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REAUTHORIZATION OF THE DAIRY INDEMNITY PROGRAM

THURSDAY, JUNE 26, 1997
House of Representatives
Subcommittee on Livestock, Dairy and Poultry
Committee on Agriculture
Washington, DC.

  The subcommittee met, pursuant to call, at 2:05 p.m., in room 1300, Longworth House Office Building, Hon. Richard W. Pombo (chairman of the subcommittee), presiding.
  Present: Representatives Lucas, Lewis, Blunt, Jenkins, Peterson, Holden, Johnson, Dooley, Farr, Boswell and Stenholm (ex officio).
  Staff present: John E. Hogan, chief counsel; David Dye, deputy chief counsel; Lance Kotschwar, Christopher D'Arcy, Brent Gattis, Callista Bisek, Julia Paradis, John Riley and Wanda Worsham, clerk.
OPENING STATEMENT OF THE HON. RICHARD W. POMBO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

  Mr. POMBO. Today's hearing will consider H.R. 1789, the Reauthorization of the Dairy Indemnity Program. H.R. 1789 was introduced by our colleague, the ranking member of the full committee, Charlie Stenholm, and I am glad to be a co-sponsor of it.
  In the overall scheme of things, the Diary Indemnity Program is a modest undertaking that reimburses dairymen when they are directed to remove their products from the market because of harmful residues occurring through no fault of the producer or the processor.
  Although this may be a small program, it can be vitally important to some of America's dairymen facing a possible bankruptcy. Since 1964, the Dairy Indemnity Program was routinely reauthorized without much notice or attention.
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  Unfortunately, it seems that after the smoke cleared from deliberations of the last farm bill, this program had been overlooked since no action was taken to reauthorize it.
  The recent rise in aflatoxin contamination in several States, however, has refocused attention on the need for this program. Therefore, H.R. 1789, which itself spends no money, would simply provide the authorization of this important program which has quietly helped dairymen in trouble for over 30 years.
  At a time when our dairy industry is facing major restructuring and uncertainty, I would hope that we could continue to authorize and support this in a fair and equitable manner.
  At this time, I would like to recognize the chief sponsor of the bill, the ranking member of the full committee, Mr. Stenholm.
OPENING STATEMENT OF THE HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

  Mr. STENHOLM. Thank you very much, Mr. Chairman.
  I would like to submit a full statement for the record.
  I cannot improve on your description of the bill, the need for the legislation. I thank you for your expeditious handling and look forward to welcoming our two witnesses, both of them, and hope you will allow me to introduce the VIP in the witnesses, the voter from the 17th District of Texas.
  Mr. POMBO. We'd be more than happy to do that, Mr. Stenholm.
  I'd like to call up our first panel, our only panel of witnesses. Mr. Randy Weber, who is the Associate Administrator of Farm Services Agency at USDA; and Mr. Calvin Buchanan, second vice president of the American Milk Producers.
  Mr. Weber, you may begin your testimony.
  Your full testimony will be included in the record. And if you could summarize that to try to stay within the 5-minute period, we'd appreciate it.
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STATEMENT OF BRUCE R. ''RANDY'' WEBER, ASSOCIATE ADMINISTRATOR, FARM SERVICE AGENCY, U.S. DEPARTMENT OF AGRICULTURE

  Mr. WEBER. Mr. Chairman, I will do that. And I can fairly much assure you that I will stay within the 5-minute period.
  Mr. Chairman and members of the committee, I am pleased to appear before you today to discuss the Dairy Indemnity Program. I have with me today Raellen Erickson, who is our program specialist in this area.
  The reauthorization of the Dairy Indemnity Program will provide payments to dairy farmers and manufacturers of dairy products who, through no fault of their own, suffer income losses with respect to milk or milk products removed from commercial markets because such milk or milk products contain certain harmful residues.
  Approximately 95 percent of the claims paid during the past 3 fiscal years have been for milk contaminated with aflatoxin. The occurrence of the losses under this program vary significantly; and consequently, payments are not easily estimated.
  For example, in 1995, seven producers in five states received payments totalling $25,000. In 1996, 39 producers in 7 States received payments totalling just under $208,000. However, is fiscal year 1997, the total funds available under this program were $257,000.
  However, by February 12 1997, all of the funds had been expended. And we still have FSA offices in five States that have received payment requests totalling $158,000 for fiscal year 1997 losses, and we have other claims that we think exist out there that we haven't taken applications for.
  The President's budget includes a request for $100,000 to be appropriated in fiscal year 1998, which is equivalent to the prior year requests, and I understand action taken yesterday by the appropriators provided even larger funds.
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  We support H.R. 1789 to authorize the Dairy Indemnity Payment Program, and I appreciate the opportunity to testify before you today and will be happy to respond to any questions.
  Thank you.
  [The prepared statement of Mr. Weber appears at the conclusion of the hearing.]
  Mr. POMBO. Thank you.
  At this time, I'll recognize Mr. Stenholm.
  Mr. STENHOLM. Thank you, Mr. Chairman.
  I am delighted to welcome Calvin Buchanan here to the Agriculture Committee. He and his wife, Virginia, farm in Wise County, and milk 500 dairy cows, now serving as the chairman of AMPI Southern Region. They have three children. I have known his father and mother forever, and have watched Calvin grow up.
  And no disparagement meant, Randy, to you. I appreciate very much all of your work and contribution not only to this effort, but in all areas. But you have one major handicap: you don't vote in the 17th District; therefore----
  Mr. WEBER. I understand.
  Mr. STENHOLM. But welcome, Calvin.
STATEMENT OF CALVIN BUCHANAN, SECOND VICE PRESIDENT, AMERICAN MILK PRODUCERS, INC.

  Mr. BUCHANAN. Thank you, Congressman Stenholm.
  Thank you, Mr. Chairman. I'd like to state that your opening statement was very closely worded exactly like mine. We are on the same wavelength.
  I am here today to urge the prompt support of H.R. 1789. The Diary Indemnity Program has been but a small element of the total agricultural policy for over the many years. It has, however, been the difference between many dairy farm families being able to continue in business or being forced to liquidate.
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  The program provides for indemnity payments to producers whose milk has been barred from the market due to residues of pesticides, toxic substances and chemicals if the problem occurs through no fault of their own. The program has been on the statute books since 1964 and has been extended to meet continuing needs as part of the Farm Bill consideration since that time.
  At this time, I'm not certain why it was not extended when the 1996 farm bill was passed, but the need does indeed continue. I am glad to learn Secretary Glickman has proposed its extension as part of other changes to last year's farm bill.
  H.R. 1789 would simply accelerate that action and should be approved. Last year's conditions were right for the development of aflatoxins in feed crops in some parts of Texas. This has been a problem in recent years, and we have routinely tested our feeds.
  Unfortunately, not all the problems are caught in the testing process. As a result, some milk has been removed from the market, and those dairymen face severe economic problems. Some of the producers who experienced problems over the past year have received assistance through funds approved in last year's Agricultural Appropriations bill.
  Not all the claims could be met with available funds. However, I understand that USDA estimates unfunded claims at around $160,000. This may be low as local farm service agency offices in Texas stopped taking claims under their program when the money was exhausted.
  This could hardly come at a worse time. Not only do producers lose income from their milk barred from the market, but they lose the value of that contaminated feed, and often incur additional cost to clean up the problem.
  Given the current economic situation, there just isn't room in these operations to absorb these feed costs. As you may know, the basic formula price for the month of May, the price that drives all the milk that--and the milk price that virtually all dairy farmers receive was $10.70, the lowest since June 1991.
  I understand that USDA has estimated $450,000 would be needed to meet pending claims and claims that might be filed to meet the current problem. I again urge you prompt and favorable action on this bill so that the existing needs can be met.
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  Thank you.
  [The prepared statement of Mr. Buchanan appears at the conclusion of the hearing.]
  Mr. POMBO. Thank you.
  I thank both of you for your testimony.
  Mr. Weber, you outlined for us what the past expenses have been under the program and what the projected expenses were that you're dealing with right now. One of the issues that has been raised is that we contend that this is for a dairyman that runs into a problem through no fault of their own.
  Can you explain to the committee how that may happen?
  Mr. WEBER. I'm not certain I fully understand your quesion.
  Mr. POMBO. How could a substance get into the supply without the dairyman knowing about it?
  Mr. WEBER. I think probably last year would be a good example. In Texas, generally because of dry weather, your incidence of aflatoxin in your growing crop will increase. And that is certainly one of them. And one of the primary reasons why we have been making payments under this program is because of aflatoxin contamination.
  Mr. POMBO. Thank you.
  I have no further questions.
  Mr. Stenholm, did you have any questions at this point?
  Mr. STENHOLM. Not so much a question, but to point out one part of the bill that provides that not later than 180 days after the enacted of this act, the Secretary shall submit to Congress a report identified and evaluating alternative methods to finance the Dairy Indemnity Program.
  Now this is something that I feel very strongly about, the need of this program. Your question: Many times now, with new and modern science technology, we're able to measure things after the effect that may or may not be harmful; but because of the nature of food safety and the importance that the dairy industry places on food safety, it would cause the milk to have to be removed from the consumer chain.
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  That's something that could be devastating. Just like right now, I'd ask Calvin, what's the current situation for dairymen? You're milking 500 cows. Are you cash flowing today?
  Mr. BUCHANAN. No, sir. And we have been--we're a long established operation. Been there since back in the mid forties. Virtually have no debt load. We did not cash flow last month.
  Mr. STENHOLM. So you're milking 500 cows; you have very little, if any, debt; and you're not cash flowing. Now many of our dairymen are not in that favorable a condition.
  Mr. BUCHANAN. No, sir.
  Mr. STENHOLM. And if you came into a situation in which you suddenly could not sell your milk for any price,----
  Mr. BUCHANAN. For one or two days.
  Mr. STENHOLM [continuing.] That would have a very devastating effect. And that's why, looking ahead, which is part of this legislation is looking, it's been my judgement that we really cannot depend upon an appropriation every year.
  With the pressures on the budget, it's going to be necessary for us to look at a more permanent way of providing this assistance perhaps through some kind of an insurance program, perhaps some other idea that might come up.
  But for right now, as both have testified and in your opening statement, Mr. Chairman, one of the things about this year is that we have a situation in which some dairy producers have been compensated. Unfortunately, we've stopped taking applications.
  And Randy, I do have one question of you. In light of the positive response thus far of this legislation, can we expect that perhaps the FSA offices will again start taking applications?
  Mr. WEBER. I would presume that we would, yes.
  Mr. STENHOLM. I would hope so. Because otherwise, there's going to be some folks that will slip through the cracks because of the--having been told there is no more money, stopping taking the applications now with the House--the appropriators making provision and with the favorable attitude thus far of this legislation, I think that would be very helpful.
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  Mr. WEBER. Certainly the language in your bill would suggest that we use it for 1997 so there be no reason why we wouldn't open it up.
  Mr. POMBO. Mr. Boswell.
  Mr. BOSWELL. Thank you, Mr. Chairman.
  I want to compliment you and Mr. Stenholm for bringing forth this legislation. It makes common sense to me. And people in the dairy business are so capital intensive, what you do, and it doesn't take much of a bump in the road to--as Mr. Buchanan just shared with us, I can assure you there is a number of people out there who aren't in the same good position that he is in, and my compliments to him for being in that.
  But you think of the size of that operation and the capital investment there, and no debt load, and still can't make a buck, and how much we depend on that for nutrition in this country, that product. Its time is overdue. And this forward thinking, forward reaching. My compliments.
  And I will certainly support it.
  Mr. POMBO. Mr. Blunt, did you have any questions at this point?
  Mr. BLUNT. No, I don't, Mr. Chairman.
  I'm grateful for the hearing and the efforts you're making on this bill and want to associate my remarks with those of Mr. Boswell. I think this is a critically important thing for us to move ahead with.
  I'm glad the bill also goes back and allows us to look at problems that occur during the gap of when there is no legislation in effect.
  I appreciate you having the hearing.
  Mr. POMBO. Thank you.
  Mr. Lewis.
  Mr. LEWIS. No.
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  Mr. POMBO. Well, thank you.
  That is all the questions at this point.
  Mr. STENHOLM. Mr. Chairman?
  Mr. POMBO. Mr. Stenholm.
  Mr. STENHOLM. I would just want to make this statement to Mr. Weber.
  I know that the Secretary has been looking at ways to use the DEIP program between when we started talking about it and June 30. And June 30 is coming very, very close. And we still have a very good opportunity to remove some product in a very efficient and conservative way that will help the immediate plight of dairymen if we will use this year's DEIP money in order to make some forward sales under this proposal.
  And I would hope that you would carry this message back to the Secretary. There are many of us up here that are pulling for him wanting him to use that authority and to do it in an expeditious way if at all possible.
  Mr. WEBER. Congressman, I will.
  Mr. POMBO. Thank you.
  If there are no further questions at this point, I want to thank the panel for your testimony. The record of the hearing will remain open for ten days. If there are any further questions, they will be submitted to you in writing.
  The prompt reply to those questions would be greatly appreciated by the committee. But thank you for the effort that both of you put forth to appear before the Committee today.
  Thank you.
  The hearing portion of this meeting is adjourned.
  [Whereupon, at 2:20 p.m., the subcommittee was adjourned, subject to the call of the Chair.]
  [Material submitted for inclusion in the reord follows:]
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STATEMENT BY BRUCE R. WEBER ASSOCIATE ADMINISTRATOR FOR FARM SERVICE AGENCY, U.S. DEPARTMENT OF AGRICULTURE
Mr. Chairman and members of the committee, I am pleased to appear before you to discuss the Dairy Indemnity Program. With me today is Raellen Erickson, Agricultural Program Specialist, PSD, Farm Service Agency.
The reauthorization of the Dairy Indemnity Payment Program will provide payments to dairy farmers and manufacturers of dairy products who, through no fault of their own, suffer income losses with respect to milk or milk products removed from commercial markets because such milk or milk products contain certain harmful residues. In addition, dairy farmers may also be indemnified for income losses with respect to milk required to be removed from commercial markets due to residues of chemicals or toxic substance or contamination by nuclear radiation or fallout. Approximately 95 percent of the claims paid during the past three fiscal years resulted from milk contaminated by aflatoxin. The probable cause of these losses is feeding dairy cows feed contaminated by aflatoxin, which usually develops under certain weather conditions.
Payments are issued to dairy farmers after a loss has occurred. The occurrence of losses varies significantly and consequently payments are not easily estimated. In 1995, seven producers in five States received payments totaling $25,213. In 1996, 39 producers in 7 States received payments totaling $207,869. By February 12, 1997, 30 producers in 9 States received $257,305. As you can see, the program level varies from one year to the next and makes any estimate of funds needed for a fiscal year imprecise.
Indemnity payments were originally authorized by section 331 of the Economic Opportunity Act of 1964. The permanent program authority to operate the program was extended from time to time, but expired on September 30, 1995. The 1996 and 1997 agriculture appropriation acts authorized payments and provided funding that was available until expended.
The fiscal year 1997 funds available for the DIPP totaled $257,305. By February 12, 1997, all FY 1997 funds were expended and as of February 18, 1997, FSA offices in five States had received DIPP requests totaling approximately $158,052 that have not been indemnified for losses they incurred because funding was not available. Additional claim requests have not been taken. Therefore, the amount of additional FY 1997 claims for indemnification under the DIPP from February 18, 1997 to present is not known.
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The President's budget includes a request for $100,000 to be appropriated for FY 1998 DIPP which is equivalent to prior year requests.
We believe that the DIPP offers indemnities for lost income to dairy producers and manufacturers of dairy products who by no fault of their own have incurred a loss in marketing their milk or dairy product and we support the introduction of H. R. 1789 to reauthorize the DIPP. We will identify and evaluate alternative methods to finance the DIPP and submit this report to Congress within 180 days of the enactment of this act.
I appreciate the opportunity to testify today and I will be happy to respond to your questions.
STATEMENT OF CALVIN BUCHANAN, PRESIDENT, SOUTHERN REGION, ASSOCIATED MILK PRODUCERS, INC.
I am Calvin Buchanan, a dairyman from Decatur, TX. I am a member of Associated Milk Producers, Inc. and serve as president of AMPI's Southern Region and Vice President of AMPI. I am appearing here today to urge prompt approval of H.R. 1789.
The Dairy Indemnity Program has been a small element of total agricultural policy over the years. It has, however, been the difference between many dairy farm families being able to continue in business and being forced to liquidate. The program provides for indemnity payments to producers whose milk is barred from the market due to residues of pesticides, toxic substances and chemicals if the problem occurs through no fault of the producer.
The program has been on the statute books since 1964 and has been extended to meet continuing needs as part of farm bill consideration since that time. I am not certain why it was not extended when the 1996 farm bill was passed, but the need does indeed continue. I am glad to learn Secretary Glickman has proposed extension as part of other changes to last year's farm bill. H.R. 1789 would simply accelerate that action and should be approved.
Last year conditions were right for the development of aflotoxin in feed crops in some parts of Texas. This has been a problem in recent years and we have routinely tested feeds. Unfortunately, not all the problems are caught in the testing process. As a result, some milk has been removed from the market and those dairymen face severe economic problems. Some of the producers who experienced problems over the past year have received assistance through funds approved in last year's agricultural appropriations bill. Not all the claims could be met with available funds, however. I understand USDA estimates unfunded claims at about $160,000. This may be low as local Farm Service Agency offices in Texas stopped taking claims under the program when the money was exhausted.
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This could hardly come at a worse time. Not only do producers lose income from the milk barred from the market, they lose the value of the contaminated feed and often incur additional costs to clean up the problem. Given the current economic situation, there just isn't room in the operation to absorb these costs. As you may know, the basic formula price for the month of May--the price that drives the milk price virtually all dairy farmers receive--was $10.70, the lowest since June 1991.
I understand USDA has estimated $450,000 would be needed to meet pending claims and claims that might be filed to meet the current problem. Again I urge prompt and favorable action on this bill so that the existing needs can be met.

REAUTHORIZATION OF THE DAIRY INDEMNITY PROGRAM
(BUSINESS MEETING)

THURSDAY, JUNE 26, 1997
House of Representatives
Subcommittee on Livestock, Dairy and Poultry
Committee on Agriculture
Washington, DC.
  The subcommittee met, pursuant to call, at 2:20 p.m., in room 1300, Longworth House Office Building, Hon. Richard W. Pombo (chairman of the subcommittee), presiding.
  Present: Representatives Lucas, Lewis, Blunt, Jenkins, Peterson, Holden, Johnson, Dooley, Farr, Boswell and Stenholm (ex officio).
  Staff present: John E. Hogan, chief counsel; David Dye, deputy chief counsel; Lance Kotschwar, Christopher D'Arcy, Brent Gattis, Callista Bisek, Julia Paradis, John Riley and Wanda Worsham, clerk.
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OPENING STATEMENT OF THE HON. RICHARD W. POMBO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

  The business meeting is now called to order. We have before us the bill H.R. 1789, a bill to reauthorize the Dairy Indemnity Program. A copy of the bill is before you, as is a section by section summary of the bill. I think that we have had discussion on this particular bill.
  Mr. Hogan, do you have any comments at this time?
  Mr. HOGAN. No, Mr. Chairman.
  I think that the testimony supported basically what Mr. Stenholm, the sponsor of the legislation, indicated, as well as that of the dairy cooperative. And so I think that the record is fairly clear.
  Mr. POMBO. Thank you.
  Do any members have any discussion of this bill at this point?
  Seeing none, I ask unanimous consent that the text of H.R. 1789 be open for amendment at any point and that a reading of the bill be waived. Without objection, so ordered.
  Does anyone have any amendments at this point?
  Mr. Peterson.
  Mr. PETERSON. Mr. Chairman, I move that the bill, H.R. 1789, be reported to the full committee with a recommendation that it be favorably reported.
  Mr. POMBO. All in favor, signify by saying aye.
  [Chorus of ayes.]
  All opposed, signify by saying no.
  [No response.]
  Mr. POMBO. I note that the motion is carried by a voice vote. The bill, H.R. 1789, is ordered reported to the full committee with recommendation that it be considered and be favorably reported by the full committee.
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  This meeting is now adjourned.
  [Whereupon, at 2:25 p.m., the subcommittee was adjourned, subject to the call of the Chair.]