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REVIEW THE EFFECTIVENESS OF AGRICULTURAL EXPORT PROGRAMS

THURSDAY, APRIL 24, 1997
House of Representatives; Subcommittee on General Farm Commodities, joint with Subcommittee on Risk Management and Specialty Crops; Committee on Agriculture,
Washington, DC.
  The subcommittee met, pursuant to call, at 9:35 a.m., in room 1300, Longworth House Office Building, Hon. Bill Barrett (chairman of the Subcommittee on General Farm Commodities) and Hon. Thomas W. Ewing (chairman of the Subcommittee on Risk Management and Specialty Crops) presiding.
  Present: Representatives Lucas, Chambliss, Emerson, Moran, Thune, Cooksey, Pombo, Smith, Everett, Lewis, Bryant, Minge, McIntyre, Stabenow, Etheridge, John, Johnson, Baldacci, Goode, Boswell, Farr, and Stenholm [ex officio].
  Staff present: Lynn Gallagher, senior professional staff; Mike Neruda, director, Subcommittee on General Farm Commodities; Stacy Carey, director, Subcommittee on Risk Management and Specialty Crops; Ryan Weston, Brian Hard, Callista Bisek, Wanda Worsham, clerk; Andy Baker, and John Riley.
OPENING STATEMENT OF HON. BILL BARRETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA

  Mr. BARRETT. The joint hearing of the General Farm Subcommittee and the Risk Management and Specialty Crops Subcommittee to review the effectiveness of our agriculture export programs will come to order.
  I'd like to take a brief moment to thank Chairman Tom Ewing of the Risk Management and Specialty Crops Subcommittee for joining the General Farm Commodities Subcommittee in this hearing this morning to review the effectiveness of our agriculture exports.
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  I would also like to thank the witnesses who are here today, who are being with us and we look forward to their relaying their experiences and their suggestions about these programs to the committee.
  America's farmers and ranchers have certainly entered into a new arena. The global marketplace has become an ever-increasing part of United States agriculture.
  Today's farmers and ranchers must now compete at an international level in order to be productive and successful and the House Agriculture Committee has long sought ways to expand our U.S. agricultural exports and combat unfair trade practices.
  Today, we're going to take some time to review the programs that have been designed to assist our U.S. agriculture and review how effective these programs are in achieving our goals.
  Chairman Bob Smith has expressed a very keen interest in these so-called tools for agricultural trade and as we prepare for budget negotiations, I think it's important that we have a public record on the value of agriculture export programs and examples of how these programs do, in fact, expand our exports.
  United States farmers and ranchers can compete with farmers and ranchers from any country. It's the governments of these countries that we, the producers, simply cannot compete with.
  Many of the programs we talk about were originally mean to eliminate trade distorting practices world-wide. Of particular interest to many is the Export Enhancement Program or the EEP program. And its historic role in countering unfair trading practices, especially for our U.S. wheat producers. EEP was implemented as a part of the 1985 farm bill and contributed to our success in competing in the world wheat market. However, the United States has not used this subsidy program since the summer of 1985. As a result, our exports of wheat and flour have certainly stagnated.
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  Since some of our competitors, for international wheat sales have State trading enterprises, unfair trading practices do abound. The Canadian Wheat Board, the Australian Wheat Board are prime examples of why we are not operating on a level playing field and why our wheat producers have to contend with trade distorting practices from other nations. Both Canadian and Australian wheat exports have increased over the past year at the expense of our producers.
  The European Union remains a potential threat to our remaining wheat export market and when the European Union resumed its export subsidy last fall, the need to monitor their actions very closely became apparent.
  EEP has been a valuable tool to counter EU unfair trade practices in the past. I look forward to our discussion on EEP and other export programs and encourage everyone to take this opportunity to productively discuss how we can work together to improve these tools.
  I'm pleased now to yield to my counterpart, Mr. Ewing.
OPENING STATEMENT OF HON. THOMAS W. EWING, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

  Mr. EWING. Thank you, Chairman Barrett, and thank you for calling this hearing and allowing us to participate in it with you. I think the subject matter is extremely timely. I would like to thank all of the witnesses who are participating in today's hearing on all three panels.
  Now more than ever, U.S. farm income is dependent on assuring continued access to foreign markets, particularly since export accounts for as much as a third of U.S. domestic agricultural production.
  Developing and sustaining these markets is also critical as they provided outlets for our domestic products, thousands of jobs in processing and transportation. Without question, the export market is the key to the future and profitability of American agriculture.
  We must also consider our global competition. The European Union maintains a 10 to 1 advantage over the United States in export dollars and is focusing on seizing new market opportunities. Just recently, the European Agricultural Commissioner stated that American dominance of the Japanese food import market will start changing this year. Included in his statement was the announcement that the European Union's's agricultural export promotion to Japan will intensify over the coming months and years.
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  We must ask how do we stay ahead of the curve? How do we maintain our current markets while expanding into new markets? Are there existing markets we should reevaluate? More importantly, how do we achieve these goals with limited government resources?
  The easy part of the job is selling the products the United States produces because they are the highest quality in the world. As many of you in business know, U.S. products oftentimes command a premium world-wide. Many will pay more for our products just because it's American quality. We are a relatively reliable supplier with good credentials. Overall, most countries believe we are a good business partner. The hard part is getting our foot in the door and keeping it there.
  Again, thank you for your participation. I look forward to your testimony and appreciate your input as we search for the answers to these questions.
  Mr. BARRETT. Thank you, Chairman Ewing. In the absence of our ranking members, we'll proceed to the first panel, but I would suggest that any other opening statements from Members would certainly be submitted for the record.
  We'll turn to our first panel, with Chris Goldthwait who is the General Sales Manager, Foreign Agricultural Service, U.S. Department of Agriculture. He will be accompanied by Ms. Denise Fetters, Acting Director of the Marketing Operations Staff, Foreign Agricultural Service.
  Mr. Goldthwait, please proceed.
STATEMENT OF CHRIS GOLDTHWAIT, GENERAL SALES MANAGER, FOREIGN AGRICULTURAL SERVICE, U.S. DEPARTMENT OF AGRICULTURE

  Mr. GOLDTHWAIT. Chairman Barrett and Chairman Ewing, thank you very much for the opportunity to come before the two subcommittees today and discuss our export promotion programs.
  With your permission, I would ask that my full statement be entered into the record.
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  Mr. BARRETT. Certainly.
  Mr. GOLDTHWAIT. I'm also joined this morning by Mr. Randy Zeitner, Assistant Deputy Administrator for International Trade Policy.
  The prepared testimony that I will summarize briefly takes as its point of departure the points that both of you have just made regarding the future of American agriculture, first, that exports are the future, growth potential for American agriculture and second, that in order for us to capitalize on that potential, we are going to have to perform in a very competitive environment world-wide.
  My testimony this morning develops basically three themes. First of all, that each of our export programs and the other critical activities FAS undertakes in the area of export promotion responds to a particular problem or obstacle or trade distortion that is faced by our exporters in world markets. As we implement the Government Performance and Review Acts we are increasingly focused on the objectives and the measurable results of our programs.
  The second theme is that the programs that we administer and our other activities form an interconnected whole. They are most effective when they are used in conjunction with each other and four case studies in my testimony give examples of how the programs have successfully performed in combination in recent years to achieve very measurable and very significant export results.
  The third point gets also back to the environment that we face in the world as we try to make our exporters competitive. It is a changing environment, change is the only constant in world markets and so also must our tools and programs constantly readjust to those changing conditions. Our programs are not static, but they are organic. They are constantly in evolution.
  If I can take just a couple of minutes to elaborate on each of these three themes, I think it's perhaps easiest to look at the wide array of activities that FAS administers as reflecting three different general goals or addressing three general problems in the world environment.
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  First of all, we have programs and activities that are designed to help create the fundamental conditions in the world market and domestically where our exporters can, in fact, compete. For example, our commodity analysis, our commodity intelligence work that gathers information about markets, about market opportunities and about the activities of our competitors in those markets is absolutely critical as a point of departure. Similarly, the work of our trade policy office, in terms of identifying and negotiating on specific barriers and specific trade distortions, some of which you have mentioned, is equally critical in creating the appropriate conditions for our exports.
  The second area, the addressing of very specific goals and objectives and problems and trade distortions is the role of the programs that you have asked us to discuss here today. For example, the Export Enhancement Program and the Dairy Export Incentive Program are designed to combat the trade subsidies of others and enhance our market development efforts for commodities that are at a disadvantage because of the export subsidies used by our competitors.
  Similarly, our GSM—102 and 103 programs and other credit tools are designed to help leverage the financing for sales to developing countries and middle income countries that the private sector cannot, in fact, fully accommodate through its own resources. By taking a small measure of additional risk, we help leverage greatly the amount of trade financing that is available in the system.
  Moving on quickly to the second theme of how we use these programs together with our other activities, I'll mention only one example and that is our poultry sales to Russia where we have, in fact, created with industry a $1 billion a year market. It began through our commodity intelligence work in 1989 when we identified a trade opportunity because Russia's traditional partners were not able to provide product. We provided credit opportunities in 1991, $25 million worth of GSM—102 that really got us a foot in the door. We shifted later in 1994 to the use of our foreign market development program and our poultry cooperator, USAPEEC, undertook active and aggressive promotion opportunities. A year ago, however, we encountered some obstacles on the trade policy front where the Russian government raised concerns about food safety and threatened to increase tariffs. In a united government-wide effort to achieve a rollback of those, we worked very closely and arrived at a negotiated accommodation with the Russian side which permitted our exports to continue and in fact, even increase in 1996.
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  I'll be happy at this point to respond to questions that you and other members of the committee, two committees, have and certainly that include questions about some of the changes, some of the evolution of the programs, which seeing the red light, I will not address in my summary.
  [The prepared statement of Mr. Goldthwait appears at the conclusion of the hearing.]
  Mr. BARRETT. Thank you, sir. I appreciate those comments and we appreciate your recognition of the red light. We will try to stay within the 5-minute limit this morning.
  In your written statement, Mr. Goldthwait, and I quote, ''While current U.S. and world market conditions have constrained our use of the program, EEP remains an important market development and trade policy tool for U.S. agriculture.''
  I have a two-part question. Please explain why the current United States and world market conditions have constrained the use, our use of EEP, and second, if this is an important market development and a trade policy tool for U.S. agriculture, why hasn't it been reinstated?
  Mr. GOLDTHWAIT. The current environment, and I'll speak principally about wheat in world markets, is characterized by a situation that from the standpoint of American producers is rather unfortunate. Our own wheat crop last season was, because of various problems, not a particularly strong crop in terms of production level. At the same time, we saw that various other suppliers were increasing their production, responding to the higher prices that had been prevailing and enjoying very, very good weather conditions. The Australians, in particular, also the Argentines, had very large crops. The Europeans enjoyed a crop increase as did the Canadians. In other words, practically everyone had more supply than we did.
  The reduction in our sales this season, in fact, we believe, principally reflects the change in our supply situation. The demand for U.S. wheat continued. In fact, world demand has turned out this season to be somewhat stronger than we had anticipated earlier in the season. We have continued to market the available exportable supply that we have had without the use of subsidy. We have sold just about everything we have had to sell. We have, in fact, sold at prices that are higher than those of our competitors, particularly the European Union which did reintroduce subsidies as you noted.
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  So in effect, in that situation where we were continuing to market at a pace that was consistent with the supply we had available, we did not think that it was prudent to reintroduce the use of the export subsidy for wheat in particular.
  At the same time, however, we are very aware that conditions may change as we move into a new crop season and as we look at new developments around the world in terms of both supply and demand. This is why we believe we need to maintain this tool as a potential tool for combating subsidization and other unfair trade practices.
  Mr. BARRETT. Is it fair to assume that the Department is assuming a smaller wheat crop this crop season?
  Mr. GOLDTHWAIT. As we look ahead to the new season, unfortunately, with the weather developments in recent weeks and looking at the prospective plantings, it doesn't look terribly, terribly optimistic. Our first production estimate will be out in about two weeks and we will see there the Department's first estimation, not only of production, but also the impact of the recent weather developments.
  We had been very, very hopeful that we would have seen a return to a more ample wheat supply and while we still hope for the best, those hopes are certainly dimmer today than they were.
  Mr. BARRETT. With a smaller crop is it safe to assume that we would see no significant change in the Department's position on EEP?
  Mr. GOLDTHWAIT. It really depends not only on our crop situation, but also on the market posture of our competitors. If we saw, for example, a much more aggressive use of subsidization by the European Union, then was the case throughout most of the past season, most of the season that's now drawing to a close, we would certainly have to consider utilization of EEP once again.
  The key point is where we believe that the subsidization and other unfair trade practices of our competitors begin to cut into the market share that we think is achievable, given the supplies that we have.
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  Mr. BARRETT. Who really benefits from the export enhancement program?
  Mr. GOLDTHWAIT. The U.S. farmer is the chief beneficiary because when we use the program, we use it in a way that increases our share of the world market.
  Mr. BARRETT. And still there has been no reauthorization from the Department, no movement to crank up what has been a very successful program since the farm bill of 1985?
  Mr. GOLDTHWAIT. Since 1985, yes. The program is ready to go, if needed, but again under the current situation we believe we're selling as much as we would be selling even were we to reintroduce the program and there's frankly no reason to buy down the price a few dollars a ton when we're selling that same quantity at prices that are set purely by the market.
  Mr. BARRETT. Thank you, sir. My time is expiring. I yield to Chairman Ewing.
  Mr. EWING. Thank you. I recently introduced legislation which would grant China permanent most favored nation status once they become a member of the World Trade Organization.
  I don't have to explain to you that I think or maybe I can say it, but I don't need to, that most favored nation status is a misnomer in my opinion and it's ordinary trade status is what it really means.
  Would you outline the importance of the Chinese market and let's just start there.
  Mr. GOLDTHWAIT. It is hard to underestimate the importance of the Chinese market. It is enormously important to American agriculture as we look forward. The market is currently, if we include Hong Kong, our fourth or fifth largest market for U.S. agricultural products. As we look forward to the potential of this market because Chinese consumers are just reaching the income level where they're beginning to have more disposable income and they're beginning to spend that on a wider variety of food products, the growth potential there is practically unlimited.
  Mr. EWING. Is there a loyalty or an interest built up yet with the Chinese market for American products?
  Mr. GOLDTHWAIT. The Chinese buyers like American products. I would say yes, there is considerable loyalty. There is a desire to buy from the United States. However, we also need to be competitive. The Chinese will not pay an abnormally higher price simply to source from the United States. But increasingly, for a wide variety of products, we have been competitive in that market and we have seen heavy sales in that market in recent years.
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  Mr. EWING. We don't have a real advantage that they would rather have ours than somebody else's?
  Mr. GOLDTHWAIT. It depends on the product. Where we have a quality product that the Chinese need, they want to buy from us. They're willing to pay a little more for that quality. That's particularly true in Hong Kong and in the coastal cities that are becoming very prosperous of China.
  Mr. EWING. I guess I can probably answer my own question, but there is real concern about having the votes to continue the most favored nation status for China in the House in the current session. That would be pretty catastrophic for our agriculture exports if we fail to do that. Would you agree?
  Mr. GOLDTHWAIT. We would lose about $2 billion a year in sales immediately and again after the reversion of Hong Kong, you can look at a larger loss. We would also lose the potential to expand those sales quite considerably in the next 3 or 4 years.
  Mr. EWING. Finally, the European agricultural commissioner, as I said in my opening statement has maybe done a little bragging about what's going to happen with the Japanese food import market and it's going to start changing. I don't think he means that it's going to get better for us.
  What's your opinion of the most effective way to maintain our preeminence in that market?
  Mr. GOLDTHWAIT. Japan is the largest market for U.S. agricultural products and we intend that it should remain that way. The utilization of the various export tools that we are discussing here this morning including our Foreign Market Development Program and the MAP Program are critical to helping our exporters and our trade associations maintain an active and aggressive promotion campaigning that market. That's the best way to keep it, keep those contacts with the Japanese buyers strong and constant.
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  Mr. EWING. Mr. Chairman, I yield back my time.
  Mr. BARRETT. Thank you, Mr. Chairman. I'm pleased to note that the ranking member of the Agriculture Committee, Mr. Stenholm of Texas, has joined us and the Chair would yield to Mr. Stenholm, if he would care to make a comment.
  Mr. STENHOLM. Thank you, Mr. Chairman. I have an opening statement I'd like inserted in the record at the appropriate place.
  Mr. BARRETT. So ordered.
  [The prepared statement of Mr. Stenholm follows:]
PREPARED STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. Chairman, thank you for holding this hearing today. Farmers who today rely on export markets for about a quarter of their income may rely on such markets for a third of their income by the time Congress writes the next farm bill. And so, from the producer's point of view, it will be even more important to have effective promotion programs to maintain and expand markets.
Yet, agricultural export programs will be called upon to do more with less. As Freedom to Farm sent producers in search of foreign markets, the Market Promotion Program was cut by another $20 million. Meanwhile, EEP and DEIP will be reduced under the WTO from baseline levels of $930 million to about $595 million by 2001.
Those who don't understand the export programs continue to attack them, seeking further cuts. Its up to those of us who care about American agriculture to answer these attacks with the facts.
First, without EEP the Europeans would not have engaged in serious agriculture negotiations in the Uruguay Round. EEP remains an important tool with which to persuade our trading partners to implement commitments under past agreements, but also to bring them to the next round of agriculture negotiations.
Second, the Market Access Program is a highly effective, highly leveraged cost share program that supports an estimated 110,000 jobs spread across all 50 States. MAP focuses on cooperatives and small businesses that need help navigating in complicated foreign markets.
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Third, the Cooperator Program not only provides foreign buyers with access to U.S. farm commodities, it provides the nutritional and technical information foreign consumers need to allow them to use U.S. products instead of someone else's.
And fourth, export credit guarantees have been used in very creative ways to facilitate increased sales of U.S. agricultural products. We have learned that enabling foreign buyers to buy U.S. products at a competitive price may also mean helping them finance new processing facilities that fit U.S. product characteristics, or a new deepwater port to accommodate ships carrying U.S. products.
I would like to congratulate Mr. Goldthwait and the Foreign Agricultural Service, and all of the participants in the export programs we will be discussing today, on a record $60 billion in agricultural exports last year. Keep up the good work.
I thank you again Mr. Chairman for giving us this opportunity to hear from the folks who use the export programs we have authorized. As our producers seek out opportunities in rapidly changing emerging markets, it is up to us to keep current so that we can continue to provide the tools they need to capitalize on those opportunities.

  Mr. STENHOLM. And would like to ask a question or two in light of the recent attention that we'd been getting, various TV commentaries and others concerning the fleecing of America with the programs that you have talked about today.
  In the FAS Report entitled ''The Competition in 1996'' indicates the European Union spent over $9 billion on export market promotions and export subsidies.
  Would you break those down for purposes of comparing what they spend on export credit guarantees, market promotion activities and subsidies?
  Mr. GOLDTHWAIT. That number is comprised largely of subsidies and market promotion efforts. The market promotion efforts are the smaller portion. The subsidy portion is just under $9 billion and there are about $300 million in market promotion expenditures by the European Union, that is, programs comparable to our MAP program.
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  Mr. STENHOLM. And what's the current status of our MAP program?
  Mr. GOLDTHWAIT. It is currently funded at the authorized level of $90 million for fiscal year 1997. There were allocations of that funding that were made several weeks ago.
  Mr. STENHOLM. So again, restate exactly comparing the United States with Europe, what are we doing and what are they doing?
  Mr. GOLDTHWAIT. In export subsidies, they are spending just under $9 billion. They're spending probably $8.5, $8.7 billion in that range. In promotion activities they're spending roughly $300 million. On export subsidies we are spending currently this fiscal year about so far $30 million on dairy products and on market promotion activities we are spending $90 million under the MAP program, plus roughly $30 million under the foreign market development program. So the Europeans are outgunning us, if you will, on both fronts and I think the measure of our success is the fact that we are doing as well as we are doing given the resources that are available to us.
  Mr. STENHOLM. Why are the Europeans spending so much money? Why are they fleecing their taxpayers?
  Mr. GOLDTHWAIT. I've asked that very same question myself. I want to Europe about 3 weeks ago and discussed with some of their export officials why they were continuing to subsidize wheat exports in a market environment where they would sell just as much without. And I didn't get a good answer to that question, but their structure is built on a premise of artificially high domestic prices which they then need to buy down with export subsidies. Of course,their export subsidy regime spreads across a number of product areas where we have never subsidized from the standpoint of the United States
  Mr. STENHOLM. In your judgment, are they wasting those dollars or are they buying market share?
  Mr. GOLDTHWAIT. This season, particularly with respect to wheat, we believe they are wasting those dollars.
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  Mr. STENHOLM. What about other areas of agricultural?
  Mr. GOLDTHWAIT. With respect to some of the processed products, they may be buying a little bit of market share, but we don't think very much in the current market environment.
  Mr. STENHOLM. It's interesting, Mr. Chairman, as we deal with this international marketplace and with our producers facing, whether they're wasting it or not wasting it, is rather immaterial to our producers because I think even if it's marginal, they are receiving market share, but what's fascinating to me is here in the United States most manufacturers are utilizing some kind of market promotion in order to purchase shelf space, get into the minds of the consumers so that they will, in fact, buy their product versus their competitor. And here we are attempting to compete in the international marketplace with our farmers and we're basically heading towards unilateral disarmament with the general attitude of the general public and apparently the majority of the Members of Congress and if we're not careful. That's a fascinating phenomena right now that's going on and somehow, I hope, as a result of these hearings, Mr. Chairman, and work of this committee that we will be able to find a better way to put our best foot forward before we do some irreparable damage to our agricultural producers.
  Mr. BARRETT. Thank you, Mr. Stenholm. The Chair recognizes the gentleman from Kentucky, Mr. Lewis.
  Mr. LEWIS. I'd just like to follow up on Mr. Stenholm's questioning there. There are those who say that the Market Access Program is not effective. It's only subsidy to large companies. How do you feel about that?
  Mr. GOLDTHWAIT. First of all, it is not a subsidy to large companies. In the current fiscal year, the branded promotion which goes to larger companies is only 4.6 percent of the total spending in the program. Eighty-five percent of branded promotion activities are undertaken by smaller companies.
  In fiscal year 1998, all of the branded promotion will be by small companies and cooperatives. We believe that it is that group of companies that have new and innovative products that perhaps do not have the staying power by themselves to go and promote in a market for three or four years until they have sufficiently introduced those products. These are the companies that need the help of this program. These are the success stories. Just this morning, I learned of a new situation where we've created through the use of this program a market in Germany for farm-raised catfish, of $1.75 million and that's after about 3 years of steady promotion work. If you looked at the growth curve between sales of a few thousand dollars three years ago and that $1.75 million today, you see a good example of the impact of our promotion efforts.
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  Mr. LEWIS. The 4 percent, is that smaller than it has been in the past or is there a real change there?
  Mr. GOLDTHWAIT. That does reflect a change. That does reflect the legislative intent that we should increasingly focus the resources of the program on cooperatives and smaller businesses and so we're taking that very much to heart and as I said in my opening remarks, these are programs that are in evolution and this is one of the important evolutions in the Market Access Program.
  Mr. LEWIS. Thank you.
  Mr. BARRETT. The Chair recognizes the gentleman from Louisiana, Mr. John.
  Mr. JOHN. Very briefly, talking about the EEP program, seems to be a little bit of criticism as I move throughout my district about this program. Can you elaborate a little bit on some of the success stories with that as far as commodities, which commodities have fared better under that program?
  I know it's limited to the wheat and the flour and rice and stuff like that, but where are some of the commodities where it's been made, in your mind has been impacted?
  Mr. GOLDTHWAIT. I would point to two cases where the program has been particularly successful. One, I would attribute a good deal of our success in reversing our situation in the world wheat market in the late 1980's and the early 1990's to the use of the EEP program.
  We have seen a situation in the mid—1980's where because of the European subsidization, we in effect were looking at a loss in market share from a traditional range in the mid—30 percent range down to the mid—20's, 10, 11, 12 percent loss of the marketshare.
  Over a period of years through the use of EEP and some years spending as much as close to $1 billion-per-year, we reversed that loss. I think that's one success. Another success I would point to has to do with barley malt, particularly in Latin America. Again, we were not big players in that particular market, but we believed and the industry believed that there was potential for the United States to be competitive in those markets if we could match the European level of subsidization which we did and we gained some market share in those markets.
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  I would say that we are concerned today that the Europeans are continuing to subsidize into those markets.
  Mr. JOHN. How has rice fared in the program?
  Mr. GOLDTHWAIT. Rice has fared fairly well under the EEP program. We used the program for rice in a couple of markets, the markets in the former Soviet Union and also markets in the Middle East. Again, under today's circumstances, we are continuing to sell rice, continuing to sell rice into those markets without the use of the program.
  Mr. JOHN. Without the use?
  Mr. GOLDTHWAIT. Without the use of the program.
  Mr. JOHN. Are you talking about the Middle East?
  Mr. GOLDTHWAIT. Yes.
  Mr. JOHN. Any countries in particular?
  Mr. GOLDTHWAIT. I would have to go and look at the precise statistics, but I can provide that for you.
  Mr. JOHN. Could you get that for me?
  Mr. GOLDTHWAIT. Yes.
  Mr. JOHN. Thank you.
  Mr. BARRETT. The Chair recognizes the gentleman from Oklahoma, Mr. Lucas.
  Mr. LUCAS. Thank you, Mr. Chairman. Coming from a wheat producing region which, of course, EEP is such an important factor and most certainly a heavily discussed topic, especially in this last year when we apparently didn't use our $100 million of resources that were available, can you explain to me the decision making process of the logic of why we did not expend any of those funds in this last cycle?
  Mr. GOLDTHWAIT. First, I would note that we are only a little more than halfway through the fiscal year for which that $100 million has been allocated.
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  We have watched very carefully the pace of our wheat sales in relationship to the estimates of exportable supply and in relationship to the price levels in our domestic market.
  We do this, I look at this every week when the export sales report is published and it has been our judgment up until now that reintroducing the EEP program would, in effect, not buy us additional market share for wheat in particular.
  We have continued to sell as of now, with another 6 weeks in the marketing season to run. Our forward sales and exports are already at the export-estimate level that the Department has been using. And I think that's an indication of the fact that we have sold, but we have available to sell and frankly, we have done it at higher prices, certainly than the Europeans because they have been buying down their price levels through the use of subsidy.
  Mr. LUCAS. How does the trend so far this year and you say there's still remaining time in this market year, which is true, how does our share of the world market in wheat this year, the trend that is developing compare with last year and the year before?
  Mr. GOLDTHWAIT. Our market share this year will be down several percent, but that reflects the fact that we have a smaller wheat crop. We had last year some carry in stocks which helped us maintain market share in spite of the fact that we had a crop that was not as large as we would have liked. It also reflects the fact that our competitors have larger supplies this season, but it really is the combination of having drawn down our carrying stocks a year ago and having a wheat crop which was not as large as we wanted this season that is reasonable for that smaller share of world markets.
  Mr. LUCAS. Thank you. Thank you, Mr. Chairman.
  Mr. BARRETT. The gentleman from Iowa, Mr. Boswell.
  Mr. BOSWELL. Thank you, Mr. Chairman. I might say something to Mr. Stenholm. I spent about 7 years of my life living in Europe and still have a few friends over there and I'd like to share with the question of why are they doing this? I don't know if this would be an answer, but it might give you a little background which you probably already know.
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  A number of years ago when we were going through our farm crisis, I had some reporters in my area that were from Europe and made this comment, they said why do you folks just allow these farms to be given up and taken over by lenders and so on, why aren't you doing something about it? The question went back to them, well, what would you do in Europe? The comment was made that well, the farmers would come on the outskirts of Paris, for example, the case he gave, and they'd stop traffic, they'd get the attention of the whole nation. I said well, then they'd probably call out the militia and they would be removed. He said oh no, they would not do that. I said why? He said well, we've experienced something that you've never experienced. We've been hungry with the wars that have been fought there and so on. And it just kind of stunned me a little bit. I grew up with parents that brought me into this world during the Depression and so on and I thought we knew a little bit about hard times, but we were never hungry. And maybe that's psychologically something to do with it. I don't know. I just thought I'd share that with you.
  To our panel though, to Mr. Goldthwait, if I could, Mr. Chairman, I would just ask this. You mentioned growth as the future and I agree with you.
  I wonder if the Department or if anybody anywhere is interested or doing anything in the area of seeking out the markets for human consumption, high quality, extra clean grain and so on, stuff that we would sell to the millers, the bakers, and so on. Our producers, they can about do miracles now. I see we have one of our executives from Pioneer here that I'm very proud of that company being in my State and the research they've done and the intrinsic values. We know how to do that, whether it's corn or soybeans or wheat or whatever. We kind of give them what they want.
  Are we pursuing that? Is there any action on that and if not, is there any interest and if not, why not? We think of the national needs and that's what we ought to be doing here, but ultimately it threads its way down through and it's that individual producer out there, whichever commodity it is, that we're trying to buoy up and keep productive and competitive and maintain and expand, as you said, grow in our share of the world market as it ever changes.
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  Would you have any comments about going after that market?
  Mr. GOLDTHWAIT. Absolutely. I can give you examples both for wheat and for feed grains because our two cooperators that deal with those commodities, Wheat Associates and the U.S. Feed Grains Council have been very active in pursuing exactly the opportunities you are talking about.
  In the case of wheat, we have seen a major shift in who does the buying world wide in wheat over the past 5 years. If you go back 5 to 7 years, most of the wheat trade was controlled by a handful of government buying agencies in importing countries. Now, with one or two exceptions, it's almost all in the hands of private buyers, the mill owners themselves and their importers. They want the kinds of quality characteristics that you are talking about and the work of Wheat Associates has been to help those buyers get to the United States, get in contact with our exporters, be able to source and contract for the specific kinds of milling characteristics that they are seeking.
  In the case of the Feed Grains Council, I'll mention a seminar that they put on about a month ago which was the first seminar in what they called value-enhanced grain. This was held, I believe, in Phoenix, somewhere in the Southwest, where they invited buyers, foreign buyers of products including corn for human consumption and feed grain combined feeds that have particular characteristics for feeding particular livestock customers. And they, in effect, showed exactly the kind of thing that you are talking about to the foreign buyers, the kinds of very precise characteristics that are today available in terms of our market to meet the needs of grain buyers, both for food and for livestock feed.
  Mr. BOSWELL. Thank you for that. Do you have any numbers on that and do you not agree that if you can produce for that buyer what they actually want, they will pay a premium for it. Is that a fair statement?
  Mr. GOLDTHWAIT. Absolutely.
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  Mr. BOSWELL. So that by itself ought to be reason enough for us to go after that. I've raised a lot of corn, soybeans and some wheat and when that producer out there knows he's going to get a premium, he will fine tune that combine, he'll go to the research people and get that right seed and he'll do everything to be able to produce and deliver that and he can if he's got the incentive to do it. I think it's up to us to do whatever we can to give him that incentive and give him that premium so that he can be truly a national competitor.
  Thank you very much. I would like to see any, if you happen, and I don't want you to go to a lot of work on it, but if you happen to have something handy that's got some numbers on that, I would be interesting in seeing it.
  Mr. GOLDTHWAIT. We'll see what we can do, Congressman.
  Mr. BOSWELL. Thank you. Thank you, Mr. Chairman.
  Mr. BARRETT. Thank you. I'm pleased to recognize the gentlelady from Missouri, Mrs. Emerson.
  Ms. EMERSON. Thank you, Mr. Chairman. Mr. Goldthwait, the administration has requested funding for 1998 for the Export Enhancement Program of $500 million. Can you explain to us the reasons for this?
  Mr. GOLDTHWAIT. The GATT authorization level for the European Union for export subsidies is several billion dollars in a period covered by fiscal 1998. It's less, phasing down from the level today, but it will still be at or slightly above $8 billion next fiscal year.
  We feel that we need to have the $500 million that is authorized in the farm bill available in the event that the Europeans take a much more aggressive export posture in world markets than they have during the current season.
  The behavior of our European friends where export subsidies are concerned is very erratic and very unpredictable.
  Ms. EMERSON. So you might call this an insurance policy?
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  Mr. GOLDTHWAIT. It is certainly an insurance policy. It is also a tool that will keep us competitive in the event that we see that we need it, that we see we begin to lose market share.
  Ms. EMERSON. Thank you. Thank you, Mr. Chairman.
  Mr. BARRETT. Mr. Johnson is recognized, the gentleman from Wisconsin.
  Mr. JOHNSON. Thank you very much, just a general question, because of your testimony talking about the growth and we've all addressed that, trying to grow the export market of our U.S. agricultural products and you talk about all the tools that we do have and I'm wondering if there are tools that you see that others have that we don't have, maybe ones that don't cost money, which is a big concern, but tools that you may have talked about in your agency, in FAS, that you'd like to have that we might be able to help provide to expand the exports of U.S. agricultural products. Obviously, I'd like to do it more in dairy.
   Mr. GOLDTHWAIT. Well, let me refer first to dairy, but then let me refer also to our credit guarantee tools. In the case of dairy, one tool that some of our competitors have that we do not have is the use of single desk selling state trading enterprises. The Fair Act, as you undoubtedly know, authorized the U.S. dairy industry to set up an export trading company that could perhaps compete better with single desk sellers.
  It's my understanding that indeed the Commerce Department has received one application from the industry to establish such an ETC and is currently reviewing that and should have a decision on that in the near future.
  Shifting to our credit guarantee programs, we have seen considerable evolution in those programs over the past several years and we have established one new credit guarantee program, the Suppliers Credit Guarantee Program which is designed to leverage open account credit made available directly by an exporter to a foreign buyer. But one thing we want to do is take a look at whether there are other areas of the trade finance sector where we should be leveraging the credit that is made available by the private sector. We want to go around and talk to the banks. We want to talk to exporters and we want to see if there are some, if there is some potential there for additional credit mechanisms that we are currently not utilizing.
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And that's something that we will be focusing on over the next year.
  Mr. JOHNSON. Thank you very much. I appreciate that, Mr. Chairman.
  Mr. BARRETT. The gentleman from South Dakota, Mr. Thune.
  Mr. THUNE. Thank you, Mr. Chairman. I appreciate the opportunity to discuss an issue that's very important to our State of South Dakota today and particularly given the fact that in this last year we have seen some unprecedented weather conditions which have had tremendously adverse impact on our cattle industry and we expect too that we'll see a lot of farm ground that probably doesn't get into production or at least is going to be late and we'll have to alternate some other crops in there. So it's very important from our point of view in terms of a recovery that we have good prices and I have maintained and argued for a very long time that the markets of the future are the export markets and we want to work vigorously to see that we do everything we can to make our State and others like it that are so dependent upon agriculture prosperous in the future.
  Just a couple of quick questions, if I might. One has to do with, in your testimony, you mentioned the fact and I think in this last year, 1996, we saw about $60 billion, $59.8 billion total exports and projection in 1997 is about $56.4, I think, if I read correctly from your testimony, the trendline over the past 10 years has been very positive and we've seen continual increases. To what do you attribute that decline coming up in this next year and is that somewhat a function of what we are doing in the area of promotion? I know you noted in your testimony that it has somewhat to do with variability of agriculture markets, but is there anything that you have been able to identify and put your finger on that might attribute to that?
  Mr. GOLDTHWAIT. It reflects very much the most unfortunate adverse weather conditions that you have mentioned as well as the somewhat improved weather condition in other northern hemisphere grain producing countries.
  The decline is in the area of bulk grains and it reflects prices that have come down somewhat from very high levels that prevailed during fiscal 1996 as well as a smaller exportable surplus in terms of grains from this country, particularly in the case of wheat. So the prices are a little softer and a quantity that is somewhat smaller in terms of exportable surplus of wheat. Those are the largest factors in that, what we hope is just a----
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  Mr. THUNE. Short term trend. I would certainly hope so as well.
  Do you see any benefit to using the Export Enhancement Program for value-added products and how would you, I mean is that a more beneficial use of EEP than it is for bulk commodities?
  Mr. GOLDTHWAIT. I think as we look at the world market conditions that we see around us today, the likelihood that we would reintroduce the program for some value-added commodities is somewhat higher than the likelihood that we would reintroduce it, for example, for wheat.
  We are particularly concerned about what we see today in terms of the situation for flour exports as well as for barley malt exports.
  Mr. THUNE. It's another important point where my particular State is concerned because that is something that we are very much attempting to advance and that is more development in the area of value-added agriculture and again I think is something that helps bring hopefully somewhat of a diversification to our industry there and hopefully we'll open as well more markets to our products, so I'm curious as to what your thoughts might be on that and would look forward to working with you to see that we can utilize all these tools and all these programs to the highest benefit possible.
  Thank you. Thank you, Mr. Chairman.
  Mr. BARRETT. The gentleman from North Carolina, Mr. Etheridge.
  Mr. ETHERIDGE. Mr. Chairman, I'll pass and I'll retain my time, please.
  Mr. BARRETT. Yes sir. The gentleman from Georgia, Mr. Chambliss.
  Mr. CHAMBLISS. Thank you, Mr. Chairman. Let me just say that I thank and commend you for holding this hearing today and bringing these folks before us to testify because we all know this is a very controversial program, has been in the past and I expect we're going to have a budget battle over this issue again, but I am constantly telling my farmers and I am a firm believer in the fact that as we in the agriculture community and Washington spend less money on our commodity support programs that the answer long-term for our farmers lies in two areas from a Federal Government participation standpoint. Number one is research and second, promotion of our products abroad because I'm a firm believer in the fact that there's only so much money to be made for our farmers profit-wise from domestic sales. And the more we promote our products, all across this world that we live in, the better opportunity our farmers are going to have to continue to be able to produce the highest quality and the largest quantity of agriculture products of anybody in the world.
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  Mr. Goldthwait, I just wonder what would happen if we were to eliminate this program, what's going to happen to our foreign trade if this program were to disappear?
  Mr. GOLDTHWAIT. Which program?
  Mr. CHAMBLISS. The Market Access Program.
  Mr. GOLDTHWAIT. The Market Access Program. We believe that the impact would be very severe. We believe that it would interrupt a very healthy growth of export markets for a variety of commodities that are currently benefitting from the program. We believe it would have the impact of keeping a number of small businesses and cooperatives that want to get involved in exports from having that chance. We are currently operating a very active domestic outreach program where we are trying to go out and find the small companies that have not been involved in export and get them into the business.
  We look at the returns for every dollar of spending under the Market Access Program. As best we can determine, for every dollar we spend, first of all, if it's branded spending, it's matched by the exporter themselves and in terms of results, we see several dollars in return in export sales.
  Mr. CHAMBLISS. You answered my next question. Are we getting our bang for the buck, but obviously, I would assume from that statement we undoubtedly are.
  Mr. GOLDTHWAIT. We believe so. We see over and over again where we go from having almost no market at all for a particular product in a particular foreign market to a situation where after three or four years of support through the Market Access Program we have several million dollars of sales and these, sometimes are not the commodities that you think of first, like wheat and corn. They're commodities that are frankly a little more esoteric, like the catfish in Germany I mentioned a little while ago, like Kiwi fruit in Korea, but we see the same pattern over and over again for these commodities.
  Mr. CHAMBLISS. I hope those are Georgia catfish we're promoting over there. Thank you, Mr. Chairman.
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  Mr. BARRETT. The Chair recognizes the gentleman from California, Mr. Farr.
  Mr. FARR. Thank you, Mr. Chairman, and thank you for having this hearing.
  As I've watched this program, it seems to me that we're really at a critical point. It's been receiving less and less funding every year. It's been changed so that more emphasis be given on small farmers and I find this year it's under incredible attack, both by the news media that has been giving stories recently and by some of our colleagues who have made this one of their corporate welfare issues.
  It's also very difficult to explain to the electorate back home and I wondered if you could just give me a couple of examples of foreign marketing programs in this country that are very well understood. The one I always think of is Juan Valdez and coffee. Are there others that come to mind?
  Mr. GOLDTHWAIT. Marketing programs here in the United States----
  Mr. FARR. Not our money, where foreign money is being used to convince our consumers to buy their product.
  Mr. GOLDTHWAIT. I think perhaps the best example is what is done by a number of European marketing agencies with respect to consumer oriented products.
  Mr. FARR. Examples?
  Mr. GOLDTHWAIT. We have very, very extensive spending by a number of European countries on wine promotion here in the United States. There is also spending on promotion of other kinds of consumer ready foods.
  Mr. FARR. Could we get a list of particulars? Is there any brand name promotion that's being done here by foreign?
  Mr. GOLDTHWAIT. Undoubtedly there is, I don't think of an example off the top of my head.
  Mr. FARR. In the interest of time, if you could submit that in writing to us, if you could get us some of those examples because I think that's what helps show the consumer that they are essentially seeing this advertising in this country and they're responding to it.
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  Brand name advertising of Juan Valdez as Columbian coffee. They don't go to a particular brand. But I'd be interested, since we do support brand name advertising overseas if we can also have some examples of that.
  Mr. GOLDTHWAIT. I think that's an excellent suggestion. We will follow up with you.
  Mr. FARR. A couple of the issues that have been raised is whether we ought to and maybe it's already been responded to before I got here, but has there been a question responded to on whether the MAP program and the FMD program ought to be combined?
  Mr. GOLDTHWAIT. That question has not been posed yet. We don't believe that would be a good idea. The emphasis of the two programs is considerably different. The FMD program is focused more on longer term market development as opposed to promotion which is the real focus of the MAP. While there is some participation in both programs by some of our trade associations, our USDA cooperators, there is more tendency in the case of FMD to work with the bulk products as opposed to the consumer ready products which are more the focus of the MAP.
  So we think that for those reasons the focus, the kind of activities undertaken by the programs are sufficiently different and they should be maintained separately.
  Mr. FARR. What about the issue that some argue that brand name advertising offers limited benefit because it just relates to one company, one product?
  Mr. GOLDTHWAIT. I would have to take issue with that, particularly in the case where the branded advertising is introducing what is essentially a new product----
  Mr. FARR. Can you give us an example of where we've had a success of brand name advertising?
  Mr. GOLDTHWAIT. We have had numerous successes with respect to any number of the----
  Mr. FARR. Can you give one?
  Mr. GOLDTHWAIT. Let me ask Ms. Fetters, if she could perhaps comment on the specific examples.
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  Ms. FETTERS. One would be Pierce Foods, Poultry and Egg Export Council.
  Mr. FARR. Excuse me?
  Ms. FETTERS. Pierce Foods of West Virginia is one example of a poultry producing plant that has had considerable success using the MAP program.
  Mr. FARR. Where do we use that advertising?
  Ms. FETTERS. I would have to double check on that. I'm not sure what countries they were promoting in specifically.
  Mr. FARR. Could you also provide us that kind of information? I think we're going to need it to defend ourselves under attack.
  The third issue that I have is the issue of favoring foreign company participation in the market promotion. Do you have a thought on that?
  Mr.. GOLDTHWAIT Currently, there is no direct funding for the foreign company promotion in the MAP. That is one of the changes we've made in the program.
  Mr. FARR. One of the changes to prohibit it or to look into----
  Mr. GOLDTHWAIT. To prohibit it.
  Mr. FARR. To prohibit it, although the foreign companies may know the marketing access better than we do.
  Mr. GOLDTHWAIT. That is correct, but this is one of the points that has been the subject of the criticism of the program and it's one of the changes that we thought overall was in the best interest of the program.
  Mr. FARR. In closing, my recommendation to you is that we as Members of this House are going to have to defend this program in user-friendly language, not in data and statistics, and we need to get an argument showing why this is essential for American economy.
  The Secretary was here not long ago showing us that our exports are remarkable and in fact, the balance of trade on exports are so incredible that they're shocking. I happen to live in an area that does a lot of agricultural export.
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  We also saw that imports which we do spend a lot of time in advertising, we're paving over prime agriculture land in California to build boxstores so that those boxstores can buy products that are made abroad, consumer goods and appliances and clothing, made off-shore to sell in our communities. We're ruining our agriculture by essentially defeating what is one of our greatest tools in this country which is the ability to grow fresh, healthy fruits and vegetables and commodities and sell them abroad and we need to remind our electorate that that is really important and market promotion is a part of that, but I think we're going to have to do it in a more effective way.
  Mr. BARRETT. The gentleman's time has expired. The gentleman from Michigan, Mr. Smith.
  Mr. SMITH. Mr. Chairman, thank you. Can you tell me how many employees the Foreign Agricultural Service has?
  Mr. GOLDTHWAIT. FAS currently has roughly 960 employees.
   Mr. SMITH. And how about AMS?
  Mr. GOLDTHWAIT. AMS, I would have to provide that for you, unless one of my colleagues happens to know, but I don't know.
  Mr. SMITH. And what percentage of these employees have a major portion of their time dedicated to expanding U.S. produce abroad?
  Mr. GOLDTHWAIT. What portion of AMS employees?
  Mr. SMITH. And FAS.
  Mr. GOLDTHWAIT. Well, in FAS, that really is our principal occupation, so all of our employees are involved to one degree or another in export promotion activities or in the kind of long-term economic development activities that lead to the development of new markets in developing countries.
  In the case of AMS, certainly the people in the transportation division and a number of the people on the marketing side are involved to some degree working with us in cooperative efforts, helping our products get into foreign markets, but I would have to check on the number.
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  Mr. SMITH. How extensive is your program as an information base helping potential exporters move into what often is a complicated procedure, getting their product into another foreign country. Do you have a service that anybody, any exporter of agricultural products, can they call you and get an orientation of 1, 2 through 22, how they move into that export market?
  Mr. GOLDTHWAIT. Absolutely. We have a variety of different information sources, the newest of which is an FAS home page that we put up about a year ago. We have our agricultural trade offices located in key markets around the world where one of their functions is to study the marketing structure of that particular country or that particular region.
  We have specialists in Washington who analyze reporting from overseas and who provide the information on a case-by-case basis.
  Mr. SMITH. I mean are our production, our produce here is of exceptionally high quality so the subsidy on exports is one thing, but somehow making the consumers of many countries aware that this kind of quality product is there, seems to be even a greater contribution that FAS can make to agricultural exports.
  Let me ask you a question about protectionism. Under the new WTO, do you still see those countries that want to protect those farmers using outside tools of subsidies to protect those farmers, whether it's the phytosanitary restrictions that we have seen in many countries including Mexico of whether it's the excuse of a mutated corn or soybean product or whether it's a tax subsidy to those farmers that's outside the normal subsidies, is that still as aggressive and as they reduce their tariff barriers, are they subsidizing their farmers in other ways?
  Mr. GOLDTHWAIT. Congressman Smith, unfortunately, you've put your finger on what I would call one of the growth industries of trade distortion in identifying the area of sanitary and phytosanitary restrictions. What we are seeing in many, many places is that while countries have agreed in the Uruguay Round agreement to reduce import barriers, remove quotas, tarrify their import regimes. They are now using soft science or phony science to try to delay the access of foreign products into their markets. So this really is the key focus of our effort to enforce the Uruguay Round agreement. It's what a whole division in Randy's program area spends all of their time pursuing.
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  Mr. SMITH. Some of your foreign agricultural attaches are very aggressive in their efforts to expand agricultural exports. Others are more willing to sit at their desk and simply monitor the trade that goes by. Is there some way you can measure the actual success of the efforts of your personnel?
  Mr. GOLDTHWAIT. I'd like to know which ones sit at their desks and look at the trade go by.
  Mr. SMITH. I hope somehow you have a system of knowing that.
  Mr. GOLDTHWAIT. We, of course, have an evaluation system of which with the exception of one or two of our overseas offices that are almost purely focused on trade policy, does in fact evaluate the market promotion efforts of our overseas staff. So that is part of our process.
  Mr. SMITH. Thank you very much. I see my time is up. I am very concerned. Strawberries in my area have gone down in price a great deal. I'm concerned about what may develop in potential trade wars as we become increase our scrutiny on the quality of products coming into this country.
  Mr. BARRETT. The gentleman's time has expired. The gentleman from Virginia, Mr. Goode.
  Mr. GOODE. Mr. Chairman, just one question and he may have answered it earlier before I was here. What's your total budget?
  Mr. GOLDTHWAIT. Our total budget for FAS?
  Mr. GOODE. Yes.
  Mr. GOLDTHWAIT. For direct program expenditures of the agency it's around $135 million.
  Mr. GOODE. And then for MAP?
  Mr. GOLDTHWAIT. MAP is $90 million. The Export Enhancement Program in the current fiscal year is $100 million and our current authorization for the GSM—102 credit guarantee program is $5.7 billion and we also share administration of the P.L. 450 program with USAID . FAS administers title I of P.L. 450, which is currently authorized at about $170 million, but for which the administration has proposed a $50 million recision.
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  Mr. GOODE. Could you restate what you just--your last statement?
  Mr. GOLDTHWAIT. Title I of the Food for Peace, or P.L. 450 Program is currently funded at a level of about $240 million. However, the administration has proposed a $50 million rescission from that.
  Mr. GOODE. Thank you.
  Mr. BARRETT. Thank you. The gentleman from Kansas who has been most patient, Mr. Moran.
  Mr. MORAN. Mr. Chairman, you're the one who has been most patient. Thank you. I just have a brief question. I was not here for your testimony and I apologize, but I've read your testimony and you talk about tool kit. My question is do you have all the tools that you desire in that kit? Are they adequately funded? Are there--and how do our tools compare to other countries and their array of systems they provide in agricultural exports?
  Mr. GOLDTHWAIT. I believe that the tool kit is reasonably complete as it currently stands in terms of the range of programs and activities that we had. I did note that we need for these tools to be constantly evolving as market condition change and that we will be looking particularly in the area of credit to see whether there are additional tools that we need to develop on the basis of our current legal authorities.
  As far as funding levels go, you know probably better than I the competitive situation of the budget. Clearly, we would always like a little more money for programs that have proven their success, but we have to recognize realities in terms of the budget proposal that we've put forward in the fiscal year 1998 budget.
  In terms of our competitors,it is an extremely aggressive atmosphere out there. The demand for agricultural products is very strong and growing, but so is the competition. Most of our competitors have tools that are similar to ours, in the area of promotion, the Europeans certainly, the Australians, the Canadians. They have programs that are very much lie ours.
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  In the area of export subsidies, we are very much outgunned by the Europeans who continue to rely heavily on export subsidies, although of course they're scaling those back in accordance with the GATT agreement.
  Mr. MORAN. And the outgunned nature of the relationship is the amount of money that they put into the subsidy?
  Mr. GOLDTHWAIT. That's correct.
  Mr. MORAN. Not the tool?
  Mr. GOLDTHWAIT. No, not the tool, but the amount of funding.
  Mr. MORAN. And could you give me those numbers so that I can explain to folks back home how much money others spend in doing what, in comparison to what we do?
  Mr. GOLDTHWAIT. Well, the GATT authorized level for the European Union for subsidies across the whole range of commodities this year is about $9 billion. The European Union has roughly $300 million in export promotion activities that are akin to our MAP and FMD programs. That gives you some sense. If we look at all of the promotion programs of 22 or 23 different countries where we have been able to identify them, their total funding is, I think about $760 million some.
  Mr. MORAN. Compared to?
  Mr. GOLDTHWAIT. Compared to our $90 million for MAP plus roughly $30 million for the foreign market development.
  Mr. MORAN. So $760 million compared to $120 million?
  Mr. GOLDTHWAIT. That's correct.
  Mr. MORAN. Mr. Chairman, thank you very much.
  Mr. BARRETT. Thank you, sir. I think there's been some excellent testimony here and Mr. Goldthwait, we appreciate your comments and your sharing with us. As a matter of fact, I would like to encourage the committee if there are further questions to ask questions on a very quick second round. I would yield to Mr. Lewis of Kentucky.
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  Mr. LEWIS. I have some export seminars from time to time in my district and do you have personnel that would be able to come into the district and give us some advice and help out in some of those seminars?
  Mr. GOLDTHWAIT. We do indeed. We would be very, very pleased to include this in our domestic outreach program that is one of our new initiatives.
  Mr. LEWIS. The other thing I just wanted to ask, of course, my district in Kentucky is a huge tobacco producing district. Where are we at in China, in breaking down their objections to bringing in our tobacco product?
  Mr. GOLDTHWAIT. This is one of the issues with china that is covered by our 1992 memorandum of understanding on market access. It is one of the issues which is still unresolved with the Chinese. I'll ask Mr. Zeitner to comment perhaps on exactly where that process stands.
  Mr. ZEITNER. We are in almost constant negotiations with them on this area. In fact, in the last I think it was 2 weeks ago we had a team in China and we will have another team, some of it is related to their WTO accession, but I think we've had very strong support from the USTR on trying to get China to live up to their market and MOU, so I think that we're still struggling with it, but we're always optimistic that we're going to get that resolved.
  Mr. LEWIS. Is there objection still, the blue mold problem, is that it?
  Mr. ZEITNER. That's still their major objection, yes.
  Mr. LEWIS. OK, thank you.
  Mr. BARRETT. Thank you. Ms. Stabenow, you were not recognized the first round. Do you have any questions you'd like to ask the panel?
  Ms. STABENOW. No, Mr. Chairman.
  Mr. BARRETT. Mr. Boswell, do you have further questions?
  Mr. BOSWELL. Thank you, Mr. Chairman. Just a short question. Would you describe the situation with the biotech agricultural products, specifically the European Union resistance to allowing these imports? Could you make any comments on that?
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  Mr. GOLDTHWAIT. The European Union has allowed the importation of two of the important biotech products that we are currently producing here. The issue now is focused on whether or not while they have allowed the importation, they will, in fact, require additional labeling that is onerous with respect to what it imposes on our exporters.
  There does not seem to be any problem or disagreement with labeling at the wholesale level, but all of that through and to require labeling at a consumer level would be difficult for the processors and we think discriminatory. We're working with the Europeans on this and about 15 other issues that are--
  Mr. BOSWELL. So you're saying then we cannot expect any labeling then when it arrives at the consumer?
  Mr. GOLDTHWAIT. It is uncertain. We thought we had resolved the issue satisfactorily, but here is now discussion within the European Commission of requiring additional labeling that would pose some problems. We've weighed in with the commission, told them we don't like that. We're opposed to that and we're watching and waiting to see what they're going to do. If they pursue this, we will pursue it with them and try to discourage it and get them to change their minds.
  Mr. BARRETT. Thank you. Are there further questions from the majority?
  Mr. Chambliss.
  Mr. CHAMBLISS. Mr. Chairman, if I could very quickly. On a recent trip to Mexico, we had some significant discussions with Mexican officials about the lifting of the quarantine on United States' peaches going into Mexico.
  Have any of you folks been involved in those discussions with Mexican officials about peaches?
  Mr. GOLDTHWAIT. Our people have been involved in those discussions.
  Randy, can you comment on the status?
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  Mr. ZEITNER. Yes, we've been working very closely with APHIS, the Animal Plant Health Inspection Service, and with our people in trying to get access to various other products. Peaches is one of them, and the other stone fruits. But that's high on our agenda with Mexico.
  Mr. CHAMBLISS. Well, when we talk with the Mexican officials about it, particularly the collateral agency to APHIS, their statement was that they were unaware of that issue even being on the table.
  Now, I know that this year we're allowing 10 percent of peaches from California to be exported into Mexico under a trial program to see if this issue of the ornamental fruit moth is really an issue. Our APHIS people, raised the issues to us with regard to two other pests that Mexican folks don't even know about.
  And they're insignificant pests, and I'm a little bit concerned about the attitude of our APHIS folks in that regard. But I will share with you that the Secretary of Agriculture indicated that they would be willing to sit down and negotiate this administratively as opposed to doing it under NAFTA, which obviously would speed up the process.
  And in addition to having 10 percent of the peaches from California, we'd sure like to send 10 percent of the peaches out of the southeast down there this year under this experimental program to see if we can't get this quarantine lifted, particularly after I saw some of the peaches that they've got for sale in the grocery stores in Mexico and knowing the quality of peaches that come out of the southeast into California.
  Those folks in Mexico will be a lot better off if we can get that quarantine lifted. So I hope you'll pursue that very vigorously.
  Mr. GOLDTHWAIT. Yes, we will.
  Mr. ZEITNER. We're listening.
  Mr. BARRETT. The Chair is pleased to recognize the ranking member of the General Farm Commodities Subcommittee, Mr. Minge of Minnesota.
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  Mr. MINGE. Thank you, Mr. Chairman.
  I regret that I have not been able to participate in the hearing, but I would like to express my appreciation to the panels for their appearance, and also express my appreciation to the chairman for his hard work in making sure that this hearing was set up; and I look forward to both reviewing your testimony and hearing the responses to some of the other questions.
  Thank you.
  Mr. BARRETT. Thank you.
  Any further questions from the minority side?
  If not, Mr. Goldthwait, we thank you again, you and your people, for sharing with us. We appreciate it very much.
  Mr. GOLDTHWAIT. We appreciate the opportunity to appear, and we will try to provide additional information to the written questions.
  Thank you, Mr. Chairman. And please relay my thanks to Chairman Ewing.
  Mr. BARRETT. Thank you, sir.
  We'll proceed to panel No. 2. Panel No. 2 will include Mr. Glen Buckley, chairman of the U.S. Feed Grains Council; Mr. Fred Starrh, president of the Cotton Council International; Mr. James Huff, vice president of Graves Brothers Company, representing the Florida Citrus Commission; Mr. John Rice, sales manager and co-owner of Rice Fruit Company, representing the U.S. Apple Association; Mr. Bryant Wadsworth, executive vice president of U.S. Meat Export Federation.
  I believe we have Mr. Gordon Hart with us also, director of international marketing, Florida Department of Citrus.
  Anyone else that we're overlooking here?
  Gentlemen, please proceed. Let's begin with Mr. Buckley.
STATEMENT OF GLEN BUCKLEY, CHAIRMAN, U.S. FEED GRAINS COUNCIL

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  Mr. BUCKLEY. Mr. Chairman and members of the subcommittees, my name is Glen Buckley, and I'm the current chairman of the U.S. Feed Grains Council.
  I appreciate this opportunity to testify on the critical role that the Foreign Market Development Program and the Market Access Program are playing in building U.S. export markets.
  The council is a private, non-profit organization established in 1960. It is one of the oldest ''cooperator'' groups, and was specifically organized to develop export markets. We operate in 83 countries through 11 overseas offices and 32 representatives.
  Some ask whether FMD and MAP are important when the number of U.S. farms and farmers is shrinking. As chief economist and the director of agribusiness analysis for CF Industries, which is a major U.S. fertilizer cooperative, I can tell you this reflects a dangerously narrow view of the role of agriculture in the U.S. economy.
  While farmers are fewer, they are the critical link in a sector that comprises 20 percent of the U.S. economy. In fact, depending on how you define agriculture, I have seen estimates where agriculture accounts for as much as one-third of the total U.S. economy.
  In 1995, farmers bought $5.5 billion of seed, $10 billion of fertilizer and lime, $7.8 billion of crop protection chemicals, and $5.7 billion of fuel and oils. They paid $12.8 billion in interest and $60 billion for marketing, storage, contract labor, and custom work.
  When farmers are not profitable, the economic damage strikes across the U.S. economy. For example, we don't think of the steel industry as dependent on farmers. But in 1983 when the PIK Program cut corn acreage by 30 percent, steel companies and steel workers shared in the pain.
  When farmers halted equipment purchases, implement dealers and equipment manufacturers followed suit and the demand for sheet steel dropped. That period of low farm prices and acreage reductions sent many farmers and small agribusiness farms into bankruptcy. But it also destroyed major U.S. corporations like International Harvester.
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  Today, U.S. agricultural exports contribute over $27 billion to the balance of trade, two-thirds of it from grain and grain products. U.S. farm exports are not only critical to our trade, but they are also critical to the profitability of U.S. farmers.
  One in every 4 acres of U.S. corn is sold abroad, and exports are growing in importance. Ten years from now, the council projects U.S. corn production of 11 billion bushels, of which 30 percent will go to foreign buyers. While bulk grain will dominate exports, we also foresee increased exports of higher valued products.
  By 2005, we expect feed grains demand for livestock to increase by 7.8 billion metric tons. But 92 percent of that production will be for the export market. We also see and are promoting more export sales of higher value specialty grains like high oil corn, food grade sorghum, malting barley, and the process products like modified starches and corn-based plastics.
  Export markets are critical to profitability, especially for feed grains. And agriculture is so critical to the U.S. economy that it easily warrants the care and attention of Congress. The question is, what is the most cost effective way to develop the overseas markets that we see?
  FMD funded organizations like the council have established a successful approach to market development. We do the job, and we do it very economically. American farmers and agribusiness recognize how critical exports are, which is why they invest aggressively in the council.
  Their contributions, plus support from the people we work with abroad, means that we match dollar for dollar what FAS provides. This year, FAS's $9.8 million dollar investment in the council will produce $20.4 million worth of market development activities on behalf of the U.S. feed grain producers.
  The council is an outstanding example of what public/private partnerships can achieve. Our members, 71 agribusinesses, 13 producer groups, and 26 checkoffs, contribute more than $4.5 million in membership fees. Our 160 unpaid directors commit significant personal time to guide council programs.
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  The different perspectives and strengths that we tap, from farm leaders to farm agribusiness, extends the expertise available to the council projects and underpins the council's legitimacy abroad.
  We have developed the same dedicated partnerships in countries where we work. Our foreign market partners, known as third party cooperators, provide goods and services worth $5.2 million.
  When we run a poultry demonstration project in Russia, for example, we provide the expertise, but we recruit local leaders to supply the hens and the hen houses. This saves money and it produces local converts who share what they've learned with others in their industry.
  Here's another example of what we achieve. Southeast Asia is one of the great developing feed grain markets. Underdeveloped grain handling facilities, however, have limited shippers to 30,000 ton ''handy'' sized ships or smaller. Larger ships couldn't fit into harbors to unload.
  That limit on vessel size meant that it cost $11 per ton more to deliver U.S. feed grains into Jakarta than it cost our competitors. Almost 10 years ago, the council initiated a Ports Infrastructure Program. We took Malaysian and Indonesian officials to see the difference that modern ports can make in other countries.
  We brought in exports to show them how they could solve their port problems. We demonstrated how better ports would help them economically, and we helped them find business partners to do this. Malaysia, which bought no U.S. corn in recent years, began buying U.S. corn in 1994 as their new ports came on line.
  Now it is the eighth largest market for U.S. corn. Indonesia initiated a barge lightering system that the council also proposed. And Indonesian purchases went from nothing to 21.6 million bushels of U.S. corn in 1995—96. Krakatau Steel, a major Indonesian company we're working with, is now in a joint venture with Cargill to build a modern grain handling berth.
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  Such projects produce multiple benefits, beginning with 77.4 million bushels in corn sales last year. It also opened major new business opportunities for U.S. companies. Best of all, these markets have not yet peaked. By 2005, they will buy 262 million bushels of corn annually, and the United States is now positioned to provide the bulk of those purchases.
  Everyone involved recognizes this would have not happened without the council and without its programming in those areas. Another Council success is our Market Education Program. World grain markets have changed dramatically with the disappearance of centrally controlled economies and central buying.
  Ninety percent of world grains are now traded on the free market, but many new buyers don't know how to access the U.S. market system. The result? They gravitate to competitors who offer ''one stop shopping.''
  The council meets this challenge with its Grain Importers Handbook, which is written in six languages, and with grain buying seminars that reached over 1,000 people last year. The knowledge they gained is producing sales now.
  To build value-added grain markets, we produced the first ever Value Enhanced Corn Report helping buyers source and use U.S. varieties. Then we expanded on it with the world's first Value Enhanced Grains Conference, bringing U.S. supplies and end users together in one location.
  The council also promotes grain products like biodegradable plastics. We were instrumental in establishing the International Biodegradable Plastics Manufacturers Association to advance world acceptance of this technology. Japan and Taiwan alone could increase corn use 340 million bushels by adopting biodegradable products.
  When the council began its work, U.S. feed grain exports were 11.2 million metric tons. Last year, they hit 58.8 million metric tons; and by 2005—06, they could reach 86 million metric tons. More than any other form of use, exports are positioned to keep pace with increased production and to support market prices.
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  For farmers, this means profitability. Last year's corn crop was large enough to meet U.S. domestic needs. It was 2.1 billion bushels of export demand, however, that changed the equation and produced an average farm gate price of $3.24 per bushel.
  If U.S. producers must rely on the marketplace to stay profitable, then they must have growing export markets. That means they must have FMD and MAP support for the work the council does, and they need FMD fully funded at $30 million. It is one of the most effective investments Congress can make in our agricultural economy.
  And again, Mr. Chairman, I would like to thank you for the opportunity to testify this morning, and I'd be happy to answer any questions. And I might add that this is the first time I've had the opportunity to testify in a setting like this; and after hearing the buzzer and red light, I'm extremely happy I was done in my allotted time.
  [The prepared statement of Mr. Buckley appears at the conclusion of the hearing.]
  Mr. EWING. That light went on twice. When did you look up? [Laughter.]
  To all the witnesses, that is indeed something to shoot for, but we do ask you to try and keep your remarks to the 5 minutes so that we have as much time for questioning. And always, your remarks are part of the record and are gone over by staff and by Members.
  So Mr. Starrh, we'll move on to you, the president of the Cotton Council International.
STATEMENT OF FRED L. STARRH, PRESIDENT, COTTON COUNCIL INTERNATIONAL

  Mr. STARRH. Thank you.
  I'm Fred Starrh, and I, along with two sons and one son-in-law, operate a diversified farming operation in Shafter, CA.
  Chairman Barrett and Chairman Ewing, distinguished members of the subcommittee, I'm very grateful for the opportunity you're providing to today's witnesses to explain how export assistance programs work and how they benefit farmers and employers of firms directly and indirectly involved in U.S. agriculture.
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  I won't repeat the statistics about the value of agricultural exports and the jobs created; however, I do need to be certain you understand that exports of cotton, cottonseed and their products are essential to the health of the U.S. cotton production, processing, merchandising, and textile manufacturing sector.
  Mr. Chairman, I've heard the rhetoric, seen the sensationalized news reports, and watched with dismay as the MAP program is repeatedly targeted by so-called reformers. Well, this program is reformed. It is a decided move away from expensive direct export subsidization to export promotion and trade servicing.
  I have visited many of the countries where CCI promotion programs are being operated. I can honestly say the programs make a significant difference. In our case, MAP funds are leveraged to the maximum to generate sales creating programs that otherwise would not have been conducted.
  This program is not lining the pockets of corporate America, but it is stimulating sales which benefit family farm operations, employees of those local farm supply store, and jobs throughout the system. The program has been scrutinized and reformed.
  It's time to recognize what our competitors are doing and provide U.S. agriculture with the appropriate tools to defend and expand markets.
  This is not corporate welfare; it is export warfare. I will say that again. This is corporate welfare; it is export warfare. MAP is a weapon that is efficient, targeted, and GATT-legal. It is the future of export activity, not the past.
  This is exactly the type of private and Government partnership that will accomplish the most for the fewest dollars. It is a fraction of the cost of direct export subsidy programs. There are so many unfounded and just plain erroneous accusations about MAP, it's difficult to know where to begin.
  The most damaging myth I want to dispel is that companies somehow benefit and farmers don't. If a cotton exporter or a U.S. textile manufacturer can't compete with a foreign government's promotion campaign, subsidy or export credit program, then my cotton isn't exported.
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  Eighty percent of the world's cotton and cotton products are grown, manufactured, and marketed by countries with centrally- planned, non-market based economies.
  My best customer, and sometimes my toughest competitor, is the People's Republic of China which still centrally determines cotton prices for its farmers and centrally controls export and import decisions of its trading companies.
  Mr. Chairman, it may surprise you to know that the government-supported cotton prices in China today is almost 20 cents a pound higher than the U.S. cotton loan rate under the recently enacted FAIR Act. Twenty cents a pound is almost 30 percent of the value of the product I produce.
  Under the terms of the Uruguay Round, the United States and other signatories agreed to market access provisions and to scale down domestic and export subsidies. The United States has cut its subsidies far below the GATT requirements. Most of cotton's international competition is exempt from many of the GATT requirements because they claim developing country status.
  Our most significant competitor, China, does not conform to the GATT agriculture agreement; and many other countries, our competition, are increasing their funding for programs like MAP.
  Finally, with the passage of FAIR and the move toward the free market in the United States, our producers are more dependent than ever on the success in the export market. MAP can help make that success happen.
  Another popular myth is that the MAP funds are substituting for private sector funds. In cotton, MAP funds are seed money we in the CCI use to attract funds that would not have been used to promote cotton and cotton products.
  CCI has attracted contributions from ancillary industries, from the organizations funded by producer checkoffs, and most importantly from our domestic and international partners. In my opinion, you can conduct all the surveys in the world, but an important measure of the cost versus benefit of an activity is when you can entice customers to match or exceed your contributions with money of their own.
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  Mr. Chairman, at CCI, we are successfully enticing customers of U.S. cotton to spend their advertising dollars to promote our U.S. cotton and cotton products in their markets.
  In addition to documenting the dollars our partners spend, we also require them to document specific quantities of U.S. cotton they purchase for the products promoted. We have textile manufacturers, apparel manufacturers, and retail establishments documenting specific purchases of U.S. cotton and cotton products.
  Mr. Chairman, in the interest of time, I have attached a number of specific success stories and statistical data to my testimony which I ask to be made part of the record. We are also members of the Coalition To Promote Agricultural Exports and would like to submit a brief statement from the Coalition for the record.
  Again, I want to thank you for the opportunity to participate today, and I will be pleased to answer questions at the appropriate time. And also, I'd just like to offer as a comment that, as a western producer from California, both California and Arizona export 80 percent of our cotton.
  Arizona basically exports 100 percent of their cotton. So this is not an academic discussion for us. This is a life and death issue when you have 80 percent and 100 percent of your product being exported out of your area. So these programs are real. They work. I just want to testify to that.
  Thank you so much.
  [The prepared statement of Mr. Starrh appears at the conclusion of the hearing.]
  Mr. EWING. Thank you, Mr. Starrh.
  Mr. James E. Huff, vice president of Graves Brother Company, representing the Florida Citrus Commission.
STATEMENT OF JAMES E. HUFF, VICE PRESIDENT OF GRAVES BROTHERS COMPANY, REPRESENTING THE FLORIDA CITRUS COMMISSION
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  Mr. HUFF. Thank you, Mr. Chairman.
  As you stated, I'm the vice president of Graves Brothers Company which is a family owned business located in Wabasso, FL involved in the growing, in the marketing of fresh Florida grapefruit.
  Also today, I'm here as vice chairman of the Florida Citrus Commission, which is a State Government sanctioned association in Florida that is involved in the marketing of Florida citrus products, and it's totally funded by an assessment on the growers for their products.
  Graves Brothers Company was established over 100 years ago and celebrated its 100th anniversary last year. And I, myself, have been involved in the citrus industry my entire life.
  Today, Mr. Chairman, we're talking about a partnership with the Florida citrus industry and the Federal Government through our MAP program. A partnership with the Federal Government 25 years ago was heresy in our industry. The Florida citrus industry is a very proud and independent industry.
  And growing up in the industry, all I heard was that a citrus grower is an independent soul, and he would either succeed or fail based on that independence. But that was before we entered the world market.
  As our industry grew, we needed new markets. Enterprising marketers in our industry went out and found new markets in the foreign area. Good idea. After much work, we entered the Japanese market then in Europe. But we only met with moderate success.
  What happened? We have a beautiful product, the best produce in the world. What happened? Why couldn't we do better? Well, in these foreign markets, we met the enemy, and it was not us. It was these highly subsidized, single source exporters from the Mideast, the Mediterranean, the Caribbean, and the southern hemisphere countries.
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  Being in the industry of over 10,000 growers, we have had very few consolidated resources. We just had to limp along in these exports markets. Then came the predecessor of the MAP program. I believe it was called the TEA program at the time.
  At first, the industry was very leery of dealing with anything involving Washington. We wanted to not get caught in that trap. But with our experience in export markets, we needed help. We could not compete alone against these foreign governments.
  After much debate, our industry decided OK, let's go ahead and participate.
  Mr. Chairman, the rest is history. For 9 years prior to our involvement in the MAP program, our industry's average value of fresh grapefruit exports was $44 million annually. Ever since we got involved in that program, we have averaged over $113 million annually.
  Now, today, do we still need to be involved in this partnership? The answer is yes, we do. Our industry has invested more and more of our monies into these export market promotion programs. We have large crops today, and we have larger crops coming. We know we need to invest in global marketing.
  But Mr. Chairman, there's only so much that we can do, the small industry that we are. To bring this point home, this season, the growers, through the Florida Citrus Commission, after much debate, decided, ''well we're going to tax ourselves 35 cents a box to fund our marketing programs,'' going into this, Mr. Chairman, knowing full well that our return back to the grower would be less than 35 cents a box this year.
  Our cost of production is well over $2 a box. The point I'm trying to make is that we believe in our marketing programs. We believe they're an investment in our industry's future. But this is where we need you through the MAP program. We need you as our partners.
  We need you to do your part. We, as growers, through the Citrus Commission, will invest the marketing money to market our product in our current markets, both foreign and domestic. What we need from you, our partners, through the MAP, is help in access to new markets and to support the incremental growth that we also need in our younger export markets.
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  To get in these markets once they are open, we have to face highly subsidized competitors. The latest figures I saw was $500 million that we are competing against.
  Mr. Chairman, we can compete grapefruit to grapefruit. We can compete produce to produce. Where we cannot compete is grapefruit to--against the Israeli Government in Japan--grapefruit against the Cuban government and their sponsors, and France, grapefruit against Cypress and their sponsors and their government, in Great Britain.
  We grow the best grapefruit in the world right here in the United States, period. But to get this message to the trade and the consumer, we need you. We need you to continue your support to the MAP program and to continue your commitment to our partnership.
  Thank you, Mr. Chairman.
  [The prepared statement of Mr. Huff appears at the conclusion of the hearing.]
  Mr. EWING. Thank you, Mr. Huff.
  And our next witness is John L. Rice, sales manager and co-owner of the Rice Fruit Company, representing the U.S. Apple Association.
  Mr. Rice.
STATEMENT OF JOHN L. RICE, SALES MANAGER, RICE FRUIT COMPANY, REPRESENTING THE U.S. APPLE ASSOCIATION.

  Mr. RICE. Thank you, Mr. Chairman and members of the subcommittees.
  As a Pennsylvania apple grower and a former chairman of the U.S. Apple Association and the U.S. Apple Export Council, I thank you for the opportunity to discuss the effectiveness of agricultural export promotion programs such as the Market Access Program and their importance to the U.S. apple industry and related businesses.
  All segments of the U.S. apple industry benefit directly from the use of the export promotion funds which build markets and demand for our domestically produced product and indirectly strengthen our markets in this country as well.
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  The U.S. apple industry believes export programs should continue to receive full funding; and in particular, the MAP should be fully funded at its current authorized level of $90 million. The U.S. Apple Association is the national trade association representing all segments of the U.S. apple industry.
  Members include over 450 individual firms involved in the apple business, as well as 30 State apple associations, representing 9,000 apple growers, or nearly all of the commercial apple growers throughout the country.
  The apple industry in 14 States participates in generic promotions under MAP. Export promotion activities occur in approximately 20 foreign countries each year. I will make reference today to two entities managing apple promotion activities: the Washington Apple Commission and the U.S. Apple Export Council, the latter of which I participate in and with which I am very familiar.
  The Washington Apple Commission represents approximately 5,000 apple growers and over 200 packing houses. The U.S. Apple Export Council represents the apple industries in 13 States: California, Colorado, Connecticut, Idaho, Maine, Massachusetts, Michigan, New Hampshire, New York, Pennsylvania, Utah, Vermont, and Virginia.
  In the eight non-New England States alone, this represents over 3,600 small businesses including more than 3,000 grower/producers, 290 packer/shippers like ourselves, and 107 sales agencies and brokers.
  Exports are vital to the American apple industry. The U.S. Department of Agriculture statistics show apple production in 1995 had a farm-gate value of $1.76 billion, of which $1.4 billion was derived from fresh apple sales.
   Today, nearly 25 percent of the total volume of fresh apples produced in this country is exported, up from 10 percent a decade ago. In 1995, fresh apple exports were valued at $367 million, accounting for 26 percent of the value of fresh apple sales that year.
  In 1994, the value of exported apples reached $423 million, representing 36 percent of total fresh apple sales that year. Export sales contribute substantially to the economic health of our industry and will continue to do so in the future.
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  Apple industry members believe in agricultural export programs and back their support of these programs with cost sharing contributions ranging from 30 to 75 percent of the total expenditures. We believe the MAP has been a sound investment in the Nation's agricultural economy and has returned additional tax revenues to the U.S. Treasury.
   This is by no means a ''fleecing of America,'' but rather an investment by the Federal Government that generates substantial returns to the Treasury and productively helps American business.
  An economic analysis, which we have submitted, of the impact of MAP activities on the Washington economy indicates that the Washington apple industry has benefitted from $27.6 million in MAP type funding over the past nine years, and apples valued at $1.85 billion were exported from Washington over that same time period.
  The total income benefits to businesses in Washington State during this time period were $2.3 billion. The net benefit to the U.S. Treasury, using an average tax rate of 16 percent, was $223 million.
  A good example of the Washington apple industry's use of MAP funds occurred in the Philippines. Washington exports to that market face stiff competition from apples from China, Canada, Chile, Australia, and New Zealand.
  To strengthen consumer demand for Washington apples, the commission's export program utilized print advertising, consumer and trade promotions, and other incentives. Washington exports to the Philippines that year reached an all time record of $14 million from the 1995 crop, an increase of 37 percent over the previous year.
  The Pennsylvania apple industry, of which I'm a part, and which participates in the U.S. Apple Export Council's Export Promotion Program, consists of over 340 small businesses, including 300 growers, 20 packer/shippers, and 20 sales offices.
  The Pennsylvania industry has seen how MAP funded activities can expand export demand and enhance prices for growers. In 1994, Brazil was just emerging as a new market for our apples, and we undertook various activities to acquaint Brazilian importers and retailers with our product.
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  Brazil's strengthening economy and its population of more than 160 million people make it the tenth largest market in the world. The U.S. Apple Export Council identified the problems with our apples entering the Brazilian market, which included lack of trade and consumer awareness, lack of supplier awareness, and competition from other suppliers.
  Our goal in 1995 was to increase exports from the industry in the four States participating in our program to Brazil to 130,000 cartons, or to increase our market share to 4.8 percent. I participated in a trade mission of U.S. producers to Brazil in June 1995, an activity organized and partially funded through the MAP, to meet with their industry and introduce apples to that market.
  The next fall, we funded tasting demonstrations for ''USA Apples'' in hypermarkets in Sao Paulo, provided trade services, and developed consumer materials. With the use of $80,300 in MAP funds to promote the 1995 crop, the apple industry saw an increase in exports to Brazil of 230 percent.
  The increased apple export sales generated substantial economic benefits to our local industry and those with whom they did business.   Without MAP funds, Pennsylvania growers would not join with other apple producers in the United States to implement promotions and build markets abroad. In the face of the increasing levels of production, without increased exports, prices to both the growers and the packing houses would have been substantially lower.
  World demand for apples is expected to increase. As markets open following implementation of Uruguay Round commitments, trade will expand. In more advanced economies, consumers are seeking a wider selection of apple varieties, increasing demand as well.
  It is vital not only to the apple industry, but agriculture as a whole, to continue trade promotion efforts to help U.S. producers and exporters take full advantage of emerging and existing export markets. It is critical that assistance to small businesses be continued so resources are available to undertake promotions that never would have been possible without them.
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  The program makes export markets more accessible to smaller businesses which would otherwise be unable to individually effectively promote and market their apples around the world. I know that without the incentive of the USDA Export Promotion Program, we would never have come together and pooled our resources to generically promote U.S. apples in foreign markets.
  I appreciate this opportunity to highlight the benefits that our industry has realized from the Market Access Program, and would be happy to answer questions.
  [The prepared statement of Mr. Rice appears at the conclusion of the hearing.]
  Mr. EWING. Thank you very much, Mr. Rice.
  And our final witness on this panel, Bryant Wadsworth, executive vice president, U.S. Meat Export Federation.
  Mr. Wadsworth.
STATEMENT OF BRYANT H. WADSWORTH, EXECUTIVE VICE PRESIDENT, U.S. MEAT EXPORT FEDERATION.

  Mr. WADSWORTH. Thank you, Mr. Chairman.
  The U.S. Meat Export Federation began in 1976 as a cooperator with Foreign Agricultural Service and today has 150 members, including 100 packing, processing, purveying, and trading companies which account for 90 percent of the exports of red meat from the United States.
  Exports of red meat consisted of less than 1 percent of production when USMEF was formed in 1976. As a result of the cooperative efforts of the Foreign Agricultural Service and the red meat industry, exports have increased by 670 percent to $4.5 billion in 1996.
  This is 13 percent of the beef production and 8 percent of the pork production in this country. The exports for 1996 were produced using 200 million bushels of feed grains and 23 million bushels of soybeans. And so in effect, we exported those grains and soybeans in the form of meat.
  The program has yielded so far a trade surplus in red meat of $2 billion for the year 1996, and that's up from a deficit of over $800 million in 1976 when the USMEF was formed. These exports have added $10 per hundredweight to slaughter cattle prices and about $6 per hundredweight to slaughter hog prices, which is important to the producers.
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  With the inception of the TEA Program, which later became the MPP Program and now the MAP Program, the beef and pork producers of the country also passed a Check-Off Program; and combining these resources, we were able to turn the tide in Japan significantly.
  We worked for 15 years, as a government and as an industry, to get the market open in Japan for beef. In 1988, as we were reaching the final hours of those negotiations, we were approached by several respected analysts and company representatives asking us to back off telling us that if we got full liberalization, we would lose completely in the market.
  We had 12 percent of the import market in Japan at the time. Australia had 85 percent. Fortunately, neither the industry nor the Government listened to these people and liberalization has occurred. I am proud to announce that last year, 1996, for the first time in history, we actually supplied Japan more than Australia supplied Japan.
  And in fact, last year we supplied Japan more beef than Japan supplied itself. So we went from a 12 percent share of the market to over 50 percent.
  In 1996, for the first time, United States producers exported $1 billion worth of pork, 413,000 metric tons. But that is only the beginning. By the year 2000, the industry and USMEF have agreed on a goal to export a million tons of pork, which would be valued at $2 3/4 billion.
  By 2000, we have a goal of exporting 1.7 million metric tons of beef, valued at around $5 billion. There is enormous work ahead for us. It cannot be done, in our opinion, without this cooperative effort.
  The United States really is the only country in the world that has the power to open markets abroad for things like red meat. In our opinion, it would be a shame for the U.S. Government to put forth this energy and then step aside and allow the competitors to have the market. And without MAP funding and the checkoff that goes along with it, on a one-to-one basis basically, that's exactly what we would be doing, stepping aside and allowing the Australians to have the beef market.
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  They have tremendously more funding for promotion than we have. During the 7 years where we gained the lion's share of the market in Japan, we did it spending less than half what the Australians were spending in the same market to promote their beef.
  We would also be stepping aside and allowing the Danes and other European Union countries to take the pork market in the world. This would not be right, and we hope it won't happen.
  This is the way we see it, Mr. Chairman, and thank you for the opportunity. I trust that my full text will be kept in the record. Thank you.
  [The prepared statement of Mr. Wadsworth appears at the conclusion of the hearing.]
  Mr. EWING. Thank you, Mr. Wadsworth. It certainly will be, and we appreciate the testimony from each of the panelists here today.
  And this is a question I would pose to any of you, or all of you. Do you believe the United States practices as an export strategy, our strategy to promote exports, is responsive to the global market opportunities that are out there? Are we doing enough? Are we pretty successful in the way we approach it?
  Mr. Buckley?
  Mr. BUCKLEY. Yes, Mr. Chairman. In terms of the programs that we have right now, I think, obviously, we would all agree that we need more funding to do these projects. In our opinion, these programs such as FMD and MAP are extremely valuable in terms of the returns that we get from each dollar spent in those programs.
  In terms of responsiveness to markets, well, we're constantly seeing changing markets, and I know with the experiences of the Feed Grains Council, and I'm sure with the other organizations also, we're continuing to adapt to these changes.
  In the case of the council, for example, we have closed offices in some areas and opened offices in others in order to take advantage of these programs. But in order to do that, we need that base funding from FMD. I think that becomes a critical issue in order to establish ourselves on a long-term basis and be able to fund long-term programming.
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  Mr. STARRH. I would just second that statement, and I would also add that, in cotton, I think those of you are aware that cotton incorporated a funding program that is a checkoff program. We've come from a 34 percent market share to about 60 percent here in the United States, based on what we feel is a significant contribution through that checkoff program.
  And so we know it works to do this type of advertising and to work in communities like the United States, and we feel the proof in our cotton program and Cotton Council International is there just as well. It's a little more difficult to measure because it's such a global activity, but it is there. And we know it works, and it's a measured response.
  We need this continued activity. Probably the biggest problem has been we've been on a down turn as far as funding goes, so you are constantly trying to regroup and reorganize. The funding that we do have is absolutely essential to continue to be involved in that process.
  Mr. EWING. Do you believe, gentlemen, that we move into the emerging markets fast enough? Are our programs responsive quick enough to get into the emerging markets?
  Yes?
  Mr. HUFF. Yes, Mr. Chairman, just to respond to both of those questions, I think the long-term, as well as the short-term, policy of the FAS and Department of Agriculture is to develop a beautiful vehicle. But as Mr. Starrh said, the problem is a lot of us don't have enough gasoline to get out of the garage door with it. So that's where the funding comes in.
  As far as responsiveness, I think this vehicle that they have designed is--there is some responsiveness capabilities through the program. So as soon as we can get in through these countries and come--and the previous panel briefly discussed these non-tariff trade barriers, which are just horrendous. I mean, if you want to hear to some war stories, we can go to some war stories about that.
  But once we get past that, I believe these programs, the way that under the rules we have to currently operate, we can respond pretty quick once they are opened up to us.
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  Mr. EWING. Mr. Rice?
  Mr. RICE. Yes. Speaking again for the apple industry, we have been focusing on emerging markets. Brazil is one that I already highlighted. The money that we are spending in those markets is really not large sums, and I want to point out that we don't have billboards all over Brazil, nor do we anticipate the funding to do that kind of work.
  But what FAS and the MAP program enabled us to do was simply to walk in the door, into a market that we saw as growing, and present ourselves as representatives of an industry that allowed a forum for us to be heard. And it simply allowed us to introduce ourselves and become known with the buyers there.
  It didn't take a large amount of money, to make the initial steps, and that market we see as potentially a very large one. We see great opportunity to continue to expand markets of that type, but in a lot of those markets seed money is all we need.
  Mr. EWING. Anyone else on that?
  All of you are bringing a message, I think, to this committee that is something that 99 percent of the members of this committee already understand and believe is important. As a final question to each of you, do you have a program in the associations and the groups that you represent to get that message out to the American people in a time when competition for funds are very important here in Washington?
  And, indeed, we have to--I don't know if we have to answer, but we have to deal with programs like the fleecing of America, which certainly puts a very bad light on what we're trying to do here, and the benefits that come out of these programs.
  Mr. BUCKLEY. Well, Mr. Chairman, I think I would agree with you that we probably need to do a better job in getting that message to the American people, because I don't think they really understand the importance of these programs.
  Most of our feedback that we have from our programs basically goes to the farm community, and to explain to farmers and people in agribusiness what the value of the programs are. But I would agree with you, I think we probably need a better promotion program to get it back to the average person on the street.
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  Mr. STARRH. The cotton industry does do as much as just an outline. It's a very difficult process to deal with the whole community out there. The National Cotton Council is the parent organization of Cotton Council International, and they have a division that does work in this arena. So the programs are in place and trying to be worked with.
  To me, the ADM commercials are great commercials for agriculture per se, and those kinds of things to me are where you get entities that have a huge interest in agriculture. They are really the people we need to be working with, in my view, to cause some of their advertising to pull some of this together.
  I think there can be more done in that area, where we do coordinate and work with people that are spending multi-millions of dollars in advertising for their own products. But, as an addition, they can bring this along with it. So I think that's work we need to work on vigorously.
  Mr. EWING. Mr. Huff?
  Mr. HUFF. Yes, sir, a short response. I wish we had more resources to do more of that. We need to do that. And certainly, I know our association is working in Washington to talk with the politicians.
  And also, and our local community is an example of Brevard County, FL, which is where the space program is located, or Cape Canaveral is located, the space program. And that is declining. As we all know, funding on the space program in NASA is declining. It's not what it was once before in that community.
  But the big growth in that community is the port. The biggest thing that goes out of that port is citrus product. Also, one of the biggest things that comes into that port is citrus product, again coming and going. And that's the thing that we need to get out to the local community, like a space community with NASA.
  When we talk about grapefruit to somebody, the average person is worried about what time Wheel of Fortune comes on. They're not worried about the grapefruit grower. [Laughter.]
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  We're fighting an uphill battle there, but I think in that local community is where we are showing in the export business. If we didn't have the MAP program, the port expansion program that Brevard County, home of the space program, enjoys, it would not--and that's the type of thing I think individual communities could do.
  Mr. EWING. Thank you. My time is up.
  Mr. Johnson?
  Mr. JOHNSON. Just a follow up to your question, Mr. Chairman, and asked in a different way.
  Maybe if you might give us a concise answer that we might take back to folks, really reasking in a way what the chairman had asked. When people come to us and say we've got to balance the budget, you hear that all the time, how do you answer folks when they argue about the need to maintain these kinds of programs, the market access programs, as a part of looking at where we spend our tax dollars?
  You're taxpayers, too, and that's part of your tax money that's going into these market access programs, as well as all of the programs that you represent. Wisconsin is part of that, where we export a billion dollars worth of products. Not as many apples as some of you have. Of course, we have the original meat packers, the Green Bay Packers. [Laughter.]
  But we're concerned about our exports, too. How do you answer folks who say, ''Is this an important part in balancing our budget to invest in these programs?''
  Mr. STARRH. Well, just--again, maybe I'll just lead off on this from the cotton industry. We have the MAP programs and the FMD both, and we split about 50/50 value added versus raw product. And obviously, value added brings in a large amount of jobs and activity out there in our domestic sector.
  So from a tax generating benefit, that is obviously there. The raw products are always in the mix. So we feel that it's a seed money program.
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  When we plant our cotton, we put a small little seed in the ground and we expect big results. This is what we're talking about in this program. This is for the welfare of the whole. We don't get any direct dollars in our pockets out of this program as growers. You know that and I know that.
  So we just look at it straight up as a seed-making process. We put it in the ground. We expect results. This is exactly the same thing in this program, not a bit different. From our approach, from a simplistic answer, that is basically the best we could do in our industry.
  Mr. BUCKLEY. I would agree with those comments. And I think when you're looking at the funds that we're putting into market promotion, you have to look at what does that mean in terms of the impact on the economy. The returns that we're seeing from these types of programs are phenomenal.
  And what happens when we promote exports? Well, we also increase jobs. We increase tax revenues as a result of those, and we have that multiplier effect all the way through the economy. So I think in terms of, are these valuable programs? Yes, they are, and I think they probably more than pay for themselves in terms of economic expansion.
  I know, as I mentioned in my testimony, look at what agriculture does in terms of trade and the trade surplus that agriculture gives to the U.S. economy. I think those are points that are very important that the average person understand.
  Mr. RICE. We have been trying to tell that story in the apple industry in different ways, both in our States within our departments of agriculture, and within our local communities, when stories are done on our small businesses.
  And one of the things I want to emphasize about the apple industry, and it's true I know about most American agriculture, particularly in the produce industry, is that we are small businesses. A lot of them are farm businesses and family businesses that have been in the same family for many years.
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  They are businesses that wouldn't normally be able to compete in the international market unless there was some kind of commodity association, some kind of governmental program that was bringing them all together.
  And yet, they are necessary for us not just because we want to grow more apples, but one of the illustrations that we give to our local newspapers is the apples that we're growing for our domestic market. We have a very high standard in this country of the apples that we're allowed to sell here.
  They have to be, in the case of our most popular varieties, 90 percent to full red. They all have to be 3 inches and larger. Well, around the world, that is not necessarily true. We grow beautiful apples that are much smaller than that. Some years, depending on the growing conditions, we have apples that may be only 66 or 75 percent red.
  They think that that is a beautiful apple down in Brazil. And so what we are finding is that the international market gives us a market for products that are not desired in this country, but which have an intrinsic value which we can only realize by shipping them overseas.
  These small farms in Pennsylvania realized that increased value, but only because we have a promotion program going on in places like Brazil where they can sell it. In Costa Rica, they like very small apples. We can't sell those in this country.
  I heard Gus Schumacher of FAS talk about this potentially huge market for chicken legs in China, a product that is not sold here. Again, it is an export market which raises the farm value of products that we cannot even sell in this country. So it's part of the story that we are trying to tell.
  Mr. JOHNSON. Thank you very much. I appreciate those answers, and they are very helpful to me in terms of, I think, you tell those stories locally, but those are important stories to get out across the country in terms of why we're investing these kinds of dollars.
  Thank you, Mr. Chairman.
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  Mr. EWING. Thank you, Mr. Johnson.
  Mr. Cooksey?
  Dr. COOKSEY. Thank you, Mr. Chairman.
  Mr. Starrh, specifically a question for you. What is our trade balance in cotton? As a follow up to that, I'd like to know what you think about step 3 of the cotton program? Do you have an idea where I'm going?
  Mr. STARRH. Could be.
  Dr. COOKSEY. Do you want to answer that? And how much has this MAP program helped the cotton farmers?
  Mr. STARRH. I'll start with the last one. The MAP program I feel has been very successful in our particular case. We have done a lot of advertising in markets that we are in. We're also in developing markets--Japan, Korea, with some of the developed markets that we have proven results, where we're getting a 10 to 1 on our investment of dollars, where they're putting up about $10 to our $1 and promoting USA cotton, this kind of a concept.
  So we're doing that as well as in developing markets. So we feel that we have proven results on the MAP program and what's involved. We see value added, where they're using the USA cotton logo on their products that are now being manufactured in the United States and exported. That is an added value that they are getting on their exports, so we see that as a very real result.
  Step 3 is an integral part of what we're involved with in keeping our commodity available in the marketplace. So it's another side of the coin. But when we fall out of the export market, we can use that as a method to stay in that market.
  So we feel that is an important part of the farm program that does work for us like the EEP for the feed grains, and so forth. That's just another side of the coin in being available for your products in the world markets.
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  What was the other question?
  Dr. COOKSEY. What is the trade balance in cotton?
  Mr. STARRH. This is Allen Terhaar, executive director of the Cotton Council.
  Mr. TERHAAR. Congressman, that positive trade balance for raw cotton is roughly $3.5 billion. The trade balance for cotton products, value added cotton products, is currently negative. But U.S. cotton value added products are making significant in roads into that balance to turn it favorable through the export promotion programs of value added cotton products.
  We are, right now, exporting close to $5 billion worth of value added 100 percent cotton products made with U.S. cotton.
  Dr. COOKSEY. So you're saying we are importing more cotton than we are exporting?
  Mr. TERHAAR. No, sir. We are importing more cotton product manufactured in China and places like that that are not using U.S. cotton than we are exporting U.S. value added cotton products. But we're working on that one hard.
  Dr. COOKSEY. My cotton farmers are concerned that the triggers in step 3 increased our cotton imports from 80,000 bales to 800,000 bales. And they questioned the triggers. If you could make this MAP program eliminate the 800,000 bales of imported cotton, we'd both be a lot better off.
  Mr. STARRH. Amen. [Laughter.]
  That's all I can say. We're in very good understanding of what you're saying. So that's a whole other arena that is very complex in how we deal with that. But yes, if you could get MAP to do what we really want it to do, that would solve the problem, by the value added exports as well as raw cotton exports.
  Dr. COOKSEY. Thank you, Mr. Chairman.
  Mr. EWING. Mr. Smith?
  Mr. SMITH. Thank you.
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  Let me start out by maybe asking you, suggesting if you haven't already talked to Peter Shear, the nominee to represent agriculture with the U.S. Trade Representative's Office, that every commodity group consider trying to take the opportunity talk to this individual and recommend to us, so that we can pass it on to our colleagues and the Senator, you can short circuit that.
  But I would like your ideas on how he feels about agriculture, his knowledge about agriculture. I'm somewhat concerned about maybe his lack of hands-on experience with agriculture.
  It's my personal feeling that agriculture has been too often short-changed in our trade negotiations, simply because we have always had a balance of trade. We have been seeming to be willing to sell our product in those markets at a cheaper rate to take some of that foreign expert market.
  And it seems very important to me, and I hope to you, that we start putting pressure on the trade representatives in our future negotiations, so that we don't become so anxious to sign any kind of trade agreement that looks like we're freeing up trade that we continue to sacrifice some of the things that have been happening in agriculture.
  Maybe that's more of a speech than a question. If anybody would have a reaction, please let me hear your thoughts.
  Mr. STARRH. We concur. I concur with your statement.
  Mr. SMITH. In terms of where we go in making sure that we don't keep negotiating the price down, as I look at farmers in my area, which, of course, are feed grains and dairy, and some beef, we're looking at a situation where the pressures on the survival of that family farm seems to be increasing rather than going down.
  I wonder if, in our efforts to expand export trade, how successful we are in assuring that we get the kind of price that is going to keep the American agriculture solvent. So let me at least throw that question out to the feed grains.
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  Mr. Buckley?
  Mr. BUCKLEY. Well, in terms of how exports are going to impact crop prices, and how that is going to carry through to the farmer, when you look at just the corn sector, for example, where you're exporting 2.1 billion bushels out of an 8- or 9 billion bushel crop, obviously, if we didn't have those exports, and if we didn't have those expanding markets, that we would have significantly lower crop prices, which would make it even harder for those family farms to be able to survive.
  So I think from that standpoint, we need to continue to see those types of markets grow in the future.
  Mr. SMITH. What effect do you see in the commodities that have been part of the traditional farm programs--the cotton, rice, wheat, feed grains? What effect do you see as the new FAIR Act having on the greater flexibility to change crops and change production? And maybe between feed grains and cotton.
  Mr. BUCKLEY. Well, we were very supportive of the FAIR Act. I think that flexibility is going to give farmers the ability to shift into those areas where he can make the most money.
  Mr. SMITH. Yes. And what do you see as those shifts? Have you analyzed--I mean, our old program, for example, subsidized the production of corn and says, if you grow corn, you can get the subsidy. If you don't grow corn, you can't get the subsidy. Likewise, on rice and cotton. Has there been an analysis of what is going to happen in terms of the variability of that production?
  Mr. BUCKLEY. Right. We have tried to do an analysis on that, and it's somewhat difficult to do. And I know we have talked to Sparks Commodities and many of the other econometric houses on what they feel the shifts and the changes are going to be. And it's hard to estimate, because we've been under farm programs for so long we have no experience without them.
  So I think the one thing all of us agree with is that there probably is going to be more price variability. That is something I think we're going to have to expect. But at the same time, it's going to allow farmers and the supply/demand balance to come on its own, by market forces, which long term has got to be good.
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  Mr. SMITH. Yes, Mr. Starrh?
  Mr. STARRH. Yes. I'd like to just speak to your first question first. And that is in our business, we grow 16 or 18 million bales of cotton. We're exporting probably 6 to 8 million bales raw cotton, plus 3 1/2 million of value added cotton, manufactured cotton.
  So you can see that exports in our commodity, just as the other commodities, is just an integral part of where we're at. So that's always on our minds.
  The question of the FAIR Act in relation to cotton, I think it probably will pull out of the cotton sector, based on where we're at, down the road. Particularly when feed grains jump up like they did last year, the corn price, and so forth and so on, so we're going to see the movement that was expected.
  But again, we're trying to stay competitive in our commodity on a world-wide basis and still have a profit base. That is the goal, and we're trying to achieve that. And I think the MAP program and the FMD program are a part of that process.
  Mr. SMITH. For anybody that wants to make a comment, how does the industry encourage, how does Congress encourage, an expansion of the value being added in this country, rather than exporting our raw products? How would you suggest maybe go right down the line for everybody's commodity. The more we can sell the value added, of course, the better it is for our economy.
  Mr. WADSWORTH. Well, I don't know how we define value added. But from the U.S. Meat Export Federation's viewpoint, everything that we're involved in promoting is value added. As I mentioned, our sales of red meat last year really was a sale of 200 million bushels of corn and 23 million bushels of soybeans in the form of meat. And that's pretty critical to us.
  We don't just deal with producers who are producing the animals. We are dealing with packers and purveyors and people who are fabricating and changing the whole process, and in some cases they are actually exporting with their own brand names on. So it is very high value product.
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  Mr. RICE. In the case of fresh apples, that is a surprisingly high value added product. It doesn't seem like it's highly processed. But the cost of growing apples might be 10 or 12 cents a pound, and the grower might receive hopefully more than that.
  The product that we're shipping overseas we're selling at maybe 40 or 50 cents a pound. But a lot of that goes into the handling, processing, grading, storage. It's a product that is expensive to ship. All of that value added comes in the form of the storage and packing companies, the box companies, the transportation companies, the shipping companies.
  So part of what we wanted to emphasize was how much of an impact a few apples makes to a much larger economy. It seems like a raw commodity, but it's certainly not.
  Mr. HUFF. Much the same for citrus. But one of the things that I'd like to say is that the value added products are our juices. We have very exciting new products that are just beginning to come on line of the pre-peel type products that are fresh in the produce counter. It's better, and that's certainly where we're focusing a lot of our resources, to grow this market.
  And also, in the battlefields of Europe where most of our competition occurs with other subsidized produce commodities, is that we sell our product sometimes 2 to 3 times more than a like amount of the same grapefruit from another producing area. And that is nothing more than just the value that has been instilled in the consumer's mind that our product is a quality product with a lot of value. And that's directly tied to not only our product but what this product has done.
  Mr. SMITH. Not to minimize it, but how about this T-shirt business now?
  Mr. STARRH. How about this T-shirt business? That's a great business. [Laughter.]
  Denim is a great business.
  Well, I was just going to say that value added for us is a pretty big circle, because cotton seed is part of our product. That is processed, put into the feed trade, also put into oil, even into some of the shortening products. So that's one side of the coin. This raw cotton is processed. It's ginned. It's hauled. It's gone through a lot of value added.
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  But when you get into the final product, into the manufacturing sector, and in our export market, Cotton USA is our trademark that we're promoting throughout the world. So we're using this with a lot of different participants.
  Procter & Gamble does this on their own. Just like they did in the United States, they're putting this on their boxes of soap. So we're getting a tremendous amount of coverage throughout the world to promote Cotton USA products.
  And these are the kind of joint efforts that are all being generated out of this program that we're involved with. So we see these value added things as a growth area, and we're really focusing on that at this time.
  Mr. BUCKLEY. We also see value added as an extremely important growth market for us in the future.
  As I mentioned earlier, we had the first value enhanced grain conference last February. This was an incredibly successful conference. We originally expected 250 people to attend. We ended up with 500, and we had to cut off registration, because we couldn't physically put any more people in the room.
  So it was a very successful program. That was funded with MAP money. Without MAP, we would not have had that conference. And like I said, that was extremely important in bringing an incredible number of foreign buyers together with U.S. producers. And so I would agree with the rest of the gentlemen that value enhance is a very key issue for us.
  Mr. SMITH. Gentlemen, thank you very much for being here.
  Mr. Chairman, thank you.
  Mr. EWING. Thank you all, gentlemen, for your testimony and for being here today.
  And I'm going to return the gavel to Chairman Barrett.
  Mr. BARRETT. Thank you, Chairman Ewing.
  Thank you, gentlemen, for your testimony. We appreciate it very much.
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  We'll move quickly to panel No. 3, the final panel of the day. I recognize Mr. Phil McLain, president of the U.S. Wheat Growers association; Mr. John Burritt, chairman of the National Oilseed Processors Association; Mr. Douglas Sims, president and chief executive officer of CoBank; and Mr. Bob Wichmann, corporate vice president of Pioneer Seed.
  Thank you, gentlemen, for being with us. Let's proceed with Mr. McLain.
STATEMENT OF PHIL McLAIN, PRESIDENT, U.S. WHEAT GROWERS ASSOCIATION


  Mr. MCLAIN. Thank you very much. Mr. Chairman, members of the subcommittees, I am Phil McLain, a wheat grower and diversified farmer from Statesville, NC. I am president of the National Association of Wheat Growers.
  I want to thank you for the opportunity to appear before these subcommittees today and discuss farm export programs.
  Recently, the combined impact of the completion of the Uruguay Round trade agreement, and passage of the Federal Agricultural Improvement and Reform Act of 1996, has led to an increasingly global integration for U.S. agriculture and farmers. In other words, these developments have made U.S. farmers, and wheat producers in particular, even more dependent on foreign markets for income.
  There is no question that the Uruguay Round agreement for agriculture is a good first step, but its virtue should not be oversold. Unfair trading practices still exist. Export subsidies, like the Export Enhancement Program and the European export restitutions, were legitimized in the GATT, albeit subject to disciplines.
  A major disappointment of the agreement, however, was its failure to address the unfair trading practices of State trading entities like the Canadian and Australian Wheat Boards. The United States has not operated its export subsidy program for wheat since July 1995.
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  As of April 10, 1997, the 45th week of the wheat marketing year, U.S. wheat exports are estimated to be 24 percent lower than last year at 26.2 million tons. This export figure is nearly 3 million tons lower than the level of exports in the 1985—86 marketing year that the EEP program was implemented, and it is the second lowest level in the past 20 years.
  Our competitors are doing better. Argentine wheat exports have exploded this year to 11 million tons from approximately 5 million tons last year. Australian exports are expected to reach 18 million tons, up from 13.3 million tons the previous year. Canadian wheat exports are projected at 18 million tons, compared to 16 million tons in the 1995—96 marketing year.
  The European Union is only expected to hold its exports steady from last year, due to reduced inventories, although it resumed its export subsidy program in September 1996. The United States' unwillingness to counter these subsidies has resulted in the surrender of important North African and Middle Eastern markets.
  Reactivation of the EEP in time for the new marketing year could break this trend, and we have asked our agriculture department to put the program back into place. However, just last week, the House Appropriations Agriculture Subcommittee cut funding for EEP by 90 percent, to a maximum of $10 million. We hope EEP funding can be restored so that we can competitively export wheat in the new crop year, which begins June 1.
  In summary, the EEP is a marketing tool for maintaining U.S. markets and discouraging unfair competition in the world wheat market. It can also be used for market development. In the less-than-perfect-world wheat market, we cannot compete without all of the tools in our arsenal--the EEP, plus the Export Credit Guarantee Programs and the Foreign Market Development Program. A new trade round is scheduled to begin in 1999, and it would be a mistake to assume a posture now of unilateral disarmament.
  Thank you for the chance to speak today, and I am pleased to answer any questions at the appropriate time.
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  [The prepared statement of Mr. McLain appears at the conclusion of the hearing.]
  Mr. BARRETT. Thank you, sir.
  Mr. Burritt.
STATEMENT OF JOHN A. BURRITT, CHAIRMAN, NATIONAL OILSEED PROCESSORS ASSOCIATION


  Mr. BURRITT. Thank you. I serve as the chairman of the National Oilseed Processors Association, or NOPA, on whose behalf I appear before you today. I work for Ag Processing of Omaha, NE, and we appreciate this opportunity to share with you our views on the U.S. export programs as they pertain to vegetable oil, particularly the EEP and the SOAP programs.
  I'd just like to start by stating a very few facts regarding the world vegetable oil market, the historic use of EEP encountering our competitors, unfair trade practices, and the changes that should have taken place in the program due to the 1994 Uruguay Round agreement. Finally, we would like to discuss where we feel U.S. trade policy, the EEP program, and other export programs should go from here.
  Although this testimony reflects the view of the great majority of the oilseed processing companies, not every position is unanimously held by every company. One position that is unanimous, however, is that NOPA's highest priority is its level playing field initiative to eliminate trade distorting practices worldwide. We have been very, very active in that movement.
  Our policy has consistently been to open markets, to lower trade barriers, and eliminate subsidies. We see EEP as one of our tools in achieving the level playing field by providing an incentive for our competitors to come to the table to negotiate the elimination of their trade distorting programs.
  However, we do not have a level playing field today. Argentina maintains its differential export taxes, commonly referred to as DETs, for soybeans and sunflowers, which gives them a great advantage. Europe continues to enjoy highly subsidized oil production, oilseed production. EEP for SOAP were started as a direct result of the European practices. Malaysia utilizes differential export taxes, and we have other examples.
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  While there are many problems in the world, there are some very hopeful signs benefiting our industry. First, a significant change took place, and I wanted to answer the question of the second panel. When the U.S. farm bill decoupled farm program payments from the planning decisions made by U.S. farmers, we in oilseeds believe that to be a major breakthrough and an aid to our industry.
  Second, last year, Brazil should be congratulated by completely eliminating their differential export tax program, a very major step in writing some of the trade imbalances in our industry. But we must be realistic. Even with these successes, U.S. oilseed processors continue to compete against trade distorting policies of foreign governments.
  Although the EEP program has not been active for vegetable oil in several years, we can look back, and find examples of where it had an impact on the U.S. oilseed industry and our competitiveness in the world. It also should be noted that when U.S. vegetable oil exports fall and stocks rise, the primary effect is a decrease in the U.S. crush and an increase in meal prices and protein prices, which then impacts the U.S. livestock industry's competitive and U.S. consumer costs for meat, poultry, and eggs.
  EEP-assisted export sales for oil have a rapid impact on oil prices and the price of soybeans. In general, a 1-cent rise in soybean oil prices translates into an 11-cent rise in soybean prices. We've had, this year, a very recent example where cash meal went to almost $300 a ton, while cash oil was trading in the range of 21 cents per pound.
  On any kind of an inflation related dollar, that is almost an all-time low price for oil and an all-time high price for meal. And that happens when we cannot clear our vegetable oil stocks from this country.
  During their peak, EEP and SOAP programs offered the United States its only commercial access to the world vegetable oil market. Historically, and we represent all oilseeds within NOPA, SOAP provided many opportunities for the U.S. sunflower industry to compete in world markets, while the domestic industry prospered as well. This has not happened since we have cut back on our programs.
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  Similarly, soybean oil exports would not have been able to compete in the world markets for many years prior to the Uruguay Round agreement had it not been for the EEP program.
  A significant change was supposed to take place in the EEP program as a result of the signing of the Uruguay Round.
  First, the EEP would no longer be required to be a targeted program focused on the European Union, but rather a program with no limits on targeted countries, and no requirement for providing any unfair trade practice by our competitors.
  Second, commitments were made by this administration that the EEP program would be used to its fullest extend.
  Third, the EEP program would be phased down over a period of six years. In other words, EEP was a legal transition tool for the United States to use in maintaining markets as the world market grows and trade barriers are lowered. In effect, the United States has unilaterally decided to forego its rights it gained in the Uruguay Round agreement by not implementing the new EEP program and by suspending vegetable oil EEP sales since 1994.
  In 1995 we were asked by USDA how to structure the new program. We gave them many comments. These comments have not been acted upon and have largely been left on the shelf. By the end of this fiscal year, 50 percent of the total dollars and tonnages allowed under the EEP program will have expired and passed, and we still don't have any regulations for the new program.
  Most of our members do believe there are times when market forces warrant the use of EEP and feel that the United States should take advantage of the rights that we gained under the Uruguay Round agreements. Most of our members do feel that point has been reached in the last year or so when we have built oil stocks to record levels.
  Where do we go from here? Again, we feel very strongly that the highest priority should be in lowering world-wide trade barriers. We support the funding of the EEP program at a level that allows the vegetable oil EEPs to be implemented to the fullest. We also strongly support GSM and P.L. 480 programs, as these mechanisms provide tools for us to use as we go forward.
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  It is important to us that GSM stay focused on financing commodities exported from the United States and not be directed toward developing the infrastructure in other countries.
  Thank you for the opportunity to address the committee.
  [The prepared statement of Mr. Burritt appears at the conclusion of the hearing.]
  Mr. BARRETT. Thank you.
  Mr. Sims.
STATEMENT OF DOUGLAS D. SIMS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, COBANK


  Mr. SIMS. Mr. Chairman, thank you very much, and members of the committee. My name is Doug Sims. I'm the chief executive officer of CoBank, and we appreciate the opportunity to testify today.
  I'll summarize my remarks but ask that the prepared remarks be made a part of the record.
  Mr. BARRETT. Certainly.
  Mr. SIMS. With about $19 billion in assets, CoBank specializes in financing agriculture cooperatives, rural utility systems, farm credit associations, and the export of agricultural products for the benefit of U.S. agriculture. CoBank has offices in 11 cities in the United States, as well as representative offices in Mexico City and Singapore.
  Over the past 15 years, our bank has financed more than $23 billion in agricultural exports, representing the sale of about 30 different commodities and products. CoBank is the single most active participant in the Commodity Credit Corporation's GSM—102 and 103 loan guarantee programs.
  These programs have supported the export of more than $55 billion worth of agricultural commodities to more than 55 countries. Over the past several years, CoBank has accounted for roughly 40 to 45 percent of all of the GSM loan guarantees issued by the Department of Agriculture.
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  Mr. Chairman, CoBank could not finance this level of activity and agricultural exports without the GSM program. Likewise, farmers are not equipped to accept and manage the credit, foreign exchange, and political risk associated with the export markets that we're dealing with today.
  The GSM programs are the only reason we are able to access many of the export markets that we have today. Collectively, Federal export programs should be viewed as a tool box, consisting of a variety of flexible, government-supported export promotion programs. Our commitment to using all of the tools at our disposal to increase agricultural exports is critical, especially as the provisions of the FAIR Act encourage our Nation's farmers to be more export oriented.
  The success of GSM, as an export promotion tool, is remarkable and sets a good standard for other programs. For example, Egypt, Korea, and Mexico at one time purchased U.S. products only with the assistance of GSM programs. Today, those markets have matured to the point that they are not relying as heavily on the Federal credit programs.
  The GSM programs have allowed the United States to build and maintain markets for wheat, corn, soybeans, cotton, vegetable oil, and other commodities, in Morocco, Turkey, Tunisia, despite significant competition from the European Union that you've heard about today.
  GSM has been a valuable tool in keeping U.S. soybeans competitive with Brazilian exports and markets as diverse as Mexico and Indonesia. The successful use of GSM has helped to catapult Mexico past the countries of the former Soviet Union and Eastern Europe to become our bank's single largest international customer today.
  Based on credit performance, under the GSM programs, we are now involved in a number of transactions in Mexico that are not supported by the GSM loan guarantees.
  As an outgrowth of the business activity established with the help of the GSM programs, and NAFTA, our bank recently signed a strategic alliance agreement with Banamex in Mexico, the largest bank in Mexico, to provide greater access to Mexican markets for CoBank's farmer-owned cooperative customers.
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  CoBank has originated the first and only GSM transactions involving China. While the dollar amounts are small at this point, the promise of a vast new market clearly exists.
  These are only a few examples of how the GSM programs provide U.S. producers and lenders with a tool to compete in world markets. When credit is available to foreign purchasers on reasonable terms, we have learned that it frees our producers to compete with foreign suppliers based on product quality and price. And on those terms, U.S. producers can excel.
  In addition, the GSM, other tools in our export promotion toolbox that we need to continue to have available, include the market access program, which has been particularly beneficial to some of CoBank's customers, the Export-Import Bank, and the Overseas Private Investment Corporation.
  Mr. Chairman, our international trading partners are already preparing for further WTO discussions on agricultural trade issues, scheduled to begin in 1999. For that reason, now is not the time to unilaterally surrender any of our export promotion tools that have been talked about here today.
  To the contrary, the United States should not negotiate away any of these important programs without receiving significant quantifiable, enforceable concessions from our trading partners that will guarantee significant new market access for our agricultural products.
  In the coming months, Congress will also have the opportunity to consider new trade arrangements with other countries, especially in Central and South America. These trade arrangements hold great promise for opening foreign markets for U.S. agricultural products.
  I urge the members of this committee to give serious consideration to the fast track legislation that is likely to be offered this year to help to facilitate the negotiation of such arrangements.
  And finally, Mr. Chairman, I'd be remiss if I failed to thank this committee for the recent statutory updates to CoBank's international lending authorities. These enhanced authorities have helped CoBank keep pace with the changes in world markets for the benefit of American agriculture. This committee should be commended for its continuing commitment to these important programs.
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  Thank you, Mr. Chairman, and I'd be glad to respond to questions at the appropriate time.
  [The prepared statement of Mr. Sims appears at the conclusion of the hearing.]
  Mr. BARRETT. Thank you, sir.
  Mr. Wichmann.
STATEMENT OF ROBERT W. WICHMANN, VICE PRESIDENT, SEED SALES, PIONEER HI-BRED INTERNATIONAL

  Mr. WICHMANN. Thank you, Chairman Barrett, and members of the subcommittee.
  I would like my formal remarks to be entered in the record, and I will briefly summarize those for you as quickly as I can.
  Mr. BARRETT. Certainly.
  Mr. WICHMANN. I'm Bob Wichmann, vice president of seed sales for North America at Pioneer Hi-Bred International. I thank you for this opportunity to provide input as you review the effectiveness of the U.S. agriculture export program.
  I only have two simple points to make today. Number 1, our customers--American farmers--need export markets. Secondly, our company needs the freedom to operate around the world.
  I have been asked today to comment specifically on the Cooperator Program of the Foreign Agricultural Service. I believe the FAS Cooperator Program has been a significant help in expanding agriculture exports and facilitating safe trade. Before I talk about that, I'd like to offer just a quick word about our company.
  Pioneer Hi-Bred International is the world's largest agricultural seed marketing, sales, production, and research company. We're based in Des Moines, IA. Our annual sales exceed $1.7 billion.
  We do business in about 100 countries around the world. We also have about 90 research stations located around the world, half of those outside of North America and half of those in developing countries.
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  Now, getting back to my two points, first of all, our customers, the American farmers, need export markets. It is clear to those of us in agriculture that our future economic sense is increasingly dependent upon international trade. As we phase out direct price supports, lost income must be replaced. It must come from the marketplace, such as exports of U.S. farm products.
  Today, our agriculture exports are one of the few bright spots in our balance of trade picture. I believe we can say that the food market in the United States and other developed nations is a mature market. The real opportunity is in developing nations where growing populations and per capita incomes are creating demand for U.S. commodities and process foods.
  Past efforts clearly show that U.S. market developed programs can help establish and maintain a good trade and investment climate for U.S. agriculture in developing countries. I can personally vouch for the success of these programs.
  I have served on two trade missions with the U.S. Feed Grain Council, to China, Japan, and later on Egypt and Turkey. And I was tremendously impressed by what I saw to developed demand for U.S. agriculture products.
  The second point today I would like to make is to stress the importance that our company places on the freedom to operate around the world. The Cooperator Program helps our industry by allowing for a strategic platform from which Government and industry, public and private partnerships, can work together to remove trade barriers.
  By the way, I want to stress that Pioneer receives no Federal funding, but we do benefit from cooperator programs. In fact, we are a financial contributor to such FAS cooperators as the U.S. Feed Grain Council and American Seed Trade Association.
  The American Seed Trade Association is a national membership organization for the U.S. seed industry. Pioneer is a member. ASTA membership accounts for approximately 85 percent of all private U.S. seed companies operating in the United States. ASTA currently receives Cooperator Program funding to address such issues as intellectual property protection, phytosanitary barriers to the free movement of seed, and opposition that's growing toward genetically engineered plants and plant products.
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  It is critical that the U.S. seed industry maintain a strong presence in international seed organizations. And ASTA represents our interests well. The alternative is to have people from other countries making the rules for international trade. Without a strong U.S. presence, we should expect increasing constraints for non-tariff trade barriers.
  This is important to Pioneer, because we need to be able to move seed freely from one country to another. The U.S. farmer has benefitted greatly from plant genetic research done in other parts of the world and brought back to the States. In addition, we regularly produce seed during the winter in places like Argentina and Chile for planting here in the United States during the spring.
  Cooperator Program funding is critical to helping new and small seed company exporters tackle the extremely competitive international marketplace by providing expertise and market intelligence. And given our static domestic market, those companies, like our farmer customers, face serious limitations without growth opportunities. The international market for seed is where the most growth sales is expected in the near future.
  To address global opposition to U.S. biotechnology products, ASTA, through the Cooperator Program, works with organizations such as the International Seed Trade Federation, known as FIS (sic), to encourage world adoption and standardization of approval processes for genetically engineered seeds.
  This concludes my formal remarks. We do strongly support the $30 million budget that is being requested for the Cooperator Program. We'd certainly be happy to answer questions, when appropriate. Above all, we'd like to thank you for this opportunity to address the committee.
  We thank you very much.
  [The prepared statement of Mr. Wichmann appears at the conclusion of the hearing.]
  Mr. BARRETT. Thank you, Mr. Wichmann.
  Let me ask you a question which has just been handed to me. As a representative of Pioneer Seed, I think you're the logical gentleman.
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  The U.S. seed industry leads the world in the development of genetically modified products. Use of biotechnology increases competitiveness. How have the U.S. export programs helped in this area?
  Mr. WICHMANN. Well, I think we all know that we're facing a tremendous challenge right now, just from what has taken place in the European group. And I think the groups that we have right now with ASTA and the U.S. Feed Grain Council, and the work that they're doing abroad, plus other organizations in the Government, are absolutely essential in dealing with the issues that are being brought to us from abroad.
  I think this technology, specific technology, is a great benefit to our industry as well as to the American farmer. We're kind of going up the learning curve, I think, right now as we're dealing with this particular technology, because of the sensitivities that we're seeing abroad.
  It's going to take a good bit of effort on all of our parts to make sure that we continue to keep this product flow going in the right direction. And we think it's one of the best technologies available to deal with the productivity issue in the future and to serve the growing needs of populations worldwide.
  Mr. BARRETT. Are you satisfied that our Government is doing enough at this point?
  Mr. WICHMANN. I don't know that. I think, as I said, we're all kind of going up a learning curve here with this new technology, and the emotions that are in the marketplace.
  The thing that the Government has done so well has been to support the technology with the USDA, EPA, and FDA support. We just have a challenge here on how we make this technology known, that it is safe and can be handled in our food products around the country and around the world. So it's going to take an all-out effort, and I would hate to see a funding decrease that would in some way constrain our efforts to do that.
  Mr. BARRETT. Thank you.
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  Mr. McLain, I know that Canada has expressed some concern about reinstituting EEP. As a matter of fact, members of the House Agriculture Committee did spend time in Canada, and I am aware that the Canadians expressed considerable concern that EEP might be reinstituted.
  In your experience with the Canadian Wheat Board and the practices that they are involved in, why would they be concerned about reactivating EEP, and what effects would it have, either positive or negative, on us?
  Mr. MCLAIN. Well, they're always concerned about the EEP program because it competes with them. And that's what we're trying to do is to compete fairly. Of course, we're dealing with another country, and it's an unfair competition for us in the free market.
  Mr. BARRETT. Why, because of the Wheat Board being one entity and----
   Mr. MCLAIN. Yes, they're one entity, and so they can operate as they feel freely in the market, where we don't have that opportunity.
  Mr. BARRETT. What effect would any action that they might take have on us, then, one way or the other?
  Mr. MCLAIN. Well, what kind of action; any kind of action?
  Mr. BARRETT. Yes. If all of a sudden we reactive EEP and start colliding with their Wheat Board up there, what happens?
  Mr. MCLAIN. Well, we would be buying back our market share, thereby reducing our stock and reducing our prices. So that would be the fall out on that.
  Mr. BARRETT. So it would be a big negative?
  Mr. MCLAIN. Yes, it would be a negative for the Wheat Board.
  Mr. BARRETT. OK. Thank you.
  Mr. Burritt, any forecasts on Big Red football for this fall? [Laughter.]
  Mr. BURRITT. No. I'm afraid I don't have them.
  Mr. BARRETT. That's going to be on the record. [Laughter.]
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  Do you think agriculture is getting a disproportionate share of the export promotion funding?
  Mr. BURRITT. Well, I'm probably not very well equipped to answer that question. The oilseed processors, frankly, don't utilize export promotion funding very much. Now, some of our members do, and the American Soybean Association certainly does, and National Sunflower Association, and so on and so forth. I believe, in comments that I have heard, that they get great value from that funding.
  Mr. BARRETT. That was leading into my next question. Are your people satisfied, then, with the share that is distributed? Do they think they're getting enough, not enough, or do you know?
  Mr. BURRITT. I don't know.
  Mr. BARRETT. OK. Thank you very much.
  Mr. Sims, I think that we're losing the public relations battle. I've thought that for quite some time. Reference has been made already today of the fleecing of America, programs like that on television. Last week I had an oversight hearing on NAFTA, and it came out again loud and clear.
  It was clear to me that, in many cases, those that have benefitted most from the agreement have not been very effective in getting the story out to the national media. And this has disturbed me for quite some time. I don't think we do a very good job of blowing our own horn.
  I'd appreciate any comment that you might have on that subject, and specifically any other comments that you gentlemen might have. Do you agree, disagree? If you agree, what can be done?
  Mr. SIMS. Well, I agree with you. In fact, some of the impetus for me being here today is, much to my surprise, finding out the general perception that this has not been as positive for agriculture as it has. And I think some of the testimony you've heard today and have heard in previous hearings that, in fact, this has been generally very good for agriculture.
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  Obviously, it didn't solve all of the problems, and there are issues to be dealt with yet. But I think all of us involved in the agriculture industry have to do more to talk about the major shift that's going on from the previous farm bills to a globalized marketplace, and the importance of that globalized marketplace in our country, having some of the lowest food costs in the world.
  It is the 10 percent of our income we're spending on food that allows us to build houses, buy four-wheel drives, the electronics. This isn't just an agricultural issue, and we've got to do a better job of that. There isn't any question.
  Now, in terms of these programs, I think it's interesting and I referred to them as a tool box. Many of these market promotion programs are really wedges to get into the market and are very important in, if you will, investing in market access, so that then the market can grow through the utilization of much lower cost programs, such as the GSM program.
  But when you compare the dollars that are being spent by the European Union, $9 billion I think we heard today, to what we are spending and investing in those food markets for our agricultural industry, I think consumers ought to be proud of the efficiency of the agricultural industry and in the way the dollars that we have are being utilized.
  Mr. BARRETT. Agreed.
  Any other comment?
  Mr. BURRITT. Yes.
  Mr. BARRETT. Mr. Burritt?
  Mr. BURRITT. I'd like to comment on that. First of all, I agree. Second of all, the comment, the fleecing of America, I don't think that the population in general understands, in many cases, the competition that we're truly against in agribusiness.
  I think we can demonstrate--certainly, our oilseed processing/producing industry has demonstrated that we can compete very effectively. I think we have the most competitive oilseed industry and processing industry in the world. However, we simply cannot compete against governments.
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  And the specific case, and we had that long drawn-out battle where we almost went to a trade war with Europe, they agreed to back off but still their oilseed subsidies alone--now, these are not export subsidies--production subsidies--amount to about $6 billion per year. And that is for an oilseed crop that is about a quarter of the size of ours at most. Our subsidies for oilseeds are just about nothing.
  So my only comment and real answer to that is that we can compete just fine, but we cannot compete fairly against the treasuries of foreign governments.
  Mr. BARRETT. Absolutely.
  Any other comments? Mr. McLain?
  Mr. MCLAIN. Yes, Mr. Chairman. It's a problem that we continue to wrestle with. The good news that agriculture is--we are probably one of the best success stories in the country. But with the public and the information that they're looking for in the market, and out in the public, is they're looking for more sensational type news. And when you have a good news item and the success stories that we have, it's harder for us to get our point across.
  I often wonder if there was some way that we can work to get our good points across, so that is a concern that we have.
  Another thing in agriculture, from the producer side, is with our budgets and the amount of money that we have to operate with. It costs a lot of money to get out in the press and do the type of things that we would love to do. So any way that we can have the help to do that it would be deeply appreciated.
  Mr. BARRETT. It seems to me there is no unified voice for agriculture. There is no Chamber of Commerce for agriculture. Is it because it is so fractionalized--livestock, commodities, citrus? Anybody want to grab that one?
  Mr. WICHMANN. I think you pretty well have nailed it. I think one of the real challenges as we have investigated this is just the amount of money that you can throw at this. And I think it does take a considerable amount of funding to get this message out. Not enough people know that if the American farmer wins we all win.
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  We have done such a great job here in this country of efficiencies on the farm, it is striking as you get around the world and see how the United States has positioned itself. But we are somewhat in disarray, and I think that the more that we can think about how we can close that, to where we can get out a uniform message, the consumer needs to know. And the consumer really doesn't know today, if you talk to a lot of consumers, about a food shortage and the cost of food.
  I've visited with some people who still feel that if--they can't understand a shortage because they can go to the grocery store and buy what they want off the shelf. They can't relate it to the farm, and that is one of the challenges that we face.
  Mr. BARRETT. Absolutely. You've made my point. Our producers are the best in the world, producing the best food in the world. You've heard it, as well as I have. Safe, inexpensive, so on and so forth. That word isn't getting out, and I would hope that somehow, somewhere, we can crystalize this and start getting that message out in a unified manner. I would hope that's possible.
  Well, with that editorial comment, I need to thank you very sincerely. We appreciate your being with us. We appreciate the testimony that you've shared with us.
  And the Chair will seek unanimous consent to allow the record of today's hearing to remain open for 10 days, so that we might receive additional material and supplementary written responses to any of the questions that have been posed today to the witnesses by any member of the panel.
  Without objection, it is so ordered, and the joint hearing of the General Farm Commodities Subcommittee and the Risk Management and Specialty Crops Subcommittee is adjourned.
  [Whereupon, at 12:45 p.m., the subcommittees adjourned, subject to the call of the Chair.]
  [Material submitted for inclusion in the record follows:]

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STATEMENT OF CHRISTOPHER GOLDTHWAIT GENERAL SALES MANAGER, FOREIGN AGRICULTURAL SERVICE, U.S. DEPARTMENT OF AGRICULTURE
Chairs, members of the subcommittees, I appreciate the opportunity to meet with you to discuss the export development and trade enhancement work of the Foreign Agricultural Service.
After some comments about our current trade successes and challenges, I will review for you our various trade tools in the context of the market weaknesses they address. Then, I will illustrate how, by using several of these tools in concert, we can successfully achieve export results in specific markets. I hope this will give you a sense both of the interrelationships and synergies that we achieve from our export promotion efforts.
I. 1996: YEAR OF ACCOMPLISHMENT; 1997—2005: YEARS OF CHALLENGES.
After a record 1996, we face challenges in 1997. Exporters of U.S. farm and food products posted another record sales year in 1996. Exports climbed to $59.8 billion, a gain ofmore than $5 billion from the previous year. However, we cannot take annual record exports for granted.
Attaining a dominant position in world markets for any commodity does not happen by chance. Much effort by producers, exporters, and the government has gone into developing these markets and in ensuring as far as possible, that the United States is placed on a level playing field. Some of our export promotion tools are designed to level the playing field, and others are meant to keep it level.
Maintaining a dominant position requires as much effort as gaining that position. Forecasts for 1997 suggest a more moderate sales pace. In February, U.S. Department of Agriculture analysts projected fiscal year 1997 exports at $56.5 billion, down about 6 percent from 1996, but still the second highest value on record. This decline shows the continuing variability of world markets, and the importance of maintaining U.S. export development efforts. The anticipated decline in exports reflects increased foreign production of grains and lower season average prices for wheat and coarse grains. High-value exports like livestock, poultry and soybean products are forecast to set another record this year.
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MEDIUM-TERM FORECASTS SHOW EXPORTS CAN GROW
Agriculture is the leading contributor to balancing U.S. merchandise trade. For agriculture, chemicals and a few other categories, we export more than we import. In 1996, we exported nearly twice the value as we imported of agricultural commodities.
By continuing to develop export markets, we can improve this ratio. The Department's economic analysts anticipate, according to the Agricultural Baseline Projections to 2005, that U.S. agricultural exports will rise to nearly $80 billion in 2005. Exports of high-value products, particularly animals and livestock products and horticultural products, are expected to grow by nearly a third. Horticultural exports are projected to rise 5.5 percent annually from 1998 through 2005, while animal products, led by beef, pork and poultry, are forecast to increase 4.7 percent annually. Bulk product exports will grow by 5 percent each year in that period.
We believe that the trade tools administered by FAS play a crucial role in achieving these results. As we, with the rest of USDA, move toward a Government Performance and Results Act driven budget and performance review system, this will become demonstrably clear to you. I want to outline today the way in which our export tools address market deficiencies which the private sector cannot sufficiently address without help from the Government, and the positive results we achieve from applying a combination of these tools.
INCREASING MARKET ORIENTATION MAKES EXPORTS A MUST
Changes already implemented by the Federal Agricultural Improvement and Reform Act have strengthened the importance of market returns for U.S. agriculture. According to our baseline projections, only modest increases in domestic consumption of most commodities can be expected over the next eight years, making American farmers increasingly dependent on international markets.
A significant share of bulk agricultural commodities is exported, sometimes in original form, and sometimes in value-added form. For example, in 1996 we exported 57 percent of our wheat, 41 percent of soybeans, 43 percent of cotton, 30 percent of corn and 20 percent of soybean meal produced annually.
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On the high-value side, exports of U.S. fruit and vegetables are now rising faster than production. The structure of the U.S. horticultural industry is changing because of this. From 1984 through 1995, U.S. fruit and vegetable production rose 66 percent, while exports jumped 178 percent. During the same period, fruit and vegetable exports as a share of production increased from 21 percent to 35 percent. Export dependence is high for some of these products as well, such as almonds (70 percent), prunes (45 percent), and broccoli, grapes, pears, and oranges (each 28 percent).
U.S. FACES SERIOUS MARKET CHALLENGES AND OBSTACLES
U.S. agricultural export programs and policies are designed to support not only an ongoing market development program, but also to help us identify and overcome obstacles in the path to increased exports. These obstacles are extremely varied, variable, and unfortunately are much like weeds: they seem to keep coming back to frustrate us. The obstacles, some of which in GPRA terms might be called ''market failures,'' include lack of knowledge, both about conditions in possible markets and of activity by competitor countries; lack of experience or ability in export markets; difficulties those would-be purchasers have in obtaining financing; difficulties that would-be markets have in developing their economies to sustain import demand; and ongoing trade policy challenges, including--most prominently now--addressing sanitary and phytosanitary measures which are not scientifically based and which operate as barriers to U.S. products.
The United States Department of Agriculture has a ''tool kit'' of policies, programs, and activities designed to address each of these marketing challenges and obstacles. The tools in the kit include market intelligence and statistics, agricultural linkages and development, market access and development, export financing, and international trade policy. For any given project, you usually need several tools. Generally, one won't do the job by itself . FAS' market promotion and development tools are exactly like the implements in a tool box in that way. Nevertheless, in one important respect, they are very different from those in your home workshop: USDA's market development tools are dynamic. They evolve over time to meet changing needs and circumstances.
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II. REVIEW OF THE TOOLS
Our export tools are complementary; none works best as a standalone. Application of these tools has become increasingly sophisticated over time, and the tools have improved as well. I will review briefly the tools available to the Foreign Agricultural Service.
AGRICULTURAL INTELLIGENCE AND STATISTICS.
Most fundamental to FAS activities is the collection and distribution of timely, accurate market intelligence. U.S. producers and exporters need a comprehensive, unbiased source of data about foreign markets, and FAS provides it. Absent such information, producers would have a difficult time deciding how much to plant or produce, and exporters would have a more difficult time finding export destinations. At present, FAS-collected agricultural intelligence, statistics and analysis form the basis for most marketing analyses. According to a recent Economic Research Service study, end users value this information highly, principally because it is unbiased. FAS collects, analyze, and distributes information about global supply and demand, trade trends, and emerging market opportunities. A network of agricultural counselors and attaches stationed overseas and Washington-based economists gather and analyze this information. In the past three years, we have modified the kinds and amounts of information gathered. We have expanded and improved our ability to deal with high-value and value-added products, while continuing to monitor and assess production situations in both competitors and market countries. Most FAS-produced analyses and data are made available not only in print, but also through a dial-up bulletin board, and on the FAS home page.
AGRICULTURAL LINKAGES, AGRICULTURAL DEVELOPMENT EFFORTS AND DOMESTIC OUTREACH
Among the most serious impediments to trade is ignorance. Potential customers don't know about the quality and value of U.S.-origin commodities. Sometimes they are unaware of technologies that would allow them to improve their own productive abilities and infrastructure. Domestic producers frequently have little if any experience in exporting. These market failures can limit the number and variety of goods exported, and will limit the potential demand.
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The Foreign Agricultural Service enhances U.S. agriculture's competitiveness by providing linkages to international agricultural research and development organizations. These linkages help the United States gain access to new technologies and genetic material that are vital to improving the agricultural base and producing newly developed and alternative products. FAS helps scientists and leaders from other agencies within USDA, the university community, and elsewhere to establish relationships within the agriculture community around the world. Simultaneously, developing nations have access to technical expertise that can help them surmount the barriers of hunger and poverty and build more stable economies.
One of the best examples of our trade-related activities is the Cochran Fellowship Program. The Cochran Program provides a cost-effective method of providing U.S. based training for international agriculturalists and business persons. The program is a tool for expanding U.S. contacts within a country, addressing important policy and trade-related issues, and promoting contact with the U.S. agribusiness sector. In the past few years, the program has sponsored activities in Vietnam, Mexico, Poland, Uzbekistan, Korea, Cote d'Ivoire and China.
The United States must be a strong leader in international organizations in order to represent and defend U.S. agricultural interests when multilateral decisions are taken. When the United States is a full and supportive member in the decision-making process, these organizations develop policies, standards and programs that support U.S. agricultural trade. A recent decision of the of Codex Alimentarius Commission affirming the safety of growth hormones in beef production has strengthened international recognition of U.S. arguments that the European Union has no valid scientific basis for restricting sales of U.S. beef. Likewise, a lack of U.S. leadership or support weakens our ability to achieve good policies through these organizations.
Some organizations which are key to expanding world agricultural trade include the Food and Agriculture Organization of the United Nations and the Inter-American Institute for Cooperation on Agriculture. FAO helps increase U.S. agriculture's competitiveness and profitability by harmonizing sanitary and phytosanitary standards through the Codex Alimentarius and International Plant Protection. These organizations also facilitate agricultural trade by establishing internationally-accepted grade and labeling guide lines for agricultural commodities, by collecting, analyzing and disseminating agricultural statistics and data, and by supplementing the World Trade Organization as a forum to resolve trade disputes.
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Market Access and Development--Market development activities promote virtually every type of U.S. farm product entering world trade. Lack of knowledge is one of the more serious problems faced by potential exporters. Purchasers need to know about our products, how to buy them, what kinds of grades and quality to expect. Commonly, we must introduce not only new or new-to market commodities, but also must also show how a potential purchaser can use our products. FAS programs and activities help U.S. exporters develop and maintain markets overseas for hundreds of food and agricultural products ranging from bulk commodities to brand-name grocery items.
The Foreign Market Development Cooperator Program was created 40 years ago to foster a trade promotion partnership between USDA and U.S. agricultural producers and processors who are represented by nonprofit commodity or trade associations called cooperators.
Under this partnership, USDA and the cooperators pool their technical and financial resources to conduct market development activities outside the United States.
Participants in the program include approximately 40 groups representing specific U.S. commodity sectors, such as horticultural products, feed grains, wheat, soybeans, rice, tallow dairy cattle, red meats, poultry, seafood, and forest products. These nonprofit groups are funded by their members, including individual farmers and ranchers, specialized producers or breeders, farmer cooperatives, processors and handlers. Other cooperators in the FMD program include the National Association of State Departments of Agriculture and four State regional trade groups representing the agricultural interests of the eastern, western, southern, and mid-American states.
In an effort to introduce measurable performance goals into the program, we are in the process of considering modifications to the program by establishing new criteria and weighting factors for allocating FMD funds on a competitive basis. FAS' resource allocation strategy is to fund only those applicants that can demonstrate export performance based on a long-term strategic plan, consistent with the strategic objectives of the Government Performance and Results Act. We are considering reviewing proposals for funds on the basis of levels of cooperator, industry and foreign third-party contributions; past export performance; past demand performance; future demand goals; and accuracy of projections.
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The Market Access Program uses funds from the U.S. Department of Agriculture's Commodity Credit Corporation to help U.S. producers, exporters, private companies, and other trade organizations finance promotional activities for U.S. agricultural products. The MAP encourages the development, maintenance, and expansion of commercial export markets for agricultural commodities. Activities financed include consumer promotions, market research, technical assistance, and trade servicing.
USDA has made significant changes to the Market Access Program in response to the Omnibus Budget Reconciliation act of 1993, the FAIR Act, and the Agriculture, Rural Development, Food and Drug Administration and Related Agencies Appropriation act of FY 1996. We have made program changes to increase participation of small and new to export firms, and to simplify program requirements for applicants.
We have focused the MAP in recent years to assist cooperatives and small and new to export firms in the overseas market. Many of these entities need the cost-share assistance provided through MAP to establish a marketing presence overseas. This year, MAP funds allocated to large companies will represent only 4 percent of the entire program. In 1998, no funds will be allocated for large firms.
Export Financing--FAS provides several commercial and concessional financing programs designed to make U.S. exports more competitive by leveraging trade financing provided by the private sector and helping the private sector to accept greater risk than it otherwise could. As with our market intelligence and market development operations, these tools have been substantially modified over the past few years to make them more useful, and allow us to target their activity more accurately.
A major emphasis over the next year or two will be a review of these credit tools to learn whether there are any additional ''market failures'' in the private sector's provision of trade credit which we should address other than additional credit mechanisms.
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FAS provides exporters of U.S. agricultural products short-and intermediate-term commercial financing support through the export credit guarantee programs. The Export Credit Guarantee Program (GSM—102) and the Intermediate Export Credit Guarantee Program (GSM—103) protect U.S. exporters or U.S. financial institutions against risk if the importer's foreign bank fails to make payment. The GSM—102/103 programs are designed to expand and maintain foreign markets for U.S. agricultural commodities, and may serve to help developing nations make the transition from concessional financing to cash purchases. We also have a new Supplier Credit Guarantee Program. Under this program, CCC will guarantee a portion of the payments due from a private importer under short-term financing up to 180 days. This credit is extended directly by exporters to importers for the purchase of U.S. agricultural products. Finally, we are in the final phase of preparing regulations for another new effort--a Facilities Guarantee Program, which is designed to encourage the sale of facilities and/or U.S. goods and services to address infrastructure barriers to increasing sales of U.S. agricultural products.
Concessional Credit Sales and Grant Food Aid. The U.S. Government's assistance effort for the most needy countries is managed by the U.S. Agency for International Development, primarily through title II of P.L. 480. Title II funding has helped to alleviate urgent food needs in countries suffering from natural calamities and civil strife.
But more than disaster relief is necessary to achieve international food security. USDA manages the title I portion of P.L. 480. Under title I, recipient countries and private entities are authorized to purchase U.S. commodities on concessional credit terms with up to a thirty year repayment period. Title I often marks the first step toward a commercial market for U.S. agriculture in a developing country. By building markets in developing countries, title I sales build food security and the potential of a long-term customer for U.S. agriculture.
Food for Progress. The second USDA-managed concessional program is food for Progress. Under this program, the Commodity Credit Corporation is authorized to donate up to 500,000 metric tons of commodities annually. CCC funds and title I P.L. 480 appropriations are available to fund this program. However, not more than $30 million of CCC funds may be used to cover freight and other non-commodity costs.
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INTERNATIONAL TRADE POLICY EFFORTS
Our export development tools cannot be effective unless we have fair and even access to international markets. Uneven playing grounds, unfair non-tariff barriers, other-than-science based sanitary and phytosanitary regulations, and outright refusal to permit imports are among the market failures that our trade policy efforts address. FAS coordinates and directs USDA's activities in international trade agreements and negotiations, and we work closely with the U.S. Trade Representative's office in this effort. International trade policy experts within FAS help identify foreign trade barriers and practices that discourage the export of U.S. farm products.
In many foreign market, U.S. agricultural exports are subject to import duties and non-tariff trade restrictions. Trade information sent to Washington from FAS personnel overseas is used to map strategies for improving market access, pursuing U.S. rights under trade agreements, and developing programs and policies to make U.S. farm products more competitive.
One of our most important trade policy tools is the Export Enhancement Program. The United States has used the EEP to counter export subsidies by our competitors. While some have argued for termination of this program, our competitors continue to use subsides, and it is vital that the United States retain this tool to use whenever conditions warrant.
As I mentioned earlier, our export tools are dynamic, and the EEP is no exception. In the FAIR Act Congress expanded the scope of the EEP beyond a tool to counter subsidies to a broader market development focus. While current U.S. and world market conditions have constrained our use of the program, EEP remains an important market development and trade policy tool for U.S. agriculture.
Clearly, we have a tool box that can be put to work for U.S. exporters. Still, we need to get these tools into the right hands. We need to let people know about them. FAS expanded its outreach and information efforts to educate U.S. businesses about the tremendous potential of the international marketplace. A key part of this effort is the location of export advisors at the State level--at the California, Colorado, and Oregon State Departments of Agriculture and the Iowa State Office of USDA's Farm Service Agency.
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FAS has joined forces with cooperators and MAP participants such as the American Hardwood Export Council and the American Seafood Institute, and with local entities such as State departments of agriculture to sponsor export seminars for small and new-to-export business. We have enlisted the local expertise of banking institutions to help explain financing options, both those supported by FAS and other financing tools, and have asked other Federal agencies such as APHIS to help explain foreign country import requirements. The goal of these and other activities is to excite small companies about the opportunities opening to them in export markets and to educate them to help ensure that their initial forays into international trade are successful.
Last July, FAS, with the farm Service Agency, conducted outreach efforts in 46 States plus Puerto Rico. These outreach efforts were an outgrowth of a Global Attache Conference that we held in Washington for U.S. agricultural attaches and trade officers serving worldwide. The events included farm and plant tours, plus an FAS presentation explaining the importance of agricultural exports, global export opportunities, and USDA services and programs. More than 2,000 people attended the events, bringing together producers, bankers, agribusinesses, exporters, freight-forwarders, university officials, and Federal, State and local government officials.
FAS also plans to partner with the Cooperative State Research, Education, and Extension Service to use the Fund for Rural America to raise awareness of export opportunities.
II. Case Studies
I would like to focus on four cases which will illustrate how our tools work together and how they have been used, either simultaneously or sequentially, to address various market obstacles. I'll start with Japan, which has long been our number one export destination. Japan is also high on the list of countries with which we have ongoing problems.
THE FAS/USMEF PARTNERSHIP
FAS first alerted the U.S. red meat industry to the market potential in Japan in the late 1960's. The United States had two problems to tackle in this case. First, it was necessary to open up the Japanese market to imports. In addition, we needed to open up the market to American beef. At the time, the total import market for beef was only a few hundred tons. Australia had the largest market share, which it maintained until the 1990's.
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A National Cattlemen's delegation visiting FAS offices in Japan in the early 1970's saw that the rapidly growing economy and rising living standards warranted a concerted effort by the U.S. meat industry to take advantage of what was when then believed then to be a $100 million opportunity.
As a result of the combined efforts of the National Cattlemen's Association, the American Meat Institute, and the National Pork Producers Council, with strong encouragement from FAS, the U.S. Meat export Federation was formed in 1973 and joined the FAS Cooperator program. In 1976, using Foreign Market Development funds, USMEF opened a Tokyo office and began to introduce U.S. products at international trade shows and through promotions targeting a handful of major hotels that were potential users of U.S. high-quality beef.
While USMEF was successful in generating interest in of U.S. beef, it faced enormous import restrictions including quotas, tariffs, and non-tariff barriers. To protect domestic beef producers, the Japanese Government restricted imports, which generally kept domestic beef prices at two to five times the world price. The Japanese market was a fortress, and for more than two decades, until 1991, Japan maintained quantitative restrictions. During this period, FAS and USMEF worked hand in hand to increase U.S. beef exports, with the U.S. government taking the lead in negotiating improved access, and the private sector--in partnership with USDA--undertaking promotional efforts that took advantage of market liberalization as it occurred.
In 1974, when imported beef threatened domestic prices, Japan closed its the market to imported beef, creating a major obstacle to U.S.-Japanese relations. The first breakthrough came in 1978 with an expansion of the import quotas. Then, in 1980, the U.S.-Japan Beef/Citrus Agreement further increased access for high quality beef. USMEF responded by bringing Japanese trade teams to the U.S. and by conducting trade seminars that established U.S. beef as the standard for quality and value with quota holders.
In 1984, Japan agreed to increase its quota and to grant U.S. suppliers limited direct access to Japanese purchasers for the time. In the mid—1980's, USMEF's strategy increasingly targeted non-quota holders, increasing demand within the retail and food service sectors. The focus was on differentiating U.S. meat from that of Japan and that of our competitors, and on fostering a favorable climate for the upcoming U.S.-Japan beef talks. Using some $6 million in Target Export Assistance--the MAP's predecessor--funds, USMEF undertook a trade-oriented public relations campaign focused on how Japan's restrictive system resulted in extremely high prices for beef.
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By the late 1980's, U.S. product dominated end-user trade as a result of the trade servicing foundation that had been laid through USMEF activities. In addition, USMEF began to inform consumers that they were not receiving the full benefits of imported beef. Consumer campaigns emphasized the taste, quality and expanded availability of U.S. meat, and as public awareness grew, both consumers and the Japanese media began to question the quotas.
Under mounting pressure, the Japanese agreed to liberalization in 1988. They decreased, then completely abolished quotas in 1991. In their place, they implemented a single tariff of 70 percent, subsequently reduced to 60 percent, then 50 percent. Further reductions in the tariff negotiated in the Uruguay Round will reduce its tariff to 38.5 percent by 2000.
As Japanese market liberalization has finally been realized over the past few years with significant quota increases and now, tariff-only restrictions, USMEF has shifted its strategy to focus more on dealing with our competition. Australia, our biggest competitor, aggressively promotes its national brand--Aussie Country Beef-- and has enhanced its image in Japan as more export minded than the United States. In spite of Australia out spending the U.S. three to one on beef promotion, and its proximity to Japan, U.S. market share in 1996 was 49 percent, with total sales of almost $2 billion.
The Japanese beef case in a huge success. We were able to apply many of our existing trade promotion tools, starting with market intelligence and working through trade policy issues. Japan continues as the dominant export destination for U.S. fresh, chilled and frozen red meats. Our strong showing in Japan reflects the U.S. ability to ship large volumes of specific cuts of high quality, grain-fed beef, and the effectiveness of the USMEF/FAS partnership.
POULTRY SALES TO RUSSIA
Development of a poultry export market in Russia provides an example of how use of many of our export tools helped turn Russia into U.S. agriculture's tenth largest market. In 1992, the United States exported about $15 million worth of poultry meat to the Russian Federation; in 1996, the total was more than $900 million.
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Russia became a player in the U.S. poultry export market in 1989. Russia's import of U.S. poultry surged to $98 million in 1990, but started to drop in 1991 and reached only $15 million in 1992, as a lack of foreign exchange limited Russia's purchases.
In 1992, USDA provided $8 million in chicken leg quarters to Russia under the Food for Progress program. An additional $30 million in GSM credit was also made available for the purchase of broilers. In May 1993, another $7 million in GSM credit guarantees was allocated for broiler leg quarters. Because of these programs, U.S. poultry exports to Russia recovered to $84 million in 1993. We used the Food for Progress Program to address a humanitarian need and followed up with the GSM program to secure a growing market for chicken leg quarters.
With the recovery of commercial sales to Russia, USDA shifted its focus to export promotion in 1994. The USA Poultry and Egg Export Council, with the support of the USDA's market development programs, began promoting U.S. poultry products in Russia through trade shows, trade servicing, and consumer advertising campaigns. Export to Russia rose to $600 million in 1995. USAPEEC significantly expanded its presence in the Russian market over time: promotional expenditures were only $55,000 in 1994, but by 1996, they had increased to $850,000. As Market Promotion Program activities continued, the poultry industry and USDA successfully joined forces in 1996 to resolve restrictive Russian sanitary import requirements--which presented a major threat to this important market.
Russia is now the largest U.S. poultry export market, importing more than $900 million worth in 1996. This accounts for about 30 percent of U.S. poultry export and 5 percent of total U.S. poultry production.
U.S.-INDONESIA FOOD AND AGRICULTURE FORUM
Indonesia is the 14th largest market for U.S. agricultural exports. Indonesia is beginning to shift from full food self-sufficiency toward the idea of food security--a big step for any developing country--and as a result has been increasing its imports. To help in this effort, USDA developed a joint U.S.-Indonesia Food and Agriculture Forum. The objective of the Forum are:
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To provide a medium for information exchange between government institutions, private companies, and non-government organizations in the United States and Indonesia dealing with perishable food commodities, food processing and distribution activities;
To encourage relevant agencies to develop or to promote science-based standards for the quality, safety and appropriate labeling of foods;
To encourage the implementation of international standards such as CODEX and ISO to improve food quality and safety and to facilitate international trade and adherence to World Trade Organization objectives;
To make recommendations for protecting consumers through food control systems including food inspection, control and surveillance, monitoring of food-borne diseases and contamination;
To facilitate direct investments, cooperation and partnerships between U.S. and Indonesian companies and associations in food and agro-industry; and
To facilitate cooperation on research and development activities, and on training programs in food processing and distribution.
These objectives should facilitate the partnering of the United States and Indonesian Governments and agribusiness industries. They also insure continuing U.S. influence on Indonesian policy reform and on the development of regulations mandated by Indonesia's new food law. This extremely important effort will bear long term fruit.
TIMBER AND WOOD PRODUCTS AND JAPAN
FAS and the U.S. forest products industry have pursued a results-oriented, two-pronged strategy, combining trade policy initiatives with an aggressive market development program for over a decade in Japan. Market access and market development initiative have formed a seamless strategy whereby market development activities have created a favorable environment for market access gains which have in turn have created opportunities for successful marketing initiatives. U.S. exports of wood products to Japan have increased close to 20 percent over the past years; U.S. export to Japan totaled a record $3.3 billion in 1996.
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FAS-sponsored industry marketing efforts have taken the form of demonstration projects, technical seminars, trade shows and media campaigns. Summit House, an industry demonstration project in Tokyo, was constructed in 1986, and was the first three-story, single-family house of wood-frame construction built in Japan. Summit House demonstrated the economies and safety performance of wood frame construction. As a result, in the 1990 U.S.-Japan Wood Products Agreement Japan adopted performance-based product standards and building codes, including revising the Building Standard Law to allow the construction of much larger three-story, wooden office/retail buildings and apartments. Super House, the second and largest industry demonstration project, was completed in 1992 and was the first three-story, wood-framed apartment built in Japan.
U.S. industry has been quick to capitalize on other gains under the terms of the agreement, such as the tariff reclassification of glue-laminated lumber and veneer-laminated lumber and procedures to expedite the certification process for gaining Japanese Agricultural Standard approval. Glulam was featured extensively in Super House, and last year, Japanese imports of U.S. structural laminated lumber--glue-laminated lumber and laminated veneer lumber--exceeded $90 million, compared to just $9.8 million in 1991.
Earlier this year, the Japanese Ministry of Construction recognized the lumber grademarks of ten U.S. rule-writing and grading agencies accredited by the American Lumber Standard Committee for use in 2 by 4 construction in Japan. This is the result of activities under the U.S.-Japan Wood Products Agreement. Recognition of U.S.-grademarked lumber will allow over 1,000 U.S. mills to provide Japanese homebuilders, as well as U.S. suppliers of packaged housing, with lumber without having to grade it to the more costly and time-consuming Japanese Agriculture Standards. U.S. lumber is the first foreign-grademarked building material to be recognized by the Ministry of Construction under its mutual recognition program. This is expected to substantially increase the market opportunities in Japan for U.S. softwood lumber. U.S. softwood lumber exports to Japan are up almost 30 percent in value from 1990—1996 ($650 million in 1996).
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OUR COMPETITORS ARE NOT STANDING STILL
We have recently completed an annual review of the export promotion activities of 22 countries that account for our major competition. The study found that just like the United States, many of our competitors have announced ambitious export goals and are reorienting their export programs to attract larger numbers of small firms to exporting. The EU and other countries help their producers and small businesses in developing foreign markets through activities similar to our Market Access Program and Foreign Market Development Program. Market promotion by EU countries was estimated at $350 million in 1995/96, with slightly less than half that amount provide by EU-member governments and the rest provided by producer boards and other fees. Australia, Canada, and New Zealand have strong national government promotion agencies and rely heavily on their statutory marketing boards to carry out market development activities for producers of specific agricultural products.
Besides market promotion activities, the EU also carries out an extensive subsidy program. Of the $9 billion budgeted by the EU in 1996 for export subsidies, more than 85 percent was for exports of high-value products such as fresh and processed fruits and vegetables, wine, dairy products, and meat and meat products.
As our study shows, our competitors are not standing still. We in the United States cannot stand still either. The FAS Strategic Plan we are developing in accord with the Government Performance and Results Act will provide the blue print that will help us meet our export goals. We must continue to work aggressively to meet the competitive challenges facing us now and in the future.
Each tool I've discussed today is an integral part of our export development effort. None stands alone in our overall export development effort, and each has a significant role to play in that effort. The tools have evolved overtime, and are adaptable enough to take the Foreign Agricultural Service and into the 21st century.

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STATEMENT OF DOUG SIMS, CEO CoBANK
Mr. Chairman and members of the committee, my name is Doug Sims. I am the chief executive officer of CoBank.
I appreciate the opportunity to testify before you today on the importance of trade to American agriculture and the value of Federal programs designed to facilitate international trade. I will summarize my remarks but ask that my entire statement be made part of the hearing record.
CoBank is part of the farmer-and cooperative-owned Farm Credit System. With about $19 billion in assets, CoBank is the largest bank in the System. We specialize in financing agricultural cooperatives, rural utility systems, Farm Credit associations, and the export of agricultural products for the benefit of U.S. agriculture. CoBank has a national office in Denver, Colorado, and additional banking center offices in ten other cities. We also have representative offices in Mexico City and Singapore.
CoBank's international banking group provides a wide variety of financial services through a network of 285 correspondent banks in more than 70 countries. Over the past 15 years, the bank has financed more than $23 billion in agricultural exports, representing the sale of about 30 different commodities and products. CoBank's international loan portfolio accounts for about 18 percent of our total lending activity.
Today, I will address two issues: the importance of free trade to American agriculture; and the value of Federal programs that facilitate trade. With regard to Federal programs, it should be noted that CoBank is the single most active bank participating in the GSM 102 and 103 programs. Over the past several years, CoBank has accounted for roughly 40 to 45 percent of all the loan guarantees issued by the Department of Agriculture under these programs. The second most active bank--a foreign-based bank--accounts for roughly 15 percent of GSM business.
The GSM Programs: A Useful Tool for American Agriculture The Commodity Credit Corporation's GSM loan guarantee programs have served to support the export of more than $55 billion in U.S. agricultural products. Exports of 50 different commodities have been marketed to more than 55 countries under the GSM programs. By some estimates, a fully utilized GSM program generates more than 170,000 jobs plus $1.38 billion in additional economic activity in the U.S. economy.
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The GSM programs exemplify an effective government effort that minimizes taxpayer costs, maximizes economic return, operates as a public/private sector partnership, and enables U.S. farmers to market against tough foreign competitors.
As a banker with responsibility for safe-guarding $1.2 billion in capital invested in CoBank by our customers, I am well aware that GSM fulfills a critical financing gap in developing countries where buyers may be temporarily unable to obtain commercial banking terms due to political or economic risks.
Despite the fact that the GSM programs are appropriately focused on countries with volatile and developing economies, the GSM programs have effectively leveraged government assistance without undue risk to the Commodity Credit Corporation or taxpayers. Since the inception of the program, over 90 percent of claims have been collected, excluding Iraq which was truly a unique situation.
In recent years, the authority available under the GSM programs has not been fully utilized. In part, the reason for this under-utilization is that the marketplace shifted from being predominantly state trading monopolies--operating with the full support of the central bank in any given country--to private sector buyers and private sector banks with a broad range of specialized requirements.
Fundamentally, the GSM programs are sound. However, due to changing market conditions, some improvements could be achieved under present authorities. I will comment on some of those proposed modifications shortly.
In addition to the GSM programs, our Nation must have a variety of flexible Government-supported export promotion programs. This is particularly true as the Federal safety net is diminished for U.S. producers. For example, I believe that programs of the Export-Import Bank and the Overseas Private Investment Corporation could be made more useful for U.S. agriculture. Also, we need to continue programs such as the Market Access Program that have been particularly beneficial to some of CoBank's farmer-owned cooperative customers.
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Collectively, our export-related programs should be viewed as essential tools needed to open new markets. The success of GSM in accomplishing this goal is remarkable and sets a good standard for other such programs. Countries such as Egypt, Korea, and Mexico at one time purchased U.S. products only with the assistance of the GSM programs. Today, much of the trade taking place with those countries does not involve any Federal program.
We hope this record of accomplishment can be repeated with China. In the last few months, CoBank has been involved in the first and only GSM transactions involving China. The dollar amounts are small and the only product to date has been cotton, but the promise of a vast new market clearly exists.
As the Uruguay Round agreements are phased in and agricultural trade expands, the role of Federal export financing programs will change. Future utilization of GSM programs will require changes necessary to service new trading entities, new geographic markets, new products, and new economic and financial market conditions.
Recommendations With Regard to GSM During the past 18 months, we have made a number of recommendations that we believe could help make the GSM programs more effective. Most of these recommendations are administrative in nature and we have been working with the Department of Agriculture on these matters. Some of our recommendations are as follows:
Make every effort to increase agricultural exports by making full use of the current loan guarantee authority.
Provide credit guarantees for transaction terms from sight out to 10 years.
For individual countries and approved banks, permit a revolving facility or the reinstatement of guarantees for any transactions with terms repayable within 12 months.
Build on the objectives of the pilot Supplier Credit Program. Provide regulatory flexibility for GSM to develop other short-term financing products that could be especially relevant to private market buyers.
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Modify regulations to allow 100 percent of fee and freight charges to be capitalized into the gross invoice value or contract price covered by the guarantee.
Modify the CCC policy on risk sharing to allow lenders to share or participate the risk associated with the unguaranteed portion of loans supported by GSM guarantees.
Develop the GSM ''facilities'' authority in a coordinated program with the Export-Import Bank and the Overseas Private Investment Corporation.
Negotiate on the terms of GSM guarantee facilities when the nations of the OECD--Organization for Economic Cooperation and Development--meet to discuss agricultural credit only on the basis of obtaining off-setting concessions.
Establish an advisory forum that meets twice yearly--involve banks, exporters, potential users of the GSM program, and U.S. Government officials--to perform market and program reviews.
The Importance of Trade Agreements GATT and NAFTA are often criticized by those who feel free trade is harmful to their interests. Those of us who have seen the benefits and opportunities created by fair and reasonable trade agreements have not done a very good job of communicating the successes that have been achieved.
Many of CoBank's customers have expanded their product lines in Mexico as a result of NAFTA. Prior to NAFTA, Mexico was already our most significant trading partner and many of CoBank's customers already had a presence there. For that reason, it is difficult to point to a specific product or job in the United States and say: ''This business or job is a result of NAFTA.'' A more accurate characterization of NAFTA is that it has made a significant contribution to a more favorable business environment.
I can cite a specific example that directly involves CoBank. After the approval of NAFTA, CoBank opened an office in Mexico City. This office has been very successful in helping to match private sector buyers and U.S. sellers. As a consequence of our activity in Mexico, CoBank is now involved in numerous transactions that are not supported by GSM loan guarantees. CoBank approves these transactions on a case-by-case basis, based on a conservative analysis of each borrower's creditworthiness.
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With the advent of NAFTA and the Mexican move toward private sector buyers rather than centralized government decision making, we are executing many more, albeit smaller, transactions. The variety and number of opportunities has opened the Mexican market to a much broader range of U.S. companies. It is no longer necessary to be a Fortune 500 company to do business in Mexico. We think this is a very positive development and are working to take advantage of the opportunities.
In March of this year, CoBank signed a strategic alliance agreement with Banco Nacional de Mexico, commonly referred to as Banamex. Banamex is the largest commercial bank in Mexico and a major lender to the Mexican agribusiness sector. Under that agreement, we will be able to more easily facilitate the financing of joint ventures involving CoBank's farmer-owned cooperatives and Mexican partners. We intend that CoBank customers will gain greater access to Mexican markets through Banamex's agribusiness customers. This activity is a direct result of NAFTA.
In the coming months, Congress will have an opportunity to consider new trade arrangements with other countries, especially in Central and South America. In the past, Brazil and Venezuela have been major markets for U.S. agricultural products.
Much of this trading activity has been reduced or eliminated due to barriers recently imposed by these countries on imports and foreign lenders. We believe that trade agreements--such as NAFTA--expanded to include countries in the Southern Hemisphere could help overcome these obstacles. I urge the members of this committee to give serious consideration to the fast-track legislation that is likely to be offered this year.
As market conditions and the needs of borrowers and sellers change, CoBank will strive to keep up with those changes. And, I would be negligent today if I failed to thank this committee for the recent updates in CoBank's international lending authorities. These enhanced authorities have helped CoBank keep pace with the changes in the market place for the benefit of American agriculture.
The committee might be interested to learn that CoBank recently participated in the financing of a major fertilizer manufacturing facility in Trinidad and Tobago that is the result of a joint venture between one of our cooperative customers and a publicly owned company. The plant will provide fertilizer to thousands of U.S. farmers who will also benefit because they are part owners of the facility. Without the recent adjustments made by Congress to CoBank's international lending authorities, our participation in that venture would not have been possible. On behalf of our farmer-owned stockholders, I thank you.
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Mr. Chairman, I appreciate the opportunity to testify today. I would be pleased to respond to any questions.
TESTIMONY OF ROBERT W. WICHMANN, VICE PRESIDENT, NORTH AMERICAN SEED SALES, PIONEER HI-BRED INTERNATIONAL
Good morning Chairman Barrett, Chairman Ewing, and members of the subcommittees. I'd like my formal remarks to be entered into the record, and I'll briefly summarize those remarks for you this morning.
I'm Bob Wichmann, vice president of seed sales for North America at Pioneer Hi-Bred International, Inc. I thank you for this opportunity to provide input as you review the effectiveness of U.S. ag export programs.
Folks, I only want to make two simple points this morning:
First, our customers need export markets. And second, our company needs the freedom to operate around the world.
You've asked me to comment specifically on the Cooperater Program of the Foreign Agriculture Service. I believe the FAS Cooperator Program has been a great help in expanding ag exports and facilitating seed trade. But before I talk about that a bit, let me offer a quick word about our Company.
Pioneer Hi-Bred International, Inc. is the world's largest agricultural seed marketing, sales, production, and research company. Based in Des Moines, IA, our annual sales exceed $1.7 billion. We do business in about 100 countries around the world. Our major seed products in North America are corn, soybean, sorghum, sunflower, canola, alfalfa and soft red winter wheat. We also offer naturally occurring microorganisms as forage inoculants.
We have about 90 research stations around the world, half of those outside North America and half of those in developing countries. Our research investment last year was $130 million, which was nearly 8 percent of our sales revenue.
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Pioneer was founded in 1926 by Henry A. Wallace, an agricultural visionary who went on to become U.S. Secretary of Agriculture and Vice President in the Franklin Roosevelt administration. Wallace and the others who created Pioneer to commercialize hybrid corn seed had a genuine interest in using plant genetics to help the people of the world feed themselves.
Now, let's consider my two points. First, our customers ''America's farmers '' need export markets.
It's clear to those of us in agriculture that our future economic success is increasingly dependent upon international trade. We all know that there are only two places for a farmer to get money--the government, and the marketplace.
The decision has been made to phase out direct price supports. I'm not arguing against that decision. I am, however, asking how the lost income will be replaced. Obviously, it must come from the marketplace. Yet we live in a mature food market in the United States. Our citizens aren't likely to eat more in the future. Plus, the United States has a relatively flat population growth. We will certainly eat different kinds of food, some of which will be packaged or processed in new ways. But our total food consumption isn't likely to increase significantly.
We are then left with two choices: reduce our productive capacity to meet the limited domestic demand, or develop foreign markets for our agricultural products. The first is certainly not an attractive option to Pioneer or to the country. After all, agricultural exports are one of the few bright spots in our balance of trade picture.
So, where are the new or expanding markets for agricultural products? The rest of the developed world is pretty much like the United States: static. It's the developing nations, those with growing populations and per capita incomes, that are creating the demand for U.S. commodities and processed foods.
It's clear that government has certain roles and responsibilities that cannot be fulfilled by the private sector. While the time for direct price supports may have passed, our government must not abandon the efforts that build new markets for our abundant supplies of agricultural products.
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Chairman Barrett, I commend you for turning your attention to exports. With the Freedom to Farm policy now the law of the land, it would be easy to think there's nothing left to be done. But you obviously realize we need to balance the equation for our customers--if we're taking away from the price support side, then we need to ensure opportunity on the marketing side.
And Chairman Ewing, I commend you for recognizing that access to markets is part of a successful risk management formula. Our customers need steady, reliable, growing export markets to reduce the downside potential on price volatility.
Past efforts clearly show that U.S. market development programs can help establish and maintain a good trade and investment climate for U.S. agriculture in developing countries. Being on the ground now, showing people how to use U.S. products, leads to solid relationships that can produce dividends later. It also establishes a foundation of good will for U.S. agriculture.
I can personally vouch for many of these qualities. I have been on some market development missions organized by the U.S. Feed Grains Council. I have seen the results in China and other parts of Asia as we demonstrated the advantages of better feed rations. I believe much of our success in key markets like Japan, Taiwan and South Korea are the result of this hard work. And I'm convinced the consistent efforts of our FAS cooperators is having an impact on the China market that's just beginning to crack open.
By the way, I want to stress that I'm not here because Pioneer benefits directly from these programs. In fact, we're a financial contributor to such FAS cooperators as the U.S. Feed Grains Council and the American Seed Trade Association. We support these programs because they help develop markets for the products grown by our customers, and they help other governments adopt policies which allow for the free movement of seed around the world.
We particularly like the Cooperator Program of the Foreign Agriculture Service because of its strong public and private sector partnerships. This is an excellent example of how to leverage tax dollars in an era of decreasing Federal budgets. Pioneer is a long-time supporter of this 40-year-old program, which now enjoys some 70 cooperators working in more than 140 countries. For fiscal year 1998, the Cooperator Program needs no less than $30 million to ensure continuity in operations.
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With the FAS cooperator program, the market development work is financed by the private sector in the United States, by the private sector or governments in foreign countries, and through appropriated funds administered by the Foreign Agriculture Service. The lion's share of U.S. private sector funding tends to come from farmers who put up their own money, collected through checkoffs on the sale of their commodities. The multiplier effect of those dollars is dramatic. This is a program that generates significant results and is worthy of increased Federal funding.
Of course, market development efforts must always be balanced with improved market access to ensure opportunities for U.S. agribusiness. This argues for continued aggressive negotiations on the part of the U.S. Trade Representative. The progress made through the successful completion of the Uruguay Round of the General Agreement on Tariffs and Trade, and the North American Free Trade Agreement, must be solidified and expanded in future negotiations.
Let me turn now to my second point--that our company needs the freedom to operate around the world--by speaking briefly about the role of the Cooperator Program within the seed industry. The Cooperator Program helps our industry greatly by allowing for a strategic platform from which government and industry--that public/private partnership once again--can work together to remove trade barriers.
The American Seed Trade Association is the national membership organization for the U.S. seed industry. Pioneer is a member. ASTA has a membership of more than 800 seed, seed-related and biotechnology companies. ASTA cooperates with, and/or holds as affiliate members, most of the state and regional seed associations and seed-related institutions in the United States
ASTA membership accounts for approximately 85 percent of all private U.S. seed companies operating in the United States In addition, 95 percent of ASTA's active members are small businesses that report annual sales of less than $15 million, while 88 percent report sales of less than $8 million. Because ASTA promotes seed of all crop species, its approach is and will always be ''generic.'' A major part of its program is beneficial to small and new-to-market companies.
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The American Seed Trade Association currently receives only $214,000 in Cooperator Program funding to address such issues as intellectual property protection, phytosanitary barriers to the free movement of seed, and opposition to genetically engineered plants and plant products. I must tell you that the program is at a bare-bones level--less than half of what could be effectively invested by ASTA on these issues. Any additional cuts will place the work being done in serious jeopardy.
ASTA utilizes Cooperator Program money to provide U.S. seed industry representation at relevant international meetings, symposia and working groups where these key issues are being discussed and plans are being formulated. Every dollar provided by the Cooperator Program, on average, has been matched by two dollars from ASTA members.
It is critical that the U.S. seed industry maintain its strong presence in international seed organizations. The alternative is to have people from other countries making the rules for international seed trade. My experience is that most of those people like protectionist rules better than most Americans. Without a strong U.S. presence, we should expect increasing constraints from non-tariff trade barriers.
This is important to Pioneer because we need to be able to move seed freely from one country to another. The U.S. farmer has benefited greatly from plant genetics research done in other parts of the world and brought back home to the States. In addition, we regularly produce seed during the winter in places like Argentina and Chile for planting here in the United States. Not being able to take these actions would severely hamper the American farmer by denying him access to the world's best plant genetics.
Of course, some parts of the U.S. seed industry benefit significantly from exports. Seed exports, which totaled nearly $750 million last year, have grown annually at an average rate of 7 percent for the last decade. Thus, every FMD dollar invested has generated $65 in U.S. seed exports. Seed is a high-value crop which provides thousands of good-paying permanent jobs and quality seasonal employment to many more thousands of students and young people.
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Cooperator Program funding is critical to helping new and small seed company exporters tackle the extremely competitive international marketplace by providing expertise and market intelligence. Given our static domestic market, those companies--like our farmer customers--face serious limitations without growth opportunities. The international market for seed is where most sales growth is expected in the near future.
To address global opposition to U.S. biotechnology products, ASTA through the Cooperator Program works with organizations such as the International Seed Trade Federation to encourage world adoption and standardization of approval processes for genetically engineered seeds.
Increased Cooperator Program funding for ASTA would enable the U.S. seed industry to combine forces with allied U.S. agricultural commodity groups and forge a coordinated campaign highlighting the positive aspects of new biotechnology products.
This concludes my formal remarks. I would be happy to try to answer any questions you may have. Once again, Chairman Barrett and Chairman Ewing, my thanks to you and the Members of your Subcommittees for this opportunity to comment on the Cooperator Program of the Foreign Agricultural Service.
STATEMENT OF JOHN BURRITT, NATIONAL OILSEED PROCESSORS ASSOCIATION
Good Morning. My name is John Burritt and I serve as the Chairman of the National Oilseed Processors Association, on whose behalf I appear before you today. I work for Ag Processing of Omaha, Nebraska, which is an agricultural processing cooperative with 380 local and 10 regional cooperative members representing 295,000 farmers and ranchers in 10 states. We appreciate this opportunity to share with you our views on U.S. export programs, particularly the Export Enhancement Program and Sunflower Oil Assistance Program.
I would like to start by stating a few facts regarding the world vegetable oil market, the historical use of the EEP in countering our competitors' unfair trade practices, and the changes that should have taken place in the program due to the 1994 Uruguay Round Agreement. Finally, we would like to discuss where U.S. trade policy, the EEP program and other export programs should go from here.
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Although this testimony reflects the views of most of the oilseed processing companies, not every position is unanimously held by every company within the oilseed processing industry.
World Vegetable Oil Market One position that is unanimous, however, is that NOPA's highest priority is its Level Playing Field proposal to eliminate trade distorting practices worldwide. Our position has consistently been to open markets, lower trade barriers and eliminate subsidies. This is why we have invested considerable effort in developing the LPF proposal currently advocated by this Administration and supported by many in Congress. We see the EEP as one of our tools in achieving the LPF by providing an incentive for our competitors to come to the table to negotiate the elimination of their trade distorting policies and programs.
However, we do not have a ''level playing field'' today. The world vegetable oil market is characterized by the continued use of trade distorting practices by many governments which provide producers and processors advantages over their competitors in world trade. I will not outline every practice used by our competitors but will cite a few examples:
Argentina. NOPA has been concerned for many years about the trade distorting practices used by our South American competitors. The Differential Export Taxes used by Argentina allows their processors to sell their soybean and sunflower oil at prices that are significantly below those of U.S. processors. The Argentine DETs provide a benefit to their crushers of over $10.00 per ton of soybeans, or 28 cents a bushel. This is 65 percent of the average operating costs of the Argentine crusher. This advantage has propelled Argentina to the top soybean oil and sunflower oil exporter in the world.
European Union. The growth of EU subsidized oilseed production during the 1970's and 1980's led to a U.S. 301 case, which held that the European subsidy system for oilseeds violated the GATT bindings from the Dillon Round agreements. The United States won two GATT panel decisions, and the 301 issue was resolved as part of the Blair House Agreement between the United States and EU in 1994. The agreement mandated that the EU limit the acreage devoted to oilseeds to 5.128 million hectares with at least a 10 percent annual set-aside. In addition, producers are allowed to plant oilseeds for nonfood use up to 1 million tons of soybean meal equivalent.
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The reality of today's EU situation is that the production-subsidy system ensures the production of 11 to 13 million tons annually of oilseeds which are available to European processors. When there are surplus quantities of rapeseed oil or sunflower oil available, they are sold in third country markets and do compete against U.S. soybean oil and sunflower oil.
Malaysia. Palm oil is the major export oil in the world today. This year USDA forecasts 10.59 million metric tons of palm oil to be exported worldwide compared to 5.89 million metric tons for soybean oil. Malaysia is the major exporter of palm oil in the world with a forecast of 7.15 million metric tons this year. Malaysian palm oil processors have enjoyed and continue to enjoy the benefits of a differential export tax similar to Argentina that virtually guarantees that processed palm oil will benefit from a competitive advantage in the world market while processors maintain a profit.
While there are problems in the world we should also take a moment to recognize some recent positive developments to lower trade distorting practices worldwide. First, the United States has made and continues to support moving in the direction of freer trade. A significant change took place last year when the Farm Bill decoupled farm program payments from the planting decisions made by U.S. farmers thereby allowing the world market and not the U.S. government to determine which commodities would be produced in the United States. In the future, while the United States currently maintains import duties on vegetable oil, the U.S. oilseed processing industry has consistently stated that we would support lowering or eliminating this protection if and when other countries are willing to eliminate their practices. However, it should be made clear, whether it is U.S. import duties or the EEP program, we do not support unilateral disarmament when our competitors continue to maintain their protections and subsidies.
Second, Brazil has taken some courageous steps towards freer trade. Last year Brazil completely eliminated their DET program, which was very similar to Argentina's DET program mentioned above. We commend Brazil for taking this major step toward liberalizing world trade in oilseeds and have encouraged them to work with us to lower Argentina's DETs.
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However, even with these successes, the above examples clearly display that the world market continues to have its problems and U.S. oilseed processors continue to compete against the policies of foreign governments. Due in part to this competition U.S. vegetable oil exports have slacked, while at the same time meal demand has increased causing U.S. stocks of soybean oil to grow to near record levels of over 2.2 billion pounds.
EEP Program Success. Although the EEP program has not been active for vegetable oils in several years, we can look back and find examples of where it had an impact on the U.S. oilseed industry and our competitiveness in the world. As you can see below, the size of the EEP program has been limited and therefore its ability to impact the world marketplace has also become more limited.
In fact, we would start by saying that despite bitter complaints by the U.S.'s competitors about the EEP program, EEP has had relatively little impact on world vegetable oil markets. In the largest year for the U.S. EEP-assisted vegetable oil sales, these exports accounted for only about four percent of world vegetable oil trade and in many years when it was operating, it was less than one percent. EEP oil sales have a significantly greater impact on the U.S. situation than on world market conditions. When U.S. vegetable oil exports fall and stocks rise, the primary effect is a decrease in the U.S. crush and an increase in meal prices which then impact the U.S. livestock industry's competitiveness and U.S. consumers costs for meat, poultry and eggs. EEP-assisted export sales which result in U.S. oil stock reductions have a rapid impact on the Chicago Board of Trade soybean oil prices, the cash basis for crude soybean oil and the basis and flat price levels at which processors will bid for soybeans from U.S. producers. In general, one cent rise in soybean oil prices could translate into an eleven cent rise in soybean prices
During their peak the EEP and SOAP programs offered the United States its only commercial access to the world vegetable oil market. SOAP provided opportunities for the U.S. sunflower industry to compete in world markets, while the domestic industry prospered. Similarly, soybean oil exports would not have been able to compete in world markets for many years prior to the Uruguay Round Agreement had it not been for the EEP program.
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EEP Program Post-Uruguay Round Agreement. The Export Enhancement Program, up until the last three years, had been used extensively to ensure that U.S. vegetable oil could compete in the international marketplace against subsidized oils from other areas in the world. In the past the primary target of the EEP program had been against the EU's trade distorting practices. A significant change took place in the oilseed industry with regard to the use of the EEP as a result of the signing of the Uruguay Round Agreement on agriculture. First, the EEP would no longer be required to be a targeted program focused on the EU, but rather a program with no limits on targeted countries and no requirement for proving any unfair trade practices by our competitors. Second, commitments were made by this Administration that the EEP program would be used to its fullest extent. Third, the EEP program would be phased down over a period of 6 years (1995—2000). After that point the belief was that world market demand would be strong enough to allow the U.S. processors to survive without the EEP. In other words, the EEP is a legal transition tool for the United States to use in maintaining markets and our competitiveness as the world market grows and trade barriers are lowered.
As you know, the United States has unilaterally decided to forego the rights it gained in the Uruguay Round Agreement by not implementing this new EEP program.
In 1995 NOPA and others in the oilseed industry were asked to suggest how the EEP program should be structured in the new post-Uruguay Round Agreement world. NOPA and many other groups made comments and suggestions that have largely been left on the shelf. As far as we know, there are still no new regulations to implement this program, 2 years into the Uruguay Round Agreement. A total of 2.188 million metric tons and $199.5 million were allowed for these 6 years. As of June 30, 1997, 1.087 million metric tons of EEP oil (49.7 percent of the total allowed) and as of September 30, 1997, $98.2 million (49.2 percent of the total allowed) will have passed without developing the regulations for the new EEP program. We continue to push this issue at every opportunity but are very concerned that the resolve does not exist in this administration to develop these regulations.
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Although this view is not unanimous within the oilseed processing industry, most of our members do believe there are times when market forces warrant the use of the EEP and feel that the United States should take advantage of the rights it gained under the Uruguay Round Agreements. Most of our members do feel like that point was reached in the last few years when oil stocks were building at or near record levels. Yet, no vegetable oil EEP bids have been accepted since August 25, 1994, no SOAP since September 14, 1994, and no COAP since September 30, 1994.
Where do we go from here? Again, all of NOPA's members feel very strongly that the highest priority should be on lowering the trade barriers that exist in the world. We are pleased with the world leadership the U.S. government has provided in trying to reach this important objective. We are encouraged by the actions taken by the United States and Brazil in eliminating trade distorting practices. EEP should be an important tool to continue to push other countries in the direction of freer trade.
Most of NOPA's members also support the funding of the EEP, SOAP and COAP programs at a level that allows for the vegetable oil EEPs to be implemented to their fullest when needed. We are encouraged by the fact that the Administration has asked for the maximum level of $500 million for the program. We sincerely hope that this action will be followed by actions to develop the new regulations and get the program operational in the Post-Uruguay Round Agreement era. We are very concerned that this be done before the potential funding for the vegetable oil EEPs expire.
We would also like to reiterate our support for GSM programs. These financing mechanisms provide an important tool for exporters and foreign importers in allowing the United States access to many foreign markets and customers access to the food they need. It is important that this program stay focused on financing commodities exported from the United States to foreign countries and not be directed toward developing the infrastructure in other countries as has been suggested by some. We would also like to reiterate our belief that PL 480 is an important food assistance program for many developing countries. We support the continued use of PL 480 programs and expanding its use for vegetable oils.
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Finally, we would like to stress that all FAS staff positions in the oilseed area should be filled. It is very difficult to maintain all the programs mentioned above and to develop clear and consistent policies during this important time when FAS is short staffed and staff changes prevent consistent and coordinated contact between USDA/FAS and industry.
Again, thank you for this opportunity to address your Subcommittee today.
TESTIMONY OF JAMES E. HUFF
There was no prepared text for this testimony. The following is an expansion of my notes that were used to give the oral testimony.
Thank you, Mr. Chairman. I am vice president of Graves Brothers Company, Wabasso, FL and vice vhairman of the Florida Citrus Commission. Graves Brothers Co. is a family owned business involved in growing and marketing of fresh Florida grapefruit.
Graves Brothers Company celebrated its 100 anniversary last year. The Florida Citrus Commission is an agency of the State of Florida that is responsible for the marketing and regulation of the Florida Citrus Industry. It is funded primarily by self assessed box taxes of Florida citrus.
Today, we are talking about the partnership between the Florida citrus industry and our Federal Government through the FAS programs.
Partnership with the Federal Government. An almost unheard of phrase in our industry 25 years ago.
Growing up in the citrus industry, all I heard was ''the citrus grower is an independent soul and will succeed or fail based on that independence.'' That was before we entered the world market.
As our industry grew we needed to find new markets. Enterprising marketers in our industry said ''how about foreign markets?''
Good idea--after much work we entered the Japanese market--then Europe. But with only moderate success.
We met the enemy and it wasn't us. It was the highly subsidized, single source, exporters from: the Mideast, Mediterranean, Caribbean and southern hemisphere countries.
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Being and industry of over 10,000 growers we had very few consolidated resources for marketing--we just limped along. Then came the TEA program.
At first our industry was leery of dealing with Federal programs. Only after much debate did we decide to participate.
The rest is history.
The 9 years prior to MAP our average value of fresh grapefruit exports was $44 million. Post MAP it is averaging $113 annually.
Now, do we still need our Partnership? Yes we do.
Our industry is investing more and more money into the export markets. With the large crops anticipated in the future we know we need to invest in global marketing. But we can only do so much.
This season we , as grower, through the Department of Citrus, are paying a 35-cent per box assessment to market our red grapefruit. Mr. Chairman, the Florida citrus grower will not receive 35-cent per box on-tree for red grapefruit this season.
The point is: we believe that our marketing programs in an investment in our future. This is where we need you--our partners--to do your part.
We will invest the marking dollars in our current markets. Both foreign and domestic.
What we need from you--through MAP--are resources to develop new markets and support of incremental growth in young export markets.
Once we get in these new markets, we face our highly competitors. The latest figures I have, show our top 11 competitors spending $500 million dollars of their governments money on export market programs.
We can't compete this by ourselves.
We can't compete with these competitors on price. This is not because we can't ''out produce'' one-on-one. It is because, as an industry and country we have committed to having the most enlightened and progressive environmental and labor policy in the world.
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Mr. Chairman, members of the committee, if we faced our global competitors on an even ''grapefruit to grapefruit, citrus to citrus, produce to produce,'' court, we wouldn't need this partnership.
We grow the best grapefruit in the world right here in the United States. Period. But to get this message to the trade and the consumer around the world, we need you continued help and continued commitment to this partnership.
Thank you Mr. Chairman. I'll be glad to answer any questions.

STATEMENT OF THE NATIONAL CATTLEMEN'S BEEF ASSOCIATION
The National Cattlemen's Beef Association commends Congressmen Ewing and Barrett and the subcommittees for holding a joint hearing to address the importance of USDA's export programs, including the Market Access Program. MAP is critical to strengthening U.S. beef exports and countering increased funding by international competitors for international market development.
The international market is the fastest growing segment of demand for U.S. beef. During 1983 the export market accounted for less than one-half of 1 percent of total U.S. beef sales and the United States was a net beef importer on a tonnage and a value basis. During 1996, beef exports accounted for approximately eight percent of total U.S. tonnage production and nearly 13 percent of the value for all beef sales. The United States became a net beef exporter on a value basis during 1991 and beef export tonnage has nearly equaled imported tonnage during the past two years. This success story in beef exports is directly attributable to increased access to international markets gained through negotiations and market development initiatives funded by MAP and it's predecessor programs.
Continuing, possibly even expanding, MAP funding will be increasingly important as additional trade barriers are resolved and access to international markets is achieved. The EU, even under the Uruguay Round Agreement, maintains a 10 to 1 advantage over the United States in the use of export subsidies. During 1995, the EU allocated more than $9 billion to subsidize agricultural exports, and during 1994—95, the EU and other foreign competitors also devoted more than $600 million for market development and related activities. Maintaining MAP funding at $90 million during the FY 1998 budget/appropriations process is critical to maintaining U.S. competitiveness in the expanding global market.
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MAP is a cost-share program that helps American farmers and ranchers promote their products overseas and compete with foreign subsidized commodities. It is an essential element of the Nation's overall agricultural trade policy. During 1996, farm exports reached a record $60 billion which resulted in a U.S. net trade surplus of nearly $30 billion in agriculture and accounted for approximately one-third of domestic agricultural production. Exports generate billions of dollars in additional tax revenues as a result of direct and indirect economic activity and provide additional jobs throughout the economy.
Currently every 1 billion dollars in U.S. agricultural exports creates as many as 17,000 new jobs--in production, processing, marketing and shipping, as well as in other industries that supply goods and services related to agriculture. Agricultural exports support more than one million jobs in the U.S.--jobs that pay an average 15 percent more than the hourly wage in the rest of the economy.
The ''corporate welfare'' tag attached by some to the MAP program is a bum rap. The MAP program has been reformed and is specifically targeted towards small businesses, farmer cooperatives and trade associations. MAP is administered on a cost-share basis, with American farmers, ranchers and other participants required to contribute up to 50 percent towards the program's cost. During 1996 the beef industry contributed nearly $9 million in producer funds to develop international markets, including nearly $1 million dollars to improve consumer confidence for U.S. beef products in Japan. The beef industry dollars invested in international markets alone exceeded MAP expenditures for international meat market development. NCBA urges continued funding for the MAP program at $90 million or more.
The National Cattlemen's Beef Association is prepared to participate in the process of evaluating critical trade issues within the beef industry. NCBA looks forward to providing additional input as the United States addresses other trade issues, including accession of China to the World Trade Organization and potential ''Fast Track'' legislation to negotiate with Chile, and possibly other trading partners. Thank you for your leadership in these issues and the opportunity to present these thoughts.
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TESTIMONY OF PHIL MCLAIN, PRESIDENT, NATIONAL ASSOCIATION OF WHEAT GROWERS
My name is Phil McLain, and I am a producer with a diversified farming operation, including wheat, from Statesville, North Carolina. I am president of the National Association of Wheat Growers. Thank you for the opportunity to appear before these subcommittees today.
Mr. Chairman, I am proud to be a producer in the United States and to play a role in a great and growing industry. United States agriculture is the Nation's largest single employer, accounting for 16 percent of the gross domestic product and nearly one out of every five jobs. It is typically the largest export earner in the U.S. economy. Notably, in the fiscal year ending on September 30, 1996, U.S. agricultural exports totaled a record $59.8 billion. This is no fluke. In fact, for the last 37 years U.S. agricultural exports have exceeded imports. Currently, production from one-third of acreage harvested in the United States is exported. That equates to about 20 percent of the value of U.S. production. More than half of the U.S. wheat crop is exported. We consider ourselves to be an export-dependent industry.
Globalization of U.S. agriculture and its effect on our economy is not a new phenomenon. During World War II six million farms produced America's food and fiber. Now, fewer than one million full-time farmers account for 95 percent of U.S. farm output. It has been estimated that fully 21 million Americans are employed in the food and agricultural sector--2 million farmers (includes full and part-time) and 19 million in related agribusiness industry.
Recently, the combined impact of the completion of the Uruguay Round Agreement on Agriculture and passage of the Federal Agriculture Improvement and Reform Act of 1996 has led to an increasing global integration for U.S. agriculture and farmers. In other words, these developments have made U.S. farmers even more dependent on foreign markets for income.
''No problem'' say the economists and other experts. Studies show that the Uruguay Round Agreement is expected to boost the world economy by more than $5 trillion in the next decade. That means higher incomes around the globe and an increasing demand for a wider range of products and services. For U.S. agriculture, this boom should translate into new and expanding markets. During the Administration's drive to gain congressional approval of GATT implementing legislation, the U.S. Department of Agriculture estimated that for wheat alone, exports should increase by 5 to 7 million metric tons by the year 2005.
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There is no question that the Uruguay Round Agreement for agriculture is a good first step. But its virtues should not be oversold. Unfair trading practices still exist. Export subsidies, like the Export Enhancement Program and the European export restitutions were legitimized in the GATT, albeit subject to disciplines. A major disappointment of the Uruguay Round Agreement, however, was its failure to address the unfair trading practices of state trading enterprises, like the Canadian Wheat Board and the Australian Wheat Board.
So how are we doing? The United States has not operated its export subsidy program for wheat since July 1995. As of April 3, 1997, the 44th week of the marketing year, U.S. wheat exports are estimated to be 20 percent lower than last year at 26.8 million metric tons. This export figure is nearly 3.0 million metric tons lower than the level of exports in 1985/86, the year the EEP was implemented.
Our competitors are doing better. Argentine wheat exports have exploded this year to 11 million metric tons from approximately 5 million metric tons last year. Australian exports are expected to reach 18.0 million metric tons, up from 13.3 million metric tons the previous year. Canadian exports are projected at 18.0 million metric tons compared to 16.0 million metric tons in 1995/96.
The European Union is only expected to hold its exports steady from last year due to reduced inventories, although it resumed its export subsidy or restitution program on September 5, 1996. The United States unwillingness to counter these subsidies has resulted in the surrender of important North African and Middle Eastern markets.
While the United States has been unwilling to compete in the world wheat market, we have put U.S. farmers in a dangerous position. Lower U.S. exports for 1996—97 mean an increase in United States ending stocks and a corresponding decline in prices. Many farmers, now free to respond to the market, are reluctant to plant wheat. We fear a pattern could develop in which lower exports and increasing stocks lead to lower prices, followed by decreased plantings, lower production, and a further retreat from the world wheat market.
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Reactivation of the EEP in time for the new marketing year could break this trend. United States wheat growers are entering the second production and marketing year under the new farm legislation. We need a signal that the promises made in the FAIR Act will be kept.
On October 29, 1996, the NAWG wrote to Secretary Glickman to express our concern over the slow-down in U.S. wheat exports and the downward trend in U.S. wheat prices. We strongly urged the Secretary to reactivate the EEP for use in combating the unfair competition from the EU and other major wheat exporters--and to warn of the United States intention to remain competitive in the world market. Despite the pressure of our organization and key members of the Congress, no action has come.
To add insult to injury, last week the House Agriculture Appropriations Committee capped spending for the EEP at $10 million for the remainder of the current fiscal year. This means that the program has been cut $90 million!
The EEP is an important tool for maintaining U.S. markets and discouraging unfair competition in the world wheat market. It has been credited with forcing our trading partners to the negotiating table, leading to the capping and overall reduction in the use of export subsidies. The Uruguay Round Agreement implementing legislation authorized the use of the EEP for market development at specific levels in terms of value and volume. We are not asking for anything more than the use of the program at the levels identified by the Congress to assure our farmers the access to the markets promised by the passage of the Uruguay Round Agreement and the market opportunities promised by the passage of new farm legislation last year. In the less than perfect world wheat market, we cannot compete without all the tools in our arsenal--the EEP, plus the export credit guarantee programs and the foreign market development program. Moreover, a new trade round is scheduled to begin in 1999 and it would be a mistake to assume a posture of unilateral disarmament.
Thanks again for the chance to speak to you today. I would be pleased to answer any questions you may have.
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STATEMENT OF JOHN L. RICE, RICE FRUIT COMPANY, ON BEHALF OF THE U.S. APPLE ASSOCIATION
Mr. Chairman and members of the subcommittees, I thank you for the opportunity to discuss the effectiveness of agricultural export promotion programs such as the Market Access Program, and their importance to the U.S. apple industry and related businesses.
All segments of the U.S. apple industry benefit directly from the use of the export promotion funds, which build markets and demand for our domestically produced product, and indirectly strengthen our markets in this country as well. The U.S. apple industry believes export programs should continue to receive full funding, and in particular the MAP should be fully funded at its current authorized level of $90 million.
The U.S. Apple Association is the national trade association representing all segments of the U.S. apple industry. Members include over 450 individual firms involved in the apple business as well as 30 state apple associations representing 9,000 apple growers, nearly all of the commercial apple growers, throughout the country. The apple industry in 14 states participates in generic promotions under MAP. Export promotion activities occur in approximately 20 foreign countries each year. I will make reference today to two entities managing apple promotion activities--the Washington Apple Commission and the U.S. Apple Export Council, the latter of which I participate in and with which I am very familiar.
The Washington Apple Commission represents approximately 5,000 apple growers and over 200 packing houses. The USAEC represents the apple industries in 13 States--California, Colorado, Connecticut, Idaho, Maine, Massachusetts, Michigan, New Hampshire, New York, Pennsylvania, Utah, Vermont, and Virginia. In the eight non-New England states alone, this represents over 3,600 small businesses including 3,230 grower/producers, 290 packer/shippers, and 107 sales agencies/brokers.
Exports are vital to the American apple industry. U.S. Department of Agriculture statistics show total apple production in 1995 had a farm-gate value of $1.76 billion, of which $1.4 billion was derived from fresh apple sales. Today, nearly 25 percent of the total volume of fresh apples produced in the United States is exported, up from 10 percent a decade ago. In 1995 fresh apple exports were valued at $367 million, accounting for 26 percent of the value of fresh apple sales that year. In 1994, the value of exported apples reached $423 million, representing 36 percent of total fresh apple sales that year. Export sales contribute substantially to the economic health of our industry and will continue to do so in the future.
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Apple industry members believe in agricultural export programs and back their support of these programs with cost-sharing contributions, ranging from 30 to 75 percent of the total.
We believe the MAP has been a sound investment in the Nation's agricultural economy and has returned increased tax revenues to the U.S. Treasury. This is by no means a ''fleecing of America'', but rather an investment by the Federal Government that generates substantial returns to the Treasury and productively helps American business.
An economic analysis of the impact of MAP activities on the Washington economy indicates that the Washington apple industry has benefited from $27.63 million in MAP-type funding over the past nine years, and apples valued at $1.851 billion were exported from Washington over that same time period. The total income benefits to businesses in Washington state during this time period were $2.3 billion. The net benefit to the U.S. Treasury, using an average tax rate of 16 percent, was $223.7 million.
A good example of the Washington apple industry's use of MAP funds occurred in the Philippines. Washington exports to that market face stiff competition from lower-priced apples from China, Canada, Chile, Australia, and New Zealand. To strengthen consumer demand for Washington apples, the commission's export program utilized print advertising, consumer and trade promotions, and other incentives. Washington exports to the Philippines that year reached an all-time record of $14 million from the 1995 crop, an increase of 37 percent over the previous year.
The Pennsylvania apple industry, which participates in the USAEC's export promotion program, consists of over 340 small businesses, including 300 growers, 20 packer/shippers and 20 sales offices. The Pennsylvania industry has also seen how MAP-funded activities can expand export demand and enhance prices for growers. In 1994, Brazil was just emerging as a new market for our apples, and we undertook various activities to acquaint Brazilian importers and retailers with our product. Brazil's strengthening economy and its population of more than 160 million people, make it the tenth-largest market in the world. USAEC identified the problems for apples to enter the Brazilian market, which included a lack of trade and consumer awareness, lack of supplier awareness, and competition from other suppliers. Our goal in 1995 was to increase exports from the industry in the four states participating in our program to Brazil to 130,000 cartons, or to increase our market share to 4.8 percent.
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I participated in a trade mission of U.S. producers to Brazil in June 1995, an activity organized and partially funded through the MAP, to meet with their industry and introduce U.S. apples to that market. The next fall we funded tasting demonstrations for ''USA Apples'' in hypermarkets in the Sao Paulo area, provided trade services and developed attractive consumer materials.
The results from the MAP activities in Brazil that year were excellent. Through retail promotions, point-of-sale promotions and consumer advertising, the apple industry exceeded its goal. Exports from four participating states--Pennsylvania, New York, Virginia, and Michigan--reached 269,479 cartons, accounting for a market share of 9.6 percent. The quantity exported was 2.3 times the level sent the prior year, and exceeded our goal by more than two-fold. The price per carton shipped to Brazil in 1995 averaged $13.50/carton for a total value from the four states of $3.6 million. With the use of $80,300 in MAP funds to promote the 1995 crop, the apple industry saw an increase in exports to Brazil of 230 percent.-
The increased export sales generated substantial economic benefits to our local industry and those with whom they did business, and the economic viability of the apple industry across the country was strengthened as well.
Each year export markets become increasingly more important to apple businesses and related industries. This is because our national apple production has steadily grown over the past decade, and these new markets provide outlets for this increased production. Without MAP funds, Pennsylvania growers would not join with other apple producers in the United States to implement promotions and build markets abroad. In the face of the increasing levels of production, without increased exports, prices to both the growers and the packing houses would have been substantially lower.
World demand for apples is expected to increase. Generally, as economies of less-developed countries grow and their incomes rise, consumption of fruits and vegetables increases. As markets open following implementation of Uruguay Round commitments, trade will expand. In more advanced economies, consumers are seeking a wider selection of apple varieties, thereby increasing demand as well.
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It is vital not only to the apple industry but agriculture as a whole to continue trade promotion efforts to help U.S. producers and exporters take full advantage of emerging and existing export markets. It is critical that assistance to small businesses be continued so resources are available to undertake promotions that never would be possible without them. The program makes export markets more accessible to smaller businesses which would otherwise be unable to individually effectively promote and market their apples around the world. I know that without the incentive of the USDA export promotion program, we never would have come together and pooled our resources to generically promote U.S. apples in foreign markets.
I appreciate this opportunity to highlight the benefits that our industry has realized from the Market Access Program and would be happy to answer any questions.
STATEMENT OF BRYANT H. WADSWORTH, U.S. MEAT EXPORT FEDERATION
My name is Bryant Wadsworth. I am executive vice president of the U.S. Meat Export Federation.
The U.S. Meat Export Federation, which I shall refer to as USMEF, has been part of USDA's Foreign Agricultural Service Cooperator Program since 1976. It began as a one-man office in Denver, CO, with little more than a blessing from FAS and the good wishes of the American National Cattlemen's Association, the National Pork Producers Council and the American Meat Institute. It was a very quiet beginning for what has become an immensely successful venture for the American red meat industry.
The mission of USMEF is ''To Enhance the Ability of the United States to Export Wholesome, High Quality Meats and Red Meat Products.'' USMEF is a full partnership between the private sector and the public sector. On behalf of the entire red meat industry, it addresses issues and tackles work that individual companies and the private sector cannot do alone. It serves to bring the red meat industry together with a common objective and purpose, i.e., to increase exports. Over the years it has been a major agent of change both at home and abroad. It has served as the catalyst to bring dramatic change in attitudes in the U.S. red meat industry regarding trade, and a dynamic force in changing attitudes concerning U.S. red meats among foreign traders and end users.
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For the first several years of its existence USMEF received almost all of its funding from FAS through the Cooperator Program. But since the establishment of the pork and beef checkoff programs in the late—1980's, contributions from the private sector have grown significantly, and will probably exceed the amount provided by FAS for the first time during our current fiscal year.
USMEF is a federation of all of the sectors in American agriculture with interest in exporting red meat. We currently have 150 members, including beef, pork and lamb producer organizations, grain and soybean producer organizations, general farm organizations, agribusiness organizations, and 100 meat packing, processing, purveying and trading companies. These 100 companies account for over 90 percent of the red meat and red meat products exported.
USMEF currently has a total budget of about $23 million, with approximately 70 employees and consultants in fourteen locations world wide. Our professional staff consists of skilled marketers and merchandisers who are well informed on their respective markets. They provide the U.S. industry with market intelligence, including critical information on trade barriers and impediments. They develop, manage and supervise promotional activities and serve as key players in managing issues affecting demand for U.S. meat abroad. They work closely with U.S. suppliers and foreign end users with the objective of demonstrating that U.S. product is the safest, highest quality, most consistent and highest value product available on the market. Their efforts, supported by the red meat industry and FAS, have been and continue to be a major success story for American agriculture.
In 1976, when USMEF was established, the United States was the world's largest importer of beef and one of its largest importers of pork. Today, on a quantity basis, the United States is a net exporter of pork and is rapidly approaching the net exporter status in beef. On a value basis we are net exporters on both counts. The U.S. red meat industry generated a $2 billion surplus in trade in calendar year 1996. This was up from a deficit of $822 million in 1976.
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The United States is no longer the world's largest importer of beef, Japan is.
In 1996, the U.S. exported nearly one and a half million metric tons of red meat and red meat products. On a wholesale value basis, this amounted to 13 percent of the beef and 8 percent of the pork produced in this country that year, up from less than one percent for both species in 1976 when USMEF was started. To produce this meat, over 200 million bushels of feedgrains and 23 million bushels of soybeans were required. These grains and soybeans were essentially exported as meat.
Exports of red meat in 1996 added nearly $10 per hundredweight to prices for slaughter cattle and $6 per hundredweight to prices for slaughter hogs.
Since 1976, when USMEF was started, the value of red meat product exports has grown by 670 percent to a record level last year of $4.5 billion. Would this have happened on its own? We don't believe it would have. Surely there would have been some exports even without the efforts of FAS and the red meat industry through USMEF. But absent the resources allocated to this effort, the changes that occurred would not have been nearly so dramatic.
About the same time that TEA funding, and subsequently MPP funding, was made available by the Congress, national checkoff programs were passed by both the pork producers and the beef producers of America. With the additional funds provided by these sources, USMEF has been able to counter and turn the tide in the Japan market for beef.
In 1988, as we approached the final hours of negotiation to open the Japanese market for beef, several respected analysts and representatives of U.S. firms argued strongly that full liberalization would not benefit U.S. suppliers. Australia had 85 percent of Japan's beef import market at the time. The United States had only 12 percent. It was argued that the United States share had been increased from its earlier level of 8 percent by the Government of Japan through the LIPC in an effort to get the U.S. Government to reduce pressure to liberalize. Once liberalization actually took place, the argument went, U.S. suppliers could not compete with Australia's low prices. Fortunately neither the U.S. Government nor the majority of the U.S. red meat industry agreed with this argument.
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I am pleased to report that last year for the first time on a quantity basis, after seven years of vigorous efforts on the part of FAS and the red meat industry through USMEF, sales of U.S. beef surpassed sales of Australian beef in the Japanese market. Our sales have exceeded Australian sales in the Japan market for several years on a value basis.
I should add here that this great accomplishment was done on a USMEF budget for beef efforts in Japan that has consistently been less than half what the Australians have been spending in that market.
Today, U.S. beef producers are supplying Japan's consumers more beef than Japan produces each year. This would not have happened without the cooperative effort of the U.S. Government and the U.S. industry to promote U.S. beef in Japan.
The United States has had nearly 50 percent of the beef import market in Korea for the last few years, but we will be hard pressed to maintain this share as Korea moves toward full liberalization by the year 2001 unless we redouble our efforts there.
Next week USMEF will open an office in Shanghai, China. We are hoping China will take the appropriate steps necessary to make it eligible to become a member of the WTO. In addition, we hope the Chinese people will enjoy political stability and continued economic growth. If they do, we are confident that China will become a major market for U.S. beef and pork.
It may not be realistic for us to believe that we can gather the resources that would be necessary to significantly influence overall red meat consumption in a given export market, but once the major trade barriers are removed, we are sure to have a big influence in determining where the market gets its meat imports. Without the resources of FAS and the industry, we are confident that the United States share of the world market for red meats would be much smaller. As it is, the U.S. share of world beef and pork exports have been growing by 1.7 percentage points per year for the last four years, from 11.9 percent in 1992 to 18.5 percent in 1996.
In 1996, for the first time in history, the United States exported over a billion dollars worth of pork and pork variety meats--413,000 MT. But this is only a good beginning. By the year 2000, the U.S. pork industry and USMEF have set a goal to export a million metric tons. At current prices, that would mean exports valued at $2.75 billion.
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We will reach a million tons of exports on the beef side in the current year, valued at well over $3 billion. USMEF has set a goal of exporting 1.7 million tons of beef and beef variety meats by the year 2000. At that point some of our member packing companies will be exporting 25 to 30 percent of their production.
These goals are aggressive and will tax the best energies and resources we can gather to do the job. They are set with certain assumptions related to meat consumption trends, political stability and economic growth patterns. We believe that they can be achieved, but not without a tremendous cooperative effort on the part of the industry and the Government.
In a broad sense, the funding of the MAP program is an inexpensive way for the American public to be assured of a healthy and strong agriculture and a better trade balance. As commodity price support systems are phased out it seems critical to the well being of American agriculture to have the continued support of the Government in getting foreign markets open and promoting U.S. farm commodities in those markets.
Market opening efforts through the Tokyo Round and the Uruguay Round would not have been nearly so successful as they were if the United States had not taken the lead and had the political will to insist on such success. The Japan market, for example, would not be nearly so open as it is today had it not been for the pressure the United States was able to bring to bear. One can argue that it is better to open foreign markets for agricultural products even if no resources are made available for promotion and marketing activities after the markets are open, but it really doesn't make sense for the United States to open a market for red meat and then step aside while Australia, with its large promotion budget, and the EU, with its export restitutions and large promotion budgets, take the market.
This is the way our members see it.
STATEMENT OF GLEN BUCKLEY, CHAIRMAN, U.S. FEED GRAINS COUNCIL
Mr. Chairman, and members of the subcommittees. My name is Glen Buckley, and I am the chairman of the U.S. Feed Grains Council. I appreciate this opportunity to testify on the very critical role the Foreign Market Development Program and the Market Access Program are playing in building U.S. export markets.
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The U.S. Feed Grains Council is a private, non-profit organization established in 1960--one of the oldest ''cooperator'' groups, organized under PL 480 to develop export markets for U.S. feed grains. As international markets have changed, we have evolved in our work with FMD and MAP to capture new opportunities for market development. Currently we operate in 83 countries through 11 overseas offices and 32 representatives.
Some critics ask whether these programs are important when the number of U.S. farms and farmers is shrinking. As chief economist and director of agribusiness analysis for CF Industries, a major U.S. fertilizer cooperative, I can tell you that this question reflects a dangerously narrow view of the U.S. agricultural economy and its continued importance to the U.S. economy.
While farmers are fewer, they--and the crops they produce and market--are the critical link in a sector that comprises about 20 percent of the total U.S. economy and supports one out of six American jobs. For example, in 1995, farmers bought $5.5 billion of seed, $10 billion of fertilizer and lime, $7.8 billion of crop protection chemicals, and $5.7 billion of fuels and oils. They paid $12.8 billion in interest charges, and spent $60 billion for marketing, storage, contract labor, maintenance and custom work that kept other Americans employed. When farmers are not profitable, the economic damage strikes across the U.S. economy at both inputs suppliers and the transportation, storage, marketing and processing sectors.
We don't think of the steel industry as dependent on U.S. grain farmers--but in 1983, when the Payment-in-Kind Program cut corn acreage by 30 percent, steel companies and steelworkers shared in the pain. When farmers cut acreage and halted equipment purchases, implement dealers and equipment manufacturers followed suit, the demand for sheet steel dropped, and suddenly everyone cared again about agriculture. That period of low farm prices and acreage reductions sent many farmers into bankruptcy, but it also destroyed major U.S. corporations like International Harvester.
Today, U.S. agricultural exports contribute over $27 billion to the U.S. balance of trade, with two-thirds of that trade coming from grain and grain products. United States farm exports are critical to our trade situation--but they are also critical to the profitability of U.S. production agriculture.
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One in every four acres of U.S. corn currently sells abroad. For U.S. sorghum the level is even higher--40 percent goes to exports. And exports are growing in importance. For example, ten years from now, the Council's World Feed Grains Demand Model projects U.S. corn production of 11 billion bushels, of which 30 percent will go to foreign buyers.
While dominant market growth will come in bulk grain, we also foresee increased levels of higher value products moving into export markets. By 2005/06, we expect feed grains demand for livestock to increase by 7.8 million metric tons in this country--but 92 percent of that increase is for meat and poultry products destined for export. We also see--and are promoting--more export sales of higher value specialty grains like high oil corn, food grade sorghum and malting barley, and of processed products like modified starches, corn-based biodegradable plastics and sweeteners.
Export markets are a critical factor in U.S. agriculture's profitability--especially with regard to the feed grains sector, and agriculture is so critical to the U.S. economy that it easily warrants the care and attention of these committees and of Congress.
The question is: What is the most cost-effective and successful way of making sure that we develop the overseas markets we need as quickly as possible?
The answer is that organizations like the U.S. Feed Grains Council have already created a pattern and demonstrated its success. We do the job, and we do it very economically.
American farmers and agribusiness leaders recognize how critical exports are--which is why they invest aggressively in the Council's efforts. This, plus private sector support from the people we work with abroad, means that we match dollar-for-dollar what FAS provides--so that this year FAS' $9.8 million investment in the Council and the matching funds it triggers will produce $20.4 million worth of market development activities on behalf of U.S. feed grain producers..
Our program should be showcased as one of the outstanding examples of what public-private partnership can achieve. Our members--71 agribusinesses, 13 producer groups and 26 farmer-funded checkoffs --contribute more than their $4.5 million in membership fees. Our 160 unpaid directors also commit significant personal time and effort to guide the Council's export market development programs. The different perspectives and strengths that we can tap--from farmer leaders across the grain states and from business leaders across the agribusiness spectrum--extend the range of expertise available to Council projects and underpin the Council's legitimacy in the eyes of our foreign partners.
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We have developed the same kind of dedicated partnerships in the countries where we work. Our foreign partners, known as third party cooperators, provide goods and services worth $5.2 million. When we run a poultry demonstration project in Russia, we provide the expertise but we recruit up-and-coming local leaders to supply the hens and hen houses. This does more than save money--it produces local converts who are required to share what they've learned with others in their industry.
Let me give you an example of the kind of results we achieve.
Southeast Asia, with growing populations and growing economies, is one of the great developing feed grain markets. Severely limited port and grain handling facilities, however, have limited shippers to 30,000 ton ''handy'' size ships or smaller. Larger ''panamax'' ships couldn't fit into harbors and couldn't be unloaded. Limits on vessel size meant that it cost $11 more per ton to deliver U.S. feed grains in Jakarta than it cost our competitors.
Almost ten years ago, the Council targeted this problem and initiated a ports infrastructure program. We took Malaysian and Indonesian officials to see what a difference modern port facilities made in other countries. We brought in experts to show them how they could solve their port problems. We demonstrated how better ports would help them economically and we helped them find business partners.
Malaysia, which bought no U.S. corn in 1991, 1992 or 1993, began importing from the United States in 1994 when their modern port facility began to come on line. Now, able to handle 50,000 ton ships that cut shipping costs, Malaysia has become the eighth largest market for U.S. corn. Indonesia first initiated a lightering system that we proposed--and Indonesian purchases went from nothing to 21.6 million bushels of U.S. corn in 1995—96. Krakatau Steel, a major Indonesian company we've been working with, is now in a joint venture with Cargill to build a modern grain handling berth by this coming winter.
This project is producing multiple benefits, beginning with 77.4 million bushels in sales last year--and if you apply the factor that is so often cited for the economic effect of corn sweetener demand, that contributes $.03 to the price of a bushel of corn. It has also opened major new business opportunities for U.S. agribusinesses. Best of all, these markets have not peaked yet. By 2005, the Council projects that they will buy 262 million bushels of corn annually--and the United States is now positioned to provide the bulk of their purchases.
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Everyone involved recognizes that this would not have happened without the Council.
Another Council success is our market education program. World grain markets have changed dramatically with the disappearance of centrally controlled economies and central buying offices. Ninety percent of world grains are now traded on the free market, but many new buyers don't know how to access and use the U.S. market system effectively. Without that knowledge, they gravitate to competitors like Canada which offer ''one stop shopping.''
The need for basic market knowledge is so great that some foreign grains users have offered to pay their own way to the United States, if they could get training. Last year, Council grain buying seminars reached over 1,000 people with this critical information--information that is producing sales now. Another, award-winning Council success is our Grain Importers Handbook, which we publish in six languages.
Our market education efforts recognize the need to maximize sales of both bulk commodities and higher value grains and grain products. Last year, we produced the first-ever Value-Enhanced Corn Report to provide the information buyers need to source and use U.S. value-enhanced corn varieties. We followed it with the world's first Value-Enhanced Grains Conference and Trade Show to bring together suppliers and end users to advance this very promising new grains sector.
The Council has also been out ahead of the pack in efforts like our Biodegradable Products and Waste Management Program in Japan, which led to the establishment of the International Biodegradable Plastics Manufacturers Association to advance world acceptance of this technology. In Japan and Taiwan alone, the Council projects that biodegradables plastics acceptance could increase corn demand by 340 million bushels.
When the Council began its work, U.S. feed grain exports were at 11.2 million metric tons. Last year, they hit 58.8 mmt and by 2005/06 we project they could reach 86 mmt. More than any other form of use, exports are positioned to keep pace with increased production and support market prices.
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Last year offers a snapshot of what that can mean to farmers. While our corn crop was disappointing, it was still more than adequate to meet U.S. domestic demand. It was 2.1 billion bushels of export demand that changed the equation, and produced an average farm gate prices of $3.24 per bushel.
If U.S. producers and the economy they support have to rely on the marketplace for their profitability in coming years, then they must have growing export markets for their grain. And that means they must have FMD and MAP support for the work the U.S. Feed Grains Council does. It is one of the most effective investments the U.S. Congress can make in our agricultural economy.