North Carolina
CHARLES W. ''CHIP'' PICKERING, Mississippi
TIMOTHY V. JOHNSON, Illinois
MIKE PENCE, Indiana
DENNIS R. REHBERG, Montana
SAM GRAVES, Missouri
MARK R. KENNEDY, Minnesota
CALVIN M. DOOLEY, California
Ranking Minority Member
BENNIE G. THOMPSON, Mississippi
SANFORD D. BISHOP, Jr., Georgia
MARION BERRY, Arkansas
MIKE McINTYRE, North Carolina
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LEONARD L. BOSWELL, Iowa
DAVID PHELPS, Indiana
KEN LUCAS, Kentucky
BARON P. HILL, Indiana
JOE BACA, California
MIKE ROSS, Arkansas
ANÍBAL ACEVEDO-VILÁ, Puerto Rico
RICK LARSEN, Washington
RON KIND, Wisconsin
RONNIE SHOWS, Mississippi
MIKE THOMPSON, California
COLLIN C. PETERSON, Minnesota
CHRISTY CROMLEY, Subcommittee Staff Director
(ii)
C O N T E N T S
JUNE 11, 2001 GLENCOE, MN
Chambliss, Hon. Saxby, a Representative in Congress from the State of Georgia, opening statement
Prepared statement
Gutknecht, Hon. Gil, a Representative in Congress from the State of Minnesota, opening statement
Kennedy, Hon. Mark R., a Representative in Congress from the State of Minnesota, opening statement
Thune, Hon. John R., a Representative in Congress from the State of South Dakota, opening statement
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Witnesses
Anderson, Ron, president, Minnesota Association of Wheat Growers
Prepared statement
Louwagie, Don, president, Minnesota Soybean Growers Associaiton
Prepared statement
Quinn, Andy, corn and soybean producer, Litchfield, MN
Prepared statement
Rynning, Robert, president, Minnesota Barley Growers Association
Prepared statement
Submitted Material
Christopherson, Al, president, Minnesota Farm Bureau Federation, statement
Perish, Alan, treasurer, Minnesota Milk Producers Association, statement
JUNE 18, 2001, FRESNO, CA
Chambliss, Hon. Saxby, a Representative in Congress from the State of Georgia, opening statement
Prepared statement
Dooley, Hon. Calvin M., a Representative in Congress from the State of California, opening statement
Radanovich, Hon. George, a Representative in Congress from the State of California, opening statement
Prepared statement
Witnesses
Bransford, Don , rice producer, Colusa, CA
Prepared statement
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Cameron, Don ,cotton and wheat producer, Helm, CA
Prepared statement
Diener, John, cotton and wheat producer, Five Points, CA
Prepared statement
Errotabere, Daniel, cotton and wheat producer, Riverdale, CA
Prepared statement
Nichols, Chuck, cotton and wheat producer, Hanford, CA
Prepared statement
Palla, Gregg, cotton, wheat, and corn producer, Bakersfield, CA
Prepared statement
Pederson, Craig, cotton and wheat producer, Lemoore, CA
Prepared statement
Pucheu, John, cotton producer, Tranquility, CA
Prepared statement
Submitted Material
Myers, Marvin, producer, statement
JUNE 23, 2001, MACON, GA
Berry, Hon. Marion, a Representative in Congress from the State of Arkansas, opening statement
Bishop, Hon. Sanford D. Jr., a Representative in Congress from the State of Georgia, opening statement
Chambliss, Hon. Saxby, a Representative in Congress from the State of Georgia, opening statement
Hayes, Hon. Robin, a Representative in Congress from the State of North Caroina, opening statement
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Witnesses
Bloodworth, Stewart, cotton, wheat, rye, soybean, and oat producer, Perry, GA
Prepared statement
Heard, Glenn, corn and cotton producer, Brinson, GA
Prepared statement
Lee, Chuck, cotton and wheat producer, Pembroke, GA
Prepared statement
Smith, Donnie, cotton and wheat producer, Willacoochee, GA
Prepared statement
FORMULATION OF THE 2002 FARM BILL
MONDAY, JUNE 11, 2001
House of Representatives,
Subcommittee on General Farm
Commodities, and Risk Management,
Committee on Agriculture,
Glencoe, MN.
[Editor's note: Due to audio difficulties, the transcript of this hearing is incomplete in some places. Attempts have been made to verify the accuracy of all statements and restore them to the fullest extent possible.]
The subcommittee met, pursuant to call, at 9:00 a.m., at the Glencoe Silver Lake High School,Glencoe, MN, Hon. Saxby Chambliss (chairman of the subcommittee) presiding.
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Present: Representatives Thune, Gutknecht, and Kennedy.
Staff present: Christy Cromley, subcommittee staff director; Anne Simmons, and Tyler Wegmeyer.
OPENING STATEMENT OF HON. SAXBY CHAMBLISS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA
Mr. CHAMBLISS. We will call this subcommittee meeting to order.
I thank you all for coming out today, and I particularly thank our witnesses for being here today. We look forward to hearing your testimony. And I also want to thank my good friend Mark Kennedy for hosting us out here and you great people in Minnesota.
I am Saxby Chambliss, and I'm from Georgia. I'm the chairman of the General Farm Commodities and Risk Management Subcommittee. I come from agricultural country in south Georgia where we grow primarily peanuts, cotton, and tobacco down our way, but we do grow some wheat, corn, soybeans, and some of the crops that you all grow up here.
The one thing that we have found out in getting around the country, from an agriculture community perspective, and that is that everybody involved in agriculture has been on hard times for the last several years. We held ten hearings all around the United States last year. We didn't talk to commodity groups, we didn't talk to lobbyists, we talked to farmers and we listened to farmers. And we found out that the problems that are very much in place in California with respect to agriculture are really the same problems that you've got in Minnesota, the same problems we've got in Alabama and Georgia. This year we've had a number of views in Washington where we have heard from commodity groups, with the idea of putting forth rewriting the farm bill this year. We now are about the business pursuant to the direction of Chairman Combest of preparing to rewrite the farm bill. We're going to try to do it this year. In fact, we're going to try to do it in the next 60 days.
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So with that in mind, I made the decision that we needed to go back to the country, narrow our focus on what direction the farmers want us to go in with respect to the next farm bill, and start getting a little more specific. That's why we've asked these gentlemen to come today to testify, and so we can ask some of the questions that we have on our mind in anticipation of trying to draft new Federal farm policy beginning next month.
Again, let me just say to you folks in Minnesota, it ought to be an indication to you of the importance of your sending Mark Kennedy to Congress that we're here. Mark's doing a great job representing you in Washington, and he's a very intelligent young man. He asks the right questions. He's very diligent in his efforts to learn all he can about all agriculture. And he's doing a good job of representing your interests up there. And Mark, I just want to tell you we appreciate the great job you're doing, and we particularly appreciate you hosting us here today.
We also have another Minnesotan, Gil Gutknecht, a very close personal friend of mine. Gil and I came to Washington together back in 1994, and he is a great American and somebody that knows and understands agriculture and somebody that I have great respect for and look to his opinion quite often. He's a good guy, and Gil, thank you for being here.
We have an empty chair right now that's going to be filled in a minute with another good friend, John Thune, from South Dakota. John is on the way from the airport now and should be here shortly.
Let me just, by way of some opening comments, just say that we are here today to hear some new perspectives on how we might improve Federal farm policy. The full committee is leaving no rock unturned. Chairman Combest has heard from a number of commodity groups over the past 2 years on problems with farm policy and what ideal programs they recommend. The committee has heard options ranging from supply management and reserves to keeping the current farm program. Past programs, including target prices, are also being reviewed. There's a number of commodity groups who have testified on behalf of continuing the loan program or deficiency payments and creating a counter-cyclical program.
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I'm holding three field hearings across the country in June to hear from producers on how we might improve on the existing commodity program components and how we might craft a counter-cyclical program to best benefit producers' operations.
This is the only hearing that we will hold on farm policy in the Midwest. We'll be in California next week, and we'll be in Georgia the following week. As you know, Chairman Combest is aiming to write the farm bill and pass it through the committee by August. While some might disagree with the chairman's timeframe, I concur that it is of utmost importance to complete the farm bill this year. Otherwise, we will have new budget numbers to work with. And let me explain exactly what I mean by that, so that we can get this message out to farmers all across America. Because this budget flexability is a new concept, something that we've not had the opportunity to deal with in this way before.
Chairman Combest came up with the idea of flexibility within the farm budget baseline this year. We came up with a number, $79 billion, that's going to be added to the current agriculture baseline over the next 10 years. But instead of taking that number and dividing it by ten and allocating a certain amount of money for each year, we're going to have flexibility in how we use that $79 billion. All of you will remember that with respect to our counter-cyclical program, there have been years that we didn't use that money. But that money was allocated in the budget; it was set aside to be used, and if we didn't use it, we lost it.
This year, under the program that the chairman has crafted, we're going to be able to keep that money in place, and if we use it, fine. But if we don't use it, and we forward it back into the pot, it's available for the next and the remaining years left of the farm bill, whatever they might be. It's a different concept, but it's something that we think is going to give us flexibility so that in those tough years, we'll be able to continue to extend a helping hand to our farmers all across America.
Due to time constraints, we're going to operate under what we call the 5-minute rule here, and that is that we're going to ask our witnesses to limit their testimony to 5 minutes, and we're going to try to limit the time of members' questioning to five minutes, and we'll go in a cycle here as long as we can until the time's up.
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At this time I'm going to look to each of our members to see if anybody has an opening statement. If you want to submit a written statement, we'll take that.
[The prepared statement of Mr. Chambliss follows:]
PREPARED STATEMENT OF HON. SAXBY CHAMBLISS
As Chairman of the General Farm Commodities and Risk Management Subcommittee, I wish to thank Mr. Kennedy and the folks of Minnesota for hosting the subcommittee in the first of field hearings we are holding in June designed to review Federal farm policy. This is also the first subcommittee hearing I have chaired since becoming chairman in January. Mr. Kennedy, I can assure you that it wasn't too long ago I was sitting in your seat. Keep up the good work for the people of Minnesota, and you'll be here one day.
We are here today to hear producers' perspectives on how we can improve Federal farm policy. The full committee is leaving no rock unturned. Chairman Combest has heard from a number of producers and commodity groups over the past 2 years on problems with farm policy and what ideal programs they recommend.
The committee has heard options ranging from supply management and reserve establishment to keeping the current farm program components. Past programs including target prices are even being reviewed. As a number of commodity groups have testified on behalf of continuing the loan program and decoupled payments (AMTA payments) and creating a countercyclical program, I am holding three field hearings across the country in June to hear from producers on how we might can improve on the existing commodity program components and how we might can craft a countercyclical program to best benefit producers' operations.
As you know, Chairman Combest is leading the House Agriculture Committee to rewrite the farm bill and pass it through committee by August. While some might disagree with the chairman's timeframe, I concur that while it is aggressive, it is of utmost importance to complete the farm bill this year. We have received generous figures under which to craft a new farm bill. We don't need to let those numbers dwindle away by allowing a new budget resolution to pass next year before we implement new farm legislation.
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Mr. Louwagie, I agree with your remark in your written statement that farm bill efforts must be viewed as long-term investments. We in the Agriculture Committee will do our best to craft a farm bill to create positive effects in farm country. However, while we will strive for short-term improvements in the agricultural sector, I don't know if we will necessarily see immediate results. Hopefully our witnesses today will offer some ideas on how we might can improve conditions to ease the burden currently resting on farmers' shoulders.
Mr. CHAMBLISS. Mr. Gutknecht, we'll start with you.
OPENING STATEMENT OF HON. GIL GUTKNECHT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
Mr. GUTKNECHT. Well, Mr. Chairman, I'll be real brief.
First of all, I want to thank you for coming. And I think it's good for the people here in Minnesota to sort of get a flavor of the Georgia accent, because I think people need to understand that we talk about farm policy, and sometimes it's easy to think, well, this is what we would like to have happen here in the upper Midwest. We sometimes forget that it ultimately takes 218 votes to pass anything in Congress, and we have people from Hawaii, and we have people from Maine, and we have people from Georgia. And in order to put all of that together, it takes an awful lot of give and take and some buffing and sanding. So we're delighted to have you here in Minnesota to sort of get a flavor of the problems we face among our producers here in Minnesota.
Also, you mentioned, I'm one of the only Members, maybe the only Member, who serves both on the Agriculture Committee, as well as the budget committee. And I think the good news is we've come out pretty well. And I want to say a special thank you to Chairman Jim Nussle of the House Budget Committee. I think we've done extremely well in agriculture in terms of the budget numbers that are going to be available to us over the next 10 years, especially when you put that in context of what we had said we were going to do just a few years ago in terms of the budget.
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I want to also congratulate and thank Congressman Kennedy's staff. There's a lot of work to put something like this together, and I think they've done a great job.
Let's see—there's one other thing I wanted to do.
I'll think of it in a minute. But I appreciate your coming, and I'll turn it back to you..
Mr. CHAMBLISS. Congressman Kennedy.
OPENING STATEMENT OF HON. MARK R. KENNEDY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
Mr. KENNEDY. Well, again, I want to add my thanks for coming here, Mr. Chairman, and it's great that you can come and hear the Midwestern perspective right here in Minnesota. And one of the very interesting things that I've experienced is, as Gil mentioned, not everybody thinks of agriculture as corn and soybeans and wheat and barley, cattle and hogs and what we think of agriculture here in Minnesota. So it's good to have the opportunity to hear it firsthand.
I also see differences between what I hear in Washington from the national organizations and what I hear from our farmers here in Minnesota. So the opportunity for us to hear directly from you and have it be part of the record and have our chairman here is a great opportunity, and I appreciate you coming here to the Second District of Minnesota to hear that.
I also want to echo what we've all said about the budget. The budget is very important, and we've got a much better farm bill this year. So I'm going to be pushing very hard, as these people are, to get this done this year, and that's why it seems very timely.
But it's also more than just a budget. If we can get the agriculture bill written this year, I think we have some ideas that we'll be presenting that are good. Why wait? Why wait till next year when we can have them benefitting us next year, No. 1. No. 2, by focusing on it this year, you focus on what's good policy, as opposed to merely wrapping it up until election year.
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So I think there's a lot of good reasons why we move forward, and I'm quite happy to be able to move forward in Minnesota. Thank you.
Mr. CHAMBLISS. Mr. Gutknecht?
Mr. GUTKNECHT. The other point that I'd like to make, good staff work here. I want to introduce John Monson. John, will you stand up?
For those of you who don't know John, I've worked very closely with John. He was the district director or the Dodge County director of FSA. Now he's the state director. Very, very professional, knows the farm program extremely well. He's been very helpful to our staff, also in working with Congressman Kennedy's staff, Congressman Peterson's staff, who are on the Agriculture Committee.
So if there are questions that we can't answer, we usually turn to John Monson. He does a great job. So thanks for coming out today, John.
Mr. CHAMBLISS. All right. I want to turn to our panel, and just very quickly, Mr. Ron Anderson, our wheat producer from Hallock, Minnesota; Don Louwagie, our corn and soybean producer from Marshall, Minnesota, and also an outstanding golfer, by the way, found that out yesterday; Mr. Andy Quinn, a corn and soybean producer from Litchfield, Minnesota; and Robert Rynning, a barley producer from Kennedy, Minnesota.
Gentlemen, thank you all again for being here. We're going to start with Mr. Anderson. We'll come right down the row. So Mr. Anderson, the floor is yours.
STATEMENT OF RON ANDERSON, PRESIDENT, MINNESOTA ASSOCIATION OF WHEAT GROWERS
Mr. ANDERSON. Thank you. My name is Ron Anderson, and I farm 2,200 acres of wheat, soybeans, sugar beets, canola, and alfalfa in northwestern Minnesota in the Red River Valley. I have been on the board of directors of the Minnesota Association of Wheat Growers for 9 years, and I'm currently serving as president.
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I appreciate this opportunity to visit with you today about Federal policies that affect our farming livelihood. My farm is about 5 hours northwest of here, just a stone's throw from the Canadian border. The growing conditions in my neck of the woods are much different than they are here in southern Minnesota. In fact, with our short growing season, we probably have more in common with Canadian crop producers, agronomically speaking, than with producers here in southern Minnesota, which has growing conditions more like the Corn Belt. The fact that agriculture and growing conditions here in one state are about as different as they are from California to Mississippi serves as a reminder that when it comes to drafting farm policy, one size does not fit all. I hope you keep that in mind as you develop new farm programs because flexibility is needed in the administration of farm policy rules.
As you all know, we have suffered through 4 straight years of low market prices, coupled with higher production costs in recent years. I figure that the cost per acre these past two growing seasons has risen about $5.60 to $6.27 an acre, or about $14,000 on my farm, primarily because of the higher gas and utility costs that affect everything from fertilizer, fuel, and grain drying, to the expense of hauling grain.
In northwestern Minnesota, not only have we been challenged in the marketplace, but also on the production side of the ledger. The Red River Valley has been in a wet cycle for the past 10 years. The Fargo-Moorhead area, which is in about the middle of the Valley, has averaged an extra 2.65 inches of rain each summer since 1991. That's like getting four months of rain crammed into three for 10 straight years. A meteorologist points out that most teenagers in the Red River Valley do not even know what a hot, dry summer is like.
This wet cycle has reduced crop yields and quality in the Valley, which traditionally has been one of the best production regions in the world. The current wet cycle has resulted in an increase in crop diseases, such as scab or Fusarium head blight in wheat and white mold in soybeans. This spring wet weather prevented many farmers in my area from getting into the field to plant. On my farm, I was only able to see 55 percent of my intended wheat acres and zero acres of soybeans. About 50 percent of the crop acreage in my country will be prevented from planting. This comes to about 165,000 acres. Ironically, in western North Dakota and in Montana, there are wheat producers who were unable to plant because it was too dry.
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I want to thank you and your colleagues for legislative measures that have helped mitigate our losses in the field and the marketplace. Better planting flexibility written into the 1996 farm bill has given me and a lot of other farmers a much greater ability to grown crops in response to the markets and to the needs of proper crop rotation. Before Freedom to Farm, I was basically growing just two crops, wheat and sugar beets. Now I'm growing five, because I'm no longer tied to growing program crops on base acreage. I definitely hope this planting flexibility carries over to the new farm bill. Loan deficiency payments or LDPs have also helped with the extremely low crop prices and should be included in the next farm bill.
Of course, it's well known by now that the lack of price support is a major flaw in the current farm bill. I know there's a lot of farmers who would not be in business today without the emergency AMTA and crop disaster loss assistance that's been paid out in the last 3 years. An emergency AMTA payment and disaster assistance will be needed again this year, until a better price support mechanism is incorporated into the farm program. I would stress that a more systematic price support mechanism will not only help farmers sleep better at night, but also their agriculture lenders.
The unpredictability of the AMTA and the AMTA-plus these past few years has made it more difficult for lenders to extend operating capital. A more stable farm program will do much to help lenders work with farmer in financial planning.
I believe that the counter-cyclical support proposed by the National Association of Wheat Growers will work well on my farm. The counter-cyclical wheat payment will be based on a 4.25 market support price, and the payment will be calculated by subtracting the guaranteed base payment and the higher of either the national average market price or the marketing loan rate. All payments would be coupled from current production and applied to historic bases and yields. A more detailed summary of the NAWG plan is attached, with copies of my testimony.
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I see by the red light my time is up. Thank you very much. I'll answer questions later.
[The prepared statement of Mr. Anderson appears at the conclusion of the hearing.]
Mr. CHAMBLISS. Thank you. Mr. Louwagie.
STATEMENT OF DON LOUWAGIE, PRESIDENT, MINNESOTA SOYBEAN GROWERS ASSOCIATION
Mr. LOUWAGIE. Good morning, Mr. Chairman and members of the committee. I am Don Louwagie, a soybean and corn farmer from Marshall, Minnesota. I serve as president of the Minnesota Soybean Growers Association.
I would like to express our appreciation to you, Mr. Chairman, for conducting these hearings on domestic farm policy alternatives for the next farm bill. We look forward to working closely with your committee and your staff in developing effective legislation.
I would like to begin by briefly describing the policy environment facing soybean producers in recent years and its impact on our consideration of various policy alternatives.
The authors of the FAIR Act did not expect the transition from government dependence to market orientation to take place solely as a result of changes in domestic farm policy. They made clear that the overall economic and trade environment of U.S. agriculture needed to be changed to reduce production costs and enhance the competitiveness of U.S. farm exports.
We appreciate that renewed efforts are underway in the new Congress and in the new administration to focus on the problems facing agriculture and to complete the FAIR Act's unfinished agenda. However, even if progress is made in the near future, these efforts must be viewed as long-term investments. As a result, we must assume that conditions during the next several years could remain much as they are today.
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Key elements of the FAIR Act should be maintained in the next farm bill. These include full and unrestricted planting flexibility, which proved to be extremely helpful to farmers in the northwest corner of Minnesota, where disease virtually wiped out a good share of their wheat crop.
In addition, Minnesota soybean farmers believe the following should also be maintained in the next farm bill: Continuation of non-recourse marketing loans, no statutory authority to impose set-asides, and no authority to establish governments or farmer-owned reserves.
Also, we oppose any limitations on marketing loan benefits, fixed income payments, or any counter-cyclical income support payments.
I will now briefly describe our recommendations for domestic farm programs.
Soybean growers support maintaining current oilseed loan rates for 2002 crops, and setting these rates as floors rather than ceilings under the next farm bill. The formula for adjusting loan levels to 85 percent of Olympic average prices in the previous 5 years should be retained, and discretion should be provided to the Secretary to set loan levels above the floor when prices warrant.
Contrary to what some have conjectured, MSGA does not believe the current national average soybean rate of $5.26 has been responsible for most of the expansion in U.S. soybean acreage since enactment of the FAIR Act. We attribute most of that growth to other factors.
First, the incentive to build bases for program crops under previous farm bills has created tremendous pressure to exclude soybeans and other non-program crops from rotations. Introduction of unrestricted planting flexibility and decoupled income support payments reversed this pressure and allowed producers to achieve a more agronomically-optimum crop rotation.
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A second factor was the relatively high soybean prices between 1995 and 1997, compared to prices for other commodities that compete with soybeans for acreage.
Third, new soybean varieties have been developed in maturity groups that are far better suited for northern and western climates than before.
A fourth factor has been the prevalence of scab and other diseases affecting wheat and other crops in northwest Minnesota. Flexibility provided these farmers the opportunity to plant soybeans instead.
Other factors have encouraged soybean plantings in place of corn. For instance, the high costs or limited availability of natural gas and fertilizer have offset recent improvement in corn prices.
I'd like to point out, too, that global consumption of soybeans during the 1990's grew by 56 percent, compared to 27 percent growth in corn and 6 percent in wheat. If we look at U.S. carryover stocks of soybeans this fall, it's expected to be about 12 percent soybeans carryover, corn will be about 20 percent, and wheat about 32 percent. To the extent the soybean loan rate is a factor in planting decisions, reducing it would increase production of crops that are already in greater surplus.
MSGA supports requiring oilseed loans to be repaid at the lower of the Posted County Price or Adjusted World Price.
I'm just going to skip over to we support the AMTA payments. Currently soybeans are not available under the formula for determining payments under Production Flexibility Contracts. We strongly support expanding the PFC program to include soybeans.
We want to support the counter-cyclical income support.
Oilseed producer organizations support replacing the ad hoc emergency economic assistance payments, which have included an oilseed payment with a counter-cyclical support program. After 3 years of improvisation, farmers and lenders need longer-term assurances that a safety net is in place to protect against low prices and provide income stability.
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Then I'd like to go on. Some other issues that soybean growers endorsed the Conservation Security Act, as introduced in the House by Representative Emerson and in the Senate by Senator Harkin.
We support $1.5 billion for conservation payments. In the area of research, as you're aware, we support $1 billion for research funding to help solve these disease problems.
The area of river transportation is of particular concern in maintenance and upgrading of the Mississippi River. Minnesota soybean farmers are at the end of the export line, and depend heavily on the river to export our crops to overseas customers.
River transportation can move more goods with less air pollution, less noise, less fossil fuel than any other means of transportation. It is the most environmentally friendly form of shipping goods and commodities that exists today.
Another promising arena for soybeans and other oilseeds is the area of alternative fuel development. Minnesota led the way in the development of ethanol production.
The Minnesota Soybean Growers is leading the way in the promotion of biodiesel, an alternate diesel fuel. We appreciate the efforts of Senators Paul Wellstone and Mark Dayton and Representatives Gil Gutknecht, Collin Peterson, and Mark Kennedy for their commitment to plant-based alternative fuels. We urge the administration and Congress to include plant-based alternative fuels, such as biodiesel, in its energy plan.
That concludes my statement, Mr. Chairman, and I want to again thank you for convening these important hearings and for inviting me to testify. I will be glad to respond to questions later.
[The prepared statement of Mr. Louwagie appears at the conclusion of the hearing.]
Mr. CHAMBLISS. Thank you, sir. Mr. Quinn.
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STATEMENT OF ANDY QUINN, CORN AND SOYBEAN PRODUCER
Mr. QUINN. Mr. Chairman, members of the subcommittee, good morning. My name is Andy Quinn. I have owned and operated a corn and soybean farm near Litchfield, Meeker County, for the past 33 years. Thank you for holding this series of meetings gathering input from farmers.
You have heard testimony from all of the national farm groups, and it is clear that there is a continued need for some type of farm support. You have been presented with suggestions regarding minor changes to the current farm program, to returning to supply management, to a new counter-cyclical program. The bottom line is that all of the groups agree on the need for a base-line safety net for agricultural. I will keep my comments brief.
I recommend adopting the National Corn Growers Association's proposed counter-cyclical program. However, I personally believe that the National Corn Growers Association proposal is too conservative in the amount of money that they should be targeting towards this program. I believe the proposal could be adjusted in two ways.
First, to provide a better safety net for farmers, I recommend that the new farm program raise the loan rate for corn and other crops to be equalized with the loan rate for soybeans. That means moving the corn loan rate from 1.89 to 2.10 per bushel. My reasoning for this is that the planting flexibility of Freedom to Farm cannot be realized without equalizing loan rates by increasing corn and wheat. This means more funding must be allowed to the National Corn Growers figures for all the national income target.
Second, I recommend the AMTA payments in the new farm bill be equal to the average of the current farm bill. I would like to repeat that because I believe very strongly in this. I recommend the AMTA payments in the new farm bill be equal to the average of the current farm bill. This means 33.2 cents per bushel.
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These two changes make the program only slightly more expensive, but help reduce the risk that future emergency aid programs would be necessary.
I want to commend the committee Members for traveling to Minnesota and for making a concerted effort to really listen to perspectives from throughout America's farmers. Over the past several years, you have received volumes of information from commodity groups in the country. They have brought before you valuable ideas and input, and I applaud their efforts.
Thank you for the opportunity to present my opinion on these farm bills. I will answer questions later if you want.
[The prepared statement of Mr. Quinn appears at the conclusion of the hearing.]
Mr. CHAMBLISS. Thank you, Mr. Quinn. Mr. Rynning.
STATEMENT OF ROBERT RYNNING, PRESIDENT, MINNESOTA BARLEY GROWERS ASSOCIATION
Mr. RYNNING. Thank you, Mr. Chairman. My name is Robert Rynning. I farm in Kennedy, Minnesota with my brother Tim. We farm roughly 3,000 acres of wheat, canola, barley, and soybeans.
I'd like to say that I had to hurry up and jump off of the tractor and run down here and run home again tonight, but I'm afraid in our region—Ron is a neighbor of mine—we are probably looking at 50 percent unplanted acreage for this season. Our FSA director is holding a meeting today to try to figure out acres. So I guess I'm here under a little additional stress also, on top of the program concerns.
I'm here representing barley. I'm president of the Minnesota Barley Growers and also sit on the National Barley Growers. Barley is an individual crop with a very individual problem. We raise half of our production in the country for food use, which is largely malting barley in beer, and half goes as a feed grain. As of right now, our loan rate is set at the feed rate value in relationship to corn. We feel that that could be adjusted somewhat.
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Largely because of this and other factors, as was mentioned in the soybeans perspective, we've lost a lot of acreage in Minnesota and nationally. Nationally we've gone from 13 million acres to 5.8 million in the course of the last 15 years. We have gone in Minnesota from 1.2 million acres to less than 200,000 acres. We're on the verge of collapse of our infrastructure for this industry. It's getting extremely serious. We can hardly support a growers organization, and nationally it's getting very serious.
Our biggest fix and our biggest priority to try to handle this is through the marketing loan. We feel that is our fastest remedy and probably the best. As of right now, if you take the feed value of corn and put barley in relationship to it, it puts us at $1.65 average loan rate. We feel if you added the food value over the last 10 years, you could add 53 cents of value to that formula.
We have adopted a stance using a rebalancing of loan rates taken from the American Farm Bureau Federation proposal. That would place our loan rate at about $2.14.
Now this change for my farm would add roughly 49 cents a bushel or $34.30 an acre. In grain production, that's substantial. It's something that would help. And we do feel it would help bring back some of our acres.
This proposal is also supported by AMBA, which is the American malting barley—Malters and Brewers Association. So it's an industry supported by industry and by National Barley Improvement Council, which is largely industry and producers working together for research. So it's a pretty broad spectrum support for this proposal.
Our next proposal would be the retaining of an AMTA-type payment. We strongly believe that we would like to see funding at $5.6 billion or the equivalent of the 1999 AMTA-type level. We'd like to carry that through in this next farm bill. We do strongly believe that any payments for non-loan eligible crops or non-program crops right now should be an additional funding and not taken out of the proposed amounts or the traditional amounts. That's our position.
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Minnesota Barley Growers strongly support a counter-cyclical type program. We have largely adopted the view of the National Wheat Growers Association. They have figured out—we're a small organization figuring out our own counter-cyclical program and all that entails is very complicated. They have also figured out their program for barley, and we generally like the way that looks. What that would do is set up a market support level of $2.72 a bushel. And that works out using their program of about a 31-cent—this last year would have been about a 31-cent support payment, 31 cents per bushel.
I would like to thank you very much for your time. If there are any further questions, I'd be happy to answer them. Thank you, Mr. Chairman.
[The prepared statement of Mr. Rynning appears at the conclusion of the hearing.]
Mr. CHAMBLISS. Thank you all very much, and we appreciate your being here to give us your thoughts and ideas. Let me—before we get into our questions, let me just say that when we asked the commodity groups to come before the full Agriculture Committee this year and give us their proposals of what they would like to see in the next farm bill, we did that frankly with the idea of that we wanted to hear was basically their Cadillac proposal. And we knew that they would be coming in, or at least we expected them to be coming in giving us the absolute maximum of what they thought it would take to totally satisfy their particular needs through the next farm bill.
Let me just give you some numbers. I've already mentioned to you that we have added in the base line. For the next 10 years we have right at $79 billion. We will be taking $5.5 billion of that and maybe some additional. We're going to decide on Thursday of this week exactly how much money is going to be added into a supplemental for this year. But whatever the number is, whether it is $5.5 billion with an additional after-payment based on 1999 figures, that's what it will be. There may be some additions to that. But that would come off that $79.5 billion. We were very happy to get that $79 billion over the next 10 years.
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But just as an example and something for you to think about, in terms of what we're going to have to deal with, the barley proposal by the National Barley Growers adds $6 billion per year above the current CBO baseline. The National Corn Growers proposal adds $36.1 billion over the current baseline for the years 2002 through 2008 on 5 years. The soybean proposal adds $10.4 billion to that same 5-yer period, 2002 through 2008, and the National Wheat Growers proposal adds $5.2 billion above the current CBO baseline.
So that is something that we're going to have to wrestle with. But in fairness to the folks that came forward to testify, we asked for the Cadillac proposal. That's what we wanted, because we know times are tough, and we do want to hear exactly what you thought it would take over the next 5 years to have a perfect situation exist out there.
Now, I think one or two of you mentioned payment limitations, and everybody we've heard from has said that they would like to see payment limitations eliminated, and I'm assuming that all of you agree with that. With respect to payment limitation—and I'd like each of you to address this—do you believe that the elimination of payment limits would encourage producers to expand their farming operations, encourage production, or would it simply aid in covering their production expenses?
Mr. Anderson, we'll start with you.
Mr. ANDERSON. You're correct. Referring to endorsing the payment limitation provision, in answer to your question, I don't think that will skew or offset overproduction because of payment limitations. The fact is in our area the family farm, because of the profit margin currently on each acre, our farms are getting [inaudible]. And to the non-farmer, these payment limitations sound like a huge sum of money, and they are. But I don't believe that they will offset or artificially overproduce those particular crops. Those additional payments are very critical. And as farmers diversify and entities are developed for the farm, that is a main issue in my part of the country.
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Mr. LOUWAGIE. Thank you. As far as the soybeans, there has been considerable discussion at annual delegate session in February and at the director board meeting. I think there's a very strong feeling that they really don't work. If you have payment limitations, it seems like you have several members of the family taking part in receiving the payments, husband and wife, and so there is a way to get around them.
Second, I think the payment limitation would prevent our farmers from competeing in the world market, because definitely sometimes the global market is cheaper than what farmers can produce for and the payments help him compete and survive.
Mr. QUINN. I, too, believe that farmers are finding a way around it. They will stop creating—other farm family members from having to be brought in, from farmers who are allowing the landlord to take the rent. ''Payment limitations'' is a word that you have not been able to enforce, I believe. Thank you.
Mr. RYNNING. I believe very similarly to the other three. Payment limitations, just in general, I don't believe work. There's just too many ways to deal with that if you seriously want to. There's a lot of money involved. So they don't really serve a purpose, other than making people feel good. And that's generally the position of our national and state board also is that we really don't see the need for the payment limitations, and I don't think it accomplishes what people hope it will. I know they believe that it will pare down the growth inside the farms, but I just don't see that as happening. So I really don't see the need for it. Thank you..
Mr. CHAMBLISS. I think all of you are correct. I'm not sure the current system would work very well. And you're all in the same situation. It's this fear that we have, and that is we have farmers who farm the crop insurance program and that's one of our problems with crop insurance. That same thing happens with the payment limitation. There are ways to get around it, and you can hire a good lawyer and figure out a way to incorporate this and that. I hear what you're saying, there are ways to get around payment limitations.
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In all fairness, though, that is one way to try and get all of these programs to fit within the budget numbers that we have, and that is something we're going to have to look into very, very carefully.
Nobody mentioned set-aside programs, if you can give me a quick answer on whether or not you favor set-aside programs, if anybody has a comment on that.
Mr. ANDERSON. Wheat farmers do not favor set-aside programs. The story behind that has traditionally been back in the past farm bill we set aside on my farm, 26 percent of the land I didn't plant. Australia, Canada, and these other competing countries have told us that the best thing we can use to develop wheat production is our farm program, and we do not want to see that. We have the lowest plantings of wheat in the United States in 30 years, and we have these lower prices. Setting aside more acreage is not going to help this situation.
Mr. LOUWAGIE. The soybean growers would oppose set-asides and has always opposed them. The reality is that setasides don't work. We've looked at that for the last 4 or 5 years where they brought in soybeans and meal in spite of very low prices, which indicates that if set-asides created a shortage and higher prices, soybeans would be imported into the United States. Not that there's been a lot of them imported, but apparently soybeans can and will be brought in if there is a benefit. Thank you.
Mr. QUINN. I, too, also believe that there's nothing to be gained in the set-aside, too many options to lose. It's harder for us to put set-aside ground in than to put in a crop and take care of it. The weeds are more prevalent, and then it's harder the next year. Several instances like this, I believe that you should not have a set-aside program.
Mr. RYNNING. Well, as he says, it's kind of difficult.
I'm afraid we only have maybe 1,600 acres this year. But again, to the question, I personally don't have quite as much problem with the set-asides, many farmers, and both our associations, the state and the national, are against them. Personally, I'm not quite as opposed to them as maybe even as the others who sit here. But in the end, essentially they're right. It really doesn't help us that much. Thank you..
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Mr. CHAMBLISS. All right. Thank you. Mr. Gutknecht?
Mr. GUTKNECHT. Thank you, Mr. Chairman. My grandma used to say the darkest part of the night is just before the dawn. And I think there are some reasons to be optimistic right now. As bad as things may seem, there's at least evidence that the Chinese are having problems with this year's crop, some weather problems. They may well be coming back in the market. We were literally into our fourth year of record world-wide production, and in spite of that, with a little help from Congress and so forth, we've kept as many of the young farmers out there on the farms as possible.
It's my hope that over the next 10 years we won't have to spend $79 billion. Because at the end of the day, the real answer for agriculture, in my opinion, is to find more markets. And, you know, as we talk about trade policies, to the credit of Chairman Chambliss, as well as the full committee chairman, we've had a number of meetings about trade and market opportunities. There's a story, at least a rumor out—and we hope that that will be confirmed today—that the President and the EPA administrator are not going to grant a waiver to the State of California in terms of clean air standards. That's really a big, big positive, I think, for agriculture. So it's not just about international markets either. We've got to help you find more markets here in the United States, in terms of energy, in terms of other products that we can produce.
But one of the things I want to get back to—and this is one of my concerns, and I don't have an answer, perhaps you can help—I know the corn growers have been extremely helpful to me in trying to work through this, and that is we continue to come back and talk about price per bushel. And as we were coming into this meeting this morning, we were talking about how I can remember—it wasn't so many years ago—that my uncles, if they got 60 to 70 bushels per acre of corn, they were pretty happy with that crop. But now, if you're not getting at least 200 bushels to the acre, at least down in my district, you know, you don't even want to show up at the county fair. And it seems to me as long as we continue to chase price per bushel, we're sort of caught in this cycle.
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Now I do believe in a counter-cyclical program. I do believe we've got to do more in terms of finding markets, both domestically and internationally. I think that's all part of the equation. But can you talk to me a little bit about ways that maybe perhaps we can pursue more of a strategy that's built on dollars per acre? And here's the reason: I would like to figure out a way long-term—and I don't know if we can do it in the next 60 days, we need some help from people that are a whole lot smarter than I am, but, you know, as long as we chase price per bushel, we get back to sort of a cyclical argument. And worse than that, we've been so fortunate, at least in our part of the country, that we really haven't had much of a crop failure.
Now I don't know what's going to happen up in the Red River Valley this year—you know, some of you folks up there in terms of whether you can even get the crop in—but I think it's a good example of, you know, it doesn't matter if we guarantee you $2.20 a bushel if you don't have any bushels to sell. And I'm wondering, is there any way you can help us think through how we can move more to a wrap-around program that deals more with dollars per acre? Does that make any sense to you? And you don't all have to be first.
Mr. ANDERSON. Yes, I heard that discussion before, you know, you can get a price for bushel consistently, but if you don't have any bushels—in my case in the Red River Valley, we're facing that situation. What could happen is the prices go up, and if we don't have a crop, how do we take advantage of that?.
I'm not so sure, this might be counter [inaudible], but if we didn't have a little—[inaudible] on crop insurance so when this situation happens, they're not [inaudible]. Maybe there is, you know, a per-acre program, whether you get the crop or not. I don't know if that's clear or not. But I'm not so sure if there is such a thing as what we're trying to address, something that would guarantee revenue, regardless of the crop. I'm not sure if I'd want a [inaudible] like that.
Mr. LOUWAGIE. You asked a good question. I don't know how to answer that. The fact that it's pretty hard to reward income without bushels. In other words, yes, I agree everybody needs operating costs, so many dollars an acre to survive, LDP, AMTA and disaster payments have worked well for farmers to have an income. I'm happy to see the CRC coverage program to protect against short crops or low per-acre income. That's the only comment I have.
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Mr. QUINN. I agree that this is a rather difficult question to answer, because in my situation, up until this year was the first year I've ever taken crop insurance, because the worst crop we had was 1993, of it being wet, and even that I wouldn't being eligible because of 1993 was [inaudible]. But I did buy it this year because you helped reduce the rate. I believe that the counter-cyclical payment will help on some of this. Other than that, I really don't have an answer. Thank you.
Mr. RYNNING. Well, that is the opposite of us.
Basically 6 out of the last 8 years we were stressed financially. We've just been stretched, the weather has been far too wet and will probably last 5 or 10 more years. Basically, if you're talking dollars per acre, it would seem to me you're talking an amplified AMTA type program. That's based off dollars per acre.
And I don't know where that would go. I really don't.
If you could have a two-prong attack, basically, on the program covering maybe some price risks and the crop insurance that would cover it, mainly the production risks. That seems to be what the original intent of crop insurance were. But I think that would maybe be more balanced than looking at it as an AMTA-type payment. I don't know.
We haven't really thoroughly analyzed it, to tell you the truth. That would take some time to do. Thank you.
Mr. CHAMBLISS. Mr. Thune.
OPENING STATEMENT OF HON. JOHN R. THUNE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF SOUTH DAKOTA
Mr. THUNE. Thank you, Mr. Chairman and Congressman Kennedy, for your hospitality. It's good to be here and to have our neighbor, Mr. Gutknecht, here. We all have a lot of similarities in South Dakota with many of the issues you deal with in this region. One is not running into traffic when you're trying to get to a hearing in farm country. But that was the problem this morning coming out of the Cities. But in any case, it's good to be here. I appreciate the panel and their testimony.
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This is an issue that we are trying to deal with in a very short period of time, hoping we can write a new farm program in the next few months and give producers some predictability about what the future's going to be [inaudible] next year.
It seems to me, at least right now, if you look at the agricultural economy, that the prevailing theory is we lose a little bit on each sale and make up for it in volume. And you can only do that for so long. If you look today at where prices are relative to what costs are and the fact that it actually costs more for a gallon of gas today than you receive for a bushel of corn at the elevator, there's something wrong with that picture. And that's not something that we can sustain for a very long period of time. So we'd be interested to hear what producers and your organizations have to say about how we frame this in the farm bill.
One of the things I just want to ask a question on is wheat growers and barley call for increases in loan rates, as well as maintaining AMTA payments and then creating counter-cyclical payments, which is one thing that's in common, I think, among all groups is that we need some sort of safety net counter-cyclical program. Corn and beans want to keep, I guess, loan rates at the current levels. Those of you that have wheat and barley that are in favor of increased loan rates, if you're going to increase the loan rate, why would you need to maintain the AMTA payments? And farmers union has similar [inaudible], and that is the 80 percent cost of production basically, set the loan rate at that level. And it would seem like this is going to get to be a pretty rich program. And there are certain restraints we have to operate with, which the chairman noted earlier.
You guys care to comment on that?
Mr. RYNNING. I guess for us it's a basic level for survival in the economy. Really, the figures we've seen in the loan levels and some other markets are pretty much at a minimum for us to make growing barley feasible right now. We're dealing with an international market that's based off of a 51-cent Australian dollar or 65-cent Canadian dand 85-cent Euro along with European subsidies, whatever they feel it's appropriate. That's not a workable market for us. Now a couple years ago, I had very litttle barley. It was down to 87 cents a bushel. It was not economically feasible. And because the loan rate is so low, we had some real problems getting acres, even supporting a state organization.
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So I think to make it feasible and to keep—so that the crop and its infrastructure can hang on long enough for there to be a turn-around, of course there will. It will come. We will have better prices at some point. But we have to keep the infrastructure of the industry there. The oat industry has had real problems in the United States, and they've lost a lot of that. And we are struggling right now not to follow the oat industry. We'd like to be a viable crop. And the only real way we can see of accomplishing that, especially in the short-term, long-term we'd love to do through the market. But right now that doesn't seem very viable. Thank you.
Mr. ANDERSON. I would agree with Robert, but as far as wheat, we'd like to see [inaudible] increased, at least on my farm. I am actually planting soybeans, which I've had some success with in the last 3 years. In northern Minnesota, 10 miles from the Canadian border, soybeans don't grow there very long [inaudible] because of the loan rate. The prices have remained so that the loan rate even looks good. So the loan rate on wheat is [inaudible] volume, at least the loan rate part.
Mr. THUNE. That's one question I was going to ask, too, and that is to what degree are the government policies dictating planting decisions, if you're following me. Ideally you want to see market signals drive your decisions, and it seems to me, at least today, that there are a lot of the farm program provisions that are ultimately what a lot of producers don't want in terms of making their decision about what they're going to plant. And that's a good example of that, and that's why there's a lot of strong argument for it.
Mr. ANDERSON. That's true. And the [inaudible] of the farm, that was good, the flexibility was good. But now because of the loan rates, we're actually going back to doing what we tried to get away from, growing crops just because of a government program. Like I said, the loan rate [inaudible] but the economics do work better than the growing wheat.
Mr. THUNE. I'm sorry, go ahead.
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Mr. QUINN. I said that I was very in favor of raising the loan rates and AMTA payment because I personally grew 75 percent corn, 25 percent soybeans on my farm. Since you've come out and it's called the Freedom to Farm, and made your own decisions, it's been 45 percent corn and the rest soybeans. Because it hasn't been too hard to figure that I can make more money raising soybeans than corn. This is why I think we need a better balance, and we want to see the corn loan rate raised to soybeans. We want to see it raised.
Mr. THUNE. That seems to be the consensus view that we hear. One quick question, if I might, on AMTA payments—actually, maybe you can answer this in a two-part question: One is, to what level are rental rates being impacted by the AMTA payments here, and secondly, having to do with computation of AMTA payments, do the—using the sort of outdated history. A lot of people we hear—it depends on which, I guess, commodity you're in more than anything else—but say we ought to use more recent production history in figuring AMTA payments, rather than going back to some baseline that's 15 years old.
So a couple questions. One is having to do with those AMTA payments, how they're impacting rental rates, and secondly, should we be using different data in terms of making those payments?
Mr. ANDERSON. In response to your first question, when this last farm bill was being developed, whatever date was on the AMTA payments and that this money would go to landowners instead of the farmer. In my area, the Red River Valley, I would say over 90 percent of the land contracts are cash rent. The conditions have been in the tank for so long now that the AMTA payments have not become an issue in land rent. At least, it hasn't been in any of my [inaudible]. I'm renting over a thousand acres. That has not been an issue in negotiating land. The government program has never been a part of that. That's never been a factor in the land rent. [inaudible], again, in my area, don't get hung up on these AMTA payments going to the nonproducer, because I don't think that is the real issue.
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The second part of your question on basis, because of the shift from wheat on my farm, from 1800 acres of wheat down to 1200 acres, and I'm using soybeans, canola, alfalfa, other crops, because of the flexibility, obviously my higher wheat base is beneficial to keep that. Even though, like you said, it's 15 years old. And that's a legitimate question, why are we using old bases and old yields? And as far as a wheat grower's perspective, that's the reason why. If we go to a program where we go into a soybean base, yes, [inaudible]. But we have been told to refigure and recalculate bases, yields, go back in history.
A good friend of mine is director of our FSA office.
They simply do not have the staff and resources to go back. We are encouraged and we're thankful that this farm bill may be developed in the next couple of months. But that, you will find, is a great stumbling block, to go back and [inaudible].
Mr. LOUWAGIE. You certainly asked some good questions.
I think part of the AMTA payment is because of the lack of income in the farm sector and that has been a quick source and a very helpful source at times of low prices to help with that shortfall. If we look at northwest Minnesota, they have mediocre crops, and LDP have not worked well. Certainly that AMTA payment has come in very handy and very helpful.
As to whether it's raised rents or not, that's hard to tell whether it's AMTA that might increase the rents or whether it's the fact that the margins are so thin that larger farmers with larger equipment can probably farm more efficiently and be better compensated with the larger acreage, which I'm sure that is as much a driving factor as farm payments creating larger farms. Thin margins and tight credits have enabled farm contracts to start in west Minnesota.
Mr. QUINN. The AMTA payment I believe doesn't cause farm rent increases. Because every farmer thinks that he can make it on this year's, it's going to be a better year. And he figures, I can raise better corn than my neighbor. And he's renting the ground, not because of what he's going to get from AMTA, he's renting it mainly because he wants to prove that he's the biggest and the best farmer there is.
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What was the other question? I forgot.
Mr. THUNE. I can't remember either. I think it had to do with using more recent production history.
Mr. QUINN. Oh, yes. I would be against that taking new readings. I'd have to look at it and see where I would lie with the new farm program. Because I have a higher corn mix, because I raised 75 percent corn before this farm bill, where I have come to raising more soybeans, just due to the fact that I can make more money.
Mr. RYNNING. Yes. As far as effect of AMTA on rental rates, I would attribute more of a little bit of stabilizing effect, maybe, not so much just keeping land rentals higher, but there are times where it might help just that little bit so you're not having quite as wild fluctuations up and down in the rental market, which is good for the person receiving rent. I don't care to renegotiate my rent every year. I pay my uncle rent, my grandfather rent, a lot of that is close family, a lot is retired neighbors. You want to be fair, and you want things to stay somewhat stable. And I think it might have a slightly stabilizing effect on rental rates, but not a big one. I don't think it's enough of a business decision for us to be strongly influenced.
Bases: When you're talking to other growers, for me, personally, I like to keep the same, organizations have basically said that. But a lot of times visiting with producers, you get an almost 50–50 split. Some say well, it would be good, and some say no, let's keep it the way it is. So I think just talking to farmers it's kind of an up-in-the-air-type thing. I think it's better and easier to stay with what we've got. That's a personal feeling..
Mr. CHAMBLISS. Mr. Kennedy.
Mr. KENNEDY. Thank you all for your great testimony and your responses to the questions. I held a series of six agriculture forums in the last several weeks, and many of the farmers that I talked to said it [inaudible] the farm programs. And 250 wrote letters, signed letters for immediate delivery to the President on not granting California the waiver from Federal clean air requirements. I'm hearing that he's going to make the right decision. That'll be very good news for our corn farmers. I think we all seem to be reasonably well fed here in the country. And we're probably going to need a lot more of it [inaudible] more demand for our product.
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And I know that the soybean growers have a proposal as to how we can similarly work to expand demand and grow [inaudible], and maybe if you could just take a second to respond on that, I'd appreciate it..
Mr. LOUWAGIE. Thank you. You're probably aware that the Federal Government passed a mandate where it's required by I believe 2006, that the sulphur content of fuel (500ppm) be lowered to 15 ppm, which virtually eliminates the lubricity in diesel fuel. And some type of additive will be needed to be added to diesel fuel to add lubricty to diesal fuel. And we in Minnesota are recognizing—and I think it's probably national, too—that we're so dependent upon foreign oil. I believe it's something like 65 percent. They have the ability with the price to do what they want. They have the ability to maintain control of supply and price.
In viewing the fact that if you look at soybean oil—or like I say, all vegetable oils [inaudible] marketing. We have two billion-plus pounds of surplus soybean oil stored in the United States, but really we don't have a use for it. And if we could put it to a mandate of 2 percent, we could have that diversity to the fuel, we could at least clean up the air. Two percent would be 2 percent better than a 100 percent of diesal. We're probably looking at the cost as well, which should be about 40 percent of the price of soybeans.
So if you could raise that price, say, from 14 to 15 cents to maybe 22 cents a pound, bearing in mind that seven or eight pounds per gallon, we could virtually be adding six, seven cents to the pound, times seven pounds, we'd be adding 75 cents to the price of soybeans, clean up the air, use up the excess vegetable oil, and that would certainly help the economy.
Mr. KENNEDY. And thank you. That's something we need to work on, see if we can't make progress in that area as well. As our chairman stated, we have a good amount in the budget, 70 million to add on top of our 90-some million dollar baseline. We also have the flexibility to allocate it by years. And it was also mentioned, we need to make some balancing [inaudible], if we add them up, go above that number.
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So we've wrestled with trying to [inaudible] that can still be paid out in very good years, with trying to make the counter-cyclical portion of the farm bill so that we could raise the loan rates or add on a dollars per acre payment, as Congressman Gutknecht referred to. Or as we look to beef up the conservation programs, [inaudible], and we're also [inaudible] that we need to invest more in our conservation.
How do you encourage us to try to balance between a fixed payment, a counter-cyclical payment, and conservation program [inaudible]?
Mr. ANDERSON. Well, I was going to get to that. The Conservation Security Act is something we're very concerned about. And I think all of us on the panel agree that the environment—it's been said a hundred times, that farmers are obviously concerned about their environment, their soil [inaudible]. Although we support the Conservation Security Act, we are concerned that too great an emphasis is put on that as the next farm bill. I'm very concerned about that.
On my farm I've got 2,200 acres of flat, straight, square, quartered sections. I don't have ponds, I don't have wetlands. I mean, it's prime farmland. That's what that land is meant to do. If there was a farm program that was very key on conservation measures, what would that do for me?
Now this is a true story. Last week, I was up very early. I had a black bear run across my land in the morning. I had ducks and geese flying out of the ditches because it's so wet. I had two moose run across my farm later that afternoon, and a racoon took the power out of our farm because he was up on a pole. If I had any more wildlife on my farm, I'd have to open a zoo. We have [inaudible] and they're a very heavily-farmed area. We have environmental concerns and issues, and we are taking care of the environment.
So to answer your question, how do we balance these things, I would put more emphasis on AMTA, a counter-cyclical plan, keeping [inaudible]. We don't have that thing filled up yet, I don't think. So how much more conservation do we put [inaudible] very concerned on my farm. If there's a new farm bill that's allocated a large part of this money to a conservation program, it won't be good for me because I just don't have those opportunities to preserve the conservation.
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And again, the emphasis on the AMTA payment [inaudible] absolutely critical. This has kept many of my neighbors in business. And the uncertainty of the next [inaudible], I would encourage that 5.5 be earmarked as the minimum and [inaudible] payment on wheat, we've got Ron and I literally, the day that I [inaudible], and it's got to be announced [inaudible].
Mr. LOUWAGIE. I think it's probably going to be vital.
I'm going to still need AMTA payments, market loans, to help us to compete during times with poor prices to help us survive. But I think also looking at conservation programs, not farming the erodible land, and so that we could probably—maybe there's areas of doing a better job of preserving the land and the energy, and I think all farmers are trying to do that. And if there's better farming practices that we can use, I think we'd all benefit from that, and maybe that's an area where we need incentives. Conservation programs are needed and costly.
Another thing, I'm not sure that you can mandate all that through the Federal Government, but I think a lot of that is going to depend on each state. Minnesota is relatively flat with very little soil erosion, and to go to areas where any type of terrain you're going to have a lot of runoff. So I think there's incentive things we can do there to help. Thank you.
Mr. QUINN. Across from my farm a neighbor had a piece of ground put into the program. It was beautiful. Seven-foot high the grass grew. But you didn't let him stay in the program because he missed his bid. I think you ought to take the program and extend it—or excuse me, give the farmers preferential treatment that got a good stand on their grasses. This thing—my son hated to go pheasant hunting then because he's not tall enough. He couldn't see the birds it was so thick. But he missed the bid by $5 an acre, and he had to plow it up. And right now it's in [inaudible].
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As far as the AMTA payment goes, we need it. It's drastic. Without the second-half AMTA payment, the majority of farmers would have been broke in Minnesota. I believe very strongly in the AMTA payment because thank goodness you gave us a second-half disaster AMTA payment. It was very critical with making ends meet in my farming operation.
Mr. RYNNING. I guess for the issue of AMTA, is still needed. And as a level, the 1999 level at $5.5 is kind of our minimum. But farmers are pretty used to having good years and bad years and making investments and saving on good years. We'll know how to use the money. If it's there, we'll use it.
Then as far as conservation, some portions of it, we will support into it. We'd like to see it as new funding, not take it away from other places. If they're going to payments for things we're already doing, that's fine. It's a little beter to adjust things here and there to just make things a little better. That's fine. Having a major portion of conservation funding be in the farm program, I'm not so sure on that. That's just a view of it. Thank you.
Mr. KENNEDY. Thank you very much..
Mr. CHAMBLISS. Gentlemen, I think you can see from the questions that everybody's asked, that there is a tendency towards making sure that this next farm bill—and I think we did in the last one—but I'd like to be sure that the money that the Federal Government spends gets in the hands of those folks who are really suffering the loss, and that's the producer. I understand in different parts of the country, you have different scenarios. Government payments are actually going into the value of land to raise costs to you, which we've heard some folks say, whether it's increasing cash rents that people have to pay, which we've heard several people talk about.
One thing that—and I don't know whether we're going to have a cookie-cutter approach from the standpoint of trying to develop a general farm policy, and then delve into each of the commodities and see whether or not that policy will fit within the framework of that cookie-cuttered approach or are we going to go and treat each crop differently, the way we've done in years past. But there is a basic underlying part of most commodity programs today that seems to be working fairly well. And all of you all have mentioned it in one form or another, and that's the marketing loan.
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Now the marketing loan has basically always been a non-recourse type loan. And it seems to, in most instances, work well.
Mr. Quinn, you've mentioned that you support the National Corn Growers proposal that they came to us with. As a part of that proposal, they are suggesting that we move away from the non-recourse loan to a recourse loan.
Let me just ask you all generally what your thought is with respect to a non-recourse marketing loan versus a recourse marketing loan.
Mr. QUINN. Well, this would be some place that I differ from the National Corn Growers Association.
Mr. CHAMBLISS. Why did I think that?
Mr. QUINN. I think we ought to leave it the way it is.
I hate to talk against my national board, but it's—that's something that I really am against us doing to the loan program. I'll just leave it at that.
Mr. RYNNING. I guess I'd have to say the same. I certainly wouldn't want to see it change. And I think some of us were quite surprised when the corn growers came up with that position. It certainly isn't a position advocated by the barley growers. We'd like to have it stay the same. And I think it's a very workable system. And I think we do in general keep the flow of the commodity going quite well. I just don't see that as a problem. We're not hearing stories of farmers having storage bin after storage bin full of barley right now. The industry may, but that's not reflected because of that situation. So I wouldn't want to see it change.
Mr. LOUWAGIE. I guess I'm always open to looking at new possibilities and ways to improve our farm programs against the corn growers. The marketing loan has certainly worked very well for soybeans. As you noticed in our talks, our exports have increased in the last 10 years to 50-some percent. And you look at carryout in this crop year soybeans—12 percent versus corn, maybe 19, 20, or up to 30 on the wheat. So for soybeans the market loan has worked well. It has enabled us to compete on the world market, which is really what we want to do. Thank you.
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Mr. CHAMBLISS. Mr. Quinn, let me just say that the proposal that the corn growers put forth was a very, I thought, a very interesting, a very forward-looking proposal. While you and others would not agree with it, to their credit, I think your national organization did a very good job of thinking through this, going out in the field, talking to folks, putting ideas out there, and then developing a policy, based on what they heard, plus based on what they thought might work. And there are some other commodities that have come forward and said the same thing. I don't know where we'd go with that, but I thought they did a good job of thinking through and coming up with that proposal.
Mr. Anderson, let me direct this one to you. In your testimony, you suggest that the lack of price support is a major flaw in the current farm bill. As I said early on, one of the options that we are looking at is going back to the target price system or, in any event, changing the direction of farm policy. In the next farm bill, if we continue to give you the flexibility to choose what you plant, and you were guaranteed a certain price, above and beyond the loan rate, for your crop at harvest, how would you decide what to plant and at what quantity, and do you think that such a scenario might tend to encourage overproduction?
Mr. ANDERSON. No, I don't think so. I think what I would do is—for example, [inaudible] we have markets for $4.25. I would go back to the traditional cropping rotation. However, the disease that we've experienced in the last several years in northern Minnesota has taught us one thing, and thankfully the [inaudible] farm bill we can plant other crops.
So I think the decision I would make would be probably a split between what agronomically works on the farm and of course what financially works on the farm. I don't think—I think I would continue those [inaudible]. The rotation of soybeans on wheat is fantastic. You've [inaudible] on a minimum of four bushels per acre will be grown [inaudible] soybeans. So I would say agronomically it works financially.
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But in the case of barley, we were growing barley.
Although we knew that financially, it wasn't financially a good decision, but agronomically, the whole long-term rotation of the crops, the wheat and sugar beets and barley [inaudible] wasn't making that much money on a [inaudible]. Thank you..
Mr. CHAMBLISS. Thank you. Mr. Gutknecht?
Mr. GUTKNECHT. Well, thank you, Mr. Chairman. And I apologize. I have to run here in just a couple of minutes. Fortunately all the questions that I really wanted to ask have been asked, and I want to thank the panel. You've done an excellent job. Thank you for taking time out of your busy schedules to be with us today.
I know sometimes there's a tendency to believe that Congress doesn't listen, and I don't think that's really fair. We've been listening a lot. The problem of course we have is ultimately trying to squeeze about a hundred billion dollars' worth of requests into a $79 billion package. And ultimately, another big problem we face—and I'm not asking for your sympathy, but you need to understand that in the House it takes 218 votes to pass a bill, in the Senate it takes 50 votes, plus the vice-president, or 51, depending on the circumstances. So at the end of the day, ultimately we're going to have to find some consensus.
The other problem we have is once in a while explaining the rationale for having a farm program at all to an increasingly urban and suburban constituency. And even in my district I'm surprised how often I'm confronted by people at the barber shop or the grocery store or church, whatever, wondering why it is that over half of net farm income is now coming from Federal Government programs, and why is it that we're continuing to subsidize agriculture. And I think we need to do a better job of explaining, both to our constituents and to our colleagues in the Congress, that really, I think the fundamental answer to that question is, we cannot afford to take a risk of losing a generation of younger farmers. That's a national resource, and it's one that we cannot afford to lose.
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At the same time, I think we in Congress have to do a better job in Washington of explaining some of the factors as to why we are where we are. And you've done a pretty good job today, but I think maybe we should once again remind all of us that, you know, we're in the fourth year of almost unprecedented worldwide production. That's partly about technology, and that's also about weather patterns. And we know, as great farm [inaudible] Johnny Cash said, that everything changes, as well it should, the bad ain't forever, the good ain't for good. And we will see some change in that, and hopefully it will work to our advantage.
The other thing that was mentioned—and I want to thank you—when you look at the value of currencies around the world, American agriculture plays a huge [inaudible]. The last round of the [inaudible] trade talks, I think our negotiators did a miserable job of defending agriculture. We allowed the Europeans to subsidize their agriculture up to a [inaudible] up to $6 1/2 billion in American dollars, as opposed to our programs, which were limited to something like $300 million in agriculture and support enhancement programs. So we really placed ourselves in a very difficult circumstance in a tough world market.
And against that environment, I think we in Congress are prepared to do our share. But please do understand that not everybody's going to get everything that they want because there just are not going to be enough dollars to go around in terms of putting this farm bill together. But we are listening, and we are trying to put together the best package we can to make certain we don't lose an incredibly valuable national resource, and that is another generation of young farmers willing to go out there and take a chance in this. Because it is a tough business. It's especially tough when you've got weather problems, you know, either too much rain or not enough rain, you've got wheat scabs, you've got all those other things working against you.
So I just wanted to say a special thank you to all of you for coming, and I want to say a special thank you to Congressman Kennedy and his staff, because it takes a lot of work to put something like this together. And finally, just a big thank you to Chairman Saxby Chambliss for coming up here and sharing with us some of his southern charm. Thank you.
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Mr. CHAMBLISS. Thank you, Gil. We'll miss you.
Mr. Thune?
Mr. THUNE. I appreciate having some neighbors from South Dakota here, too, but maybe not, I don't know. Let me—just a couple of thoughts, too, and perhaps a couple of questions. One—I noted a couple of you in your testimony talked a little bit about conservation, and I am a prime sponsor in the House of the Conservation Security Act. And I guess my view is that this farm bill, there's going to be a conservation component to it. And the question for us is: What do we do? Do we expand the existing programs that we have today, which is CREP [inaudible], some of the others, and do [inaudible] that allows producers to continue to produce and not sacrifice income [inaudible]. And the Conservation Security Act, in my mind, there are a lot of things about it that [inaudible] sense. One, it is voluntary. Two, it is incentive-based, it is—the decision-making is local, it's not dictated from Washington. There's a lot of flexibility for producers to decide what makes sense on their farms, what they might be able to do to enhance self-conservation, water run-off, all those types of things that at least in South Dakota are the same as in Minnesota, perhaps not on the same level.
But in any case, the question I pose is this: Does it make more sense to increase set-asides, to increase the [inaudible] acreage, or to come up with some program, realizing that budgetwise, the commodity programs in this farm bill are going to probably be the highest priority. We're going to address the counter-cyclical issue and all those things, but I think it's fair to say that the environment that we are in today, that we will have a fairly—there will be a conservation piece to this farm bill. At what level, at what cost, I don't know. But does it make more sense to encourage producers to idly set aside, to take land out of production and be compensated for that, or to have some sort of a program, whether Conservation Security Act or some variation thereof is the basis for how we treat conservation in this farm bail.
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And I would also add that where I come from, the wildlife production side of it, pheasants are a huge thing. That's about the only thing that's making any money in agriculture, and so why wildlife habitat is a concern in our state, as is conservation, because we do have a lot of the [inaudible]. Frankly, we have to figure out a way to manage that better. I realize you have different issues here, and you have different issues in Georgia and other places too, but would anyone care to comment on that?
Mr. ANDERSON. Well, if it were constructed where a farm like mine could qualify on those things, and maybe even an objective to do that would be [inaudible], those kind of compensation or subsidies, in a round-about way, is [inaudible] to these trade talks. Well, then maybe that's a way to fund income support through conservation practices. That would actually work on some of our farms, you know.
That may be an alternative method of getting that money in there. Because some of these conservation methods work quite well in that [inaudible].
Mr. THUNE. I think that most conservation programs we have today, as well as the Conservation Security Act, the current rule would fit in the green box.
Mr. LOUWAGIE. I'm not sure which is the best way to approach it, but I can say on our farm we could be putting something in the ground into the CREP Program, which is working out very well. The fact that when we have these high waters, we have education and trees, a lot better than tilled loose soils on the farm ground, as far as flooding. The other part of it is we're starting to see a lot more pheasants and natural animals than we have seen in the past, so there's certainly some benefit to that area. Thank you.
Mr. QUINN. I'd like to thank you for your good pheasants out there, because I travel out to [inaudible] South Dakota every December to go pheasant hunting with a group of farmers. I believe there's going to be strong support for continuing the bill, and we shouldn't forget that the pheasants, like something alongside of corn, other grains that they are eating, I find that by the time we get out there in December, you don't want to hunt the set-aside acres. You want to find a farmer who has corn, soybeans, whatever. But due to the farm and the environmentalists, I think you are going to have to have a little bit of the farm organizations' support on this, and I will support you also.
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Mr. RYNNING. Yes. I think because of all of the issues brought up by the other gentlemen, I think there has to be a serious look at, and there's definitely ways to help agriculture. And I think the green box is probably the—the green box issue is probably bigger than we all want to admit right now. It could be a much bigger issue further down the road. And having a program developed that works for farmers and everybody concerned is important, and that's something to start with.
So yes, I think it is going to play a pretty important role. How that's funded gets to be a little trickier question. We'll leave that up to you guys. Thank you.
Mr. THUNE. I appreciate very much your answers and your testimony as well. And I don't know if the chairman is intending to wrap this up here pretty soon, but I'd like to say thank you for your testimony. We are listening, we want to do this right. We want to do it in a way that incorporates the views of producers, and hoping to design a bill that isn't going to make everybody happy, but is based on a consensus of what we're hearing out there, what producers are asking for. And I think there are some good developments, positive developments out there. And Gil mentioned a lot of the issues, economic issues that are affecting agriculture. Those aren't probably going to go away any time soon.
But it's encouraging to me to see some of the positive signs on the horizon. The President, we're told, is going to deny the waiver that California's asked for [inaudible], which is a big deal for value added. It's something that I'm very interested in my state, not only because of the additional dollars it puts in the pockets of the producers, but also what it does for the economy. In South Dakota we have a lot of small towns that are really struggling to make it, and we have to be looking at things that we can do to improve the economic outlook, help [inaudible], and ethanol, biodiesel, all these sorts of things are really right on the mark. And I hope that we can do something in this bill, too, that encourages and promotes those types of activities. Because in addition to opening up export markets, we've got to do something here in this country that helps [inaudible] the markets for our products.
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So I appreciate very much your testimony and your input and look forward to working with you trying to draft something better, maybe a better bill that will hopefully provide a better sense of where we need to go in the future of this country with farm policy. Thank you.
Mr. CHAMBLISS. Thank you. Mr. Kennedy?
Mr. KENNEDY. Well, again, I would just like to begin by thanking everyone for coming in and the staff for setting up this event and my fellow Members and Chairman Chambliss for coming here and you for giving your testimony. And I do think that with the [inaudible] going to be able to invest [inaudible]. A lot of issues you talked about, as well as [inaudible]. And my goal is that we keep our Minnesota pheasants and things like [inaudible] that we don't export the pheasant hunters to South Dakota. And the conservation program's going to help us do that.
But as everybody's been mentioning, we have to try to, you know, balance many of these programs. Every single one of the organizations proposed a counter-cyclical program, over and above the loan rate, that was generally a dollar per acre in actual income guaranteed. And, you know, as I talk to farmers around the district they don't understand this, and they don't appreciate it, and they don't know whether it's good or bad for them.
So I asked you before to talk about the balance between a few different things, and I'll ask you once again, because we need your input to help us make these balancing decisions so we come back with a program that reflects what you want. And we're saying, should we just take that loan rate that much higher or come up with a counter-cyclical payment that's based on an income-per-acre basis? And how should we balance the amount of money we allocate to each of those two programs? Because I am concerned about years like this year, where it's hard to get a crop in the field, and that we may not have quite the yield, and then if we move more towards a dollar per acre or a dollar of revenue, something that's going to give us a better, stronger safety net for times we don't have those crops. And I want to [inaudible] you guys in how you balance this [inaudible] higher loan rate with coming up with a dollar-per-acre type of safety net on top of that.
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Mr. ANDERSON. OK. The question now is a solid AMTA program, which equates as a dollar per acre, I would put as number one. My AMTA payment is around $20 an acre, and it's spread all over my whole farm. It's very significant. Good news or bad, that is coming. We could raise the loan rate, but [inaudible] AMTA will. So I would prioritize the counter-cyclical AMTA-type program being ahead of just raising the loan rates.
Raising the loan rates helps my bushels when I need cash flow before I do my final market. That's very helpful. But the loan rate is actually below the cost of production, so that's only short-term help. So I'd put it in that order.
Mr. LOUWAGIE. I guess I would probably have to say the loan rate is very important to us. If I look back 7 or 8 years ago, when we talked about loan rates, I didn't probably think they were very important. I just wanted to go to the bank and get the loan. It was certainly helpful to have that guaranteed amount for so many bushels. As of the last 2 or 3 years grains were much lower in price, I think we had soybeans crop to $3.80, I think corn was about a buck ten, a buck eighty. Some dramatic drops in prices take that type of price for the marketing loan to offset that, even though it hasn't been the price we really need it to go to. Certainly the AMTA payment has helped in times of poor yields and been very helpful to us.
Another thing I think that's very important is the Federal crop insurance. It's certainly a way of helping us to lock up some dollars and guarantee to have insurance in the bank so that we know we're going to be around next year. So it's probably a combination of those things. Thank you.
Mr. QUINN. I like the loan rate because—for several reasons that I've mentioned previously. It helps an awful lot at the beginning of the year, depending on your tax decisions of January or December, to walk in and get a loan on a commodity to go pay the bank off. I don't think we would be very welcome if we said we didn't care for the loan rate, because that would mean we'd only get a loan of what the corn is worth, about a buck thirty, and that really hurts.
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I'd like to say that I'm—I believe that the corn growers have put a lot of thought, and we were part of it, into their program. But just because I didn't believe in one portion doesn't mean I didn't believe in the package.
Mr. RYNNING. For me, I guess the counter-cyclical portion is made, on a historic basis, on a projected-type yield, which shouldn't even [inaudible] in a year where you don't get the crop in, because it's based on historical facts. So we maybe get something out of that even if we didn't get something in the ground, and AMTA, of course, would be there. That's very important because you can absolutely rely on it. Now as a producer going before crops, that would probably be my most important.
But as a representative of Minnesota barley growers and national barley growers, I would say in a situation with barley, by itself, standing alone, the loan rate is by far the most important. Because we feel that's a big factor in [inaudible], I think that doesn't have much effect on our acreage and our production, but the loan rate really does.
So that's two different perspectives there. But as a farmer, I've always liked the loan rate, a little higher loan rate, and always felt we could produce it and make, you know, real benefits out of having a strong loan rate. My view has changed somewhat in the last 8 years, where we've had [inaudible] on our production side. And to get a loan or an [inaudible], it's all about [inaudible]. Thank you.
Mr. KENNEDY. Thank you for your input. And that's all for me.
Mr. CHAMBLISS. I have two quick points I want to address before we wind up.
Mr. Louwagie, there's been an obvious trend towards crops moving from certain commodities into soybeans over the last several years. And did you have any recommendations on how we slow down that trend or is that trend good, should we promote that trend, or where is the soybean association on that issue?
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Mr. LOUWAGIE. Let me add the fact that we have less soybean carryout than corn or wheat. I think the fact that you're basically trying to put some dollars to help the farmers, and most farmers have soybeans with their rotation, whether it be wheat farmers or corn farmers. I think we will be able to grow even more soybeans. The world market I believe is going to continue to grow, especially as we get into biodiesal as a fuel. We mentioned trying to, in some of the poorer countries of the world, get some more soybean protein foods into their lunch programs and using private volunteer organizations to help us with this. I believe there's still more room for soybean production, and I don't have a problem with them growing more soybeans. I hope that answers your question.
Mr. CHAMBLISS. OK. And Mr. Rynning you made a comment with respect to not using the existing monies to afford additional profits or additional commodities coming under the provisions of AMTA. I just want to make sure that I hear where you're coming from. We've got soybeans and sugar and peanuts already that have asked to participate in AMTA payments that are not participating now, and what I'm hearing you say is that you would like to see the 1999 base for AMTA payments kept and that any additional commodities that come in have funding be added to that 1999 base funding.
Mr. RYNNING. Yes, that is correct. That is my position.
Mr. CHAMBLISS. Well, let me once again just thank all of you all for being here. I think this dialogue has been certainly good for us. And I hope you're seeing some of the ideas that we're having to wrestle with and the difficulty in trying to bring it to some conclusion. But you know what? We have said over and over again that if we approach this farm bill, that the worst thing we could have happen is a bunch of Members of Congress and other bureaucrats in Washington try to decide what's best for the farmers of America. So what we have tried to do is to get out here and talk to you all and listen to you and make sure that when we do write this farm bill, that we write the very best farm bill that we can for all America.
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I'm particularly interested in several of your comments, particularly you, Mr. Louwagie, about crop insurance. And Mr. Quinn, you went to crop insurance this year for the first time ever. That was exactly the idea that we were promoting when we crafted and wrote that crop insurance package last year. We were hoping that every farmer in America would go with the crop insurance program.
We folks in the Southeast have been very dilatory about getting into the crop insurance program for exactly the reason that you talked about. And if you're a good farmer, overall you're probably going to get enough yield not to qualify year in and year out. In those tough years that we think crop insurance is critically important to the planning of every farmer—and we wanted to put the decision on the farmer and the banker, as opposed to putting it on the government, when it came time to decide whether or not to buy crop insurance.
And we hope that's what we're doing. And based on what you said, I'd be hopeful that we're going to have all, or at least more, farmers participating in the crop insurance program. We still have got some kinks in it we've got to get worked out.
Once we get through this series of hearings, I will tell you that we're going to come back with some more hearings on crop insurance and another issue that I'm going to address right now, and that is the issue about biotechnology. As I look across the table, I see folks who are directly benefitting from what's happened in the field of biotech over the last several years. And our friends across the ocean have given us problems there, and we've got to help solve that problem. We've got to get the mindset away from the idea that's there's something wrong with GMOs, that the seeds that you all are putting in the ground now are absolutely 100 percent totally safe, and they produce safe and beneficial crops, and at the same time, allow you to plant seeds that are more disease resistant and are giving you higher yields than you've ever seen before. And I think that's critically important.
And we're going to be coming back into the field this fall. Mr. Quinn, we're probably going to do this in South Dakota sometime between October and December. I just want to pick that time of the yeararbitrarily.
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Mr. THUNE. Mr. Chairman, I would just officially like to hold this meeting in South Dakota sometime in the fall. And some of Congressman's Kennedy's constituents cross the line and hunt over there, and we appreciate that very much.
Mr. CHAMBLISS. Another practical agricultural experiment. And another issue that frankly this committee doesn't have jurisdiction over, but everybody in Washington [inaudible] agricultural trade, because I think that it is so critically important for the long-term viability of agriculture. We [inaudible], and under NAFTA, as well as under [inaudible], it's not just the fault of the previous administration. I fault every administration that negotiated those trade agreements.
But to the credit of the last administration, they negotiated what I think is a very good agreement for China or with China. And I was one of those folks who've been on the fence and voted both ways on normal trade relations with China, but I think that was an excellent agreement [inaudible] those folks, and I would love for two billion people in China, who one of these days are going to have more money than ever to buy products, buying peanuts and [inaudible] and smoking our cigarettes, and they'll do it because that is a good trade agreement. And we're going to continue to try to develop more and better trade agreements with everybody across the world.
Let me just close by again recognizing Mark. Mark, thank you, and particularly your staff. I know that they're the ones that really did all the work for putting this together, and my staff, which is extremely complimentary, for the work that they did on this. I thank all of you all for coming out today.
Again, I come from south Georgia and particularly in the heart of agriculture country. My district, the Eighth Congressional District of Georgia is the second largest peanut-producing district in the country, we're the second largest timber-producing district in the country, we're in the top 10 in tobacco production and the world's largest cigarette manufacturing plant is located in our district. I have about 95 percent of the peaches in Georgia grown in my district, plus we grow every kind of fruit and vegetable, cabbages, cucumbers, squash, eggplant. So as I get around the country, I love to tell folks that if you can eat it, wear it, or smoke it, chances are it came from my district.
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But we do appreciate you folks coming out and listening to us today. And again, I want to commend our witnesses for taking time to be with us. I promise you we'll listen to you, and when we get back, we're going to be taking your ideas and incorporating them into the farm bill that we're going to be drafting.
Also, I also want to commend our staff, Christy, Tyler, and the others back here. These folks worked tirelessly to get this event put together, and we appreciate you guys' hard work.
So with that, we're going to close the hearing and we are adjourned. Thank you.
[Whereupon, the subcommittee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Don Louwagie
Good morning, Mr. Chairman and members of the committee. I am Don Louwagie, a soybean and corn farmer from Marshall, Minnesota. I serve as president of the Minnesota Soybean Growers Association.
I would like to express our appreciation to you, Mr. Chairman, for conducting these hearings on domestic farm policy alternatives for the next farm bill. We look forward to working closely with your Committee and your staff in developing effective legislation.
I would like to begin by briefly describing the policy environment facing soybean producers in recent years, and its impact on our consideration of various policy alternatives.
The FAIR Act's Unfinished Agenda. The authors of the FAIR Act did not expect the transition from government-dependence to market-orientation to take place solely as a result of changes in domestic farm policy. They made clear that the overall economic and trade environment of U.S. agriculture needed to be changed to reduce production costs and enhance the competitiveness of U.S. farm exports.
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We appreciate that renewed efforts are underway in the new Congress and in the new Administration to focus on the problems facing agriculture, and to complete the FAIR Act's unfinished agenda. However, even if progress is made in the near future, these efforts must be viewed as long-term investments. As a result, we must assume that conditions during the next several years could remain much as they are today.
Policy Assumptions. Key elements of the FAIR Act should be maintained in the next farm bill. These include full and unrestricted planting flexibility, which proved to be extremely helpful to farmers in the Northwest corner of Minnesota, when disease wiped out the wheat crop.
In addition, Minnesota soybean farmers believe the following should also be maintained in the next farm bill: continuation of non-recourse marketing loans, no statutory authority to impose set-asides, and no authority to establish government or farmer-owned reserves. Also, we oppose any limitations on marketing loan benefits, fixed income payments, or any counter-cyclical income support payments.
I will now briefly describe our recommendations for domestic farm programs.
Marketing Loan Program. Soybean growers support maintaining current oilseed loan rates for 2002 crops, and setting these rates as floors rather than ceilings under the next farm bill. The formula for adjusting loan levels to 85 percent of Olympic average prices in the previous five years should be retained, and discretion should be provided to the Secretary to set loan levels above the floor when prices warrant.
Contrary to what some have conjectured, MSGA does not believe the current national average soybean loan rate of $5.26 per bushel has been responsible for most of the expansion in U.S. soybean acreage since enactment of the FAIR Act. We attribute most of the growth to other factors.
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First, the incentive to build bases for program crops under previous farm bills had created tremendous pressure to exclude soybeans and other non-program crops from rotations. Introduction of unrestricted planting flexibility and decoupled income support payments reversed this pressure, and allowed producers to achieve a more agronomically optimum crop rotation.
A second factor was the relatively high soybean prices between 1995 and 1997 compared to prices for other commodities that compete with soybeans for acreage.
Third, new soybean varieties have been developed in maturity groups that are far better suited for northern and western climates than before. Last year, virtually all of the expansion in soybean plantings occurred in North and South Dakota, Minnesota, Wisconsin, Michigan, Nebraska, and Kansas.
A fourth factor has been the prevalence of scab and other diseases affecting wheat and other crops in NW Minnesota. Flexibility provided these farmers the opportunity to plant soybeans instead.
Other factors have encouraged soybean plantings in place of corn. High costs or limited availability of natural gas and fertilizer have offset recent improvement in corn prices. Also, the continuing disruption of foreign and domestic U.S. corn markets resulting from the StarLink debacle may be contributing to this year's expected decline in corn plantings.
Global consumption of soybeans grew by 55.7 percent in the 1990's. This compares to 26.9 percent for corn and only 6.2 percent for wheat. As a result of continuing strong domestic and foreign demand, U.S. carryover stocks of soybeans this fall are expected to total about 12 percent of use. By comparison, corn stocks are projected at about 20 percent of use, and wheat supplies will be 32 percent of use. To the extent the soybean loan rate is a factor in planting decisions, reducing it would increase production of crops that are already in greater surplus.
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MSGA supports requiring oilseed loans to be repaid at the lower of the Posted County Price or an Adjusted World Price (AWP). The AWP would be set on a weekly basis in reference to prices of all oilseeds delivered at major foreign markets, including freight costs.
The purpose of using an Adjusted World Price is to ensure that U.S. soybeans and other oilseeds and oilseed products are competitive in both foreign and domestic markets under the next farm bill. U.S. crops are currently marketed at prices that reflect the domestic market, but not overseas markets. Basing loan repayment on values that directly reflect the prices of our competitors in foreign oilseed markets would address this situation, and would also help offset the negative effect of the high value of the Dollar on U.S. exports.
PFC (AMTA) Payments. Currently, soybeans are not included in the formula for determining payments under Production Flexibility Contracts (PFCs). MSGA strongly supports expanding the PFC program to include soybeans.
Counter-Cyclical Income Support. Oilseed producer organizations support replacing ad hoc emergency economic assistance payments, which have included an oilseed payment, with a counter-cyclical income support program. After three years of improvisation, farmers and their lenders need
longer-term assurances that a safety net is in place to protect against low prices and provide income stability.
The concept of compensating producers for low income based on acres complements the marketing loan program, under which benefits are tied to actual production. It addresses a perennial shortcoming in the Federal crop insurance program. Every year, many producers experience below-average yields, but not low enough to qualify for crop insurance coverage. This low-yield gap in income support would be at least partially offset by providing payments on harvested acres.
In our view, this proposal will not count against U.S. commitments to reduce trade-distorting domestic support in the WTO. Paying producers on 85 percent of their current year acreage would support classification as a production-limiting (blue box) program, which would be exempt from discipline under the Uruguay Round Agreement.
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Other Farm Bill Priorities. Mr. Chairman, there are other important priorities that need to be addressed in the next farm bill.
MSGA, along with its national organization, the American Soybean Association, has endorsed the Conservation Security Act, introduced in the House last year by Representative Emerson and in the Senate by Senator Harkin.
We also support a significant increase in funding for agricultural research in the next farm bill. In the past, soybean checkoff dollars have provided valuable research dollars for diseases specific to Minnesota. As farm prices drop, so, too, do soybean checkoff collections. With less dollars for research on soybean disease, pests and production, we stand to lose additional dollars to yield loss.
Specifically, we encourage the Committee to provide annual funding of $1.5 billion for conservation payments and $1.0 billion for research.
Additionally, we support increased funding of export assistance, market development, and food aid programs that are critical to expanding demand and improving commodity prices.
To address market access, regulatory, and marketing issues in agricultural biotechnology, MSGA recommends establishment of a biotechnology and agricultural trade program.
River Transportation. An area of particular concern to MSGA is the maintenance and upgrading of the Mississippi River. Minnesota soybean farmers are at the end of the export line and therefore depend heavily on the river to deliver our crops to our overseas customers.
River transportation can move more goods with less air pollution, less noise and less fossil fuel usage than any other means of transportation. It is the most environmentally friendly form of shipping goods and commodities that exists today. But most of the current locks and dams on the Mississippi River date back more than 60 years and are only 600 feet long. This means tows must break in half and double lock to get through, increasing locking time by nearly three times what it should be.
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Since more than two-thirds of all U.S. grain exports are shipped down the Mississippi on the way to foreign markets, these delays end up costing farmers. By modernizing the locks and dams along the Mississippi River, Midwestern farmers would save $364 million annually. River transportation helps Minnesota be competitive on the world grain market. We ask for your support regarding modernization of the Mississippi River.
Alternative Plant-based Fuels in a National Energy Plan. Another promising arena for soybeans and other oilseeds is in the area of alternative fuel development. Minnesota led the way in the development of ethanol production.
The Minnesota Soybean Growers Association is leading the way in the promotion of biodiesel, an alternative diesel fuel. We appreciate the efforts of Minnesota Senators Paul Wellstone and Mark Dayton, and Representatives Gil Gutnecht, Collin Peterson and Mark Kennedy for their commitment to plant-based alternative fuels. We urge the administration and Congress to include plant-based alternative fuels, such as biodiesel, in its National Energy Plan.
That concludes my statement, Mr. Chairman. I want to again thank you for convening these important hearings, and for inviting me to testify. I will be glad to respond to questions.
Statement of Ron Anderson
My name is Ron Anderson, and I farm 2,200 acres of wheat, soybeans, sugar beets, canola, and alfalfa in northwestern Minnesota of the Red River Valley. I have been on the board of directors of the Minnesota Association of Wheat Growers for 9 years, currently serving as president.
I appreciate the opportunity to visit with you today about Federal policies that affect our farming livelihood. My farm is about five hours northwest of here, just a stone's throw away from the Canadian border. The growing conditions in my neck of the woods are much different than they are here in southern Minnesota. In fact, with our short growing season, we probably have more in common with Canadian crop producers, agronomically speaking, then with producers here in southern Minnesota, which has growing conditions more like the Corn Belt. The fact that the agriculture and growing conditions here in one state are about as different as they are from California to Mississippi serves as a reminder that when it comes to drafting farm policy, one size does not fit all. I hope you keep that in mind as you develop new farm programs, because flexibility is needed in the administration of farm policy rules.
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As you know, we've suffered through four straight years of low market prices, coupled with higher production costs in recent years. I figure that my cost per acre the past two growing seasons has risen about $5.60 to $6.27 per acre, or about $14,000 on my ranch, primarily because of the higher gas and utility costs that affect everything from fertilizer, fuel, and grain drying costs, to the expense of hauling grain. It also means a wider market basis. That's the difference between the futures market price and the local cash price, determined by a variety of factors, including transportation costs.
In northwest Minnesota, not only have we been challenged in the marketplace, but also on the production side of the ledger. The Red River Valley has been in a wet cycle for the past 10 years. The Fargo-Moorhead area, which is about in the middle of the Valley, has averaged an extra 2.65 inches of rain each summer since 1991. That's like getting four months of rain crammed into three for 10 straight years, according to a local meteorologist. He points out that most teenagers today in the Red River Valley do not know what it is like to have a hot, dry summer.
This wet cycle has reduced crop production yields and quality in the Valley, which traditionally has been one of the best crop production regions in the world. The current wet cycle has resulted in an increase in crop diseases, such as scab or Fusarium head blight in wheat and white mold in soybeans. This spring, wet weather prevented many farmers in my area from getting in the field to plant. On my farm, I was only able to seed 55 percent of my intended wheat acres, and zero beans. About 50 percent of crop acreage in my county will be prevented plant this year, because it's too wet. Ironically, in western North Dakota and Montana, there are wheat producers who were unable to plant because it was too dry.
I want to thank you and your colleagues for legislative measures that have helped mitigate our losses in the field and in the marketplace. Better planting flexibility written into the 1996 Farm Bill has given me and a lot of other farmers a much greater ability to grow crops in response to the markets and to the needs of a proper crop rotation. Before ''Freedom to Farm'' I was basically growing just two crops: wheat and sugar beets. Now I'm growing five, because I'm no longer tied to growing program crops on base acreage. I definitely hope this planting flexibility carries over to the new farm bill. Loan deficiency payments or LDPs have also helped with the extremely low crop prices, and should be included in the next farm bill.
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Of course, it's well known by now that the lack of price support is a major flaw in the current farm bill. I know there's a lot of farmers who wouldn't be in business today without the emergency AMTA and crop disaster loss assistance the past three years. An emergency AMTA payment and disaster assistance will be needed again this year, until a better price-support mechanism is incorporated into the farm program. I would stress that a more systematic price-support mechanism will not only help farmers sleep better at night, but also their agricultural lenders. The unpredictability of AMTA and AMTA-plus the past few years has made it more difficult for lenders to extend operating capital. A more stable farm program will do much to help lenders work with farmers in financial planning.
I believe that the counter-cyclical support plan proposed by the National Association of Wheat Growers is something that will work well on my farm, and will be understandable to my lender. I would believe that to be the case with other farms and other commodities as well. In brief, the NAWG plan would create a counter-cyclical payment that would provide additional assistance in years plagued by low commodity prices, but would not come into effect when market forces were strong. The counter-cyclical wheat payment would be based on a $4.25 ''Market Support Price.'' The payment would be calculated by subtracting the guaranteed base payment and the higher of either the national average market price or the marketing loan rate from the support price. A Market Loss Assistance Payment would be issued to cover the difference. All payments would be decoupled from current production and applied to historic bases and yields. A more detailed summary of the NAWG plan is attached with copies of my testimony in case you have not yet seen it.
I also like the fact that the NAWG plan would raise marketing loan levels without changing the loan rate of soybeans or other oilseeds. Without question, the current inequity of loan rates among program crops encourages overproduction of soybeans and oilseeds, so I believe that more equitable loan rates among program crops is something that is essential in the next farm bill.
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As a producer, I appreciate the better coverage now available for crop insurance. Higher coverage products are now more affordable, and early numbers on crop insurance sales this year from Kansas State University indicate significantly better sales of products that offer higher coverage levels, including Crop Revenue Coverage and Revenue Assurance.
Whether crop insurance will be enough to offset losses, or if there is need for disaster assistance, still remains to be seen, however. Prevented Plant coverage pays 60 to 70 percent of your total protection, so my prevented planting indemnity this year will range between $49 to $60 per acre. Prevented plant coverage is adequate when a small part of the farm is prevented from being planted, but when large areas of land go unplanted, there is too much overhead or fixed costs that crop insurance will not cover. Basically my insurance for prevented plant will cover land rent, but not other living costs such as college tuition for the kids, the house payment, the combine payment, and so forth.
Another point about crop insurance is that coverage for quality losses still isn't where it should be at, in my opinion. I would urge you to survey farmers about the 2000 Crop Insurance Reform Act, to get their thoughts about what they like, dislike, and what improvements might still be needed. Perhaps we need to view crop insurance like computer software, with upgrades made as producer needs and conditions change. So while the 2000 law might be viewed as ''Crop Insurance 2.0,'' maybe an upgrade to ''Crop Insurance 3.0'' might be needed with the next farm bill.
I understand that no administrator has yet been appointed at the USDA Risk Management Agency, and that research and development on current and future crop insurance products is moving very slowly. I would urge that both processes be accelerated if possible.
Finally, I would like to comment on the ''Conservation Security Act'' re-introduced in the Senate by U.S. Senators Tom Harkin of Iowa and Gordon Smith of Oregon, and in the House by Representatives John Thune of South Dakota and Marcy Kaptur of Ohio. This legislation would establish a universal and voluntary incentive payment program to support and encourage conservation practices by farmers, and it's possible that elements of this plan may be considered in the next farm bill. While this proposal may be well intentioned, I would urge caution in considering such a plan for primary commodity income support. Many state and Federal conservation initiatives already exist, and I would also point out that many prime farming areas in this country are just that, prime farming areas, with no wetlands to restore or wildlife habitat to enhance. So I would urge that the Conservation Security Act be considered as an optional participation program ONLY if funding above and beyond the $79 billion budgeted for agriculture through 2011, including disaster assistance for the current year, can be found. Funding for this proposal should NOT siphon away funding for improving the safety net of the current farm bill.
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Thank you again for this opportunity to speak, and I welcome any questions that you may have.
Statement of Andy Quinn
Mr. Chairman, members of the subcommittee:
Good afternoon. My name is Andy Quinn. I have owned and operated a corn and soybean farm near Litchfield, in Meeker County, for the past 33 years.
Thank you for holding this series of meetings to gather input from farmers.
You have heard testimony from all of the national farm groups and it is clear that there is a continued need for some type of support for agriculture. You have been presented with suggestions ranging from minor changes to the current program, to returning to supply management, to a new counter-cyclical program. The bottom line is that all of the groups agree on the need for a base-line safety net for agricultural. I will keep my comments brief.
I recommend adopting the National Corn Growers Association's proposed counter-cyclical program. However, I personally believe that NCGA's proposal is too conservative in the amount of money that should be targeted toward this program. I believe the proposal could be adjusted in two ways.
First, to provide a better safety net for farmers, I recommend that the new farm program raise the loan rate for corn and other crops to be equalized with the loan rate for soybeans. That would mean moving the corn loan rate from $1.89 to $2.10 per bushel. My reasoning for this is that the planting flexibility of Freedom to Farm cannot be realized without equalizing loan rates by increasing the corn and wheat rates. This means more funding must be allocated to the NCGA's figures for a national income target.
Second, I recommend that AMTA payments in the new farm bill be equal to the average of the current farm bill. That would mean 33.2 cents per bushel.
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These two changes make the program only slightly more expensive, but help reduce the risk that future emergency-aid packages will be necessary.
I want to commend the committee members for traveling to Minnesota and for making a concerted effort to really listen to perspectives from throughout America's farm community. Over the past year, you have received volumes of information from the commodity groups in the country. They have brought before you valuable ideas and input and I applaud their efforts. Thank you for the opportunity to present my own personal vision for the Federal farm program. If you have any questions, I would be happy to answer them at this time.
Thank you.
FORMULATION OF THE 2002 FARM BILL
MONDAY, JUNE 18, 2001
House of Representatives,
Subcommittee on General Farm
Commodities and Risk Management,
Committee on Agriculture,
Fresno, CA.
The subcommittee met, pursuant to call, at 3:10 p.m., at the State Building, Fresno, CA, Hon. Saxby Chambliss (chairman of the subcommittee) presiding.
Present: Representatives Chambliss and Dooley.
Also present: Representative Radanovich.
Staff present: Christy Cromley, subcommittee staff director; Tyler Wegmeyer, and Andy Johnson.
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OPENING STATEMENT OF HON. SAXBY CHAMBLISS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA
Mr. CHAMBLISS. We're going to call this hearing to order. I'm Saxby Chambliss, chairman of the General Farm Commodities and Risk Management Subcommittee, and I can't tell you how pleased I am to be in the great State of California today with two of my colleagues. Of course you folks from this part of the State know both these guys and don't need any introduction. But Cal Dooley is my ranking member on the subcommittee, and in addition to being my good colleague and being a good friend, he certainly does a good job of making the House of Representatives a real pleasure to serve in; I could not be more pleased to have Cal Dooley as a ranking member on my subcommittee. And we have always worked well together. Your interests are going to be well looked at during this hearing.
My classmate in Congress, George Radanovich, and while George is not a member of the House Agriculture Committee, he is one of those folks who has a key interest, both as a personal standpoint as well as representing a rural district in California and also looks after his constituents very diligently, and it's just a pleasure to have him here. And I'll ask for some comments that they have in just a minute.
I want to acknowledge Nancy Chin. I'm not sure if Nancy is here, but Nancy was responsible for working with our staff to secure this building and this room. And I sure appreciate Nancy Chin calling the power company and making sure that we can turn the air conditioning on today. But if the air conditioning goes off, I do want to thank Cal and his staff for working with us to put this together. Obviously we could not have done it without him. And from our staff with the committee, they really worked hard to make sure this came together. And certainly to our witnesses being here today, we look forward to your testimony and we thank you for your time to come out and help us try to create better farm policy as we move into the next farm bill.
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I come from a different part of the world, obviously, than California. My district in Georgia is in the center part of the State. I have an awful lot of agriculture in my State. We have a lot of cotton, peanuts, and tobacco. Those have been our staple products for years. But just like you, we're diverse. I have about half the Vidalia onions that are grown in my district. We've gotten in to sweet carrots in this business. Over 95 percent of the peaches in Georgia are grown in my district, and about every other kind of fruit and vegetable that we grow in our part of the world is grown in my district.
My son-in-law is a farmer. Joe grows produce and also grows some cotton. As I get around the country talking to folks involved in agriculture, after I tell them about my district, I mean it when I say, ''If you can eat it, wear it, or smoke it, most chances it came out of my district''.
As I flew in here today I heard about how rich this area is, and it was pretty evident to me folks are exactly right when they talk about the fact that, ''We come from some of the richest farm land in California.'' And you guys have done a good job with our infrastructure and I know that you've done a good job with your operations.
As we move forward here today, what we're going to be doing is hearing producers' perspectives of how we can improve the farm bill. The committee is leaving no rock unturned. And commodity groups over the past 2 years have testified on problems with farm policies that are in place and what ideal programs farmers want to see put in place in the next farm bill, from supply control and reserve establishments, to keeping the current farm program component.
Past programs are being reviewed for this next farm bill. There's a number of commodity groups that have testified on behalf of continuing the loan program and decoupled payment and creating a counter-cyclical program. I'm holding three hearings to hear from producers on how we might improve components and how we might comprise a counter-cyclical program. We have been in the Midwest this past week then we'll be in Georgia on the east coast on Saturday of this week because the subcommittee wants to go over the commodity programs. The subcommittee has asked witnesses to speak up on behalf of primarily cotton, wheat, corn, rice, barley, and grain sorghum, soybeans. Chairman Combest plans to pass the farm bill through the committee by the time we adjourn for our August recess. Then when we come back in September we want to have that bill prepared to go to the floor for final passage.
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Now, that's a very aggressive schedule and we know and understand that, but there are a number of reasons for doing that. Primarily as we went through the budget process this year we were able to secure a pretty good budget number. It's not enough money to do everything that everybody would like to see done in commodity programs in the farm bill. But there is a good bit more money there than what we thought, frankly, we might wind up with. So what we want to do, if we can rewrite the farm bill and pass it through the House, take advantage of the budget number that we have been able to secure. I will look forward on how we might improve conditions to ease the burden currently resting on farmers' shoulders. And at this time before we begin our hearing, I'd like to move it over to my colleagues for any comments they might have.
[The prepared statement of Mr. Chambliss follows:]
PREPARED STATEMENT OF HON. SAXBY CHAMBLISS
As chairman of the General Farm Commodities and Risk Management Subcommittee, I wish to thank Mr. Dooley and the folks of California for hosting the subcommittee in the second of field hearings we are holding in June designed to review Federal farm policy. I am happy to have Cal Dooley serving as the ranking member on the subcommittee. He's a great Member of Congress to work with. I also welcome George Radanovich; while he's not a Member of the House Agriculture Committee, we are glad he could join us.
We are here today to hear producers' perspectives on how we might can improve Federal farm policy. The full committee is leaving no rock unturned. Chairman Combest has heard from a number of producers and commodity groups over the past two years on problems with farm policy and what ideal programs they recommend. The committee has heard options ranging from supply management and reserve establishment to keeping the current farm program components. Past programs including target prices are even being reviewed. As a number of commodity groups have testified on behalf of continuing the loan program and decoupled payments [AMTA payments] and creating a countercyclical program, I am holding three field hearings across the country in June to hear from producers on how we might can improve on the existing commodity program components and how we might can craft a countercyclical program to best benefit producers' operations. Because this Subcommittee has jurisdiction only over the commodity programs that contain either an AMTA payment, a loan program, or both, the subcommittee has asked witnesses to speak only on behalf of our jurisdictional crops: primarily cotton, wheat, corn, rice, soybeans, oilseeds, barley, and grain sorghum.
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As you know, Chairman Combest is leading the House Agriculture Committee to rewrite the farm bill and pass it through Committee by August. While some might disagree with the chairman's timeframe, I concur that while it is aggressive, it is of utmost importance to complete the farm bill this year. Otherwise, we could have new budget numbers to work with.
I look forward to hearing from our witnesses today on some ideas of how we might can improve conditions to ease the burden currently resting on farmers' shoulders.
OPENING STATEMENT OF HON. CALVIN M. DOOLEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. DOOLEY. Well, thank you. First off, Saxby, I want to thank you for coming out to the Central Valley, California. We're delighted that you're giving us an opportunity to have some of our farmers speak with you and really explain to you on how they think that the Federal Government can move forward designing a farm bill that can best meet the needs of not only Valley farmers but farmers throughout the country. George and I are always very, very pleased to tell people that we're the No. 1 district, or agriculture region in the Nation. In fact, the four counties that I represent would be Fresno, Tulare, Kings and Kern county. If you aggregated their gross agricultural production, it would be in excess of $9 billion. And that's local commodity prices. But we would be much higher than that in good times. In its August production we grow over 200 different types of commodities here but the basic crops are obviously very, very important.
I'd also like to acknowledge some folks that we have in the audience too representing other offices. We have Tom Bohigian and Juliette Decompas representing Senator Diane Feinstein's office. We have Vanessa Ruljina representing the assistant secretary for California of Department of Food and Agriculture, as well as a number of my staff members. And Sarah Woolf and Jim Travis that are also here. And I think that for the people who are going to be testifying, Mr. Chambliss, that we're going to actually have fairly significant budget allocations for our farm programmers. In fact, there is a decision made as far as above the baseline. We're talking about almost $80 billion, and I think the challenge we face is, how do you structure this program that provides a safety net so we can preclude widespread bankruptcy, but do so in a manner that has the least distortion to the marketplace because the continuation of direct payments that actually encourages the additional production beyond what the market is demanding is not necessarily in the long-term interests of farmers in the Valley and throughout the country? And so we have a real challenge in terms of, how do we structure our programs, that address some of the real difficult financial problems we face, but also do so in a way that they are sustainable over the long-term. And also try to structure these in a way that do not result in a portion of these subsidies being capitalized in land values and land risk that do not necessarily help those farmers that are actually out in the fields trying to make a living. So hopefully we will be able to address those issues and move through this hearing and the testimony you are bringing today will give some guidance as to how we can structure a farm bill, return the financial vitality to the farmers, and also maintain our preeminence internationally. Thank you.
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Mr. CHAMBLISS. Thank you.
George.
OPENING STATEMENT OF HON. GEORGE RADANOVICH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. RADANOVICH. Thank you, Mr. Chairman. As Cal had mentioned, the combined revenues that are counties that we represent about $9 billion. And my county, if you add Mariposa to that, it would be about $9 billion. But I want to thank you, the chairman, for including me on the panel. I've been in this office for as long as 7 years now. I don't think I've seen so many problems that we're facing in this industry, certainly since I've been in my office, and certainly many years prior to that. In addition to energy problems we have water shortages, a strong dollar, failed trade policies. And so I want to thank Saxby for coming here and Cal for arranging this and also hope that we can hear from our fellow farmers to find out if there's anything that we can do at the Federal level for the upcoming farm bill. So I appreciate the fact that I'm able to be here and look forward to the testimony.
[The prepared statement of Mr. Radanovich follows:]
PREPARED STATEMENT OF HON. GEORGE RADANOVICH
Thank you, Mr. Chairman, it is a pleasure to have you and the General Farm Commodities Subcommittee here today in Fresno. It is fitting that you chose Fresno County, in the heart of California's Central Valley, to hold a hearing—given it is the largest agricultural producing county in the Nation with crops values worth over $3.5 billion dollars. As you know, agriculture is the lifeblood in this region, so I am grateful you have taken time to come here to learn from our witnesses about how general commodity farm programs affect them.
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I want to welcome our witnesses this afternoon who are corn, cotton, rice and wheat producers from throughout the Central Valley. Your contribution to our hearing today is valuable in helping Congress meet the needs of your industries in the upcoming farm bill. Thank you, in advance, for sharing your perspectives and ideas to develop a solid piece of legislation.
We are here to discuss changes to general farm commodity programs that can be made in the 2002 farm bill to better address farmers' needs. Central Valley farmers are experiencing many of the same troubles found in other parts of the nation: low prices, trade imbalances, urban sprawl and increasing Federal regulations. Add on to those issues: the scarcity of water in California, cumbersome State regulations and skyrocketing energy prices, and it becomes incredibly difficult to stay in business as a farmer.
I believe steps should be taken in the next farm bill to establish a plan to provide short-term economic assistance, equitable long-term farm programs and a sufficient safety net in emergencies. Balanced farm programs such as these will permit farmers to supply our nation and the world with food and cotton fiber without jeopardizing the well-being of farmers themselves. I encourage our witnesses to think outside of the box and offer their views on how those of us in Congress can accomplish this task.
One of my biggest concerns—next to the State energy crisis—is the dire situation our country is in regarding agricultural trade. Large tariffs in many other countries prevent the fair and balanced access of U.S. crops. For example, rice producers are facing about a 1,000 percent tariff in Japan. Additionally, the strength of the dollar against weak foreign currencies is wrecking havoc on sales of exported U.S. cotton. These issues create trade disparities that prevent our crops from competing fairly. This is unacceptable. Balanced trade must be a priority—particularly in the 2002 farm bill. The previous farm bill provided muscle to programs like the Market Access Program and the Export Enhancement Program. This trade assistance has been helpful, however, I hope to hear suggestions today about how Congress can use the farm bill to further expand our trade markets throughout the world and overcome the inconsistencies the U.S. faces with other countries.
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Again, thank you Mr. Chairman for holding this hearing today. I look forward to the witness' testimony on how Congress can proceed in developing a farm bill with balanced programs to meet the needs of general commodity farmers.
Mr. CHAMBLISS. Thank you.
We're going to move right into that testimony, and let me just say, gentlemen, that due to the time constraints that we have here, and we have two panels to represent testimony, we'd like for you to submit your statement and hopefully summarize those statements in about 5 minutes each. The green light means 5 minutes is running, the red light means the 5 minutes is up. If you get close to finishing, don't worry about stopping immediately but you will need to wind it up.
Our first panel member is Don Bransford, a rice producer from Colusa, California; Mr. Daniel Errotabere from Riverdale, California; Mr. Chuck Nichols, a cotton and wheat producer from Hanford, California; and Mr. Craig Pederson, a cotton and wheat producer from Lemoore, California.
And, Mr. Bransford, we're going to start with you. And I know that your testimony is going to be particularly enlightening because Mr. Bransford and I happen to both be graduates from the University of Tennessee so I know how well educated he is and well-versed on this issue.
STATEMENT OF DON BRANSFORD, VICE CHAIRMAN, CALIFORNIA RICE COMMISSION, COLUSA, CA
Mr. BRANSFORD. Mr. Chairman, and members of the committee, my name is Don Bransford. I am a rice, almond and prune producer from Colusa, California. I also currently serve as a member of both the Board of Directors of the USA Rice Federation and its charter member, the U.S. Rice Producers' Group.
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Mr. Chairman, prior to presenting our initial recommendation for the Subcommittee's consideration in drafting a new farm bill, I would like to discuss the critical need for additional economic assistance for crop years 2001 and 2002. I would also like to thank the House Agriculture Committee for its swift and forthright action in working with the House Budget Committee to make available $5.5 billion in additional baseline spending for fiscal year 2001, and making available fiscal year 2002 funds for spending on the 2001 crops. These funds will be the difference between survival and economic oblivion for many rice growers in the United States.
Furthermore, we thank you and the Budget Committee for the increase in agriculture budget baseline spending in the fiscal years 2003 through 2011.
U.S. agriculture in general, and rice producers in particular, are facing continued low prices and declining income. Prices for energy-related products, including fuel, natural gas and fertilizer, have increased substantially, placing rice producers in a further cost price squeeze. This is occurring while aggregate rice exports are expected to continue declining in the marketing year beginning this August and Japan continues to deny meaningful access for California rice, and farmers face growing costs due to increased environmental and pesticide use regulations.
Our economic analysis indicates that rice is the only major commodity for which net market returns after variable costs for the 2001 crop will be negative, if Government payments are excluded.
In short, if Congress had not provided rice producers with further immediate assistance, consideration of any long-term farm policy would have been, in all likelihood, unnecessary for many rice farmers who would have been forced out of business before the new farm policy can take effect. Rice production and marketing is a multi-billion dollar activity in the United States. Primarily produced on over 3 million acres in six States, rice accounts for $1.4 billion in farm revenues.
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Rice production declined modestly in the mid 1980's but grew sharply in the 1990's, from 156.1 million hundredweight in 1990 to an estimated 191.1 million hundredweight in 2000, an increase of more than 22 percent over the decade. Over the last 10 years California and Arkansas, the two largest rice-producing States, have gained acreage, up to 38 and 15 percent respectively. Missouri has almost doubled its rice acreage. Over the same period rice acreage has declined substantially in Texas. Acreage in Louisiana and Mississippi has also declined.
U.S. rice production provides a versatile, nutritious food product for people here in the United States and around the world. Rice is used in everything from baby formulas to beer, and in a wide variety of ethnic cuisines enjoyed by many Americans. Rice hulls and other co-products are being used in a number of innovative applications, in building materials and to provide energy. Winter-flooded rice fields provide important habitats for migratory waterfowl and other species.
Rice is a capital intensive and expensive crop to produce because of its requirement for extensive irrigation. Approximately 60 percent of total rice supply is used domestically and the balance is exported. While the United States is currently the third largest exporter of rice in the world, our share of world export trade has declined continuously over the past 12 years. In 1986 the United States accounted for nearly 30 percent of world exports of rice. This year, the Department of Agriculture projects that U.S. rice will account for only 15 percent of world rice exports. The world's primary exporter of rice is Thailand. Other major exporting countries include Pakistan, India, and Vietnam. The United States competes with these and other countries in the world market. World rice export market share is a critical issue for the U.S. rice industry because we depend on the world market to sell such a large part of our annual production. Unlike the price for U.S. produced wheat and feed grains, the price for milled rice traded on the world market is determined in large part by our Asian competitors.
While the total export market share of U.S. rice has fallen, the United States has emerged as the world's leading exporter of rough unprocessed rice. Because the Untied States is the only major rice exporter that does not restrict the export of rice in its raw form, the Untied States has a competitive advantage in the rough rice trade. Our exports of rough rice have benefited from low import tariffs on rough rice relative to higher import tariffs on milled rice. These differential import duties have displaced exports of value-added milled rice exports, to the detriment of U.S. rice millers. Other major rice exporters, through Government intervention in the export trade, forego rough rice exports in an effort to retain in their countries the value-added economic activity that milled rice exports generate.
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Over the last few months, one-fifth of the U.S. mills have closed, been put up for sale, or gone into bankruptcy. In Texas and Louisiana mills are running at about 20 percent of capacity, and in the rest of the industry at less than 50 percent. The U.S. rice milling industry provides $5 billion in economic benefit to the U.S. economy and supports 36,750 jobs in rural communities. Mr. Chairman, the rice industry is very close to losing a large percentage of the infrastructure so desperately needed to support a healthy rice industry.
Discriminatory tariffs against various forms of rice and trade embargoes have distorted commercial demand for U.S. rice to our detriment. In the absence of the free trade that was promised with Freedom to Farm, all segments of our industry need assistance. The Japanese market in particular represents a prime example of restricted trade access for U.S. rice, and California rice exports in particular.
Mr. Chairman, we appreciate the Committee's efforts to gain input from the rice industry through these hearings to consider the effectiveness of our farm programs. We also appreciate the opportunity to comment on the impact of the 1996 farm bill on rice producers, and to recommend specific changes in our farm programs that will allow our growers to earn a reasonable return on their efforts, contribute to the economic success of their rural communities, and provide critical habitat to over 100 wildlife species. U.S. rice producers also believe that it is important to develop a new farm bill that is consistent with our existing domestic support obligations under the World Trade Organization.
In the U.S. Rice Producers' March testimony, given by Mr. Nolen Canon, of the U.S. Rice Producers Association, we outlined a specific proposal for a Counter-Cyclical Payment Program but noted that further policy consideration and analysis were needed. We pointed out to the House Agriculture Committee at that time that we would be communicating our further findings and recommendations in a timely fashion. We are close to concluding the analysis of an improved version of the Counter-Cyclical Payment Program and will be communicating our policy recommendations to the committee before the end of June. In March, U.S. Rice Producers recommended the specific proposals outlined below for inclusion in the new farm bill.
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Maintain the planting flexibility provisions in the 1996 FAIR Act. Prior to the enactment of the 1996 farm bill, farmers had to plant their base acreage to a specific crop in order to receive program payments. Therefore, farmers largely planted their base acreage irrespective of what the market was signaling, or what made the most sense agronomically. Congress wisely changed this system in the 1996 farm bill to allow producers to receive program benefits largely without regard to which crop producers planted on their base acreage. Maintaining the planting flexibility provisions enacted in the 1996 farm bill is strongly supported by U.S. rice producers and should be continued in any new farm legislation.
Continue the marketing loan and loan deficiency payment structure as currently administered under the 1996 Fair Act. The Marketing Loan Program for rice was first implemented in 1985. This program has been critically important in helping the U.S. rice industry to maintain its export competitiveness while freeing the Government from taking over rice under the loan program. Loan deficiency payments allow producers to waive their right to the loan program while receiving a direct payment equal to the difference between the loan rate and the existing market price (when the market price is below the loan rate. Both LDPs and marketing loans provide rice producers with critically important income protection while keeping the U.S. rice industry competitive in international markets.
Rice producers strongly support maintaining the option for producers to redeem their loans with generic commodity certificates. This option has enhanced the marketing flexibility available to producers, empowering them to more effectively market their rice, both here and abroad. This current marketing loan system works well and should be continued. Continue to establish rice loan rates at no less than $6.50 per hundredweight. The loan program provides much needed liquidity for rice producers and should be maintained at not less than the $6.50 per hundredweight level. The Secretary of Agriculture should be given the discretionary authority to raise the loan rate above this base level. If Congress realigns the loan rates for the other program crops with the current soybean loan rate, or otherwise increases loan rates, then we would support alignment of the rice loan rates with these higher rates. This will discourage distortions in cropping patterns and loan-rate driven over- and under-production of individual commodities.
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Continue to ensure that basic commodity programs are not contingent on mandatory idled acreage. Until the 1996 farm bill, a major component of our domestic farm policy for 50 years had been annual supply controls. However, the 1996 farm bill ended this reliance on annual supply controls as U.S. agriculture in general, and the rice industry in particular, has become more dependent on exports, supply controls became a hindrance to our ability to expand our exports and maintain our reputation as a reliable supplier. Mandatory production controls raise our own cost of production and reduce our export competitiveness, while allowing foreign competitors to increase their share of the global rice market. Therefore, future farm program benefits should not be contingent on any annual supply control requirements.
Provide decoupled PFC-type payments. The 1996 farm bill created a new system for providing direct income support to rice producers. Rather than deficiency payments, which varied according to market prices, the 1996 legislation provided fixed direct payments, which declined each year through the 2002 crop year. Rice producers recommend that a similar fixed payment, decoupled from current production, be provided over the fiscal year 2003–07 period. We are currently considering other options in this area. Such a payment should give producers an assured minimum level of support, in compliance with the WTO green box provisions.
However, many rice producers continue to be concerned regarding the effects that the current Production Flexibility Contract payments are having on the rice farming infrastructure. Because these payments are currently completely decoupled from rice production, some tenant farmers have been faced with situations where landlords make the economic decision to accept the PFC payment, while declining to produce a crop, or even to accept any risk associated with the production of a rice crop.
This is one of several factors that have contributed to the decline in rice acreage in Texas, since the enactment of the 1996 farm bill, from 300,000 acres planted in 1996 to 215,000 acres planted in 2000. Rice producers believe that any new farm legislation should be carefully constructed to avoid further economic dislocations of any type.
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U.S. rice producers have not yet reached a consensus on precisely how to address this issue between landlords and tenants. However, rice producers agree that benefits under our farm programs should accrue primarily to those who have actually produced or shared in the risk of producing the crop.
Provide a more effective income safety net for producers through a counter-cyclical income support payment in addition to current program mechanisms. While the program structure of PFC payments coupled with LDPs has served the rice industry well, it also contained some weaknesses. Specifically, this structure has provided inadequate income support in periods of low prices such as those experienced since 1998. This has necessitated the enactment of emergency farm assistance in each of the last 3 years.
In an effort to address this inadequacy on a long-term basis, U.S. rice producers support maintaining a PFC-type fixed payment coupled with LDPs while supplementing them with a counter-cyclical payment paid to producers. Our analysis thus far indicates that a program with a base period of the Olympic average of price for the years 1994–98 or 1995–99 works best for rice and most of the other program crops.
Regional differences in yields should be considered when calculating the counter-cyclical payments. Regions of the country where yields are above the national average, for example, should not be penalized as compared to regions that experience below average yields. Our proposal addresses this issue by basing counter-cyclical payments on each producer's actual production and yields.
Eliminate the payment limitations for income support and marketing loan/loan deficiency payments. The 1996 farm bill imposes a payment limitation per person of $40,000 for PFC payments, and of $75,000 for loan deficiency payments and marketing loan gains combined. Congress has increased these limits on an annual basis over the past 3 years for program crops, including rice. Unless Congress acts, the $150,000 payment limits for LDPs/marketing loan gains for the 2000 crop will revert back to $75,000 for the 2001 crop year. These arbitrarily set payment limits only serve to limit income assistance and reduce the effectiveness of the existing program. Eliminating these payment limits will allow rice and other program crop producers to more fully utilize existing income and market assistance programs, and help to address the cost/price squeeze that all farmers, regardless of the size of their operations, are facing.
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Compensate producers for current and future conservation/environmental practices that enhance water, soil and air quality, and wildlife habitat. Rice growers currently provide about 775,000 acres of enhanced waterfowl and wildlife habitat at their own expense. The new farm bill should encourage producers to establish and maintain wildlife habitat by offering incentive payments to farmers who voluntarily implement certain approved practices. These environmental/conservation payments should be in addition to, and not as a substitute for, other income support provided under the new legislation. Payments should be made available not only to producers who begin to invest in such habitat protection, but also to those who have already implemented important wildlife habitat protection initiatives.
Comply with U.S. domestic support commitments under the WTO. Rice producers support the enactment of a farm bill that is consistent with our current domestic support commitments under the WTO. Such a farm bill could include, for example, domestic support programs that are not subjected to specific reduction commitments under the WTO—so called green box programs. In addition, the bill could provide support under programs subject to specific WTO reduction commitments, but nonetheless allowed, on a limited basis, under the WTO—so called amber box programs. It is our understanding that the United States can spend $19.1 billion annually on amber box programs and still comply with its WTO domestic support commitments. Based on 1999 spending, approximately $6.2 billion of this amount is currently committed each year to certain commodity price support programs e.g., dairy, peanuts and sugar.
Our analysis thus far indicates that these programs could be constructed to provide payments to producers based on current estimates of production and prices, and fit comfortably within the U.S. amber box limits, consistent with our WTO obligations. We are aware of the limits of long-term economic projections in forecasting agricultural prices and farm program spending. However, we believe that the more than $8 billion in amber box spending available provides a prudent cushion to accommodate downward commodity price events outside the bounds of our economic analysis. If, as the farm bill debate progresses, it appears that our recommended programs would cause the United States to violate its WTO domestic support commitments, then we would be willing to work with the subcommittee toward a resolution to this problem.
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Should such work be necessary, the WTO green box rules regarding eligibility for decoupled income support is fairly flexible. These rules would appear to permit the operation of a farm program that reflects a balance between payments targeted to producers and the fulfillment of our WTO commitments.
Economic analysis and outlook. Current CBO analysis suggests stronger world and domestic markets for feed grains, soybeans and wheat, but only slightly higher prices for rice and cotton. The analysis also shows: Market revenues continuing under significant pressure for rice and cotton, with plantings for both crops likely to decline or remain steady during the out-years of the projection period. Rice sales in domestic markets likely will continue to grow throughout the period. However, there is agreement among analysts that competition for export markets will intensify, even for those that traditionally depend on U.S. products. Thus, U.S. rice sales overseas could decline significantly, keeping pressure on prices throughout the projection period. Market revenues could weaken steadily, especially through 2002. Revenues may grow only modestly through 2007, in spite of expectations for steady harvested rice area at levels well below 1999. Expanded plantings for feed grains, wheat and soybeans in response to much stronger market revenues for those crops.
In this context, U.S. rice producers face two difficult challenges. First, dealing with the low returns from weak markets and sharply increasing production costs this year 2001 crop and next. The second challenge will be to develop and expand export markets in the future.
Rice producers' production costs for petroleum and fertilizer are among the highest in agriculture. At a time when Government support for the sector is winding down under the FAIR Act, the combination of weak markets and sharply rising costs is further eroding market returns and could severely undercut producers' financial stability.
Current expectations are that rice producers' net market returns for the 2001 crop, not including Government payments, could be negative. This result is reached using USDA's estimates of variable cash costs. Which were estimated in October, 2000 and do not fully reflect the more recent run-up in production costs. Rice is the only major commodity for which such negative returns are forecast.
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Government support for rice producers was about $1.46 billion for the 2000 crop. Based on the current farm program, Government support for the 2001 crop would fall to $0.73 billion in the absence of supplemental PFC payments, a decline of 50 percent. In such a scenario, producers' net revenues could fall to $0.72 billion for the 2001 crop, less than half the level for the previous year, and the lowest in recent years. This would be a severe financial blow to the sector, one that many producers would not expect to survive.
It is because of this pressing cash flow problem that U.S. rice producers need immediate assistance for the 2001 and 2002 crops. If that help is not forthcoming in the form of a market loss assistance or similar payment for 2001 and 2002, many rice farmers will find themselves facing the end of their farming operations. Such payments need to be in an amount that will raise Government payments to a level that is at least equal to the total payments received in crop year 2000.
We recognize the disparity between a substantial increase in the budget baseline for the Commodity Credit Corporation and forecasts of spending that may never reach the budget baseline levels. Nevertheless, we believe that this is a responsible and defensible position for a number of reasons.
First, any such forecasts of commodity prices into the future are fraught with uncertainty and peril. Even minor deviations from these projections can result in additional Federal outlays of billions of dollars on these programs, as we have learned since the enactment of the 1996 farm bill. This cushion of budget authority will allow the Agriculture Committee and the Congress to write a farm bill that will be flexible and responsive enough to respond to periods of low prices by design, rather than by emergency legislation. Essentially this will provide for a downside hedge against even lower commodity prices in the future.
Second, current budget projections do not account for program initiatives with respect to other commodities or priorities that the Agriculture Committee may want to provide for as part of the farm bill. For example, the rice conservation payments recommended in our testimony, the increasing of loan rates for program commodities, or the establishment of enhanced payments for soybean producers.
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Conclusion: We urge the Congress to pass legislation this year to provide additional income assistance for crop years 2001 and 2002 in amounts that will bring total Government assistance to the same level as that provided by Congress for the year 2000 crop.
The Nation's rice producers also collectively urge the Congress to move rapidly to enact a new farm bill. That addresses the fundamental issues of an improved safety net through a combination of a fixed PFC-type payment, extension of the current marketing loan mechanisms, and a counter-cyclical income support payment. The possible increase of loan rates to keep the rice loan rate aligned with the other commodity loan rates should also be carefully reviewed.
It is our view that even the increased Commodity Credit Corporation spending over the past 3 years was only minimally sufficient to support producer income in this very difficult period. As this committee has recognized, a significant increase in the CCC budget baseline going forward will be necessary to provide the resources necessary for the Agriculture Committee and the Congress to fashion an adequate farm program safety net. We look forward to continuing to work with you toward this important goal.
Equally important, the new farm bill should maintain the 1996 FAIR Act's planting flexibility and refrain from any return to annual supply controls. The bill should also provide for incentive payments for wildlife habitat and other environmental benefits voluntarily provided by producers.
It is also important for Congress to develop a new long-term farm bill that targets payments to those who have actually produced, or shared in the risk of producing, the crop while maintaining consistency with our domestic support obligations under the WTO.
Mr. CHAMBLISS. Thank you very much.
Mr. Errotabere.
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STATEMENT OF DANIEL ERROTABERE, CHAIRMAN OF THE BOARD, CALIFORNIA COTTON GROWERS ASSOCIATION, RIVERDALE, CA
Mr. ERROTABERE. Good afternoon, Mr. Chairman and members of the House Subcommittee on General Farm Commodities and Risk Management. My name is Daniel Errotabere and I'd like to thank you, Mr. Chairman, and all the committee members for having this hearing and I appreciate the opportunity to participate.
My family has been involved in farming in the San Joaquin Valley of California since the late 1920's. Today my farming operation, with my two brothers, includes growing upland and pima cotton, wheat, processing garlic, cannery tomatoes, lettuce, cantaloupes and almonds.
I, like most farmers in California, have suffered from the recent depressed economic conditions affecting all segments of agriculture. The general consensus in our industry is that there doesn't seem to be a substantial turn-around in the immediate future, which means that in all likelihood the Federal Government will once again be called upon to provide additional financial assistance to help farmers continue to survive.
The current farm bill was structured with good intentions, but did not and could not predict the unusual set of circumstances in this country, as well as in the world, that caused such a collapse throughout most of the agriculture. Many blame the current farm bill, but I don't. For the most part I support most of the bill's provisions such as the planting flexibility, marketing loan provisions and cotton's 3-step competitiveness provision. But after last year's experience it is clear that the farm bill has not anticipated current economic events.
In the short term, we need to continue additional supplemental AMTA payment such as received in 2000 at the 2000 rate, the use of generic certificates in the marketing loan, and continue to support the Cottonseed Assistance Program. The longer term, however, attention must be to refocus on bringing back the market demand for the commodities we produce. We simply cannot continue to make payments to agriculture without an effective policy to create markets for our products. A clear example of this is the impact that our high dollar has had on our export markets. While the strong economy has produced a strong dollar, it has effectively closed the door to our export markets and surrendered our hard-earned market share to our foreign competitors and encouraged them to expand and enhance their production base.
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Other considerations must be in removing all payment limitations. Payment limitations penalize the most efficient farmer whose economic realities dictate their size. The escalating costs such as labor, energy, and regulatory costs forces family farmers to expand to meet these challenges while at the same time the Federal Government constitute policies that penalize that growth. Preserving the more productive and more efficient farming operations in this country should be our focus. The long-term viability of agriculture is to be maintained, I believe, as I think most of you do, that the marketing loan provisions in the current farm bill is a good, workable and sensible concept, but payment limitations are counter-productive to this logical concept. Additionally, the concept of counter-cyclical payments seems to have merit to mitigate the steep downdraft of market prices, while in other times reserving those funds when the market forces are in balance. This concept could be a way to address the currency exchange problem we now face.
My final point I want to make is crop insurance reform. California has not been a large participant in crop insurance programs over the years. With less than good crops of cotton in a few of the last several years, coupled with the serious economic downturn in our business, has caused many of us to look for more effective risk management tools. In California we've looked at crop insurance but for the most part have found it to be costly and seriously deficient in giving the farmer and/or his banker any acceptable level of coverage or comfort. With our normally good yields, high cost of production and low margins, a downturn of 10 to 15 percent in yields can be a financial disaster.
New insurance products need to be developed that fits California's need, and such a product is cost of production crop insurance now going through the RMA review. This product is a different approach to the current CAT insurance and more closely addresses the high level coverage needed by California growers. We are hopeful that RMA's review process will be sensitive to the tight timeline to make this pilot program eligible for the 2002 crop year. This was not the case in our efforts to have a pilot this year.
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I understand that the Government has committed billions of dollars to crop insurance reform. I would hope that more such products are made available for all commodities for true risk management and not be subject to abuses. We need a policy that will address different regional needs rather than a ''one size fits all''.
In conclusion, I personally have been in farming for more than 20 years and seen many adjustments to a very complex program to address the unforeseen challenge. It is my observation that the good intentions that go into developing sound farm policy oftentimes serves to interfere and distort the market signals and places unreasonable restrictions on the business of farming.
Again, thank you for this opportunity and thank you for your attention to my remarks and concerns for the future of American farm policy.
Mr. CHAMBLISS. Thank you. Mr. Nichols.
STATEMENT OF CHUCK NICHOLS, BOARD PRESIDENT, CENTRAL CALIFORNIA ALMOND GROWERS, HANFORD, CA
Mr. NICHOLS. Good afternoon, and thank you for the opportunity to testify this afternoon. I'm pleased the subcommittee chose to hold a field hearing in California. U.S. agriculture is not well, but California agriculture is sick. This is the worst recession in 30 years. Why so? Let's go back and examine some prices and costs. In 1972, I was about to enter high school. Nixon had opened China, and on our family farm we sold wheat for $160 per ton. Times were good. Gas was 35 cents per gallon, the minimum wage was $3.35 an hour and electrical rates were 2 to 4 cents per kilowatt. Today wheat is $120 a ton, a 25 percent decrease; gas is $2 a 600 percent increase; the minimum wage is $5.75 a 70 percent increase; and electricity is 12 cents per kilowatt a 400 percent increase and headed higher. Cotton is at the lowest price in 16 years, 42 cents per pound. There have been a number of fundamental changes in the world production of food and fiber economics since 1972. Many of these are now impacting American agriculture.
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Please allow me to briefly give you my agricultural credentials; in other words, why this committee should listen to my views on agricultural policy? Our family has been involved in California agriculture for the past 45 years. It is our only business. My father founded our operation, and my mother, both sisters, and my wife work along with me. I love what I do, producing food and fiber. Our family operation is well diversified. In addition to producing cotton, alfalfa, and corn, we also grow almonds, pistachios, fresh asparagus, sweet corn, and alfalfa. We pack and market what we grow, and sell substantial quantities of almonds, pistachios, and asparagus into export markets. Our company uses USDA Market Assistance Program funds to promote our products overseas. I mention this experience because it is important for the committee to understand: I have direct experience in both the production and marketing of U.S. agricultural products. Unfortunately, our export markets are shrinking despite our aggressive marketing. I do not directly market cotton and wheat, but know they face the same challenges as the pistachios and almonds I do market.
Earlier, I mentioned there have been some fundamental changes in the world production economics. I'd like to examine these changes, then comment on how the next farm bill should address these fundamental changes, particularly in regards to the major commodities of cotton, wheat, corn, soybeans, and rice. The two 0most important changes affecting U.S. producers in the past 10 years are stronger foreign competition and U.S. monetary policy.
For decades the Untied States has exported agricultural technology, both private and public, and trained the world to produce food efficiently by educating foreign students at our universities. In addition, the U.S. Government has heavily subsidized developing nations with direct payments to develop agricultural industries. Over the past 20 or 30 years it has worked. Foreign agriculture is now very competitive in producing crops. The changes have been gradual over time and relatively unnoticed until combined with the strong dollar monetary policy of the immediate past and present presidential administrations. These two changes acting together over time have now moved U.S. agriculture from the position of being the world's low cost food and fiber producer. For many crops, such as cotton and wheat, the Untied States is now a higher-priced residual supplier rather than a primary supplier. We cannot stop, and should not stop, the countries of the world from improving their ability to produce, process and market agricultural crops, but should not continue to have our American farmers bear the entire cost.
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At the same time our Government has subsidized our foreign competition to become more efficient, the U.S. Government has had a much different policy toward U.S. farmers. Past and present farm bills have intentionally limited the efficiency of U.S. farms by imposing strict limits on AMTA and LDP payments. For corn, wheat, cotton and other major crops, U.S. Farm policy has limited farm size and reduced efficiency. At the same time, policy toward other crops, such as dairy, have no limits. It is no surprise to me that dairies are now the most efficient and profitable farms in California. Existing Government farm policy treats any California farm larger than a few hundred acres as large and undesirable and punishes them via payment limitation. When the U.S. agriculture economy was the low cost producer to the world, farm policy could afford to legislate for social rather than economic reasons. The U.S. Government will have to choose, in the next farm bill, if it is more important to have a healthy farm economy determined by efficiency, or a smaller, much higher subsidized agricultural economy with many less efficient producers.
I have some more. Can I continue?
Mr. CHAMBLISS. Sure. Go ahead.
Mr. NICHOLS. There are clearly two changes needed in the next farm bill. First, AMTA and LDP payment limitations should be eliminated. If we want a healthy farm economy over the next 10 to 20 years without $20 billion per year Government subsidies, we need to provide incentives to become more efficient. This is not a criticism or adverse policy toward small farms; I have many neighbors and friends who farm smaller acreages that have and will continue to compete with farms of all sizes. Elimination of AMTA and LDP payment limitations will provide incentive for efficient producers of all sizes to grow and produce food at lower costs, reducing the need for Government programs and providing healthy rural economies.
The second necessary change in the next farm bill is the indexing of farm payments to the strength of the U.S. dollar. As trade has become more global, our ability to sell products profitably is more and more linked to the price our overseas customers pay in their own currency. There is a 1 to 1 correlation between my bottom line at the end of the year and the strength of the dollar. Financial instruments such as the U.S. Dollar Index, have been in existence for a number of years—USDX since 1985—and measure the strength of the U.S. dollar relative to a basket of other currencies. Rather than having to legislate on an emergency basis whenever U.S. farmers are suffering, it makes more sense to tie payments to cause of the suffering; more when the dollar is strong, and less when the dollar is weak. I've attached three pages of information on the USDX to my testimony.
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Thank you for the opportunity to provide my views on the state of agriculture and the direction needed in the next U.S. farm bill. I would be happy to answer any questions you might have.
Mr. CHAMBLISS. Thank you.
Mr. Pederson.
STATEMENT OF CRAIG PEDERSON, BOARD OF DIRECTORS, CALIFORNIA ASSOCIATION OF WHEAT GROWERS, LEMOORE, CA
Mr. PEDERSON. Mr. Chairman and members of the committee, my name is Craig Pederson, and I farm wheat, cotton, and other crops near Lemoore, California. I am also the past chairman and a current member of the California Wheat Commission and serve on the board of the California Association of Wheat Growers. I am happy to be here this afternoon to provide comments to you on the pending farm bill, on behalf of the 9,000 wheat producers throughout California.
First and foremost, we need to take seriously the title now under consideration for this new version of our Nation's basic farm policy, the Farm Security Act. For too long critics of our farm policy have dismissed the critical support programs of this bill as mere subsidies and farmer welfare. But the new title of this Act recognizes that production of food and fiber is as critical to national security and our national welfare as are stable energy supplies, defense readiness, and foreign policy. The Nation's agricultural industry, led by California and led by the Central Valley, have contributed to the national welfare through low cost, assured and healthy food supplies, fiber, and a continuing contribution to the Nation's economy through domestic jobs and expanding exports.
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The challenge of the new Farm Security Act is how we can build on this success, maintain this critical national resource, strengthen our competitiveness, and expand our access to foreign markets. The Freedom to Farm Act opened American agriculture to the competition of the world market. The Farm Security Act needs to arm us so that we can thrive within that environment and compete in a world where all of our trading partners do not necessarily play by the same rules.
Second, the California wheat organizations have participated with other States in developing a comprehensive proposal for various components of this bill. We fully endorse the position of the Wheat Export Trade Education Committee, U.S. Wheat Associates, and National Association of Wheat Growers, on the trade title of the bill and NAWG's position on the commodity title and other aspects being considered for the bill. Because I know the committee is fully familiar with these positions, I will not go into any further detail, but instead have appended them to these remarks.
Third, I would like to raise a number of additional suggestions that are more specific to the California agricultural environment. For some of these issues, we would also like to see some immediate relief, but they all raise broader policy issues that should be considered in formulating the specific provisions of the next farm bill:
Develop a Domestic Market Access Program. California agriculture, if nothing else, is adaptive. Throughout our history we have been subject to constant challenges from population growth, resource constraints, regulatory changes, and shifting public perceptions towards farming as an industry and as a component of the State's natural landscape. Fortunately, by being in California, we have also had a lot of opportunities that we have seized to change what we grow, how much we grow, where we grow it, and how we grow it.
As the State's population expanded, agriculture moved into new regions. As water, power, and transportation became available, we diversified what we grew and the markets we were able to serve. As prices changed for historical crops, we further diversified our risks by again changing what we grew and the number of crops we grew. Even today we continue to see changes, as with cotton and tomatoes, with many growers moving back to traditional crops, such as wheat, that they can grow with less water and less risk exposure to the continued availability of needed, new pesticides and other agricultural inputs.
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We are reaching the end of opportunity available through business as usual as agricultural producers. In order to continue to find new ways to diversify the risks we face daily as producers, we must start acting more as entrepreneurs. We have pretty much exhausted our opportunity to diversify out into new commodities and into new growing areas. Our new opportunity must lie in diversifying up the chain and seeking new value-added options for our products.
In this respect, the farm bill needs to look at domestic market development, just as the trade title is focused on overseas. The committee just needs to look down the road to see what is happening in places like Firebaugh and Mendota, and the jobs that once were generated by agriculture but now are in danger due to the withdrawals of Federal project water. We need to restore these jobs along with farm incomes by sparking a new spirit on entrepreneurship among our farmers.
We need a domestic version of the Market Access Program to increase domestic farm incomes and open new and more secure employment for our agricultural workers. The EU spends more on market development in the Untied States than the U.S. spends on comparable programs worldwide. We have a market here. We have tremendous potential to expand our sales and our farm incomes if farmers act as entrepreneurs and develop new value-added opportunity from their products. While there certainly have been worthwhile Federal programs along this line, such as the cooperatives assistance, these efforts generally are limited to specific commodities, specific areas, or provide limited capitalization that must be stretched nationwide.
Address the cost of regulation on agriculture: We need to look carefully at how Federal programs as a whole affect the cost of farming, and we need USDA to play a stronger advocate role in working with the other Federal agencies to make this point as new regulations are developed. The cost of energy, water, chemicals, and our other inputs have been spiraling upwards at the same time commodity prices have been constant or declining. And these costs are driven, and in other cases dwarfed, by the ever increasing cost of regulation.
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California is notorious for going its own way on regulation, and these are the special costs California producers must bear as we seek to compete with production elsewhere in the Untied States. But being homegrown, we are able to work in many cases with our agencies, and develop ways to mitigate the costs or change the applications in a way that reflect our local conditions.
Federal rules often do not carry this same flexibility. The current regulatory wave of total maximum daily loadings is a good case in point. TMDLs were developed in the Clean Water Act primarily to deal with conditions found in the east. But the provisions apply the same nationally, even though they do not always make economic sense in the arid west. There are cheaper ways to meet the standards, but the rules are inflexible. For example, implementation of several TMDLs are now focused on specific loading limits for individual operations within entire water basins, even though cheaper alternatives are available to control at the point where problems occur, or through source prevention through adoption of improved best management practices.
The counter-cyclical payments being proposed by NAWG and other commodity groups are critical components of an agricultural policy to sustain agriculture in the Untied States. But it becomes a situation of giving with one hand and taking with the other.
I think I'll close at that point.
Mr. DOOLEY. Thanks.
Mr. CHAMBLISS. Gentlemen, thank all of you again and let me start off with asking for comments with respect to what all of you had mentioned, and Craig, what you wound up with there, and that is the basic issue that we're having to wrestle with on whether to take the funds that we have and put them into continuing AMTA-type payments or whether we concentrate more on a counter-cyclical type program that is not decoupled. Which is going to provide you the best safety net, the AMTA payments? Are they critical to your operations? Should we concentrate more on some sort of a fixed decoupled type payment or should we look more towards the counter-cyclical?
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Mr. PEDERSON. I think that for this year I think we need to focus on the second, AMTA payments. As many of my counterparts I have discussed within the agriculture industry, we're obviously strapped for capital coming into this year. We still had low prices and most of us had to program in that second program payment even though it wasn't assured to make things work for our budgets and our bankers. I think looking forward into the farm bill though, the counter-cyclical payments make sense. They help you when times are bad, they're not needed when times are good. And I really think that does make sense.
Mr. NICHOLS. Mr. Chairman, I would echo that. I think the long-term policy would be going with counter-cyclical payments in the long-term. I think it's less expensive to the Government. It would provide for a little bit more efficiency in our growing marketplace if there is less money that's being paid out there. And I guess the most compelling reason is that you can save some money for rainy days if that's the situation. It's never made sense to me that when growers are making good money to have a fixed payment on top of it. And there have been a lot of good times while I've been in agriculture.
I had mentioned before, the dairies are making very good money now why do they need to be getting Government assistance at this point? At least in California. I can't speak for the rest of the country. But I think that's the clearest reason, and it speaks loudly for the Counter-Cyclical Program. I would echo what Craig said. That needs to start with this year because we're in the bottom of the cycle right now.
Mr. ERROTABERE. I would also agree with that. These cycles tend to come at very varied ways and in the new one this year has been a high dollar. We need to be able to not only deal with world production prices, but also what the impact of the dollar does to our domestic prices. We could find ourselves with farm markets having better prices than the competitors of our markets. So the counter-cyclical makes sense.
Mr. BRANSFORD. In the short term, right, I would like to see the AMTA payments over time. Assuming you get a level trade field, then the counter-cyclical payments are fine with us. Our problem is we'll take Japan for instance. We have an agreement with them to buy 600,000 plus tons of rice per year and they're always a little short. And so what happens is that has a ripple effect within the industry. And so if we can get some of the trade sanctions or trade agreements so that they honor those agreements, then it makes going to a counter-cyclical a much easier situation. We're faced with differential tariffs which also create trade problems for us, and that's not even getting into whatever the other people are talking about. We have trouble moving product just for trade distorting reasons.
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Mr. CHAMBLISS. One aspect of that issue that we are wrestling with is the fact that what we want to try to make sure of in this farm bill is something we thought we were doing in 1996 and it turned out to be not the situation in every case, and that is, whatever Government payments are made, go to you guys who are actually sustaining the losses. Because it's your pocketbook, your bottom line that we need to provide help for.
And in the case of AMTA payments, in our part of the world for example, we had some farmers who may have grown cotton, corn, soybeans, qualified for PFC contracts and they opted to get out of the business and grow pine trees. And I'm sure here it's something else, but you got a similar situation and you've got folks who are getting those payments who really aren't sustaining the crop production losses.
Counter-cyclical payments seem to move more in that direction. And that's why I still don't know what the answer to it is, and that's why I asked that question. And we're going to keep asking you that, but hopefully we can come up with an answer with respect to AMTA payments. Do you all see that the rent is being affected by it there? Are your landlords and maybe even your land costs that—is AMTA payment keeping rent prices high or even raising rent prices?
Mr. NICHOLS. I'll answer that. There may be some raise in rents given the fact that farm sizes are larger here and it doesn't take very many acres because the bases are higher to get to that limit, and I don't know of situations where land would rent higher to a smaller grower who's able to still capture that AMTA payment as opposed to a larger grower. I haven't seen a big effect. But in certain regions that it would affect, but it's less so in California than in other places.
Mr. DOOLEY. And thank you, Saxby, and thanks, all of you, for your testimony. I think with the comments Mr. Chambliss is making, that it would be pretty difficult for us, over a longer period of time, of justifying continuing the AMTA payments and also doing a counter-cyclical payment. I guess all of you, I think if I understand the testimony, that you thought we ought to limit the payment limitations, and I guess if you go to a Counter-Cyclical Program without eliminating AMTA. And with the eliminating of the payment limitations is, how would you structure that? Would you structure that on a base year, such as rice growers have testified that they were looking at a 1995–1999 I believe it is, and that you would trigger a counter-cyclical payment when we were reduced or when the market price where you're selling into was a percent of that base period? How would you propose that we would do that? And would you update the base?
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Mr. BRANSFORD. We would just as soon see the production history stay as it is. I would assume cotton is similar to the rice in California. We are the higher producers and we would like to see those yields stay and the bases stay. Because for one thing, other States have increased their yield as we have in California. So I think the net effect would probably be neutral. However, on bases, you would probably see an increase in base across the United States if you look at production history. And which increases the cost of the program. And so we would have some concerns about that. We would like to see the historical yields and bases remain as they currently are. But recognize the regional differences in those as opposed to a national base or yield.
Mr. DOOLEY. I guess maybe you can explain it. You would want to maintain the current bases?
Mr. BRANSFORD. Yes.
Mr. DOOLEY. Now, the current base is arrived at in 1985?
Mr. BRANSFORD. Yes.
Mr. DOOLEY. In your testimony you testified that over the last 10 years California and Arkansas, up 38 percent in California and 15 percent in Arkansas. So if you don't update the bases, are you really then——
Mr. BRANSFORD. Well, up until the 1996 FAIR Act you couldn't build base. That base is there.
Mr. DOOLEY. So it's there——
Mr. BRANSFORD. Right. I can't remember if it took 3 or 5 years to build base, but those bases are accounted for. The FAIR Act eliminated any base buildings.
Mr. DOOLEY. And I guess there is a Public Policy Program. Anybody else who would want to comment on that if another region of the country, though, or even California had a relative branch of the particular commodity and wanted to increase production in that area, or if another area was decreasing production, why should we maintain a historical base if it's not reflecting what is currently happening? And as Mr. Chairman said, who's actually recognizing the loss? How could you justify that?
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Mr. NICHOLS. Well, I think again, Cal, these these programs should be counted towards who these producers are at the time that the program is in place, and also at an eye towards competitiveness. The present program really does restrict, and some of them are not available to produce, so there's a new area.
So from a public policy standpoint, for agriculture to be most competitive you would want to have current rolling averages on production and acreage within our areas. And some crops California would lose and some crops they'd probably gain. But if you're trying to deliver the services to the farmer on the ground, that's doing the farmer, then, when the losses are sustained. Using an average of 80 to 85 is not what it is.
Mr. DOOLEY. Anyone else have a comment on that?
Mr. ERROTABERE. I would tend to agree with Chuck on how we would set this up. When you update bases, are we encouraging the results from changes? That may not be necessarily what we want to do in a marketplace and that they may be market sensitive in others. Is there some concern to be changing the bases that would then encourage a signal to grow the bases that market may or may not want.
Mr. DOOLEY. I guess one other question. There's some other commodity groups that came and testified saying they want to have the adjusted loan rates so I'd be interested—I mean, my personal bias is that it doesn't necessarily reflect what happens out there in the marketplace. The loan rate on the soybeans might actually be too high and what is the justification for adjusting the other loan rates up? That might actually contribute to excess production or increase the production. If your assessment is different than that, or if you think that that policy is of adjusting up to—there may be some relation to the soybean rate. That would make sense. I'd just be interested——
Mr. PEDERSON. When you look at cost of production, it's pretty tough to argue that there shouldn't be some sort of increase. You can throw all the arguments you want onto this thing. I just recently heard a discussion about South America, and I believe it was about Argentina who—obviously Argentina and Brazil led the soybean surge in past years and they've captured it and now they're focused on cotton. They were going from a million barrels from last year to 4 million barrels this next year. And the cost landed in the United States was something on the order of 35 cents per pound. California equivalent, when you take into consideration some of the comments I made earlier, the cost regulation in this country—and I don't care what you look at; minimum wage was talked about, all the other areas that we deal with, they haven't went down, they've went up. And we have not followed the inflation rate at all. And until that something occurs that's going to change that, I mean, we're on a downhill, slippery slope and we're nearing the edge where we finally fall off. Those are the only comments I offer with that one.
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Mr. DOOLEY. Thanks.
Mr. CHAMBLISS. George?
Mr. NICHOLS. Can I add one comment to that?
Mr. CHAMBLISS. Sure.
Mr. NICHOLS. Cal, the issue of raising almond rates, because the LDP clearly goes to the benefit of the producer, and as long as we have a system in place where the AMTA is tied to something that happened 20 years ago, there's going to be a lot of human pride to increase loan rates because those are the people that are truly suffering. But it needs to be addressed either in one mechanism, if not the loan rate, then through the modification of AMTA.
Mr. RADANOVICH. Craig, you had mentioned a domestic version of the AMTA Program. Could you give me a reason why it might be necessary?
Mr. PEDERSON. You know what? Just take the wheat industry as an example. We produce about one-third of California's domestic consumption here in California. We import two-thirds of the wheat that's consumed in California. We're finding new markets all the time that we never knew existed. And we feel that something on the order of a Domestic Market Program, which would empower growers to look at specific markets within the United States and with the entrepreneur spirit. Myself and Mr. Errotabere are actively engaged in looking at a co-op of some sort. And when you look at wheat, we're finding new products like licorice, is a major component, soy sauce is a major component. I don't think that we're saying that we want it to come out of overseas funding of the NEP Program. But possibly when you look at the diversity of California agriculture, this may be a way to assist growers in their bottom line and enhancing them and empowering them to go out and look at domestic markets and try and expand on that third.
Mr. RADANOVICH. Would it be kind of ''buy American'' approach to—expand on that.
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Mr. PEDERSON. I think you would look at the specifics of the folks that were requesting funds and they would use that in a marketing effort. And however these fit, there obviously would have to be parameters to block misuse. In our case, in trying to establish a wheat cooperative that those types of funds could be used for us because we are focused on a domestic market. And when you talk about niche markets, you talk about the Pilsbury's now that you hear have fulfilled all of the standard markets. And even looking at the niche markets, that there's room for growth there. I think provide some funding to do those things.
Mr. RADANOVICH. Thanks. There is some discussion forum about—and I know what pulls American agriculture is sometimes the strength of the dollar, but also the cost of environmental regulations and labor costs and kind of enhance the living standards for Americans that foreign countries don't. And anybody, do you see this as being a reactive to some index to what causes the programs for farm commodities in the United States, and do you see the possibility of something like that actually coming about, or is there a way to figure out how a price payment can be based that way? Does it make sense?
Mr. ERROTABERE. Well, we're dealing with certain issues, we're dealing with currencies of our competitors and dealing with currencies of our buyers. And one of the things that make it difficult now that I've seen—and it's pretty much happened with all commodities, to mechanically index a dollar would be a mathematical challenge. But one of the things that fascinates me is that California producers and maybe a U.S. producer with that, the very things that we import are things that we would not condone in terms of agriculture practices here because of the environmental labor standards and all these issues.
Mr. RADANOVICH. The things that you import?
Mr. ERROTABERE. They are cheaper for a reason. But also in the way we manage the forum who observes the social contract of being a responsible business person in the Untied States and then try to get on the world marketplace with those conditions against competitors who would——
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Mr. RADANOVICH. Do you find in your commodities, and I know this is true of fruit and nut crops, but in wheat and rice, what's being mentioned here, and cotton, do you find yourself in situations where importers—that U.S. tariffs are dropped for payment from foreign countries and yet that's not reciprocated in the other countries? Is that true for these commodities as well?
Mr. NICHOLS. I can't comment on those crops but I do have experience, say, in asparagus for instance. We grow asparagus. That was a 20 percent import duty. That was under NAFTA. That was scaled out at 2 percent per year and now it's a low enough barrier. It's on the order of 6 percent where there is no barrier anymore. At the same time we produce pistachios, which we could export to Mexico because they dropped to 20 percent barrier. And that's one of the pet peeves that I've always had. We put the agreements in place. Because there's still no pistachios that go to Mexico because the Government is so corrupt that they declare the value at one-twentieth or as low as one-fifth of the value, and that pays the duty. So we still don't export. So we've given up one market in the hopes of getting another, which we haven't gotten.
Mr. RADANOVICH. Which is good substance, fast track that's going to be coming up in votes, but do you find that in wheat and cotton or rice as well, or is it mainly——
Mr. BRANSFORD. Well, we find it to a certain extent in rice. There are certain countries, Thailand for instance. They have no phytosanitary rules and I can't remember what the number is, but there's not a substantial, but Thailand rice that is imported into the United States, there is no tariff at all. But the biggest problem we have is our milled rices, our added rice.
For instance, in Mexico we have a 45 percent tariff on milled rice and a 5 percent tariff on rough, and so it's taking all the value out of our commodities. And Japan, we export in over 600,000 metric tons. One-half of 1 percent or less than half of 1 percent of that rice actually gets into the marketplace. They'll give it away to other countries for food, or like Korea, who will then sell it and buy cheaper rice.
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We just have a number of those types of situations that's impacted our ability to trade with those countries.
Mr. PEDERSON. I go back to an issue that took place in this country, and it was a few years back, and that was when Kathi Lee Gifford was having all those products made for Kmart, and her line in Kmart, and there was this human outrage of low cost slave labor conditions where these products are created. While you can't say that for every product that's imported in the United States, there is a large number of these. Where is the outcry? American agriculture is foundering, and foundering because of substandard wages, substandard environmental concern throughout the world, and it's all landing right here and it just doesn't seem to be any concern with the American public. I don't know if they've forgotten us, but food is easily accessed in this country.
And I still go back to the issue that this is a national security issue and we have to really look at what happens because it may not be here tomorrow in its forum. And I think that's a scary scenario.
Mr. RADANOVICH. Thank you.
Mr. CHAMBLISS. We have a difficult time educating members of the Congress about how tough it is out there because there are too many people that think that that shirt just gets on the counter because somebody put it there at Kmart or Wal-Mart or Brooks Brothers, and that gallon of milk comes in our case from Winn Dixie. And it really is a hard argument to make to foreign legislators.
Fortunately you're looking at rural America. There are less than 50 of us that come from rural America and that's one problem we have in the education. Let me just say that, Craig, your idea of a domestic market promotion concept is really good and unique and I applaud you and Mr. Errotabere, your idea on indexing to the dollar. I think, again, those are the kind of things that are thinking out of the box ideas that we've got to have to try to incorporate into this farm bill, and I don't know just how we're going to do it, but your idea on a Market Access Program is not unlike what got me incorporated in the USA. That has worked, that has been a good promotional program, and I think it's certainly conceivable that we might look towards some sort of assistance to any commodity group that would encourage, promote, whatever, their product domestically. Because we certainly have not used up all of the capacity that's out there and all of the demand for your product.
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I did have one other point that I want to make sure that we thoroughly go through with you folks before we get to the next panel. And that's on the idea of payment limitation. That is something that we have heard over and over and over again as members of the Agriculture Committee, and Cal has already touched on it, and I just want to go back to it for a minute. A comment was made in our hearing last week by some of the farmers that are both in the hearing as well as outside the hearing, that, ''Look, you may as well do away with the payment limitation provisions because any farmer knows how to get around it anyway, and he's going to get the money''.
Well, if that's the case then we're not doing something right. Because as much as I hate regulations, we're not doing something right. If we're going to have it, we ought to enforce it. And I know that having practiced agriculture law for about 26 years, there are things you can do, in some instances, to get around it or at least get a little more income, but you do it in a legal way. And I know that's what they were talking about. But how critical is—I mean, you guys farm thousands of acres, and limiting you to $75,000 in total payments, is that even realistic to think of in terms when you compare that to what your gross income is? And is it something that we seriously need to think about in terms of this farm bill?
And some of you made a point that if you eliminate payment limitations that it will require folks to become more efficient, and I'm not sure all of that has sunk in my thinking brain yet. So if you want to make a comment on it, I really would appreciate some amplification on this payment limitation issue.
Mr. NICHOLS. I'd be happy to. It was me that said that. Well, it is an important component clearly, and it is, over time it's not as big a component as it used to be. In the mid eighties we got a single $60,000 payment. Where we were growing, the payment was half a million dollars. That was clearly too much. But the 50,000, why increase the size of the farming operation if the guy down the road can be under that limit and can grow cotton under the limit. Because it just provided a dis-incentive to us to grow more program crops. My choice was to go out and produce non-program crops.
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As to the question of 75,000 for the LDP limit, if you're looking seriously at something that's counter-cyclical, you have to get rid of that because the only time you need it is when times are really bad. That's the more important of two things. They're both an impediment because the Government's trying to set social policy instead of what's economical.
Mr. ERROTABERE. You certainly don't want to see farm operations trying to conform to payment operations to be the premises of how they organize or do business. I agree. I just don't see, in today's economic world, the value of the payment limitations. It rubs against the efficiencies or economics of scales of farming that have other pressures driving that. I think we need to be looking beyond the old concept of payment limitations against the realities of today's pressure against farming.
Mr. PEDERSON. I think that above and beyond all that you really have to change the definition and get the other members to recognize that the defense of a family farm is not 500 acres. I mean, when you look at—I don't know what the demographics are for USDA, but the percentages of operations over 1,000 acres is fairly small. But when you look at what those operations produce, it's fairly large. And today with what Dan mentioned, the economics of scale, you're a weekend farmer if you're farming 500 acres. And I think we have to recognize that because of the economy in place and everything else, you have to grow to remain competitive. And until folks realize that that is the case, and payment limitations don't work in that scenario, you have a problem. And I think that's a real strong support for removing payment limitations.
Mr. CHAMBLISS. OK. Anybody else?
Mr. DOOLEY. As we're moving forward and the baseline of budget has increased by I think about $80 billion, $79 billion over the next 10 years, I've been working with a group of my colleagues to really try to capture a portion of that to increase research and development for ag. And I would hope that all of you, with your conversations of some of the national commodity groups, that indicate that there's a lot of merit to this. Because Craig, what you talked about with respect to the payment limitations is that we have a lot of opportunity to really look in terms of, how can we create other uses of our commodities that can create additional revenue streams to our farmers? But we need to see some additional research at our commission institutions to get there. And even though this whole context of the energy crisis we're facing now, when we have seen tremendous advances, not only the ethanol side but also on behalf of spending of this Federal Government to protect imported oil, when we start looking at all the ramifications of that, that you can start to justify looking at how can we commit some of our acreage in this country to biofuels that can again provide greater energy security, but also contribute to a healthier agriculture economy.
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And I don't see how we do this effectively, but if we don't commit to capturing some of these dollars that we have available into additional agricultural R & D—and that's just a plea on my part, if you can support that, I'd really appreciate your support.
Mr. PEDERSON. And I would agree with that, Cal. I think that some of our institutions, our educational institutions, have been more forthcoming with protectional products, and I think if agriculture can invest dollars in research and Congress can invest dollars in development and research that could become the property of the U.S., that we've really enhanced agricultural production throughout the world, in large part with agricultural and U.S. tax dollars.
Mr. CHAMBLISS. Yes. Thank you all very much. And before our second panel comes, we'll take about a 5-minute break.
[Recess.]
Mr. CHAMBLISS. We're going to move on into our second panel now, and we have with us today Mr. Don Cameron, a cotton and wheat producer from Helm, California; Mr. John Diener, a cotton and wheat producer from Five Points, California; Mr. Greg Palla from Bakersfield, California, home of one of my heroes, Buck Owens; Mr. John Pucheu, a cotton producer from Tranquility, California and agriculture country. That's got to draw some conversation, Tranquility.
Gentlemen, we thank you for being here and now I'll turn it over to Mr. Cameron.
STATEMENT OF DON CAMERON, CALIFORNIA CHAIRMAN, AMERICAN COTTON PRODUCERS, HELM, CA
Mr. CAMERON. Thank you. Good afternoon, ladies and gentlemen. Thank you for the honor of speaking before your subcommittee this afternoon. My name is Don Cameron. I too am a diversified farmer in the central San Joaquin Valley, growing both pima and upland cotton, processing tomatoes, wine grapes, alfalfa, grains and assorted crops, including 420 acres of organic productions. My friends from Texas joke with me about how farming in California is like farming in a huge greenhouse. I have to agree with them. We can grow just about anything here, just not profitably.
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We are faced with global competition from countries whose currency is two to four times lower than our own. The strong dollar, their low pay scale, and the transfer of our technology makes it difficult for us to compete, or even survive.
Focusing on the new farm bill for 2002, I have the following recommendations:
Maintain the current planting flexibility of the FAIR Act. We need the choice to change rapidly from one crop to another without waiting. This flexibility allows us to take advantage of changing market conditions.
Removal of payment limitations. Perceived advantages in large scale farming are in many cases only minor. It takes an equal number of dollars per acre to farm 200 or 2,000 acres. With margins either so small or nonexistent, why should someone farming a large farm be penalized? In the past, many large family farms have been denied benefits due to payment limitations.
Allow growers to fix the loan deficiency payment, or POP payment, any time during the normal harvest season on part or all of their crop by a specific FSA farm number. Currently, only a crop already harvested can apply for the loan deficiency payment. Without this a grower cannot know the final price he will receive until the crop is harvested and the payment is fixed.
Crop insurance should not be viewed as the solution for the U.S. farmer. It is a helpful tool, but has never been adequate or attractive enough to help my operation. This view is widely held by other California growers. Our losses in yield rarely trigger a payout, however, the losses are economically disastrous due to our high input costs.
Currency adjustment. Provide a formula for adjustment of the price received by a U.S. grower for his commodity based on the strength or weakness of the dollar. Currently, Australian growers receive two times the income we receive for a pound of cotton in their currency and can remain economically viable even at 45 cents per pound, NY.
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Income stability: Not knowing what type, what amount, and when payments will be issued makes dealing with our financial institutions very difficult. Let's put a good program together and fund it properly.
Cotton seed payments should be continued to offset the decreased seed value and increased ginning costs.
Counter-cyclical payments. I strongly support this type of payment. It provides meaningful help when our markets are depressed and essentially goes away in strong markets. For cotton, a minimum level of 80 cents per pound with a driver to increase this level if inflation occurs.
Funding. Whatever type of farm program we end up with, please provide adequate funding to get us through an economic crisis similar to this one.
By following these and the other recommendations presented here today and at the other hearings, the American farmer can be brought back from the edge of economic collapse. Without rapid, major support to our industry, we will be in the same position with our food supply as we are with our oil supply. Thank you.
Mr. CHAMBLISS. Thank you, Mr. Cameron.
Mr. Diener.
STATEMENT OF JOHN DIENER, COTTON AND WHEAT PRODUCER, FIVE POINTS, CA
Mr. DIENER. Thank you. I didn't have an overhead, but anyway, there is a chart in your handout there, I think.
I'd like to thank you for taking the time to come to Fresno to ask for input concerning the future farm bill. I am currently involved in production agriculture on a diversified basis on the western side of the Central Valley. My primary crops consist of processing tomatoes, iceberg lettuce, almonds, grapes, cotton, and wheat. Due to California's ability to grow several traditional commodities as well as non-commodity crops, the low prices in wheat and cotton have decreased the prices that I am able to receive for my almonds, tomatoes, and grapes. This problem is the result of the oversupply of commodity products throughout the United States; low prices for corn and soybeans cause farmers in southern States to limit that corn and soybeans in favor of cotton, which lowers the prices received for cotton in California. As you can see, a weak market for corn and soybeans can quickly result in weak markets for cotton and wheat and produce lower prices for crops grown only in California.
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In the past, the Government has looked to improve the commodity price situation by sponsoring acreage limitation programs in an attempt to rein in supply. In general, these programs have failed. Traditionally farmers set aside their least productive acres, and as time passed new technology and farming practices increased production on the existing acreage. Observing increased production in the United States, many thought of freer trade between nations as a way for American farmers to dispose of their excesses in production with a reasonable rate of return. Yet, free trade has failed to correct the situation of many commodity prices throughout the country. The strength of the dollar in relationship to foreign currencies has so far been a permanent handicap to the trade of agricultural commodities between the Untied States and other nations.
The current trend towards free trade has, in many cases, left farm commodities behind due to anti-competitive practices that nations employ to preserve their native farm industries. They view their farm economies as a matter of national sovereignty and have attempted to preserve them throughout trade restrictions. In the following three cases American farmers have lost potential markets due to foreign protectionism. Brazil has failed to recognize intellectual property rights, refusing to pay royalties on Roundup Ready Soybeans. The European Union has banned the importation of U.S. beef claiming that hormones used in its production are dangerous, while it has been proven that they are safe. China has rejected imports of wheat claiming that the wheat has the potential to contaminate the country with smut. Issues such as these become trade barriers to U.S. agricultural exports further deepening the oversupply of commodities on the American market.
Farmers need a heightened level of demand for commodities such as corn and soybeans within the United States to allow loan rates to remain stable. United States loan rates have proven to be a price threshold at which competing countries often add production to their base, making it harder for commodity prices to rise above the loan rates. The current system, where U.S. loan rates support farmers, is not sustainable. So the answer is to increase demand, yet with prices depressed for most animals, feeding more hogs or chickens is not the answer.
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Alternative fuel sources appear to be a reliable mechanism to address the oversupply of corn, wheat, and soybeans in America. While ethanol production facilities are functioning today, there is a need for continued research into making other forms of alternative fuels more cost effective and economically feasible. Money needs to be spent at the ARS and land grant college levels to improve the technology associated with these systems. Brazil, a country with an agricultural base similar to that of the Midwest, produces roughly an equal amount of soybeans as it does corn. However, due to their use of alternative fuels such as ethanol in automotive fuel, most of their corn production is consumed internally, while most of their soybean production is exported with increased emission standards, greater use of cleaner burning and sustainable fuels such as ethanol and bio-diesel make sense if they can be produced to compete with gasoline and diesel.
While further research is needed, current alternative fuels make sense and can be competitive against conventional energy sources. If corn were burnt instead of natural gas, 50 cents per therm, natural gas would translate into $2.50 corn. And it was estimated by that ethanol production would not need a subsidy as long as crude oil prices remain above $22 a barrel. The problem is that facilities able to handle and convert these commodities into valuable alternative fuels don't exist in the quantity that they are needed.
Many potential alternative fuel-manufacturing sites exist in America such as abandoned sugar mills in the corn, soybean, and wheat-producing areas. These sites often have 50 percent of the capital costs of an ethanol-producing facility already in place at these sites. The Government could, through a type of rural redevelopment project, help convert these retired agricultural/industrial sites into alternative fuel-producing facilities. To dispose of excess commodities in times where the commodity price is below the loan price, the Commodity Credit Corporation could convert corn, soybeans and wheat into alternative fuels. By purchasing 5 to 10 percent of a commodity's stocks per month when the price is below the loan rate, markets should rebound decreasing Government expenditures on loan programs and correcting the imbalance in the marketplace. The Commodity Credit Corporation could then offer alternative fuels for sale on a monthly bid basis to those who use in the products or those who are required to use them to meet Federal emissions standards.
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Today American agriculture is at its breaking point. It cannot, in many cases, continue to produce at current price levels and remain in business. If America is to preserve its family farmers, it needs to invest in research to develop economically competitive alternative fuels that consume agricultural commodities and convert existing surplus into much needed energy.
Mr. CHAMBLISS. Thank you.
Mr. Palla.
STATEMENT OF GREG PALLA, DIVERSIFIED FARMER, BAKERSFIELD, CA
Mr. PALLA. Ladies and gentlemen, thank you for the opportunity to testify. My name is Greg Palla. I am a diversified farmer currently growing cotton, wheat, alfalfa, hay, and corn. Our operation is located in Kern County just south of Bakersfield here in California's San Joaquin Valley. We're very pleased you have come to our area to hear from an endangered species, namely California farmers.
Members of the hearing panel, the American people are in danger. Not just farmers or ranchers or people whose business depends on them, but the entire country. I fear without your help the American agricultural dynamo of the 20th century will be throttled down to a creeping wreck.
If that sounds like an exaggeration, consider my situation as an example: I am 45 years old, married with two children, a college graduate from the same university and same major as Congressman Dooley. My family has been farming in Kern County since 1913, 5 generations of California farmers. My operation has reduced farmland acres by 84 percent in the last 5 years, with much of that land now idled from production. This situation is a direct result of policies that do not put strategic importance on American agriculture. Farmers need additional protection and so do the American people.
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We need the Government to recognize that American farmers can compete with anyone on a level playing field, but we cannot compete against foreign governments subsidizing their agriculture. We cannot overcome the devastating effects of our own strong dollar policy which is inhibiting exports and encouraging imports into the United States. With the dollar at its highest level in the last 16 years, it is no wonder that cotton prices and virtually all other commodities are at record low prices.
How did we get to this point and what can we do about it? Let's start with the Freedom to Farm Act. Unfortunately, instead of export markets for U.S. agricultural products continuing to increase following the passage of the Freedom to Farm Act, they decreased big time. The culprit was the severe downturn in the economies of Russia, Brazil, and the economic crisis in Asia, along with the continuing strength of the U.S. dollar in relation to other world currencies.
The loss of the export markets left too much production with no buyer, and prices tumbled down. The situation has just overwhelmed the Freedom to Farm Act that was based upon increasing export markets, not shrinking cotton markets. The only reason many growers are still in business is because of the emergency relief provided by Congress over the past 2 years.
Prices for agricultural commodities in general, and cotton in particular, are still awful and growers will continue to need supplemental assistance from the Federal Government in order to prevent wholesale financial disaster.
Now, this would be one thing if cotton were the only commodity in this trouble. If it were, then a grower could switch to an alternative crop. But right now the alternative crop prices are as poor or worse than cotton. The situation just doesn't leave growers with an acceptable alternative.
Economic analysis suggests that agricultural prices will remain below production costs on many farms again this growing season, barring extreme drought or other problems on a worldwide basis.
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What are my recommendations for the 2002 farm bill? In general, cotton growers in California and Arizona want to keep most of the principles contained in the FAIR Act. We like the 3-Step Competitiveness Program. It has helped keep U.S. cotton competitive to our customers and has kept cotton moving to the marketplace rather than building up in the Government loan.
The agricultural safety net funding base should be expanded. Baseline funding for agriculture in the Federal budget is currently about $5 billion. As evidenced by the last several years of emergency agricultural assistance it needs to be about $20 billion.
There have been numerous complaints about the current program and its lack of certainty. Producers, lenders, and commodity organizations want provisions to be in the law, such as double AMTA payments, doubled payment limitations, and other recent emergency items so there can be certainty among lenders, producers, and so on.
You might have heard about the 21st Century Commission which has reported its finding to Congress. The Commission was formed by legislation contained in the 1995 FAIR Act and consisted of four people selected by the House of Representatives, four by the U.S. Senate, and three representatives by the administration.
This group has been meeting over the years and has expressed some interesting ideas, among them that Government has an essential role in agriculture unlike what many people were saying back in 1995, and that there should not be limitations on payments to producers.
The Commission has also said that the AMTA payment concept has merit as long as there is a formula where the payments are not linked directly to production for any given year counter-cyclical and decoupled, this is one of the most important concepts to be considered in the new farm bill, being that whatever method of delivering payment benefits to growers has to meet World Trade Organization requirements.
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Among the 21st Century Commission concepts is the idea of having a formula that basically figures the gross revenue for the 5 major program crops, and if revenues drop below a certain level, according to the formula, then AMTA payments would be forthcoming for everyone.
With these thoughts in mind I would like to make two recommendations. One for the current situation for the remainder of the present farm bill which expires in 2002, and a separate recommendation for the new farm bill beginning in 2003.
For 2001, maintain the competitiveness provisions of the current farm bill. Keep the base AMTA payment at the 2000 payment rate 7.33 cents or higher, and also support market loss assistance at the same rate equal to the AMTA payment. Any market loss assistance and/or counter-cyclical assistance would have a separate payment limitation.
For future farm legislation starting in 2003 calendar year: Provide for a fixed minimum base AMTA payment equal to the 2000 rate any market loss assistance would be in addition to that. Remove all payment limitations. Maintain the current acreage base and yield base. Support additional enrollment in the Conservation Reserve Program with a shorter time commitment. Support uncapping the loan with a 55-cent minimum loan. Generic certificates must be available to avoid limitation problems. Program must meet WTO requirements. Program should use FSA delivery system, not crop insurance. But if the committee is interested, I would be very willing to comment on Federal crop insurance here in the west. Maintain Cottonseed Program. Out of the counter-cyclical options available, support the 21st Century Commission concept. This is the program concept of figuring the gross revenue for the five major program crops, and if revenues drop below a certain level then AMTA payments would be forthcoming.
For extra long staple cotton—ELS cotton or pima cotton we recommend: Maintaining the present loan floor. Fund step 2 without limitation. Support the 21st Century Commission counter-cyclical concept for pima. Thank you.
Mr. CHAMBLISS. Thank you.
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Mr. Pucheu.
STATEMENT OF JOHN PUCHEU, FARMER, TRANQUILITY, CA
Mr. PUCHEU. Ladies and gentlemen, I would like to thank you for the opportunity to testify before you this afternoon. My name is John Pucheu and I am a third generation farmer from Tranquility, California, about 35 miles west of here. And my brother and I farm various crops including upland cotton, pima cotton, canning tomatoes, and sugar beets. Cotton is our most important crop, covering about 75 percent of our planted acreage, which includes upland and pima cotton, split evenly at 50 percent each.
Although I am deeply concerned about a number. Of issues facing farmers today, I am going to concentrate my comments this afternoon on one crop, pima cotton. American pima is an extra long staple cotton, or ELS cotton, and it is spun into high count yarns used for high end, better quality apparel and textiles such as fine shirting and sheeting. Pima represents just 3 percent of annual U.S. cotton production, and ELS cotton's usage accounts for about 4 percent of annual global cotton consumption. But pima has become a very important commodity to western U.S. growers, especially here in the San Joaquin Valley. California now accounts for about 85 percent of annual U.S. pima cotton production and this year we have increased our acreage from 144,000 acres a year ago to approximately 230,000 acres, or about one-quarter of this State's total cotton acreage.
U.S. pima has produced an average crop value of about $240 million the past 5 years, which perhaps is more important when considering that 75 percent of the crop is exported. Pima had been a small domestic crop for decades until fiber quality was improved and production opened up to everyone in the mid 1980's. By 1989 the Untied States had replaced Egypt as the world's leading exporter of ELS cotton, a distinction it has held in 9 of the past 12 marketing years, including this one. But this success hasn't come without its battle scars. The Egyptian Government has done everything it can the past several years to put its cotton industry back in position to regain the dominant market share it had controlled for more than 50 years before the arrival of American pima cotton.
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Meanwhile, U.S. pima continued to operate with little Government intervention, a practice its growers have been very proud of. Like upland cotton growers, we did have an acreage reduction program and target price mechanism in place before the 1995 farm bill went into effect in 1996, but deficiency payments were seldom made. From the time pima became an exportable commodity in the mid–1980's, we hadn't drawn on Government deficiency payments until the 1992–93 and 1993–94 marketing seasons, when prices plunged as a result of Egypt dumping its burgeoning stocks onto the market. Then with the passage of the new farm bill in 1996, the pima loan rate was capped at its 1995 level of 79.65, the lowest pima loan rate since 1977. Target prices, deficiency payments, and all pima base acreages were eliminated. Additionally, pima was not included in the AMTA package, thus preventing growers from receiving any AMTA-related payments for their pima acreage. In other words, pima producers no longer had the benefit of any Government-sponsored safety net other than a bare bones loan program.
Unfortunately, the Egyptian Government was not about to let its No. 1 export decline in value. It began an aggressive program of price incentives and subsidies that spurred growers into growing more cotton at a time when stocks were building and market prices were declining. Consequently, by 1998 U.S. pima prices had fallen back to record low levels and cotton was being placed into the Government loan. As the problem persisted into the next marketing year we decided it was time to look for help. We identified the Step 2 Program utilized by the upland cotton industry as an effective means of defense against an Egyptian competitor determined to drive us out of business with below market pricing. In the latter part of 1999 Congress authorized the funding of $10 million for the ELS Competitiveness Payment Program. The program remains in place until the money is spent or until July 31, 2003. U.S. pima producers worked closely with USDA's farm service agency to craft a program that served our intent of providing protection only in the event of unfair competitive pricing. We feel we have been very responsible in the execution of the $10 million program, which has paid out about $1.2 million in the 20 months it has been in place.
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What we would like to see in the new farm bill is simple but consistent with what the American pima cotton producer has asked of its Government in terms of a safety net over the past 15 years. We respectfully recommend continuation of pima's non-recourse loan, which is capped at 79.65 cents per pound. However, unlike upland cotton, the pima loan does not have a floor price built in. Therefore, we would ask that not only is the rate capped at 79.65 but it also be frozen at 79.65, thus protecting American pima growers from further reduction in loan prices which already challenge the break-even threshold. And because pima is not a marketing loan, freezing the loan rate will provide a better safety net without triggering POP payments or costing more money.
We support the ELS competitiveness provisions authorized in the FY 2000 agricultural appropriations bill, but we would like to see this provision authorized as an entitlement in the new farm bill the way it is with upland cotton, to ensure that funds are available when needed to keep American pima competitive.
We also support the establishment of some form of counter-cyclical payments commensurate with those that may be established for upland cotton and other program crops. As we go through periods of low prices in the future, it is important that U.S. cotton farmers have some type of protection.
In California it is very important to our pima industry that we have a viable upland cotton industry and program. Problems with the production of upland can bring about massive shifts of acreage into pima cotton in the San Joaquin Valley, disrupting pima markets. There are only about 260,000 acres planted to pima in the Untied States this year, and the industry cannot absorb large increases in production that could come with large acreage shifts.
The committee needs to look at both upland cotton production and programs and pima production and programs. They are interrelated.
Thank you very much.
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Mr. CHAMBLISS. Thank you, gentlemen. And now I want to propose basically the same question to this panel that we started off with with the other panel. And that is, as we wrestle with this issue of AMTA payment continuation versus developing a Counter-Cyclical Program, what do we need to be thinking about? What's more critical to your operation as a farmer? Level AMTA payments or a Counter-Cyclical Program? What's the fairest thing to do with the money that we have available? Should we guarantee payments even when times are good? We talked a little bit about that with the previous panel and I'd just like y'all's comments on this particular issues.
Mr. PALLA. I think in a real world counter-cyclical, but when you have to comply with WTO you need some payments that are in the green box. AMTA fits in the green box so you're going to have a combination of AMTA and the counter-cyclical. I tend to agree with John in that respect. We're looking right now at deciding what the form of the money or in what fashion the money's going to be distributed. As a market loss assistance that you're referring to as second AMTA in those terms? I think it's probably important for this year to get the money to the producers in the same fashion that has been done last year. Because I think to try to establish a new way of getting it to them in the short run would be a little bit catastrophic. And I think the farmers need it as soon as possible. But in the long-term I think for the new farm bill certainly a counter-cyclical approach, with a basket evaluation of the different major farm commodities in terms of their net farm income, or net cash income would probably be more appropriate.
And you mentioned Mr. Chairman, that there are only 50 representatives from the rural districts in the United States, and I can just imagine how difficult it is to carry legislation through the entire House and ultimately to the Senate to be able to get them to understand these facets. With those thoughts in mind, I would say you want to do what's fair and appropriate, and there's nothing more insulting to people that represent urban districts to be paying farmers when prices are high and using some of the Federal tax money to get what's needed. And that's one of the reasons why we have a problem with payment limitations, is because when paychecks go out of the Federal treasury to growers, it's insulting to a lot of people, and this way you get the political backlash. We just have to avoid in the future farm legislation.
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Mr. DIENER. I guess I have to tend to agree also. In the fact there needs to be a winding down of the new farm bill. Clearly our whole system functions on a supply and demand basis and my whole presentation was around how do you create demand? Do we take $10 billion worth of oil in revenues going to Saudi Arabia and put them in Iowa on ethanol or bio-diesel or whatever? Is there a way for us without even going to the Federal budget to create some way of getting this demand? Because insofar as that demand is increasing, the whole economic revenue stream from the ripple effect of the agriculture economy, it's a local economy. Rural America is going to be far healthier. I mean, quite honestly in our own area, a good lot of my neighbors here have converted good land to almonds. And we were basically cotton farmers. We didn't just do that because cotton was bad. It was an economic issue. We were going after the old proverbial capitalist carrot. We were relieving ourselves of the AMTA payment and the total package that comes from it that we have to do to develop the new technologies that have to come or to develop that demand.
Because that in itself is an issue, how to develop the demand in the United States? Because we really don't have an oversupply of funds, Mr. Chairman. My belief is we haven't developed it properly.
Mr. CHAMBLISS. Mr. Cameron.
Mr. CAMERON. Well, I'd like to go on record that counter-cyclical payments would be my first choice, but like I say, you run into problems with WTO trying to get the payments. I think possibly a balance between the two, maybe a little heavier weighted toward the counter-cyclical payment would be my first choice. I mean, as a grower I agree with the rest of the fellows here that when times are good we really don't want to take a payment that we don't need. I'd just as soon farm without a program if I had my choice, because we like to work hard and be productive and do it without any help. But the way things are currently, we do need to design something to put a net under us. Thank you.
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Mr. DOOLEY. Everyone has testified here today—I mean, when we're trying to look out and develop the farm program, a lot of our attention is, how do we maintain the level of income support that's going out, which is much needed to improve bankruptcies, but doesn't improve on the problem. How do we make some investments today that are going to increase demand for those commodities? And so we're less reliant on the influx of taxpayer dollars. And I just want to compliment you on the issues that you surfaced, on how we can try to capture this additional funding that is out there and deal with some politics of, how do you put this into longer term investments and deal with the tremendous pressure that is going to be upon us to put those into direct payments? But I concur with you whole-heartedly, that this is the direction we're going.
Mr. DIENER. And there might be some adjustment. You have the ERS on some research. Maybe there's a need for adjustment on the loan rates up. There also is the fact—I don't have a total aggie picture, even though that's my education. But the fact is if the golden rate is set properly it will take care of the counter-cyclical problems, if you have an ability to reach in there from the Commodity Credit Corps, give Joe Does certain payments and they claim the corn needs. And at that point, then, that's when you put the counter-cyclical in place that actually functions to pull that surplus commodity out of the loan and away from the marketplace so the marketplace sees that as consumption. And at that point the real life market that we all want to deal in comes back to the loan that eliminates POP payments to get more money back to the farm when commodities are trading at 39 cents for cotton in New York or whatever it is today. The fact is, if you can keep that up there you eliminate the need for all this extra money. Do you put money up front for the loan, but that gives back that something the Government can sell from Exxon and it gives away from the fact we are in competition with them in Commodity Credit Corporation, the fact that they get to sell gas in their gas station and they're in the marketplace basically.
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Mr. DOOLEY. And just on the counter-cyclical payments. My concern on this is I think there is something there, but if you look at what we try to do, and the crop insurance doesn't work very well, that doesn't mean we can't try and fix that some more, theoretically, to insure for yield variations. If we continue with the loan deficiency programs, or loan deficiency payments in effect, a Counter-Cyclical Program there, and I'm a little bit cautious about creating a whole other program if it's because I'm not sure it's going to create a better risk management to them. That would be another way to funnel money out and I think we have to be a little careful, and I'm a little bit concerned of that being built upon, Mr. Palla trying to use gross revenues on the 5 basic commodities and whether or not that will trigger a payment. Because what we oftentimes see, you often have a west Texas—you go even to Georgia where they might actually have a bad year. We could have a good year out here, but you could see gross revenues decline, triggers a payment. And again, some of that payment is going to producers that might not be in that great of need. And it also could do the 5 commodities. I'm a little concerned, if you have a market collapse in one commodity, that again would bring down the gross revenues for all 5, triggers a payment. And where I think it's inherent here, I'm a little bit concerned about what is the intention that you use to trigger that and how do you make sure that these dollars are, in fact, flowing to the actual producer and what base that you would use there?
Mr. PUCHEU. Well, let's put it that way. No matter what programs that you come up with, there are going to be certain producers that benefit that don't really need it. And of all of the different proposals suggested, to me that was one that had one of the higher degrees of correlation between the overall need and when you look at the industry as represented by those 5 major commodity groups and supplying a help for that need.
You mentioned—and not to change the subject, but Mr. Dooley mentioned that it's one of his important aspects of legislation he'd like to carry us with respect to research and increase funding for research. And while I support that idea for research, I would like as a part of that research and development money to be used to—as a member of the prior panel suggested, used to educate and encourage, in some fashion, the domestic consumers in this country to be able to recognize that the system of safeguards for the workers, the system of price supports for minimum wage recipients, the system of workers' compensation programs, those as well as the pesticide regulations, those things all come with a cost.
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And when the American consumers can go to the grocery store or the department store where they're going to buy a shirt or a head of lettuce and they can say, ''I'm willing to pay more for this product made in the United States because I know it's under this scheme of protection for our benefit''. Then until that happens, you're going to always have these other products coming in and competing with us. And to try to increase demand is great, but increasing demand doesn't always equate to higher prices, which ends one more profit. And those are the things we like to see included in programs associated with additional research and development funding.
Mr. DOOLEY. Thanks.
Mr. CHAMBLISS. George?
Mr. RADANOVICH. John, you mentioned on the discussion of using crops for alternative fuels, that worked for everything except for cotton. You had mentioned a little earlier, ways and abilities to demand——
Mr. DIENER. You want me to give you the Aggie qualification how it works?
Mr. RADANOVICH. Well, I'm more interested to building demand for cotton within the United States.
Mr. DIENER. This is how it works. You take 15 1/2 million acres of cotton in the United States. That's about what we plant. That's our base. You take 5 percent of that—these are round numbers and they work—750,000 acres. What are you going to do with it? You have a 1996 AMTA and FAIR Act. Anyway, you move that around. So what that means is, you have, for lack of a better number, 50,000 acres of peaches. So you plant some in Georgia and you plant some in California, then you have—let's see. We have 50,000 acres of almonds, we got 50,000 acres of grapes. There's only 50,000 acres of cannery tomatoes in California. One of the bigger cotton growers in the world bought some of it. So tell me how that works? Direct line is to Iowa corn growers. Because in Missouri, some of the corn indexes are out of whack, they're going to plant cotton. So it's this whole world that we live in. In the United States it's all related. And don't kid yourself to think that you are a nice island in the world. I mean, we're planting Bodella onions in California. We just can't call them that.
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Mr. CHAMBLISS. I'll report you.
Mr. DIENER. Well, do you know they came from Texas originally?
Mr. RADANOVICH. Not that the trade issues and the price issues and strong dollar are not important, but can you give me a sense of whether or not, if we were not in a water and energy crisis, would this be part of normal operating procedure, something that you could deal with?
Mr. CAMERON. Well, I'll answer. I feel that the energy crisis here in California has made our costs just go through the roof. We have natural gas engines that were costing—well, we were paying maybe 30 cents a therm a year ago that we're now paying $1.20 or $1.30 a therm for. We pulled those out and had to rent diesel motors to replace them so we can just continue to farm. The increased costs in our labor has been real tough for us to deal with this year. Just all the way along the line, not only are the major commodities down but our tomatoes prices are lower this year. Just about everything we do. When cotton does come up in price we see all the other commodities follow with it.
Mr. RADANOVICH. Oh, is that right?
Mr. CAMERON. Absolutely. There's actually more competition on the ground. The other people realize that and we do see a definite correlation between the cotton price and our other commodity prices in California. But it would be an extremely difficult year compared to a crisis.
Mr. RADANOVICH. Yes?
Mr. CAMERON. That's my feeling. It would still be an extremely tough year.
Mr. RADANOVICH. Right. Pretty much the assessment——
Mr. PALLA. Well, I would say without the energy crisis and the water crisis—it's like you have a brick house and the market has taken bricks out of the top part of the house, but with these additions, it's like the bricks are being pulled out of the bottom under the foundation. And it's all of the gentlemen on both these panels, they represent the best of the best producers in the United States. With my exception. I'm not among them. But I will say this. These gentlemen are having—all of us, we're suffering and we're not at the point of being able to determine how we can improve our profit margin. We're looking at how to be able to stay in business this year,and whether or not we want to go into next year. Now, there's been a number of large farms and small farms in California that had no choice but to not continue this year. And that's the harbinger of the future, unfortunately.
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Mr. PUCHEU. I've been farming for a little over 30 years and I've never seen it more difficult. They've talked about the lowest price since 1986, and the price today is far below the price in 1986. It's probably the lowest price in history, I think, or at least modern history.
Mr. RADANOVICH. All right. Thank you, gentlemen.
Mr. CHAMBLISS. Just like these guys, I know which of my farmers are the good farmers that we rely on from an advice standpoint and you're exactly right, Greg. It became very clear to me a couple years ago that my good farmers who never complained in previous years are coming to me saying, ''Hey, this thing is serious,'' and everybody else in agriculture industry was hearing the same thing. So that's why we stepped forward with our additional AMTA payments and hopefully provided some relief. And I think you all make a good point that we know that what you would rather have is good crops, good yields, and reasonable prices. And we can throw money at the problem to try to make sure that we pump up those prices. But really, I think all of us would agree that if we can figure out a way to raise the price at the market level, that everybody's going to be better off. And not that we have any solutions to that, but I think obviously that's what we want to try to do. Something that we haven't talked a lot about, but it was briefly mentioned, is CRP. I don't know how big an issue that is here, but we capped CRP at 38 million acres in the last farm bill. We still got about 5 million of those acres, I think, that had never been put into the program. There's going to be a strong move by some other lawmakers around the country to raise that cap this time, maybe even going up to as high as 45 million acres in the farm bill. Do you all have any thoughts dealing with this? What do we need to think of?
Mr. PUCHEU. I mean, we don't participate because it takes acreage out of production, but it's not affecting our counties, I know. I have friends in Texas and you get that percentage too high in a county, the fuel engines, the equipment dealers that are hurt if the ground goes out of production. So it's easy for us to support it because it doesn't hurt us.
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Mr. CHAMBLISS. Sure.
Mr. DIENER. In California, traditionally if we investigated the program it's always been in a rate on the land that's too cheap to participate in in California. And probably what's needed more from a California perspective is the Wetlands Program. There's quite a big move within California to the Wetlands Preserve Program, which is a sister program to the CRP. And again, it's needed to have a little higher base rate because of the value of the land that we're committing to that program in California. As far as an effect on the overall commodity business, I don't see it as, I mean, take a million acres out, you're going to have a meaningful impact on something. But as an overall deal, again, it goes back to my other statement that, based upon set aside programs, have not really affected the overall supply in the end. But as far as the Wetland Preserve Program being in the local research conservation district, we're trying to ask to have that number increased, especially for folks that we work with, like Huts Unlimited and things of that nature, that are in the area and wanting to help, obviously, in California. We have a problem with water. It's an issue. But I think that skilled management, and also through some creative regimes, offshore storage in California, that we might be able to manipulate with the Wetlands Preserve Program with the benefits; one, water storage, and No. 2 is the waterlife protection area. As far as their concerns, whether it's in the areas that are the land retirement area, I strongly hope that it would increase that.
Mr. CHAMBLISS. We've talked a little bit about crop insurance too, and this was one of my pet projects when I first came to Congress with George 7 years ago. Because apparently the situation exists here very similar to what's been happening in the southeast over the years; and that is, farmers didn't participate in it because always the good farmers would get just over that threshold if they had a bad year. They definitely still had some good yields and didn't qualify for any payments, and we didn't make any payments to the Crop Insurance Program. And this year we're having some problems with it, and I'm not sure how you've seen the changes come about out here, but I hope in the long-term—or at least our idea was that for the long-term we were going to take the decision off the Federal Government and put it on the farmer and the banker as to what type of crop insurance you needed and what you could afford because you were having to really farm a Government program with the previous Crop Insurance Program.
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I know we got some crop insurance folks here, and know that our companies have developed some products that are really good, but we've got to have more than that.
Ideally, I'd like to see every farmer buy crop insurance. Between crop insurance and good farm policy where the dollars follow the policy as opposed to the policy following the dollars that farmers for the long-term are going to incorporate biotech, and you incorporate some other trade policies issues that we're going to incorporate, we're going to come back.
We also have jurisdictional projects, we also have jurisdiction over biotech technology. And once we get through this farm bill we're going to come back and we're going to talk about these biotech issues. Some things that we have learned that you all know that's going on that are going to dictate that 10 years from now you and your children hopefully will be back on the farm then also, farming entirely different than the way you're farming today because of what we're doing in biotech.
We've got to do a better job of educating the public at large, particularly our folks, that we want to export our products. But I just see this thing exploding, and that's why I really feel good long-term about the future of American agriculture. You guys are somehow resilient. I don't know how you get through these hard times, but somehow you're going to do it and we're going to continue working and give you a helping hand with it. But I do think that the future of American agriculture looks good.
I talked longer than I wanted to, or I meant to. But I get emotional about this one.
Mr. DOOLEY. Actually, I really don't have any more questions, other than to bring everyone's attention to Wednesday we're making up the supplemental agriculture bill that at a minimum I think we're going to be directing that USDA send out at $5 1/2 billion before the end of this fiscal year.
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And I think you know what we're anticipating. Some of us are anticipating that the bulk of that will be in the doubling of AMTA payments, which I think consumes about a little over $4 billion of that. But if any of you have any discussions that you might want to offer, in terms of changes from that approach, don't hesitate to get in touch with us. I think it is Wednesday, isn't it Saxby?
Mr. CHAMBLISS. Yes.
Mr. DOOLEY. I think we're going to be marking that up.
Mr. RADANOVICH. I'm done. Thank you.
Mr. CHAMBLISS. Thank you all. Let me again thank you all for being here and thanks to our other panel for sharing your thoughts and ideas.
To the staff, Christy Cromley and Tyler Wergmeyer and Andy Johnsons. Thank you all for putting this all together and thanks again to Cal Dooley for having this in our honor.
The record will be open for 10 days for any additional comments. If there's anything else you'd like to submit, please feel free to do so. And with that we thank the great people of California for hosting us here, and we stand adjourned.
[Whereupon, at 5:21 p.m., the subcommittee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Don Bransford
Mr. Chairman and members of the Committee, my name is Don Bransford. I am a rice, almond and prune producer from Colusa, California. I also currently serve as a member of both the Board of Directors of the USA Rice Federation and its charter member, the U.S. Rice Producers' Group.
Mr. Chairman, prior to presenting our initial recommendations for the Subcommittee's consideration in drafting a new farm bill, I would like to discuss the critical need for additional economic assistance for crop years 2001 and 2002. I would also like to thank the House Agriculture Committee for its swift and forthright action in working with the House Budget Committee to make available $5.5 billion in additional baseline spending for fiscal year 2001, and making available fiscal year 2002 funds for spending on the 2001 crops. These funds will be the difference between survival and economic oblivion for many rice growers in the United States. Furthermore, we thank you and the Budget Committee for the increase in agriculture budget baseline spending in the fiscal years 2003 through 2011.
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U.S. agriculture in general, and rice producers in particular, are facing continued low prices and declining income. Prices for energy-related products, including fuel, natural gas and fertilizer, have increased substantially, placing rice producers in a further cost-price squeeze. This is occurring while aggregate rice exports are expected to continue declining in the marketing year beginning this August and Japan continues to deny meaningful access for California rice, and farmers face growing costs due to increased environmental and pesticide use regulations.
Our economic analyses indicate that rice is the only major commodity for which net market returns after variable costs for the 2001 crop will be negative, if government payments are excluded.
In short, if Congress had not provided rice producers with further immediate assistance, consideration of any long-term farm policy would have been in all likelihood unnecessary for many rice farmers who would have been forced out of business before the new farm policy can take effect.
BACKGROUND
Rice production and marketing is a multi-billion dollar activity in the United States. Primarily produced on over 3 million acres in six states, rice accounts for $1.4 billion in farm revenues. Rice production declined modestly in the mid–1980's, but grew sharply in the 1990's, from 156.1 million hundredweight in 1990 to an estimated 191.1 million hundredweight in 2000, an increase of more than 22 percent over the decade. Over the last 10 years California and Arkansas, the two largest rice-producing states, have gained acreage, up 38 and 15 percent respectively. Missouri has almost doubled its rice acreage. Over the same period rice acreage has declined substantially in Texas. Acreage in Louisiana and Mississippi has also declined.
U.S. rice production provides a versatile, nutritious food product for people here in the United States and around the world. Rice is used in everything from baby formulas to beer, and in a wide variety of ethnic cuisines enjoyed by many Americans. Rice hulls and other co-products are being used in a number of innovative applications—in building materials and to provide energy. Winter-flooded rice fields provide important habitats for migratory waterfowl and other species.
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Rice is a capital intensive and expensive crop to produce because of its requirement for extensive irrigation. Approximately sixty percent of total rice supply is used domestically and the balance is exported.
While the United States is currently the third largest exporter of rice in the world, our share of world export trade has declined continuously over the past twelve years. In 1986 the United States accounted for nearly 30 percent of world exports of rice. This year, the Department of Agriculture projects that U.S. rice will account for only 15 percent of world rice exports. The world's primary exporter of rice is Thailand. Other major exporting countries include Pakistan, India, and Vietnam. The United States competes with these and other countries in the world market. World rice export market share is a critical issue for the U.S. rice industry because we depend on the world market to sell such a large part of our annual production. Unlike the price for U.S. produced wheat and feed grains, the price for milled rice traded on the world market, is determined in large part by our Asian competitors.
While the total export market share of U.S. rice has fallen, the United States has emerged as the world's leading exporter of rough (unprocessed) rice. Because the U.S. is the only major rice exporter that does not restrict the export of rice in its raw form, the U.S. has a competitive advantage in the rough rice trade. Our exports of rough rice have benefited from low import tariffs on rough rice relative to higher import tariffs on milled rice. These differential import duties have displaced exports of value-added milled rice exports, to the detriment of U.S. rice millers. Other major rice exporters, through government intervention in the export trade, forego rough rice exports in an effort to retain in their countries the value-added economic activity that milled rice exports generate.
Over the last few months, one-fifth of the U.S. mills have closed, been put up for sale, or gone into bankruptcy. In Texas and Louisiana, mills are running at about 20 percent of capacity and in the rest of the industry at less than 50 percent. The U.S. rice milling industry provides $5 billion in economic benefit to the U.S. economy and supports 36,750 jobs in rural communities. Mr. Chairman, the rice industry is very close to losing a large percentage of the infrastructure so desperately needed to support a healthy rice industry.
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Discriminatory tariffs against various forms of rice and trade embargoes have distorted commercial demand for U.S. rice to our detriment. In the absence of the free trade that was promised with freedom to farm, all segments of our industry need assistance. The Japanese market in particular represents a prime example of restricted trade access for U.S. rice, and California rice exports in particular.
RECOMMENDATIONS
Mr. Chairman, we appreciate the Committee's efforts to gain input from the rice industry through these hearings to consider the effectiveness of our farm programs. We also appreciate the opportunity to comment on the impact of the 1996 farm bill on rice producers, and to recommend specific changes in our farm programs that will allow our growers to earn a reasonable return on their efforts, contribute to the economic success of their rural communities, and provide critical habitat to over one hundred wildlife species. U.S. rice producers also believe it is important to develop a new farm bill that is consistent with our existing domestic support obligations under the World Trade Organization (WTO).
In the U.S. rice producers' March testimony, given by Mr. Nolen Canon, of the US Rice Producers Association, we outlined a specific proposal for a counter cyclical payment program but noted that further policy consideration and analysis were needed. We pointed out to the House Agriculture Committee at that time that we would be communicating our further findings and recommendations in a timely fashion. We are close to concluding the analysis of an improved version of the counter cyclical payment program and will be communicating our policy recommendation to the Committee before the end of June. In March, U.S. rice producers recommended the specific proposals outlined below for inclusion in the new farm bill.
Maintain the planting flexibility provisions in the 1996 FAIR Act. Prior to the enactment of the 1996 farm bill, farmers had to plant their base acreage to a specific crop in order to receive program payments. Therefore, farmers largely planted their base acreage irrespective of what the market was signaling, or what made the most sense agronomically. Congress wisely changed this system in the 1996 farm bill to allow producers to receive program benefits largely without regard to which crop producers planted on their base acreage. Maintaining the planting flexibility provisions enacted in the 1996 farm bill is strongly supported by U.S. rice producers and should be continued in any new farm legislation.
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Continue the marketing loan and loan deficiency payment (LDP) structure as currently administered under the 1996 FAIR Act. The marketing loan program for rice was first implemented in 1985. This program has been critically important in helping the U.S. rice industry to maintain its export competitiveness while freeing the government from taking over rice under the loan program. Loan deficiency payments (LDP) allow producers to waive their right to the loan program while receiving a direct payment equal to the difference between the loan rate and the existing market price (when the market price is below the loan rate). Both LDPs and marketing loans provide rice producers with critically important income protection while keeping the U.S. rice industry competitive in international markets.
Rice producers strongly support maintaining the option for producers to redeem their loans with generic commodity certificates. This option has enhanced the marketing flexibility available to producers, empowering them to more effectively market their rice both here and abroad. This current marketing loan system works well, and should be continued.
Continue to establish rice loan rates at no less than $6.50 per hundredweight. The loan program provides much needed liquidity for rice producers and should be maintained at not less than the $6.50 per hundredweight level. The Secretary of Agriculture should be given the discretionary authority to raise the loan rate above this base level. If Congress realigns the loan rates for the other program crops with the current soybean loan rate or otherwise increases loan rates, then we would support alignment of the rice loan rate with these higher rates. This will discourage distortions in cropping patterns and loan-rate driven over- and under-production of individual commodities.
Continue to ensure that basic commodity programs are not contingent on mandatory idled acreage. Until the 1996 farm bill, a major component of our domestic farm policy for fifty years had been annual supply controls. However, the 1996 farm bill ended this reliance on annual supply controls. As U.S. agriculture in general, and the rice industry in particular, has become more dependent on exports, supply controls became a hindrance to our ability to expand our exports and maintain our reputation as a reliable supplier. Mandatory production controls raise our own cost of production and reduce our export competitiveness, while allowing foreign competitors to increase their share of the global rice market. Therefore, future farm program benefits should not be contingent on any annual supply control requirements.
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Provide Decoupled PFC-type Payments. The 1996 farm bill created a new system for providing direct income support to rice producers. Rather than deficiency payments, which varied according to market prices, the 1996 legislation provided fixed direct payments, which declined each year through the 2002-crop year. Rice producers recommend that a similar fixed payment, decoupled from current production, be provided over the FY2003–2007 period. We are currently considering other options in this area. Such a payment should give producers an assured minimum level of support, in compliance with the WTO Green Box provisions.
However, many rice producers continue to be concerned regarding the effects that the current Production Flexibility Contract (PFC) payments are having on the rice-farming infrastructure. Because these payments are currently completely decoupled from rice production, some tenant farmers have been faced with situations where landlords make the economic decision to accept the PFC payments, while declining to produce a crop, or even to accept any risk associated with the production of a rice crop.
This is one of several factors that have contributed to the decline in rice acreage in Texas, since the enactment of the 1996 farm bill, from 300,000 acres planted in 1996 to 215,000 acres planted in 2000. Rice producers believe that any new farm legislation should be carefully constructed to avoid further economic dislocations of this type.
U.S. rice producers have not yet reached a consensus on precisely how to address this issue between landlords and tenants. However, rice producers agree that benefits under our farm programs should accrue primarily to those who have actually produced or shared in the risk of producing the crop.
Provide a more effective income safety net for producers through a countercyclical income support payment in addition to current program mechanisms. While the program structure of PFC payments coupled with LDPs has served the rice industry well, it also contained some weaknesses. Specifically, this structure has provided inadequate income support in periods of low prices such as those experienced since 1998. This has necessitated the enactment of emergency farm assistance in each of the last three years.
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In an effort to address this inadequacy on a long-term basis, U.S. rice producers support maintaining a PFC-type fixed payment coupled with LDPs, while supplementing them with a countercyclical payment paid to producers. Our analysis thus far indicates that a program with a base period of the Olympic average of price for the years 1994–1998 or 1995–1999 works best for rice and most of the other program crops.
Regional differences in yields should be considered when calculating the countercyclical payments. Regions of the country where yields are above the national average, for example, should not be penalized as compared to regions that experience below average yields. Our proposal addresses this issue by basing countercyclical payments on each producer's actual production and yields.
Eliminate the payment limitations for income support and marketing loan/loan deficiency payments. The 1996 farm bill imposes a payment limitation per person of $40,000 for PFC payments, and of $75,000 for loan deficiency payments and marketing loan gains combined. Congress has increased these limits on an annual basis over the past three years for program crops, including rice. Unless Congress acts, the $150,000 payment limit for LDPs/marketing loan gains for the 2000 crop will revert back to $75,000 for the 2001 crop year. These arbitrarily set payment limits only serve to limit income assistance and reduce the effectiveness of the existing program. Eliminating these payment limits will allow rice and other program crop producers to more fully utilize existing income and marketing assistance programs, and help to address the cost/price squeeze that all farmers, regardless of the size of their operations, are facing.
Compensate producers for current and future conservation/environmental practices that enhance water, soil and air quality and wildlife habitat. Rice growers currently provide about 775,000 acres of enhanced waterfowl and wildlife habitat at their own expense. The new farm bill should encourage producers to establish and maintain wildlife habitat by offering incentive payments to farmers who voluntarily implement certain approved practices. These environmental/conservation payments should be in addition to, and not as a substitute for, other income support provided under the new legislation. Payments should be made available not only to producers who begin to invest in such habitat protection, but also to those who have already implemented important wildlife habitat protection initiatives.
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Comply with U.S. domestic support commitments under the WTO. Rice producers support the enactment of a farm bill that is consistent with our current domestic support commitments under the WTO. Such a farm bill could include, for example, domestic support programs that are not subjected to specific reduction commitments under the WTO (so-called Green Box programs). In addition, the bill could provide support under programs subject to specific WTO reduction commitments, but nonetheless allowed, on a limited basis, under the WTO (so-called Amber Box programs).
It is our understanding that the United States can spend $19.1 billion annually on Amber Box programs, and still comply with its WTO domestic support commitments. Based on 1999 spending, approximately $6.2 billion of this amount is currently committed each year to certain commodity price support programs (e.g. dairy, peanuts, and sugar).
Our analysis thus far indicates that these programs could be constructed to provide payments to producers based on current estimates of production and prices, and fit comfortably within the U.S. Amber Box limits, consistent with our WTO obligations.
We are aware of the limits of long-term economic projections in forecasting agricultural prices and farm program spending. However, we believe that the more than $8 billion in Amber Box spending available provides a prudent cushion to accommodate downward commodity price events outside the bounds of our economic analysis. If, as the farm bill debate progresses, it appears that our recommended programs would cause the United States to violate its WTO domestic support commitments, then we would be willing to work with the Subcommittee toward a resolution to this problem.
Should such work be necessary, the WTO Green Box rules regarding eligibility for decoupled income support is fairly flexible. These rules would appear to permit the operation of a farm program that reflects a balance between payments targeted to producers and the fulfillment of our WTO commitments.
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Economic Analysis & outlook. Current CBO analysis suggests stronger world and domestic markets for feed grains, soybeans and wheat, but only slightly higher prices for rice and cotton. The analysis also shows:
Market revenues continuing under significant pressure for rice and cotton, with plantings for both crops likely to decline or remain steady during the out-years of the projection period.
Rice sales in domestic markets likely will continue to grow throughout the period. However, there is agreement among analysts that competition for export markets will intensify, even for those that traditionally depend on US products. Thus, U.S. rice sales overseas could decline significantly, keeping pressure on prices throughout the projection period. Market revenues could weaken steadily, especially through 2002. Revenues may grow only modestly through 2007, in spite of expectations for steady harvested rice area at levels well below 1999.
Expanded plantings for feed grains, wheat and soybeans in response to much stronger market revenues for those crops.
In this context, U.S. rice producers face two difficult challenges. First, dealing with the low returns from weak markets and sharply increasing production costs this year (2001 crop) and next. The second challenge will be to develop and expand export markets in the future.
Rice producers' production costs for petroleum and fertilizer are among the highest in agriculture. At a time when government support for the sector is winding down under the FAIR Act, the combination of weak markets and sharply rising costs is further eroding market returns and could severely undercut producers' financial stability.
Current expectations are that rice producers' net market returns for the 2001 crop, not including government payments, could be negative. This result is reached using USDA's estimates of variable cash costs (which were estimated in October, 2000 and do not fully reflect the more recent run-up in production costs). Rice is the only major commodity for which such negative returns are forecast.
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Government support for rice producers was about $1.46 billion for the 2000 crop. Based on the current farm program, government support for the 2001 crop would fall to $0.73 billion in the absence of supplemental PFC payments, a decline of 50 percent. In such a scenario, producers' net revenues could fall to $0.72 billion for the 2001 crop, less than one-half the level for the previous year and the lowest in recent years. This would be a severe financial blow to the sector, one that many producers would not expect to survive.
It is because of this pressing cash flow problem that U.S. rice producers need immediate assistance for the 2001 and 2002 crops. If that help is not forthcoming, in the form of a Market Loss Assistance or similar payment for 2001 and 2002, many rice farmers will find themselves facing the end of their farming operations. Such payments need to be in an amount that will raise government payments to a level that is at least equal to the total payments received in crop year 2000.
We recognize the disparity between a substantial increase in the budget baseline for the Commodity Credit Corporation and forecasts of spending that may never reach the budget baseline levels. Nevertheless, we believe that this is a responsible and defensible position for a number of reasons.
First, any such forecasts of commodity prices into the future are fraught with uncertainty and peril. Even minor deviations from these projections can result in additional Federal outlays of billions of dollars on these programs, as we have learned since the enactment of the 1996 farm bill. This cushion of budget authority will allow the Agriculture Committee and the Congress to write a farm bill that will be flexible and responsive enough to respond to periods of low prices by design, rather than by emergency legislation. Essentially, this will provide for a downside hedge against even lower commodity prices in the future.
Second, current budget projections do not account for program initiatives with respect to other commodities or priorities that the Agriculture Committee may want to provide for as part of the farm bill. For example, the rice conservation payments recommended in our testimony, the increasing of loan rates for program commodities, or the establishment of enhanced payments for soybean producers.
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We urge the Congress to pass legislation this year to provide additional income assistance for crop years 2001 and 2002 in amounts that will bring total government assistance to the same level as that provided by Congress for the year 2000 crop.
The nation's rice producers also collectively urge the Congress to move rapidly to enact a new farm bill that addresses the fundamental issues of an improved safety net through a combination of a fixed PFC-type payment, extension of the current marketing loan mechanisms, and a counter cyclical income support payment. The possible increase of loan rates to keep the rice loan rate aligned with the other commodity loan rates should also be carefully reviewed.
It is our view that even the increased Commodity Credit Corporation spending over the past 3 years was only minimally sufficient to support producer income in this very difficult period. As this Committee has recognized, a significant increase in the CCC budget baseline going forward will be necessary to provide the resources necessary for the Agriculture Committee and the Congress to fashion an adequate farm program safety net. We look forward to continuing to work with you toward this important goal.
Equally important, the new farm bill should maintain the 1996 FAIR Act's planting flexibility and refrain from any return to annual supply controls. The bill should also provide for incentive payments for wildlife habitat and other environmental benefits voluntarily provided by producers.
It is also important for Congress to develop a new long-term farm bill that targets payments to those who have actually produced, or shared in the risk of producing, the crop, while maintaining consistency with our domestic support obligations under the WTO.
Again, on behalf of California's rice producers, I want to thank you and the Members of the Subcommittee for your interest in these important issues, and for the opportunity to testify. I would be glad to answer any questions that you may have.
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Statement of Daniel D. Errotabere
Good morning Mr. Chairman and members of the House Subcommittee on General Farm Commodities and Risk Management, my name is Daniel Errotabere and I'd like to thank you, Mr.Chairman, and all the committee members for having this hearing and I appreciate the opportunity to participate.
My family has been involved in farming in the San Joaquin Valley of California since the late 1920's. Today my farming operation with my two brothers includes growing upland and pima cotton, wheat, processing garlic,cannery tomatoes, lettuce, cantaloupes and almonds.
I, like most farmers in California, have suffered from the recent depressed economic conditions affecting all of segments of agriculture. The general consensus in our industry is that there doesn't seem to be a substantial turn around in the immediate future, which means that in all likelihood, the Federal Government will once again be called upon to provide additional financial assistance to help farmers continue to survive.
The current farm bill was structured with good intentions, but did not and could not predict the unusual set of circumstances in this country as well as in the world that caused such a collapse throughout most of agriculture. Many blame the current farm bill, but I don't. For the most part I support most of the bill's provisions such as, the planting flexibility, marketing loan provisions and cotton's 3 step competitiveness provision, but after last year's experience it is clear that the farm bill has not anticipated current economic events.
In the short term, we need to continue additional supplemental AMTA payment such as received in 2000 at the 2000 rate, the use of generic certificates in the marketing loan and continued to support the cottonseed assistance program. The longer term, however, attention must be to refocus on bringing back the Market Demand for the commodities we produce. We simply cannot continue to make payments to agriculture without an effective policy to create markets for our products. A clear example of this is the impact that our high dollar has had on our export markets. While the strong economy has produced a strong dollar It has effectively closed the door to our export markets and surrendered our hard earned market share to our foreign competitors and encouraged them to expand and enhance their production base.
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Other consideration must be in removing all payment limitations. Payment limitations penalize the most efficient farmer whose economic realities dictate their size. The escalating cost such as labor, energy and regulatory costs forces family farmers to expand to meet these challenges while at the same time the Federal Government institute polices that penalizes that growth. Preserving the more productive and more efficient farming operations in this country should be our focus if the long term viability of agriculture is to be maintained. I believe, as I think most of you do that the marketing loan provisions in the current farm bill is a good, workable and sensible concept, but payment limitations are counter productive to this logical concept. Additionally, the concept of counter-cyclical payments seems to have merit to mitigate the steep downdraft of market prices while in other times reserving those funds when the market forces are in balance. This concept could be a way to address the currency exchange problem we now face.
My final point I want to make is crop insurance reform. California has not been a large participant in crop insurance programs over the years. With less than good crops of cotton in a few of the last several years, coupled with the serious economic downturn in our business has caused many of us to look for more effective risk management tools. In California, we've looked at crop insurance, but for the most part have found it to be costly and seriously deficient in giving the farmer and/or his banker any acceptable level of coverage or comfort. With our normally good yields, high cost of production and low margins, a downturn of 10 to 15 percent in yields can be a financial disaster.
New insurance products need to be developed that fits California's need and such a product is Cost of Production crop insurance now going through the RMA review. This product is a different approach to the current CAT insurance and more closely addresses the high level coverage needed by California growers. We are hopeful that RMA's review process will be sensitive to the tight timeline to make this pilot program eligible for the 2002 crop year. This was not the case in our efforts to have a pilot this year.
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I understand that the government has committed billions of dollars to crop insurance reform. I would hope that more such products are made available for all commodities for true risk management and not be subject to abuses. We need a policy that will address different regional needs rather than a one size fits all.
In conclusion, I personally have been in farming for more than 20 years and seen many adjustments to a very complex program to address the unforeseen challenges. It is my observation that the good intentions that go into developing sound farm policy often times serves to interfere and distort the market signals and places unreasonable restrictions on the business of farming.
Again, thank you for this opportunity and thank you for your attention to my remarks and concerns for the future of American Farm Policy.
Statement of Don Cameron
Good afternoon Ladies and Gentlemen. Thank you for the honor of speaking before your subcommittee this afternoon. My name is Don Cameron. I too am a diversified farmer in the Central San Joaquin Valley, growing both pima and upland cotton, processing tomatoes, wine grapes, alfalfa, grains and other seven assorted crops including 420 acres of organic productions. My friends from Texas joke with me about how farming in California is like farming in a huge greenhouse. I have to agree with them, we can grow just about anything here, just not profitably.
We are faced with global competition from countries whose currency is 2 to 4 times lower than our own . The strong dollar, their low pay scale and the transfer of our technology makes it difficult for us to compete, or even survive.
Focusing on the new farm bill for 2002, I have the following recommendations:
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Maintain the current planting flexibility of the FAIR Act. We need the choice to change rapidly from one crop to another without waiting. This flexibility allows us to take advantage of changing market conditions.
Removal of payment limitations. Perceived advantages in large scale farming are in many cases only minor. It takes an equal number of dollars per acre to farm 200 or 2000 acres. With margins either so small or nonexistent, why should someone farming a large farm be penalized? In the past, many large family farms have been denied benefits due to payment limitations.
Allow growers to fix the Loan Deficiency Payment, or, POP payment, anytime during the normal harvest season on part or all of their crop by a specific FSA farm number. Currently, only a crop already harvested can apply for the Loan Deficiency Payment. Without this a grower cannot know the final price he will receive until the crop is harvested and the payment is fixed.
Crop insurance should not be viewed as the solution for the U.S. farmer. It is a helpful tool, but has never been adequate, or attractive enough, to help my operation. This view is widely held other California growers. Our losses in yield rarely trigger a pay out, however, the losses are economically disastrous due to our high input costs.
Currency adjustment. Provide a formula for adjustment of the price received by a U.S. grower for his commodity based on the strength or weakness of the dollar. Currently, Australian growers receive two times the income we receive for a pound of cotton in their currency and can remain economically viable even at 45 cents per pound, NY.
Income stability. Not knowing what type, what amount, and when payments will be issued makes dealing with our financial institutions very difficult. Lets put a good program together and fund it properly.
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Cottonseed payments should be continued to offset the decreased seed value and increased ginning costs.
Counter cyclical payments. I strongly support this type of payment. It provides meaningful help when our markets are depressed and essentially goes away in strong markets. For cotton, a minimum level of 80 cents per pound with a driver to increase this level if inflation occurs.
Funding. Whatever type of farm program we end up with, please provide adequate funding to get us through an economic crisis similar to this one.
By following these and the other recommendations presented here today and at the other hearings, the American Farmer can be brought back from the edge of economic collapse. Without rapid, major support to our industry, we will be in the same position with our food supply as we are with our oil supply.
Statement of Greg Palla
My name is Greg Palla. I am a diversified farmer currently growing cotton, wheat, alfalfa hay, and corn. Our operation is located in Kern County just south of Bakersfield here in California's San Joaquin Valley. We're very pleased you have come to our area to hear from an endangered species, namely California farmers.
Members of the hearing panel: the American people are in danger. Not just farmers or ranchers or people whose business depends on them—but the entire country. I fear without your help the American agricultural dynamo of the 20th century will be throttled down to a creeping wreck.
If that sounds like an exaggeration consider my situation as an example: I am 45 years old, married with two children, a college graduate from the same university and same major as Congressman Dooley. My family has been farming in Kern County since 1913—five generations of California farmers. My operation has reduced farmland acres by 84 percent in the last 5 years. With much of that land now idled from production. This situation is a direct result of policies that do not put strategic importance on American agriculture. Farmers need additional protection and so do the American people.
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We need the government to recognize that American farmers can compete with anyone on a level playing field, but we cannot compete against foreign governments subsidizing their agriculture. We cannot overcome the devastating effects of our own strong dollar policy which is inhibiting exports and encouraging imports into the United States. With the dollar at its highest level in the last 16 years it is no wonder that cotton prices and virtually all other commodities are at record low prices.
How did we get to this point and what can we do about it?
Let's start with the Freedom to Farm Act.
Unfortunately, instead of export markets for U.S. agricultural products continuing to increase following the passage of The Freedom To Farm Act, they decreased big time. The culprit was the severe downturn in the economies of Russia, Brazil, and the economic crisis in Asia along with the continuing strength of the U.S. dollar in relation to other world currencies.
The loss of the export markets left too much production with no buyer, and prices tumbled down. The situation has just overwhelmed The Freedom To Farm Act that was based upon increasing export markets' not shrinking cotton markets. The only reason many growers are still in business is because of the emergency relief provided by Congress over the past two years.
Prices for agricultural commodities in general and cotton in particular are still awful and growers will continue to need supplemental assistance from the Federal Government in order to prevent wholesale financial disaster.
Now this would be one thing if cotton were the only commodity in this trouble. If it were, then a grower could switch to an alternative crop. But right now the alternative crop prices are as poor or worse than cotton. The situation just doesn't leave growers with an acceptable alternative.
Economic analysis suggests that agricultural prices will remain below production costs on many farms again this growing season—barring extreme drought or other problems on a worldwide basis.
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What are my recommendations for the 2002 farm bill? In general, cotton growers in California and Arizona want to keep most of the principles contained in the FAIR Act. We like the three-step competitiveness program. It has helped keep U.S. cotton competitive to our customers and has kept cotton moving to the marketplace rather than building up in the government loan.
The agricultural safety net funding base should be expanded. Baseline funding for agriculture in the Federal budget is currently about $5 billion. As evidenced by the last several years of emergency agricultural assistance it needs to be about $20 billion.
There have been numerous complaints about the current program and its lack of certainty. Producers, lenders, and commodity organizations want provisions to be in the law—such as double AMTA payments, doubled payment limitations, and other recent emergency items so there can be certainty among lenders, producers and so on.
You might have heard about the 21st Century Commission which has reported its finding to Congress. The commission was formed by legislation contained in the 1995 FAIR Act and consisted of 4 people selected by the House of Representatives, 4 by the U.S. Senate, and 3 representatives by the administration.
This group has been meeting over the years and has expressed some interesting ideas—among them that government has an essential role in agriculture (unlike what many people were saying back in 1995) and that there should not be limitations on payments to producers.
The commission has also said that the AMTA payment concept has merit as long as there is a formula where the payments are not linked directly to production for any given year (counter-cyclical and de-coupled).
This is one of the most important concepts to be considered in the new farm bill: that being that whatever method of delivering payment benefits to growers has to meet World Trade Organization (WTO) requirements.
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Among the 21st Century Commission concepts is the idea of having a formula that basically figures the gross revenue for the five major program crops and, if revenues drop below a certain level, according to the formula, then AMTA payments would be forthcoming for everyone.
With these thoughts in mind I would like to make two recommendations: one for the current situation for the remainder of the present farm bill which expires in 2002, and, a separate recommendation for the new farm bill beginning in 2003:
For 2001/2001, maintain the competitiveness provisions of the current farm bill.
Keep the base AMTA payment at the 2000 payment rate (7.33 cents) or higher and also support market loss assistance at the same rate equal to the AMTA payment. Any market loss assistance and/or counter-cyclical assistance would have a separate payment limitation.
For future farm legislation starting in 2003 calendar year:
Provide for a fixed minimum base AMTA payment equal to the 2000 rate (any market loss assistance would be in addition to that.
Remove all payment limitations.
Maintain the current acreage base and yield base.
Support additional enrollment in the Conservation Reserve Program (CRP) with a shorter time commitment.
Support uncapping the loan with a 55-cent minimum loan. Generic certificates must be available to avoid limitation problems.
Program must meet WTO requirements.
Program should use FSA delivery system—not crop insurance. (But if the committee is interested I would be very willing to comment on Federal crop insurance here in the West).
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Maintain cottonseed program.
Out of the counter-cyclical options available support the 21st Century Commission concept. (This is the program concept of figuring the gross revenue for the 5 major program crops and if revenues drop below a certain level then AMTA payments would be forthcoming.)
For Extra Long Staple cotton (ELS cotton or Pima cotton) we recommend:
Maintaining the present loan floor.
Fund Step 2 without limitation.
Support the 21st Century Commission counter-cyclical concept for Pima.
Statement of Chuck Nichols
Good Afternoon, and thank you for the opportunity to testify this afternoon. I'm pleased the subcommittee chose to hold a field hearing in California. U.S. agriculture is not well, but California agriculture is sick; this is the worst recession in 30 years. Why so? Let's go back and examine some prices and costs: In 1972, I was about to enter high school. Nixon had opened China, and on our family farm we sold wheat for $160/ton. Times were good. Gas was $0.35/gallon, the minimum wage was $3.35/hour, and electrical rates were 2–4 cents per kWh. Today wheat is $120/ton (25 percent decrease), gas is $2.00 (600 percent increase), the minimum wage is $5.75 (70 percent increase), and electricity is 12 cents/kWh (400 percent increase) and headed higher. Cotton is at the lowest price in 16 years, 42 cents per pound. There have been a number of fundamental changes in the world production of food and fiber economics since 1972; many of these are now impacting American agriculture.
Please allow me to briefly give you my agricultural credentials; in other words, why this committee should listen to my views on agricultural policy. Our family has been involved in California agriculture for the past 45 years. It is our only business. My father founded our operation, and my mother, both sisters, and my wife work along with me. I love what I do, producing food and fiber.
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Our family operation is well diversified. In addition to producing cotton, alfalfa, and corn, we also grow almonds, pistachios, fresh asparagus, sweet corn, and alfalfa. We pack and market what we grow, and sell substantial quantities of almonds, pistachios, and asparagus into export markets. Our company uses USDA Market Assistance Program (MAP) funds to promote our products overseas. I mention this experience because it is important for the committee to understand I have direct experience in both the production and marketing of U.S. agricultural products. Unfortunately, our export markets are shrinking despite our aggressive marketing. I do not directly market cotton and wheat, but know they face the same challenges as the pistachios and almonds I do market.
Earlier, I mentioned there have been some fundamental changes in world production economics. I'd like to examine these changes, then comment on how the next farm bill should address these fundamental changes, particularly in regards to the major commodities of cotton, wheat, corn, soybeans, and rice. The two most important changes affecting U.S. producers in the past 10 years are stronger foreign competition and U.S. monetary policy.
For decades, the U.S. has exported agricultural technology, both private and public, and trained the world to produce food efficiently by educating foreign students at our universities. In addition, the U.S. government has heavily subsidized developing nations with direct payments to develop agricultural industries. Over the past twenty or thirty years, it has worked. Foreign agriculture is now very competitive in producing crops. The changes have been gradual over time, and relatively unnoticed until combined with the strong dollar monetary policy of the immediate past and present presidential administrations. These two changes acting together over time have now moved U.S. agriculture from the position of being the world's low cost food and fiber producer. For many crops, such as cotton and wheat, the U.S. is now a higher priced residual supplier rather than a primary supplier. We cannot stop, and should not stop the countries of the world from improving their ability to produce, process and market agricultural crops, but should not continue to have our American farmers bear the entire cost.
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At the same time our government has subsidized our foreign competition to become more efficient, the U.S. government has had a much different policy toward U.S. farmers. Past and present farm bills have intentionally limited the efficiency of U.S. farms by imposing strict limits on AMTA and LDP payments. For corn, wheat, cotton, and other major crops, U.S. farm policy has limited farm size and reduced efficiency. At the same time, policy toward other crops, such as dairy, have no limits. It is no surprise to me that dairies are now the most efficient and profitable farms in California. Existing government farm policy treats any California farm larger than a few hundred acres as large and undesirable, and punishes them via payment limitation. When the U.S. ag economy was the low-cost producer to the world, farm policy could afford to legislate for social, rather than economic reasons. The U.S. government will have to choose, in the next farm bill, if it is more important to have a healthy farm economy determined by efficiency, or a smaller, much higher subsidized agricultural economy with many less efficient producers.
There are clearly two changes needed in the next farm bill. First, AMTA and LDP payment limitations should be eliminated. If we want a healthy farm economy over the next 10 to 20 years without $20 billion per year government subsidies, we need to provide incentive to become more efficient. This is not a criticism or adverse policy toward small farms; I have many neighbors and friends who farm smaller acreages that have and will continue to compete with farms of all sizes. Elimination of AMTA and LDP payment limitations will provide incentive for efficient producers of all sizes to grow and produce food at lower costs, reducing the need for government programs and providing healthy rural economies.
The second necessary change in the next farm bill is the indexing of farm payments to the strength of the U.S. dollar. As trade has become more global, our ability to sell products profitably is more and more linked to the price our overseas customers pay in their own currency. There is a one to one correlation between my bottom line at the end of the year, and the strength of the dollar. Financial instruments such as the U.S. Dollar Index (USDX) have been in existence for a number of years (USDX since 1985), and measure the strength of the U.S. dollar relative to a basket of other currencies. Rather than having to legislate on an emergency basis whenever U.S. farmers are suffering, it makes more sense to tie payments to cause of the suffering: more when the dollar is strong, and less when the dollar is weak. I've attached 3 pages of information on the USDX to my testimony.
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Thank you for the opportunity to provide my views on the state of agriculture and the direction needed in the next U.S. farm bill. I would be happy to answer any questions you might have.
Statement of John E. Diener
I would like to thank you for taking the time to come to Fresno to ask for input concerning the future farm bill. I am currently involved in production agriculture, on a diversified basis on the western side of the Central Valley. My primary crops consist of processing tomatoes, iceberg lettuce, almonds, grapes, cotton, and wheat. Due to California' ability to grow several traditional commodities as well as non-commodity crops, the low prices in wheat and cotton have decreased the prices that I am able to receive for my almonds, tomatoes, and grapes. This problem is the result of the over supply of commodity products throughout the United States; low prices for corn and soybeans cause farmers in southern states to eliminate corn and soybeans in favor of cotton. Which lowers the prices received for cotton in California. As you can see a weak market for corn and soybeans can quickly result in weak markets for cotton and wheat and produce lower prices for crops grown only in California.
In the past, the government has looked to improve the commodity price situation by sponsoring acreage limitation programs in an attempt to reign in supply. In general these programs have failed. Traditionally farmers set aside their least productive acres and as time passed new technology and farming practices increased production on the existing acreage. Observing increased production in the United States, many thought of freer trade between nations as a way for American Farmers to dispose of their excesses in production with a reasonable rate of return. Yet, free trade has failed to correct the situation of many commodity prices throughout the country. The strength of the dollar in relationship to foreign currencies has so far been a permanent handicap to the trade of agricultural commodities between the U.S. and other nations (see attached graph).
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The current trend towards free-trade, has, in many cases, left farm commodities behind due to anti-competitive practices that nations employ to preserve their native farm industries. They view their farm economies as a matter of national sovereignty and have attempted to preserve them through trade restrictions. In the following three cases American farmers have lost potential markets due to foreign protectionism. Brazil has failed to recognize intellectual property rights, refusing to pay royalties on Roundup Ready Soybeans. The European Union has banned the importation of U.S. beef claiming that hormones used in its production are dangerous, while it has been proven that they are safe. China has rejected imports of wheat claiming that the wheat has the potential to contaminate the country with smut. Issues such, as these become trade barriers to U.S. Agricultural Exports further deepening the over supply of commodities on the American market.
Farmers need a heightened level of demand for commodities such as corn and soybeans within the United States to allow loan rates to remain stable. United States loan rates have proven to be a price threshold at which competing countries often add production to their base, making it harder for commodity prices to rise above the loan rates. The current system, where U.S. loan rates support farmers, is not sustainable. So the answer is to increase demand, yet with prices depressed for most animals, feeding more hogs or chickens is not the answer.
Alternative fuel sources appear to be a reliable mechanism to address the oversupply of corn, wheat, and soybeans in America. While ethanol production facilities are functioning today, there is a need for continued research into making other forms of alternative fuels more cost effective and economically feasible. Money needs to be spent at the ARS and land-grant college levels to improve the technology associated with these systems. Brazil, a country with an agricultural base similar to that of the Midwest, produces roughly an equal amount of soybeans as it does corn. However, due to their use of alternative fuels such as ethanol in automotive fuel, most of their corn production is consumed internally, while most of their soybean production is exported. With increased emission standards, greater use of cleaner burning and sustainable fuels such as ethanol and bio-diesel make sense if they can be produced to compete with gasoline and diesel.
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While further research is needed, current alternative fuels make sense and can be competitive against conventional energy sources. If corn were burnt instead of natural gas, 50 cents (per therm) natural gas would translate into $2.50 corn (Flory). And it was estimated by that ethanol production would not need a subsidy as long as crude oil prices remain above $22 a barrel (Flory). The problem is that facilities able to handle and convert these commodities into valuable alternative fuels don' exist in the quantity that they are needed.
Many potential alternative-fuel-manufacturing sites exist in America such as abandoned sugar mills in the corn, soybean, and wheat producing areas. These sites often have 50 percent of the capital costs of an ethanol producing facility already in place at these sites, the government could, through a type of rural redevelopment project, help convert these retired agricultural/industrial sites into alternative fuel producing facilities. To dispose of excess commodities in times where the commodity price is below the loan price, the Commodity Credit Corporation could convert corn, soybeans, and wheat into alternative fuels. By purchasing 5 to 10 percent of a commodity's stocks per month when the price is below the loan rate markets should rebound decreasing government expenditures on loan programs and correcting the imbalance in the market place. The Commodity Credit Corporation could then offer alternative fuels for sale on a monthly bid basis to those who use in the products or those who are required to use them to meet Federal emissions standards.
Today American Agriculture is at its breaking point, it cannot, in many cases, continue to produce at current price levels and remain in business. If America is to preserve its family farmers, it needs to invest in research to develop economically competitive alternative fuels that consume agricultural commodities and convert existing surplus into much needed energy.
Statement of John E. Pucheu, Jr.
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Ladies and gentlemen, I would like to thank you for the opportunity to testify before you this afternoon. My name is John Pucheu and I am a third generation farmer from Tranquility, California—about 35 miles west of here—and my brother and I farm various crops including upland cotton, Pima cotton, canning tomatoes and sugar beets. Cotton is our most important crop, covering about 75 percent of our planted acreage, which includes upland and Pima cotton split evenly at 50 percent each.
Although I am deeply concerned about a number of issues facing farmers today, I am going to concentrate my comments this afternoon on one crop—Pima cotton. American Pima is an extra-long staple cotton —or ELS cotton—and it is spun into high count yarns used for high-end, better quality apparel and textiles such as fine shirting and sheeting. Pima represents just 3 percent of annual U.S. cotton production, and ELS cotton usage accounts for about 4 percent of annual global cotton consumption. But Pima has become a very important commodity to western U.S. growers, especially here in the San Joaquin Valley. California now accounts for about 85 percent of annual U.S. Pima cotton production and this year we have increased our acreage from about 144,000 acres a year ago to approximately 230,000 acres, or about one-fourth of this state's total cotton acreage.
U.S. Pima has produced an average crop value of about $240 million the past five years, which perhaps is more important when considering that 75 percent of the crop is exported. Pima had been a small domestic crop for decades until fiber quality was improved and production opened up to everyone in the mid–1980's. By 1989 the U.S. had replaced Egypt as the world's leading exporter of ELS cotton, a distinction it has held in nine of the past 12 marketing years, including this one. But this success hasn't come without its battle scars. The Egyptian government has done everything it can the past several years to put its cotton industry back in position to regain the dominant market share it had controlled for more than 50 years' before the arrival of American Pima cotton.
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Meanwhile, U.S. Pima continued to operate with little government intervention, a practice its growers have been very proud of. Like upland cotton growers, we did have an acreage reduction program and target price mechanism in place before the 1995 farm bill went into effect in 1996, but deficiency payments were seldom made. From the time Pima became an exportable commodity in the mid–1980's, we hadn't drawn on government deficiency payments until the 1992–93 and 1993–94 marketing seasons, when prices plunged as a result of Egypt dumping its burgeoning stocks onto the market. Then with the passage of the new farm bill in 1996, the Pima loan rate was capped at its 1995 level of 79.65, the lowest Pima loan rate since 1977. Target prices, deficiency payments and all Pima base acreages were eliminated. Additionally, Pima was not included in the AMTA package, thus preventing growers from receiving any AMTA-related payments for their Pima acreage. In other words, Pima producers no longer had the benefit of any government-sponsored safety net other than a bare bones loan program.
Unfortunately, the Egyptian government was not about to let its number one export decline in value. It began an aggressive program of price incentives and subsidies that spurred growers into growing more cotton at a time when stocks were building and market prices were declining. Consequently, by 1998, U.S. Pima prices had fallen back to record-low levels and cotton was being placed into the government loan. As the problem persisted into the next marketing year we decided it was time to look for help. We identified the Step 2 Program utilized by the upland cotton industry as an effective means of defense against an Egyptian competitor determined to drive us out of business with below-market pricing. In the latter part of 1999 Congress authorized the funding of $10 million for the ELS Competitiveness Payment Program. The program remains in place until the money is spent or until July 31, 2003. U.S. Pima producers worked closely with USDA's Farm Service Agency to craft a program that served our intent of providing protection only in the event of unfair competitive pricing. We feel we have been very responsible in the execution of the $10 million program, which has paid out about $1.2 million in the 20 months it has been in place.
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What we would like to see in the new farm bill is simple but consistent with what the American Pima cotton producer has asked of its government in terms of a safety net over the past 15 years. We respectfully recommend continuation of Pima's non-recourse loan, which is capped at 79.65 cents per pound. However, unlike upland cotton, the Pima loan does not have a floor price built in. Therefore, we would ask that not only is the rate capped at 79.65, but it also be frozen at 79.65, thus protecting American Pima growers from further reduction in loan prices which already challenge the break-even threshold. And because Pima is not a marketing loan, freezing the loan rate will provide a better safety net without triggering POP payments or costing more money.
We support the ELS competitiveness provisions authorized in the FY 2000 Agricultural Appropriations Bill, but we would like to see this provision authorized as an entitlement in the new farm bill the way it is with upland cotton to ensure that funds are available when needed to keep American Pima competitive.
We also support the establishment of some form of counter-cyclical payments commensurate with those that may be established for upland cotton and other program crops. As we go through periods of low prices in the future, it is important that U.S. cotton farmers have some type of protection.
In California it is very important to our Pima industry that we have a viable upland cotton industry and program. Problems with the production of upland can bring about massive shifts of acreage into Pima cotton in the San Joaquin Valley, disrupting Pima markets. There are only about 260,000 acres planted to Pima in the U.S. this year and the industry cannot absorb large increases in production that could come with large acreage shifts.
The committee needs to look at both upland cotton production and programs, and Pima production and programs. They are interrelated.
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FORMULATION OF THE 2002 FARM BILL
SATURDAY, JUNE 23, 2001
House of Representatives,
Subcommittee on General Farm Commodities
and Risk Management,
Committee on Agriculture,
Macon, GA.
The subcommittee met, pursuant to call, at 9:08 a.m., in the Porter Auditorium, Wesleyan College, Macon, GA, Hon. Saxby Chambliss (chairman of the subcommittee) presiding.
Present:Representatives Hayes, Bishop and Berry.
Staff present: Christy Cromley, subcommittee staff director; Taylor Wegmeyer, and Russell Middleton.
OPENING STATEMENT OF HON. SAXBY CHAMBLISS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA
Mr. CHAMBLISS. Let me welcome all of our guests this morning to the third in a series of field hearings that the General Farm Commodities and Risk Management Subcommittee is holding. We are very pleased to see all these many folks here to listen to the testimony and engage in a dialogue about the farm bill process that we are entering upon. We are looking at where we have been as well as where we are going. So we thank you all for being here.
I want to pay special recognition to Wesleyan College for hosting us today. My good friend, Dr. Nora Bell is here, and I think Nora is in the back. Stand up, Nora. [Applause.]
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Nora is the president of Wesleyan College, and for those of you who have the time, I hope you will just visit this beautiful campus here. We not only have the smartest and best looking ladies enrolled at Wesleyan College, but we have the very best folks that Georgia has to offer here, and we have a lot to offer them. So we are very pleased to be at the auditorium here on Wesleyan's campus this morning.
As I said, this is our third is a series of field hearings. We were in Minnesota a couple of weeks ago and we have been in California this past week. And now we are on the east coast listening to farmers in this part of the world about what has worked with the previous farm bill, what has not worked and primarily we are now narrowing the focus of what we need to think of in terms of priorities as we embark upon writing the next farm bill.
I know most of you are aware of the fact that Chairman Larry Combest has dictated to the agriculture community that we are going to have the opportunity to write the farm bill this year without waiting until it expires next year. And that we are going to take advantage of that. We have the opportunity because of budget negotiations that added to the baseline about $79 billion over the next 10 years. And because of that fact, and because if we do not take advantage of it, we could lose some of that funding next year, it is his desire that we complete the farm bill process this year.
So we on the House side are embarking upon that and we think our colleagues on the Senate side are probably going to be moving in the same direction. And that is why field hearings like this one here today are so critical.
Before we get started, there are a couple of folks that I would like to recognize. One of the processes that we go through with the change in administrations is the appointment of various patronage position folks and there is no more critical patronage position in Georgia than the FSA Committee and the FSA office folks. And with the Bush administration coming in, we had an opportunity to participate in that process and I am pleased to tell you today that Duke Lane from Fort Valley, Georgia, who is a peach grower and pecan grower and processor is going to be chairman of our FSA State committee. And Duke, if you would stand up and be recognized. [Applause.]
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In addition to Duke, there are some other members of the State FSA committee who are here today. And as I call your name, if you are here, if you will stand—Scott Cagle from Canton. Scott is a dairy farmer and processor from up in Cherokee County. Harry Kemp—I don't think Harry could be here this morning. Harry is a livestock producer over in Mitchell County. Jesse Rhodes from Glenville. Jesse is a collards, cauliflower, sweet corn and other diversified farmer and I think Jesse was here last night but he had to leave today. And Pete Waller from Bloomingdale. I have not seen Pete this morning, but Pete is from over in the first district and again, operates a very diversified operation.
These folks are key individuals to every farmer in the State of Georgia and I am pleased that they were willing to donate their time and their service to agriculture here in the State of Georgia. Now they are going to be working with a lady who is a dear friend of mine, has been for a long time, and somebody who has a great deal of experience in FSA or as all of us still call it, ASCS, work—Teresa Lassiter has been appointed as the new State Director of Farm Service Agency. Teresa, if you will stand up, please. [Applause.]
Teresa has been on the job for a couple of months now. She was in the first wave of State directors that were appointed across the United States. Our State committee is the first State committee to be appointed all across America. So we are pleased that the Bush administration was able to come to us day before yesterday and let us be here to make that announcement with respect to the appointment of the full committee.
Stone Workman was appointed to head up the rural development area and Stone could not be with us this morning, but Stone is from over in Monticello and is somebody that we have worked very closely with and he comes from a strong rural background and is just the type of individual that we need in that position to replace Laura Meadows who as we all know did a great job and is such a great lady and loves agriculture and Stone is in that same category and is going to do a really fine job there.
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I am also pleased to have three of my good friends here. When we do these field hearings, we—every Member of Congress is extremely busy and every Member is like me, you have to get home to tend to business at home every weekend and I just cannot tell you how pleased I am that three of my colleagues have taken the opportunity to come be with us this morning to participate in this field hearing and they are here, not because of me, they are here because they are concerned about agriculture in America. All three of these guys serve on the House Agriculture Committee with me. The Agriculture Committee is a very bipartisan group, we have to be bipartisan, we have to have Democrats and Republicans working together for the betterment of agriculture all across the country. If we do not, the first thing we do is shoot ourselves in the foot. I think that is demonstrated by the folks that are here today. We have two Democrats and two Republicans. And I do not put a tag on either one of them—on any of them—because we are here because we are concerned about agriculture.
First of all, my good friend from the second district of Georgia, I think all of you probably know Sanford Bishop. Sanford is serving his fifth term in the House now and represents the district immediately west of where we are today. Sanford and I have a lot in common from the standpoint of our agriculture interests and what-not, and work very closely together. So, Sanford, to you we say welcome.
I am going to give these guys an opportunity to say something here in a minute. Also from the great State of Arkansas, we have Marion Berry. Marion is in his third term, I believe, in the House and is doing a great job on the House Agriculture Committee. Marion comes from a strong agriculture background. He worked in the previous administration in the White House in an agriculture capacity, he is a farmer by trade, knows and understands the problem with agriculture and brings an awful lot to the table. He has been a good friend of mine, he and I have worked very closely on a number of issues. And I am just very please, Marion, that you would come to Macon this morning and spend some time with us and we appreciate you.
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To my left is my good friend, Robin Hayes, from the State of North Carolina. Robin is in his second term and comes from a district again that is not unlike mine. First of all, he represents the eighth district in North Carolina, they have a lot of peanuts and cotton and tobacco up that way. And for you NASCAR folks, he owns a race car, a NASCAR race car and you know that makes him a great American.
But Robin again is one of those folks that cares about what is going on in agriculture country and when he talks about it, he talks from his heart. Robin, I dearly appreciate you being here today and participating in this.
I understand we have a couple of folks representing some other offices. Jody Redding from Senator Miller's office. Jody, thank you for being here. And Hanson Carter from Senator Cleland's office; Hanson, glad to see you too. Thank you all for being here. And Derrick Corbett from John Linder's office.
As I said, Chairman Combest is leading the House Agriculture Committee to write the farm bill and pass it through committee by August of this year. While some might disagree with the chairman's time frame, I do concur that while it is aggressive, it is of utmost importance to complete the farm bill this year.
Messages that I have received from farm country point to the need for us to pass new legislation as soon as possible so as to eliminate the need for ad hoc agricultural assistance. In terms of the budget, we have received a generous figure under which to craft a new farm bill. We do not need to let those numbers dwindle away by allowing a new budget resolution to pass next year before we implement new farm legislation.
Chairman Combest has been preparing the committee for action on the farm bill for the past couple of years. The full committee traveled around the country last year and held 10 field hearings to hear problems with farm policy.
This spring, we have had commodity groups present their ideas on what an ideal farm program might look like. We have heard options ranging from supply management and reserve establishment to keeping the current farm program components.
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Past programs, including target prices, are even being reviewed. As a number of commodity groups that testified on behalf of continuing the loan program and decoupled AMTA payments and creating a counter-cyclical program, the subcommittee field hearings I have conducted across the country have sought to hear from producers on how we might can improve on the existing commodity program components and how we might can craft a counter-cyclical program to best benefit producers' operations.
Because this subcommittee has jurisdiction only over the commodity programs that contain either an AMTA payment, a loan program or both, the subcommittee has asked witnesses to speak only on behalf of our jurisdictional crops; primarily cotton, wheat, corn, rice, soybeans, oilseeds, barley and grain sorghum.
These subcommittee field hearings serve as an important key in the shaping of the next farm bill. After the completion of this hearing, committee staff will begin preparation of a draft farm bill, with hopes for release on or about the middle of July.
I am pleased to have the opportunity for our southeasterners to be a part of this farm bill process. I look forward to hearing from our witnesses today on Georgia's perspective of how we might can improve conditions to ease the burden currently resting on farmers' shoulders.
We do have with us today four witnesses, four gentlemen who are producers and four gentlemen who have operated under previous farm bills and the one that we are most concerned about is the 1996 farm bill and then what significant changes we need to make to move forward into the next farm bill. And there is nobody who is better able to tell us that than producers.
Stewart Bloodworth is a cotton, wheat, corn—he actually grows peanuts too, but we are not talking about peanuts—and oat producer in Perry, Georgia. Stewart has been my good friend for a long time before I ever got in this crazy political game and Stewart is an outstanding farmer and an outstanding individual and we are pleased to have him with us today.
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Glenn Heard is a corn and cotton producer from Brinson, Georgia and Glenn also is one of those folks who is a hard worker, known throughout agriculture country in Georgia as one of the better farmers around and, Glenn, we appreciate very much your being here today.
Chuck Lee is a cotton and wheat producer, among other things, over in Pembroke, Georgia, over in the eastern part of the State. And Chuck is a guy who brings an awful lot to the table because he started with a small operation, he has seen it grow, he has seen it operate under the guise of the Federal Government participating in farm programs and we look forward to his testimony.
Donnie Smith from down in Willacoochee, Georgia is a cotton and wheat producer along with a tobacco and peanut grower and Donnie, again, is one of my dear friends. He and his wife Marilyn have been very good friends of ours for a number of years and Donnie is one of those guys who has a great insight into agriculture, period. We look forward to hearing from you, Donnie, today and all of you. Thank you for being here.
At this time, I would like to turn it over to these gentlemen, if anybody has any comment. Sanford, we are pleased to have you here again.
OPENING STATEMENT OF HON. SANFORD D. BISHOP, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA
Mr. BISHOP. Thank you very much, Saxby. Let me thank all of you for coming, let me echo what Saxby has said about Wesleyan College. It is one of the more beautiful and one of the most well-kept secrets that we have in middle and southwest Georgia, and we certain would like to join Madam President in welcoming you here. We say that this part of the country is God's country and of course, we are just happy to be here to share it.
Mr. Chairman, I would like to also join you in welcoming our witnesses. We are delighted that they are here. They are perhaps the most important part of this hearing, even more important than we are. We are here, I guess, all ears and we will certainly be looking to soak up and absorb the pearls of wisdom that you have to give us.
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I would like to thank you, Mr. Chairman, for the leadership that you provide. We have always worked in a spirit of bipartisanship on the subcommittee and I appreciate that very much.
We are fortunate to have such a distinguished panel of producers and, of course, I have to especially welcome my constituent from the second district, Glenn Heard of Brinson. And again, thank all of you though, for your participation.
This hearing, as Saxby said, gives our producers an opportunity to tell us what should be done in the next omnibus farm bill to promote a more stable and secure agricultural economy. Our goal is to report our recommendations to the full Agriculture Committee in time to have a proposed new farm bill ready for consideration in the House of Representatives by the August district work period.
The fact that we are on a fast track makes today's hearing all the more important. To one degree or another, I suppose farming in our country has always been at a crossroads. Every new farm bill has been crucial to the wellbeing of the country's agricultural system, but after years of depressed commodity prices and intensified competition with cheaply produced foreign imports, perhaps no farm bill has ever been more crucial to the future of farming than the one that we will enact this term.
In some respects, the 1996 farm bill was visionary. It was based on a principle that we all support and that is less Government regulation. We fought some battles together to make that bill as responsive to the needs of growers as we could, and we won a number of these battles, but we did not win them all. At the time that the bill was passed, there were a number of us who were concerned that in general, it was written for a bullish farm economy, with the underlying assumption that high prices, good weather and strong exports would last forever and that it would not provide adequate protection when the going got tough.
Well, those concerns—unfortunately, the past 6 years have confirmed that the bill did in fact leave us with some serious weaknesses in the Federal farm safety net. Our challenge is to fix what is broken and to shape a farm safety net that will give all deserving producers a chance to get through the hard times when commodity prices are depressed, when disaster strikes, and have a fair chance to compete on the U.S. and in world markets.
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Our task is not just to pass a bill, but to help save our country's traditional agricultural system so that our farmers can continue producing the world's highest quality of food, fiber at the most economical cost.
This morning, Mr. Chairman, I am scheduled to drive to Americus to meet with the directors and the members of the Sumter Electric Membership Corporation which serves 11 counties in southwest Georgia. We also have some crucial energy issues to deal with that have a profound impact on the economy and on agriculture. So I will be doing double duty this morning. However, I look forward to reviewing all of the testimony at this hearing which will be part of the record, and to have further opportunities to discuss the farm bill with the producers who are here today and with other producers from Georgia as the process continues to move forward.
I appreciate very much again, Mr. Chairman, the fact that you are having this hearing here in Georgia. It is always good to have hearings so that our constituents can have an opportunity to have input close to home and do not have to travel all the way to Washington. I again appreciate the fact that our colleagues, Robin and Marion, have joined us today and again, I would like to welcome them to God's country.
With that, Mr. Chairman, I thank you very much and I beg your indulgence as I have to ease out to head over to Sumter County.
Mr. CHAMBLISS. Well, Sanford, thank you again for being here. And by the way, for those of who do not know this, being the good friend that I am to Sanford, I could not not recognize the fact that Sanford is a brand new husband. His wife Vivian, who is one of the loveliest ladies I have ever known, is with us today. Where is Vivian—there she is right over there. Let us give Vivian and Sanford a congratulatory hand. [Applause.]
Congratulations to you—or our sympathies, Vivian—I do not know. But we understand that Sanford has to leave, but I appreciate him taking the time to be with us while he could this morning.
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Robin Hayes from North Carolina. Robin.
OPENING STATEMENT OF HON. ROBIN HAYES, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH CAROLINA
Mr. HAYES. Thank you, Mr. Chairman, and let me add my welcome to those that have gone before me. There is only one thing that you did not get quite right. Part of the reason that I am here is because of my respect for Saxby Chambliss, his knowledge of agriculture and his commitment to the farm community.
I am interested in agriculture as well, but as I began my career on Capitol Hill—and if you were listening very carefully, I am the junior member of the group—as I began my career, Saxby was always available to help me with my farmers and issues that were crucial to my district. And again, as the junior member of the group, maybe I am not totally qualified to say this, but it has been my experience in going on 3 years now that I have learned very little in Washington, DC, but I have learned an awful lot in the eighth district of North Carolina and my old stomping grounds around Perry, GA where they still have a few bobwhite quail and some mighty big bass. But the answers to the questions and the solutions to the problems lie here in the district. That is why your presence and your input here is so vitally important and so much appreciated.
Thank you again for letting me be a part of this.
Mr. CHAMBLISS. Thank you, Robin. Marion.
OPENING STATEMENT OF HON. MARION BERRY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OR ARKANSAS
Mr. BERRY. Well, on the Agriculture Committee, we have a chairman and a ranking member both from west Texas and they come up with some, what I think are pretty perceptive statements every once in awhile. Our ranking member, Mr. Stenholm, is fond of saying everything has been said but everybody has not said it. And it seems like we spend an awful lot of time letting everybody say the same thing over and over again. And I find myself in that position this morning.
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But I would, first of all, tell you how fortunate we feel to be here on this lovely campus this morning and what a beautiful place middle Georgia is and how much we enjoy being here. And then to tell you what a wise thing I think it is that you have chosen to send Saxby Chambliss to the United States Congress. He has been a statesman and a leader on the Agriculture Committee and on agriculture issues and a lot of other issues and I just would tell you that he is doing a great job for you and we all appreciate him and what he does and I am sure you do too. I can say the same thing about Sanford Bishop. Sanford and I not only are Democrats, but we are both Blue Dogs. Blue Dogs are kind of the renegades of the Democratic Party and we share that coalition together also. I know how hard Sanford works and what he does to try to make Georgia a better place to live and work and raise a family.
I see the job of the Agriculture Committee—and sometimes it is hard for me to not be parochial, I am a rice farmer from Arkansas and obviously the first thing I think of when we talk about food policy is what is going to be good for the rice industry, and particularly for the rice producers. But I see the job and I think most of our Agriculture Committee members see their job as to make sure that this country has enough food and fiber where we are secure in our ability to provide our own food and fiber supply at a reasonable price, and that it is safe. And that is what I think the job of the Agriculture Committee is.
To do this, we obviously have to have enough production and processing capacity so that we ensure that and I think that is what the food policy of this country and the farm policy of this country should be. Over the last few weeks, we have heard some members of the committee express that it is just a matter of philosophy whether or not the Government should be involved or not be involved. I think that American farm policy and American farmers have proven, given the opportunity, and not having to bear the burden of other governments' unfair policies or unwise policies in some cases, that they can compete with anybody and they can be as efficient and successful as any businessman can be, given that opportunity.
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I would also just add that we are a great nation today, but I do not think we are a great nation because God loves us more than he does somebody else or some other country. I think we are a great nation because we have made good decisions and we have made decisions that serve this Nation and all of its people rather than special interests in some cases, as other nations have done. And I think it is important for us to realize that as we move through this.
It is going to be very difficult to sort out with the money we have and have good policy for an agriculture community right now that is in great distress. And I think we are all concerned about how we are going to do that. But we are here today to hear you all and find out how you think we should do it. Goodness knows, we need somebody to tell us.
Again, it is a pleasure to be here. Thank you.
Mr. CHAMBLISS. Thank you, Marion. As we move to our witnesses for their testimony, let me just remind you that due to time constraints, we will operate under the 5-minute rule. We have got a green light that says 5 minutes is underway; when it hits the red light, that means 5 minutes is up. Now we are not going to hold you to exactly 5 minutes, but if you will, try to hold it down from an oral statement standpoint. We will put your statements in the record, your full written statement will be a part of the record. And we will do the same thing from the standpoint of asking questions and we can make as many rounds as we need to, but we will try to hold it to 5 minutes.
We have no particular order, gentlemen, but Stewart, why do we not start on that end and move this way, and let you go first. Stewart Bloodworth.
STATEMENT OF STEWART BLOODWORTH, COTTON, WHEAT, RYE, SOYBEAN AND OAT PRODUCER, PERRY, GA
Mr. BLOODWORTH. Good morning, Mr. Chairman, Mr. Hayes, Mr. Berry, staff of the committee. We are glad to have you in middle Georgia, Macon, Georgia for this hearing.
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I am Stewart Bloodworth, farmer from Houston, County, Georgia, a neighboring county here. My farming career spans from 40 years with a 4,000 acre operation, which includes general row crops, up to 20,000 hogs per year, 150 beef cattle operation. All of this has been put together in the years since I completed college. I state this to verify that in America, it is possible to start with nothing and achieve much. This could not have been possible without hard work, the support of a devoted wife and at times a government that helped market our products.
Now I am in the twilight of my farming career. I am better able to assess what has worked and what has not. Only recently, I acknowledged to my Congressman Saxby Chambliss that under present conditions, I can no longer farm as I have in the past and meet my financial obligations. I, therefore, am in the process of selling 1,200 acres of good farming land for residential development. This is not to say that the Government owes me anything, but present farm programs are making me too dependent on Government payments, which cannot last forever.
Government policies in our hemisphere and throughout the world will not allow us to continue business as usual. It concerns me that this generation of farmers is so dependent on Government assistance. I would prefer to be paid at the marketplace. I realize that in a benevolent country, we have exported our technology to the point that other countries are in a better position to compete than we are in a world market economy. Surely we have learned something from past history. We should know what worked and what did not.
Present farm programs and technology are encouraging more grain production in the Southeast, an area previously planted predominantly in peanuts and cotton. We need to support programs by regions so we are not competing with each other—rice for Arkansas; peanuts and cotton for Georgia; rice down the Mississippi area; in the Midwest, soybeans, grains. We can over-produce our markets any time we have favorable weather conditions. Therefore, we must have acreage restrictions. We know this has worked in the past.
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There are three points I hope you will consider in this farm program:
The past 5 years have been disastrous in this area for farmers because of severe drought. As you develop a farm program, you will put all of us in this area out of business if our low yields are used as production history.
There must be an incentive that will encourage farmers to reduce the tilling of our soil, to maintain a cleaner environment, to grow a safe food supply and to provide an affordable product for the American consumer. You hold the throttle to the engine.
We must do whatever it takes to sell American products. We cannot allow surplus or over-supply at farmers' expense. The PIX program of the past should be considered. If we do not want acreage restrictions, we must do something about over-production.
In summary, the loan program is necessary. However, I think it should be implemented, as it was in the past, where the Government forfeited the loan for the commodity in nine months.
The AMTA payment is well-established and facilitated. However, the FSA office needs to tighten the number of worksheets or at least scrutinize and make sure that each recipient is fully invested in the crop.
Thank you for allowing me to appear before you.
[The prepared statement of Mr. Bloodworth appears at the conclusion of the hearing.]
Mr. CHAMBLISS. Thank you, Stewart. Glenn.
STATEMENT OF GLENN HEARD, CORN AND COTTON PRODUCER, BRINSON, GA
Mr. HEARD. My name is Glenn Heard, I am a farmer in Decatur and Seminole Counties. I would like to thank you for coming to Georgia and holding this hearing. I appreciate this opportunity to testify.
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I would like to begin by saying that most of the farm programs that we have today are fundamentally sound. However, they do fall short of keep agriculture viable in Georgia. I think that most improvements will require increased Government support in agriculture. I feel every United States citizen wants agriculture strong and our communities are in support of measures to ensure this.
I would like to discuss four parts of the farm program that I believe could and should be improved:
Payment limitations. I started farming in 1980 on 460 acres and I have been opposed to payment limitations since the first day. These limits do not protect the small farmer in the real world, as they were intended. However, they keep him from growing and running a more efficient farm. I believe payment limits should be eliminated.
Loan and LDP programs. I think the loan and LDP programs are fundamentally sound because it supports the farmer in depressed market situations. I feel it is the most important program; however, it can be improved. One way to improve the corn loan program is to include marketing certificates in the 60-day lock program. I have to use marketing certificates on my farm and I am not eligible for the 60-day lock program, which I do not think is fair.
Why does the 60-day loan program apply to the cotton loan program? This would allow the producer the opportunity to market cotton within the 60 days instead of having to rush to sell the cotton the day he pays his CCC loan off.
Also, the method that the LDP is derived could be improved on. It has been fairly consistent for the first 5 years of this program, but for the 2000 cotton market crop, it has been about 5 cents lower than the first 5 years.
Agriculture Market Transition Assistance Payments. When this last bill passed, I thought it was a bad idea when Congress passed the AMTA payments in the last farm bill. However, now I think that AMTA should be continued in the next farm bill for two reasons—they have helped sustain agriculture and can continue to do so. Additionally, these payments should continue because they are not affected by world trade agreements.
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Counter-cyclical payments. The three areas that I have already mentioned did not change support significantly. I believe the big increase should come in the form of a new counter-cyclical program. This new program would support farmers only when it is needed and not when it is not needed. This is just good common sense.
I am aware of the world trade agreements, yet I do not fully understand them, but I hope my proposal will be WTO-friendly. I propose starting a new program similar to the old target price programs, starting with a target price, then determine the average market price for the 4 months that the majority of a specific crop is marketed. Then pay the farmer the difference between the target price and the average market price. Use his base and yield that he already has established. If that average market price is below the loan rate, then he will be paid the difference between the loan rate and the target price. I predict that this would be WTO-friendly because the farmer is paid based on base instead of production. I do not believe farmers will plant more or less of any specific crop because of this program. Therefore, this would not be trade distorting.
Before closing, I would like to discuss the 2001 crop. The administration says rising prices for some commodities are improving prospects for farmers. I would like to ask what are these commodities? The prices of the crops I grow are at the lowest they have been since 1980. The $5.5 billion emergency agriculture spending that is planned is not going to be enough. Something needs to be done now. I am afraid most farmers are not going to make it to the next farm bill, including myself.
In conclusion, the 1996 farm bill provided flexibility which I think is important today. The next farm bill should be similar but with improvements.
Thank you for allowing me to be here today.
[The prepared statement of Mr. Heard appears at the conclusion of the hearing.]
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Mr. CHAMBLISS. Thank you, Glenn. Chuck Lee.
STATEMENT OF CHUCK LEE, COTTON AND WHEAT PRODUCER, PEMBROKE, GA
Mr. LEE. Mr. Chairman, Congressman Hayes, Congressman Berry, staff, my name is Chuck Lee, I am a diversified family farmer from Bulloch County, Georgia, where I produce cotton, wheat, peanuts and cattle. Thank you for holding this hearing and thank you for this opportunity to present my views as they pertain to future farm policies. I would also like to thank Chairman Combest, all the members of the full House Committee on Agriculture and their staffs for the timely initiative they have taken by pushing ahead in writing a new farm bill. I applaud everyone's enthusiasm for undertaking this enormous task and wanting to get the job done this year. This shows your concern that the sooner we address the problems of agriculture with long-term solutions, the better off we will be.
In the new farm bill, I strongly support updating acreage bases to reflect recent planting history. After the boll weevil was eradicated, the planting flexibility in the 1996 farm bill allowed cotton acres to move back to the Southeast. In the Southeast region, we plant about 50 percent more cotton acres than we have cotton base acres.
I hope that the committee can continue to provide annual decoupled payments to producers. To be fair, these payments must be paid on updated bases.
Regarding the CCC loan program, I would support lifting the caps on commodity loan rates and raising the loan minimum to no less than 55 cents per pound for cotton. When loan rates and other program benefits are rewritten for the different commodities, they should be written so that the producer benefits among the different commodities are equitable. Farmers have a good track record for figuring out the best deal. Planting decisions should be based on market signals and not on Government policies.
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I am adamantly opposed to payment limitations of any kind. Payment limitations have become a burden to most family farm operations.
I am very grateful to the committee and their staff members for the recent hard work you put into improving and reforming crop insurance. Crop insurance, if used right, can be an important part of a farmer's financial plan. I would like to see a counter-cyclical program developed that works hand-in-hand with crop insurance. The counter-cyclical payment would be triggered by low prices and paid on actual production.
The current system of support—AMTA disaster assistance and crop insurance—has a history of rewarding the least efficient farmer. There are growers who have a tendency to give up and stop spending on a crop that is protected by crop insurance. These growers then collect their crop insurance indemnity and are eligible for any disaster assistance that becomes available. These farmers will usually net more profit than a farmer who struggles to produce the best crop possible, given the conditions at hand. During the past several years of drought, the farmer who tried to produce a crop often found himself producing just enough to make him ineligible to receive a crop insurance payment or a disaster payment. This is the producer who is truly at risk. This is also the producer who is responsible for maintaining a sound agriculture infrastructure. Tying counter-cyclical support to actual production will provide the incentive for everyone to be better farmers and improve all farmers' chances for equal treatment.
Agriculture is truly at a crossroads. No segment of the agricultural industry has been spared the hard times presently facing agriculture. As we address agriculture's problems, we need to find solutions that work for agriculture's entire infrastructure, not just the grower segment.
In closing, I would like to say that I realize that any agriculture program payment you afford us is subject to trade regulations and the regulations cannot be ignored. I would also like to say I am no different from most farmers. We would prefer all our income to come from the marketplace. Asking for help is very difficult for me to do, but I want to make it very clear I am asking for help, not welfare.
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My desire for the new farm programs is that its programs will provide economic stability for agriculture and encourage efficient production of food and fiber and not promote complacency and fraud.
Again, thank you for this opportunity to appear before you.
[The prepared statement of Mr. Lee appears at the conclusion of the hearing.]
Mr. CHAMBLISS. Thank you, Chuck. Donnie Smith.
STATEMENT OF DONNIE SMITH, COTTON AND WHEAT PRODUCER, WILLACOOCHEE, GA
Mr. SMITH. Congressmen, staff and guests, I want to thank you for taking time out of your busy schedules for this important listening session.
The American farmer, along with all of America, will be affected by this farm bill, as we know. Food and fiber are necessities of life. I like to say it is a national security issue. But we need the continued help of the Government to survive as farmers so we can continue to produce the safest and most economical supply of food in the world and not have to rely on imported food and fiber.
I am Donnie Smith, I am a full time fifth generation south Georgia farmer. We have got some of the bobwhite quail and also largemouth bass there on the farm, but I grow cotton, tobacco, wheat, peanuts, pine trees. I earn my income solely from that farm. My wife also—she was a school librarian, she is back home on the farm, she is a full time helper also. But we are trying to continue the dream of farming.
But American agriculture is in trouble. Low commodity prices is the main reason, but also we have high fuel costs, high fertilizer costs, taxes, just a world of problems beset us. Every single expense has increased on my farm but commodity prices have decreased.
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Therefore, my first point is I think we should do something about commodity prices and how we handle them. I want us to put some predictability, some profitability and stability in the new farm bill. I have sold cotton for as high as $1 a pound to 33 cents a pound this past year. So I think we need some kind of safety net when prices fall so low, so we can be certain before we plant that crop, so we will know a minimum price that we are going to receive and we can make that decision whether we want to plant that crop or not. I guess it would be called target price or whatever, I do not know the proper term. But we need to know—we need a target price.
I like the concept of freedom to farm where we have the flexibility to grow what crops we want to grow in the farm and I would like to see that continue.
A point has already been made, sometimes we are saying the same things over and over again, but I would like to see our antiquated bases updated. When the last farm bill was drafted and farm bases were assigned, cotton was not my primary crop on the farm. Now about 80 percent of my farm is in cotton. But it needs to be updated.
The loan rate is a good marketing tool, I used it last year, I did not use it this year, but I would like to see it continued. It is there for our need. I do not know which direction we are going, but if we are going to use the loan rate, it needs to be increased. It has not changed in the last years and every single expense has increased. I think that we should increase it and that we should put a provision so the loan rate escalates each year, maybe 4 percent a year. I mean we are talking about cost of living, we want some predictability and profitability in this farm bill.
As has been said before, I would much rather get my payments from the market, but until that happens, we have got to have some help to survive. We are accustomed to AMTA payments, I would like to see us continue those, but I would like to see us beef them up. Also, I would like to see us try to get them into the hands of the producers.
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I would like to see us give payments for good conservation practices. I like the quail, I like the bass. I think conservation practices benefits every citizen of the United States. One program that we can help and it was mentioned before is the strip or conservation tillage, put more funding in that program. It helps us produce, it helps us produce the commodity at a cheaper price.
Also, I would like to see some reservoirs there on the farms built and if the Government would aid us, to hold water when we have plenty of rain and then use them for irrigation in the drought periods or for livestock.
The boll weevil eradication program has been a tremendous program. I would like to see programs like this continued.
Some research to improve the biotechnological advances that are happening that helps decrease our expenses. I use the Roundup Ready gene in cotton and corn and the BT crops, but we need some continued money for research.
I would like to see us pay a farmer to let a portion of the land lay fallow if the Government is having to come in with these target prices and they are really too high year after year. If we are growing 100 acres, let us grow 80 but pay us well for those crops to let them lay idle. I know we are in a global economy and that is tough to work out sometimes, but I think that might work.
Again—the red light is on, but I will close—I would like to say thank you for your concern, your time and your hard work, a very difficult job. Whatever comes out of this new farm bill may determine if I and other small farmers can continue their dream of farming. Without the past support of Government payments, my farming and many others would have ceased. Remember, by helping the American farmer, you are helping all Americans by ensuring that a safe and economical supply of food and fiber are available.
Thank you all.
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[The prepared statement of Mr. Smith appears at the conclusion of the hearing.]
Mr. CHAMBLISS. Well, thank all you gentlemen for your insight and your comments on where you think we need to go. And let me start off just by asking all of you to give us your thoughts from this standpoint—even though we feel good about the budget number that we have got, we have increased the baseline significantly over what we thought we were going to have when we projected this back in 1997. But still obviously we only have limited funds within which to work with.
If you had to pick a priority category of payments to farmers, taking AMTA payments versus marginal loan rates or counter-cyclical payments, how would you prioritize this? From your operation, your day-to-day operation, is the AMTA payment more important, would a counter-cyclical payment be more important or would the marketing loan rate be more important? Whoever wants to start off.
Mr. HEARD. I will comment on that. I believe the priority should be in a counter-cyclical program. I think you heard from all of us, market prices is our No. 1 problem that we have.
I would like to also say the best counter-cyclical program would be raise the loan rates, but then like I said before, the world trade agreements may have a problem with it tied to production, but I think the counter-cyclical program should be priority.
Mr. LEE. I would agree totally with that. The AMTA payments are good and should be continued, but a lot of times, as you referenced, Mr. Chairman, they wind up in the landowner's hands rather than who they were actually intended for, the producer's hand.
The way I would like to see a counter-cyclical program run and the way the loan rates are, they are so close, I would not make a call on that one way or the other, they could actually be the same thing. But I guess what I am saying is pay me for what I do. That is the way America works. Do not pay me for what I do not do.
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Mr. SMITH. I tend to agree also. Like I say, I have sold cotton for $1 a pound, 33 cents a pound. When I got the dollar a pound, I really did not need any help. But when it is 33 cents, boys, I need a lot then.
Mr. BLOODWORTH. I went to the dictionary to see what counter-cyclical meant, I did not understand it, when you sent the notice out.
Mr. CHAMBLISS. Well, you are like me, you went to Georgia, Stewart, I mean, you know.
Mr. BLOODWORTH. That is right. And I am glad these southern Congressmen are all here today to listen to us.
To answer your question, it is going to take a combination and that is what you have tried to do in the past bill. The thing that concerns me more than anything else though is the fact that other countries are going to under-sell us at whatever price we have; whatever program we have, they are going to under-sell us. They tend to have the cooperation of the Government a little bit more than we do.
Publicity is important to us farmers when we talk in terms of drawing a payment; you know, construed by some as welfare. But we never hear anything about the supplements that you give to enhance trade with other countries, et cetera, the incentives there. I think that is a place we need to work on, is in our marketing area, get this tight line cleaned out, the backup. It does not take but one Coca-Cola more than they can sell to have a surplus and we have got a lot of wheat and other crops backed up.
We are talking about our Government payments, but we have got to help other people. Right here in your own district, 1,400 jobs lost to Thomaston Mills just recently. It has not affected the mom and pop industry, you know, the restaurants, the liquor store, whatever you think about along the way. But that is a loss to me for a cotton market. Those jobs are going to Mexico or somewhere else and we have got to have an incentive to sell that cotton to Mexico. So help us on that end.
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Mr. CHAMBLISS. The payment limitation issue, a couple of you mentioned and that is one of the fundamental decisions that we have got to make up front. And again, a lot of that is going to be dependent upon the cost of payment limitation elimination.
But Chuck, you talked a little bit about the farmer who farms the crop insurance program. And we all know in our own counties that that happens—some folks on a more regular basis than others. How do we eliminate that occurring in our commodity farm program if we do away with payment limitation? In other words, how do we keep the farmer who is going to abuse the system from farming the program as opposed to farming his crop?
Mr. LEE. Somebody that makes up their mind to abuse something, I do not think you are going to stop them until they stop theirselves. I am reminded a long time ago when crop insurance first came out, I had a couple of neighbors explain to me how to beat crop insurance on soybeans at that particular time. I listened to them and then I asked them, I said, well if we make a crop, we make a little more money in that, and they looked at me like I was crazy. But at the same time, those two guys are gone and I am still here.
I hope that some of the things that you have put into the new crop insurance where FSA is monitoring it—I am not sure how thrilled they are about their new job, but anyway, I hope that some of the things you all have done for crop insurance will improve it, to take care of this, and if it does not, we need to revisit it and continue to look at it. But I really do not see where, you know, limiting me—the size of the farm that I have now is much larger than I ever wanted or ever intended to have but it is what I have got to have to make a living off of. I do not see any way of cutting it back at all.
One thing that is a little unfair, I feel like, with the payment limitations is you have the same limitations regardless of crops. And some crops are going to have a higher input cost and at times, because of this, and depending on the way the program is structured, perhaps there will be higher payments for those crops. And in that case, you are penalizing the guy because of the crop he is growing because everybody has got the same cap. I do not think—I think the payment limitations were put in effect to help the family farmer and I think right now they are hurting him in a lot of cases because of the size that the farmer has had to go to.
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Mr. BLOODWORTH. Mr. Chairman, could I address that for a minute?
I am somewhere between what my fellow committee here has addressed it. I mentioned tightened worksheets to keep families that have got four boys that could not do nothing but drive tractors and got a worksheet in each of their names and when daddy is making all the decisions and this sort of thing, I do not know how you can stop that. I liken it almost to the Republicans doing away with estate taxes completely. It worries me. Would I have ever had a chance to have a piece of the pie if you have it with no cap on it. I think it needs to be increased, I do not think it needs to be done away with completely.
Mr. CHAMBLISS. Just by way of information to you with respect to crop insurance, we are going to be doing some field hearings across the country after the farm bill process is completed on this issues of crop insurance and biotechnology. I think those two issues are critical to the future of agriculture. We did our crop insurance reform package last year and what we are finding is that it is not being implemented the way we anticipated it ought to be implemented. And one of the problems is exactly what you alluded to. Our good farmers are the ones who continue to irrigate and continue to fertilize and apply pesticides to their crop and if things work out well and commodity prices are up, they are going to do well. But if they do not, then the folks that farm the crop insurance program are coming out better. It ought not to be that way.
We need a strong person at RMA to ensure that this package is properly implemented and it is policed. And farmers are not going to do that against their—they are not going to police their neighbor and we know that. That is just a practical matter that will not work. But there are some procedures we can put in place with a strong person at RMA that could see that that is done. We talked with the administration as late as Thursday of this week about putting a strong person in that position and we are going to continue to work with them until we find that right person.
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Mr. Berry.
Mr. BERRY. Well, thank you, Mr. Chairman.
The one thing I would like to hear your opinions about, we talked about the marketing loans and counter-cyclical—a lot of people think of counter-cyclical in another way, but I think that is the best way to do it. And we raised the loan rate to the point where you do have a good safety net and some protection there. We do not feel like we have got enough money to do that for all—if you raise it high enough where you do have a good safety net, the production that could take place, we do not think we have got enough money to cover all that. If we have to limit that, how much each producer is eligible to be covered under that loan rate, how would you all do that? Would you do it by a percentage or cover the historic production and let the people that want to produce for the market, that part of their production would not be covered by the loan rates?
Mr. HEARD. I think one way to do that would be use the bases and yields that we have, but they would need to be updated. I mean that would be one way to put a limit on how much money you spend, you know.
Mr. BERRY. Would you update them by taking the average of the last 5 years?
Mr. HEARD. I think that would be fair; yes, sir.
Mr. SMITH. I tend to agree also. Some of us have spent a lot of money for irrigation, we have increased our yield. Some of us have never used Federal crop insurance at all as far as a payment, but it is a tool. I like it there, but it is abused, we know that.
But then I think if we use our present bases and our yields, you just have to go with a percentage.
Mr. LEE. It would bother me somewhat to do it on the last 5 years, especially for the Southeast. My yields were much better—we have had 4 years of drought and even with an Olympic average where you throw the top and the bottom out, that would be better than just a straight 5-year average, but it would be tougher on the Southeast I think because of the drought we have had the last 4 years, to do anything on 5 years.
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Mr. BLOODWORTH. What we have learned from the Rice Program and the Peanut Program has its place here with these other crops, two-tier system. But please, please listen to me well, as just was alluded to. You are going to put the best farmers out of business because who would have ever dreamed that with a $9.98 pound cotton yield on my farm that last year I settled for $6 pound to the acre. Some of this was irrigated cotton. Now you all, we had it just south of here, and there are sections in Georgia, there are sections that have been blessed with some rain, so we all are not eating out of the same spoon, but do not forget those of us that have been good farmers, that have paid our way, put our parts in society, that because of no fault of our own, have really run into a disastrous past few years. So help us with those yields some way or another. And it is going to take more than 2 out of the last 5 to be forgiven for us to compete. You know, if you do not do it, we might as well go ahead and surrender.
Mr. HEARD. One other comment, the actual production would be the very best way, but you know, perfect world.
Mr. BERRY. Right.
Mr. BLOODWORTH. If I had all the irrigation, I would agree all the way, you know, dividing it up. Please allow me to again speak up. Remember our disastrous years. Many of you better farmers have not been able to put in the irrigation because of the long-term drought. Maybe we are coming out of it.
Mr. BERRY. I do not have any further questions, Mr. Chairman.
Mr. CHAMBLISS. Robin.
Mr. HAYES. Stewart, I am curious about your comment on the repeal of the death taxes. Think about that some more and I would like to come back. But I would like for you all to comment on our trade negotiations and policies there. I kind of feel like we have been pencil whipped on some of these negotiations. What do you think, Mr. Smith, in terms of goals and objectives? We have got a new trade negotiator and my request to him was let us do a little bit more bargaining with our team being on top instead of so many accommodations. We have been very benevolent to a number of our foreign neighbors and that is good up to a point, but we have got to look after our folks. Comment broadly, to the extent you want to talk about that.
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Mr. SMITH. Well, Congressman, I drive a tractor, that is my primary job. But what goes on in these trade negotiations greatly affects me. I volunteered some time over in eastern Europe on a farm about 5 years ago. Farming in that part of the world, in that part of the country, they look after their farmers, they have been hungry once before, so they have a good farm policy, according to what I could learn at the time. We are trying to improve our farm policy.
We need strong trade negotiations. You are the people that can help and make that work for our benefit. Sometimes I feel like yes, we have given away certain things that we should not have. As far as me knowing exactly how to correct that, I do not, but I do feel like that we do need real strong—because as I mentioned, we need the—we produce the safest and most economical supply of food in the world. We do not want to have to rely on imported food in the future because of some of the restrictions. They can put anything on their food. But let us be careful to look after the farmer in these future trade negotiations.
Mr. HAYES. What did you see in eastern Europe that that government was doing for their farmers that was worthwhile? Anything we have not mentioned this morning?
Mr. SMITH. Well they were, target prices I guess would be the word that they were using, they were guaranteed a certain price for their commodities when they grew it. They knew what they were going to get for their crop that particular year.
Mr. HAYES. OK. A big concern of mine, somebody mentioned earlier the closure of Thomaston Mills, there are a series of textile mills, many of which are already closed, that are a big part of our Southern heritage. We do not have a problem with Marion Berry and Sanford and Saxby and I, but one of my big concerns is the loss of our domestic textile industry. It has got to have something to do with the price of cotton. If we do not have consumers in this country, in other countries, these far eastern competitors are not going to buy American cotton. So that is a big concern to me, and we are working, trying to get some recognition of the problem. And again, your input would be very helpful there. But we are not enforcing customs agreements that are in law, that are allowing goods to be shipped through Mexico and brought back here duty free. And that hurts the cotton farmer.
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Mr. HEARD. There is no doubt that the trade agreements are hurting the American farmer. Imports are coming in and exports are not going out. Also, another problem we have today in the cotton market is the value of the dollar. I do not know what can be done about that, but I understand now that the value of the dollar is really hurting us bad in the cotton market, and the closing of mills too.
Mr. HAYES. Well, the value of the dollar, tied to devaluation of foreign currencies and subsidized farm products and commodities, if you all can come up with the answer to that, call us quick. Right, Saxby? [Laughter.]
Research. You grow tobacco in this district. There has been some remarkable things done. Tobacco has the ability to produce protein, high quality protein, large amounts that cannot be done through stem cell research and other things that I think you are going to see. And in the budget that we are looking at, there has been more money applied for research. We need some additional. Finding an alternative crop for tobacco just is not going to happen, but if we can find alternative healthful uses, that is something that I hope you all continue to work with us on to try and make that happen.
Comprehensive energy policy which protects our children and grandchildren from dependency on foreign energy source. We are working very hard to do that and again, you all are a good source of information.
Stewart, back to the up the limit but do not repeal it. Talk to me about that.
Mr. BLOODWORTH. I come from a humble beginning, I have been blessed to have a part of the American pie and I want everybody to have that same opportunity.
I am afraid if there had not been some limitations—and I know I differ with my good friend, Congressman Chambliss—if there had not been some limitations, I believe Ford, DuPont, the folks that got there first, would have had it and I would never had a chance to get any of it. They would have put it in trusts, et cetera, so I could not have had it.
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I do not believe in taxes dividing the wealth and Mr. Berry, I vote Republican. Republican thoughts are deep ingrained, but I just think it needs to be increased—I am so far from [Congressman Richard} Gephardt on coming back to $200,000 or $60,000 or whatever he wants to come back to that I would rather there be no cap than not something be done about it. But I think $10 million is where it ought to be.
Mr. HAYES. Look at the Ford Foundation, you will see they have already done that and that is just one of many.
Thank you, Mr. Chairman, I will wait for the next round.
Mr. CHAMBLISS. OK. I want to talk a minute about—in thinking about marketing loans, Glenn, you talked in terms of the value of locking your loan rate for this 60-day period. Tell us a little bit about how valuable that is in your grain operation and if you have any thoughts on how we can move that into some other crops.
Mr. HEARD. I think it is helpful on marketing of the crop. Today, if I pay a CCC loan off, until I sell that crop, I am at market risk. Sometimes we get busy doing other things and the next thing you know the market has got away from us. The 60-day program, I think was a good program, just not eligible for the other crops, just corn. It gives you time to market your crop within that 60 days and you know what your LDP is going to be.
Mr. CHAMBLISS. National Corn Growers have submitted a proposal to us for where they think it ought to go in the farm bill with respect to the corn program, in which they are advocating a recourse loan versus current non-recourse. Does anybody have any thought about whether we ought to move to a recourse versus non-recourse loan? And their thought is—and I concur with this philosophy, I am not sure whether we reach it by doing that, but their philosophy is that we need to do whatever we can do to encourage the farmer to sell in the market and that a recourse loan will do that.
Mr. BLOODWORTH. I would like to address that. I would like to use an example, if I could, in answering.
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As you know, there are few buyers left in most commodities on a national level. When they get all they want—and let us use cotton, soybeans, wheat, et cetera, something that can be held for sometime, the pipeline is full and it is in the hands of four, five, six people. They have got enough to go 6 more months—what chance is there that we will ever have a price increase in the market? Our present policies have destined that we will not see the chance of a windfall again, dollar cotton. We could survive this thing if we could—we could have a few curves, but we have leveled this thing out. How long has it been since cotton prices have done anything but down.
Folks, keep in mind, I grew 500 acres of wheat this year, averaged 60-something bushels of wheat to the acre, sold it at the marketplace, $2.35 a bushel, probably on an up day, minus basis of 30 points plus 8 cents for hauling, so that left me $2.20-something cents. You heard me say—and I am the oldest as far as farming, and I am a tractor driver too—that is as cheap as I have sold wheat in my lifetime. And yet everything you know that we buy and that you buy costs more today than it did. Same combine when I started that I could buy for $11,200, is $125,000 to $150,000 today. And wheat production has increased, but if it tripled, where would I be?
You know the word parity has not been mentioned because you could not afford it. Mr. Berry, the Government, you know, there is not enough money to afford parity for what was done in this country, practically everybody was involved in farming. It is dangerously low when my kind of folks, our kind of folks, are gone—it is dangerous what can happen.
We are made out of something that folks who are accustomed to eight hours will never be able to overcome. We love the soil, we think there will always be people who love the soil.
The other area—and I am taking a long time, but you know there was a time, panel, that we did grow the most economical crop in the world. I am not sure that is a true statement any more. We grow the safest, but there are other countries competing with us. And you know, I went to Brazil at one time and looked because of the advantages in the country, the country supporting balance of trade payments and this sort of thing. I thought maybe I might ought to be farming there rather than here. But I came to the conclusion—and I had a friend, Bernard Snyder, who tied up 100,000 acres for us, but I decided I was going to make it in America or not have it.
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And I say to you, these countries are out-producing us and we have got to have some help in the marketplace in selling our product. Thank you.
Mr. HEARD. Mr. Chairman, I have not studied the Corn Growers' proposal, but I do not see where that recourse loan would do any good, because with the marketing loan we have today, all the grain is ending up in the marketplace.
Mr. LEE. I would very much agree with that. I have read that Corn Growers' testimony and it was interesting. I am going to probably read it again, but I do not think I agree with it right now.
Mr. CHAMBLISS. It is kind of interesting, we were in a hearing in Minnesota a couple of weeks ago and I had one of the board members of National Corn Growers Association testifying, and I asked him that question. And he looked over and he said well, Congressman, I just do not agree with my fellow board members. [Laughter.]
It was pretty interesting.
Mr. BLOODWORTH. Congressman, one of the things that leads me to my comment a moment ago is the Midwest crops are cheaper input crops than what we have got here, and when I talk about growing by region, if it continues, the next phase is for us to try to have less input in it, to have some return. Therefore, we are competing with the Midwest at that point. You mentioned the Corn Growers Association, we know where the food basket of this Nation is sitting, in the Midwest. And there again, consider this thing by region and you will see that we will grow the cotton and peanuts and you all will grow the rice, they will grow the corn and soybeans. But we can grow good corn and soybeans down here. The reason we have not is we have had a higher income crop, but the input is going to change that.
Mr. CHAMBLISS. Marion.
Mr. BERRY. Stewart, as you were talking about the price of wheat a minute ago, rice is so cheap that a ton of chicken litter is worth more than a ton of rice. [Laughter.]
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That is pretty sad, is it not?
Mr. BLOODWORTH. It is, it is. And without a Rice Program, you will not——
Mr. BERRY. Oh, without that, there would not be any production at all right now. But that is the situation we are all struggling with. Every facet of agriculture has got that facing them. You know, there are a few isolated situations that are better than that, but not very many. And that is what we are struggling with too.
And some of my best friends are Republicans. [Laughter.]
Mr. BLOODWORTH. I think you are about half one myself.
And you saw my Democrat part came out awhile ago when talking about estate taxes.
Mr. CHAMBLISS. Robin.
Mr. HAYES. Talk to me about conservation programs. In my relatively short time there, I am very encouraged on some of the renewed emphasis, CRP, QUIP, EQIP, WRP. There is a tremendous movement in this country, as there should be, to responsibly preserving green space. Death tax is a big disincentive again there to planting hardwood trees instead of pines, to pass something on.
What are your thoughts about existing programs, how would you like to see them improved, changed, replaced. And another thing that you probably know already but there is more money in the budget for FSA agents as we change these things, and surely some need to be changed, we have got to have the people in the field to work with you, to monitor and distribute when we come up with these payments. So wax eloquently on conservation and what you think we might do there that we are not doing already.
Mr. SMITH. I mentioned conservation in my little monologue. I think we need to look at the things that can reduce also some input into our crop such as conservation tillage. I mean if you can put more money there, it will help us to grow a crop cheaper and in the end, it will help everybody concerned. So I would like more emphasis put in some of the crops that will reduce our costs.
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Mr. HAYES. What about investment tax credit for equipment that is specific to no till and low till kind of things? Somebody in Concord suggested that the other day, see if we can figure out how we might do that.
Mr. SMITH. Things such as that would be helpful.
Mr. HAYES. Mr. Lee.
Mr. LEE. I am not sure how much money I want you to spend on stuff like that if it comes down to a choice of spending on a tax credit for conservation equipment bought versus an AMTA payment or a higher loan rate. I would prefer that money go into program crops. As Mr. Smith says, it is cheaper to grow a crop strip till, I am going to buy that equipment and I am going to do that anyway, if I can reduce my inputs. Just help me make a profit when I finally produce that cotton crop, whether it is strip till or the other way. And if it is cheaper to do it strip till, eventually you are going to do that.
But conservation programs, the water programs for ponds to store water, even the pine tree programs, stuff like that, is very helpful. You know, when trees go in, we take a little land out of production, it can be a value both ways.
Mr. HAYES. You have got a lot of nice turkey country down in Georgia, you see those hardwood bottoms go out, there is no place for the turkey to spend the night. Mr. Heard.
Mr. HEARD. Yes, I believe we need to keep the conservation programs and continue to improve them, but I agree with Chuck, but conservation is good for all the people and if that is what the people in this country want, we need to pay the property owners to do that.
Mr. BLOODWORTH. Conservation programs should always be part of our agricultural program. Your comment on investment tax credit, it reaches so much further than us. Agriculture has been in a depression now for a number of years. The other segments of the economy seem to have gone well. I think we are going to see, as I mentioned awhile ago, the mom and pop thing from the Thomaston Mills area in our area, but I think we are going to have to have some spurts more than Greenspan is giving in interest cuts. I think that investment tax credit to the sewing plant, to whoever it is, needs to be not just on conservation and tillage.
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I want to throw out an idea that will save you a few dollars. There is a glut of pine trees on the market. We know what the Canadian—and I hope you will help our lumber industry support them—but here locally, you have got a program that tells us we have got to thin these trees. You have given us some extensions but when you give an extension, we have got to give more up for wildlife, this sort of thing.
I want to add maybe a third ingredient into this. How about allowing us out of the program completely as long as it does not go back into crops, row crops, and not have to pay back the money. It will cut you out some costs from now on, you are not putting surplus on the market and then any new programs have the conservation wildlife part of it, which is great. Have a higher payment for hardwoods than you do pines. You know, we did have 13 mills in the State of Georgia, paper mills, now we have got—do not hold me to this, this is not factual—but say 11 to consume all of this juvenile wood that we have got. There is a glut of it.
Mr. HAYES. I will yield back in just a moment, but a lot of the farmers in our part of the world are having more success with hunting leases than they are raising crops. I am amazed in a few years what $2 an acre land is now $15, sometimes even a little bit higher for deer leases and all those kinds of things. So hopefully we will be able to provide you additional opportunities there to do some things.
Mr. Chairman.
Mr. CHAMBLISS. That is spoken by a man who is probably the best shot in Congress too.
I want to talk a little further about set asides. Some of you specifically mentioned that and we are alluding to it somewhat with our conservation program, but we have had some differing opinions around the country in our hearings both in Washington and outside of Washington with respect to set asides. There are a number of folks who will come in and say do not allow any more set asides, that is the worst program we have ever had. It destroys the infrastructure from the standpoint of implement dealers and fertilizer and chemical dealers, and for every acre we take out, they put in two in Brazil or Argentina. And then other folks say it is the best thing we have ever done.
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Again, this is one of these issues that we are going to have to wrestle with and we are going to have to make a fundamental decision early in the process of the farm bill of whether we move forward with more set asides, less set asides or whatever.
Anybody have a comment, further comment, on where we ought to be with regard to set asides?
Mr. SMITH. I wrestled with that a good bit. I know we are in global trade, but I feel like that we need to look hard at this. It might be a tool that we can use to get some of our land and get our prices up. That is what is killing us, these low commodity prices. And I would like for us to look at every avenue to get those increased. I told my wife a lot of nights I will wake up with sweaty palms, you know, just in a sweat contemplating the future of the farm with these low commodity prices. I have done all I can do. I have put in irrigation, I have insured, I have—the low commodity prices are killing us. And if this is a tool that we can use to get some production down—like I say, I am a tractor driver, I do not have all the answers, but I think this might be a tool that we need to look at. I am not opposed to it, as a farmer.
Mr. LEE. I have wrestled with it also and maybe come to somewhat a different conclusion. I just remember when I farmed with set aside, I do not know that I ever reduced production. I set aside the forest land I had and maybe did a better job with the other land that I was left with. I can only speak for myself, I do not know whether that was—but I would assume that a farmer is not going to set aside his best land, he is going to set aside the land that fails 2 out of 5 years or 3 out of 5 years.
My concern is just how much good it would do and it is a cumbersome program to administer and I really do not want to take anything off the table that would help us with market prices, but I just feel that the money could probably be spent better in other ways. If you want to take land out of production, My land has never qualified for any of the pine tree programs until perhaps this last longleaf. If you want me to take some land out of production, go back to some of the pine tree programs or something, I will put land in it, if it qualifies, but it has just never done it. I did not look into the longleaf program that is in effect now, but that is, after struggling with the idea of set aside, that is what I have come up with.
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Mr. HEARD. I, for one, do not believe in set asides, I believe in the global economy we are in today, that whatever we set aside in this country would be a drop in the bucket when we are on world markets. And I just do not believe that would do us any good and it would increase the cost to the farmer for participating in the program.
Mr. BLOODWORTH. I do not like to be accused of being paid for leaving land out, but under conservation reserve programs, we escape the wrath of the public in that. Therefore, you heard me say I think we have got enough pine trees, but to encourage hardwoods, knowing they grow better in low lands, but encourage grass cover, but you have got to get the prices up—$35-$40 an acre, just average land rent, will not meet our obligations, we have got to have enough that can encourage us. While we are giving other countries our markets, I would like to say while we are giving other countries our quota, I think we are better paid by getting land out of production, and I am in favor of acreage restrictions, but using conservation reserve more to do it would be one way.
Mr. CHAMBLISS. Marion.
Mr. BERRY. Mr. Chairman, we have been encouraged to, as our chairman and ranking member say on the committee, think out of the box. Let me throw this out to you. I presented this to two people that I thought were world class in Congress, they both assured me readily that I was crazy.
Most of the prices of these commodities are set in the United States and our production does have a profound impact on the world market price. When we take land out of production and raise the price, then somebody else puts more land into production and they take our market share. And that has been happening for a long time.
If we did not start our tractors in the spring and in place of that we just bought the board, we bought future delivery contracts and we did not start our tractors until the price got high enough—you know, if they think they can raise $3 soybeans in Brazil, I do not think we can do it, we cannot do it from my home county, we will just buy theirs in place of it. We will own their production until the price gets to the point where we can make a profit by planting.
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What would you all think about that?
Mr. LEE. I have thought about that and threatened to do it this spring, as a matter of fact, a long time before cotton got where it is now. University of Georgia, some stuff I have seen on them, last year we averaged a little over 500 pounds of cotton and according to their work, economic analysis, that probably cost me in the 90 cent range, 93 or 94 cents was what they came up with, I think I probably produced it a little cheaper than that, but I threatened to do just that. With cotton in the 50 cent range, why in the world do I want to produce cotton when I can buy it cheaper than I can produce it, and just hold onto it. I chickened out, I did not do it. Probably going to be sorry now that I did not, the way prices have gone.
But I have come to the same conclusion you did, why do you grow something when you can buy it cheaper than you can produce it.
Mr. HEARD. The only problem with that is I am also in the vegetable business and some of these vegetables there are just a few growers in Georgia. And we cannot get 10 growers to agree on anything.
Mr. BERRY. It would have to be a Government program.
Mr. SMITH. That was going to be my comment.
I like the concept, but I agree, we cannot all get on the same page. But I thought about that also, but then my neighbors said farming is a disease, we are going to continue, it is a plague, we are just going to continue until we are busted. But hopefully not, hopefully we can come out with some farm bill that will protect us and be able to get us a target price and update our bases. I am a strong one on that one.
Mr. BLOODWORTH. I have been in slavery all of my life. As long as I owe somebody some money, I am enslaved, I feel like. I have been blessed to be on the other side of the fence in forming a bank and making decisions on other people's lives. I found that most of us are carrying over debt from last year and the year before. Therefore, we go with our hat in our hands to our bankers and when we told him we were going to sit down for a year, you would not get enough to feed your family that year, much less to buy your commodity options.
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So while it would work, there would be somebody else that would decide well, I am going to grow vegetables this year. It is just the hardest thing to get together and the American consumer is awfully lucky that we have got a bunch of folks that act like we do. You know, it was tried during the tractorcade to cut back, we just cannot get our act together. We are not a union, we are not paying dues. But you have got a good point, it would work.
Mr. SMITH. Just continue to think outside the box and let us come up with some solutions.
Mr. CHAMBLISS. I want to make sure that we have got all the areas covered that have been addressed in other sections of the country. Let me ask you all one final question from my perspective and that is this—if we—going back to this counter-cyclical versus AMTA payment priority issue, if we concentrate on a counter-cyclical program, whether it is target price or whatever it may be, and we come up with a good counter-cyclical program, how can we justify AMTA payments on top of that?
Mr. SMITH. I do not know that you can justify them but I will say that farmers in my neighborhood have become accustomed to them, they rely on them, the bankers rely on them. It would be tough to cut them out completely. I do not know how to justify them, but again, we supply food and fiber for our Nation.
Mr. LEE. They are hard to justify now without a counter-cyclical payment. Somebody asks you why the Government is giving you an AMTA payment, but I will make a comment that I really probably should not be making because I do not know enough about it, but if we do not put some of this support in the form of an AMTA payment, according to the trade regulations, could you put it all in——
Mr. CHAMBLISS. That is a problem because AMTA payments are WTO, they are in the green box, and we have got plenty of room.
Mr. LEE. Right. There is room to work there. While I would prefer to have it based on counter-cyclical, you have to work within the, you know, guidelines that you have got to craft a program. And I am not sure we could get enough help in a counter-cyclical program to do what we need to do.
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Mr. HEARD. I would say keep them somewhat as they are today, which they are very low today. This year, we took a 25 percent cut in the AMTA payment, but I would not really have a problem with them changing to a counter-cyclical program if need be.
Mr. BLOODWORTH. I liken what is happening to taking away my guns. You take away many more producers, the likelihood of our Nation surviving in a disastrous situation places us on the same level that we are in with oil right now. We are at a dangerously low level, and to explain to our people that the security net is here for a comfortable level of food supply at a price that can be afforded. And if that will not sell the program, you cannot sell it.
Mr. CHAMBLISS. Chuck, let me address this question to you. Should loan rates reflect farmers' cost of production or a marketplace average over a period of time? And if it is to be cost of production, how would we base the loan rates on a regional basis?
Mr. LEE. I guess it would depend on, you know, how the loan program fit in with all the other programs. But I would like for them to be based on cost of production. And as far as regional goes, you would just have to—it would present a problem when you start a loan rate on cotton, maybe not as much as it would on corn or soybeans or something, basing them on a regional platform would be a good idea, I am just not sure that you could do it. I am not sure that if it was done that way, if you would not encourage production in parts of the country that was not as well suited to grow a crop as another region of the country was.
So while I would like them on cost of production, it would be a good idea, I think you have got to arrive at a happy medium somewhere as to what you can afford and that may lean more toward the marketplace than it would the cost of production. If you had them on cost of production and it was true cost of production for each farmer, you could do away with crop insurance and everything else. And I am just not sure it can physically be done.
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So I think you would have to weigh the different money you have got to spend on it.
Mr. CHAMBLISS. OK, anybody else have a comment on that?
Mr. HEARD. That is a tough question. We all know the loan rates need to be higher, but how much higher and where to set it—cost of production would be a good way to do it—whose cost of production would be tough I would say for a good majority, a majority of farmers in this country.
Mr. CHAMBLISS. Let me ask each of you this question, which is my last one. From a practical standpoint, when is the earliest date that you believe any changes in permanent farm law should become effective? Donnie.
Mr. BLOODWORTH. I would say with low commodity prices and the mood on the farm, I think we need it as soon as possible.
Mr. CHAMBLISS. Chuck.
Mr. LEE. Today would be fine. [Laughter.]
Mr. HEARD. I agree. Like I said earlier, something needs to be done now, 2001–02 crop—a lot of us are not going to make it to the 2003 crop.
Mr. BLOODWORTH. First, I am an American and second, I am a farmer. I think that should be left up to the President's agenda.
Mr. CHAMBLISS. Gentlemen, any additional questions or closing comments, either one of you?
Mr. BERRY. I would just, first of all, thank you all for being here today and then your last comment, you all seem to be in agreement that we have a desperate situation. I took from the way you reacted that you share my view that if we do not do something pretty soon to make farming more attractive to the next generation, my son will be the first generation in my family that has not made a living on the land. And I cannot fault him for it. And that concerns me a great deal.
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You know, I fear that we are going to lose our ability to produce food and fiber for our country. Back to my opening statement where I said that is the job of this committee, is to see that we do have national security in that area. I think we have put it at great risk and if we do not do something very soon, we are going to lose that ability and it will happen in such a subtle way that we will not realize we are at Brazil's mercy until it is too late.
Once we let this infrastructure and ability to produce go by the way side, it is going to be real hard to put it back in place.
I do thank you all for your input and for being here today.
Thank you, Mr. Chairman.
Mr. CHAMBLISS. Robin.
Mr. HAYES. Thank you, Mr. Chairman. I think our challenge in the farm community is to help educate a quite apathetic public and I think the administration and the administration here in Georgia and other States can be very helpful in doing that because the ties between the farm community and our overall economic health are extremely, extremely strong. We have remarkably low food prices and everybody eats, some of us more than others, you can tell that. But given that fact, the whole of our population is dependent on you and what you do and we cannot afford to give our agriculture to two, three, four huge conglomerate company because then they will figure out a way to get the price up.
So that is what I think we can do big picture wise, and must do.
I want to, in closing, let you all in on a secret, but it cannot go out of this room, because if everybody got in it, then it would not be any good any more—how many of you are in alligator farming? Well, you look at these boots on my feet that came from North Carolina's eighth district and when I tell you how much he pays for those alligators and how much he gets for them at the end, you may want to look into it. Now finding the fellow to go in there and catch them when the times comes, that is the rub. [Laughter.]
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Thank you, Mr. Chairman.
Mr. BERRY. I think you shoot them first.
Mr. CHAMBLISS. There you go, one of those gun stores we were talking about. It is easier, Marion, you are right.
Now we have got some alligator farming in the eighth district of Georgia too, got a couple of them up in Monroe County.
Well, let me just say in closing again, gentlemen, you four guys, we really appreciate you being here to share your thoughts with us and what we have heard today I think is pretty general from what I am hearing all across the eighth district, and a lot of what you have said we have heard all across the country.
We do have differing views on some of the issues and it is our job to take the differing issues and try to consolidate them into what we think is the best possible farm policy and work within the budget restrictions and limitations that we have got. But I just cannot thank you all enough for your preparation and for being here today.
And to all of you, let me thank you, the audience, for coming out and participating and sharing your ideas with us as we got ready for this hearing and we just thank you for being here.
I see one of my good friends down here that I forgot to recognize that I cannot not recognize. As we were putting together our patronage committee appointments, the guy that headed up that committee for us is my good friend Alec Pointevint. Alec, stand up, he has been a long time activist in the political realm in Georgia, but more importantly, he has been a long time activist in agricultural circles and knows and understand the issues and I appreciate your help and assistance, Alec.
To Nora Bell, I think Nora had to leave, but to Nora and to Joyce and to Michael, gee, we really thank you folks for hosting us today. This has been a great facility in which to have this hearing and I promise you we are going to be back for future events, not unlike this, at Wesleyan College.
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And to the staff, my staff director, Christy Cromley, and Tyler Wegmeyer, who is also on the majority staff, and Russell Middleton, who is on the minority staff—thanks, guys, you all did a great job. And to my personal staff too, who worked so hard to help put this together.
John McGuire and the National Cotton Council, John, we thank you for helping with refreshments and with transportation. We simply cannot do without folks like this who are willing to step forward.
And I just want to tell you that we are going to have a tough month in July in the Agriculture Committee and I do not know where we are going to wind up, but I can tell you that we are going to continue the dialogue with folks like you all across America to make sure that we do come up with what we hope to be good solid farm policy that is going to carry us into the next century, into the 21st century, because I, unlike a lot of people across America, I have great hopes for American agriculture.
When I hear you people talk about the fact that you are doing what you are doing because you love it, I know it has got to be the truth, because you ain't making any money at it. If you did not love it, you would not be doing it. And as I look at these folks out here, I know a lot of them personally and I know that that is their feeling and their belief. And it is because of people like you all that we make the commitment to try to craft the best policy that we can craft to ensure that you are around, not just for the 2003 year, Glenn, but that Marion's son and my son-in-law and grandson have the same opportunity that all of you have had.
So as we go into this next month, you all think about us and we know you will and stay in dialogue with us to help us craft this policy.
With that, I think there are a couple of official statements I have to make here as we conclude the hearing. The record will remain open for 10 days to accept statements and any additional information.
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To my friends, Marion Berry and Robin Hayes—guys, I just cannot over-emphasize to you all how busy these guys are and how they need to be at home, but they sacrificed to come out and be with us today and to you guys, I really appreciate you being here. They are going to be real players in crafting this policy and I think they have got a little better understanding of what is going on in the eighth district of Georgia.
So thank you guys, thank everybody for being here and this hearing is adjourned.
[Whereupon, at 10:55 a.m., the subcommittee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Glenn Heard
My name is Glenn Heard. I am a farmer in Decatur and Seminole Counties, Georgia. I farm about 10,000 acres. It is mostly irrigated. I grow many different crops such as peanuts, cotton, corn, and vegetables. I am here today to tell you what I believe can be done to improve some of the Federal farm programs.
I would like to thank you for coming to Georgia and holding this hearing. I appreciate having this opportunity to testify.
I would like to begin by saying that most of the farm programs that we have today are fundamentally sound. However, they fall short of keeping agriculture viable in Georgia. I think that most improvements will require increased government support in agriculture. I feel every United States citizen wants agriculture strong in our communities and is supportive of measures to insure this.
I would like to discuss four parts of the farm program that I strongly believe could and should be improved.
Payment limitations: I started farming in 1980 on 460 acres. Since the first day I have been opposed to payment limitations. Payment limits have been a contributing factor in keeping some farms inefficient. These limits do not protect the small farmer in the real world as they were intended. However, they keep him from growing and running a more efficient farm. I realize politics play a part in provisions such as the payment limits. However, I believe payment limits should be eliminated. This could help reduce the need for more support in the future.
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Loan and Loan Deficiency Payment Programs. I think that the Loan and LDP Programs are fundamentally sound because it supports the farmer in a depressed market situation. I feel it is the most important program. However, I feel it can be improved. One way to improve the corn loan program is to include the marketing certificates into the 60-day lock program. I have to use marketing certificates to pay my CCC loans. When I use marketing certificates I become ineligible to use the 60-day lock program. I feel this is not fair and would like to see it corrected. Why doesn't the 60-day lock program apply to the cotton loan program? This would give the producer the opportunity to market cotton within that 60 days instead of having to rush to sell cotton the day he pays off his loan. I also believe that the method that the LDP is derived from could be improved upon even though I do not completely understand that method. I do know that the first five years of this program the cotton market plus LDP had been fairly consistent. However, the 2000-cotton market plus LDP is 5 cents per pound lower. I am sure something has changed in the LDP formula. This needs to be corrected so that we will have a good idea what the actual real world loan rate is.
Agriculture Market Transition Assistance. I thought it was a bad idea when Congress passed the AMTA payments in the last farm bill. However, now I think that AMTA should be continued in the next farm bill for two reasons. They have helped sustained agriculture and can continue to do so if the support is increased. Additionally, these payments should continue because they are not affected by the world trade agreements.
Counter Cyclical Payments. The three areas that I have mentioned did not change support significantly. I believe that the big increase should come in the form of a new counter cyclical program. This new program would support farmers only when it is needed and not when it is not needed. This is just good common sense. I am aware of WTO agreements. Yet, I do not fully understand them. I hope my proposal would be WTO friendly. I propose starting a new program similar to the old target price program. Start with setting a target price, and then determine the average market price for the four months that the majority of a specific crop is marketed. Then pay the farmer the difference between the target price and the average market price. Use his base and yield that he already has established. If that average market price is below the loan rate, then he will be paid the difference between the loan rate and target price. I predict this would be WTO friendly because the farmer is paid based on base instead of production. I do not believe farmers would plant more or less of any specific crop because of this program. Therefore, this would not be trade distorting.
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Before closing I would like to discuss the 2001 crop. The administration says rising prices for some commodities are improving prospects for farmers. I would like to ask, ''What are these commodities?'' The prices of the crops I grow are at the lowest they have been since I started farming in 1980. The $5.5 billion of emergency agricultural spending that is planned is not going to be enough. Something needs to be done now. I am afraid most farmers are not going to make it to the next farm bill including myself.
In conclusion, the 1996 farm bill provided flexibility, which is important today. The next farm bill should be similar but with improvements. I would be pleased to respond to any questions the panel might have. Thank you for allowing me to be here today.
Statement of Donnie Smith
Thank you for taking time out of your busy schedules for such an important listening session. The American farmer, along with all of America will be effected by the new farm bill. Food is a necessity of life, a national security issue. We need the continued help of the government to survive as farmers so we can continue to produce the safest and most economical supply of food in the world.
First let me introduce myself. I am Donnie Smith, a full time fifth generation south Georgia farmer. Growing on my farm this year is cotton, tobacco, wheat, peanuts, and pine trees. In the past crop years, I have grown corn, soybeans, vegetables, rye, oats, cattle, and hogs. I earn my livelihood and provide for my family solely from the farm. My wife also works full time on the farm.
American agriculture is in trouble. Low commodity prices, high fuel costs, high fertilizer costs, taxes, increased machinery prices, droughts, floods, and a myraid of other problems beset us. The mood on the farm today is one of desperation, depression, and uncertainity. Some nights I wake up in the middle of the night with sweaty palms and can't sleep contemplating the future of my farm. Hopefully, with the new farm bill, not only can we come up with some workable solutions to benefit not only the farmer, but also all American citizens.
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Below are some suggestions for the new farm bill.
We need some kind of safety net whenever yield or prices fall below a level of profitibility. Before we plant the crop we would know the minimium price we would receive. Put a target price on all of our crops. I feel some reasonable target prices are:
Corn-$3.60 a bushel, wheat-$4.50, Cotton- 68 cents, Soybeans-$7.
We need the continued support of the government in the hard times to survive. Without your support and payments over the last years, my farm would not be in existence today. I would much rather be independent of payments and have high enough commodity prices, but that has not been the case in past years. I have sold cotton for as high as $1 a pound and as low as 38 cents per pound. We need some stability when we start growing a crop. When the market is high, we do not need payments, but when the market or yields are low we need payments. Payments that will ensure that all the financial obligations are met.
We need to continue the concept of freedom to farm that allows the farmer the flexibility of growing which crop we want to grow, the one we feel that is the more profitable, or the one that grows best on my farm.
We need our antiquated bases updated. When the last farm bill was drafted and farm bases were assigned, cotton was not the primary crop grown on my farm. Today almost all my acreage is devoted to cotton. My AMTA payments are based on low paying corn and wheat bases.
We need the loan program for crops to continue. The loan is a very valuable tool that some farmers use some years. I put my cotton in the loan in the year 2000, but not in 2001.
We need the loan rate for all crops to be increased. The loan has not changed for the last five years, while almost every expense on the farm has increased. I suggest a 4 percent increase for each year be used. Using cotton as an example: 4 percent a year on the current loan rate of $.52 would equal approximately $.02 a year for 5 years and would increase the loan rate to about $.62. The 4 percent a year could be used for other crops also. A provision should be included so that the loan rate escalates 4 percent each year.
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Beef up the AMTA payments, make them bigger until commodity prices improve. Try to get them into the hands of the producer.
Give payments for good conservation practices. Conservation practices benefit every citizen in the USA. A good program would be to make payments on strip or conservation tillage. These tillage practices reduce farm expenses. Also, conserving water by aiding farmers and ranchers in the construction of farm ponds and reserviors would also benefit everyone. Conserving the soil, water, and our environment are critical issues and need some aid or cost sharing to encourage the farmer to implement these practices.
Continue the Boll Weevil Eradication Program [BWEP]. Programs such as the BWEP allow farmers to reduce expenses.
We need some government aid for research to improve technological advances such as gene altering round-up ready cotton and corn, and BT crops. Research allows us to grow crops cheaper.
Paying a farmer to let a portion of his land lie fallow until prices improve
Again, I say thank you for your concern, time, and hard work in a very difficult job. Whatever comes out of this new farm bill may determine if I, and other small farmers can continue their dream of farming. Without the past support of the government payments, my farming and many others would have ceased. Remember, by helping the American farmer, you are helping all Americans.
Statement of Stewart Bloodworth
Good morning, Mr. Chairman and members of the Committee. We are happy you have chosen Middle Georgia for this hearing. I am Stewart Bloodworth, a farmer from Houston County, Georgia. My farming career spans some forty years with a 4,000 acre operation which includes general row crops, up to 20,000 hogs per year and a 150 beef cattle herd. All of this has been put together in the years since I completed college. I state this to verify that in America it is possible to start with nothing and achieve much. This could not have been possible without hard work, the support of a devoted wife, and at times, a government that helped market our products.
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Now that I am in the twilight of my farming career, I am better able to assess what has worked for me and what has not. Only recently, I acknowledged to my Congressman, Saxby Chambliss, that under present conditions, I could no longer farm as I have in the past and meet my financial obligations. I, therefore, am in the process of selling 1200 acres of good farming cropland for residential development. This is not to say that the government owes me anything, but present farm programs are making me too dependent on government payments that cannot last forever.
Government policies in our hemisphere and throughout the world will not allow us to continue business as usual. It concerns me that this generation of farmers is so dependent on government assistance. I would prefer to be paid at the market place.
I realize that as a benevolent country, we have exported our technology to the point that other countries are in a better position to compete than we are in a world market economy.
Surely we have learned something from past history. We should know what worked and what did not. Present farm programs and technology are encouraging more grain production in the Southeast, an area previously planted predominantly in peanuts and cotton. We need to support programs by region so we are not competing with each other. We can over-produce our market anytime we have favorable weather conditions; therefore, we must have acreage restrictions. We know this has worked in the past.
There are three main points I hope you will consider in this farm program:
1. The last 5 years have been disastrous for the farmers in my area because of severe drought. As you develop a farm program, you will put all of us out of business if these low yields are used for production history.
2. There must be an incentive that will encourage farmers to reduce the tilling of our soil, to maintain a cleaner environment, to grow a safe food supply and to provide an affordable product for the American consumer. You hold the throttle to the engine.
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3. We must do whatever it takes to sell American products. We cannot allow surplus or oversupply at the farmer's expense. The PIK program of the past should be considered. If we do not want acreage restrictions, we must do something about over production.
In summary, the loan program is necessary. However, I think it should be implemented as it was in the past where the government forfeited the loan for the commodity in 9 months. The AMTA payment is well established and facilitated; however, the FSA office needs to tighten the number of worksheets or at least scrutinize and make sure that each recipient is fully invested in the crop.
Thank you for allowing me to appear before you.
Statement of Chuck Lee
Chairman Chambliss and members of the subcommittee, my name is Chuck Lee. I am a diversified family farmer from Bulloch County, Georgia where I produce cotton, wheat, peanuts and cattle. Thank you for holding this hearing and thank you for this opportunity to present my views as they pertain to future farm policies. I would also like to thank Chairman Combest, all members of the full House Committee on Agriculture and their staff for the timely initiative they have taken by pushing ahead and writing a new farm bill. I applaud everyone's enthusiasm for undertaking this enormous task and wanting to get the job done this year. This shows your concern that the sooner we address the problems of agriculture with long term solutions, the better off we will be.
It goes without saying that we in production agriculture are operating in an era that rivals the likes of the Great Depression. The price we receive for the goods we produce does not come close to covering total costs of production let alone render a profit. The University of Georgia Cooperative Extension Service estimates that the cost associated in producing a pound of cotton averages about 78 cents. Unfortunately, it now appears that for the third consecutive year, farmers will average less than 50 cents per pound from the market place. On the surface, one would expect a much stronger market for cotton since domestic consumption to this day continues at a record pace. However, well over 50 percent of our textile needs are satisfied through cotton imports to the tune of 14 million bales equivalent in 2000 alone and that number is expected to rise in 2001. This has placed the American farmer in a perilous situation. The balance of my comments will be devoted to farm policy considerations I believe will help preserve the family farm unit.
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With the passage of Freedom to Farm came planting flexibility. For that, I am appreciative. When Georgia eradicated the boll weevil, cotton acreage expanded back into our state. Without planting flexibility, that never could have happened. Due to the limited price protection ensured by the 96 Farm Bill, Congress has graciously aided us in our times of need. However, the very relief that Congress has provided in response to the crisis has not benefited everyone equally. When we signed the market transition contracts in 1996, we knew exactly what we were entitled to receive in the way of support payments each year. When Congress elected to make emergency market loss assistance by means of the AMTA formula, the result translated into Georgia cotton producers receiving less that 50 percent of what our counterparts in other regions have received. Roughly 50 percent of the cotton acres currently planted in Georgia and in the entire Southeast region are either not eligible for an AMTA payment or receive a much smaller payment for another crop. Our relative cost of production and exposure to low commodity prices is as great and, in some instances, greater than that of other producing regions. It is of the utmost importance that the Committee applies a more recent planting history for all forms of direct, decoupled payments in future farm program legislation. I strongly support updated acreage bases, and I hope that the Committee can continue to provide annual decoupled payments to producers. For many others, and myself the AMTA payment helps us secure operating loans each year.
Regarding the CCC loan program, I strongly support lifting the caps on commodity loan rates and raising the loan minimum to no less than 55 cents per pound (currently .50/lb) for cotton. Loan rates have been frozen for a number of years and are no longer representative of the true costs of production. Having said that, the marketing loan has done more to keep American agriculture competitive in world markets than any other trading tool. The ability to revise and update loan levels will provide the opportunity to correct the inequities that currently exist. As you have been made aware, the soybean loan rate is unfairly high relative to that of other commodities. An adjustment should be made: either bring other commodity loan rates in line with the soybean loan rate, or bring the soybean loan rate down to be in line with other commodity loan rates. Planting decisions should not be based solely on government policies; planting decisions should be made based on market signals.
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As a producer of wheat, I must point out a problem with the loan rate that occurred after harvest had begun this spring. USDA announced the national average loan rates in December of 2000 for this year's crop. What USDA did not do in a timely fashion was to announce local loan rates. After harvest began, I did not know what loan rate my wheat would be protected by. It was frustrating and potentially costly not to have a signal from FSA as to what I might be able to expect. It may be worth the committee's time to consider legislating a deadline by which USDA must announce national average and local/county loan rates.
I am adamantly opposed to payment limitations of any kind. Due to the capital-intensive nature of farming coupled with skyrocketing input costs and the ever narrowing of profit margins, I have been forced to farm far more acres than I ever intended or desired to farm. My quest to develop a more efficient, viable, family farming operation has taxed my current payment limits. I have had to pay close attention to how I structure my operation in order not to leave money on the table that I can ill afford to lose. My operation is one of the 20 percent of all farms that produce 80 percent of the total output of food and fiber in this country. This small percentage (20 percent) is the same farmers, who keep food in the U. S. supremely affordable. Due to their greater efficiency, commercial size family farms are the only ones who will ultimately be able to maintain our dominance in the highly subsidized global market place and remain competitive.
I am very grateful to the committee and their staff members for the difficult task they recently endured while improving and reforming crop insurance. Crop insurance is very important to farmers because it not only helps provide a financial safety net, but it is also a very valuable tool to use in obtaining financing for a farming operation. Crop insurance will probably always be a work in progress. I encourage you to continue to closely monitor crop insurance to ensure its integrity is not eroded by fraud and to keep crop insurance regulations current as crops and farming practices change. Crop insurance is certainly not the total answer to providing a financial safety net for farmers, but it will always be an integral part of any good farm plan.
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A way that the Committee could help improve the farming situation and help build a financial safety net for farmers is to create a counter cyclical mechanism to help offset low income or low price years. A counter cyclical program could provide support to producers during such difficult times. This and other means of support must take into account (index) the negative effect the strong dollar has had on rendering the U. S. farmer to a status of residual supplier and has conversely, caused a huge influx of foreign goods to flood and disrupt our markets. The counter cyclical payment should also be tied to actual production as well as low income and low prices.
The current system of support (AMTA, disaster/economic assistance, and crop insurance) has a history or rewarding the least efficient farmer. There are growers who have a tendency to give up and stop spending on a crop that is protected by crop insurance. These growers then collect their crop insurance indemnity and are eligible for any disaster assistance that becomes available. These farmers will usually net more profit than a farmer who struggles to produce the best crop possible given the conditions at hand. During the past several years of drought, the farmer who tried to produce a crop often found himself producing just enough to make him ineligible to receive a crop insurance payment or a disaster payment. This is the producer who is truly at risk. This is also the producer who is responsible for maintaining a sound agriculture infrastructure (farm supply dealers, gins, elevators, tractor dealers, et cetera). The producer who tries his best to produce a crop will usually spend any government support he receives back on inputs that he has put into his crop, thus supporting agriculture's infrastructure. The producer who does not try to produce a crop and preys on government support usually has low input costs (sometimes only the cost of the seed) and will usually spend the majority of any government support he receives outside of agriculture's infrastructure. While the inefficient producer is contributing to Americas over all economy he is not doing all he could for agriculture's economy. Tying counter cyclical support to actual production will provide the incentive for everyone to be better farmers and improve all farmers' chances for equal treatment. Also by tying counter cyclical support to actual production and low income, the counter cyclical program would work hand in hand with crop insurance to provide the financial safety net most farmers are looking for. Under this proposal, if a farmer had a total disaster then crop insurance would provide support and if a farmer produced a short crop that did not qualify for crop insurance then the counter cyclical program would provide him support.
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Agriculture is truly at a crossroads. No segment of the agricultural industry has been spared the hard times presently facing agriculture. Marketing a crop has become more difficult due to the consolidation or closure of agribusinesses that buy farm products. As competition is eliminated the prices of farm products suffer. When I harvested this year's wheat crop, I had one local grain dealer that I could sell my wheat to. Several years ago I had a choice of a least five local grain dealers to sell my wheat to. The farmers' plight is further compounded by the problems plaguing other agriculture industry segments. Farmers have always had the ability to rely on local banks and farm supply retailers for financial assistance in lean times. Now farmers are faced with a banking community that frowns on agriculture lending. The local agricultural retailers are probably in no better financial condition than their farmer customers are. These retailers have written off tremendous amounts of money as bad debts from their accounts receivable. There is no disaster aid to help them weather the current economic storm. National distributors and basic manufacturers of agricultural products are also feeling the pinch while most non-agricultural industries are realizing much higher returns on their investments. This discourages much needed research and stifles the pipeline for dissemination of instructional information as field personnel cuts are made. As we address agriculture's problems, we need to find solutions that work for agriculture's entire infrastructure, not just the growers' segment. If the price of cotton is a dollar a pound, it would not be beneficial to me unless I have a source to buy the inputs needed to grow a cotton crop and a gin to gin the cotton.
It is very important the government fund a strong agricultural research program through the USDA and our research universities. Cottonseed research is a particular concern of mine. As we have relied more and more on industry research to supply our cotton seed needs, we have in some cases been forced to plant seed that was selected by the seed companies because of profit potential rather than the seed meeting the needs of a particular region. Also the recent consolidation that has taken place in the seed industry concerns me greatly. In the United States, cotton yields have actually started to slightly decline during the last few years. Cotton farmers will need good solid unbiased research to reverse this yield trend.
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A strong agricultural industry along with a strong defense industry should be of utmost public concern. To refer to farm policy as anything less than a national security issue would be an under statement. The average American consumer spends about 10 percent of their disposable income to feed themselves. This leaves the bulk of their personal income available to purchase the American dream. The safe, cheap, and secure supply of food that the American farmer delivers to the American consumer is the foundation for the United State's prosperity.
On a personal note, my wife, Lynn and I have five children (four boys and a girl). The oldest is a son who will finish college next December. He wants to return to the farm, but I have told him that is not an option at this time. I hope that someday, prosperity will return to my family farm to the extent that my son might have an opportunity to return to our farm. It is also my hope that in some small way that the previous recommendations cited in my testimony will help to bring about a brighter future for him and others who are willing to make a commitment to agriculture.
In closing I would like to say I am no different from most farmers, asking for help is very difficult for me to do. I want to make it very clear though, I am asking for help not welfare. My main concern for the new farm bill is that its programs will provide economic stability for agriculture and encourage efficient production of food and fiber, not complacency and fraud. Again, thank you for this opportunity and I will be happy to entertain any questions you may have.