Review of Feeral Farm Policy

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REVIEW OF FEDERAL FARM POLICY

WEDNESDAY, JULY 19, 2000
House of Representatives,
Committee on Agriculture,
Washington, DC.

    The committee met, pursuant to call, at 10:00 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
    Present: Representatives Ewing, Smith, Everett, Lucas of Oklahoma, Hostettler, Chambliss, Moran, Schaffer, Thune, Jenkins, Fletcher, Stenholm, Condit, Peterson, Dooley, Clayton, Minge, Pomeroy, Bishop, Baldacci, Berry, Etheridge, Phelps, Lucas of Kentucky, and Hill.
    Staff present: Tom Sell, Alan Mackey, R. Bryan Daniel, Callista Bisek, Wanda Worsham, clerk; Howard Conley, Anne Simmons, and Russell Middleton.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

    The CHAIRMAN. The hearing of the House Committee on Agriculture to review Federal farm policy will come to order.
    Good morning, and welcome to the hearing on the future of the Federal farm policy. As you all know, this committee has spent a good deal of time on this subject. We have convened 10 separate field hearings across the country where we heard from 181 producers, all different types of commodities. By the end of the month, we will have convened five hearings here in Washington, one in March, one in April and three this month. Last Wednesday we heard from four prominent national agricultural organizations representing a variety of thoughts on the issues facing our industry. Today we have assembled a panel of witnesses representing those who provide us with food and fiber. We will continue this discussion next week with a similar panel.

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    This committee throughout the course of this Congress has sought to be an open forum and active advocate for America's farmers and ranchers. We have held a number of hearings and considered several pieces of legislation of importance to agriculture. Farmers and ranchers face not only the unique economic risk associated with agriculture, but also face weather conditions completely beyond their control. Beginning last January, this committee turned its attention to providing a better safety net for weather-related and similar risks. I am extremely pleased with the bipartisan spirit in which we passed H.R. 2559, the Agriculture Risk Protection Act of 2000. That accomplished, we now have an opportunity to focus on the economic side of the safety net and build a similar consensus for that as well.
    This will ultimately lead us to comprehensive farm policy that provides protection for the many risks our Nation's producers face in bringing quality food and fiber to people worldwide. I believe we can to this, and, believe me, we will.
    We all know there are unique and severe problems facing agriculture today. I believe we have seen in previous hearings just how complex these challenges can be and come to understand that a single simple solution won't suddenly appear. That said, it is important to note that we all fundamentally believe that it is in the best interests of this Nation to maintain and foster a diverse and strong agricultural sector for the future. So the question we want to answer is how do we best accomplish that goal?
    Again, I thank you for being here and for the time and thought that you have invested in this effort. We hope that you will be very candid and specific with us as we seek to lay groundwork for the future.
    Mr. Stenholm.
    Mr. STENHOLM. Mr. Chairman, I will insert a statement in the record at this point, and look forward to hearing from the witnesses.
    The CHAIRMAN. All statements of Members, without objection, will be included as part of the record.

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    [The prepared statements of Messrs. Barrett, Stenholm, and Bishop follow:]
PREPARED STATEMENT OF HON. BILL BARRETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA
    Mr. Chairman, thank you for holding this hearing to review current Federal farm policy. Your strong bipartisan leadership and that of the ranking member are evident and emphasize your commitment to the farmers and ranchers across the nation. Today, we are interested in the views of our individual commodity groups on current Federal farm policy.
    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.
    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.
    Last week, this committee heard testimony from general farm organizations regarding agricultural policy. While I appreciated the witnesses' testimony, I believe individual commodity organizations' testimony really expresses the different opinions on agricultural policy.
    The witnesses should be commended for their dedication to the agriculture industry. Your presence at today's hearing displays your concern and devotion to an industry that provides food to the American people day in and day out. As we listen to your testimony, all members of this committee are mindful of the challenges that lie ahead in production agriculture.
    We hope to be moving closer to profitable times. I know that agriculture prices are often up and down—and weather conditions can be unfavorable—but through hard work and perseverance, we have always managed to make it through. That is why I believe the recently passed crop insurance reform bill is so very important to farmers and ranchers in Nebraska. By implementing risk management into every farm operation, we can move away from the enormous assistance packages that have proven to be the lifeline for many producers over the past couple of years.

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    I would like to once again thank the chairman, ranking member, and other members of this committee for their interest and dedication to the American farmer. I look forward to hearing the testimony of our witnesses and working with the other members to provide the best possible safety net that our farmers need to effectively compete in the global market.
PREPARED STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
    Mr. Chairman, let me commend you for holding these hearings to review Federal farm policy in preparation for the next farm bill in 2002.
    Those of us who represent rural, agricultural districts understand that what Congress does in the next two years will affect the livelihood of farmers and ranchers and ultimately affect the quality of life in rural America.
    I have proposed a counter-cyclical program that I refer to as the Supplemental Income Payment, or SIP program. I hope that the agriculture community and my colleagues in Congress will consider it when determining agriculture policy in the next farm bill.
    During the past 3 years, Congress has provided $18.75 billion in emergency payments for income loss, not crop loss. Public support for the plight of agriculture may not continue indefinitely.
    Let me also say that these payments have been vital in my district, where we have had drought for 3 out of the last 4 years. These payments have meant the difference between economic life and death for producers in the 17th district of Texas. But there have been other farm sector impacts that may not go unnoticed.
    The National Agriculture Statistical Service reports that cropland values are up 3.4 percent from January 1997 to January 2000. The recently completed Agricultural Cash Rents survey indicates that cash rents are up 3.7 percent over last June.

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    We must remember that the budget baseline for direct producer payments, beyond those provided through loan deficiency payments, 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 and would provide crop producers one-third less net income than they received in 1999.
    A challenge that remains for this committee is how to address the non-farm economy in rural America. This is important when you consider that many rural counties derive less than 20 percent of their income from farming. For those of us who do farm for a living, only one of our children will realistically be able to depend on their 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, they will move further from the homes we have built for them. This will continue the decline in rural population and have a negative impact on the quality of life in rural America. 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 facing all agriculture policy makers here in the United States.
    Again, thank you Mr. Chairman. I look forward to hearing today's testimony and to a thought-provoking question and answer session.
PREPARED STATEMENT OF HON. SANFORD D. BISHOP, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA
    I want to take this opportunity to thank both Chairman Combest and Ranking Member Stenholm for holding this hearing to review Federal farm policy. I would also like to thank the witnesses for taking the time out of their busy schedules to be with us here today. Finally, I would like to extend a special welcome to Bob McLendon of the National Cotton Council, who is here from my district in Georgia to attend this important hearing.
    Mr. Chairman, when Congress passed the Freedom to Farm Act in 1996, it recognized the need to move toward market-based programs and away from price support and production adjustment programs. Since that time, we have passed legislation and I have supported measures that have opened additional markets such as; the Caribbean Basin Initiative, Africa Trade, and permanent normal trade relations with China, and improved the Crop Insurance Act. However, we have also consistently passed supplemental appropriation measures to help farmers due to the low budget baseline that is in effect until 2002. Clearly, this suggests that in times of economic prosperity and budget surpluses more needs to be done to help America's farmers. $4 billion a year is hardly enough. In fact, just yesterday the Congressional Budget Office has released a new projected surplus of $4.6 trillion!

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    Production costs have remained high, while market prices are low. It is important, now more then ever, to raise market prices by continuing to open new markets to American goods. Furthermore, by continuing our efforts of helping other countries through our foreign aid programs we not only help those countries, but help locally by increasing exports. However, increasing market prices is only half the formula. We must also decrease production costs. Our continued dependence on foreign energy sources have proven to have devastating effects. This summer's increased gas costs has served as a reminder that we must find alternative fuels and blends such as with the use of ethanol.
    Finally, we must work to streamline the way disaster assistance is disbursed. As you know, after the devastating hurricane in Honduras, I expedited aid to that country by working with the local peanut producers to get aid to that country when the bureaucracy was not meeting that need. This also helped our farmers by creating a market for their goods. Currently, the Southeast is experiencing a drought which has caused catastrophic damage to crops. It is imperative that disaster assistance be distributed in a timely manner when these disasters occur.
    Mr. Chairman, I again would like to thank Bob McLendon and the other witnesses for attending this important hearing. I look forward to working with the committee to help draft farm policy legislation that addresses these important issues and truly helps America's farmers.
    The CHAIRMAN. We will call today our panel of witnesses who are at the table. Mr. Robert McLendon is the president of the National Cotton Council, from Leary, GA. Mr. Terry Detrick is president of the National Association of Wheat Growers, Ringwood, OK. Mr. Marc Curtis is chairman of the American Soybean Association, from Leland, MS. Mr. William Kubecka is vice-president for legislation of the National Grain Sorghum Producers, Palacios, TX. Mr. Leland Klein is president-elect of the National Corn Growers Association, Battle Creek, NE. And Mr. Dan Wiltse is president of the National Barley Growers Association, Lisbon, ND.

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    We will take them in the order of the introduction. Mr. McLendon, please proceed. Thank you.
STATEMENT OF ROBERT E. McLENDON, PRESIDENT, NATIONAL COTTON COUNCIL, LEARY, GA

    Mr. MCLENDON. Thank you.
    Mr. Chairman, my name is Bob McLendon. I have a diversified farming operation in Leary, GA, but my primary crops are cotton and peanuts. I currently serve as president of the National Cotton Council of America. I want to thank this committee for holding this hearing and the 10 regional hearings across the United States. This effort sends a welcome message to farmers that the House Agriculture Committee is truly committed to being an advocate for rural America.
    As you saw during your hearings, virtually every segment of the United States agriculture is facing tremendous financial stress with no immediate turnaround expected. The 1996 act did not cause these low prices, but it has been unable to respond adequately. The emergency economic assistance you have already passed for the 2000 crop will enable our industry to get through another year of low prices. I commend you and the committee also for enacting a meaningful crop insurance reform package.
    We are facing additional pressures in the 2000 crop. While prices remain low, much of the Southeast region has suffered through severe drought conditions. Unfortunately, crop insurance reforms were not in place in time to help for this year. I hope this committee will also consider the economic losses due to weather that will be felt across the country this year.
    The National Cotton Council has not yet developed specific farm bill proposals, but we have focused on the general set of issues that will be crucial in developing successful farm policy. We believe that securing adequate budget authority for farm policy should be a major priority. The budget baseline for farm programs is estimated to be only $4 billion in 2002. That figure is simply too low to support effective policy. If recent spending levels were included, the baseline would exceed that $4 billion by a significant amount.

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    Given the current financial crisis facing agriculture, we urge Congress to reestablish agriculture's priority in the budget process.
    With respect to specific policy recommendations, cotton producers remain concerned that the 1996 act has been unable to respond to low prices. This aspect of the 1996 law is undoubtedly its weakest link and should be remedied. Cotton's three-step competitive provisions coupled with the Marketing Loan Program and the issuance of marketing certificates continue to play a central role for cotton. These provisions enable our industry to compete worldwide and help prevent an excessive buildup of stocks. We urge Congress to continue effective marketing loan programs and cotton's competitive provisions.
    Mr. Chairman, it is our hope that the next farm bill will end the discrimination against commercially-sized farming operations. Recent history demonstrates how misguided some of these targeting efforts truly are. For example, in 1999, the rapid falling world prices for all the major commodities caused a dramatic increase in loan deficiency payment rates. As loan deficiency payment rates increased, limits on marketing loan gains began to affect producers who never dreamed they had payment limit problems. As a result, many producers were seeing payment limits restrict their access to marketing loan gains that were needed more than ever to offset severely depressed prices.
    Marketing loan gain payment limits were making a bad situation worse. Fortunately, Congress responded by doubling the marketing loan gain payment limits for that 1 year, but the fundamental policy mistake remains. Even more disconcerting are recent farm policy proposals by the administration that introduced even stricter notions of benefit targeting.
    We should stop attempting to pit large farm operations against small ones. It is not uncommon for a strictly family farm cotton operations to involve several thousand acres and be diversified into ginning activities as well. This diversity has been essential to the survival of these farm family enterprises.

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    It is crucial to the economic health of all the United States agriculture that commercially-sized farming operations have equal access to farm policy tools. It is a fundamental issue of our sector's competitiveness.
    Cotton producers continue to favor the planting flexibility provisions that were in the 1996 act and are opposed to mandatory acreage reduction programs.
    Finally, our commitment to international market development, effective export assistance and increased trading opportunities abroad must not be diminished.
    Mr. Chairman, the task before this committee is not an easy one, but we are encouraged by your openness and your effort to collect information directly from the producers all across the country. The cotton industry looks forward to working with this committee as we develop more specific policy recommendations over the course of next year.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. McLendon appears at the conclusion of the hearing.]
    The CHAIRMAN. Mr. Detrick.

STATEMENT OF TERRY DETRICK, PRESIDENT, NATIONAL ASSOCIATION OF WHEAT GROWERS, RINGWOOD, OK

    Mr. DETRICK. Let me begin today by thanking the chairman and the ranking member for the opportunity to appear before this committee on behalf of the Nation's wheat producers. My name is Terry Detrick. I have a wheat farming and ranching operation in northwest Oklahoma. I currently have the honor of serving as the president of the National Association of Wheat Growers.
    Since I appeared before the committee almost a year ago on this subject, there has been little change in the status of the national farm economy. Wheat producers are extremely thankful for the economic assistance package authorized by Congress again this year and for the crop insurance reform. Likewise, we appreciate the series of hearings that the committee has conducted across the country to gather input from the Nation's farmers on how to best address these problems and what, if any, changes need to be made to Federal farm policy.

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    You have heard from numerous farmers, including wheat producers, that the primary inadequacy of the current farm bill is the lack of a real safety net. We believe that just as the farm bill did not in itself create the farm crisis, it has not prevented it. We believe that changes must be made to provide a real safety net and offer these six principles that we believe should serve as the committee's guide in shaping the next farm bill or any changes to the current Federal farm policy.
    First of all, any such changes must preserve the planting flexibility of the 1996 FAIR Act.
    Second, Federal farm policy must maintain its system of decoupled payments in keeping with our commitments under GATT.
    Third, every effort must be made to increase the Federal baseline for farm support. Support levels should not be based upon what is left over in the Federal budget, but instead should be based on the real cost of production indexed for inflation.
    Fourth, NAWG does not support the reestablishment of the farmer-owned reserve or similar paid storage program as the basis of the farm safety net.
    Fifth, NAWG supports the current 36.4 million acre CRP cap and encourages the Secretary to fully enroll the program. However, we do not believe that idling additional acres in exchange for a Federal payment or similar types of nonmarket-oriented approaches are, in the long term, advantageous to wheat producers.
    Six, NAWG believes that all domestic policy decisions must be made in careful consideration of the United States' status as an exporter of wheat.
    So what changes are needed to the farm bill? NAWG believes the current farm policy lacks the proper countercyclical stabilizers to ensure adequate protection for farmers. We believe the committee needs to develop a system to provide such additional payments to farmers when market prices, combined with current farm payments, reach levels below the cost of production, or, in other words, when the market and all current Government programs fail to provide producers with the minimal amount necessary to procure financing, stay in business, and produce food for this Nation. To be GATT legal, we believe such a payment must be decoupled from the farmers current production and based on the farmer's existing AMTA contract.

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    In addition, there is one important change to the farm bill that cannot wait until 2002. This year Congress authorized a payment equivalent to an LDP for wheat, thanks to Congressman Lucas and his efforts, and other small grain producers who harvest their crops by grazing cattle. This grazed-out option is used by farmers across the southern half of the Nation, and it is an important part of their operations. NAWG is very supportive of this additional support and thanks you for your leadership on this front. However, the provision passed by Congress only apply to the coming crop year. In keeping with the farm bill's philosophy of extending flexibility to producers, NAWG requests that you take the necessary action to extend these payments throughout the life of the current farm bill.
    In summary, let me state that NAWG and its members continue to support the reforms made by the 1996 FAIR Act; however, it alone is not enough to provide an adequate safety net for America's wheat producers. NAWG does not support the establishment of a safety net which encourages inefficiency or artificially stimulates production. On the contrary, NAWG supports the creation of a countercyclical payment that will provide enough support to keep America's farm families afloat and our rural communities viable.
    Again, thank you for this opportunity.
    [The prepared statement of Mr. Detrick appears at the conclusion of the hearing.]
    The CHAIRMAN. Mr. Curtis.

STATEMENT OF MARC CURTIS, CHAIRMAN, AMERICAN SOYBEAN ASSOCIATION, LELAND, MS

    Mr. CURTIS. Good morning, Mr. Chairman and committee members. I am Marc Curtis from Leland, MS, a soybean-rice-corn-wheat farmer. I currently serve as chairman of the American Soybean Association, with 28,000 members, and represent all soybean producers on issues of importance to the industry.

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    U.S. soybean producers know that profitability depends on enhancing market demand and increasing global competitiveness. We have historically looked to the marketplace rather than to the Federal Government as our source of income. This orientation is underscored by our dependence on exports. After each year's production of soybeans, soybean meal and soybean oil is sold abroad. ASA has consistently represented these interests in its positions on international trade and domestic foreign policy in the 1990's.
    During the Uruguay Round of negotiations, we supported eliminating all import tariffs and export subsidies to create a level playing field for oilseeds and oilseed products. In the debate on the FAIR Act, ASA endorsed Freedom to Farm once it was made clear that soybeans would be treated equitably with other crops. ASA continues to strongly support the FAIR Act. Unrestricted planting flexibility enables producers to optimize crop selection and reduce operating costs, maximizing their profitability. Combined with the Marketing Loan Program, this approach is highly consistent with orientation towards domestic and foreign markets.
    It was recognized by congressional supporters that Freedom to Farm would make U.S. agriculture more dependent on the marketplace, requiring greater access to foreign markets. It was also recognized that decreasing dependence on Government support would require less interference in the production of agriculture and more effective risk management tools.
    Accordingly, Congress and the administration made a number of commitments at the time to policies and programs that would help make the FAIR Act work. The list includes such things as trade policies that reflect the importance of foreign markets and competitiveness to U.S. agriculture; elimination of unilateral economic sanctions; aggressive use of export assistance and promotion programs; increased humanitarian food aid programming; reform of the Crop Insurance Program and development of new risk management tools; increased funding for agricultural research; relief for farm families in the Tax Code; reform of regulatory burdens on agriculture.
    Now, more than 3 years after the FAIR Act was enacted, few of these commitments have been honored. The effort to pass trade negotiating authority, formerly referred to as fast track, was first derailed then defeated. Legislation to repeal existing sanctions on agricultural and medical products was unceremoniously torn out of the fiscal year 2000 agriculture appropriations bill last year, and its fate for this year is uncertain. Funds authorized for the Export Enhancement Program continue to be unused, either for EEP or for other export assistance and promotion programs. The funding source for the Foreign Market Development Cooperator Program was transferred from appropriations to the CCC, but no minimum funding level has been authorized. Cuts in funding for Public Law 480 continue to be proposed and approved. A crop insurance reform bill has finally been completed, but the number of producers using the program will not increase substantially. FARRM accounts were included in last year's tax bill, but it was vetoed. Funds were provided for the $120 million agricultural research initiative, but reductions continue to be proposed in the ARS budget. Progress was made in restoring income averaging as a means of evening out taxes, but estate tax laws continue to hurt agricultural producers. The regulatory environment for agriculture has deteriorated significantly since 1996.

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    Another issue that only began to emerge in 1996 is the erosion in U.S. agricultural exports caused by failure to develop a workable process to address science-based regulatory decisions on biotechnology-derived crops.
    The limited progress made on all of the aforementioned commitments meant that there were no new sources of demand or protection against losses when supplies rose and prices fell in 1998 and 1999. Today, with record soybean plantings on almost 75 million acres, it suggests a return to historic low prices and soybean producer income with this fall's harvest.
    ASA believes the best response to the continuing crisis in the U.S. farm economy is for the administration and Congress to address and complete the unfinished agenda of policies and programs they agreed to undertake back in 1996. We do not support going back to the old farm program, and oppose making set-asides or other supply management programs an eligibility requirement for any soybean benefit. We also oppose establishing a reserve for soybeans, increasing acreage in the Conservation Reserve Program for supply control purposes, or using environmental objectives to justify establishing an acreage reduction or set-aside program in the form of a short-term CRP.
    ASA supports examining income safety net concepts that would provide increased support when prices or revenue decline; however, there are many unanswered questions and issues about the effects and implications of such countercyclical income support proposals.
    With this in mind, we very much appreciate Congress providing another supplemental AMTA payment and an oilseed payment. ASA will work with Congress in examining any income support proposals. A guiding principle we will insist upon is that soybeans be treated equitably with any program.
    ASA is very interested in developing a farm program that will provide additional income support to producers who voluntarily implement appropriate conservation practices. We believe that pursuing the public policy goals of protecting the environment while supporting farm income through sensible voluntary measures is a concept that farm groups, environmental groups and the Congress should further explore. In this regard, ASA has taken a first step in establishing a task force which will be exploring alternative approaches for developing this concept over the coming year.

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    Another issue of critical importance to soybean producers is the emerging loan program. With U.S. and world oilseed prices well below loan level for the past 2 years, this program has been essential in providing an income safety net as well as keeping our products competitive in foreign markets.
    ASA very much appreciates Secretary Glickman's decision to not use his authority to lower this year's loan rate to $5.13 per bushel. Whenever Congress considers changes in the Marketing Loan Program, ASA will support making the current $5.26 level a statutory minimum rather than a cap. The long-term solution, of course, is to drive prices above loan rate levels by enhancing demand through greater trade expansion, export promotion, food aid, biodiesel use, reform of unilateral U.S. economic sanctions and other steps.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Curtis appears at the conclusion of the hearing.]
    The CHAIRMAN. Mr. Kubecka.

STATEMENT OF WILLIAM H. KUBECKA, VICE-PRESIDENT, LEGISLATION, NATIONAL GRAIN SORGHUM PRODUCERS, PALACIOS, TXS

    Mr. KUBECKA. Mr. Chairman, members, I would like to thank the House Agriculture Committee for allowing me this opportunity to discuss the issues and possible solutions to the crisis with which U.S. farmers are faced today.
    My name is Bill Kubecka, and I serve as vice-president for legislation for the National Grain Sorghum Producers. I farm in a family partnership near Palacios in south Texas, between Houston and Corpus Christi. I will concentrate my ideas on the 2002 farm bill and in my remarks today as we have additional details in other areas that are covered in our written testimony.

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    We urge the committee to find a solution with the framework of the 1996 FAIR Act with a few modifications, some of which are similar to those the National Grain Sorghum Producers conceived and championed during this process 6 years ago. Planting flexibility must be preserved so that we can continue making planting decisions based on marketing conditions and conservation needs as the individual operation sees. We believe it will be largely ineffective to return to past crop set-aside programs. These include any new programs that would pay us to idle acres for additional payments.
    Decoupled AMTA payments must be retained and increased to an average payment that was apportioned in the FAIR Act. Without the additional AMTA payments, many producers would have failed this year. The countercyclical financial safety net and permanent disaster provisions must be added to the FAIR Act rather than to rely on a bailout from Congress every year. This safety net should be implemented when revenue for commodities drops below a certain percentage of the crop's historical value. Financial payments from this safety net should be a supplement to the present AMTA payments and should be paid only to those who produce eligible crops on AMTA acres.
    We suggest that supplemental payments be based on marketing conditions rather than on cost of production, since a criteria for determining cost of production can differ with each individual situation. We realize there are various supplemental income proposals out there, and we look forward to determining which of those would be most beneficial for sorghum producers, but we have an idea to add to those proposals.
    I ask that you not get caught up in details today as I am sure there are greater minds than ours that can help us with its fine points.
    I think we would all agree that the future of production of agriculture is to capture value past the traditional farm gate. Producers are being encouraged to invest in producer-owned, value-added companies. However, 65 percent or more of these start-up companies fail for a variety of reasons. That is why it stands to reason for a producer to invest in companies that are already in existence and that are profitable. While producers can do this individually, many lack the capital, knowledge, time and incentives to do this today. That is why we are proposing an organized conscientious effort to include producer agriculture as an invested party in the U.S. food and fiber industry that takes their commodities from the field to the table.

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    Transition payments from countercyclical safety net programs could be either be made in the form of cash or issued with a 10 percent premium and tax-deferred if a payment were to be invested in corporate America. All voting rights of stock would be proxied to a manager of such a fund, much like the voting rights possessed by various retirement and pension funds today. By statute, these funds would be established as a producer-owned cooperative with private industry and possibly the Farm Credit System as suppliers of financial expertise and planning.
    Again, again, this concept is just a general idea with details that need to be determined, but these are the kind of ideas that we are looking for, the kind that help us help ourselves.
    For any kind of financial safety net, we urge you to commit to increasing the farm support baseline from $7 billion to at least $13 billion. Payment limits should be removed, and means testing should be avoided if you wish to assist producers who contribute significantly to the domestic-grown food supply. Agriculture and regulatory policy has forced many of us to expand the size of our operation to achieve economies of scale, and currently proposed payment limits do not correspond with efficiently-sized family farming operations.
    We realize you will see attempts for increases in rural development programs. We would like you to know that keeping efficient farmers in business should be the top of any rural development plan and come before things like USDA's rural development grants for tourist organizations. One suggestion we have to emphasize for them is to help producers become involved in producer-owned value-added ventures. Involvement in these operations is key to helping producers become price-makers, rather than price-takers.
    We recently saw a 6-cent drop per hundredweight in 2000 loan rates for grain sorghum. As representatives of grain sorghum that is forecast to plant the lowest acreage on record this year, I am here to tell you that these policies encourage producers to plant crops with more favorable loan rates. We will continue to question USDA's reasoning behind the decrease in sorghum loan rates, and we ask you to permanently fix this in the form of new legislation. Sorghum is a drought-tolerant, profitable choice for many producers, and should be, and it should be market and conservation factors and not Federal policy that determines acres.

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    Our greatest need as producers is the ability to survive and control our own planting decisions, competing and prospering in a global economy. But the ideal free market scenario is hindered by increasing Federal regulation, taxes, sanctions and foreign subsidy. That is why we urge you to consider these suggestions today.
    Mr. Chairman, thank you for this opportunity to present our ideas. The committee has our best wishes as you undertake this task.
    [The prepared statement of Mr. Kubecka appears at the conclusion of the hearing.]
    The CHAIRMAN. Mr. Klein.

STATEMENT OF LELAND KLEIN, PRESIDENT-ELECT, NATIONAL CORN GROWERS ASSOCIATION, BATTLE CREEK, NE

    Mr. KLEIN. Thank you, Mr. Chairman, for the opportunity to testify here today about the farm economy and the future of farm policy. My name is Lee Klein, and I farm near Battle Creek in northeast Nebraska. I am president-elect of the National Corn Growers Association, representing more than 30,000 farmer members nationwide.
    Let me begin by stating NCGA's continued support of the 1996 freedom to farm bill. The Nation's corn growers continue to support a market-oriented approach to farm policy, an approach that allows farmers the flexibility to make the production decisions for their operations and focuses on building demand for corn.
    However, to deal with today's agricultural prices, NCGA has short-term recommendations that would positively impact farmers facing another year of low prices. We have presented these recommendations to Congress before, so I will list them quickly at this time.
    Repeal the payment limitation of the Marketing Assistance Loan Program.

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    Support the restoration of a Storage Facility Loan Program.
    Support access to markets around the world through wise U.S. trade policies and sanctions reform.
    Support full utilization of the conservation reserve program at its 36.4 million acre cap.
    Modernize our aging lock and dam system.
    Support development of the ethanol market.
    At NCGA, we are currently mulling over long-term agriculture policy, much like you here today, and, like you, we don't have the answer yet, but we are working hard to find it.
    Our policy discovery process is well under way, with the aim of being prepared for hearings before this committee for the next farm bill. We have been investigating and analyzing a number of new initiatives that have been mentioned in farm circles. We are interested in seeing if any of these new ideas can work with the provisions and within the philosophy of the current farm bill. We don't want to lose the gains that and flexibility that we fought for and won in the last bill.
    However, we have found that we have limited staff and financial resources to accomplish everything on our list. Therefore, we are urging Congress to help us in our endeavor. We urge you to tap your many resources and work with us and other policy groups to fully investigate any policy options now in preparation for discussions in 2001.
    We would like to work with Congress in developing any studies or inquiries they deem important. For example, Congress should seek more detailed information on green payments, carbon sequestration/carbon banking, agricultural concentration in the grain industry, acreage-idling impact on foreign production, and conservation requirements affecting production costs.

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    Also Congress should investigate opportunities for growers in value-added. How will growers take advantage of these opportunities? Value-added is perhaps the most talked about trend at the coffee shop today. The lack of profitability in production agriculture has many growers looking for ways to extract greater value from their production. The 1980 farm crisis caused a spurt of interest in rural development and alternative agriculture, both of which tend to move people away from or out of traditional crop production. The current movement appears to be much more healthy and is geared toward using modern technology to extract more value as opposed to getting out of production agriculture.
    Growers are very excited about its possibility, although we have found the term ''value-added'' means different things to different people. Regardless of the definition, the vision is the same, an opportunity for producers to move up the value chain with their product. This also means that increasingly we are not producing No. 2 yellow dent field corn, but rather a feedstock with a particular set of intrinsic qualities. We are only now fully coming to grips with what that means for the producer and for the value chain of production, handling, merchandising and processing corn.
    Value-added is more closely linked to social change than most policy issues that our association deals with. Most specifically, it has a strong rural community flavor since it generally enhances or creates jobs for rural America. However, it is also at odds with some of rural America's more populist fears of change. A good example of this lies with concerns regarding concentration of ownership of grain inputs, handling or processing. Several of the pieces of legislation that have been introduced in Congress to address concentration issues could very easily prevent growers from forming alliances and partnerships with corporate America.
    We urge Congress to take the lead on the timely investigation of these farm policies that may or may not work in harmony with current law.
    Before I close, I would like to take this opportunity to thank the committee for their work on recently passed H.R. 2559, the Agricultural Risk Management Act of 1999, including $7 billion in farmer assistance. I would also like to thank the entire House of Representatives for their decisive vote on H.R. 8, the Death Tax Elimination Act.

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    Mr. Chairman, members, the Nation's corn growers thank you for holding this timely hearing, and we appreciate the opportunity to express our views. I would be happy to answer any questions or provide more details on the recommendations we have made.
    Thank you.
    [The prepared statement of Mr. Klein appears at the conclusion of the hearing.]
    The CHAIRMAN. Mr. Pomeroy.
    Mr. POMEROY. I just want to say a word of introduction of the next witness, Dan Wiltse, president of the National Barley Growers. I have worked with Dan for many years and found him to be one of those people that we all see in our districts. He really has a fine sense of what it takes to make it in production agriculture and the intersection in terms of sound public policies; a third-generation farmer, 2,500 acres under cultivation of grains and row crops, and just as fine as they come.
    So I am very pleased that my constituent Dan Wiltse is leading the Barley Growers Association and he is testifying today.
    Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Wiltse.

STATEMENT OF DAN WILTSE, PRESIDENT, NATIONAL BARLEY GROWERS ASSOCIATION, LISBON, ND

    Mr. WILTSE. Thank you, Congressman Pomeroy.
    Mr. Chairman and members, it is a privilege to address this committee on U.S. farm policy and how it affects our Nation's barley producers. I am Dan Wiltse, a farmer from Lisbon, ND, and I am president of the National Barley Growers Association. The National Barley Growers Association comprises board members from Minnesota, North Dakota, Montana, Idaho, Oregon and Washington, and represents the interests of the Nation's barley producers on issues affecting public agriculture policy.

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    I do raise barley, wheat, sunflowers, edible beans, corn and soybeans on my farm in southeastern North Dakota. Until this year, my brother and I farmed in a partnership since buying out our father 17 years ago. However, the bleak outlook for agriculture, low rate of return, continued weather disasters and long, unrewarded hours has prompted my brother to quit the farm and find a 9 to 5 job with a guaranteed income and fringe benefits for just showing up. I now solely operate and manage the farm.
    Unlike my brother, I, along with thousands of other barley producers, believe that we can successfully make significant change in farm policy to sustain the livelihoods of our family farms. We hope that Congress and consumers alike will see the value to the abundant, safe and diverse food supply that U.S. producers provide domestically and to the world, while at the same time being stewards of the land.
    The 1996 FAIR Act eliminated set-asides and introduced full planting flexibility, which the National Barley Growers continue to support. National Barley also supported the proactive trade policy, the more aggressive export programs, improved risk management tools, increased funding for agricultural research, tax incentives, transportation and infrastructure improvements and also regulatory reform which were to accompany the 1996 farm bill legislation. Except for the recently passed crop insurance legislation, for which we are greatly appreciative, few additional tools have been implemented at this time, and producers all over America are struggling with little hope for the future.
    As with other commodities, barley relies on exports so that surplus stocks remain at manageable levels. The opportunity to move our surplus stocks into the export markets is vitally important. Export subsidies and predatory practices of State trading enterprises have lowered barley exports by 70 percent and increased imports by 36 percent, making the U.S. a net barley importer.
    Barley production last year reached a 50-year low, and acreage was the lowest in 100 years. Low barley prices have also brought out the inadequacy of any farm program safety net. Producers of all commodities need a countercyclical support program that will provide payments when market prices decline. The emergency supplemental aid programs have been extremely helpful, but they are no guarantee, which leaves much uncertainty with producers and our lenders.

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    Specifically allow me to mention a few points about the Marketing Loan Program and loan deficiency payments, or LDPs.
    As some of you may not know, barley loan rates under the Marketing Loan Program are determined in relation to the feeding value of corn. This loan rate calculation reflects an arbitrary and outdated feed relationship and understates the true market value of barley. This is especially true since current barley loan rates do not even account for fully one-half of today's barley crop, that being malting barley.
    The National Barley Growers would like the next farm bill to establish the barley loan rate based on its own 5-year Olympic average formula, taking into account both feed and malting barley. In addition, loan repayment rates must be revised to more accurately reflect local cash values, rather than arbitrary values based on so-called USDA terminal locations.
    In today's environment, the loan rate dictates what crop is planted due to the low commodity prices. Barley's current loan rate returns only 60 percent compared to other crops in my area. Last week in North Dakota the corn LDP was 37 cents; soybeans, 73 cents; sorghum, 74 cents; oats, 29 cents; wheat, 28 cents; and barley, 3 cents. Sustained low prices below loan rates will continue to cause barley acreage to shift toward more profitable crops because of loan rates, not the marketplace. We must reform the Market Loan Program so that the loan rate does not dictate what gets planted without regard to demand.
    Also, the loan rate must provide a safety net that is comparable to competing crops so that production is sustained. I am here today so that the Rodney Dangerfield of grains gets its due respect.
    Barley growers believe that trade export assistance tools must be part of domestic farm policy. We believe that much can be done to enhance exports through market promotion, export enhancement and food assistance programs. We have been left out of nearly all the export channels and commodity export programs.

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    NBGA supports a zero-for-zero approach to equalizing trading practices and an immediate elimination of all export subsidies and tariffs. It would be meaningless unless we discipline STEs. We support PNTR for China and fully expect to benefit from this.
    We support investment and research to improve yield, quality, disease resistance, new uses and restoration of USDA/ARS projects. These are vitally important for the future of agriculture.
    Barley growers are also sensitive to the insufficient or monopolistic transportation options in the U.S. Railroad Competition and Service Improvement Act and the Jones Act need reform.
    In conclusion, we support the adoption of permanent countercyclical farm programs.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Wiltse appears at the conclusion of the hearing.]
    The CHAIRMAN. Thank you very much to all of you. Thank you for summarizing your statements and giving Members an optimum amount of time for discussion and dialog.
    There are a lot of similarities in a lot of the directions that generally each of you want to go. I have a tendency, however, to focus on some areas that are not, because it points out some of the difficulty that we have got in making farm policy. You have got different thoughts about exactly what we ought to do with CRP. We have different thoughts about a countercyclical program, whether it is based on production or what is produced by market prices, or whether it is based on cost of production; differences of opinion about storage and on-farm and whether we expand that or not. Those kind of come to the heart of obviously a lot of the problems that we have.

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    Several of you mentioned, starting with Mr. McLendon, in your testimony with regard to payment limitations and its impact on whether or not programs work, those are realities we have to look at, because so many things that sound really good on paper, when you plug it into a substantial payment limitation, then it dramatically impacts whether or not it is going to work. Unfortunately, they are realities.
    Just looking at what has happened, and all of you commented, and we heard it in all our field hearings, that every time we talk to farmers about the fact many of them are in business because of the payment for the past 2 years and the payment that will come this year that has already been decided, and yet I remind people that this was additional payments; so we hit a new limitation, and payment limitations were changed on LDPs, and we have certificate programs that don't have limitations, and all of these things work quite well. But whether or not these things are going to be possible in putting in and implementing in terms of some kind of a long-term farm policy remains to be seen. So that sort of continues to bring up the challenge about exactly where it is we are going to go.
    I just wanted to mention that it was, Mr. Curtis, in your opening paragraph where you said soybeans have looked to the marketplace rather than the Federal Government as your source of income. I may know a farmer, but I don't know one that has the opinion that is any different than that. That is where they want it to come from.
    I was meeting with a group of farmers a week or so ago at home, and they said, we want our income from the market. I said, you have got it, today. Unfortunately, it is not real good, and if it wasn't for the billions and billions of dollars that were coming—so we can't just say we want it from the marketplace, because if we do, we are seeing what can happen today.
    So I think inherent in any kind of discussion, and that is a great goal, and it is wonderful and all of that, but everybody says the program should have worked, but it didn't, because it didn't have a safety net. Well, if the marketplace is working, you don't need one.

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    What we have to try to do is look at how do we step in and what kind of program do we have to come into place when you are getting it out of the marketplace and it is just not quite enough for you to get by on.
    Mr. Kubecka, in your operation, you listed three different commodities here for a total of 5,600 acres. You may farm even more than that, but do you consider yourself a family farm operation?
    Mr. KUBECKA. Yes, I do. I am in partnership with my two sons, and it is a family operation. I can be up here because I have them.
    The CHAIRMAN. That brings up another dilemma we have. We try to ask in all of our hearings, people say, well, these programs should be based on the family farm. We are still looking for a definition of what that is. In some areas people would look at that and say, no, we don't need to have a program that will support 5,600 acres of production. I agree we should. If it was up to me, we wouldn't have payment limitations, period. They would be gone. Unfortunately, it is not totally up to me. Your operation is obviously going to be dramatically impacted by where that limitation is.
    Mr. KUBECKA. Yes, it is. We have structured up and taken advantage of the laws to utilize that. I make no amends for that. That is our survival.
    The CHAIRMAN. I am not asking for apologies. You shouldn't apologize for it. Unfortunately, so many programs that Government comes up with penalizes the efficient and rewards the inefficient.
    That comes to the final point I want to make just before the red light comes on, and we will get to some questions later, I am sure, but, Mr. Detrick, you said something in your testimony on page 4, you said you do not support the establishment of a safety net that is so comfortable that it lures farmers into treating it as a hammock or a return to the failed farm policies of the past. On the contrary, you support the creation of a payment that would provide enough support to keep rural America productive. Where that is, I don't know.

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    We—all of you mentioned the crop insurance reform that we all worked very hard on, very strong bipartisan effort, and I think probably made some substantial changes in where we are going. Mr. Curtis, I am hopeful you are wrong that you don't think it is going to attract new people in. I think it is going to, even soybean producers. But one of the concerns we have heard from people is that this program is going to be so good now, this is going to encourage people to get into the program and farm the program. I don't know where we divide that. I don't know where that line comes up to where we create a truly adequate safety net that truly helps the farmer, and then it is not going to be open for criticism by saying, you created such an attractive program that now people are going to farm the program. That is a real challenge, and that is something we are going to have to have your help on.
    People talk about it really generically. Unfortunately, we can't create a generic General Farm Program. We have to put numbers, we have to put loan levels, we have to put limitations. We have to put those things into law. So generally it may sound really good, but how we create that program that on the one side is not criticized for doing nothing and on the other side may be criticized for doing too much, that is a real challenge.
    Mr. Detrick, you wanted to make a comment. Please do.
    Mr. DETRICK. In our statement, I think we are referring and we referred in other places about cost of production. Our biggest worry is that a safety net that is not based on cost of production does not allow a young farmer to get back into the business and be able to procure adequate financing. So I saw some figures the other day in 195, and based on percentages and not the number of farmers, we know the number of farmers have gone down, but in 1985, 25 percent of the farmers were under age 35. Today only 15 percent are under age 35. That is taking into consideration fewer farmers.
    Why? A lot of these have got to procure financing. If they don't have some sort of a safety net, in our opinion, based on cost of production, and I don't think that would encourage—when we are looking at cost of production, we are not talking about profit. That is where we refer to not encouraging a program that would stimulate overproduction.

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    The CHAIRMAN. I agree. I have been giving a speech for 3 years that says that, that we have got to base programs on realistic cost of production figures, because that is what it is. It doesn't matter what some antiquated formula that goes back 15 years is, it is what does it cost to produce that crop today.
    But then that also brings up a question, and I have sat down with a dozen farmers and asked what the cost of production is and gotten 13 answers. For those of you who haven't done the quick math, that is more answers than there are people in the room. What do we consider? Do we consider land costs? And how do you consider a farmer, one that leases versus one that owns; how do you consider one whose farm is paid off versus one whose is not; and irrigation versus dry land? Those are numbers we continue to try to grasp for.
    I agree with you, and one of the concepts I have tried to create—and it is phase 2 of risk management that I want to head us into now that we are through phase 1—is that you do it in such a way—I apologize to my colleagues for running over a little bit here, I won't ask the next round—but if you are—if you have a warehouse full of widgets, and I have a warehouse full of widgets, and you have more expensive widgets than I do, we are going to both buy insurance to cover our inventory, yours is going to cost more. You have got more expensive widgets.
    I want a farm operation to be based on the farm, rather than on the county or the State or the Nation, and I want to reward good management, and I want to penalize bad management. I want to create incentives for you to produce, and I want to create incentives for you to do it as cheaply as you possibly can so that there is a monetary reward for your being an efficient farmer. And if you can produce at a level that is less than I can right next door, that ought to be of benefit to you, beyond just the fact that you have lessened your crop.
    And to develop a program that does provide rewards for efficiency and good management and production is a challenge, but it is a goal that I have. That is where I want to get, to where we reward a good farmer, and while we don't physically go out to intentionally penalize them, the program is established not to reward inefficiency, not to reward bad management, not to reward somebody trying to rip off the program or farm the program. That is where I want to try to go, that we get away from the ability for people to manipulate a program.

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    And I apologize again. Mr. Minge left. Sorry, Mr. Minge.
    Then we are going to go to Mr. Bishop.
    Mr. BISHOP. Thank you very much, Mr. Chairman.
    Let me thank the panel for coming and helping us wrestle with what is going to be a very, very, very important policy issue in the next few years, particularly as we go into the next farm bill.
    Let me especially welcome my constituent Bob McLendon, who, as president of the National Cotton Council, is here, but he is a farmer par excellence, and I would urge my colleagues to pay very strict attention to what he has to say, because he certainly knows whereof he speaks.
    I would like to just ask a question to Bob that I think will perhaps amplify some of what has already been said. In Georgia, for example, many of the cotton farmers are diversified farmers, as many of our producers are in the Southeast, and having diversified into other crops, the gross value exceeds that of other crops. Can you explain the impact that this has on farmers?
    I heard some discussion earlier about payment limitations, family farm size. What is a small farm, and what does it actually take to survive in terms of acreage? Do we need, as we move forward, to dispense with these limitations on payments, and also in restricting the number of acres that a ''family,'' a small farm, can actually work in order to survive?
    Can you sort of amplify on that a little bit, Bob?
    Mr. MCLENDON. I will be glad to try to, yes, sir.
    In Georgia we grow, I told somebody this morning, everything but rice, but we grow a lot of crops, and as times go along and we have tried to be efficient and compete in the world markets, we have had to grow more crops and more crops, and payment limits have gotten to be a bigger problem, and every year it has gotten bigger. This year with the marketing loan gain payment limits, it was a tremendous problem.

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    I think in order for us to have a strong U.S. agriculture economy, commercially-sized operations have got to be included and have access to Government policy, Government programs. I think in order for us to compete in the world, we have got to have access, these commercially-sized farms. I know it is not popular to do away with payment limits, but we have got to do something, because I have got to be able to compete in the world, and if I don't have access to the policies that are passed by Congress, I will not be able to compete. I will not be efficient in my operation.
    The cotton industry is totally committed to being competitive. So we have got to have new programs that allow commercially-sized operations to have access to programs. I don't know the answer to that, but I know that in the 27 years I have farmed, I haven't gotten bigger because I wanted to do more work, I have gotten bigger trying to survive. And my net income has not changed dramatically in those 27 years. But I have tried to remain on the farm, and the only way I have done that is to get bigger, and as I have gotten bigger, then payment limitations of all kind have created a bigger problem for me on my farm. It is not just in south Georgia, it is throughout the country.
    So I hope I answered the question that you were pursuing.
    Mr. BISHOP. Yes, sir, I appreciate that. I guess basically what you are saying is that we just have got to make it possible for you to have volume of scale in order to survive, to make the balance sheet come out right. You have got to do volume, and in order to do volume, you have got to farm more acres. We can't have programs that restrict your ability to do that.
    Mr. MCLENDON. I think we are the best clothed and fed people in the world, maybe ever, and we are spending the lowest percentage of our disposable income on food and fiber, and we do that because commercially operated farms are involved, and we have got to have programs that include everybody, that is not pitting small farms against large farms.

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    Mr. BISHOP. Very quickly, let me ask you, in light of the recent drought that is devastating the Southeast, can you just kind of talk about the impact that we have experienced with regard to abandoned crops and what the result of the drought is expected to be on cotton, peanuts, tobacco, and tell us what other than the recently enacted crop insurance reform bill you think could be done to help us deal with situations like this?
    Mr. MCLENDON. Well, I live in south Georgia, and in Georgia, as a State, it is impacted by the drought. We have only received about half of our normal rainfall. We have got virtually no grain sorghum planted behind wheat. But cotton, for instance, we are going to have 1.5 million acres in Georgia, and we don't know how bad it is, because we are in about 50 percent of our growing season, but we are estimating 2 to 300,000 acres of this 1.5 million acres will be abandoned. Some of it was not planted.
    The peanut situation, we waited because of disease problems to plant peanuts in May. In May, we didn't have hardly any rain at all. Peanut stands are not good. It is real bad in south Alabama, it is bad in south Georgia. I live about 40 miles from the State of Alabama, so I see what goes on over there.
    But at this point, there is hardly any corn that will be made in Georgia, Alabama, and South Carolina.
    But to tell you what we need to do, we don't know how bad the situation is today. As September-October comes along, we will be able to tell more about the disaster, and I would urge this committee to consider some type of disaster program for the Southeast. There might be other sectors of the country. But in my 27 years, I have never seen it as dry as it is now.
    The water table, I irrigate a great deal of my crop. The water table for wells has not dropped drastically. It is amazing. But the streams and ponds and things are the lowest level I have ever seen. I don't know what we are doing wrong, but we are not getting the rain.

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    But I would urge the committee to wait until this fall, later on, because we don't know how bad it is. I am getting at that 200,000 to 300,000 acres of cotton that has been abandoned. We know how many we intended to plant because of the boll weevil program. We know how many acres we planned to plant, but we don't know how many acres got planted.
    Mr. BISHOP. Thank you. I think my time has expired. Thank you very much, and thank all of the panelists.
    The CHAIRMAN. Mr. Everett.
    Mr. EVERETT. Thank you, Mr. Chairman.
    Mr. McLendon—first of all, let me thank the whole panel for being here. That is my part of the country, in Alabama, you are talking about, as you know. Also you have a business, I think, in Montgomery, which is also in my district.
    But what you have said about the drought conditions is absolutely correct. We don't have any water. We are 14 inches below normal rainfall for this time of the year in southeast Alabama. I am sure it is pretty much the same way in Georgia.
    I certainly feel like something has got to be done to keep our farmers afloat. This Congress has done an awful lot, but we still in the last 4 or 5 years, 4 of the last 5 or 6 years, we have either had droughts in our part of the country or had a rain that just went back and forth and dumped anywhere from 12 to 14 inches of water on top of our crops, neither of which, of course, helped any.
    Also I am kind of like the chairman, this is going to be a tough farm bill to ride, and I think all of you have said that you recognize that.
    Mr. Chairman, how do you tell a small farm from a large farm? Let me give you one story. Last year we had a drought in my part of the country also, and I got calls from folks that wanted to graze the CRP land, and I understood that; but they also wanted to see full payment for being able to graze that land. They wanted USDA to adopt the payments.

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    I found out later that that really was a part-time farmer. He had some cows and planted a few peanuts and that kind of stuff. But both he and his wife work in town.
    Well, I had some friends who I call full-time farmers; they farm 2,000 acres, 3,000 acres, which in row-cropping—nowadays you just about have to do that to be able to stay in the business, at least that amount—and they called me and said, yeah, this guy is not really a farmer. He shouldn't be able to do this. He shouldn't request USDA to waive the penalties that he is going to receive for grazing his land.
    I don't know how we write a farm bill to protect those folks and the people, I feel, who are the—I don't want to use the term ''legitimate farmers,'' but the commercial farmers. We use the term ''commercial farmers,'' or first of all I guess you got to define commercial. It is no longer 40 acres and a mule, the family farm. You have to define that. It is no longer 40 acres and a mule.
    I have people in my district that have family farms that farm up to 4,000 acres, and they are diversified, as some of you have said—you said, you are, and others have said.
    So how do we put together a farm bill that can protect both those guys that just kind of like that way of life and want to be involved in that way of life, but also demand the protection that people who really are making their living—or trying to make their living; there hasn't been much of that lately—make their living in farming?
    I don't know how we do that, Mr. Chairman. That is one of the things we have to take a careful look at. I understand there are certain crops you can have small acreage and get large returns on, but definitely peanuts, cotton and corn are not those crops.
    You mentioned there wasn't any dry land corn. You are right. There is no dry land corn in our part of the country. I don't in what your experience was, but even the corn that we had under irrigation in southeast Alabama, we are not going to get an awful lot out of that either. The yield is going to be anywhere from 40 to 50 percent below normal yield.

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    So I look forward to working with the chairman and getting the input we are getting from all the different farm groups; and hopefully, we can come up with a farm bill that will—or that safety net.
    Also one of the things that makes it so difficult, one of the reasons the chairman is so concerned about going beyond where we need to go is, we are getting an awful lot of criticism because exactly what I think you or somebody pointed out a few minutes ago, our folks pay the least amount of disposable income of any country in the world for food and fiber; and there are so few people today involved in farming. The numbers are small; they are extremely small.
    The same thing with the national defense, so few people are involved in national defense. When I came to this Congress, the 103rd Congress, 147 members, only 13 percent of us ever wore a uniform. I consider feeding the population part of the national defense. Hopefully we can do something that will come up with this and meet the challenges of this difficult task.
    Thank you, Mr. Chairman.
    The CHAIRMAN. Mrs. Clayton.
    Mrs. CLAYTON. Thank you, Mr. Chairman. I want to thank you for holding this hearing and to probably restate a question that I received earlier that plays off a little bit of your concern, which is, what is the role of Government in the farm bill and the kind of dichotomy in our professed statement of relying totally on the marketplace and wanting to have a safety net and what that safety net may be?
    So I guess the question we gather from our commodity leaders is for them to help us kind of forge that balance. I don't think you want to limit the role of government, and you want to make sure we remove limits of payment so everybody can play—at least everybody can have an equitable place at the table, regardless of whether you are small or large. That is only appropriate. But that certainly is an engagement of the Government being with you.

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    Again, we want to reduce management of supply, and I think that is probably consistent with your belief that the marketplace will determine the supply. But at the same time, the marketplace, as the chairman said, is working its will now and the prices are very low.
    I know the cotton farmers in my area, Mr. McLendon, are really suffering, and they say it has something to do with the market prices.
    So the question, I guess, is what is the appropriate role of government in trying to make sure that we have food security; and is food security a sufficient national security issue that we should have an investment that says that we will make sure that we have a sufficient supply of food, so we therefore have to have a safety net? I think those are the balances that we have.
    Another balance that I have, coming from a rural area, I know that agriculture—again, as my colleague from Alabama said, less people are producing food, maybe because we are more efficient, and we have now about 3 percent of the people producing all the food we need in America and for all the world. If you come from my area, you know that that 3 percent is a substantial part of our economy, but it is not all of our economy. So we have to have a balanced rural economic strategy.
    So as the next farm bill comes, I would like for you to also help us to say what other activities should we be considering if we are talking about a balanced economy in rural areas, including agriculture, including the farm bill.
    The farm bill, in my judgment, has to be more about supply and demand, about commodities; and it also has to recognize that agriculture in the farm bills recognizes utilities, infrastructure, education, a variety of things that make your life in that area possible.
    So we want to make sure we have that kind of balance.

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    I was struck, Mr. Kubecka, by a couple of comments in your statement. You say we should not go back to the supply management program. I believe that is your commitment.
    Would you say that we should keep the same market price process we have going now?
    Mr. KUBECKA. Well, what we have seen, when we decrease our production here, it is replaced by international competition; and I guess that is the big question, do we want to maintain our system, or at some level are we willing to transfer this, so to speak, across the pond? Do we want to confer it to South America or to Africa or wherever it may be?
    So that is why we feel that we don't think supply management, because the economists tell us if we cut down, they just increase. So we are just getting chased out of business.
    Mrs. CLAYTON. I am arguing for your position. I am just saying, if we do not have—that you should plant according to the market, right?
    Mr. KUBECKA. Yes, ma'am.
    Mrs. CLAYTON. You are doing that right now, right?
    Mr. KUBECKA. Right.
    Mrs. CLAYTON. So nothing is wrong with that process?
    Mr. KUBECKA. Well, we need the flexibility. We were locked into planting things that we were so tied down previously on supply management, we could not shift acreage for rotational purposes.
    Mrs. CLAYTON. You don't have that now though?
    Mr. KUBECKA. I am saying it is good what we have. If we go back to supply management, that is a very severe limitation on that. I am saying that is why we don't need to go back.

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    Mrs. CLAYTON. You like the farm bill like it is?
    Mr. KUBECKA. Yes, ma'am, we need to stay with the FAIR Act and the flexibility.
    I was just going to say, I grow cotton myself and sorghum, and it is paramount that we have that rotational ability. We had farms that only had cotton acreage because of the years that we had planted in, and we were on a collision course. It was going to catch us. So the FAIR Act has been very popular, and I think all groups have supported it.
    Mrs. CLAYTON. So you don't have any problems with the return you are getting, given the market-driven price now?
    Mr. KUBECKA. We are certainly not getting it out of the marketplace at this point in time. I mean, it is because we take advantage of the programs that are out there. Thank goodness you have provided programs to keep us in business.
    The question is, what is the future?
    Mrs. CLAYTON. I want you to know those programs are not written into law. Those are emergency programs, by and large, that keep you afloat.
    Mr. KUBECKA. I certainly understand that.
    Mrs. CLAYTON. The question is, do you want a greater or lesser role for the Government? If I ask CRS to add the prices up, we are spending now more than we did when we had the program before.
    My time is giving out, and I know the chairman is generous, but on page 4, you made an observation about rural development. Do I understand you to say that we shouldn't have rural development? Since I am a prorural development person, I would pick up on that.
    Mr. KUBECKA. I guess we question the money that is charged to agriculture that is given to some things that are labeled as rural development. I think that is our biggest concern.

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    I am for rural development. I live in rural development. We are between Houston, Corpus Christi and the San Antonio area. People pay us to come out and preserve the birds. We are a wintering ground for all the waterfowl. I will take advantage of everything I can. We have people that just come out to sightsee.
    I mean, anything, any program that can help me, because I certainly don't have time. I hire a consultant as my entomologist. I just went on and signed up for a marketing consultant. I don't have the time to do all of these things. I need help in these areas. I don't want them charged against agriculture; that is my concern.
    The CHAIRMAN. Mr. Lucas.
    Mr. LUCAS of Oklahoma. Thank you, Mr. Chairman. I appreciate another fine hearing that you have called as we work our way through this subject.
    Your comments, I think, were right on the money about the challenges we face, defining family farms and defining costs, all issues that we have to come to grips with as we prepare not only to complete the implementation of the 1996 farm bill, but looking in the direction of where we go next. And there are no simple answers.
    After all, as was observed to me some time ago, if we had ever come up with a perfect farm bill any time since 1933, in all the efforts we made, there would never have been another. We have not succeeded yet and we still have to try.
    But the challenges are tremendous, and it is not just the cost, it is not just the definition of what a family farm is, but it is taking into consideration things like the increase in productivity we have had in the last 60, 70, 80 years in American agriculture.
    My good friend, Mr. Everett, pointing out, we are not one mule and 40 acres any more; he is exactly right. The seed, equipment, fertilizer we use, the ability to produce so much more with fewer actual resources on a more limited number of acres is, of course, a compliment to our scientific ingenuity and our fellow producers' willingness to adopt every conceivable effort to boost their productivity. But it has added to the challenges we face.

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    That said, looking at particular issues brought up in the testimony today, I can't help but turn to my friend and fellow Oklahoman, Mr. Detrick, and ask a question or two about some of the points that NAWG makes. If you could expand for a moment, I am particularly curious about point No. 3, that NAWG does not support the reestablishment of a farmer-owned reserve or a paid storage program.
    Could you expand for a little bit there, why NAWG takes that position?
    Mr. DETRICK. Certainly. I mentioned also in my testimony that we need to work on a farm bill taking into consideration that we are an exporting country regarding wheat.
    Infrastructure is something that we have in the United States, the best anywhere in the world. We are proud of it, but we use it. And we have storage, we have transportation, and we have harvest and we store the stuff. Other countries that do not have that infrastructure, immediately upon finishing harvest, begin getting rid of it in the world marketplace; and we wind up holding a majority of the world's stocks.
    The recent opportunity to get some reduced loans for farm storage, I have some mixed emotions. When we look to the future, a lot of our wheat producers, primarily in the north, already have a lot of storage. In the south, we have got county elevators about every 10 or 12 miles.
    I think one of the first places we can add value is to stop just dumping a load of wheat in a community pit. I think we are looking into the future when we look at biotech and a lot of other opportunities, while wheat—going into the red wheat areas, et cetera, we are going to have to preserve identity.
    So minimal storage is going to be necessary in order to do that and then market it. But storage for the sake of holding it and storing it to know that that storage is out there and that surplus is out there, we think is price depressing. We think we need to be concentrating on developing markets, sanction reform, and doing the other things that we have looked for through the FAIR Act since 1996 to be able to help us continue to market and move this stuff.

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    Mr. LUCAS of Oklahoma. Could you expand for a moment on point No. 4, about the CRP, the potential acreage set aside programs?
    Mr. DETRICK. As the point has already been made, so many times in the past, almost all of the time when we reduce acres, we give those acres up to foreign competitors. If we are going to be a player in the world marketplace, we are going to have to have a continual supply of crop.
    We are not opposed to the current CRP that we have, and we encourage the Secretary to go full enrollment on that. But to increase those caps, we feel would be devastating and not profitable for the long run. When we come back to rural development and rural communities, I think a strong argument can be made that CRP has devastated a lot of communities.
    Mr. LUCAS of Oklahoma. You are absolutely right there. It is a classic two-edged sword. Very popular among my constituents, very popular among my colleagues here in Congress, but yet it does depress economic activity out in the countryside, and depopulates, not all that differently than the old soil bank effort of the 1950's and 1960's.
    Mr. DETRICK. If I could, a lot of things our members are telling us, we need to look at the payment on CRP and the payments should be based upon its fair rental value, not its return value. I recently had a farm rent increase for me 150 percent of what I had been paying because the father died, the daughter inherited, she didn't want to farm it, she checked out CRP and was able to get a return from CRP based on the return of that land.
    I can't compete with that and still have another return on top of that to make a profit. I need to be able to acquire that land, and if CRP is my competition as a renter, then it needs to be based on fair rental value of that land so I can put my input costs in it and still come out with a worthwhile profit.
    Mr. LUCAS of Oklahoma. If the chairman will indulge me for one more moment, the placing as first point on this list of five, preserving the flexibility, the planting flexibility of the 1996 act, does that reflect the importance that the membership places on that point?

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    Mr. DETRICK. Yes, I think so. That is correct.
    Mr. LUCAS of Oklahoma. Thank you.
    Thank you, Mr. Chairman.
    The CHAIRMAN. Mr. Berry.
    Mr. BERRY. No questions, Mr. Chairman.
    The CHAIRMAN. Mr. Dooley.
    Mr. DOOLEY. Thank you, Mr. Chairman.
    I will apologize I didn't have a chance to hear your oral testimony, but I had a chance to read it all, and I was pleased that almost without exception—or without exception, I should say—all of you contend we shouldn't go back to any program that has any type of supply management in it. I appreciate that.
    The thing, though, that I would kind of ask as we move forward is that a lot of this, when we get into the farm bill, we see a lot of competition among the various commodity groups for the payments or transfers to growers; and I understand that. But I am a little bit concerned that that almost focuses more on the short-term problems that we are dealing with.
    I hope as we move forward, too, that the various commodity groups can focus on what are some of the longer-term investments in terms of the appropriate role of the Federal Government that can benefit farmers over the long term. I am one that believes very strongly that there is more that we can be doing in terms of the development of technology and the investment in basic R&D. Oftentimes when we get down this path and we start trying to identify the dollars that we could invest there, we are in competition with some of the direct payment dollars. From my perspective as a farmer, and also as a Member of Congress, there is a balance there, and hopefully we can take an enlightened approach there, with all the commodity groups, that there is an investment there and an increase in the R&D that will serve us well.

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    On a more germane issue in terms of how you transition into maybe a different program, there has been a lot of attention given to some of these countercyclical approaches, but a little of my concern is that any time that you have a program out there that is going to be basing payments as a function of market prices, it is that trigger, if it is too high, it then encourages management practices and managing decisions that are predicated on maximizing the return from the Government payment that is oftentimes inconsistent with what the market is dictating.
    I would guess, when we move forward here, most of you, if any of you have any comments on this, how do any of you have any idea on how you devise a countercyclical program that again has a trigger that is still lower than the marketplace that we are sending into, so it doesn't distort market signals but still provides some level of income protection to growers?
    Has anyone done any work on that or understand what I am asking?
    Mr. DETRICK. I might comment on behalf of wheat growers.
    We have a task force that we have organized, and we are working and plan to work with FAPRI, the Food Agriculture Production Research Institute. We have had them do some work for us; we have capitalized on some work Congress asked them to do for us.
    We intend to come with the best thing that we can find, and as a basis the cost of production—I respect what the chairman had to say about that a while ago; I couldn't agree with him more on his comments and on several of those aspects that he mentioned. But on cost of production, yes, I realize it is diverse and it is difficult to come by, but I think we can also make use of our land grant colleges to help us find a reasonable cost of production in the various areas; and if there is a farmer that can not produce it for what is determined to be a reasonable cost of production, then he needs to look at his efficiency. If someone can find a way to be more efficient, they get the reward the chairman talked about.
    But I also think that if there is not a countercyclical safety net there that encourages big profits, then we do not encourage overproduction. Just a safety net for cost of production is not going to encourage production, because they are not going to produce it if all they are going to do is break even.

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    My concerns, our membership concerns, and we come back to the role of government in the farm bill, this committee as a part of the Congress of the United States is concerned about the welfare of this entire country. The consumers, we talk about 2 or 3 percent in agriculture production, we are talking about 100 percent of our population is concerned about agriculture.
    We need to be looking way into the future. That is the job of all of us as leaders, to look into the future and the direction we are going right now, as far as the future of agriculture, is kind of bleak. That is all we are asking, to help turn that around. How do we get younger farmers back in?
    I have got three sons. Not one of them has yet determined to come back to the farm. I specified they couldn't come back until they had a college education and could do something else. They found out there are other ways to make a living. They want to come back, but they say, I want to come back capitalized. Lots of luck.
    Mr. DOOLEY. I will say, the cost of production, again, I am a little concerned about going down that path too, because I am not convinced that is market oriented. The market is going to be predicated on what the supply is out there and what the demand is out there, and I am not quite sure what the relevance of cost of production is to those market signals.
    The other case in point I would just bring out, in the dairy production area there are some folks that have been advocating a cost of production there in terms of—in some regions of the country it is $12 a hundredweight. If you do something of that nature, that is a license to print money in California, in the dairy area that I represent. They will add more cows than they are already adding.
    The same can be said even in some of the cotton-growing areas too. That is—again, I am not sure how you devise a cost-of-production program that is, in fact, market oriented. I guess that will be my challenge to you as you folks continue to work on that, to make sure that we are not distorting market signals there and actually giving a windfall to some folks out there that have found ways to reach a level of efficiency that gives them that relative advantage.

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    Thank you.
    The CHAIRMAN. Mr. Moran.
    Mr. MORAN. Mr. Chairman, thank you. I attended six of the 10 field hearings you and Mr. Stenholm conducted. This is our second in a series, I think, of three hearings here in Washington, DC, and I join you and others in lamenting the difficulty in developing farm policy and developing a farm bill for the year 2002. This will be—assuming I am here in the next term, this will be my first opportunity to participate in that discussion.
    I don't know after eight hearings and visiting with Kansas farmers every week that I am any closer to knowing what the 2002 farm bill should look like than I was when we started our hearings 6 or 8 months ago.
    It is useful, but I certainly see the difficult task that you all have faced in the past and will face in the future.
    It seems to me, gentlemen, there are two places that farmers can derive an income. One is a Government payment, the other is from the markets. It has always been my thought and I think it is the farmers' belief that the more farm dollars we can derive from the market, the better our circumstances are. I think it would also be difficult to have adequate support in Congress for continual dollars being added to either the farm bill or emergency appropriations.
    My question based upon that is, what provisions should a new farm bill include that are related to combating the difficulties that our farmers face in competing in the export market, and particularly the European Community or others? We have our examples, the significant amount of subsidization put in production and in exports. So I guess my question is generally this:
    Have you seen efforts in recent years by this administration or others that have been successful in combating the export subsidy, the production subsidy by our competitors? If not, what proposals do you have that we can suggest to the administration take should be included in the farm bill to try to make that difference, and how high of a priority is this issue with you and your members?

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    Mr. MCLENDON. The fact that we have got to compete in a world market is going to mean that we are going to have to continue the export promotion programs that we have; that is our opinion in the cotton industry. We have got to have trade legislation that just passed, like CBI. We feel that is a tremendous opportunity for cotton. We can't compete with cheap labor in Asia, so NAFTA came along and was a tremendous benefit to us. We sold about 2 million bales of cotton into Mexico last year because of NAFTA.
    But we have got to have legislation that allows us to compete on a level field, and CBI is going to help the cotton industry. We feel like that will increase our sales by 1 million bales in 3 years. So this type of legislation is a tremendous benefit to the cotton industry.
    We like the flexibility programs of the FAIR Act. I produce in an area where a lot of crops are grown, and it gives us the opportunity to plant several crops, not having a base acreage and having to stick with so many acres. But what we don't have is a safety net in prices.
    I can't get in and out of farming on a year-to-year basis. I have a tremendous investment in equipment to grow cotton, and if prices get low enough, I can't have those $175,000 cotton pickers out there sitting there, not running. My fixed costs are to the point I can't get in and out every year. So we need a Government program when prices are low they will give me a safety net of some type. I don't know how to come up with it, but we need a price that will allow me to stay in business until things get better.
    Unfortunately, there are a lot of things that go on that Congress is involved in, like high interest rates. The Federal Reserve sets rates. That is going to increase my cost of production tremendously, because I have a lot invested. I owe a lot of money. So we need and Congress needs to be involved.
    Mr. MORAN. Let me ask this question as a follow-up to your comments, not just directed to you. What you say is missing from the current farm bill, the FAIR Act, is a safety net. But is there not also concern, what is missing in this farm bill are the tools necessary to obtain the market price in the world market through competition with our competitors?

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    Or are we going to solve the problem? Are higher interest rates in the United States, different exchange rates between countries, export subsidies by the Europeans and others, is the solution to that problem improving the safety net; or is there a solution to that problem that is related to taking on our competitors with a program?
    One of the frustrations we have—and I attended the WTO talks, but the concern I have is, how do we get our competitors who have, it seems to me, a significant advantage, to reduce that advantage? What do we have to take, what steps do we have to take to combat their efforts?
    I don't know whether I am out of time or not, Mr. Chairman.
    Mr. CURTIS. If the chairman would indulge me, I would like to make a statement to you on that question.
    We have a great many tools in this current farm bill for exports that we are not using. I can go down the list here; I had it listed in my testimony.
    Trade authority—I didn't say anything about PNTR; thanks to the House for passing it. Hopefully, we can get it through the Senate.
    Sanctions, EEP, FMD, MAP, Public Law 480, section 416(b), humanitarian food aid which we are not using properly and efficiently this year. Things like, even now we have the USDA telling us we cannot use checkoff money, our farmers' own money that they contribute to export programs and promotions, to inform foreign governments that something needs to be changed in their policies that would enable us to increase exports there.
    So, yes, there may be something more in the next farm bill that we can do to enhance exports, but there is a great number of programs in this one that if the administration would use it and the Congress would help them use it, that would help exports tremendously.
    The CHAIRMAN. Mr. Baldacci.
    Mr. BALDACCI. Thank you for holding these hearings and your interest, along with Ranking Member Stenholm, in trying to gain more insight throughout the country in terms of the new farm bill as we look forward to the future Congress and as it develops that legislation.

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    Mr. Chairman, I don't have much comment in regard to most of this testimony, and I do appreciate the panel. It was just that one particular notation sort of drew my ire as I sat here and listened. I probably should just submit most of those comments for the record. But not that somebody from Lubbock would recognize the importance of Maine snowmobiling and the importance that that has to rural development in a very rural part of the country.
    Of course, I am sure that you are aware in south Texas that in northern Maine, which I represent, the largest physical district east of the Mississippi where we have 32 rural health clinics, that it is a long way in between points. But we consider it part of the rural America that needs rural development funds.
    In a lot of cases, my presence on this committee these last 6 years has been as a reminder to the people in the Northeast that there is a whole world of agriculture out there that we need to focus on and need to work with; and, you know, maybe if we get more growth and development in the rural areas, that we can have all of America enjoying economic prosperity.
    At the same time, I think it has helped to enlighten some of the Members who may not have been familiar with Maine in terms of some of the agricultural products beyond the fantastic lobsters and clams which we are hoping that some of the Members will be able to enjoy, possibly coming up this month in August, as the sweltering heat of Texas and Washington bear down on all of us, because I am going to Maine. You are more than welcome to join me.
    But one thing I did recognize is that we need to grow the agricultural pie, and I think that is one thing that I have learned in the Northeast, in working with my colleagues in the Northeast, is not to try to do battle with the West or the South or the Midwest, but to somehow find ways that we can sort of work on national agricultural policies.
    I think that we have been leading the way with the chairman and ranking member, showing how to be fiscally responsible with our budget way before it was in vogue. We have somehow taken some hits for that because they have asked for even more. But I believe that we have worked as a committee to try to bring about that kind of action in rural America on a bipartisan basis.

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    One of the reasons I like serving on this committee is that there is—the exception is not working together; the rule is that everybody works together, regardless of party. We are trying to help all of agriculture out.
    Mr. Chairman, I will leave the very cogent comments as they pertain to the Maine Snowmobile Association and the importance of Maine snowmobiling to the small community of Portage Lake in northern Maine, year-round population of 445, and also, just for the record, the resources were applied by the towns and they weren't given to an association, as that would not have been allowed.
    But I do understand that Bob Myers, the executive director of the Maine Snowmobile Association, has graciously extended an invitation to Mr. Kubecka to come north one winter, recognizing that that may be difficult, given the thin blood that Mr. Kubecka has. But we would certainly love to have him come north during the wintertime, and Bob would be happy to take you on a tour of some of the 12,000 miles of snowmobiling trails in the State.
    With that, Mr. Chairman, I would leave this testimony and yield back whatever time I have remaining to you.
    The CHAIRMAN. Yes, sir?
    Mr. WILTSE. In defense of Mr. Kubecka, in 1993 I, along with Bill, was in Canada on the U.S. Grains Council NAFTA trip, and he has been north, and he has thick blood. But at that time we thought that passage of NAFTA could be a great benefit to us and things would be much rosier today.
    Barley has seen, as I said in my comments before, a 70 percent reduction in exports, a 36 percent increase in imports. Things are not better today, and I think Bill can say the same.
    The CHAIRMAN. Mr. Smith.
    Mr. SMITH. Mr. Chairman, thank you. Again, probably never before in history has the House Agriculture Committee been so aggressive in trying to face up to the tough challenges that we are going to start next year, so my congratulations again to you and the ranking member.

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    In the last 3 years, under Freedom to Farm, the cost of farm programs has been the highest, I believe, in the history of this country since we first started programs in 1934. That kind of popular support, I think we are somewhat fortunate to have in this Congress. It is easier to get the extra—the three extra AMTA payments that we have had, substantial support for the insurance program to get that started with approaching a 70 percent subsidy of the cost of those premiums for insurance, and certainly the extra disaster payments.
    I would just suggest that even with these current huge surpluses that we are projecting, the challenges of Social Security and Medicare are substantial; and within the next 10 to 12 years, the $9 trillion to $20 trillion that is going to be required to sustain those programs is going to probably have a higher priority than where we go in agriculture.
    So what we do next year is so vital, I think, in terms of the future of agriculture in this country, but if push comes to shove between funding Medicare and funding Social Security and coming up with additional help for agriculture, agriculture is going to come in in third place.
    I wonder if any of you have any comments or reactions or thoughts that you might be investigating in terms of somehow dealing with the overproduction worldwide, somehow cooperating or excerpting an effort in our WTO or our new NAFTA language we are developing to reduce some of the production worldwide, with greater credit to the United States for its effort—only diverting additional acres, not planting those acres; or additional credit for what we have put in the CRP program, which is, in effect, an effort in this country that results in less production or at least less acres produced?
    Eventually if we are going to look at the marketplace for reimbursing farmers and at least replenishing their cost of production, then we have got to deal somehow with the overproduction of the Nation. Every time we have had higher prices historically, always the agricultural community has reacted to more aggressive planting, growing and eventual overproduction within the next couple of years.

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    Any thoughts on the possibility of doing something to try to control production with other countries that are substantial exporters of your different commodities?
    Mr. MCLENDON. Mr. Smith, I would like to address that first. It might be possible to get some kind of cooperation between the countries of the world, but I really doubt that. I would rather see you have some type of program that would feed the needy of the world and utilize this extra production, rather than having to control the production.
    I just don't believe you—that is my opinion—that you could get enough cooperation to control production. I think you could get enough cooperation to sell this excess food and fiber that we have in the world to the needy people you see on television. I don't know, it appears there are a lot of people that are not fed and clothed to the point that we think it should be. So I would a heap rather see you develop that type of program. I think you could do that a lot easier than having a control program.
    Mr. SMITH. Down the line, briefly?
    Mr. DETRICK. Yes, sir, I think, and I have thought a long time, as we go to the world trade talks and work with GATT, when we are discussing the problems around the country with agricultural production, could we not in some way begin to look at a world food supply that when it reaches a certain point, then more acres are released around the world?
    I don't know that anybody has as much of a problem with managing our supply except for the fact that we always do it to our disadvantage in the United States. In regard to wheat, we have a study that says, give or take a few cents, kind of a median of $3.25 is a global price. And we can say, yes, we want our price out of the marketplace——
    Mr. SMITH. I am going to quickly pass down.
    Mr. Curtis, just quickly, brief comments.
    Mr. CURTIS. Yes, sir, we don't have overproduction, we have underutilization. We have competitors across the world, poor countries that see agriculture as the only way to increase their standard of living, and they are going to expand, no matter what we do.

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    Mr. SMITH. We are putting language in my basic research bill just to look at alternative uses of these renewable resources.
    Mr. KUBECKA. From my organization's respect, we acknowledge that is a problem of actual overproduction, because our concern is, there may be needy people out there, but how do we justify giving it? Someone has to support us as producers.
    Mr. KLEIN. Well, I think that part of what I gave in the fact of trying to have farmer ownership in the value added chain is a substantial portion of that. New uses—like Mr. Curtis said, we are underutilizing things. I think ethanol is a prime example of that. I think if we reflected the true cost of oil to the United States, ethanol is very cheap and would be a good source of use.
    Mr. WILTSE. In the case of barley, we have a use ratio, and yet our competitors, specifically the European Union, have increased production dramatically, way more than our total production even in the last 3 years. They don't really care what we do, if we raise barley or not. They are going to subsidize and get rid of theirs. They build the infrastructure that helps their communities, the processing plants. They don't care about us.
    Mr. SMITH. Well, then I don't know, Mr. Chairman, where we go on the WTO. Europe, that now subsidizes five times as much as we do in the United States, I think is determined to do whatever is necessary to keep their agriculture subsidized by hook or by crook.
    Thank you, Mr. Chairman.
    Gentlemen, thank you all for your testimony and for being here.
    The CHAIRMAN. Mr. Stenholm.
    Mr. STENHOLM. Thank you, Mr. Chairman.
    I thank each of the witnesses for your testimony today.
    Bill, I gather you will not be including Maine in your testimony any more after that. I surely wouldn't myself with that. So that was an unfortunate choice of words, but mistakes happen from time to time.

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    Today's testimony was kind of a continuation of the 10 field hearings in which every one of you said you and your members like the Freedom to Farm, but you don't like the results. I appreciate the nonspecificity of your recommendations today, because we are all searching for some direction.
    The last questioning of Mr. Smith is one that I hope no one will dismiss out of hand as being not feasible. I think we have to look at everything, whether we think it is feasible or not, or whether we think it is a crazy idea or not, I think we have to look at alternatives, because I accept the fact that it looks like the Europeans will continue to do what they believe is in the best interests of their citizenry, regardless of what the rest of the world may think; and therefore, I hope we have learned our lesson now with the results of Freedom to Farm, that the idea we can unilaterally disarm our farmers and survive without additional resources—I hope we have learned a lesson there.
    I do agree that the WTO Round, it is getting very expensive on Europe as well as on us, and I hope we will make some—at least marginal changes, and I hope more. I hope that we will be able to accomplish the goals that Ambassador Barshefsky and Secretary Glickman have outlined, even though they have been criticized as being unrealistic, given the fact we have appropriated so much additional money in subsidizing our own farmers, it is kind of the pot calling the kettle black now, and there is a certain amount of truth to that.
    But one comment I want to make so that you can rehash this: Mr. Detrick, you said a moment ago, we need to look to the future. I could not agree more. There is one area of looking to the future that too many of us in this Congress, on both sides of the aisle, are ignoring and that is, when we talk about—every one of you asked that we have an increase in the baseline. You recognize that the baseline that we have got for the 2002 farm bill is inadequate for any kind of proposals other than Freedom to Farm, which is the true decoupled farm bill, period. We recognize that.

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    Now, we also need to recognize something that is, I believe, very factual. There is a certain euphoria today about this $4.5 trillion surplus that is there for dividing and spending, and there is a certain amount of support for cutting taxes. In fact, we have a tax cut a week. And I want everybody to start adding this up, because if you support the tax cut of the week and the total amount that is in this package, as many do, there is no money left is my prediction for any increase in the baseline for agriculture.
    Both candidates for President have already proposed long-term solutions for Social Security that have spent almost $1 trillion of a so-called ''surplus.'' both candidates, differing versions, but they have proposed spending it.
    When we look to the future in priorities, there are very few people in this country that believe that Social Security and Medicare are not a high priority; and therefore, when we look at that, we have got to start looking at the very real facts.
    Now, if you follow this all the way down, there is about $200 billion of increased spending over the next 10 years that we can have, if you assume 100 percent of the tax cuts that have been proposed, $200 billion that will have to be divided among defense, health care, prescription drug benefits, the programs that already are spending $300 billion—proposals, veterans, education, and then agriculture. This worries me, because it is very politically popular to propose tax cuts, and we will have another one next week that in my judgment, policywise, is one of the most irresponsible tax cuts this Congress could pass, but we probably will pass it.
    Now, each of you support, as I do, estate tax relief, one of the most cruel, inhumane, down right criminal taxes we have today are those that take away the hard-earned benefits of family farms and other small businesses. But you are going to have to make a choice as to whether or not you want nothing or something.
    I personally believe that an exemption of $4 million to $5 million, in which an estate of $4 million to $5 million of any shape, form or fashion would have to not worry at all about even filing an estate tax, inheritance tax form; and then reducing the amount of tax paid by everyone else, all up and down the line, to the capital gains tax return, is a good, good deal for agriculture, for the country, and for policy in general. I believe that. That is what I vote—that is what I am going to vote for.

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    But there are those that say that repeal is the only way to go, and if you want repeal, you are going to get nothing.
    And one of the reasons why I will support the veto of this inheritance tax cut, and believe the President should veto it, is because it leaves a $50 billion hole in 2010 that, unless we come to grips with Social Security first, is irresponsible. And most people don't think about that. The reason I do is, I have spent a lot of time on Social Security, and I happen to believe it is critical to us. And that is why I am going to be very supportive and am very appreciative that both candidates for President are addressing this question.
    But we in agriculture need to be realistic. I say this to my colleagues, we keep pushing for this and we keep believing that this is the kind of policy we want to follow, fine. I quarrel not with any of my colleagues that differ from me on this issue or any other. I just would say to our farm groups that when you say that this is what you want and support, then be prepared for the very difficult job this Congress is going to have in the 107th Congress of coming up with that kind of program.
    I happen to also share the desires of the chairman when he was talking about needing to reward a good farmer, and I think these are some ways that we can think outside of the box on this; and time will not permit in depth today, but I think it can be done—not perfectly; there will never be a perfect program.
    But my one question I want to ask you, this gets back to the payment limitations question. I don't want you to answer it today, but I just want you to think about this. I want to put the question on the record, because I think it is impractical to believe that as we come up with a support program that we are going to support any size of operation, regardless. That is politically impossible.
    Therefore, as we look at how do we, within what each of you want to do—Freedom to Farm, producing for the marketplace—what kind of a limitation can work within what you want? If you want to get bigger and farm and get efficient—Bill, you talked about it and each of you and your many members. That is the only way you have survived, Mr. McLendon; all of us have done the same thing.

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    But in making that decision to get bigger, what you are telling us is you want us to continue to stay market oriented in the world, and therefore production decisions of getting bigger ultimately are going to have to be made based on the world price, not on a supported price, if it is going to work, because we now see that land has been capitalized upward; all of this money we have pumped out into the farm community is now going into increased land costs and increased rental costs. You can't get away from that. It just happens that way.
    So as we think in terms of how do we come up with a system that rewards good farmers, how do we come up with a system that does what each of you and everybody else—well, not everyone—90 percent of the farmers that have testified before this committee have said we want to maintain—we like Freedom to Farm. We like the flexibility. We love producing for the world market, but we hate the prices the world market gives us.
    Now, that is a disconnect, and somehow, some way, with all the brilliant minds at this table looking at me today and those behind you, we have got to come up with a better answer.
    One of the things troubling me today about the market loan, theoretically, under our market loan, we ought to be gaining market share because there is no reason for us not to be competitive in a marketplace when zero is the potential lowest price. We could theoretically be giving away our barley in order to maintain or gain market share against the Europeans, because the LDP will make up the difference. The farmer has the loan and the loan is not enough to barely keep us in business.
    But it is not working that way. This is a question I keep asking the grain trade and everyone else, what is it about our current program that is not allowing us to gain market share?
    I hope the next round of numbers will show that we are beginning to gain market share. Then I will have some confidence that the philosophy and the workings of the program are working as we intended when we passed this bill; but so far we have not seen that. What we have seen, it has required about $44 billion to maintain the economic status of rural America in the shape it is in, and most of you have said it is not in good shape.

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    So, let me repeat. Take a good, hard look at the budget, and you have got to make some decisions about where we go and how we get there. And if the politically correct position for us to be in this November is the more tax cuts, the better, from an agricultural perspective, you have got to help me find where we are going to increase the baseline in 2001 and 2002. The money will not be there, and those who advocate it are going to have a lot of explaining to do; and those of us who oppose it probably are going to have a lot of explaining to do too. I thank you for being here.
    Mr. Chairman, I thank you for the continued good work in calling the hearings and letting us have the opportunity to hear from the country. As you said a moment ago, if it was easy, we would have done it a long time ago. But I really get worried when I look at the absolute need. And I could not agree more; we have to have a more adequate baseline for this committee to work with. The chairman said it, I totally agree. How are we going to do that in a competitive field that we are going to be in if we are not careful in preserving this baseline?
    Therefore, you know, what I would like to see is us put as much of this surplus as we possibly can to paying down the national debt while we have it, just in case the projections of this $4.5 trillion surplus over the next 10 years do not happen. Let's look at the economy of agriculture, what has happened in the world markets, and tell me you have a great confidence that we are going to see our economy continue to grow at the rate we have for the last 8 years for the next 10 years, and that something is not going to happen to other segments of our society that is happening to agriculture and was happening to the oil and gas industry until inventory management reached its ugly little paw into the oil industry, and the oil industry began not to supply manage, but to control their inventory. That is my final comment, though those of you who absolutely hate supply management, show me one other business anywhere in the world that can survive unsubsidized without managing their inventory.
    There I go back to Mr. Smith's comment a moment ago. Let's think outside the box. Farmers in other countries are having the same problems we are. We are all going to be facing the same business. Let's not dismiss anything as being impractical or unphilosophical until we have at least had a chance to try it.

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    I appreciate your answers. Thank you.
    The CHAIRMAN. I thank the gentleman.
    Again, I thank all of you very much for your thoughts on this. We have an open door of wanting to try to work together with you and all people interested in agriculture to come up with a program that can get a consensus. If we don't get a consensus, it is not going anywhere.
    But there are challenges. We think that early-on attention to these and the directions we are going to be going in the next year or two are very helpful, and we appreciate the contribution that you have made today.
    Without objection, the record of today's hearing will remain open for 10 days to receive additional material and supplementary responses from witnesses to any question member posed by any member of the panel.
    The hearing is now adjourned.
    [Whereupon, at 12 noon, the committee was adjourned, subject to the call of the Chair.]
    [Material submitted for inclusion in the record follows:]
Testimony of Bill Kubecka
    Mr. Chairman, members of the committee, I would like to thank the U.S. House Committee on Agriculture for allowing me this opportunity to discuss issues and possible solutions to the crisis with which U.S. farmers are faced today.
    My name is Bill Kubecka, and I serve as vice-president for legislation for the National Grain Sorghum Producers. I farm in a family partnership near Palacios in south Texas between Houston and Corpus Christi. Our diversified operation includes 2,500 acres of sorghum, 1,100 acres of rice, and 2,000 acres of cotton.
    As we anticipate the 2002 farm bill, it is tempting to begin by painting you a scenario of low prices, high input costs, disastrous weather and over regulation, but I know you are well aware of these conditions after your many hearings in the very places affected by these serious conditions.

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     Instead, I would like to begin by pointing out a question that addresses the very essence of the difficult task before us. Will the U.S. Government look for producer profitability to come from the marketplace or will it revert to past cheap food and fiber policies? Is it possible to simultaneously achieve both producer profitability and cheap food? Mr. Chairman, members of the committee, your answers to these questions will be vital as you work to shape the 2002 farm bill.
    Our ideas for improvements to current programs fall under the general categories of
    (1) Farm bill modifications
    (2) Domestic markets such as ethanol
    (3) Access to the global marketplace
    (4) Crop insurance
    (5) Tax reform
    (6) Regulatory considerations
    What should the 2002 farm bill look like? We urge the committee to find a solution within the framework of the 1996 FAIR Act with a few modifications, some of which are similar to those that the National Grain Sorghum Producers conceived and championed during this process 6 years ago.
    First and foremost, planting flexibility must be preserved. We would like to thank Congress for giving us the opportunity in 1996 to make planting decisions based on market conditions and the conservation needs of our individual operations.
    We should not go back to a supply management program. While supply control looks like a good idea from a supply and demand standpoint, U.S. supply management policies will not keep foreign countries from bringing environmentally sensitive land into production, increasing world commodity supplies and stealing U.S. market share around the world.

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    We believe it would be largely ineffective to return to a crop set aside program like the farm bills of the 1980's and 1990's. This includes any new programs that would pay us to idle Agricultural Marketing Transition Act acres for additional payment.
    Decoupled AMTA payments must be retained and increased to an average payment that was appropriated in the FAIR Act. Without the additional AMTA payments, many producers would have failed this year.
    What about modifications to Federal farm policy?
    Agriculture is continuing to become more market oriented which leads to lower lows, as we see today, and higher highs someday for anyone left surviving. Unless you are content with just 50,000 farmers remaining in this country, then we must have a counter cyclical income program. A counter-cyclical, financial safety net and permanent disaster provisions must be added to the FAIR Act rather than relying on a bail-out from Congress every year. Such legislative actions will become increasingly difficult to achieve and defend in the face of projected Social Security, Medicare, and Medicaid shortfalls in the next 6 to 8 years. This safety net should be implemented when revenue for commodities drops below a certain percentage of that crop's historical value. Financial payments from this safety net should be a supplement to present Agricultural Marketing Transition Act (AMTA) payments and should be paid only to those who produce eligible crops on AMTA acres. This ''AMTA Plus Market Payment'' would be implemented when a crop's commodity price falls below a certain level that could be established using a 5-year crop price average of the years from 1991 through 1995.
    We suggest that supplemental payments be based upon market conditions rather than cost-of-production, since the criteria for determining cost-of-production can differ with each individual situation.
    We realize there are various Supplemental Income Payment (SIP) proposals out there, and we look forward to analyzing the details of these to determine which would be the most beneficial for sorghum producers. However, today we would like to focus some time on an idea that would give a new twist to existing counter cyclical income proposals and have an impact on farm policy 10 years from today and for my sons 30 years from now. I ask that you not get caught up in the details today, as I am sure that greater minds than ours can help with the fine points. But, I do seriously urge you to consider this concept and think about how it could involve producers like me with more profitable, value-added products.

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    Many in agriculture today agree that the future of production agriculture is to capture value past the traditional ''farm gate.'' The question is, how? Today, organizations like the National Grain Sorghum Producers are working with producers like me to encourage investment in producer-owned, value-added companies. However, according to Dunn & Bradstreet, 65 percent or more of start up companies fail for a variety of reasons. Therefore it would stand to reason for producers to invest in companies that are already in existence and that are profitable in their respective enterprises. While producers legally can do this individually, many lack the capital, knowledge, time and incentives to do this today. That's why we're proposing an organized, conscientious effort to include production agriculture as an invested party in the U.S. food and fiber industry that takes their commodities from field to table.
    What kind of program would help farmers diversify and help themselves beyond the farm gate? Perhaps transition payments from a counter-cyclical safety-net program could either be made in the form of cash and taxed at that point or issued with a ten-percent premium and tax deferred if the payment were to be invested in corporate America (otherwise known as that profitable sector of the food and fiber industry because of which many producers feel economically victimized). A further feature would be that all voting rights of all stock would be proxied to the managers of such a fund, much like the voting rights possessed by various retirement and pension funds today. By statute this fund would be established as a producer-owned cooperative with private industry and possibly the Farm Credit System as integral suppliers of financial expertise, planning and investor analysis.
    Perhaps then, improving the business of farming, maybe in 5 years we could farm again as a way of life and enjoy the daily pleasures of the outdoors without the possibility of bankruptcy constantly hovering above us like a black cloud.
    Again, this investment fund concept is just a general idea with details that need to be determined. But, these are the kinds of ideas that we are looking for—the kind that help us help ourselves.

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    Meanwhile, I'd like to address the more short-term realities of survival. To facilitate any kind of financial safety net, we urge that you commit to increasing the farm support baseline from $7 billion to at least $13 billion.
    Would payments made to farmers from such a safety net be subsidies for farmers? The answer is no. These payments would continue to subsidize the consumers of this country who enjoy a food supply that is affordable at all levels of wage income.
    Payment limits should be removed, and means testing should be avoided if you wish to assist the real producers of America who contribute significantly to the domestically grown food supply. Our national agricultural and regulatory policies have necessitated that we expand the size of our operations to achieve economies of scale, and currently proposed payment limits do not correspond with efficiently-sized family farming operations such as mine. Similarly, we encourage you to focus such farm program benefits on producers of row crops. Including specialty crops in these type of programs distorts already established, profitable specialty markets and encourages high-risk planting decisions by producers who know or have little time to prudently capitalize on such markets.
    We realize you will see attempts for increased prioritization of rural development programs. Mr. Chairman, we would like you to know that keeping efficient farmers in business should be at the top of any rural development plan. Programs like a financial safety net and disaster relief should come before USDA rural development grants to tourist organizations such as the Maine Snowmobile Association. What does tourism have to do with USDA helping make profitable the very backbone of rural America agriculture?
    We do not see rural development programs as altogether unnecessary. One suggestion we have for rural development is to create or give funding priority to rural development programs that help producers become involved in producer-owned business ventures that take farm products at least one step further up the value chain. Involvement in these vertically integrated operations is key to helping producers diversify their income sources and become price makers rather than price takers.

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    We are sure that it is not the government's intention to institute supply control in certain commodities by creating inequities among commodities with regard to loan rates and other Federal policies, but we recently saw a 6-cent drop per hundredweight in the 2000 loan rate for grain sorghum. As a representative of a sorghum industry that is forecast to plant the lowest acreage on record this year, I am here to tell you today that policies like these do encourage producers to plant other crops with more favorable loan rates. We will continue to question USDA's reasoning behind the decrease in the sorghum loan rate, and we ask that you permanently fix this in new Federal farm legislation. Our main concern is that there be no inequity among the determination of loan rates between commodities. Sorghum is a drought tolerant, low-input choice for many producers, and it should be market and conservation factors such as these and not Federal policy that determine where it is planted.
    All of these Federal farm program modifications could help producers help themselves through hard times. However, a Freedom to Farm type of program can be most successful with an Administration and a Congress that are committed to growing domestic markets while carrying out a strong and aggressive foreign marketing and international trade policy.
    The future of one of these important domestic markets will largely be determined by the actions of Congress. As a representative of a commodity that is used in ethanol production, I urge Congress to keep Federal oxygenate requirements for gasoline in place, and not eliminate them as a solution to problems with methyl tertiary butyl ether (MTBE). Ethanol can and should be used to meet Federal oxygenate requirements, and I believe there could be a plentiful supply of ethanol to meet the needs of end users trying to meet the requirements of the Clean Air Act.
    We also encourage you to continue passing measures that encourage the production and consumption of domestic alternative fuels from renewable resources rather than continuing to rely on foreign sources of oil.

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    Retail gasoline prices recently surged above $2 per gallon in the Midwest with many fingers falsely pointing to ethanol as the reason. But, we maintain that this jump in prices had little or nothing to do with the actual cost of producing reformulated gasoline with ethanol. According to our friends at the Renewable Fuels Association, ethanol delivered in Chicago/Milwaukee has a net cost of 71 cents per gallon, and ethanol is selling today for 81 cents per gallon below the price of gasoline. We maintain that the problem lies in our increasing dependence on foreign oil supplies over which we have little or no control. Ethanol is lower-cost, higher octane, cleaner burning, domestically produced, and it is renewable.
    That is why legislation that would encourage the consumption and production of ethanol would stand to benefit not only the environment, but also fuel consumers and agricultural producers. Some of my fellow sorghum producers who produce grain sorghum in areas with ethanol plants have benefited because they have found basis levels to be higher in areas that are near ethanol plants.
    What about markets from a global standpoint? This year, Congress progressed further than ever before in its quest to help producers by lifting sanctions on sales of food and medicine to Cuba and other countries. We would like to thank many of you here on this committee for working hard to get the issue this far. We know that many of you join us in our determination that farmers will not be ineffectively and, without compensation, used as defense contractors without good cause again.
    We also would like to thank those of you who helped ensure House passage of permanent normal trade relations for China. We look forward to trading with these 1.3 billion customers. Additionally, we urge you to pass Fast Track Trade Authority so that we may more aggressively trade and compete in the global marketplace.
    There are other issues to iron out, and we look forward to working through the framework of the World Trade Organization (WTO) in solving these problems. One of these is a non-tariff trade barrier in the form of a phytosanitary restriction on imports of U.S. sorghum to India. This is based on Indian concerns about leaf blight, but we know that leaf blight already is a prevalent problem in India. We hope to get this resolved this year, Mr. Chairman, but we wanted to ensure that you and other members of the committee were aware of the issue.

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    We would like to thank you, Mr. Chairman, along with members of this committee, for developing and passing a major crop insurance reform and disaster assistance bill earlier this summer. We are eager to see these new crop insurance reforms enacted that will address fraud and abuse that has taken place among a minority of producers, most of whom were doing what they thought was necessary for survival because they were finding opportunity in the insurance business rather than the marketplace. We also are eager to see enacted the new crop insurance program for sorghum silage that was passed as part of this legislation. However, from a sorghum standpoint, we are concerned about the effect the Actual Production History (APH) minimum-yield provisions will have on already dwindling sorghum acreage. We realize the APH minimum-yield provisions benefit producers by providing more income protection, but we are concerned about the potential effect on sorghum acreage, which has built-in yield stability.
    Because of unpredictable highs and lows in agricultural production and market prices, we need certain tools such as the Farmers and Ranchers Risk Management Accounts (FARRM). This program would allow producers to set aside up to 20 percent of their gross income in a tax deferred account from which funds could be withdrawn and taxed in emergencies or after 5 years. We would like to thank Congress for including this provision in the multi-billion dollar tax relief package that was approved by both Chambers in 1999. We were deeply disappointed when President Clinton vetoed the bill. Despite this, we are determined to see this program through, and we urge you to take up and pass the FARRM legislation again as an independent measure.
    Paired with a suitable income-averaging program for farmers and ranchers, a program like FARRM could be instrumental in relieving the financial and tax burdens faced by many producers.
    Yet other burdens that are faced by producers come in the form of unreasonable regulations. Many of the regulations required by the Environmental Protection Agency are forcing the costs of safe crop protection tools out of the reach of farmers. Many of these necessary tools are taken off the market before they are fully registered because the demands of EPA make pursuit of registration cost-prohibitive for companies. In some cases, costs have escalated four-fold over the last 10 years because of EPA requirements.

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    In the next few months, our organization will be studying proposals that would offer compensation for conservation efforts. While we feel there is a possibility that such a program could benefit sorghum producers, we cannot tolerate unscientifically founded conservation policies dictated as unfunded mandates.
    Other factors that can drive costs up for producers include the dwindling diversity of our peripheral industries. We urge Congress to seriously consider legislation that would provide for closer scrutiny of consolidation in the agriculture industry.
    It is clear that our greatest need as producers is the ability to survive while controlling our own planting decisions, competing and prospering in a global economy. However, it is clear that an ideal free-market scenario is hindered by increasing Federal regulations, taxes, sanctions, and foreign subsidies. Additionally, we do not need to become a country that is dependent on overseas food production. Such reliance on foreign food supplies would force environmentally-sensitive land into production. Instead, we should make the business of U.S. food production more profitable. That is why we urge you to consider these suggestions we have made today.
    Mr. Chairman, thank you for the opportunity to present our ideas. The committee has our best wishes as you undertake this task.

Testimony of Terry Detrick
    Thank you, Mr. Chairman. Let me begin today by thanking the chairman and ranking member for the opportunity to appear before the committee on the behalf of the Nation's wheat producers.
    My name is Terry Detrick, and I am a wheat farmer from Oklahoma. I operate a farming and ranching operation that has been in my family for several generations. I currently have the honor of serving as president of the National Association of Wheat Growers.

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    Almost 1 year ago, on September 14, 1999, I—and several of the other witnesses here today—presented testimony before this same committee on the status of the Nation's farm economy. Sadly, little has changed since then. Like all wheat farmers, my family farm has been hit hard by the on-going depression in commodity prices. I have witnessed many of my neighbors being forced into financial ruin and off their land. I fear that without the significant financial assistance provided by Congress for 3 straight years, many more would have shared the same fate.
    Since I last appeared before you, the committee has conducted a serious of hearings all across the country to gather input from the Nation's farmers on how to best address these problems and what, if any, changes need to be made to our Federal farm policy. On behalf of the Nation's wheat producers, I want to thank the committee for this tremendous, bipartisan effort. We have learned a number of important lessons from your work and have, as an organization, started to develop our own ideas on what the next farm bill should look like.
    Before I discuss the next farm bill, however, let me share with you some of our conclusions about the current farm bill, the 1996 FAIR Act or Freedom to Farm.
    As you heard from many farmers at the committee's field hearings, wheat producers do not believe that the current financial crisis resulted from any failing of the farm bill. Indeed, wheat producers support the continuation of both the planting flexibility and de-coupled payment system established by the Act. NAWG strongly believes that without the license to react to market forces and the flexibility to plant other crops, wheat producers would have experienced even harsher price declines and higher production rates.
    However, just as the 1996 act did not create the current farm crisis, it has not prevented it. Accordingly, NAWG believes that changes must be made to provide a real safety net and offers these six principles that we believe should serve as the committee's guide in shaping the next farm bill or any changes to current Federal farm policy.

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    First, any such changes must preserve the planting flexibility of the 1996 FAIR Act.
    Second, every effort must be made to increase the Federal baseline for farm support. Simply reallocating existing USDA funds is not enough. Neither should farmers or their lenders be expected to rely on an annual emergency declaration. Likewise, farm policy improvements should provide more financial assistance to individual producers.
    Third, NAWG does not support the reestablishment of the farmer owned reserve or similar paid storage program as the basis of the farm safety net. Paying farmers to store their commodities indefinitely only postpones the problem and can, if done incorrectly, increase the financial impact of the eventual day of reckoning.
    Fourth, NAWG does not support the reestablishment of a set aside program which would pay farmers to idle ground—beyond the Conservation Reserve Program (CRP). NAWG continues to support CRP and encourages the Secretary to enroll the full 36.4 million acres allowed for in the 1996 act. However, NAWG does not believe that idling additional acres in exchange for a Federal payment or similar types of non-market oriented approaches are, in the long-term, advantageous to wheat producers.
    Fifth, NAWG believes that all domestic policy decisions must be made in careful consideration of the U.S.'s status as an exporter of wheat. We must not allow any policy to jeopardize our reputation as a reliable supplier of first priority or our compliance with international trade agreements. Likewise, NAWG believes that we should use the full extent of all trade agreements to our advantage and that U.S. farm support should be at the highest levels allowed. Where appropriate, U.S. farm support should match that of its foreign competitors.
    Not withstanding NAWG's continued support for the 1996 act and its desire to keep the bill's market oriented approach intact, NAWG believes that current farm policy lacks the proper counter-cyclical stabilizers necessary to ensure adequate protection for farmers. Wheat producers remain committed to the market based approach that forms the foundation for current farm policy. However, the continued financial crisis among farmers illustrates that the safety net features of the bill must be modified.

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    NAWG believes that the committee needs to develop a system to provide counter-cyclical payments to farmers when needed. Such payments should only be made when market prices, combined with the current farm payments (i.e., LDP and AMTA) reach levels below the cost of production. Or, in other words, when the market and all current government programs fail to provide producers with the minimal amount necessary to produce food for the nation, something more must be done.
    While similar to legislation put forth by Ranking Member Charlie Stenholm, the NAWG plan differs in several key ways—primarily, we believe that counter-cyclical payments should be based on the price of production, not historic prices. Such a payment should be de-coupled from a farmer's current production and based on the farmer's existing AMTA contract. Total Federal assistance levels should remain within the agreed upon international limits.
    In addition, there is one important change to the farm bill that cannot wait until 2002. This year, Congress authorized a payment equivalent to an LDP for wheat and other small grain producers who harvest their crops by grazing cattle. This grazed-out option is used by farmers across the southern half of the Nation and is an important part of their operations. NAWG is very supportive of this additional support and thank you for your leadership on this front. However, the provisions passed by Congress only apply to the coming crop year. NAWG requests that you take the necessary action to extend these payments throughout the life of the current farm bill.
    In summary, let me state that NAWG and its members continue to support the reforms made by the 1996 FAIR Act. However, it alone is not enough to provide an adequate safety net for America's wheat producers. NAWG does not support the establishment of a safety net so comfortable that it lures farmers into treating it as a hammock or a return to the failed farm policies of the past. On the contrary, NAWG supports the creation of a simple, counter-cyclical payment that would provide enough support to keep rural America productive.

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    Again, thank you for this opportunity. I and my fellow wheat producers greatly appreciate your continued efforts on our behalf and the record levels of support you have provided to help us through the current farm crisis. We trust that your work will result in a sound Federal farm policy that provides for the financial security of the country's farmers as well as the food and fiber our nation needs.

Testimony of Marc Curtis
    U.S. soybean producers know that profitability depends on enhancing market demand and increasing global competitiveness. We have historically looked to the marketplace rather than the Federal Government as our source of income. This orientation is underscored by our dependence on exports—nearly half of each year's production of soybeans, soybean meal and soybean oil is sold abroad.
    ASA has consistently represented these interests in its positions on international trade and domestic farm policy in the 1990's. During the Uruguay Round negotiations, we supported eliminating all import tariffs and export subsidies to create a Level Playing Field for oilseeds and oilseed products. In the debate on the FAIR Act, ASA endorsed Freedom to Farm once it was made clear that soybeans would be treated equitably with other crops.
    ASA continues to strongly support the FAIR Act. Unrestricted planting flexibility enables producers to optimize crop selection and reduce operating costs, maximizing their profitability. Combined with the marketing loan program, this approach is highly consistent with orientation toward domestic and foreign markets.
    It was recognized by Congressional supporters that Freedom to Farm would make U.S. agriculture more dependent on the marketplace, requiring greater access to foreign markets. It was also recognized that decreasing dependence on government support would require less interference in production agriculture, and more effective risk management tools.

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    Accordingly, Congress and the administration made a number of commitments at the time to policies and programs that would help make the FAIR Act work. The list includes:
     Trade policies that reflect the importance of foreign markets and competitiveness to U.S. agriculture;
     Elimination of unilateral economic sanctions;
     Aggressive use of export assistance and promotion programs;
     Increased humanitarian food aid programming;
     Reform of the crop insurance program and development of new risk management tools;
     Increased funding for agricultural research;
     Relief for farm families in the tax code;
    Reform of regulatory burdens on agriculture.
    More than 3 years after the FAIR Act was enacted, few of these commitments have been honored:
    The effort to pass Trade Negotiating Authority, formerly referred to as fast track, was first derailed, then defeated.
     The agreement on China's accession to the WTO was nearly lost, and is now hostage to politics surrounding the pending vote on China PNTR.
     Legislation to repeal existing sanctions on agricultural and medical products was unceremoniously torn out of the FY–2000 agriculture appropriations bill last year; Funds authorized for the Export Enhancement Program continue to be unused, either for EEP or for other export assistance and promotion programs;
     The funding source for the Foreign Market Development (Cooperator) program was transferred from appropriations to the CCC, but no minimum funding level has been authorized;

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     Cuts in funding for P.L. 480 continue to be proposed and approved;
     A crop insurance reform bill has finally been completed, but the number of producers using the program will not increase substantially; FARRM accounts were included in last year's tax bill, but it was vetoed; Funds were provided for the $120 million Agricultural Research Initiative, but reductions continue to be proposed in the ARS budget;
     Progress was made in restoring income averaging as a means of evening out taxes, but estate tax laws continue to hurt agricultural producers;
     The regulatory environment for agriculture has deteriorated significantly since 1996.
    Another issue that only began to emerge in 1996 is the erosion in U.S. agricultural exports caused by failure to develop a workable process to address science-based regulatory decisions on biotechnology-derived crops.
    The limited progress made on all of the aforementioned commitments meant there were no new sources of demand or protection against losses when supplies rose and prices fell in 1998 and 1999. Today, with record soybean plantings on almost 75 million acres suggest a return to historic low prices and soybean producer income with this Fall's harvest.
    ASA believes the best response to the continuing crisis in the U.S. farm economy is for the Administration and Congress to address and complete the unfinished agenda of policies and programs they agreed to undertake back in 1996. We do not support going back to the old farm program, and oppose making set-asides or other supply management programs an eligibility requirement for any soybean benefit. We also oppose establishing a reserve for soybeans, increasing acreage in the Conservation Reserve Program for supply control purposes, or using environmental objectives to justify establishing an acreage reduction or set-aside program in the form of a short-term CRP.
    ASA supports examining income safety net concepts that would provide increased support when prices or revenue decline. However, there are many unanswered questions and issues about the effects and implications of such counter-cyclical income support proposals. Both the Supplemental Income Program advanced by Representative Stenholm last year and the Administration's proposed Income Assistance Program base payments to producers on a percentage of the difference in revenue for a crop between the current year and the Olympic average during the previous 5 years. This approach would provide a greater degree of protection in years following a period of relatively high prices and revenues, such as 1998, 1999 or even 2000. However, the revenue base will decline sharply as the lower prices for these years are included in the 5-year average.

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    A further major problem with the Administration's proposal is that it subjects payments to the AMTA cap of $40,000 per producer. This limitation would effectively means-test a program that is intended to compensate producers for economic loss, based on a farmer's actual production, and preclude participation by growers representing a substantial percentage of U.S. production. Any income support program must be equitable with regard to the size of a producer's operation.
    ASA will work with Congress in examining any income support proposals. A guiding principle we will insist upon is that soybeans be treated equitably in any program.
    ASA is very interested in developing a farm program that would provide additional income support to producers who voluntarily implement appropriate conservation practices. We believe that pursuing the public policy goals of protecting the environment while supporting farm income through sensible, voluntary measures is a concept that farm groups, environmental groups, and the Congress should further explore. In this regard, ASA has taken a first step by establishing a Conservation and Income Support Program Task Force, which will be exploring alternative approaches for developing this concept over the coming year.
    As we move forward to determine how to provide income in the next generation of farm programs, it is critical that the relationship between our domestic farm programs and U.S. obligations under the Uruguay Round Agreement and the next WTO negotiations be fully considered. In the Uruguay Round, the U.S. and other countries agreed to cap and reduce the amount of assistance provided under programs that distort production and trade. These so-called amber box programs include marketing loan gains and LDPs, input subsidies, and direct payments linked to production. Unless provided through green box programs that are exempt from reduction, including AMTA-type or conservation stewardship payments, future income support will likely be subject to discipline. The expectation of further reductions in amber box outlays in the next WTO round makes attention to this relationship even more important.

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    With commodity prices continuing near record lows and with many issues yet to be resolved on counter-cyclical proposals, ASA supports providing a supplemental AMTA payment to offset continuing low crop prices and depressed farm income. For the same reason, ASA also supports another economic loss payment to oilseed producers this year. Soybeans and other oilseeds are not part of the production base and formula for AMTA payments. We appreciate the fact that Congress recognized this situation again this year by providing both a supplemental AMTA payment and an oilseed payment. We appreciate very much the support of this committee and the Congress for America's farmers.
    Another issue of critical importance to soybean producers is the marketing loan program. With U.S. and world oilseed prices well below loan level for the past 2 years, this program has been essential in providing an income safety net as well as keeping our products competitive in foreign markets.
    Concerns have been expressed that the soybean loan rate of $5.26 per bushel does not reflect the historical price relationship with the corn loan rate of $1.89 per bushel, and that the disparity is increasing production of soybeans at the expense of corn and other crops. ASA does not believe this is the case, and would offer the following evidence:
     Since 1995, the area planted to soybeans has increased by 12 million acres. Almost 10 million acres of this expansion occurred in 1996, 1997, and 1998, when market prices were above the loan rate. This increase in soybean acres had absolutely nothing to do with the loan rate, but rather was driven by: (a) the production flexibility offered to farmers under the 1996 FAIR Act; (b) market returns; and (c) the interest of farmers in major corn/soy regions to move toward a more sustainable 50/50 corn and soybean rotation.
     While the area planted to soybeans has increased in 1999 and 2000 during a time when prices generally have been at or below loan rate levels, most of this increase can be attributed to: (a) continued movement by farmers to establish a 50/50 corn/soy rotation; (b) new soybean crushing plants operating in the western soybean belt; and (c) research that has produced soybean varieties that are better adapted to northern and western climates and conditions. For instance, almost 80 percent of the 1999 increase in soybean acres occurred in Iowa, Nebraska, and South Dakota, where three new soybean processing plants have recently been built. Further, virtually all of the increase in 2000 soybean planted acres is occurring in the northern and western tier states of North Dakota, South Dakota, Nebraska, Minnesota, Wisconsin, and Michigan where research has developed higher yielding soybean varieties that are better suited to northern and western corn belt conditions.

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     Tightness of available credit also may have played a role in causing some farmers to plant soybeans rather than other crops, even though total returns may have indicated otherwise. Many agricultural lenders reduced the size of production loans to farmers in 1999 and 2000 as overall commodity prices fell. Faced with reduced loans but with the same (or more) land to farm, some producers may have opted to plant slightly more soybeans than other crops because the variable costs of production for soybeans are lower than similar costs for corn, wheat, and cotton. According to the most recent USDA data, average per-acre operating costs were $79.32 for soybeans, $91.33 for wheat, $154.31 for corn, and $243.83 for cotton. Thus, some farmers' planting decisions were influenced more by the tightness of agricultural credit than by relative commodity loan rates or prices.
     If the soybean loan rate were out of alignment with the corn loan rate, one would expect to see more land devoted to soybeans than corn in major corn/soybean producing states. However, just the opposite is true. In 2000, the area planted to corn production exceeds the area devoted to soybean production by 1.7 million acres or 16 percent in Iowa, and 900,000 acres or almost 9 percent in Illinois. Furthermore, soybean planted acres actually fell in these states in 2000 as producers shifted those acres to corn. Nationally, corn planted acres are up 3 percent over last year while soybean planted acres are up only 1 percent.
    ASA very much appreciated Secretary Glickman's decision to not use his authority to lower this year's loan rate to $5.13 per bushel. Whenever Congress considers changes in the marketing loan program, ASA will support making the current $5.26 level a statutory minimum rather than a cap. The solution, of course, is to drive prices above loan rate levels by enhancing demand through greater trade expansion, export promotion, food aid, biodiesel use, reform of unilateral U.S. economic sanctions, and other steps.
    With regard to administration of the marketing loan program, ASA believes that many of the questions and concerns raised in 1998 were resolved through adjustments in how FAS calculates Posted County Prices and Loan Repayment Rates. As a result, very few complaints were received on administration of the 1999 loan program. ASA continues to support maintaining the existing system, basing PCPs and repayment rates on terminal markets rather than changing to a national LDP program.

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Statement of Dan Wiltse
    Mr. Chairman, it is a privilege to address this committee on U.S. farm policy and how it affects our Nation's barley producers. I am Dan Wiltse, a farmer from Lisbon, North Dakota, and president of the National Barley Growers Association. The National Barley Growers Association, comprising board members from Minnesota, North Dakota, Montana, Idaho, Oregon and Washington, represents the interests of the Nation's barley producers on issues affecting public agriculture policy.
    I raise barley, wheat, sunflower, edible beans, corn and soybeans on a 2,850-acre farm in the southeastern part of North Dakota. Until this year, my brother and I farmed together ever since buying out our father 17 years ago. However the bleak outlook for agriculture, low rate of return, continued weather disasters and long, unrewarded hours prompted my brother to quit and find a 9-to–5 job with a guaranteed income and fringe benefits for as long as he shows up for work. I now solely operate the farm.
    Unlike my brother, I, along with thousands of other barley producers, believe that we can successfully make significant change in farm policy to sustain the livelihoods of the family farmer. We hope that Congress and consumers alike will see the value to the abundant, safe and diverse food supply that U.S. producers provide domestically and to the world, while at the same time being stewards of the land.
    The 1996 FAIR Act eliminated set-asides and introduced full planting flexibility, which the National Barley Growers continue to support. NBGA also supported the proactive trade policy, more aggressive export programs, improved risk management tools, increased funding for agricultural research, tax incentives, transportation and infrastructure improvements, and regulatory reform which were to accompany 1996 farm bill legislation. Except for the recently passed crop insurance legislation—for which the National Barley Growers are appreciative —few additional tools have been implemented at this time and producers all over America are struggling with little hope for the future.

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    As with other commodities, barley relies on exports so that surplus stocks remain at manageable levels. The opportunity to move our surplus stocks into the export market is vitally important. Export subsidies and predatory practices of State Trading Enterprises have lowered barley exports by 70 percent and increased imports by 36 percent—making the U.S. a net barley importer. To suggest this phenomenon transpired due to stock shortages dismisses the fact that the U.S. retains a stocks-to-use ratio of 33 percent, more than adequate to supply additional markets. The combination of uncurbed foreign competition with unfettered production and planting flexibility has severely disadvantaged U.S. barley producers as well as the domestic barley-processing sector. Barley production last year reached a 25-year low and acreage was the lowest in 100 years.
    Low barley prices have also brought out the inadequacy of any farm program safety net. Producers of all commodities need a counter-cyclical support program that will provide payments when market prices decline. The emergency supplemental aid programs have been extremely helpful. But they are no guarantee, which leaves much uncertainty with producers and our lenders.
    As some of you may not know, barley loan rates under the Marketing Loan Program are determined in relation to the feeding value of corn. This loan rate calculation reflects an arbitrary and out-dated feed relationship, and understates the true market value of barley. This is especially true since current barley loan rates do not even account for fully one-half of today's barley crop—malting barley. The National Barley Growers would like the next farm bill to establish the barley loan rate based on its own 5-year Olympic average formula, taking into account both feed and malting barley. In addition, loan repayment rates must be revised to more accurately reflect local cash values rather than arbitrary values based on so-called USDA terminal locations.
    In today's environment, the loan rate dictates what crop is planted due to low commodity prices. Barley's current loan rate returns only 60 percent compared to other crops. Last week in North Dakota, the corn Loan Deficiency Payment (LDP) was 37 cents, the soybean LDP was 73 cents, the sorghum LDP was 74 cents, the LDP for oats was 29 cents, the wheat LDP was 28 cents, and the LDP for barley was 3 cents. Sustained low prices below loan rates will continue to cause barley acreage to shift toward more profitable crops because of the loan rate values, not the marketplace. We must reform the marketing loan program so that the loan rate does not dictate what gets planted without regard to demand. Also, the loan must provide a safety net that is comparable to competing crops so that production is sustained. I am here today so that the Rodney Daingerfield of grains gets its due respect.

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    The National Barley Growers believe that much can be done to enhance exports through the use of market promotion, export enhancement, and food assistance programs. Barley has been nearly left out of normal export channels and most commodity export programs, and needs both a targeted export enhancement program and fair trade agreements to counter the subsidies of the E.U. and predatory pricing practices of State Trading Enterprises (STEs). Barley exports could also be assisted through increased use of Section 416(b) and P.L. 480.
    NBGA supports the zero-for-zero approach to equalizing trading practices and an immediate elimination of all export subsidies and import tariffs. It would be meaningless if at the same time we did not also discipline the unfair trading practices of the STEs. STEs must be required to operate at the risk of the free market rather than though hidden price pooling and transportation subsidies.
    Barley growers support PNTR for China and fully expect to benefit from future trade reforms in China. We support meaningful sanctions reform on U.S. agricultural products and bulk commodities. We support strategic investment in research that will improve quality, yield, disease resistance, new uses, and restore USDA/ARS projects that have been eliminated in the proposed budget. These funds will determine the future of agriculture and our Nation's food supply and are critical to keep agricultural producers on the land.
    Most U.S. barley producers are located in the states that border western Canada. There are few transportation alternatives to move commodities. The Pacific Northwest may be on the verge of losing access to barge shipping, while railroad mergers occur to the point where there is little or no competition. Producers pay much higher freight rates for barley than for other commodities. Whenever rail merger discussions occur, the railroads always promise us improved service, but to no avail. Trucking, the only option for many of us, is very expensive, inefficient and very hard on roadbeds. As difficult as it is for us to compete for transportation within this country, the competition we face from the Canadian transportation system pales in comparison. With the stroke of a pen, rail rates in Canada have been lowered so that barley moving from the north central U.S. to a Pacific Northwest port costs $25 per ton more than does a similar movement in Canada. Situations like these makes U.S. barley producers uncompetitive in markets such as China.

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    NBGA also supports legislation that makes shipping rates more competitive for U.S producers. Reform of the Jones Act and passage of the Railroad Competition and Service Improvement Act will assist in maintaining U.S. competitiveness.
    Mr. Chairman, that concludes my statement. Thank you for the opportunity to appear before this committee.

Statement by Lee Klein
    Thank you, Mr. Chairman, for the opportunity to testify here today about the farm economy and the future of farm policy. My name is Lee Klein and I farm near Battle Creek in northeast Nebraska. I am President-Elect of the National Corn Growers Association (NCGA), representing more than 30,000 farmer members nationwide.
    It's no secret to anyone in this room that the price of corn and other commodities has declined dramatically in recent years. Farmers received an average price of $3.24 per bushel for corn produced in 1995. This marketing year, some economists are predicting less than a $1.50 per bushel of corn. We all know the problem—low prices. Now, we are all looking for the solution to turn this farm economy around.
    Let me begin by stating NCGA's continued support of the 1996 Freedom to farm bill. The Nation's corn growers continue to support a market-oriented approach to farm policy—an approach that allows farmers to make the production decisions for their operations and focuses on building demand for corn both in the United States and abroad.
    However, Freedom to Farm has not lived up to its potential because Congress has not acted upon the issues that are supposed to be in place today to work in coordination with the 1996 Act. We need a commitment to research to keep us competitive in the future by unlocking new uses, maximizing production levels and preventing major disease problems. We need a strong global economy and access to markets around the world. We need a tax system that allows us to keep a reasonable portion of what we own. We need viable, efficient transportation systems to best serve our customers at home and abroad. And we need regulatory relief. Because those things are not fully in place, America's farmers find ourselves in a very difficult position today.

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    Despite the fundamental soundness of Freedom to Farm, the current price situation underscores the fact that, regardless of how good a farm program is, with important aspects still missing, farmers' cash income may not cover production costs and other expenses. In those cases, we need the Federal Government's help to address problems that are beyond farmers' control.
    NCGA has short-term recommendations that would positively impact farmers facing another year of low prices. We have presented these recommendations to Congress before, so I will list them quickly at this time:
    Payment Limitation—Support changes to the marketing assistance loan program to ensure that a producer's full production is eligible for loan deficiency payments (LDPs). Current payment limitation rules will restrict marketing options, increasing loan forfeitures and storage and interest costs.
    Storage - Support the restoration of a storage facility loan program and enactment of an Orderly Marketing Program to provide short-term storage assistance without encouraging the stockpiling of grain. All corn would be eligible for the six-month program. Participating farmers would receive a sliding-scale payment of three cents for each bushel stored for the first two months, two cents per bushel for the third and fourth months, and one cent per bushel for the fifth and sixth months—or a maximum of 12 cents per bushel over six months.
    Trade—Unwise U.S. sanctions policies and trade protectionism against corn and corn products is a contributor to today's price problems. Specific actions that should be taken to achieve this goal include:
     reform of U.S. sanctions policies that restrict shipment of food, feed and medicine, with an immediate focus on lifting sanctions against Cuba;
     support for China's accession to the World Trade Organization;
     enhanced funding, support and use of international market development programs;

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     resolve trade disputes with Mexico regarding high fructose corn syrup;
     responsive and aggressive implementation of food aid and donation programs in countries where this will build long-term demand and not disrupt commercial sales.
    CRP—Congress should support full utilization of the Conservation Reserve Program at its current 36.4 million acre cap. In addition, NCGA recommends that continuous enrollment acres be fully supported and removed from the existing acreage cap.
    Transportation—Support authorization and funding for needed improvements to the aging lock and dam system in order to help farmers ship their grain more efficiently and cost-effectively.
    Ethanol Market Development—Support efforts to increase the use of clean-burning ethanol in reformulated gasoline, a move that could add 20–50 cents to the value of every bushel of corn grown in the United States.
    At NCGA, we are currently mulling over long-term agriculture policy much like you here today. And, like you, we don't have the answer yet—but we are working hard to find it.
    NCGA has a series of meetings each year that give growers the opportunity to discuss policy options in a large forum. In January, they met in St. Louis for our Policy and Priority Conference. In March we met in Orlando for Commodity Classic—our annual convention.
Tomorrow begins our Washington, DC Corn Congress.
    During these meetings, delegates from their respective states put forth policy initiatives or resolutions specific to their state or region. Some of those resolutions are adopted, some not.
    While these meetings are taking place, growers are also meeting in more intimate settings in groups called Corn Action Teams. NCGA has four of these groups, each with their own portfolio of policy issues to wade through in detail. The Public Policy Action Team tackles policy and Federal regulatory aspects of trade, risk management, taxes, the Food Quality Protection Act, biotechnology, and Federal farm programs. The Production and Stewardship Action Team is responsible for transportation, biotechnology, general production/grain quality issues, conservation and environmental issues. The Growers Services Action Team is responsible for membership and leadership development and all related matters, and finally, the Customer and Business Development Action Team is tasked with research, ethanol and energy issues, corn processing, genome research, and value-added.

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    Our policy discovery process is well underway, with the aim of being prepared for hearings before this committee for the next farm bill. We have been investigating and analyzing a number of new initiatives that have been mentioned in farm circles. We are interested in seeing if any of these new ideas can work with the provisions and within the philosophy of the current farm bill. We don't want to lose the gains that we fought for and won in the last farm bill.
    We have been doing our homework, however, we have found that we have limited staff and financial resources to accomplish everything on our list. Therefore, we are urging Congress to help us with our endeavor. We urge you to tap your many resources and fully investigate any policy options now in preparation for discussions in 2001. We would like to work with Congress in developing any studies or inquiries they deem important. For example, Congress could seek more detailed information on green payments, carbon sequestration/carbon banking, agriculture concentration in the grain industry, acreage idling impact on foreign production, conservation requirements effecting production costs. Also, Congress should investigate opportunities for growers in value-added. How do growers take advantage of this opportunities?
    Value added is perhaps the most talked about trend at the coffee shop today. The lack of profitability in production agriculture has many growers looking for ways to extract greater value from their production. The 1980's farm crisis caused a spurt of interest in rural development and alternative agriculture—both of which tend to move people away from, or out of, traditional crop production. The current movement appears to be much more healthy and is geared toward using modern technology to extract more value as opposed to getting out of production agriculture.
    Growers are very excited about its possibility—although we have found that the term value added means different things to difference people. For some of NCGA's grower-members it means a cooperatively run dairy that boosts local prices. In the next community it is an investment in an ethanol plant. In yet another community it is an internet marketing alliance.

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    Regardless of the definition the vision is the same—an opportunity for producers to move up the value chain with their product. This also means that increasingly, we are not producing #2 yellow dent field corn, but rather a feed stock with a particular set of intrinsic qualities. We are only now fully coming to grips with what that means both for the producer and for the value chain of production, handling, merchandizing and processing corn.
    Value-added is more closely linked to social change than most policy issues that our association deals with. Most specifically, it has a strong rural community flavor since it generally enhances or creates jobs for rural America. However, it is also at odds with some of rural America's more populist fears of change. A good example of this lies with concerns regarding concentration of ownership of grain inputs, handling or processing. Several of the pieces of legislation that have been introduced in Congress to address concentration issues could very easily prevent growers from forming alliances and partnerships with corporate America.
    We urge Congress to take the lead on the timely investigation of these farm policies that may or may not work in harmony with current law.
    Before I close, I would like to take this opportunity to thank the committee for their work on the recently passed H.R. 2559, the Agricultural Risk Management Act of 1999, including $7 billion in farmer assistance. I would also like to thank the entire House of Representatives for their decisive vote on H.R. 8, the Death Tax Elimination Act.
    Mr. Chairman, members of the committee, the Nation's corn growers thank you for holding this timely hearing and we appreciate the opportunity to express our views. I'd be happy to answer any questions or provide more details on the recommendations I've outlined.

Testimony of Robert E. McLendon
    Before the Committee on Agriculture of the House of Representatives
    Mr. Chairman, my name is Bob McLendon. I have a diversified farming operation in Leary, Georgia, but my primary crops are cotton and peanuts. I currently serve as the President of the National Cotton Council of America.

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    The National Cotton Council is the central organization of the United States cotton industry. Its members include producers, ginners, oilseed crushers, merchants, cooperatives, warehousemen, and textile manufacturers. While a majority of the industry is concentrated in 17 cotton producing states, stretching from the Carolinas to California, the downstream manufacturers of cotton apparel and homefurnishings are located in virtually every state.
    The industry and its suppliers, together with the cotton product manufacturers, account for one job of every thirteen in the U.S. Annual cotton production is valued at more than $5 billion at the farm gate. In addition to the fiber, cottonseed products are used for livestock feed, and cottonseed oil is used for food products ranging from margarine to salad dressing. While cotton's farm gate value is significant, a more meaningful measure of cotton's value to the U.S. economy is its retail value. Taken collectively, the business revenue generated by cotton and its products in the U.S. economy is estimated to be in excess of $50 billion annually. Cotton stands above all other crops in its creation of jobs and its contribution to the U.S. economy.
    I want to thank you and the members of this committee for holding this hearing and the 10 regional hearings across the United States. This effort sends a welcome message to farmers that the members of the House Agriculture Committee are truly committed to being advocates for rural America.
    The agriculture sector you encountered in the regional hearings could not have been encouraging. Virtually every segment of U.S. agriculture is facing tremendous financial stress—a natural result of 3 years of depressed prices—with no immediate turn-around expected.
    The immediacy of the sector's financial stress has made it difficult to focus on long-term farm policy. This Congress has worked to help agriculture through this tough economic period. We appreciate that effort.

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    The emergency economic assistance you have already passed for the 2000 crop will enable our industry to get through another year of low prices. I commend you and the committee also for enacting a meaningful crop insurance reform package.
    We are facing additional pressures in 2000. While prices remain low, much of the Southeast region has suffered through severe drought conditions most of this growing season. Unfortunately, crop insurance reforms were not in place in time to help for this year. I hope this committee will also consider the economic losses due to weather that will be felt across the country this year.
    The National Cotton Council is still early in its farm policy development process. We do not, therefore, have a specific farm bill proposal today. But we have focused on a general set of issues that we believe will be crucial in developing a workable, successful farm policy for the future.
    In order to improve the effectiveness of U.S. agricultural policy, we must improve upon the current Act's downside price protection and we should stop discriminating against commercially sized farming operations. As we make these changes, we should retain the aspects of current law that enhance our overall competitiveness, that allow farmers the flexibility to respond to market conditions, and that increase certainty in financial planning. We should also remain committed to effective export assistance and the need for market development.
    Mr. Chairman, the single most significant recommendation I can make to this committee today is to obtain adequate budget authority that will enable you to craft responsible, effective policy that can make a difference in rural America. The budget baseline for farm programs is slated to be only $4 billion by 2002 when current law is set to expire.
    If the last 3 years have taught us anything, they have shown we cannot hope to develop effective farm programs without significantly more budget authority than might have been envisioned in 1996 under the Freedom to Farm law. If recent spending levels were calculated into the ultimate baseline, it would exceed that $4 billion by a significant amount.

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    In all likelihood, the committee will enter the next farm bill cycle with an improved Federal budget situation and a reeling agricultural sector. Given the current financial crisis facing agriculture, we urge Congress to re-establish agriculture's priority in this country's budget process and provide the necessary foundation for rational, long-term policy development.
    With respect to specific policy recommendations, cotton producers remain concerned about the inadequacy of the 1996 Act's downside price protection. The FAIR Act did not contribute to the series of economic events that have the cotton industry reeling. But these events have demonstrated that the FAIR Act is unable to respond adequately to this kind of economic stress and low prices we have witnessed over the last several years.
    In 1996, the Cotton Council staff conducted several presentations across the cotton belt to educate producers about the provisions of the new farm law. In each of those presentations, our economists cautioned that the new law would adequately compensate producers when prices were strong, but would prove to be less adequate when cotton prices fell below 67 cents per pound. At that price point, the 1996 Act would provide less support than the 1990 Act and producers would be faced with greater losses.
    Unfortunately, cotton prices fell below that threshold late in 1997 and have generally remained below that level. The 1996 Act could not respond to low prices that settled across all the major commodities. Without additional government assistance, producers faced enormous financial losses. This aspect of the 1996 law is undoubtedly its weakest link and should be remedied.
    Cotton's three step competitiveness provisions, coupled with the marketing loan program and the issuance of marketing certificates, continue to play a central role in the ability of U.S. cotton to compete worldwide and in our ability to prevent an excessive build up of stocks. We urge Congress to continue effective marketing loan programs and cotton's competitiveness provisions.

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    Without a doubt, expenditures under our loan programs have far exceeded expectations the last several years. But without the marketing loan, the financial situation in rural America would be significantly worse. Cotton farmers could not compete in the international market. Our sector would have been reduced.
    Mr. Chairman, it is our hope that the next farm bill will end the discrimination against commercially sized farming operations. Recent history demonstrates how misguided some of these targeting efforts truly are.
    As Congress struggled to provide emergency financial assistance in 1999, it was faced with a dilemma created by irrational policy. The rapidly falling world prices for all the major commodities had caused a dramatic increase in loan deficiency payment rates, designed to compensate for falling prices. Yet, as loan deficiency payment rates increased, limitations on marketing loan gains began to affect producers who never dreamed they had payment limitation problems. As a result, many producers were seeing payment limitations restrict their access to marketing loan gains that were needed more than ever to offset severely depressed prices.
    Marketing loan gain payment limits were making a bad situation worse.
    Fortunately Congress responded by doubling marketing loan gain payment limits for that one year. But the fundamental policy mistake of limiting marketing loan gains remains in law.
    Even more disconcerting are recent farm policy proposals by the Administration that introduce an even stricter notion of benefit targeting than currently exists. We understand that virtually every program that advances through the Office of Management and Budget these days is subjected to a means-testing debate.
    We should stop attempting to pit large farming operations against small ones. First, the necessity of capturing economies of scale has changed the concept of a family farming operation. It is not uncommon for strictly family cotton operations to involve several thousand acres and be diversified into ginning activities as well. This operational diversity has been essential to the survival of these family enterprises.

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    Second, it is crucial to the long-term economic health of all of U.S. agriculture that commercially sized farming operations have equal access to farm policy tools. It is a fundamental issue of our sector's competitiveness.
    Mr. Chairman, there are several other aspects of U.S. agriculture policy that are important to a successful farm bill. Cotton producers continue to favor the planting flexibility provisions contained in the 1996 Act and are opposed to a return of mandatory acreage reduction programs.
    Our commitment to international market development, effective export assistance and increased trading opportunities abroad must not diminish. Export programs and strong international trading rules are as central as domestic programs to the economic health of U.S. farms.
    Our commitment to the development of technology and its wise use by producers should continue unchecked. Through NASA remote sensing technologies, gene research, and plant diseases research, just to name a few, we have an ever growing range of tools that promise cost efficiencies in the future.
     Mr. Chairman, it is fair to say that our industry has never been a great proponent of the 1996 farm act, although we favored certain provision of it. Indeed, we have benefited from its flexibility and the certainty of its payment mechanisms. But we have been harmed by its limits on payments and its inability to respond adequately to low price conditions.
    The task before this committee is not an easy one, but we are encouraged by your openness and your effort to collect information directly from producers all across this country. The cotton industry looks forward to working with this committee as we develop more specific policy recommendations over the course of the next year.

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Testimony of the U.S. Rice Producers Association
    The U.S. Rice Producers Association represents rice farmers in Texas, Mississippi, Missouri, Arkansas, and California. It is the only organization representing solely the views of U.S. rice farmers.
    We are disappointed that scheduling and other conflicts have prevented us from appearing in person before the committee today. We are pleased, however, to submit this testimony for the hearing record.
    At the outset, we would like to thank the members of this committee for your perseverance and hard work in passing legislation this year to provide sorely needed assistance to American agriculture. As each of you knows, agriculture is in a very precarious situation. Low commodity prices brought about by declining world markets combined with a huge stockpile of stocks both in the U.S. and worldwide are the chief causes for our present predicament.
    At a time when the rest of the economy is performing at historically high levels, agriculture, at all levels, is left searching for ways to simply survive. Even though agriculture is the backbone of our nation, both domestically and internationally, we as a nation are left struggling with how to correct the current situation. As our leaders, we appreciate that you are listening to many ideas from across the nation, and we put our faith in your ability to identify the best of these and other strategies, and to implement these strategies to the benefit of agriculture.
    Low prices that have plagued the rice industry for the past few years have become a world-wide phenomenon. While assistance for farmers through domestic farm policy has certainly been used appropriately, rice producers believe that there are other tools already at our disposal that are not fully being deployed. We want to be proactive in suggesting that all stops be pulled in making more of our product available and more attractive to overseas buyers.

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    We urge this committee to conduct an in-depth review of all sales, credit and food aid programs of the USDA to determine what more can be done, or what mechanisms can be revived, to boost agriculture exports. Because of the immediate need for such a review, this testimony addresses these issues before turning to domestic policy issues.
FEDERAL EXPORT PROGRAMS MUST ASSIST ALL FORMS OF COMMODITIES
    We need to continue to open export markets if U.S. rice producers are to survive. Almost half of the U.S. rice crop must be exported each year if the industry is to remain profitable. Our share of world trade must be increased to previous levels. Excess rice stocks are increasing, further driving down domestic prices. Rather than control output to control these stocks with the faint hopes of reviving prices, let's look today at other more proactive means to remedy our tough situation.
    The future of our industry over the short and the long term will be determined in large part by our government's export policies and programs. Unfortunately, some of our export programs discriminate against a single form of rice: specifically rough rice. This discriminatory policy is not applied to any other major commodity, and the policy should be changed.
    Let us be clear at the outset, however. We support the export of all types and forms of U.S. rice. We are not opposed to the export of any type or form of rice under USDA export and food aid programs. We strongly believe, however, that these same government programs should not single out rice—from among all major commodities—for discriminatory treatment.
    In order to address this and other issues, we would like to share with you what we believe are both good and bad examples of the type of export program design that your committee should encourage or avoid as you consider agriculture legislation in the months ahead.
EXPORT CREDIT GUARANTEES ARE AN EFFECTIVE, ''FORM-BLIND'' EXPORT SUCCESS

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    One important USDA program that we need not tamper with is the GSM Export Credit Guarantee Program. In recent years this program to finance commercial commodity exports has been very successful in opening and maintaining export markets. This program continues to provide overseas buyers a strong incentive to purchase U.S. products on commercial terms. The U.S. rice industry in particular has greatly benefited from this program.
    We would also commend to your committee the commodity ''form-blind'' design of the GSM programs. Unlike a number of other export programs addressed below, the GSM program provides credit guarantees to exporters of agricultural commodities regardless of the form which these commodities take. In the case of rice, for example, shipments of rough (unmilled), brown (partially milled), and white (milled) rice are all equally eligible for GSM credit guarantees without question. This assures that the buyers of U.S. rice—our customers—receive the commodity in the form that they desire. This ''form-blind'' policy is one that is prevalent for every major commodity except rice in a number of other Department of Agriculture food aid and export programs. This nondiscriminatory treatment should be applied to rice exports on the same basis as it is with other commodities.
    In addition to supporting the continued aggressive use of the basic GSM export credit guarantee programs, we also support the creative use of the Supplier Credit and Facilities Credit Programs.
QUALITY SAMPLES PROGRAM—AN INNOVATIVE SUCCESS STORY
    Innovative rice producers in Missouri have a promising new export project at the producer level that is nearing completion. Last year they raised a sizeable crop of ''baldo'' rice, a variety of rice new to the United States. These farmers have marketed this crop directly to a foreign importer with assistance from an innovative new Federal program: the Quality Samples Program.
    These farmers decided to develop, grow, and market this rice understanding that if the venture failed they would be responsible for their own losses. They also realized that there would be a sizable learning curve to marketing their own crop internationally.

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    To encourage overseas buyers to try this new variety, USDA provided the Missouri producers with funding under the Quality Samples Program. This innovative program allowed them to ship a sample of this new rice to a foreign buyer for testing it in the market. As a result, the overseas firm that will receive this sample product has already agreed to buy more rice in the coming year and will use another USDA-sponsored program to promote it. This program also encouraged the importer to spend a sizable of its own money to advertise its own brand of this product with a product label that will clearly identify it as a ''Product of Missouri''. The project is nearing the completion of its first shipment, which is expected to be completed in the next three weeks.
    The Quality Samples Program is a good example of an ingenious new program that helps farmers market their crop directly to foreign buyers. It is the type of successful program that the Congress and the USDA should continue to support.
MORE BRAND-ADVERTISING PROGRAMS ARE NEEDED
    A few years back most commodity groups were forced to drop most of the brand-advertising programs facilitated by USDA export promotion programs. Some critics claimed that ''corporate giants'' were unjustifiably using branded promotions at the expense of smaller firms. Most cooperators, like those that support the U.S. rice producer, were advised to discontinue these ''branded'' programs rather than face charges of supporting ''corporate welfare''. Unfortunately, branded programs that had been used successfully by a number of smaller firms were also cancelled. We believe that's a prime example of throwing the baby out with the bath water. USDA should not be fearful of making this program available to all commodity groups just because a few were perceived of misusing it. Nor should we stop prohibit the use of marketing programs that have historically opened markets for U.S. rice producers in Europe, Mexicoand Turkey, to name a few.
TRADITIONAL USDA FOOD AID AND EXPORT PROGRAMS NEED PRODUCER-FRIENDLY IMPROVEMENT

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    There are many other USDA programs designed to increase exports of U.S. farm commodities that we should not overlook in our quest to improve the economic health of our farmers. Unfortunately, many of these programs are older, hidebound programs that put the interests of exporters before the interests of actual farmers.
    The Rice Producers Association continues to work with USDA to encourage them to provide our export buyers with the form of rice that best suits their needs. Despite these efforts, rice is the only remaining major farm commodity that our government routinely fails to offer or make available to potential customers in its unprocessed form. As a result, USDA's management of P.L. 480 and other food aid programs continues to discriminate unfairly against rice producers.
We are pleased that buyers under the P.L. 480 program can buy the soybeans grown on U.S. farms in a variety of forms of their choosing. They may purchase soybeans, soybean meal, or soybean oil, based on their needs. This policy of ''the customer is right'' best suits the needs of our international customers as well as U.S. farmers. USDA applies this same policy to wheat, corn, and other commodities under the program. Only rice is singled out administratively as a commodity for which purchases of the raw commodity are officially discouraged, if not prohibited altogether.
    Approximately 30 percent of our recent rice exports have been in the form of rough rice. The administrative policy excluding rough rice from our food aid programs effectively shuts the U.S. rice farmer alone off from the use of these important programs for developing this large portion of the world market. This policy unfairly discriminates against rice producers. We ask that this committee clarify this policy on a consistent basis for all major commodities at the earliest opportunity.
    Rice producers believe that there are export markets and customers willing to pay for U.S. rough rice as a substitute for foreign brown and milled rice. If other such opportunities are found for rough rice, are we to assume that there will be restrictions on programming rough rice for these? We understand U.S. milling interests being opposed to shipping non-milled rice abroad. We faced the same opposition when we first started selling rough rice into Mexico almost a decade ago. Today Mexico is our largest long grain rice market and rough rice now accounts for 30 percent of our worldwide export sales. Where would our farmers be today had we not been successful in opening commercial markets for rough rice? What's wrong with using P.L.–480 to find other markets for rough rice to help farmers help themselves?

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ALL FORMS OF RICE SHOULD BE CONSIDERED IN INTERNATIONAL TRADE NEGOTIATIONS
    We are hopeful that U.S negotiators will consider rough rice when discussing policy issues with the European Union and others at the upcoming WTO meetings. Rough rice was basically left off the agenda at the Uruguay Round negotiations. As a result, many of our European customers complained that they could not import this form of rice due to proportionally higher tariff rates charged for rough rice versus other forms of rice. We are pleased to hear that USDA has been active in consulting with our producer trade association in this regard, and we look forward to a more equitable policy being created in the future for all in our industry. As in the case of P.L.–480, we just want our customers to have the opportunity to buy whatever form of rice that they desire.
    Unilateral Sanctions Hurt U.S. Farmers. More than anything, we would like to see our farm and export programs work to raise farm income. Other countries subsidize their farmers tremendously, while our own government imposes a number of real or de facto sanctions against some of our potentially best export customers. How can we have free trade when we maintain such restrictions against these countries?
    Cuba is a prime example. There have been sanctions against Cuba for almost 40 years, with little apparent effect. Prior to the imposition of the embargo, Cuba accounted for more than 50 percent of U.S. rice exports. Today, Castro is still in power, Cuba is still communist, and the Cuban citizenry consumes 400,000 tons of imported rice, all of which is produced by our competitors.
    We applaud the many members of the Senate and the House who have shown the courage to support the reform of our unilateral sanctions policy, especially the lifting of the Cuban embargo. This legislation needs to be enacted as soon as possible, and it needs to be enacted in a form that offers significant export opportunities for U.S. rice farmers to sell rice to Cuba and other sanctioned countries. This would be the greatest single action that Congress can take this year to raise prices and export opportunities for U.S. rice farmers.

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LOAN DEFICIENCY PAYMENTS ASSIST IN MOVING COMMODITIES INTO WORLD MARKETS
    Loan deficiency payments (LDPs) are an important domestic policy tool that helps enormously to make our rice affordable to our international customers. Policy changes by Congress in the last few years to increase the limits on the total LDPs paid to producers have ensured that LDPs have been able to continue to operate as intended. Many rice producers have needed these enhanced payments simply to stay in business in recent years.
    These LDP payments have not only kept so many from going under but they also have provided our export industry with a more competitive product. Congress has done a commendable job in providing such assistance and should consider permanently providing for these increased LDP levels in future years in order for the LDP program to continue to operate effectively.
THE CONGRESSIONAL BUDGET NEEDS TO REFLECT ACTUAL AGRICULTURE OUTLAYS
    In each of the last 3 years Congress has responded to low prices and weather-related disasters by providing the producers of rice and other commodities with assistance including increased AMTA payments, enhanced LDPs, and other assistance payments. The total of these expenditures has climbed to more than $22 billion and is likely to rise further. Because most of this spending was provided on an ''emergency'' basis, little of it is reflected in the annual spending projections of the Congressional Budget Office, against which legislation must be ''scored'' for budgetary purposes.
    Perhaps the most important step that can be taken to make possible the drafting of a 2002 farm bill that will realistically reflect necessary agriculture spending would be to ensure that the Federal budget provides for future spending in line with the actual total spending on agricultural programs during the past 3 years. This would facilitate the drafting of a farm bill with spending at levels that experience has taught us are necessary in the context of our modern farm programs.

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CROP INSURANCE IS NOT A SAFETY NET FOR RICE PRODUCERS
    One area where more Federal funds may not be necessary is in the area of crop insurance. This committee did a commendable job of reforming the crop insurance program in legislation signed into law last month. Rice is one crop that does not fluctuate greatly through yield disasters, but does suffer through market price fluctuations. For these and other reasons, crop insurance has not traditionally been an effective risk management tool for rice farmers.
    We understand that crop insurance works well for producers of other commodities, and we are not opposed to providing for crop insurance assistance for these producers. However, the committee should be aware that most rice producers have reached the conclusion that crop insurance, reformed or not, does little or nothing to help rice producers.
SUPPORT ETHANOL AND OTHER ALTERNATIVE FUELS
    Fertilizer and fuel costs have taken quantum leaps this year. Rising fuel prices will add substantially to the cost of producing our crop and drastically reduce our net income. If there has ever been a time to support funding of renewable alternative fuels, this has got to be it. With this last round of oil price hikes, all Americans realize how dependent we are on foreign oil. The oil cartel can have a vicious impact on our well being. Now is the time to invest in our future. Please, let's not wait until we have a genuine crisis to figure out we should have been funding more ethanol projects. We need to have a clean, renewable energy source available and ready to expand before we have a national crisis.
    In summary, we already have the tools for expanding overseas sales and giving farmers a hand up in remedying their current plight. These include the aggressive use of ''form-blind'' export programs such as the GSM export credit guarantee programs; the application of this ''form-blind'' policy to other food aid and export programs on a non-discriminatory basis; and the expanded use of sales programs that encourage overseas buyers to buy from the U.S., like the Quality Samples Program and brand-advertising activities.

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    When considering food aid programs, we urge this committee to allow the U.S. rice industry to break with 45 years of tradition and allow all forms of rice to be programmed. Just treat us like other commodities. As seen already with commercial sales, this may be the best or only means to re-capture markets or discover new customers abroad.
    On the domestic policy front, we strongly support the assistance that Congress has provided to producers in recent years through enhanced AMTA payments, increased LDP limitations, and other emergency assistance. We strongly encourage the Congress to ''capture'' this spending in the Federal budget process. Only then might the Congress have adequate resources for the drafting of a 2002 farm bill that reflects the actual needs of American agriculture.
    We thank you for seeing the need to help us with these issues, and we are grateful for your time and concern.

Statement of the USA Rice Federation
    The USA Rice Federation is the Nation's largest rice association, representing all segments of the U.S. rice industry. The Federation's charter members are the U.S. Rice Producers' Group, the Rice Millers' Association, and the USA Rice Council. Through these organizations, Federation membership encompasses U.S. rice producers who grow 80 percent of America's rice crop; farmer-owned cooperatives and privately owned mills comprising virtually all of the U.S. rice milling industry, with members in Arkansas, California, Florida, Louisiana, Mississippi, Missouri, and Texas; and a wide range of allied businesses in these and other states. The diversity and scope of this association permits it to provide a view common to all aspects of the industry, and to the vast majority of its participants.
BACKGROUND
    Mr. Chairman and members of the committee, we would like to preface our remarks by a few words regarding rice production and use. U.S. rice production provides a versatile, nutritious food product for people here in the United States and around the world. Rice is used in everything from baby formulas to the wide variety of ethnic cuisines enjoyed by many populations. Rice hulls and other co-products are being used in a number of innovative applications—in building materials and to provide energy to run a rice mill. Winter flooded rice fields provide important habitats for migratory waterfowl and other species.

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    Rice production is capital intensive and an expensive crop to produce because of its requirement for irrigation. Rice is primarily produced in six States—Arkansas, California, Louisiana, Mississippi, Missouri, and Texas. Almost 40 percent of total production originates in the state of Arkansas. Since the marketing year 1993–94, production has varied from a low of 172 million hundredweight (cwt.) to a high of 210.5 million hundredweight for the current marketing year of 1999–2000. Approximately sixty percent of total supply is used domestically and the balance is exported. The United States is currently the third largest exporter of rice in the world.
    Most of global rice production is consumed in the country where it is produced. At present, global rice trade is estimated at almost 21 million tons. The major exporter of rice is Thailand. Other major exporting countries include the Pakistan, India, and Vietnam. The United States is in competition with those countries and others in the world market, and the price for rice traded on the world market, unlike the price for U.S. produced wheat and feed grains, is determined in large part by the Asian competitors.
REVIEW OF CURRENT LEGISLATION
    As you know, in 1996, major changes were made in farm program legislation which became effective for the 1996 through the 2002 crops of the commodity. Under this legislation, farm program payments (familiarly called AMTA payments) are made to producers of the major crops, based upon a producers' contract acres which is the crop acreage base established under prior legislation. The amount of the fixed payment was established so as to be gradually reduced during the 7-year period 1996–2002. This is supplemented, in the case of rice, by non-recourse marketing loans at a rate of $6.50 per cwt., which is below the variable cost of production for most rice producers. An important element of this law is the flexibility granted the producer to plant any crop on the contract acres or to leave the contract acres in conservation uses without jeopardizing the AMTA payment.

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    The farm economy problem that has affected many segments of American agriculture has had an equal and perhaps a more devastating impact on rice producers of this nation. This year we are harvesting another large rice crop. According to USDA's most recent World Agriculture Supply and Demand Estimates (WASDE), the new crop will reach 197.5 million hundredweight. At the same time, the WASDE report estimates that there will be a small decrease in rice exports in marketing year 2000–2001. While the net result is that there will be a decrease of carry-over stocks from the present crop year, 2000–2001 carryout stocks will still be almost 25 percent higher than the average of the previous 5 years.
    The latest WASDE report projects average prices for the 2000–2001 marketing year as low as $5.75 per hundredweight. This price projection is $3 per hundredweight less than the price for the 1998–99 marketing year and $4 per hundredweight less than the average price for the 1997–98 marketing year. At the same time, over-all costs continue to rise. Rice is one of the most costly crops to produce since it depends on irrigation. The cost of water and energy to move the water are expenses not encountered by producers of most other crops. If the current situation had been permitted to continue without government assistance, we would have found more and more producers abandoning farming, an occupation in which their families have been engaged for many generations.
    Mr. Chairman, at this time, we would like to thank the Congress in general and the House Agriculture Committee in particular, for the emergency farm assistance contained in the Agricultural Risk Management Act of 2000. The rice industry is hurting and hurting badly. We need the help that you have provided to us in that legislation. We would also like to thank you for the crop insurance reform that was the other critical element of that legislation.
    Recommendations. We appreciate the chairman's efforts to gain input from the riceindustry through these hearings in preparation for the 2002 farm bill debate. We also appreciate the opportunity to comment on the impact of Freedom to Farm on the rice industry and to recommend specific changes that will allow our industry to obtain the highest level of income for a given level of government spending. It is with this objective in mind that the we make the following recommendations:

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    Farm Program Measures: The objective, both today and in the long term must be to significantly strengthen the farm safety net. At this time, based on our experience under the 1996 farm bill, it is imperative that we do not wait until the year 2002 before acting. Immediate changes must be made to protect farm income during the final two crop years covered by the legislation. In the last 3 years, Congress provided supplemental income assistance to help farmers through a period of low prices and declining income. Rather than having to enact emergency assistance each year, we would recommend that the law be changed so that AMTA payments are increased for crop years 2001 and 2002 to equal the 1999 level, as long as commodity prices remain depressed. However, we also believe it is important that certain features of current legislation be maintained. Increased planting flexibility without jeopardizing producer payments, and the ability of producers to produce for the market without any annual acreage controls or constraints, are extremely important to the U.S. rice industry.
    Crop Insurance: We fully supported the reform of the crop insurance program so that premiums are set at more affordable levels and the program expanded to provide revenue as well as yield insurance. We also believe that it is critically important to target higher levels of coverage as is provided for in the new legislation. We would like to reiterate our thanks to this committee and the Congress for what we believe will be an important step in the right direction for crop insurance
    Marketing Loans: Additionally, exports are vital to the U.S. rice industry's survival. As stated at the outset of this testimony, roughly 40 percent or more of our annual production has been and must continue to be shipped overseas if we are to stay in business. An important tool in meeting competition abroad is the successful operation of the marketing loan program. The loan rate for rice is set in current law at $6.50 per cwt. This rate is below variable costs of production for many rice producers. Rice marketing assistance loans may be redeemed at the U.S. Department of Agriculture's world market price if the world market price is below the loan rate. USDA has on occasion revised its world market price determinations so the U.S. rice industry could remain competitive in markets abroad with exporters of other countries. However, it should be noted that the U.S. percentage share of world rice trade has declined from 13.3 percent in 1996 to 11.7 percent in 1999. USDA must be vigilant in their management of the world market price if the U.S. rice industry is to remain competitive in the world market.

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    As part of our long-term recommendations, we urge that the loan deficiency payment limitation of $75,000, established in the 1996 farm bill, be eliminated or, at a minimum, significantly increased. We thank Congress for reauthorizing the use of Commodity Credit Corporation (CCC) commodity certificates, which may be used to redeem loan collateral. It was only by raising the payment limitation to $150,000 for the 1999 crop, that the emergency AMTA payments were able to help many financially strapped rice producers. At times, such as is the case today, when world prices fall significantly below the loan rate, if the limitation is not removed or significantly increased, producers will elect to forfeit the collateral under loan to CCC. As a result, CCC, rather than the producer, will become the marketer of the commodity in competition with the private sector.
    Export Programs: There are other measures that would enhance rice exports as the new crop comes to market. These include expanded use of USDA's export authorities, such as the export credit guarantee programs, as well as the programs under P.L. 480 and the Department's purchase and donation programs. We commend USDA on their recent inclusion of rice in the Section 416 donation program. We believe that funding must be continued for the Foreign Market Development Program and the Market Access Program. These export programs provide an investment today towards the long-term objective of maintaining or increasing exports.
    Import Access: In the final analysis, the rice industry can prosper only if we have improved access to world markets. We look forward to the forthcoming multilateral trade negotiations as a means of substantially reducing tariffs on rice imports, and achieving fair access to important rice markets, such as Japan and Europe (EU). At present, except for a minimal tariff-rate quota, their ex quota tariffs on rice imports are prohibitively high—approximately $3,000 per ton in the case of Japan and over $400 per ton of milled rice in the case of the EU. In Latin America we seek equal access with other supplying nations that participate in preferential tariff arrangements, and seek elimination of restraints on imports based on licensing restrictions or phytosanitary or bio-engineering standards influenced by public or social policy and not the result of sound science.

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    We also fully support permanent normal trade relations with China, and the accession of China and Taiwan to the WTO.
    Unilateral Sanctions: We strongly support legislation that would exempt food and medicine from unilaterally imposed trade sanctions. In the past, unilateral sanctions have caused the loss of many of our most important markets for U.S. produced rice to our competitors. Over the past 38 years, Iran, Iraq and Cuba have been top export destinations for U.S. rice. Cuba currently imports about 350,000 metric tons of rice on cash terms. This amount is more than all of the rice that the U.S. exports under food aid programs. It is critically important that sanctions relief legislation be enacted this year, covering Iraq, Iran, Syria, Libya and Cuba. It is also important that restrictive licensing requirements not be imposed once sanctions are lifted. And, we must ensure that U.S. exporters have access to necessary commercial financing and financial services. There is little, if any, evidence that trade sanctions on food have contributed significantly toward meeting U.S. foreign policy goals. At the same time, sanctions have forced our customers to turn to other suppliers for their rice import requirements.
    Finally, while not on the agenda of the committee, we also wish to emphasize the importance of other measures that would help sustain a sound rice economy. These include, among others, regulatory reform, implementation of the Food Quality Protection Act based on sound science, and tax reform. In the area of regulatory reform, we want to particularly thank the committee for its interest in and support for delaying the implementation of the new EPA regulations on Total Daily Maximum Load, also known as TMDLs. We also fully support Congress in the effort to repeal the estate tax and establish Farm and Ranch Risk Management accounts. Finally, Federal support for research should be increased to assist rice producers and others in the rice industry to become more efficient and more competitive in world markets. The rice industry is assisting in this effort through assessments under state research and promotion legislation, funds provided by private industry, and other measures. However, private financing is not adequate and must be supplemented by Federal appropriations.

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    In conclusion, we thank Congress for making available emergency assistance so that additional AMTA payments, at the same level as last year, could be made this fall. Future farm legislation must likewise adequately address this issue while maintaining the marketing loan program, increased planting flexibility and freedom from annual government acreage controls that are contained in the current farm law. We note that increased loan rates and counter-cyclical payments have been recently discussed as possible solutions; while there may be some merit to exploring these ideas for a long-term farm safety net fix, we believe that it is paramount that we maintain the consistency of our current farm program with our WTO obligations. We strongly support full implementation of the recently enacted crop insurance reform that would attract greater participation and increase development of more revenue insurance, but not act as a substitute for farm program payments.
    As important as these issues are to the farm community, equally important is the need to open up access to markets abroad and enable U.S. rice to compete with the rice of other exporting countries on the world market. We face trade barriers in every region of the world and have lost our biggest export markets repeatedly due to unilateral trade sanctions.

    "The Official Committee record contains additional material here."