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REVIEW OF FEDERAL FARM POLICY
MONDAY, MARCH 6, 2000
House of Representatives,
Committee on Agriculture,
Lubbock, TX
The committee met, pursuant to call, at 9:00 a.m., at the Civic Center Banquet Hall, Lubbock, TX, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives Barrett, Boehner, Lucas of Oklahoma, Simpson, Stenholm, and Boswell.
Also present: Representative Thornberry.
Staff present: William E. O'Conner, Jr., staff director; Alan Mackey, senior professional staff; Jeff Harrison, associate counsel; Keith Williams, communications director; Wanda Worsham, chief clerk; and Russell Middleton, minority consultant.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
The CHAIRMAN. In keeping with the tradition that we have tried to established on the hearings and meetings of the House Agriculture Committee, we will try again to start this one on time. And let me say to all of you who have come out today, thank you very much for your interest and for your attendance, both those of you who are here as well as those who are the Members of Congress who are here.
I want to take for just a moment, as always, the opportunity to thank some people. In doing so, you always leave some out, but I will run that risk this morning. There have been a few who have been particularly and especially helpful to the setting up of this hearing here in Lubbock, and I want to thank the city of Lubbock for all of their courtesies, certainly for the use of this facility, particularly Ron Lewis who is here.
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Ron Lewis has worked many, many hours to put this together, the Lubbock City Council, certainly, and the mayor. And I want to recognize Sheriff David Gutierrez, who has been extremely helpful with assistance in getting us around in Lubbock and his office.
Good morning and welcome to this first of 10 hearings that the House Agriculture Committee will hold in different regions of the country over the next couple of months. I want to thank again everyone for coming to this important event, and I want to thank my colleagues, our members who are here that are taking their time away from their families, away from their districts, but that show an interest in this effort and coming to my hometown of Lubbock, TX.
Today we plan to hear from 19 people who have built their life around the great sustaining and sometimes excruciating industry of agriculture. We have sought to bring folks representing the different types of agriculture in this great southwest region of the United States and representing a variety of thoughts on the issues facing our industry.
It is my hope that everyone in this room can identify with at least one of these witnesses today, and I would certainly encourage anyone who would wish to submit additional written testimony, that it will be made a part of the official record of the hearing, and it will be as substantive and as important to the committee as anyone who verbally testifies. So, we are making this process available to anyone who wishes to make input.
I have the pleasure of introducing the members of the committee, a few of the 51 who are with us this morning. First of all, I want to recognize the committee's ranking member, my neighbor, and from Texas, who I know many of you know, Congressman Charles Stenholm, who is from the adjoining congressional district. Congressman Bill Barrett from Nebraska is vice chairman of the committee, represents almost all of the farming area of Nebraska in its west, north, and central regions. It's an extremely large district. Congressman John Boehner represents the folks of southwest Ohio. From from Oklahoma's western half, literally the whole western half of the State, Congressman Frank Lucas is with us this morning. Congressman Leonard Boswell is from Iowa, has an extremely large agricultural district in Iowa, and we're very glad that Leonard is with us. From the eastern part of Idaho, Congressman Mike Simpson. The committee also welcomes Congressman Mac Thornberry who represents portions of Lubbock, Amarillo, and who we have an adjoining district as well, and Mac has something further to say about the actual location where we are today, and I will not steal that thunder, and has many constituents here as well.
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I do not want to speak too long because I want to emphasize that we are here to listen. I do want to say that I think all of the members of this table know that we have a problem in agriculture; and, if we didn't, we wouldn't be here. What's more, we all fundamentally believe that it is in the interest of this Nation to maintain and foster a diverse and strong agriculture sector for the future.
So, the question that we are here today, that we would like to try to answer is, how can we best do that? This committee was in Lubbock 5 years ago discussing agriculture policy. At that time, some of you were selling cotton for $1 a pound. Today it takes 2 pounds of cotton to get that dollar. Congress has responded in the last 2 years to depressed prices by providing more than $10 billion in supplemental payments to farmers.
Today we want to find out what really producers think is working and what is not working in our Federal farm policy. We're going to all regions of the country asking the same questions of farmers very much like yourself in the hope that we can find some consensus among producers for farm policy changes that you need. Again, I want to thank everyone for coming.
I would like to recognize Mr. Stenholm for any comments that he might wish to make.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman. I'm delighted to be here. Thank you for the leadership in scheduling these 10 hearings that we will be holding around the country for purposes of coming out and talking to producers about what changes, what new direction that we might take regarding agricultural policy to solve what has now become a very real crisis, the price crisis that we have been going through.
We also know we have a weather crisis. There is not much that we can do about that except to try to respond to it, and we know that we're 1 day closer to that rain today than we were yesterday.
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In response to the crisis, I proposed a supplemental income plan that we threw out last year that we will again be putting some finer touches to this year for consideration by farmers and ranchers all over the United States. We do not pretend that it is the answer, but it is one thing that we have proposed. And we anticipate and know already as a result of many of you who have accepted the invitation to come forward with ideas and suggestions, thinking outside the box as to how we deal with very, very real problems facing American agriculture in the internationally competitive marketplace, with environmental rules and regulations, considerations, et cetera.
But we're here today to listen, and that's what we're going to be doing a lot of today, listening, asking a few questions, and hopefully laying the groundwork for what we might be able to do this year to assist us through what most economists are predicting is going to be another very tough year economically for agriculture, but also to begin laying the plans for where we go in 2003.
As I am sure everyone in this room knows, that the current farm bill was designed to be the bill that ends all farm bills, but I think most have had a change of heart today and will be looking at where we go with the Y2K2 problem. And that's what we begin today, is looking for the ideas and suggestions that we might take as a committee and move forward.
Again, I also join in thanking the people of Lubbock, the leadership of Lubbock that has been great to work with for my staff and others to make this a very successful beginning hearing.
The CHAIRMAN. Congressman Barrett.
OPENING STATEMENT OF HON. BILL BARRETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA
Mr. BARRETT. Mr. Chairman, I thank you very much for your initiative in bringing the first of 10 regional hearings to Lubbock, your hometown. I think every member of the committee that is here today is pleased to be here, and I am anxious to hear the comments from the 19 witnesses today that we can then carry back to Washington.
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Thank you very much.
[The prepared statement of Mr. Barrett follows:]
PREPARED STATEMENT OF HON. BILL BARRETT
Thank you, Mr. Chairman, for your leadership, vision, and foresight in organizing a series of nationwide field hearings to review Federal farm policy. These agriculture policy field hearings will provide members of this committee a number of possible solutions and ideas to return production agriculture to profitable times. I appreciate the opportunity to be a part of this field hearing in Lubbock and look forward to listening to the concerns of the southern Plains producers here today.
It is no secret that we have been experiencing a critical down cycle in production agriculture. Farmers throughout the Nation greatly rely on several of the same factors, no matter their location. Good weather and decent prices are a basic necessity. However, when one or both of these factors are missing, farmers begin to suffer.
Producers have long known the hardship and struggle that comes with working the land. However, multiple years of adverse conditions and depressed prices have created market conditions for producers unseen since the 1980's. In my home State of Nebraska, these conditions have caused an enormous strain on all of our farmers and ranchers. This strain is not only being felt by producers, but throughout our rural communities.
It is obvious that farmers are facing depressed prices due to a lower demand for farm products. Last year under similar circumstances, Congress passed an assistance package for producers. This aid package provided a much-needed boost to the farm economy. However, I believe additional measures are needed. For instance, producers need crop insurance reform. The House-passed crop insurance bill will provide a new approach to risk protection by providing for additional coverage to producers. In addition, it provides a pilot program for livestock. Increased premium assistance and improved coverage will allow producers to protect themselves from an endangered farm economy. By overhauling crop insurance and looking at risk management in new ways, I believe that we will be able to lessen economic situations such as the one we find ourselves in currently. After much debate, the Senate passed their version of a crop insurance reform bill this past week.
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The current farm program was designed to assist farmers in having less reliance on Federal Government support. It was established at a time when commodity prices and farm incomes were relatively high by historic standards. Transition payments were intended to provide farmers with a path to become independent of Government support. They were fixed in the 1996 legislation, gradually declining each year until 2002. They were designed to provide a steady, predictable support level. In view of the low prices and farm incomes the past few years, we in Congress increased the transition payments.
Where do we go from here? To help us in Congress answer that question, we must first ask and answer some questions regarding what is desired by our nation's producers. Again, I would like to thank the chairman for his strong leadership in this time of weak prices by bringing the full committee out into our nation's farm country to listen to rural America. The best solutions for our farmers and ranchers will not be found in Washington, DC!
Our producers are the most important commodities in America. I look forward to working with my colleagues in providing the best all-around program that producers can depend on within the general principles of a market-oriented farm policy.
The CHAIRMAN. Thank you, Congressman.
Congressman Boswell.
OPENING STATEMENT OF HON. LEONARD L. BOSWELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA
Mr. BOSWELL. Thank you, Mr. Chairman. I too am very pleased to be here, and I appreciate you holding this meeting here in your home community. Yes, I'm from southern Iowa, but I have a real personal feeling for Texas. I spent a lot of time in Texas in my military days and considered it a second home, in a sense.
But we have a special challenge, it seems to me. And I would guess, the looks of this crowd, Mr. Chairman, folks here see the same thing. We've got a robust economy going on, and the country's doing good, and we're all thankful for that. Of course we are. But the agricultural side is not in step with it, and there is a number of reasons, and we need to do something a little bit different.
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And, so, I'm hoping out of this series of meetings we're having that we can identify what that might be coming from you folks. I think the committee has done quite well in supporting American agriculture in the last couple of years with those emergency payments. They were humongous. And it's my opinion we're probably going to have to do it again. Meanwhile, we ought to be trying to figure out how we can do something, whether it's the plan that Congressman Stenholm was proposing or what else we might come up with, but we need to make some adjustments, and so that's what I'm about.
I know that farming is changing. In my area, where there used to be two, three, four farms, there is one. And in some instances, that's probably OK. But there comes a point where I think there might be a diminished return.
And for me, and I'll never pass up an opportunity to say something about this, it's the stewardship over the land. And I think there is a difference when the person is out there trying to pay for that piece of ground and care for it and make it be there for the next generation and the generation after that.
And I think we're failing in that case, at least up in our territory, because they don't have time. They're just too big in some cases. And they come in there in the spring and they plant their crop, and they're gone, and away they go. They don't see the ground until they come back, in some cases the fall, and a lot of things can happen during that time that's pretty detrimental.
So, we've got a big challenge. There is overproduction around the world. We found that out when a number of us—the chairman took several of us out to Seattle and it was quite an eye-opener, quite an education, and we've got some real challenges to recognize all this.
And I'm very appreciative that we've come here today to Lubbock, TX, to start this series that will go on the rest of this year. And with your help, and we're counting on your help, maybe we'll just actually do something very constructive. And that's the goal that I'm here for, and I want to thank you, again, Representative Combest and Stenholm, for holding this hearing. Proud to be here with you, and I'm ready to move on.
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The CHAIRMAN. Thank you, Leonard.
Congressman Boehner.
OPENING STATEMENT OF HON. JOHN A. BOEHNER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO
Mr. BOEHNER. Mr. Chairman, I'm glad to be here in Lubbock, and thank you and Charlie for the opportunity to be here. It's a long way from Ohio. This is my first trip to Lubbock and to west Texas. It's also very flat here. I've got some flat ground in my district, in the northern part of it, but I don't think it's as flat and as wide as this is.
And, so, I'm looking forward to hearing what all of you have to say. As you've heard before, those of us who sit on the House Agriculture Committee aren't the experts. You are. And for us to do our jobs and to do it well, we need your input, your help, your advice, and that's why we're here today, and I look forward to the testimony.
Thank you.
The CHAIRMAN. Congressman Lucas.
OPENING STATEMENT OF HON. FRANK D. LUCAS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OKLAHOMA
Mr. LUCAS of Oklahoma. Thank you, Mr. Chairman, and thank you, ranking member, for beginning this series of what I think will be 10 exhaustive hearings. I would just remind my colleagues and my fellow farmers and ranchers out there in the audience that the process we begin today to determine, I think, ultimately where our agricultural policy goes next will be no simple challenge. And you know that or you wouldn't be in the industry already.
Since 1933, we have had a myriad of 7-year, 5-year, 2-year, sometimes 1-year farm bills. The fact of the matter is, had we ever have acquired, developed, rode passed, created the perfect farm bill, there would have never been another. We haven't accomplished that yet. Maybe with this process we'll take a step closer in that direction with the next one.
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Thank you, Mr. Chairman.
The CHAIRMAN. Congressman Simpson.
OPENING STATEMENT OF HON. MICHAEL K. SIMPSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IDAHO
Mr. SIMPSON. Thank you, Mr. Chairman. I'm also pleased to be here in the great State of Texas. It's nice to be out of the snow of Idaho for a change and come down here and visit Texas. But I appreciate your leadership on holding these hearings around the country. And later on, we'll get to Idaho once the snow leaves.
But as has been mentioned, the answers to the problems in agriculture are going to come from you, not from us. And so I'm glad to be here to listen to those people that are the producers, that are going to tell us what they think some of the solutions may be that we can address in farm policy.
And I'm glad to be here, again, Mr. Chairman. Thank you.
The CHAIRMAN. Thank you very much. Congressman Thornberry.
OPENING STATEMENT OF HON. MAC THORNBERRY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. THORNBERRY. Thank you, Mr. Chairman. First I want to thank you and your colleagues in the Agriculture Committee for allowing me to sit in with you today.
And second, I'd like to welcome all our colleagues and all our guests to the 13th district of Texas. Where we sit is actually in my district. Now, you go a couple of blocks one way or the other way, you get into Chairman Combest's district. But you're in my district here, and I'm pleased to have everybody here.
I also want to say that in these times of problems, I think that the agriculture in our region and all around the country is very fortunate to have you as chairman of this committee, Mr. Stenholm also is in a leadership position on this committee. We've got some tough challenges, but we've also got two gentlemen who have been involved in agriculture their whole lives. They understand the problems, and I think agriculture is lucky to have you in those positions.
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I have a longer statement that I'd like to put in the record, but I just would echo the comments of my colleagues. We've got some very serious problems, and I think nearly everybody in the room knows what some of the answers are. Some of the answers deal with things like taxes and regulation and trade policy. We don't know what all the answers are, however.
And if we're going to come up with an answer that works for agriculture and we can get it passed in Congress, then we need to have a consensus, to the best we can get it, in agriculture. Because the challenge we face is that fewer and fewer folks in Congress represent agricultural districts, much less have the personal kind of experience in agriculture that a number of people on this table have.
So, we've got our challenges ahead of us. We look forward to working with all the people in this room to meeting those challenges, and thank you again for having me here.
[The prepared statement of Mr. Thornberry follows:]
PREPARED STATEMENT OF HON. MAC THORNBERRY
Thank you, Mr. Chairman, for having these hearings about the state of our national farm policy. We have a serious problem, and I hope that what is said throughout the day here in this auditorium, in the coffee shops and feed stores, and on our farms and ranches moves us toward a consensus about the direction we should go.
Building a consensus within the agricultural community is extremely important. Mr. Chairman, you and I have both been around agriculture all of our lives, but fewer and fewer Members of Congress represent agricultural areas, much less have any personal experience in farming or ranching. We've been told that the problem will get worse—not better—after the census, so coming together now on agricultural policy is essential.
As you well know, producers in our part of the country have suffered from very low prices and adverse weather for some time. More and more of our producers are feeling like their future is out of their hands. Weather, trade policy, regulations, and taxes all conspire to make it virtually impossible to break even. We are seeing farmers whose families were some of the first settlers in our region decide they cannot make a living this way any more.
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We have a serious problem, but the question is, ''What do we do about it?'' That's why we are here—to listen to the people who are affected the most.
We know some of the answers. We know that we must have common sense regulatory reform that takes into account the effects of regulations on producers' ability to earn a living and on their costs of production. We have the right to know the costs and the benefits of a regulation and how much of our taxes it will take to implement it.
We know that taxes are too high, and I am very hopeful that this year Congress will vote to abolish the death tax, which costs too many families their farms and other small businesses.
We know that trade is essential, and the United States must do a better job in ensuring that our producers have a level international playing field on which to sell our products.
We know that Congress cannot make it rain, but we can construct a safety net to help producers survive the difficulties mother nature sends our way. And we can have a safety net to help producers survive low prices.
But there is still a lot we don't know for sure. All wisdom does not originate in Washington, DC; there is a lot of wisdom on Texas farms and ranches. We need to hear and benefit from that wisdom today.
Our challenge, Mr. Chairman, is to come up with a plan that really helps agriculture and can get passed into law. It's no easy task. Thank you again for holding this hearing and for inviting me to participate.
The CHAIRMAN. Thank you, Congressman Thornberrry. And all members' statements will be made a part of the record for any additional comments they wish to make.
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I would now at this time like to invite our first panel. One of the things we're finding out is that—and the whole idea of these hearings is to go out into the countryside and talk with people that don't appear at hearings in Washington; and, that is, we think, is something we've been successful in the first, and we'll see if we can in the additional nine.
In order to emphasize that, I would mention to you that the lights that are on the table are 5-minute lights. If you can, summarize your testimony within that period of time.
The first panel today is Mr. Lloyd Arthur, who is a cotton and milo producer from Ralls, TX; Mr. William Kubecka, who is a rice producer from Palacios, TX; Mr. Donald Patman, who is a cotton, corn and soybean producer from Waxahachie, TX; Mr. Ronnie Riddle, who is a cotton producer from Abilene, TX; and, Mr. Mark Williams, who is a cotton producer from Farwell, TX. And they are lined in the order of the introduction.
Mr. Arthur, welcome, and we would begin with you.
STATEMENT OF LLOYD ARTHUR, COTTON AND MILO PRODUCER
Mr. ARTHUR. First and foremost, I would like to give thanks to Chairman Combest and the rest of the members of the Committee on Agriculture for investing time to hear the concerns of the American farmer. Also, I would like to personally thank the chairman, the ranking minority member, Mr. Stenholm, and the rest of the distinguished members of the committee present today for their involvement the last 2 years in changes and additions to the current farm bill.
With those changes, many farmers, including myself, have been able to continue farming during very difficult times. However, with commodity prices being below production cost, future assistance is still needed for the American farmer to survive. The Government assistance does not stop here. The assistance helps our local community, especially in rural areas of the Nation.
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Some agricultural policy changes in the short term, as well as new farm legislation, can, in my opinion, help alleviate some economic hardships. Knowing that uneven production costs exist, the price in other countries I cannot control. I must limit my risks and my expenses.
Crop insurance is an important risk management tool. However, insurance itself is not a comprehensive economic safety net. The adequacy and affordability of crop insurance varies greatly for crop and region.
The current crop insurance program forces producers to carry the same level of insurance coverage on farms in all the county. A producer should be allowed to purchase different levels of coverage for different farming practices, example, irrigation and non-irrigated.
If a catastrophic loss occurs between mid-season and harvest, the amount of coverage lower level policies provide is only 50 to 60 percent of production cost. Insurance policies should allow the higher levels of coverage the same amount of premium discounts as lower levels. This would help producers to cover more of the operating costs in the event of a loss.
In the event of a catastrophic loss, allow a producer to drop that actual loss yield or allow the producer to insert a county average, a T-yield, or some other calculated standard formula to help offset the cost of the following year.
Allow a producer to customize an individual loan rate for his commodity and operation. This would allow a producer and the lending institutions to work together on an individual operation. The flexibility of this choice would allow a producer a chance to control the expense and maximize profits in the individual basis.
The Flexible Fallow Program is such a program providing these options. This would be a policy addition to the current farm bill now in place to allow a farmer a better way to minimize the risk on an individual basis.
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An alternative to the above would be set a loan rate that is more effective. The current loan rate on all commodities, especially cotton, is much below break-even prices.
The uncertainty and inconsistency in farming in America with a reliable safety net has left my operation strained and stressed the last several years. Trying to keep debt at a minimum, farmers cannot continue at today's prices and keep their equity in the farming operation.
Competing in markets beyond the boundaries of the United States has great disadvantages. Unfair trading rules, export subsidies, comparability of labor, environmental issues, and currency valuations all impact trade policy. I believe that the American producers have to go by higher standards and stricter regulations than most producers in other countries. American producers should be compensated for their efforts.
The strength of the dollar greatly affects agricultural exports. Some device is needed to make the playing field level when the competition with other producers that are highly subsidized from their governments.
Investigate the possibilities of trading with other countries that we are not currently trading with and develop those markets. Those countries obtain product from other countries and we lose market share.
The non-acceptance of genetically modified crops originating around the globe, or more recently in the United States, has spread into the market equation. We need sound scientific research to convince the consumer that the products with the GMO's technology are a benefit and not a hindrance. Without the use of these technologies, operating costs will continue to increase even at a higher pace.
The merging of farm-related companies are a major concern. Without competition to keep production input costs down, the need for a viable risk management or safety net is increased.
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The American farmer is not the sole beneficiary of American agriculture programs. Agricultural program payments also benefit consumers as well as local, State, county, and national economies. Many Americans who voice a negative opinion to farm programs and policy do not realize they benefit indirectly from these programs.
And, in conclusion, I would say a strong and ethical safety net for producers is needed, a farm policy that enables producers to receive a fair and equitable price for their commodities, fair competitive markets, and investment in our rural economy, protection of our natural resources for the future, fair and equitable implementation of government programs.
Thanks again to you, Chairman Combest, and the entire Committee on Agriculture for your time, diligence, and efforts to address these policy issues. I hope the information presented to you today will help you make policy that will help American agriculture and rural America prosper for the many years to come. Thus, the priority is to keep the United States of America the leader in agriculture.
Thank you, sir.
[The prepared statement of Mr. Arthur appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Arthur.
Mr. Kubecka.
STATEMENT OF WILLIAM KUBECKA, RICE PRODUCER
Mr. KUBECKA. Thank you, Mr. Chairman, and the other members of the committee. I appreciate the opportunity of being here today. I'm not going to be redundant in my—I'm certain you will hear this appreciation given by all.
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I'm Bill Kubecka from Palacios. I'm a diversified producer growing rice, sorghum, and cotton. I also have a cow-calf operation. Today I not only represent myself, but I also represent the views of 47 individuals that met at a farm policy forum in Bay City, TX, on February 17 to prepare for this hearing.
The 47 individuals came from Brazoria, Calhoun, Jackson, Wharton, and Matagorda County. This gathering was put together by the chamber of commerce of those particular counties and by the county agents. As a group, we agreed to, and I bring to you, the following recommendations concerning farm policy.
Farm policy should provide food security for the United States through the production of abundant, affordable food and fiber and from a profitable agriculture economy. Everyone likes the flexibility of Freedom to Farm, but would prefer a stable market to prevent emergency payments.
I'm kind of going over these different items rather than just reading per se. These are all points that the group came up with.
The safety net provision of the farm bill needs adjustment. We oppose the mandatory set-aside, but could support a voluntarily reduction for higher loan rates on planted acres. Current loan rates are unrealistic to producer costs. LDP's should be based to keep U.S. crops competitive in the world market.
Yield data used in farm programs needs to be updated to reflect current yields. The group felt that the crop insurance can be a risk management tool, but there needs to be changes. The insurance should encourage prudent production and discourage non-production of crops and failed acres solely for the insurance purposes. And I can say we've had plenty of that down on the coast.
The program needs more oversight. We need to link the insurance to the individual rather than to the land. We've got people that are moving and just keep on collecting from the insurance. Insurance coverage should be related to the cost of production. Revenue insurance should be supported.
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We believe that Government assistance should be production based and not limited by the person determination. Profitability has been maintained by the economy of scale. And when you have the person determination, it's just not fitting the form that the farm that we're having to operate today.
Current payment limits do not correspond with efficient production unit size. To be more competitive in the global marketplace, we believe the following must happen: Embargoes and sanctions must be lifted. We must be proactive and aggressive in increasing and holding new markets. We must have help from our Government in research, development, education on traditional crop production and its alternative uses.
Again, these were just kind of labeled that the group came up with. I know we'll have a question-and-answer period, but hopefully some of this, at least you hear what this group of people thinks about the different issues for our present and any future farm legislation. Thank you, Mr. Chairman.
[The prepared statement of Mr. Kubecka appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much.
Mr. Patman.
STATEMENT OF DONALD PATMAN, PRESIDENT, TEXAS FARM BUREAU
Mr. PATMAN. Mr. Chairman, and members of the committee, I am Donald Patman, farmer and rancher from Waxahachie in north central Texas, south of Dallas.
I serve as president of the Texas Farm Bureau. I grow cotton, wheat, corn, soybeans, and raise beef cattle. A copy of my statement has been submitted to the committee. I'd appreciate its inclusion in the record. For the hearing, I will summarize my remarks.
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The Farm Bureau supports the overall concept of the 1996 Fair Act, but we also support a review of the act and some modification which we will discuss today. We especially support the flexibility that allows a farmer to respond to market conditions in terms of what to plant, and we recommend this continue to be a part of any farm program.
These payments have been critical to producers, especially during the past 2 years' low prices. We support the addition of a counter cyclical safety net in supplementing the AMTA payments. We recognize that these adjustments must be made when periods of low prices extend several years, as they have currently.
Improving trade is a high priority for Farm Bureau. Since we export about one-third of our product, that is why we have made several suggestions, including the lifting of trade sanctions on agriculture commodities and providing permanent normal trade relations with China. It is important the market promotion and Foreign Market Development Programs be continued.
We also make several suggestions for long-term comprehensive disaster programs to deal with drought and its conditions so producers will not be reliant on special Congressional action each time we have a disaster. Our suggestion is designed to provide assistance to producers of all commodities.
Crop insurance simply has not worked in Texas well in Texas. We support H.R. 2559, legislation passed by the House Agriculture Committee in the last session. I hope it is enacted soon.
From a personal standpoint, I have been participating in a pilot program for central Texas for the past 3 years. This program has worked well for me in that it is affordable and paid well in 1998 during a particularly bad year.
I will be happy to respond to specific questions about this pilot program, as I believe it comes close to what producers are looking for in an effective program.
Special emphasis should be given to a viable risk management program to cover all commodities including livestock. Most livestock producers normally fail to qualify for many of the programs currently available. We support funding for the livestock feed program. It would be beneficial if a revolving fund could be established so that annual designations in funding are not required, which could provide more timely assistance.
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Finally, in regard to the current farm bill, we support the current loan rate structure. Unfortunately, when those loan rates were established, no one expected farm prices to fall below those rates. Nevertheless, the Farm Bureau remains concerned about the Government accumulating large amounts of stocks or loan rates encouraging overproduction in contrast with the market signals.
While the present system is not perfect, we support the current direction and hope that direct income assistance can be provided until commodity prices improve rather than using loan adjustments. We believe that direct assistance is the best alternate for a long-term investment in American agriculture.
Mr. Chairman, we thank you for holding the hearings in Texas and allowing us to testify, and I will be happy to respond to any questions you might have, sir.
[The prepared statement of Mr. Patman appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Patman.
Mr. Riddle.
STATEMENT OF RONNIE RIDDLE, COTTON PRODUCER
Mr. RIDDLE. Mr. Chairman and members of the committee, thank you for coming to Lubbock, TX, to hear producers' thoughts on current farm policy. We appreciate your understanding on the need for an inclusion of those most effected by this legislation.
My name is Ronnie Riddle, and I am a cotton, grain, and livestock producer from Jones County, TX. My father and I farm together, and we derive our entire annual income from our family farming operation.
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Today I am also speaking on behalf of Rolling Plains Cotton Growers, Inc., an organization of cotton producers who work together to improve the conditions of the industry. Our membership includes cotton producers throughout the 29 counties of the central and northern rolling plains of Texas where almost 1 million acres of cotton are grown each year.
It is our interest and purpose to provide new ideas and stimulate some innovative thinking for all future farm legislation, which in turn will affect all producers in this country, especially those who are from the rolling plains of Texas.
Our business is cyclical in nature with unpredictable and unavoidable ups and downs. Governmental assistance is greatly appreciated by producers and is essential for our survival from year to year when market or the weather events result in severe declines in income that endanger our financial stability.
We as producers again will be relying on emergency assistance this year. However, we are concerned that the additional appropriations will not always be available. This variation in producers' payments is a clear indication that the 1996 farm bill does not provide an adequate safety net to producers.
A long-term policy needs to be established that provides comprehensive protection to producers which continue in strengthening the vital partnership between the cotton industry and government. While certain risk management tools are available, they do not adequately protect producers from yield or price declines within a growing and marketing season. Also, these tools do not make up for declines from previous years' price levels.
We need legislation that will address extreme year-to-year variations, particularly those arising from international market events and weather-related losses. This legislation should include some form of payment for producers of all commodities who actually harvested a crop or who have failed acreage due to natural disasters.
We applaud the simplicity and flexibility in the current legislation and believe it should remain in any future farm legislation. However, any new legislation should be designed to address the problems of low prices and provide counter-cyclical relief to those producers and discourage distorted planting decisions.
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We as producers encourage Congress to complete their efforts to reform the crop insurance program. Reform should include, first and foremost, stronger enforcement of compliance regulations to combat program abuse. Second, reform should include a provision that makes an adjustment in the actual production history and take into account the success of efforts such as boll weevil eradication.
We as producers have invested our money in this eradication program, but because of current regulations, it can take as long as 10 years for our insurance yield to reflect the eradication program success. It is essential that this remains a part of the final legislation.
Let me once again thank you for taking time to come hear what is on the producer's mind. You will be hearing a lot of folks talk about problems they are having with low prices, weather, and the absence of the safety net for agriculture. We hope, however, when you take our message back to Washington, it will help you formulate a suitable solution for the agriculture problems that we are all facing. Thank you.
[The prepared statement of Mr. Riddle appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Riddle.
Mr. Williams.
STATEMENT OF MARK WILLIAMS, COTTON PRODUCER
Mr. WILLIAMS. Good morning. My name is Mark Williams. My son, Ryan, and I have a diversified farming operation near Farwell, TX, which is 90 miles northwest of Lubbock. We grow cotton, corn, grain sorghum, wheat, and run stocker calves.
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I would like to welcome the committee to Lubbock, and I appreciate the opportunity to speak at this hearing today. I believe that it is important to first comment briefly on the 1996 FAIR Act. Much of the FAIR Act has been positive, especially added flexibility in the marketing loan. Other positives are cotton's three-step competitiveness provision and the implementation of marketing certificates.
In discussing reform of the current system, it is important to maintain these provisions that have worked well. Despite those positives, it is obvious that Freedom to Farm does have shortcomings. The most glaring is the lack of price protection between a grower's cost of production and the base loan rate.
The current price safety net kicks in only when prices drop below loan, but the loan does not begin to protect a grower's cost of production. Previous to the FAIR Act, farm policy provided assistance in the form of target price protection. However, nothing in current policy addresses the necessity of producer aid when prices are above the loan rate but below cost of production.
The supplemental payments provided to producers over the past 2 years have provided much needed assistance, but depending on the political process to bail us out time and again doesn't appear to me to be an adequate farm policy. Producers and their lenders must have a farm policy in place that will enable them to budget and make decisions for the next year's production.
Well, what are the possible solutions to these problems? I believe that any solution must contain a counter-cyclical component. Congressman Stenholm has proposed his SIP plan to address this need. A program such as SIP could prove valuable in times of low prices, and the added benefit of paying on lost production as well as actual production is very attractive. However, I do have some reservations or questions that make it difficult for me to support the SIP plan at this time.
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Another interesting proposal is the Flexible Fallow Program that would give producers the voluntary option of laying out a percentage of their planted crop acres in exchange for higher loan rates. For example, if a producer agrees to set aside 20 percent of his planted acres of a particular crop, he would receive a corresponding 20 percent increase in his loan rate for that crop.
The current idea is to provide this increased loan rate on a producer's county NASS yield or on his APH; therefore, this would be considered a decoupled payment. Production over his NASS yield or APH Would be supported at the base loan rate for that crop. This plan gives farmers a risk management tool that will allow them to plan their production to meet current demand in response to prices offered by the marketplace.
Today the market is shouting that there is too much cotton and grain, but the grower sees a farm policy that shouts even louder to produce all he can to maximize payments. I think it makes economic sense to have a policy that enables producers to adjust production during times of oversupply.
This program is attractive because it encourages the sound use of productive resources, since only the most fragile or marginal acres would be taken out of production. FAPRI analysis indicates that this program could decrease governmental outlays in the long run and still enhance producer income.
Some groups are philosophically opposed to any program that provides for set-asides. However, the argument can be made that other countries will maintain their support for their farmers in a way that foreign acreage will continue to expand regardless of what U.S. agriculture policy may be.
Most of these same people would be opposed to any increase in loan rates because in their view, commodities placed under loan remain insulated from the marketplace. With the availability of the marketing loan, this is no longer a problem. Therefore, one easy solution to the current lack of a safety net would be to simply increase loan rates and make generic certificate availability a permanent part of the marketing loan.
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These plans all have the potential to provide an improved safety net for producers. If you asked me to pick one, I would instead choose a combination of both coupled and decoupled payment mechanisms. Loan rates should be increased approximately 10 percent, which is less than the amount of the additional AMTA payment made this past year.
Next, producers should have the opportunity to increase their loan rates another 30 percent using the flexible fallow approach. The reason for including flexible fallow is that it actually provides a mechanism for producers to adjust their production based on market conditions.
I'm fully aware that any mention of increasing loan rates turns off many individuals. But, again, under the marketing loan concept, production will not sit in storage waiting for higher prices or forfeiture. End-users will have access to production in a timely manner. Higher loan values will not cause an increase in production over current policy because current policy already demands maximum production. Instead, the addition of a flexible fallow component will tend to reduce production in times of surplus.
Time does not allow me to discuss my views on crop insurance or payment limitations, but I have included comments on both in my written testimony.
Thank you for allowing me the opportunity to discuss my ideas with you today, and I welcome any questions.
[The prepared statement of Mr. Williams appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Williams.
One of the things that makes our job challenging is the fact that—and one of the criteria that we established as we start into these 10 field hearings—and we will have countless hearings in Washington, as well, as we go through this process—is to encourage people to be as specific as possible.
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Because one of the things we find as we go through it, that in trying to look at farm policy, that a suggestion under certain conditions is really good, but then you change some of those conditions, and all of a sudden that suggestion that maybe someone has about a solution dramatically changes. We could all probably spend the an hour each on questions, and I promise you we won't do that.
But we'll have a chance to formulate these somewhat as we go forward, but there is basically two things. One question that I'm going to ask at every hearing we go to—that's going to be my second comment. The first comment I want to make is on crop insurance. A lot of you have mentioned that.
I commend this committee for the action that has been a priority with us all throughout the beginning under its current makeup. We, in a timely fashion, passed not only through the committee, but through the full House, by voice vote, a crop insurance reform bill that I think anyone would say was major. Maybe it didn't go quite as far as we wanted to, but it was a major change, and it was something that has been widely supported. It continues to be.
Finally, the other body that has to do with legislation in Washington has acted, at least from the committee's standpoint, and we expect something to occur in the fairly near future. We're not miles apart on the two bills, and I think the chances look extremely good that we can implement some major crop insurance reform changes in the current year that would be available for hopefully the next crop year.
That's when we set up the timing through the budget process to be available so the money will be there. That's just as a comment. We could have a whole hearing on crop insurance. I know a lot of you have been to a lot of meetings that I haven't.
The question I want to ask you, and I'm going to ask everywhere, is on payment limitations. Mr. Williams, you had mentioned you had some stuff in your statement that you didn't have a chance to get to, but I'm going to give each of you, briefly as possible, hopefully, a chance to comment on that.
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Because the difficulty lies in this, in that you begin to look at a new proposal; and, from that, we're assuming payment limitations are the same. Or in my suggestion would be greater, but unfortunately, that's not always reality.
At some point those payment limitations may become so restrictive that based upon the size of a farming operation, the type of commodity a person is dealing with, whether it's through a loan or whether it's through direct payment, that it just doesn't work. And what may sound really good may not work simply because of the limitation in payment.
If you can, what I would like for you to do is briefly talk about the implications of payment limitations, each one of you, as you view them and what that level should be. We'll start in reverse order.
Mr. Williams.
Mr. WILLIAMS. Thank you, Mr. Chairman. Under an increasing loan rate, if that's your safety net, if you have the marketing loan and the generic certificates, payment limitations would not be a problem under current regulations.
The CHAIRMAN. At the current level.
Mr. WILLIAMS. So, keeping the generic certificate authority would be extremely important. I think there should be some decoupled mechanism also, though, because in every year not everybody makes a good crop. And, so, I think that kind of person may need some payments based on some sort of yield history, APH, NASS, or maybe his program yields or something. And that might still be subject to payment limitations as it is currently.
As some other guys have mentioned, it's just not economical for us to fit our farm to fit these payment limitations, and many of us don't. You see statistics that say farmers only receive $15,000 to $20,000 per entity.
But how many entities does a farmer have? It really doesn't mean anything anymore. I can't tell you an amount that it should be. I actually believe that there should be no limitations whatsoever.
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Another thing that has happened to me personally, I lost my two brothers this past summer. Dealing with having to restructure their farms and the various entities that were involved was a nightmare, and I just don't think it's right for us to have to go through all that. Thank you.
The CHAIRMAN. Thank you, Mr. Williams.
Mr. Riddle.
Mr. RIDDLE. On payment limitations, in my operation, I said it was my father and I, but we also have our wives included on that, too. That way we have the four different entities.
A few years ago we were running into the problem of payment limitations, and now it seems that we have that problem no longer. But I do think if a person had those payment limitations problems, the generic certificates would be a good way to handle that problem. I know there is some large, large corporations out there that are really struggling, but most of the producers in my area are really not hitting the payment limitation problems.
The CHAIRMAN. Thank you.
Mr. Patman.
Mr. PATMAN. As far as this question that you have asked, I guess probably if you go back several years, I'm not sure what time it was, but when the $50,000 limitation first was established, I know that particular year my son and I farmed together. And as far as the Government program is concerned, we left $86,000 on the table that we weren't eligible to partake of because of the $50,000 limitation, and since then down to $40,000.
Historically, I've been farming a long time, and the amount of acres each person farmed was rather small from the fifties on. And to enable to stay in business you had to rent more land or acquire more land to make a living with less net profit per acre; and, consequently, you got more and more land as those that were inefficient or other hardships or drought or disaster, whatever reason, took other sources of income and got out of agriculture.
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As the years have gone on, we find ourself in a situation where when I ride down the road in the country I don't see many different farmers that I meet. Most of them work several hundred acres of land and have to do that in order to maintain an income for, in our case, my son and his family and my family.
So, for payment limitation to be limited, it defeats the purpose of trying to get larger and trying to be efficient and then you're competing against those other people when you leave it on the table and don't take it. Your price per acre goes into how much it takes to make a profit. So, you're at a disadvantage in that area.
So, I don't know what that rate would be. I know that if you say ''take the lid off of it'', you get probably some criticism there. So, somewhere between 50 and taking the lid off, I guess that's the answer.
The CHAIRMAN. That narrows it down.
Mr. Kubecka.
Mr. KUBECKA. Mr. Chairman, we haven't had a problem under the existing conditions as far as payment limits because we were able to structure up. Now, my concern is, is that if the rules change.
I know last week I had people from down from up north and they were wanting to find out how we structured up. And it's legal, I mean, what we've done. The big concern is if these rules change, and that would be adverse. But for the most part, the people in our area have been able to legally structure up to be able to take advantage of these.
Of course, I think what has happened up north, I mean, before, grain had not gotten that many payments. And now this last year when we had so many payments to grain, a lot of people got caught. They weren't structured up. But there are ways to structure up.
Mr. ARTHUR. Mr. Chairman, in 1987 and 1988, we set up our farming entities, and they've been to that same organization since this time, and we have yet to leave any money on the table as far as program payments. Back when the $50,000 limitation was on, we were quite far away from even receiving the total maximum.
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As they get lower, I can see a problem, because if they are lowered, it could be some economic strain on some businesses. I know mine at the 40, we're still fine; but, if it's dropped down to 30, as some proposals I understand may be going to, I think then we would hit a threshold that we would be leaving that money on the table.
As operations get bigger, their production costs don't always stay the same. They increase on a per acre basis, and those operations that do increase, I would see that it would hit that spot a lot quicker.
So, as far as limitations, I would believe that right now, in my operation, I can stand where they're at. But if they're getting lowered, it would become a problem.
The CHAIRMAN. Well, and I'll end with that, and let others go. But let me just remind you of this, and think in your own, each individual operation how this would have affected you. If you recall, the last 2 years under the emergency decisions, those limitations have been lifted substantially, and each of the additional payments has been as a separate payment, therefore it was not subject.
Think about how your operation would have been affected had all of those payments been made under the limitation and not been able to be lifted. And that's the concerns I've got as we look forward on this thing. We've got some people that would like to see them substantially different, and that can dramatically change the implications of the way that a program may or may not work.
Mr. Stenholm.
Mr. STENHOLM. Thank you, Mr. Chairman.
The chairman's question is one in which we do have to come up with a rational answer, particularly if we look at flexible set-asides, increasing market rates. Anything that will increase the probability of more payments from the Treasury is going to make this a continuing political problem, one of which we have to come up with a best possible answer. And eliminating payment limits is not an option politically for us.
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The first question I want to ask can be answered ''yes'' or ''no.'' Do you support the elimination of all unilaterally imposed trade embargoes? All? If there are any exceptions, please state them.
Mr. ARTHUR. I would say I would like the lifting of all sanctions. Those countries needing products, they eventually get them from other sources, and we're losing that market share. If for one reason or another why those were set, and if it has been years past, evidently whatever we were hoping to obtain from those sanctions at the time may or may not be working, and I don't see us cutting our own throat as American producers and having sanctions against those countries when we can supply them with their needed products.
Mr. KUBECKA. Asked for a simple answer, yes.
Mr. PATMAN. Yes, very much so.
Mr. RIDDLE. [Nods.]
Mr. WILLIAMS. Yes, sir.
Mr. STENHOLM. By that answer, I assume that each of you, then, would support the granting of permanent normal trade relations with China? Yes?
Mr. PATMAN. Yes.
Mr. STENHOLM. Let the record show that everybody's head was shaking ''yes.''
I think in each of your testimonies, you submitted concern about the fact that we really have not achieved the kind of a fair market opportunity for American agricultural products in the world market, and I think we all agree to that.
But it's also interesting as we now see, and I say this very respectfully, that we have some farmers who believe that we should we should not pursue a level marketplace. We have those who oppose the granting of permanent normal trade relations with China, and they do so respectfully. But we're going to need to spend a little bit of time educating, not today, but over the days and weeks ahead, regarding this, because that's critical to us.
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And we also have exceptions being placed whether we should lift the sanctions on Cuba as one of the exceptions, and I think here it's awfully important, if we can, to come together with a unified position from agriculture, or otherwise it makes it very difficult for those of us who have to carry the water.
Question here: Each of you mentioned risk insurance, crop insurance, et cetera. As the chairman stated, the Senate has finally passed a bill out of the committee. We hope to go to conference soon and begin working through this.
But one of the things that has become evident, and I noticed in your testimony, several of you stated this, the difficulty of insuring price and yield with one policy or one option. And, therefore, one of the questions that we're going to have to resolve is: How do we separate? How can we insure price?
Some of you mentioned cost of production. I'm very interested in that cost. Cost of borrowed input is another way that we insure that. And then we have, either through market loans and, interesting, for everybody's consideration, those who believe that increasing the market loan is a way to go with policy, the cost on an annual basis of most of the numbers being suggested is $7.5 billion.
And, therefore, that gets us back to the payment limitation question in a hurry. Because if we should have world prices where they are with a market loan where it needs to be, then we have really gotten into some problems, or I like to call them opportunities regarding the chairman's first question.
One thing I would ask you to look at as we look at how we deal with the limitation question, is look at how we might use a recourse loan as part of the overall package of tools available to us, in which we would have a market loan that would be applicable to all of the production, but part of it would be recourse in which it would be up to the individual producer to market without any help other than your market skills, how you would receive from that particular component of your total package. I ask you to just look at that.
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The flexible fallow question, we're hearing more and more of that. Those of you that suggested giving an option, of those that would like to set aside a little bit more of their production for whatever reason in order to receive a little higher of a market loan makes sense.
So, the main question I wanted to ask, and I'll ask each panelist just as the chairman has asked his, but the other I throw out just for suggestions and look forward to working with you in the days ahead as we try to fine tune, as all of you pointed out, some of the holes in some of the proposals that have been made. We need to fill those holes.
The CHAIRMAN. Mr. Barrett.
Mr. BARRETT. Thank you, Mr. Chairman. I was pleased to hear a couple of you touch on genetically modified organism. I think, Mr. Arthur, you mentioned it first. And in middle Nebraska, in that black rich soil, about a third of our cotton is altered, about a little over 50 percent of the soybeans are modified. I understand that you are also doing some here.
Now, can you give me some idea, any of you, if you know, what percentage of your cotton is modified?
Mr. ARTHUR. I think it varies in my county. Some use very little and some go 100 percent, but in my personal operation, about 50/50.
Mr. BARRETT. Is that generally the case with the rest of you?
Mr. WILLIAMS. Mine would be closer to 90 percent.
Mr. BARRETT. Ninety percent?
Mr. WILLIAMS. Yes.
Mr. RIDDLE. Mine would be closer to probably 25 percent.
Mr. PATMAN. In years past, it has been about 50 percent. But this coming year, we plan on cotton to have 100 percent of it, sir.
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Mr. BARRETT. Pretty much all over the board then.
Mr. PATMAN. Yes.
Mr. KUBECKA. In our area, it's a low end, 20, 25 percent.
Mr. BARRETT. What changes in your operation, if any, are you making now with reference to the problems we're having with the EU and their reluctance to buy transgenic cotton? What changes are you making? What do we need to do to help you make changes?
Mr. ARTHUR. Right now in the equation, I don't see that I'm making personal changes to get to that market. My concern is, though, is their ability to turn down this product if and when it hits the market and the separation between that, the extra cost between keeping those conventional and non-conventional commodities separate between cross-pollination in the field from harvest equipment.
Those things, I can see contamination. And if I have a product that's non-conventional or being sold as non-conventional and it has some of those contaminants, how is that going to hurt my market? Those are things that we need to address, percentage of what's tolerable and not tolerable.
Mr. BARRETT. Bill?
Mr. KUBECKA. In our area we've just backed off of them because we've——
Mr. BARRETT. I'm sorry. You backed off?
Mr. KUBECKA. Backed off, yes.
Mr. BARRETT. That's what I'm getting at. OK.
Mr. PATMAN. I guess probably what the concern is that I have, I guess, back in the back of my mind is, I understand the European community situation wanting to protect their agriculture, protect their farmers. I don't really know how strong a case they have for there being anything wrong with these particular products. I guess I'm a little bit maybe not trusting to the fact that maybe this is just a smoke screen thrown up to the fact that this may not be the bottom line.
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I guess probably through the years, we have increased the seeds of different crops, different things. They've got better and better and better, and we've done different things to them. I don't know what the end would be the GMO's. I don't know the results of what is good and what is not. I'd like to know what's actually true and what's just presumption.
Mr. BARRETT. Thank you.
Mr. Riddle.
Mr. RIDDLE. I'm personally 100 percent into GMO. This last year and will be again this coming year. I've had no problem with the selling end of it on a personal basis.
My question is, is if you have like you was talking about, the European, are you going to have different countries just following suit? Just one country determines that there is something harmful with it and it may be corn, it may be cotton, whatever product you're talking about, if one country takes a lead and the others start following suit, there we are as individual producers hung with a product that we can't get rid of.
Mr. BARRETT. So potential loss of market doesn't concern you a bit?
Mr. RIDDLE. Yes, it does.
Mr. BARRETT. Mr. Williams.
Mr. WILLIAMS. Well, I think it has become a trade issue more than a health or environmental type issue, and I think our Government needs to protect our trade interests, especially with the European community.
Mr. BARRETT. Thank you.
Mr. Chairman, with the time I have remaining, let me ask any of you that want to answer the question. As I understand it, about 88 percent of the farm and ranch land in Texas is a sole proprietorship, about 9 percent, I think, is joint, perhaps, about 3 percent is corporate.
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What problems do you see, have you had? Any suggestions with regard to consolidation?
Mr. WILLIAMS. I can see problems, especially in the livestock sector, selling some of our products. Many of these companies have a captured market of their to their own product, such as the case in hogs and beef cattle. And sometimes it gets very hard to sell your cattle when you need to sell them, because they're just not in the market at that time.
Mr. BARRETT. Thank you. I appreciate that comment. My time has expired.
The CHAIRMAN. Thank you. Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Chairman. I think, Mr. Patman, you made the comment about somewhere in your testimony about the loan rate should be raised under some circumstances; and, later on, maybe I misunderstood you, that was not a good idea to raise the loan rate. And I wonder if you would clarify that.
Mr. PATMAN. No, sir, in any comments I said we were happy with the way the present program existed and we had a concern about the raising of the loan rates. And the reason for that was, is the statement was, is we was afraid that people would plant for that particular commodity.
And that I guess probably back in the back of my mind I still remember that for years and years when we planted, our crop went into the Government loan. As the season progressed the next year, it looked like there might be little chance of getting something for it, then those crops were sold back onto the market, and down goes the market, and we're back into that same cycle of going through the Government loan and then participate.
I would like to see some way that that didn't happen again and for the Government not to be into the business of selling commodities. And I know I don't want to be your enemy, and I appreciate all the help that, we receive from the Government. But somehow or another I think the trade issue is more important and getting those products out, because in the cotton, we just probably have less than 20 percent of production of cotton.
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So, I see trade as more of an issue for long term.
Mr. BOSWELL. Thank you.
Mr. PATMAN. Short term would be OK, long term I wouldn't.
Mr. BOSWELL. Short term, OK. I understand what you said now. Thank you for that.
We continue to hear comments about the trade issue, the Government ought to do a better job on the trade side. I think that's a good point, but I'm waiting for somebody to tell us how that we go to the European Union or the Pacific Rim when they've got an overproduction situation, and we show up that we want to sell to them. And, actually, they're glad to see us, but they was hoping that we would buy from them.
So, how do you sell somebody something they don't need at this time with this overproduction thing? I think somehow we've got to be a little more realistic about that, because I know a number of people that are super sales people, which you don't sell somebody something they don't need and want. And it worries me some because we had our discussions in Seattle with the European parliament members, and I think they're just cutting us out, I personally think, on this GMO stuff just because they're oversupplied themselves, so they're using it as an excuse.
We challenged them to challenge our science. They've got smart people. Just tell us what is wrong with our science if you don't think it's good. And, also, if you believe the science, the scientific part of actuarial application of numbers, how do you think we're going to get ready to feed the population that's 6 billion now and then the forecast in another 30 or so years to be 12 billion? You don't wait till the 29th year.
Mr. Chairman, a lot of interesting discussion on that as we continue to have some dialogue with people. I find it very interesting this morning to hear how many folks here are tied to the GMO situation, Mr. Barrett's questions. So, I don't have any answer for that, but it's a concern.
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I saw a few heads nod. I don't know if this is out of order or not, but I just wonder, a lot of people in the audience don't have a chance—or won't be at the table, but would you want—the loan rate thing, I get so many conflicting responses around my own area.
How many would like to see the loan rate raised? Anybody?
[Show of hands.]
Oh, a lot of hands went up. How many don't want to see it go up? How many do not want to see the loan rate go up?
[Show of hands.]
Remarkable difference.
Thank you, Mr. Chairman, I appreciate it.
The CHAIRMAN. That's what makes our job so much fun.
Mr. BOSWELL. Yes.
The CHAIRMAN. Mr. Lucas.
Mr. Lucas of Oklahoma. Thank you, Mr. Chairman.
And I guess first off I would like to ask kind of a general question of the panel in an up, down, or neutral sort of sense, what are land prices doing in your home communities the last 2- or 3-year trend? Neutral, up, down? Has there been any property change hands to have a gauge?
Mr. ARTHUR. I would think it was somewhat neutral, possibly a little lower, but it's mainly neutral at the time, to lower.
Mr. KUBECKA. Neutral to agriculture. Of course, commerical real estate values are going up from the robust economy; but, agriculture is neutral.
Mr. PATMAN. From the eighties, land prices were extremely high, then we hit the bottom, and then began to come back to a degree. But what has brought it back has been development in towns and industries and not agriculture.
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Mr. RIDDLE. It's neutral to a little bit lower.
Mr. WILLIAMS. Stable prices.
Mr. Lucas of Oklahoma. Stable prices. I would like to address this particular question to Mr. Patman. Your background sheet with your testimony says you've been farming for 51 years, an accomplishment itself. So, you started in 1949?
Mr. PATMAN. I got out of high school in 1949. My first year was in 1950. I've raised cotton every year of that particular time.
Mr. Lucas of Oklahoma. What was the horsepower rating of your first tractor?
Mr. PATMAN. Well, I don't know what those team of mules would pull.
Mr. Lucas of Oklahoma. That answers the question in a clear way. And what's the size of the typical——
Mr. PATMAN. But an F–12 and V-Farmo (phon.) was the first tractors, yes, sir.
Mr. Lucas of Oklahoma. F–12, those great knuckle busters, yes. So, what would be the rating of the typical machine now on your operation?
Mr. PATMAN. What's the typical? We use 12-row equipment, yes, sir.
Mr. Lucas of Oklahoma. Twelve-row equipment. I guess my question to you, and maybe to the whole panel is, one of the things that's one of the background underlying issues is the rate increase in productivity we've had in this last half of the century.
Mr. PATMAN. We have, sir.
Mr. LUCAS [continuing]. In American agriculture, whatever the commodity crop might be; and, that's been, I think, personally, one of the big challenges that our farm bills have faced every time you try and craft legislation that fits a set of circumstances, either through mechanical advances or seed advances, or whatever, we increase our productivity, and that kind of runs off and runs off and leaves us.
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And I think that's the question I would like to put to you or anyone in the panel who would like to address that. Do you see the productivity continuing to advance? You don't have to answer this if you don't want to; should we try to take that into consideration as a factor in our farm policy?
Mr. PATMAN. I think probably the question could be answered dependent upon a lot of other things. I think probably depending how we're affected as far as the seed we can use and the method in which we can use to take care of it and the availability of good quality seed.
I think in the direction where we're going now, I think productivity will go up. Most all of our production is black land. We're dependent upon the rain.
By the same token, through the years, we have increased production through better methods of taking care of that plant regardless of what it might be. And with the cooperation with seed companies and different and the structure that's with agriculture has improved also, so it's helped us increase.
It depends in the future whether this cooperation will continue, whether we're pressed harder to use the good sound practice that we can raise good crops under. So, if things continue the way they are, yes, it will increase. But it, there again, depends upon the product, the seed that we can use.
If we go back to some of the older seeds, no, we can't compete with it. Because when we first started farming, if you made a half a bale of cotton, you made a good crop. This year, that won't start. So, if I've clouded the water, I'm sorry.
Mr. Lucas of Oklahoma. You've answered the question.
Mr. ARTHUR. If I could make a comment on that, I believe that's our goal, is to increase—or decrease our inputs and still gather that maximum production. There is a fine line, however, on your input cuts. If you cut fertilizer or seed or whatever, that you are going to find a fine line that you do decrease production.
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To address your tractor issue, and—and I've got it on page 7 of my testimony, that in 1988 we went to larger equipment to be more efficient, to cut labor costs and everything. And I would like to say, it's in the record there on my written statement, that in 1988 I purchased a 195 horsepower tractor for $64,850; and, today I was quoted a 205 horsepower for $110,000.
We haven't had an increase in commodity prices to adjust the inflation of our farm inputs.
Mr. Lucas of Oklahoma. Absolutely.
Mr. WILLIAMS. Mr. Lucas, I would like to address that by saying that my son and I have about a 4,500-acre farm, and some people would say that's large. But we have one planter for that farm. We have one sprayer. I don't even own a cultivator. I have one fertilizer application rig.
So, I've structured my farm the most economical way I can possibly do it. And, yet, through the Government farm programs, you tell me that that farm is too large. A 4,500-acre farm would be four times over the limit.
And that's the take I have on it, that with increased productivity, we need to address the payment limitations to address the increase in efficiency.
Mr. STENHOLM. Gentlemen, time has expired.
Mr. Simpson.
Mr. SIMPSON. Coming from Idaho, let me first say that I was very pleased that none of you indicated you were going to start raising potatoes. But since we started talking about GMO's for just a minute, I will tell you when we met in Seattle with the European parliamentarians, I had the opportunity to meet with several of them individually and just sit and talk about this subject.
And it was kind of interesting that their take on it was, while they as individuals probably didn't have a problem with it and they had looked at the science and so forth and believed that most of these were safe and so forth, their answer was, ''Our consumers don't believe that.''
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And until we can convince the European consumer that it's safe, then we've got a problem selling those abroad. We have to raise what the consumer is going to purchase, so we've got a big sales job in front of us in terms of GMO's and so forth. That was my experience coming out of Seattle.
But let me ask you some questions about the loan rate again. Let's get back to that for just a minute.
Mr. Patman, as I understand it, that you think the loan rate structure is OK and that increasing the loan rate structure would increase overproduction in those crops; is that right?
Mr. PATMAN. That's my concern, I think probably cotton is the one that I produce that I'm most concerned about. I am afraid that if you increased the loan rate, it will have a false security out there for someone to plant just for the program.
Somewhere down the line, I would like to see agriculture be able to get their income from the marketplace rather than from different types of programs. I think if we could shoot for that. And I think in the meantime, we probably need to work together that we can work towards those ends.
What we would like for Congress is to give us a level playing field, the best we can, throughout the world. And then I think it's up to us to support you in that endeavor.
Mr. SIMPSON. Do I understand that the other four of you suggest an increase in loan rates would be beneficial; is that right?
Mr. ARTHUR. Yes, sir.
Mr. SIMPSON. Are you concerned about what was just raised, that it will cause overproduction and consequently lower prices, and if we don't have those foreign markets to sell our products to, that we're just going to drive prices further down?
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Mr. WILLIAMS. As I said in my testimony, I think the current policy demands maximum production as it is. We're trying to maximize our LDP payments. I don't see where increasing the loan rate moderately would have any affect on production.
And with all due respect to Mr. Patman, he worries about it being stored, when under marketing loan, of course, it's not being stored. It's being moved to the market just like it should be, anyway. So, I don't see any concern with raising the loan rates.
Mr. RIDDLE. I feel that raising the loan rates would help the producer. One reason is because, for example, this year, I was one of the few producers of my area that actually produced a crop. And to be able to get more income and be competitive against the man that completely destroyed his crop and collected the insurance and disaster, it would just give me just a little bit more income to be more competitive against that.
Mr. KUBECKA. Of course, my statements came from the group. Personally, I feel that we have to be competitive. I think we've got a bigger challenge here; and I'll just kind of give you a summary of what I've seen in agriculture, and I've been in it since, what, early seventies.
Back when I was growing up, if you wanted to make more, you worked harder. Well, now, we get maximum amount of labor. We have to have 100 percent of our labor. Then we started getting bigger equipment, and that progress has been going on all along. And I see we've gone through about four stages through here. We've maximized our labor. We maximize our equipment. We're maximizing our technology. And now, to me, the only thing that I can do to make anything better is to be a better manager.
Now, the challenge is, is who gets the profit out of agriculture? And I think this is a very big challenge for all of us, because as a unit, we all represent our fellow producers, but there is so many of those out there that we'll never be able to compete with industry as far as what they take out of agriculture.
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So, we are dependent on the Government, basically, take up for us. Now, unless we want to let that go by the wayside and let industry call the shots.
Mr. ARTHUR. I believe an increase in commodity rates is a small component of a risk management system. I don't think itself is the answer. I think several other things, insurance, changing the insurance structure, making all of our risk management tools that we have available and could be made into flexible for a person's own individual operation.
Cotton producing in my own county, there is different theories and methods of how of producing that crop. Some are better. But it is an individual operation, and each person should have, I believe, a chance to customize that operation to fit his individual needs at the bank or living or whatnot.
So, I believe it's a component within the structure. It's not an individual answer.
Mr. SIMPSON. Would it be an accurate statement, do you believe, that regardless of all the rest of the farm policies, the most important thing we've got to do is find markets for the products we grow? I mean, we've got to have a more aggressive Federal Government in our foreign markets.
[Panel nods.]
Mr. SIMPSON. Thank you.
The CHAIRMAN. Mr. Thornberry.
Mr. THORNBERRY. Thank you, Mr. Chairman.
I just want to ask about one area. A number of you, beginning with you, Mr. Arthur, talked about the flexible fallow proposal where you would buy a higher loan rate by taking some land out of production. Some people look at that and say, ''Well, what's going to happen is what has happened with CRP. The most unproductive land goes out of production, and so you're really not going to cut back on your supply if you follow that approach.''
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And so some people are thinking, well, maybe we don't need to take number of acres out of production. What we need to do is take production out, look at the actual production history of that farm and say, ''I agree to take out this much of my cotton production or so forth in exchange for this kind of loan rate.''
Is that something you've thought about? What do you think about that? And should you also have restrictions on how much water you can pump out from under that ground? Which is another idea that is being floated around to add to that proposal.
Mr. ARTHUR. Well, you're correct in the philosophy that each person could individually farm this operation. For the amount of acres that's reduced, I believe there is going to be some farmers out there that's going to say, ''Hey, I'm going to plant it wall to wall because they're cutting back acres, therefore, there is going to be more marketplace, so I have a better opportunity to sell a much bigger crop.''
So, I don't know how much acres is actually going to be cut out. There's going to be some farmers planting 30 percent set-aside, and there's going to be some 5 percent. We won't know until actual certification time. I just like the flexible part of it that I can go to my lending institution and say, ''Here, I'm more or less contracting or I have a floor for my price in the event of a catastrophic market loss.''
I don't believe it's for everyone, and I don't think everyone would sign up 100 percent on it.
Mr. THORNBERRY. I would be interested in other comments you all have on that.
Mr. KUBECKA. Well, I believe that, in essence, what you're getting back to is supply and management, and I think that's a big decision. If we're going to get support, we've got to be controlled somewhat. I don't have that answer. I don't know where we should go because there are so many other factors that affect that, basically what we do on an international playing field. So, that's a tough, tough call to say one way or the other.
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I agree with Mr. Arthur here that—and I've seen it happen in our area—where one person cuts, the other person increases. So, I have my question whether it'll do any good.
Mr. PATMAN. If on my present operation, if I had the opportunity to take a percentage of set-aside, what you're saying, from 5 to 30 percent to raising your loan rate to the maximum, I would go the maximum set-aside of 30 percent to have the largest loan rate. And, yes, I would put the best cotton, best land in those particular acres, I think, like everybody else would.
The other scenario that you had there, probably it'd depend upon where you had your normal FSA yields or established yields. Most of the people, I think, in our part of the country, their yields far outsee what they have on at the ASC.
That would depend on how you would go, would make a factor in there. But it would be interesting to choose.
Mr. RIDDLE. To your second question, there is no water in our area at all. We're completely dry land, so I wouldn't have an answer for that. As far as the flexibility, we enjoy the flexibility of the program, by you've got to realize our producers are the world's best producers and the world's worst marketers. We've been that way for years, and it looks like we're going to stay that way for years.
As far as being able to move land around and take some out, I personally have no problem with that because I enjoyed the flexibility in the past years when we were able to put 5 to 10 to 15, 25 percent set-aside because I also had a cattle operation which I could sew grain on that and graze that land. And it was a great program for me, and I appreciated it.
Mr. WILLIAMS. Mr. Thornberry, your first comment on how would we work if we just set aside a certain amount of production, I don't understand how that would work because I might agree to set aside 20 percent of my production, and then I not make anything. So, how much have I set aside? I don't think you could pick that because production is so varied year in and year out.
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I don't view this Flexible Fallow Program as as a strict supply management because each individual makes the determination. So, in other words, just like everybody said, I may decide to do it and my neighbor may decide not to do it. And it's the first or only program that I've seen talked about this year that actually lets the producer make that decision.
So, I think it's more of a market type farm program than what we've had in the past. I think flexible fallow has a chance to be meaningful. It would be important that you make some of the regulations fairly tight on what land you're allowed to set aside to prevent slippage, and that's one way you could control that and make it a little bit more meaningful. Thank you.
Mr. THORNBERRY. Thank you.
The CHAIRMAN. Mr. Stenholm had a follow-up question.
Mr. STENHOLM. Mr. Riddle, you, in response to Mr. Simpson's question regarding the increasing of the loan rate, stated a very interesting comment in which you said this year, by producing cotton, you were at a disadvantage over those who did not make a crop. And, therefore, increasing the loan rate would give you a more level playing field.
Would you expound? What did you receive for your cotton?
Mr. RIDDLE. I can't tell you the exact amounts right now. We're still getting payments. I'm in the pool program.
Mr. STENHOLM. If you had sold at harvest time?
Mr. RIDDLE. If I would have sold at harvest time, I would have received probably, at loan rate, would have been 50 cents, 48 to 50 cents; and, then that would have kicked me out if I had put it in the loan, so of the——
Mr. STENHOLM. Were you insured?
Mr. RIDDLE. Yes, I was.
Mr. STENHOLM. If you had not harvested a crop, what would that cotton have brought you?
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Mr. RIDDLE. Counting the disaster and the insurance?
Mr. STENHOLM. No, just counting the insurance.
Mr. RIDDLE. Sixty-two cents a pound.
Mr. STENHOLM. So, your incentive was to not harvest?
Mr. RIDDLE. That's the way the program seems to be set up at the moment.
Mr. STENHOLM. I appreciate you clarifying that, because that's the comment that I made earlier about our current insurance program in which we attempt to insure both price and yield with the same entity or the same policy or the same policy. It's making it very, very difficult.
And you make a very valid statement in which you, by harvesting, were put at a disadvantage; and, there are some that are asking that if we are going to insure it at 62——
Mr. RIDDLE. I believe 63.
Mr. STENHOLM [continuing]. Then why isn't it worth the 62 cents for those that harvest it versus those that didn't harvest it? And that's a question that I think will come up in the conference on crop insurance this year as we look at this year's program as well as how we design the program for the future.
And I thank you for clarifying that.
The CHAIRMAN. I thank the witnesses very much for your testimony. And, as again, would encourage you, if there is additional comments, we would be happy to accept them.
I will now call our second panel to the table. Mr. Dale Artho, who is a grain sorghum producer from Wildorado, TX; Mr. Coby Gilbreath, who is a corn producer from Dimmitt, TX; Mr. Paul Hitch, who is a cattle rancher and feeder from Guymon, OK; Mr. Henry Jo VonTungeln, wheat and cattle producer from Calumet, OK; and Mr. Tommy Womack, who is a wheat producer from Amarillo, TX.
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I would remind our guests and our witnesses that the Committee on Agriculture broadcasts its hearings over the Internet. We have done that in Washington. We are taking that on the road with us. And it is being done here, and it will be throughout the 10 field hearings that we have.
I will just mention that our next set of field hearings will be March 17 in Memphis, TN, and March 18 in Auburn, AL.
And we would take the witnesses' testimony in the order they were introduced.
Mr. Artho, welcome and please proceed.
STATEMENT OF DALE ARTHO, GRAIN SORGHUM PRODUCER
Mr. ARTHO. Mr. Chairman, members of the committee, welcome and thank you for this opportunity to testify. The gravity and weight of today's hearing does not escape me. This hearing is the beginning of a process that will determine whether I and many of my fellow producers will be able to continue our farming operations.
My name is Dale Artho, and our operation is located west of Amarillo. Production includes dry land and irrigated sorghum, sorghum seed production, wheat, corn, dry edible beans, and cattle.
Because of the drought of 1998 and low prices in 1999, I am in the process of refinancing land to meet my financial obligations and operate in fiscal year 2000. In my business, I expect to use equity in times of economic severity. And make no mistake, this can be a process of self-liquidation.
In preparing for today, I had to determine if this committee would demand that my profitability come from the global marketplace or stay the course of trying to achieve profitability under the present cheap food and fiber policy for U.S. consumers. The issues and solutions I would like to address today are ones we face as a result of this paradox.
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I've had the privilege of traveling to South America, Asia, and Cuba on humanitarian food or trade missions and was an MGO delegate to talks in Seattle. This has reinforced my view that the United States must pass fast-track trade authority and lift sanctions. If U.S. farmers are going to be used as defense contractors for foreign policy, then agriculture should be compensated as our defense contractors.
I encourage you to help facilitate innovative methods that allow producers to vertically integrate into the marketplace, methods that help producers to be partners in the market and not price-takers.
Due to consolidation in agriculture and diminished competition, anti-trust regulation and enforcement is critical. A program allowing commercial banks to provide packaging and grouping of guaranteed loans. If a guaranteed loan meets the strict requirements of the commercial banking industry, that bank would have the ability to group loans of similar risk and at different guaranty levels.
This would speed the process and create a partnership between banking, agriculture, and government. We urge you to ensure that sorghum is treated by the public research sector on a per planted acre basis equal to the same level as other crops in research programs.
We have experienced problems with inequities in the LDP rates. We should determine the LDP's by looking at the terminal market closest to a given county. Sorghum farmers in Colorado, Oklahoma, Kansas, New Mexico, and the Texas Panhandle experience a financial penalty because of the geographical distance to the Gulf markets. Documented market penalties have exceeded 30 cents per hundred weight.
Loan rates. USDA recently used their discretionary power to lower the sorghum loan rates. Such actions prompt producers to plant crops that do not fit the agronomic potential of a geographic area, increasing the Government's financial liabilities.
I believe it is environmentally irresponsible to use non-renewable resources to grow other crops on my farm, crops that will require more water, additional fuel, and higher levels of fertilizer, simply because Government policy appears to make other crops more lucrative.
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To prevent possible abuse in insurance, the farmer-elected FSA county committee should become the gatekeepers for RMA to determine the insurance eligibility of a crop within their county. Olympic averaging should not be used on coverage above 75 percent. Disparity and inequities created by crop insurance should also be a priority. Sorghum is a low-risk crop, but I have seen lower rates charged to higher risk crops.
Payment limits must be removed and the use of certificates continued. If the logic limiting agricultural producers to a payment limit is valid, then why does the Government not limit doctors, lawyers, or defense contractors to the same levels? U.S. supply management policies will not keep foreign countries from bringing sensitive land into production, nullifying any attempts the U.S. Government might make at supply management.
Preserve planting flexibility, decoupled AMTA payments must be retained and increased. Does it not make more sense to keep food production on land that is already in production? All of my acreage is covered by crop insurance, but crop insurance does not provide capital to make land or machinery payments. Without the additional AMTA payments, failure would have been a certainty last year.
A financial safety net must be added. Payments from this safety net should be a supplement to the present AMTA payments and be paid only to those who produce an eligible crop on AMTA acres.
My ability to be a responsible steward of the land is determined by profitability. Without profitability, my ability to maintain sound conservation practices is greatly diminished. Environmental regulations not based on science diminish civic cooperation.
I hope to pass my land to my children. This is just one reason that I believe farmers are true environmentalists and are the first line of defense for our strategic food supply.
I also urge you to pass the farm accounts, eliminate the inheritance tax, the marriage penalty tax, and provide full deduction of all health care premium costs as well as eliminating taxes on capital gains.
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Thank you. You have my sincere cooperation as you take on this enormous task, and I'll help you any way I can.
[The prepared statement of Mr. Artho appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you.
Mr. Gilbreath.
STATEMENT OF COBY GILBREATH, CORN PRODUCER
Mr. GILBREATH. Thank you, Chairman Combest, Ranking Member Stenholm, and the House Agriculture Committee members. Thank you for the opportunity to speak to you on agriculture issues concerning Texas farmers.
My name is Coby Gilbreath, I'm a farmer from Castro County, TX. Our family operates a farm where we grow corn, cotton, wheat, and cattle 80 miles northwest of Lubbock.
Through financial analysis, I know that I'm an efficient farmer. Our family farm is financially sound in areas of debt management and repayment. We're good marketers, good risk managers, using all the tools available to lessen those risks. But after having done what appear to be all the right things, without your assistance, our operation wouldn't have paid out.
I want to thank each one of you for the additional ad hoc type monies that you approved in 1998 and 1999, my lender thanks you, as well as the small businesses in my town. Again, I thank you very much.
Mr. Stenholm, you'll notice I cleaned up my remarks from the Agriculture forum in Waco somewhat, so that brings us to today.
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The Federal Agriculture Improvement and Reform Act of 1996, known by many as the FAIR Act or Freedom to Farm has indeed provided producers with more freedom. Farmers are now able to base their crop plans on environmental stewardship and the marketplace.
I believe that the environment and economic benefits justify continuing planting flexibility and the freedom of the FAIR Act. However, farmers know and realize that there are deficiencies in the safety net. Personally, I would enjoy an increase in the loan rate. But as a member of the link in the chain of agriculture as an industry at a whole, I realize how difficult that is to accomplish and facilitate to the entire industry.
The supplemental income payment, or SIP, as proposed by Congressman Stenholm merits consideration. However, one problem associated with the SIP proposal is that the payments are based on a national formula. Farmers involved in regional or localized crop disasters would not be protected if growing areas in other areas were not affected.
This could be remedied by basing the formula on the NASS, or National Agricultural Statistic Service reporting districts or on county level. Lengthening the 5-year average in the proposal to 7 or 10 years on the price side might also help.
The administration's proposal referred to in the coffee shop at SIP lite, because it's less filling but tastes great and provides a third less substance, lowers the payments toward the limits and combines the proposed SIP program with the AMTA payments and targets mostly lifestyle farmers with off-farm jobs. Furthermore, it does little, if nothing, to remedy the problems and situations addressed in this testimony.
The flexible fallow proposal deserves discussion also. Some have several concerns about flexible fallow such as potential to encourage overproduction, the impact on end-users, and that growers would hit the LDP payment much quicker, causing forfeitures to the Commodity Credit Corporation. If these concerns are addressed, this voluntary program might fit well with the current farm bill to provide a level of counter-cyclical support.
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There are some other issues that affect the new farm bill's legislation and the success of it. Crop insurance reform, that's been brought up very many times today. The worst case scenario was for producers to produce one-half the normal yield. The best case was to grow a better or normal crop. That way, you got more back from the safety net in terms of LDP. We appreciate the leadership on the House Agriculture Committee in the passage of the first phase of crop insurance reform. It is now time for the Senate to act.
Second would be the CRP program. It should be maintained at the maximum enrollment, taking fragile lands out of production and helping protect our Nation's streams and rivers.
Third, the production of ethanol for fuel. Using ethanol would improve air quality and would consume an additional 600 million bushels of corn annually, adding approximately 35 cents to the value of every bushel of corn. Congress should also oppose efforts to waive or eliminate the oxygenate requirement in gasoline.
Fourth, overregulation, it attacks us from every facet, raising the cost of producing, manufacturing, and distributing goods and services. The costs of our inputs are always going up. We in production agriculture have no one to pass our costs on to.
Trade, we have the opportunity to extend permanent normal trade relations to China. It is now time for two-way trade, time to open their markets to our agriculture products.
There are two issues concerning LDP eligibility. Currently crops in pasture form are not eligible for LDP payments. Producers should not be penalized for making decisions to add value to crops through livestock grazing. The decision to graze would better promote flow and movement of these crops through the market. Isn't that what the LDP was developed for, to keep commodities moving through the market and not in the loan?
Second is aflatoxin. Corn should be eligible for the loan and LDP as long as aflatoxin levels are below 300 parts per billion. The crop insurance program should indemnify any producer with corn exceeding 300 parts per billion.
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Gentlemen, our Nation enjoys a cheap, abundant, safe supply of food. Oh, we support cheap food for the American consumer, but the American farmer must be compensated for his management, labor, capital, and risk. We need payment limitations raised to more accurately represent the size and scope of production agriculture. At the very least, the limit should be maintained at the current level.
In summary, we support current planting flexibility with a better safety net, it's too early to endorse a specific plan, but we feel both the SIP, proposed by Congressman Stenholm, and the flexible fallow plans deserve further study. We support increasing the payment limits as not to punish production agriculture for its efficiency.
Permanent Trade Relations with China should also be granted and LDP eligibility of aflatoxin corn and grazing crops should be addressed. Congress should support ethanol as an oxygenate in gasoline, and the House and Senate should continue to conference on a crop insurance reform bill.
All that is certain is that there will be change, changes to farm programs in this vast Nation of ours are always needed to keep up with an ever-changing industry. Let's make some changes for the good.
Thank you for your time. Thank you for the opportunity to share our gratitude and our concerns in regards to your upcoming business on our behalf. We look forward to working you with you in any way that we can during this important process. Thank you.
[The prepared statement of Mr. Gilbreath appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you.
Mr. Hitch.
STATEMENT OF PAUL H. HITCH, CHAIRMAN, TEXAS CATTLE FEEDERS ASSOCIATION
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Mr. HITCH. Good morning, Chairman Combest, Mr. Stenholm, and members of the committee. My name is Paul Hitch, and I am here today as chairman of the Texas Cattle Feeders Association and as a rancher, cattle feeder, and grain producer from Guymon, OK. Our family corporation includes operations in Oklahoma and Kansas.
We appreciate the opportunity to provide our views on farm policy that affect the livelihood of our members. Few sectors of agriculture have been spared from low prices during the last several years. Cattle feeders in the seven major feeding States lost over $3 billion in equity during 1995 to 1999.
As you consider possible changes to current farm policy, we urge you to continue the two key concepts that we feel are embodied in the current FAIR Act. First, continue to minimize farm policy that distorts the competitive market system; second, implement no new programs that benefit one segment of agriculture at the expense of another segment.
TCFA supports reduced Government involvement in the production and marketing of agriculture commodities and we oppose Government supply management programs. Our experience in the volatile and cyclical cattle market has proven time and time again that the market provides the most efficient, although sometimes painful, signals to producers on what to produce and what not to produce.
So, what should Congress do to address the current agricultural crisis? TCFA urges Congress to aggressively pursue those additional elements of farm policy reform highlighted during the debate on the FAIR Act adoption.
First, stronger policy and financial support is needed to remove unfair trade barriers, open foreign markets, and increase exports of U.S. value-added agriculture commodities. Producers of most agriculture commodities will rely more and more on foreign markets for increased demand and therefore higher prices. Our competitors continue to use subsidies to unfairly increase their exports and trade barriers to cheat U.S. producers out of important markets.
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Mr. Chairman, we appreciate and applaud leadership efforts by you, Mr. Stenholm, and others to implement carousel retaliation in response to EU trade barriers. We also appreciate the committee's leadership in recent trade issues involving Canada and the northwest pilot project that has allowed 175,000 head of feeder cattle exports to Canada. And in keeping pressure on our neighbors to the south, to ensure that efforts by Mexican producers to close the border to U.S. beef are decided on sound science and fair trade policy rather than on politics.
We encourage the committee's continued support for full funding of the Market Access Program and the market development programs through third-party cooperators. Second, we need expanded efforts to reduce unfair and unproductive regulatory burdens on U.S. producers. Farmers, ranchers, and cattle feeders continue to face one regulatory burden after another.
We recognize the need for and support fair, cost-effective, and science-based regulations to ensure that we not only protect consumers and the environment, but do so in a cost-effective and economically viable manner. We are concerned that recent proposals such as EPA's AFO/CAFO and the TMDL programs forced upon many States exceed EPA's statutory authority and will significantly increase operating costs for producers without appreciable protection for the environment.
Mr. Chairman, we truly appreciate yours and the committee's strong oversight efforts with these and other EPA proposals. We encourage you to continue in hopes of avoiding a lengthy court battle between industry and EPA. On an another front, we also appreciate Congressional efforts to address tax inequities, especially efforts to eliminate death taxes.
Third, greater Federal investment in agricultural research is needed to increase efficiency and resolve environmental, food safety, cattle health, and other challenges faced by U.S. producers. Historically, one of our competitive advantages over foreign producers has been leading edge research and development programs supported by the Government and the private sector.
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USDA must maintain the scientific expertise to protect producers from disparaging claims about the safety of our food and the quality of our environment. We applaud Congressional efforts to increase funding to help resolve food safety questions. We urge Congress to not only restore, but to increase funding for important environmental programs such as EQIP.
Mr. Chairman, turning to the issue of ensuring producer access to adequate risk management tools, TCFA supports governmental assistance, including supplemental payments for losses due to weather-related or other natural disasters. TCFA does not support federally subsidized revenue insurance for livestock because of the market distortions that result.
In summary, we would like for you to remove trade barriers, reduce regulatory burdens, invest in research, and don't subsidize revenue insurance for livestock.
I thank you for the opportunity to testify. I'll be glad to either answer or dodge any questions you may ask.
[The prepared statement of Mr. Hitch appears at the conclusion of the hearing.]
The CHAIRMAN. We appreciate your honesty, Mr. Hitch.
Mr. VonTungeln.
STATEMENT OF HENRY JO VONTUNGELN, OKLAHOMA FARM BUREAU
Mr. VONTUNGELN. Thank you, Mr. Chairman and other honorable members of the committee. Good morning to you and a great opportunity you've given me to come here this morning and to participate in this exercise.
My name is Henry Jo VonTungeln, and I operate a wheat and stocker cattle farm near the town of El Reno, Oklahoma, and I'm here today representing the Oklahoma Farm Bureau.
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I have several important issues that I would like to discuss today. First and foremost, I believe that in an effort to adequately review current Federal farm policy, we must re-examine the goals that Congress envisioned during the creation of Freedom to Farm. I believe a market-oriented, flexible, and non-intrusive Federal farm program is what Congress had in mind in 1996. Even in the light of many complaints that we've heard in the last 2 years, these terms still apply to the type of farm policy that best fits today's farmer and rancher.
I continue to support the flexibility contained in the 1996 FAIR Act. I do not, nor does the Oklahoma Farm Bureau, support a return to government supply management, including mandatory set-asides, base acres, or production quota systems. However, if farmers and ranchers are to remain in business and sustain their livelihoods into the future, several changes in national farm policy need to occur.
The authors of Freedom to Farm sought to create policy in which farmers could receive a profit from the market rather than from Government payments. That philosophy seems to have been pushed aside over the last several years. With bad weather, poor prices, and a failing export market, agricultural producers have found themselves struggling to survive, as you well know.
Without the assistance provided by the Federal Government over the last 2 years, a number of producers would no longer be in the business. I want to thank each of the members of Congress who have come to the aid of producers throughout these tough times.
I am sad to say that it appears inevitable that the farmers and ranchers will be in as much need for assistance in 2000 as in the previous 2 years. While direct and immediate assistance has been and continues to be extremely important, it is imperative that we not overlook the long-term changes that must occur for future generations of agricultural producers.
I believe that Permanent Normal Trading Relations with China must be a top priority of farm State representatives this session. We must establish a level of the agricultural exports as seen in the mid–1990's. China represents the largest and most viable growth market for agricultural goods.
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The level of import tariff reductions achieved under the unilateral agreement for China's WTO entry is a major breakthrough for U.S. agricultural exports. I believe that the Chinese market will prove to be a major consumer of U.S. wheat and beef supplies. Permanent NTR for China is a large piece of the international trade puzzle.
We must continue the cry to eliminate all unilateral trade sanctions. From the largest country to the smallest, agricultural producers should be afforded the opportunity to sell in every market around the world. History has taught us that the unilateral sanctions are an ineffective foreign policy tool. Elimination of the current unilateral sanctions on Cuba should be a top priority in the coming year.
Cuba will produce more than $200 million in agricultural products this year, and I have to ask what sense it makes to watch the French and Australians fill a market that lies less than 90 miles off our shore?
We must adequately fund and utilize the foreign access marketing programs that are at our disposal. If used effectively, these programs could have a major impact on creation of new international markets and for agricultural products.
Specifically, I want to ask for your attention to the continuation of full funding for the Market Access Program and the Foreign Market Development Program. These programs are utilized by nearly all exported commodities and will serve to create demand in the international market.
One immediate change that could be implemented during the 2000 growing season is the inclusion of the LDP payments for producers who choose to graze out their crop. I strongly urge the committee to support the provision contained in the Manager's Report Fiscal Year 2000 Appropriations Conference Report regarding in lieu of LDP payments for graze-out.
This language goes hand in hand with the philosophy of Freedom to Farm. Congress should make every effort to allow producers the flexibility to maximize revenue from their operations. During these times of extremely low prices, it seems imprudent to force producers to mechanically harvest a crop that can be used more effectively by grazing.
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In conclusion, I want to thank the members of the committee for their efforts on behalf of the southern plains farmers in the area of agriculture research. And of special concern right now is the need for further research in the area of carbon sequestration, development of heat and drought, as well as disease and insect tolerant varieties. We know we can count on your continued support in this area.
Once again, I thank you for the opportunity to address these important issues and will be happy to answer any questions later.
[The prepared statement of Mr. VonTungeln appears at the conclusion of the hearing.]
TheCHAIRMAN. Thank you very much.
Mr. Womack.
STATEMENT OF TOMMY WOMACK, PRESIDENT, TEXAS WHEAT PRODUCERS ASSOCIATION
Mr. WOMACK. Thank you, Mr. Chairman. Let me please begin by thanking the Honorable Chairman Larry Combest, the Honorable Ranking Member Charlie Stenholm, and other members of this committee conducting these important field hearings. Your aggressive bipartisan hearings are greatly appreciated.
I am summarizing my testimony, and I would like to acknowledge also my Congressman, Mr. Thornberry. My name is Tommy Womack, and I currently serve as president of the Texas Wheat Producers Association and vice-president of the National Association of Wheat Growers.
I reside near Tulia, TX. My farming operation consists of raising cattle, producing wheat, milo, and cotton. I have farmed in Swisher County for over 30 years.
As you know, wheat producers across this Nation have suffered near record low prices. In addition to this, Texas, Oklahoma, New Mexico, and Kansas are currently experiencing severe drought conditions. These conditions put further stress on the overall farm economy.
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We greatly appreciate the market loss payment that Congress has provided over the last 2 years. While this has not saved every farmer, it has extended the operation of many wheat producers who would have otherwise been forced off their land.
We are looking forward to the day when such assistance is not necessary, farmers can receive a fair price for their product. But, however, sadly to say, that day has not yet arrived. We are hopeful that we will be able to receive another assistance package even greater than the past year due to the current drought conditions, lower wheat prices, and higher fuel costs.
Some have blamed the 1996 farm bill for low wheat prices. But for the past years, Canada, Argentina, and Europe have had excellent weather, flooding the marketplace with higher wheat yields. While in the United States, a good economy and a strong dollar, the wheat producer has found themselves even holding a larger than average, near one point billion bushels of wheat in the United States, increasing price declines even further.
Texas wheat producers support the Freedom to Farm bill but it needs some changes. First, the Texas wheat producers believe that Congress must take immediate action to improve the safety net to protect farmers against low prices, disasters, helping them with tax reform, reliable crop insurance, and open international markets free of U.S. unilateral sanctions.
And, second, Texas wheat producers believe Congress should step up and increase USDA farm program baseline by doubling the AMTA payment and limits at the remainder of the 1999 farm level.
Third, Texas wheat producers believe Congress should pass permanent normal trade relations with China. We producers have worked hard to overcome China's sanitary and phytosanitary concerns. It is time to grant China access to WTO normal trade relations and market assistance programs.
Fourth, Texas wheat producers believe that we must add a counter-cyclical program within the Freedom to Farm bill that wheat farmers can live with like cost of production.
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On behalf of the Texas Wheat Producers and the National Association of Wheat Growers, this great Nation thanks you, and I thank you for your leadership and your concerns, for the future of agriculture depends on you. God bless you and thank you.
[The prepared statement of Mr. Womack appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Womack and all of our witnesses. This panel, I think, points out one of the challenges that we have in coming up with farm policy; and, that is, I think as Mr. Hitch well put it in it's terminology that I use a lot, and that is that you don't want to simply transfer the pain from one segment to another segment of agriculture when you're trying to help in farm policy. And it is a challenge.
It's also a challenge in the fact we can't write farm—I will have to tell you, Congressman Stenholm and I volunteered to the committee that we would do all the farm policy, but these guys didn't just come because they're nice guys. They came to make sure we didn't do that. And Mr. Thornberry might agree that'd be OK.
But I've been in Mr. Lucas's district, and we're going to be in Mr. Boehner's district for a hearing. I've been twice in Mr. Barrett's district. I've been in Mr. Boswell's district. We're going to be in California, and we're going to be in Tennessee, and we're going to be in Pennsylvania. We're going to be in North Dakota and, obviously, getting the same kind of input.
And this has been a challenge in Idaho. We're going to be in Mr. Simpson's district. I've already been there before, too, and we're coming back again. Some of the challenges that we've gone through just the last years, even though there was a farm policy in place, was how do we deliver assistance in such a manner that it doesn't transfer the pain?
And as most of you and most people that engage in crop production, they're also engaged in livestock production of some kind, cattle, hogs, something, and recognize the dilemmas and the challenges on those industries as well.
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So, getting to that point does sometimes become a real challenge, and I'm just saying that, not in the way of any question form, but to let you know that we do look for consensus, and we do look for ways in which we can help one segment without creating a penalty on another segment. And developing those programs such as, in the past, target prices and such as LDP's, those allow market clearing that doesn't put an additional burden on the people using the grain to feed cattle or whatever, other animals.
And it is a challenge, but that does drive us a great deal, and I think it's important that we always keep mindful of that, that we simply don't want to just pass the buck to someone else to bail someone out, and national farm policy does drive that many times.
Mr. Artho, I appreciated your summarizing your testimony, but one of the questions I had came back to one part of your testimony where you were talking about the farm service agencies involved in crop insurance. I would like to know what your thoughts are about how extensive FSA should be in the delivering mechanism, in the compliance mechanism, in the eligibility, or in what do you call it when you go in and check after you've had a loss?
Mr. ARTHO. Disaster?
The CHAIRMAN. Yes, in determining the compliance of that farmer and following up after losses. How involved do you think that the FSA should be?
Mr. ARTHO. Well, let me qualify this by saying that I do serve on a county committee also.
The CHAIRMAN. That's great, and I think that brings even additional credibility to that answer.
Mr. ARTHO. And I serve in Deaf Smith County. We, as the county committeemen, we try to make sure that producers' best interests are operate—or that they operate under policies that are conducive to both the producer and to the Government.
There is always a situation that you get into that policy doesn't cover, and how do you cover that, and that's where the county committee comes in, and they function as that barrier between government and agriculture. I think our county committee system, I think it works very well.
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I think that FSA should remain funded. I really think they're a little under funded. I'm kind of disappointed in the reorganization that we tried to accomplish several years ago between NRCS, then ASCS, and agriculture credit now, which was FmHA at that time. But overall, I find that our FSA system works quite well.
For verification, I can see where that verification also helps in the marketplace. They help me tremendously in making sure that I abide by rules and regulations that are established by your committee or by USDA.
Does that answer your question, or have I dodged it enough?
The CHAIRMAN. Well, yeah, to some extent. I may let you follow up just a little bit more. Let me just say, I have always been an advocate of the county committee system. I think it's a great method by which we can determine what is going on in a county.
We've heard a lot of people comment about abuse in crop insurance, and I have real concerns about that because you have some people abuse it, it makes it very difficult for the people that are trying to legitimately work within the program. And going after abuse or going after those people that are trying to work that program, I think, is critical for us to do, and I think crop insurance reform should be a part of it.
Some people have suggested that there is a much bigger role that FSA can play. Adjustments is what I was trying to say earlier. But when you could use people within a county, even though the insurance, let's say, continues to be sold through the private sector, as it currently is, when you can use people within the county, FSA, to go out and help to work on adjustments or to work the claims or to ensure that there has been workmanlike compliance with all the regulations that a farmer should have, some people are suggesting a much more expanded role of FSA In crop insurance.
I was just trying to see, how much have you were getting at in your testimony.
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Mr. ARTHO. Well, that was the reason to bring up the concept of the county committee being the gatekeepers for RMA we know which crops are feasible to be grown in our areas. I know that you're not going to grow runner peanuts in Wildorado, TX. I mean, why have an insurance program for it?
I think that by doing that, we could limit some of the abuses that's in place. As far as expanding the role of FSA, I think with anytime you give people power, you had better make sure that you're giving the right people the power.
What I hear in your remarks that I like, it's very difficult to establish a policy that fits the entire Nation of the United States or entire area of the United States. But by having this type of a concept in place and this type of a working arrangement, you can bring in the reasonable differences and the local differences that come into play in in this business we call agriculture.
The CHAIRMAN. And I thank you very much.
Let me, Mr. Hitch, if I could, if my colleagues would indulge me, in the version that the House considered on risk management, because crop insurance maybe not quite fits cattle, we were looking at a pilot program.
Livestock, as you know, over the past 2 years has been a fairly substantial recipient of emergency money that Congress has passed. And we were looking at a pilot project of how do we move toward maybe looking at the potential to insure.
What did you say about that in your testimony and how do you feel about that?
Mr. HITCH. We help with natural disasters, droughts, floods, that sort of thing. We are opposed to subsidized risk management, because we feel like there is plenty of risk management tools out there. There is the futures market. There is options. It's my understanding there is—shortly we're going to have approval for a new internet traded live cattle futures contract.
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So, there are quite a lot of risk management tools that are out there, and we don't want the Federal Government subsidizing risk management because we feel like there is plenty available right now. All you've got to really have is a telephone to take advantage of those options.
So, I think everybody needs to manage their own risk, and the Government shouldn't be in the business of subsidizing risk management for livestock producers.
The CHAIRMAN. Mr. Stenholm. Thank you.
Mr. STENHOLM. Mr. Artho, I'm not just disappointed, I'm getting downright frustrated by our inability across this Nation to deal with putting together team USDA, and it's really beginning to hurt now the producers, which we all need to be more concerned about.
Whether you're a county-elected committeeman or you're a soil conservation district person or whoever you happen to be, it is beginning to hurt and you're soon going to see this live and in living color in your county as we pursue this. And it's awfully important that we get back on track and do this, and we're going to have ample opportunity to do it.
In the meantime, don't be too upset with your FSA Office personnel here in Texas—I won't speak for any other State—perhaps the delay in getting payments out, et cetera. They're working their hearts out. They are undermanned for their role today. It's not their fault. It's the fault we haven't been able to put together team USDA, and there's a bunch of folks ought to be ashamed about it. But they're getting mad at me instead for saying this, and I said it accurately.
Now, ethanol. It's about a year ago we had a little problem in the oil patch. Eight-dollar oil will really create a problem in the oil patch. Now it's $30 oil. And now those of us in the farming side who weren't complaining about 50 cent diesel are suddenly beginning to say, ''Well, we might have a problem.'' But let's not. We tried our best to build a team there. It's very evident that you can't produce food and fiber without oil and gas. You cannot produce oil and gas without food and fiber. And, therefore, we really need to take a look at how we can work together for the maximum benefit of two industries that are rather important.
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And, here, as we pursue the free market, you don't hear this much anymore. We're finally learning there is no such thing as a world free market. Never has been, is not today, and probably will not be in my lifetime.
And, therefore, as we talk about addressing these things, it is important that we develop alternative sources of energy and ethanol. And it's important that those of us who believe that somehow, someway the subsidization of ethanol or biodesiel, et cetera, is not in our best interest, we need to think about this and talk about this.
And I encourage you to keep on, and we're going to be working in the oil patch and make some little headway now in the realization that this is in our national security interest that we do this. And, so, give you a little hope here that some of the traditional opposition may not be as strong today as it was before.
Mr. Hitch, on the livestock and following up with the chairman's concept, in the past, the livestock industry has always been more of a free market, get the Government out of our business, rather independent, not quite as much today because many in the livestock industry are figuring out that international marketplace, which is where our future is, which is thank goodness to you, those of you who are feeding the cattle and the hogs and the chickens, were able to export a lot of corn and grain sorghum that we couldn't do any other way. And we're beginning to see that.
It's awfully important now as we begin to develop this to work with us, as you are now doing, to see that whatever we do; for example, when we have the request for livestock assistance for graze-out, that does affect the market for folks in the cattle business. There is an element there that suddenly becomes a noncompetitive intrusion by the Government into the marketplace.
I understood very carefully what you were saying regarding market distortion. You do not want to see us do for the livestock industry what we have kind of done with our crop insurance, in which we're really insuring price instead of risk.
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And here I caution the livestock industry that continues to kind of indicate you really don't want to have any part of this—You didn't say that today, but some are saying that—is to recognize that we get a lot of requests for grazing assistance. We get a lot of requests now from cattlemen asking the committee, saying, ''You know, there are some other folks besides crop producers out there that should be entitled, too.''
So as we develop these various programs, it's awful important that you be in on the foundation, which you're now doing through your association and others and individual producers of recognizing that it is very important that we do have risk assurance in the—particularly when it looks at the international marketplace, which no one has a control of, and that's what brought the oil and gas around a little bit about a year ago.
And here I tell you, all of your testimony mentioned this, but I want this for the record. Each and every one of you are in favor of quickly eliminating all economic sanctions unilaterally placed, meaning the United States only placing, on all countries?
Mr. HITCH. Yes.
Mr. STENHOLM. I take by shake of heads as yes, you don't have to answer.
If there is anybody got a different opinion of this, because this is critical to us, that's all sanctions, that means Cuba, and then it gets into permanent normal trade relations with China. I take it each of you, based on your testimony, are strongly in favor of a vote in the Congress very soon that would grant Permanent Normal Trade relations with the People's Republic of China?
Mr. HITCH. Yes.
Mr. VONTUNGELN. Yes, that's correct.
Mr. STENHOLM. I thank you for that answer.
The CHAIRMAN. Mr. Barrett.
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Mr. BARRETT. Thank you, Mr. Chairman.
Mr. VonTungeln, right?
Mr. VONTUNGELN. Yes, sir.
Mr. BARRETT. Representing the Oklahoma Farm Bureau?
Mr. VONTUNGELN. Yes, sir.
Mr. BARRETT. In your prepared testimony, among other things, you said that you continued to support the flexibility contained in the Fair Act. I do not, nor does the Oklahoma Farm Bureau support a return to government supply management including mandatory set-asides, base acres, or production quota systems. However, if farmers and ranchers are to remain in business and sustain their livelihoods in the future, several changes in national farm policy need to occur.
Conspicuously absent from those specific items was attention to loan rates. Does the Oklahoma Farm Bureau have a position on increasing loan rates?
Mr. VONTUNGELN. Their position is to not encourage producers to produce something that we don't have a market for, and we feel like that raising the loan rate would do that very thing, would encourage production of something, some commodity that we don't have a market for, just adds to the carry-over, stocks that we'll have to deal with sometime down in the future.
Mr. BARRETT. All right. I thank you for that. With reference to all of the discussion on loan rates, I appreciate that comment.
I appreciated some comments on the ethanol and the use of—was that you, Mr. Gilbreath?
Mr. GILBREATH. Yes, sir.
Mr. BARRETT. Appreciated that very much. That's something that we really haven't touched on that much. As I best recall, we're going to have some very discussions, probably within the next week or two on this very issue, specifically some hearings in Washington on the California situation and whether or not ethanol could replace MTBE. Watch carefully. Those of us that are supporting the use of ethanol are very, very interested, concerned, and active in this particular regard.
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Mr. Artho, I think you as a soybean producer, did you have any concerns about the relationship between loan rates for soybeans and other crops this year? Do you think it influenced any planting decisions?
Mr. ARTHO. Well, I don't grow a lot of soybeans. I grow dry edible beans.
Mr. BARRETT. Okay.
Mr. ARTHO. But the loan rate, I know guys in my area that do plant soybeans, and the reason they plant them because, is the loan rate.
Mr. BARRETT. Are there others here that plant soybeans in this panel?
Mr. VONTUNGELN. [Nods].
Mr. BARRETT. Okay.
Mr. VONTUNGELN. Some.
Mr. BARRETT. You do? Would you care to specifically address that issue, too, and should specific changes, perhaps, that should be made in it?
Mr. VONTUNGELN. Well, I'm not a longtime producer of soybeans. I tried soybeans when the Freedom to Farm Act was passed and I was looking for other crops that might work in our area. And when we still had El Nino, worked great. We could even double crop. When we got to La Nina, it hasn't worked too well. And we've tried to use the crop insurance thing to help us through that transition, and it's been very frustrating, hasn't worked very well at all.
But I think we're not sophisticated enough of it in my area that the loan rates were a big factor in our planting. We were just looking for a crop we could market. We had a local dairy there early on that was paying a premium for soybeans just to blend into his feed or worked great when we got summer rains, but it hasn't worked very well at all since.
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Mr. BARRETT. Well, with the enormous amount of soybeans that are being produced in this country today, it's certainly made a difference and, in my opinion, needs to be looked at very carefully.
Thank you very much. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Boswell.
Mr. BOSWELL. Mr. Chairman, I think again we've had an outstanding panel, and I have no questions at this time.
The CHAIRMAN. Mr. Boehner.
Mr. BOEHNER. Mr. Chairman, thank you. I'm going to try to be brief—I want to make sure that I'm hear to listen. I want to make sure I keep using my ears, because when you're talking, you're not listening.
But having said that, I've enjoyed the testimony of the 10 people we've had thus far who have testified that they like the planting flexibility and the freedom that you have with the current farm policy. And we all know that we've got shortcomings, and we all probably know that if we had one solution, if we just had higher prices, we wouldn't have to have this meeting. Would that solve the problem?
And I say this for the audience, you can see what those of us in Washington are dealing with. Whatever kind of farm policy or program change we make becomes a one-size-fits-all approach for the whole country. We talk about loan rates. They may be great for one part of the country; but, if you're producing that same commodity in another part of the country where you don't get as good a yield, the loan rate probably doesn't mean a whole lot.
And, so, I'm glad to hear Mr. Hitch who is here representing the cattlemen saying, this government is such a great idea, but please don't give us too much of it. We've been hearing livestock producers over the last couple of years as they've had their problems. Certainly the pork producers up in my area begun this idea that maybe we ought to get the Federal Government a little more involved in livestock, with livestock producers.
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And I'm not so sure it's a very good idea. Because, again, once we begin to move into this, we begin to rewrite all the rules. We begin to give the FSA More work to do to oversee all the rules that we write in Washington. And, so, your testimony is important to us.
Because what I'm trying to find out is, how do we set up a risk management tool that works for all farmers? I'm not sure there is one based on what I'm hearing. But if this new farm policy is going to work where we give you the freedom, we give you the flexibility, the Federal Government's first obligation, I think, to all of you is to make sure that you have open markets, that you have a market in which you can sell your product in because you're the most efficient producers on the face of the earth.
Second, we have an obligation which we've not fulfilled, in my view, to look at the regulatory burdens that we're continuing to put on farmers. It's time that we bring more common sense to the regulations that you all have to live under—because if we don't and we allow the EPA and others to continue to do what they've been doing, they're raising your costs and putting even more pressure on us in Washington and more pressure on you in the marketplace—to come up with a profit.
Tax policy, another forgotten part of Freedom to Farm, where we said that we would take a serious look at what we would do about the inheritance tax. Yes, we've raised them exemption. We've not gone far enough.
We need to be looking at how we make it easier for you to transfer your farm to your kids without the Federal Government taking their big bite. If we had set up farm accounts like many of us wanted to do in 1997, where you could have taken a big chunk of your AMTA payment and set it aside, it would be a great way to give you the flexibility, another risk management tool in order to survive the tougher times.
And, so, I'm glad to be here. I'm listening. Thanks for putting up with my diatribe.
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The CHAIRMAN. Thank you, Mr. Boehner.
Mr. Lucas.
Mr. Lucas of Oklahoma. Thank you, Mr. Chairman. And once again I have to ask my perennial question about land prices in your home community, agricultural cropland, up, down neutral? Nothing selling? That's an answer, too.
Mr. ARTHO. No, neutral to lower. The people that are buying land are taking money out of the stock market and competing to buy agricultural land.
Mr. GILBREATH. A lot of the land is transferred because of the water supply where we pump our irrigation water from. Where there is strong water, the land values have gone up. Where there is medium water or low, they've gone down, and this has definitely occurred over the last several years since the Asian economy went down, and that's when our prices really started to drop. Right up till that point they were picking up some value, but have dropped since then.
Mr. HITCH. I'm going to guess and say neutral to slightly lower. Although, since I am not involved in selling land, I really haven't tried to keep track of it, and we haven't seen, traditionally, there is large quantities of land moved in my county. So, it's a guess. Maybe a pinch lower.
Mr. VONTUNGELN. I think land values in our area are stable, that is for agricultural use. Of course, the commercial use is skyrocketing.
Mr. WOMACK. I think in our area, like the gentleman next to the end down there, as long as the water is holding up and you can produce a good yielding crop, it has maintained its value. But as the water has decreased, so has the price of the land because it becomes less likely to produce a crop.
Mr. Lucas of Oklahoma. Fair enough. Mr. Gilbreath; Mr. VonTungeln, Henry Jo, both of you in your testimony commented on the LDP situation, where under present rules a producer qualifies for payment naturally if prices are low enough. If he harvests the grain, puts it, in effect, in the bin or puts it through a silage chopper or runs it through a hay baler, that the effort to extend that one more step with the option of putting it through the four-legged biological combines, could you touch on that for just a moment, why that's a——
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Mr. GILBREATH. Yes, sir. Just as you said, currently, either in the bin, through silage or hay, you are eligible for LDP. If you choose, from either a result of mother nature taking out half your crop or you choose to, for economic benefits because you're a livestock producer as well as a farmer, to, for instance, graze your wheat crop out, part of your decision has to be how much will I give up at these prices to go ahead and run this through livestock as opposed to taking it to the elevator or the cotton gin? Whatever your—Whatever your market might be, you're going to give up your LDP.
And, so, a lot of times what happens is, you have half a crop out there which would be better off going through some livestock, adding value that way, and you decide to take it to the elevator or the cotton gin, what-have-you, because you're going to give up your LDP, well, you've just contributed to the very problem that LDP is set up to prohibit.
Mr. VONTUNGELN. Well, if I could give you a scenario in my own instance this week. We rely heavily on wheat grazing, winter wheat, in our area of Oklahoma. And this year wheat prices, disastrous cattle prices looking a little better, no outlook for wheat that looked better, so I overstocked my wheat this year by quite a little bit and supplemented them through the winter, supplemented the cattle with feed so that I could carry them through the winter and get some gain with the idea of having enough cattle on hand to graze out about two-thirds or three-fourths of my wheat land this year.
Well, if I decide this afternoon or something makes me change my mind and I decide to go home and pull my cattle off the wheat, put them on grass or do whatever, and then go ahead and mechanically harvest that wheat, I'm going to do a couple of things.
One is I'm going to add to that oversupply of wheat that we already had, which is going to further depress prices and cause LDP payments to go higher yet, as prices go on down; or, if I go ahead and leave the cattle on the wheat and graze it out, harvest the wheat in that way, then there will be less grain on the market, and, hopefully, the price will go up and your payments for LDP's will go down. As prices rise, the payment goes down.
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So, aside from the fair issue of being able to collect LDP on grain or silage or hay or whatever and not on grazing, aside from that, it's a very practical issue, as I see it, to allow us to collect an LDP on graze-out.
Mr. Lucas of Oklahoma. So, the fourth potential option, graze-out, might very well save the U.S. Treasury cash money?
Mr. VONTUNGELN. Uh-huh, that's maybe a stretch, but it's a possibility.
Mr. Lucas of Oklahoma. What did fat cattle trade for last week, all at the end?
Mr. HITCH. Fat cattle traded for $70.50.
Mr. Lucas of Oklahoma. Thank you.
Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Simpson.
Mr. SIMPSON. Thank you, Mr. Chairman.
Just a couple of questions, but I noticed three or four of you, maybe all of you mentioned tax policy in part of your testimony. As you know, we passed some legislation last year that had some, I think, some significant provisions that would have helped agriculture. It got sidetracked somewhere along the way, and now we are looking at individual proposals.
Is the inheritance tax, the death tax, one of the most important things you think we could do?
Mr. HITCH. Yes.
Mr. WOMACK. Very important.
Mr. ARTHO. Depends upon age.
Mr. SIMPSON. Depends upon age. Do any of you consider yourself rich? I'm just curious.
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Mr. VONTUNGELN. I am.
Mr. SIMPSON. You are?
Mr. VONTUNGELN. I have seven grandchildren, and I get to see them all every day.
Mr. SIMPSON. OK. That's great. But that's usually the rhetoric that is put out when we start talking about the death tax and eliminating the death tax or raising the limitation or any of those things.
Also, capital gains tax, is that an important tax to reduce?
Mr. WOMACK. Certainly is.
Mr. HITCH. Yes.
Mr. ARTHO. Yes.
Mr. SIMPSON. That's another one that every time we talk about, it seems like the rhetoric comes out about only the rich benefit from capital gains reduction and so forth. So, those are taxes that I hope that Congress will take up relatively quickly and look at reducing the rates and eliminating the death tax.
Mr. HITCH. Well, you only have to make about $30,000 a year to be rich now; isn't that right?
Mr. SIMPSON. Yeah, something like that.
One other question, does the TCFA have a position on mandatory country of origin labeling?
Mr. HITCH. I'm not aware of TCFA country of origin labeling, and I'm not sure that we have a position. NCPA is kind of wish-washy with its support of it. Basically, they prefer that you withdraw USDA grading from the cattle coming directly from a foreign country and say they can't leave the plant with a USDA grade on them.
Mr. SIMPSON. Thank you.
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Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Thornberry.
Mr. THORNBERRY. Thank you, Mr. Chairman.
Mr. Womack, I was interested in the part of your testimony where you point out that we have had 2 years of record levels of global production of wheat because of good weather. And what you didn't mention, I think, is increase in use of technology in other countries bolsters their production.
Some of the most controversial votes we have every year in Congress deal with our export support efforts. Some witnesses mentioned MATH and some of those other programs. If there are some things that are happening across the world we can't control, like weather and how other countries using technology, it seems to me to be more important than ever to control the things we can in supporting our exports and sales overseas.
Can you tell me, as far as wheat production goes, what you-all's view is of our support efforts, whether they ought to be maintained, strengthened, how you think it's working, that sort of thing?
Mr. WOMACK. Thank you for your question. I certainly think there should be some more support from the Federal Government given to overseas marketing. We have right now things in place like GSMA credits, P.L. 480's. The Government should have certainly been more aggressive in lower price times as these trying to shift commodities overseas.
I noticed one other thing that somebody had asked about earlier about the GSM. That does concern me somewhat because the other countries have not scientifically accepted that yet, and most all commodities have that capability but wheat, as of yet.
Mr. Stenholm was very interested in knowing about how we felt about China and the WTO. I think the U.S. Government has went in, in the past, to negotiate some trade agreements, and they look good going in; and, when they come out, sometime the farmer got the short end of the stick.
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And today, WTO looks good for China, but we need to be good horse traders with this deal and so that we still maintain a good avenue of shipping products overseas. Thank you.
Mr. THORNBERRY. I think that's a good point.
Mr. Hitch, I appreciate your being here among other things to help remind us that what we do has consequences even inside agriculture. I guess one of the points I want to ask you about is, I think in a lot of ways cattle feeding is experiencing more of a burden from Government regulation than other sectors in agriculture, but it's coming for everybody else. We've seen some ideas floating around that would put restrictions on runoff for people like us where they graze cattle out in the pasture.
And what I'd really like to know, and you probably can't answer this, is how much does Government regulation now add to the cost of beef for consumers? And if you can't give me that, can you at least give me a feel for how big a deal it is for the cattle feeding industry, for the regulations you've got now and the way it may change in the future?
Mr. HITCH. I certainly can't give you any number on how much it adds to the consumer's cost of beef. I can say that the regulations to date have been difficult, but not unmanageable. The regulations that are being proposed are a nightmare.
So, the proposed AFO/CAFO clean water strategy that's now on the table, to which we have responded, but I guess the EPA has not come out with a final decision on that, will be a catastrophe on, say, manure, for the individual farmer, not the CAFO. But the individual farmer will have to have a comprehensive nutrient management plan prepared by a professional at a cost of several hundred, several thousand dollars, to take animal manure and put it on his land.
We're going to have a mountain of manure at these feed yards because farmers aren't going to take it. It's going to be a major, major headache, I would say, for poultry producers, for beef producers, and for dairies, perhaps less so for pork producers.
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Mr. THORNBERRY. Thank you.
Thank you, Mr. Chairman.
The CHAIRMAN. I thank the witnesses for their testimony.
Yes, sir?
Mr. ARTHO. The last panel made a comment about insurance, that he would have been better off to have collected the insurance instead of harvesting. Remember that that 61 cents was set on last year's market; and, when you're in a down market, that's going to happen under insurance. It can be the other way.
The CHAIRMAN. Right.
Mr. ARTHO. It'll be the opposite in an up market.
The CHAIRMAN. Right, and it is a percentage of that crop rather than the 100 percent, as well.
Mr. ARTHO. That's right.
The CHAIRMAN. Thank you very much to the panel.
I would invite our next panel to come forward, please. Mr. Doyle Fincher, who is a peanut producer from Seminole, TX; Mr. D.A. Harral is a sheep rancher from Fort Stockton, TX; Mr. Carlos Squires, a peanut producer from Carnegie, OK; Mr. Byron Vassberg, a sugar producer from Harlingen, TX.
And I will mention two housekeeping items. Early estimates that we have had about 700 people attending this hearing. I think that's an extremely good turnout.
And, second, I might mention, we intend to work through lunch. Eeverybody runs on a tight schedule. We're not going to break. We are going to feed them.
And I might say, Mr. Hitch, we're going to be fed some beef. We will the Members because they do have planes to catch and they wouldn't have an opportunity to eat otherwise, and I appreciate your indulgence.
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Mr. Fincher, please proceed.
Mr. FINCHER. Thank you, Mr. Chairman.
STATEMENT OF DOYLE FINCHER, PEANUT PRODUCER
Mr. FINCHER. Thank you, Mr. Chairman.
My name is Doyle Fincher. I am a producer of peanuts and cotton and have been engaged in farming for my entire adult life. I appreciate the opportunity to appear before the committee today and wish to thank the committee for reaching out to seek the views of producers on current farm issues.
I would like first to address my comments to the peanut program. In my view, peanut producers have not been subject to the hard times and low prices that have affected producers of so many other commodities. The peanut program has worked well and is responsible for the stability that appears in this industry.
The peanut program provides for a two-price system with an annual quota set for peanuts used for domestic edible purposes. A support rate of $610 per ton is provided for quota peanuts. Some would say that this rate should be higher, others that it should be lower. At this time, I believe the rate is set at a level sufficient to protect the interest of both producers and consumers.
Additional peanuts not subject to the quota may be produced, but they can be sold only for crushing for oil or for export and receive a low support rate. If producers of quota peanuts that meet quality standards should be reduced because of adverse weather or disease, a buy-back program allows additional peanuts to be brought into the edible market and make up the shortfall. The buy-back program is an important safety valve to assure stability in the market and should be continued.
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Until 1996, it was not possible to transfer a quota to producers outside the county to which it was allocated. In 1996, FAIR Act amended this restriction to permit the sale or leave of peanut quotas outside the county, but the transfer was limited to 40 percent of the county quota.
This has allowed peanut quotas to be transferred to counties that are most productive of high-quality agriculture peanuts. The demand for such transfers by producers in both the originating and receiving counties has far exceeded the 40 percent limit, and this limitation should be eliminated in any new farm legislation.
In contrast to peanut producers, there has been no stability for the cotton producers under the Freedom to Farm. Cotton prices have dropped to the lowest level in my entire career as a farmer. In these times, the Freedom to Farm Act has not provided an adequate safety net. If not for the additional payments provided by the appropriation act in the last 2 years, many of us would not have been able to survive.
Lots of unseen problems have come up at the same time. The Asian meltdown and sanctions on sales to many countries that have been historically markets for U.S. farm products have helped to kill or severely limit our exports.
We need sanction reform so that the President cannot impose unilateral sanctions on exports of food and medicines without Congress's approval. We also need some changes in the current program. A portion of the AMTA payments should be adjusted so that when prices are low, as they are today, payments should be increased, and when prices are high, they should be reduced.
We appreciate the administration's action in implementing the generic certificate program to alleviate the restrictions of the payments limitation on marketing loan payments. This program should be continued in any new legislation. Without this action, the payment limit on loan deficient payments would impact a family farmer such as myself.
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When cotton prices are as low as they are today and have been for some time, I would find myself caught up with a payment limit with only a few hundred acres of cotton production.
In addition, the eligibility limitation under the disaster program is based on the wrong factor and should be changed. Current legislation excludes producers with over two and a half million in gross income, a level that has been unchanged for over a decade. One can have a gross income at that level and barely net out enough money to meet everyday living expense. Disaster program limitations should either be based on net income or the current figure should be increased.
In conclusion, the Nation needs a strong farm economy. Everyone benefits from it. I hope that these hearings will provide guidance to the committee in drafting legislation to achieve these results.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Fincher appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Fincher.
Mr. Harral.
STATEMENT OF D.A. HARRAL, SHEEP RANCHER
Mr. HARRAL. Thank you, Mr. Chairman. I appreciate all committee members coming to Lubbock today.
My name is D.A. Harral. Our family has been in the ranching business in Pecos County 250 miles south of here for four generations, raising cattle, sheep, and goats.
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Our family came to Texas from Tennessee after the Civil War, couldn't find the type of sheep that we needed. So, my great-uncle rode horseback back to California, he bought the Spanish Merinos and trailed them back to Texas. This was a 2-year trail drive. I say this so you don't know just history, but that you'll realize that we're serious about this business and we're serious about staying in business.
I have a rather lengthy statement before you all. I'm going to summarize this as rapidly as possible. I've broken it into five different areas, the first area being what I call increased cost of operations.
Since 1992, we've been experiencing a severe drought. This has greatly increased our cost of operations. Your assistance that you provided to us through various feed programs has made a huge difference.
As I understand various farm programs, I think there is probably more assistance available to what I would call the row crop people than the livestock people in disaster type of situations. And I think what I'm talking about is some type of crop insurance program for livestock. I think that's what I'm talking about.
I've heard some of my cohorts cuss it, and I've heard some of them think it's a good idea. I know from a fact when I have a load of lambs on feed, and earlier I said, ''Well, I couldn't pay a premium like this'' and then the price drops 25 cents just while we're sitting there in the feed lot, well, that premium would have really been cheap.
So, I'm wondering if that is something maybe we need to look at. In the sheep business, I can't go hedge my lambs. So, that's one thing that I'm looking at.
Another item that has been very helpful to us in the sheep business and also in our cattle business also is your assistance that you provided to us through the animal damage service control group. They provide a lot of assistance. We've appreciated the funding that you provided in the past and we hope that you'll provide in the future. We do not want to solely rely on you all. We have our own tactics that are working on our ranches, and it's a dual effort.
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The second item that I'm talking about is what I term as international monetary events and their impact on the sheep industry. I've broken this out wool and mohair first. The high value of the U.S. dollar, the high value of currency, puts a strain on us when we start trying to sell an export into foreign markets. It makes our products very expensive compared to that of our competitors.
Second, in recent years the Australian Government has decided to dispense or do away with their stockpile of wool they have down there. Certainly in the long run, that's good for markets. In the short run, it has created a problem for us.
Third, Pacific Rim has experienced a financial crisis the last 2 years. The reason that's become such a bearing on us in the wool business is, that's where so much of our textile business now takes place.
And lastly in this list of items, we experienced here in the United States the exit of the textile industry to foreign areas where they have lower operating costs, so that forces us, then, to almost an export environment, period.
On the meat side, over the past 4 years the U.S. exchange rate has allowed domestic importers to purchase cheap lamb overseas and flood the U.S. market with the imported product. In some cases the prices have been 40 percent below the domestic products. In very simplistic terms, importers can buy almost one and a half New Zealand lambs for every one lamb they bought over here, and this is what happens.
Third, I have listed how the U.S. sheep industry has been trying to adjust to these challenges. We in the wool and mohair business have formed recently here in Texas, or really started about 3 years ago, a co-op. You-all have always been into this in the cotton business. We were slow catching up, I guess you could say. But some of us have been processing our clips, taking them on to what I would call a top level.
Also, we've been selling them collectively in groups. There are various ranchers coming together to sell on the lots based upon coring of our different wools. And everybody that has a similar lot has been trying to sell together. That has been a change that we've undergone the last few years.
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On the meat side, 200 of us banded together, put in the money, built a packing plant in San Angelo, TX. Three months ago we started building a fabrication plant. We hope that by this fall we'll have a case-ready product ready to go into the grocery stores here in Texas also. Trying to move to a higher retailing level with our product, those are the efforts that we've undergone.
I say all this to indicate to you that we in the sheep industry we've been trying to take care of ourselves. We haven't tried to run to Washington every time we've got a problem.
I want to thank all of you-all for the support that you gave us in the 201 action that we had before the International Trade Commission. This has helped as far as putting a restraint on imported lamb coming into the United States. Our markets are starting to recover.
Next item I have listed is national sheep improvement center. The 1996 farm bill allocated $50 million for this, seems to be some problems there in the Office of Management and Budget. We've received $20 million so far, and we're still waiting on $30 million.
As far as lamb and goat meat, things that we think that you might be able to help us as we prepare the next farm bill, and we've reviewed GATT, we feel it is important that some type of formula or indexing system be implemented to put the various currencies on some type of level playing field for all crops, whether they're raised here in the United States or manufactured, because we're operating on a global environment all the time.
And, lastly, on our wool and mohair side, an area where I think you-all could help us tremendously, is help us get a non-recourse marketing loan program, an efficiency payment in there for our wool and mohair. We're trying to meet in the world market. It would help us in an orderly marketing process and just make the whole system easier on us, as some of the other commodities have right now.
What I list as another item, another area where we feel like that you might be able to help, this will be on the next to last page, the current drought, of course, has impacted a lot of the ranches here in Texas and farms, but I know a lot of the urban areas and towns, they're having problems with their water supplies and so forth. There is lots of discussion about recharge, where we're going to get this water. Some type of cost-share program between some of the ranchers, farm managers say a large cost-share program, and some around municipalities down here possibly say and the Federal Government might be behoove everybody. Because this water problem has turned into a big problem here in Texas.
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In conclusion, what I list as No. 5 on the last page, long-term policy, I am concerned about what is going to happen in the sheep business when this 201 phaseout is complete after 3 years. Be assured we're going to tell everybody our lamb is better, that our lamb is cheaper.
The problem is, they can still produce it cheaper than we can produce it. In the long run that creates bad competition, and I have a feeling there are others that are in the same shape as we are.
I know it's not you gentlemen, but I think there is some people out there that seem to be thinking we can turn agriculture as a whole over to third world nations. I just don't think that's too wise to end up leaving large tracts of this country.
Well, the absence of policies that guarantee a safe food and fiber supply is something we have to have in this country. I would ask that you closely examine domestic manufacturing, foreign and trade policies. To me it's foolish to allow foreign entities to control our food, clothing, and other vital interests as they now do our oil.
In effect, OPEC supplying, I think they're use and supply management, we wouldn't want to get into that situation with our food supply here in the United States. At that point, we stop talking about foreign and domestic policy and we start talking about farm policy. Farms and ranches, unlike the oil business, would not have a strategic supply that we can open overnight. It would take us years to get going again.
In closing, thank you very much for coming to Texas, and I stand ready or any of my friends, cohorts, to help implement any of these actions or to answer any questions.
Thank you.
[The prepared statement of Mr. Harral appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, sir.
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Mr. Squires.
STATEMENT OF CARLOS SQUIRES, PRESIDENT, SOUTHWESTERN PEANUT GROWERS ASSOCIATION
Mr. SQUIRES. Mr. Chairman and members of the committee, my name is Carlos Squires and I've been farming peanuts in Caddo County, Oklahoma for 33 years. At present, I'm the president of the Southwestern Peanut Growers Association. I appreciate the opportunity to testify and have submitted a full written testimony that I will summarize today.
The 1996 farm bill, GATT, and NAFTA are all intertwined with domestic agriculture policy being largely dictated by trade agreements. These three items promoted as great trade enhancement tools have contributed to the worst agricultural economy since the Great Depression. U.S. farmers, and specifically peanut farmers, have not benefitted from our trade agreements and domestic policy.
Since 1996, we've lost an estimated 35 percent of the U.S. peanut farmers, and most of them have either been small farmers or young farmers. In addition, we now receive an inflated adjusted price for domestic peanuts that has been reduced by over 26 percent.
Although I believe there is many changes that need to be made in our domestic policy for peanuts, I firmly believe that the peanut program provides a basis for a solid safety net everyone is seeking. The quota marketing system has stood the test of time and offers producers the stability they so desperately need. And this is the foundation that we must build upon.
The 1996 law which removes some key peanut provisions has shown to be the biggest downfall for many peanut producers. The cost of production support rate adjustment was the one provision that allowed the producers to keep up with inflation. In absence of that provision, frozen loan rates cause producers to be faced with almost certain failure. Thus, the reactivation of that provision is vital.
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We, as peanut farmers, would like to thank you for the market assistance passed last year as part of the fiscal year 2000 appropriations bill. I am hopeful this was a realization by Congress that the loan rate had been too severely reduced. We desperately need this assistance again this year.
We should also reaffirm by law that the buy-back of additional peanuts for domestic edible and seed uses cannot be accomplished through handler-grower contracts. We must reaffirm by law that contracting of additional peanuts is permitted only for additional peanuts that are to be exported by the handler. This was the original intent of the law, and only since 1996 has the USDA permitted the misuse of this provision.
As a no net cost program, it would be beneficial if the peanut marketing assessment could be allowed to accrue within a peanut program account. If a so-called peanut trust fund was created, there could be years when the PMA would not be applied after the trust fund reached a certain level.
We are acutely aware of the high percentage of additional peanuts produced by growers in west Texas and southwestern Oklahoma. We believe that a number of improvements in the marketing of nonquota peanuts are needed in order to bring about increased marketing opportunities for these producers.
On the trade side, before any further reductions occur in tariff rate quotas, an equalization rate system needs to be established to reflect and balance the difference between trading countries in regard to cost associated with production.
Confectionery items such as candy bars containing peanuts must be equated into imported raw peanut poundage. Strict rules of origin should be applied to all products. Access for commodities should be granted only to countries that are directly and historically involved in producing the commodity as determined by rules of origin.
Please remember that in the policy considerations ranging from the old rigid allotment program and Freedom to Farm, the current peanut program is right in the middle. It is a no-cost program to the Government, a supply management program that avoids a boom and bust market, it ensures against becoming foreign food dependent, it has a strong consumer protection quality provision, and is also market adapted because any farmer can produce nonquota peanuts for the world market.
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I would like to thank you for allowing me to visit with you today, and I'm looking forward to working with you as you make the needed changes in the peanut program.
Thank you.
[The prepared statement of Mr. Squires appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, sir.
Mr. Vassberg.
STATEMENT OF BYRON VASSBERG, SUGAR PRODUCER
Mr. VASSBERG. Good morning. My name is Byron Vassberg. I would like to thank the committee for coming to Texas and inviting me to testify today.
As a member of the board of directors of the Rio Grande Valley Sugar Growers, a cooperative of 130 cane farmers in south Texas, I am here today to discuss sugar farming.
I have been farming and ranching in the Rio Grande Valley for the past 15 years growing sugarcane, cotton, corn, grain sorghum, and raising registered and commercial Brahman cattle.
As a proud farmer, it is my hope that my children will have the opportunity to live off the land as well some day. But, Mr. Chairman, let's be honest, times are very hard on the farm. I would like to tell you all a little bit about the concerns that me and my fellow sugar farmers around the country share.
American sugar farmers are efficient by world standards. Two-thirds of the world's sugar is produced at a higher cost than in the United States. However, American sugar farmers, like many other farmers around the country who grow other crops, are struggling this year.
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The problem. Oversupply and loss of market confidence in the ability of USDA to maintain a viable program has resulted in severely depressed producer prices for raw and refined sugar. The U.S. raw sugar price has plummeted 25 percent since July 1999. Raw sugar prices have fallen from about 22 1/2 cents per pound to 17 cents per pound, the lowest level in 18 years.
Given current production estimates, this represents a $400 million drop in the value of domestic cane sugar this year alone. A recent sharp drop in refined beet sugar prices, down 6 to 7 cents since July 1999, could cause losses to beet producers exceeding $600 million. Total potential losses to the sugar industry are over $1 billion on the value of the 1999–2000 sugar crop alone.
As of March 1 of this year, the Commodity Credit Corporation has over 1.3 million tons of sugar under CCC loans valued at $524 million. Massive forfeitures are a certainty unless some action is taken immediately to salvage prices. Market prices are several cents below forfeiture levels in every region of the country, producers are placing additional sugar under loan as they continue the harvest, and forfeitures could be even higher.
Aggressive action now to remove and dispose of sugar from the domestic marketplace would relieve the economic hardship on U.S. farmers, diminish the threat of sugar loan forfeitures, and save the Government money relative to the cost of accepting, and storing these larger volumes of forfeited sugar.
Government action to address this problem is appropriate because so many of the factors leading to the price drop are more closely related to Government action and inaction than to producer decisions. Furthermore, the Government has responded to similar price drops for other program crops by providing tens of billions of dollars in assistance over the past several years.
While these expenditures on other crops are appropriate, they have had the unintended effect of worsening the beet and sugarcane price crisis, as this financial relief enables many farmers to invest in new or additional beet and sugarcane production.
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Our immediate need for prices to recover this year are the removal of 300,000 tons of sugar from the market. This would involve purchasing sugar for sale or donation abroad or for non-food or non-sucrose use. Sugar purchases may be made with three justifications: To protect sugar producers' incomes; second, to avoid sugar loan forfeitures to the Government; and, third, to minimize cost to the Government.
Longer-term solutions: No. 1, the U.S. Government should negotiate with Mexico to reduce the threat of Mexican sugar destroying the second market.
Second, and very important, is the U.S. Government should seek a legislative remedy to address sugar syrups commonly known as stuffed molasses that are circumventing the tariff code.
Third, Congress should abolish the one-cent forfeiture penalty on sugar. The 1996 farm bill imposed a 1-cent per pound penalty on any producer who forfeits on a Government CCC loan when non-recourse loans are in effect. While aimed at a continued no-cost sugar policy by discouraging forfeitures, the penalty substantially reduces the income of sugar producers.
Fourth, Congress should eliminate the debt reduction provision for sugar. A marketing tax paid by sugar producers to help eliminate the Federal budget deficit was increased by 25 percent in the 1996 farm bill. So since there is no longer a Federal budget deficit, sugar producers would like to keep this $40 million they pay annually.
Fifth, Congress should make all sugar loans non-recourse. Though most farm programs retain marketing loan and non-recourse loan programs, traditional non-recourse loans are no longer assured for America's sugar producer.
Sixth, Congress, through a technical correction measure, should reinstate the no-cost provision that was eliminated in the drafting of the 1996 farm bill. In the 1996 farm bill, the provision was inadvertently removed during the bill drafting process.
In conclusion, thank you, Mr. Chairman, and members of the Agriculture Committee for allowing me to explain my concerns as a sugar farmer from south Texas. Please remember that sugar farmers want what all other programs want, a fair opportunity to farm and make a reasonable living.
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American sugar producers' competitiveness and their disastrously low prices parallel the plight of other American farms; but, because of sugar's unique characteristics, policy solutions may have to be different from those for other commodities. Sugar farmers do not want to be treated more favorably than other farmers, just equally. Thank you.
[The prepared statement of Mr. Vassberg appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. I just want to note for the record, Mr. Vassberg, our lunch here has sugar in it, real sugar.
Mr. VASSBERG. Thank you.
The CHAIRMAN. One of the things that over the years I've found to be interesting, I've kind of come up with with a statement that I always say a lot of times, that people don't have to know anything about a subject to form an opinion.
And sometimes that's a little concerning because here represented at this table, particularly three out of the four of you have are from programs that have probably come under as much attack as any other programs, the peanut and the sugar programs.
I'm not trying to cast disparaging comments about my colleagues who go after those. But I think so many times when you talk through these issues, they don't understand them. And I find that's also true in a lot of other agricultural commodities that we are dealing with, that people really don't understand the program and they don't understand the difficulties that agriculture faces.
Certainly when we're talking about payment limitations and some of those things, you deal with our colleagues that come from congressional districts where the average income is, $20,000, $25,000; and, it's a little difficult for them to understand the limitation thing. Part of that is an educational process, but part of it is just a recognition of reality.
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The comment that I want to make in this, and that I think has been successful, is that I think I can say this with true sincerity, that they don't grow any cotton in John Boehner's district. I doubt if they grow any cotton in Leonard Boswell's district. They may grow a little bit in Frank Lucas's district, but they probably shouldn't be in Nebraska, and that goes throughout whatever.
But agriculture as a whole has had a good, I think, relationship within the industry. We wouldn't pass a cotton program or feed grain program or a peanut program or a sugar program or a corn program or anything else if all you got was the support of just the people that represented the areas of the country that just grow that crop.
And that is something that we've always encouraged agriculture to work as an industry together in recognizing how successful it's been in the past. It has been what has kept us from losing a lot of programs that individually many of us may not have total close ties with, but as a whole is important to agriculture.
I wanted to ask this question and, Mr. Fincher, I may be asking you some questions you may not know the answer to, and that's fine and understandable.
But Gaines County, where you're from, is Gaines County still the No. 1 peanut producing county in Texas?
Mr. FINCHER. That's true.
The CHAIRMAN. And about how much of the peanut, percentage-wise, of the peanut acreage in Gaines County is quota and how much of it is additional?
Mr. FINCHER. We don't have those figures yet, but it's going to be roughly 30 percent quota and 70 percent additionals.
The CHAIRMAN. Of the 30 percent quota, about how much of that has come in since leasing has been allowed?
Mr. FINCHER. I'm going to say 15 to 20 percent of that.
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The CHAIRMAN. In your area of Oklahoma, is that area what we would consider traditionally a quota area?
Mr. SQUIRES. Yes, sir, it's probably 90 percent quota.
The CHAIRMAN. Has there been much interest and activity in the quota holders in your area selling or leasing to nonquota holders outside of the area?
Mr. SQUIRES. Caddo County, at one time, was the largest quota holding county in the Nation, but we've had about as much go out as we have come in. So, there has been quite a bit of activity, but we've stayed about status quo as far as the amount of quota that we have today.
The CHAIRMAN. Thank you.
Mr. SQUIRES. There has been a substantial amount that's went from eastern Oklahoma to western Oklahoma. But we're located in west central, and it hasn't affected us much.
The CHAIRMAN. I'm going to recognize Mr. Stenholm for question. But I would be remiss if I did not introduce a great friend of agriculture, also one of my constituents, the chairman of the House Agriculture Committee in the State legislature, David Swinford. I know a lot of you know him.
David, thank you for coming down, we appreciate that very much.
Mr. Stenholm.
Mr. STENHOLM. Mr. Squires, you said to the best of your knowledge there is not a single country now importing U.S. peanuts because of the 1996 Freedom to Farm bill. Why is that true?
Mr. SQUIRES. I said the best of my knowledge. I meant that I don't think there has been any increase in exported peanuts because of the 1996 farm bill.
Mr. STENHOLM. Why hasn't it, in your judgment? You infer that it's because of NAFTA or GATT, but I had a little difficulty tracing that as to why we haven't exported.
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Mr. SQUIRES. Well, I can't answer that. NAFTA affects Canada and Mexico. There has been some peanuts come in from Canada and Mexico to the United States; but, as far as GATT helping our export of nonquota peanuts, to my knowledge, it hasn't. And why, I don't know.
Mr. STENHOLM. We'll pursue that perhaps a little bit more after we've both had a little chance to think about it a little bit more.
Interestingly, the three commodities here, as the chairman has pointed out, give us a bigger challenge than almost any othe aspect of agriculture when it comes to legislation.
Now let me ask the question I've asked to others. Are you in favor of or not in favor of granting permanent normal trade relations to China?
Mr. FINCHER. I'd be probably in favor. Let me say, I'd like the committee to evaluate that to see where we're at. I'd hate to trade two commodities to them and bring a commodity back in. And, of course, I'd be referring to peanuts. China is the world's largest producer of peanuts.
And the NAFTA and GATT has already hit us pretty hard from that standpoint; and, as far as trade, though, I guess I would be for it. But I would think we'd need to look at it real close.
Mr. HARRAL. It's a large market, that's the point.
Mr. STENHOLM. Mr. Squires.
Mr. SQUIRES. I'm like Mr. Fincher, I'd have to look at it. I think one thing that we have to be concerned about, and, Mr. Stenholm, you made the comment earlier that you hadn't seen such a thing as free trade. I've been hearing about free trade for 35 years I've been in agriculture. And I don't think there is such a thing as free trade. I don't think there'll ever be free trade because each country is going to protect itself to a certain extent.
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The thing we have to be real concerned about when we trade is fair trade. We need to make sure an equalization rate needs to be established to reflect balance, the difference between trading countries in regard to cost associated with production.
We're importing more food into this country each year. We just think that because we've got the greatest Nation in the world, the most productive Nation, it's just going to be—production is going to be all out-go. But we're importing a lot of products each year, and I think we have to be real careful that it's fair trade.
Mr. STENHOLM. We understand what the problems are. What we're trying to find now are, what are some of the solutions? You have each in your own testimony recommended one that I think the entire Congress needs to look at, and that's recognizing the disparity between values of currency.
When a producer in the United States is competing with a Canadian, for example, in wheat or beef, and the Canadian dollar is 25 percent less valuable, automatically gives a 25 percent advantage strictly because of the economic policy being followed by the country. That is something that I think we can take to our colleagues who do not have an interest in agriculture and make a point, we will emphasize that.
We have the sheep and goat industry at the table. They lost their program a few years ago by those that believe that that industry ought to survive in the international marketplace without help. And it's been rather painful; and, in fact, I would submit, unless we do find ways to stand shoulder to shoulder with all of our industries that are competitive—in this case, we have a competitiveness in this country. No one should ever discount that.
But if we don't find ways to do that, we'll eliminate the other 60 or 70 percent of the industry that hasn't been eliminated. But they are now beginning to recognize the market. We've got a window of opportunity because of 201 to come up with some ways; but, it means that the industry itself and the producers themselves are going to have to take a realistic look at what that marketplace is and what it's going to require, and it's going to require doing things differently than we've done it for the last 30 or 40 years.
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And you're doing it. Ranchers of lamb, for example, in which you have a cooperative venture going out to look for markets, that's critical to us and to this industry. But I didn't get to you on the PNTR or——
Mr. VASSBERG. Yes, sir, I'm in favor of open trade with China as long as it's fair.
Mr. STENHOLM. One of the things everybody needs to understand with the PNTR agreement, all we're talking about is whether we are going to trade with them like everyone else does. That's all we're talking about with that agreement. It has nothing to do with environmental, with labor, et cetera, that's a separate issue to be worked out, as you have pointed out in your testimony, in the WTO
What we have to decide is whether we're going to let other countries compete in that market and we're going to stay out of it. And I appreciate the answers you've given. Even though some of them were qualified, I understand why they were qualified.
The CHAIRMAN. Mr. Boehner.
Mr. BOEHNER. Thank you, Mr. Chairman.
Peanuts. Both the chairman and the ranking member talked about some problems they have politically in Washington dealing with certain of these programs. I'm one of the problems that they have to deal with.
I'm from Ohio, so I'm sitting here eating my chicken-fried steak for the second time in my life. Let me tell you, it was very good. Didn't mean to eat in front of all of you.
But we've got program peanuts and we've got non-program peanuts, and I'm trying to understand how we can look at one farmer who raises peanuts in the program and gets benefit of his quota and a price and discriminate against a peanut grower next door who doesn't have that same benefit.
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I presume that the person growing the additionals doesn't make the kind of money that the person who has a quota does; is that correct?
Mr. SQUIRES. That's correct.
Mr. BOEHNER. Do you think that's fair?
Mr. SQUIRES. Well, sir, first you have to understand the peanut program. It's a no-cost program to the Government.
Mr. BOEHNER. Trust me, I understand it's a no-cost program except that we, the Government, set a price and set an allotment and give quota out to some very lucky people, in terms of where I sit.
Mr. SQUIRES. Well, the support is a loan price. We have a loan just like anyone else.
Mr. BOEHNER. I understand.
Mr. SQUIRES. And the quota has been with the land for years. It's as much a part of the land as anything else. So, it's not——
Mr. BOEHNER. But do you think it's fair to your neighbor next door who doesn't have quota, for him to get a lesser price for his peanuts because he doesn't have that quota based on some Government policy came out of Washington?
Mr. SQUIRES. Yes, sir, I do, because that's the way it's been established in the past, and the producer who has raised quota peanuts has invested greatly in machinery and irrigation equipment and all this.
Mr. BOEHNER. Well, I would suspect that the person raising non-program peanuts has invested in equipment and infrastructure the same way. He just doesn't get as much for his peanuts because he is not part of the program.
Mr. SQUIRES. Well, one other answer to that question, there is not very much of the country that could just raise additional peanuts and make a living. Most parts of the country that raise peanuts, they use the quota peanuts to really pay the bills, and the quota peanuts is what buys the machinery, buys the irrigation equipment, and then they produce for the additional or export market because they're able to do this.
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In most old traditional peanut areas, if it was just left up to strictly additional peanuts, they could not survive.
Mr. BOEHNER. At a time when we're moving the rest of agriculture to more market orientation, it's certainly not full market orientation, I certainly have been one of those who believed that the peanut program ought to be taking more steps moving toward the market.
And as I look at where peanut quota is held, who the real owners of the quota are, because we've got a lot of people in New York City, Chicago, and other places on peanut quota, I keep asking myself, why would we continue to have this policy in Washington that discriminates against peanut farmers based on whether they happen to own quota or can lease quota?
I think it's fundamentally unfair. And as a Member of Congress, I'm trying to understand the background of this program and trying to understand why we should continue it.
Mr. Fincher, do you have anything you would like to add?
Mr. FINCHER. Well, the additional grower is making money or he wouldn't be there and wouldn't continue to be there. We've been doing this now since 1982 or 1983. We don't make as much money and we're limited to the markets that we can go in.
The only way an additional grower can put any peanuts today into the domestic market is to do through the buy-back. And, of course, there has been a lot of talk and a lot saying we need to do away with buy-back because it was abused. And it was abused a little bit with buying too many peanuts back.
Mr. BOEHNER. Can you grow peanuts as good as Mr. Squires' peanuts?
Mr. FINCHER. Yes, sir.
Mr. BOEHNER. Are they graded the same, they taste the same?
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Mr. FINCHER. Yes, sir.
Mr. BOEHNER. Why should he get more money, based on what Washington says, than what you get?
Mr. FINCHER. That's a good question.
Mr. BOEHNER. Now you see why——
Mr. FINCHER. He has a quota and I don't have it.
Mr. BOEHNER. Gentlemen, I'm not picking on you, but I'm trying to get to the bottom of this. We've been through this in the sugar program. A lot of sugar around the world is subsidized, especially what gets dumped on the world market. You've got a little different situation there.
But this movement toward a world agricultural economy is a reality, and we're either going to continue to participate in it and succeed in it, and as we go through this transition to this, we're all going through some difficulty and all going through some pain.
But my point is, I would suggest that long term, for the good of agriculture in the United States, we've got to find a way to ease our way through this transition. Because in the end, I think we're going to be the big winners if we're willing to stick through these tough times.
With that, Mr. Chairman, I'll yield back.
The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. Mr. Squires, we're going to try to feed Mr. Boehner a little more chicken-fried steak in the days ahead, and maybe he'll understand it a little bit better than what he does right now.
Mr. BOEHNER. Mr. Stenholm, could you repeat that? The chairman was talking to me, I think on purpose, so I wouldn't hear this.
Mr. STENHOLM. That was on purpose.
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The CHAIRMAN. Mr. Boswell.
Mr. BOSWELL. First off, Mr. Fincher, I enjoyed talking to you in Washington recently. Thank you for those few moments we had a chance to spend together.
I noticed in your testimony you make the comment on these quotas that you can trade or lease up to 40 percent, the limitation was on there, and you would like to have that lifted. Did I understand that correctly?
Mr. FINCHER. Yes, sir, that's right?
Mr. BOSWELL. Now, going back to the conversation that has been going on, how would it help?
Mr. FINCHER. OK. Going back to the conversation, we're unable to get quota in any other way except either buy it or lease it. So, if we're able to grow for the domestic market, we have got to have the sale and lease across county line.
Now, in Texas, and from Congressman Stenholm's area down there, they're basically dry land and have planted peanuts, peanuts, peanuts, and peanuts on the same land and got to where they couldn't produce a good quality peanut. There is people down there that can produce peanuts.
But if sale and lease allowed those producers to transfer them peanuts out and they came to West Texas, it'd also put money back in that community down there to let them producers go into the cattle business or the hay business or whatever they chose to do, and that's where sale and lease came from in the 1996 farm bill.
Mr. BOSWELL. OK. Well, I think I understand it a little bit.
Mr. FINCHER. With the trade-off agreement, and then Mr. Stenholm was real active whenever we got this, when we come with this cap of the 40 percent, that was to keep the peanuts from moving all at one time, basically, and maybe hurting the community financially. But that turned out it really helped the communities financially, and we still have producers that would love to move the peanuts out.
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And under the present program, through 2001 will be the last time that some of these counties will be able to move some peanuts because they will reach the maximum, the 40 percent.
Mr. BOSWELL. OK. Just for whatever it's worth to you, I'm not going to try to raise peanuts in Iowa.
Mr. BARRETT. Thank you very much. Mr. Boehner, back to you.
Mr. BOEHNER. Mr. Lucas.
Mr. Lucas of Oklahoma. Thank you, Mr. Boehner. And I would like it stated for the record that apparently committee staff put me here sitting next to Mr. Boehner. This wasn't my choice.
Mr. BOEHNER. And it's not his fault he is sitting——
Mr. Lucas of Oklahoma. Weak attempt at humor as I hold up my peanut patty in my hand.
Actually, I think the discussion on the panel today is a good example of the challenge we face every time an agriculture appropriation bill comes before the United States House, and we take on amendments or challenges in the form of amendments dealing with sugar and peanuts.
The outstanding part of the accomplishment is that so far, in recent years, we've risen to the occasion each and every year and held our ground. But for the record, just to help reinforce those future discussions, if Mr. Squires would repeat one more time that portion of your testimony where you talk about the production and what inflation has done, could you restate that for the record? What the real bottom-line effect has been on the peanut quota.
Mr. SQUIRES. I said the U.S. farmers, and specifically peanut farmers, have not benefitted from trade agreements and domestic policy. Since 1996, we've lost an estimated 35 percent of the U.S. peanut farmers. In addition, we now receive an inflated adjusted price for domestic peanuts that has been reduced by over 26 percent.
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Mr. Lucas of Oklahoma. The result of a 10-percent reduction and the result of inflation eating away, I think that's a good point that needs to be made. In peanut country, producers are not staying even. In fact, changes are happening. That's absolutely important.
You really stirred my blood, too, John. Part of the challenges also that we face as we work towards the next farm bill, whatever that may be, we're trying to balance out all of these competing pressures. And I must say I appreciate testimony from everyone here.
I have to fall back, though, to one question I've been asking of each and every panel. In regard to land prices in your home communities, up, down, neutral, no transactions taking place? Give me a feel.
Mr. FINCHER. Basically the same with maybe a small percent upward.
Mr. HARRAL. Congressman, during late 1998–99, when people felt like the stock market was starting to top out or thinking about it, a lot of them started bailing out. They bought a lot of ranches in our area, which had a little bit of recreation potential, kind of hedging themselves there.
Once the market appear to be topped out with safe stock, I expect them to start again as the oil business continues to pick up here in Texas. Normally that's what happens.
Mr. SQUIRES. For the most part, it's been declining to a small degree.
Mr. VASSBERG. It remained basically the same until this year. For whatever reason, middle of the summer, prices started dropping off a lot, and there has been a lot of good irrigated and dry land available in our area.
Mr. Lucas of Oklahoma. Thank you. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Simpson.
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Mr. SIMPSON. Thank you, Mr. Chairman. I don't really have a question, but I do have a statement. Since you pointed out that there was sugar in the lunch, I don't feel like I would be doing my duty if I didn't point out there was also potatoes. And I have been noticing which members did eat their potatoes and which didn't. In reality, we don't care if they eat potatoes, as long as you take them.
But as far as being a dentist by profession, I have to tell you, Mr. Vassberg, I not only support, but I thank you for the sugar program. And I agree with you that we need to eliminate the debt reduction provision that was put in on sugar.
Mr. Stenholm asked about PNTR with China. One of the other questions that has been asked is about trade relations with Cuba. How do you feel about that?
Mr. VASSBERG. If it's totally fair trade, all things equal, I'm in favor of it. If you could guarantee me fair trade, standard of living adjustment, salaries and wages, insurance costs, tort reform, exchange rates, and environmental issues that are placed on us, we can compete with anybody, all things equal. I don't know if that answers your question, but I do believe it.
Mr. SIMPSON. Well, you bring up many issues when we start talking about trade relations. You bring up environmental issues, labor issues, insurance issues, all sorts of things like that. Is that a qualification on PNTR With China as well as other trade agreements that we have—when you say you support those agreements? That we should negotiate also equal——
Mr. VASSBERG. Congressman, it comes into play on any of the commodities that have been represented here today. Everything I just mentioned raises the cost of production in any commodity. So you have to take that into account to give us a fair playing field.
Mr. HARRAL. Congressman, it seems to me when you negotiate these trade issues, fair always has to be a factor if we blend it in with free. And as the gentleman over here was saying, we're in a transition period, and I have concern when we talk about just free trade, because in economic terms, nothing is free.
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Mr. SIMPSON. OK.
Mr. HARRAL. And sometimes I feel like some of us have been paying that free bill. And the modifications are maybe necessary, and in that area, we're drifting that way. But we need to modify the system as we go that direction.
Mr. SIMPSON. Well, I guess one of the questions that comes up when we talk about this, is that in Seattle at the WTO, that was one of the issues that came up about environmental issues, labor issues, and those types of things.
And I support our engagement in WTO, because I think it opens up markets around the world, but I'm not sure that I want the WTO Or other trade agreements to get that broad, that it becomes more or less a world government and controls everything.
And I thank you.
The CHAIRMAN. Mr. Thornberry.
Mr. THORNBERRY. Mr. Harral, you made reference in your testimony to predator control. It reminds me that's one of the issues that we consistently have a difficult time with in Congress, because there are some people in Washington, I think, who would give greater protection to coyotes than they would to farmers. And that is part of the thing that we struggle with.
It reminds me a few years ago, one of the committees I serve on, Resources, had a field hearing down in the Hill Country, and included in that was a tour of a sheep and goat operation where they were restricted on using their land because of a bird that would nest in some of the trees. I think Mr. Stenholm was there part of that.
All across our region now, we're hearing about prairie dogs, and if it's not one thing, it's another. It just occurs to me, and I don't know that this is a question, really, but while we are working on all of these difficult situations with the global market and price, we also can't forget those basic private property rights on what we do with our land, rather than the Government coming in and telling us what we can or cannot do, which is essential to our earning a living just like a price is.
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I don't know if you want to comment on that, but I think it's important.
Mr. HARRAL. Congressman, we definitely agree with everything that you're saying there. In our area, as large parts of the west, it's a very arid area. And we feel like we, as the ranchers, we're the ones providing the environment in the form of water, salt, feed, all the amenities that make life possible.
You go back 150 years when my ancestors came out there, there was a lot of grass, and the only place there were any deer or wildlife was around an isolated spring or a little stream somewhere. And by putting in the water, everything has multiplied. And with that, in turn, we have to be able to manage those coyotes at times. I mean, that's what stewardship is. It's management of our resources.
And thank you for your support.
Mr. THORNBERRY. Thank you, Mr. Chairman.
The CHAIRMAN. I want to thank this panel for their testimony and taking the time to come, and appreciate it very much. And I would invite our next panel to come to the witness table.
Mr. James Hinton, cotton, wheat, and feed grain producer from Floydada, TX; Mr. Casey Kimbrell, corn and wheat producer from Sunray, TX; Mr. Mike Mauldin from Idalou, TX; Mr. Weldon Melton, corn, cotton, and soybean producer from Plainview, TX; and, Mr. Jerry Oswalt, a cotton producer from Abernathy, TX.
And we will start as the individuals were introduced.
Mr. Hinton.
STATEMENT OF JAMES HINTON, COTTON PRODUCER, FLOYDADA, TEXAS
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Mr. HINTON. Thank you, Mr. Combest.
Honorable members of the Committee on Agriculture, thank you for bringing the field hearing to Lubbock and allowing me to present my testimony at this time.
Today I speak with knowledge and expertise gained from farming for the last 22 years. The Freedom to Farm portion of the 1996 farm bill has allowed me to make planting decisions each year based on goals of profitability and conservation. Fields can be planted to cotton, wheat and grain sorghum, or left fallow without having to meet exact acreage requirements. I can plan crop rotations 2 or more years ahead.
It is a relief to be able to farm the way conservation demands and markets influence rather than on an acreage allotment that was established back in 1980. Acreage controls have always been a sore spot to me. I hope we never see them again. I appreciate Freedom to Farm for that provision.
In the last 20 years, farm program payments have amounted to as much as one-third of my gross income each year. I can say that my economic bottom line is dependent upon those payments. AMTA loan deficiency payments and disaster payments have been most helpful in keeping my operation profitable.
In most years, the farm program payments have put the net into profit. I would rather all my farm income come from crop and livestock production only. That has not been possible due to the fallout of grain embargoes, monetary policy, trade barriers, regulatory hurdles, natural disasters, and missed market opportunities, just to name a few.
To get the best possible income, I now place my crop production in a marketing pool. I use futures and options contracts to hedge my production up to one-half of expected yield. Drought and hail-outs tend to mess up a marketing plan. Great rains make it a little easier.
My father has often told me that the difference between a good farmer and a not-so-good farmer is a 2-inch rain at the right time. To get the best possible yield at the lowest cost, I am using conservation tillage, LEPA water application, and genetically enhanced crop seeds to allow me to use new weed control technologies. The techniques and practices are not cheap, but they return greatly for the dollars invested.
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For a safety net, I take level one 50 percent crop insurance. It is the first level above catastrophic coverage. The premium for higher coverage takes too much from the profit margin in a year without insurance claims. The hardest check for me to write is for crop insurance premiums when crop losses do not trigger claims and my crop income is barely going to cover expenses.
Yes, there needs to be a safety net for farmers, but I do not believe crop insurance is the answer. Yes, Government subsidies for premiums buy down the cost. It is still too expensive for the money covered. If I had to pay the total premium, I would enroll only in catastrophic coverage.
The crop revenue coverage program is not an option for me. My insurance yields are too low to make it work. I believe that the subsidy paid for crop insurance would be utilized better if it was placed into a farmer crop loss savings account with withdrawals made only when disaster losses occur.
Many of my neighbors would rather have a fully funded disaster program paying on actual field losses instead of having to rely upon Federal crop insurance. In the last 2 decades, there have been numerous disaster programs for agriculture. Most have been under funded. We get our hopes up on the promise of getting relief from economic loss on a natural disaster only to get half.
Before Freedom to Farm, acres and yields were established as a normal basis back in the 1980's. Today the AMTA payments are made according to those 20-year-old acres and yields. Those established acres and yields do not reflect sound farming practices nor the current yields of our crops.
I realize that program acres and crop yields are used as a vehicle to make those AMTA payments, but this is an antiquated method. Making price support payments based on a formula tied directly to the actual production of each crop would make more sense.
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This is what makes the loan deficiency payment work. The problem is, that with extremely low prices, the payment limitation rules keep us from getting the full value for our crop from the loan deficiency payment.
At this time, I see that this committee needs to be considering the safety net for agriculture. We need the removal of trade barriers, we need the removal of laws and regulations that detract from our profitably.
Farming is complicated enough with weather, insects, and weed pests, broken machinery, and the cows breaking down the fence. We do not need excessive regulations to burden us.
The enhancement of price discovery at a fair market value for our crops and livestock that is tied more closely to the actual cost of production would help in keeping agriculture profitable and farmers financially solvent.
Thank you for listening to me today.
[The prepared statement of Mr. Hinton appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much.
Mr. Kimbrell.
STATEMENT OF CASEY KIMBRELL, CORN AND WHEAT PRODUCER
Mr. KIMBRELL. Thank you, Mr. Chairman and members of the House Committee on Agriculture. I really believe you are sincere in wanting to hear from producers on agricultural policy, and I am honored to have the privilege to speak before you this morning.
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My name is Casey Kimbrell. I am a full-time wheat and corn farmer from Moore County, TX. I currently rent 1,000 acres of irrigated cropland, and I'm making payments on an additional 160 acres.
I grew up on a small farm in Castro County, and I've had an active interest in agriculture since my youth. I began farming on my own in 1994 with the help of an FmHA direct operating loan.
Now, many people criticize the FSA Loan programs, but I believe they're essential to the future of American agriculture. Young farmers would have no other way to get started in this business without the FSA Loan program unless they came from a wealthy family.
The current instability in agriculture, however, makes this program seem like a waste of taxpayer dollars. When I received my operating loan in 1994, I was required to attend a borrower training course. And of seven young producers who took the course at the same time I did, I'm the only producer still in business. Now, policy failed those producers.
This is a monumental statement for the need of a farm policy that promotes stability. I would like to ask your consideration of an amendment to the current farm bill which promotes stability at the farm gate while allowing producers to maintain the flexibility of the current farm law.
This amendment called the Food Security and Land Stewardship Act, it's also called the Flexible Fallow Program, can help improve farm income with lower Government cash outlays compared to the current record-level spending.
The basic premise of the program is to give producers the voluntary option of creating conservation use acres as a percent of their planted acres in exchange for higher loan rates. This act is strikingly similar to the Flexible Parity Act of 1978 proposed by then Senators Bob Dole, John Tower, and Strom Thurmond, among others.
Dole's bill needed only two votes to pass in 1978, and I believe that had his bill passed, the eighties farm crisis would have been averted. The Food Security and Land Stewardship Act can be the legislation to end the current developing farm crisis.
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The Food and Agricultural Policy Research Institute has given a favorable valuation to the act. FAPRI estimates a net farm income under the act to increase an average $5.4 billion each year over the next 8 years. This makes farmers taxpayers rather than tax recipients.
Under the act, farmers will be able to assess and adjust their planting decisions on market demand, giving producers the freedom to manage risk. An overview of this plan is attached to my testimony.
Finally, I would like to address a commonly asked question regarding farm programs containing set-aside acres. The question being, what keeps South American nations and other nations from converting more farm land and producing enough to make up for the United States set-aside?
And to this question I have two answers. The first being, there is no evidence to suggest a correlation between foreign development and U.S. set-asides or domestic high prices for agricultural commodities. In the past 2 years, this has become evident in that the U.S. prices have been below depression-era prices if inflation is factored in. And at the same time, South America has continued to develop farm land.
This leads to the second answer to this question. Why would the United States want to depress our prices to the lowest in recent history in an attempt to curb development in foreign countries and maintain exports? Why would the United States want to destroy its own rural well being in order to maintain exports at a loss?
I believe the United States is a trend setter rather than a trend follower. Our foreign competitors will always trail the United States' lead in the pricing of agricultural commodities.
Global agricultural markets are here whether we like them or not, although we are not under a free market. The United States can either boost its economy, its rural economy, and in turn raise the standard of living in those developing countries, or we can lower our standard of living equal to theirs by continuing policy that promotes the giving away of our resources in the name of competition.
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The decision is yours. Thank you.
[The prepared statement of Mr. Kimbrell appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much.
Mr. Mauldin.
STATEMENT OF MIKE MAULDIN, BANKER, IDALOU, TEXAS
Mr. MAULDIN. Chairman Combest, Ranking Member Stenholm, committee members and guests, it is certainly a privilege to have you here today for the first of these hearings. We're excited for what you're doing.
I also want to praise you for the work that you've done and thank you for the crop insurance bill currently on the table and for the past two disaster bills. I can assure you that there are a lot of good producers out there today that are still going to be producers for next year that would not be there if it wasn't for the disaster bills passed in the past 2 years.
I am Mike Mauldin, an agriculture banker in Idalou, Lubbock County, TX. I have a strong interest in the well being of agriculture in rural America. There are many concepts in Freedom to Farm that are desirable, but there is an inadequate safety net as the law is currently written.
Currently, the safety net provision in Freedom to Farm does not compensate for world governments, economic shortfalls, and weather deviations such as drought, flooding, and other acts of nature. When it became apparent that Freedom to Farm reflected limited safety net ability, the producers whom I come in contact with on a daily basis expressed the desire of the safety net features of the Food, Agriculture, Conservation, and Trade Act of 1990. In other words, the old farm bill. In short, these producers were referring to target price system that was written into the 1990 law.
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Like you and many others, we have reviewed a variety of proposals to improve the safety net issue before you today. We have found merit in every proposal. Today we are offering a proposal that can be easy to administer, understand, and to implement. This is so easy that someone even of my knowledge can understand this proposal. You might call it the K-I-S-S system, Kiss Proposal of Safety Net Provisions.
Because of time restraints, we offer a basic outline of our proposal, and with your interest, we will provide you a more structured layout of this program. Today, because of my knowledge in cotton, my remarks will cover this commodity by example only. But this program functioned and will meet the needs of all crops.
In the 1990 law, in cotton, we observed a 72.9 cent payment rate, coupled with the CCC loan and the current market. These were all used to establish a value should a safety net be required. We stress, the basic implementation of this function has been written in the farm law of 1990.
We believe with existing technology, this section of the 1990 farm law could easily be structured into working harmony with the FAIR Act. We offer the above to you as a safety net for producer protection that would function as a section of the FAIR Act, offering an extended time span to let the free market system adjust. Implementation of this program should eliminate future disaster declaration.
Once again, thank you for these hearings and for listening to our producers' concerns and solutions.
[The prepared statement of Mr. Mauldin appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Mauldin.
Mr. Melton.
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STATEMENT OF WELDON MELTON, CORN PRODUCER
Mr. MELTON. Thank you, Mr. Chairman. As evidenced by these hearings, Freedom to Farm is obviously not American agriculture's final answer. Unfortunately, the number of friends the agriculture sector can call on is dwindling every day.
This committee is one of our most powerful friends, and we in agriculture appreciate your concern for our problems. We also appreciate Mr. Combest and Mr. Stenholm and the rest of the committee for asking for producers' input as you search for better solutions. It is doubtful, however, that the final answer will ever be forthcoming for American agriculture.
A change in the credit policy set forth in the 1996 farm bill that would help many farmers in my area would be to lengthen the amount of time a farmer is eligible to participate in the guaranteed loan program. This would greatly aid many beginning farmers and those that have suffered recent disasters.
In our present economic conditions, it does not make sense to arbitrarily force a farmer who is making good economic progress out of a program which costs the Government very little, if anything, before he is eligible for conventional financing. The time that a farmer can be eligible for the guaranteed loan program should be lengthened to reflect the difficult economic conditions farmers are facing today.
Sanctions such as those leveled at Cuba and threatened for China are counterproductive and accomplish nothing in the end. The current strength in the soybean market is in large part due to China entering that market as a buyer rather than a seller.
China needs to view the United States as a dependable supplier of her commodities. The granting of permanent normal trade relations to China would improve our image in China and around the world as a dependable supplier of those commodities.
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The doubling of the LDP limits and the approving of the use of generic certificates this past year was greatly appreciated and certainly have kept many family farms in business. Payment limits should continue at these realistic levels.
The administration's proposal and Mr. Stenholm's proposal to add supplemental income protection to the present bill would certainly help. However, the payment limit that it applied to the program makes it useless to myself and other farmers that are the true family farmers that the administration claims to try to help.
The program that is being proposed by the administration will primarily aid the hobby farmer that produces less than 15 percent of the Nation's produce. Payment limits must be set at reasonable economic levels, not politically acceptable ones.
If current payment limits are maintained, the safety net for myself and other farmers will not work during depressed commodity prices such as we have seen in the past year. One of the farmers main safety nets that was established in the 1996 farm bill is the marketing loan for our commodities.
Secretary Glickman recently announced that he had frozen those marketing loans. That action should have been taken in 1996. Marketing loans, in order to be an effective safety net, should have had a frozen floor, not a frozen ceiling. Marketing loans also should have been set at a more realistic level in relation to actual cost of production. That part of the safety net needs to be changed.
Inherent in the bill was the need for the American farmer to compete on the world market. No provision was established in that bill for adjustment of the marketing loan in relation to changing world conditions that drastically affect our access to world markets.
In order to connect in the marketing loan, our safety net, the world conditions that affect our trade in the world, marketing loans need to be tied to the strength of the dollar in 1996, when the bill was written. A benchmark of what the dollar was worth in comparison to the yen, mark, pound, and other major currencies in 1996 should be established.
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If the dollar goes up 10 percent in relation to that benchmark, then the marketing loan should increase 10 percent as well. This would help the American farmer when one of our major competitors devalues their currency with the end result of undercutting our price and result in loss of sales.
It would also inoculate us from financial woes such as the Asian flu that resulted in loss of sales to that vital area. This would also assure that when the rest of our Nation's economy booms as it is today, the rural economy would enjoy similar prosperity.
When the current farm bill was passed, the farmer was promised that the United States would work to ensure that he would compete on a level playing field. One area of great concern to the American farmer that has not been addressed at all is the unlevel playing field of production costs. Our foreign competitors are buying inputs from U.S. companies at much lower prices. This places the American farmer at an economic disadvantage.
The American Soybean Association has recently chastised Monsanto for unfair pricing of seed and technology. The Argentinians in 1999 paid $9 a bag for Roundup Ready soybean seed, while American farmers were paying $21.50 a bag for the same seed. This is just one example of the unlevel playing field.
As I said at the beginning, it is very doubtful that a final answer will ever be forthcoming for American agriculture. Help from our friends here on this committee should come in the form of lengthening the time a farmer is eligible for the guaranteed loan program, the elimination of sanctions that deny the American farmer access to markets that was promised him in the 1996 farm bill, and along those same lines, the granting of permanent normal trade relations with China.
Congress should also institute changes in the marketing loan program, our safety net, and make it a true safety net and not just a floor for the American farmer to slam into when he falls on hard times. This would help the American farmer in his quest to compete in a world market against foreign governments and to just be able to stay afloat until next year.
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[The prepared statement of Mr. Melton appears at the conclusion of the hearing.]
The CHAIRMAN. Mr. Oswalt.
STATEMENT OF JERRY OSWALT, COTTON PRODUCER
Mr. OSWALT. Mr. Chairman, other members of the committee, my name is Jerry Oswalt. I'm a full-time cotton farmer near Abernathy, TX, just up the road. I also serve as the chairman of the Panhandle Plains Federal Land Bank Association, a farmer-owned agriculture credit cooperative.
I'm here today as both a farmer and local lender to share with you a proposal to reform the Federal Crop Insurance Program, what I believe should be an essential part of any serious discussion about improving our Nation's agriculture safety net.
As a farmer, I am vitally interested in ensuring that I have the tools needed to manage the risks inherent in agriculture production. And as a lender, I depend on crop insurance to be a backstop for our borrowers.
In an effort to help develop possible solutions rather than merely point to the problem, several of my peers and I recently developed a proposal that we believe offers a viable alternative to the current approach to Federal crop insurance. I've attached a comprehensive analysis of this proposal and am accompanied today by a representative from the firm AgriLogic, which did most or has done all of the economic analysis of this proposal, and they could help discuss this in detail and respond to questions you have about that part.
But I would like to describe the concept in general terms. Today, when I go into my lender to establish financing for the year, we sit down, develope a financial plan. We establish an anticipated price for my commodities, how many units I intend to produce, and an anticipated production yield. From that information, a projected income is established. All things being equal, this is the amount of money my lender is willing to loan.
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Under this proposal, an insurance policy covering replacement cost would be purchased at the time the loan is made, just like when someone purchases a home or a car. Approval of the loan is contingent upon proof of insurance. The insurance coverage would be equivalent to an amount necessary to cover the replacement cost; or, in other words, a farmer's cost of production.
Lenders would gladly finance the money required to pay the premium up front because they know the repayment ability of that borrower is protected in the event of a disaster. These premiums then would be forwarded to a Federal fund that would pool them for the purpose of making indemnity payments.
In years when claims are low, the pool would grow and earn interest and serve as a reserve for later years. Although the pool would have to be federally subsidized, just as crop insurance is today, the effect of this type of concept is very compatible with the cooperative principles that governs my lending institution. But instead of farmers pooling their resources for the purpose of creating lendable equity, farmers would be pooling their resources for the purpose of self-insurance.
Under this proposal, if sufficient income is not generated to cover the cost of production either due to lower than expected prices or production losses, an indemnity payment minus the deductible is drawn from the pool and paid to the farmer.
The farmer and his banker are both happy because they know his debt can be repaid either, ideally, of course, through higher prices or more production or by an insurance payment or by some combination. But the bottom line is that if the farmer experiences unusually low prices or production, he can stay in business to farm another day, and that's what insurance programs should be about.
This type of program does not create a guaranteed income for the farmer. He has to get that from the marketplace or some other support program. But it serves as a bare-bones safety net to help keep farmers in business during times of disaster. It also helps eliminate the current disincentive for young and beginning farmers to make a career in production agriculture.
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Under this program, farmers should be required to retain production receipts and sign a form representing the facts regarding their input costs. If found to be fraudulent, the claim would be reduced or the policy cancelled.
In summary, Mr. Chairman, the current risk management strategies have proven ineffective for many producers due to factors beyond their control, and this situation begs for a reliable and predictable safety net that will adequately protect them from these conditions.
I believe that this cost of production insurance concept would provide producers across the United States adequate coverage at affordable prices. In addition, if administered correctly, Federal costs can be reduced, abuses curbed, and federally subsidized insurance payments would reach the producer.
As your committee considers making changes to Federal policies, I urge you to consider this proposal as an important element of the overall agriculture policy. Thank you again for your attention to this matter, and I'd be pleased to respond to your questions.
[The prepared statement of Mr. Oswalt appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you all very much.
And, Mr. Mauldin, we would very much like to have submit your proposal. We're always looking for good ideas. Knowing you, I'm sure it's a good idea.
Mr. Oswalt, it sounds to me like you've been attending some of my crop insurance risk management hearings and meetings that I've had for the last year and a half about—I happen to call it the agricultural trust fund, though, is what I've been referring to it. But the purpose of it would be basically the same.
One of the things that I wanted to come back to you, Mr. Hinton, on your initial comments about crop insurance, in your less than desire to buy crop insurance today based upon what it is that it provides, let me just ask you this: Do you think, as a farmer, that you would be more inclined to find crop insurance attractive versus what you have today if you had a program, albeit the premiums are going to probably be higher, but you're buying insurance or risk management that is based upon your ability to produce as a farmer, not tied to the land, but your ability as a producer as based upon good management practices, and where you were efficient and effective would be a benefit to you rather than a detriment to you?
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If it was based on productive capability, as I mentioned, your productive capability and your cost of production as a farmer that went into it, and it not only covered you in the case of loss of crop due to natural disasters or weather, but also had a revenue assurance feature in it in which you could buy insurance against price?
Mr. HINTON. I would like to see it to be an insurance that would be against pound of production or pounds of production of cotton as such. Price is a consideration that I can take care of myself in pool marketing and risk management myself with options and futures contracts.
That, I think, that if we are insured, like you say, with my cost production of what I can do myself as a farmer versus not what my dad was doing 20 years ago or what was established a long time ago——
The CHAIRMAN. Well, the detriments that we have heard to crop insurance—and, again, we could have this whole hearing on crop insurance. But the detriments we've heard over the years to the crop insurance is you cannot buy—it's an antiquated system in which your yield is measured. You can't buy it based upon what your input costs would be today. You can't buy it to cover the cost that you are incurring trying to produce a certain amount of crop, and that it's a history that really is not reflective of what your productive capability is.
All of those are ideas that are going into trying to reform crop insurance, again which basically this committee started a year and a half ago. And as I have referred to a number of times, is its step one of major risk management reform.
In order to be able to have the support that we have got to in looking at this in the future, we have to recognize that not all parts of the country are as high risk as ours are. There are a lot of areas of this country that I have been in and a lot of people that I've talked to that produce in those areas that basically say they've never lost a crop due to weather.
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Mr. HINTON. The Midwest, for instance.
The CHAIRMAN. For instance. They've had changes in their production, but they've made a crop and this is a legitimate concern. They don't feel like they should be buying crop insurance in a very low-risk area, paying a premium that subsidizes farmers who farm in a high-risk area. I mean, that's understandable.
They also don't have nearly the desires to buy crop insurance or a risk management program that is purely based on loss. Their biggest concern, certainly recognized the last 2 years, has been in price. And, so, I think you've got to have availabilities of all of these features for it to be attractive and something that nationally people want to be able to participate in.
The example that I use is that if I'm a widget manufacturer and you're a widget manufacturer and we office right next to each other, and you make high-end widgets and I make low-end widgets, and you insure your inventory, your insurance is going to cost more because of the price of your widgets versus mine. If we both burn down and lose our widgets, then we're going to have insurance to cover them. Same thing is, is if I build a house on the Gulf Coast of Florida, I expect my hurricane insurance is going to be a little higher than it is in Lubbock, TX. That is just a cost of where I decide to live and what I'm doing. And that person in Florida—I shouldn't subsidize that person in Florida's higher insurance because that's where they chose to live.
So, these are all things that go into the mix. But in order to come up with a final product that makes you happy and makes a farmer in a low-risk area happy, we have to recognize what the risks are that that that person is facing and try to develop a policy or a program by which one can do that.
And, again, back, Mr. Oswalt, to your comments. As I've been holding these crop insurance seminars for months, one of the things that I have said is that unfortunately you look at the cost of overall agricultural programs, and it has seemed to be a little bit lower if you just look at what has been budgeted for.
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But the $15 billion we've spent over the last 2 years is $15 billion that came out of somebody's pocket. That's money that could have been spent for something else.
I've said let's be honest with it. Let's budget it up front. Let's recognize the fact, and let's put it in there; and, in those good years, we don't have to have it. Again, it's what I call my trust fund, my agriculture trust fund. The purpose of it is basically the same.
And this is the direction that we need to continue to go. But looking at it from the standpoint of—and I've used many times the example of the farmer going in to his lender and sitting down with him and looking at what it was going to cost for the year, and then—and then be able to finance that crop based upon what is it that that cost is going to be and where his or her exposure is.
And I will assure you from talking with a lot of people in the agriculture financing business, they have all indicated they would be very happy to finance the premiums that it would cost to buy insurance in which people actually felt was adequate versus that that we've got today.
So, I think we're pretty much all on the same track. I think there is a tremendous number of similarities of what I have been talking about and what it is that you are proposing.
And I gave a longer speech, and I apologize.
Mr. Stenholm.
Mr. STENHOLM. I was going to yield you my time. You were going good, Mr. Chairman.
The CHAIRMAN. OK. Well, I got it. All right. Give me 5 minutes more.
Mr. STENHOLM. All right. I associate myself with the chairman's remarks. Mr. Oswalt, I commend you and those who have been working on your proposal. It's one of those innovative, thinking-outside-of-the-box concepts that I think every one of us need to take a good hard look at, because I think there is something in there that we might want to seriously, seriously consider as we look at where we go with the risk insurance for the future, as we've talked about today.
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Your proposal meets that criteria of thinking outside the box, and I commend you for that, because so much of the rest of it we're trying to fine tune that which we're doing. And everyone agrees that we've got to do a little bit more than that in some areas.
Mr. Kimbrell, the information that you submitted in your testimony, which has been made available to the committee before, but also causes us to want to think outside the box regarding exports, et cetera, and policy.
It's fascinating when you look at this—this amount of numbers that have been put together, a 25-year history that shows that we are not exporting any more bulk corn in 1999 than we did in the 1975, 1979 average. We're not exporting any more bulk wheat in 1999 than we did in 1975, 1979, and really haven't changed all that much in any 5-year, no matter what the price is, no matter what our policy is, et cetera.
These numbers have caused me to think and to challenge economists all over the United States to come up and say, ''OK. What is wrong with these numbers? Or more importantly, what do they mean? What does it really mean to us as it regards to policy?''
And it means something. It means something. As we heard from the previous panel, when we talk about a level playing field, it is very apparent that there is somebody out there in the world that's prepared to spend any amount of money necessary in order to maintain their share of the market, regardless of.
Now, how long they can do that is a question that is very meaningful. No country can have an unlimited budget for agriculture or anything else, and the Europeans are challenging that today, we think, in some areas, even with cotton. It matters not what commodity.
But we also have to acknowledge that domestic consumption has gone up, and domestic consumption is going up. And part of that directly relating to the grains is the fact that we are able now to export more and more beef, hogs, poultry, et cetera. That's where our market opportunities are.
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Many times grain farmers lose sight of that, and that's something we cannot do. We're competitive in that. We're very competitive in that area, and that's part of our market from the grain standpoint to livestock producers.
So, when we say exports are not going up, they are going up through value added. And how many times have we talked about value added in this? But you provide this in your testimony, and it's something that I assure you the committee will have ample opportunity as we have the additional hearings in Washington in which we will be asking economists from all walks of life and other parts of agriculture to interpret this and to have the kind of discussions that I'm interested in looking forward to having.
A question here to you, the same question I've asked the other panel. Do you support the United States granting public normal relations with China; and, second, do you support the lifting of all unilaterally imposed sanctions by the United States on countries as pertain to food?
Mr. HINTON. I think we need to lift all embargoes, all the trade barriers and everything to every country in the world.
Mr. STENHOLM. Which, by the same token, you would say we ought to grant normal trade relations with China?
Mr. HINTON. Every one.
Mr. KIMBRELL. I feel the same way as far as the trade barriers and the economic sanctions go. I think they should be lifted. That's putting us as U.S. domestic farmers as individuals in competition with other governments. Using us as a political tool, in other words.
And as far as the trade relations with China is concerned, I am for having normal most-favored nation and so on and so forth trade relations with China, but with certain reservations, because——
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Mr. STENHOLM. Mr. Kimbrell, that's not the question that's before us at this moment. That's not the question that we will be voting on.
The question is whether we shall treat China as other countries do. The point you raise is secondary, which we will gladly participate and want to, because that's the level playing field.
In the case of what we will vote on, I think a lot of people do not quite understand this. What we're voting on is whether we will treat China as all other countries treat China. Then you get into WTO, you begin to negotiate fair levels of the playing ground regarding other countries and whether or not we shall. And this is something domestically as we've heard from witness after witness. The value of the currencies, for example.
I would hope that we would be able to recognize that, because there is no way producers in America can compete when another country has a 25 or 40 percent advantage just on what the worth of their money is.
Do we grant the same trading relations to China, or will we allow you, as a corn producer, to participate as others do?
Mr. KIMBRELL. Yes, but with you being members of the House Committee on Agriculture, you all need to take us into consideration when the United States maintains normal trade with China.
Mr. STENHOLM. Thank you.
Mr. MAULDIN. Yes, knowing that the Americans will never be sold out on the free trade.
Mr. MELTON. Yes, definitely, Mr. Stenholm. But along the WTO Lines, and I state that in my written testimony, the United States does not need to surrender all of our trading tools to the WTO If the WTO Does not act in a timely manner, the United States needs to step in and protect the farmers' rights in those trade organizations.
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Mr. OSWALT. Yes, I would.
The CHAIRMAN. Mr. Barrett.
Mr. BARRETT. Thank you, Mr. Chairman. I, too, would associate myself with the remarks that you made, Mr. Oswalt, very interesting; and, I know the chairman has been working in this area for sometime as well. I think it's an interesting idea.
In my previous life many years ago, I was in the insurance business. This is doubly intriguing to me, and I think it has some possibilities. And it is nice, as someone has said, to get out of the box with a new idea. I think it deserves a lot of attention and I assure you it will get a lot of attention.
Larry, I want to also take a moment to thank you again and Charlie Stenholm and others who had anything to do with this hearing today. I want to take a moment to thank every member, and I know you will as well, of the panels who shared with us. I think this has been some exceptional good testimony today. It has been a long morning already for all of us, but it's been worthwhile.
We will take this information back to Washington. We'll be sharing some of it with the other nine regional hearings around the country that Chairman Combest will be hosting, and he has also indicated that there will be, to a limited extent, also some subcommittee hearings as well in some other parts of the United States.
We're serious about this. As policymakers, we've got to get input from people like you as we begin to look at changes, if any, that need to be made in our present farm policy. And we can't get it from any better sources than what we're doing today and what we'll be continuing to do for the next couple of months.
I thank you personally for what you have done for us today. Because as, again, policymakers, we've got to look back to the past, look at our mistakes, look at changes that need to be made. And I think in light of the tremendous economic changes that are taking place in this country today and the political climate that we have in this country today, we can't do enough in this regard.
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The key question is how to help producers in agribusiness community in this climate, in this period in which we're living now to deal with the structure in a new millennium and to make dog-gone sure that given the price and the yield risks that are confronted today, that we do the right job. I think that's probably the key question today.
So, again, thank you, Larry, and thanks to the rest of you.
The CHAIRMAN. Thank you, Mr. Barrett.
Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Chairman.
I have kind of a little quiz I give myself. Am I glad I came to Lubbock, TX? Yes. And if it was to do over, I'd come again. That's my testimony to you that it has been time worthwhile.
We've had a lot of good testimony here today. A thing that concerns me, I had an opportunity with Senator Grassley to host some ambassadors during our state fair last year, and we got in a discussion about some of these things and some of these inequities, and how we're going to have world market and level playing field, a fair situation and so on.
And he was a little defensive. And I won't tell you it was a European country. But, anyway, I said, ''Does it ever occur to you that we, not very long ago, we put two superpowers, treasury against treasury, and we bumped heads, and we escalated the arms race so we could burn the Earth time and time and time again until we broke one country.''
We broke it, and put a pretty heavy burden on ours. We can handle it, and we're going to handle it.
Now, would we be so foolish to do the same thing with food and fiber, start bumping treasury against treasury and just see who's going to end up when somebody drops off.
I said, ''Surely we've got more sense than to do something like that.'' We've got to come together, we've got to talk, and we've got to work it out. And the thing that drives me probably as much as anything that's happened here today is hearing something like has been discussed here.
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I like what you've shared. I like what others have shared, too. I don't want to keep this guy Kimbrell out there farming. That's who we need out there to stay with it. Some of us old gray hairs have been around a while, and that's fine. But I want him to stay out there. That's our future.
He's got to make a living. He's got to be able to prosper. He's trying to pay for 160 acres and pay the lease and rent on another 1,000 acres. He ought to have some protection, so when he goes in there and figures out his inputs and what's going to happen, that if he does have a bad year, he just doesn't go in the tank like some of us have done, and then spent years and years trying to work our way back up out of that pit.
Now, we're surely smart enough to not do that, and I think that, Mr. Chairman, I think you're leading us to the right direction. I think you're taking us to the promised land here. So, let's keep on task.
I think we can do it, and I never think for a minute it's going to be easy, but I think we can do it if we'll just put this kind of effort into it. And we're not there yet, but I like a lot of things that I've heard here today, and I want to thank you, Mr. Chairman, for holding these meetings and including me, and I want to continue to work with you and Charlie and see if we can't come up with something for the good of our country and the good of agriculture.
And I'm committed to that, and I'm looking forward to continue it, and I want to keep you out there, young man. Thank you.
The CHAIRMAN. Thank you.
Mr. Boehner.
Mr. BOEHNER. Mr. Chairman, thank you. And I just want to thank all of our witnesses who have offered their testimony today and all of those who have come to listen and participate, and also thank you, Mr. Chairman, for the opportunity to come to Lubbock.
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I think we've heard good testimony today, a lot of good ideas, and I think all of you in the audience that have listened have a better appreciation for the challenge that we face in trying to find a consensus. If we can't find a consensus in one location, think about the fact that we're going to nine other cities around the country and getting testimony. And our job is to try to synthesize this, and it's a tough challenge; but, Mr. Chairman, I think you're up to it.
The CHAIRMAN. Thank you.
Mr. BOEHNER. You and Charlie can solve it all. But it's been a great opportunity. I'm glad to be here.
With that, Mr. Chairman, I'll yield back.
The CHAIRMAN. Thank you very much.
Mr. Lucas.
Mr. Lucas of Oklahoma. Thank you, Mr. Chairman, and once again thank you and the ranking member for the beginning of what's going to be a very thorough and complete set of hearings across this country.
Part of the challenge has been alluded to by so many of my colleagues, is one determining what good economic policies we can come up with that will help production agriculture, that will help rural America, by the same tone, same time, be policies that are doable politically.
And that's no simple challenge, from my own perspective, being the Agriculture Committee member from the Oklahoma delegation, being I think viewed by most of my neighbors in Oklahoma as the country congressman in our six-person delegation.
Forty percent of my constituents live in Oklahoma City. So I spend a good amount of my time not only working and worrying with you and my fellow producers in Oklahoma about what we do for agriculture in rural America, but I spend a huge amount of my time trying to explain to my urban colleagues why it matters.
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It matters. I know it matters, but getting that message across to the ultimate consumers are the fruits of our labor. I would hope that that's part of what we come away from this hearing with, is building the case for that 90 some percent of us or 95 percent of us or 97 percent of us, whatever, who don't live in rural America, who don't have a direct connection in agriculture, about why this is so important and why we have to succeed, why we have to succeed. And this is a step in that direction.
Thank you, Mr. Chairman.
The CHAIRMAN. Thank you, Mr. Lucus.
Mr. Thornberry.
Mr. THORNBERRY. Thank you, Mr. Chairman. I appreciate again you and the other members of the committee allowing me to sit in and participate here. I agree we've gotten some very good testimony today.
We still don't know all the answers. Mr. Stenholm mentioned the export numbers. We don't know exactly why that's happening. I'm interested in the point Mr. Melton made about how a company can charge such different prices for the same product here versus overseas.
We hear that all the time when we talk about prescription drugs as we visit with constituents around, but I don't know the answer why that exists and what the reasons are. Are we doing it to ourselves, so there is still some good questions, I think, that we need to work on.
Just to follow up with what Mr. Lucas was saying, that's a challenge we all face. My view is, the more we can have consensus in agriculture, where we're all singing off the same song sheet, the better chance we'll have to convince our urban colleagues to do the right thing.
And we'll never all agree exactly, but the closer we can get, I think it strengthens our hand. And I think your hearings will move us a long way in that direction.
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And thanks again for letting me be here.
The CHAIRMAN. Thank you for your being here and for your participation.
I want to finally say one thing, and then Congressman Stenholm wants to speak.
There's a number of things we're going to be looking at in this committee this year. There is going to be some serious amount of time and travel spent in this. But 21 members of the House Agriculture Committee, I believe everyone at this table, was in Seattle at the World Trade Organization talks, and we were up there in behalf of American agriculture.
And we were very encouraged through some of that discussion, before it finally ended with no agreement, about the fact that the language was to begin to discuss the elimination of export subsidies, and which if that goal could be accomplished, it would be very beneficial to American agriculture because other countries, primarily the Europeans, subsidize their exports many, many times greater than we do.
But when that could not even be reached at that point, I put out a statement when I left Seattle that said that I hope we don't enter into a bidding war on trade. And I agree with Leonard Boswell, this would be foolish if we do that.
But unless those countries who are putting the American farmer at peril are willing to begin to discuss the elimination of those subsidies, I don't intend for us to leave our farmers empty-handed. And if we're going to enter a bidding war, I intend for us to have plenty to bid with.
I think we need and we are going to look at every tool that we currently have on the books to enhance American agriculture in exports, and we're going to look at some we've never even thought of before.
Mr. Stenholm and I met recently with a country that's one of the 15 members of the European Union, and they seem to be very concerned about the fact that we were going to look at our entire export subsidization policy.
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And they said, ''You all need to wait to do this'' and we can't wait any longer. And they asked when it was going to begin, and I said it already has. And that is a part of what these hearings are going to be, is we're going to be looking at those programs that have kept the American farmer at a disadvantage by other countries.
And I don't want to enter into that bidding war. I don't want to enter into that game. But I assure you, if that is the only option that we have, I intend for American agriculture to go into that war as armed as they possibly can be.
And I would recognize Mr. Stenholm.
Mr. STENHOLM. Thank you, Mr. Chairman, and thank you for your leadership in scheduling not only this hearing but the other nine that I look forward to joining you with and having these kind of discussions and inputs from producers all over the country. And I hope that we will be joined by more of our colleagues on the Agriculture Committee at future hearings so that all of those who will be making the preliminary decisions along the lines of which we've all heard the chairman state, and I associate myself 100 percent with his remarks.
I say this also, thanking you again for your hospitality here in Lubbock. And in spite of the fact that I appreciated the fact that you issued me a temporary green card to come into your district, when it wasn't your district and it's really Thornberry's, and in spite of the fact also, I mean, Leonard, you got carried away there; but, now, we happen to be in adjoining districts, we happen to be very good friends, which I hope is obvious. But I'm not quite ready to elevate you to Moses, as yet. You're still going to be ''Mr. Chairman'', and we look forward to working in a bipartisan way with you, Mr. Chairman, on working on some of these answers.
Thank you.
The CHAIRMAN. As we end this, and I know I'm going to pay for this dearly later, but as we adjourn this hearing, I would like for you all to join me in wishing my wife happy birthday tomorrow.
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This hearing is adjourned.
[Whereupon, at 1:20 p.m. the committee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Testimony of Henry Jo VonTungeln
Mr. Chairman and members of the committee, good morning. Thank you for the opportunity to appear before the committee. My name is Henry Jo VonTungeln. I operate a wheat and stocker cattle farm near the town of El Reno, OK. I am here today representing the Oklahoma Farm Bureau.
I have several important issues that I would like to discuss today. First and foremost, I believe that in an effort to adequately review current Federal farm policy we must re-examine the goals that Congress envisioned during the creation of Freedom to Farm. I believe a market oriented, flexible, and non-intrusive Federal farm program is what Congress had in mind in 1996. Even in light of the many complaints that we have heard in the last 2 years, these terms still apply to the type of farm policy that best fits today's farmer and rancher. I continue to support the flexibility contained in the 1996 FAIR Act. I do not, nor does the Oklahoma Farm Bureau, support a return to government supply management, including: mandatory set-asides, base acres, or production quota systems. However, if farmers and ranchers are to remain in business and sustain their livelihoods into the future, several changes in national farm policy need to occur.
The authors of Freedom to Farm sought to create policy in which farmers could receive a profit from the market rather than from Government payments. This philosophy seems to been pushed aside over the last several years. With bad weather, poor prices, and a failing export market, agricultural producers have found themselves struggling to survive. Without the assistance provided by the Federal Government over the last 2 years, a number of producers would no longer be in business. I want to thank each of the members of Congress who have come to the aid of producers throughout these tough times. I am sad to say that it appears inevitable that farmers and ranchers will be in as much need for assistance in 2000, as in the previous 2 years.
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While direct and immediate assistance has been and continues to be extremely important, it is imperative that we not overlook the long term changes that must occur for future generations of agricultural producers.
I believe that Permanent Normal Trading Relations for China must be a top priority of farm state representatives this session. We must re-establish a level of the agricultural exports as seen in the mid–1990's. China represents the largest and most viable growth market for agricultural goods. The level of import tariff reductions achieved under the unilateral agreement for China's WTO entry is a major breakthrough for U.S. agricultural exports. I believe that the Chinese market will prove to be a major consumer of U.S. wheat and beef supplies. Permanent NTR for China is a large piece of the international trade puzzle.
We must continue the cry to eliminate all unilateral trade sanctions. From the largest country to the smallest, agricultural producers should be afforded the opportunity to sell in every market around the world. History has taught us the unilateral sanctions are an ineffective foreign policy tool. Elimination of the current unilateral sanctions on Cuba should be a top priority in the coming year. Cuba will purchase more than $200 million in agricultural products this year. I have to ask what sense it makes to watch the French and Australians fill a market that lies a short 90 miles off our shore.
We must adequately fund and utilize the foreign access marketing programs that are at our disposal. If used effectively, these programs could have a major impact on creation of new international markets for agricultural products. Specifically, I want to ask for your attention to the continuation of full funding of the Market Access Program (MAP) and the Foreign Market Development Program (FMD). These programs are utilized by nearly all exported commodities and will serve to create demand in the international market.
One immediate change that could be implemented during the 2000 growing season is the inclusion of LDP payments for producers who choose to graze-out their crop. I strongly urge the committee to support the provision contained in the Managers Report of the FY 2000 Appropriations Conference Report regarding ''in lieu of'' LDP payments for graze-out. This language goes hand in hand with the philosophy of Freedom to Farm. Congress should make every effort to allow producers the flexibility to maximize revenue from their operations. During these times of extremely low prices, it seems imprudent to force producers to mechanically harvest a crop they can use more efficiently by grazing.
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Once again, I want to thank the committee for the opportunity to address these important issues. I will be happy to answer any questions the committee may have.
Testimony of Byron T. Vassberg
Good Morning, my name is Byron Vassberg. Chairman Combest, thank you for bringing your committee to Texas and inviting me to testify today.
As a member of the Board of Directors of the Rio Grande Valley Sugar Growers, a cooperative of 130 sugar cane farmers in south Texas, I am here to discuss sugar farming. I have been farming and ranching in the Rio Grande Valley for the past 15 years growing sugarcane, cotton and grain sorghum and raising registered and commercial Brahman cattle.
As a proud farmer, it is my hope that my children will have the opportunity to live off the land as well someday. But, Mr. Chairman, let's be honest. Times are hard on the farm and I would like to tell you all a little about the concerns that me and my fellow sugar farmers around the country share.
American sugar farmers are efficient farmers by world standards; two-thirds of the world's sugar is produced at a higher cost than the United States. However, American sugar farmers, like many other farmers around the country who grow other crops, are struggling this year.
The problem. Oversupply and loss of market confidence in the ability of USDA to maintain a viable program have resulted in severely depressed producer prices for raw and refined sugar. The U.S. raw sugar price has plummeted about 25 percent since July 1999. Raw cane sugar prices have fallen from about 22.5 cents per pound to 17 cents, the lowest level in 18 years. Given current production estimates, this represents a $400 million drop in the value of the domestic cane sugar crop.
A recent sharp drop in refined beet sugar prices, down 6–7 cents since July 1999, could cause losses to beet producers exceeding $600 million. Total potential losses to the sugar industry are over $1 billion on the value of the 1999/00 sugar crop. According to USDA, raw cane forfeiture levels range from 19.22 to 20.76 cents; refined beet sugar from 22.71 to 26.49 cents.
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As of March 1 of this year, the Commodity Credit Corporation has over 1.3 million tons of sugar under CCC loans (770,000 tons of cane sugar and 540,000 tons of beet sugar—valued at $524 million). Massive forfeitures are a certainty unless some action is taken immediately to salvage prices. Market prices are several cents below forfeiture levels in every region of the country. Producers are placing additional sugar under loan as they continue the harvest and forfeitures could be even higher.
Aggressive action now to remove and dispose of sugar from the domestic marketplace would relieve the economic hardship on U.S. sugar farmers, diminish the threat of sugar loan forfeitures and save the Government money relative to the cost of accepting, and storing, larger volumes of forfeited sugar.
Government action to address this problem is appropriate because so many of the factors leading to the price drop are more closely related to Government action and inaction, than to producer decisions. Furthermore, the Government has responded to similar price drops for other program crops by providing tens of billions of dollars in assistance over the past several years. While these expenditures on other crops are appropriate, they have had the unintended effect of worsening the beet and cane sugar price crisis, as this financial relief enables many farmers to invest in new or additional beet and cane sugar production.
Sources of Problem. Producer prices for sugar had been essentially flat since 1985, with two results: Marginal producers dropped out; 2. Efficient producers invested to become more efficient by improving field and factory yields and by maximizing utilization of plant and equipment. Many expanded beet and cane acreage to improve efficiencies of scale. In some areas, acreage expansion was magnified by the catastrophic drop in competing crop prices during the past several years.
Furthermore, the following Government actions and inactions have contributed to the price collapse: 1. In the Uruguay Round of the GATT, the Government bound U.S. sugar imports at no less than 1.256 million short tons, about 12 percent of consumption, regardless of whether the U.S. market requires the sugar or not. The WTO import requirement is NOT based upon the demand or needs of the market; it makes us residual suppliers to our own market.
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2. In the NAFTA, the Government: a. Agreed to import additional quantities of sugar from Mexico, whether the U.S. market needs the sugar or not.
Reduced the second-tier tariff on imports from Mexico to the extent that second-tier sugar began to enter the U.S. market and unpredictable additional imports are possible, whether the market needs it or not.
Speaking of Mexico, I would like to bring to your committee's attention another problem we are having with Mexico. Simply, south Texas agricultural producers are not receiving their fair share of water from six Mexican tributaries of the Rio Grande. A 1944 treaty between the United States and Mexico allots to Texas users one-third of the tributaries' flow. However, since 1992, water that should have flowed into the Rio Grande and been shared with Texas users instead has been impounded in reservoirs along the tributaries. The shortfall to Texas water right holders amounts to more than 1 million acre-feet of water for the period 1992–97 and more than 400,000 AF for 1997–99. Mexico is, once again, not living up to an agreement it signed with the United States. Members of our local government have written to our U.S. Senators to seek their help—I just wanted to bring this matter to your committee's attention as well.
4.The 1996 farm bill: The bill froze the U.S. sugar support price at the 1985 level, and caused the market price for other crops to drop so low that many producers had both the need and the ability to switch to sugarbeets and sugarcane because of the aid of AMTA, loan deficiency, and other disaster payments.
The farm bill also singled out sugar to be the only program crop without the guarantee of non-recourse loans and a minimum price safety net.
5. The Government has permitted rampant quota circumvention by failing to prevent a product created from world dump market sugar solely for that purpose, stuffed molasses, from entering the United States outside the import quota. Unlimited quantities are entering our market.
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6.The Government delayed the announcement of the 1999–2000 sugar import quota (TRQ) nearly 2 months past the normal announcement time, and more than one month into the actual quota year, which is unprecedented. During this period of uncertainty, the trade lost confidence in the Government's ability to maintain an orderly market, and prices fell calamitously.
7.The Government exacerbated the price drop by permitting one refiner to import 100,000 tons of dump market sugar under the re-export program and extending the maximum period for re-export of the sugar from 90 days to 5 years. Though USDA has shortened the re-export period to 210 days, pending appeal, this additional 100,000 tons will overhang the market for at least this marketing year.
Furthermore, sugar has been overlooked in government market loss assistance efforts during the farm crisis of the past several years. Net CCC outlays for other program crops exceeded $10 billion in fiscal 1998 and $19 billion last year; sugar revenues totaled $30 million in 1998 and $51 million last year. Nearly $30 billion is budgeted for other program crops this year. Sugar farmers are hurting too and should be included.
And, as mentioned earlier, the failure of the Freedom to Farm bill put enormous pressure on the U.S. sugar market. With historically low crop prices, billions of dollars in aid for other program crops have not only helped keep those producers viable, but have provided to many the means to purchase cooperative shares or acquire equipment to move into, or increase, sugarbeet and cane acreage. Farmers are investing in their farms to become more efficient.
Options. Short term solutions: For prices to recover this year, before the next crop this coming fall, removal of significant quantities of sugar from the market must occur immediately. This would involve purchasing sugar for sale or donation abroad, or for non-food or non-sucrose use.
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Sugar purchases may be made with three justifications: (1) to protect sugar producers incomes; (2) to avoid sugar loan forfeitures to the Government; and (3) to minimize economic costs to the Government.
Restructuring programs like the Federal crop insurance program will not work for sugar farmers. As the program currently exists, crop insurance is not an attractive or beneficial program for sugarcane producers in south Texas; the coverage is low and the premiums are high.
Long term solutions: The U.S. Government should negotiate with Mexico to reduce the threat of Mexican sugar destroying the U.S. market for both the U.S. and Mexican producers.
The U.S. Government should seek a legislative remedy to address sugar syrups, commonly known as ''stuffed molasses'', that is circumventing the tariff code.
Congress should abolish the one-cent forfeiture penalty on sugar. The 1996 farm bill imposed a 1-cent per pound penalty on any producer who forfeits on a Government Commodity Credit Corporation loan when non-recourse loans are in effect. While aimed at a continued no-cost sugar policy by discouraging forfeitures, the penalty substantially reduces the income of sugar producers.
Congress should eliminate the debt reduction provision for sugar. A marketing tax paid by sugar producers to help eliminate the Federal budget deficit was increased by 25 percent in the 1996 farm bill. Since there is no longer a Federal budget deficit, sugar producers would like to keep this $40 million they pay annually.
Congress should make all sugar loans non-recourse loans. Though most farm programs retained marketing loan and nonrecourse loan programs, traditional non-recourse loans are no longer assured for America's sugar producers. Sugar producers have access only to recourse loans in years that imports fail to exceed 1.5 million tons-a level of imports fully 20 percent above the Uruguay Round-mandated minimum. In years when loans are recourse, there will be no limit on how low producer prices for sugar can fall. Under a recourse arrangement, USDA Commodity Credit Corporation loans cannot be repaid by forfeiting a commodity put up as collateral. Sugar farmers must risk their farm equity as well.
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Congress, through a technical correction measure, should re-instate no-cost provision that was eliminated in the drafting of the 96 farm bill. The no-cost provision was added to the 1985 farm bill when mismanagement of the program occurred by officials in the Administration. On several occasions over the years, it has helped to assure that the program was properly administered. In the 1996 farm bill, it was inadvertently removed. We have been reassured that this oversight would be corrected at the first opportunity to make technical corrections to the bill. The intent of Congress was no cost. There was never any congressional intent or debate to take it out, the disconnect was an oversight in the bill drafting.
Thank you Mr. Chairman and members of the Agriculture Committee for allowing me to explain my concerns as a sugar farmer from south Texas. Please remember that sugar farmers want what all other program crops want, a fair opportunity to farm and make a reasonable living. American sugar producers' competitiveness and their disastrously low prices parallel the plight of other American farms. But, because of sugar's unique characteristics, policy solutions may have to be different from those for other commodities. Sugar farmers do not want to be treated more favorably than other farmers are, just equally.
Testimony of Coby Gilbreath
Thank you Chairman Combest, Ranking Member Stenholm and House Agriculture Committee members, for your time and interest in American agriculture. I thank you for the opportunity to speak to you on agriculture issues concerning Texas farmers.
My name is Coby Gilbreath and I am a farmer in Castro County, TX. Our family farm is 80 miles northwest of Lubbock where we grow corn, cotton, wheat, and cattle. My brother and I are fourth generation farmers on the same home place that my Great Grandfather moved to from Tennessee in 1900. I have a heart felt pride in my vocation and in the land. Raising a number of different crops, I face many of the problems my neighbors and friends in the other commodity groups will expand on today.
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Through financial analysis, I know that I am an efficient farmer. Our family farm is financially sound in areas of debt management and repayment. We are good marketers and risk managers, using all the tools available to lessen those risks. In an attempt to reach beyond farm gate prices, our operation seeks to add value to the commodities we produce through integration, either on our own or through cooperative efforts. Still, with all of this going for me, I cannot compete with foreign treasuries in the global markets that we participate in.
I want to thank each one of you for the additional ad hoc type monies you approved in 1998 and 1999. My lender also thanks you, as well as the small businesses in my hometown.
After having done what would appear to be all the right things, without your assistance our operation would not have paid out. Again, thank you.
That brings us to today. I am here, at the request of my friends and neighbors, to voice our ideas concerning agricultural policy. Farmers enjoy the simplicity of the current program in comparison to those of the past. The Federal Agriculture Improvement and Reform Act of 1996, known by many as the FAIR Act or ''Freedom to Farm'', has indeed provided producers with more freedom. Farmers are now able to base their crop plans on environmental stewardship and the marketplace rather than on protecting program crop bases.
Planting flexibility has encouraged crop rotations and residue management that is reducing soil erosion and increasing air quality. In my own operation, I have been able to switch from water intensive crops to crops that require less irrigation. This conserves both water and energy for future generations. I believe that the environment and economic benefits justify continuing the planting flexibility and freedom of the FAIR Act. However, farmers realize that there are deficiencies in the safety net. We also realize we cannot depend on continued ad hoc programs to solve our problems. We must seek to improve the safety net while also addressing other policies that will promote American agriculture.
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We believe that while the Loan Deficiency Payment or LDP provides a certain level of counter cyclical price protection, it is not sufficient by itself in protecting farmers from extreme low prices. The Supplemental Income Payment Program or SIP as proposed by Congressman Stenholm merits consideration. One problem associated with the SIP proposal is that payments are based on a national formula. Farmers involved in regional or localized crop disasters would not be protected if major growing areas elsewhere were not effected.
This could be remedied by basing the formula on the National Agricultural Statistic Service reporting districts or on county level production. The budget exposure would increase substantially, possibly requiring a lower trigger level to reduce payouts. The SIP program coupled with enhanced crop insurance could provide much needed protection.
The administration's SIP proposal, which lowers the limits and combines the proposed SIP program with the current AMTA payments, will target mostly lifestyle farmers with off farm jobs. Furthermore, it does little if nothing to remedy the problems and situations addressed in this testimony.
The ''Flexible Fallow'' proposal deserves discussion also. This proposal would provide larger LDP payments if a producer buys his loan rate up by fallowing a portion of his cropland. It would also provide more revenue during times of low prices but does not provide for producers that do not have a crop to sell due to weather problems. Many producers benefit environmentally and economically from an input point of view when incorporating a fallow rotation in to their operations.
A concern for some with this proposal is the potential to encourage over production in some areas of the country due to loan rates being set well above their costs of production. The fallow acres required might not be sufficient to compensate for this overproduction. Slippage could be a problem if marginal land were to be idled first. The decline in revenue from not planting, yet maintaining fallowed acres would offset some of the gain.
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Some have concerns on the impact on end users. Others are concerned that growers would hit the LDP payment limit much quicker causing forfeitures of commodities to the Commodity Credit Corporation. This also supports our stance that LDP payment limitations should be removed. If these concerns are addressed, this voluntary program might fit well with the current farm bill to provide a level of counter cyclical support.
We would like to comment on some other issues effecting the success of the new farm legislation. This would include Insurance Reform. ''Freedom to Farm'' provided the best safety net to producers that grew a normal or better crop. The worst scenario for most producers was to produce one half the normal yield. This is just enough crop to not receive a crop insurance indemnity and provides only half the LDP. We need better crop insurance in addition to the safety net. We appreciate the leadership of the House Agriculture Committee in formulating, and the resulting passage of the first phase of crop insurance reform by the House of Representatives. Now it is time for the Senate to act. It is too late for 2000, do not make it too late for 2001.
A second issue effecting the success of the new farm legislation is the Conservation Reserve Program. The CRP program should be maintained at maximum enrollment, taking fragile lands out of production and helping to protect our nation's streams and rivers.
A third issue effecting the success of the farm bill and potentially lowering Government outlays due to lower prices is the production of ethanol for fuel. Ethanol provides a market for 500 million bushels of corn per year. Over the next several months, Congress and the Environmental Protection Agency will make decisions, which will have a major impact on the future of ethanol.
Concern is mounting nationwide about the environmental and health risks associated with the use of Methyl Tertiary Butyl Ether (MTBE) as an oxygenate in gasoline.
The USDA indicates that by 2004, ethanol could replace MTBE successfully, without supply disruptions or price increases, in meeting oxygenate requirements. Using ethanol to replace MTBE would continue the process of improving air quality in our urban areas but would also consume an additional 600 million bushels of corn annually, adding approximately 35 cents to the value of every bushel of corn and sorghum grown in the United States. Congress should oppose efforts to waive or eliminate the oxygenate requirement.
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Another issue of concern is over regulation. When the FAIR Act was passed in 1996, producers were promised relief in the areas of taxation and over regulation. While progress has been made, primarily in the areas of taxation, agriculture still needs help. Every business in the United States deals with over regulation in some way. It attacks us from every facet, raising the cost of producing, manufacturing and distributing goods and services. Ranging from raising minimum wage to the cost of getting crop protection products labeled and available. The cost of our inputs is always going up. We, in production agriculture, have no one to pass the cost on to.
Trade is also an issue of concern. We support any effort to expand our markets overseas. In the coming months, we have the opportunity to extend permanent normal trade relations status to China. We are importing a vast amount of goods from China incurring a giant trade deficit with them. It is now time for two-way trade, time to open their markets to our agricultural products.
I want to address two issues concerning LDP eligibility. Currently, production of various crops in many forms is eligible for LDP proceeds. Grain in the bin, silage, and hay are all eligible. Left out are crops in pasture form. Whether intentional or due to mother nature, producers should not be penalized for making decisions to add value to existing crops or salvage poor crops through livestock grazing. This decision to graze would free up bin space and promote flow and movement of the grain through the market that ends up in the bin anyway. Thus lowering the number of bushels potentially headed for the non-recourse loan.
Isn't that what the LDP was developed for, to keep the commodity moving through the market and not in the loan? This time however, the money gets to the producer instead of the price at the market place being lowered by the amount of the LDP.
And finally, on a more regional note, I would like to address the problem of aflatoxin. We believe that corn should be eligible for the loan and LDP as long as aflatoxin levels are below 300 parts per billion (ppb). The crop insurance program should indemnify any producer with corn exceeding 300 ppb. Currently, producers in our southern states are eligible for the loan program and LDP at levels of aflatoxin up to 20 ppb. Many producers find themselves limbo where their corn is marketable grain but is not eligible for the loan and LDP.
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Our nation enjoys a cheap and abundant supply of food. Those of us involved in U.S. agriculture provide a wholesome and safe product for the consuming public. The average American spends a much smaller portion of their income for food than in any other country in the world. Regardless of income, all families benefit from this cheap food policy.
We support cheap food for the American consumer, but the American farmer must be compensated for his management, labor, capital, and risk. Those of us entirely dependent on production agriculture for our living, find it increasingly difficult to provide this abundant supply of cheap food, and stay in business.
Payment limitations add insult to injury during times of low prices. Producers, facing low profit margins per acre, over the years have expanded the number of acres they farm. Consequently, when prices are low, they have sizable quantities of grain outside the farm program safety net. Farmers that exceed the LDP limit, have the potential to forfeit commodities placed under loan, to the Commodity Credit Corp. This places the CCC in the position of having to maintain and dispose of these stocks.
We need the payment limitations raised to more accurately represent the size and scope of production agriculture. At the very least, the limits should be maintained at the current level.
In summary, we support the current planting flexibility but with a better safety net. It is too early to endorse a specific plan but we feel both the SIP and Flexible Fallow plans deserve further study. We support increasing the payment limits so as not to punish production agriculture for its efficiency. Permanent normal trade relations status should be granted to China. Congress should support ethanol as an oxygenate in gasoline. The House and Senate should conference a crop insurance reform bill in time for 2001.
Agriculture should continue to provide a cheap, abundant, yet safe food supply for the American consumer, and be compensated fairly for doing so.
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All that is certain is that there will be change. Changes to the farm programs of this vast nation of ours are always needed to keep up with an ever-changing agricultural industry. Let's make some changes for the good.
Thank you for your time, and for the opportunity to share our gratitude and our concerns in regards to your upcoming business on our behalf. We look forward to working with you in any way we can during this important process.
Testimony of Donald Patman
Mr. Chairman, and members of the committee, the Texas Farm Bureau appreciates the opportunity to provide input on the problems facing agriculture and our suggestions as to solutions. I am Donald Patman, a farmer-rancher from Waxahachie in north central Texas, south of Dallas. I serve as President of the Texas Farm Bureau. I grow cotton, wheat, corn, soybeans, and raise beef cattle, all in partnership with my son. This is my 51st year as an agriculture producer and I can tell you the 1990's have been as difficult as any of the previous decades in which I have farmed. I am very pleased you are holding these hearings.
Currently, Texas agriculture is in serious economic circumstances. Drought has significantly impacted much of the state in the past 5 months. Fall seeded crops have not had adequate moisture for normal winter grazing, and unless rains come soon, a grain crop will be lost. And while livestock prices are good, most pasture conditions are critical for ranchers. This lack of winter moisture has the distinct possibility of impacting the spring seeded crops for 2000. As you are probably aware, recent farm income estimates for the 2000 crop year are projected at $40 billion, down by almost $7 billion from last year.
The Farm Bureau is supportive of many concepts of the 1996 FAIR act, but we also support a review of the act and some modification which we will discuss today. We especially appreciate the flexibility that allows a farmer to respond to market conditions in terms of what to plant. This flexibility should continue to be a part of any new farm program.
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The Agricultural Market Transition Act (AMTA) payments have been helpful in providing a minimum safety net. We support the continuation of market transition payments. These payments have been critical to producers, especially in the past 2 years of low prices. We support the addition of a counter-cyclical safety net to supplement AMTA payments. We recognize that adjustments must be made when periods of low prices extend several years, as they have currently. Presently, it is forecasted that agricultural prices will continue to be depressed, therefore, additional emergency supplemental funding will most likely be needed. We believe, however, that priority attention should be given by the Congress to developing a counter-cyclical income support program that producers can depend on without special action by the Congress.
Until such time as a long-term, well designed program is developed to provide support during difficult economic times, such as we are in today, we strongly urge the Congress to continue sufficient economic assistance to help sustain our base of agriculture producers. The year 2000 finds us in very serious need of additional assistance.
In addition to special assistance for this year and a long-term counter-cyclical income support program, we believe it is time for a comprehensive program that farmers can rely on when there is a drought or other natural disaster. Unfortunately, Texas producers have had our share of experience in dealing with drought and other disasters in the 1990's. For the long term, we recommend the following suggestions for a comprehensive program:
Implementation of haying and grazing on Conservation Reserve Program (CRP) land by allowing hay from CRP to be sold and moved across state lines to drought affected areas without reduction in CRP payments to producers. For drought affected producers who can ship livestock to areas where CRP land is available, grazing of that CRP land should be allowed.
Institute tax rulings by the Internal Revenue Service so that capital gains will not be applied on the forced sale of livestock due to drought, with an agreement that producers will repurchase livestock within an appropriate time frame after a drought is over.
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Implementation of an emergency ''refundable tax credit'' that would utilize a farmer's IRS Schedule F income from prior years. Providing a credit in a designated year of drought, based on a formula of income tax payments of prior years, would provide additional income at a critical time to assist producers of all commodities, not just farm program crops.
Request the Comptroller of the Currency to provide special consideration for bank borrowers who have been ''good pays'' by allowing loans to be re-amortized without going through the paperwork and red-tape process normally required under the procedure for distressed loan restructuring.
Provide priority attention to expedite Farmers Home Administration (FmHA), now Farm Service Agency, disaster loan processing . In past years, Texas producers have faced major problems with FmHA loan processing. The workload seems to be a significant problem during disaster years.
Provide some relief from the aflatoxin problem. During an extended drought, aflatoxin is a major problem for corn producers in Texas. Most people are aware of a drought's impact on yields, but in Texas we have experienced significant quality problems due to aflatoxin, which has further reduced our income. The development of a reliable and consistent sampling and testing procedure is needed. Additionally, we need further research into abatement for aflatoxin.
Consider the alternatives to address rural water system problems which seem to occur during drought situations. During the recent droughts of 1996 and 1998, several rural water systems were in danger of depleting their drinking water supply. Texas' small and disadvantaged communities have particular difficulty obtaining the necessary funding to meet their water resource needs.
Improving trade is a high priority for Farm Bureau, since we export about one-third of our production. That's why we believe it is necessary to accomplish the following:
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Lift trade sanctions. Sanctions don't work, they only hurt U.S. farmers and ranchers by allowing our competitors to sell their products.
Provide permanent normal trade relations for China. Congress should grant China the same trading right it extends to the other 134 members of the World Trade Organization (WTO). If we do not grant it, China will still become a member of WTO and other competing agricultural exporting countries will gain from our loss.
Enhance funding of P.L. 480. Many foreign countries are near economic and political collapse while our producers face large surplus and low commodity prices.
Increase the use of market promotion and foreign market development programs like the Export Enhancement Program (EEP) as well as the continued use of both step 2 and step 3 for cotton. We believe these programs are vital to the industry.
Mr. Chairman, this comes as no surprise to you, but crop insurance simply has not worked very well in Texas. The program fails to protect legitimate producers and also allows abuse of the system. We support H.R. 2559, the legislation passed by the House Agriculture Committee in the last session, and hope that some compromise can be reached with the Senate soon. From a personal standpoint, I have been participating in a pilot program for central Texas for the past 3 years. That program has worked well for me, in that, it is affordable and paid well in 1998 during a particularly bad year. I will be happy to respond to specific questions about this pilot program, as I believe it is close to an appropriate answer for what producers are looking for in a crop insurance program on yield losses.
In addition, special emphasis should be given to the development of a viable risk management program for all commodities including livestock. Most livestock producers normally fail to qualify for many of the programs currently available. Until such time that an effective forage insurance program is implemented, we support funding an emergency livestock feed program. It would be very beneficial if a revolving fund could be established so that annual designations and funding are not required, which could provide more timely assistance. In addition to feed assistance, some type of funding is also needed for purchasing and transporting water for livestock. We support equitable funding for livestock producers in disaster assistance programs, but unfortunately these programs have been underfunded in each of the recent year's emergency appropriations. We encourage special attention to this situation, as Texas livestock producers have not been treated fairly in recent drought years and our membership has expressed much dissatisfaction over this matter.
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Finally, in regards to the current farm bill, we support the current loan rate structure. Unfortunately when those loan rates were established, no one expected farm prices to fall below those rates. Nonetheless, Farm Bureau remains concerned about the Government accumulating large amounts of stocks, or loan rates encouraging over- production in contrast to market signals. While the present system is not perfect, we support the current direction, and hope that direct income assistance can be provided until commodity prices improve, rather than using loan adjustments. We believe that direct assistance is the best alternative for the long-term interests of American agriculture.
Mr. Chairman, thank you for holding this hearing in Texas and allowing us to testify. I will be happy to respond to your questions.
Testimony of Dale Artho
Mr. Chairman, members of the committee, I would like to thank the U.S. House Committee on Agriculture for allowing me this opportunity to discuss issues and possible solutions to the crisis that U.S. farmers are faced with today. The gravity and weight of today's hearing certainly does not escape me. This hearing is the beginning of a process that will determine whether or not I and many of my fellow producers will be able to continue our farming operations.
My name is Dale Artho, and I, along with Kathy, my wife of 23 years, my two children, Cory and Tara, and one fulltime employee operate our family farm and ranch located in Deaf Smith, Oldham and Randall Counties of the Texas Panhandle just west of Amarillo. We farm approximately 6,500 acres in addition to a 2,000 acre custom farming operation.
Our operation includes dryland and irrigated sorghum, sorghum seed production, wheat, corn, dry edible beans, and cattle. Diversification was much greater for our operation in the past, and other crops produced previously have included sugar beets and vegetable production. Despite facing such challenges as disease problems, and the increasing prices of newly registered crop protection tools for sugar beets, we finally quit producing sugar beets when a nearby plant closed due to multiple factors, including changes in the sugar quota. Additionally, we ceased vegetable production on our farm after increased labor and environmental regulations forced us to do so.
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I am in the process of refinancing land to meet my financial obligations and operate in fiscal year 2000. In my business, I expect to do things like this in times of economic severity, and that is precisely why we build equity. However, such measures cannot be relied upon indefinitely, and if my operation is not profitable this year, I will seriously consider exiting this profession. Do I have too much debt? Amid today's depressed commodity prices, any amount of debt is too much. Most of the debt that I carry was incurred as land purchases in the 1980's and early 1990's. Our national agricultural and regulatory policies have necessitated that we expand the size of our operations to achieve economies of scale. Many of my fellow producers have maximized their debt and will have to declare bankruptcy if commodity prices and price support programs remain at the current level.
What are the major policy issues that could determine the outcome of the current farm crisis? Today I would like to discuss how trade reform and marketing tools could help ease our burden, talk about crop insurance reform, and address tax relief among other issues as well as the effects and future of the Federal Agriculture Improvement and Reform (FAIR) Act.
HOW CAN CONGRESS HELP US INCREASE OUR MARKETS?
I have had the privilege of traveling to countries such as Cuba, Vietnam, Malaysia, Indonesia, Argentina, Brazil and Mexico on humanitarian food or trade missions. This has reinforced my view that the United States should use all trade agreements to our advantage and that Federal policies, such as Fast Track Trade Authority and the lifting of unilateral trade sanctions on Cuba and other countries, should allow the maximum movement of commodity exports to foreign countries in need of our products.
We as producers are in the midst of a severe marketing crisis, and it is time to play hardball with our foreign competitors. We can play within the rules, but U.S. export and farm commodity support should match that of competing countries.
We must expand our reputation as a reliable supplier of agricultural products. Anyone associated with business will tell you that when you lose a customer, you have likely lost them for life. In the case of agriculture and trade sanctions, markets have been lost for at least one generation because the United States has used agriculture to enforce political policies overseas with trade sanctions. If U.S. farmers are going to be used as defense contractors, then we should be compensated like defense contractors. Production agriculture's burden on the U.S. budget is a mere one percent. How does that compare with the defense industry?
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I urge Congress to approve the accession of China to the World Trade Organization (WTO), and I encourage you to grant China permanent normal trade relations (PNTR) status with the United States. Such a move could provide for reduced barriers to trade for grain sorghum and other ag products, and reductions in tariffs of animal products would encourage U.S. exports to China and in turn increase U.S. livestock and poultry industry demand for domestic feed grains such as sorghum.
Additionally, programs such as PL–480, Export Enhancement Programs, Market Access Promotion, and USDA's Cooperator Program are needed in our efforts to expand the U.S. market share and increase our profitability through aggressive overseas marketing.
New or upgraded storage facilities would allow producers like me to ''identity preserve'' my crops, do more forward contracting and use innovative marketing practices. I was happy to see USDA make a recent announcement with regard to low interest loan programs for building or improving on-farm storage facilities.
As a producer of a commodity that is used in ethanol production, I also would like to urge Congress to keep Federal oxygenate requirements for gasoline in place, and not eliminate them as a solution to problems with methyl tertiary butyl ether (MTBE). Ethanol can and should be used to meet Federal oxygenate requirements, and I believe there could be a plentiful supply of ethanol to meet the needs of end users trying to meet the requirements of the Clean Air Act.
Such actions would encourage the consumption and production of ethanol and would stand to benefit not only the environment, but also agricultural producers. Some of my fellow producers who produce grain sorghum in areas with ethanol plants have benefited because they have found basis levels to be higher in areas that are near ethanol plants.
Mr. Chairman, I encourage you and members of the committee to help foster legislation and a business climate that will facilitate vertically integrated, value added operations that can help producers determine their own destinies by being price makers and not price takers.
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REFORMING CROP INSURANCE
Congress also made a commitment to reform the crop insurance program that is administered by the Risk Management Agency. This reform has not taken place, and many producers cannot afford the insurance they need to cover their operation in case a natural disaster occurs.
I urge the continued consolidation and technological upgrades of FSA offices; a move that I believe would help prevent crop insurance fraud and abuse. Insurance is being abused by a minority of producers, most of whom are doing what they must because they are finding opportunity in the insurance business rather than the marketplace.
To prevent waste and fraud, elected county Farm Service Agency committees should be allowed to determine the insurance eligibility of a crop within their county. County committee members know which crops will produce in an area. Producers who wish to grow a non-traditional crop for that area could apply to the county FSA committee for insurance coverage. The committee would then act as a ''gatekeeper'' and make a determination as to the producer's ability and equipment capabilities to determine if the crop would be insurable. Additionally, if yields are below an economical salvage value, (i.e. the cost of the harvest would exceed the value of the commodity appraised) then a zero yield would be given to the producer.
Crop Insurance coverage above 75 percent should not be subsidized, and olympic averaging should not be used on coverage above 75 percent.
Fairness in crop insurance rates should also be a priority. As a producer of sorghum, a relatively low-risk crop when it comes to disaster, I have heard several accounts of lower rates being charged for higher-risk crops. Our National Grain Sorghum Producers Past President has seen inequities such as these in current rates for Pettis County, Missouri.
TAX RELIEF FOR FARMERS
While I do believe that tax relief for farmers would go a long way toward improving our financial lot, let me state that I would have loved to have been in a position to pay income tax last year. Due to the drought of 1998 and low commodity prices in 1999, my income tax liabilities are nonexistent. During the drought of 1998, I planted 2,600 acres of sorghum in June that did not sprout until it rained in September. Drought and low prices have affected me to the extent that I have become nostalgic about the days when I had an income that could be taxed.
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Despite this, I believe Congress should persevere in extending the financial flexibility to farmers by establishing the Farmers and Ranchers Risk Management (FARRM) Accounts. I would like to thank Congress for including this provision in the multi-billion dollar tax reform package that was approved by both Chambers in 1999. However, I was deeply disappointed when President Clinton vetoed the bill. I urge you to take up and pass the FARRM Accounts legislation again as an independent measure and urge the President to sign it.
As a producer with two children who has been married for 23 years, I also urge you to eliminate the inheritance tax, the ''marriage penalty'' tax, and provide full deduction of all health care premium costs as well as eliminating taxes on capital gains.
WHAT ABOUT AGRICULTURAL FINANCING?
I believe Federal guaranteed loans and emergency loans should be continued for producers at current levels.
But, what reforms could be made to make programs more effective? Commercial banks should be allowed to package and group applicants for approval or rejection. If an agricultural production loan meets the criteria of a commercial banker, they would have the ability to group loans of similar risk and at different guarantee levels.
For example, a commercial lender could submit 10 loans at 50 percent; five loans at 60 percent, on up to a level of 90 percent, submitting those as one bundled application. Government risk would be limited by the size of the guarantee and provide reduced interest rates established by USDA. This would speed the process and create a partnership between the banking industry, agriculture and government. A similar system seems to work well with the student loan program, that my son, Cory, a junior at Texas Tech University, currently utilizes.
HOW HAS THE FAIR ACT FARED?
In 1996, the ''Freedom to Farm'' concept was developed with Congress committing to a policy that would expand international trade of agricultural commodities. This ''Trade Policy'' has not taken place.
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Do we need to go back to a supply management program? Anyone who is familiar with the economic laws of supply and demand can see that, on paper, this makes sense. However, while this sounds like a good idea theoretically, U.S. supply management policies will not keep foreign countries from bringing environmentally sensitive land into production, increasing world commodity supplies and nullifying any attempts the U.S. Government might make at supply management.
Mr. Chairman, I believe that the FAIR Act did not bring about the current financial crisis in program crops, but it did not prevent it. Many producers like having planting flexibility and still support the decoupling of program crop payments established by the FAIR Act. I urge the committee not to consider going back to the old supply-demand program that failed us in the past. I believe it would be largely ineffective to return to a crop set aside program like the farm bills of the 1980's and 1990's. This includes any new programs that would pay me to idle Agricultural Marketing Transition Act (AMTA) acres for additional payment. I believe such a plan should only be used as a last resort. Instead, I urge the committee to find a solution within the framework of the 1996 FAIR Act.
Where are the solutions in the FAIR Act?
First and foremost, planting flexibility must be preserved. Second, decoupled AMTA payments must be retained and increased to an average payment that was appropriated in the FAIR Act. From a personal standpoint, all of my acreage is covered by Federal Crop Insurance, but crop insurance does not provide capital to make land or machinery payments. Without the additional AMTA payments, failure would have been a certainty for my operation.
A financial safety net must be added to the FAIR Act. This safety net should be implemented when market prices for commodities drop below a certain percentage of that crop's historical value. To facilitate this, I urge you to commit to increasing the farm support baseline from $7 billion to at least $13 billion to help producers that may find themselves with high prices but no production under a questionable crop insurance program.
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Financial payments from this safety net should be a supplement to the present AMTA payment, and should be paid only to those of us who produce an eligible crop on AMTA acres. This ''AMTA Plus Market Payment'' would be implemented when a crop's commodity price falls below a certain level that could be established using a 5-year crop price average of the years from 1991 through 1995.
Basing AMTA payments on market conditions is much better than using a cost-of-production method. Every one of my neighbors has a different criteria for determining his or her cost of production. The ones that are still in business somehow must be managing to cover his or her production costs, although profitability and debt load is certainly questionable.
Mr. Chairman, I personally do not believe such payments made to farmers would be farm subsidies. Rather, these payments would continue to subsidize the consumers of this country because our nation has made the commitment to its citizens that food should be affordable at all levels of wage income.
We also have experienced problems with inequities in Loan Deficiency Payment (LDP) rates. The main issue has been trying to overcome some very disproportionate rates between counties. We never worried about this when prices were high, but that is the root of the problem. Using the differentials complicates these inequities. Instead, we should look at determining LDP's by looking at the terminal market closest to a given county when determining the differential. Sorghum farmers in the Texas Panhandle are penalized by not basing the rate this way, as opposed to farmers in the lower part of the state whose rate is compared to just the Gulf price.
With relation to LDP's and loan rates, I also have found that policy has given inadvertent preference to other crops instead of sorghum. This has had potentially adverse effects on markets, environment and resources. An example of this is when USDA recently used their discretionary power to lower the sorghum loan rates. Such actions prompt producers to plant some other crops, potentially increasing the Government's financial obligations. Additionally, I believe that on some areas of my farm it is environmentally irresponsible to use non-renewable resources to grow other crops—crops that will require more water for irrigation, additional fuel to pump more water and higher levels of fertilizer—simply because Government policy appears to make other crops the safe choice.
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Payment limitations on LDP's and market loan gains should be removed, and the use of certificates without payment limits should be continued. If the logic limiting agricultural producers to a payment limit of $30,000 is valid, then why does the Government not limit doctors or defense contractors to the same levels? Some of your respected urban colleagues point out that their constituents' salaries are not even close to $30,000. However, such a comparison is like comparing apples and oranges. Agricultural producers should instead be compared to self-employed businesspersons instead of salaried individuals.
A USDA report presented at the Agricultural Outlook Forum 2000 in late February titled, ''Farm Financial Prospects: What's Ahead for Farm Businesses by Type and Region of the Country'' (Morehart, et al), indicates that large family farms, or farms with gross sales from $250,000 and $499,999, received 44 percent of operator household income from off-farm sources. The report goes on to state that, ''Since households operating these larger farms are affected more by changes in income from the farm sector, we expect that household income for the operators of these farms will be down substantially.''
RESEARCH FOR SORGHUM PRODUCERS
The sorghum producing community is seeing an ever dwindling amount of research support from the private sector. We need additional public research to help us develop more marketable varieties that the marketplace demands as well as varieties that can produce in even the most marginal areas where other crops cannot be feasibly grown. We urge you to ensure that sorghum is treated by the public research sector on a per-planted-acre basis at least on the same levels as other crops.
OTHER CRITICAL AREAS
Enforcement of anti-trust regulations is critical. Because of the continuing consolidation of peripheral agricultural industries, I believe that anti-trust regulators should take an active role in ensuring that consolidation does not unduly harm producers. I have found that consolidation in agriculture has diminished competition. The commodity purchasing divisions within these large companies buy more grain than most countries. These buyers are charged with the duty of buying inputs at the least possible cost so that profitability is maintained.
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Mr. Chairman, I depend upon my land to make a living. I hope to pass this on to my children. Why would I do anything to harm the land or their futures? This is just one reason that I believe farmers are the original and most dedicated environmentalists. I encourage all of you to continue fighting for regulations based on sound science. Added regulations take away from my bottom line and affect U.S. agriculture's ability to feed a growing world population efficiently. Other U.S. industries such as plastics, steel, and lead have been driven overseas by over regulation.
Do we really want to become a country dependent on overseas food production? Wouldn't this force environmentally sensitive land overseas such as rain forests and wildlife areas to be brought into production? Doesn't it make more sense to make the business of food production profitable on land that is already in production? Looking out for the American farmer will help ensure that the citizens of this country and the world are fed and clothed. Otherwise, to whom will the world's population go to for food and clothing?
Again, Mr. Chairman, members of the committee, thank you for the opportunity to testify. You have my best wishes as you take on this enormous task. Please let me know if you have any questions.
Testimony of D.A. Harral
My name is D. A. Harral. Our family ranches in Pecos County about 250 miles south of Lubbock, TX. We have been in the ranching business for four generations, raising sheep, goats and cattle. First, I want to thank you for coming to Lubbock to hear our concerns and suggested solutions to some of our problems.
I would like to divide my message on the sheep and goat industry into five sections.
Increased cost of operations. Since 1992 Texas has been impacted by a severe drought which has greatly increased our operating expense. Your assistance in the form of feed and disaster programs has really made a difference. We would like to see a change in the way the Disaster/Emergency Feed Program is administered to make it more accessible to ranchers. Farmers have several programs available to them, but we have only one, and sometimes ranchers do not have full access. On the feed program, your country has to be declared a disaster area before ranchers can apply. That is an extra step that ranchers have to take that farmers do not. It would help a lot if we could we take that extra step out.
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Also, the assistance provided by Wildlife Services has been invaluable. Your continued leadership and strong support is vitally important for the passage of the USDA Wildlife Services program in the FY 2000 appropriations. If the forces that want to reduce or eliminate funding for Wildlife Services are successful, the livestock industry will be in tremendous jeopardy.
International monetary events and their effect on the U.S. sheep and goat industry.
Wool and Mohair: The high value of the U.S. dollar makes our products expensive relative to our competitor's.
In recent years, Australia has flooded the wool market by releasing their stockpile.
Pacific Rim nations which have become players in the textile market have experienced a severe financial crisis.
Many of our domestic textile processors are closing or moving operations overseas to countries with lower operating costs. As we lose our domestic processing base, we will have to depend heavily on overseas markets.
Meat: For the past 4 years, the high U.S. exchange rate has allowed domestic importers to purchase cheap lamb overseas and flood the U.S. market with imported product. In some cases, prices have been 40 percent below the cost of domestic products. Importers could buy almost 1 1/2 New Zealand lambs for every one lamb they could buy in the United States.
HOW THE U.S. SHEEP INDUSTRY IS ADJUSTING TO INTERNATIONAL EVENTS.
Wool and Mohair: Some Texas producers have come together and formed a Wool and Mohair Marketing Co-Op. The Co-Op gives the members an opportunity to process their own clips and prepare their products for export when necessary. Lots are grouped together based on coring results, i.e., micron count, length and yield to receive the best possible price. Some mohair producers are also proceeding with development and marketing of a high-end grade of mohair carpet.
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Meat: Many producers and feeders have joined forces to build Ranchers' Lamb of Texas, Inc., a sheep and goat slaughtering facility in San Angelo, TX. They have also begun construction on a fabrication plant which will bring case-ready Texas lamb and goat meat to the grocery stores. These two facilities will give producers and feeders additional options in marketing their products.
I mention the above facts to indicate that the American sheep and goat industry is working to solve its own problems. The assistance provided to help us attain the Section 201 trade restrictions on imported lamb has been invaluable to the industry. Our markets are now responding to these measures, and industry leaders are working with USDA on a lamb promotion program.
INDUSTRY NEEDS
Wool and Mohair. One of the things that would help our industry the most would be a non-recourse marketing loan program with a deficiency payment similar to what the cotton industry now has. We are operating in a global economy, and this would help us market our products in an orderly manner while providing a safety net as we deal with changing currency values and economic decisions by foreign governments.
As you know, cotton has a loan program that has evolved over time with the cotton marketing infrastructure. It is doubtful that wool could achieve the same program in one step; however, there should be the potential to implement a similar basic loan that would accomplish the same desired effect.
It is important that a loan program be established that will encourage quality fiber production and reward growers who have implemented quality assurance systems in genetics, preparation, packaging and marketing. To regain and maintain competitiveness in the world market, U.S. producers will need to continue to improve fiber quality.
National Sheep Industry Improvement Center: The National Sheep Industry Improvement Center was established as part of the 1996 farm bill to aid the ailing sheep and goat industry, and a total of $50 million was authorized. Due to red tape and roadblocks erected by the Office of Management and Budget, we have not been able to access full funding for this important program. We request that the balance of $30 million be appropriated to fully implement the Center to allow them to begin making loans and grants to improve the industry.
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Lamb and Goat Meat: At this time we are not sure what type of program would work best for lamb and goat meat, but something must be done to alleviate the huge swings in the market. As we prepare for the next farm bill and review GATT, we feel it is important that some type of formula or indexing system be implemented to put various currencies on some type of level playing field for all products whether raised or manufactured.
We hope to have the opportunity to continue a dialog with you, Mr. Chairman, and the members of the committee as our industry works on this issue.
Other: The current severe drought has caused many Texas rural and urban areas to run short of water. Over the last few months I have heard various groups state that further assistance and cost-share programs are needed to provide for conservation and brush control programs to increase water supplies, increase recharge and decrease the brush cover. Also, development and release of chemicals to kill water-guzzling brush would be most helpful.
A long-term cost share and grant program would allow farmers and ranchers to manage for drought on a long-term, continuing basis. Brush control, and in some cases eradication will leave rangeland more resistant to drought. More efficient use of pasture rotation and other desirable management practices on a long-term basis would enable livestock producers to get by on less supplemental feeding during drought and dry times. Other conservation practices, such as building more and better ground water storage tanks, pipelines and in some cases, fencing, are all conservation practices which should be encouraged and monetarily backed to manage for drought before it happens. These practices could be carried out during good times through cost-share programs when producers have the cash flow to finance these practices.
Long-term Farm Policy. I am very concerned about what is going to happen when the 3-year section 201 tariff phase-out is complete. We feel our lamb is better and safer, and we are making an effort to control our own destiny, but we will still be faced with foreign competition with much lower costs of production. There are some who seem to think we are going to turn Agriculture as a whole over to third world nations, leaving large areas of this great country idle. In the absence of policies to provide for a safe and reliable food and fiber supply at a reasonable cost, this could occur.
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I would ask that you closely examine domestic manufacturing, farm and trade policies. To me it is foolish to allow foreign interests to control our food, clothing and other vital interests, as they now do our oil. At that point we stop talking about farm or domestic policy and start talking foreign policy. Farms and ranches, unlike oil, will not have a strategic reserve to open overnight. It will take years for agriculture to recover.
In closing, the sheep and goat industry stands ready to assist you in any way possible to implement these suggestions. Again, Mr. Chairman and members of the committee, thank you for coming to Lubbock and conducting this hearing.
Statement of William H. Kubecka
This is a summary of the issues presented by and agreed on by the individuals present at the Farm Policy Forum held on February 17, 2000 in Bay City, TX.
Included in the 47 participants were representative producers, agribusinesses, financial institutions, and others. Participants came from Brazoria, Calhoun, Jackson, Wharton, and Matagorda Counties. This 5 county area has 750,000 acres of cropland including 215,000 acres in cotton, 250,000 acres in feed grains, 132,000 acres in rice, and 66,000 acres in soybeans in 1999.
The participants agreed to pass along the following statements and recommendations concerning Farm Policy:
(1) Farm policy should be continued and future farm legislation should provide food security for the United States through the production of abundant, affordable food and fiber, and provide a profitable agriculture economy.
(2) While all agreed to the flexibility component of Freedom to Farm legislation, future farm legislation should allow for stability to prevent emergency payments.
(3) We believe the Safety Net provisions of the farm bill need adjustments to make it stronger. Suggestions include:
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Crop flexibility is important and we oppose any mandatory set-aside program; however, we would support a voluntary reduction in planting that would relate to a higher loan rate on planted acres.
The current loan rate on all crops is unrealistic when compared to current production cost. We recommend an increase in the loan rate and an adjustment in LDP to reflect this increase.
The LDP should be used to make U.S. crops competitive in the world market.
Base all loan rates on regional cost of production.
Update yield data information to reflect current yields.
(4) We believe crop insurance is a valuable risk management tool. However, participants agreed that there should be adjustments made in the current program that will encourage prudent production practices and discourage nonproduction of crops and failed acres solely for insurance purposes. Suggestions include:
more oversight by the managing agency
link an individual's insurance history to the individual rather than the land, and have this information follow them from location to location
insurance payments should be related to actual cost of production
more support is needed for premium payments, including programs that enhance revenue protection such as CRC Plus
(5) We believe Government assistance should be production based and not limited by the person
economy of scale continues to impact farm profitability
current payment limits do not correspond with efficient production unit size
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(6) In order to be competitive in the global marketplace, we believe in the following:
the elimination of embargos and sanctions is imperative
the continuation of a proactive and aggressive program to increase and open new foreign markets
continued research, development, and education on traditional crops and alternative uses for all crops
programs to increase domestic use of all crops
Statement of Paul Hitch
Good morning. Mr. Chairman, Mr. Stenholm and members of the committee, my name is Paul Hitch, and I am here today in my capacity as Chairman of the Texas Cattle Feeders Association (TCFA) and as a rancher, cattle feeder and grain producer from Guymon, Oklahoma. Our family corporation includes operations in Oklahoma and Kansas.
TCFA represents cattle feeders in Texas, Oklahoma and New Mexico. Our members produced and marketed more than seven million head of fed cattle in 1999, a little more than 30 percent of the nation's fed cattle supply.
TCFA appreciates this opportunity to provide our views on agricultural policy that affect the livelihood of our members. There have been very few, if any, sectors of agriculture which have been spared from low prices and increasing costs during the last several years—including cattle feeders. Most recently, cattlemen are recovering from severe losses in our industry from 1995 through 1999. In the cattle feeding industry alone, cattle feeders in the seven major cattle feeding states lost over $3 billion in equity during that time frame.
As you consider possible changes to current farm policy, we urge you to continue the two, key concepts that we felt were embodied in the current FAIR Act: (1) Continue to minimize farm policy that distorts the competitive market system. (2) Implement no new programs that benefit one segment of agriculture at the expense of another segment.
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TCFA continues to support reduced Government involvement in the production and marketing of ag commodities, and we oppose Government supply management programs. Our experience in the volatile and cyclical cattle markets have proven time and time again that the market provides the most efficient, although sometimes painful, signals to producers on what to produce and what not to produce.
So what should Congress do to address the current agricultural crisis? TCFA urges Congress to aggressively pursue those additional elements of Federal policy reform highlighted during debate on the FAIR Act adoption.
Stronger policy and financial support is needed to open foreign markets and address unfair trade barriers to increase exports of U.S. value-added ag commodities. Producers of most, if not all, ag commodities will continue to rely on foreign markets for increased demand and therefore higher prices. Our foreign competitors continue to subsidize exports to unfairly increase their exports and cheat U.S. producers out of important foreign markets—many of which were opened to foreign exports by U.S. market development efforts. Mr. Chairman, we appreciate and applaud leadership efforts by you, Mr. Stenholm, Mr. Lucas and others to implement carousel retaliation in response to E.U. trade barriers. In addition, we also appreciate the committee's leadership in resolving two recent trade issues involving Canada and the Northwest Pilot Project which has allowed 175,000 head of feeder cattle exports to Canada. And in keeping pressure on our neighbors to the South in Mexico to ensure that efforts by Mexican producers to close the border to U.S. beef be decided on sound science and fair trade policy rather than politics. We also appreciate the committee's efforts to ensure full funding for USDA's market development programs such as MAP and third-party cooperators.
We need expanded efforts to reduce unfair and unproductive regulatory burdens on U.S. producers. Farmers, ranchers and cattle feeders continue to face one regulatory burden after another. Let me be the first to say that we recognize the need for and support fair, reasonable, cost-effective and science-based regulations to ensure that we not only protect consumers and the environment but do so in a cost-effective and economically viable manner that ensures success for both over the long term. We are concerned that many recent proposals such as EPA's AFO/CAFO strategy and the TMDL projects forced upon many states exceed EPA's statutory authority and could significantly increase operating costs for many producers without appreciable protection for the environment. Mr. Chairman, we truly appreciate yours and the committee's strong oversight efforts with these and other EPA proposals, and we encourage you to continue in hopes of avoiding a lengthy court battle between industry and EPA. On another front, we also appreciate congressional efforts to address tax inequities, especially efforts to eliminate death taxes.
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Greater Federal investment in agricultural research is needed to increase efficiency and resolve environmental, food safety, cattle health and other challenges faced by U.S. producers. Historically, one of our competitive advantages over foreign producers, has been our leading-edge research and development. USDA must maintain the scientific expertise to protect producers from disparaging claims about the safety of our food and the quality of our environment. We applaud congressional efforts to increase funding to help resolve food safety questions. We urge congress to not only restore, but to increase funding for important environmental programs such as EQIP.
Mr. Chairman, turning to the issue of ensuring that producers have access to adequate risk management tools, TCFA supports governmental assistance, including supplemental payments, for producers suffering from weather-related or other natural disasters. However, TCFA does not support federally subsidized revenue insurance for livestock because of the market distortions that could result. For example, when a drought hits my Texas' friends, it affects them on a regional basis. However, when the market fluctuates dramatically, it affects all producers and sends signals to all producers that a fundamental response is needed. Revenue-based insurance policies that focus on economic losses send distorted signals to producers at a time when they need a clear view of market signals.
Thank you again for this opportunity to testify, and I will be happy to answer any questions.
Statement of James Hinton
Thank you for bringing the field hearing to Lubbock and allowing me to present my testimony at this time.
Today I speak with knowledge and expertise gained from farming for the last 22 years. Actually, it is more like 44 years if I count when I first started going to the field with my Dad. Many times I was with him to wait our turn in line to certify field acreages at the county ASCS office. I learned then at a young age about crop acreage allotments and the many regulations we were required follow to be in compliance and receive price support payments. The hardest thing I ever saw him do was to plow up a portion of a heavily loaded cotton field because he had overplanted his allotment. He would have enjoyed farming under Freedom to Farm.
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The Freedom to Farm portion of the 1996 farm bill has allowed me to make planting decisions each year based on goals of profitablity and conservation. Fields can be planted to cotton, wheat and grain sorghum or left fallow without having to meet exact acreage requirements. I can plan crop rotations two or more years ahead. It is a relief to be able to farm the way conservation demands and markets influence rather than on an acreage allotment that was established back in 1980. Acreage controls have always been a sore spot to me. I hope we never see them again. I appreciate ''Freedom to Farm'' for that provision.
I am grateful for the AMTA payments that I receive each year. Also, loan deficiency payments in low price years have been most helpful in making up some of the price deficits that we have experienced the last 2 years. I believe the farm program is working as it was designed to work. The 1996 farm bill has provided a partial safety net for me to avoid economic collapse. The infusion of extra cash AMTA payments has helped to be able to pay off operating loans the last 2 years. In most years, the farm program payments have put the ''net'' into profit. In the last 20 years, farm program payments have amounted to as much as one-third of my gross income each year. I can say that my economic bottom line is dependent upon those payments.
I would rather all of my farm income come from crop and livestock production sold for a profitable market price instead of depending upon Government price supports to prop up the markets. That has not been possible due to the fallout from grain embargos, monetary policy, trade barriers, regulatory hurdles, natural disasters and worldwide overproduction to name a few. Who could have predicted that the economies of Southeast Asia countries would collapse at the same time our economy would be growing.
In the last 22 years, I have seen the price of a pickup truck triple from $8,000 to $24,000, the price of a 120 Hp tractor quadruple from $20,000 to $80,000, the price of a combine triple from $40,000 to $120,000, the price of cottonseed double from $16 a bag to $32 a bag, the cost of labor nearly double from $2.25 to $5.15 (soon to be $6.15), and the cost of repairs triple while grain prices have decreased, cotton has stayed about the same and yields have stayed level. I operate on a much smaller profit margin than my father did 30 to 40 years ago. Fifteen years ago I could suffer a major crop loss to a disaster one year and still farm the next. Today, a major crop loss can wipe me out.
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To get the best possible income, I now place my cotton production in a marketing pool. I use futures and options contracts to hedge my production up to one half of expected yield. Drought and hail outs tend to mess up a marketing plan. Great rains make it a little easier. My father has often told me that ''the difference between a good farmer and a not so good farmer is a two inch rain at the right time.''
To get the best possible yield at the lowest cost, I am using conservation tillage, LEPA water application and genetically enhanced crop seeds to allow me to use new weed control technologies. The techniques and practices are not cheap, but they return greatly for the dollars invested.
For a safety net, I take level one 50 percent crop insurance. It is first level above Catastrophic coverage. The premium for higher coverage takes too much from the profit margin in a good year reducing the money available for loan repayment. The hardest check for me to write is for crop insurance premiums when crop losses do not trigger claims and my crop income is barely going to cover expenses.
Yes, there needs to be a safety net for farmers. I do not believe crop insurance is the answer. Yes, Government subsidies for premiums buy down the cost. It is still too expensive for the money covered. If I had to pay the total premium, I would enroll only for Catastrophic coverage. The Crop Revenue Coverage program is not an option for me. My insurance yields are too low to make it work.
When I started farming, I took out crop hail insurance each year. My agent told me that he would gladly sell the policy to me, but he explained that if I would not take the insurance and put that premium in a savings account each year I would be able to withdraw from the account to pay for a hailout. In other words, I would be self-insuring myself with a savings account. He also said that I would be building retirement funds at the same time. I did not take his advise because I was investing every available dollar into buying equipment and establishing myself in business.
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It is with this idea that I propose a Farmer Crop Loss Savings Account be established to be phased in and replace Federal Crop Insurance. I believe that the subsidy paid for crop insurance would be utilized better if it was placed into a Farmer Crop Loss Savings Account with withdrawals made only when disaster losses occur. The plan could be developed for a farmer to contribute to his farm account in an amount equal to what he would have contributed for insurance. If a claim was not made for that year the money would rest in a trust fund to be accumulated with each year he did not have an insurance claim. When enough funds were accumulated that the interest would equal the cost of insurance premiums, he could stop making payments. If he wanted to keep making payments, his Crop Loss Reserve allow for higher level of coverage.
If Federal Crop Insurance is kept in place then I request the following changes be considered that would make it more farmer friendly.
I would like for each field to stand independently instead of being combined with all fields in the farm unit.
In 1998, one of my farm units had an irrigated field hailed out. The other fields made enough to offset the loss and still keep my yield above the insured level. I did not get to make a claim. I still had to pay the premium for those acres that were destroyed. I would like to see Federal Crop cover loses on a field by field basis. We certify every field as a unit on a crop map in the FSA office. Could not FCIC do the same and treat each field on its own merits. There are some farmers in my community that have several farms scattered over a large area listed with FCIC as one unit. A hail out on one place will be offset by all of the other farms. The farmer still pays the premium on that place yet he has a total loss without compensation. He only carries Cat insurance because of that fact. If he could be paid on a field by field basis as we certify fields on crop maps in the FSA office, he would have an incentive to take the buy up to a higher coverage level.
When a partial crop loss occurs and an insurance claim, the loss is adjusted for the amount left in the field. Many times that amount is not a harvestable amount. If the farmer does decide to grow the crop to harvest the crop may be inadequate to pay the cost of harvest. In the instance of a grain crop, if the plants that are left are very thin, the combine cannot adequately feed the material into itself to keep from wasting much of the grain as compared to a healthy standing crop. There needs to be better provision for insurance indeminity payments considering the cost of carrying a partial loss field to harvest and the cost of the harvest operation.
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Many times after a big area wide disaster, we cannot get an insurance adjuster to come in a timely manner and assess the damage so we can make a decision to keep the crop, replant to the same crop or to plant to an alternative crop. It would be good if more adjusters could be brought into the area on an emergency basis.
Our final planting dates for wheat do not correspond with the time that we would normally consider too late to plant. I follow the practice of planting wheat behind cotton under an irrigated center pivot circle. The final plant date for Floyd County is November 15. Before I began taking crop insurance, it was common for me to not finish harvest of cotton until early December and then plant wheat even as late as the last of December. Under the sprinkler, the irrigated yields were excellent. Now, in order to get full insurance coverage, I have to harvest that field early just to be able to plant wheat by the final plant date. The planting dates need to be re-evaluated to more nearly follow cropping practices in each county. There needs to be farmer input on the establishment of those planting dates.
Many times after a big area wide disaster, we cannot get an insurance adjuster to come in a timely manner and assess the damage so we can make a decision to keep the crop, replant to the same crop or to plant to an alternative crop. It would be good if more adjusters could be brought into the area on an emergency basis.
Many of my neighbors would rather have a fully funded disaster program paying on actual field losses instead of having to rely upon Federal Crop Insurance. In the last two decades, there have been numerous Disaster programs for Agriculture. Most have been underfunded. We get our hopes up on the promise of getting relief from economic loss on a natural disaster only to get half.
Before Freedom to Farm, acres and yields were established as a normal basis back in the early 1980's. Today, the AMTA payments are made according to those 20 year old acres and yields. Those established acres and yields do not reflect sound farming practices nor the current yields of our crops. I realize that program acres and crop yields are used as a vehicle to make AMTA payments, but this is an antiquated method. Making price support payments based on a formula tied directly to the actual production of each crop would make more sense. That is what makes the loan deficiency payment program work. The problem is that with extremely low prices, the payment limitation rules keep us from getting the full value for our crop from the loan deficiency payment.
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There are several deterrents to profitable farming today that are tied to Federal Government actions.
Every time the Federal Interest Rate is raised one percent, it raises my interest cost about $500. Take the amount that interest rates are raised and you can see about how much my net profit is decreased.
Every time the minimum wage is increased $1 per hour, it raises my cost of cotton ginning 10 cents per 100 pounds of raw cotton, or $2.50 per bale. If I gin 500 bales of cotton in a year, that will equal a net profit loss of $1,250. Up to one-third of the cost of ginning cotton is tied to labor at the cotton gin. The gin also has to pay an increased amount of workmen's compensation insurance premiums and unemployment insurance tax. The minimum wage to workers is like the cotton loan rate is to farmers. Only the cotton loan rate does not get raised for fear of raising prices too much in our country and encouraging other countries to produce more cotton to capture the inferred higher price. We would lose market share and be stuck storing cotton. Well, that is what is happening to our factories here. Our goods are being produced in foreign countries where the labor wage rate is low enough to offset the cost of production and freight. Our cotton mills and garment factories are having a difficult time producing because of the competition from foreign goods. As a consequence, my home country market is shrinking. At the rate we are going, most cotton produced in this country will have to be exported to find a market as there will be very few cotton mills left operating in this country. The cotton mill and garment factory cannot pass the added cost onto retailers because of the strong competition from foreign produced goods. If they cannot absorb the cost they have to pass the cost back to cotton producers in the form of lower bids for cotton bales.
Not only is the minimum wage rate affecting cotton mills, the added compliance to environmental regulations is costing cotton mills so much that they have to pass the cost back to cotton producers in the form of lower bids for cotton instead of passing the cost on in finished goods since the foreign competition for sales is so strong.
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Every time a regulation is made to address provisions of the Clean Air Act that affects a cotton gin. The gin has to pass the cost to me as a producer.
At this time, I see that this committee needs to be considering the safety net for agriculture. We need the removal of trade barriers. We need the removal of laws and regulations that detract from our profitablilty. Farming is complicated enough with weather, insects and weed pests, broken machinery and the cows breaking down the fence. We do not need excessive regulations to burden us.
The enhancement of price discovery at a fair market value for our crops and livestock that is tied more closely to the actual cost of production would help in keeping agriculture profitable and farmers financially solvent.
Thank-you for reading my testimony.
Testimony of Jerry Oswalt
Mr. Chairman and members of the committee, my name is Jerry Oswalt. I am a full-time cotton farmer near Abernathy, TX. I also serve as the Chairman of the Panhandle-Plains Federal Land Bank Association, a farmer-owned agricultural credit cooperative.
I am here today as both a farmer and local lender to share with you a proposal to reform the Federal crop insurance program—what I believe should be an essential part of any serious discussion about improving our nation's agriculture safety net. As a farmer, I am vitally interested in ensuring that I have the tools needed to manage the risks inherent in agricultural production. And as a lender, I depend on crop insurance to be a backstop for our borrowers. In many cases, lenders cannot lend to farmers without adequate crop insurance protection.
In an effort to help develop possible solutions, rather than merely point to the problem, several of my peers and I recently developed a proposal that we believe offers a viable alternative to the current approach to Federal crop insurance. I've attached a comprehensive analysis of this proposal, and am accompanied by a representative from AgriLogic (the firm that did the economic analysis on the proposal)—who can help discuss its details and respond to any questions you may have—but I'd like to take a few minutes to describe the concept in general terms.
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Today, when I go to my lender to establish financing for the year, we sit down and develop a financial plan. We establish an anticipated price for my commodities, how many units I intend to produce and an anticipated production yield. From that information, a projected income is established. All things being equal, this is the amount of money my lender is willing to loan me to farm.
Under this proposal, an insurance policy covering replacement costs would be purchased at the time the loan is made. Just like when someone purchases a home or a car—approval of the loan is contingent upon proof of insurance. The insurance coverage would be equivalent to an amount necessary to cover replacement costs, in other words, a farmer's cost of production. Lenders will gladly finance the money required to pay the premium up front, because they know the repayment ability of that borrower is protected in the event of a disaster. These premiums, then, would be forwarded to a Federal fund that would pool them for the purpose of making indemnity payments. In years when claims are low, the pool would grow and earn interest and serve as a reserve for later years or to lower premiums if necessary.
Although the pool would have to be federally subsidized, just as crop insurance premiums are currently subsidized, the effect of this type of concept is very compatible with the cooperative principle that governs my lending institution—but instead of farmers pooling their resources for the purpose of creating lendable equity, farmers would be pooling their resources for the purpose of self-insurance.
Under this proposal, deductibles could vary depending on the farmer's financial ability to handle additional risk; and premiums could be adjusted to reflect the varying production risks in different parts of the country. If sufficient income is not generated to cover the costs of production, either
due to lower than expected prices or production losses, an indemnity payment (minus the producer's deductible) is drawn from the pool and paid to the farmer.
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The farmer and his banker are both happy because they know his debt can be repaid either (ideally) through higher prices or more production; or by an insurance payment, or by some combination. But the bottom line is that if the farmer experiences unusually low prices or production, he can stay in business to farm another day and not be taken out of business in 1 year—and that's what an insurance program should be all about.
This type of program doesn't create an income for the farmer—he has to get that from the marketplace or some other support program—but it serves as a bare-bones safety net to help keep farmers in business during times of disaster. It also helps eliminate the current disincentive for young and beginning farmers to make a career in production agriculture.
I also believe that this program, if administered correctly, will help reduce the level of abuse that we currently have with Federal crop insurance. When an individual buys health insurance, a medical examination is often required and if representations by the policyholder are false, the policy can be denied or later cancelled. When a taxpayer files a return via the Internet or otherwise, they can be audited when it appears they are making excessive claims or if there is unusual activity. Similarly, crop insurance policyholders need to be held accountable when they are not farming in good faith... (in other words) when they are ''farming the program.'' For example, under this program, farmers should be required to retain production receipts and sign a form representing the facts regarding their input costs. If found to be fraudulent, the claim would be reduced or the policy cancelled.
In summary Mr. Chairman, the current risk management strategies have proven highly ineffective for many producers due to factors beyond their control; and this situation begs for a reliable and predictable safety net that will adequately protect them from these conditions. I believe this ''cost of production'' insurance concept will provide producers across the United States adequate coverage at affordable prices. In addition, if administered correctly, Federal costs can be reduced, abuses can be curbed and federally-subsidized insurance payments would reach their target, the producers.
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As your committee considers making changes to Federal policies that help ensure a safety net for this country's food and fiber production, I urge you to consider this proposal as an important element of the overall agricultural policy and a viable and preferable alternative to the current risk management tools available to farmers.
Thank you for your attention to this important issue. I would be pleased to respond to any questions.
Testimony of Mike Mauldin
I am Mike Mauldin, a banker in Idalou, Lubbock County, TX, and I have a strong interest in the well being of agriculture and rural America. There are many concepts in Freedom to Farm that are desirable, but there is an inadequate safety net as the law is written. Currently the safety net provision in Freedom to Farm does not compensate for world governments, economic shortfall, and weather deviations such as drought, flooding, and other acts of nature. When it became apparent that Freedom to Farm reflected limited safety net ability, the producers whom I come in contact with on a daily basis, expressed the desire of the safety net features of the Food, Agriculture, Conservation, and Trade Act of 1990 (the old farm bill). In short theseproducers were referring to the Target Price system that was written in the 1990 law.
Like you and many others, we have reviewed a variety of proposals to improve the safetynet issue before you today. We found merit in every proposal. Today we are offering aproposal that can be easy to administer, understand, and to implement. This is so easy even someone of my knowledge can understand the proposal. You might call it the KISS proposals of safety net provisions.
Because of time restraints, we offer a basic outline of our proposal and with your interest we will provide you a more structured detailed layout of this program. Today, because of my knowledge in cotton, my remarks will cover this commodity by example only, but this program functioned and will meet the needs for all crops.
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In the 1990 law, in cotton we observed a 72.9 cent payment rate, coupled with the CCC loan, and the current market. These were all used to establish a value should a safety net be required. We stress, the basic implementation of this function has been written in the
farm law of 1990. We believe with existing technology this section of the 90 farm law could be easily structured to work in harmony with the FAIR Act.
We offer the above to you as a safety net for producer protection that would function as a section of the FAIR Act, offering an extended time span to let the free market system adjust. Implementation of this proposal should eliminate future disaster declarations.
Testimony of Mark Williams
Good morning. My name is Mark Williams. My son Ryan and I have a diversified farming operation near Farwell, TX, which is 90 miles northwest of Lubbock. We grow cotton, corn, grain sorghum, soybeans, wheat, and run stocker calves. I would like to welcome the committee to Lubbock, and I appreciate the opportunity to speak at this hearing today.
I believe that it is important to first comment briefly on the 1996 FAIR Act. Much of the FAIR Act has been positive, especially the added flexibility and the Marketing Loan. Other positives are cotton's 3-step competitiveness provision and the implementation of marketing certificates. In discussing reform of the current system, it is important to maintain these provisions that have worked well.
Despite these positives, it is obvious that ''Freedom to Farm'' does have shortcomings. The most glaring is the lack of price protection between a grower's cost of production and the base loan rate. The current price safety net kicks in only when prices drop below the loan rate. But loan rates do not begin to protect a grower's cost of production. In the case of cotton, the loan rate is some 20 cents below the cost of production. Previous to the FAIR Act, farm policy provided assistance in the form of target price protection when prices were below cost of production. Nothing in current policy addresses the necessity of producer aid when prices are below cost of production and above loan levels.
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The supplemental payments provided to producers over the past 2 years have provided some much needed assistance, but depending on the political process to bail us out time and again doesn't appear to me to be an adequate farm policy. Producers and their lenders must have a farm policy in place that will enable them to budget and make decisions for the next year's production.
Well, what are the possible solutions to these problems? I believe that any solution must contain a counter-cyclical component. Congressman Stenholm has proposed his SIP plan to meet this need. A program such as SIP could prove valuable in times of low prices, and the added benefit of paying on lost production as well as actual production is very attractive. However, I do have some reservations or questions. SIP is very dependent on the comparison to the previous 5-year's average gross revenue. I strongly believe that a more stable standard that would reflect a relatively favorable revenue situation would be the key to making SIP work. I am also concerned about the process whereby the percentage support level would be determined. It would need to be set high enough to provide meaningful support, and it should not be subject to reductions on a year to year basis. Finally, and this applies to many proposals, will these payments be subject to payment limitations?
Another interesting proposal is the Flexible Fallow Program that would give producers the voluntary option of creating conservation-use acres, as a percent of their planted crop acres, in exchange for higher loan rates. This idea gives farmers a risk management tool that will allow them to plan their production to meet current demand in response to prices offered by the market place. Today the market is shouting that there is too much cotton and grain, but the grower sees a farm policy that shouts even louder to produce all he can to maximize payments. I think it makes economic sense to have a policy that enables producers to adjust production during times of oversupply. This program is attractive because it encourages the sound use of productive resources since only the most fragile and or marginal acres would be taken out of production. FAPRI analysis indicates that this program could decrease governmental outlays in the long run and still enhance producer income.
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Some individuals, organizations, and industry segments are philosophically opposed to any program that provides for set-asides. However, the argument can be made that other countries will continue to support their farmers in such a way that foreign acreage will continue to expand regardless of what U.S. agriculture policy may be. Most of these same people would be opposed to any increase in loan rates, because in their view, commodities placed under loan remain insulated from the market place. With the availability of the marketing loan and generic certificates, this should no longer be a problem. Therefore, one easy solution to the current lack of a safety net would be to simply increase loan rates and make generic certificate availability a permanent part of the marketing loan.
As I see it, these proposals are the main contenders for the best fix for ''Freedom to Farm''. These plans all have the potential to provide an improved safety net for producers. If you asked me to pick one, I would instead choose a combination. This combination would include both coupled and decoupled payment mechanisms. Loan rates would be increased approximately 10 percent making any adjustments between commodities that appear out of line relative to each other. This increase would be less than the amount of the additional AMTA payment made in the past 2 years but has the benefit of applying to a producer's entire production. Next, producers should have the opportunity to increase their loan rates another 30 percent using the Flexible Fallow approach. The reason for including Flexible Fallow is that it actually provides a mechanism for producers to adjust their production based on market conditions.
I am fully aware that any mention of increasing loan rates turns off many of you and others as well. But again, under the marketing loan concept, production will not sit in storage waiting for higher prices or be forfeited to the Government. End users will have access to production in a timely manner just as they do currently. Higher loan values will not cause price distortion, because commodities will continue to move at world prices. Higher loan values will not cause an increase in production over current policy because current policy already demands maximum production. Instead, the addition of a Flexible Fallow component would tend to reduce production in times of surplus.
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Crop insurance is another key component to any producer safety net. The crop insurance reform proposal that came out of this committee and was passed by the House is an excellent attempt at meaningful reform. It addresses the main problem with crop insurance—inadequate coverage at too great a cost. However, the potential still exists for some growers to abuse the intent of true risk management through crop insurance. One improvement would be to make the insurance companies bear at least some of the risk on every policy. They would do a much better job of policing their policyholders if more of their own money was on the line. As it is now, the companies themselves tend to search for loopholes in coverage in order to sell more policies. Second, some peer review is vitally needed to insure that policies make sense in a particular area and that producers are farming in a workman-like manner. A local or regional oversight committee that includes representation from the producer community would help tremendously.
Some people feel crop insurance could be the vehicle for price protection as well as yield protection. One idea is a revenue insurance policy where-by a producer insures a dollar amount that is made up of two components-price and production. There are a number of flaws with this approach. One structural flaw is that the less a grower produces, the more his payment will be. Some growers would look to maximize their indemnity by cutting back on inputs and just receiving their income from revenue insurance. For example, it might become extremely lucrative to create a shortfall in the production of 45-cent cotton to receive a revenue insurance benefit based upon 60-cent cotton. This kind of program would necessarily be relatively expensive to both the grower and to the Government. It would be very difficult to set the price aspect each year without running the risk of market distortion between crops and between regions. In times similar to the current situation, maximizing the indemnity through revenue insurance instead of market forces would drive planting intentions. For the most part, price risk and yield risk should be kept separate. When the two are combined, the many problems inherent to crop insurance are just magnified by the addition of a price element.
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Finally, I would like to take this opportunity to make some comments on the purpose of a national farm program. Farmers would prefer to get their prices from the market place. But export markets in particular have been dismal. Therefore the market place has been inadequate in providing producers with a fair return to their investment and labor. There are those who would like to ''means test'' or target assistance only to those who most need it. That is the hallmark of a welfare program. But it must be understood that farm program payments are not welfare. Their purpose is to provide a safe and ample food supply and to promote conservation. They are a vital part of our national security and have far more in common with U.S. tax dollars invested in our military than they do welfare.
To accomplish their goals, farm programs must include the production from both large and small farms. Also, bad weather and low prices don't discriminate on the basis of size. All farmers, regardless of size must install and maintain costly conservation practices before they receive farm program benefits.
Farmers are not the only ones who benefit from farm program payments: everyone does. There has been much discussion recently on how to help rural America. The key to a vibrant and healthy rural America is a profitable farm sector. Ask any retail merchant in any small farm community and he will tell you that when the farmer does well, he does well. Farm programs help keep food in the United States extremely affordable. U.S. families spend only 10.7 percent of their disposable income for food-a figure far lower than the rest of the world. I hope that in future farm policy deliberations that Congress recognizes the importance of allowing producers the ability to structure their operations to make the best use of their resources and not try to fit arbitrary size definitions determined by the Government.
Thank you for allowing me the opportunity to discuss my ideas with you today.
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Testimony of Ronnie Riddle
Mr. Chairman and members of the committee, thank you for coming to Lubbock, TX to hear producers' thoughts on current farm policy. We appreciate your understanding on the need for inclusion of those most affected by this legislation.
My name is Ronnie Riddle and I am a cotton, grain, and livestock producer from Jones County, TX. My father and I farm together and we derive our entire annual income from our family farming operation. Today I am also speaking on behalf of Rolling Plains Cotton Growers, Inc., an organization of cotton producers who work together to improve the conditions of the industry. Our membership includes cotton producers throughout the 29 counties of the central and northern rolling plains of Texas where almost one million acres of cotton are grown each year. It is our interest and purpose to provide new ideas and stimulate some innovative thinking for all future farm legislation, which in turn will effect all producers in this country, especially those who are from the Rolling Plains of Texas.
Our business is cyclical in nature with unpredictable and unavoidable ups and downs. Governmental assistance is greatly appreciated by producers and it is essential to our survival from year to year when market or weather events result in severe declines in income that endanger our financial stability. We as producers will again be relying on emergency assistance this year, however, we are concerned that the additional appropriations will not always be available. This variation in producer payments is a clear indication that the 1996 farm bill does not provide an adequate safety net to producers. A long term policy needs to be established that provides comprehensive protection to producers while continuing and strengthening the vital partnership between the cotton industry and Government.
While certain risk management tools are available, they do not adequately protect producers from yield or price declines within a growing and marketing season. Also, these tools do not make up for declines from previous year's price levels. We need legislation that will address extreme year-to-year variations, particularly those arising from international market events and weather related losses. This legislation should include some form of payment for producers of all commodities who actually harvested a crop or who have had failed acreage due to natural disaster. We applaud the simplicity and flexibility in the current legislation and believe it should remain in any future farm legislation. However, any new legislation should be designed to address the problem of low prices and provide counter-cyclical relief to those producers and discourage distorted planting decisions.
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We as producers encourage Congress to complete their efforts to reform the crop insurance program. The reform should include first and foremost, stronger enforcement of compliance regulations to combat program abuse. Secondly, the reform should include a provision that makes an adjustment in the actual production history (APH) and take into account the success of efforts such as boll weevil eradication. We as producers have invested our money in this eradication program, but because of current regulations it could take as long as 10 years for our insurance yield to reflect the eradication program's success. It is essential that this remains a part of the final legislation.
Let me thank you once again for taking time to come hear what is on the producer's minds. You will be hearing a lot of folks talk about the problems they are having with low prices, weather, and the absence of a safety net for agriculture. We hope, however, that when you take our message back to Washington it will help you to formulate a suitable solution to the agricultural problems that we are all facing. Thank you.
Statement of Carlos Squires
Mr. Chairman and members of the committee, I appreciate the opportunity to present a few facts about the current condition of agriculture and the peanut industry. In addition, I have recommendations to improve farm policy and the operation of the Peanut Program. As president of the Southwestern Peanut Growers Association I will reflect concerns of my fellow producers in the Southwest and across the Nation. Additionally the National Peanut Growers Group will be expressing similar concerns in the near future.
My name is Carlos Squires, I am a peanut farmer in Caddo County, Oklahoma. Caddo County is one of the largest peanut producing counties in the Nation.
As we enter the new millennium, we do so with fewer people feeding more than ever before. Unfortunately we are doing this with more foreign food than ever before. Since the enactment of the 1996 farm law, General Agreement on Tariffs and Trade (GATT), and the North American Free Trade Agreement (NAFTA) the United States has become more foreign food dependent.
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The 1996 farm bill, GATT, and NAFTA are all intertwined with domestic agriculture policy being largely dictated by trade agreements. These three items touted as great trade enhancement tools have contributed to the worst agriculture economy since the great depression. Our agriculture trade balance is now in a downward spiral. Recent reports show that the agriculture trade balance has continued to decline since the beginning of the year.
U.S. farmers and specifically peanut farmers have not benefited from our trade agreements and domestic policy. Since 1996 we have lost an estimated 35 percent of
U.S. peanut farmers. In addition we now receive an inflation-adjusted price for domestic peanuts that has been reduced by over 26 percent. I guess some would say that we are lucky to have lost only a third of the U.S. peanut farmers. At the same time the consumer price has not gone down, and the American people are eating more cheap lower quality foreign food.
To the best of my knowledge, there is not a single country now importing U.S. peanuts because of the 1996 Freedom to Farm bill, NAFTA or GATT. However, one thing has been exported, rural jobs. One does not have to drive through many small towns in the United States to see what is happening in rural communities. Processing plants are closing, restaurants, dry good stores, and gas stations are all leaving at alarming rates because of the severe downturn in the U.S. farm economy.
As I mentioned, since 1996 peanut farmers have taken severe reductions in income. The new farm bill mandated a 10 percent reduction in the loan rate, and if you take into account 4 percent inflation for 4 years that adds up to a 26 percent income reduction. This does not even consider the reduction in quota pounds. At the same time U.S. peanut farmers have returned over $80 million to the Federal Government through assessments since 1991, and currently operate under a No Net Cost Program to the Government. Fortunately the $28 million collected since 1996 will be used to offset losses caused in 1999.
While taking almost a quarter reduction in income and returning millions of dollars to the Government, you would think that we would be at the bottom of the list of model farm programs. However, I constantly hear other commodity producers telling me they wish they had a program similar to peanuts.
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The Peanut Program has withstood the test of time and markets. With a few simple adjustments it can be the shining star for agriculture. However, without a few changes, I am afraid that 35 percent of producers lost will be a small number.
The United States must take a stance and move forward with a Domestic Agriculture Policy that insures our nations food security. Otherwise our agriculture trade balance will continue to deteriorate, and we will become more foreign food dependent. Not one person has been able to show me what the net gain is when we export our agriculture associated infrastructure. Consolidation is one effect, but farmers don't see that as a gain. Most peanut producers now only have one or two choices where they can market their peanuts.
As we all know, the United States consumer spends less of their personal income on food than anyone in the developed world does. Unfortunately, we are also spending more of that food dollar for foreign grown products. I am afraid that if we wait until 2002 to address our domestic policy and give out annual Band-Aids in disaster assistance, it will not matter. If current trends continue, by the end of the farm bill, we will have lost over half the U.S. peanut farmers and many of our rural communities. At the same time we are spending more tax dollars in agriculture than if we would have maintained the prior farm bill.
I would remind everyone, that every farmer lost and every small town job lost is lost tax revenue and a drag on the economy. I agree with the Secretary of Agriculture who stated in a 1999 Hearing that we need a ''legislative'' fix for agriculture. Annual disaster packages are like putting a Band-Aid on someone dying from heart disease. It may make the Doctor feel good for doing something, but the patient is still dying.
Although I believe there are many changes that need to be made in our domestic policy for peanuts. I also firmly believe that the Peanut Program provides a basis for a solid ''safety net'' everyone is seeking. The quota marketing system has stood the test of time, and offers producers the stability they so desperately need when fighting disease, weather, insects, unfair competition, bad markets, floods and drought. This foundation is what we must build upon.
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The 1996 law which removed some key peanut provisions has shown to be the biggest downfall for many peanut producers. The cost of production support rate adjustment was the one provision that allowed the producer to keep up with inflation. In absence of that provision, frozen loan rates cause producers to be faced with almost certain failure. Thus the reactivation of that provision is vital.
A support price adjustment should be added in order to compensate producers for cost increases in 1996, 1997,1998 and 1999. In order to accomplish this, the national average support rate for quota peanuts should be made to equal the national average support rate established for the 2000 crop of quota peanuts, adjusted by a percentage equal to the percentage of any increase of prices paid by producers for commodities and services, interest, taxes and wage rates during the period beginning with calendar year 1996 and ending with calendar year 1999.
We as peanut farmers would like to thank you for the Market Assistance Program passed last year as part of the FY 2000 Appropriations Bill. I am hopeful this was a realization, by Congress, that the loan rate had been too severely reduced.
We should also reaffirm by law that buybacks of additional peanuts for domestic edible and seed uses cannot be accomplished through handler-grower contracts; we must reaffirm by law that contracting of additional peanuts is permitted only for additional peanuts that are to be exported by the handler. This was the original intent of the Law and only since 1996 has the USDA permitted the misuse of this provision.
We must substantially improve the peanut ''disaster'' provisions by supplementing current assistance provided in the law with additional benefits in crop insurance so as to adequately compensate producers for quality loss beyond their control. Please note the Budget assessment on peanut growers has returned over $80 million into the Federal Government since 1991. However, we also realize the budget neutrality importance of this provision.
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As a No Net Cost Program, it would be beneficial if the peanut marketing assessment (PMA) could be allowed to accrue within a Peanut Program account. If a so-called peanut trust fund was created there could be years when the PMA would not be applied after the trust fund reached a certain level. This allows the producer to keep more of his own money in most years, at the same time not costing the taxpayer one additional dime. This would essentially create a secondary safety net for the producer by only collecting the PMA in years when the fund goes below a certain level.
The need for such a provision was highlighted this past year. Due to the abuse in the buyback provision producers face a high marketing assessment to cover Program costs. Thankfully, $28 million of the PMA had not been forwarded to the U.S. Treasury and will be used to offset losses. Creation of a Peanut Trust Fund will help in other years should costs occur.
The Southwestern Peanut Growers Association is acutely aware of the high percentage of additional (non-quota) peanuts produced by growers in west Texas and southwestern Oklahoma. We believe that a number of improvements in the marketing of additional peanuts are needed in order to bring about increased marketing opportunities for these producers. Most of these peanuts are produced under contracts with handlers. In our opinion modifications can be achieved in the content and mechanics of the handler-grower contract that will clarify and enhance the position of those growers. Producers of additional peanuts in the Southwest are due much credit for helping make U.S. peanut exports the highest quality in the world. Southwest area growers therefore deserve all of the benefits that the market can return for their product. We plan to explore various means of bringing about such marketing improvements and will be seeking the committee's help.
On the Trade side, since the World Trade Organization (WTO) talks will be moving forward, there are a couple of items which I would like to mention that would be in the best interest of peanut farmers if they were addressed.
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Before any further reductions occur in Tariff Rate Quotas, an Equalization Rate System needs to be established to reflect and balance the differences between trading countries in regard to cost associated with production. Foreign peanuts must meet the same safety and environmental standards that U.S. producers comply with. Wage and worker protection laws should also be figured into the formula when placing a value on foreign peanuts.
Confectionery items containing peanuts must be equated into imported raw peanut poundage. Currently peanuts entering in as confectionery items, such as candy bars are not counted as imported peanuts.
Strict rules of origin should be applied to all products. Access for a commodity should be granted only to countries that are directly and historically involved in producing (growing and harvesting) the commodity as determined by the rules of origin.
Although these are only a few suggestions, they are critical for the peanut producer. I am concerned that if we wait too long the only peanut policy we will have to worry about is that of China, Argentina and other peanut producing countries.
As the United States moves forward with its domestic farm and trade policy, we must realize that the farm population is not going to increase. So we must do more with fewer, or become foreign food dependent. The choice is simple; we cannot allow a reduction in our production capability, or allow the U.S. producer to be driven out of the market.
It was once said that food security should be part of our national security.As Congress prepares to review the U.S. Farm/Consumer Programs, let us not forget that self-sufficiency made us strong. Once we no longer independently feed our nation, we truly cease to have independence.
Please remember that in the policy considerations ranging from the old rigid allotment programs and Freedom to Farm, the current Peanut Program is right in the middle. It is a No Cost Program to the Government, thus costing dramatically less than either the old Farm Program or Freedom to Farm. It is based on quota production that guards against damaging over-supply, assures producers of a safety net, and because farmers must produce every year or lease the acreage away it guarantees the consumer a steady supply. Boom & bust is avoided.
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It has a strong consumer protection quality provision. It is also market oriented because any grower can produce outside the Program for the world market.
We look forward to working with the Congress as you make these life influencing decisions.
Thank you for the opportunity to appear here today.
Testimony of Doyle Fincher
My name is Doyle Fincher. I am a producer of peanuts and cotton and have been engaged in farming for my entire adult life. I appreciate the opportunity to appear before the committee today and wish to thank the committee for reaching out to seek the views of producers on current farm program issues.
I would like first to address my comments to the peanut program. In my view, peanut producers have not been subject to the hard times and low prices that have affected producers of so many other commodities. The peanut program has worked well and is responsible for the stability that appears in this industry.
As you know, the peanut program provides for a two price system with an annual quota set for peanuts used for domestic edible purposes. A support rate of $610 per ton is provided for quota peanuts. Some would say that this rate should be higher and others that it should be lower. At this time, I believe that the rate is set at a level sufficient to protect the interests of both producers and consumers.
Additional peanuts not subject to the quota may be produced but they can be sold only for crushing for oil or for export and receive a low support rate. If production of quota peanuts that meet quality standards should be reduced because of adverse weather or disease, a ''buy-back'' program allows additional peanuts to be brought into the edible market to make up the shortfall. The buy-back program is an important safety valve to assure stability in the market and should be continued.
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Until 1996 it was not possible to transfer a quota to producers outside of the county to which it was allocated. The 1996 FAIR Act amended this restriction to permit the sale or lease of peanut quotas outside the county, but the transfer was limited to 40 percent of the county quota. This has allowed peanut quotas to be transferred to counties that are the most productive of high quality peanuts. The demand for such transfers by producers in both the originating and receiving counties has far exceeded the 40 percent limit, and this limitation should be eliminated in any new farm legislation.
The economic situation for cotton producers contrasts markedly with the stability that has characterized the peanut industry. Cotton prices have dropped to the lowest level in my entire career as a farmer. In these times, the Freedom to Farm Act has not provided an adequate safety net. If not for the additional payments provided by the appropriation acts in the last 2 years, many of us would not have been able to survive.
Lots of unforeseen problems have come up at the same time. The Asian meltdown and sanctions on sales to many countries that have been historical markets for U.S. farm products have helped to kill or severely limit our exports. We need sanctions reform so that the President could not impose unilateral sanctions on exports of food and medicine without Congressional approval.
We also need some changes in the current program. A portion of the AMTA payments should be adjusted so that when prices are low, as they are today, payments would be increased, and when prices are high, they would be reduced.
We appreciate the Administration's action in implementing the generic certificate program to alleviate the restriction of the payment limitation on marketing loan payments. This program should be continued in any new legislation. Without this action, the payment limit on loan deficiency payments would impact a family farmer, such as myself. When cotton prices are as low as they are today and have been for some time, I would find myself caught with the payment limit with only a few hundred acres of cotton production. In addition, the eligibility limitation under the disaster program is based on the wrong factor and should be changed. Current legislation excludes producers with over $2.5 million in gross income, a level that has been unchanged for over a decade. One can have a gross income at that level and barely net out enough money to meet every day living expenses. The disaster program limitation should either be based on net income or the current figure should be increased.
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In conclusion, the Nation needs a strong farm economy. Everyone benefits from it. I hope that these hearings will provide guidance to the committee in drafting legislation to achieve this result.
Testimony of Casey Kimbrell
Thank you Mr. Chairman and members of the House Committee on Agriculture. I believe you are sincere in wanting to hear from producers on agriculture policy and I am honored to have the privilege to speak before you this morning.
My name is Casey Kimbrell. I am a full time corn and wheat farmer from Moore County, TX. I currently rent 1,000 acres of irrigated cropland and am making payments on an additional 160 acres. I grew up on a small farm in Castro county and have had an active interest in agriculture since my youth. I began farming on my own in 1994 with the help of an FmHA direct operating loan. Many people criticize FSA loan programs, but I believe they are essential to the future of American agriculture. Young farmers would have no other way to get a start in this business without the FSA loan program unless they came from a wealthy family. The current instability in agriculture, however, makes this program seem like a waste of taxpayer dollars. When I received my operating loan in 1994, I was required to attend a borrower training course. Of seven young producers who took the course at the same time as I did, I am the only producer still in business. Policy failed those producers. This is a monumental statement for the need of a farm program that promotes stability.
I have recently attended meetings of several farm groups discussing agricultural policy, though I am not an officer in any farm organization. I found that many farmers and farm groups disagree on many aspects of farm policy, but all acknowledge problems exist with the current farm bill concerning price stability. I was encouraged by a thread of unity at these meetings in that producers agree there is a need for a program that is structured enough to allow for predictability and long term planning, yet flexible enough to allow for unexpected circumstances and local conditions. I believe this was a goal of the current farm bill, however it lacked the stability necessary for producers to survive adverse market conditions.
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I would like to ask your consideration of an amendment to the current farm bill which promotes stability at the farm-gate while allowing producers to maintain the flexibility of current law. This amendment, called The Food Security and Land Stewardship Act (also called the Flexible Fallow Program) can improve farm income with lower Government cash outlays compared to the current record level spending. The basic premise of the program is to give producers the voluntary option of creating conservation use acres as a percent of their planted acres in exchange for higher loan rates. This act is strikingly similar to the Flexible Parity Act of 1978 proposed by then senators Bob Dole, John Tower, and Strom Thurmond. (Congressional Record Vol.124, No. 11 of the 95th congress, second session, dated February 2, 1978) Dole's bill needed only two votes to pass in 1978. I believe had his bill passed, the 80's farm crisis would have been averted. The Food Security and Land Stewardship Act can be the legislation to end the current developing farm crisis.
The Food and Agricultural Policy Research Institute has given a favorable evaluation to the act. FAPRI estimates net farm income under the act to increase an average of $5.4 billion each year, over the next 8 years. This makes farmers tax payers rather than tax recipients. Under the act, farmers will be able to assess and adjust their planting decisions to market demand, giving producers the freedom to manage risk. This program does not use base acres to determine program benefits. FSLSA has received support from several farm organizations and an overview of the plan was published in a recent issue of Soybean Digest, a publication of the American Soybean Association.
Finally, I would like to address a commonly asked question regarding farm programs containing set-aside acres. The question being ''What keeps South American nations from converting more acres to farm land and producing enough to make up for United States set-aside?'' To this question, I have two answers. The first being, there is no evidence to suggest a correlation between foreign development and U.S. set-asides or domestic high prices for agricultural commodities. In the past 2 years this has become evident in that U.S. prices have been below depression-era prices if inflation is factored in. At the same time, South America has continued to develop farm land. This leads to my second answer to this question. Why would the U.S want to depress our prices to the lowest levels in recent history in an attempt to curb development in foreign countries and maintain our exports? Why would the United States want to destroy its own rural well-being in order to maintain exports at a loss? I believe the United States is a trend setter rather than a trend follower. Our foreign competitors will always trail the United States' lead in the pricing of agricultural commodities. Global agricultural markets are here whether we like them or not. The United States can either boost its rural economy and in turn raise the standard of living of those developing countries, or we can lower our standard of living equal to theirs by continuing policy that promotes giving away our resources in the name of competition. The decision is yours. Thank you.
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An overview of FSLSA is attached to my testimony. If you would like a copy of the exhaustive version, including FAPRI's evaluation, please contact me.
Statement of Lloyd Arthur
First and foremost I would like to give thanks to Chairman Combest and the rest of the members of the Committee on Agriculture for investing time to hear the concerns of the American Farmer. Also I would like to personally thank the Chairman, the Ranking Minority Member Mr. Stenholm, and the rest of the distinguished members of the committee present today for their involvement the last 2 years in changes, and additions to the current farm bill. With those changes many farmers including myself have been able to continue farming during very difficult times. However, with commodity prices being below production cost, future assistance is still needed for the American farmer to survive. The Government assistance does not stop here. The assistance helps our local community, especially in rural areas of the nation. County and even state financial stability is enhanced. Some agricultural policy changes in the short term, as well as new farm legislation, can in my opinion help alleviate some economical hardships. I continue with some suggestions and concerns that affect Crosby County farming operations in which policy changes would help.
Risk Management. Farm income and commodity prices have declined drastically the last several years resulting in emergency spending packages. This spending, very much needed and appreciated from all aspects of agricultural business, cannot always be expected. Competing in a global market is difficult for American Agriculture. I understand the need for marketing my commodity in this market. Most buyers will always seek out the cheaper price, especially if the quality is the same. Quality is usually the winning factor with American agricultural products, however in obtaining that quality, price of production is usually higher in America compared to other agricultural producing countries. If the cost of production in America were equal to that of some foreign countries, example (labor, chemicals, fertilizers etc.) farmers would have a better chance of making financial ends meet. Knowing that uneven production cost exists, and prices in other countries I cannot control, I must limit my risk and cut my expenses.
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Expenses are always hard to cut. One may be hurting oneself when reducing inputs on a crop reducing the total expenses of that input, thus reducing the yield. This mandates reducing risk, or the exposure of that risk to an acceptable economical level.
Some risk management changes that would help in my operation are:
Crop Insurance policy changes. Crop insurance is an important risk management tool, however, insurance by itself is not a comprehensive economic safety net.
The adequacy and affordability of crop insurance varies greatly by crop and region. Current crop insurance programs force producers to carry the same level of insurance coverage on all farms in that county. A producer should be allowed to purchase different levels of coverage for different farming practices. Example (irrigated, vs., non irrigated). On one of my farms the irrigated unit cost of insurance is $8.74 per acre. The same farm has a non-irrigated unit with the cost of insurance at $32.55 per acre. With my acres primarily irrigated, approximately 80 percent, the flexibility of obtaining different levels would help me develop a more cost effective insurance plan for my individual operation.
If a catastrophic loss occurs between mid season and harvest, the amount of coverage lower level policies provides is only 50 to 60 percent of production costs. Insurance policies should allow the higher levels of coverage the same amount of premium discounts as the lower levels. This would help producers to cover more of the operating costs in the event of a loss. Without the extra disaster assistance in 1992, 1998 and 1999, production cost would have not been met on my operation. The insurance program alone was and is not enough to cover catastrophic losses.
In the event of a catastrophic loss, allow a producer to drop that actual loss yield, or allow that producer to insert a county average yield, T yield, or some other calculated standard formula to help offset cost for the following year. This would also help collateral protection when calculating cash flow projection in obtaining a farm-operating loan.
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Set Commodity Loan Rates at a level that would achieve equity of those crops and provide a reasonable price and income safety net.
Allow a producer to customize an individual loan rate for his commodity and operation. This would allow a producer and the lending institution to work together on an individual operation. The flexibility of this choice would allow a producer a chance to control the expense and maximize profits on an individual bases. No two farming operations are the same even when producing the same commodity. The Flexible Fallow Program is such a program providing these options. This would be a policy addition to the current farm bill now in place which would allow a farmer a better way of minimizing his risk on an individual bases.
An alternative to the above would be to set a loan rate that is more effective. The current loan rate, on all commodities, especially cotton is below or much below breakeven production prices. Example, the current loan rate for upland cotton is $0.5192 cent per pound. In 1996 The Department of Agricultural Economics at Texas Tech University did a Standardized Performance Analysis on my own operation. Results indicated the total cost on my operation was $0.64 cents per pound on irrigated upland cotton. The study in 1997 shows the total cost at $0.646 cents, and in 1998 the total cost increased to $0.772 cents per pound. These are pre-tax costs; thus they do not include income tax payments. Withdrawals are included, but not adjusted for non-primary product revenue. This information shows the increase in production cost over the 3-year period. An adequate loan rate could provide a better risk management program.
Create a Farm Risk Management Account. Allow a producer some incentives; such as a tax reduction or deferment, to place money in an account in a year he is fortunate to cover those years' obligations. This account then may be used in a year that financial obligations cannot be met by the farming operation.
The uncertainty and inconsistency in operating a farm in America without a reliable safety net has left my operation strained and stressed the last several years. Trying to keep debt at a minimum, farmers cannot continue at today's prices and keep their equity in the farming operation. Not being able to purchase the expensive new equipment or even upgrading with quality used equipment forces farmers into long term financing. Competitive interest rates on new and used equipment is available, however farm commodity prices have not been able to keep up with the inflation of farm inputs. Just in the past year the value of my equipment collateral was reduced 5.5 percent. In 1989 I purchased a new 195 hp tractor for a price of $64,850. In 1994 a used 195 hp tractor was purchased for $73,730, and a new 205 hp 2000 year model was recently quoted to me at $110,000. Since that first tractor was bought commodity prices have not changed, and prices of equipment have increased. Cotton price in 1988 was about 0.5584 cents per pound, and cash crop in 1999 has been sold for 0.5453 cents per pound. An adequate risk management system is a necessity for the future of American Agriculture.
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AGRICULTURAL TRADE POLICY
Competing in markets beyond the boundaries of the United States has great disadvantages. Unfair trading rules, export subsidies, comparability of labor, environmental issues and currency valuations and fluctuations all impact trade policy. I believe that the American producers have to go by higher standards and stricter regulations than producers in other countries. American producers should be compensated for their extra efforts.
The strength of the dollar greatly affects agricultural exports. Thanks to your hard work in reinstating Step II our exports have increased. Therefore a Step II, or similar program is needed to help level the playing field after the current farm policy expires. This program could be tied directly to the strength of the dollar, being more when the dollar is high and less support when the dollar is low. This will help on the export side of the equation, however some device is needed to make the playing field level when we are in competition with producers that are highly subsidized from their governments.
We should encourage the acceptance of all countries into the WTO with everyone complying with fair and equal rules. Investigate the possibilities of trading with other countries that we are not currently trading with and develop those markets. Those countries obtain product from other countries and we lose market share.
Other trade issues that need to be addressed are for fair trading rules. Imported products need to pass the same standards and quality controls as United States products. Also market distortions caused by import surges need to be taken into consideration. The development of a program to offset or at least minimize the negative effects of import surges and unfair export practices need to be implemented.
The American consumer has the right to know where their food and fiber comes from. Therefore, country of origin labeling should be on all agricultural products.
I88Genetically Modified Organisms
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The non-acceptance of genetically modified crops originating around the globe and more recently in the United States has spread into the market equation. This technology has greatly benefited the American farmers, consumers, and substantially reduced input cost and increased quality by reducing damage from insects and weed pressure. The segregation of GMO and non-GMO produce will drive up costs. Cross contamination will cause more problems in harvest equipment, processing plants, and cross-pollination in the field will cause many loads of non-GMO produce to test positive. We need sound scientific research to convince the consumer that products with the GMO's technologies are a benefit and NOT a hindrance. Without the use of these technologies operating cost will continue to increase even at a higher pace.
Concentration. The merging of farm related companies are a major concern. Without competition to keep production input cost down, the need for a viable risk management or safety net is increased.
Consumers benefit from agricultural programs. The American Farmer is not the sole beneficiary of agricultural programs. Agricultural Program payments also benefit consumers as well as local, county, state, and national economies. The consumer gets an indirect benefit by keeping the products they buy at a reasonable rate. Once the raw commodity is sold from the farm, many processors, shippers, handlers and retailers make a profit on that same product. Unlike the farmer, the added cost of processing and handling has the opportunity to be passed on to the consumer. If their expenses do climb to a level that adjustments are needed, they have a better opportunity to mark up the selling price of that product. Example, in cotton, using my 1998 crop figures, a bale of cotton gross price to me was $271.90. Using the spring and summer 1999 JC Penney catalog, I priced a pair of men's jeans at $19.99. From the weight of the jeans one can calculate that a 480-pound bale of cotton will make 320 pairs of those jeans. This calculates into total retail sales for JC Penney at $6,396.80 just from one bale of cotton. They know what expenses they incur when manufacturing that product. Then they can calculate the price needed to cover those expenses and add some for profit. I have provided a chart, (see attachment) that was personally done for my benefit, and does not hold any scientific meaning, but to know that the consumer would have only had to pay 11 cents more per pair of jeans to cover the cost if the farmer had had an equitable price. This break-even cost is only on the production cost of that crop for that year. Many Americans who voice a negative opinion to farm programs and policy do not realize they benefit indirectly from these programs.
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A strong and equitable safety net for producers is needed. Farm policy that enables producers to receive a fair and equitable price for their commodities. Fair competitive markets.
An investment in rural economy.
Protection of natural resources for the future.
A safe and complete food supply.
Have elected producers on committees to help promote the well being of agriculture. Fair and equitable implementation for Government programs.
Thanks again to you Chairman Combest, Mr. Stenholm the Ranking Minority Member and the entire Committee on Agriculture for your time, diligence and efforts to address these policy issues. I hope the information presented to you today will help you make policy that will help American agriculture and rural america prosper for the many years to come.
Testimony of Tommy Womack
Let me begin by thanking the Honorable Chairman Larry Combest, the Honorable Ranking Member Charlie Stenholm, and the other members of the committee for conducting this important field hearing. Your aggressive agenda of bipartisan hearings across the Nation is very much appreciated.
My name is Tommy Womack and I currently serve as President of the Texas Wheat Producers Association (TWPA) and Vice President of the National Association of Wheat Growers (NAWG). I reside near Tulia, TX and farm there in partnership with H&W Farms. My farming operation consists of raising cattle and producing wheat, milo, and cotton, with wheat being my primary crop. I have farmed in Swisher County for 30 years.
As you know, wheat producers across the Nation continue to suffer from near record low prices. In addition to this, Texas, as well as Oklahoma, New Mexico, and Kansas are currently experiencing severe drought conditions. These conditions put further stress on the overall farm economy. We greatly appreciate the market loss payments that Congress has provided over the last 2 years as emergency spending. While they have not saved every farm, they have extended the operations of many wheat producers who would have otherwise been forced off their land. We all look forward to the day when such assistance is not necessary and farmers can receive a fair price for their product. However, sadly, that day has not yet arrived. We are very hopeful that we will be able to receive another assistance package even greater than the past years due to the current drought conditions, low wheat prices and higher fuel costs.
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In face of continued financial stress, some have started to blame the 1996 farm bill, however, wheat producers have a different story to tell. Wheat prices were the first to fall and after 3 years we've had some time to learn why.
Two years of record levels of global production, bolstered by excellent weather across Canada, Australia and Europe, flooded the marketplace with wheat. And since almost all non-U.S. wheat traded in the international market is done so with hefty, trade-distorting Government subsidies, U.S. producers found themselves holding larger than average stocks totaling nearly one billion bushels, causing prices to decline even further. This pressure on the supply side of the equation naturally pushed prices lower.
While the Bill did not prevent this disaster, it is not fair to claim that it was the cause. Texas wheat producers support the flexibility of Freedom to Farm and the risk associated with it. Today's crisis would have been much more devastating had we been forced to abide by the old, top-down management of previous farm bills.
However, while we do not want Freedom to Farm repealed, there is clearly a need to improve Federal farm policy before more farmers are forced off their land. The 1996 farm bill lacks a reliable safety net. With no floor, the prices continue to drop.
First, TWPA and NAWG believe Congress must take immediate action in fulfilling the unfinished business of the 1996 Act. Farmers need a safety net to protect them against low prices and disasters, such as the current drought Texas and others are facing. We also need tax reform, reliable crop insurance, and an open international market free of U.S. unilateral sanctions. We appreciate the efforts of this committee in advancing these important issues and call upon you to continue your efforts to support our producers nationwide.
Second, TWPA and NAWG believe Congress should step in and secure the safety net contained in the 1996 FAIR Act increasing the USDA farm program baseline through doubling the AMTA payments, and corresponding limitations, for the remainder of the Bill at the 1999 level. Because of the continued unfair trading practices of other countries around the world, I would ask that this committee go back to Congress and seek out this increase in the budget. We need a reliable program that brings stability to the rural economy.
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Third, TWPA and NAWG believe Congress must take up and pass permanent normal (PNTR) trade relations with China. Wheat producers have expended a great deal of effort to overcome China's SPS (sanitary and phytosanitary measures) concerns and to eliminate their penalizing TRQ (tariff rate quotas). The implementation of this record agreement, however, is linked to China's accession to the WTO (world trade organization) and our granting China PNTR status. Other important issues include the lifting of unilateral sanctions against food and medicine, increased trade assistance funding from Congress for agriculture and to specifically show support for Foreign Agricultural Services (FAS) and its programs, such as a Market Access Program (MAP) and Foreign Market Development (FMD) and food assistance programs. We request that Congress move forward with WTO negotiations on agriculture.
Fourth, TWPA and NAWG believe that we must add a counter-cyclical economic assistance payment to the farm bill. For 2 years, we have relied on emergency spending to provide the assistance we need. This ad hoc system should be replaced with a statutory payment triggered by low prices. The TWPA and NAWG are currently developing an outline for just such a payment which can be tested by sound economic forecasting and which meets our needs and that of our financial lenders.
On behalf of the TWPA and NAWG, we want to thank you for your consideration and leadership regarding these very important issues. The future of Texas and U.S. agriculture depends on your decisions regarding these matters.
Statement of Welton Melton
As evidenced by these hearings Freedom to Farm is obviously not American Agriculture's Final Answer. Unfortunately, the number of friends the agriculture sector can call on is dwindling everyday. This committee is one of our most powerful friends. We in agriculture appreciate your concern for our problems. We appreciate Chairman Combest asking for input from producers as we search for better solutions. It is doubtful that the ''final answer'' will ever be forthcoming.
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Freedom to Farm has been castigated and called Freedom to Fail. This bill is not to blame for all of agriculture's problems. The administration can truthfully say as Pogo did years ago, ''Gentleman we have seen the enemy and he is us!'' The American farmer is the only party to the FAIR act of 1996 to fully implement the bill. The administration has grossly failed to implement their end of the agreement. In order for Freedom to Farm to succeed agriculture must have free access to the world market. The administration has failed in delivering that free access to agriculture. American agriculture is still at the mercy of unfair foreign trade practices. The EU, Uzbekistan, and Turkey just to name a few are still taking foreign markets away from the American farmer with unfair subsidies. The EU, a USDA study recently showed, subsidizes their farmers at a rate of $352 per acre compared to $45 per acre for the U.S. farmer. The EU also continues to subsidize their exports of wheat and wheat related products to the detriment of the American farmer. The administration sits idly by relying on the WTO to protect the American Farmer from unfair trade practices. The WTO is almost as effective as the League of Nations. Evidence of that ineffectiveness can readily be seen in the Beef issue and the still developing GMO issue. As you are aware we still have no beef exported to Europe despite continued rulings that this restriction is not based on sound science. This issue is merely an artificial trade barrier. The same type of problem is now developing with corn, soybeans, and cotton. The protectionist groups in Europe are obviously using the environmentalists to develop an artificial trade barrier. Exports are of vital importance to my area. The Farmers Co-op Compress in Lubbock estimates that at least 65 to 67 percent of our cotton grown in west Texas will be exported. False trade barriers must be dealt with in a timely manner, not drug out over decades. I am sure the WTO is functioning at some level and that some form of a multinational organization must be present to facilitate world trade. The WTO in its present form is not an effective tool to protect the U.S. farmer from unfair trade practices in a timely manner. If a better safety net was available to the American farmer he might have time to wait for the WTO to finally reach an equitable solution to the myriad of trade issues with which it must deal. Since such a safety net does not exist and since the WTO does not or perhaps cannot resolve trade issues quickly enough to give the American farmer equal access to world markets then the United States must act on its own to insure the American farmer quick and equal access to foreign markets. In order to accomplish this tools such as the export enhancement program (EEP) must be funded at realistic levels and then put to use. Other programs currently in use should continue to function at optimum levels. Commodities must not be used as weapons in political battles. Current economic sanctions on agriculture exports represent nearly 14 percent of our rice markets, 10 percent of our wheat markets, 5 percent of our vegetable oil markets, and 4 percent of our corn markets. The 1996 farm bill does not provide for lost sales under existing embargoes. Almost daily we read of the discussion of whether or not to grant permanent normal trade relations (PNTR) to China. The track record of using commodities to force a country to conform to U.S. standards is dismal at best. I am sure that any day now Cuba will change leaders due to our economic sanctions. If sanctions have not worked against Cuba how can we expect them to work against China. American agriculture needs to trade with China as a normal trading partner. The current strength in the soybean market is due in large part to China's entry into the soybean market as a buyer. China should be granted PNTR status. Such a move would definitely encourage further trade with China, one of the largest market places in the world, and improve American agriculture as a dependable supplier. I and my contemporaries need access to that market.
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The administration desperately needs a cohesive trade policy. The USDA can't even agree on why they are not using trade tools. Last July in Austin at the WTO hearings Undersecretary Schumacher told me that the reason EEP wasn't being used was not to ''keep clean hands'' in the subsidy sector before the Seattle hearings. Less than a week later I read in a DTN news story that Secretary Glickman stated that the reason EEP was not being used was because the United States wanted to go into the Seattle hearings with clean hands. Two top officials in USDA can't even agree on why they are not protecting agriculture from unfair subsidies. Even dumb farmers know that we need a cohesive and consistent trade policy. The administration has told us that we need to avoid trade wars. The American Farmer is already in that trade war. Foreign farmers are fighting that war against us with strong support from their governments while we are struggling without the aid of all of the weapons that should be at our disposal. The EU and other exporting countries are currently subsidizing their Ag sector at much greater levels than the United States subsidizes theirs. In order for Freedom to Farm to have any chance of success at all, the administration must not surrender our trade weapons. Funding for programs such as EEP must be continued at realistic levels and then be put to use. The American farmer appreciates the funding for the other programs that finance sales to foreign countries and promotes our products abroad. Failure of the administration and the WTO to protect our export markets and the resulting loss of sales in foreign countries makes an effective safety net a vital issue of concern for the American farmer. The doubling of the LDP payment limits and the granting of use of generic certificates this past marketing year was greatly appreciated. The doubling of the LDP payment limit has kept many ''family farms'' in operation today. Payment limits should be set at these realistic levels. The administration's proposal to add supplemental income protection to the current farm bill would help, but the payment limit that it applied to that program makes it useless to myself and other farmers that are the true ''family farmers'' that the administration claims it is trying to help. The program proposed by the administration will primarily aid ''hobby farms'' that produce less than 15 percent of the nations farm commodities. Payment limits must be set at reasonable economic levels, not at politically acceptable ones. If proposed payment limits are maintained the safety net for myself and other farmers would not work. When exports drop and usage declines payment limits must be much higher. This must be done in order to allow farmers to fully utilize the marketing loan program that the 1996 farm bill established as his safety net when commodity prices drop below his cost of production.
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A change in the credit policy set forth in the 1996 farm bill that would help many farmers in my area would be to lengthen the amount of time a farmer is eligible to participate in the guaranteed loan program. In our present economic condition it does not make sense to arbitrarily force a farmer who is making good economic progress out of a program which costs the Government very little if anything before he can get conventional financing. The length of time that a farmer can be eligible for the guaranteed loan program should be lengthened to reflect the difficult economic conditions farmers are facing today.
When the FAIR act was passed in 1996 the American farmer was told that the marketing loan would act as a safety net during times of depressed prices. Secretary Glickman recently announced that he had frozen those marketing loan rates and would not let them drop any further this year. This was welcome news. However that action should have been taken in 1996. Marketing loan rates, in order to be an effective safety net, should have had a frozen floor; not a frozen ceiling when they were set in 1996. Marketing loan rates should have been set at a more realistic level in relation to the farmers cost of production. If that tool is truly supposed to be our ''safety net'' it should not be allowed to sink to the floor. Unfortunately this problem is inherent in the design of the FAIR act. The method in which marketing loan rates are set needs to be changed. Inherent in the bill was the need for the American Farmer to compete in the world market. No provision was established for adjustment of the loan rate in relation to changing world conditions that drastically affect our access to world markets. In 1998 when our commodity prices fell due to the strength of the dollar I would sit up at night watching Bloomberg reports praying that the yen would show some strength against the dollar in the hope that our local commodity prices would recover if the yen went up. In order to connect the marketing loan rates, our safety net, to world conditions that affect our trade in the world, marketing loan rates need to be tied to the strength of the dollar in 1996. A bench mark of what the dollar was worth in comparison to the yen, mark, pound, and other major currencies in 1996 should be established. If the dollar goes up 10 percent in relation to that bench mark then the marketing loan should increase 10 percent. This would help the American farmer when one of our major competitors devalues their currency with the end result of undercutting our price and a resulting loss of sales. It would also inoculate us from financial woes such as the Asian Flu that resulted in loss of sales to that area due to the decreased value of their currency in relation to the dollar. This would also assure that when the rest of our nations economy booms, as it is today, the rural economy would enjoy similar prosperity. Under current law when the rest of the economy is booming it almost guarantees a strong dollar and corresponding loss of sales to cheaper foreign commodities. Tying our marketing loan rate to the strength of the dollar would also help the rural economy that Congress and the Administration are attempting to shore up. When the farmer is making money the rural economy is making money. Years ago when Reagan's ''trickle down '' economic program was discussed farmers said ''When we make money it isn't trickle down it's pour it down''. Just as the marketing loan rate needs to have a floor under it and not a cap this benchmark value should have a floor under it and no cap. Whenever the U.S. economy is so strong as to justify a raise in the marketing loan it will also be able to afford the corresponding increased expenditures to insure a strong and viable rural economy.When the current farm bill was passed the farmer was promised that the United States would work to insure that he would compete on a level playing field in the world market. One area of great concern to the American farmer that has not been addressed at all is the unleveled playing field of production costs. Our foreign competitors are buying inputs from U.S. companies at much lower prices. The American Soybean Association has recently chastised Monsanto for unfair pricing of seed and technology. The Argentineans pay a lower price for Roundup Ready seed and no technology fee. According to a recent GAO report Argentinean farmers are currently paying approximately $9 a bag for Roundup Ready Soybean seed. American farmers are paying $21.50 for the same seed. Argentineans are allowed to catch their seed to plant next years crop. U.S. farmers are denied this cost saving practice. Roundup is also sold at much lower prices in other countries, such as Canada, than it is in the US. These are just two examples of the unleveled input playing field. U.S. farmers pay for much of the research that is done by major Ag companies through check-off dollars, University research, and the price of our chemicals. This technology is then exported and sold to our competitors at much lower prices. We also must deal with increased environmental and labor regulations, which was supposedly going to be reduced after the 1996 farm bill was passed. Our competitors, in many instances, enjoy lower labor costs, fewer if any environmental regulations and a higher level of internal subsidies. Perhaps some way to address these inequities can be tied to our marketing loan rate as well. The way to do so eludes me at the present time. If the marketing loan rate is truly supposed to be one of our main safety nets it needs to be raised in order to accurately reflect that area of our cost of production that is directly related to Government policy and is beyond the ability of the farmer to control. Many aspects of our cost of production are due to direct action of our Government and multinational Ag businesses. These actions must be considered when attempting to ''level'' the world playing field.
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As I said at the beginning it is very doubtful that a ''final answer'' will ever be forthcoming for agriculture. Help from our ''friends'' must come in the form of the administration implementing their side of the Freedom to Farm act and the congress working to make our safety net a true net and not just a floor for the American farmer to slam into when he falls on hard times. This would help the American farmer in his quest not to be a millionaire but to fairly compete in the world market against foreign governments and to just be able to stay afloat until next year.
"The Official Committee record contains additional material here."
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