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House of Representatives,
Committee on Agriculture,
Washington, DC.

    The committee met, pursuant to call, at 10:04 a.m. in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
    Present: Representatives Barrett, Boehner, Smith, Lucas of Oklahoma, Hostettler, Moran, Thune, Gutknecht, Simpson, Hayes, Fletcher, Stenholm, Peterson, Dooley, Clayton, Minge, Pomeroy, Bishop, Berry, Etheridge, Boswell, Phelps, and Lucas of Kentucky.
    Staff present: Tom Sell, R. Bryan Daniel, Alan Mackey, Michael Neruda, Callista Bisek, Wanda Worsham, clerk; Howard Conley, Anne Simmons, and Russell Middleton.

    The CHAIRMAN. This hearing of the House Committee on Agriculture to review Federal farm policy will come to order.
    Good morning and welcome to this hearing on the future of Federal farm policy. As you all know, this committee has spent a good deal of time on the road this year addressing the very issue with farmers and ranchers across the county. In 10 separate field hearings held in California, Idaho, Texas, South Dakota, Illinois, Tennessee, Ohio, Alabama, North Carolina, and Pennsylvania, we heard from 181 producers of all different types of commodities. In addition, 235 people submitted written testimony that was made part of the permanent record for these hearings. I want to take this time to publicly thank all of those individuals for the time and effort that they invested in sharing their thoughts with us.
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    I have stated at the beginning of each of the field hearings, and I think it is important to mention again today, all of the Members at the dais know that there is a significant problem facing the agriculture sector. I think the previous hearings have helped to demonstrate how deep and complex the current challenges are.
    What is more, we all fundamentally believe that it is in the best interest of this Nation to maintain and foster a diverse and strong agricultural sector for the future.
    So the question that we are looking for the answer to is: how best do we accomplish that goal? Farmers and ranchers are unique in the risks that they are required to bear. Producers simply cannot control economic conditions that determine the price they receive, just like they cannot harness Mother Nature.
    In January 1999 this committee turned its attention to the risk management side of the safety net. I am extremely pleased with the bipartisan spirit in which we passed H.R. 2559, the Agricultural Risk Protection Act of 2000, having been approved by voice vote of the subcommittee, the full committee, and by the full House of Representatives not once but twice.
    I believe that we owe it to our Nation's farmers and ranchers to now turn our full attention to the income side of the safety net and build a similar consensus for the development of a comprehensive farm safety net. We can and we will.
    In this light, we look forward to hearing the views and ideas of four or our most prominent national agricultural organizations today. Again, I would like to thank all of you for being here.
    I recognize Mr. Stenholm.

    Mr. STENHOLM. Thank you, Mr. Chairman.
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    Mr. Chairman, let me commend you for your decision to hold a series of field hearings nationwide to review the Federal farm policy in preparation for the next farm bill in 2002. I appreciate a chance to hear from the farm and commodity organizations that represent farmers and ranchers here in Washington.
    Those of us who represent rural agricultural districts understand that what Congress does in the next 2 years will affect the livelihood of farmers, ranchers, small-town banks, businesses, and the very community infrastructure such as health care, schools, and churches that permits the quality of life to continue in rural America.
    In response to the crisis facing U.S. agriculture, I have proposed a counter-cyclical program that I refer to as the ''Supplemental Income Plan,'' or SIP Program. I hope that those in agriculture and in the Congress will consider it, along with a variety of proposals, to find what will be best for agriculture in the next farm bill.
    As we debate various policies, we must be mindful of the burden that we have in convincing the public and the Congress that a continuous program that will meet the needs of U.S. agriculture is a responsible one. We cannot depend on an annual designation of a farm emergency as the basis for assuring support for farm income.
    We must be aware that the public support for the plight of agriculture may not continue as it has in the recent past. Congress has provided $18.75 billion in emergency payments for income loss, not crop loss, in various legislation over the last 3 years. This amount has not only restored the original $12 billion cut in farm income that was required in 1995, it has exceeded it by more than 50 percent.
    Consider that when the 1996 farm bill was passed, CBO projected that it would spend $44 billion over fiscal years 1996 to 2002. Actual farm program spending today, current USDA fiscal year 2000 estimates and CBO projections to fiscal year 2002, suggest that the cost will be more than double, to $89 billion, and that is if Congress enacts no more spending until fiscal year 2003.
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    Let me be very clear that in my district, where we have had drought 3 of the last 4 years, these payments were vital. They have been the difference between economic life and death for growers in the 17th district of Texas, but there have been other farm sector impacts that may not go unnoticed.
    The National Agricultural Statistics Service reports that cropland values are up 13.4 percent from January 1997 to January 2000 and up 2.1 percent in the last year, alone. The regions reported with the greatest increase were the lake States, up 27.4 percent; the Southeast, up 14.9 percent; and the Corn Belt, up 14.2 percent.
    Consider the per-unit value that producers have received on average for their 1999 crops. Take all loan deficiency payments, all AMTA payments that producers receive and divide them by the respective 1999 production for each crop. When added to USDA's June world agricultural supply and demand estimates of farm prices, the average value received by producers is $4.16 per bushel for wheat, $2.68 per bushel for corn, 80 cents per pound for cotton, $12.20 per hundredweight for rice, and $5.69 per bushel for soybeans.
    If these values were put on a target price equivalent basis, as was paid under the 1990 farm bill, adjusted for payment on actual production, not payment yields, and on all acreage, not 85 percent payment acreage, then they represent a target price equivalent of $4.91 for wheat, $3.07 for corn, 86.7 cents for cotton, and $14.81 for rice. The 1999 net farm income reached $44 billion. That is 1999 net farm income. Of that, $20 billion was from direct Government payments, and of that amount $8 billion was for emergency income loss. The $8 billion represents 8 percent of 1999 net farm income. If roughly half of net farm income may be attributed to crop production, then the amount of income assistance to crop growers represents about one-third of crop production net income. Without substantial improvement in market values, crop producers will need additional assistance each year at levels similar to 1999 in order to maintain current income levels with current policy, including international policy.
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    The budget baseline for direct producer payments beyond those provided through loan deficiency payments, however, is limited to $4 billion a year beyond fiscal year 2002. This is considerably less than the $13.5 billion provided as direct income assistance in 1999.
    A challenge that remains for this committee is how do we address the non-farm economy in rural America? This is important, when many rural counties derive less than 20 percent of their income from farming. For those of us who do farm for a living, typically only one of our children will realistically be able to depend for his income from the farm that has supported each of us. Where will our other children go to find work? Without a vibrant, non-farm, rural economy, we can only expect to see those children move further from the homes we have built for them. This will continue the decline in rural population and may leave those who remain on the farm without the quality of life that they require.
    We need to devise a comprehensive rural development policy that will allow our families to make a living in rural America.
    This is a challenge that I would extend to you and other leaders in U.S. agriculture.
    I want to thank all of the individuals who have taken time up to this point to share their concerns and ideas on how we can support our producers, promote our products, manage our resources, and use our tax dollars wisely.
    Again, Mr. Chairman, I thank you. I look forward to hearing today's testimony, a thought-provoking question and answer session from our colleagues, and would use this opportunity to welcome a past Texan and now resident of Chicago, IL, and the new president of the American Farm Bureau Federation to the witness table.
    The CHAIRMAN. Thank you, Mr. Stenholm.
    Any other statements by Members may be included at this time.
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    [The prepared statements of Messrs. Barrett, Smith, and Bishop follow:]
    Mr. Chairman, thank you for taking the initiative and leadership in holding this hearing today to continue the review of the current Federal farm policy. Your bipartisan effort in having these hearings shows your dedication to the farmers and ranchers across America.
    I believe that by holding numerous hearings on farm policy this committee is taking the first step in establishing a more effective Federal farm policy that will benefit everyone. I am happy to be a part of this important discussion.
    These hearings are the first step in establishing the most effective farm policy for all farmers and ranchers. I would like to thank the witnesses attending today's hearing for sharing their thoughts and concerns with us. Your first-hand experiences and wealth of knowledge provide insight on very important issues.
    As we begin to gather ideas and suggestions regarding farm policy, it is imperative to build a consensus within the agriculture community about the direction we should take.
    It is important to remind ourselves that in order to establish a more effective farm policy, we must put aside our differences and work together for the benefit of farmers and ranchers across the nation.
    As the face of agriculture changes, we must continue to develop the most efficient and reliable means to produce our food. The recently passed and signed crop insurance bill will provide for a more stable future for farmers and ranchers. The crop insurance reform legislation would not have been possible without the strong leadership and bipartisan support from the chairman and ranking member. I commend them for their efforts, and know that it will take the same spirit of bipartisonship in the next major rewrite of farm legislation. But, it will not be easy as some sectors want to ''throw the baby out with the bath water.''
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    The recent House passed bill to repeal the estate tax will also provide relief for farmers and ranchers. This historic legislation provides farmers and ranchers the opportunity to pass their livelihood on from generation to generation without an unnecessary burden. This too would not have been possible without the excellent display of bipartisanship from all involved.
    I look forward to hearing today's review of the Federal farm policy and working with my colleagues as we address each important issue.
    Mr. Chairman, thank you for holding this hearing. It is a pleasure to see the distinguished group of witnesses before the committee today. I look forward to hearing their remarks that will hopefully give us some concrete ideas to work off of when we begin writing the new farm bill. As we start writing the new farm bill next year I suspect it will eventually be an exercise of trial and error. We need to keep supply and demand and competition as major influences with provisions to accommodate that other countries subsidized their farmers much more than we do.
    U.S. consumers use only 11 percent of their spendable income on food and fiber. We want consumers to understand how lucky they are to have such efficient U.S. producers. Part of our job on the committee is to teach others in Congress how important it is to keep growing the Nation's food supply inside our own borders. Forcing our farmers out of business and ultimately importing food is not a good option. I am surprised that I have to remind people of the fact that we spend only 11 percent of our disposable income for food and fiber. That frees up a lot of money to support a $6.7 trillion annual economy. That is a huge amount of money that go for other goods and services.
    This committee has been all across the Nation to hear from people that are most affected by our policies, the producers. I await the panelists testimony and suggest we come away with at least an idea, a starting point of goals on how we can help producers do what they do best, supplying this great country with the most reliable, lowest cost, highest quality of food and fiber.
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    I would like to thank Chairman Combest and Ranking Member Stenholm for their hard work on the series of hearings that have been held across the country and here at the Capitol. With the pain and suffering in rural America, a thorough review of Federal farm policy is our duty and obligation to farmers, consumers, and taxpayers.
    And for the panelists here today, I thank you for your views. I have had the chance to hear from many of your members in my office, at hearings and on farms and main streets in my district.
    In addition, I know that many of you here today stood with thousands of farmers from across the Nation at the Rally for Rural America this spring at the Capitol. The collective voice of those who made the sacrifice to come here for the rally still resonates in these halls of Congress today.
    One theme I hear from farmers is the uncertainty that Freedom to Farm has created in their farming decisions. Increasingly, farmers have come to depend on emergency stopgap measures to supplement income formally provided for in long range farm programs. Congress is now forced to address one disaster after another in agriculture. I have even heard one farmer say that, indeed, Freedom to Farm is a disaster program and a disastrous program.
    As farmers plow through the fifth year of Freedom to Farm, trends are becoming clear. Farm income is down. Farm input costs have risen. And farmers are losing ground to the rest of the world.
    The great experiment with Freedom to Farm needs to be reassessed. Just as this Congress took the bold step to dismantle 63 years of price support programs when it passed the 1996 farm bill, we need to have the vision to change Freedom to Farm where it is not working.
    I look forward to the testimony of these esteemed farm leaders today.
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    The CHAIRMAN. I would invite our witnesses to the table: Mr. Bob Stallman, president, American Farm Bureau, from Columbus, TX; Mr. Leland Swenson, president, National Farmers Union, from Evergreen, CO; Mr. Leroy Watson, legislative director of the National Grange, Washington, DC; and Mr. George Naylor, National Family Farm Coalition, from Churdan, IA.
    We will take the testimony in the way of the introductions. Please proceed, Mr. Stallman.
    Mr. STALLMAN. Thank you, Mr. Chairman.
    In spite of Mr. Stenholm's comments, I still am and always will be a Texan. [Laughter.]
    I am Bob Stallman, president of the American Farm Bureau Federation and a rice and cattle producer from Columbus, TX.
    During the 10 field hearings across the country that you referenced, members of this committee heard first-hand of the favorable consensus among farmers and ranchers regarding planting flexibility, increased access to foreign markets, and enhanced tax fairness. You also heard about many diverse problems affecting America's farmers and ranchers, including low prices, rising production costs, and weather-related disasters. We commend you for conducting these hearings.
    While the hearings identified problems, there was not a real consensus among farmers and ranchers on the potential solutions. It is understandable that there are not many viable solutions.
    First, we have entered into an era of a new economy advanced by technological innovation. To the extent both practical and affordable, American farmers and ranchers are attempting to respond and adapt to these rapid technological advancements in their quest to compete on a global scale.
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    Second, the agricultural economy is influenced by many social, economic, and weather-related factors that dramatically change the cultural, political, and economic landscape. It is difficult to predict production levels and prices and impossible to predict drought and floods.
    The financial problems faced by farmers and ranchers are often compounded by economic occurrences not directly related to agriculture. An example is the $2.6 billion in higher fuel costs farmers and ranchers are likely to incur this year.
    The recent action by the Federal Reserve to increase interest rates represents another jolt to the Nation's agriculture. Following the announcement, several banks increased their prime rate to 9.5 percent. This will likely push many farmers' operating loans to well above 10 percent. Rates have not reached this level since the early 1990's.
    America's farmers' and ranchers' current debt load is approximately $173 billion, with $91 billion of real estate debt and $82 billion of operating loans and intermediate debt.
    The Farm Bureau believes the FAIR Act is continuing to act as designed with respect to producers' ability to reallocate their resources in a more-efficient manner and to adjust crop acreage in response to both economic and agronomic factors.
    The market is providing pricing opportunities while AMTA payments and loan rates provide a safety net. It is imperative that Congress avoids abandoning the market-based policies of the FAIR Act and avoids increasing loan rates.
    The loan program was intended to be a method to lessen pressure to sell at harvest time and to spread sales throughout the marketing year. It is a marketing tool for producers and should not be an income support program.
    Delegates to the American Farm Bureau Federation's annual meeting earlier this year adopted a resolution supporting implementation of a counter-cyclical safety net as a supplement to the AMTA payments. Members took this action believing such a policy could address sharp declines in prices without relying on large financial assistance packages from Congress.
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    The harsh realities of the current transformation of production agriculture is that smaller numbers of producers of traditional crops and increasing numbers of farmers are competing in specialized niche markets, hence the need for establishing a permanent program for counter-cyclical payments for farmers and ranchers.
    Farmers and their financial institution of choice need some type of income assurances in order to meet established and future obligations. Much work needs to be done on the implementation of a counter-cyclical payment plan. Some have suggested a national approach with national triggers. Others propose a national plan with regional triggers, more closely reflecting conditions in local areas such as county or multi-county areas.
    Congress gave farmers their word regarding access to additional foreign markets through trade policy reforms, relief from over-burdensome regulations, additional and improved risk management tools, and tax reforms in return for their support of the FAIR Act in 1996. Now, facing the potential of a third consecutive year of low commodity prices and no help in sight, farmers continue to hold up their end of the bargain. While Congress has successfully accomplished several legislative initiatives, some opportunities remain to improve farm income that we itemize in detail in our written statement.
    In closing, American Farm Bureau Federation would offer a general outline for actions to address farmers' and ranchers' concern in the public policy arena. While there are varying methods and ideologies we may differ on, I believe we can reach agreement on these items: additional low income assistance, which the Congress has provided; and possibly weather-related financial assistance later this year, depending on the outcome of the weather conditions across the country; movement toward a counter-cyclical plan to replace yearly ad hoc assistance; continuation of the planning flexibility under the 1996 FAIR Act; continued trade expansion; and continued evolution of the risk management programs to better serve producers.
    While none of these alone will completely solve all concerns each of you heard in the 10 field hearings, together they would make a substantial difference for farmers and ranchers across the country.
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    There is a lot more detail in my written statement, and I will certainly be prepared to respond to questions later, Mr. Chairman. That concludes my statement.
    [The prepared statement of Mr. Stallman appears at the conclusion of the hearing.]
    The CHAIRMAN. Thank you.
     Mr. Swenson.

    Mr. SWENSON. Thank you, Mr. Chairman and Ranking Member Stenholm, members of the Agriculture Committee.
    I am Leland Swenson, president of the National Farmers Union, a wheat and feed grain farmer from South Dakota. It is an honor for me to appear before you on behalf of the 300,000 family farm and ranch members of the National Farmers Union. I commend you also, not only for holding this hearing, but the hearings throughout the United States.
    As we look at agricultural policy, we see a number of policy goals. One is a safe, affordable, high-quality supply of food and fiber. Second is a competitive system that provides an adequate return to the participants within the agriculture and food system.
    I will try to provide limited comments. Written testimony is provided for the record and for your review.
    As we take a look at the passage of the 1996 Freedom to Farm legislation, a number of promises accompanied its adoption. World population and income growth would create new export demand. Risk management programs could replace other economic safety net programs. Reduced Government regulation would lower operating costs. Market loans and decoupled payments would ensure an adequate farm income. And reduced safety net would force others in the world to make production adjustments.
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    Now, the result is that the Freedom to Farm has failed. We have got declining commodity prices, producers' income, and I think that is proven by the fact that 3 years of supplemental assistance at a cost of over $21.7 billion for economic assistance and disaster assistance—and it is rising—indicates a strong consensus of that failure.
    As we take a look at what policy recommendations need to be taken to address those concerns, I think they fall in three areas. One is market concentration and integration, and agriculture must be examined and new policies implemented to ensure accessible, transparent, and competitive marketplace that is available to all producers.
    Second, agricultural trade policy must accommodate a broad range of priorities, including socioeconomic issues as well as market access and fair competition.
    Third, U.S. agricultural programs for crops, dairy, and livestock must be revised to provide an effective safety net during periods when market returns are inadequate.
    On these three issues I would share with you, in concentration, the market power in terms of research and development processing and merchandising is a serious threat to the private sector of agriculture and the competitive market price.
    U.S. antitrust laws should be modified and strengthened to require that companies seeking to emerge demonstrate proof that market competition is enhanced.
    International cooperation is needed to reduce anti-competitive practices globally.
    And we need public oversight to ensure that increased market transparency in competition through price reporting, product labeling, and limitation of upstream process or ownership of commodities, such as in the contractors, also include the Contractors Bill of Rights.
    Under trade, the U.S. should pursue an international trade negotiation agenda that recognizes social, political, and economic importance of production agriculture and food self-sufficiency in the establishment of fair and enforceable trade rules. Priorities include eliminate the most trade-distorting practices, including unilateral sanctions, transparent, such as direct export subsidies, unless this thing, such as currency valuation, need to be addressed in trade agreements, as well as sanitary and phytosanitary trade barriers that are arising.
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    We need to retain and strengthen flexibility in addressing import surges and unfair trade practices and also compliance of trade agreements.
    We need to expand U.S. humanitarian assistance to address food shortages and promote economic development and achieve greater international coordination and cooperation with existing programs and develop new initiatives.
    Under farm program components, National Farmers Union supports major changes to farm legislation to establish an effective counter-cyclical economic safety net for producers, equitable loan rates for all commodities, based on 1994 to 1998 period. We need to look at a minimum dairy price support level. We need to target benefits to family-sized producers based on current and nationally-expected commodity production. We need to strengthen payment limitation and preferential market benefits. We need to maintain planning and flexibility opportunities. We need to provide a safety net for specialty crops and livestock that is compatible with traditional programs.
    There are many others that are referred to in my testimony. I see that my time is up. But we also think that conservation needs to be addressed.
    One of the things we would like to share with this committee is to take a look at increased technical assistance for individuals and multi-party conservation projects, including the concept of the adaption of carbon sequestration. That is a new initiative that we think needs to be incorporated within the future farm legislation.
    Mr. Chairman, I look forward to the opportunity to answer any questions and participate in that dialog, but I urge that you look at action today, not just wait until 2001. We have got a pending disaster that will need to be addressed this year. We have got packer ownership of livestock legislation—a number of pieces of legislation that need to be addressed this year.
    Thank you for the opportunity to offer my testimony.
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    [The prepared statement of Mr. Swenson appears at the conclusion of the hearing.]
    The CHAIRMAN. Thank you.
    Mr. Watson.

    Mr. WATSON. Thank you, Mr. Chairman. My name is Leroy Watson. I am the legislative director of the National Grange.
    Founded in 1867, the Grange is the oldest general farm and rural public interest organization in the U.S. Today the Grange represents nearly 300,000 members affiliated with about 3,600 local, county, and State Grange chapters across 37 States. We appreciate this opportunity to present our views concerning Federal agricultural policy and commend the committee for their holding these hearings.
    Today, as we know, America's farmers are going into their third year of an over-supply of most crops and low prices for livestock and dairy products. Prices received by farmers are below the cost of production, while the costs of production, especially fuel and interest rates, continue to rise.
    Now, compared with the farm crisis of the 1980's, a strong national economy, increased all-farm employment and investigation opportunities, as well as the commitment of Congress and the administration to provide supplemental financial assistance has mitigated some of the hardship imposed by the current crisis on many farm families.
    What this means, however, is that many of our Nation's farmers are now in a situation similar to the famous Tennessee Williams character Blanche DuBois in the classic play, ''A Streetcar Named Desire,'' because they find themselves relying on the kindness of strangers.
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    Beyond the farm balance sheet, there is evidence that the quality of life in our Nation's farming and rural communities is also declining. Violent crime is making its way into our communities. High-speed Internet access is virtually non-existent. The right to manage property is fast being replaced by a complex system of Government directives and collective decisions, leaving the right to pay taxes as the only undisputed prerogative for the ownership of farm property.
    Farmers and self-employed are still penalized under the Tax Code for providing their own health insurance. Rural public schools continue to consolidate. And, finally, today's farmers and landowners are essentially prevented from retiring with dignity by punitive Federal death and capital gains tax policies.
    In response to these developments, the National Grange has developed a comprehensive, 10-point program to revitalize rural America and return U.S. agriculture to prosperity. Our Blueprint for Rural America 2000 focuses not only on agricultural policy but on other issues of concern to rural Americans and family farmers. Therefore, the adoption of the right mix of farm policies is a necessary but not a sufficient condition to returning prosperity to our Nation's family farmers and rural communities.
    We believe that past and current farm policies have contributed to the decline in the quality of life in rural communities.
    The National Grange believes that the purpose of Federal farm programs is to ensure Americans an adequate supply of safe food, provide some income protection for the producers of that food, and protect our environment through voluntary and incentive-based programs. However, we also believe that our farm programs must sustain and enhance the family farms and communities they are located in by changing current policies that promote the continued consolidation of farm production assets into fewer and fewer hands, until today we have the fewest number of farmers in our Nation's history.
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    Instead, the Grange strongly believes that the primary goal of farm policy should be to encourage the increased participation in the agricultural sector by the largest number of individuals and families throughout the broadest practical distribution of agricultural production assets.
    We did not go from a nation of self-sufficient Jeffersonian farmers to a nation where farmers account for about 1 percent of the population overnight. Our recommendations would make gradual but significant alterations in current programs that will move our Nation toward the goal of sustaining vibrant farming in rural communities.
    Now, our farm program recommendations will be further refined by our State and National Grange delegates this fall. Today, our policy outline for priorities include the following broad recommendations:
    Continue to reduce the Federal Government's role in directing the production and management decisions on individual farms.
    Continue to aggressively expand market opportunities for U.S. agricultural products in foreign markets, as well as in nontraditional domestic markets.
    Continue and fully fund the current voluntary, incentive-based farm conservation and technical assistance programs.
    Extend the dairy price support program permanently, with a moderate increase in the support price to $12.50 a hundredweight.
    Authorize permanently and expand the Northeast Area Compact, as well as authorize a southern dairy compact.
    Consider the adoption of innovative regional farm programs to implement important agricultural policies on a regional basis for major commodities by involving State governments, farmers, processors, consumers in an agricultural production decision-making structure.
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    Institute a new flexible marketing loan program for all major non-livestock commodities, including newly-expanded eligibility for any commodity that has not traditionally had the benefit of farm programs, with a loan rate for these commodities set in relationship to the average cost of production and a loan differential or payment limitation subject to an annual $50,000 payment limitation.
    Now, for farmers that believe that a $50,000 payment eligibility is insufficient for them to manage their financial risk, we will propose the creation of a farmer-financed revenue assurance program that allows individual farmers to elect higher levels of payment caps based on escalating premiums in order to continue to move Federal farm policy toward financial risk management and away from production and supply risk management.
    Expand farmer-owned reserve programs to include all commodities in order to address farm date identity preservation issues and increase opportunities for farmers to market their products by allowing individual farmers to elect to assign their federally-mandated commodity check-off assessments to go to nonprofit or farmer-controlled cooperatives or other qualified organizations that either certify, promote the sale of, or market a farmer's specific crop.
    Mr. Chairman, we greatly appreciate this opportunity. We are looking forward to working with the committee to fashion a farm policy that serves the needs of our Nation, and I would be happy to answer any questions the committee might have.
    [The prepared statement of Mr. Watson appears at the conclusion of the hearing.]
    The CHAIRMAN. Mr. Naylor.

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    Mr. NAYLOR. Thank you, Mr. Chairman. My name is George Naylor. I am a family farmer from Churdan, IA, and a member of the Iowa Citizens for Community Improvement. I am chair of the Carroll Regional Chapter of that organization. I am pleased to be here today representing the National Family Farm Coalition, with a membership of 35 farm and rural organizations. I have been farming for 25 years and raise corn and soybeans on 560 acres.
    We believe that if American voters were asked who should raise their food, family farmers or factor farmers, they would clearly vote for family farmers. If they were asked who they trusted to take care of our water, air, biodiversity, and our beautiful countryside and who they trusted to produce safe, high-quality, healthy food, they would say family farmers.
    The National Family Farm Coalition concludes, therefore, that if democracy is to mean anything in this great Republic, Congress must legislate a system that supports the future of family farms and assures that the Nation's food is produced on family farms, not on factory farms.
    We ask you today to end the madness of the so-called ''Freedom to Farm Act'' and support provisions of a new farm bill we call the Food from Family Farms Act. I have submitted a copy for your consideration.
    Every year our communities send young people to agricultural colleges with their secret hope that they might return some day to become family farmers. Many farm families own land and rent land that could be turned over to this next generation except for one thing—farm prices are too low to make a living.
    There is no sense in letting this situation, along with our crumbling small towns and polluted landscape, get any worse. Let us join together to make the year 2000 the beginning of the end of factory farming and the beginning of a hopeful future for family farmers, the consuming public, and our forsaken countryside.
    Let me make one thing clear: if we are to have a family farm system in this country, it is farm commodity prices that need raising, not more direct Government payments such as the record $32.3 billion being spent this year.
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    Before we address the issue of how we can raise farm prices, first we must deal with some myths. It has been over 20 years now since I served on the first Iowa Corn Promotion Board. The Farm Bureau and the commodity groups said if we just increased exports and developed new uses for our corn, we would get higher prices, we wouldn't even need farm programs. Well, it hasn't worked yet and, believe me, it won't ever work.
    Despite the promise of increased exports, research by the American Corn Growers, one of our member groups, has shown that increased export volume has not resulted from lower and lower grain price policy.
    The second Freedom to Farm myth is that farmers can adjust their production in response to prices. While a few farmers may be able to shift acres from one commodity to another, low prices will not result in cutbacks in aggregate production. In fact, farmers facing lower prices have only one option to maintain their standard of living, pay their bills, and service their debt, and that is produce more, if possible.
    What has occurred in our country is that cheap corn and soybean meal have encouraged the production of chicken, pork, beef, and dairy on factory farms. Family farmers who are raising livestock in a less-intensive, more environmentally-sound manner have quit raising livestock and plowed up their pasture and hay to plant more corn and soybeans.
    If the $2 per bushel non-recourse loan rate in 1978, the year I served on the Iowa Corn Promotion Board, were adjusted for inflation, corn would be over $4.75 a bushel today. Instead, Freedom to Farm has completely eliminated the floor under farm commodities, and corn back home Monday was $1.45 a bushel, and no one is predicting how low prices will go this fall.
    Just like the Roaring Twenties did not prevent a severe farm depression, neither has the exuberant 1990's lifted modern farm economy out of depression. With the ridiculous marketing loan, farmers can pay back the loan at the posted county price and dump their crop on the market, no matter how low prices can go.
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    The National Family Farm Coalition looks to the lessons of history to set up the features of our Food from Family Farms Act. First, there must be a price floor established under basic storable commodities with the non-recourse loan. Since many of these commodities are feed stocks for livestock, they indirectly establish a floor under livestock prices. When commodity prices more nearly reflect the true cost of production, we can expect a return of livestock production to family farms.
    Second, if we are blessed with a bumper crop, surplus production should not be dumped to depress market prices. Grain under loan can be replaced in a farmer-owned reserve, with commercial storage rates paid to farmers in advance. These stocks can be brought on the market only at 125 percent of the loan rate and will provide food security for the Nation and prevent natural disasters from driving prices so high as to undermine our reliability in export markets.
    Proposals like the flexible fallow program that attempt to raise prices by cutting production without providing for reserves or clearly-stated price floors will create unbearable uncertainty and insecurity for our Nation.
    Third, we must stop the fencerow-to-fencerow production of Freedom to Farm. Short-term inventory management and planting flexibility can be maintained with a tillable crop acreage base that allows land to be seeded down for conservation and avoidance of wasteful over-production.
    Finally, we believe that a farm program like the Food from Family Farms Act, with the clearly-stated goal of fair prices for farmers, will eliminate the need for ineffective and costly crop insurance programs. This Nation needs its family farmers and can easily afford a straightforward disaster payment program when national disasters devastate the countryside.
    Our coalition is unanimous in our opposition to current farm policy and the need to replace Freedom to Farm with a farm program that ensures farmers a fair price from the market. We need Congress to enact the Food from Family Farms Act now.
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    I appreciate this opportunity to present these concerns to you today. I am more than happy to answer any questions. Thank you.
    [The prepared statement of Mr. Naylor appears at the conclusion of the hearing.]
    The CHAIRMAN. Thank you all very much.
    I met with a number of farmers over the past week in my district, and one thing which ran through every one of those meetings was the fact that a lot of them were still farming because of the assistance that Congress has provided, and were appreciative of the fact that the recognize already this year that it is coming.
    One of the things that concerns me, though, that I discussed with them is that it is kind of a Catch–22. Because of the tremendous amount of assistance, I don't believe that most people outside of the farming community understand the severity of the economic concerns on the farm because they are not seeing what they anticipate would happen if you have got terribly bad economic times with farmers going under and with the impact on the local economies, and so I don't believe that there is a real recognition in the country that the farm economy is still in such dire straits, and I think that does give us some challenges. It also gives us some challenges trying to come up with a consensus program of something that realistically can be enacted. We have got a variety of different opinions just here today, and so that also gives us a challenge.
    I want to ask a question. This is a one-word answer. If I were to come to each of you, or to have come to each of you prior to the House vote on permanent normal trade relations with China and said, ''Should I vote for it or against it,'' what would your recommendations have been? Mr. Stallman?
    Mr. STALLMAN. For it.
    The CHAIRMAN. Mr. Swenson?
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    Mr. SWENSON. Against it.
    The CHAIRMAN. Mr. Watson?
    Mr. WATSON. For it.
    The CHAIRMAN. Mr. Naylor?
    Mr. NAYLOR. Against it.
    The CHAIRMAN. That helps us to solve that problem, doesn't it. [Laughter.]
    At one of the hearings we had last summer, as we were looking at the conditions in agriculture, a commodity group gave testimony on a policy and they said they just wanted to tell us that was the third time in the last year that policy had changed, and my comment was, ''And you expect us to make farm policy based on your recommendation?'' So I just want to bring that out as just a little bit, I guess, again of some of the challenges.
    I want to ask you to tell me as briefly as possible your definition of a family farm.
    Mr. Naylor, we will start with you.
    Mr. NAYLOR. Yes. In our neck of the woods, we can smell the difference usually. I don't mean to be facetious. But with the family farm, we hope that family farmers would own their land and live on the land, with the family providing most of the labor and management. Also, they would control their marketing and risk.
    One thing we think about family farmers is that it is a cultural thing, in that family farmers are going to care about the environment, they are going to care about their neighbors, they are going to care about the next generation, and they are going to care about the consumer by producing healthful food.
    In return, we think that society needs to recognize those commitments to society and, through Government policy, provide an economic framework to assure their longevity.
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    The CHAIRMAN. Has it got a size?
    Mr. NAYLOR. No, but in some cases that may be a useful tool, but generally that is not a good way to deal with it.
    The CHAIRMAN. Mr. Watson?
    Mr. WATSON. A family farm, in our view, would be a farm where the majority of the labor input, as well as the risk capital, is provided by a traditional family unit or their very close relatives. It wouldn't have necessarily a size definition. We believe that family farms can be partially commercial and be sub commercial operations, where the farm is expected to produce a profit but not produce the entire family's income, as well as commercial operations, where the farm is expected to produce all of the income for that family and their dependents.
    The CHAIRMAN. Mr. Swenson.
    Mr. SWENSON. Thank you, Mr. Chairman.
    We look at a family farmer, number one, as they have their own management decision opportunities in regards to what they are going to produce and the marketing opportunities that they want to make in relation to what they produce. Do they provide a significant part of their own labor, either the operator or within the family, and responsibility for capital. Those are, to me, three key components within the structure of what is an independent family farm.
    The CHAIRMAN. Mr. Stallman.
    Mr. STALLMAN. Well, in our view I think family farmers—the definition of family farm is not dependent on size and, frankly, it is not dependent on structure. I think the only thing you would want to exclude would be perhaps very large operations that were maybe even publicly held in terms of shareholders, because the problem with a definition of a family farmer, by itself, without looking at size, characteristics, is a very imprecise way to define public policy. And until you can define public policy based on size, perhaps, but in terms of family farmer that can be a wide array of operations that currently exist today, some of which are successful and some of which are struggling.
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    The CHAIRMAN. And that is one of the reasons for the question, because in hearings all over the country we hear people continue to talk about family farms, but two people can be sitting beside each other and there would be a family farm in front of them and one of them would agree it is and one of them would agree it isn't, and that, again, is a part of the problem. It is a perception rather than a reality or a defined entity, and that becomes part of the problem. When one thinks they are dealing with issues as they affect family farms, other may not perceive that as so.
    The committee will take a brief recess and return as soon as possible.
    The CHAIRMAN. The hearing will reconvene.
    Mr. Stenholm.
    Mr. STENHOLM. Thank you, Mr. Chairman. I thank each of the panelists for coming this morning and for your testimony. The great amount of detail that went into your printed statement was very much appreciated.
    Mr. Stallman, I hope that you will forgive me. Even with tongue in cheek I should know better than to suggest that anyone that has once been a Texan could ever become anything other than, and so forgive me for that.
    Let me ask just one question of each of you. As each of you remember, the 1995–96 farm bill was designed to be the last farm bill. It was sold to be the last farm bill. It was not written by this committee. It was written in the Speaker's office. It was written philosophically in the belief that somehow, by unilaterally disarming our farmers in the international marketplace and providing the additional market opportunities, et cetera, that we would thrive. Obviously, that has not happened.
    This bill has been a failure from the fiscal standpoint, at least from the standpoint of budget, but I do not call it a failure as far as our farmers because the payments have, in fact, created the opportunities to survive, as the chairman has mentioned, in his district and each of our colleagues. And the previous testimony that we have heard from the financial institutions that serve agriculture acknowledge that, were it not for the payments, we would have had an absolute economic depression in farm country which has not occurred thanks to the payments.
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    But my question to you is, you, representing your organizations, do you believe that we ought to have a 2002 farm bill?
    Mr. STALLMAN. That is an easy answer, Mr. Stenholm. Absolutely. I think we are going to have to have it, given all of the international trade issues, the type of industry we are, and the type of risk we have. To say we can just completely do away with any concept of domestic farm policy I think would be a major mistake.
    Mr. SWENSON. Absolutely. We must maintain a farm bill. And not only that that relates to sustaining an adequate safety net, but the other key components, such as conservation and research and education and many of the other elements and factors of a farm program. Legislation must be included, enhanced, and improved.
    Thank you.
    Mr. WATSON. The Grange believes we need a farm bill as soon as possible. If we have to wait until 2002, fine. If we don't, we should make efforts to move forward.
    I think, Congressman Stenholm, your remarks about how the 1995 bill was sold are pertinent and important, but I think if we spent our time reflecting on how each piece of legislation that comes through Congress is at one point sold we would have lots of problems related to the final results.
    Essentially, the 1995 farm bill was an incremental progression away from the problems that we had seen in the previous farm programs. We began that moving away from the problems that we had identified in the 1990 farm bill. We have made further advances in the 1995 bill, particularly in returning the control of production decisions to farmers.
    We have more opportunity to continue to fine tune and revise our policy in the upcoming farm bill, and we are committed to doing that.
    So while the rhetoric often exceeds the actual results, we think that we have made some results and we are going to work hard to make sure we make further results as further legislation goes forward.
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    Mr. NAYLOR. Yes, Representative Stenholm, we believe there needs to be a new farm bill enacted immediately. As some people are fond of saying, the law of supply and demand has not been rescinded.
    Going back to 1933, my father delivered corn to the Adaza elevator. He went across the scale, and he asked the manager what he was paying for corn, and the manager said, ''Well, yesterday we were paying 10 cents a bushel, and today we are not buying.''
    Now, the reality is that, with the Freedom to Farm Act taking away the non-recourse loan, we could be back to 1933 this fall. More grain will be dumped on the market at harvest. People need money. And, since the marketing loan allows a person to get the net loan rate immediately anyway, a lot of corn will be dumped, especially if there is not storage available. So clearly this marketing loan feature of the farm bill that we have today has got to be done away with, and we have to look at history to see what can stabilize the farm economy.
    Mr. STENHOLM. I have a puzzling question which I will come back in the second round.
    The CHAIRMAN. Mr. Boehner.
    Mr. BOEHNER. Thank you, Mr. Chairman.
    Let me thank you and Mr. Stenholm for the series of meetings that we have had on Federal farm policy and thank the witnesses for coming today.
    The question of what has been happening in rural America over the last several years is of concern to all of the members of this committee, and certainly to the members of your organizations.
    Now, we made a big change in 1996 when we moved to the FAIR Act and we moved away from 60 years of Government-mandated acreage controls, 60 years of the Federal Government trying to fine-tune the American agricultural economy. And why did that bill pass overwhelmingly? Because after 60 years most farmers, most Members of Congress realized that it wasn't working.
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    If you look at all the farm bills over the last 25 years, it was tinkering in one direction, 5 years later tinkering in another direction, and the fact is that most of us believe that the market does, in fact, do a pretty good job in many sectors.
    But I don't think any of us believe that movement to a more market-oriented agricultural economy is going to be easy. Yes, it worked well in 1996, worked well in 1997, part of 1998. Then we had the Asian economic crisis and we had devaluations of currency in southeast Asia and other parts of the world that dried up our export markets.
    But I would continue to argue that moving more toward a freer market is in the best long-term interest of American farmers and rural America.
    As I have listened to the four people who we have testifying today, to varying degrees it is all in a direction of going back—going back to the Federal Government, fine-tuning the American agricultural economy.
    I still believe that if we had enacted the other side of the ledger, as Pat Roberts, our dear friend in the Senate, described it, the other side of the ledger on Freedom to Farm, that farmers today would be in much, much better shape than they are. And so next week I intend to introduce the Rural America Prosperity Act of 2000 that would call for the allowable deduction for all of your health care insurance premiums, that would, in fact, lower capital gains tax rates; would allow income averaging for farmers once again; and remove the barriers and the cost, the tax consequences of the alternative minimum tax; would set up farm accounts to allow farmers, in times that are good, to set aside money tax free to help ensure that they have got cash when we get into the tough markets. It would eliminate estate taxes that are a great penalty on farmers and on many people in rural America.
    I think it is fair that we need to take a serious look, and we ought to do a serious study of what the cost of regulations are on farmers, ranchers, and foresters.
    It is easy for us to say that we ought to just reduce the regulatory burden, but I think what Congress needs in preparation for the next farm bill is, in fact, a serious study by the GAO on what the real costs are to American farmers.
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    The bill would also grant fast-track trading authority to the President of the United States. If we don't get fast-track authority to the President and begin to aggressively work on opening world markets, we are going to have the debate that we are having today ad infinitum.
    The American farmer is the most effective producer in the world. The best thing we can do for farmers is to make sure that they have got access to markets around the world, and we are not actively on the playing field today aggressively trying to open those markets.
    And, in the last part of my bill that I will introduce next week, I would eliminate unilateral sanctions on food throughout the world. I don't think it is morally defensible that we can withhold food or medicine from any human being around the world, and unilateral sanctions do nothing but hurt American producers.
    And so I am going to ask my colleagues if they are like to support this bill. They can certainly co-sponsor it. But this debate is going to continue. It is a serious debate. We ought to have the debate. But we ought to do it in a way where we can decide what direction are we going. Are we going back to what we have done over the last 65 years? Or are we going to continue to work toward a solution that works with the free market as the background and the basis for what the future of the American farm policy ought to be?
    Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Boswell.
    Mr. BOSWELL. Thank you, Mr. Chairman.
    Again, I applaud your efforts to gather this information and have these hearings and the field hearings. I was pleased to be with you on several of them.
    A comment I just feel compelled to make, farmers, like any other business—and Bob and I were just talking about it a little bit on the walk back—we have to make a profit. We simply have to make a profit. And if we don't, we don't stay in business.
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    I am concerned, as I travel across my district, and before that my legislative district, about conservation and protection of the land for future generations as farms get bigger and bigger, and there is a big difference.
    I think we are challenged, and I think we learned this, Mr. Chairman, when we were in Seattle. We suspected that. Probably you were already aware of it. But we have got to deal with the world community situation like we have never done before. These 4 years of unprecedented over-production, we don't seem to know how to deal with it. And we have got to get out into that area and figure out what to do, and a step lies before us, it seems to me. We have got to break through to avoid what I think we must avoid, or we are going to have a world situation where food and fiber is the subject and we have got trader against trader bumping heads wondering who is going to win, who is going to break the other one. We went through that on defense, and we know what happened to the Soviet Union.
    Again, we have to make a profit. I know when we were down in your territory and also Congressman Stenholm's area, close-by neighbor, we had our panels and they were good. I thought one of the best presentations was there in Lubbock when they—I think it was the final testimony—the individual, whoever it was, talked about, since the farm crisis of the 1980's, we have had to learn to deal with cash flow as we go to our lenders, and it has been pretty well improved on over the years, and it is something that makes sense. Maybe we ought to develop something as a floor that was based on the workings of that cash flow, and if the wheels would come off, for whatever reason, at some point there is insurance that would protect that farmer. I think this is some of the characteristics, John, in your suggestion.
    I thought that was an excellent presentation, and I hope we will explore that some more.
    Questions—some of us ask different questions beyond the panel, because if we haven't been some places—for example, in Lubbock the place was packed. The question that I asked of the farmers and ranchers there is a show of hands of them that would support the loan rate for farmer-owned storage, and a lot of hands went up. The reason I asked that is because I travel in my district all the time. I am a farmer, as you fellows are. I get this mixed bag, as demonstrated here today by just four people. I am getting that out of Farm Bureau people, I am getting that out of Farmers Union people and the rest.
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    And so I thought we ought to at least let those attendants express their feelings about it. It was pretty overwhelming. They favored, in those places where I was and I asked that, that they wanted something done there.
    Maybe we need to explore, or maybe the panel, or whoever, would like to maybe a rate on, say, the first 20,000 bushels and figure out something for the different commodities, and then, beyond that, flow out there on the market.
    I have heard some discussions on that going on. Does anybody have an opinion about that, or whatever?
    Well, first off, just quickly across the panel, who favors dealing with the loan rate, increasing the loan rate? I think know the answers, but I guess I should ask that question.
    Let us start with you, Mr. Stallman, and go down the table.
    Mr. STALLMAN. Well, we are opposed to increasing the loan rates. The loan program was designed as a marketing tool, primarily, to spread out the sales over the years and allow farmers some interim cash flow, so we would be opposed to increasing those loan rates because you get to the point when producers start making their planning decisions based on the loan rate, then, depending on how you are going to handle that—if you maintain a marketing loan program, well, the product will keep moving that way as long as you maintain the LDPs the way they are now. But then, if you have payment limitations on that, as we have experienced, all of the sudden the higher loan rates increase production and you get more and more producers who are beyond the payment limitation caps, and then the Government takes back over the crop, and then you have the increasing surpluses and that to deal with.
    We have kind of been there and done that.
    I am not saying we should not have income support. What I am saying is the loan program needs to remain focused on what it is as a marketing tool.
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    The CHAIRMAN. I will just ask the rest for a yes or no, and then on the second round I will come back to see if you have comments, but just a yes or no.
    Mr. SWENSON. Yes.
    Mr. WATSON. Yes, sir.
    Mr. NAYLOR. Yes, and we want it to be a non-recourse loan.
    Mr. STENHOLM. Thank you, Mr. Chairman—we will continue a little discussion.
    The CHAIRMAN. Mr. Barrett.
    Mr. BARRETT. Thank you, Mr. Chairman.
    I really appreciate your holding this hearing, particularly at the conclusion of the 10 regional hearings that we have held across the country. It is very timely, particularly as this committee starts to seriously think about rewriting the farm bill next year.
    I think back to 1995, when we went through this same drill, when I took my subcommittee around the country, several States, the same thing that the chairman has done with the full committee, and we listened to farmers and we listened to agribusiness people, lenders. We listened to literally thousands of people, I guess, between my subcommittee and the full committee—and, of course, the full committee did a very good job of crossing the country, as well—listening to people who had ideas about a new farm bill.
    As I recall those days, there were a lot of different ideas, such as we had already today, as the chairman has pointed out, on the one question that he asked. We had a myriad of answers and suggestions and ideas.
    But a couple of things came through very clearly to me, a couple of basic principles that everybody seemed to be focusing on.
    Number one, flexibility. ''Get the Government out of my life. Let me make the decisions that I can make better than the Federal Government. Please get them out of my life.''
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    The other thing that came through clearly to me was, ''Don't take away the Conservation Reserve Program. Keep it.''
    Now, there were other things, of course, that came through, but these were really very basic and very clear to me. And in 1996 we gave agriculture pretty much what they wanted. We got the Government out of the lives of farmers that had been in their lives for 60, 65 years. We continued CRP. And you will recall that in the first 2 years of the farm bill prices were extraordinarily high, and in subsequent years, of course, the markets fell to extraordinarily poor prices.
    Some people seem to blame the farm bill for that. I understand that. I happen to be one that believes that farm bills don't set prices. I believe that markets set prices.
    One of the things also that came through was, ''Be sure and protect us with some kind of a safety net, whether it is new markets, whether it is crop insurance, whatever it is.'' Crop insurance rose to the top very clearly.
    Mr. Swenson, you have said today that our crop insurance program is very inadequate. You understand full well that this committee and this House has just passed a reauthorization, a rewrite of a crop insurance bill which I think looks very, very good.
    Having been in the insurance business for 30 or 35 years, I happen to believe that this is pretty much what farmers have been asking for and what they need.
    Now, this committee is doing exactly what it should do under the direction of the chairman and the ranking member. They have come up with a bipartisan crop insurance bill—I repeat myself—which I think is just absolutely superior. Time will tell.
    With the normal trade relations bill, with the removal of sanctions over Cuba and four other rogue nations, we are going in the right direction. I think with a little patience and with a little continued bipartisan support and with continued input from people like yourselves, this committee will come up with a rewrite which is going to be satisfactory to all, I would hope.
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    It is not an easy process. I was amazed in 1995 and 1996. I was overwhelmed. And the members of this committee that have never gone through it certainly have something to look forward to, and it won't be easy. I will not be a part of it, but I have full confidence in what this committee will come up with.
    I guess thinking about safety nets—and, Mr. Stallman, you have answered a question about loan rates being increased, and I believe the rest of you indicated in earlier testimony also how you felt about it. But, thinking back to the Conservation Reserve Program, there are many who think that the acreage should be increased in the new farm bill. Should it be? Should we be looking at an increased acreage? I would like an answer from all four of you.
    Mr. STALLMAN. Well, I guess I will start on that. We think the acreage authorization would be funded. I think we have to be careful, when you are talking about increased CRP, and the distinction between a conservation program that is meeting some conservation needs versus taking land out of production in an attempt which will not be successful to affect supply. And the reason it will not be successful is other countries are willing to step in and substitute their acres for our acres any opportunity they get.
    So it has been an important program. It has been very beneficial. I just think we have to keep the goals of the program clearly in mind.
    Mr. BARRETT. My time has expired. A yes or no from the other three, please.
    Mr. SWENSON. Very quickly, yes, we would support increase in acreage, but we do think that the issue of grasses to be planted needs to be reviewed.
    Mr. BARRETT. Mr. Watson?
    Mr. WATSON. Yes, sir.
    Mr. NAYLOR. I will say yes, but my answer is more complicated than that.
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    Mr. BARRETT. Thank you very much, gentlemen. Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Peterson.
    Mr. PETERSON. Thank you, Mr. Chairman. I want to thank and commend both you and the ranking member and the others for having all these hearings and getting a head start on trying to come up with a consensus on a new farm bill. Clearly, I think everybody understands that we are not going to just eliminate government involvement in agriculture, and we all need to get started on it sooner rather than later.
    I also want to commend all of you for the work that you are doing trying to pull us together. I think this has been said before—it is not going to be an easy thing. Charlie and I have been working on some things just within our bulldog group, and we have a hard time just coming to agreement amongst ourselves in that group, which is—we are a pretty compatible bunch. So it is going to be a tough situation, but clearly I think we can rise to the occasion.
    I am also glad to hear most of you talking about the need for some kind of counter-cyclical program, which I think I have been saying for some time these AMTA payments have been a savior, as has been mentioned, but it is really not good policy to be giving out money not based on whether the prices are down or whether you have a crop or not, and that has really negatively impacted, I think, some areas such as mine, where we have had more problems than other areas.
    I hope that we can come to some resolution as to how we are going to work out some type of counter-cyclical proposal that will work for people.
    I also hope that we are able to find a way to enact a disaster program for this year. I have got, unfortunately, in my area again another area that has been wiped out by a 7 1/2-inch rainfall incident that put almost a whole county under water, and I think we have got problems in other parts of the country, so hopefully we can come up with a disaster program that will address some of the needs we have got in certain areas of the country before we adjourn this session.
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    The question I would like you guys to address is Mr. Stenholm talked about the fact that, in spite of the fact that we have got very few of these commodities that are cash flowing, the land prices keep going up, which is kind of a curious thing.
    As I have been traveling around my district and around the country as chairman of the Congressional Sportsman's Caucus, what I have been hearing from people is that, in a lot of the country, hunting land has now become more expensive than farm land, and that people apparently are making more money with hunting opportunities than they are with farming opportunities.
    And so one of the things that I would like you to address is whether you think that that is part of the reason that these land values are going up. Is it because that sort of thing is going on? Or is it because of these AMTA payments that we have been paying out every year? Has that capitalized into the price of the land? Because it is a very curious thing, I think, that this land is going up, when I have my farmers telling me that they really can't make anything cash flow.
    And related to that, you have all mentioned conservation in your testimony. In light of the fact that I hear people saying that they are making more money with hunting than they are farming, do you think we ought to be significantly increasing the money that we are putting into conservation, or do you think that we should just maintain and fund the programs that we have there?
    I will let you each pick whatever part of that question you want to answer and that will probably use up my time.
    Mr. STALLMAN. OK. Well, I will try to summarize briefly.
    The land value question I think is an important one, and we are seeing increasing land values. And it is two-fold—one, the good economy we have is increasing demand for that land from people who are participating in this good economy. That does not include farmers and ranchers. And so that is putting pressure on the hunting or sports aspect as an offshoot of that. I lease land to duck and goose hunters out of Houston every year. It is a nice income. That is important.
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    But, beyond that, the AMTA payments, any support payments, from an economic standpoint, any support provided by the Government ultimately is going to be capitalized into land cost, either the price of the land or on the cash rents. That is a fundamental problem, I think, in deciding who benefits and how these support programs should be structured, and I am not sure I have an answer to get around it.
    I think I will hold at that and let my colleagues answer.
    Mr. SWENSON. Thank you. Very quickly I will try to address two comments, one in relations to the area of disaster. We, too, hope that you will respond before Congress recesses with a disaster assistance.
    It brings us back to the point that I shared in my testimony with regard to the failure of improving the Crop Insurance Program. Even the action—and we worked very closely with many of these to make the improvements that you have made—will not come out to affect farmers until 2001, and so if you look at what has happened from 1996 to 2000 that has required this Congress to act consistently year after year with ad hoc disaster assistance, that is what I was referring to in the nature of how producers out there have been impacted between the passage of the farm bill to what will happen in 2001.
    And so I want to make sure that there is a clarity in my statement of regard to the need for those improvements in the Crop Insurance Program.
    Two, land prices—absolutely. The AMTA pluses, especially. The AMTA pluses have been put into land values and rental rates.
    I think it is important for the members of this committee to understand over 50 percent of the land farmed today is owned by non-farmers, over 50 percent of the land farmed today. And so immediately, when they get where they expect—and they expect Congress to not only have AMTA, but AMTA plus now as the economy is strong. The you have translated that into land values and rental rates.
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    The thing I think that is important in relation to cash coming out that can be easily assessed into increased land values and rental rates versus supports that have been tied to commodity production in the past, when commodity prices went down, that was when we saw land values begin to decline, because you couldn't assure that the income was going to come in. Now the income flows in no matter what happens to production nor what you produce.
    So that is the points, but I do think that in certain areas of the country—and it will vary per State, but I will use Minnesota and Wisconsin as an example—the strong economy in the non-farm sector is enticing investors to come out and bid on land for hunting preserves, and it may be in other States, but I am very familiar with the area of Minnesota and Wisconsin where they are bidding land up. They don't want to farm it. In fact, they will look to see if they can enroll it in the CRP Program. But they want it for hunting preserves and hunting opportunities for them and their buddies from sports sector and everywhere else.
    Mr. PETERSON. Thank you.
    Mr. WATSON. I would just make a couple of points.
    First of all, AMTA payments are a significant factor in land increases. They are being capitalized into land values. But the phenomenon we are seeing with farm land values increases spreads far beyond the geographic areas that are primarily subject to AMTA payments. I think, as has been alluded to, the strong economy is having a significant spill-over effect on land prices. We are seeing people who want more houses, more jobs, and we are losing some farm land, and that is increasing some values, as well.
    The recreational value of farm land is being better recognized through our better economy, and we are also seeing more people want to move and establish themselves to live in rural areas. As such, I think we are seeing some changes in our farm economy are also affecting our land values, as well, outside of Government programs.
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    First of all, the increase in contractual basis farming is demonstrating that you can have consistent income projections where pure market-based systems are not showing that, and that gets capitalized into land values, as well.
    And, finally, we are seeing a change in the distribution of the size and scope of farms. From the 1992 census of agriculture, where I had the honor of serving as chairman of the Advisory Committee for the Census for that event, to 1997, the number of farms in the country stayed roughly stable, but the composition of farms changed dramatically, with a rapid increase in what we would call ''partially commercial'' or ''sub-commercial'' farming operations and a decrease in commercial operations. So we are seeing people who have values of living in rural areas and participating in agriculture, but not necessarily on a totally commercial basis able to bid up some of those land prices, as well.
    Mr. NAYLOR. I would like to say that, without those payments, you would have seen $180 billion in agricultural, alone. You would have seen those loans called immediately. It is really bankers that are sitting on pins and needles when they hear that rain has come and prices are falling.
    We have members in Montana who talk about people from Seattle and Hollywood coming out to buy ranches not for hunting but just for the view. And capital gains—farmers aren't interested in selling their farm. They need their land to farm. They are not interested in selling it, and, as far as death taxes go, they shouldn't have to die in order to pass the land on to the next generation.
    It reminds me of what I read in college about countries in Latin America where there were such extremes in wealth that there were huge tracts of land that were nothing more than pasture for pure-bred racehorses while people on the outside of the fence were starving, and I don't believe that is what we want in this country.
    The CHAIRMAN. Mr. Smith.
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    Mr. SMITH of Michigan. Thank you, Mr. Chairman.
    Probably with you and Mr. Stenholm we have probably got a better start moving ahead with our farm bill maybe than we have ever had before in history.
    Thank you all for very thoughtful, well-developed testimony from all four of you. I think that is good. A little short on details, maybe.
    Mr. Naylor, you mentioned that you had details, that you had a proposed bill. I am not aware of it. The staff isn't aware of it.
    Mr. NAYLOR. I am sorry. We will make sure you get copies.
    Mr. SMITH of Michigan. We have all sort of wanted to preach to you, and I am going to try to limit my preaching. But, as Deputy Administrator for Programs with [Secretary of Agriculture] Earl Butz in the early 1970's, and working in politics for the last several years, here is my guess of the future: when we start being more pressured for available money in Congress, there is going to be a lot more contesting of the funds that we have been giving that agriculture has been getting. The extra AMTA payments plus the other low-price payments and disaster payments over the last 3 years have been substantial compared to history.
    In the next 10 to 12 years, when Medicare and Social Security are becoming insolvent, the pressures on available funds are going to be significant. The support for these kind of agricultural programs aren't going to continue. So somehow we have got to do the best we can do over the next several years in developing the kind of policy that is going to last.
    If we proceeded with the suggestion that we go strictly with Freedom to Farm and those that couldn't make it drop out, probably you, as leaders in your farm organization, would be more aggressive in looking at what other countries are doing and maybe cooperating with those other countries in terms of production. Maybe you would be more aggressive in helping with the spreading of scientific information on genetically-modified foods that I think is just another obstacles in our exports. I understand Brazil now has made a national policy that they are not going to use GMO, and they are capturing some of that European market.
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    Our farm programs probably have been of greater benefit to the larger farmers rather than the smaller farmers of this country, so we have sort of forced small farmers out over the last 50 years, and the middle-sized farmers, in desperation, trying to make a few more bucks, have bought up that land thinking they could work a couple more hours a day and still send their kids to college.
    Should we continue with farm policies? Should we be more aggressive in farm policies that put limitations on farm payment, Government benefits, to the farmers across this country?
    That is a specific question. Maybe we can go down a line. What would be your impression of your organization's reaction to limiting payments to, whatever, $75,000, $150,000—a limitation on payments as best as we could define those farm operations?
    I realize we have gone all over the board in how we define it, but, for example, should there be a limitation not only on LDPs and marketing loans, but should the total limitation also include non-recourse loans?
    Do you understand the question I am trying to ask? Let us start with you, Mr. Swenson. I liked your testimony.
    Mr. SWENSON. Thank you.
    I believe that we are going to have to incorporate payment limitations because of the budget limitations that we will face this Congress and the future, and we have the, I think, acknowledge that it will. We will face, not only in the budget but in relation to desires for tax cuts and other usages of the——
    Mr. SMITH of Michigan. But are you saying put a limit on non-recourse loans for those commodities that are now eligible for those non-recourse loans?
    Mr. SWENSON. I think we will have to look at a limit within that structure, be it an amount of dollars or targeting a loan, as was mentioned earlier, to quantity of production. That is not saying that farmers can't produce more. That is just the role of government or their participation of government, they are on their own and they will make those decisions on their own. But I think the role of government has to have a limit, a cap.
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    Mr. SMITH of Michigan. I would like a response from everybody, if we could. Let us go to Mr. Watson.
    Mr. WATSON. For more than 20 years the National Grange has supported targeting farm program benefits to moderate-sized farms. We have been strongly supportive of basic targeting programs over that time. However, we have recognized some of the concerns that Mr. Stallman raised earlier related to the fact that payment limitations can, at least in the short run, encourage increased production. That is why this year we are proposing differentiating between unrestricted payments and those where farmers would have the opportunity to participate in a higher payment cap or payment limitation program based on their financial assessment of what markets and conditions are going to be that year.
    Rather than encourage farmers to incur extra costs related to acquiring more land and seed and production and producing that, it might be better to just say that if you have a small premium payment for income protection, that you can have a higher payment limitation cap and divert that program.
    The key is to get away from supporting the last unit of production, because prices are set on the margin, and so what we need to do is find a way to make sure that the farmers that are producing at that margin, at the last bushels that are helping to lower our costs, are the bushels that are incurring the price to the farmer for production. And we think the way to do that is to move away from production base and supply control to more financial management system.
    Mr. SMITH of Michigan. Mr. Naylor? And, Mr. Stallman, I started down there because they ended up with the yes or nos before.
    Mr. NAYLOR. Thanks, Representative Smith. I appreciate your asking that question because it is a critical question for everyone on your committee and people in the countryside, too. In some respects it is a red herring. What really is of concern to us as family farmers is what is the price that Cargill, IBP, Tyson Foods, Premium Standard Farms—companies that are producing livestock, what price are they paying for corn?
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    Right now they are paying $1.45 a bushel, and yet it costs closer to $3 a bushel to raise corn, and so they are able to feed their livestock at a price less than what it costs the family farm producer to raise on their own farm. Now it is clear who is going to be raising livestock in this country. It is not family farmers. It is going to be IBP and Tyson Foods.
    So whenever you talk about targeting payments, we have to ask what is the price of corn going to be, and with the Freedom to Farm Act we don't know what the all-out production—and, if Mother Nature cooperates, this fall the price of corn could be less than $1 a bushel and the Federal Government then has to spend money to make up the difference. And, not only that, but IBP and Premium Standard Farms and Tyson Foods are going to expand their production of livestock.
    So, if we can get the price of grain up in the first place, we can get livestock back on the family farms instead of out of these stinking factors and we can stop spending billions of dollars that can be used for other things such as Head Start. We only spend a little over $4 billion a year for HeadStart, but here we are spending over $30 billion a year to keep the farm economy from collapsing.
    Mr. SMITH of Michigan. Mr. Stallman?
    Mr. STALLMAN. Historically and currently we have been opposed to payment limitations, and there is a simple reason: they basically don't work, if you are talking about income supports based on production. Anybody that has been involved in farm service agency determinations as to who is a qualifying producer clearly understands that. And then, beyond that, the problem is how you mix and match, and if you do have caps and you maintain a loan program, what does that do in terms of the Government having to take over the commodity and——
    Mr. SMITH of Michigan. Excuse me. I am also talking about somehow incorporating the kind of limits that you couldn't automatically have a non-recourse loan with a certificate or whatever that is unlimited. I mean, should we be looking at total limitations? And now limitations are—you do end-run round limitations with a non-recourse loan.
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    Mr. STALLMAN. Well, once again, there are more ways than that to do an end-run round of limitations.
    Mr. SMITH of Michigan. Sure.
    Mr. STALLMAN. And that has been the problem in the past. Initially, limitations were put in place as a budget for budget purposes to try to cap costs. The studies pretty well clearly indicated that didn't work really well, and, unfortunately, payment limitations, because of structures, because of family size, because of family operations and a lot of other factors, as a general rule are going to be ineffective.
    The CHAIRMAN. Mr. Minge.
    Mr. MINGE. Thank you, Mr. Chairman.
    I would like to join with my colleagues in welcoming all of you to this hearing. This, in a way, is a capstone of the hearings that have been held around the country. I would like to particularly welcome Mr. Swenson. He spent the weekend before last at his home community, which is in my Congressional District, and I was very impressed that you drove from Colorado to get back to Westbrook for the parade and were one of the featured persons in that event.
    I have five matters I would like to quickly touch on.
    The first has to do with your testimony, Mr. Stallman, with respect to the dairy program and regional compacts.
    With respect to the regional compacts, we in the upper Midwest feel particularly put upon by regional compacts, which I understand American Farm Bureau supports, and I see that this is inconsistent with the strong support that you have had for free and open trade.
    Here domestically we are erecting trade-type barriers to the free allocation or the marketplace allocation of our dairy production resources and we are allowing certain States to subsidize their milk production at the expense of dairy farmers in other parts of the country, and this is the very type of thing that we have been criticizing the Europeans and sometimes the Canadians about.
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    I would hope that the American Farm Bureau would listen to its Minnesota and Wisconsin members, who I think are pretty unified in their strenuous objection to this policy.
    There is another point I would like to make, and that is, I join with you in supporting international trade, and even the trade policies with China, which I realize the panel is divided over, but I would like to emphasize that I don't see that trade is a substitute for a strong, effective agricultural policy, it is simply one part of it.
    And we are handicapped because our competing countries—Canada, Australia, Argentina, Brazil, and, to some extent, the European Union—are all competing with us in an international marketplace, and in some case dumping their surplus production in the international marketplace. We ought to be working with them to try to stabilize international prices and production rather than having what I would term a ''senseless level of competition with them.''
    And also we are handicapped by a strong dollar. To the extent that we are selling in strong U.S. dollars and we are competing with the Brazilian rial, which is a devalued currency, it handicaps our producers. We see this in steel, we see it in agriculture and other sectors of our economy.
    The third item I would like to mention is that we do need, in my opinion, to consider increasing the loan rates, but, going beyond that, to equalizing the loan rates.
    I understand that all of the groups do favor legislation which would equalize the loan rates using soybeans as a base. Right now, corn and wheat and some of the other commodities are not as well treated as soybeans are if you are simply looking at the basic loan rate that is prevailing.
    The fourth point has to do with the appropriations bill that we passed yesterday for agriculture, and I, for one, was very uncomfortable with that bill. Not only did it short-change conservation, the Farm Service Agency, agricultural research, rural development, but even the Packers and Stockyards Act enforcement was shortchanged in a very unfortunate way.
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    We have livestock price reporting that we have required now at the Federal level. There is supposed to be a Hog Contract Library established. The administration requested $400,000 for that, and that request was not honored in the appropriations process. So we have short-changed any type of enforcement of Packers and Stockyards Act. We have stripped that agency of the resources that it needs to be effective in that respect.
    Finally, and the point that I would like to ask each of you to comment upon is the issue of contract farming. We have focused on production agriculture and price support and income stability, but we have not, in Congress, really looked seriously at the issue of contract farming and the contracts that farmers are increasingly using and being required to sign as a condition of marketing whatever they may raise. And sometimes they are raising crops or even livestock that belong to others.
    States are attempting to deal with this issue of contract farming, and Minnesota has taken a stab at that. Some legislation has been introduced here in Congress. I am a party to that. I would just like to ask quickly, starting with you, Mr. Stallman, if each of your organizations would support hearings and consideration of legislation at the Federal level with respect to contract farming. And, given the time, I would better ask if you can do this in one sentence rather than an expanded discussion of it.
    Mr. STALLMAN. Well, we would certainly participate in that discussion. We do have concerns, but, on the other hand, that is something that producers are using across this country to provide for their own risk management, and I understand the concerns about concentration, but we would certainly participate in those areas.
    Mr. MINGE. Mr. Swenson.
    Mr. SWENSON. Thank you, Congressman. We think it is critical that this committee, as well as the Judiciary Committee, hold hearing on contract production agriculture and look at a contractors bill of rights to make sure that there is transparency and there is openness into how those that decide on a voluntary basis to get involved, what are the elements, consistencies within those contracts.
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    Mr. MINGE. Mr. Watson.
    Mr. WATSON. For a number of years we felt that it is important for us to take a hard look at the contract aspects as it is evolving in agriculture. There are positive and negative aspects of that to farmers, as well. We also need to look at what are some public policy alternatives to contractual agriculture, and, quite frankly, we believe that a policy like the dairy compact offers a clear alternative to moving toward a contractual basis with a far more publicly-accountable and open system of supply management.
    Mr. MINGE. Mr. Naylor.
    Mr. NAYLOR. Yes. We feel it is very unfortunate that farmers have to look to sign contracts in order to improve their economic standing. We would much rather have them secure in the free market without having to sign contracts, but for those farmers that are involved in contract agriculture, such as in poultry, in particular, they need to have the right to organize to gain a fairness in those contracts by negotiating those contracts as a group.
    Mr. MINGE. Thank you very much.
    Mr. MORAN [presiding]. Thank you, Mr. Minge.
    It is my turn for questions. I wonder if each of you would provide me with your thoughts in regard to the conservation provisions in the next farm bill.
    Mr. Stallman.
    Mr. STALLMAN. Once again, primarily the conservation provisions should be focused on conservation and not begin to be confused with some way of taking agricultural land out of production to manage supply. We do think the CRP has been very beneficial. Some other conservation programs—the EQIP, Wetlands Reserve Program—have been under-funded and could use some increased funding.
    Mr. MORAN. Do you believe the programs that we have in place are appropriate and adequate but simply lack funding?
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    Mr. STALLMAN. Funding would be the first concern. Yes, sir.
    Mr. MORAN. Thank you.
    Mr. Swenson.
    Mr. SWENSON. Thank you. We would support continuation and expansion of the Conservation Reserve Program. We do believe that they should give review as to the type of grasses that are being required to be planed on the CRP. We also do believe that there could be an intermediate program, a 2- or 3-year conservation-type program.
    As this committee has witnessed—and Congressman Thune is sitting there—land in parts of their State will be under water for 3 to 5 years because of a situation that is beyond the control of farmers. We have seen, in the case of North Dakota, where scab got infected within the crop, where we could rebuild that soil if we would take it out of production for an intern period, not for 10 or 15 years, but for 3 years or so. So it could be a real good soil restoration program that we think this Congress should give consideration to.
    We also believe that there should be an expansion in the area of current existing programs, but we also need to make sure that we look at some of the new initiatives coming away, as I mentioned earlier. Carbon sequestration—if we do not have an initiative to provide technical assistance to family farmers, a carbon sequestration will only be beneficial to the large operator, and we need to make sure those programs can be applied to family farmers out there that they can enhance their returns for some of their farming practices.
    Thank you.
    Mr. MORAN. Mr. Swenson, thank you. I think if we go any further committee members will miss votes.
    The chairman asked that we recess, so the committee will stand in recess until the call of the chairman.
    Thank you.
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    The CHAIRMAN [presiding]. The hearing will reconvene. Hopefully that will be the last interruption before we are able to complete this series of questions.
    Mr. Stenholm.
    Mr. STENHOLM. Just quickly, one question for the panel. I noticed, I believe in all of your testimony—Mr. Swenson, you mentioned the reasonable energy reserve and someone else, I believe Mr. Naylor, mentioned big oil once, but no mention of energy and agriculture's role in energy production, ethanol, et cetera Is there a reason for that absence in your testimony, or was it an oversight, or what is your organization's positions regarding the development of biofuels? Mr. Swenson?
    Mr. SWENSON. Thank you. We strongly support the use of agriculture in expanding the energy base in this country, No.1 in bio-diesel, two in the usage of ethanol, and the reformulated fuels program that is now before the United States Senate.
    Let me just say that in our testimony we advocate even going farther than where we are at today, and that is the establishment of a reserve program for agricultural commodities, be it sugar or be it corn, that could be a reserve for the usage in the development of soybeans for the development of other additional energy sources.
    We think that is beneficial for an energy program in this country, an environment, and we think it is beneficial in helping bring up the prices of agricultural commodities.
    Thank you.
    Mr. STENHOLM. Mr. Watson?
    Mr. WATSON. Mr. Stenholm, in our written testimony, on the second-to-last page, we make a reference to the fact that we continue to support aggressively expanding market opportunities in non-traditional domestic markets, including energy and high-value industrial feed stocks.
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    In a previous work experience, I had the pleasure of serving as the regulatory director for the National Bio-diesel Board. I was the author of the petition which had bio-diesel declared an official alternative fuel and also helped get bio-diesel approved as the only fuel other than a petroleum feedstock that has met the requirements of the Environmental Protection Agency field testing program.
    I can tell you that there is a significant parallel between bringing a new fuel to market and bringing a pesticide and pharmaceutical to market. We have, as a society, a tremendous amount of interest in the health and welfare and environmental and other public policy aspects of bringing these fuels to market and making them commercially available in such a way that they meet the standards that the consumers have come to expect.
    We strongly support the continuation of those programs and think that they are going to be vital for the success of farms over the next decade, but we need to realize that, as with the other heavily-regulated products in our society, it probably will take a significant amount of time and effort to get there.
    Mr. NAYLOR. I would like to say I recall back in 1996, when the price of corn did go up, there were stories of how ethanol plants were shutting down.
    If we have to figure that we produce ethanol just because the price of corn is less than $2 a bushel, then that is not really a good thing. But if we can, as a society, decide that we can have a decent price for corn, and then we have some extra land that can be used with good conservation measures and still produce extra energy that way, then I think we could organize small ethanol plants in farm communities to produce the ethanol and that would be a very good thing.
    Mr. STALLMAN. I didn't reference it in my testimony, but certainly not from non-involvement on our organization's part in the issue. We strongly support the use of ethanol and renewable fuels in this country. We think it is good for agriculture, to the extent we can use our products to create those renewable fuels. It is good for the environment, and it is also good for this country in decreasing dependence on foreign supplies, and we are very heavily involved in that debate and are doing everything we can to increase the use of those fuels.
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    The CHAIRMAN. I thank you for those responses, and I would encourage you and your organizations to think in terms of a coalition with the independent oil and gas producers, who also must have a decent price for oil and gas found in this country or it will not be produced, and how we might meld our two policies in order that we might meet the national needs, lessen our dependence on foreign sources for energy, but do so in a way that is compatible and helpful to both industries.
    How short our memories are. It was only 18 months ago that we had a depression in the oil pads. Now, most farmers were not complaining with 50-cent and 70-cent diesel, but many of us are complaining today. But the logics of the market, Mr. Watson, as you point out, will show that. I think there is a natural possibility of a coalition. You cannot produce oil and gas without food and fiber. You cannot produce food and fiber without oil and gas. All 270 million Americans depend upon both. Therefore, as we strive for a food policy and an energy policy, I think there is room in there for both. I look forward to working with you on it.
    Mr. Gutknecht.
    Mr. GUTKNECHT. Thank you, Mr. Chairman, and thanks to the panel and staff for putting this hearing together. We are always delighted to have you here and share your insights.
    I won't give a long lecture here. I do have a couple of questions, and they tend to be a bit parochial. They fall in line with the questions that recently were asked by a couple of the panelists or a couple members of the committee just a few minutes ago.
    The first is related to dairy policy. I spent a good part of the 4th of July break meeting with farmers in my district and with several dairy producers. As you may know and probably do know, dairy prices right now to the dairy producers are at near record lows, and there are a whole lot of factors converging to make that happen.
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    I do want to serve notice, both to my colleagues on the committee as well as to the people assembled here to testify, that one of the things that we are going to press very hard for, at least from the perspective of the upper Midwest, is to end this byzantine system whereby dairy producers are paid based on how far they are from Eau Claire, WI. I don't think it made all that much sense back in 1934. I certainly believe that it has outlived its usefulness.
    In some respects, to sort of counter some of the arguments we made earlier, the idea that we should be opening markets to China, Iraq, and even now Cuba at a time when we really don't have open markets to New England to me is just totally indefensible, so I just want you to know that that is one issue that I will fight like a bulldog on.
    I am perfectly willing to listen to any logical arguments for the milk marketing order system that we have today, but I have looked at this from every side and I can see no legitimate argument.
    In fact, I would just open it up, and perhaps the question I would ask of the panel, what can we do right now to do something to put some profitability back in dairy? Is there something that Congress and the Federal Government could do today that could offer some relief to our dairy producers out there who have an enormous investment and, second, who get up every morning at 5:00 to milk those cows. Nobody works harder than our dairy farmers.
    Mr. Naylor?
    Mr. NAYLOR. Yes. We support a program that puts price support under dairy products, under milk, and we think one of the main problems is the imbalance in agriculture today. With cheap corn and soybean meal, cows are eating more cheap corn and soybean meal instead of being out in the pasture and eating hay, which is what family farmers produce. As long as you keep the price of corn and soybean meal cheap, you will end up having these huge factory dairies with 14,000 cows—I mean, they even tried to come into my area—where that thing is really a factory. They are not producing any food on that farm for those cows. They are buying it all from family farmers who are losing money when they are selling that grain, so there is an imbalance in agriculture, and that is going to happen in every kind of livestock production in this country as long as we let the price of corn go below $2 a bushel and soybeans be so cheap.
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    Mr. GUTKNECHT. So your answer would be to push the price of corn and beans up?
    Mr. NAYLOR. That would be one major thing, right, because if you look at a dairy that is producing, a family farm dairy that is producing all the feed right there on the farm, the price of corn and soybeans has no bearing on their cost of production, and yet, on the other hand, right next door, or in some other State, you can have a huge dairy—14,000 cows, or whatever—and they are buying their grain, their feed, cheaper than the it costs the family farmer to produce the feed in the first place. So clearly these big factors keep expanding and expanding just because the price of feed is so cheap.
    Mr. GUTKNECHT. Anybody else want to take a shot at what we can do in the short run? Mr. Swenson?
    Mr. SWENSON. Thank you, Congressman. I think there are a couple things. One is the extension of the current price support. I think the price support should be increased. I would agree. Our policy concurs with that of the National Grange of at least $12.50.
    The other thing is that we have asked the Secretary to advance——
    Mr. GUTKNECHT. Would that be $12.50 in the upper Midwest or $12.50 in New England or——
    Mr. SWENSON. It would be $12.50 as the base of which to work off of, the $12.50 base. We do not believe that would entice greater production, because it is going to be below the cost of production for many and you are going to get that through your premiums and the quality of your milk, so that is why we look at that approximate $12.50 price.
    But we would ask the Secretary to make some advanced purchase of dairy products for use in humanitarian assistance programs or in the VA and the military, those types of things which we think could help bring up the price in the short term.
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    The second thing is we encourage you to even contact GAO. We have seen a six-fold increase in ultra-filtered milk product that has come into this country, imported into this country, which has real strict limitations on what its use can be for, and we are very concerned that those companies that are importing that product are not using it in relation to what the law says, and we think that investigation—and if that is found to be used in other products, they should be held liable. That would create greater demand for U.S. powdered milk and products.
    So those are some immediate steps that we think could be taken.
    Mr. WATSON. Likewise, the Grange would support reauthorization—in fact, permanent reauthorization—of a basic dairy price support program. The uncertainty related to whether or not it is going to be continued every year that we now have I think helps create a downward pressure on the basic prices of milk, anyway, with an expectation that possibly Congress will not reauthorize it and perhaps the prices will go lower than the basic support price.
    Second, we would support a minor increase in the basic dairy support price, the floor price by which manufacturing products are purchased by the Federal Government.
    Third, and in due respect to your geographic and philosophical considerations, we support the Northeast Dairy Compact. We support expanding it to other areas in the Northeast and we support expanding a similar compact situation in the southern States.
    We believe and have believed for more than 15 years that breaking the Gordian knot of dairy policy, getting away from the mess that sort of evolved and was created, is probably not going to happen directly at the Federal level; that we are going to have to draw on a lot of expertise and creativity beyond simply what we are going to try to get here.
    I think, in its application and administration, the Northeast Area Compact is showing some really good, I think, signposts toward where farm policy can go. One is the compact involves not only producers but State governments. It involves handlers. It involves consumers. In the decision-making process, that determines what the administrative functions of the compact are.
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    Second of all, it is really taking a hard look in almost any place else in the country, looking at what is necessary to take responsibility for supply management, and the compact is currently looking at adopting regulations that look at having the farmers in that area take responsibility as a group for their contributions toward our surplus production and, therefore, lower price problems.
    If we can find policies that help do that, then we are going to work our way out of it, so that is what we are hoping continuation and expansion of these policies can help us do.
    Mr. GUTKNECHT. Mr. Watson, with respect, you say we are going to work our way out of it. We in the upper Midwest cannot eat all the cheese we produce every day. We have got to export. We have got to sell that somewhere else. I mean, in my district, alone, I have one cheese plant that produces—I believe I am right—500,000 pounds of cheese a day. We can't eat all that cheese. We have got to have access to other markets.
    When you start dividing up the country geographically, I mean, that may help solve the problem for the Northeast, and it may help solve the problem for the Southeast, but it doesn't solve our problem. It makes our problem worse.
     What do you say to those dairy farmers?
    Mr. WATSON. Based on the manufacturing, the cheese production aspects are not covered by the dairy compact.
    Mr. GUTKNECHT. Right.
    Mr. WATSON. It only covers fluid milk. So I am sure that the good consumers of New England and other parts of the country are more than willing and able to help the Midwest consume its manufacturing cheese production, so to that extent, because the Midwest is overwhelmingly in a manufacturing milk mode at this point, it is not a situation which is affecting that. Those markets remain open and competitive across the country.
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    Mr. WATSON. My time is up. Thank you.
    The CHAIRMAN. Mr. Etheridge.
    Mr. ETHERIDGE. Thank you, Mr. Chairman. Let me thank you and Mr. Stenholm for the hearings that have been held—one was in my area of the country, and others across the country, and the one today.
    And also let me thank the panelists for being here. Your testimony has been excellent thus far, and I appreciate that. It has been very enlightening.
    I may not have been here in 1996 when the Freedom to Farm bill was passed, but I can tell you, in talking to my farmers back home, they feel like something badly needs to be done and it is broken, and they don't call it Freedom to Farm. They are calling it Freedom to Go Broke, because a lot of them are.
    I met with a group of farmers just in the last 2 weeks, and they said, without a great deal of pride—but it was a fact—that if it had not been for their mailbox over the last year-and-a-half, they would now be out of business.
    Now, our State, North Carolina, has suffered severe drought and floods and a number of other factors, and, unfortunately, the drought and floods have put money in some of their pockets, and that has happened in other places.
    I had a farmer call me the day before yesterday, not that I could do anything about it, but he raised the issue. He said, ''You know, I have got a load of wheat on my truck. I have just sold one.'' I know you can't answer this question, but I think it is important to be reminding all of us. He said, ''A bushel of wheat is under $2 a bushel.'' Well, my wife asks me to go to the grocery store from time to time, and the last time I went a loaf of bread cost almost as much as a bushel of wheat. Now, there is something wrong in that process. Somebody is making some money, and it is not the farmer, and our policies have to reflect what is happening on the total integration of agricultural products.
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    That being said, when Congress passed the 1996 farm bill, Mr. Stallman, in some of your testimony I was reading, you talk about a number of the promises that were made in that bill—expanded trade, new risk management tools, tax reform, relief from burdensome over-regulation, a number of things. I am going to sort of shift the questions a little bit, if I might. My question would be to each of you—and if I could start with you, Mr. Stallman—what regulations that are now on the books should this committee be looking at, or Congress, in order to provide additional regulatory relief for our farmers that would not impair nor impede the things that we want to do in terms of making sure our environment is safe and our water system is safe, because farmers, as has been pointed out by each of you, have been good stewards of the land from day one.
    Mr. STALLMAN. Well, I will talk about two examples quickly.
    Every farmer wants clean water, clean air on their land. There is no question about that. The question is under what regulatory regime are those goals going to be achieved. Are they going to be science based? Is there going to be a cost benefit analysis done?
    In two areas, in particular, the implementation of the Food Quality Protection Act—and we supported the Food Quality Protection Act, but its implementation is taking away products and restricting the use of products without good justification that are directly impacting the bottom lines of farmers and ranchers.
    Another issue is the Clean Water Act. The TMDL rule that was just finalized yesterday, while currently not directly impacting costs, has great potential to increase cost and increase the regulation of the land being used by farmers and ranchers. Those are two examples right there.
    Mr. SWENSON. Thank you, Congressman. I will take a little different tact.
    One, as we take a look at international trade and its importance and we have got companies, chemical companies in the United States which use, for example, EPA regulations to halt the sale of products that are registered in this country to protect the price of another product that they sell on the market for a higher price, yet they sell that product into Canada, and so the U.S. producers would like to go into Canada and buy that product and bring it back across the border to use, find they can't do that. It is against international trade rules.
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    We have got a situation where protection of the U.S. patent copyright and trademark laws increase U.S. prices, yet the same companies will take that product to Argentina, sell it for significantly less to their producers, and we have got to compete with that in international trade.
    Those are regulatory issues that impact the bottom line, what farmers have to pay out of their pocket before they begin to even produce a commodity of which then to try to deal with either in a domestic or an international market.
    I think if we take a look at regulations, be it the TMDL coming out or whatever, I think that one of the challenges I would give for this committee is to hold a hearing, not on the emotional aspect, not on the political aspect, but on the real substantive elements of the regulation.
    What is society's benefit for that regulation to be put in play? If it is to protect the water, if it is to protect the soil, if it is to protect the air, whatever the benefit, then what is the cost of its implementation? And if it is a benefit to society, should we not share in the cost of the implementation of that regulation before it is applied? And then that should be part of its passage.
    And there is where I think farmers would then choose to participate. We have seen that benefit come about in cost share. I will go back to my State of South Dakota, where I have my farm, and we have seen livestock producers in a cost-share basis build dug-outs that have helped sustain water to sustain the livestock industry in western South Dakota, where they could have looked at farm programs in the past and plowed that all up and put it into wheat, and then be getting an AMTA and an AMTA plus payment.
    So we can look at cost share type of programs that are good for the environment and good for farmers and ranchers, and that is how I think the committee should approach it.
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    Thank you.
    Mr. WATSON. I would second the suggestions made by my colleagues and quickly point out that Endangered Species Act reform would probably be one of the most important policies that this committee could look at as far as the impact on production agriculture, particularly in the western part of the United States, but increasingly across the whole country.
    Mr. NAYLOR. I would like to say that, as long as we keep moving away from a family farm agriculture, then the only way that society is going to protect its water and its resources is through regulation. If we had a family farm system where the farmer was interested in preserving that land for future generations and felt an obligation to neighbors and society and the consumer, then we wouldn't have to regulate them so much. So organizations that seem to support the movement towards the kind of corporate factory agriculture we are don't seem to take this into account.
    The other point is that the most important regulation that has been taken off the books was the regulation that allowed the Secretary of Agriculture to set a floor under prices and to regulate production. And I think, since you are from North Carolina, I would like to read this quote from Representative Harold D. Cooley, who was the House Agriculture Committee chairman. He said back in 1957, ''The Commodity Credit Corporation supported the prices of major storable crops for 20 years prior to 1953, and at that time this program actually showed a 20-year profit of $13 million.''
    So, in other words, we could support family farm agriculture, make sense of the whole thing, have family farmers preserving the land, not have them regulated to death, and not cost the taxpayer anything, and that is what we really need.
    Mr. ETHERIDGE. Thank you, Mr. Chairman. I think my time has expired. Thank you.
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    The CHAIRMAN. Mrs. Clayton.
    Mrs. CLAYTON. I thank you, Mr. Chairman. I also want to add my compliments and support of your leadership, as well as Mr. Stenholm, in having these hearings, and for getting us to think, indeed, what our farm policies should include and what the gnarly issues are and the conflicts that are inevitable in this whole process, the whole conflict of the market forces versus family farm, marketplace versus finding subsidized farming is an issue that we ought to deal with early on. I do think it is predicated on an issue whether, indeed, we see food security as an issue worthy of investing our resources in. And if we see having a mix of players in the providing of food of the family farmer, is that a significant component that we are willing to invest in? And if it is, then we know that the market forces will not allow that.
    Now, that is not to suggest that the market forces shouldn't be at play in here, but it is to suggest that you cannot reconcile the differences between vesting in food security that will say you will pay more and having opportunity to make sure that American farmers and variety of providers, including family farmer—the family farmer cannot compete in the marketplace without some intervention by the Government. That doesn't mean it has to control it, but it cannot. And if we are thinking that we can compete with the large producers, your corn will never be—I appreciate your using your corn as your stabilizing force. In my State and in my district we have the vulnerable commodity called tobacco. The reality is the market forces there, as well as the perception of the public, in that commodity that will go down.
    It also means that we either have to move rapidly in trade and export our goods, and we also are in competition with other nations growing a cheaper form of that same product. So to deny those realities, what consumers want—good health and markets—with the ability to produce on large scale, we are not thinking comprehensively.
    Second, I think as the farm policy also goes, I think—and I appreciate the Grange's inclusion of not just farm policy but quality of life issues for rural America. You ask why is the value of land increasing. What is doing that? You say, ''Well, we have a great economy.'' And those people who live in urban areas, guess what, our land is available. So they are coming in and investing there.
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    But we don't begin to think about how those of us who live in rural America can begin to also increase in that economy, whether it is through Internet access or whether it is better health or whether it is by institution or whether we—I hope, Mr. Chairman, we would include not just production issues but also rural development issues, quality of life issues that will begin for us to respond to that.
    I guess one of the questions I would like to ask, do you think it is of value that Americans should invest in protecting family farms? And to what extent?
    Let me make a statement before I ask you to answer that.
    We say we are now in a market-driven response because that is the easier way to do it. The market has driven down the commodity prices. If I ask the Congressional Research Center to give me the price of what Government has paid, we are now paying more out of the Government resources than we paid when we had a subsidized entity. We will have another disaster program. I will vote for it because our farmers are in distress.
    So we have to find a way in which we recognize that it is going to be a cost and not pretend there is going to not be a cost to the America taxpayer. I think we can make the case to the American taxpayer. It is in our best of interest to have food security, have quality, have variety, but I also think we can make a case to the American people that it is in the American consumers' interest to have family farmers and a variety of farmers, because pretty soon we are going to go the way of all the big banks. Small farmers will be there as a hobby.
    A question for all of you, really, if you want to participate: is there a value for which we ought to recognize that family farmers should be subsidized or insured to be in the playing field and the Government should invest in it?
    Mr. NAYLOR. Yes, Representative Clayton, we couldn't agree more. As the National Family Farm Coalition, we think family farmers and food produced on family farms is in the best interest of all consumers in our Nation and food security is a critical issue.
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    Is food being produced locally or do we always have to depend on food being shipped in from miles and miles away and then have to pay a high price for something that may not be such good quality, while people in our own community who have farmed for years are going broke? That doesn't make sense.
    We should encourage alternative forms of production so that we have locally-raised food and that give small farmers access to markets that they normally wouldn't have.
    Also, I think we should look at that tobacco program as a model for all our other commodities. Tobacco prices were supported for years and years without any net cost to the taxpayers, and that is what we are asking for in other commodities, too.
    It seems crazy that we should be talking about the price of tobacco going down. If we are trying to discourage the use of tobacco, we should talk about the price of tobacco going up. We should charge the tobacco companies more for tobacco.
    This is the way we think the program can work for family farmers and for consumers and the environment, all three.
    Mr. WATSON. You raised an excellent point, Congresswoman, at least indirectly. There are more than 400, almost 500 commercially-producible agricultural products in this country. This is a big country with a broad range of geographic area, and we seem to focus on the one or two dozen that are directly affected by Federal farm programs, but there are an awful lot of people involved in trying to engage in agricultural activities that have not had the benefit of any direct Federal farm program support in the past.
    It is that group, as well as the traditional group, that the Grange is trying to focus on when we look at our issues of what is going to happen in rural communities. We don't believe people are going to want to farm, regardless of what the price of wheat is, if we can't get adequate Internet access, if we can't get adequate health care, if we can't get adequate education for our children. If we can't have adequate business and government services in our rural areas, eventually the price of the product isn't going to make any difference because people aren't going to want to live there and we are not going to attract the best and the brightest to come be our farmers and producers and provide us with the best food system in the world.
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    So we need to pay a lot of attention to what is happening in the communities to make sure that they are supported for the farms.
    Lastly, we think that we don't have too many farms in this country. We probably don't have enough. We want to encourage more people to become involved in agriculture, even if that is not on a commercial basis, on a partially-commercial or sub-commercial basis, because we think they are making significant contributions to our rural and agricultural infrastructures, as well.
    That is a tall order to try and build into policy, but it is one that we are committed to trying to raise the level of discussion about.
    Mr. SWENSON. Thank you, Congresswoman. I appreciate your commitment to diversified family farm agriculture, and I think that has to be the cornerstone of what we make a commitment to in the future.
    When we talk about support for agriculture, support for rural America, a lot of people believe it is just in the expenditure of funds, when many times it could be in the structure of the farm policy, tools that farmers choose to participate in, tools for farmers to use.
    We need to put more money, for example, not necessarily in grants, but available for ownership loans for disadvantaged minority farmers to have an opportunity to enter into production agriculture. We have failed to make that commitment as a government to our people.
    When we take a look at the fact that 50 percent of our land is owned by absentee landowners, not that ability to transfer to a new generation, something is wrong with that direction of policy, yet that money can be recaptured back to the Government as those loans are repaid.
    We need to take a look at the commitment of the Food Reserve Program. We have it in a Strategic Oil Reserve Program, of which we have asked the President to tap to help bring down the cost of fuel today, but we should make that same commitment in the area of food security for our people and for our assistance package around the world.
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    When we talk about the expenditures of funds to sustain a family farm, I am concerned. I look at the pork industry in this country. Smithfield-Murphy, which is the largest pork producer and processor in this country, now owns 70 percent of their kill capacity. How often do they need to go to the open market system to procure hog for kill? Very seldom. And yet that 70 percent that they own, what role do they play in the price discovery system? None.
    That is what the future holds if we don't have the Government's involvement in agriculture policy. I think it is important, not only for the structure of production agriculture, it is important what is going to happen to rural America.
    I wholeheartedly support your initiatives and many others that we have to have a strong commitment and different variety of programs and tools available for farmers to access and use, and we would spend less then in trying to create new jobs in rural America, because the jobs would be created and the dollars spent—created through renewable wealth in rural America.
    Thank you.
    Mr. STALLMAN. Representative Clayton, in your opening remarks you, I think, addressed the fundamental question, and it is the reason we are here talking about this issue, and that is: how important is a viable production, agricultural industry in this country for the security of this country, for the benefits that it provides, both in terms of rural economies and the food and fiber that we provide?
    Talking about some of the issues with respect to opportunities for farmers of all levels, but getting down to the smaller farmers, I think the technological revolution that I referenced in my statement is going to impact that perhaps quicker than even policy can adjust.
    We talked about Internet access, and that is why it is, I think, vitally critical that we have rural Internet access for those individuals living in those areas to take advantage of that technology, and then you get into production technologies that may evolve.
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    My friends in the tobacco industry talk a whole lot about the ability of the tobacco plant to be modified in a way that will provide products which have really nothing to do with the traditional uses of tobacco that may provide medicinal products to be used in the pharmaceutical industry and cures for various things, and those kind of opportunities, I think, very specialized opportunities based on technology, will allow producers, small producers, perhaps to find a niche, to find a way to maintain their lifestyle and maintain those small, rural farms, and so I am hopeful in that respect.
    Having said that, we do need to address a lot of the issues with respect to rural economies, and what we do with respect to farm policy certainly plays into that.
    Mrs. CLAYTON. Thank you.
    The CHAIRMAN. The Chair apologizes to Mr. Thune for inadvertently overlooking him.
    Mr. THUNE. Thank you, Mr. Chairman. Apology accepted. Always happy to yield to Mrs. Clayton.
    The CHAIRMAN. Thank you.
    Mr. THUNE. And thank you for the approach that you have taken on the hearings we have held around the country. You and Congressman Stenholm I think have tried to put together a bipartisan focus on the issues of agriculture. I have said before that agriculture doesn't know political boundaries and we need, I think, to be working in a constructive way to fashion solutions that make sense for producers around this country and for everyone who benefits from agriculture, so I credit you for doing that. I want to thank the panel for being here today and welcome my fellow South Dakotan, Mr. Swenson, who always, I think, does an exceptional job of representing the views of the many people from my State who are members of his organization. I appreciate the comments and the input that you have given us.
    In some way form or another all these issues I think have been covered today, and there have been some responses on a Congressional level this year.
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    Trade—obviously, we all recognize the value of that, but the China issue is still out there. We are working to try to get sanctions lifted.
    Risk management, crop insurance reform has been passed this year.
    Income price supports—we are, I think, doing what we can with the super AMTA to try and address the low prices we have seen for successive years.
    Conservation—we talked a little bit about CRP, WRP. That is an issue that is important in South Dakota and one which I think needs to be a fundamental part of our farm policy for a lot of reasons.
    Concentration has been dealt with, and I would like to see action there. I have got a piece of legislation I would like to see the House act on. Tax and regulatory relief—we are working to try to get the estate tax lifted, repealed, and I hope that is accomplished yet in this Congress.
    TMDL and other regulatory issues are out there—in fact, out there even as we speak. That is going to take, I think, a stepped-up effort by all of us.
    But, let me just, having said all of that, ask you sort of a general question. Among all those things, relative value of addressing them in terms of where we move in the future of farm policy, what would you rank as most important of all those issues that I just mentioned?
    Mr. SWENSON. Congressman, I will try to give it a shot to begin with. And you are my Congressman, so I will try to be real direct and real responsive.
    Mr. THUNE. You always are.
    Mr. SWENSON. First of all, I think we have got to deal with the inequities in the structure of the support program in agricultural policy. I wish Congress before it adjourns would deal with the inequities in the loan rates between where soybeans and wheat and corn are. That would be of benefit to producers this year, and I believe would reduce the cost of the farm program as we look at LDPs for the year, and so I would urge that Congress take that action.
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    I wish Congress would take the action to support now the initiative by the administration of doing on-farm storage facility loans with implementing the farmer-owned reserve program. Farmers could voluntarily participate, but it would empower producers to be able to market their product over a longer period of time. If we are going to try to look at how farmers respond to market signals, we have got to give them the tools to work with within the market, and I would hope that this Congress would give that serious consideration.
    I think in the area of concentration we have got to look at antitrust laws and strengthen our antitrust laws and enforcement of our antitrust laws. And it is not just in the area of livestock, it is unfolding in the areas of grain. It is unfolding in the area of transportation, and it is all coming back to impact farmers at the pocketbook.
    You can take a look at just what has unfolded in the mergers in the rail industry and the lack of competition and how that has driven up transportation cost. That is paid for by the farmer out of his pocket, and so that is an issue that—when you talk about regulatory, that has a greater impact in the nature of regulatory than many of the other issues that are laid on the table many times. So second would be the issue of concentration.
    I think third is the issue of trade, because many of the benefits of trade come down the road. And if we want to take a look at trade issues—and one of the reasons we opposed PNTR was the fact that we believe our trade agreements have not enabled the U.S. Government to respond on behalf of farmers' interests when noncompliance of trade agreements occur.
    And when you take a look at the European Union and the fact that they put up a non-trade barrier in regards to hormone-free beef and the U.S. industry has used that to lower the beef price paid to producers, then farmers are impacted by noncompliance of a trade agreement. And we have done nothing in this Government to compensate the lost income that producers face because of that trade embargo, that trade action.
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    When we take a look at PNTR, we have nothing in that agreement if China does not comply with tariff reductions or tariff rate quota reductions and/or they set up non-trade barriers.
    We see this coming in GMO issue, especially in the area of grains, and I would scold this Congress for not providing appropriations to allow USDA to set up a public GMO research facility that would now then enable us to take on, on a public basis, confidence if GMOs are right or wrong, and what we are going to do when countries, not farmers, when other countries say, ''We are not going to accept GMO products.'' How do farmers have assurance of a testing procedure that has public acceptance of what is GMO and non-GMO.
    And so, you know, those are the issues that I believe this Congress needs to address, and some of them with urgency before they recess this fall. Thank you.
    Mr. THUNE. Let me just follow up, too, on one other issue for just a minute and ask—because we talked a little bit in the context of—and, by the way, on the China issue I think, obviously, there is a wide range that hinges on that, and certain in South Dakota I have heard from both sides on that issue a lot. I think that bringing China in the WTO does give us an enforcement mechanism that we have lacked in the past and will give us some of the tools we need to make sure that the agreement is enforceable, but I understand that there are a lot of people who look at this issue from different perspectives.
    But let me just touch on one other issue, if I might, and, again, that is in the context that Congressman Stenholm mentioned earlier, the energy policy and how ethanol and everything else fits into that.
    One of the things that I am a big believer in is value-added agriculture, and ethanol, bio-diesel, other things like that, I am just curious if anybody would like to comment again about how you see that fitting in the solution for agriculture if we are looking for things that we can do in a constructive and positive way.
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    And Mrs. Clayton mentioned, too, and this is a concern of mine—entire rural economy and quality of life issues and health care and all of those other things fit in there, and that means creating jobs and keeping economic activity on Main Streets across our country, and to me it seems, at least, that value added certainly touches a lot of those bases.
    Does anybody care to comment on that issue?
    Mr. NAYLOR. Yes, Representative Thune. We have a member group that just attended meetings in South Dakota recently and they were telling me that the price of corn was $1 a bushel, and, of course, we don't know how low it is going to go this fall, but I think we know some people that have ideas for adding value to that—they are IBP, Tyson Foods. They plan to feed that $1-a-bushel corn to their cattle and they will be making a profit against the farmers that are trying to raise cattle on their farm.
    In Minnesota, they have a program to help farmers set up ethanol plants, but it costs $22 million a year in subsidies to keep those plants going, and one plant, when the price of corn did go up, ended up behind the eight ball and had to sell half of their stock to—I believe it is Cargill, or ADM, I believe.
    When farmers get involved in adding value, I mean, it is a great thing, but most of us are not capable really of competing with IBP or ADM.
    I just do not know what you do with $1-a-bushel corn to make up the difference. If you have any ideas, I would like to hear them.
    Mr. STALLMAN. Well, I think value added is certainly a part of the equation in terms of improving the situation of farmers and ranchers and improving rural economies. There is no question that in the future—and I am getting back to my technological discussion—the new technologies that will be coming out are going to provide real opportunities to provide specific added value to products producers are providing from their farms and ranches.
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    Now, what we need from a public policy standpoint is perhaps assistance, both in developing the structures—perhaps credit, perhaps marketing, education, some of those things that allow producers to retain that value, because that is the key.
    When you are talking about value added, it is very important that, if it is going to help the producers, themselves, that they have to have a structure that brings that value back down to them.
    And are producers going to be able to compete head-to-head with the large companies and the products they market? Maybe not, but there are going to be markets that those companies are not going to be involved in, which will provide real opportunity, and there are some examples of that already that are out there.
    I think, to the extent public policy can encourage that, I think it will improve farmers' economic conditions as well as the rural economies.
    Mr. THUNE. Well, I just would say in closing, Mr. Chairman, that we want to see the producer get the benefit of value added. I do not think there is any question about that. And I do believe that it is helpful if there are incentives in place, and I have introduced some legislation to provide incentives like that to give us a structure in which to do this so that producers are able to take advantage and get the benefit from the additional dollars that are generated by adding value to the products.
    So, this is going to form a great basis and foundation for a lot of discussions that are going to occur in the future, and your testimony has been very helpful, so thank you.
    I yield back, Mr. Chairman.
    The CHAIRMAN. Mr. Pomeroy.
    Mr. POMEROY. Thank you, Mr. Chairman.
    Last night I watched some of baseball's very best put on a fine All-Star game. I am feeling, watching you all, that I am watching some of the most articulate, insightful participants in the farm policy debate held for this morning in this hearing room. I want to commend each of you. Your observations have been well put and very, very interesting.
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    This kind of culminates a series of hearings we have had around the country, as has been mentioned, and our chairman deserves a great deal of credit for throwing the floor open and having a discussion, wherever that discussion may lead, sometimes into uncomfortable places for any of us, but I have felt that this open discussion is terribly, terribly important.
    So many issues, so little time.
    Let me begin with you, Mr. Stallman, and first of all commend you on your election. It was an election that we watched carefully all over the country because we understood that part of the distinction between the two candidates for head of this very important national farmers' organization involved the notion of whether or not there ought to be a restoration of the safety net undergirding farmers, and we were pleased that you won. I would note that North Dakota's delegates I believe unanimously supported your election and basically it was on the safety net issue.
    One of the things that your organization has, over the years, done quite effectively is urge bringing down these sanctions, maximizing market opportunities for our exports on the question of Cuba. We watch that with great interest because of the spring wheat and beans opportunity there.
    Do you support the George Nethercutt efforts on the House side, the Dorgan efforts on the Senate side to basically lift the sanctions to Cuba for food and medicine?
    Mr. STALLMAN. Absolutely. We did everything we could to support Mr. Nethercutt's and Mrs. Emerson's efforts.
    Mr. POMEROY. There are two actually two separate proposals that Mr. Nethercutt ultimately became involved in. The first was basically no holds barred, open her up for food and medicine, and the Nethercutt-Emerson proposal is the watered-down one, no use of financing credit for it. Which one were you for?
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    Mr. STALLMAN. Well, we were, obviously, for maximum opening of that market. I mean, organizationally, that is where we had been for a long time.
    Mr. POMEROY. Right.
    Mr. STALLMAN. Our goal is to get something passed this year to get that crack in the door open. I mean, we have to deal with the realities of what occurs up here on the Hill. Obviously, anything we can do to increase that crack to open that door to American agricultural products we are supportive of.
    Mr. POMEROY. There is an interesting strategic call behind that. I mean, we do not want to basically lend credence to the illusion of opening Cuba without opening Cuba. In other words, if you open Cuba in a way that you cannot sell any goods to them because you cannot finance them, you have not done a thing except you have given people the opportunity to run around claiming they did something, even though we are not going to sell any wheat and beans in there.
    And so, you know, as people with shared goals on opening Cuba evaluate this strategy, I hope we can continue to press for real opening, not just the illusion of opening that market.
    Please respond.
    Mr. STALLMAN. We are in full agreement with trying to do that.
    Mr. POMEROY. Right.
    Mr. STALLMAN. We understand the restrictions that are in place with the current compromise agreement, although we have not seen the specific language. Based on our understanding, there would be some restrictions; however, the people in the industry that we have had look at it, and in talking with some of the Cubans, we think there is still a possibility to get product in there, and we would, I guess, take that as being preferable to keeping the market closed this year, even if it is a little more difficult, even if we have one or two more hoops to jump through, as opposed to not doing anything because once we get in there, once that interaction starts, that market will continue to open, in our opinion.
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    Mr. POMEROY. I am anxious about whether we would bleed off some of the steam that, by the way, is there by majority vote. If this thing was allowed on the floor of the House it would pass. The majority leadership has stopped the House for voting on it for that reason. And what I do not want them to do is bleed off some of the steam for passing opening that important market with the illusion of having done something that really is not going to move much of consequence. But on to other topics—thank you, though, for your comments.
    The hearings have brought, as you know, innumerable opinions. It is hard to poll clarity from them, but I do think that we have consensus support for institutionalizing safety net support for farmers when prices collapse.
    I think your election speaks to that, Mr. Stallman. I think that, obviously, the statements made by Farmers Union and other farm organizations speak to that, as well. So how we do it, we do not know yet, but putting something into the farm program that automatically responds when prices collapse, I actually do think there is consensus support for that. And I also think there is growing risk, if we rely on this year-to-year ad hoc ''pass a disaster bill'' response, one of these years we're not going to be able to pass a disaster response.
    The next Congress is going to be the most—especially after reapportionment—the most urban Congress in the history of the country, and if we do not move now to get this into the farm program, I think we run the risk that we are not going to be able to get our farmers help when prices tank, as they have done, below the cost of production.
    Final issue: that last farm bill established loan rates based on budget dollars, not on what was an equitable loan rate support across commodities. And in doing so I think they did a terrible disservice to the marketplace. You have got a different level of price guarantee behind some commodities over others, and what that does is just what the proponents of the last farm bill said they were not going to do—it makes people plant not by market signals but by Federal farm program structure.
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    Just to tell you what has happened, soybeans points it out very clearly. In 1996, there was something like 65 million acres of soybeans planted, and the price of soybeans was $6.28 a bushel. Now, with the price at $4.70, we have got nearly 10 million more acres planted. So you have got $1.50 coming off the price per bushel and a steep increase, about 20 percent increase in acreage. The reason, of course, is because you have got loan rate support behind oil seeds that is much better than behind the grain, so people are shifting their planting decisions.
    In the end, that is terrible for the Federal budget, aside from what we are doing out in the marketplace, because you have got more and more product behind this where you are supporting at the higher loan rate, and the price goes lower and lower, and the Federal Government has to pay out more and more.
    So what we have to do, I believe, to staunch this problem, staunch this hemorrhage, is come back in and support other commodities at the equitable level, make support for wheat, for example, equitable in terms of covering cost of production that you support the production of soybeans.
    Mr. Swenson and Mr. Stallman, would you speak to that? And then my time has elapsed.
    Mr. Chairman, I appreciate the indulgence of asking this question.
    Mr. SWENSON. Thank you, Congressman.
    We agree. We urge Congress to act before they recess in equalizing those loan rates and using soybeans as a basis on which to bring wheat and corn feed grains in relation to where soybeans are.
    It is distorted. It has distorted the plantings that have occurred. In the State of South Dakota, which is traditionally a large wheat-producing State, we have seen counties now producing more acres of soybeans in the eastern half of the State, where we get some moisture, than what they plant wheat, and they are doing it not because the market signals, but because of the LDP, in addition to their AMTA and AMTA plus payments. It is the only way—on my particular farm, it was the only way for me to meet my debt obligations, and so we planted soybeans. Usually we rotate, but we went to soybeans because that was going to be a return.
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    So I would agree that we have to equalize the loan rates and we need to move on with that immediately and now.
    The other thing I think that is so important is that when you take a look at having loan rates and a viable loan program, it is a marketing tool for farmers. It is a marketing tool. And we need to make that a viable program and a beneficial program for producers to deal with in a shrinking, shrinking competitive market system because of concentration.
    Mr. STALLMAN. There is no question that, given what has occurred with the soybean production and acreage, that the loan rate has impacted that greatly. I think we all recognize that. Organizationally we still do not support changing the loan rates at this time, although I will tell you we are discussing internally that particular discrepancy.
    But there is a lot of discussion about doing the re-balancing in the context of wheat, corn, soybeans, and those traditional relationships, but then you look at other loan rates—and being a rice producer I am going to tell you right now the loan rate for rice is way out of whack, too, if you want to consider that.
    So the question is: what do we do? And then, even if we do it, it is not a static model we are dealing with. It is not a model of adjusting them one time and saying it is going to be fixed, because as you adjust those the resource allocations across the country will change because of regional differences in production cost, and then once again over time you will initially drift out of balance again if you are just talking about a one-time adjustment.
    So at this time we are not prepared to move forward with that. We are discussing it.
    Mr. POMEROY. A national organization has divergent views within its membership, and I understand that. I would just note that the North Dakota Farm Bureau members who voted for your election in their testimony in Sioux Falls note, ''An equalization of loan rates is required. The North Dakota Farm Bureau supports raising loan rate for corn and wheat to the same percentage as soybeans.'' We do not promote lowering the soybean rate. I want to make that clear. We are not talking about that. So listen to the Nodaks and you are going to do pretty well as you evaluate your policy.
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    Thank you very much.
    Thank you, Mr. Chairman.
    The CHAIRMAN. That is why it is so easy to make farm policy.
    Mr. Boswell, did you have follow-up questions?
    Mr. BOSWELL. I did, and I did not give up. Thank you for what you are doing, again.
    Mr. Stallman, I am going to go with the other three, as I promised I would, but you just made a statement. I think I heard you say that you are going to keep discussed the loan rate situation? Did I hear you say that?
    Mr. STALLMAN. Well, we are discussing with respect to the imbalance that apparently is there now, with the soybean loan rate driving planting decisions. We are looking at it from that context. We are not looking at it, at this point, long term in terms of increasing loan rates to a level that some have suggested as a ''income support bill.''
    Mr. BOSWELL. Okay. I appreciate your saying that. I brought this question up here and other places, but your membership has brought it up to me as I travel across my 27 counties, and so I would just encourage you to be open to at last discussing it, because they are bringing it to me continually.
    I will just leave that with you for your judgment.
    I have told the rest of the panel that I would give them an opportunity. You have touched on it, so maybe you are satisfied with it, but what you think about raising the loan rate and farmer-owned reserve and storage and so on, so here is the opportunity. I thank you for your yeses and nos, but we will start with you and hear what you have to say about it.
    Mr. SWENSON. Thank you.
    Mr. BOSWELL. And maybe you can be brief this time because you have touched on it.
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    Mr. SWENSON. Sure. Again, we support equalizing initially and we would urge that we look at adjusting the loan rate based on the 1994 to 1998 average, so we would support increasing the loan rates in the future.
    We support a farmer-owned reserve program, a limited farmer-owned reserve program, so that it is a functional tool for farmers to use, but does not become that dreaded past structure of a reserve program that is a market depressant.
    Mr. BOSWELL. To dialog, I will put a limit I will just pick out of the air, but say the individual farmer, some bushel rate, like 15 or 20——
    Mr. SWENSON. Yes, you would have a limitation.
    Mr. BOSWELL. And over that they go on the free market?
    Mr. SWENSON. That is right. But, again, it is a voluntary thing that farmers would choose to participate within.
    Mr. BOSWELL. Yes.
    Mr. SWENSON. It is not a mandatory type of intervention by the Government.
    Mr. BOSWELL. That is interesting, because—back to you, Mr. Stallman. I am not picking on you, because I think you are all right and I have told you that before, but one of your Farm Bureau members was proposing to me just the last few days, has been very active in the bureau, this very thing. It is interesting.
    Go ahead, Mr. Swenson.
    Mr. SWENSON. Well, I think, to complement that with an energy reserve program, of which commodities could move under, provide a variety of tools in the structure of the new farm program that would help bring a better price in the market, and then we need that mechanism of support if the price goes down to provide counter-cyclical support, because there are many factors that bring the price down that were totally beyond farmers' control, and we need to make sure that that support is there.
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    Mr. BOSWELL. Thank you.
    Mr. Watson.
    Mr. WATSON. As we have commented, we do support bringing loan rates more toward production cost application, equalizing them so that we do not have necessarily over-incentives to produce one product over another, though I will point out that, in our view, the most effective, efficient, and equitable supply management program is one where the farmer gets to choose to switch from one crop to another because there is a better price involved. Ultimately, that is the best and most efficient supply management program.
    So when we are talking about affecting prices related to loan rates and things like that, we do not want to lose sight of the fact that having the flexibility to be able to plant various products is an important management decision by the farmer and one that we want to keep with them, rather than sort of locking them in again into producing particular products.
    Mr. BOSWELL. George, before I go to you, I would just say, for the chairman's benefit, I have known this—I used to call him a ''young farmer.'' I knew him when he was a very young farmer.
    Mr. NAYLOR. I was once.
    Mr. BOSWELL. He is starting to show a little age. I will just say this: I have never seen anybody more fervent in trying to look out for the family farmer. He has been consistent and he has worked hard on it ever since he first put his hand in the soil, which is probably about the time I met him. He lives quite a way from my district, but I have an acquaintance and awareness of his efforts and concerns for some time, and I just thought I would throw that in. I did not invite him here. I was surprised he was here today when I found out he was on the list. That is good.
    I didn't realize you were going to be here, George.
    Mr. NAYLOR. Thanks, Representative Boswell. It is always fun to talk to you. We always have a good conversation.
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    Mr. BOSWELL. Sometimes we do not always agree, but, nevertheless, we have good conversations.
    Mr. NAYLOR. That is right.
    And I am about the age of the average farmer in Iowa, which is 52.
    There have been a lot of issues I would like to touch on here. Getting back to the Cuba thing, you know, Cuba is a little island. Something tells me that the traders on the Chicago Board of Trade are not going to say, ''Oh, gee, now we are going to send a few thousand or million bushels to Cuba and so we are going to raise the price of wheat to people in North Dakota or South Dakota.'' That is really not realistic. Even markets in China are not going to make a big difference in the price of grain we have.
    With this farm program there is not any floor under farm prices, so you have to ask the question about this farmer-owned reserve. I mean, it is easy to talk about how a farmer-owned reserve can help, but we also hear from farm organizations, ''Well, we do not want the farmer-owned reserve to raise farm prices.'' Well, then, what is the farmer-owned reserve for? And if it is to raise farm prices, we would have to have a discussion about how much we want to raise farm prices. We would have to say that there is a goal to put a floor under farm prices. If you do not do that, then we have no idea how much grain the put in a farmer-owned reserve and what its purpose is or at what point does that grain come back on the market.
    Those are questions that have to be asked. Otherwise, talking about farmer-owned reserve is really an exercise in futility.
    Getting back to wheat, for instance, if you read the commodity advisor reports that I get, they say that world wheat stocks are actually very tight. Well then why is the price of wheat so low? Well, because the people that buy wheat know that there is just enough wheat to have a day's supply coming into the mills day after day after day. We are not afraid of any shortage, to speak of, and so the price can be very low.
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    Farmers are not going to get a price for their grain unless we, as a society, put a price on that grain for them, just like a big retailer puts a price on the product that they have on the shelf. That is what the price support does. That is what the non-recourse loan does. And once we know what the value of that grain is, then we can say, ''Okay, yes, let's have a reserve and let's not let that reserve depress prices. We are not going to bring it on the market unless we actually have an emergency that we need that grain for.''
    So unless you have a price on grain, unless we know that you are going to regulate the price and the supply of grain, there is no really need to talk about a farmer-owned reserve. It is not going to help a thing.
    The whole thing comes as a package. That package worked quite well. As I quoted Representative Cooley in 1957, it cost the Government nothing to have a price, a fair price under farm commodities. Along with that support price on grain, we had a reserve. It was called the ''Ever-Normal Granary.'' Farmers were allowed to adjust their production so that we didn't have burdensome supplies. That was up until 1953. After 1953, price supports were allowed to decrease, and that is when we got burdensome supplies. Farmers could not do anything with prices going down except to increase their production.
    So we need a farm program that makes sense. Everybody around the world knows what kind of farm programs make sense. It is just a matter of whether we have the political will to serve family farmers and the environment or whether we are going to serve Cargill and ADM.
    Mr. BOSWELL. Thank you, Mr. Chairman.
    Mr. SMITH of Michigan [presiding]. With your indulgence, I would like to ask a couple more questions.
    One is the area of concentration—concentration of not only those elements that buy the produce of agriculture, farmers and ranchers, but also the concentration in terms of those that sell the input products to agriculture.
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    Do any of you have any specific suggestions, or are you prepared today to suggest that the extent of the concentration approaches a monopoly situation that should be controlled? We will start with Mr. Stallman and go down the line.
    Mr. STALLMAN. Well, we have worked on the concentration issue in other forms and on other legislation. We are concerned about the concentration that is occurring in the industry, both from the input side and from the purchasing side.
    Having said that, our solution at this point is to be sure we have adequate funding and personnel at the Department of Justice and people focused on agricultural mergers and acquisitions to do the necessary analysis to be sure that our current antitrust laws are not violated and that there is a competitive market.
    Our concern is to be sure there is a competitive market, and then there has to be an analysis of that in the Department of Justice with assistance from USDA and their capability to analyze agricultural mergers and acquisitions and the effect on the marketplace. We think they need the resources to be able to do that.
    We are not prepared to say big is bad. It is happening across all areas.
    Mr. SMITH of Michigan. Do you think there is a competitive market today in terms of either the concentration of those buying from farmers and ranchers or those selling to farmers and ranchers?
    Mr. STALLMAN. In most cases yes, I do think there is still a competitive market. It may not be the market that we have had in the past and it may not be the market that producers like to have to deal in, but there is competition occurring still in the marketplace.
    Mr. SMITH of Michigan. Mr. Swenson?
    Mr. SWENSON. Competition has diminished significantly not only on a national and a global basis, but especially as we get down to regions and States.
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    In the input area, we have more and more control of new technology by fewer and fewer corporations, and if they haven't vertically integrated into the processing and trading sector they have created alliances, and so they have even significantly diminished competition by alliances that they have created, so we are very concerned.
    We believe that the Department of Justice needs to look at the issue of concentration for more than just a concept of economics. What is also the impact of the whole structure of rural America to small business and to the structure of production agriculture?
    And so we believe there needs to be more aggressive enforcement. We have asked the Judiciary Committee to hold hearings. If we thought the farm program was 60 years old, many of our antitrust laws go back to the turn of the century, and so we need to make sure that they are reviewed, as well, to make sure they are meeting the situation that exists today and the global economy that has unfolded, and I am not sure that they are structured to deal with that.
    Mr. SMITH of Michigan. Well, Mr. Boswell and I and many others have requested that inquiry, and there very well may not be a technical violation, but I think most farmers agree with their reduction in terms of the amount of choice they have of who they buy from and who they sell to and the effort now to include the chemicals, and if you buy your chemicals and your seed then you get a better deal on both. I think it should make us all very nervous.
    A quick comment, and then we will go down the line.
    Mr. SWENSON. A quick comment on that. It goes even to the financing structure. Many producers find themselves unable to access operating capital from the traditional sources because that has become so concentrated that they find themselves in the contract production agriculture, and so it goes from the very beginning in the structure of agriculture all the way through to the area of concentration and who is doing international trade.
    Mr. SMITH of Michigan. And Mr. Watson?
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    Mr. WATSON. I would also point out that, as the famous line from the comic strip ''Pogo,'' ''We have met the enemy and he is us.'' A large part of the trend in concentration in agricultural supply and purchase has also followed the fact that we have had a significant concentration in the production resources which have been in fewer and fewer family farm hands, so the suppliers and the purchasers are following the market. They are following the concentration of agricultural production resources, as well.
    Now, is there a synergistic going back and forth between that? Probably. But they feed upon each other, in a certain sense.
    I think we need to look at how we have concentrated production resources in agriculture and how that is affecting the overall supply and chain.
    The second part, related to antitrust action, a significant portion of antitrust law is basically by court decision, and one of the interesting aspects of the Microsoft case is that we finally have had the Department of Justice and a number of State Attorneys General willing to step forward and bring a case, and, at least at the district court level, win a case on the basis of the fact that the consumers were not hurt economically but that the general issue of competition was being impacted by the business practices of the company in question.
    So we think, from that example, that there might be some opportunities. If not at the Federal level, we are willing to talk to some aggressive State Attorneys General who are not afraid to bring this kind of action, as well.
    Finally, as a form of sort of direct action, we might propose looking at opportunities to do some shareholder work, some shareholder resolutions at some of these companies that has the management get out and have to explain their programs and policies and how they are affecting farmers in rural America.
    Mr. NAYLOR. Yes. Well, given the concentration of economic power of our major corporations, more and more the benefit of scientific advances because of their patents and because of their ability to use resources for new research at the exclusion of many other smaller companies, or even the exclusion of our colleges, these benefits accrue to those corporations, and clearly they are going to say, ''Oh, we are going to help feed the world. We are going to help family farmers.'' But no, that is not really the case. They are only interested in increasing their bottom line and their economic stranglehold on family farmers and consumers around the world. It generally helps them to vertically integrate.
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    Our coalition is particularly concerned about genetically modified organisms. We feel that these have been released on the market without thorough testing. The public, the international public, consumers are being put at risk without knowing what these will do to our health or the environment. And it also contributes to the economic concentration that will end up making farmers contract producers, which some economists have referred to as making farmers serfs on their own land.
    We are very concerned about this. We think that land grant colleges, for instance, should be funded so that they can conduct research that will benefit society and not just these major corporations.
    Mr. SMITH of Michigan. I am going to ask each of you to, if you have any additional comments as we wrap this up, to go on the record that we will be reviewing, as we start developing our new Federal agricultural policy next year, but also if any of you have any comments we will probably review it 5 years from now to see how accurate it was after we develop these products.
    Mr. Naylor, I just want to briefly comment on the new biotechnology and genetically-modified foods. As chairman of the Basic Research Committee in Science, we have held three very intensive hearings here in Washington. We have traveled across the country talking to scientists. And the conclusion of essentially all scientists is that the new biotechnology of being able to characterize and isolate one or two genes and know the effect of those genes as you transfer them over is as safe if not safer than the traditional technology of cross-breeding where you take 20,000 to 25,000 genes of one plant and then cross breed it through a hybridization or other means not knowing the result of which genes are going to be interactive in that resulting plant.
    And so I think, between FDA and USDA and certainly EPA, we have the kind of regulatory and review system that is so much more sophisticated and intense than any other place in the world that it has resulted in criticism that we are over-regulated and we are stifling the development of this new biotechnology.
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    Mr. NAYLOR. Sir, could I respond?
    Mr. SMITH of Michigan. Yes.
    Mr. NAYLOR. I think you should know that the Food and Drug Administration chose not to regulate genetically modified organisms.
    Mr. SMITH of Michigan. No, that is not correct.
    Mr. NAYLOR. Well, that is correct. I am sorry. I have studied this issue.
    Mr. SMITH of Michigan. Well, I have had about six hearings on it.
    Mr. NAYLOR. The FDA chose a voluntary registration of these products, but the companies do not have to provide any testing to prove that they are safe when consumed. There has been no animal testing that has been made public. I will be glad to let scientists that I know of from Harvard University and around such as the University of Minnesota, for instance, talk to you to explain why there is some concern.
    Mr. SMITH of Michigan. Please do that. We are not going to debate it, but FDA has simply said they are not going to regulate a genetically modified product any differently than they regulate all other food products, so they are not going to regulate based on the process which that plant was developed, but rather they are going to review and regulate and cause testing based on the end product. And I would be glad to talk, and we will talk about that later——
    Mr. NAYLOR. How would you know——
    Mr. SMITH of Michigan [continuing]. And find out what the real truth is, but right now we are going to finish this up and go down the line if any of you have a concluding statement.
    Mr. STALLMAN. Just briefly, Mr. Chairman, I think the discussion we have had today plus the hearings in the countryside point out that a one-size-fits-all solution is not possible with American agricultural policy. I think we also understand the importance of having a viable agricultural production industry in this country, both for the benefit of the consumers and for the security of this country, and that also is important for the rural economies of this country.
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    I will tell you as an organization that we look forward to working with this committee as we go forward to develop that set of policies that will be beneficial to American agricultural producers.
    Mr. SMITH of Michigan. Mr. Swenson?
    Mr. SWENSON. Thank you. And we commend you for the hearings that you held in the country as well as the hearing today.
    Let me just say it points out that there is a problem in rural America and that change in current farm policy is needed, and we look forward to working with you in the development of that policy long term.
    I want to close and just emphasize to you in your leadership as a member of this committee and, Congressman, yours, that there is action that needs to take place before Congress recesses.
    When you take a look at the unfolding disaster that is occurring in parts of the country and the economic hurt that those producers are being impacted by, this Congress is going to need to take action before it recesses to provide disaster assistance.
    We also need to take and address the issue of the inequities in the commodity loan rates and we need to extend the dairy price support program and give full consideration to giving an increase in the dairy price support program before year end.
    We also need to take a look at the issues that are before this Congress in the law to prohibit packer ownership of livestock and the enactment of the Contract Producers Bill of Rights. And I would also urge you to take a look at country of origin labeling.
    The other thing is the full utilization of non-distorting export tools in all of our markets, including those that are subject to unilateral sanctions. I want to emphasize that sanction reform needs to provide real benefit to producers, not just a facade of benefit but real benefit if we are going to have a sanction reform.
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    Those are the issues that we think can be addressed in the short term and need to be addressed, along with working with you on the long-term institutionalizing of a farm program. Thank you.
    Mr. SMITH of Michigan. Mr. Watson?
    Mr. WATSON. Mr. Chairman, for more than 133 years the National Grange has been involved in farm policy debates in this Nation. If there is one thing that our records and testimonies and reports over that time shows us, it is that change is always going to be with us with agriculture and agricultural policy. It is never going to sit still.
    One of the proverbs that we have in our basic program is that ''Nature's Motto is Onward.'' She never looks back. And so, just as agriculture at the turn of the century in 1900 looks a lot different than it does today, we can be sure that over time things are going to change.
    What we have garnered, though, is a basic philosophy that the best policies are those where we give farmers the choice and the decision-making authority to make the best decisions based on their individual circumstances, based on their economic conditions, giving them the flexibility to react to markets, to regulations, to family situations, and a whole wide range of products.
    I think the one aspect that we haven't talked about that I think is going to be critical in the time coming is that we are going to have to address at some time in the near future the issues of a generational transfer so that we do have changes, that we do have a new generation of farmers beginning to take over the productive capacity and resources. They are going to feed the world and feed our country.
    The average age of a farmer today is somewhere between 55 and 57 years old, according to the Census, which means some time in the next 10 years a lot of them are going to want to be moving those assets to a new generation.
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    If we get that right, as well as the other incentives and programs that my colleagues today have talked about, then we are going to be, I think, well placed for the 21st century to continue the U.S. leadership as the most productive and efficient agricultural nation in the world.
    Mr. SMITH of Michigan. Mr. Naylor.
    Mr. NAYLOR. Yes. I believe any discussion of agricultural policy has to focus on the corporate control of our agriculture and our food supply. I just read recently where a large ketchup company was concerned about its share of the market at 42 percent, and so you would think maybe a ketchup company that was concerned about the consuming public would say, ''We have the most nutritious ketchup. We use the freshest tomatoes. These tomatoes were raised by family farmers. We made sure that they did it in an environmentally sound way. And we are concerned about you and the environment.'' But no, what did they do? They are going to advertise their new ketchup on kids' cartoon shows. They are coming out with green ketchup. Now, that tells you a hell of a lot about how our food supply is being managed. And for whose benefit?
    If we look at the history, my parents and my grandparents have been farmers since before the turn of the century, and in the 1920's they joined with other farmers. They were Farm Bureau members at the time. And they were demanding that the Federal Government do something about farm prices. And the first farm program that came about in 1933 set a floor under farm prices and helped farmers manage their supply. That was because farmers demanded it, and that is why we have family farmers in this country today.
    Unless we do something about the basic supply and demand through a decent farm program that puts a floor under farm prices, we are not going to have family farmers in this country some day, or the family farmers that are left will be nothing more than serfs.
    The theories that Freedom to Farm was based on were clearly false. They had no basis in rational economic theory. Freedom to farm is simply about corporate power. And we can no longer base farm policy on false promises that only increase corporate profits, benefit the vertical integration of factory farms, and spell doom for family farmers and the environment. Thank you.
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    Without objection, the record of today's hearing will also remain open for 10 days to receive additional material and supplementary written responses that you might send in or might be asked to respond to.
    Again, thank you very much. This hearing of the House Committee of Agriculture is adjourned.
    [Whereupon, at 1:43 p.m., the committee was adjourned, subject to the call of the Chair.]
    [Material submitted for inclusion in the record follows:]
Testimony of George Naylor
    My name is George Naylor. I am a family farmer from Churdan, IA and a member of the Iowa Citizens for Community Improvement (Iowa CCI). I am pleased to be here today representing the National Family Farm Coalition (NFFC). I have been farming for over 25 years and raise corn and soybeans on 560 acres in Iowa.
    We believe that if American voters were asked who should raise their food: family farmers or factory farmers, they would clearly vote for family farmers. If they were asked who they trusted to take care of our air, water, biodiversity, and beautiful countryside, and who they trusted to produce safe, high quality, healthful food, they would say family farmers. Also, without question, there are more family farmers in your districts than factory farmers—family farmers are voters, too. The National Family Farm Coalition concludes, therefore, that if democracy is to mean anything in this great republic, Congress must legislate a system that supports a future for family farms and assures that the Nation's food is produced on family farms, not factory farms. We ask you today to end the madness of the so-called Freedom to Fam Act and support provisions of a new farm bill we call ''The Food from Family Farms Act.''
    Some people, even some farmers, believe it is too late to change the sickening trend toward factory farms and the increasing corporate control of our food supply. The National Family Farm Coalition believes now is the time to change the direction of our failed farm policy. We need to have food and farm policies that encourage young people to stay on the land or return to the land. Every year our communities send young farm people to agricultural colleges with their secret hope that they might return someday to become family farmers. Many farm families own land and rent land that could be turned over to this next generation except for one thing: farm prices are too low to make a living. There is no sense in letting this situation, along with our crumbling small towns and polluted landscape, get any worse. Let's join together to make the year 2000 the beginning of the end of factory farming and the beginning of a hopeful future for family farmers, the consuming public, and our forsaken countryside.
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    Let me make one thing clear. If we are to have a family farm system in this country, it is farm commodity prices that need raising, not more direct government payments—a record $32.3 billion this fiscal year. If farm prices were raised so that the corporations that make record profits from buying these cheap commodities were paying a fair price in the first place, then the $32.3 billion could be spent on many other important national needs. We spend only a little over $4 billion on Head Start for instance. We could also make conservation grants and low interest loans to young people returning to the land to farm in sustainable, earth-friendly ways.
    Before we address the issue of how we can raise farm prices, first we must deal with some myths. It's been over 20 years now since I served on the first Iowa Corn Promotion Board. The Farm Bureau and the commodity groups said if we just increased exports and developed new uses for our corn we'd get higher prices. Well, it hasn't worked yet, and believe me it won't work ever. If there were an incredible increase in demand, agribusiness would lobby for more land brought back into production out of the Conservation Reserve Program (CRP) and an increase in imports. If that time ever came, we would be destroying our land and polluting our water even worse than we are today. If the stark contrast of $2.00 per gallon gasoline versus $1.50 per bushel corn doesn't tell us something, I don't know what will. The OPEC nations and the handful of giant oil companies make giant profits. The handful of giant agribusinesses turn our $1.50 corn into feed for their factory farm livestock all over the world while the next bumper crop under Freedom to Farm projects even lower prices and consequently lower livestock prices. Dairy farmers' prices have plummeted to record lows while the dairy processors and food companies reap record profits.
    Despite the promise of increased exports, research by the American Corn Growers Association (ACGA) (www.acga.org), one of our member groups, and the Agricultural Policy Analysis Center at the University of Tennesee (http://apacweb.ag.utk.edu/) has shown that increased export volume has not resulted from lower and lower grain price policy. Exporting grain at less than the cost of production provides no benefit to our Nation's economy. Likewise, ACGA research has shown that consumers don't even benefit from cheap farm products. Retail food prices have increased 235 percent since 1975–79 while farm gate prices have remained nearly steady or declined. Today's cheap grain prices and multi-billion dollar government expenditures only benefit the burgeoning profits and vertical integration schemes of the agribusiness giants.
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    The second Freedom to Farm myth is that farmers can adjust their production in response to prices. While a few farmers may be able to shift acres from one commodity to another, low prices will not result in cutbacks in aggregate production. In fact, farmers facing lower prices have only one option to maintain their standard of living, pay their bills and service their debt—produce more if possible. In the field of development economics this phenomenon is known as the ''poverty-resource degradation cycle.'' What has occurred in our country is that cheap corn and soybean meal have encouraged production of chicken, pork, beef, and dairy on factory farms. Family farmers who were raising livestock in a less intensive, more environmentally sound, manner have quit raising livestock and plowed up their pasture and hay to plant more corn and soybeans! This vicious circle must be stopped. U.S. farmers have increased soybean acres nearly 20 percent, or 12 million acres, since the passage of Freedom to Farm.
    Can anyone here argue that abundant crops should dictate disastrously low farm prices and the loss of efficient family farmers and rural communities? The theories behind the passage of Freedom to farm were clearly false. If the $2 per bushel nonrecourse loan rate in 1978 (the price floor), the year I served on the Iowa Corn Promotion Board, were adjusted for inflation, corn would be over $4.75 per bushel today. Instead, Freedom to Farm has completely eliminated the floor under farm commodities and necessitated multi-billion dollar government payments to simply keep the farm economy from collapsing. We can no longer base farm policy on false promises that only increase corporate profits, benefit the vertical integration of factory farms, and spell doom for family farmers and the environment. The inefficiencies of corporate agribusiness must be exposed.
    Just like the ''Roaring Twenties'' did not prevent a severe farm depression, then neither has the exuberant nineties lifted the modern farm economy out of depression. In fact, the recent announcements of increased corn and soybean acreage along with welcomed rains have sent prices plummeting with no one able to speculate how low prices may go. This is because of the ''marketing loan'' feature of Freedom to Farm, which replaced nonrecourse loans which set a floor under prices from the time they were established in the first farm program in the fall of 1933. With the marketing loan farmers can pay back the loan at the ''Posted County Price'' and dump their crop on the market no matter how low prices go.
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    The National Family Farm Coalition looks to the lessons of history and the earlier success of farm programs that were crafted from the demands of earlier generations of farmers to fashion the features of our ''The Food from Family Farms Act.''
    First, there must be a price floor established under the basic storable commodities through the use of the nonrecourse loan. Since many of these commodities are feedstuffs for livestock, they indirectly establish a floor under livestock prices. A two-tier dairy supply management program would be established for dairy production with the price set more closely to the cost of production. When commodity prices more nearly reflect the true cost of production, we can expect a return of livestock production to family farms. The loan levels will be set to reflect a more prosperous time as in the 1970's and be adjusted for inflation and changes in productivity. The nonrecourse loan results in the buyers of grain paying a fair price relieving the taxpayer of their role of supporting farm income with huge government payments. For those farmers receiving a government payment, most receive only a fraction of their losses. It is not economically sustainable for either the farmer or the taxpayer.
    Second, if we are blessed with a bumper crop, surplus production should not be dumped to depress markets. Grain under loan can be placed in a Farmer Owned Reserve (FOR) with commercial storage rates paid to the farmer in advance. These stocks can be brought back on the market only at 125 percent of the loan rate and will provide food security for the Nation and prevent natural disasters from driving prices so high as to undermine our reliability in export markets. The cost of storing these food security reserves in the FOR is minor compared to recent Freedom to Farm payments. An international grain reserve should be established to address food security needs on a global level.
    Proposals, like the ''Flexible Fallow Program'' that attempt to raise prices by cutting production without providing for reserves or clearly stated price floors will create unbearable uncertainty and insecurity for the nation.
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    Thirdly, all-out, fencerow-to-fencerow production must be avoided if technology and mother nature gives us more than enough production at established loan rates. Short term inventory management and planting flexibility can be maintained within a Tillable Crop Acreage base that allows land to be seeded down for conservation and avoidance of wasteful over production.
    Finally, we believe that a farm program like the Food from Family Farms Act with a clearly stated goal of fair prices for farmers will eliminate the need for ineffective and costly crop insurance programs. This nation needs its family farmers and can easily afford a straight forward disaster payment program when the natural disasters devastate the countryside.
    In mid-March, I joined thousands of farmers from across the country at the Rally for Rural America here in D.C. I came with my family to urge immediate action in response to the deepening crisis affecting our farms and our rural communities.
    In conclusion, I'm here today speaking as a farmer and a representative of Iowa CCI and more than 35 other farm and rural organizations that are part of the National Family Farm Coalition.
    We are unanimous in our opposition to current farm policy and the need to replace Freedom to Farm with a farm program that ensures farmers a fair price from the market.
    There is no reason—except corporate greed—that the American taxpayer should be forced to pay $30 billion a year to prevent a total collapse of the farm economy. While agribusiness giants declare record profits, while factory farms feed their animals grain that costs them less to buy than it costs me or anyone to produce, while taxpayers ask why each year tens of billions of our tax dollars are pumped into the farm economy, while family farmers continue to struggle to stay in business while producing the Nation's food and protecting our environment. While all of these things are happening, America's farmers and other citizens are getting more and more vocal about what we need.
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    We need Congress to enact the Food from Family Farms Act now.
    On behalf of family farmers who are struggling to stay on their farms and in their communities, I appreciate this opportunity to present these concerns to you today. I am more than happy to answer any questions. Thank you.
Statement of the National Farmers Organization
    The National Farmers Organization represents independent producers nationwide in negotiating contracts and other terms of trade for grain, livestock and dairy. We are in the marketplace doing so on a daily basis. The specific purpose is to help independent producers extract the dollars they need to cashflow their operations, pay their expenses and earn a living from what they produce and sell.
We define an independent producer as one who with his or her family resides on their farm, provides day to day management, decision making, controls the marketing of the production, whose capital is at risk, and owns or wants to own that business.
Our basic premise is that an agriculture consisting of independent producers is not only desirable, but also essential for maintaining our Nation's food production, rural businesses and communities as well as infrastructure.
    Farm Income in a race to the bottom. Farm income in 2000 is forecasted by USDA to be 20 percent below 1999 and the lowest since 1986. USDA's most recent 10-year baseline farm income projection for 2000 and beyond indicates that farm income will continue to decline sharply into 2001 buoyed only by massive infusions of government payments to farmers. It will be late in the decade, 2008 and beyond before farm income even equals the peaks of the late 1990's. The Food and Agricultural Policy Research Institute (FAPRI), Ames, Iowa suggests farm income will not recover until 2005. The report notes, ''Agriculture's outlook for the coming decade is generally gloomy with the exception of a few bright spots for cattle farmers and consumers.''
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    Price projections from the March 22, 2000 USDA Agricultural Outlook are that, ''Prices for soybeans in the 1999–2000 marketing year are expected to be the lowest since 1972–73; cotton prices so far have been the lowest since 1974–75; corn and wheat prices are expected to be the lowest since 1986–87; milk, the lowest since 1990–91; and rice the lowest since 1992–93.
USDA forecasts that household income from farming in 2000 will average less than $3,000 per household.
    U.S. export growth and world trade share is stagnant or declining to 2007 The 40-year period from 1960–2000 shows that U.S. export growth and share of world trade declined and will continue to decline (Table 1-Summary of U.S. and global export growth, ERS-USDA and Status of U.S. Agriculture, Commission on 21st Century Agriculture, December 1998 p. 64).
    Low farm prices don't equate to more exports. According to Dr. Dr. Daryll Ray, Agricultural Policy Analysis Center economist, The University of Tennessee-Knoxville wrote in the ''Spring 2000 Policy Matters'' newsletter, ''Since the mid-eighties (seventies), grain demand has been driven by domestic demand, not exports. Does this necessarily mean that exports could not take off again like they did in the 1970's? No, but the fundamentals that drive world-wide grain supply and demand do not point to exponential growth of grain exports in the next few years, although in 10 to 30 years they may (p. 10).'
Unless we defy 40-year downward trends in exports rather quickly, U.S. farmers and ranchers need not look to the world markets for total salvation. They may help, but let's not expect miracles as promised by some.
    Biotechnology won't save U.S. farmers. USDA's March 22, 2000 opening statement in a special article on biotechnology is, ''Market prospects for genetically-modified crops are tinged with uncertainty.''
    ''Who really benefits from genetically modified grains and oilseeds, milk induced by BST and beef grown with hormones?'' Dick Lehnert, Michigan Farm and Country Journal, consulting editor, posed this question. He further wrote, ''Farmers think they do because the cost of production seems to be lower. However, the real beneficiaries are the companies that sell you the seed, the herbicides and the hormones and the companies that buy your production. They can buy your production cheaper because you produce more and flood the market. And most importantly, these companies are all the same - the input sellers and the product buyers are the same or all linked together. They are the companies that merchandise grain and meat all over the world. To them, uniformity is a huge advantage. But to you the farmer, it is not an advantage because it traps you in a low-value, ubiquitous commodity world'' (August, 1999 p. 58).
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    Concentration in agribusiness is at its highest levels in the 20th century. The Smithfield Foods-Murphy Family Farms merger and Cargill-Continental are just two examples of the concentration of economic power and market signal distortion taking place in agriculture. Concentration levels for the four or five largest firms is at 83 percent for the four largest beef packers, 57 percent for hog slaughter 59 percent for grain port facilities and 80 percent for soybean crushing.
    Farmers need markets that are open, fair and competitive. USDA's Small Farm Commission cited the single most critical component to the survival of small farms is the price received for the product produced and that will be critically important in the 21st century. The Commission report goes on to state ''the Commission feels strongly about the need to give additional emphasis to the issues of market competition enforcement'' (Policy Goal No. 3). Enforcement of the Packers and Stockyards Act and antitrust laws by the Justice Department is essential to a healthy market structure for livestock.
    It is government's role to do for farmers what they cannot do for themselves and help out in times of disaster. A farm program should be designed to operate in a supportive fashion while producers seek to balance production with market requirements and bargain collectively for profitable prices. An acceptable farm program would be one designed primarily to stabilize prices at a reasonable level and assure consumers of an adequate supply of nutritious food. It should not be an income relief proposition forcing producers to depend upon checks from the U.S. Treasury.
    In calendar year 2000, government payments, without any new legislation, will likely exceed $17 billion, the second highest ever (USDA Outlook, March 22, 2000).
    National Farmers Organization believes the following four items are most important: Funding for low capital value-added demonstration and research projects. Farmers need to be able to capture more of the value of what they produce out of the market channel. Funding is needed for projects that enable farmers to capture more value out of the marketplace that require low farmer capital investment. Many of the proposals and much of the funding today focuses on projects such as processing facilities, developing market packaging, labeling and distribution systems that require a high investment of farmer capital in those ventures that are often high risk.
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We believe there are opportunities for producers to supply, contract for processing and deliver animals of a specific quantity, quality and consistency to meet specific market needs. What is really needed is funding for these types of projects that are low cost, return more value to producers and minimal off-farm capital investment.
    Enactment of Flexible Fallow Program. The basic premise of flexible fallow is to give producers the option to voluntarily idle a portion of their acreage in exchange for higher loan rates on their remaining production.
Set-aside rates under the program are calculated as a percent of the planted acreage of that crop. Producers can choose to participate at any level between zero percent and 30 percent.
The Food and Agricultural Policy Research Institute (FAPRI) projects producer participation to be high in this type of program and could potentially increase net farm income by $4.8 billion.
I have attached the Executive Summary from the FAPRI study of the Flexible Follow Program. (Exhibit A)
    Packers and Stockyards and Antitrust enforcement activities to better farmers' position in the marketplace need to center on four major areas.
    Enactment of necessary funding for legal and research staffing of both the Packers and Stockyards Administration (GIPSA) and the Justice Department's Antitrust Division for agricultural issues.
    Establishment of a Packers and Stockyards Administration/Justice Department producer advisory board to advise on the concerns and needs of independent producers. A majority of the board should be independent producers.
    The Secretary of Agriculture and Attorney General should take the necessary steps to enforce the provisions of the Packers and Stockyards Act and antitrust laws to ensure that prices are determined in open, fair and competitive markets. There needs to be control over acquisitions and mergers that negatively impact competition. A great deal of the lack of enforcement of laws to enforce competition in the marketplace, such as antitrust laws and Packers and Stockyards Act, stems from the attitude of regulators and their interpretation of the law.
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    The Packers and Stockyards Act needs to be amended, to assure that poultry growers have the same protections against unfair and deceptive trade practices as do the producers of red meat. According to GIPSA, the agency that enforces the packers and Stockyards Act, the number of complaints from poultry growers is increasing, and their authority to address these concerns is minimal. There is no justification to deny poultry growers these basic protections.
    NFO supports the enactment of legislation that would bar packers from owning livestock prior to the time of slaughter.
    Legislation regarding use of collective bargaining in contract production.
    As a national agricultural bargaining organization, we understand the importance of encouraging producers to form alliances, so they can speak with a louder, and more unified voice in the marketplace. If each producer is left to fend for themselves in price negotiations with large processors or buyers, they are at an extreme disadvantage. However, if they join together, their leverage in the marketplace is greatly enhanced.
    In general, NFO believes that bargaining should remain a private-sector enterprise, with little Federal involvement. However, there are some instances where the Federal Government should play a role. Specifically, in the arena of contract production. Historically, we think of contract production being a model in the poultry industry, where over 90 percent of the value of production is done under contract arrangements with farmers. However, this is no longer confined to poultry. The pork industry has moved rapidly toward a fully integrated, contract system during the past 4 years. Other commodities that have started down that path are identity-preserved grains, tobacco, soybeans, and others.
    Under production contracts, the farmer often does not own his own product, and therefore has no leverage at all in the marketplace. As we've seen with poultry, the contracts have the potential to be on ''take it or leave it'' terms, leading growers deeper and deeper into a vicious cycle of debt. In these circumstances, NFO supports Federal legislation, such as the Family Farmer Cooperative Marketing Amendments (H.R. 2830), which would facilitate the creation of associations of contract growers, and require processors to bargain in good faith with these associations. Unless farmers are given the right to stand together, without fear of retribution by processors, they will have no voice in the contracts. If the market place is to work, both sellers and buyers need to have a voice.
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    Other actions, which are definitely needed, are: Maximize the highly successful Conservation Reserve Program and enact legislation to provide for a short term Soil Bank Program when needed.
    Expand the CRP program from the current 36.4 million acres to between 45 and 50 million acres, utilizing a continuous sign-up procedure so county offices do not suffer burdensome work loads, and land owners are not pushed to meet artificial deadlines. In addition, the Secretary should have available a short term (1 to 3 year) Soil Bank Program to adjust our agricultural output allowing the markets to adjust. The use of a Soil Bank Program should target each farm's most environmentally sensitive cropland. A Soil Bank Program would bring environmental and financial benefits to all 50 states. This program need not target acres of specific commodities but instead it should encourage every farmer to participate up to 10 percent of their environmentally sensitive cropland.
    Cooperative efforts need to be made to establish an international conservation diversion program when the stocks-to-use ratio becomes excessive.
    Trade negotiations must advance international cooperation that will enhance the economic stability of agricultural producers not only in the United States but also in our trading partner countries. We must not regard agricultural producers in other countries as our competition, but rather work with them to assure price levels that are beneficial to all. Trade agreements must also recognize the need to provide humanitarian assistance where needed. Labor and the environment should be protected not exploited.
    Re-instatement of the Farmer-Owned Reserve Program. This would allow producers, not shippers, to benefit from rising markets. The program would extend the time period grain and oil seeds could be kept under loan to 24 months plus provide storage payments of 25 cents per bushel annually. University of Tennessee-Knoxville agricultural economist Dr. Daryll Ray suggests that reintroducing the Farmer-Owned-Reserve and encouraging the use of non-recourse loans in place of the marketing loan would be helpful to farmers immediately. This would complement the newly implemented Farm Storage Facility Loan Program.
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    Labeling of all food products that contain ''genetically modified organisms'' and all imported meats and vegetables showing country of origin and entry date in the interest of consumers' right to know.
    Enact legislation proposed by the Secretary of Agriculture's Research and Promotion Task Force that a referendum on check-offs to be held every 5 years with the first producer vote to be taken within one year or sooner following passage of enabling legislation.
    At the request of Senator Tom Harkin, FAPRI has analyzed the impacts of a farm policy proposal known as the Flexible Fallow program. The program is not proposed as a replacement to the FAIR Act, but instead an additional feature to the existing legislation. The basic premise of the program is to give producers the option to voluntarily idle a portion of their acreage in exchange for higher loan rates on their remaining production. Set-aside rates under the program are calculated as a percent of the planted acreage of that crop. Producers can choose to participate at any level between 0 percent and 30 percent.
    Given the weak prices in the early years of the FAPRI baseline, participation in the voluntary set-aside program is expected to be high. Due to the relative profitability of the program, cotton is expected to have the highest participation among the eight major crops. On a regional basis, the plains states are expected to have the highest participation.
    Participation in the Flexible Fallow program leads to reduced plantings relative to the baseline. In the first year of the analysis, it is estimated that 35 million acres will be idled under the program. However, due to slippage, plantings fall by only 22 million acres. By the end of the analysis period, participation in the program is expected to decline due to stronger market prices.
    Reduced plantings translate into higher crop prices under the Flexible Fallow program. Crop prices average 7 to 10 percent above baseline levels in the early years of the analysis. By the end of the analysis, prices average 3 to 5 percent above baseline levels.
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    The effects of reduced plantings and higher crop prices are felt in a number of sectors. The volume and value of U.S. crop exports decline relative to baseline levels by an average of 7 percent and 4 percent, respectively. With reduced plantings, farmers reduce expenditures for seed, fertilizers, and chemicals by an average of $1.2 billion.
    Higher crop prices translate into increased feed expenses for the livestock sector. Livestock producers respond by reducing production, which leads to higher livestock prices. Over the analysis period, net income to the livestock sector falls by an average of $600 million.
    Gains by the crops sector more than offset the declines in livestock income. For the total agricultural economy, net farm income increases by an average of $4.8 billion above baseline levels. Increased government outlays of $2.5 billion account for a substantial portion of the increase.
    Higher farm-gate prices lead to additional food expenditures by consumers. Over the 2000–08 period, food expenditures increase by an annual average of $1.6 billion, or $5.74 per person. The increase is 0.3 percent above baseline levels.
Testimony of Leland Swenson
    Chairman Combest, Ranking Member Stenholm, members of the House Agriculture Committee, I am Leland Swenson, president of the National Farmers Union (NFU). It is once again a pleasure to appear before this Committee representing the current and future agricultural policy interests of the 300,000 independent family farmer and rancher members of the National Farmers Union.
    National Farmers Union members believe the goals of U.S. agricultural policy should be to address a broad range of issues that affect producers and consumers. The goal of such a policy should be to provide an adequate supply of safe, affordable and high quality food and fiber products through a competitive production, processing and marketing system that generates adequate economic returns commensurate with each participant's contribution to the system.
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    Agricultural policy is a complex topic encompassing a wide range of subjects including those generally contained in traditional farm bills as well as other initiatives advanced outside of that framework. Issues such as rural development, food safety, agricultural research, nutrition programs, environmental policy and market structure and concentration are important public policy matters of great concern to producers. This testimony, however, is primarily focused on those elements of our agricultural policy that are designed to provide economic stability, security and opportunity for farmers and ranchers through commodity programs.
    Over 4 years ago the Congress passed the Federal Agricultural Improvement and Reform Act of 1996, dubbed Freedom to Farm by its proponents. The legislation was approved during a unique period in agriculture characterized by continued pressure on agricultural spending, improved commodity price levels and expanded export earnings. In addition, the legislation fulfilled in part, the desire of some to unilaterally reduce or curtail the public role in U.S. production agriculture with little apparent regard or understanding of the future consequences of such action if the conditions present in 1996 changed. The FAIR Act, with declining, de-coupled payments as its centerpiece, represented reform to the extent it severed the tie between agricultural policy and commodity specific programs. It is increasingly apparent the legislation has neither represented an improvement to the short or long-term economic stability of agricultural producers and rural communities, nor created the broad, market-based environment of opportunity for farmers and ranchers the bill's advocates promised at home or abroad.
    Freedom to Farm proponents promised that: (1) World population and income growth would create new export demand for U.S. farm commodities. (2) Improved risk management programs, such as crop insurance, could replace other economic safety net programs. (3) Reduced government regulation would increase production efficiency by lowering operating costs. (4) A combination of marketing loans set at levels well below the cost of production and fixed, de-coupled producer payments would ensure adequate farm income levels to allow the transition to a market-oriented agriculture system. (5) Reductions in our own production-based producer safety net would force others, primarily our export competitors, to make market-dictated production adjustments.
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    Historically, as well as in the context of our most recent experience, none of these assumptions have merit, and there is little to suggest the future will provide new evidence, beyond simple rhetoric, of their validity.
    Let's examine what has really occurred since passage of the Freedom to Farm Act: (1) The optimistic forecasts for agricultural trade were wrong. (2) Risk management programs have failed to adequately address price and production losses. (3) Reduced regulation is no guarantee of production efficiency or reduced costs. (4) The farm program has reduced economic security for producers. (5) Competition for export markets has increased due to the rational behavior of all producers in response to declining prices and incomes.
    Optimistic Trade Forecasts Were Wrong: Agriculture and food production is of significant economic, social and political importance in both industrialized and developing nations. Food self-sufficiency continues to be a critically important goal for most nations. Thus agricultural trade is not currently, and is unlikely to become a model of free trade principles regardless of the outcome of trade negotiations that take many years to complete, implement and interpret.
    As important as expanded agricultural trade is to U.S. producers, commercial growth in agricultural export volume and value continues to remain more dependent on the year-to-year domestic production levels of other countries than it does on foreign population and income growth.
    While the U.S. net balance of trade for all animal and animal products has increased to about $2.9 billion in 1999, net export values for major crops have remained relatively flat for nearly two decades. In fact, the growth of U.S. imports of agricultural products that compete directly with our own output has increased over $20 billion or three-fold since 1979 reducing our positive agricultural trade balance by about 40 percent. Since 1996 our agricultural export levels declined from about $60 billion to a projected $50 billion for the current year, agricultural imports have increased from $32.6 to an expected $39.0 billion in 2000.
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    From 1996 through 2000, U.S. exports of red meat and poultry have increased about 1.4 billion pounds while domestic consumption has increased 6.7 billion pounds. For our three major field crops—wheat, corn and soybeans, export volumes declined about 430 million bushels, or 10 percent while domestic consumption increased by over 1.7 billion bushels or 19 percent.
    Contrary to popular myth, the U.S. domestic market not only provides the largest outlet for our production, but also has exhibited better and more consistent growth rates than overseas markets. Many have suggested that the recent period of poor performance in export sales is due to the Asian economic crisis of the mid–1990's. Over the past 30 years, each decade has been characterized by at least one major economic calamity somewhere in the world. There is no evidence to suggest that recovery in Asia will spell the end to such occurrences in the future. Furthermore, it should be noted that historically, higher commodity prices, as a result of exports, have generally occurred during periods when production has fallen short of real or perceived needs.
    Risk Management Programs Have Been Inadequate: Public and private risk management programs such as crop insurance are a necessary component of production agriculture. However, even with greater Federal incentives that increased participation in the programs in recent years, the need for additional economic and production loss assistance was not eliminated. The recently approved crop insurance legislation provides additional funds to expand and improve these programs, however there is no evidence to suggest that risk management tools can adequately replace other properly designed economic safety net components of our agricultural policy.
    Lowering Our Standards Will Not Create Producer Prosperity Proponents of less government intervention in production agriculture often cite the increased production costs incurred by producers to comply with government regulations, particularly those pertaining to environmental issues. First, there is little evidence to quantify the impact of regulation on the cost of production of agricultural commodities. However, significant evidence exists that identifies economic and structural costs to independent producers when regulations governing other sectors, upon which producers are dependent are reduced or inadequately enforced. Secondly, de-regulation by its very nature indicates a cost will be transferred to another population segment or the population as a whole. Proponents of de-regulation suggest the U.S., for commercial market purposes, should reduce its standards to the lowest common denominator necessary to meet the competition regardless of its practices.
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    The value of farm output has increased just over 17 percent since 1990, while producer expenses have risen by over 30 percent during the same period. Through 1999, net farm income, including direct government payments has declined each year since the passage of the 1996 farm bill. Excluding direct government payments, the average net farm income for the 1990–95 period exceeds, by over $10 billion, the level achieved in 1999 and projected for 2000, representing nearly a 50 percent reduction in income from farm and ranch operations in 5 years.
    Producer Economic Security Has Been Reduced: For the most recent 3 years, the Federal Government has provided economic assistance to producers well beyond the levels provided by the 1996 farm bill. Of the $21.7 billion in additional funds for the 1998–2000 production years, nearly 84 percent has been directed to offset producer income losses due to reduced prices. The balance of the assistance has been utilized to provide compensation for weather related production losses and encourage greater participation in the Federal crop insurance program. For the current year, the level of market loss income assistance will exceed the payments mandated in the Freedom-To-Farm act by over 125 percent.
    It is apparent that the level of economic support contained in the act is totally inadequate. Reliance on annual legislative initiatives to provide additional assistance based on existing program components presents additional management challenges to producers and their creditors while exacerbating the inequities and distortions contained in the act.
    Trade Competition Has Not Been Reduced: In terms of the production adjustments caused by the decline in commodity prices, it has been suggested that current policy has effectively insulated U.S. producers from significant production cutbacks while imposing that burden on other countries, particularly our major export competitors.
    Contrary to textbook economic theory, agricultural production is not very responsive to commodity price levels due to the fixed nature of production resources and the lack of viable alternatives for utilization of those resources. Low prices may cause structural changes within the production sector by forcing the exit of individual producers or encouraging the production of other crops or livestock where such diversification is possible. However, those adjustments do not result in significant changes in aggregate agricultural production. When prices are high it is to the producer's advantage to seek maximum production in order achieve greater profitability. When commodity prices decline, maximum production is required to cover fixed and variable operating costs. Although reduced prices and farm incomes may force individual farmers to abandon their operations, the resource is more likely to continue in production by another farm operator than be idled or shifted to a non-agricultural use. The effect of low prices and incomes cause personal adjustments, not production adjustments.
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    From 1997–98, when major field crop prices began to decline precipitously, to the current season U.S. wheat and corn area declined by 11 percent and 2 percent respectively, while soybean acreage increased 4.9 percent. The production changes can be fully explained by the shift of grain acreage to oilseed production and the loss of productive capacity due to extreme weather related causes, price levels had no impact on aggregate production, although U.S. commodity policy clearly influenced a preference for oilseed production by farmers. During the same period, our major export competitors increased wheat acreage by 3.2 percent, corn acreage by 2.4 percent and soybean acreage by 7.8 percent. Not only did farmers in general violate the economic theory, but also those who were supposed to bear the brunt of our agricultural policy reform by reducing production actually increased their major crop plantings.
    Farm Bill Has Reduced The Viability Of Family Farms: Three years of supplemental economic assistance appear to have provided economic stability to the production sector if market conditions recover. However, most analysts expect any economic recovery to be a slow process causing small to average-sized commercial family farming operations to continue to be vulnerable to the economic crisis as both cash flow and financial equity positions remain marginal or further deteriorate.
    It is increasingly apparent that much of the economic assistance, based primarily on existing farm bill components, has encouraged planting and market distortions among major program crops due to loan rate and de-coupled payment inequities contained in the act. The legislation has also disproportionately benefited the largest, least economically vulnerable producers through changes to the benefit targeting mechanisms while providing both program and economic assistance benefits to individuals, including some who no longer produce eligible crops, based on historic production factors that do not represent today's farming realities.
    U.S. agricultural policy must be changed to accommodate commodity programs that enhance current and future opportunity for family farmers and ranchers and create an atmosphere where the broader policy goals can be achieved.
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    National Farmers Union believes the proper role for government and public agricultural policy is to provide economic stability and opportunity to U.S. producers through programs that enhance fair competition to the benefit of both producers and consumers. To accomplish this goal, policies and programs must recognize both the imperfections of the marketplace and the unique nature of the industry. Three areas must be addressed to achieve these objectives. (1) The issue of market concentration and integration in agriculture must be examined and new policies implemented to ensure an accessible, transparent, and competitive marketplace is available to all producers. (2) Agricultural trade policy must accommodate a broad range of priorities including socio-economic issues as well as market access and fair competition. 3) U.S. agricultural programs for crops, dairy and livestock must be revised to provide an effective safety net during periods when market returns are inadequate.
    Concentration: Concentration through mergers, acquisitions, marketing arrangements, and contracting policies within the private sector is increasing at an alarming rate under the guise of increased industry efficiency and reduced consumer costs. We believe this issue must be fully examined and addressed from the standpoint of both the effect on consumers and the impact on the independence of individual producers.
    The concentration of market power in terms of research and development, processing and merchandising among a few highly integrated domestic or multi-national firms poses a serious threat to benefits of a private, competitive marketplace in terms of all U.S. agricultural policy goals. U.S. anti-trust laws should be modified to require that companies seeking to merge provide demonstrable proof that claimed benefits for consumers and/or producers will in fact materialize and that market competition is enhanced rather than reduced. Greater international cooperation is needed to reduce and eliminate anti-competitive practices globally.
    Public oversight should ensure that increased market transparency through price reporting, product labeling, limitations on upstream processor ownership of commodities, contract disclosure through a contract producer's bill of rights, etc. is provided as the level of horizontal or vertical integration occurs.
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    Trade: The U.S. should pursue an international trade negotiation agenda that recognizes the social and political importance of production agriculture and food self-sufficiency as well as its economic significance in the establishment of fair and enforceable international trade rules.
    Increased trade volumes at price levels that fail to provide adequate returns to producers over the long-term amounts to exporting the equity of individual U.S. farmers and ranchers for the benefit of merchandisers, processors and foreign customers.
    We should establish priorities that reduce and/or eliminate the most trade distorting practices that force down the value of commodities, including unilateral sanctions, whether they are transparent such as direct export subsidies or less distinct such as currency valuations or sanitary/phytosanitary trade barriers. At the same time the U.S. should seek to retain unilateral flexibility to address import surges and unfair trade practices by providing support to producers.
    In addition, we believe that U.S. humanitarian assistance to address food shortages and/or promote economic development should be expanded. Greater international coordination and cooperation should be achieved within the context of existing authorities such as the Food For Peace program as well as new programs such as the international school lunch program proposed by Ambassador George McGovern.
    National Farmers Union supports major changes to farm legislation to establish an effective economic safety net program for producers to level out both the current and expected future commodity price and farm income cycles to provide greater economic stability and security for family farmers and ranchers. Major components of a revised policy should include an equitable, targeted, commodity-based, counter-cyclical mechanism to provide assistance to those who suffer economic losses for reasons beyond their control.
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    We believe the loan rates for program commodities, including specialty program crops such as sugar, tobacco and sugar, should be adjusted, at a minimum, to reflect the conditions that existed during the 1994–1998 period when commodity prices across major crops, as determined by the market, were in better balance.
    A national dairy policy should be developed that provides an adequate safety net for dairy farmers to accommodate the seasonal and cyclical nature of production. We believe a minimum price support level of $12.50 per hundredweight coupled with a variable level of processing assistance (make allowance) that is proportionate to the most current level of market prices. These changes can provide a reasonable level of security to producers and reduce the processor-based incentive for overproduction, while maintaining the integrity of regional markets for dairy products.
    Benefits provided under these proposals should be targeted to family-sized producers based on current actual or expected commodity production and the enforcement of limitations on payments and/or preferential market benefits strengthened. This action will reduce the production and market distortions and inequities created by the Freedom To Farm Act while providing assistance to producers only when warranted by market conditions. In addition, it will allow producers the freedom to expand farm or production size in relation to market demand rather than to maximize the level of government support.
    A key component of the FAIR Act is the planting flexibility provision. We support expansion of planting flexibility opportunities for producers as a way to further reduce the production distortions created by the act. The current planting flexibility component of the farm program is limited by both the potential loss of producer program benefits and the cropping mix allowed.
    It is our belief that full planting flexibility, combined with a market oriented, economic safety net program for specialty crops can further reduce program-caused planting distortions and encourage sound production practices. The recently enacted Risk Protection Act of 2000, provides for pilot programs to expand risk management programs to more crops and production regions. We support this effort, but recognize the development of new programs may take years. New farm legislation can and should provide a framework to reduce the market risks associated with specialty crop and livestock production that is compatible with the safety net for traditional program crops and minimizes the potential for cross-subsidization of production.
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    In order to provide enhanced producer marketing flexibility, we support the creation of two limited, farm-stored reserve programs: a renewable energy reserve and a humanitarian food security reserve. The reserves would ensure the availability of commodities for renewable energy production and food aid programs during periods when other available stocks are reduced, priced at levels that adversely effect program reliability. Reserve stocks, equal to about 1-year's expected utilization, would be isolated from the commercial market to avoid distortions to that function, and provide additional income opportunities for farmers.
    The National Farmers Union also supports incentive-based conservation programs. We believe the 10-year Conservation Reserve Program should be expanded to 40 million acres. A three to five year intermediate conservation program should be established to address weather related production problems on farmland that would otherwise be in production. We support an annual Conservation Security Program to provide incentive payments to crop and livestock producers for the application of conservation measures on resources currently in production and we encourage expansion of technical assistance programs to provide expertise in the development and implementation of both individual and multiparty conservation projects.
    Mr. Chairman, the National Farmers Union has provided background to demonstrate the many failings of our current farm program and policy recommendations to address key agricultural policy issues that, if adopted, can help re-invigorate U.S. production agriculture and our rural communities. Over 3 years a strong consensus has evolved that Freedom To Farm is a wholly inadequate response to the needs of producers. That consensus has been ratified annually by Congress through a series of ad hoc assistance programs.
    There is no need to wait longer to act on legislation that will provide a more effective and predictable counter-cyclical economic safety net for independent farmers and ranchers. It is time for Congress take action that will: (1) Equitably increase commodity marketing loan rates and dairy support prices to more reasonable levels; (2) Implement limited farm-stored reserve programs dedicated to renewable energy production and humanitarian assistance; (3) Enact conservation incentive programs to ensure the long-term viability of our natural resources; (4) Begin to address the negative impact of concentration in agriculture by passing legislation to prohibit packer ownership of livestock, enacting a contract producer's bill of rights—and strengthen existing anti-trust laws; (5) Mandate the full utilization of non-distorting export tools in all markets, including those subject to our unilateral sanctions; and, (6) Ensure that trade negotiations and sanctions reform provide real benefits to independent family farmers and ranchers. We stand ready to work with you and your colleagues to immediately begin the process of correcting our Nation's farm programs to meet the immediate and future needs of America's farm families.
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    We recognize that many other issues, acknowledged in the introduction to this testimony, also need to be addressed as part of a broader agricultural and rural policy discussion. We look forward to the opportunity to participate in that dialogue as well.
    I will be pleased to respond to any questions you or the members of the committee may have.
Statement of Leroy Watson
    My name is Leroy Watson, I am the Legislative Director for the National Grange. Founded in 1867, the National Grange is the oldest general farm and rural public interest organization in the United States. Today the Grange represents nearly 300,000 members affiliated with more than 3,600 local, county and State Grange chapters across 37 States. Since its founding, the National Grange has vigorously represented the interests of family farmers and rural Americans. The Grange greatly appreciates this opportunity to present our views concerning Federal agricultural policy.
    As this committee well knows, American farmers are going into their third year of an oversupply of most crops and historic low prices for livestock and dairy products. Prices received by farmers are below their cost of production while the costs of production, especially fuel and interest rates, continues to rise. Compared to the farm crisis of the 1980's, a strong national economy, increased off farm employment and investment opportunities, as well as the commitment of Congress and the administration to provide supplemental financial assistance has mitigated some of the hardship imposed by the current crisis on many farm families. However, in a broad sense, this means that many of our Nation's farmers are now in a situation similar to the famous Tennessee Williams character, Blanche DuBois in the classic play ''A Streetcar Named Desire'' because they find themselves ''surviving on the charity of others''.
    Beyond the farm balance sheet, there is other significant evidence that the overall quality of life of our Nation's farming and rural communities is also declining. Violent crime is increasingly making its way into rural communities. Internet access, especially high speed Internet access, is virtually non-existent in most farming communities. The individual farmer's right to own and manage property is fast being replaced by a complex system of government directives and collective decisions regarding resource management, leaving for the farmer the right to pay taxes as the only undisputed prerogative of property ownership. Farmers and self-employed rural businesspersons are penalized under the tax code for accepting their responsibility to provide their own health insurance coverage. Rural public schools are consolidating, forcing many rural children into distant, larger, and impersonal schools. Finally today's generation of farmers and rural landowners are prevented from retiring with dignity and transferring the resources they have invested in agriculture to a new generation of family farmers by punitive Federal ''death'' and capitol gains tax policies.
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    In response to these developments, the National Grange has adopted a comprehensive 10-point program to revitalize rural America and return US agriculture to prosperity. Our ''Blueprint for Rural America 2000'' focuses not only on agricultural policy but also on many of the other issues of concern to rural Americans and family farmers. Our ''Blueprint'' is an explicit declaration that farm policy, alone, cannot determine the quality of life in our farming and rural communities. Other profound influences are shaping our rural communities and demand our continued attention.
    Therefore, in our view, adoption of the right mix of farm policy reforms is a necessary, if not sufficient condition, to returning prosperity to our Nation's family farmers and rural communities. We believe that past and current farm policies have contributed to the decline in the quality of life in rural communities. The National Grange believes that the purpose of Federal farm programs is to ensure Americans an adequate supply of safe and wholesome food, provide some income protection for the producers of that food and protect our environment through voluntary, incentive based programs. However, we also believe that farm programs must sustain and enhance family farms and the communities they are located in. They must do this by changing current policies that promote the continued consolidation of farm production assets into fewer and fewer hands until, today, we have the fewest number of farmers, either full time or part time, in our Nation's history. Instead, the National Grange strongly believes that a primary goal of farm policy should be to encourage the increased participation in the agricultural sector by the largest number of individuals and families through the broadest practical distribution of agricultural production assets.
    We understand, after 133 years of experience with U.S. agricultural policies, that changes occur over long periods of time. We did not go from a nation of self-sufficient Jeffersonian farmers to a nation where farmers account for less than one percent of the population overnight. Our recommendations for improving Federal farm policy would make gradual, but significant, alterations in current programs that will move our Nation steadily toward the goal of sustaining vibrant farming and rural communities.
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    National Grange policies are updated annually through our grassroots policy development process. Local Grange chapters write and adopt resolutions that are forwarded to our state and national conventions for consideration. In that regard, our farm program policy recommendations for the upcoming farm bill will be further refined by our State and National Grange delegates this fall. Today, our policy outline of priorities would include the following broad recommendations:
    Continue the current policy of reducing the Federal Government's role in directing the production and management decisions on individual farms.
    Continue to aggressively expand market opportunities for U.S. agricultural products in foreign markets as well as in non-traditional domestic markets, such as energy and high value industrial feedstocks.
    Continue and fully fund current voluntary, incentive based farm conservation and technical assistance programs such as the Wetlands Reserve Program, the Conservation Reserve Program, the Farmland Protection Program, the Wildlife Habitat Incentives Program and the Environmental Quality Incentives Program.
    Extend the dairy price support program permanently with a modest increase in the support price to $12.50 hundredweight. Permanent authorization and expansion of the Northeast Dairy Compact to include all of the northeastern states that have adopted authorizing legislation to participate in the compact as well as authorization for a similar Southern Dairy Compact.
    Break the ''logjam'' in national farm policy program reform for some commodities by adopting innovative ''regional'' farm programs that develop and implement important agricultural policies on a regional basis for major commodities by involving state governments, farmers, processors and consumers in agricultural program decision making structures, such as the existing Northeast Dairy Compact and the proposed Southern Dairy Compact.
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    Institute a new, flexible marketing loan program for all major non-livestock commodities, including newly expanded eligibility for any commodities that have not traditionally had the benefits of Federal farm programs, with a loan rate for each commodity set in relationship to the average cost of production for each commodity and a loan differential subject to an annual $50,000 per farm payment limitation.
    For livestock producers as well as commercial scale farms that believe that the $50,000 payment eligibility is insufficient for them to manage their financial risk, we would propose the creation of a farmer financed, revenue assurance program to allow individual farmers to elect higher levels of payment limitations based on escalating levels of premium payments that are tailored to their individual financial circumstances in order to continue to move Federal farm policy away from aggregate production or supply management models to a risk management model..
    Expand farmer owned reserve programs to include all commodities with storage payments that cover the farmer's cost of providing storage services in order to address farm gate identity preservation issues.
    Increase opportunities for farmers to market their products directly to the consumer while retaining important production and marketing decisions by allowing individual farmers to elect to assign their federally mandated commodity check off assessments to go to non-profit and farmer controlled cooperatives or other qualified organizations that either certify, promote the sale of, or market a farmer's specific crops instead of state and national promotion boards.
    Mr. Chairman, the National Grange greatly appreciates this opportunity to present our views on the future of Federal agricultural policy. We are looking forward to working with this committee to fashion a new farm policy that serves the needs of our nation, our farmers, and our rural communities. I would be happy to answer any questions that the committee might have.
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         "The Official Committee record contains additional material here."